$23.03
-0.37 (-1.58%)
Chesapeake Energy Corp (CHK)
CAPS Rating:
An oil and natural gas exploration and production company engaged in the acquisition, exploration and development of properties for the production of crude oil and natural gas from underground reservoirs and the marketing of natural gas and oil.
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Chesapeake continues to try to find new ways to raise money. The current shelf offering with and intent to sell shares in 2009 should not surprise anyone as a tactic to stay in business hoping for a turn around in Natural Gas to the $9-10 level where their resource (read shale, low quality tight gas)plays will again break even. A decline in rig rates might help but that requires renegotiating long term contracts.
If they continue to sell off the company in little pieces, what will be left for common stock investors? Fancy analysis, analyst estimates and large reserve figures are fine unless the commodity is priced below break even.
CHK has been highly recommended to me and I own at $20 share and was dumbfounded to see it drop IN HALF within a month from purchasing, after thinking I'm so smart getting it after it had already dropped from $70 to $20. You appear more knowledged that I concerning CHK and ask your advise when you feel a particular direction that the stock will move. In consideration I will take you to a Steelers game. Thank you, GBM3rd Pittsburgh, Pa
Despite the 'bulls' that like this stock and its audacious CEO, the near term future for Natural Gas is not particularly good. You need to watch the prices of the commodity and the costs to drill and produce it. This is what makes investing in Oil and Gas companies particularly difficult. We've just gone through a long period of increasing prices of the commodity that is lagged by rising drilling rig rates and other associated costs. As time passes rig rates and costs will fall. My own analysis tells me that CHK probably needs $8 natural gas to drill and produce the Haynesville Shale gas, their other plays will have different 'base prices'. I've only looked at the Haynesville in detail because of the hype about it this year and I'm looking for opportunities. If you want to watch commodity prices an easy place to start is at www.ino.com and look at the energy tab, scroll down to either crude oil or natural gas. All the rest of those line items are different instruments that professionals with larger companies worry about, I don't. If you click on natural gas the various prices for the next 13 years will open and you can see the CURRENT price of each forward month's gas. Why does this matter? its a really quick way to see what those smart guys in Chicago think prices are going. Right now to get $8 gas you have a long way to go. The other spot to look at is what the gas storage number is. Storage at present is effectively full. The EIA, a gov't organization, tracks storage and will email the latest number to you from their website as new data appear.From those two spots you can begin to get a handle on the direction of the Natural Gas market in the US.Why am I not happy with Chesapeake?? mainly because of their debt and their collective stupidity in the Haynesville play. There is not enough room here to explain it all. The short answer is as follows. Cost to drill & complete a Hayesville well $8,000,000; app cost of leasehold at $25,000 per acre (25,000 * 40 acres/well)= $1,000,000; total costs $9,000,000; the royalty paid to someone is about 25%; which means you only get 75% of the revenue from cash flow after ad valorem and severance taxes estimate another 10% including operating expenses. Gas is presently about $5.50 so payout of the well, payout is the point in the future where you start to make money is about (9,000,000/.75)= $12,000,000 add that 10% for ad valorem and severance and you need in round number $13,500,000 to pay out a well. If gas is $5.50, more or less right now, then you get paid out when you've produced 2.45 BCF. that's a lot of gas if the wells are forecast to be 6.5 bcf Estimated Ultimate Recoverable then you have a 2:1 deal ie for what you've put in you get your money back twice. In how long you ask? that's the question to ask. I don't know. A much better case is with gas at $8.00, there payout is at 1.7 bcf and the deal is about 3:1 over the same time period how ever long that is.As the cost to complete these wells falls then the economics will get better, but its a big dance to see where the price/cost/ equations work best.I don't try to predict stocks turning one way or another, just get a handle on the hype.I don't currently own CHK or any instruments for or agin' it. But I can tell you I didn't have the guts to short the stock at $70.sincerelyMapboys
Today I bought CHK and sold a call on all the shares, a Jan 09 $17.50 . I still don't like the stock long term, but I feel safe enough to sell the call and hope that by the call date I won't have it anymore. The natural gas storage withdrawal today was only 124 bcf and storage is still above 3 TCF which is still a lot of gas in the ground, it portends lower gas prices into the spring unless we have a really cold winter.