I understand they are ahead of schedule on the drilling program.
We might consider that a negative as it means an earlier end to the subordination threshold.
Without the subordination threshold, distributions could reset lower at an earlier date (subject to prevailing NG prices at the time).
liza I think you are assuming that the subordinate threshold is based on when the drilling stops. Since the drilling was suppose to be completed 4 quarters before the end of the subordinate thresholds ended I do not see any reason to assume that would change. I admit I have not read the fine details that deals with this issue have you? Regardless the down side I see is not threshold but the fact that if drilling is ahead of schedule which it is then production is way under what was purposed given more wells drilled than expected.
I do see the 20% in NG to be a positive and the liquids as well as both should start going up now if only CHKR could sell them at a better price that would help lol.
At these prices I still think it is a good investment to just get into as the return will be above 12% at the 14 buck price for years to come. Where else you going to get that? For us already in I choose to add some more shares to lower my unit cost and thus increase the % of dividend pay out. Risky YES but what in life worth anything is not?
I believe the subordination period ends 4 qtrs following completion of the drilling program. So if the drilling program completes early then the subordination period ends earlier by a similar period.
I'm equating it to ECT which recently completed their drilling schedule earlier than planned in the prospectus. The result is that the subordination threshold is being removed about a year earlier than originally expected. Since recent distributions have been supported by the subordination threshold, it is to be expected that the coming distribution will be sharply lower now that there is no threshold.
With CHKR, it is still a way off (and NG prices may firm in the meantime). However they are also moving ahead of schedule with the drilling program which would mean an earlier conversion of subordinate units to common units (4 qtrs following completion of drilling program). As of now, the last 3 distributions have been at (and supported by) the subordination threshold and if that support were removed today we'd see a sharp drop in distribution amounts.
Of course, a lot can happen in the next few years, especially with NG prices apparently firming. But it's worth noting that earlier removal of the threshold may potentially be a negative leading to lower lifetime trust payouts to common unitholders.
And yes, your point is correct that if drilling is ahead of schedule then even more wells than anticipated is resulting in lower distributions than expected (ie. the shortfall is even greater than just the distribution amount versus the target suggests).