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Summary

• CHK made a presentation at the Sanford C. Bernstein Strategic Selections Meeting that was a excellent adhere to on to its UBS Oil and Gas Convention presentation.
• CEO Doug Lawler gave his feelings on inventory dilution, M&A, and covenant excursions.
• Whilst the situation at CHK is considerably from excellent, at the very least we know that CHK is thinking about all choices on the desk.

Clean off its presentation in Austin at the UBS International Oil and Gasoline Meeting Chesapeake Strength (NYSE:CHK) created an similarly vibrant, similarly meaningful presentation at the Sanford C. Bernstein Strategic Selections Meeting. In reality, this presentation - held in hearth chat format, may possibly have been even more powerful than the UBS which I discovered highly productive.

A single item of notice that was overwhelming and a important adjust from the UBS just a couple of months previously was the tone of the presentation. This meeting experienced a specifically severe, much more somber tone than the UBS and maybe that experienced to do with the structure but it was obvious. CEO Doug Lawler faced 50 minutes of queries from analysts who have been immediate and not forgiving, perhaps taking their collective shot at the CEO after CHK finished its earnings calls unusually early. Either way, it was my primary takeaway.

The subsequent are my other important takeaways from the conference presentation.

A little bit of deflection&hellip

As any great CEO would do Lawler allow it be known that CHK's current difficulties are the outcome of bad administration just before he took business office. Lawler was swift to position out that the legacy concerns at CHK relating to credit card debt and regarding obligations have been on the textbooks from a prior managers misdoings. Although he did not point out it in those terms precisely it was quite obvious his intention.

What do I get from this? No person genuinely needs to hear this. Even if it is real, and it is, does not this ring in the ears like a man interviewing for his following work? I never ever like to listen to a CEO defending his backside although presumably the firm isn't entirely belly up, which CHK isn't really. Nonetheless, this did not sit correct with me since it makes me issue how significantly Lawler actually believes the options to the CHK woes are current. An exciting way to kick off the hearth.

"I do not see a dilutive event using area in our inventory&hellip"

Lawler was extremely obvious that (of course with the protective statement) "at this time" CHK will not be diluting equity holders through an equity dilution. This is clearly very good news if you might be long.

Lawler went on to be aware that the firm is NOT hunting at any acquisitions at this time and that it feels that its liquidity predicament is fine. This also plays into the absence of a want for an fairness dilution.

Once more, it really is actually tough to try to decipher what Lawler in fact believes and what he's just stating because, properly, what else is he envisioned to say. I am going to feel that CHK just isn't hunting to make acquisitions much more so from the standpoint that CHK is levered up and has a bunch of cash stream worries about to arrive below a magnifying glass than what Lawler explained but there you have it. CHK is on the record for both.

Covenant excursions&hellip

Lawler was questioned about the concern on everybody's head for primarily sixty five% of the E&P room - how near is the business to a covenant journey? His response was as follows:

"There is queries out there about when is a credit card debt covenant heading to possibly be tripped and what is the effect of Chesapeake's operations if that should come about? I don't anticipate that is going to get area in 2015. It potentially could, I do not look at it as a important impact to the efficiency of the Organization or to our program and I will notify you the explanation why. A single, we have not drawn on that revolver. Two, we have sufficient income obtainable to us. And a few, we can function to safe or build the energy in that revolver from the unsecured standing. I do not view that as an problem to our operations or to our ongoing business"

I have been on record for months expressing that I never consider the banks can arrive in and get action in opposition to businesses with tripped covenants (they haven't possibly to this stage, preferring instead to amend covenants) due to the fact of the size of common exposure and since of the general volume of possible in close proximity to-time period excursion 迷你倉荃灣.

I would foresee CHK's close to-term excursion, which I imagine is coming, to be the very same. The financial institutions are not heading to arrive in and be punitive. They'll be angels in that they'll perform the amendments to make it so they do not have to report a stressed asset to their shareholders and so CHK can carry on to engage in the waiting recreation. Waiting around for greater commodity pricing that is.

This is one more very good point for longs in that CHK's "black swan" function actively playing out will switch out to be a lot more of just an hideous duckling. What this signifies for manufacturing, assets revenue, and so forth., is up in the air but if we have observed everything so considerably across the E&P landscape it's that financial institutions are cowards.

Lawler concluded:

"We have not entered into conversations with the banking companies at this point in time but my self-confidence is dependent on the good quality of the Organization, the quality of the belongings and the associations that we have there and the energy of our ongoing functions that we will be ready to effectively negotiate by way of that should we have to at some level in time."

Functions&hellip

Lawlers talks of functions ended up what was expected. They fundamentally boiled to down to CHK will see a rather considerable hedging achieve (of ~$one billion) rolling off its textbooks at the end of the yr that it does not really know how it really is going to substitute CHK is operating with Williams to renegotiate commitments to ranges of currently being less egregious CHK feels like it can keep generation flat even in the face of foundation decline by means of a mix of re-completions, restimulations, re-frac possible, added synthetic lift, plunger lift, beam pumps, and so forth. and that CHK isn't going to have a set price in which it will lay forward looking hedges or boost action.

All of that is in essence "party line" for E&P's and taken fright from the 2015 E&P Downturn Survival ebook outside the house of CHK currently being super limited with its pricing specs for hedging and activity. Truly? You do not want to notify us about your attractive IRR and how you can make cash at any price tag but especially at "X" cost? What is exciting is CHK really did just that at the UBS so the inconsistency is a bit peculiar.

A single merchandise I didn't list earlier mentioned but is absolutely value noting is that CHK detailed that it is "considering all choices like sourcing further money from 3rd events" which I have to presume isn't going to contain traditional creditors. Does this indicate that CHK would consider some of the "third get-togethers" that have been dying to get into the vitality game and also don't head pressured lending? This sort of as PE and significant establishments?

Are we seeking at a prospective opening for a Berkshire or one more massive entity? In early January rumors circulated that state-operate Indian ONGC was looking to takeout CHK - just isn't CHK an even far more attractive focus on now? I believe this is some thing that at least has to be deemed.

Still a get for the bulls&hellip

Not that the share cost cares but the last two weeks have been good for CHK as it has experienced professionals give clarity and sharpness to the all round in close proximity to-phrase photo. Although there is very a little bit to even now be anxious about the reality that I never believe we see a covenant excursion crippling the company or forcing firesales of assets or anything at all like that is good. It is also good that at the very least appropriate now CHK isn't planning on elevating, which I begged the E&P room to do on the entrance finish of this downturn in pricing, and that CHK is taking into consideration each and every choice (read through: third social gathering funding).

I'm lengthy this falling knife via long dated Contact possibilities that have been severely devalued and simply because of that I am hoping we can locate a base for the frequent someday before long. I do not have a huge placement in the CALL's.

That explained, I am using these CALL's as a lotto ticket in the hope that CHK can correct the ship ahead of expiration. Yes, I gave up quite a little bit of my leading-conclude likely by drawing out the time to expiration at obtain but boy did that choice "pay off" in supporting my CALL's retain at the very least some of their worth.

I imagined I must point out that I'm basically enjoying this placement from down in the gap but with a low stress degree due to the fact of the time to EXPO and the tiny money lay in case you may well think that elements into how I look at the events in depth over.