Shale pioneer Chesapeake could file bankruptcy. FINALLY ! The consolidation begins

[Gerry Maddoux + 3,627]

50 minutes ago, PE Scott said:

Strange this hasn't been done yet. When I was working in Nevada on geothermal wells, I wasn't a petro engineer and knew very little at the time, but I specifically remember them telling me they would steer the bit around to avoid granite on their way down. Those wells were going 20,000 feet ot more.  I don't know just how much steering there was, or how drastic the direction changes were. I also seem to remember them punching through some granite in areas where they couldn't avoid it. 

Right. When many of the wells were drilled in the Hogshooter they had primitive GPS and still managed to enter some large stratigraphic traps that held oceans of oil . . . and this is all mature oil, cooked by nature's perfection. These weren't laterals. Can you imagine the value of drilling beside a granite slab, then entering a vast cavern of oil? A lot of that is still down there, which is the reason I couldn't figure out why everyone scurried to shale basins where the wells cost 8 million. If I were a young man, I'd buy what I could in the heart of the Hogshooter and drill conventional wells using the latest GPS, bending the bit up to torque strength but not making those expensive laterals. I'd do one by totally conventional means, then one using fracking, compare the production. But let me tell you, those are some of the most economic wells ever drilled in the continental United States. Ochiltree county Texas has my eye for the same reason. Also the Eaglebine Crescent, up from Eagle Ford, because it's Austin Chalk on top, Buda Shale down deep, and in between is soft marl.

[El Nikko + 2,145]

1 hour ago, PE Scott said:

Strange this hasn't been done yet. When I was working in Nevada on geothermal wells, I wasn't a petro engineer and knew very little at the time, but I specifically remember them telling me they would steer the bit around to avoid granite on their way down. Those wells were going 20,000 feet ot more.  I don't know just how much steering there was, or how drastic the direction changes were. I also seem to remember them punching through some granite in areas where they couldn't avoid it. 

It wouldn't be difficult to steer a well the main issue is being able to see the intrusions ahead of the bit. I guess the best you would have would be the seismic and geophysics stuff done at surface and then making your well plan to attempt to avoid the dykes/intrusions the best you could (not going to be perfect). There are tools that can look ahead of the bit such as resistivity but you probably wouldn't get enough time to avoid it due to the depth of investigation being too shallow if the well is near vertical.

 

Edited November 8, 2019 by El Nikko

[Jan van Eck + 7,558]

21 hours ago, El Nikko said:

Would you mind explaining what 2025 term notes are please.

Is it a kind of bond or something?

Sorry for my complete ignorance on financial matters, the more I think about it the more I realise I should have been learning about that side of things. I guess it's a different story when you work for National Oil Companies as I did before getting involved in the shale business.

A "term note" is what is called "corporate paper," basically a corporate I.O.U.  The corporation needs some cash, usually for working capital or to buy inventory or, in the case of the oil patch, to finance some new well, so they go to a financial institution such as an investment bank, say Goldman Sachs or Morgan Stanley, and say:  "We want to borrow 20 million at 8%, unsecured term, and the term is (pick a number) six years."  So the investment banker gets the company treasurer to sign that IOU and then deposits the funds into the company bank account.  This happens every day, all day long, in the business world.  What you want to remember is that, typically, such loans are not secured by assets, such as machinery, but are floating charges, maybe partly secured by some charge against receivables, that sort of thing. In reality, it is unsecured cash loan. 

Now those Notes have a Due Date when they have to be paid, or Redeemed. If the borrower does not redeem the note, or cannot, then they are in "default," and that is where the troubles start.  Sometimes Notes will have "covenants" attached, requiring the borrower to maintain certain minimum standards of fiscal sanity, typically easily measured financial ratios.  What is happening with your chums at Chesapeake is that they cannot maintain those minimum standards so the idea that the 2025 Notes can be paid off on time is starting to get the lenders nervous.

As usual, there is a secondary market for everything that Wall Street does or dreams up.  That secondary market then will trade in those Notes the same way that D.T. trades in oil crudes out of his living room, staring at those computer screens.  The traders provide liquidity to the secondary market and right now will buy those Ches Notes "at a discount," i.e. by paying only so much against the face value.  If the face value is one dollar then right now the secondary buyers will pay 56 cents.  What that does is effectively raise the interest rate that the investor gets as a return - assuming anything is paid at all.

The seller of the Notes, the original investors, are taking a "haircut," or discount, and losing half their capital, but they do that because they figure that half today is better than zero tomorrow.  The buyers paying half today are gambling that they will get all, or at least more, tomorrow, plus will get the interest payment.  So you can see that this activity in the middle has the flavor of gambling - which is what all secondary markets are.  

Typically in a stable world the lenders simply keep the term notes to maturity, and then are paid back by the company, or the company simply floats yet another term loan, even with someone else, to pay off the old term loan.  In this fashion capital is endlessly re-cycled, and the new interest rates are a function of what the market at that time needs to get, and what the market's perception is of the risk of lending to that institution.  And that changes over time.  Remember that at one time General Motors was so huge and so stable that it could get financing basically for free, the lenders were falling all over themselves to lend money to GM.  Then when GM tanked, you could not give the notes away, and the stock went for $65 a share down to 3 cents.  So, risk is always a factor in the financial markets. Does that help a bit?

[Jan van Eck + 7,558]

40 minutes ago, Jan van Eck said:

A "term note" is what is called "corporate paper,"

I would add one more footnote: when the corporate paper market seizes up, and such term notes cannot be obtained, and companies cannot sell those notes, then the financial world collapses utterly.  The financial world is totally dependent on a functioning loan system, evidenced by term notes.  Back in 2008, when things melted down, such term notes could not be sold, corporations lost liquidity, and (for example) the auto industry collapsed.  A lot of pain is implicit in the freezing up of the corporate lending market, so don't underestimate that.  It is precisely the reason that George Bush put the taxpayers on the hook for two trillion dollars in the Great Bailout, where effectively the taxpayers socialized Wall Street's reckless gambling losses.  The profits, incidentally, stayed with Goldman Sachs - no great surprise there. 

Edited November 8, 2019 by Jan van Eck

[El Nikko + 2,145]

28 minutes ago, Jan van Eck said:

A "term note" is what is called "corporate paper," basically a corporate I.O.U.  The corporation needs some cash, usually for working capital or to buy inventory or, in the case of the oil patch, to finance some new well, so they go to a financial institution such as an investment bank, say Goldman Sachs or Morgan Stanley, and say:  "We want to borrow 20 million at 8%, unsecured term, and the term is (pick a number) six years."  So the investment banker gets the company treasurer to sign that IOU and then deposits the funds into the company bank account.  This happens every day, all day long, in the business world.  What you want to remember is that, typically, such loans are not secured by assets, such as machinery, but are floating charges, maybe partly secured by some charge against receivables, that sort of thing. In reality, it is unsecured cash loan. 

Now those Notes have a Due Date when they have to be paid, or Redeemed. If the borrower does not redeem the note, or cannot, then they are in "default," and that is where the troubles start.  Sometimes Notes will have "covenants" attached, requiring the borrower to maintain certain minimum standards of fiscal sanity, typically easily measured financial ratios.  What is happening with your chums at Chesapeake is that they cannot maintain those minimum standards so the idea that the 2025 Notes can be paid off on time is starting to get the lenders nervous.

As usual, there is a secondary market for everything that Wall Street does or dreams up.  That secondary market then will trade in those Notes the same way that D.T. trades in oil crudes out of his living room, staring at those computer screens.  The traders provide liquidity to the secondary market and right now will buy those Ches Notes "at a discount," i.e. by paying only so much against the face value.  If the face value is one dollar then right now the secondary buyers will pay 56 cents.  What that does is effectively raise the interest rate that the investor gets as a return - assuming anything is paid at all.

The seller of the Notes, the original investors, are taking a "haircut," or discount, and losing half their capital, but they do that because they figure that half today is better than zero tomorrow.  The buyers paying half today are gambling that they will get all, or at least more, tomorrow, plus will get the interest payment.  So you can see that this activity in the middle has the flavor of gambling - which is what all secondary markets are.  

Typically in a stable world the lenders simply keep the term notes to maturity, and then are paid back by the company, or the company simply floats yet another term loan, even with someone else, to pay off the old term loan.  In this fashion capital is endlessly re-cycled, and the new interest rates are a function of what the market at that time needs to get, and what the market's perception is of the risk of lending to that institution.  And that changes over time.  Remember that at one time General Motors was so huge and so stable that it could get financing basically for free, the lenders were falling all over themselves to lend money to GM.  Then when GM tanked, you could not give the notes away, and the stock went for $65 a share down to 3 cents.  So, risk is always a factor in the financial markets. Does that help a bit?

Thanks Jan that is very much appreciated and makes perfect sense.

I guess this is why investment in shale is drying up a bit at the moment.

[Jan van Eck + 7,558]

Here is a snip of the Obligations coming due for Chesapeake.  Apparently the market is concerned about the 2025 Notes.  Personally, I think the market has over-reacted.  Chesapeake is definitely debt-burdened, and the collapse of nat gas pricing has not exactly helped, but the Company is shifting to more production of crude oil, which will help.

Also, I anticipate that covenant waivers will be issued by debt holders, as nobody wants to take a bath, not just yet.  The lenders will both sit tight and will attempt to peddle off some of the debt as times goes on, assuming they can find buyers at a price they can stomach. 

[El Nikko + 2,145]

21 minutes ago, Jan van Eck said:

Here is a snip of the Obligations coming due for Chesapeake.  Apparently the market is concerned about the 2025 Notes.  Personally, I think the market has over-reacted.  Chesapeake is definitely debt-burdened, and the collapse of nat gas pricing has not exactly helped, but the Company is shifting to more production of crude oil, which will help.

Also, I anticipate that covenant waivers will be issued by debt holders, as nobody wants to take a bath, not just yet.  The lenders will both sit tight and will attempt to peddle off some of the debt as times goes on, assuming they can find buyers at a price they can stomach. 

Thanks again for such a detailed explanation it's really interesting. I was quite suprised the interest rates are so high but I didn't know they would be unsecured (or partially limited) loans. I can see why they bought out Wildhorse, that was a very efficient company with excellent people.

 

[Gerry Maddoux + 3,627]

29 minutes ago, El Nikko said:

I guess this is why investment in shale is drying up a bit at the moment.

The bill for the emergence of the Shale Revolution--as it was called back when the KSA declared jihad on American oil--is coming due. Here is what was said about Saudi Arabia at the time.

"Saudi Arabia remains perhaps the most prolific sponsor of international Islamist terrorism, allegedly supporting groups as disparate as the Afghanistan Taliban, Al Qaeda, Lashkar-e-Taiba  and the Al-Nusra Front.

Saudi Arabia is said to be the world's largest source of funds and promoter of Salafist jihadism, which forms the ideological basis of terrorist groups such as al-Qaeda, Taliban, ISIS and others. Donors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide, according to Hillary Clinton. According to a secret December 2009 paper signed by the US secretary of state, "Saudi Arabia remains a critical financial support base for al-Qaida, the Taliban, LeT and other terrorist groups."

In transparency, I voted for Mr. Trump, but every time the price of oil crept up to where the shale pioneers could make enough to pay off their paper, the president tweeted down the price. MbS was all too happy to oblige after he whacked Mr. Khashoggi. I'm a conventional oil guy, by birthright, income, mindset, and all others things uncontrollable. However, I have shale properties too, and I understand that shale saved the United States from a very hard time, economically. Chesapeake helped greatly in that endeavor. Perhaps it's merely the wheels of commerce that are trammeling Chesapeake and others, and God only knows that money in Aubrey McClendon's hands was the thinnest gossamer. Still, somehow, it bothers the hell out of me that we're letting the Saudis get by with . . . . . murder . . . . . and we're willing to let one of the pioneers of American shale scurry for its financial life. It's like turning your back on your firstborn. 

[El Nikko + 2,145]

12 minutes ago, Gerry Maddoux said:

The bill for the emergence of the Shale Revolution--as it was called back when the KSA declared jihad on American oil--is coming due. Here is what was said about Saudi Arabia at the time.

"Saudi Arabia remains perhaps the most prolific sponsor of international Islamist terrorism, allegedly supporting groups as disparate as the Afghanistan Taliban, Al Qaeda, Lashkar-e-Taiba  and the Al-Nusra Front.

Saudi Arabia is said to be the world's largest source of funds and promoter of Salafist jihadism, which forms the ideological basis of terrorist groups such as al-Qaeda, Taliban, ISIS and others. Donors in Saudi Arabia constitute the most significant source of funding to Sunni terrorist groups worldwide, according to Hillary Clinton. According to a secret December 2009 paper signed by the US secretary of state, "Saudi Arabia remains a critical financial support base for al-Qaida, the Taliban, LeT and other terrorist groups."

In transparency, I voted for Mr. Trump, but every time the price of oil crept up to where the shale pioneers could make enough to pay off their paper, the president tweeted down the price. MbS was all too happy to oblige after he whacked Mr. Khashoggi. I'm a conventional oil guy, by birthright, income, mindset, and all others things uncontrollable. However, I have shale properties too, and I understand that shale saved the United States from a very hard time, economically. Chesapeake helped greatly in that endeavor. Perhaps it's merely the wheels of commerce that are trammeling Chesapeake and others, and God only knows that money in Aubrey McClendon's hands was the thinnest gossamer. Still, somehow, it bothers the hell out of me that we're letting the Saudis get by with . . . . . murder . . . . . and we're willing to let one of the pioneers of American shale scurry for its financial life. It's like turning your back on your firstborn. 

Yes I know what you mean about Trump's tweets it's very painful when he does that considering he says he cares so much for American workers, maybe he doesn't realise how much the oil industry has been hurting and for such a long time. Saudi can't complain about Shale Oil it's OPEC's manipulation of the prices that caused the growth of shale in the first place.

[Jabbar + 465]

On 11/8/2019 at 12:10 PM, Gerry Maddoux said:

The Chainman Formation is complex as all get out but very, very different from the Hogshooter Formation of the Granite Wash. When we were still in our "oil-shortfall" hysteria, back in about 2008 or so, those ranges of southeastern Nevada (Chainman, Covenant) and Utah (Paradox) were looked over extensively. A few holes were drilled . . . mostly disappointing. All of those basins are oil-soaked but the lithology is exceptionally variable, all the way from black shale with interbedded sandstone and siltstone to frankly fissile shale. The arrow in the back was the fact that there was kerogen (teenage oil) in one section, mature oil right next to it, and overall there wasn't enough homogeneity to make a field out of it. Cabot drilled a dry hole or two in the Chainman/Covenant and EOG drilled a couple of mediocre wildcats in the Paradox Basin. And that was the end of that. Perhaps because about that same time Apache drilled a couple of wells in Beckham County Oklahoma, fifteen miles apart, down into that Hogshooter Formation--with granite plates turned on their sides, producing stratigraphic traps the likes of which no one had even seen. Each of those widely separated wells produced about 2,000 boe/d--monsters for the time. Since this is technically a Chesapeake "wake" site, it is important to point out that in 2012 Chesapeake drilled the Thurman Horn 406H, a famous well because it gushed 5,400 bopd during its first 8 days, along with 4.6 mmcf/d of gas and enough natural gas liquids to bring its total production, all told, up to 7,350 boe/d (which I think was a record breaker)--an epiphenomenon. It did that for a while and then settled in at 5100 boe/d, over 60% liquids). Ladies and gentlemen, let me remind you that we're talking about 2012, Chesapeake, at a time of good oil prices--now that was a well!!!!!! Everybody wanted to drill out the Hogshooter. Unfortunately, Chesapeake was already in over its head with the Haynesville. Apache drifted over the fence line to the Mills Ranch in Wheeler County (where it's not so difficult to drill between granite slabs and also where they could buy the whole ranch and not have to worry about a thousand small owners). So it ultimately fell to Linn Energy to try their hand (which wasn't all that good), then Linn went bankrupt after buying the Hugoton Field for way too much money in $100 oil prices, and then the Eagleford and Bakken sucked all the oxygen out of the room as it pertained to the "Mighty Hogshooter." That's the reasons for my above statement that "oilmen are like tarantulas, they all move as a band"). Well, in this case they all moved to the Bakken and Eagle Ford and the Hogshooter turned into a series of villages: gathering stations and pipeline standpipes. My naive sense has always been that the thick granite stratigraphic traps with their abrupt and towering facies represents one-of-a-kind lithology, and even though they refer to it as a completed field, there is still a lot of room for infill wells. Especially now with GPS that can guide the drill bit between these underground canyon walls into pools of oil. That Thurman Horn is still a steady hand. i suspect the Hogshooter, extending upward into Roger Mills County Oklahoma and across Cowboy Creek up to the Packsaddle Bridge still represents one of the unsung heroes of the conventional drilling world. An interesting quirk is that south of the Red River, this lithologic melodrama ends. There the upheaval brought the granite all the way to the surface of the earth and massive granite boulders are strewn around in huge heaps, like God rolled his dice. They call that the Granite Breaks and it is one of the most extraordinary natural exhibits of underground havoc ever to be witnessed. Again, north of the Red River, the granite slabs were merely turned on their sides, not rising to the surface, while south of the Red River they were brought up to the surface in massive slabs that broke apart, thereby losing the oil traps that are present just a few miles north. I'm sorry to go off on you about this geology but it is about the most exciting area onshore. While it hasn't been neglected, all of you young guys should take a gander: there's room for thousands of conventional wells----all it would take would be to just bend the bit a fraction on your way to 20,000 feet.   

Gerry

Don't know  what your up to . . . but with your knowledge base and writing ability you should write a book on the whole shale boom. From early pioneers, wildcatters to Oil Majors.  You must have some great stories to tell.

If you have some spare time

Edited November 13, 2019 by Jabbar

[Jabbar + 465]

On 11/8/2019 at 3:08 PM, Jan van Eck said:

Here is a snip of the Obligations coming due for Chesapeake.  Apparently the market is concerned about the 2025 Notes.  Personally, I think the market has over-reacted.  Chesapeake is definitely debt-burdened, and the collapse of nat gas pricing has not exactly helped, but the Company is shifting to more production of crude oil, which will help.

Also, I anticipate that covenant waivers will be issued by debt holders, as nobody wants to take a bath, not just yet.  The lenders will both sit tight and will attempt to peddle off some of the debt as times goes on, assuming they can find buyers at a price they can stomach. 

Peddle off some of their debt ?

To whom  ?

They issued bonds.  

What is their total debt obligations made up of ? What's the total dollar obligation.

A five year note paying 22% .  That tells you market not very confident it will be around to see the 2025 date.  The 2021 note is also over 20% yield

What lender will issue them a loan with their CPA firm giving them an "ongoing concern"  after their quarterly audit. 

Often when an auditing firm gives a company its sometimes a death sentence.

I don't now their total debt, it's seniority, covenants or timeframes. Looks like all debt unsecured.  Trading high yield Chesapeake bonds are for the pros.  Buying the stock is for gamblers.

An analyst on the Bloomberg Alix Steel video yesterday said that they could sell some assets but who would want to buy them . If the did buy them at what price. 

If you believe in Chesapeake you can buy all the shares you want at 90 cents.

If you want to understand the status one needs to read post analyst reports put out after their earnings.

Bloomberg said , "Haynseville gas could be sold, BUT who would want to buy it. It wouldn't even move the needle."

I don't know enough about the financials . . . 

Not do you . . .  

Keep in mind someone might buy Chesapeake shares based on your stock evaluation . 

 

Edited November 11, 2019 by Jabbar

[Jabbar + 465]

55 minutes ago, El Nikko said:

Yes I know what you mean about Trump's tweets it's very painful when he does that considering he says he cares so much for American workers, maybe he doesn't realise how much the oil industry has been hurting and for such a long time. Saudi can't complain about Shale Oil it's OPEC's manipulation of the prices that caused the growth of shale in the first place.

If you look back Saudi Arabia never increased production as Trump requested.  Trump tweeted when the share price moved to the top of its established trading range. 

Trump took credit.  What did you expect, that's Trump

Edited November 8, 2019 by Jabbar

[Gerry Maddoux + 3,627]

1 hour ago, Jabbar said:

Don't know  what your up to . . . but with your knowledge base an writing ability you should write a book on the whole shale boom.  From early pioneers, wildcatters to Oil Majors.  

If you have some spare time

Thanks, that's nice of you, but I'm too highly invested in all manner of minerals, overrides, conventional, shale, pipelines, wind transmission lines, gathering stations and the like to be remotely unbiased, or even factual. I wrote a book called Tombstone Rock, which is on amazon and barely one step up from porn. It has to do with where I grew up, with homophobia, incest, a thirst for oil and a violent culture in general . . . all of which I enhanced in order to make the book marketable. I never advertised it and it never did much. I was mostly ashamed of it, because it looked as if my family--and I--were homophobic, and we weren't/aren't------I just didn't write it well enough. "The Frackers" is a pretty well written book. What I would like to write is something like Jared Diamond used to write. But basically I'm a conventional guy in an unconventional world. You've put me onto something, though, as I can build out a scenario re' FDR in the torpedo boat with King Faisal, Exxon and Standard Oil of California building out those Saudi fields, the vulnerability of Bab el-Mandeb and Straits of Hormuz, the embargo, leading right up to the shale revolution. 

Thanks for the suggestion. I might take a crack at it. If I do, I'll post it chapter by chapter here on this site, for the bows and arrows of people who likely know a hell of a lot more than I do about any of this. \

For the time being, check out Tombstone Rock on amazon--by Gerry Maddoux. Not trying to sell a book. I think i gave it away.

[El Nikko + 2,145]

1 hour ago, Jabbar said:

If you look back Saudi Arabia never increased production as Trump requested.  Trump tweeted when the share price moved to the top of its established trading range. 

Trump took credit.  What did you expect, that's Trump

Sorry Jabbar I meant that it is OPEC's manipulation of oil prices (years ago) that made shale oil possible in the first place.

[Jan van Eck + 7,558]

3 hours ago, Jabbar said:

Peddle off some of their debt ?

To whom  ?

They issued bonds.  

What is their total debt obligstions made up of made up of ? What's the total dollar obligstion.

A five year note paying 22% .  That tells you market not very confident it will be around to see the 2025 date. 

What lender will issue them a loan with their CPA firm giving them an "ongoing concern"  after their quarterly audit. 

Often when an auditing firm gives a company its sometimes a death sentence.

I don't now their total debt, it's seniority, covenants or timeframes. 

An analyst on the Bloomberg Alix Steel video yesterday said that they could sell some assets but who would want to buy them . If the did buy them at what price. 

If you believe in Chesapeake you can buy all the shares you want at 90 cents.

If you want to understand the status one needs to read post reporting analyst reports.

I don't know enough about the financials . . . 

Not do you . . .  

Keep in mind someone might buy CKE shares based on your stock evaluation . 

 

Here is the Chesapeake Notes debt profile, with maturity dates:

No one is downplaying that their situation is serious.  That said, observe that Chesapeake did manage to pay down some half-billion in old obligations, so there is progress, albeit painful and slow.  Can they sell non-core assets?  Yes, of course.  Can they cut costs further? 

Probably.  There is lots of life left in this company.  Worst case, they duck under the BK Court skirt, hide from the creditors, and keep going on cash flow?  Sure they can.  Can they find debtor-in-possession financing in some BK pre-package?  but of course.  do not under-estimate the ability of a company with its back against the ropes to dream up creative ways to keep alive. 

What hurts these guys is likely their take-away contracts.  If you are bound to ship to use contracted pipeline capacity, and you don't use it because you want to preserve your product for higher prices later, then you pay for the capacity anyway.  That is expensive.  You can void that contract in the BK Court, by Court Order, simple to do but then how do you get that capacity back, down the road?  See, there are all these imponderables, and only the Insiders know the answers. 

The people that finance these types of companies typically pay little to no attention to stuffy accountants.  These are gunslingers, out in the Old West, and they gamble along on what their vision of the future is.  Now, those 2025 Notes seem to be a problem, and I do not make light of that problem.  I think those note holders will not see redemption, not on time, and they will have to grumble and eat a re-scheduling.  For the later buyers, in there at 22%, that is a bonanza.  For the earlier buyers, well they sold, so they have already eaten it.  I really don't place as much concern over all this as you do.  Remember, the BK Court is there to help debtors, the creditors will end up with haircuts and longer redemption times, not much they can do about it except sell.  That is why you are seeing that selling pressure.  

Would I personally buy those 2025 Notes?  Or any of the Notes?  No.  But remember, each investor's profile is different.  What suits me does not suit you.  It is the aggregate of millions of buyers that makes the Market.  And, guess what, you cannot beat the Market - unless you have Inside Information.  And those guys on Wall Street - they always have that Inside Information.  That is why they do better than you do. 

 

[Jabbar + 465]

3 hours ago, Jan van Eck said:

Here is the Chesapeake Notes debt profile, with maturity dates:

No one is downplaying that their situation is serious.  That said, observe that Chesapeake did manage to pay down some half-billion in old obligations, so there is progress, albeit painful and slow.  Can they sell non-core assets?  Yes, of course.  Can they cut costs further? 

Probably.  There is lots of life left in this company.  Worst case, they duck under the BK Court skirt, hide from the creditors, and keep going on cash flow?  Sure they can.  Can they find debtor-in-possession financing in some BK pre-package?  but of course.  do not under-estimate the ability of a company with its back against the ropes to dream up creative ways to keep alive. 

What hurts these guys is likely their take-away contracts.  If you are bound to ship to use contracted pipeline capacity, and you don't use it because you want to preserve your product for higher prices later, then you pay for the capacity anyway.  That is expensive.  You can void that contract in the BK Court, by Court Order, simple to do but then how do you get that capacity back, down the road?  See, there are all these imponderables, and only the Insiders know the answers. 

The people that finance these types of companies typically pay little to no attention to stuffy accountants.  These are gunslingers, out in the Old West, and they gamble along on what their vision of the future is.  Now, those 2025 Notes seem to be a problem, and I do not make light of that problem.  I think those note holders will not see redemption, not on time, and they will have to grumble and eat a re-scheduling.  For the later buyers, in there at 22%, that is a bonanza.  For the earlier buyers, well they sold, so they have already eaten it.  I really don't place as much concern over all this as you do.  Remember, the BK Court is there to help debtors, the creditors will end up with haircuts and longer redemption times, not much they can do about it except sell.  That is why you are seeing that selling pressure.  

Would I personally buy those 2025 Notes?  Or any of the Notes?  No.  But remember, each investor's profile is different.  What suits me does not suit you.  It is the aggregate of millions of buyers that makes the Market.  And, guess what, you cannot beat the Market - unless you have Inside Information.  And those guys on Wall Street - they always have that Inside Information.  That is why they do better than you do. 

 

You make some good points.  

Lot of unsecured notes.

The auditors "Going Concern" designation creates a lot of problems, You need sand, fracing fluids, payroll, etc, etc .  Does the 2021 $900 million revolving credit line get pulled ? IT WILL ALL DEPEND ON THE PRICE OF WTI. 

Those 2025 8% notes selling at .56 you mentioned, are they the 618 million secured notes ?

They might be able to hang in there if WTI stays in upper 50s.  If oil settles at $50 or lower they're done.

Creditors could force the issue.  Many would be hurt.

The most important question is what is the value of the reserves. The market value, not the book values.

You say , "do not under-estimate the ability of a company with its back against the ropes to dream up creative ways to keep alive. "

I agree.  U.S. President Trump knows the bankruptcy game all to well. He's been there.

JUST NOTICED THEIR 2021 BOND TRADING WITH 20% YIELD 

Not what I'd call a vote of confidence.

THEY HAVE SOME NICE OIL PROPERTIES IN THE POWDER RIVER BASIN IN WYOMING.

Edited November 9, 2019 by Jabbar
Speling

[El Nikko + 2,145]

It's funny how this topic turned out to be so interesting

[Jan van Eck + 7,558]

10 hours ago, El Nikko said:

It's funny how this topic turned out to be so interesting

The purpose of this Community Forum is, at least in part, to spread highly specialized information out to the members. There are lots of participants with exceptional knowledge in these fields, and you can learn a lot through the free exchange of ideas. It works well when everyone adopts a mature approach to the discussion, and especially when the paid Moderators resist the urge to be petty. 

[Structural Master + 18]

 

 

The Duped Shale get rich quik Investers and Financiers dont see whats coming for them..? Shale.. Writings on the wall.. How did it last this long..? Dont declare non performing assets non performing assets.. or defaults defaults.. Looks bad to investors..

One day after the piper is paid... Theres oil & gas  In the ocean..

 

 

 

Edited November 9, 2019 by Structural Master

[Jan van Eck + 7,558]

3 minutes ago, Structural Master said:

The Duped Shale get rich quik Investers an Financiers dont see whats coming for them..?

 

Nope.  They never do.

[John Foote + 1,135]

On 11/7/2019 at 2:04 PM, ronwagn said:

I hope you are wrong, Chesapeake has led the industry where it needed to go. Natural gas is the best energy answer worldwide IMHO. 

I also believe natural gas will continue to grow and thrive.

Look at the bankruptcy as a chance to restructure. We have a president who’s business model has essentially thrived, or at least survived because of bankruptcy laws.

US airlines used bankruptcy laws to renegotiate labor deals. GM emerged healthier and a bit leaner. On a personal level I used to threat of declaring bankruptcy to get a better deal in a business I was selling.

[Gerry Maddoux + 3,627]

Unless they've divested, Chesapeake owns some of the best property in the Appalachian Basin, Haynesville, Eagle Ford, Granite Wash, Marcellus in particular, and the north Niobrara up along the Powder River. Ya'll talk about taking Chapter 11 and then just going on, only having had debt mostly forgiven, some of the pertinent holdings passing on to stronger hands. My experience from the mineral-owner's end hasn't been so smooth. I've never yet had a well that passed through bankruptcy to another company that didn't falter. It seems that every new operator has this idea about a cluster of wells, or an entire field, and the production (at least in my experience) always suffers . . . . . I don't know exactly why. Chesapeake is worth rehabilitating just as it is: they took out the debt, let them work it out (just like Occidental on a much larger scale--and Carl Icahn just sold off ten-million shares of Oxy, which has to sting). Chesapeake has competent management. Take them into the board room, chew their asses out for about a day and a half, then throw some money at them and tell them specifically to go drill some infill wells in the Marcellus and Haynesville--the whole world (ex-Russia) is going to need dry natural gas and Chesapeake has a lot of it. They're in the vice-grips of a short squeeze from hell right now and I'd like nothing better than to see them get a big ole juicy reprieve in the form of a greenback poultice. They are not in the shale "oil" business so much, but the tight, dry gas business. In fact, it's the light tight oil frenzy that completely wrecked Chesapeake: they didn't see such gargantuan quantities of by-product natural gas coming up with the oil--especially in the Delaware sub-basin. Those Haynesville and Marcellus wells may decline quickly but many of them were over-pressurized--esp. in the Haynesville--and there is a lot of room to drill infills. Chesapeake discovered the Haynesville, for goodness sake, and they got over their skis, but they can drill their way out. Like any other company, they had to punch a bunch of wildcats to hold property by production (HBP). During the heyday they were running and gunning. HBPing the big chunk they'd bitten off, that they produced so much gas it dropped the price. Then other people began doing it. The price fell more. Aubrey lost his 6% stake in the company. The share price was about $40 at that point. I lost my shirt on share price but I am a strong believer that they can work their way through the debt. A lot of things are in place that weren't remotely present back ten to twelve years ago: LNG export for one. There is room in China's energy scheme to take almost all of American LNG--they're still burning crappy coal in most of their teapot utility plants for gosh sakes! My continuous sermon is that there is no cleaner-burning fuel than natural gas, especially when carbon capture becomes more a reality. The Greenies are calling this a "bridge" fuel. A bridge to what? I submit that if you take natural gas and expend it, measuring its quantum yield of energy, and then take any other form--wind, solar, EV--and after you've figured in the cost of manufacturing those items, and the price of maintenance, and the cost of junk-heaping them when they wear out, maybe add in the cost of huge storage batteries littering the landscape, you'll find that dry natural gas is the stud-horse of the energy industry. Bankers!!! They only loan money to people who don't need it. (Mark Twain, I think).  

[Gerry Maddoux + 3,627]

Looks like Comstock (Jerry Jones) is buying the Haynesville shale, which is worth a zillion dollars in a good market. This should put CHK right. 

IMO, this is a very good move for both parties. 

[shadowkin + 584]

Chesapeake stock has slightly bounced back. In addition to the Comstock news it was revealed that its second biggest investor, NGP Energy Capital Management, distributed its shares to limited partners. Third, Morgan Stanley decided that, well, Chesapeake won't go bankrupt next year after all.

I thought Wall Street overreacted with the sell off and declaring Chesapeake all but bankrupt but this saga is far from over. I wonder if a major like Chevron might try to acquire Chesapeake.

[Douglas Buckland + 6,308]

...they had primitive GPS and still managed to enter some large stratigraphic traps...

Perhaps someone can help me out here. I am an experienced ‘driller’, but I am confused when people mention GPS in regards to directional (?) drilling.

Is this some new technology above and beyond rotary steerable assemblies?

Any clarification would be appreciated.