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Chesapeake Energy Surges On Aubrey McClendon Exit

Tyler Durden's picture





 

Update: it appears Carl Icahn agrees with our assessment: CARL ICAHN SAYS CHESAPEAKE'S COLLECTION OF ASSETS "ARE THE BEST PORTFOLIO OF ENERGY ASSETS IN THE COUNTRY"

Back in May 2012, when Reuters' all out aggressive campaign against Chesapeake Energy was in full swing and the stock was trading around $14 per share but before Icahn and Loeb were publicly involved, we predicted that contrary to the endless balance sheet bashing there was, in fact, much upside to CHK. We said that the argument rests on one simple fact: its asset base, which ignoring the firm's liabilities - as in a ZIRP environment, even CHK could easily refi its debt at very agreeable terms - and the CEO's lousy industry reputation implied a far higher stock price for the company. To wit: "the company has lots of good assets, as well as quite a few legacy liabilities, combined with an industry environment that is as bad as it has ever been. And sure enough, in betting that the environment might actually improve for a change, there are quite a few big firms which may be happy to onboard the assets and the liabilities, knowing they wouldn't impair the right side of their balance sheet, while acquiring some good real estate and substantial reserves on the left, at a valuation that is the cheapest in the industry. Because in finance, once central planning is (finally) stripped away, valuation is all that matters."

And even before that, a far more immediate catalyst we predicted would be a simple succession event "which eventually will culminate with the long overdue termination of the company's head." Or, said simply, the sacking or resignation of the disgraced CEO would unlock material upside value. Moments ago just this happened, as the company just announced a "succession plan" the direct result of which is that the CEO is out as of April 1. The upside value in question: just about 10% as the stock is currently soaring in the after hours session.

From the press release:

Aubrey K. McClendon to Retire from the Company on April 1, 2013

 

Board Announces that its Extensive Review of Alleged Conflicts of Interest and Other Matters Involving McClendon Has to Date Found No  Improper Conduct, Final Report to be Completed in Mid-February

 

Chesapeake Energy Corporation (CHK) today announced that its Co-founder, Chief Executive Officer and President, Aubrey K. McClendon, has agreed to retire from the company on April 1, 2013 and will continue to serve as Chief Executive Officer until his successor is appointed. Mr. McClendon, 53, has served as Chesapeake’s Chief Executive Officer since the inception of the company in 1989 and served as Chairman of the Board from its founding until 2012.

 

Archie W. Dunham, Chairman of the Board, stated: “Over the past 24 years, Aubrey McClendon has created one of the most valuable and innovative companies in the energy industry. Under Aubrey’s strong leadership, Chesapeake has built an unmatched portfolio of natural gas and oil assets in creating one of the world’s leading energy companies. He has been a pioneer in the development of unconventional resources, and he has also been a leader in the effort to make the United States energy independent. However, as the company moves towards more fully developing the value of its outstanding assets, Chesapeake is at an important transition in its history and Aubrey and the Board of Directors have agreed that the time has come for the company to select a new leader. The Board will be working collaboratively with Aubrey to make a smooth transition to Chesapeake’s next Chief Executive Officer.”

 

Mr. Dunham continued: “Going forward, the company will strive to continue as a low cost producer of oil and gas while further enhancing and strengthening its balance sheet. Capital allocation and operating decisions will be made with the goal of prudently growing the company’s intrinsic value per share for the long-term benefit of its shareholders. By forging ahead with a new Chief Executive Officer, the company’s strong management team and talented employees will continue to develop the industry’s best assets to create substantial value for shareholders and themselves in the years ahead.”

 

Aubrey K. McClendon, Chesapeake’s Chief Executive Officer, said: “Over the past 24 years, I have had the privilege of developing Chesapeake into one of the world’s premier energy companies. It has been an honor to work with my outstanding management team and the company’s 12,000 very talented and dedicated employees. I am extremely proud of what we have built over the last quarter of a century, and I am confident that Chesapeake is in a great position to continue to grow and achieve great success in the future as it realizes the full value of its outstanding assets. While I have certain philosophical differences with the new Board, I look forward to working collaboratively with the company and the Board to provide a smooth transition to new leadership for the company.”

 

The Board expects to release the results of its previously announced review of the financing arrangements, and other matters, between Mr. McClendon (and the entities through which he participates in the Founder Well Participation Program) and any third party that has had or may have a relationship with the company in any capacity, in its earnings announcement scheduled for release before market open on February 21, 2013. The Board’s extensive review to date has not revealed improper conduct by Mr. McClendon. The Board and Mr. McClendon’s decision to commence a search for a new leader is not related to the Board’s pending review of his financing arrangements and other matters.

 

The Board has retained Heidrick & Struggles to assist the Board in its search of Mr. McClendon’s successor. The Board also intends to consult with Mr. McClendon in connection with this search. The search process will include a full review of internal and external candidates.

Sure enough, the stock is now soaring after hours, and well above $20.

And with the resignation of the CEO, the next potential catalyst comes into play: full blown M&A by one of the majors. Because when it comes to CHK, it is all about unlocking the asset value.

 


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Tue, 01/29/2013 - 18:46 | Link to Comment Meat Hammer
Meat Hammer's picture

McClendon was making it rain with company funds.  Good riddance.

Tue, 01/29/2013 - 19:11 | Link to Comment slaughterer
slaughterer's picture

Gotta follow Icahn where Icahn goes: loudest, most rude NY mouth; most aggressive, pirannha-like lawyers; really weasely accountants; and a crack HFT cellar.  Netflix, Chesapeeke, etc. everything he touches turns to Gekko gold until it drops into the toilet.   

Tue, 01/29/2013 - 19:24 | Link to Comment Meat Hammer
Meat Hammer's picture

So you're saying I should have an exit strategy

Tue, 01/29/2013 - 19:31 | Link to Comment bobthehorse
bobthehorse's picture

Why complain?

The DOW is about to hit 14,000.

The lesson?

Fraud pays handsomely...if you're one of the elites.

It's not like anyone is doing jail time.

http://www.angrysinner.blogspot.kr/2013/01/tuesday_30.html

Tue, 01/29/2013 - 18:47 | Link to Comment whatsinaname
whatsinaname's picture

Amazon and CHK will make a good M&A pair. A lot of hot gas (air) with not much real net value !!

Tue, 01/29/2013 - 18:48 | Link to Comment lizzy36
lizzy36's picture

April Fools SUCKERS!

Tue, 01/29/2013 - 18:57 | Link to Comment Pure Evil
Pure Evil's picture

I'm all in, I spent our last $217 on the stock. Mugabe.

Tue, 01/29/2013 - 19:03 | Link to Comment smlbizman
smlbizman's picture

than parlay that on the money line on the ravens......fuck the points

Tue, 01/29/2013 - 18:56 | Link to Comment LongSoupLine
LongSoupLine's picture

Aubrey...a Cramer favorite. 

 

Fuck you Aubrey and CNBC for pumping these assholes to the moon a couple years ago.. Fucking ass rip prison is not enough for all you.

Tue, 01/29/2013 - 19:01 | Link to Comment MrPalladium
MrPalladium's picture

McClendon's departure is a short term positive, but a long term negative for CHK.

Disclosure, I am long CHK.

I will invest in any new public venture that he forms.

Tue, 01/29/2013 - 20:07 | Link to Comment otto skorzeny
otto skorzeny's picture

tell him I have some old SW US maps I want to sell him-good deal-only $10mil US dollars

Tue, 01/29/2013 - 19:04 | Link to Comment Flakmeister
Flakmeister's picture

Fade this puppy....

If anyone thinks the Utica shale is a homerun, sell your shares to them....

Tue, 01/29/2013 - 19:06 | Link to Comment gsh1976
gsh1976's picture

And what position does Icahn have in CHK?  I don't trust anything out of his mouth.  Unless I am mistaken, he saw lots of value in WCI Communities when the writing was on the wall.   

Tue, 01/29/2013 - 19:08 | Link to Comment CrazyCooter
CrazyCooter's picture

No skin in the game here, but it will be really interesting to see where all this frack stuff is at in five years or so when the debt monster has a chance to catch up to the players.

Don't see how thse companies can not have sold off all their assets to pay their bills by then ...

Regards,

Cooter

Tue, 01/29/2013 - 19:39 | Link to Comment MrPalladium
MrPalladium's picture

I agree with your skepticism re the productivity of the vast shale deposits in the U.S. I suspect that most of the shale lands will be uneconomic until prices rise a great deal.

I am going to ride the next wave up in NG price, but get out of NG stocks entirely once spot NG hits $6 or so. In the long run it is the drilling companies that will make the money, not the companies leasing the gas deposits.

Right now it is associated dry gas - the price insensitive by product of all those wells they are drilling for oil and liquids - that is keeping NG prices low.

The 64 million dollar question is how long before NG production actually declines.

Tue, 01/29/2013 - 19:10 | Link to Comment kekekekekekeke
kekekekekekeke's picture

I saw Ol' Aubrey out with his sweatpant clad wife out at dinner a couple weeks back I didn't know whether to spit in his face or ask for a job

Tue, 01/29/2013 - 19:12 | Link to Comment Dr. Engali
Dr. Engali's picture

Yeah but what does Ackman say? Lets get him on the phone.

Tue, 01/29/2013 - 19:53 | Link to Comment NoWayJose
NoWayJose's picture

Their assets are really great, but no one can tell which ones they really own, as the CEO has borrowed, lent, traded, leveraged, and otherwise played so many games with them that it is likely that any given asset is really fully owned by 3 different Chinese companies - on paper.

Tue, 01/29/2013 - 20:06 | Link to Comment NeedleDickTheBu...
NeedleDickTheBugFucker's picture

If the primary investment thesis is balance sheets don't matter for highly leveraged companies in a ZIRP environment, you could have achieved a better risk adjusted return over the same time period by buying BAC & C.

Tue, 01/29/2013 - 20:20 | Link to Comment devo
devo's picture

I think it's a buy. Why do people here hate this stock so much?

Tue, 01/29/2013 - 22:13 | Link to Comment MrPalladium
MrPalladium's picture

Bingo!!

Why all the emotion about McClendon?? I thought ZH readers were capable of critical thinking! And here we get people all wrapped up in the negative PR campaign bought and paid for by Chanos.

Having McClendon borrow money and purchase participating interests in wells, subject to depreciation deductions and taxed at long term cap gain rates on disposition, was smart tax planning and a lot less dilutive to shareholders than giving him an equivalent value of stock options taxed at ordinary income rates.

You critics of McClendon do not know what you are talking about. The attack on McClendon is just a classic asset grab by a bunch of tribesmen wanting to get their hands on the asset pool he had built up whithout having to take the risks that McClendon took in building that asset pool. The debt he built up made him vulnerable and the vultures swooped in. Chanos and Icahn are both classic vultures, and now CHK is in play. Admittedly, I am tagging along for the ride beside the vultures, but that does not prevent me from seeing their true nature and the origins of this campaign to bring him down.

Tue, 01/29/2013 - 20:42 | Link to Comment cirrus
cirrus's picture

Icahn will exit on this news. This was his catalyst to sell IMO. CHK has lots of assets...some great some not so great. The problem is they have the worst balance sheet in the large cap E&P group. Cash flow metrics are horrid. Worse, NG prices are declining....along with NGL prices. This may be a great time to try a short in CHK.

Tue, 01/29/2013 - 20:49 | Link to Comment mrmister
mrmister's picture

CHK built an entire college style campus for its headquarters. They still have huge cranes out there. But of course it is nothing compared to DEVON Energy monster Block long skyscrapper. Any body got info on DEVON. What up there? I've seen some other energy headquarters but nothing compares to those two. They look like piggy banks that corporate uses for themselves, Do they pay dividends? Or are they happy to own paper stock?

Tue, 01/29/2013 - 21:14 | Link to Comment rsnoble
rsnoble's picture

Insignificant bounce.  It's not trading anywhere it hasn't a dozen times this past year anyways and no where near its highs.  Basically big fucking deal. 

Tue, 01/29/2013 - 21:24 | Link to Comment NeedleDickTheBu...
NeedleDickTheBugFucker's picture

CHK is probably a favorite for the folks over at channelingstocks.com

 

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