In February I wrote a Seeking Alpha essay, noting the circus surrounding the company. Two weeks ago the alcohol arrived to the party. I’ll paraphrase the key idea which appears lost in the noise: At $5 ng and $100 oil CHK is cash flow neutral in 2014. Asset sales easily get them there, so what’s the big deal?
The assumptions carry huge risk. The $100 oil is possible, but at risk to booming horizontal oil production and recession. And $5 natural gas is on a strip averaging under $4 for 2014 with risk to associated gas production and basis differentials. What if booming wet gas NGL’s enter a paradigm of depressed prices? Much could go wrong…
Meanwhile, Chesapeake must continue to drill their brains out to HBP their asset base. There is good news: Clearly CHK is a ridiculous asset play. They could go bankrupt and still have common stock shareholders walk away with equity multiples of today’s stock price after bondholders are paid. Pass a draft beer.