I don't think it is a simple yes or no. Some of the funds are available, maybe all of them. The question is, as a practical matter, can they really use them because using any of those funds comes with loan covenants that are now too onerous to deal with. Maybe they can afford to tap some of it, but not all of it. One would have to understand the credit agreement in detail to see what the practical limitations are.
Certainly I think investors are discounting the availability of that money, or like I am saying, questioning if it is worth tapping into it. Which effectively makes it unavailable. They are also questioning CHK's ability to reach break even on an operating cash flow basis.
Uncertainty abounds for CHK, even more than the straight forward uncertainty in the price of the commodity.
In December 2014 CHK rolled over their $4B loan revolver that was set to expire in 2015 to one with new terms that expired in 2019. The new terms are described in the 10-K, but not in enough detail to provide clarity. For example, the debt to capitalization ratio is limited to 0.65, but the definition of 'capitalization ratio' isn't given. It is "as defined in the capitalization agreement". Here is the text from the 10-K.
The terms of the credit facility include covenants limiting, among other things, the ability of the Company and its restricted subsidiaries to incur additional indebtedness, make investments or loans, create liens, consummate mergers and similar fundamental changes, make restricted payments, make investments in unrestricted subsidiaries and enter into transactions with affiliates. In addition, the credit facility requires us to maintain, as of the last day of each fiscal quarter, (i) a net debt to capitalization ratio (as defined in the credit agreement) that does not exceed 65%; and (ii) a leverage ratio (net debt to consolidated EBITDA, as defined in the credit agreement) that does not exceed 4.0 to 1.0; provided, however, that the leverage ratio will not apply during any period in which our credit rating, as determined by either Moody’s Investors Services, Inc. or Standard & Poor’s Rating Services,meet and continue to meet certain investment grade thresholds, as defined in the credit agreement.
I think the gist of all of this is that if CHK uses funds in this revolver then there are restrictions on what they can do afterwards. In the current situation - with the asset write down last quarter and future write downs likely, and with a severely depressed stock price - the funds available in the revolver may not be really be usable lest they trigger a cascade of consequences with the other debt that CHK has. The information provided is not enough to know what the situation is with this source of 'cash'. .
I'm one of those that thinks the nuclear deal with Iran will destabilize the region even more than it already is. It is an agreement with the major economic powers outside of the region. It does nothing to address the simmering regional conflicts in the area, and may even serve to make them worse. I think the agreement is going to embolden increased militancy and increased responses to that militancy. I just can't see how it has any kind of calming effect on the region and therefore I don't see how it can have a a depressing effect on oil prices.
It is getting more and more probable that there won't be a dividend and that there won't be an explanation for why that is until something else is brought to light.
So, with that in mind ... what could it be?
If CHK simply wanted to preserve cash they would have said so. Most investors would see that as a good move; conserving cash in a difficult environment. New investors might even be encouraged to buy in. This could have been done any time but there was an especially good opportunity when CHK got that adverse judgement last week for the early retirement of the bond . It could have indicated some positive control of the bad situation by suspending the dividend until the unexpected expense was covered (approximately 5 quarters of common dividends).
CHK didn't do that, so there is some other reason the dividend hasn't been declared, or a statement made that it would not be declared.
My best guess is that new investment money is coming in - maybe a sizable sum - that will receive a preferred dividend and that is torpedoing the dividend on the common. Good for the common in that it will reduce the amount of debt, and bad for the common in that another claim on operating profit will go to the source of new funds for an indefinite period of time.
A twist on this theme is that warrants may be issued for a future conversion to common stock. My experience is that issuing warrants also tends to drive up the short interest in the stock. For reasons that I am unable to explain the warrant holders tend to sell stock short against the warrants. And, maybe they have already sold short in anticipation of receiving the warrants - which would explain some of the high levels of short interest. Issuing warrants can also be of questionable value for the common stock.
If I were to venture a second guess I would guess that the new funding comes with some long term fixed price contracts for future delivery of NG at favorable prices. Maybe 10 or 20 years long.
I was glad they made 11c this quarter. I thought they would lose money considering the weak price of oil and nat gas. I think it was an impressive accomplishment. I bought some more CHK stock this morning.
There is a lot of hot money in this stock - pushing it up and down. It's hard to watch and hard to understand what drives it.
Maybe it was the write down. The need for a write down was in last quarter's 10Q. They had to do this back in 2012 and the amount was about $3B. So, I was expecting something in that range to occur for this write down. If this was news to some people it shouldn't have been
Maybe it was capex. CHK plans to spend $4B this year - about a billion per quarter. They are coming off a quarter where they spent more. They will overshoot the billion a quarter target at the beginning of the year and undershoot at the end of the year as the cutbacks take hold. Did anyone really expect it to play out differently?
Maybe it was the cost of transporting their natgas to market. Apparently an analyst discovered last quarter that CHK has some fixed cost contracts to transport their gas. It is an expensive deal they got themselves into, but its been around for a couple of years (maybe three years). This is not news.
CHK is the second largest natgas producer in N America. I had thought that this meant they produced a fairly large percentage of the US natgas - maybe 25% to 30% with the number one producer being 35% to 40%. This is not the case. Exxon is number one with a little over 10% of the market and CHK is #2 with a little less than 10%. Another 40 companies make up the top 70% of the market.
I read that 1/3rd of natgas production comes from oil wells. Think about that in the context of fewer number of wells being drilled.
Last week the natgas storage fill was 84 bcf and this week it was 76 bcf. I would think that this time of year the storage injection would be trending towards 100 bcf, but it is going the other way.