UPDATE 1-Chesapeake Energy Q4 net rises, beating Street
Thu Feb 22, 2007 6:05pm ET
CHK (Chesapeake Energy Corp )
Change: +0.24 (+0.82%)
Revenue (ttm): $7,209.0M
Market Cap: $12,817.63M
Time: 4:00pm ET
UPDATE 1-Chesapeake Energy Q4 net rises, beating Street
CORRECTED - Chesapeake Energy 4th-qtr net profit higher
Chesapeake Energy 4th-qtr net profit higher
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HOUSTON,, Feb 22 (Reuters) - Natural gas producer Chesapeake Energy Corp. (CHK.N: Quote, Profile , Research) said on Thursday that its fourth-quarter earnings rose, beating analysts' estimates,helped by a jump in production.
Net income available to common shareholders rose to $446 million from $432 million a year ago.
Earnings per share for the quarter fell to 96 cents per diluted share, on a higher number of shares outstanding, from $1.11 in the same period a year ago.
Peter, Galina et al. CHK reported tonight and do we detect a shift in the media bias. The headline reads: Q4 net rises, besting the street. It isn't until the third paragraph that they note that earnings this quarter were less than the fourth quarter of last year. Just a few days ago as we noted here with both XTO and ECA the headline read: Fourth Quarter net plunges for ECA or XTO take your pick.
Don's point about cyclicals is very important. That's when things get "different" and serious money can be made -- when cash flow generation will remain positive even with a significant revenue hit from a short recession. Those gassers that have hedged enough to cover drilling costs are much safer investments than they used to be. The other part, of course, is coming out of a long inventory correction so that there is a long way to run. In that way, the current commodities run is similar to autos in the 90s and housing through the first 1/2 of this decade.
GH & All--
see you're still holing gassers. If you have CRK, do you think there's still room for it to run?
I'm still very long-- but did take CRZO & some SU off the table for the "matress" effect & to buy on a pull back if it comes. I think you mentioned taking some chips off the table in your favorite E&PS because of rising costs and in fact I was wowed to see that one of my drillers- GSF- just
got a two year renewal on its Celtic Sea for 450 to mid 480s depending on deplaoyment location- Brazil or Nigeria.
The previous dayrate was 330 & Lehman's expected 370. So that's a hefty cost increase there. But there are those that maintain the E&PS can easily take on a double digit
increase in operating cost & still come out ahead here.
Seems everyone is focusing on the ag aspect of Don's talks but his cloising line ahout big oil is what perked up my ears last Friday.
" The big oil cos. have better credit ratings than some of the big financials or corporations,even some of the big
conglomerates. So groups that in the past you might have regarded more as cyclicals & more at risk if we're going to have a sell off--- are groups that you can argue are going to come through any sell off much better. What's been winning for us, up to date, should continue to win, it's just if there's going to be some kind of sell off --which may mean you can buy some of thes stocks cheaper. At the moment the only signal we've got is what's happening with the ted spread. The rise in the long bond yields isn't enough to set things back, but a sign of what's to come."
My plan is to ride out my refiners through the summer & probably cash out for redployment or a pause. But I'm more open to taking chips off the table this summer than last-- having ridden out the highs and looowwwwws of SU last summer/early fall. I've missed 2 points on CRZO, but no regret ( yet anyway). It is nice to have a secure chunk on the side--kind of like a simulated summer vacation of sorts.
Your cash horde is even higher than mine...substracting 10% for the house, I'm about evenly split between cash, E&Ps and everything else (mainly IRA mutual funds). My gut reaction is to sell down, but I really hate to give up any of my big 4. Shoulda filled my positions in BBG and DNR in Feb, but....ah well.
Under the heading of the little engine that could dept. DNR chugged ahead of CHK in price per share department today.
It is time for the KOD. I have sells in for both CHK and DNR at 37. Who if any will get there first?
CHK is one of my largest holdings
I debate with my self whether it should continue to be so.
Aubrey seems to be in a hurry,Spending 5 billion against a 4 billion cash flow.Largest driller in US by Far. Maybe they should be more like EOG and live within their cash flow
On the other hand CHK has a 10 year drilling backlog of some 26,500 drill sites.CHK issues a lot of projections for various gas prices. CHK has a history of favorable hedging. In fact they have hedged 64% of their 2008 gas at $9.20
I probable will not get off the train unless severe run up in Price
You asked, intelligently, "Would anyone hold a 2.5% convert once it hits the convert price?"
In the case of the CHK convertibles, it appears that the conversion is forced so it is only a case of whether you stay in the note until payout or sell the note at the premium it would command at the time.
As for the math, let us look at it from the point of view of the note holder first. $10,000 gets you 2.5% i (all numbers will be round in this discussion) interest plus the value in shares of the amount by which 300 shares exceeds $53. In the example that CHK used in the release, assuming conversion in ten years and a $91 stock, the note holder gets his $10,000 cash back plus $11,000 in stock which represents about an 8% return in addition to the 2.5 for 10% total.
Assuming no additional share offerings for 10 years the amount of dilution to existing shareholders is 12/460 mm or 2.6%. So, at 10% CHK stock appreciation per year, the deal looks like a favorable one to both the note holders and existing CHK shareholders. However, if the stock only rises 5% per annum, the noteholders get next to no bonus shares while if the annual rate of increase is 15%, then CHK at $155 owes note holders about $3 billion of stock or 20 mm shares resulting in 5% dilution.
So, deciding whether or not the deal is a good one for existing shareholders depends on your assumption about the rate of share appreciation. In the last 8 years, CHK's price appreciation approximates one order of magnitude or about 23% per annum. However, as this chart clearly shows, there has been no appreciation of CHK stock over the past decade (not corrected for dilution):
My gut says that timing will be the issue for the noteholders and I'm not sure what the conversion triggers are.