Chesapeake Energy

Chesapeake Energy, the second largest natural gas driller in the U.S. (behind Exxon Mobil) and one of the largest in the Marcellus/Utica, has been on a roller coaster for the past few years. Corporate raider Carl Icahn bought himself a big slice of the company, and along with another corporate raider/Chesapeake investor, Mason Hawkins, they tossed CEO Aubrey McClendon out the door. The two then installed their own guy, Doug Lawler, who proceeded to slash jobs and sell assets–all in a bid to prop up the company’s stock price so these two corporate raiders can make a buck on their investment. We call it disgusting. Others call it business as usual. The result? Chesapeake’s stock tanked and there were rumors of an impending bankruptcy (see Chesapeake Energy: We’re Not Filing for Bankruptcy…Yet). But then Chessy’s bankers decided to keep a $4 billion line of credit open in April (see Lifeline: Chesapeake’s $4B Line of Credit Reaffirmed by Banks). That helped set off a rally in the company’s stock. But the rally has evaporated like St. Elmo’s fire. In a recent filing with the Securities and Exchange Commission, Chesapeake spoke plainly about the possibility that if the price of natgas does not recover soon, they may not be able to meet their debt obligations in 2017. In other words, “We may be heading for bankruptcy next year, if…”
Read More “Latest SEC Filing Shows Chesapeake Doesn’t Rule Out Bankruptcy”

Chesapeake Energy released its first quarter 2016 update yesterday. From the update we learn that the company lost $964 million in 1Q16–but most of it was a paper loss, their assets being written down in value given the low price of oil and gas. Chessy spent $365 million in 1Q16 vs. $1.5 billion in 1Q15. Perhaps most telling is that the company operated just 8 drilling rigs during 1Q16 vs. operating 54 during 1Q15. What about the Utica and Marcellus? During the earnings teleconference call, Chesapeake’s Executive Vice President for Exploration, Frank Patterson, and CEO Doug “the ax” Lawler had high praise for the Marcellus. Both calling it “a core asset” and “an incredibly powerful asset.” Currently the Marcellus produces about 1.8 billion cubic feet per day for Chesapeake. They are curtailing about 350 million cubic feet per day of Marcellus production. However, Chessy loves the Utica more–at least right now. While there are no plans to restart drilling in the Marcellus this year (as it stands right now), there are plans to drill more wells in the Utica. Why? Because the Utica has pipelines that can cart production to the Gulf Coast, via Spectra Energy’s OPEN (Ohio Pipeline Energy Network) pipeline. The Marcellus is currently pipeline challenged, which makes the recent announcements about both Kinder Morgan’s NED project and Williams’ Constitution Pipeline project all the more tragic. Chessy loves the Marcellus–but they’re waiting and watching until more pipeline capacity comes online. Here’s what was said vis-a-vis the Marcellus and Utica on yesterday’s analyst call…
Read More “Chesapeake Energy 1Q16: Loves Marcellus, Loves Utica More”

Don’t tell Crazy Bernie Sanders, but apparently Big Banks (like the ones he wants to dissolve) believe Chesapeake Energy is (like the banks themselves) “too big to fail.” Yesterday Chesapeake’s Big Bank backers reaffirmed the company’s $4 billion line of credit. Twice each year oil and gas company holdings/assets are evaluated and a determination made of their value–because those holdings/assets are used as collateral should a company like Chesapeake go bankrupt. Which lately has seemed like a distinct possibility (see Chesapeake Energy: We’re Not Filing for Bankruptcy…Yet). Yesterday’s action pretty much ensures Chessy will stay out of bankruptcy court, at least until 2017, because the company has the ability to borrow oceans-full of money–up to $4 billion. In an unusual move, Chesapeake’s lenders have postponed another such “redetermination” until June 2017, more than a year from now…
Read More “Lifeline: Chesapeake’s $4B Line of Credit Reaffirmed by Banks”

This is rich. We spotted a reference in a Seeking Alpha story that Chesapeake Energy CEO Doug “the ax” Lawler–the guy who’s fired more than 1,500 people (see The Great Chesapeake Massacre II: Lawler Fires Another 740 People)–that guy gave himself a pay raise last year. He made $15.4 million last year–more than Shell’s CEO…
Read More “Chesapeake’s Doug Lawler Gave Himself a Raise After Firing 1,500+”

Last week MDN told you about a creative way Chesapeake Energy may try to refinance some of its massive debts–by using a 1.5 lien debt exchange (see Chesapeake Considers Unusual 1.5 Lien Debt Exchange). Thanks to MDN’s right arm–Chris Acker–we spotted more details about this infrequently used method to refinance outstanding debt. What we learn from a Reuters story is that only six other companies have tried this route over the past few years. About 40 companies tried and failed to execute a 1.5 lien debt exchange last year. One-third of those 40 are expected to file for bankruptcy this year. Which is kind of an ominous indicator when it comes to Chesapeake. In fact, successfully executing a 1.5 lien is, for some credit rating agencies, considered a form of default in and of itself. We hasten to add that Chesapeake has not yet made any kind of announcement that they intend to execute a 1.5 lien debt exchange. The news is being reported by reputable sources they’re considering it–but no decisions have (yet) been made…
Read More “More on Chesapeake’s Possible (Rare) 1.5 Lien Debt Exchange”

If you can help us figure this one out–please do! Reuters is reporting that Chesapeake Energy is considering swapping out some existing debt for “new 1.5 lien debt.” We know a first lien means you have “first dibs”–you’re first in line to receive something/anything if a company goes bankrupt. A second lien means you’re second in line, behind the first guy. But a one and a half lien? Apparently its possible to create a legal situation where someone is behind the first guy but ahead of the second guy in line–the 1.5 guy. Boggles the mind. What it says to us is that Chesapeake is engaged in some dramatic financial contortions in order to avoid bankruptcy court…
Read More “Chesapeake Considers Unusual 1.5 Lien Debt Exchange”