• Steve H. Hanke
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Chesapeake Plays Chicken With Market, Plunges, Blinks, Plunges Some More

Tyler Durden's picture


In the span of 30 minutes CHK managed to crush both longs and shorts in the name.

First, just after 3pm Eastern, the company filed an NT 10-Q announcing it would delay its 10-Q filing. The reason:

Chesapeake Energy Corporation (the “Company”) is unable to file, without unreasonable effort or expense, its Quarterly Report on Form 10-Q for the period ended March 31, 2012 (the “Form 10-Q”). Additional time is needed for the Company to compile and analyze supporting documentation in order to complete the Form 10-Q and in order to permit the Company’s independent registered public accounting firm to complete its review of the unaudited condensed consolidated financial statements included in the Form 10-Q. The Company intends to file the Form 10-Q later today May 11, 2012.

What happened immediately after was a near vertical plunge in the stock. In fact, the plunge was so bad that the company must have gotten worried it would hit single digits by EOD, and 15 minutes later relented and actually did issue its 10-Q.

At that point we saw a massive short covering spree as the stock soared, then dropped again for no reason, then soared again, and at that point the algos finally had a chance to parse the language in the 10-Q. They were not happy, especially with this part:

As part of our asset monetization planning and capital expenditure budgeting process, we closely monitor the resulting effects on the amounts and timing of our sources and uses of funds, particularly as they affect our ability to maintain compliance with the financial covenants of our corporate revolving bank credit facility. While asset monetizations enhance our liquidity, sales of producing natural gas and oil properties adversely affect the amount of cash flow we generate and reduce the amount and value of collateral available to secure our obligations, both of which are exacerbated by low natural gas prices. Thus the assets we select and schedule for monetization, our budgeted capital expenditures and our commodity price forecasts are carefully considered as we project our future ability to comply with the requirements of our corporate credit facility. As a result, we may delay one or more of our currently planned asset monetizations, or select other assets for monetization, in order to maintain our compliance. Continued compliance, however, is subject to all the risks that may impact our business strategy.

And as that ugly combo: "liquidity", "collateral", "asset sales", "covenant" and "compliance" reared its ugly head, so the stock plummeted and dipped below $15 for the first time in a long while. Unfortunately, there is much more where those warnings came from.

Summarizing visually:

Next steps: CEO departure, epic short covering squeeze, then even faster bleed as the company finally finds its fair value, net of ZIRP.

Finally, we are no too worried about JPM's 3.2 million shares in the company. We are 100% confident they are properly hedged.

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Fri, 05/11/2012 - 15:49 | 2418398 hedgeless_horseman
hedgeless_horseman's picture



Plenty of support at $0.00.

Fri, 05/11/2012 - 15:50 | 2418411 SilverTree
SilverTree's picture


Fri, 05/11/2012 - 16:00 | 2418458 tocointhephrase
tocointhephrase's picture

Nice h&s on the dow die you fukin bitch

Fri, 05/11/2012 - 16:04 | 2418468 iDealMeat
iDealMeat's picture

Again, I really hope the BATS guys tank the FB ipo..

oops..  that was OT, sorry.


OT:  I really hope the BATS guys tank the Facebook IPO..


Sat, 05/12/2012 - 00:30 | 2419422 Oh regional Indian
Oh regional Indian's picture

It's pretty clear why CHK is in such trouble.

The 2nd largest Nat Gas producer.

Isn't that it? Everything else is this, that and th ethird thing, no? NG of late has been like Gold @ 300/OZ.

How can that much Infrastructure make money at these prices? Watch for nationalization and then......like GM. 



Fri, 05/11/2012 - 16:13 | 2418523 matt_chart
matt_chart's picture



Fri, 05/11/2012 - 16:14 | 2418524 SilverTree
SilverTree's picture

CHK too.

Fri, 05/11/2012 - 15:55 | 2418440 tekhneek
tekhneek's picture

Annnd the best fucking comment of the day award goes to...?

Fri, 05/11/2012 - 15:58 | 2418445 Augustus
Augustus's picture

Maybe a little above that.
I recall that DAL shares were trading at $0.25 for weeks after the bankrupt shares were declared worthless.

Fri, 05/11/2012 - 16:03 | 2418474 battle axe
battle axe's picture

The CEO and the Board should go to jail, blatant mismanagement. But wait a minute, this is the OBAMA DOJ, so no charges will happen and the shareholder will get royally fucked once again. Hows that HOPE/CHANGE working for you now. Fucking crying shame.... 

Fri, 05/11/2012 - 16:48 | 2418644 cossack55
cossack55's picture

Worse. The CEO will get the Medal of Freedom and the board will be appointed to the Economic Council.

Fri, 05/11/2012 - 16:17 | 2418532 Virginian
Virginian's picture

I just did a back of the envelope calculation of their enterprise value and it was at least $18.50/share.  Net out "goodwill" - I can only hope $0.00 holds....

Fri, 05/11/2012 - 17:23 | 2418735 AmazingLarry
AmazingLarry's picture

Baahahahah...owie, my kidney. 

Fri, 05/11/2012 - 15:50 | 2418401 SHEEPFUKKER

Whoosh, she's dead. 

Fri, 05/11/2012 - 17:25 | 2418739 Cadavre
Cadavre's picture

Well maybe not totally - maybe Chesapeak's consolidated GFO assumed infinitely rising fuel costs and figured the cost plus projection could be used for last years bonuses - who knows - but there be other stink fish floating in the shore break. Chesapeake's problem is not a fiduciary error - it's a clerical error - the GFO coordinator did it - the GFO coordinator working for IBM in Brazil - not the suits - but the suits still signed off - hmmmmmm ....

JPM may be deeper in the doodoo pile than lamestream carny barkers (should individual investors get back in the market?) are letting on, despite the parade of "owned" market analysts chortling they'd buy JPM at this level (make my day - if ya got JPM dump on those guys now!).

Some reckoning here yesterday suggested the possibility JPM and MFG colluded to hair cut customer deposits by 23% to cover JPM calls in 4Q (and perhaps not GAPed to 2011 EOY SEC filings) and that one possible explanation for JPM's filed 2 Billion 1Q 2012 losses may have been that the total collateral due was misread (remember when bankers had the skills to actually read a balance sheet), which lead to under-heisting MFG customer deposits (details details details).

It looks like Oromney fund raiser "No SeatBelt" Cortizone MFG entrusted stash of someone else's liquidity could not have covered all the "suspected" losses.

There may be a problem a small problem with JPM's 2 Billion claim. Like it's off by 16 Billion.

I have information from a "source" that both Dimon and Blankfein met with Bernanke earlier this week.   The same source is saying the real losses for JPM is 5 times at least the amount stated, they have said it is actually around 18 Billion in losses.   This source is real and is connected in financials.  We will eventually see if the source is correct regarding the real loss amount, eventually coming out.

Not too much - only missed by 90%. Congress will have 12 months of hearings and add another tool to SEC's sure to fail due diligence tool box after all it was just a no fault clerical snafu miss journaled by JPM's New Delhi 2ed string system hacks - like a mini tsunami.  It was nothing.

In the meantime, lame stream banners are shunting "Break up the Big Banks?" through broadcast RSS objects.

Will reality set in and the fake bank police finally call a spade and spade and admit the questionable trades cannot be unwound because they have absolutely no market value (Did JPM CDS itself into a hole - again)?. Or, do as the bank police always have done and allow JPM to assert the  technical tsunami shtick (again?) and simply claim market value cannot be determined.

Some guy on the hypno boob tube just asserted the Jamie was the smartest guy on Wall Street - wow - who's the dumbest? if ya move to NYC send your kids to school out of state! And what's with CNBC's new bipolar cover-girl pancake mask skag - she is scary.

Inflation based scam s just don't gotz the same chutzpa when dat deflation demon be raising his head. Long energy - you lost - long financials - you lost - self indulged fantasies of deluded wanna bees hypnotized by shiny preciouses in a stupor that finally  delivered them to the point they believe their own bullsh*t!

Facebook - you got "grouponed"  - prepare yourself , a storm is coming - and ain't talking `bout Mitt Romney's cousins campaigning for Dr. Ron Paul!.

Keep it wet!

Fri, 05/11/2012 - 15:50 | 2418402 element115
element115's picture

Aubrey McClendon can suck my cock. Burn in hell, you greedy fuck.


Seattle Supersonics Fan

Fri, 05/11/2012 - 15:51 | 2418412 SHEEPFUKKER

How long till they change the name of the arena?

Fri, 05/11/2012 - 15:49 | 2418404 CvlDobd
CvlDobd's picture

Great job keeping up with the bullshit today ZeroHedge.

Fri, 05/11/2012 - 21:34 | 2419130 Taint Boil
Taint Boil's picture




Aaaah …… CHK, I remember when everyone was saying that it was the natural gas play of the century and it was touted and touted and touted aaaand touted over and over by the MSM and the likes – go figure.

Almost jumped on it in 2008 but got shafted by VLO instead.



Fri, 05/11/2012 - 15:49 | 2418406 Tsar Pointless
Tsar Pointless's picture

Pull my finger.

Now pull this.

Fri, 05/11/2012 - 15:50 | 2418409 ebworthen
ebworthen's picture

Why would I be a shareholder in Chesapeake or Green Mountain Coffee or any other Wall Street Ponzi when the owners and CEO's piss money away like water?

Fri, 05/11/2012 - 15:57 | 2418446 tekhneek
tekhneek's picture

Hey now -- water has intrinsic value. What is this money you speak of?

Fri, 05/11/2012 - 15:56 | 2418414 navy62802
navy62802's picture

Hahahahaha. <insert mad, insane laugh>

Wow, they just took out 1-year lows. iMpressive.

I'm gonna go watch an episode of Magnum, PI.

Fri, 05/11/2012 - 15:54 | 2418424 blunderdog
blunderdog's picture

So disappointing not to see Robot Trader's commentary today. 

Ah, fair friend, we barely knew ye.

Fri, 05/11/2012 - 16:08 | 2418502 ihedgemyhedges
ihedgemyhedges's picture

If Money McBags was still around, he would be the shite in this kind of market.............that dude was classic.

Fri, 05/11/2012 - 16:18 | 2418535 slaughterer
slaughterer's picture

Robot Trader and MDB have their own Stock Newsletter and blog site.  They just put BUY ratings on JPM, GMCR, and CHK.  

Fri, 05/11/2012 - 18:47 | 2418917 piliage
piliage's picture

I have a confession, MillionDollarBonus is one of the reasons I stopped being a lurker and recently joined ZH. He is absolutely one of the most hilarious bloggers on the entire web. Also, I piss myself laughing seeing how many people don't 'get it'.

Fri, 05/11/2012 - 15:55 | 2418430 cossack55
cossack55's picture

Since Corporations are now "people", can Chesapeake renounce its US citizenship?

Fri, 05/11/2012 - 15:55 | 2418432 Bam_Man
Bam_Man's picture

Just another Hedge Fund/HFT plaything.

And they wonder why Mom & Pop are long gone and not coming back.

Fri, 05/11/2012 - 16:40 | 2418597 GeorgeHayduke
GeorgeHayduke's picture

The Mom & Pops outfits may be coming back. They may just operate more in the gray market and take any number of currencies and trade items in exchange for their products and services. They may not pay all applicable taxes either. The dirtbag "decision makers" and their crony capitalist owners are giving people no other options. Anything to help bring down this dreadful system.

Fri, 05/11/2012 - 15:55 | 2418433 Augustus
Augustus's picture

This has all of the makings of a very bad outcome.  If the company has made drilling commitments, not much different from debt obligations, that are not on the books, AND fulfilling those commitments are necessary to maintain the value of the $10,000 / ac lease bonuses paid out, how can anyone evaluate what the outcome will be?  Drilling a new dry gas well, as different from a liquids rich well, is not profitable at $2.50 NG price.

Fri, 05/11/2012 - 15:56 | 2418436 RoadKill
RoadKill's picture

Terrible company is terrible, but even I couldnt pass this up at $14.86.

I own literally 10x more UPL, but Soros has to come back into this and kick Aubry out!!!

Fri, 05/11/2012 - 16:08 | 2418494 I should be working
I should be working's picture

You bought CHK?!?@!

Better hope for a short squeeze.  Enron was cheap and getting cheaper all the way to zero...

Fri, 05/11/2012 - 16:15 | 2418529 chdwlch1
chdwlch1's picture

That would explain your name then...

Fri, 05/11/2012 - 15:58 | 2418450 crawl
crawl's picture

Talk about sliding down the skids.


Fri, 05/11/2012 - 15:58 | 2418451 lizzy36
lizzy36's picture

Funny part is Aubrey's forced sales from 2008 have just gone in the money.

I don't understand why anyone would have owned CHK post the 2008 fiasco. Once Aubrey was exposed as the gambler that he is, and the Board of Directors exposed as his pawns, why own this POS.

A man who destroys as much shareholde value, as this dude, while subsequently enriching himself to the tune of billions (although guessing forces margin calls will once again change that tune), deserve ZERO "other peoples money".

Fri, 05/11/2012 - 16:09 | 2418512 RoadKill
RoadKill's picture

I've been a critic of Aubry's for a long time.  He's an empire builder.  Over the last 15 years CHK production is up 10x and its share count is up 10x.  Meanwhile the greats like XTO, EOG and UPL made their founders and workers rich by growing production 30x and not growing the share count at all.

However, I had to buy some under $15.  Soros has already done the work on the name and has an intrinsic value in the back of his head.  He said on TV a week ago that he thought it was undervalued and they were thinking about what to do about it.

This company is a PERFECT candidate for some activisim.

I'll throw my 2,500 shares in the pot!  Of course I own 25,000 shares of UPL.  If you want to bet on nat gas prices having bottomed take a look at that one.  Great management team.

Fri, 05/11/2012 - 16:59 | 2418680 I am a Man I am...
I am a Man I am Forty's picture

BP is a better deal and pays close to 5%.

Fri, 05/11/2012 - 16:11 | 2418513 RoadKill
RoadKill's picture

I've been a critic of Aubry's for a long time.  He's an empire builder.  Over the last 15 years CHK production is up 10x and its share count is up 10x.  Meanwhile the greats like XTO, EOG and UPL made their founders and workers rich by growing production 30x and not growing the share count at all.

However, I had to buy some under $15.  Soros has already done the work on the name and has an intrinsic value in the back of his head.  He said on TV a week ago that he thought it was undervalued and they were thinking about what to do about it.

This company is a PERFECT candidate for some activisim.

I'll throw my 2,500 shares in the pot!  Of course I own 25,000 shares of UPL.  If you want to bet on nat gas prices having bottomed take a look at that one.  Great management team.

Fri, 05/11/2012 - 16:15 | 2418527 Captchured
Captchured's picture

This is the 5th (and possibly final?) time that Chesapeake has gone down the path of financial ruin in the time I've watched them from within the industry. Aubrey is a landman. There aren't a lot of O&G companies run by landmen. Real estate agents apparently get no respect from engineers and geologists.

Fri, 05/11/2012 - 16:39 | 2418602 azusgm
azusgm's picture

Aubrey definitely gets no respect from the landmen. He doesn't even make sense. Walk into the county clerk's record area of any court house in the Haynesville and say his name. You'll see what I mean.

Fri, 05/11/2012 - 16:00 | 2418460 youngman
youngman's picture

What a weird week......is it me....or maybe I am not drinking enough....I was wrong...I thought now is when Gold and Silver would be taking off...not only bought by Asians and Indians in mass quantities...but by Greeks....Spainards...whoever....as we get closer to the great flushing....even JPM fell off the pedistal...wow....but consumer confidence is up?????  So strange.....You can kiss exports to the EU off....so that should be good for a 1000 point gain in the markets....but hey...obama made 12 million from the movie stars...there is some justice...maybe we should all become politicians...looks like easy money to me..."money for nothing and the chicks for free"...

Fri, 05/11/2012 - 16:05 | 2418479 Bam_Man
Bam_Man's picture

Gas prices have dropped about $0.20/gallon and that's all the sheople ever care about in these "confidence" surveys.

Fri, 05/11/2012 - 16:06 | 2418489 navy62802
navy62802's picture

That and the DOW. As long as the DOW doesn't plunge 500 points in a single trading day, normal people don't care.

Fri, 05/11/2012 - 16:06 | 2418483 navy62802
navy62802's picture

You're obviously not drinking enough ...

Fri, 05/11/2012 - 16:09 | 2418503 chunga
chunga's picture

I'll drink to that.

Fri, 05/11/2012 - 16:57 | 2418670 surferexx
surferexx's picture

I'll have another

Fri, 05/11/2012 - 16:11 | 2418498 SheepDog-One
SheepDog-One's picture

I dont even pay attention to these stupid polls of the sheeple, at best theyre just opinions of idiots and at worst theyre just outright fabrications.

Fri, 05/11/2012 - 16:09 | 2418510 Village Smithy
Village Smithy's picture

I think its for the same reason that people aren't selling equities like crazy, they think that they will be able to "see it coming". Also in this make believe market there seems to be no bottom to how much you can lose on taking bearish positions. The extend and pretend game is far more powerful than I ever imagined.

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