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.

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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.

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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.

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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.

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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.