Chesapeake Energy...

Can the new board members fix the laws of supply and demand?

We've tapped huge reserves of domestic natural gas in the last 3 years or so and it killed the price of natural gas.

CE made a ton on that.

You can't have it all.

Up to 17.26 after hours.

News from last night:

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Chesapeake in talks on $4 bln pipeline sale-Bloomberg

8:49 pm ET 06/05/2012


June 5 (Reuters) - Chesapeake Energy Corp is in advanced talks to sell almost all of its pipeline assets for more than $4 billion to Global Infrastructure Partners, Bloomberg reported, citing sources with knowledge of the matter.

The second-largest U.S. natural gas producer is discussing selling all of its interests in Chesapeake Midstream Partners LP as well as other pipeline assets, Bloomberg reported.

The talks could result in a deal within days although there was a risk negotiations could also fall apart, the report quoted the sources as saying.

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I've looked at their financials a bit and I like the fact Carl Icahn is on board (which if you didn't know is the reason they are electing new board members; he wrote an open letter demanding them). It is a buy rating in my book. It could go lower as oil and nat gas head further south if no QE quick fix is up for play, but honestly the stock has been beat to hell over the last year so picking it up now isn't that terrible of an idea. It really depends on your risk appetite, how much you are willing to buy, your time horizon, the rest of your portfolio, etc.

I got in at the beginning of the week.

No more substantial analysis than what has been posted here, but I think Icahn's ability to tear companies apart is going to serve this overleveraged behemoth well.

Security was everywhere today for the shareholders meeting. Never saw the campus that locked down.

A good read on Aubrey...LINK

Offshore can you comment on the mood of things on the campus up there? Good spirits? Everyone behind McClendon?

a few things I know first hand:

they used cheap steel in the haynesville and made what is in essence "disposable" pipeline systems that have at best 7-10 year life expectancy before they start to fail.

they never got a handle on their operations of the midstream side in the haynesville and pipelines that are less than 5 years old have issues with sand, water and bacteria accumulation in them

selling off the midstream side will ease the debt load and it will eliminate the issue down the road of paying for the inevitable pipeline rupture

if they do sell off their midstream side then the upstream side will have to undergo significant operational and philosophical changes because a third party gathering system will not allow them to operate the way they did when they owned their own gathering system. IE: using the pipeline as a garbage can

they are making a big push into oil shale production in the eagle ford and they have had a lot of success down there

they spend money like drunken sailors on their drilling side. some of what they do would make a CHK investor sick

they drilled and produced enough wells in the haynesville to pay for the pipeline system and to hold their leases. they have a fraction of production versus the gas reserves they hold in the haynesville

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they spend money like drunken sailors on their drilling side. some of what they do would make a CHK investor sick

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They soak outside working interest partners on everything. Pretty much everybody hates working with them and they will over bill you for everything imaginable. Their employees must have a difficult job when all the other companies who hold interest in their wells absolutely hate CHK. They are essentially using their midstream business as a way to pay lower prices to all ORRI, WI, and RI owners, sometimes as much as 1.00 less than Henry Hub and even paying the same owner different prices in the same gas units. It is clearly an effort from upper management as they know that any challenge via lawsuit is going to be difficult to prove because they have so many entities handle gas between wellheads and actual sales points. I've been told from some ex Chesapeake employees that Aubrey learned to operate this way from his Kerr-McGee roots, although there is really no way to verify this. They give tons of money to charities and local non profits to garner positive publicity but then treat their working interest owners and royalty owners in a totally different light. They have a lot of good assets but McClendon is a landman who cannot stop buying land (among other things) and the debt load looks to be like cement shoes holding the company down in a low gas price environment. In short many in the industry will not feel sympathy towards them if they actually get close to going under.