Chesapeake Business Practices

[Pete]

Chesapeake's rebuttal of the Rolling Stone article:

http://www.chk.com/rollingstone/index.html

[pw405]

I've been following this thread for quite a while. As I mentioned a page or two back - I was interviewing at CHK. I was offered the job, but I declined.

As a random internet article suggested I should, when one declines a job offer, it is polite to offer a suggested replacement to fill the position instead of yourself. I attached their resumes to the email and suggested them as qualified candidates.

Within 10 minutes both had already received a call and were asked very technical details about their experience. They were told they were not qualified due to not enough relevant experience.

Ok fair enough, but the weird things is, I was in NO WAY qualified for this job. I was even less qualified than one of the applicants was. During the interview, the actual job duties were vaguely brought up. Most of it was just mentioning how they LOVED LOVED LOVED EVERYTHING about working their. Except parking. I asked each round of interviewers what their LEAST favorite thing about working there was, and they all responded "parking".

About 14 months prior to CHK contacting me, I had passed a resume to a friend of a friend who worked there. I suppose I had an "in", but it is still quite bewildering to think they are just doling out jobs to people's "buddies". Especially since these jobs pay on the higher end of the salary spectrum to comparable jobs in the metro area.

After declining the offer, a person I knew there (working in no official capacity for the company) said that after hearing from my would-be boss, that "I would never have another chance with his team"

Furthermore, it seemed that by me suggesting other applicants, their chances of employment were voided as well.

In conclusion, I could only tell that CHK pays unqualified people way too much money, and binds them to working there by offering some of the most competitive salaries in the metro.

Another tactic they use to bind employees is their retirement plan. They will match 15% (!!!!1!!) of your 401k match. BUT, they do it with their stock, not actual funds. Further troubling, is that this match is only vested at 20-25% a year (I forget which). So in essence, this "awesome" retirement plan they offer is a way of roping you in for a long time. It would be idiotic to leave before you are fully vested, yet if the stock price is down once you are vested, one would act logically and work until the stock rebounded. In my opinion, this is very "ponze-schemesque".

CHK is smart, and I am sure they knew they needed more money before the most recent round of share offerings. A good analyst can tell you this is going to occur months or years before it does. So, why would they continue to expand their workforce when they know they aren't going to have enough cash on hand to even pay them? My thought on this is that CHK employees buy TONS of CHK stock. Think about it - every pay period, their 10,000 something employees buy stock with their retirement plan, and the plan matches that purchase.

Seems like sooner or later, the only people buying into their "clean energy future" is going to be their own employees.

THAT said, I hope the company does OK. It would be a huge loss to OKC for them to have lay-offs or (worst case) turns out to be an Enron.

[okc_bel_air]

"In conclusion, I could only tell that CHK pays unqualified people way too much money, and binds them to working there by offering some of the most competitive salaries in the metro."

More $$$$.......Sign Me Up!!! LOL

[Snowman]

Another tactic they use to bind employees is their retirement plan. They will match 15% (!!!!1!!) of your 401k match. BUT, they do it with their stock, not actual funds.

While there are several things about how CHK operates that are concerning, matching programs using stock are fairly routine with large companies. My company, depending on earnings of the last quarter, will match between 50% and 100% of what you put into your 401k with stock.

[mugofbeer]

No doubt CHK produces an enormous amount of NG. However, what could easily be said are smart business practices when a company has the cash resources to do it (the leasing of large amounts of promising production land before the competition does) is presented as some sort of demonic alien invasion of earth.

Comments in this thread have previously mentioned the DOE's assertion that estimates of NG supplies in the country may be far lower than industry estimates and that reserves in the formations that are written about in the article, if true, should have resulted in a significant increase in the price of NG (simple supply and demand principles). With certainty, I prefer to believe in the laws of supply and demand which shows a huge glut of NG. CHK no more controls the NG industry than TCBY controls fro-go. There are hundreds of producers - any one of which can drill and produce if they own the rights to the land. The bogeyman is that CHK owns a huge amount of land rights.

Who knows where the truth lies but as we all know, CHK is very aggressive, very much a participant of the wildcatter mentality. CHK has sold off a lot of lease acreage because they have debt to pay off. They sold off a lot of acreage because Carl Icahn "suggested" they do to raise the price of the stock to pad his profits. If they need to they can sell a lot more. Devon is in the exact same business but goes about it in a quieter, more conservative way. If NG went up 50% in price per unit, CHK would have a far easier time of it. As with all companies, there are breakeven points in the balance of cost-of-production vs. profitability. NG prices are so low, some higher cost producers are having more trouble than others.

Is CHK lilly clean? Probably not. But in the world of oil and gas, there are no promises, there are bets and faith and hope that hunches come true.

[mugofbeer]

While there are several things about how CHK operates that are concerning, matching programs using stock are fairly routine with large companies. My company, depending on earnings of the last quarter, will match between 50% and 100% of what you put into your 401k with stock.

Totally agree - 15% is far more than most companies but they do it because they can and because the competition to retain quality employees is huge. Not because they do it to be insidious. If their financial position were so dire, they would cut this in a heartbeat.

[MikeOKC]

Rolling Stone response to CHK "rebuttal"... http://www.rollingstone.com/politics...ubble-20120306

It's worth reading. Especially for the final paragraph. Take that Kehs!

[Pete]

This is the thing that I have always found most scary about CHK (from that Rolling Stone response):

Chesapeake’s convoluted off-book accounting practices. This is hardly a controversial statement; virtually every financial analyst I talked to mentioned it. In addition, it is discussed at length in this recent Forbes story, and is a big reason why people like Phil Weiss, an analyst at Argus Research Group, said point-blank to me about Chesapeake: “I don’t trust them.”

It's very hard to get a handle on their financial dealings and it's clear they like it that way.

[OKCTalker]

CHK & KKR entered a partnership valued at $250 million. Can somebody explain the money to me, and how this benefits either party?

According to the DOK, CHK & KKR will commit $250 million to a partnership which will "identify investment opportunities." CHK will receive a "promoted ownership in the partnership, despite contributing only 10 percent of the initial cash committment." Reported elsewhere is that the partnership will have five board members, three from KKR, two from CHK. The inference is that KKR is contributing the other 90 percent - $225 million.

So isn't this simply that KKR is paying CHK $225 million to find oil & gas? I still don't understand how this helps CHK's balance sheet.

[Maynard]

CHK & KKR entered a partnership valued at $250 million. Can somebody explain the money to me, and how this benefits either party?

According to the DOK, CHK & KKR will commit $250 million to a partnership which will "identify investment opportunities." CHK will receive a "promoted ownership in the partnership, despite contributing only 10 percent of the initial cash committment." Reported elsewhere is that the partnership will have five board members, three from KKR, two from CHK. The inference is that KKR is contributing the other 90 percent - $225 million.

So isn't this simply that KKR is paying CHK $225 million to find oil & gas? I still don't understand how this helps CHK's balance sheet.

From yesterday --

Chesapeake taps KKR to feed its addiction
Commentary: Rounding up money to buy more gas acreage 03/06 03:05 PM

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SAN FRANCISCO (MarketWatch) -- Chesapeake Energy Corp. (CHK:$23.52,00$-0.04,00-0.17%) loves doing deals. It prides itself on being the nation's second-biggest natural gas producer. To get there, it spent over a decade binge-buying natural gas properties, leveraging itself to the hilt in the process.

There's nothing wrong with wanting to expand. Chesapeake's problem is knowing when to stop. It seems to be addicted to acquisitions and intent on buying more, even when a staggering debt load and prolonged slump in natural gas prices would argue against it.

But there are ways around that. Chesapeake announced Tuesday it's teaming up with the investment firm of Kohlberg Kravis Roberts & Co. in a $250 million deal aimed at buying yet more properties. KKR is putting up 90% of the money, enabling Chesapeake to buy more shale gas-field acreage.


Again, there's nothing wrong with expanding in that end of the energy business. There's been a real boom is shale gas output over the past few years, much of it pioneered by Chesapeake. The problem is that there's now too much gas on the market.

Natural gas futures are languishing around $2.36 per million British thermal units and show no signs of rising any time soon. That's a far cry from the $6 they fetched a few years ago, when lenders were more comfortable funding Chesapeake's ambitions. After all, natural gas was widely touted as the fuel of the future, and Chesapeake looked destined to be a dominant player.

Since then, falling prices, mounting debt and investor concerns have forced Chesapeake to sell some properties, bring in partners on others, and shut some of its gas wells in a bid to boost prices. This all sounds like a company in over its head. And yet, Chesapeake still seeks more acreage.

So what's KKR's motivation? Clearly, a $250 million initial investment isn't much in the energy business. And both companies enthusiastically predict their partnership will grow. But that might work out better for KKR than Chesapeake. While Chesapeake does all the heavy lifting, KKR boosts its production royalties. That means KKR is betting the current market glut will someday end and prices will rise. All good.

But gas prices will have to go up a lot more before Chesapeake will likely recover the money spent snapping up gas fields back when prices were double today's levels. That keeps creditors and investors on edge, and is a key reason the stock is down 2.8% today, extending its losses over the past 12 months to 30%, while the NYSE Arca Natural Gas Index of its peers -- even with weak gas prices -- is down less than 2% over the same period.

-- Jim Jelter

[knightrider]

CHK & KKR entered a partnership valued at $250 million. Can somebody explain the money to me, and how this benefits either party?

According to the DOK, CHK & KKR will commit $250 million to a partnership which will "identify investment opportunities." CHK will receive a "promoted ownership in the partnership, despite contributing only 10 percent of the initial cash committment." Reported elsewhere is that the partnership will have five board members, three from KKR, two from CHK. The inference is that KKR is contributing the other 90 percent - $225 million.

So isn't this simply that KKR is paying CHK $225 million to find oil & gas? I still don't understand how this helps CHK's balance sheet.

Basically CHK gets the cash. They will use the cash to service debt and pay for capital expenditures. CHK in this instance is more of a "manager" in the sense they will be tasked with managing, finding and acuiring royalty interest. CHK has the know-how KKR has the capital. The only way it may help the CHK is the infusion of cash that can be used to pay down debt. KKR just sits back and collects 90% of the revenue without having to worry about much risk. I'm not saying this is good or bad. Because I'm not really sure. Its just another way for CHK to find cash when it needs it.

[OKCTalker]

Thanks guys.

[blangtang]

An update on what the plan now is:

Chesapeake CEO Seeks Cash Infusion From Asian Gas Markets

http://www.bloomberg.com/news/2012-0...ce-energy.html

[BoulderSooner]

the XOM ceo comments are very interesting

[Pete]

Found this blurb about Chesapeake in today's Economic Development Trust meeting package.

GOLT stands for General Obligation Limited Tax bonds that were issued by the city to fund incentive programs for companies significantly adding to their OKC-based employment ranks. It's used for relocations (like Continental) but also for companies that are already based in town.

It's significant to note that CHK's incentives were capped at 350 new hires a year. They blew through that number and added almost a THOUSAND new hires in their last fiscal year, at an average salary of almost $92K. Says they now have almost 5,000 OKC-based employees. To put that in perspective, Devon only has about 2,600 and approx. 2,100 that work downtown.

And BTW, these numbers are legit because to qualify for these funds you have to submit payroll reports. Considering we are already a 1/4 through their next fiscal year, they are probably well over that 5,000 mark and still adding people like crazy.

[onthestrip]

Why am I a bit skeptical of the average salary figure of $91k? Seems quite high if u ask me

[Pete]

In today's Oklahoman, Continental said they expect the average salary for it's new hires (part of this same GOLT program) to be $125K.

[okcpulse]

Why am I a bit skeptical of the average salary figure of $91k? Seems quite high if u ask me

That figure is pretty typical for an E & P energy company. This is coming from someone that has been in the oil & gas industry for almost five years.

[Easy180]

Hard to read too much into pictures but the folks shown in their weekly job hiring photos don't look like they have much energy experience...Love the job titles of "Land geographical analyst" for folks who look fresh off their general business associates degrees lol

[blangtang]

mere speculation on my part, but this might make sense and be a good fit after CHK went on a tour recently to asia and the middle east and was looking for joint ventures...plus it seems like its been a while in general regarding "news" on CHK
----
PetroChina Plans ‘Large Scale’ Acquisitions to Expand Output

"We will buy assets on a large scale,” Chairman Jiang Jiemin told reporters in Hong Kong yesterday. PetroChina plans to invest at least $60 billion this decade in global oil and natural gas assets to increase the share of overseas output to half of its total

Shale Gas

Chinese companies are acquiring overseas shale-gas assets to gain expertise in developing the resource in China, holder of the world’s largest reserves of the fuel. PetroChina, which bought a 20 percent stake in Shell’s Groundbirch shale-gas project in British Columbia last month, said it will “actively” develop coal-seam gas and shale gas.

http://www.bloomberg.com/news/2012-0...ng-losses.html

to be clear, i don't expect a Chinese takeover of Chesapeake is implied by this article, more like some news sometime soon of a joint venture, partnership, etc...

[Maynard]

Oil India eyes Chesapeake's Mississippi asset-source 04/03 09:11 AM

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* Oil India team to visit United States soon- source

* May partner other Indian cos to buy stake-source

By Nidhi Verma

NEW DELHI, April 3 (Reuters) - Indian oil and gas producer Oil India Ltd is looking at buying a stake in Chesapeake Energy Corp.'s (CHK:$22.76,00$-0.55,00-2.36%) Mississippi Lime formation in Oklahoma, a source with knowledge of the matter said on Tuesday.

"Oil India is examining this and will shortly send a team to the U.S.," the source said, adding it is too early to comment on the size of the stake that Oil India could buy.

Oil India wants to invest between $1 billion and $1.2 billion for acquiring overseas oil and gas producing assets, its finance director said in October.

Chesapeake last month said it expects to strike a joint venture in this quarter for its unconventional liquid-rich Mississippi Lime play covering 2 million acres.

The source said Oil India may partner other state-run firms like Oil and Natural Gas Corp in buying a stake in the Mississippi Lime play.

Oil India and Chesapeake could not be reached for comment.

Oil India, whose assets in India's northeast account for its entire crude oil production and the bulk of gas production, has been aggressively scouting for overseas assets in discovered and producing areas. The U.S. No. 2 gas producer needs money to close a funding gap.

The government allowed state-run Oil India to go global in December 2005 and since then it has acquired stakes in assets in countries including Venezuela, Libya, Gabon, Iran, Egypt, Yemen, Nigeria and Sudan.

India, the world's fourth-largest oil importer, imports about 80 percent of its crude needs. It is scouting for oil and gas assets abroad to meet rising local demand and to feed its expanding refining capacity.

In the United States, Indian gas utility GAIL India has agreed to buy a 20 percent stake in one of Carrizo Oil & Gas Inc's shale gas assets while top private firm Reliance Industries has sealed three shale gas joint ventures.

(Reporting by Nidhi Verma; Editing by Jo Winterbottom)

[Maynard]

Chesapeake Energy Strikes Three Deals For $2.6 Billion 04/09 05:13 PM

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--Deals are Chesapeake's latest to raise capital while natural-gas prices are low

--Chesapeake agrees to sell shale acreage in Oklahoma to Exxon Mobil (XOM:$83.88,00$-0.94,00-1.11%)

--Chesapeake says it will continue to sell properties including assets in East Texas

By Drew FitzGerald and Isabel Ordonez Of DOW JONES NEWSWIRES

HOUSTON (Dow Jones)--Chesapeake Energy Corp. (CHK:$21.47,00$-0.68,00-3.07%) announced three agreements Monday that will raise $2.6 billion in cash, the latest in a series of deals it has struck in recent months to raise capital as low natural-gas prices hurt its top line.

The second-largest U.S. natural-gas producer behind Exxon Mobil Corp. (XOM:$83.88,00$-0.94,00-1.11%) has been under pressure from some shareholders and analysts to reduce spending and pare debt.

Monday, the company said it agreed to sell 58,400 acres in the oil-rich Woodford Shale in Oklahoma to a subsidiary of Exxon for about $590 million in cash. The Oklahoma City company also said it finished selling preferred shares in a new subsidiary called CHK Cleveland Tonkawa LLC to a group led by a Blackstone Group LP (BX:$15.06,00$-0.44,00-2.84%) affiliate, delivering about $1.25 billion of proceeds. Chesapeake maintains all the common equity interest in the CHK C-T.

Separately, Chesapeake closed its sale of 10-year volumetric-production payments to an affiliate of Morgan Stanley (MS:$17.98,00$-0.41,00-2.23%) for about $745 million for some producing assets in its Anadarko Basin Granite Wash play. Including this transaction, Chesapeake said it has closed 10 volumetric-production-payment deals since December 2007, generating about $6.4 billion of proceeds.

Oppenheimer & Co. analyst Fadel Gheit said Chesapeake's move is positive for the company as it gives investors confidence it can raise cash when it needs it. "Chesapeake has some of the best shale acreage in the U.S and when they need money they can easily find a buyer," Gheit said. "They are not running out of options."

The transactions also showed appetite for shale-oil-and-gas properties continues to be strong in the U.S., in sharp contrast to the refining sector, where several refineries are for sale and not many buyers are showing interest, Gheit said.

Chesapeake Chief Executive Aubrey K. McClendon said the assets the company sold to Exxon Mobil (XOM:$83.88,00$-0.94,00-1.11%) in Oklahoma weren't strategic.

An Exxon spokesman confirmed the agreement and said the acquisition was " strategic."

Exxon Mobil (XOM:$83.88,00$-0.94,00-1.11%) has highlighted the Woodford Shale as an emerging oil-rich area where the company has rapidly accumulated land and increased drilling. The company said at its March annual meeting with analysts it tripled its position in the Woodford Shale last year to more than 170,000 acres that have the potential to produce 70,000 barrels of oil equivalent per day. The company has 10 rigs running in the area, its spokesman said. The deal with Chesapeake is expected to close April 30.

Chesapeake also said it plans to monetize more holdings this year, including assets in its East Texas Woodbine play.

Chesapeake shares were recently up 1.4% at $21.77 after hours. Through Monday's close, the stock is off 37% over the past year.

[BG918]

Hard to read too much into pictures but the folks shown in their weekly job hiring photos don't look like they have much energy experience...Love the job titles of "Land geographical analyst" for folks who look fresh off their general business associates degrees lol

I know people there with a business degree from OU and no experience outside of a couple energy internships starting at CHK with a salary of 70K. Those same people after a few years are making over 100K before they're 30. Is that sustainable with current NG prices?

[Bellaboo]

I know people there with a business degree from OU and no experience outside of a couple energy internships starting at CHK with a salary of 70K. Those same people after a few years are making over 100K before they're 30. Is that sustainable with current NG prices?

I don't think so............ time will tell.

[Maynard]

Fresh 52-week low for CHK today.

Chesapeake Energy Corp (CHK:$20.095,0$-0.595,0-2.88%) crossed below its 52-week low of $20.41 on 11:54 AM ET on April 11, 2012.