He bought the shares a couple of weeks ago at a price of $14.15. If I read it right, all 6.6M shares were purchased on the same day - about $93M worth. The details are in the 13D filing.
Yes, their answers were confusing ....something to the effect that they were managing for the long term. It was one of the comments that made me think they were being cavalier about the consequences of using up their cash horde too quickly. They really seemed unconcerned about using up their cash drilling for oil and gas that can't be sold at high enough prices to make money.
And yet, they mentioned nothing about spending the cash on stock repurchases or paying down debt. It was frustrating in that they wanted to talk about things that no one wanted to hear and then to top it off they talked about none of the things that people were interested in knowing about.
My initial thought was that they weren't talking to stock holders or analyst - they were talking to potential acquirers with all the talk about strategic investment and operating for the long term. What they are doing in reality improving the value of their proved reserves - exactly what an acquirer would want to hear.
Now I'm not so sure that was the case. They could be thinking they are going to buy someone or some unproven property which would also require them to beef up their proved reserves to keep their ratios in balance.
I'm trying to figure out where the down volume is coming from. One poster believes it is Aubrey's 3 Million shares but there must be more shares than that behind this sell off. Institutions own about 80% of CHK's stock and it seems to me that several of them are reducing their exposure to CHK.
What the earnings and conference call brought to light is that CHK is not that concerned about commodity prices. They are going to spend $4B in drilling activity no matter what the price of the commodity does (oil or gas). At the same time they were shutting in some production because of low prices in that region.. I think it was a case of 'deja vu all over again' as investors still remember McClendon leveraging the company to the hilt to grow market share. Management seemed pretty cavalier about the consequences of outspending their cash flow from operations.
However, another worry my be that CHK take its cash and blows it on an acquisition. This is a direction with completely different ramifications than outspending cash flow.. Despite what management said about drilling and capital expenses, they could decide tomorrow to spend less and go about making that happen. However, if they decide to buy a distressed asset there is limited opportunity to recover from a bad decision once the deal is done. I think many investors are expressing their doubt that CHK would make a good decision for the current shareholders in the acquisition of another company. There may be some rumors, or even facts, to back up the supposition that they are looking to buy another company and set themselves on a path that cannot be recovered from.
So, I'm leaning towards this second idea - that the word is out that CHK is going to acquire a company that will require a substantial amount of cash or a substantial amount of dilution and investors 'in the know' are reacting like one would expect ... selling hand over fist.
It makes a lot of sense that foreign companies would be interested in US assets to take advantage of the arbitrage opportunities between the glut of NG here in the States and the prices in their regions. There are two good reasons for this
1) To get access to the operation know how from the US company - horizontal drilling and the modern techniques for fracking, and
2) To export US natgas to supply their region.
This 2nd one requires regulatory approval and perhaps even a more receptive policy environment than we currently have. After all, the infrastructure to export has to be built and that opens up the possibility for spills and environmental damage and that has to be worked out with the federal government.
Exporting is on a path to start happening in 2015, but not on the scale to be very interesting to a large country like India. Think about what it might take to export CHK's US production from one field and then think about what it would take to export all of CHKs US production. There needs to be a clear path to this size of an operation on US soil to pave the way for such a deal.
It is confusing that production continues to be forecast to increase while the number of active wells is declining rapidly.
Some reasons for this -
Drilling a well and then bringing it into production are different things. There can be an inventory of drilled, but not completed, wells. So, new production can can continue to come online even if the active rig count goes to zero.
I think most new producing wells are throttled to some extent. They owners are not taking away all the gas or oil that a new well could produce. They have the ability to 'turn up' production even with no new wells being drilled or completed. There are a lot of new wells that were drilled just this last year.
So, in this low price environment, and if an E&P company is worried about survival, one can stop drilling completely to save money and take the throttles off the producing wells and sell as much product as possible to stay financially afloat.
So, the active rig count drops, but production increases ... for a while. Eventually the lack of new producing wells will cause overall production to drop.
CHK is going the opposite way and this has rattled investors and analyst. They are shutting down some gas production and will continue to drill at levels that will deplete their cash at a pretty rapid pace. UBS estimates the 2015 drilling plan will require $1.9B more than cash flow generated from operations. CHK is taking a different path, especially with the pace of drilling, for reasons that are not obvious to most people.
In the last quarter CHK had approximately $530M in unrealized gains on their hedges. How do these turn into realized gains? Do they have to buy back the hedge to realize the gain, or at some point do they actually sell the oil at the agreed upon hedge price and the hedge expires?
Since all the 2014 hedges would have been delivered in 2014 does the $530M unrealized gain at the end of Q4 represent 2015 hedges that have not yet been exercised?
I don't think CHK should merge or acquire a company that is struggling to stay alive. I was thinking it would be more about acquiring proved reserves at fire sale prices after the companies have gone under. The situation is similar to the banking crisis - no one knows how long the low prices will last - so why rescue a company that is going to fail. Let it fail and then see what bargains are available.
There are potentially bad things that can happen when you purchase or merge with a company. Skeletons in the closet. Like - environmental misdeeds or disgruntled partners who won't sue when the company is near bankruptcy but think they've hit the legal jackpot after a suitor merges with the company. Again, let them go BK and then see what bargains can be had. There is time.
I didn't listen to the analyst conference call - I read the transcript. I was struck by how utterly strategic the answers to the questions were. I agree with others on this board that CHK is positioning to be bought out. Their messaging is not for the Wall Street analyst - it is for a potential buyer. Lawler started off talking about their improved safety record, then they gave a lot of detail in the questions about their operational efficiency improvement in $'s per completed wll, and they mentioned several times they will continue to drill but not complete wells (a verified well is worth more to a potential acquirer, but ttno need to complete them until commodity prices improve).
They seem pretty unconcerned about the price of oil and gas. They seem to be thinking there will be a rebound in prices, or maybe they just aren't that concerned because it is not what will matter to an acquirer (every company in the industry has to deal with the price variations in oil and gas that occur with regularity).
The analyst seem to completely miss the point of the most recent divestiture. CHK is still trying to increase production because that is how they build the value of their company. The deal they did with SWN included a large number of producing wells. They sold about 7% of their production for $5B. They can do that again - but it will require acreage that is known to be producing (this ties in with the concept of drilling wells but no completing them). They continue to increase production to replace the production that has been sold, and to point out to potential acquirers that they can find and produce oil and gas at ever increasing levels of efficiency.
After all - CHK is an Exploration and Production company.
CHK's market cap is $11B today and they have $4B in cash (and to be fair - about $12B in debt).
Does it seem more probable that CHK would be acquired when commodity prices are relatively higher or relatively lower than historical norms?