Chesapeake Shows Its Muscles
Chesapeake Shows Its Muscles
Jesse Bogan, 10.15.09, 04:45 PM EDT
Despite negative market fundamentals, the company raises its drilling budget.
HOUSTON -- Storage tanks may be nearly full, a gathering wave of liquefied natural gas imports threatens to swamp the market, and more environmental regulations seem likely, but one of the largest independent natural gas exploration and production companies in the U.S. is drilling away, saying it expects prices to rise out of the trough.
Oklahoma City-based Chesapeake Energy ( CHK - news - people ) has bumped its drilling budget up by another $300 million this week to a total of $4.55 billion after signing a recent joint-venture amendment in an unconventional shale play. The company doesn't expect to add more hedges until prices get above $7 per thousand cubic feet (natural gas continued to trade under $5 Thursday), and it expects to increase its production and reserves by 60% over the next four or five years.
Chesapeake, a standout in the industry for self-promotion and production, brings in the equivalent of 2.2 billion cubic feet of natural gas per day. It reiterated to analysts at an investor gathering in New York on Wednesday that it's drilling one out of every seven gas wells in the U.S., or one out of every four in the Haynesville, Marcellus, Fayetteville and Barnett shale plays. Of its 101 drilling rigs, 85% of them are in shale, which tend to have impressive initial flow rates yet expensive drilling costs.
Industry analysts took note Thursday.
"We continue to believe that despite [Chesapeake's] strong stock performance this year, its upside potential in the next 12-18 months is much greater than the downside risk from continued low natural gas prices," Oppenheimer & Co. energy analyst Fadel Gheit wrote to investors Thursday.
Oppenheimer has an "outperform" rating for the company with a target price for the next 12-18 months pegged at $35. Chesapeake gained 44 cents Thursday to close at $28.93, about a buck below its 52-week high.
Post a CommentCalyon Securities analyst Jeb Armstrong also raised Chesapeake's target price from $33 to $36.
Buck
Jesse Bogan, 10.15.09, 04:45 PM EDT
Despite negative market fundamentals, the company raises its drilling budget.
HOUSTON -- Storage tanks may be nearly full, a gathering wave of liquefied natural gas imports threatens to swamp the market, and more environmental regulations seem likely, but one of the largest independent natural gas exploration and production companies in the U.S. is drilling away, saying it expects prices to rise out of the trough.
Oklahoma City-based Chesapeake Energy ( CHK - news - people ) has bumped its drilling budget up by another $300 million this week to a total of $4.55 billion after signing a recent joint-venture amendment in an unconventional shale play. The company doesn't expect to add more hedges until prices get above $7 per thousand cubic feet (natural gas continued to trade under $5 Thursday), and it expects to increase its production and reserves by 60% over the next four or five years.
Chesapeake, a standout in the industry for self-promotion and production, brings in the equivalent of 2.2 billion cubic feet of natural gas per day. It reiterated to analysts at an investor gathering in New York on Wednesday that it's drilling one out of every seven gas wells in the U.S., or one out of every four in the Haynesville, Marcellus, Fayetteville and Barnett shale plays. Of its 101 drilling rigs, 85% of them are in shale, which tend to have impressive initial flow rates yet expensive drilling costs.
Industry analysts took note Thursday.
"We continue to believe that despite [Chesapeake's] strong stock performance this year, its upside potential in the next 12-18 months is much greater than the downside risk from continued low natural gas prices," Oppenheimer & Co. energy analyst Fadel Gheit wrote to investors Thursday.
Oppenheimer has an "outperform" rating for the company with a target price for the next 12-18 months pegged at $35. Chesapeake gained 44 cents Thursday to close at $28.93, about a buck below its 52-week high.
Post a CommentCalyon Securities analyst Jeb Armstrong also raised Chesapeake's target price from $33 to $36.
Buck
Views: 29
Replies to This Discussion
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Permalink Reply by Jon Williamson on
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Obviously they are bullish on gas prices. Aubrey and his crew has balls!, maybe no sense but balls!
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Permalink Reply by Scott on
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Hell yeah they do. I'm working for them up here in Pennsylvania and we are going balls to the wall.
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Permalink Reply by ken hatcher on -
Amen! The gonads are in place.
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Permalink Reply by Mac Davis on
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I hope they're right, but don't forget that Aubrey supposedly lost his shirt on stock options in the great natgas crash of '08.
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Permalink Reply by Skip Peel - Mineral Consultant on -
A lot of folks in the industry have a tolerance for, if not an addiction to risk. Aubrey's problem was he borrowed the money to buy his stock. Margin calls can do terrible things to ones art collection! Not to mention ones stock portfolio. LOL!
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Permalink Reply by Mac Davis on
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Was it margin or options? Pardon me if I remembered the details wrong.
Margin calls are REALLY painful, as opposed to painful on options.
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Permalink Reply by Skip Peel - Mineral Consultant on
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Mac. I'm pretty sure the bulk of his stock was bought on margin and he couldn't meet the call. Poor guy had to sell his art collection to the company (I bet the stock holders thought that was a great investment). For being such a good CEO, the board reworked his compensation package. That resulted in a couple of lawsuits. The most intriguing, and little publicized, compensation is his right to buy a modest ownership interest at a discount in every well CHK drills. Can you say, Ca-Ching!!??
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Permalink Reply by Grillin' - MmmMmm on
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Actually, its not a part of his compensation as much as it is a part of the original IPO when he and Tom took the company public. They each got the right to participate as a WI owner of 1.5% in every well CHK drills. Tom sold his rights back to the company when he left it to form Sandridge.
Also, his interest is a straight up Working Interest, and he doesn't get a discount. He has to pay his 1.5% share of the wells to get his 1.5% WI (before royalty). Now, the tricky part is that when he got his re-worked compensation package, the sticking point was that the money had to be used to pay for his WI in the program; he couldn't take it and pocket the money and then go non-consent on the wells. Its still a sweeeet deal no doubt! But when you are the founder of a company, you tend to get things like this! Remember, way back when he put up $50,000 of his own money and started the company!
And yes, his problem last spring was margin call...one heck of a margin call!!!!
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Permalink Reply by Skip Peel - Mineral Consultant on
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Mmmarkk. We don't hear much about Tom these days. Since Sandridge isn't involved in the HS (that I know of) what is the company's business focus? Conventional plays? The last report that I read involved selling some leasehold I believe.
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Permalink Reply by Explorer on
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Sandridge is focused primarily on the WTO. They also have interests in OK, KS, etc. They were basically sitting, waiting and looking for deals. Tom Ward was sitting on about 1 billion in cash and hoping to take advantage of debt heavy operators with attractive assets. They just purchased Crusader energy
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Permalink Reply by Grillin' - MmmMmm on
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David got it right. They sold a few assets and are poised to get Crusader. They are also on the hunt. Watch for more announcements over the next few months!
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