We wrote fairly extensively about Chesapeake (CHK, Financial) last quarter, but an update seems warranted given the stock price’s continued weakness. In short, it wasn’t all bad news—lower oil and gas prices notwithstanding. Chesapeake renegotiated a meaningful component of its legacy high-cost transportation contracts (see last quarter’s letter for details), and this has reduced the company’s sensitivity to lower gas prices. Importantly, many of the company’s fundamentals, including production volume as well as drilling and operating costs, have been consistent with our expectations. Furthermore, one of Chesapeake’s competitors recently sold assets in the Haynesville Shale that were quite similar to those of Chesapeake; the sale price was consistent with our estimated value. At Oakmark, we always closely monitor private market transactions, which we believe are important indicators of business value.
From Biill Nygren's Q3 Oakmark Global Select Fund commentary.
