Comparing the current management, current board and major stockholders of the last
two years with the control person: Chairman, CEO, major shareholder of 1990-2013 is
like comparing apples to oranges. Saying they are the same and predicting the same
is just foolish. The new control of this company dumped a piece of the company for
$5 billion and they certainly can dump another small piece for another $5 billion to
either a foreign company or foreign investor without the politicians going crazy.
Open your imagination a little, there are plenty of investors or sovereign funds:
Singapore, China, India, Saudi Arabia, Shell, Total, Eni, BP, CVX that could spend
$5 billion and take a little chunk of the reserves. It happened in 2014 and expect
it will happen again in 2016. When that transaction takes place and the proceeds
pay off 50% of the debt on the balance sheet these share double within 90 days
of that event as every ETF and mutual fund in the world runs into the shares.
Do you think the three largest shareholders controlling 25% will sell in the 20's. They would not sell near the bottom of oil for the last five years as they are super wealthy and do not need to give away their shares.
China will have 100 million more cars and trucks on the road in 4 years. Price of oil $80-90-100 by then. I am guessing that Boeing, Airbus and the other plane manufacturers have 10% more planes in the air in 5 years than today and demand and production of oil is in equilibrium. What was the average price of oil for the previous four years if you recall: $90-100. Last thing on the big shareholders of CHK, they would be better off selling 5-6-7% of production and land holdings for $5 billion than sell off the entire company. The hot shots that control the stock and board are better off with selling a small piece of the company during the next 12 months and paying off 50% of the debt on the balance sheet at that time.
Each month the stability of the area gets worse.
Another country falls into disintegration each month.
Just remember, they seem to hate everyone in that region
and kill each other over what?
As they blow up and destroy towns and cities does anyone
believe oil facilities or tankers will be immune?
If Somali pirates could take over a large container ship
and an oil tanker which they did. These guys in the
Middle East are worse and their numbers are much bigger.
Do not fool yourselves, the region is a mess and will get
worse. The extremists can destroy refineries or pipelines.
The destruction will reach the oil fields.
I remember when Sadam wiped out the Kuwait oil industry
in one week. Why would anyone want
to be short stocks in this sector. Very dangerous at this
time. How often does Icahn not make money in a big
position? He owns tons of this stock in the $20s and he
is not selling until he hits major pay dirt.
He owns more than 10% of the company and the company
will probably retire 10% of the stock before the second quarter
I'm am a long term holder of this stock. While he is wrong about CHK having to sell, he missed the big picture. The majority of holders are ETFs and Mutual Funds, if Shell, Exxon or Chevron offer a 100% premium in an acquisition this is gone. That is problem as this drops another 10-20% over the next 1-2 months. The carnage in the energy sector is real and these guys are not able to hold off an acquiring energy powerhouse. If CHK drops in value to $8 billion and the offer is $16 billion by one of the names I mentioned the fund managers vote to sell.
It does not matter that investors do not have cash. CHK has waited until they are ready to announce the next quarter. If they buy $1 billion during the 30 days before the press release on the billions in losses due to write-offs they will be able to purchase more than 10% of the company, so everyone on this board that is suffering will actually own 10% more shares about a month or two from now. For me that is a lot of shares
everything gets priced in by the knowledgeable segment of the market, its the 10% that sell in a panic when they hear about billion dollar losses for the quarter. Buyer that day or the next are going to get a sale price as I would be surprised if shares do not see a 5%+ hit on that day.
Management should buy 1-2 million shares every day from April 1-May 30.
Obviously they have not purchased any shares during the last couple of months because they felt this was going to get worse before it gets better and they were right. I have said that the first quarter is going to be miserable for the oil and gas industry which would drive prices of the shares lower and that has been happening each week. Shares should dive further for 9 out of 10 companies in this sector when they report first quarter which is the quarter they announce write-offs based on reserves. Unfortunately they are going to announce the lowest prices for gas and oil and the greatest storage volumes in recent years along with an escalating value of the dollar which all effect oil prices. I previously said this was dropping another $1-2-3 dollars and it is doing exactly that.
CHK is waiting to buy at $12 or $13 per share.
Oil is priced in dollars as the dollar has climbed against the Euro by 25% oil has become 25% more expensive.
I think you are missing the bigger picture. Most currency experts see the Euro and English pound dropping with the Euro going to parity with the dollar and that is if Greece and Spain stay with the Euro. As those currencies weaken the price of oil goes up for them. Another 5-10% drop in the currency in Europe along with the 25% drop of the last 6-9 months is going to push oil down over the next six months especially with the increases of production over the next six months.
I wondered why they did not announce in the last conference that they had acquired shares and the number. Since they did not disclose any purchases they must not have bought which should tell us something. They did not want to buy at $20 and they did not want to buy at $18 or $16. We have to assume they know this is going lower over the next quarter as production in the U.S. and storage keeps climbing each week. We have to face reality!!! This could hit $10-12, then they can buy back 1/4 of the company.
Say nothing, outspend cash flow, miss projections except for overproduction, drive the price down and down and buy the stock back cheap. Maybe they are smarter than we think. But then the CEO bought in the $20s last month.
CHK has been pounded because the vast majority of shares is held by institutions and they just had quarter where they said they spent more than their cash flow. Never ever spend more money than you make and if you do the fund managers tend to reduce exposure and I wold bet that every fund in the U.S. is reducing shares owned in CHK. Also, CHK announced it would produce 3-5% more energy in 2015 than 2014. Also, do not sell more and more inventory at lower and lower prices, stop selling your inventory cheap!!! That will also hurt with investors.
Up 40% over previous year (February month end 2014).
There is little demand and too much gas in storage.
This should mean natural gas prices will drop further as
winter comes to an end in 3 weeks.
So, how low is CHK going in price, it is guess work.
If it can drop 5% today it can do that on days to come
which is not good.
You hit another nail on the head. Currency. The U.S. dollar has been climbing against every currency in the last six months, 25% against the Euro, 30% against the Canadian dollar, 50% against the Russian ruble. Most currency experts are saying that the dollar could climb another 10% over the next six months especially if unemployment keeps dropping, the expectation of an increase in interest rates in six months becomes more a reality.
Another climb of 10% in the dollar and this equity drops more as the rest of world pays for energy in dollars.
The volume of CHK reflects that the holders (90% institutions) are lowering their exposure to oil and gas equities. Institutional managers do not want to be over-committed to CHK when they have to take a $2-3-4 billion write-down on their balance sheet due to the 50% decline in oil prices and the 30% decline in natural gas prices over the last year.
When that quarterly announcement is made at the first quarter CHK shares will take another hit, they do not want to be in the shares to hold for a $1-2 decline. They do not want to risk that. If that actually happens and I think it will, then you will see institutional buying after that fal, and what has been happening to CHK this month, (a fall from $20 to $15 a share) will go the other way, but this is going to be another tough month. I would not be surprised to see CHK fall another point in the next 30 days and then another point with the write-off. I may be wrong but I have held my position for many years and the shares are not immune to all negative news. I have made no money in this position for seven years, sad but true.
They have to write down the value of their oil and gas properties when they issue the first quarter's report. Oil is down from $100 per barrel to $50. Natural Gas is down from $4.50 last January to $2.75 this year. They are going to write off billions and billions of assets, think $2-3-4 billion. Fund managers and ETF managers are being smart and are dumping shares before that negative event happens which will probably wipe out another $1-2-3 in the share value of the company. Remember, the company has a current market capitalization of $10 billion. This write off will hurt the stock big time and you are seeing shareholders dumping this month and it will probably continue for another month.
The drilling companies are obtaining more perfection and more knowledge every month on how to drill in shale rock. The CEO of CHK recently said that they are reducing the time to drill wells from 2014 to 2015 by 2-8 days and this is saving a ton of money. He also said that the half a dozen wells drilled in 2015 in one area is producing 20% more energy than the same wells last year.
This is a technology revolution taking place in the drilling business which is going to benefit U.S. energy companies that can survive the next year or two of overproduction. That is the big elephant in the room. How do you eliminate the excess of one million barrels of energy per day in the U.S. when you are unable to export oil by law and the export of natural gas is two years away in terms of any significant volumes being export.
Long term, reducing drilling costs by 20-25% is going to be very beneficial for CHK and others and we should assume that the tech revolution in oil and gas drilling will continue, the problem is where does this production get sold over the next two year. If not sold it continues to depress prices as it is stored.
I would say that ETF's and mutual funds have been reducing energy equities and moving to cash as the U.S. produces 1 million barrels a day that has no demand and no export capability as U.S. laws do no permit the export of oil.
Buffet unloaded a monster position in Exxon during the last 90 days even though he said he likes the company. If Buffet and Icahn are not buying energy stocks at the prices found in February and March why should any retail investor. CHK said in the recent conference call that they would produce 3-5% more in 2015 than 2014. They are contributing to the problem. I assume the very rich smart investors are waiting for the lousy first quarter and another fall in oil and gas equity prices before they considering buying more. All investors would probably be smart to exit holdings in energy for the next six months as the good news is not going to be found in the first two quarterly reports of this year.
you say if the CEO knew prices and saw the collapse, I never said he could predict weakness in demand and how many wells each company would drill in 2014 and how much overproduction would occur, that is not possible for anyone, but once you see the production numbers, storage numbers after the fact it is not a crystal ball speculation it is about how long it takes to terminate existing contracts for drilling and how long to use up what has been going into storage and is floating around in ships at sea that no one is taking delivery. Your in house economic analysis number crunchers can tell you that. I spent two years early in my career in the economic analysis department of a NYSE energy company (coal, etc.) and that is what we did. You study what is being used each month, how much is in transportation to plants or storage and what is coming out of the ground, etc and you calculate what production you need to meet supply or curtail. The CEO of Exxon has those people telling him how many months of oil are stored around the world, 3 months or 6 months and where that number is heading, such as 7 months or 8 months or 9 months. They calculate the production and storage numbers and they know when it is gone. Unfortunately, you get companies like Chesapeake energy that said production is going to increase with them 3-5% from 2014 to 2015. You need companies to have negative production growth to burn up what is going into storage and the Exxon CEO said in his comments that 1 million barrels a day of current production in the U.S. has to go into storage because of the demand imbalance.