First up, Wall Street Mess:
Chesapeake, Debt and Natural Gas
Perhaps no company prospered more during the early stages of the U.S. shale gas boom than Chesapeake Energy (NYSE: CHK). Its strategy was to aggressively buy drilling rights in relatively unexplored shale fields. This gave Chesapeake a very strong position in dry natural gas shale plays such as the Barnett in Texas and the Haynesville in Louisiana.And from TheStreet:
This strategy of buying acreage, however, in combination with a decline in natural gas prices from $6 per million BTU in 2010 to less than $2.50 per million BTU today, has left the company with a much heavier debt burden than most of its peers. The debt has been a drag on the stock's performance with it dropping by 25% in the second half of 2011.
The company pledged to reduce its debt by the end of 2012 by $800 million, to $9.5 billion. This is still a very high two-thirds of its market capitalization. More ominously, Chesapeake does not expect to generate enough cash from its operations to fund planned drilling and completion capital expenditures until 2014.
So the company has adopted a two-pronged approach to the problem. It is cutting back on some dry gas drilling activity and it is also disposing of some of its hydrocarbon assets....MORE
Chesapeake: Private Equity's Shale Real Estate Agent (Update 1)
If there is one man synonymous with the shale land grab it has been Chesapeake Energy(CHK_) CEO Aubrey McClendon, but Chesapeake has run into a problem recently (no, not the Rolling Stone article): It's running out of money to acquire shale acreage.
McClendon may have happened upon a solution: He's becoming private equity's shale real estate agent as private-equity players like Blackstone Group and KKR(KKR_) become much more active in shale investment.
Blackstone recently invested in natural gas export play Cheniere Energy(LNG_), while KKR recently acquired oil and gas company Samson Investment.
Chesapeake and KKR announced on Tuesday a $250 million joint venture through which Chesapeake will source, own and manage shale assets that will provide future revenue royalty streams. KKR will provide $225 million of the $250 million in cash to buy up the royalty assets.
Details in a press release were scant, but with KKR putting in the lion's share of the money to buy up the shale acreage, it would stand to reason that KKR will receive a lion's share of the revenue from the assets.
That's why a cynic could argue that Chesapeake Energy, known by detractors as a shale asset "flipper," has now become private equity's shale real estate agent. As it is strapped for cash, Chesapeake now has to reduce its role to getting a finder's fee and management fee for going out and finding good shale investments for the deep-pocketed private-equity players.
In a way, it makes perfect sense. If there is one thing that has driven investors and Wall Street crazy about Chesapeake Energy, it has been McClendon's penchant for saying one thing -- becoming more financially disciplined -- while doing another like buying up assets and spreading the Chesapeake balance sheet even thinner. Yet if there is one thing that Chesapeake knows better than just about any other company it is how to source and operate shale assets....MORE