As of today, both Chesapeake and Sandridge have lost about 75% of their value on the year and Devon has lost about 55%

Since our economy is still very tied to energy, it's not hard to imagine that we might start feeling this in the very near future. Worst case scenarios aside, it appears for example that someone could easily come in and acquire a majority stake in Sandridge for around $850 million and relocate them. Other scenarios include layoffs, planned developments being postponed or taken off the table, etc. etc all the way up to the absolute worst.

As there doesn't appear to be much in the way of economic good news on the horizon, things appear a bit precarious, particularly if the deflation of commodity prices keeps up. Maybe someone on the inside can lend some perspective as to how these companies are looking at it, what sort of hedges might be in place over the next few years, etc. etc.

Thx, moderator.

How easily these companies could be acquired depends on a lot of factors. As far as saying $850M (or anything) is "the price" is very speculative. You don't know what defensive measures they've employed as to a takeover, and I think considering the economy, as to any hostile takeover goes, any of these companies could easily make the argument that their stock is currently very undervalued.

The good news (if you can call it that) is that most everyone is hurting. Chesapeake claims to be sitting on a mountain of cash, Devon is for sure. Considering the finances of these companies, and especially Devon, I'd expect them to be an aquiror before an aquiree.

On a side note, I lost pretty much everything I had in Quest, down 90% off of their high this year (and that's where I bought in)...

Don't worry - no one has $850 million right now. They sure can't borrow it from someone. You would be executed if you went into finance institution and ask for a loan to buy some stock.

Don't worry - no one has $850 million right now. They sure can't borrow it from someone. You would be executed if you went into finance institution and ask for a loan to buy some stock.

A lot of energy firms have cash.

A lot of energy firms have cash.

Yes they do and my guess is they want to hold on to it. Why use it to buy the stock of a company that is going down and whose main product is also declining in value daily. Now, if CHK wants to buy Ford and switch all of the cars to CNG then you might have something. For what T. Boone Pickens has spent on his energy plan he could have done that.

Yes they do and my guess is they want to hold on to it. Why use it to buy the stock of a company that is going down and whose main product is also declining in value daily. Now, if CHK wants to buy Ford and switch all of the cars to CNG then you might have something. For what T. Boone Pickens has spent on his energy plan he could have done that.

Well, it isn't hard to imagine that someone might see some value in a company like Sandridge at 1.5 billion, or about 12% of its capitalization of about 3 months ago. Whether or not they have the ability to use a poison pill is another thing.

If you are looking for stock bargins then there is no doubt that you can find them. GM is trading at $4.50 per share and Ford is down to around $2. The problem is that every company is down huge and no one has the money to spend.

If you are looking for stock bargins then there is no doubt that you can find them. GM is trading at $4.50 per share and Ford is down to around $2. The problem is that every company is down huge and no one has the money to spend.

Apparently the statement that no one has the money to spend isn't really true because in the past 2 weeks Warren Buffett has invested heavily in Goldman and GE, Wells Fargo is acquiring Wachovia, etc. etc.(google news, "acquisition" - there are many). Someone has money and when there's blood in the water, such as now, they will buy at a discount.

Now, the shareholders would have the final say in a non-hostile merger, which would protect against a buyout that was too low. However, what if one of our more debt-laden local companies finds that they can't afford to service their loans? I'm not sure who that would be as I don't keep track of it, but such a scenario could spur a buyout at deep discount.

buyout aside, which is probably the least likely scenario anyway, the industry could suffer in many ways if commodity prices continue to drop.

and why would I buy GM or Ford? So they can reorganize and my stock would be worth 0? Was Wamu a bargain at $2?

Not good for Aubrey but maybe CHK will start to come back now. It was getting ridiculously low this morning. I was hoping this was a joke of some kind when I heard it but I guess it wasn't. Maybe there's more to it.

Chesapeake Energy Corporation Discloses CEO's Involuntary Sale of Common Stock: Financial News - Yahoo! Finance (http://biz.yahoo.com/bw/081010/20081010005735.html?.v=1)


Chesapeake Energy Corporation Discloses CEO's Involuntary Sale of Common Stock
Friday October 10, 4:56 pm ET

OKLAHOMA CITY--(BUSINESS WIRE)--Chesapeake Energy Corporation (NYSE:CHK - News) today disclosed that its Chief Executive Officer, Aubrey K. McClendon, involuntarily sold substantially all of his shares of Chesapeake common stock over the past three days in order to meet margin loan calls.

Not good for Aubrey but maybe CHK will start to come back now. It was getting ridiculously low this morning. I was hoping this was a joke of some kind when I heard it but I guess it wasn't. Maybe there's more to it.

Chesapeake Energy Corporation Discloses CEO's Involuntary Sale of Common Stock: Financial News - Yahoo! Finance (http://biz.yahoo.com/bw/081010/20081010005735.html?.v=1)


Chesapeake Energy Corporation Discloses CEO's Involuntary Sale of Common Stock
Friday October 10, 4:56 pm ET

OKLAHOMA CITY--(BUSINESS WIRE)--Chesapeake Energy Corporation (NYSE:CHK - News) today disclosed that its Chief Executive Officer, Aubrey K. McClendon, involuntarily sold substantially all of his shares of Chesapeake common stock over the past three days in order to meet margin loan calls.

Holy. Crap.

Story should be hitting Oklahoma News, Weather, Business, Sports, Entertainment, Travel | NewsOK.com (http://www.newsok.com) shortly.

Chesapeake Energy Corporation Discloses CEO's Involuntary Sale of Common Stock

Chesapeake Energy Corporation (NYSE:CHK) today disclosed that its Chief Executive Officer, Aubrey K. McClendon, involuntarily sold substantially all of his shares of Chesapeake common stock over the past three days in order to meet margin loan calls.

Management Comments

Mr. McClendon commented, "I am very disappointed to have been required to sell substantially all of my shares of Chesapeake. These involuntary and unexpected sales were precipitated by the extraordinary circumstances of the worldwide financial crisis. In no way do these sales reflect my view of the company’s financial position or my view of Chesapeake’s future performance potential. I have been the company’s largest individual shareholder for the past three years and frequently purchased additional shares of stock on margin as an expression of my complete confidence in the value of the company’s strategy and assets. My confidence in Chesapeake remains undiminished, and I look forward to rebuilding my ownership position in the company in the months and years ahead.”
Chesapeake Energy Corporation is the largest producer of natural gas in the U.S. Headquartered in Oklahoma City, the company's operations are focused on exploratory and developmental drilling and corporate and property acquisitions in the Fort Worth Barnett Shale, Haynesville Shale, Fayetteville Shale, Anadarko Basin, Arkoma Basin, Appalachian Basin, Permian Basin, Delaware Basin, South Texas, Texas Gulf Coast and Ark-La-Tex regions of the United States. Further information is available at Home | Chesapeake - Doing the Nation a World of Good (http://www.chk.com).



YIKES!!!

Story posted

Can someone who knows this stuff decipher this for me?

This is a basic understanding:

He bought shares using margin, which is essentially borrowed money. The shares dropped significantly below what he bought them on margin for and he was forced to come up with cash to cover the margin. He didn't have the cash so he had to liquidate his other holdings to cover the margin call.

Wow, that's bad news. He had a TON of stock.

He had to sell almost all 33 MILLION shares of his CHK stock.

When the stock was at $76, that was over $2.5 billion; which is almost his entire net worth.

It closed at $16 and he may have had to sell it at a lower point; it was down below $12 for a while. At $16, that would net $.5 billion but who knows how much he borrowed against that.

I think you're putting too much stock (no pun intended) into energy companies stock prices. What your seeing right now is a total panic of investors who are pulling out all of their money from the market, not really caring whether if it was invested in a company that was doing well. The same thing is happening in the commodities market, which has caused oil and gas prices to dive. I would be more concerned with the later. If prices for oil and gas continue to go down (I believe they're close to bottom) then get worried Even still low prices hurt Chesapeake, Devon, Sandridge, Questar, and other OKC companies just as much as Exxon and Shell. So even then, I doubt any major takeovers are going to happen anytime soon in that industry.

Chesapeake may be a special case. I don't think they're in trouble but they're in a worse spot than most energy firms because they have financed their expansion through the issuance of stock where most companies have reinvested their profits. High gas prices will probably prop them up for now but the days of Chesapeake growing 25-30% annually are probably over.

I wonder if this news will put even more downward pressure on the stock?

You would think.

McClendon owned about 7% of all outstanding shares, so dumping that amount all at once certainly hurt the stock price -- especially with the existing panic.

I'm sure the other shareholders are very unhappy.

Hopefully Aubrey can lead them back but it seems the same type of high-leverage strategies were used corporately as well.

So where's all this cash that Aubrey says Chesapeake has on hand?

CHK: Balance Sheet for CHESAPEAKE ENERGY CP - Yahoo! Finance (http://finance.yahoo.com/q/bs?s=CHK)

The balance sheet shows $1 million in cash on hand as of the latest quarter. Most of their money appears tied up in illiquid assets - $33 billion in property, plant and equipment(how much is the property worth now with NG futures being halved?) - they also hold $13 billion in long term debt.

Those debt payments could get nasty in a hurry, particularly if the rate is tied to Libor as it is for so many other companies.

I'm no economist, but it doesn't appear Chesapeake has much of a cushion afterall.

This is from today's WSJ regarding Chesapeake's cash position (punctuation, linefeeds and paragraphs are as published):

Chesapeake co-founder and chief executive Aubrey McClendon said his company expects to end the year with $5 billion to $6 billion in cash -- enough to keep growing without tapping the capital markets.

The company had no cash at the end of the second quarter.

"We can continue to be the number one driller in America, the number one leaser in America ... because we're a big company, we generate a lot of cash," Mr. McClendon said.

I'd like to know if this is a "big deal," or just a "deal." I'd like to see people discussing CHK fundamentals on employment changes and completion of campus construction before talking about ripple effects with OKC philanthropy, Western Avenue/NH real estate, OKC Thunder, etc. I'm confident that any talented, surplus employees will be picked up by DVN. Their off-campus acquisitions appear to have ceased, so there's no additional outflow there, but I'm concerned about several uncompleted campus buildings being left as they are (echoes of "see-through" buildings as booms turned to busts). I'm confident that their talented employees will be eventually picked up by DVN. Is this just an "Aubrey thing," or does CHK at $16.52 and gas at $6.54 portend quick, bad, deep news?

This is from today's WSJ regarding Chesapeake's cash position (punctuation, linefeeds and paragraphs are as published):

Chesapeake co-founder and chief executive Aubrey McClendon said his company expects to end the year with $5 billion to $6 billion in cash -- enough to keep growing without tapping the capital markets.

The company had no cash at the end of the second quarter.

"We can continue to be the number one driller in America, the number one leaser in America ... because we're a big company, we generate a lot of cash," Mr. McClendon said.

Let's hope so. It sounds like they need to horde as much cash as possible.

This is from a message McClendon sent to all CHK employees today:


So, where does this all leave us as a company? Actually, despite a ridiculously low stock price, in excellent shape. We have over $1 bln of cash on hand and we are well hedged at prices significantly above current prices with counterparties that are generally among the strongest still standing. We will generate almost $6 billion in cash flow in 2009 (or about $10 per share) and about $6.7 bln in 2010 (or about $11 per share), plus we have asset sales planned in each of 2009 and 2010 of several billion more. In addition, we have several property sales and joint venture initiatives under way that should allow us to end the year with even greater liquidity than we now enjoy.

This is from a message McClendon sent to all CHK employees today:

Good to know. I was wondering about the hedges - thanks, Pete.

WSU, thanks for posting that link I was just about to go pull their 8Kfiling from Yahoo and see what is really going on with the company. It doesn't look to me like they have that much in liquid assets.

As for McClendon, basically he had to sell all of his common shares that were tied up in loans. He probably owned these shares both for financial gain and because it probably gave him more control of the company. Even though he sold all of his common shares, he probably still has options and restricted stock that gives him a stake in the company.

I was just looking over CHK's 8K filing and found this:

"We anticipate that our 2008 and 2009 budgeted exploration and development capital expenditures, together with our operating costs and other capital expenditure requirements, will exceed our cash flow from operations and our borrowing capacity under our revolving credit facility. To provide for our anticipated cash requirements, we expect to engage in additional monetization transactions, including sales of undeveloped acreage and non-strategic assets and additional joint venture arrangements. While we believe that some or all of these sources of liquidity will continue to be available to us, we would be required to curtail our capital spending if we were unable to access sufficient cash to fund our capital spending and operations."

My bigger concerns are:

1) Could this open CHK up to a hostile takeover?
2) What about the tens of thousands of acres McClendon has been buying up in east Edmond and NE OKC? Are these also highly leveraged and/or might he have to dump some of that property to cover his stock losses?
3) With CHK pulling back production and selling assets, how does that impact their plans for the 63rd & Western area? Not only the campus but the hundreds of other properties they own?

So, where does this all leave us as a company? Actually, despite a ridiculously low stock price, in excellent shape


Must be nice.

With so many people losing the value of their entire retirement portfolios and losing their homes, life savings etc, it's crazy to be that wealthy and to be able to take that kind of hit and still come out in 'excellent shape'.

Pete, I too, share your concerns regarding future projects.

I'm pretty convinced that we will start to feel the fallout ( if we haven't already) that the rest of the country has been experiencing. Hopefully, not as severely, but I believe we'll see a slowdown of construction projects, plans put on hold and a general sense of caution regarding spending money.

Buckle up and hold on tight.

Let's all hope that the bottom is very near and something drastic happens early next week to allay economic fears and stop the free fall of the market. I have a headache.

One other thing. 1Q 2008 was weak for CHK, 2Q 2008 was a net loss, and I don't think 3Q 2008 figures have been released yet. Short term is probably going to be rough for them, long term they should be a profitable company. They are so highly leveraged that it seems like a takeover isn't outside the realm of possibility. But like Midtowner said, it depends on several things. One of them would be their corporate governance policies. Most modern companies have a lot of safe-guards built in by limiting the number of seats up for grabs on a board, who has what stocks, and so forth.

I don't think it's an "Aubrey thing," if by that you mean a problem for McClendon but not many other people. Who else in CHK bought stock on margin following his example?

I'd take this as evidence we're not as 'recession-proof' as we'd like to think.

My bigger concerns are:

1) Could this open CHK up to a hostile takeover?

I can only answer the question I might know something about :)

First of all, "hostile" takeovers are interesting things. In a situation like this, yes, theoretically everyone is vulnerable. The first question is: "To whom is the company vulnerable?" The simple fact that at least right now, cash is king, and major financing is difficult to come by should assuage some fears of takeover. Furthermore, the current Board has a duty to protect the value the shareholders are going to receive for their investment. To that end, they can protect their company from hostile acquisition in a myriad of ways.

The best news I can tell you is that CHK will be in a very good position to turn down any offers to purchase the company as well as to defend against acquisition. Right now, the stock is, at least some might say, an extremely good deal, which means it's undervalued. The Board would probably be remiss to accept anything (significantly) less than the highs this year for an all-stock sort of deal.

There are of course other ways to acquire a company, e.g., greenmail, etc. I just don't think there's a huge danger of that because in this market, anyone who does have cash is hanging onto it.

If CHK is awash in cash as they claim to be, I'd expect them to be more likely to acquire other companies than to be acquired themselves. The same is doubly true for Devon.

My understanding is that while CHK has a billion in cash, they also have billions in debt. If things don't turn up for them, they may be forced to sell in order to stay afloat.

Also, McClendon dumped 7% of the outstanding shares on the market this past week. An interested party could easily snap them up and start buying more shares from others that may be forced to sell or are just wanting to bail.


I really, really don't want Aubrey or CHK to fail but it's clear they've engaged in some pretty risky business strategies and I'm more than a little worried. Hopefully they can weather the storm until things turn up again.

So now we know why McClendon signed the bailout letter to Congress.

So now we know why McClendon signed the bailout letter to Congress.

LOL exactly. Save his own arse.

Also, McClendon dumped 7% of the outstanding shares on the market this past week.

To say he "dumped" wouldn't be the best term. He had to sell the shares to pay off a margin call. He borrowed money to buy some of his own stock, the lender saw what was happening and called the loan. McClendon had to sell his personal stake to cover the call.

That was his own personal bet/loss. His sale was definitely not due to his own lack of confidence, however.

Two media executives were forced to sell substantial stakes in their companies last week when stock prices fell significantly: Sumner Redstone ($400 million in Viacom) and John Malone ($50 million in Liberty Media).

The markets are way up today and so is CHK, up 20% since Friday's close.

Hopefully things will stabilize from here and Chesapeake can get through this.


But with their persistent talk of selling assets, I wonder if they might try selling off their real estate holdings in OKC. At the very least, I can't imagine them doing much development anytime soon. Hopefully they can at least finish what they've started.

The markets are way up today and so is CHK, up 20% since Friday's close.

Hopefully things will stabilize from here and Chesapeake can get through this.


But with their persistent talk of selling assets, I wonder if they might try selling off their real estate holdings in OKC. At the very least, I can't imagine them doing much development anytime soon. Hopefully they can at least finish what they've started.

A higher stock price isn't going to help Chesepeake continue to do business. It will probably put a stop to margin calls, but the damage has already been done there.

The problem is still the availability of cash in banks. While the stock price might be a secondary indicator that money is becoming available, it's just evidence of a symptom, not the actual problem.

The higher stock price helps them tremendously if they decide to issue more common stock to fund their operations.

Also, the corporation also owns stock and when the value goes up, so do their assets and their ability to borrow against them.

selling off their assets is not a sign of strength.

Also heard reports of spot nat gas prices of 3-4 bucks per MCF for the winter. that won't work for the nat gas companies in this state going forward. My buddy works in the industry and says they go to 'idle' below 5$ mcf....

there was a news report of them (CHK) selling of 2.5-3 Billion in assets. I'll have to look up the story. I thought i saw it on the PBS show at 6pm.

A big knock on effect is most of the small landman type companies have been working as subs for CHK. not good.

I got burned before. I bought 100 shares of williams communications group WCG. i lost like 4200 bucks. however, they ended up building the 10 or 12 story tower in downtown tulsa. now that building is housed by the city of tulsa! bah!

i learned my lesson. At least i have capital losses to this day...

I hope CHK and DVN have better outcomes. i'm willing to support them.

Also heard reports of spot nat gas prices of 3-4 bucks per MCF for the winter. that won't work for the nat gas companies in this state going forward. My buddy works in the industry and says they go to 'idle' below 5$ mcf....

That is true. With the current cost of drilling, activity will go idle when prices fall below $5 mcf. Margins are slim on a lot of wells when it gets around $6 per mcf.