"Reservoir"

That word alone has caused much brainstorming to me lately.  With the current situation of Chesapeake, Icahn, drilling permits and $2 natural gas, I put on my landowners business cap and spoke with the great Emperor Shrimp and my cat Jasper who is now on my lap when I drive this computer.

I studied corporate raiders when I was in the corporate world after college in the defense industry, I sharpened my business mind preparing to enter the business world back then in the eighties.  For the past 28 years my business has been in distress property, so how do I apply my experience with what is happening today with CHK, the largest leaseholder in the Utica shale?

Here goes, Chk is now officially in distress, what is worse than being broke? When others know you are broke.  CHK is now currently unofficially in chapter 11 bankruptcy IMO, Icahn can be sort of a "debtor in possession manager."  The key to me in success of the "reorganization business" for CHK is first, reorganizing debt with creditor fatigue.  Now is the time for CHK to negotiate and streamline their wild and crazy debt.  They maybe able to use "the value of debt" to do this because of the current value of NG.  Selling off assets is tricky because they maybe the "hidden asset" the Icahn the raider is looking for, the cash reservoir.

 

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Permalink Reply by Marcus Grayson on May 18, 2012 at 10:04pm

Though prices have moved up in small spurts the overall price is still far too low for an operator like CHK to make money off of nat gas in shale plays.  Using point forward numbers CHK's break even point in the Marcellus is $5.61/MCF.  Full cycle break even is at $7.84/MCF.  That pricing is far enough away that they could implode before they ever see those rosy numbers.  And the Marcellus is the cheapest full cycle break even.  

Permalink Reply by Bluflame on May 18, 2012 at 10:13pm

Thanks US,

   Creates a "Catch-22" of sorts. Electric power generation is a prime candidate for nat gas, but the argument gets fuzzy if economics don't work. In that case the remaining advantage of nat gas is environmental, which is a tough sell without govt intervention.

  One of the real ironies is that much Utica oil & gas territory in the southern part of the play is also rich in coal. Many Utica O&G leases are under reclaimed coal strip mine land where improved strip mine technology can reach other coal veins not possible only a few years ago. In some areas this may create a triple play of coal, Marcellus nat gas & Utica oil, ngl's and nat gas.

BluFlame

Permalink Reply by Ron Eiselstein on May 18, 2012 at 6:27pm

I come home from work and seems like my opposition engaged in unproductive energy spurts.

Landlubbers, thanks for having my back, very real people salt of the earth.

I like the end of the thread, brainstorming again as we always do here.  The reason why I titled this post "reservoir" is financially that is what we are now in real time, no cash flow but alot of cash infusion in this Utica play.  Value cannot be crossed reference to the current price of oil and gas because it is JUST speculation without solid reports from a well.  The largest reservoirs are owned by CHK who influenced speculation on vast amount of land without any real time facts of product.  In a financial war, a raider, can demand that the value is only pegged by production reports in a geological area relative to a Utica well.  All the other acreage IMO can only be valued at the rental rate represented by the bonus.  In otherwords, $5 to $6 K and acre for five years, this maybe the value of Chesapeake's acreage in the Utica, a rental fee.  What happens to any debt over this value, I believe it can be argued as unsecured debt, like a credit card.  This is only relavant to a distress situation, if CHK was flushed with cash and other big energy wants to pay $25000, once again the market is different, CHK could be in the distress market right now.

Permalink Reply by Ron Eiselstein on May 20, 2012 at 7:11pm

Chesapeake divest 90% of their Columbiana leaseholds to Total of France, whom they had a JV with months ago, but this goes along with my discussion here that big moves are going to happen with CHK as they play the distress entity game.  Look for more activity in the next few days.  I suspect Consol/Hess, BP, Shell or an entrenched energy company here will gobble up Mahoning county leases next, of course we also may see takeovers in the southern Utica too where CHK has large leaseholds.

Permalink Reply by Marcus Grayson on May 20, 2012 at 10:44pm

Do you have a link to the story detailing this divestiture?

Permalink Reply by Black Gold Junkie on May 20, 2012 at 10:53pm
Permalink Reply by Bluflame on May 21, 2012 at 8:34am

Ron,

  This isn't a new deal. It is a consummation of the deal made last December. This is merely an "official" transfer of deeds to specific property. It's interesting that they selected a healthy chunk of the land in Columbiana County.

   Also be interesting to see whether your speculation on new deals turns out to occur. CHK seems to think that the Utica Shale is a "crown jewel". They certainly must generate some cash fairly quickly.

BluFlame

Permalink Reply by Ron Eiselstein on May 22, 2012 at 9:37am

Flame,

Remember, CHK, also sold (JV) Sinopac and Cnooc of China a large chunk of the bloody Utica .....................just to see the scenary.

I would wager, CHK moving China's interest into another entity separating interest from CHK's troubles, ala Total and of course CHK being the developer again ala Total. 

0l1a6laz7smpfPermalink Reply by 0l1a6laz7smpf on May 23, 2012 at 6:39pm

I think that what many are not considering in this 'chesapeake' situation is the many investors that have given mucho dollars ......especially from India, China, France, should I go on?   I don't think they spent like 14k per acre for watching it go away...???duh     I think we will see Chesapeake have re-organization but the investors are not going away that easily.   So don't jump ship yet...  it may be a Chinese man or Indian man re-negotiating your contract with you and getting back to the business of production (of course we don't know whether the gas will be exported or staying in the USA but the investors didn't pay Chesapeake that kind of money without expectations).

http://seekingalpha.com/article/611571-chesapeake-pay-cuts-the-firs...

 

Permalink Reply by Marcus Grayson on May 23, 2012 at 11:34pm

"I think we will see Chesapeake have re-organization but the investors are not going away that easily. "

I assume you mean institutional investors.  Because us regular investors have been selling CHK like it's a dog with fleas.  Down ~60% in the last year is a sign that Main Street via Wall Street is bailing out.  

Permalink Reply by Ron Eiselstein on May 25, 2012 at 9:20pm

Well, like I said, here comes Icahn and he don't play.  Now that he has over 7% of Chesapeake and he is the 3rd largest shareholder, we here in the Utica Shale are going to see financial drama.  With Icahn down CHK's throat, we will see fast movement.  Again, I strongly see reorganizing of debt and hammering down UNDEVELOPED acreage to the rate of rental established in real time by the bonus outlay.  Of course simultaneously we should see an onslaught of drilling to increase cash flow, this however will peg the price of developed acreage.  What this will accomplish will be that secured debt will have to be diminished and a large chunk of the debt will become unsecured on the undeveloped acreage, not to mention the expiration of leases will add to the lower value.  Those investors  that can hang on may see their debt strengthen as product is revealed or lose value again as leases expire.

What does it mean for landowners?  you are governed by your lease, so not much IMO.  If leases do expire, you are in the market again for a new lease.  Of course my opinion is as a landowner and land manager for 28 years.  Seriously, I think this is a good thing for all of us in the Utica, because with Icahn raiding CHK, it shows significant interest in the Utica's HIDDEN VALUE, it is all financially hidden without production.

As for CHK, I will leave you with this parable: "When you owe $100,000 to a bank, they own you.  When you owe $1Million to a bank, you own them."

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