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You Would Have to Be Crazy to Own Chesapeake Energy

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April 18, 2012 – Comments (14) | RELATED TICKERS: CHK

So shares of Chesapeake Energy Corp are down over 8% today on the news that the company loaned CEO Aubrey McClendon over ONE BILLION DOLLARS, secured by his stake in the company. Here's the news on Marketwatch.

Let me be clear: if you own this thing for anything more than a short-term swing-trade or something, you are f^cking crazy. You would be crazy to buy this thing before this semi-criminal is gone. Chesapeake famously won the @footnoted context for Worst Footnote of 2009, for a transaction whereby it paid the CEO $21 million for his vintage map collection.

I have said multiple times on this site, and so has Alyce Lomax and others, that this company is engaged in the worst sort of crony, share-holder disrespectful behavior to its shareholders. You object to Google's C share? Google gives you no control, but its founders respect the company, and respect shareholders. This guy founded the company (if memory serves), but treats it, and you, as his personal piggy bank.

I don't care HOW much you like natural gas at these levels. I LOVE natural gas (aside, any good natty picks are welcome). Jeffrey Gundlach of Doubleline thinks its the best investment you can make right now. But not here, not now, not with Aubrey McClendon. Booooooooooooo.

14 Comments – Post Your Own

#1) On April 18, 2012 at 12:02 PM, EnigmaDude (98.21) wrote:

Check out CJES for a potentially good natty gas pick (service provider). But yeah, you are spot on. McClendon should be incarcerated.

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#2) On April 18, 2012 at 12:25 PM, Valyooo (99.80) wrote:

I didn't know too much about CHK before this, I used to use it as a proxy to trade natural gas since I hate UNG, god, that is awful

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#3) On April 18, 2012 at 12:30 PM, Momentum21 (97.99) wrote:

This could be just the beginning of more dirt being scraped up on Aubrey...here is a pretty good read that I missed back in March but I am sure is being digested more now.

http://www.rollingstone.com/politics/news/the-big-fracking-bubble-the-scam-behind-the-gas-boom-20120301

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#4) On April 18, 2012 at 1:08 PM, MegaShort (99.95) wrote:

"the company loaned CEO Aubrey McClendon over ONE BILLION DOLLARS, secured by his stake in the company."

It's actually worse than that. The loans are not secured by his stake in the company, they are more like mortgages on some of Chesapeake's wells. Aubrey gets to share in the best wells, leaving the rest of the wells for the shareholders. Extreme conflict of interest.

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#5) On April 18, 2012 at 1:10 PM, MegaShort (99.95) wrote:

I bet CHK shareholders didn't know they were buying a subprime lender.

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#6) On April 18, 2012 at 1:20 PM, TheDumbMoney (64.50) wrote:

Yeesh! Mega that is staggering.

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#7) On April 18, 2012 at 3:57 PM, TheDumbMoney (64.50) wrote:

From the Berkshire proxy statement, as noted today in another post by Alyce Lomax:

"Warren Buffett and 'do not use Company cars or belong to clubs which the company pays dues. It should also be noted that neither Mr. Buffett nor Mr. Munger utilizes corporate-owned aircraft for personal use. Each of them is personally a fractional NetJets owner, paying standard rates, and they use Berkshire-owned aircraft for business purposes only.'"

Nobody needs to own Chesapeake. Shun it with maximum prejudice.

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#8) On April 18, 2012 at 4:06 PM, Frankydontfailme (27.34) wrote:

I agree with you, but you might have bottom ticked it with your post! Guess that's why they call you the dumb money! jk....

p.s I'm still going to call you DTAF

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#9) On April 18, 2012 at 4:11 PM, TheDumbMoney (64.50) wrote:

Franky, it's very possible. But I've never owned the company and maybe never will. My point is more that the company should be shunned. And while it's possible you're right, if he and his board lack shame to this extent, who knows what they'll do next. I can certainly make an argument for CHK on both a valuation and industry basis.

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#10) On April 18, 2012 at 4:48 PM, TheDumbMoney (64.50) wrote:

Still hinky, but not as bad as Marketplace made it seem:

http://www.chk.com/reuters/Pages/index.html

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#11) On April 18, 2012 at 4:58 PM, Schmacko (92.03) wrote:

The rolling stone article in #3) was interesting. CHK seems shady.

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#12) On April 19, 2012 at 1:16 AM, awallejr (79.96) wrote:

Same guy who lost it all when he margined his holdings back in '08 and then the company bailed him out with CEO compensation. The guy is dirty but the system lets him get away with it. Cramer keep pumping him.

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#13) On April 19, 2012 at 4:35 AM, memoandstitch (< 20) wrote:

Why would anyone want a 1.96% yield when XOM is paying more than that.

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#14) On April 19, 2012 at 10:57 AM, TheDumbMoney (64.50) wrote:

memo, excellent point.

And I would also note that by owning XOM, as I do (it's one of my top two holdings), I have more natural gas exposure than I would by holding CHK, because of, among other things, XOM's purchase of XTO.

And I would also note that it's significant that XOM purchased XTO and not CHK. XOM has GREAT governance practices, and so did XTO Energy.

That said, I foresee some major buying out CHK at some point, quite possibly at a large premium to where it trades at today. If they don't get rid of Aubrey McClendon though, the major is stupid.

www.dumbmoney.tumblr.com

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