Chesapeake. When it gets so bad, will it be real good? Interest rate risk abounds.$CHK

Chesapeake Energy

Chesapeake Energy (Photo credit: Wikipedia)

Chesapeake (NYSE:CHK) status in the wood shed is well documented. They have now written off some $2.1 billion going whoops the leases are not worth as much as we firmly believed last time we talked to you. Price of gas is down which affects everyone in the business. Some of the leases appear to be worthless which is a standard risk in energy land plays. No one apologizes about that.

The tone of the conference call was felt to be overly optimistic. One day it will be worth much more was the subliminal message. We should not be influenced by short-term considerations such as cash flow.

Energy exploration is high risk. Geology is often more performance art than hard science. The question is one of balance. The executive just roll the dice until they get what they need. Management is looking at a probability theory called gamblers ruin. It is the reverse of a winning streak but just as statistically valid.

So do you invest in Chesapeake and back the guys rolling the dice. Here are some short-term considerations. Almost 11% of the public float is sold short. This number has contracted recently. high short positions are bullish because they eventually have to be covered at any cost. Up tick/down tick trade ratio comes in at 1.33.

Debts are still huge approaching $16 Billion. The goal of $9.5 Billion seem challenged. Asset sales are being pushed back. Rhetoric about Asian interests taking more time abounds. The company hopes assets will be worth more in the near future. Asian investors can read the financial press and may conclude buying shares is better than buying assets.

The 1,000 lb gorilla in the room are interest rates. The election is over and the trend is bound to go up. It’s back to reality. So the commodity value may strengthen but interest rates will cannibalize. Banks and financial institutions will not want to publicly take more risk with politically volatile assets with a troubled past.

Chief Executive Aubrey McClendon wants the cards to go around a few more times before he makes the big move. Unfortunately he is the red meat in the shark tank. He has risks beyond that of an energy company. The table has been set and he wants to sit at the tapas bar and nibble at little tasties. Forbes magazine called him America’s most reckless billionaire is a 2011 cover story.

So if you have an appetite for volatility go for it. But there are too many external variables which Aubrey McClendon wants to temporarily ignore that may just come out and bite hard.

George Gutowski writes from a caveat emptor perspective. follow him on twitter@financialskepti


Chesapeake Annual Meeting Becomes a Shoot Out in Not OK Corral $CHK

Chesapeake Energy

Chesapeake Energy (Photo credit: Wikipedia)

Chesapeake (NYSE:CHK) will attempt to hold something called an annual meeting on June 8, 2012. Normally annual meetings are very close to Kabuki theater. Chesapeake would love to experience a Kabuki theater moment. Kabuki theater is highly predictable and without surprises, or so I’m told. Carl Icahn has walked onto the stage with an activist agenda wanting to replace four directors. CHK is responded they want to find a chairman first. Not sure who would want the job to be very frank about it. Snakes everywhere and declining energy prices.

The entire situation has been dysfunctional so expect the dysfunctional.  Here are a few possible problems that may arise.

  1. Board may adjourn claiming extraordinary situation.
  2. Activists may seek to postpone the meeting until only God knows when.
  3. Enough directors resign seeking to flee continued personal responsibility.
  4. Courts may rule annual meeting should be adjourned.
  5. Annual meeting may actually be held and no one will be happy with outcomes.

In any event Friday June 8, 2012. Bring your heavy artillery.

George Gutowski writes from a caveat emptor perspective.

Chesapeake Energy Update and Correction. What Does Step Down really Mean! Investors Still Screwed $CHK

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Chesapeake Energy

Chesapeake Energy (Photo credit: Wikipedia)

Numerous readers including David J. Chamberlin Executive Vice President / General Manager, Dallas for Edelman who I presume is engaged by Chesapeake (NYSE:CHK) have pointed out that Aubrey McClendon did not resign as the CEO but he did step down as Chairman. In my earlier post I wrote “The recent resignation of Aubrey K. McClendon – Chairman and CEO will not extinguish the fire storm`. The reader comments are correct; Aubrey K McClendon did not resign as CEO. My apologies about a technical issue which may beg the real question.

Aubrey K McClendon also did not step down as CEO. But he did step down as Chairman. So what does step down really mean! The public relations guys see a really big difference. Step down has a softer less harsh connotation than such words as resigned, relieved, pushed out, fired, dismissed, replaced, disciplined or god forbid terminated.

Step down does not adequately address the issue of destroyed shareholder value. Mid March investors valued the company at a few pennies over $25.50. The close on May 3, 2012 $17.19 which was up on the day. That`s just over $8 per share loss! Now that`s a step down. Investors are still wondering if there are more step downs to follow.

But let’s be clear about the facts. Aubrey K McClendon is currently the CEO. The board of directors seems to be OK with Aubrey K McClendon staying on as CEO.

I also still stand by the gist of my earlier post about when you should consider investing in Chesapeake. Mr Chamberlin I hope your OK with this clarification.

Oh by the way Mr Chamberlin of Edelman do you have any comments about Chesapeake confirming a SEC Informal Inquiry. The SEC was careful to point out an informal inquiry does not mean any securities laws were broken or violated. But they have requested that both the company and Mr McClendon retain certain documents. Hey no problem as he is still the CEO.

George Gutowski writes from a caveat emptor perspective.

Chesapeake Is it the New Enron? Value Investor Considerations $CHK

Chesapeake Energy

Chesapeake Energy (Photo credit: Wikipedia)

Chesapeake Energy Corp (CHK) is in the market for a new boss. We’ve all heard the twisted conflicted governance challenged story. It’s not good. Calls to replace the entire board are only just starting up. Shareholder class action lawsuits are gearing up. My god the world is coming to an end. So is this the ultimate value investor play. Value investing is a buy ugly sell pretty formula. You have to have courage and correct analysis.

Well the price is down. The corporate governance story has destroyed shareholder value. The company is a huge gas play and the market price for gas is down. Very down. So isn’t this the time to buy. Buy low sell high. That’s the formula isn’t it.  Well the price of gas is historically low. We do have a domestic surplus and last winter was very mild so the consumer home owner did not come through as needed. That issue is the same for dozens of other gas opportunities. If you are patient you can make the cycle work for you.

So we default to the governance storm. The recent resignation of Aubrey K. McClendon – Chairman and CEO will not extinguish the fire storm. Who would want to take the job. To many ghosts and skeletons in the closet. So you can go through the executive search which is time-consuming and expensive to come up with what. My thoughts are if a recruiter calls you for the job go to the interview. It’ll be one of the most interesting interviews you’ll ever have. How will the search be conducted? Who makes the ultimate decision? The shareholders will be wanting pristine pureness. Will the candidate fit into the corporate culture or will he need to reshape it. Reshaping cultures is more difficult than finding oil and gas. Another good old boy will not do. By the way the board needs to be revamped. They have their finger prints on this problem as well.

Then you have to consider corporate momentum. The governance issue will be the mother of distractions. Instead of exploiting oil and gas the senior leadership team will be swatting away pesky governance flies. They will not be working full-time on maximizing shareholder wealth. So if you are looking at Chesapeake and wanting to buy when the storm clouds are the darkest, wait up. Do not click the buy button yet.

My personal prediction will be to bring in a one year neutral caretaker type to help stabilize. He should have a personal fixation about opening closet doors and checking out the contents. If we see the caretaker then it’s time to consider being a value investor. If we see someone who fits in with the corporate culture well lets just say shareholder wealth will not be maximized.

George Gutowski writes from a caveat emptor perspective.