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Chesapeake Renegotiates Terms Of Wells Deal, Stock Soars On Short Covering Spree

Tyler Durden's picture





 

Two weeks ago, when reporting on Chesapeake's most recent legal problem in the aftermath of the Reuters report on McClendon's private well deal, we explicitly said: "to all those scrambling to short the company: beware. CHK has a history of being able to fund itself with HY bonds come hell or high water. If and when the stock tanks, the short interest will surge on expectations of a funding shortfall. Alas, courtesy of the Fed's malevolent capital misallocation enabling, we are more than confident that the firm will be able to issue as much HY debt (unsustainably at 10%+, but that is irrelevant for the short-term) as it needs, crushing all short theses. What this means, simply, is that anyone who believes traditional fundamental analysis will and should work in the CHK case is likely to get burned, especially if China is involved which will have its own tactics vis-a-vis the future of McClendon and/or CHK. And all, of course, courtesy of the Chairman of course." Sure enough, we just got confirmation of what happens when a company that everyone has left for dead gets a bit of good news, in the form that CHK has ended the wells deal and is looking for a new chairman: the stock explodes, as it has this morning when it is now nearly 10% higher in the pre market.

That, and the fact that everyone and their grandmother is short, also doesn't help.

Full CHK release:

Chesapeake Energy Corporation (NYSE:CHK - News) today announced that its Board of Directors has renegotiated the terms of the company's Founder Well Participation Program (FWPP) with Chairman and Chief Executive Officer Aubrey K. McClendon to provide for the early termination of the FWPP on June 30, 2014, 18 months before the end of its current term on December 31, 2015. Mr. McClendon will receive no compensation of any kind in connection with the early termination of the FWPP.

The FWPP, which was approved by shareholders for a 10-year term in 2005, in conjunction with Mr. McClendon's employment agreement with the company, provides Mr. McClendon a contractual right to participate and invest as a working interest owner (with up to a 2.5% working interest) in new wells drilled on the company's leasehold. Mr. McClendon has agreed to forego such contractual right 18 months early without compensation.

The Board of Directors will name an independent, Non-Executive Chairman in the near future. The Board’s Nominating and Corporate Governance Committee is considering potential candidates with no previous substantive relationship with Chesapeake and will be soliciting input from major shareholders. Upon the appointment of a Non-Executive Chairman, Mr. McClendon will relinquish the position of Chairman and continue as Chief Executive Officer. Mr. McClendon has indicated his support of the Board’s decision to name a Non-Executive Chairman and waived any rights he might have under his employment agreement as a result of no longer serving as Chairman. As previously announced, the Board is reviewing the financing arrangements between Mr. McClendon (and the entities through which he participates in the FWPP) and any third party that has had or may have a relationship with the company in any capacity.

Merrill A. (“Pete”) Miller, Jr., Chesapeake’s Lead Independent Director and President and Chief Executive Officer of National Oilwell Varco, said, “The Board is focused on serving the interests of shareholders. We believe separation of the Chairman and CEO roles will improve Chesapeake’s corporate governance and the early termination of the FWPP will eliminate a source of controversy, both of which should send a positive signal to the market and improve shareholder value. The Board appreciates Aubrey’s cooperation in these measures and has confidence in Chesapeake’s future, based on its superb assets, strong management team and talented employees.”

Aubrey K. McClendon, Chesapeake’s Chairman and CEO, said, “I am completely supportive of the Board’s plans to separate the positions of Chairman and CEO and to bring an independent Chairman onto the Board. This action reflects our determination to uphold strong corporate governance standards and will also enable me to focus my full time and attention on execution of the company’s strategy, the implementation of our transformation into a major oil producer and the completion of our asset monetization and joint venture objectives.”

O. Mason Hawkins, Chairman and Chief Executive Officer of Southeastern Asset Management, the company’s largest shareholder, said, “We are pleased that the Board has listened to our input and believe it has made the right decision by ending the FWPP early and seeking an independent Chairman. Aubrey was right to recognize that these actions are in the best interests of the Company and its shareholders. We support management’s continuing efforts to unlock and deliver the value embedded in Chesapeake’s assets.”

 


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Tue, 05/01/2012 - 09:22 | Link to Comment francis_sawyer
francis_sawyer's picture

Frontrunning bitchez!

Tue, 05/01/2012 - 09:30 | Link to Comment fonzannoon
fonzannoon's picture

everything is a joke. Good luck investing in this market.

Tue, 05/01/2012 - 09:47 | Link to Comment junkyardjack
junkyardjack's picture

How can you invest when things only move in 10% spikes up and down?

Tue, 05/01/2012 - 09:36 | Link to Comment nobusiness
nobusiness's picture

Looks like McClendon knew about the deal yesterday and got his trades in.

Tue, 05/01/2012 - 09:42 | Link to Comment lizzy36
lizzy36's picture

BMO upgraded yesterday on "sentiment change".

Yes in last two weeks there has been sentiment change in natural gas sector. 

The sentiment will change another 20x between now an the bottom.

We will see what happens with CHK, it may indeed be able to fund itself with HY debt for a short while. Unhedged in 2012 and 2013, and LTD/EBITDA will be 3x at end of year, likely not to make this form of life support sustainable in the long run.

But what the hell do i know. Market where fundamentals don't matter, and reach for yield, appetite FOR product, (HY unsecured debt) trumps actual product.

Tue, 05/01/2012 - 09:45 | Link to Comment Dr. Engali
Dr. Engali's picture

Thank you Tyler for the heads up on this one.

Tue, 05/01/2012 - 09:49 | Link to Comment RexZeedog
RexZeedog's picture

I traded this move between yesterday and today.  Made some coin on this bounce. Now back to cash.

Tue, 05/01/2012 - 10:20 | Link to Comment overmedicatedun...
overmedicatedundersexed's picture

was jon corzine named new co ceo? it would be a perfect fit for chk.

Tue, 05/01/2012 - 11:26 | Link to Comment bnbdnb
Tue, 05/01/2012 - 11:36 | Link to Comment kekekekekekeke
kekekekekekeke's picture

so now's probably not a great time to look for a job with CHK

Tue, 05/01/2012 - 11:37 | Link to Comment bnbdnb
bnbdnb's picture

Expect 2000-3000 layoffs soon.

Tue, 05/01/2012 - 12:10 | Link to Comment SillySalesmanQu...
SillySalesmanQuestion's picture

Thou shall not short any trade or position...thou shall crush shorts!

Do NOT follow this link or you will be banned from the site!