Another analysis from Energy Policy Forum.
On April 18, I posited on Energy Policy Forum that the $1.1B in undisclosed loans which Reuters had exposed belonging to Chesapeake Energy (CHK) CEO Aubrey McClendon might merely be the tip of the iceberg. I was concerned about volumetric production payments (VPPs). Late this afternoon, the Wall Street Journal independently confirmed massive problems with Chesapeake VPPs.
Energy Policy Forum has been consistently right about these issues.
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Dont hate on a brotha trying to make a dollar out of fifty cents!
David Bell says
VPP’s are a debt instrument. If the Banks with mortgages took the wells involved in the VPP, they are in a poor 2nd position. If vice versa the VPP is suck’n wind. MOST “industry” transactions won’t be found overlapping on the collateral…just say’n!
Kim feil says
I’m almost sure this is Arlington they are talking about……..”I even received a comment on Thursday from a city council member in a Texas town where Chesapeake dominates the drilling who asked, “We wonder how vulnerable our town is to a Chesapeake bankruptcy.” http://www.thestreet.com/story/11511473/1/how-chesapeake-energy-can-be-saved-opinion.html
Tim Ruggiero says
CHK said today that they don not characterize VPP’s as debt. Not that I fully understand this, but analysts on Wall Street are calling VPP’s debt. Maybe Ed Ireland can explain it.
T. Boone bails out on them:
Note that since I don’t own any stocks, puts, calls, 401K, etc., I’m not a party to this. 😉
Add in J.P. Morgan Chase loosing $2 billion in derivatives, the inmates are running the asylum in the financial world in some companies.
But then, there’s Goldman Sachs jumping in with cash?
Some Analysts didn’t see Enron’s issues before it was too late:
“In recent months, the second-largest natural gas producer in the U.S., Chesapeake Energy, removed most of its gas hedges for 2012 and 2013 based on the belief that prices are at or near a bottom.
Such a move, known as going “naked to the strip,” marks a major turnaround for a company that was one of the best and most active hedgers in the sector. Now, Chesapeake has no protection if gas prices continue to slide. It’s a risky scenario seeing as prices are currently below production costs in most U.S. gas basins.
For investors, the fact that many North American gas producers are seeing their high-priced hedges expire makes it more important than ever to understand a company’s cash flow picture going forward.”
Looks like it’s time to buy natural gas!