delaying their quarterly filing, shares tanking again...
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Re: Chesapeake Business Practices
delaying their quarterly filing, shares tanking again...
Participating Member
Re: Chesapeake Business Practices
CHK is trading with a 15-handle now. Fresh 52-week low, down -10+% @ $15.41.
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Re: Chesapeake Business Practices
Chesapeake up against low-key activist Mason Hawkins 05/11 02:13 PM
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* Chesapeake shareholder Hawkins occasional activist
* Hawkins' value strategy has led to uneven performance
* Hawkins' fund has stake in Chesapeake since 2006
By Sam Forgione
NEW YORK, May 11 (Reuters) - O. Mason Hawkins, whose $34 billion mutual fund firm is Chesapeake Energy Corp's (CHK:$15.88,00$-1.30,00-7.57%) largest shareholder, is best known as a Warren Buffett-style value investor who takes big stakes in companies and holds them, often for years.
But occasionally Hawkins turns activist and agitates for corporate change. His firm, Southeastern Asset Management, owns 13.6 percent of the embattled natural gas company, whose shares are down 41 percent since Southeastern began building its stake six years ago.
Chesapeake's board has come under fire after Reuters publicized that the company's co-founder and Chief Executive Officer Aubrey McClendon had borrowed $1.5 billion against stakes he received in wells drills by Chesapeake.
Hawkins, chairman and chief executive officer of Southeastern, sent a letter to Chesapeake's board on May 7 urging them to be open to an approach by a potential acquirer. A few days earlier, Hawkins applauded the board's decision to strip McClendon of his title as chairman.
Just a few months ago, Hawkins was praising McClendon for his ability to monetize the company's oil, gas and land assets.
Yet with shares of Chesapeake plunging about 10 percent since the initial Reuters story on April 18 about McClendon's loans, Hawkins is emerging as the voice of the Oklahoma-based company's beleaguered stockholders.
He took a similar activist strategy with Olympus, the Japan-based optics manufacturer, after it got embroiled in an accounting fraud scandal last October.
But even before the disclosure about the loans to McClendon, shares of Chesapeake had fallen 54 percent since September 2008 as a result of a collapse in natural gas prices.
Hawkins' strategy of focusing on company fundamentals and seeking out stocks he believes are undervalued is one pioneered by Buffett at Berkshire Hathaway (BRK/A:$122,820.00,00$-130.00,00-0.11%) . But the returns of Hawkins' flagship Longleaf Partners Fund, which holds Southeastern's Chesapeake stake, have been anything but Buffett-like in the past five years.
Hawkins declined to comment on Chesapeake or his funds' performance, but emailed: "We appreciate your interest."
GRAHAM ACOLYTE
Hawkins, 64, was raised in Georgia and currently runs Southeastern out of Memphis, Tennessee. He is an acolyte of renowned value investor Benjamin Graham - also Buffett's idol - and donated $1 million to the Graham-Buffett Teaching Endowment fund in 1997.
Hawkins, an avid pheasant hunter, is known for his in-depth research into company management and told business students in a 2005 speech that he reviews "everything from their college days to their current CEO status."
There is little biographical information on the company's website and he is reluctant to speak to the press, rarely giving interviews.
Longleaf Partners Fund, which has $8.63 billion in assets and invests in companies as diverse as Walt Disney Co (DIS:$45.67,00$0.39,000.86%) , construction company Vulcan Materials (VMC:$40.03,00$0.04,000.10%) and Abbott Laboratories (ABT:$62.13,00$-0.09,00-0.14%) , has a five-year annualized return that is down about 2.42 percent. By comparison, mutual fund research firm Lipper reports other funds with similar investment styles are down just 0.4 percent over the same period.
Over the past five years, Berkshire Hathaway (BRK/A:$122,820.00,00$-130.00,00-0.11%) class A Shares are up 12.6 percent.
This year Longleaf is up 8.37 percent, modestly trailing the 8.49 percent gain in the S&P 500.
Longleaf suffered a big loss in 2008, during the height of the financial crisis, when it plunged 50.6 percent. Meanwhile, the S&P 500 and the fund's main competitors were down about 37 percent, according to Lipper data.
But Longleaf bounced back in 2009 with a 53.6 percent return that dominated its peer group.
LONG-TERM VIEW
Fund experts and Hawkins admirers say lagging performance from time to time is to be expected with a fund that goes after beaten down stocks and generally invests in no more than 25 companies at a given time.
"If you're a value investor like they are, you're going to have times where you're very much out of step with the market. And they have been out of step with the market for the last couple of years," said Don Phillips, president of fund research at Morningstar.
John Rogers, the head of Ariel Investments, said "the short-term performance is totally irrelevant to me," and likened Hawkins' letters to shareholders to those of Buffett and PIMCO co-founder Bill Gross. Rogers, whose mutual fund firm follows a similar strategy to Southeastern's, said Hawkins' funds are offered in the 401K plan for Ariel's employees.
Hawkins' faith in Chesapeake had not waned much until recently.
Longleaf bought over 20 million shares of Chesapeake in the second quarter of 2006 and has steadily increased its exposure ever since, except for a 13-million share reduction in the first quarter of 2008, according to regulatory filings. As of May 2, 2012, the fund owned almost 90 million shares.
Over that period, Chesapeake's stock has plunged 41 percent.
Hawkins, in his 2011 letter to investors, generally praised McClendon's stewardship of the company.
"Aubrey McClendon, co-founder and CEO, has been controversial but has consistently monetized assets at far above cost," Hawkins wrote.
PUSH FOR CHANGE
With Olympus, Hawkins only went activist in late October after the accounting scandal broke, eventually calling in November for key members of the company's board to resign or be replaced.
In March, Southeastern reduced its stake in Olympus to 3.95 percent from 5.09 percent, after its proposal for a new lineup fell short of getting sufficient shareholder support.
Hawkins has also signaled that Southeastern may push for change at Vulcan Materials Co (VMC:$40.03,00$0.04,000.10%) and Martin Marietta Materials Inc (MLM:$76.72,00$-0.27,00-0.35%) by filing 13D stakes in each this year, which give shareholders special voting and investment power under Securities and Exchange Commission rules.
Those who know Hawkins say that his activism stems from his conviction in his holdings rather than a desire to seek out conflict.
"On the scale of those that just go out and raise money to be activist, he's not on that scale at all," said Mario Gabelli, chairman and chief executive officer of GAMCO Investors Inc.
Gabelli added that Hawkins doesn't advertise his activism, but adopts it when he senses "something wrong in the company in terms of corporate governance."
Participating Member
Re: Chesapeake Business Practices
Welp, that 15-handle didn't last long -- trading in the 14's now (day low @ 14.49).Originally Posted by Maynard
Participating Member
Re: Chesapeake Business Practices
Wasn't that odd? The 'delayed filing', then the 10Q filing, then the bad news in the filing.
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Chesapeake may delay assets sales - filing 05/11 03:04 PM
May 11 (Reuters) - Chesapeake Energy Corp (CHK:$14.802,0$-2.378,0-13.84%) may delay assets sales in order to preserve cash flow needed to comply with requirements of its corporate credit facility, the company said in a regulatory filing on Friday.
Chesapeake has previously said it planned to sell or monetize assets in order to reduce its debt and cover a spending shortfall.
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Re: Chesapeake Business Practices
Chesapeake Energy CEO on shaky ground with W.Va. land mortgages
By Erich Schwartzel / Pittsburgh Post-Gazette
BROOKE COUNTY, W.Va. -- Most of the clusters of land that Chesapeake Energy has leased for natural gas drilling in this rural West Virginia county are pooled into rectangular shapes that lean northwest, the better to allow the rock below to fracture properly and the better to make room for a massive drill.
Yet the only two Brooke County properties that the Oklahoma company's CEO Aubrey McClendon has chosen to mortgage his personal drilling stakes in do not fit that mold.
Marred by gaps of land out of the company's control, neither cluster appears likely to see the level of drilling needed to pay back Mr. McClendon's loans.
That may be strategic.
By mortgaging properties that appear to be some of his company's least desirable assets, Mr. McClendon can raise money off holdings that might not otherwise be profitable. And should he default on the loans, he would lose a stake in property that wasn't his company's best bet anyway.
The arrangement protects Mr. McClendon from bigger personal losses while exposing the company's shareholders to the kind of risky financial deals that have drawn scrutiny and caused the stock price to plummet in recent weeks.
Meanwhile, the private equity firms lending the money for the mortgages haven't specified what research went into the properties, and shareholders have been told little about the specific pieces of farmland that are being used by Mr. McClendon to raise money on the promise of future drilling.
The issue of the CEO's mortgages has been in the spotlight lately, although the program that allows Mr. McClendon to purchase a 2.5 percent stake in every well drilled by Chesapeake Energy has been in place for years. Mr. McClendon has been borrowing against the stakes he acquired through the Founders Well Participation Program, allowing him to raise cash at a time when competitors are pulling back and waiting for natural gas prices to rise.
The undisclosed mortgages, taken out by Mr. McClendon's Jamestown Resources company, are said to top $1 billion -- an amount of money that critics say indicates an unsustainable practice of constant leveraging.
Critics see a parallel strategy in Mr. McClendon's high-risk personal portfolio and the company's ongoing debt problems, with more than $10 billion in debt reported last quarter. For his part, Mr. McClendon has said he's aligning his personal portfolio with his company's success, assuring shareholders that's the recipe for an incentivized executive.
But in Brooke County, the CEO's personal portfolio is aligned with some of his company's least promising assets.
One cluster of land that he has borrowed against has a sizable chunk of necessary property missing in the middle -- courtesy of a neighbor who refuses to sign a lease. Another is a jagged assembling of properties that looks nothing like the other pooled units in Brooke County.
Even in the case of the most promising land units, the risk of using these oil and gas interests as collateral seems high.
Industry activity underground has slowed because natural gas prices have dipped to levels that not even the private equity firms granting the mortgages anticipated when underwriting them. And up on the surface, the promise of lucrative future drilling is compromised by the politics and drilling delays of the Marcellus region, whether it's because of neighbors who refuse to allow drilling on their land or firms that lease land right next door.
Brooke County's example raises the question: How valuable are the properties being used to raise this controversial capital?
•
In 2005, Chesapeake shareholders approved Mr. McClendon's participation in the Founders Well Participation Program, an arrangement that allowed the CEO to take a working 2.5 percent interest in each well his company drills. Mr. McClendon's quiet mortgaging of those stakes has prompted shareholder lawsuits, forced Mr. McClendon to give up his chairmanship position and raised questions about Chesapeake's aggressive expansion into natural gas-rich shale regions in Appalachia.
The mortgages -- first reported by the Post-Gazette on March 25 -- borrow against whole drilling units and is financing his share of the well costs.
Chesapeake has assembled its West Virginia properties into "units" that treat multiple plots of land as one giant holding, often with several wells on each.
Units in Brooke County tend to follow a similar shape: they are relatively clean, tilted rectangles that slant toward the northwest. The units are laid out that way because drillers fracture shale rock in a northwest direction, running perpendicular to the east-facing formation. That creates the maximum amount of fissures and allows shale gas to escape more freely.
Only two units in Brooke County don't have the layout conducive to northwest-facing drilling. Those are the two properties that Mr. McClendon has mortgaged.
Each already has one well on the property, but any future development needed to fully drain the acreage is going to face several impediments.
Drillers typically space wells about 1,000 feet apart, and will usually drill horizontally underground at least 3,000 feet, said Tim Carr, a professor of geology and geography at West Virginia University.
Using maps that Chesapeake submitted to Brooke County officials, it becomes clear that the John Hupp North and Mildred Mani units are unlikely to see the same scale of drilling activity as the unmortgaged properties.
One unit, the 461-acre John Hupp, has a sizable piece of acreage missing from the middle that would stop any additional drilling rig from traveling the optimal 5,000 feet underground.
That missing acreage is property owned by Marion Stone, a Brooke County woman who refuses to sign a lease with Chesapeake over what she sees as unfair lease terms and company practices.
Chesapeake has drilled one well on the John Hupp unit, along its far west portion. Any well that might run parallel to that first drill would be cut short by Ms. Stone's unleased property.
Another land cluster, called the Mildred Mani unit, is a jumbled, 254-acre shape with angular cuts and one current well. Buying up the surrounding property to make the unit more symmetrical would be difficult, as well. Most of it is owned by BP and Somerset Minerals LP.
Still, Mr. McClendon has been able to generate cash flow from these two less-than-desirable holdings through mortgages with EIG Global Energy Partners, a Washington, D.C.-based energy investment company.
The two properties represent a small portion of Chesapeake's holdings in Brooke County.
The company owns more than 11,000 acres there, most of it acquired through a land swap with driller Range Resources in 2010. Pooling several properties into giant "units" allows the company to minimize surface impact and extract gas from multiple leaseholds using a single rig, the company says.
Work on the Hupp and Mani units is further complicated because companies often save money by planning sequential wells on the same unit. That helps avoid the need to move rigs and equipment far distances.
"Shale gas is like McDonald's," said Mr. Carr. "You're making your money on your ability to do it efficiently."
Chesapeake referred questions to Ron Hutcheson, a crisis management specialist responding to inquiries about Mr. McClendon's personal assets. Mr. Hutcheson declined comment for this story.
•
While the Hupp and Mani units illustrate the physical challenges in treating oil and gas interests as a traded commodity, both units point also to the built-in market risks that come with trading natural gas mortgages like the home mortgages that soured the economy in 2008.
Natural gas prices have plummeted to their lowest levels in years, dipping below $2 per Mcf and forcing companies across the industry to temper Marcellus Shale operations and reduce projections.
When EIG agreed to take on Mr. McClendon's loans, the company underwrote the mortgages at a time when natural gas was selling at around $6 per Mcf, said a source with knowledge of the firms' agreement.
Now that gas prices have fallen sharply, any return for EIG on these mortgages could take up to six years, the source said -- perhaps triple the amount of time the company initially hoped.
Proponents of the mortgage arrangement say the energy sector is not a get-rich-quick business, and that EIG and Chesapeake see this as a long-term strategy.
Yet EIG is protecting itself, too, with interest rates on Chesapeake's loans as high as 13 percent.
"It's the equivalent of a payday loan," said Mark Hanson, a Chicago-based analyst at Morningstar Inc. "It only speaks to the corner that Mr. McClendon has put himself into. You only go to a loan shark when you have nowhere else to go."
EIG and the other firms that issued Mr. McClendon's mortgages don't stand to lose if the company or its CEO file for bankruptcy.
That's because the company is required to continue paying so-called working interest partners off a well's revenue, even in the event of a bankruptcy brought on by the recent trouble, meaning royalty checks would still go to landowners and EIG would still receive payments on its loans.
Should either bankruptcy occur, however, it might jeopardize EIG's mortgaging of any future wells that Chesapeake drills.
Mr. McClendon's personal 2.5 percent program isn't due to expire until June 2014
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Re: Chesapeake Business Practices
Stock closed down 13.9% today at $14.85 on late news that they're delaying asset sales due to compliance concerns with existing credit facilities. Is the decline in stock price now having a profound affect on market cap, which in turn is jeopardizing loan covenants? Or put more simply, are they running out of unpledged assets they can sell?
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Re: Chesapeake Business Practices
http://www.bloomberg.com/news/2012-0...ke-energy.html
Pickens Says He’s Sold Off Holdings of Chesapeake Energy
By Kelly Bit and Katherine Burton - May 10, 2012 11:01 PM CT .
T. Boone Pickens, the billionaire energy investor, said he’s sold off his shares in Chesapeake Energy Corp. (CHK), his third-biggest stock holding at year-end.
“We do not own Chesapeake stock,” Pickens said yesterday at the SkyBridge Alternatives Conference in Las Vegas. “We didn’t like natural gas.”
Chesapeake’s directors said last week they will strip Aubrey McClendon of the chairman’s post and are conducting an internal review of his personal transactions involving corporate jet travel, and the U.S. Securities and Exchange Commission opened an informal inquiry. The stock declined 23 percent in 2012 through yesterday.
Asked whether it was “the politics of the company” that spurred his share sale, Pickens said, “It was not.”
“Aubrey is a good friend,” Pickens said. “The guy has pulled off some unusual deals. He’s done some very innovative things. He’s in a spot where he’s spending more than his cash flow.”
BP Capital Management, the investment firm Pickens founded in 1996, held 570,055 shares of Chesapeake as of Dec. 31, according to data compiled by Bloomberg. Its biggest equity holdings were BP Plc (BP/) and McMoRan Exploration Co. (MMR)
Pickens said the price of West Texas Intermediate oil could reach as high as $128 a barrel later this year. The oil for June delivery traded at about $96 a barrel yesterday.
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Re: Chesapeake Business Practices
Chesapeake Energy Corporation Enhances Financial Flexibility with $3.0 Billion Unsecured Loan to Be Repaid from 2012 Asset Sales 05/11 06:19 PM
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OKLAHOMA CITY--(BUSINESS WIRE)-- Chesapeake Energy Corporation (CHK:$14.81,00$-2.37,00-13.80%) today announced it has entered into a $3.0 billion unsecured loan from Goldman Sachs Bank USA and affiliates of Jefferies Group, Inc. The net proceeds of the loan, after payment of customary fees and original issue discount (if any), will be utilized to repay borrowings under the company’s existing corporate revolving credit facility.
The new facility, which ranks pari passu to Chesapeake’s outstanding senior notes, matures on December 2, 2017 and may be repaid at any time this year without penalty at par value and carries an initial variable annual interest rate through December 31, 2012 of LIBOR plus 7.0%, which is currently 8.5%, given the 1.5% LIBOR floor in the loan agreement. During the remainder of the year, Chesapeake plans to complete asset sales totaling $9.0-$11.5 billion and intends to use a portion of the proceeds from these asset sales to repay the loan. Chesapeake has received strong interest from prospective buyers of its Permian Basin asset sales process and its Mississippi Lime joint venture process, and the company expects to complete these two transactions in the 2012 third quarter.
Management Comments
Aubrey K. McClendon, Chairman and Chief Executive Officer, said, “This short-term loan from Goldman and Jefferies provides us with significant additional financial flexibility as we execute our asset sales during the remainder of 2012.
As previously announced, Chesapeake’s business strategy is evolving in 2012 from the unconventional resource play identification and leasehold capture strategy of the past seven years to a strategy now focused exclusively on developing the 10 core plays in which we have built a #1 or #2 position and on continuing our transition from natural gas to liquids, reducing capital expenditures and paying down long-term debt. We believe Chesapeake has built the nation’s best collection of E&P assets, and we are 100% committed to delivering on the very substantial growth and value embedded in these assets for our shareholders through a relentless focus on developing our 10 core plays.”
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Re: Chesapeake Business Practices
^^
So does this pretty much amount to a bailout?
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Re: Chesapeake Business Practices
I can’t wait to read through this thread; interesting insights. I’m following this myself and hope that I might be able to contribute to this dialog.
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Re: Chesapeake Business Practices
That's a 'band-aid' not a 'bailout'.
Hope I'm wrong, but it's starting to reek Enron style.
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Re: Chesapeake Business Practices
Chairman and Chief Executive Officer?
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Re: Chesapeake Business Practices
How is this turning into Enron? Considering there are few scalable similarities at this point that's a bold statement.
The off balance sheet issues are quite disturbing but that doesn't make CHK the next Enron unless there's a LOT more we dont' know about.
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Re: Chesapeake Business Practices
At this point in the game would anyone be shocked to find out that there is a LOT more we don't know about?
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Re: Chesapeake Business Practices
Well, right now Chesapeake is follow the same pattern of denial and deception that we have become accustomed to from failing companies over the past four years.
Hopefully, the similaries end at some point.
On that note, Cheaspeake will do be ok as long as they have the bank mobsters on their side. Ex. The Goldman Sachs lending deal.
Guest
Re: Chesapeake Business Practices
It appears that this is not from Reuters. I don't think the Oklahoman is avoiding anything.
http://newsok.com/chesapeake-energy-...rticle/3674828
http://newsok.com/article/3674829/
http://newsok.com/article/3674827/
Participating Member
Re: Chesapeake Business Practices
Yeah they finally started beefing their coverage up on Friday. Glad to see it.
Participating Member
Re: Chesapeake Business Practices
The Oklahoman isn't burying the story, but they're being thrashed in depth and speed by Reuters and the WSJ. Today's DO stories contain no new information, no mention of recent disclosures (late quarterly filing, suspension of asset sales or the $3 billion credit line from Goldman Sachs), or additional depth/context.
Participating Member
Re: Chesapeake Business Practices
Tulsa World has had some articles as well that differ from the above. I can't find them today, but they are interesting.
Re: Chesapeake Business Practices
Nice to see them begin reporting on this.
Owner / Administrator
Re: Chesapeake Business Practices
To be fair, OPUBCO just hired back several of their energy reports as all this Chesapeake news started to break.
They've only been back on the job a very short time and I'm sure it's taken a fair amount of time to ramp up.
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Re: Chesapeake Business Practices
Icahn is back, according to Wall Street Journal...
Owner / Administrator
Re: Chesapeake Business Practices
That's very, very scary to me.
Let's hope he's just bargain hunting and looking for a quick flip.
Re: Chesapeake Business Practices
Not strategic to their core business? Maintaining an excellent campus surrounded by quality establishments to shop at and have a drink after work is not key to attracting top talent?
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