The Dim Outlook For Chesapeake Energy
The highly leveraged shale gas champion is burning cash, selling assets and running out of options.
From an Article by Christopher Helman, Forbes News, August 10, 2015
Chesapeake Energy is in pretty bad shape. Shares are down 67% in the past 12 months, to $8.70 today. The last time Chesapeake traded at such a low range was in 2003. Its equity market cap is less than $6 billion. Think this looks like a bargain? Only if you’re really bullish on oil and gas prices. On the contrary, if oil and gas stays low for a couple more years it is hard to see how Chesapeake’s equity is worth anything at all.
Chesapeake’s earnings report last week provided no comfort. The company started 2015 with $4.1 billion in cash. It ended the first half with $2 billion. That’s half its cash evaporated in six months. During that time Chesapeake did not buy or sell any assets. It reduced its capex levels by about 40% over last year. So that cash burn rate pretty well represents the sorry state of its underlying business.
This highly leveraged company is becoming even more leveraged. In the first half, total debt net of unrestricted cash increased from $7.4 billion to $9.5 billion. As profitability has collapsed, net debt has risen to more than 6 times annualized Ebitda. In normal conditions 4x is considered rich. This is worrisome for a company that will need to refinance $5 billion in debt over the next five years.
And because low commodity prices have made vast swaths of Chesapeake’s acreage uneconomic to drill, the company in the first half took $10 billion in asset impairment charges. Investors like to ignore those impairments because they are noncash. But they matter. Writing down the value of assets shrank Chesapeake’s balance sheet from $40.8 billion at the start of the year down to $29 billion. It’s ratio of net debt to total capitalization increased from 30% to 50%.
Revenues from oil and gas and NGLs have been “abysmal” noted Bernstein Research, coming in at $728 million in the second quarter, versus $1.7 billion a year ago. Chesapeake is getting paid just $1.01 per thousand cubic feet of natural gas. And that’s including the effect of hedges. Unhedged, it’s getting just 75 cents per mcf. In the first quarter it generated $2.37 per mcf hedged. The realizations are even worse for NGLs, for which Chesapeake made just $1.90 per barrel in the second quarter — versus $8.34 in the first quarter.
Part of the problem is a huge glut of gas and liquids in the Utica and Marcellus, where there’s not enough pipeline capacity to evacuate it all out to market. Chesapeake has curtailed production in both regions. But that won’t solve the bigger problem. According to analyst Kevin Kaiser at Hedgeye, Chesapeake is caught in a “midstream stranglehold.”
It is contractually obligated to pay fees to pipeline giant Williams Companies for its dedicated capacity. Most of Williams’ contracts with Chesapeake are on a “cost of service” mechanism, which guarantees Williams a return on its investment in building out pipelines. Chesapeake has to pay a certain amount whether it uses all the pipeline capacity or not. The less it uses, the higher Chesapeake ends up paying per unit of volume.
SEE ALSO the recent report about the Gastar sale of their Marcellus & Utica holdings.
#############
Antero Resources – Implications Of A Magnum Hunter Bankruptcy
From an Article by Seeking Alpha, November 20, 2015
>>> Magnum Hunter’s pipeline system is in fiscal peril.
>>> Antero Resources has specified the possibility of utilizing Eureka Hunter.
>>> Multiple opinions are now supporting Antero.
>>> Disruption or closure of Eureka Hunter could perhaps be a problem to Antero.
Through the past several months, I have been of the impression that long-term viability of Antero Resources is there, but have been witnessing the stock’s rapid descent and subsequent choppiness. While safeguards are in place to assure the company’s continuous viability, if this upcoming winter is a warm one, natural gas stocks may not offer much to investors by way of returns. Some notable opinions are coming around. Though there could also be a widely-overlooked issue involving transportation capacity, which actually tends to be a focal topic, in light of the travails of a hopelessly indebted peer.
Eureka Hunter, which comprises a pipeline system, has been a subsidiary of Magnum Hunter Resources. Its Eureka Pursley Lateral almost certainly services property located in Tyler County, WV that has recently been acquired by Antero Resources. One requirement for the transaction’s closure has been a Gas Gathering Agreement, stipulating that capacities are included. As Magnum Hunter’s bankruptcy is all but a formality, there could be concern about ongoing operations in light of Antero’s services that should be provided by Eureka Hunter.
#############
From Seeking Alpha News on Range Resources, Dated November 25, 2015
Range Resources Is Now In A Better Position To Handle The Downturn – Here’s Why:
>>> Range Resources, one of the biggest players at Marcellus, has been struggling in the downturn with losses and significant debt.
>>> However, the company has announced a major asset sale which will allow it to significantly improve its financial health.
>>> The sale will also bolster the company’s cost cutting efforts.
>>> Moreover, the repayment of debt will also lead towards a meaningful drop in interest expenses.
Range Resources is one of the biggest operators at Marcellus, the largest and the cheapest shale gas producing region of the U.S. that spans from New York to West Virginia. The company has one million acres at Marcellus that hold 30 trillion cubic feet of gas equivalent reserves (cfe). This makes Range Resources about as large as Chesapeake Energy, the leading player at Marcellus in terms of size of reserves that are a little more than 31 trillion cfe.
However, like most of its exploration and production peers, Range Resources is struggling due to the decline in natural gas prices. Range Resources posted 23% year-over-year increase in total production in the first nine-months of this year to 1.38 billion cfe per day, which was primarily natural gas coming from Marcellus. But the gas equivalent prices, including hedges, declined by 30% from last year to $3.17 per thousand cfe. As a reminder, the comparable period for last year was already a weak one in which prices were down 9%. Consequently, Range Resources reported a 44% decline in revenues from hydrocarbon sales to $835.6 million.
#############
CONSOL Energy/Noble Energy Rumors Continue to Swirl
From an Article of Marcellus Drilling News, Dated July 20, 2015
Following up on our CONSOL Energy/Noble Energy rumor from last Friday, MDN now has a second source that delivers a bit more information about the rumor–refining it for us. We told you on Friday that a persistent rumor among those working for or with CONSOL Energy is that Noble Energy is lining up to buy the gas division, CNX. A new source tells MDN that a complete buyout of CNX is not necessarily in the cards–but that Noble Energy is “taking over” the joint venture acreage the two currently hold in a 50/50 deal in the Marcellus/Utica…
Virtually all of CONSOL’s in-house completions team is now gone, with just a few people left–that’s from both of our sources. In addition, our second source tells us approximately 150 CONSOL workers are being transferred to Noble.
It seems the philosophy and ethos at CONSOL Energy “has totally changed” in the past six months, says MDN’s second source. Our loud and clear proviso is, once again, that this is a rumor. So please take this as unconfirmed.
Our second source, like the first source, does not work for (as in employed by), but does work with (as in does contract work for) CONSOL Energy and is, in our opinion, highly placed and someone with knowledge of what’s happening.
#############
CONE Midstream Partners Given Consensus Rating of “Hold” by Brokerages
From an Article of the Dakota Financial News, Dated November 16, 2015
Shares of CONE Midstream Partners have been assigned a consensus rating of “Hold” from the nine brokerages that are covering the firm, AnalystRatings.Net reports. Six equities research analysts have rated the stock with a hold rating and three have assigned a buy rating to the company. The average 1 year target price among brokerages that have issued ratings on the stock in the last year is $16.83.
Shares of CONE Midstream Partners are trading $12.16. The company has a 50 day moving average of $10.73 and a 200-day moving average of $14.67. CONE Midstream Partners has a 52-week low of $8.58 and a 52-week high of $30.50. The firm has a market capitalization of $708.98 million and a P/E ratio of 33.03.
CONE Midstream Partners LP is a master limited partnership formed between CONSOL Energy and Noble Energy.
The venture of the Company’s is formed to own, manage, develop and acquire other midstream energy assets and natural gas gathering to service CONSOL’s as well as Noble Energy’s creation in West Virginia and Pennsylvania in the Marcellus Shale.
The assets of the Company’s include natural gas gathering pipelines and dehydration and compression facilities, along with condensate collection, gathering, separation and stabilization facilities. Its midstream assets include core systems, increase systems and additional systems. 11 facilities that are primary are operated by the Company to supply its compression and/or dehydration services. The gathering arrangements of the Company’s comprise acreage totaling approximately 516,000 net acres in the Marcellus Shale.
Point Your RSS Reader to FrackCheckWV.net/feed/
{ 7 comments… read them below or add one }
Penny Stocks in review: Magnum Hunter Resources (MHRC)
The term penny stock has evolved with the market. In the past, penny stocks were stocks that traded for less than a dollar per share. The SEC, however, modified the definition to include all shares trading below $5.
Magnum Hunter Resources Corp. an independent oil and gas company, explores for, exploits, acquires, develops, and produces crude oil, natural gas, and natural gas liquid resources in the United States. MHRC worksalong with the U.S. Upstream, Midstream, and Oilfield Services segments. It operates in two of the unconventional shale resource plays in the U.S, including the Marcellus Shale and the Utica Shale plays located in the Appalachian Basin within the states of West Virginia and Ohio; and owns interests in non-operated oil and gas properties in the Williston Basin/Bakken Shale located in Divide County, North Dakota.
Magnum Hunter Resources Corp. percentage change mounted 64.34% to close at $0.0682 with the total traded volume of 14.25 million shares more than average volume of 11.89 million.
Company’s year to date performance remained declining as it lost almost -97.83%. If we look at last 6 months of trade that is in the bearish zone with a drop of -96.45%.
Its beta volatility value stands at 2.58 times and earning per share was $-1.02. 52-week price range of the stock remained $0.02- $5.23, while during the last trade its minimum price was $0.04 and it gained a highest price of $0.07.
Chesapeake Energy turns out their holiday lights in Oklahoma City
From Adam Kemp, NewsOK Blogs, November 11, 2015
Chesapeake Energy Corp. has announced that they won’t be turning on its annual holiday lights this year.
This would have been the 15th year for the Chesapeake Holiday Light Display in which more than one million bulbs light up the energy company’s campus near Western and Classen, Oklahoma City, OK.
In the past, it has taken 30 workers about two months to install all the lights, but this year the work never began.
Gordon Pennoyer, Director of Strategic Communications, released the following statement:
“We are refocusing our holiday plans on programs we believe make the greatest impact on Oklahoma City. In lieu of the holiday lights display, Chesapeake is pleased to partner with the Oklahoma City Thunder in delivering leadership support for the Salvation Army’s Angel Tree program, which provides holiday gifts to disadvantaged children in our community. Additionally, we will continue our partnership with the Regional Food Bank of Oklahoma by matching donations to the organization during the holiday season. We hope all Oklahomans will join us in lighting up the lives of those most in need during this holiday season.”
The decision comes after Chesapeake has seen profits plunge as energy prices drop and the company laid off 740 employees.
The Holiday Lights had become a tradition in the city, even becoming listed as a “Can’t Miss” holiday attraction on the Oklahoma tourism website.
Source: http://newsok.com/chesapeake-turns-out-their-holiday-lights/article/5459700
Shell closing Franklin Park office next year, near Pittsburgh Airport
By David Conti, Pittsburgh Tribune Review, December 1, 2015
Royal Dutch Shell plans to close its Franklin Park office next summer and move most of the 180 workers involved in gas and oil drilling there to its U.S. headquarters in Houston.
The move is the latest sign of retrenching among top Marcellus shale gas producers as prices remain at three-year lows because of tepid demand and oversupply. Shell announced 6,500 layoffs worldwide this year and drilled only eight shale wells in Pennsylvania this year, compared to 17 during the same period in 2014 and 31 the year before, state records show.
“By consolidating asset support to a hub location like Houston, we can continue to enhance our competitive position while building longer-term capability for our staff and our business,” spokeswoman Kimberly Windon said Tuesday.
Producers have drilled 40 percent fewer shale wells in Pennsylvania this year compared to last year as they await higher demand and more pipelines to take gas to lucrative markets. Competitors including Consol Energy, Chevron and Noble Energy this year announced layoffs in the Marcellus.
An unspecified number of employees at Shell’s Appalachia office, which they moved into in 2011, will remain here and work from field offices such as one in Tioga County, where the company has been more active.
The move does not affect ongoing work to prepare land in Beaver County for a multibillion-dollar ethane cracker plant that Shell is considering building along the Ohio River in Potter.
“This decision and the proposed petrochemical facility are unrelated,” Windon said. “The proposed petrochemical project is independent from our Appalachia asset and the staff who support it.”
Source: http://triblive.com/business/headlines/9546799-74/shell-gas-houston#axzz3t8EaEGh2
Marcellus Shale Coalition Sitting Out PA Society This Year
Article by Nick Field, Politics PA, December 1, 2015
The Marcellus Shale Coalition has been a cornerstone of the annual Pennsylvania Society gathering for several years now. This year, however, they won’t be having their usual Saturday night reception.
“As you may have heard,” MSC spokesman Amber Benzon told PoliticsPA. “Over the last year the natural gas industry has experienced a significant national downturn, exacerbated in Pennsylvania by lack of adequate pipeline infrastructure to move gas to market.”
“With the price of gas currently averaging $1.03/MCF at Pennsylvania markets, our state has experienced more than $10 billion in capital expenditure reductions and hundreds of layoffs across the Commonwealth,” she continues. “With our companies working diligently to maintain their foothold in Pennsylvania despite negative market forces, we felt that it was the right and prudent move to hit pause on our usual PA Society reception and instead focus all of our energies on creating an environment in Pennsylvania whereby our industry can continue to invest, employ and provide low-cost energy to Pennsylvania consumers.”
“To that end, we are encouraging our policymakers to maintain a competitive tax environment, support commonsense regulations and promote the use of this abundant, low cost resource to the benefit of Pennsylvania businesses and homeowners,” Benzon concludes. “We hope that if we are successful in that regard we will have cause to celebrate in future years, but for this year at least, our party is on hold.”
As for us, we’ll still have our regular list of events as well as reports and other stories concerning the big New York event.
Source: http://www.politicspa.com/marcellus-shale-coalition-sitting-out-pa-society-this-year/71048/
RE: Marcellus Shale Gas Industry in Major Retreat
The December Marcellus Monthly Newsletter, reports that Chesapeake’s Aubrey McClendon retired two years ago with a golden parachute (good retirement) when over half of the deals on the books were clear losers. Chesapeake is now “shedding assets” trying to stay solvent.
Nobel Energy has announced the second round of layoffs. and has canceled stock sales. Magnum Hunter has suspended operations and is likely to be delisted from the NY stock exchange, and has announced it may be “unable to continue as a going concern.” Range Resources posted a quarterly loss in its latest financials, and—like many Marcellus operators—has seen its share price fall 50% in just the past six months. Range is selling precious leaseholdings to raise the cash it needs to operate.
Service companies are not spared. One of the regions largest law firms serving oil and gas is closing entirely. The article concludes…”in 2015 alone, the oil and gas industry has destroyed over $20 billion in capital through just one investment vehicle: its “master limited partnerships” (MLPs).”
Still another source, Fuel Fix, tells us “Oil companies have canceled or delayed final investment decisions on about 150 projects that are tied to 125 billion barrels of oil equivalent, which could stay underground for several years longer than expected amid a steep drop in crude prices, energy investment bank Tudor, Pickering, Holt & Co. said Tuesday…’by not sanctioning projects today, you’re putting a hole in production in 2017, 2018 and 2019 — potentially a big hole,’ said David Pursell, head of macro research at Houston energy investment bank Tudor, Pickering, Holt & Co..”
Further, “All told, the industry has scrapped about $125 billion in annual capital spending plans over the next five years, assuming just half of the projects would have been sanctioned if the oil market hadn’t crashed over the last 18 months. That leaves oil companies several years to catch up on building the production equipment and infrastructure they need to bring their buried oil to market.”
Gastar Exploration Announces Closing of Mid-Continent Acquisition
http://money.cnn.com/news/newsfeeds/articles/prnewswire/DA83126.htm
In West Virginia, Gastar has developed liquids-rich natural gas in the Marcellus Shale and has drilled and completed its first two successful dry gas Utica Shale/Point Pleasant wells on its acreage. Gastar has engaged Tudor, Pickering, Holt & Co. to market its Marcellus Shale and Utica Shale/Point Pleasant assets in West Virginia. For more information, visit Gastar’s website at www.gastar.com.
Baker Hughes deal likely to close in 2016 for $35 billion says Halliburton executive
By Anna Driver, Reuters News Servive, December 9, 2015
Houston, TX – Oilfield services company Halliburton’s proposed $35 billion acquisition of rival Baker Hughes Inc will likely close in 2016 instead of this year as talks with U.S. regulators continue, a Halliburton executive said.
The companies have already agreed to divest $5.2 billion in overlapping businesses to quell concerns the merger would lead to higher prices and less innovation.
“Currently we are having substantive discussions with the (Department of Justice),” Christian Garcia, Halliburton’s acting chief financial officer told Wells Fargo’s Energy Symposium. “Depending on the outcome of these discussions and the remedies that may be required, there is strong likelihood that the closing of the transaction will slide to 2016.”
Garcia said the companies were confident that the deal would be approved. Halliburton is “finalizing negotiations” with buyers for the drilling businesses it first announced it would divest, Garcia said.
The deal, which would create the second-largest oilfield services company behind Schlumberger Ltd has so far won regulatory approvals in South Africa, Turkey, Colombia, Canada and Kazakhstan. Approvals from antitrust officials in other countries, including Australia and Brazil, were pending.
The proposed merger, first announced in 2014, was originally expected to close in late November, but U.S. regulators requested more information from the companies. That request extended the earliest closing date to December 15.