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The "Energy" Cash Flow Alarm Is Back: Chesapeake Suspends Dividends, Stock Plunges To 12 Year Low

Tyler Durden's picture




 

Back in January, the panic surrounding the energy space and specifically the collapse in industry cash flows as a result of the collapse in oil prices, peaked when one after another company announced they would halt dividend payments and all other distributions to shareholders to conserve cash, culminating with the dramatic announcement on January 30 when one of the giants in the space, energy major Chevron, suspended its stock buybacks.

Subsequently, oil experienced a brief oily (but dead) cat bounce, with WTI and Brent both making it briefly into the $60 price range and have since resumed their decline with WTI sliding back under $50 yesterday, and as a result all the attention is once again back on energy companies.

And as if to confirm just that, earlier today one of Icahn's favorite energy names (you won't find him tweeting about this one much thought) Chesapeake Energy, the second-largest US natural gas producer, announced it too is now scrambling to conserve cash (in this case $240 million per year) by suspending its $0.35/share dividend payment.

From the press release:

Due to the current commodity price environment for oil, natural gas and natural gas liquids, and the resulting reduction in capital available to invest in its high-quality assets, Chesapeake Energy will eliminate its common dividend effective 2015 third quarter and redirect the cash into its 2016 capital program to maximize the return available to its shareholders.

 

Doug Lawler, Chesapeake’s Chief Executive Officer, commented “We received approval from our Board of Directors to eliminate the common stock dividend of $0.35 per share annually, which is applicable to the 2015 third quarter. We believe this decision is prudent as we continue to invest and redirect as much capital as possible into our world-class assets. The elimination of the common stock dividend will save approximately $240 million annually. This, along with the redemption of the preferred shares in our CHK Cleveland Tonkawa subsidiary, is part of a broader disciplined approach that began two years ago to decrease the company’s financial complexity and increase our liquidity. The company’s liquidity position remains extremely strong with more than $2 billion of unrestricted cash on our balance sheet and an undrawn $4 billion revolving credit facility as of June 30, 2015."

Should the slide in energy prices accelerate once more and return to January levels, the "extremely strong" liquidity position won't last very long.

In the meantime, we eagerly await Carl Icahn's tweet announcing he has sold all his shares in CHK (of which he is the largest holder with 11% of the stock). After all, without a dividend and certainly without stock buybacks, there is not a single catalyst (and for Icahn it's just those two) that make the company an attractive holding.

Confirmation of Icahn's liquidation would add insult to violent injury for CHK shareholders who have already seen the stock price tumble some 6.5% this morning to the lowest price since July 2003.

 

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Tue, 07/21/2015 - 09:55 | 6336720 Spitzer
Spitzer's picture

been awhile since we got an update on this dog

Tue, 07/21/2015 - 10:05 | 6336760 Looney
Looney's picture

... the "extremely strong" liquidity position won't last very long

Can bodily fluids be considered as Liquidity? ;-)

Looney

Tue, 07/21/2015 - 11:26 | 6337145 Four chan
Four chan's picture

i wonder if aubrey was caught short again like last disaster.

Tue, 07/21/2015 - 11:47 | 6337249 KnuckleDragger-X
KnuckleDragger-X's picture

Chesapeake was having money problems when the energy market was doing well so why aren't they in bankruptcy yet?

Tue, 07/21/2015 - 10:37 | 6336884 Jumbotron
Jumbotron's picture

Margin call.

Tue, 07/21/2015 - 09:58 | 6336730 i_call_you_my_base
i_call_you_my_base's picture

I wonder how much accounting fraud has been put into place to keep these energy companies afloat.

Tue, 07/21/2015 - 10:04 | 6336764 Be_Optimistic
Be_Optimistic's picture

Fraud or access to cheap money.. made sense when oil was $100/barrel and on its way to the moon. 

Tue, 07/21/2015 - 13:08 | 6337625 PTR
PTR's picture

I wonder how much accounting fraud has been put into place to keep these energy companies afloat.

 

I'm sure we'll find out who's truly naked when the bathtub drains out.

Tue, 07/21/2015 - 09:59 | 6336734 Philo Beddoe
Philo Beddoe's picture

Why? 

We believe this decision is prudent as we continue to invest and redirect as much capital as possible into our world-class assets. 

  This is what you call bullshit speak. World-classs assets? Oh goodie! 

Tue, 07/21/2015 - 09:59 | 6336735 aliki
aliki's picture

this is turning into a true disaster in the energy space. oili is hanging on by a thread before rolling back under 50. if she raises rates, its all over. HYG the longer it stays sub-90 is signaling a MAJOR problem in high-yield and its DIRECTLY CORRELATED to the oil/energy sector. i think bofa/merrill said 35% of all high-yield issuance the last 5-7 years is in that space. its no coincidence and HYG has dripped lower as oil has failed to hold its bounce from the mid-40's.

throw in the obama administration basically taking out the coal industry - i mean ANR, BTU - some of these stocks were triple digits & now their hat sizes & heading lower. ironic part is when obama puts the coal industry out of biz, all the people who voted for him are gonna go nuts & wonder why it costs $1,000+ a month just to "light" the house.

Tue, 07/21/2015 - 10:14 | 6336801 Son of Loki
Son of Loki's picture

Yeah, but look how Putin is squirming now!

Barry showed them !!

 

... oh, wait a sec....

Tue, 07/21/2015 - 11:27 | 6337153 Four chan
Four chan's picture

carl ican called this sector short, kudos to him.

Tue, 07/21/2015 - 10:15 | 6336751 Dr. Engali
Dr. Engali's picture

Too little too late. They should have gone into cash preservation mode and suspended the dividend long ago. Idiots bought $1.2 billion  in shares back last year. I'll be willing to bet they try to issue $2 billion this year.

Tue, 07/21/2015 - 10:29 | 6336852 disabledvet
disabledvet's picture

Talk about a disaster.

At least we can finally clear out the notion that markets are rigged.

"If it's a real company making real products it's overbaorad you go."

I just don't think folks understand the amount of debt that is involved in creating and running industries such as this.

Would appear interest rates will indeed start rising this fall.

Tue, 07/21/2015 - 10:08 | 6336783 youngman
youngman's picture

They will not be the only ones if gas and oil stay this low...

Tue, 07/21/2015 - 10:11 | 6336789 NeedleDickTheBu...
NeedleDickTheBugFucker's picture

Uncle Carl was hailed again as a genius by many, including the Tylers, when he took his stake in CHK with a weighted average cost of $15.70 / share.  The probability of energy prices crashing was not part of the investment thesis I guess.

Tue, 07/21/2015 - 10:12 | 6336796 Son of Loki
Son of Loki's picture

Simple 21st century solution:

 

1) lay off 20,000 workers;

2) buy back your stawk; and,

3) employ the BLS to keep your books and report the numbers.

Tue, 07/21/2015 - 10:19 | 6336821 Tursas
Tursas's picture

It is a well proven all American process!

Tue, 07/21/2015 - 10:23 | 6336810 BoPeople
BoPeople's picture

Until about now ... well maybe August, they have been able to live off of their hedges.

I am sure the energy companies hoped that the lords of price at the banks would have decided to raise oil prices before now. However, IMO, Oil is a long-term play that is being used to further destabilize the middle east. I think it is also aimed at the Sauds... imagine that backstab!! (but maybe not since we supposedly have special forces/ex-special forces in Saudi Arabia training "someone").

This, along with the increase in interest rates supposedly planned for September (after March and June planned head-fakes) would generally be sufficient impetus to shock the stock markets. HOWEVER, and it is a big however, IMO, the banks and their HFT lackeys have sufficient control over market prices that they can drop the market on a dime if they decide ... or keep it propped up on ever decreasing volume. So, you can be sure that anything that happens has been planned.

I think that with Greece/Ukraine/Iran, Jade Helm, China, Oil and other commodities, ISIS/CIA, drought, false flag racial tension, interest rates, etc. they want us to believe that they are setting us up for a perfect storm of unforeseen events (well, to the general public would be almost unforeseen) that would lead to a market collapse with the right catalyst. However EVERY SINGLE ONE OF THOSE CONTRIBUTING FACTORS IS COMPLETELY ENGINEERED, IMO, including the drought.

So, is it real or is it a head fake?

Tue, 07/21/2015 - 10:52 | 6336970 Youri Carma
Youri Carma's picture

Chesapeake some History:

16 July 2015 – Chesapeake Energy bond payout raised to $438.7 million

http://www.reuters.com/article/2015/07/16/us-chesapeake-enrgy-bank-of-ny-melln-bon-idUSKCN0PQ2J920150716

24 April 2015 – Chesapeake to pay $25 million to settle Michigan charges

http://www.marketwatch.com/story/chesapeake-to-pay-25-million-to-settle-michigan-charges-2015-04-24-171031219

3 March 2015 – Chesapeake Energy Corp. and Oneok Partners LP are among companies basing their budgets on an assumption that oil will stick to about $50 to $55 a barrel this year, with $65 the ceiling for next year http://www.bloomberg.com/news/articles/2015-03-03/l-shaped-oil-recovery-flattens-v-shaped-market-optimists

Wed, 07/22/2015 - 03:01 | 6340473 azusgm
azusgm's picture

Way too many complaints about CHK among royalty owners. Would not feel comfortable around that company.

Here's a thread about Chesapeake. Sounds way too sketchy. Been seeing/hearing the same kind of thing for a few years.

http://www.gohaynesvilleshale.com/forum/topics/chesapeake-stops-my-royal...

Tue, 07/21/2015 - 10:56 | 6336983 fowlerja
fowlerja's picture

I bought the stawk when Jim Cramer of CNBC recommended it $30. Now I am trying to sell..but nobody will buy..oh I see the problem..they renamed the stock to Cheapskate...

Tue, 07/21/2015 - 11:38 | 6337205 Stud Duck
Stud Duck's picture

Just keep taking Cramer's advice on investments, buy moar!!!

Tue, 07/21/2015 - 11:01 | 6337019 falga
falga's picture

Bloomberg always ready to trumpet higher crude oil forecasts! Wonder why?

Tue, 07/21/2015 - 11:12 | 6337074 ElixirMixer
ElixirMixer's picture

Considering Chesapeake is supposed to be one of the better oil plays, this is kind of scary.

Tue, 07/21/2015 - 16:42 | 6338619 KingOfMilwaukee
KingOfMilwaukee's picture

Indeed. The American Funds/Capital Group, the largest value investing fund group on Earth owns a whopping 6% of the company and their all-in around $30 is proving to be a disaster. Not a good sign!

Tue, 07/21/2015 - 11:15 | 6337089 falak pema
falak pema's picture

The day Mr Hamm becomes Mr Spam thats the day fracking becomes a dodo.

Tue, 07/21/2015 - 11:17 | 6337103 WTFUD
WTFUD's picture

Cheesepope Energy and their underwriters Goldman are an example of everything that's wrong in this fantasy meerkit.

Tue, 07/21/2015 - 11:35 | 6337192 Stud Duck
Stud Duck's picture

Just waitng on Chespeak to stop producing on the lease for a year, oops, guess what you dumb fucker, you no longer have a lease! So sorry you fucked up, again!

Oil may not be making money but NG is still close to $3, blowing off a million CFper day makes for a nice sizable check per month. Just waiting for another hurricane Katrina, NG should go about $15 possibly $20-$25 per mcf.

You fuckers won't be able to pay the electric bill on your laptop, much less your house, but I will!!!

Tue, 07/21/2015 - 12:42 | 6337504 sharonsj
sharonsj's picture

Chesapeake has a gas lease on my property.  Last month was the worst payout I've ever seen, down by more than 65% from the highest even though the price of gas is about the same.  They also told me that those two gas wells they were going to drill over a year ago never happened.  Unless the price of gas goes up, there won't be any more wells.  That's going to destroy the local economy.

Tue, 07/21/2015 - 13:37 | 6337758 Hope Copy
Hope Copy's picture

Good move, but keep a major down turn for the future so that the stock can be got for the major US interests.

Tue, 07/21/2015 - 16:37 | 6338601 KingOfMilwaukee
KingOfMilwaukee's picture

Once again Carl Ichan is getting worked.

Thu, 07/23/2015 - 16:26 | 6346548 VangelV
VangelV's picture

Shale is not viable outside of the limited core areas.  While it was possible to make money speculating on shale stocks the shale companies were always net destroyers of capital and could not generate positive cash flows from operations once they went outside of the small areas that made sense but were depleting too quickly to allow for a production profile that made the companies of the producers of iterest to investors.  

My major concern is not with the popping of the shale bubble but the implication of that action on the US dollar.  Too many institutions have been willing to hold US dollars becasue they thought that the US was heading towards energy independence and that its techonlogical 'advances' would make it a net exporter once again.  What that has hidden was the fact that conventional oil production has already peaked and that we need other solutions that are far more viable than shale to bridge the gap.  

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