Dividends remain the same for several years to come
I understand that the news is not good for the trust in the Long Run. Given that I now look at the NEW drilling schedule and the dividends that will come until they reach the magic number of wells. From an investment point of view the dividends will remain the same for several years unless I do not understand the Subordin. part of the pay out. If you bought CHKR today or after the share price drop post X date and keep it for years to come your return would not change until the subordin. period was over then the overall production of the Trust would come into play. That overall production is what has caused the drop in share price today.
They still are giving away NG due to hedging or some other unexplained reason. I believe NG prices will not retreat too much from where they are now. The storage of NG is below the 5 year average now and the overall storage and price will again depend on weather and related events and the continued S&D pressure which has caused the price and storge numbers to improve. The number of NG drilling wells is down a lot as said in here most are drilling for OIL. Limited drilling rigs add to the lack of production numbers in NG and again LNG is waiting to be the NEXT BIG THING. Given all that in two years NG production from the trust "could" be most import from a LT investment point of view. My major concern with this trust is managemnt which is NEVER a good concern. Why are they getting such low prices for NG every quarter a question they did not answer. They have slowed down drilling as a law suit could easly been brought against as field pressure was suffering as numbers would prove so why other than ending Subordin date would you continue to drill faster and lower the field pressure even more? I think the threat of a law suit might reveal just why the NG price is low compared to what the market is bringing. We should at least be given some reason and facts as to why so low.
"Dividends remain the same for several years to come"
a) the subordination threshold amount changes each quarter and reaches a peak in Q3 2013 after which it declines
b) as another poster noted, the subordination threshold is not a solid floor - the distribution can fall below the threshold if results are bad enough (if cash flow is not sufficient to pay the threshold amount even with 0 going to the subordinate units)
c) CHK will try to complete the drilling program as soon as possible in order to get rid of the subordination threshold as early as possible (just like SD is doing with its trusts and also happened with ECT).
The Subordination Safety Net protecting distributions info from the CHKR website found under "about us" "target distributions:
"In order to provide support for cash distributions on the common units, Chesapeake Energy Corporation has agreed to subordinate 11,687,500 of the trust units it retained following the initial public offering, which constitutes 25% of the outstanding trust units." ...yada yada yada ....."The subordinated units will automatically convert into common units on a one-for-one basis and Chesapeake Energy Corporation’s right to receive incentive distributions will terminate at the end of the fourth full calendar quarter following Chesapeake Energy Corporation’s satisfaction of its drilling obligation to the Trust. Chesapeake Energy Corporation currently intends to complete its drilling obligation on or before June 30, 2015, and accordingly, Chesapeake Energy Corporation expects the subordinated units will convert into common units on or before June 30, 2016. Chesapeake Energy Corporation is required to complete its drilling obligation by June 30, 2016, in which event the subordinated units would convert into common units on or before June 30, 2017."
Not true, Q4 2013 distribution will go below the subordinate threshold
"It combined with continued low commodity prices and reduce well performances will likely result in future distributions to common unitholders below the subordinated threshold. However, the moderated phase of drilling will not have the significant impact on distributions until the distribution will be paid in the first quarter 2014. This will primarily relate to production attributed to the Trust royalty interest for the three month period ended November 30, 2013."