Chesapeake Energy Gets $3B Line of Credit from 15 Banks

Chesapeake Energy “amended and restated” its “senior secured revolving credit facility” on Wednesday. What does that mean in everyday language? It means the company has talked a bunch of banks into allowing the company borrow up to $3 billion on a line of credit backed by the value of the company and its assets. That’s some kind of line of credit. The 15 banks doing the loaning were actually willing to pony up $3.8 billion, but Chessy only wants to use up to $3 billion. Aside from a huge line of credit, this news indicates that the banks have confidence that Chesapeake will be an ongoing concern for the foreseeable future. That is, no serious danger of bankruptcy, even though the company still maintains a mountain-high debt load. Below are the banks willing to roll the dice on Chesapeake…
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3 Counties, 5 Drillers Led OH’s 50% Increase in 2Q Gas Production

The Pareto Principle is alive and well in the Buckeye State. You may know it as the 80/20 rule, or in this case, the 75/25 rule. The rule that states roughly 80% of the results come from 20% of the effort. Last week MDN brought you the latest update from the Ohio Dept. of Natural Resources–their second quarter 2018 report showing all production coming from the Ohio Utica Shale (see Top 25 Producing Gas & Oil Wells in Ohio Utica for 2Q18). While MDN provided you with Top 25 lists showing the best-performing wells (both gas and oil) during 2Q, and while we provided you with a better spreadsheet to view the information than that provided by the ODNR itself, our analysis was basic and high level. Utica natgas production was up a big 42% over the same period last year, and Utica oil production was up 11%–a cumulative 50% increase when you convert it all into equivalents. The experts at S&P Global Platts have done a deep dive into the numbers and have found that three counties represent 75% of all production in 2Q18, and five drillers represent 75% of all production in 2Q18. Which counties and which drillers? Read on…
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Chesapeake Settles NEPA Royalty Lawsuit for Pennies on the Dollar

Chesapeake Energy has, according to the Pittsburgh Post-Gazette, “reached a $7.75 million settlement agreement with about two-thirds of its Pennsylvania natural gas royalty owners.” At the end of last year Chesapeake Energy offered a $30 million deal to Pennsylvania landowners to settle claims the company had screwed them out of royalty money by artificially inflating post-production costs in an elaborate scheme to pocket more money at landowners’ expense (see Chesapeake Agrees to $30M Royalty Settlement for PA Landowners). Chesapeake’s proposed deal last year would have given the average PA leaseholder (some 14,000 of them) a one-time $2,140 payment–adjusted up or down for the size of their acreage. This new deal, for 10,000 of the same leaseholders, offers $7.75 million–an average of $775 per landowner. Which is piddly. It’s nothing. An insult. Last year Chesapeake’s deal with leaseholders required the state Attorney General’s office, which has an ongoing, separate lawsuit filed against Chesapeake over the same issue, to settle as well. The AG’s office refused (see PA AG Not Backing Down re Chesapeake Energy Royalty Lawsuit). In fact, the AG’s office is still refusing to settle, with this new deal. Yet now Chesapeake is willing to move forward without the AG as part of the settlement. Heck yeah! Convince these desperate folks to take, literally, pennies on the dollar. What company wouldn’t go for that deal? Any way you slice this, northeast PA landowners are getting screwed if they agree to Chesapeake’s deal. They get a maximum of 8% back of the inflated “costs” Chesapeake originally deducted from royalty checks. We suppose some will say 8% now is better than maybe nothing or very little years from now. We don’t see it. We see these good landowners getting shafted in this deal…
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Chesapeake Energy 2Q18: $2B Utica Deal Last Major Asset Sale

CHK stock – Click for larger version

Chesapeake Energy released its second quarter 2018 update yesterday, and hosted a conference call with investor/analysts. Some of the big talk revolved around Chessy’s recent announcement it is selling its Ohio Utica assets for $2 billion (see Stop Press: Chesapeake Sells ALL of its Ohio Utica Assets for $2B). While that announcement last week caused Chesapeake’s stock price to pop up, yesterday’s announcement that the company lost $40 million in 2Q18 caused stock prices to go back down. CEO Doug Lawler put a good spin on the news, and indeed there is reason to be optimistic. The company is moving in the direction of profitability. Lawler said the $2B sale of Ohio Utica assets will be used to pare down the company’s $9+ billion debt. He also said the Utica sale is the last major asset the company will sell in its bid to reduce outstanding debt. So what will they do to further reduce the company’s high debt? Lawler said, “Going forward, organic production growth, exploration, strategic acquisitions and portfolio management” will get the job done. As we’ve previously noted, Chesapeake is in the midst of converting itself from primarily a gas-drilling company to primarily an oil-drilling company. Doug is betting the ranch on oil. Below is an overview of yesterday’s update, a copy of the full update, and some excerpts of interest from the conference call…
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Chesapeake’s $2B Exit from Ohio Utica “Is a Good Thing”

Last week MDN shared the blockbuster news that Chesapeake Energy is exiting the Ohio Utica, selling all of its Ohio assets for $2 billion (see Stop Press: Chesapeake Sells ALL of its Ohio Utica Assets for $2B). The buyer is Encino Acquisition Partners, a joint venture between Encino Energy and the Canada Pension Plan Investment Board. At the time we speculated this may be good news for Ohio’s landowners signed with Chesapeake–that perhaps landowners now stand a better chance of seeing new drilling. That was just speculation/hope on our part. Looks like we’re not the only ones thinking that way. A couple of industry experts are saying the same thing. One of them said Chesapeake’s sale and exit “is a good thing” because it means Encino will sink money into new drilling programs in a way that Chesapeake, larded up with debt, could not…
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Stop Press: Chesapeake Sells ALL of its Ohio Utica Assets for $2B

In what is perhaps the second biggest thing to hit Ohio since maybe the plow (the first being the Utica Shale, borrowing a phrase from Aubrey McClendon), Chesapeake Energy announced yesterday it is selling ALL of its 933,000 Ohio acres (including 320,000 net Utica acres) and 920 operated and non-operated Ohio Utica wells to Encino Acquisition Partners for $2 billion. This is truly big news! Encino Energy is a young company, founded in 2011, headquartered in Houston, TX. Last year Encino formed a partnership with Canada Pension Plan Investment Board to form Encino Acquisition Partners. It is the Encino subsidiary that is buying Chessy’s Ohio Utica assets. The burning question is, Will Encino drill more wells? Or just sit on its new acquisition? Based on how they describe themselves, we think Encino is going to pursue an active drilling program in the Ohio Utica. According to their own boilerplate, the company’s mission is to, “focus on driving long-term investor returns by acquiring and developing high-quality assets with an established base of production and a large, low-cost development inventory across the lower 48 states of the United States.” They’ve certainly acquired a high-quality asset with an established base of production and it has a large, low-cost development inventory. All the boxes are checked in buying Chesapeake’s Utica assets. So we’ll hold Encino to their word that they will “develop” it–meaning drill new wells. Chesapeake plans to use the $2 billion to pay down some of their ginormous debt…
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OH Landowners with Early Utica Leases Still Get Good Royalties

Some 10 years ago in the “early days” of the Ohio Utica Shale, landowners signed leases not knowing about the Utica and the bonanza it would soon bring. A group of 24 landowners in Columbiana County signed a lease in 2008 with Anshutz–for a few bucks an acre and 12.5% royalties. Seemed like a good deal then. But five years later leases were going for $5,000-$6,000/acre in signing bonuses and 20% royalties. It didn’t seem like such a good deal then. Chesapeake Energy later bought the Anshutz leases. We all know about the shenanigans Chesapeake plays with royalty payments. But these wells produce mainly oil instead of gas. In the early days, a 12.5% royalty, even on properties where post-production deductions “generously” taken, yielded a lot of money. Then the price of oil bottomed out and royalty checks shriveled up. With the price of oil back up, royalty checks, while not as much as they were 4-5 years ago, are still much higher than they were a few years ago. All of which is to say: When the price of oil (or gas) goes up, it covers a multitude of post-production deduction sins. But when the price is down, landowners get the shaft. At least, some landowners. Here’s the story of some of those Ohio landowners who signed early. As we read the story, our impression was this: Yes there’s been some bad (even lawsuits), but there’s been a lot of good too. And in the end, these landowners (like others we’ve spoken to in person at various events), would say if they had to do it all over again, they would. That is, shale drilling is worth it, even with the bad, and the ugly…
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Federal Court Upholds Ohio Forced Pooling Law in Chesapeake Case

In 2015, landowners in Harrison County, OH who own 127 acres (the Kerns) filed a lawsuit alleging their property rights were about to be violated because Chesapeake Energy had filed a pooling request with the Ohio Dept. of Natural Resources (ODNR) to pool (combine) the Kerns property with surrounding properties for shale drilling. The Kerns had not signed and do not want drilling under their land. Their neighbors do. Ohio has a law on the books that allows for “forced pooling” in cases when a majority of the surrounding land is leased but landowners with small positions refuse to sign. The Kerns resisted and fought the case all the way to Ohio Supreme Court, which rejected their claims. Chesapeake drilled and fracked three wells (on a neighboring property), which included drilling under the Kerns’ property. So the Kerns filed a new lawsuit in 2016, in federal court, claiming a “taking” of their property had occurred. The federal court has just ruled–against the Kerns. This was the first time a court case dealt directly with the constitutionality of Ohio’s unitization (forced pooling) law. The upshot: Ohio’s forced pooling law remains intact and in force…
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Financial Checkup for Marcellus/Utica Drillers

RBN Energy, headed by founder Rusty Braziel (co-founder of Bentek Energy), is, in our opinion, the premier oil and gas analytics firm out there. Smart people working at RBN. And they offer up some amazing content on their blog site–for free! At least it’s free for a while, then it goes behind a paywall. A few days ago RBN published a blog post on the financial health for the 44 major publicly-traded U.S. exploration and production companies (drillers). RBN groups them into three categories: Oil-Weighted, Diversified, and Gas-Weighted. We found the Gas-Weighted list of 10 companies and the information revealed about them to be fascinating and worth studying. Each of the companies has major operations in the Marcellus/Utica–some of them totally focused on our region. Among the data points shared: revenue, production costs, lifting costs and more. We think of the following as a handy financial health scorecard/checkup for 10 of the biggest drillers in the M-U, including Antero Resources, Cabot Oil & Gas, Chesapeake Energy, CNX Resources, EQT, Gulfport Energy, National Fuel Gas (Seneca Resources), Range Resources, Southwestern Energy, and Ultra Petroleum…
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Average Workers at Top Marcellus Drillers Make $100K+ Salary

The average worker who works for producers (i.e. drillers) in the Pennsylvania Marcellus makes among the highest average salaries of any industry in the state. Looking at six of the state’s top Marcellus drillers, the average worker made $113,610 last year! That’s an average taken from workers at CNX Resources, Range Resources, Chesapeake Energy, Southwestern Energy, EQT and Cabot Oil & Gas. We hasten to add not “all workers” but “average” or “median” workers–meaning there are people who make below that number and people who make well above that number. It also means the majority of Marcellus workers in those companies made at least $100,000 per year. Those working for oilfield services (OFS) companies like Halliburton, Baker Hughes and others didn’t fare quite as well, making an average of $52,000-$80,000 per year. Still, hey, it ain’t bad money! Here’s a look at the average wage for top Marcellus drillers and the OFS companies that serve them…
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Chesapeake Energy 1Q18: M-U Dominates with 45% of Production

Yesterday Chesapeake Energy, now the #2 natural gas producer in the U.S. (after EQT), released its first quarter 2018 financial and operational update. The company reported 1Q18 profits of $268 million, up 257% from the $75 million in profits during 1Q17. The key for increased profits was an increase in production while lowering costs. As we scanned over the numbers, one thing stood out for us: 26% of Chesapeake’s production comes from the Marcellus Shale, and 19% comes from the Utica. Add them together (45%) and no other region comes close. M-U success is Chesapeake’s success. It shows just how key the M-U region is for the mighty Chesapeake. During 1Q18 the company drilled and placed into production 10 wells in the Ohio Utica and 6 wells in the PA Marcellus. 2Q18 plans are to drill and bring online 7 Utica wells and 17 Marcellus wells. However, Chesapeake’s head has been turned. Their primary 2018 focus appears to be the Texas Eagle Ford Shale–an oil play. The company is currently running 5 drilling rigs in the Eagle Ford. They drilled and brought online 23 Eagle Ford wells in 1Q18, with plans to drill and bring online another 50 wells in 2Q18. Chessy has fallen and fallen hard for the siren song of oil. Here’s the latest from the #2 natural-gas producing company in the U.S. that now loves oil…
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EQT Pay Dispute – Comparing CEO Salaries for Top M-U Firms

In mid-March, the country’s #1 producer of natural gas, EQT, suddenly and without previous warning lost it’s President & CEO, Steven Schlotterbeck (see EQT CEO Steve Schlotterbeck Suddenly Quits, Leaves Company). Steve is the man who guided the company through its acquisition of Rice Energy last year (see EQT Buys Rice Energy in $8.2B Deal, Becomes #1 Gas Producer in US). It was a tough battle against multiple corporate raiders who didn’t want to see the deal happen, but Steve held it together and made it happen. The notice from EQT was short and sweet and said Steve had resigned immediately, due to “personal reasons.” MDN was the first to disclose what those “personal reasons” were: a pay dispute. According to Steve, the board wasn’t paying him what similar CEOs at competitors are making. So he quit. Makes you wonder how much Steve was making, and what CEOs at other large Marcellus/Utica drillers make. We spotted an article in the Pittsburgh Business Times that reveals what Steve made last year. We did some digging to find what comparable CEOs make. The numbers we discovered may surprise you…
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FERC Rejects Blue Racer Midstream Plan to Change NGL Pipe Rates

We have to confess this story is a bit complex to understand. We will take a stab at making the complex understandable. Blue Racer Midstream has a subsidiary called Blue Racer NGL Pipelines LLC. The subsidiary operates the G-150 pipeline system, which provides batched propane and butane service. G-150 currently, located in West Virginia, connects a Natrium, WV processing plant to the TE Products Pipeline Co. (TEPPCO). The G-150 pipeline will also have a connection to the Mariner East 2 Pipeline when it goes into service, theoretically in June of this year. Currently the G-150 is flowing about 6,300 barrels per day of product through it–only 20% of its capacity. When the connection with ME2 is up and running, Blue Racer says it can handle 30,000 bbl/d through the G-150. However, Blue Racer itself signed up for most of the capacity (27,000 bbl/d). Blue Racer recently asked the Federal Energy Regulatory Commission (FERC) to allow it to have two different rate structures–a lower rate for “committed” shippers (Blue Racer itself with its 27,000 bbl/d) and a higher rate for uncommitted shippers. FERC rejected the request pointing out that existing shippers with contracts–namely Chesapeake Energy–would be left out in the cold in favor of Blue Racer moving its own volumes at lower prices. Yes, it’s complicated. Bottom line, Blue Racer can’t do what it wants and has to go back to the drawing board…
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Chesapeake Stock Soars w/Update; More Marcellus Wells in 2018

Yesterday the country’s second largest natural gas producer, Chesapeake Energy, issued its fourth quarter and full year 2017 update. Chessy CEO Doug Lawler began his comments during an analyst phone call this way: “2017 was another foundational year for Chesapeake as we continued to transform all aspects of our company.” Even though Chesapeake sold a number of assets and reduced headcount in 2017, production still rose 3% for the year. Lawler said he expects production to rise another 3% in 2018, even with a planned $2-$3 billion in sales of even more assets (what’s left to sell?). Lawler also said the company will reduce spending 12% this year. The news of production increases on the way using less money sent the company’s stock price soaring 22 higher%. But all is not peaches and cream. The company is still saddled with almost $10 billion worth of debt, which tends to remove the oxygen from a company’s lungs. Still, the Chesapeake doggedly soldiers on. Disappointingly, nothing was said during the conference call about either the Marcellus or the Utica. There’s only two brief references to our region in the official update–even though the Marcellus and Utica combined provided the lion’s share of Chesapeake’s production in 4Q17 (50% of all their production came from the M-U). Chessy says they will drill 55 wells in the Marcellus in 2018 (more than the 43 drilled in 2017), and they will drill 40 wells in the Utica in 2018 (less than the 67 wells drilled in 2017). Below is the full update, the latest slide deck, and a good overview of yesterday’s news from Reuters…
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The Great Chesapeake Massacre III: Lawler Fires Another 400 People

2/2/18 Update: Have we been unfair in our characterization of Doug Lawler? Perhaps. We don’t know Doug–have never met him. He started firing masses of people at Chessy before the downturn hit. He arguably inherited a troubled company. We intensely dislike Carl Ichan and other corporate raiders, so we attributed Doug’s actions to Carl’s influence. MDN received a very nice note from a subscriber who personally knows Doug Lawler and has a different perspective to offer, which we’re happy to pass along. He said: “Jim, regarding your article on CHK, Doug Lawler probably learned a lot from Carl Icahn, but knowing Doug the way I do, I can assure you it hurt him to release people at his home office or other areas of operations. He was left with a mess and will take him years to clean it up. Hopefully with oil & gas prices stabilizing and going up, CHK will become profitable.” We thank our subscriber for sending that along!

Just like those 80s slasher movies that did so well at the box office that studios kept making more of them (Friday the 13th, Nightmare on Elm Street, Texas Chainsaw Massacre, etc.), Doug “the ax” Lawler, CEO of Chesapeake Energy, is back with part III of mass firings at the company. In October 2013 when Lawler was newly appointed as CEO (by Chesapeake’s board, which was under the influence of corporate raider Carl Ichan), he swung his ax and fired 800 people in one gory episode, promising that was the last of it (see The Great Chesapeake Massacre: Lawler Fires 800 People in One Day). It worked so well the first time, Lawler came back with a sequel two years later (see The Great Chesapeake Massacre II: Lawler Fires Another 740 People). It’s now a little over two years since the sequel, and Lawler is back for a third time, firing another round of people–400 this time, 13% of the workforce. The latest victims worked at HQ in Oklahoma City. When corporate raiders take control of a company, as Icahn did at Chesapeake, they pressure management to fire people and sell assets–in a bid to make the stock price jump higher so they can sell their shares of stock at a higher price, pocketing the profit. It’s disgusting to ruin people’s lives and pretend it’s “just business.” At any rate, Icahn is long gone from Chessy, but Lawler learned his lessons well by sitting at the feet of the master. This is rich: Lawler said because the company has sold so many of its assets, it no longer needs the people. Kind of a vicious cycle. Fire people, sell assets. Fire more people, sell more assets. Where does it end? Pretty soon Lawler will be able to cater the company’s office Christmas party with a personal pan pizza from Pizza Hut…
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