Yeah you are right, it was just pretty interesting how high CLR was compared to both Devon and CHK.... I agree when you look at CHK's statements it's pretty hard to see something that looks positive, but it is so cheap right now if natural gas consumption increases it could be a pretty good buy
He definitely has questionable judgement IMO with regard to mixing personal finances/business but I certainly wish no ill on CHK or their employees. The company's financials are ok if they cut their capital expenditures...so all this talk of bankruptcy seems premature and frankly it's downright scary for OKC. Even if you disapprove of some decisions made, you shouldn't root for a company to go belly up...
A SEC investigation will primarily focus on Aubrey and they will most certainly call him out on not disclosing the hedge fund and the relationship it had with Cheaspeake. How much trouble he gets in remains to be seen.
Won't really affect Cheaspeake itself, though. I know, famous last words.
Chesapeake should be open to buyout-top investor 05/07
May 7 (Reuters) - Chesapeake Energy Corp's (CHK:$17.13,00$-0.26,00-1.50%) largest shareholder urged the natural gas company to remain open to acquisition offers despite the weakness of its share price.
In a letter to Chief Executive Aubrey McClendon, Southeastern Asset Management, holder of a 13.6 percent stake in Chesapeake, acknowledged the "dangers of opening such conversations" as the company struggles with concerns about McClendon's business dealings, on top of the low natural gas prices.
"However, we also don't want to use this large price-to-value gap as an excuse to refuse discussions with any potential acquirers who would be willing to pay a price today that recognizes the longer term value of the company," said the letter, filed with U.S. securities regulators on Monday and signed by Southeastern CEO Mason Hawkins.
While experts caution that pulling off a sale of Chesapeake would be extremely complicated, Southeastern said last week that it planned to take a more active role in the affairs of the company.
Discontent among Chesapeake investors has grown following a series of revelations about the company, including a Reuters report saying that McClendon has pledged his interests in Chesapeake wells as collateral for more than $1.1 billion of personal loans.
The Southeastern letter urged the company to accelerate its sales of assets not core to its exploration and production business, and expressed concern about the amount of time Chesapeake's management has spent on "unproductive communications" at conferences and in media interviews.
"We appreciated receiving the letter and look forward to further discussions with our largest shareholder in the days and weeks to come," Chesapeake spokesman Michael Kehs said.
Shares of Chesapeake were down 1.3 percent, at $17.16, in late afternoon trading. The stock hit its lowest level in three years last week at $16.70, or more than 75 percent below its 2008 peak.
"The problem you are going to have with Chesapeake is that it has become a very complex company because of the financings they've had to do," said Neal Dingmann at Suntrust Robinson Humphrey, who puts the company's net asset value at $30 per share.
"Because of the complexity of the company, somebody is going to really have to want those assets."
Dingmann's view was echoed by an investment banker who spoke last week on the condition of anonymity. "To the extent to which they have clean assets, those are the ones that they've basically marked for sale, because they can and because they have to," the banker said. "I think it's tough."
Maynard's article is a little bit concerning, now that the largest shareholder is speaking out...
Somewhere the intrinsic value of CHK makes it a good investment….. but where is the question?
Chesapeake Energy Corp., battered by a glut-driven collapse in natural-gas prices and growing investor distrust of its management, still is the cheapest way of buying into the U.S. shale revolution.
Investors can lay hands on the equivalent of one barrel of oil reserves from Chesapeake for $3.58, compared with $9.07 a barrel at Devon Energy Corp. or $30.47 at Continental Resources Inc., the dominant player in North Dakota's crude-rich Bakken Shale, according to data compiled by Bloomberg.
On a price-to-cash flow basis, Chesapeake also is less expensive than any other major U.S. shale explorer.
Now that the board of the Oklahoma City-based company has said it will remove CEO Aubrey McClendon from the chairman's post and examine his personal transactions for any conflicts, analysts such as Bob Brackett at Sanford C. Bernstein & Co. said the focus is on how well the CEO follows through on promises to raise cash by selling assets in Texas, Oklahoma and Kansas. An incipient gas rally also portends well for a company whose output is 81 percent gas and that holds reserves vast enough to satisfy four years of U.S. household demand.
"Chesapeake is going to bounce back," said Gianna Bern, president of Brookshire Advisory & Research Inc. in Chicago, who owns shares of Chesapeake's publicly traded pipeline business, Chesapeake Midstream Partners LP. "There is no substitute for good geology and Chesapeake has leading positions in many of the richest American shale plays."
Chesapeake is the largest holder of onshore drilling leases with 15.6 million acres under its control, an area half the size of New York state. The company has amassed the biggest leaseholds in 11 of the 15 richest U.S. oil-shale formations and three of the four biggest gas-shale regions. Chesapeake held proved reserves at the end of 2011 equivalent to 3.13 billion barrels of oil.
Chesapeake lost 43 percent of its market value in the past year as new wells in shale fields unleashed more gas than utilities, manufacturers and residential consumers could burn. The supply surplus, aggravated by a mild U.S. winter that curbed furnace usage, pushed prices to a 10-year low of $1.902 per million British thermal units April 19.
The stock had its steepest drop in three years May 2 as investors punished the company for an unexpected $71 million first-quarter loss and concern about conflicts between McClendon's personal finances and professional duties.
Inquiries under way
Chesapeake was the best performer Friday on the Standard & Poor's 500 Energy Index. The shares rose 1.2 percent to finish at $17.39.
Chesapeake's price-to-cash flow ratio is less than half of Devon or Chevron Corp., according to data compiled by Bloomberg. Range Resources Corp., which drills shale formations in Appalachia, has a ratio more than seven times bigger.
The board is examining whether McClendon's use of personal stakes in company-operated wells as collateral to obtain hundreds of millions of dollars in loans put the CEO at odds with shareholders' interests. Chesapeake is searching for someone outside of the company to replace McClendon in the chairman's spot.
The U.S. Securities & Exchange Commission has opened an informal inquiry, according to a company statement Thursday. Investigators will look into whether McClendon failed to disclose possible conflicts of interest, sources say. Chesapeake and McClendon are cooperating.
Tom Nelson, who helps manage $13.5 million in Chesapeake shares at Guinness Atkinson Asset Management Ltd. in London, is looking past the corporate-governance dust-up to what a recovery in natural gas prices will mean for Chesapeake's cash flow and profits.
Gas on the rise
"One thing that everyone is choosing to discount is a continued recovery in the gas price," Nelson said. "If and when that comes to pass, and we think it will in the next 24 months, then Chesapeake is in a very strong position."
The gas recovery may already have begun: The benchmark futures contract on the New York Mercantile Exchange rose 19 percent in the past two weeks to settle at $2.291 per million British thermal units. By the first quarter of next year, the price is expected to reach $3.60, based on the median of nine analysts' estimates compiled by Bloomberg, 53 percent more than Thursday's closing price.
The glut isn't going to last long because power generators in the U.S. are burning gas at a rate not usually seen until June, said Ben Smith, president of First Enercast Financial, a Denver-based gas broker. As utilities eschew coal in favor of cleaner burning gas, Smith expects domestic gas demand to meet or exceed the record levels reached during June to September 2011.
"I'm very bullish on gas," Smith said. "We're seeing a significant demand response. Any price under $3 is too low."
Even with gas close to a 10-year low, Chesapeake expects to fulfill its pledge to reduce net debt to $9.5 billion by the end of this year from $12.6 billion at the end of the first quarter, said Jeffrey L. Mobley, Chesapeake's senior vice president of investor relations and research, in an interview.
After raising $2.6 billion from asset sales during the first four months of this year, the company plans to sell another $9.5 billion to $11 billion in oilfields and other properties, including everything it owns in Texas' Permian Basin, Mobley said.
"Our plan is still intact and on track to achieve the goals we set forth," he said.
Some analysts, such as James Sullivan of Alembic Global Advisors in New York, are cautioning investors that Chesapeake's stock may be prone to volatile swings for some time to come. "We think there's going to be a lot of headlines in the weeks and months to come and we'd rather let some of that get resolved first," Sullivan said. "We're also looking to see some concrete action on debt reduction and some of the other financial metrics."
Doesn't seem like they would need all these additional employees if the plan is to sell assets. What would they manage?
from twitter, no idea if this is/isn't true:
Hearing conflicting reports that $CHK is & is not in a hiring freeze. Who knows.
Exclusive: After McClendon's trades, Chesapeake board gave blessing
(Reuters) - In its latest employment contract with CEO Aubrey McClendon, Chesapeake Energy Corp gave him permission to trade commodities for himself after he already had begun doing so.
Giving the CEO explicit license to play the markets represented an extraordinary incentive that enhanced one of corporate America's most generous compensation plans and reinforced the unique treatment afforded to McClendon by Chesapeake.
Oil and gas producers say they typically prohibit such trading by executives because of the potential for conflicts of interest. Indeed, Reuters found that McClendon, 52, was granted greater leeway to participate in external ventures than were his top lieutenants.
The 2009 contract did, however, limit McClendon in at least one way: Months after his personal hedge fund shut down, the agreement explicitly banned McClendon from taking an active role in any hedge fund.
The contract raises new questions about what Chesapeake board members knew of McClendon's personal investments, and whether his dealings might be at odds with his fiduciary responsibilities as head of the second-largest natural gas producer in the United States.
It isn't clear why Chesapeake changed the contract. Two board members declined to comment, and Chesapeake spokesman Michael Kehs said only that McClendon's employment contracts "fall under board review." Through a personal spokesman, McClendon also declined to comment.
Some lawyers and commodity-trading analysts said they were troubled by provisions in McClendon's agreements with the company. At a minimum, they said, McClendon could be distracted from his job at Chesapeake by his outside business activities.
They also said McClendon could have used privileged Chesapeake information to advance his own trading.
"This is edge-of-the-universe contract language," said Saul Cohen, a retired securities lawyer who formerly served as general counsel at investment bank Lehman Brothers.
Last week, Chesapeake's board stripped McClendon of his chairmanship after Reuters reported that he had taken $1.1 billion in personal loans against his stakes in Chesapeake wells during the past three years. The loans, which came mostly from an investment-management company that also did business with Chesapeake, hadn't been disclosed to shareholders. The Securities and Exchange Commission and the Internal Revenue Service have launched inquiries.
Reuters subsequently reported that McClendon partially owned and helped run a $200 million private hedge fund from within Chesapeake's Oklahoma headquarters. The fund, Heritage Management Company LLC, operated between 2004 and 2008 and traded McClendon's own cash in markets including natural gas and oil, the same commodities that Chesapeake produces.
On Friday, Senator Bill Nelson, a Democrat from Florida, asked U.S. Attorney General Eric Holder to investigate McClendon's private commodity trading for potential fraud, insider trading or commodity price manipulation.
HEDGE FUND RESTRICTION
The 2009 contract, which extends for five years, is McClendon's first to include a specific mention of hedge funds or commodity market investments, part of a new sub-section governing the types of investments he could pursue.
It says McClendon is allowed to trade a range of financial instruments such as commodities - including "short positions, long positions or positions in options" in both futures and over-the-counter markets.
It also states that McClendon could put cash into a "passive investment entity," including a hedge fund, provided it "does not actively engage in (exploration and production) activities," and "for which the Executive does not directly or indirectly provide input, advice or management."
Why Chesapeake made the changes remains unclear. The revisions could indicate they were aware of McClendon's personal hedge fund and worried that such a side business might run afoul of shareholders, according to legal experts who reviewed McClendon's current and prior contracts.
The former head trader at the Heritage hedge fund, Peter Cirino, said McClendon and Chesapeake co-founder Tom Ward spent significant amounts of time managing Heritage between 2004 and 2008. That often included daily communications between McClendon and Heritage traders, weekly strategy calls that could be "exhaustive," frequent meetings with traders in New York and occasionally in Oklahoma, and meetings or calls between McClendon and investors, Cirino said.
Chesapeake's board hasn't said whether it knew about Heritage or whether it vetted the hedge fund's trading for any conflicts. Ward said he couldn't recall whether the fund was disclosed. Even though the company still allows McClendon to trade in commodities, the 2009 agreement does signal that it was tightening its grip to some degree.
"In 2004, they had a contract that was not nearly as long, not nearly as precise," said John Coffee, a contract law professor at Columbia University. "It looks like the board learned something over the years and was increasingly beginning to restrict his activities," Coffee said of McClendon.
TRAIL OF REVISIONS
Reuters reviewed McClendon's employment contracts with Chesapeake, filed with securities regulators, since 1997. In that time, the contracts have been revised or amended about a dozen times, for a variety of reasons.
Some of the revisions relate to the controversial Founders Well Participation Program, which allowed McClendon to buy as much as a 2.5 percent share in all wells that Chesapeake drills. In the wake of the Reuters investigation into McClendon's personal borrowing, Chesapeake's board announced it would discontinue the program in 2014.
One example of the changes comes in a section of the contract called "outside activities." Initially, that section imposed a blanket ban on McClendon serving as an officer, general partner or member of an outside enterprise. It did not differentiate between public or private firms.
In July 2001, that ban was relaxed. The new contract said he could become a "general partner or member of any corporation, partnership, company or firm," so long as the activity was a "passive investment" that involved "minimal" time. It barred him from any role in a "public" company.
In July 2005, shortly after Heritage was established, the contract was again revised. The new contract said he could not "engage in activities which require such substantial services" that McClendon would be "unable to perform the duties assigned to the Executive in accordance with this Agreement." It also said he could not "serve as an officer or director of any publicly held entity" but made no other mention of external management roles.
That text remains in place in the last contract, which took effect March 1, 2009. The new text addressing commodity trading and hedge funds also has been in place since then.
McClendon's contract gives him more latitude for outside ventures than his subordinates are allowed.
Chesapeake's contracts with at least four other senior executives say the executives may not "engage in other business activities independent of" Chesapeake. They specifically ban the executives from serving "as a general partner, officer, executive, director or member of any corporation, partnership, company or firm."
PAY TO STAY
During 2008, a year in which McClendon still operated the Heritage hedge fund, Chesapeake's board awarded him the biggest pay package of any Fortune 500 CEO. It was worth around $112 million. A group of shareholders later sued, calling the pay package too generous.
The company also gave McClendon a $75 million cash bonus that year - the same year that margin calls from his brokers forced McClendon to unload more than 90 percent of his Chesapeake shares. He suffered a $2 billion paper loss, and his selling contributed to an 88 percent fall in Chesapeake's share price from its all-time high of $74 that year.
In its disclosure statement of January 7, 2009, Chesapeake explained why it chose to compensate McClendon as it did: "Because of other entrepreneurial opportunities that exist in the industry and Mr. McClendon's reduced Company stock holdings, the Compensation Committee focused on providing a retention incentive to Mr. McClendon that the Compensation Committee believed would be effective for multiple years without issuing substantial equity awards at current stock prices, which the Compensation Committee views as depressed."
The company didn't elaborate on that statement.
Exclusive: Chesapeake CEO arranged new $450 million loan from company financier
By Jennifer Ablan
(Reuters) - In the weeks before Chesapeake Energy CEO Aubrey McClendon was stripped of his chairmanship over his personal financial dealings, he arranged an additional $450 million loan from a longtime backer, according to a person familiar with the transaction.
That loan, previously undisclosed, was made by investment-management firm EIG Global Energy Partners, which was at the same time helping arrange a major $1.25 billion round of financing for Chesapeake itself.
The new loan brings the energy executive's total financing from EIG since 2010 to $1.33 billion and his current balance due to $1.1 billion, this person said. It was secured by McClendon's personal stakes in wells that have yet to be drilled by Chesapeake - and by his own life-insurance policy.
A spokesman for McClendon declined to comment; a spokesman for Chesapeake didn't respond to a request for comment.
The latest insight into McClendon's personal financial deals comes in the wake of an April 18 Reuters investigation that found McClendon had borrowed heavily against his interests in wells owned by Chesapeake, mostly from EIG.
Last week, Reuters reported that McClendon had co-owned and actively invested in a $200 million hedge fund that bought and sold the same commodities produced by Chesapeake.
An outcry over potential conflicts of interest in the loans prompted inquiries by the Securities and Exchange Commission and the Internal Revenue Service. It also spurred Chesapeake's board on May 1 to remove McClendon as chairman (though not as chief executive) and to declare an early end to a controversial perk at the center of the borrowings.
All told, McClendon has taken out loans worth $1.55 billion since 2009 from EIG and other lenders to fund his participation in Chesapeake's Founders Well Participation Program. That perk enables him to receive a stake of up to 2.5 percent in all the wells Chesapeake drills in return for shouldering the same percentage of the wells' costs.
The latest McClendon loan was arranged in late March through a McClendon-controlled company called Pelican Energy LLC, which was formed on March 6.
The deal was initially intended to be significantly larger, up to $750 million, said the person familiar with the transaction. It was scaled back last week after the Chesapeake board announced the early end to the well-stake perk, which is now slated to conclude in June 2014.
The newest financing for McClendon closed shortly before EIG joined with other investment firms and hedge funds, such as TPG Capital and Magnetar Capital, in purchasing preferred shares in a newly formed Chesapeake subsidiary that has an interest in some of the company's wells. EIG invested $100 million in that deal, called CHK Cleveland Tonkawa, which raised $1.25 billion for Chesapeake.
An EIG spokeswoman declined to comment on the newest loan or on concerns of some analysts over EIG's dual role as a financier to Chesapeake and its CEO.
In an April 23 letter to investors in two of EIG's investment funds, EIG chief executive officer R. Blair Thomas said it is "simply untrue" that there was any conflict of interest in its loans to McClendon and dealings with Chesapeake.
The Securities and Exchange Commission has opened an informal inquiry into Chesapeake's well program and the transactions involving McClendon.
In the letter, Thomas discussed two earlier loan deals that EIG had done with McClendon, involving McClendon-controlled entities called Larchmont Resources LLC and Jamestown Resources LLC. There was no mention in the letter of the financing deal completed in March to Pelican Energy.
The person familiar with the deal said Pelican was not mentioned in the letter because EIG clients "already knew about Pelican" and the loan hasn't been disbursed yet.
This person added that when Pelican was launched, EIG sent a letter and "information packet" to clients advising them of the new financing and opening the loan vehicle up to investor participation.
EIG, which spun out of the Los Angeles-based bond shop TCW in 2011, has $13 billion of assets under management.
In the latest $450 million financing, EIG secured as collateral all the assets of Pelican Energy LLC. These include McClendon's interests in wells Chesapeake might drill in 2013 and the first half of 2014. The EIG financing to Pelican will be used to enable McClendon to continue in the Chesapeake well program through June 2014.
For years, McClendon used companies he controls, including Larchmont, Jamestown and Arcadia Resources LP, to hold his stakes in the Chesapeake wells.
EIG funded Larchmont and Jamestown at $375 million and $500 million, respectively. EIG did not lend any money to Arcadia, which borrowed as much as $225 million in 2009.
The investors in the EIG funds that lent to McClendon include U.S. public pension funds, foundations and wealthy investors in Europe and Australia.
In his April 23 letter to clients, Thomas of EIG defended the two prior loans to McClendon, writing: "The crux of the story as it relates to EIG seems to be that we got too good a deal for our investors."
(Reporting by Jennifer Ablan; additional reporting by Brian Grow, Anna Driver and Jonathan Stempel; Edited by Matthew Goldstein and Michael Williams)
Shareholder urging Chesapeake not to dismiss acquisition offers
This, from the article, is a quote from the biggest institutional shareholder of Chesapeake stock:
“We urge the company to take action in three areas: debt targets, management focus and strategic options,” Southeastern CEO O. Mason Hawkins and two other officials wrote.
Southeastern said Chesapeake's current share price is far below its net asset value, so it would not support a “lowball” bid for the company.
“We also don't want to use this large price-to-value gas as an excuse to refuse discussions with any potential acquirers who would be willing to pay a price today that recognizes the longer term value of the company,” officials wrote Monday in a letter to McClendon and Chesapeake's board.
This is disturbing on several levels. The most obvious fear is that Chesapeake's largest shareholder is telling the board to sell off all or most of its assets and consider all acquisition offers. This is a harrowing turn of events for OKC.
And reading Pete's post above, I don't care what Aubrey has done for the community. Big whoop. He took other people's money and threw it around to build local good will. I have never heard anything kind said about the guy. I've heard from people who I know very well and are not prone to hyperbole that he's a megalomaniacal a-hole. Fine. Whatever. It doesn't matter. The guy is risking not only his company's future, but the future of his shareholder investors and this city's economy.
He and his rubber-stamp, overpaid board need to go NOW. The guy cannot control his personal impulse to spend money and be a big shot at Deep Fork buying $400 bottles of wine to show off for Rolling Stone. He's like a drunk. He has no ability for introspection.
And another lawsuit.
Chesapeake Energy Corp (CHK:$16.37,$-0.56,-3.31%) crossed below its 52-week low of $16.55 on 8:42 AM on May 09, 2012.
Some are enjoying the ride, some aren't.
$14 million + $10 million per year? That's nothing - Wait until someone brings up the overpayments for real estate.
If someone can find some kickbacks of that there was a conflict of interest in any of them (e.g. Aubrey had an interest in the seller, similar to the conflict of interest in the Chesapeake/Thunder transaction), THEN you'd have something.
I can only imagine the reporting resources the Oklahoman would throw at a story if the scandal involved a teacher, public employee, or, God forbid, a Democratic politician. With Aubrey's foibles, we get wire copy and a smarmy editorial cautioning readers not to "rush to judgment" about McClendon. Obviously, it appears Clay Bennett and Aubrey's business partnership is preventing the paper from doing its job of digging for news.
guru, remember that the Gaylords no longer have any ownership in OPUBCO.
And I happen to know they are working on at least one story of consequence.
Yes, you are correct, but they still are on the editorial board. Good to know they're working on something and not just getting scooped by all of these out of town media organizations.
OilCap - it's indisputable that they've overpaid for almost every piece of real estate, and that many of the purchases were NOT strategic to their core business of energy production or providing office space for that purpose. Most notable are NHP & CC (both of which are retail shopping centers), the wine storage building on Classen (out of the ground but cancelled) and the Christian Science Church. When their purchases began in earnest almost a decade ago, people learned quickly to hold out, raise their price to 2-3x FMV, and wait for a signed contract. CHK Land paid in almost every instance.
There were never any alleged kickbacks or conflict of interest in the deals, just a massive geographic expansion of the empire using OPM. It's the "OP" - shareholders - who are expressing their displeasure by filing suits.
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