I wrote a few months ago about how Chesapeake CEO Aubrey McClendon had conveniently done the valuation work on CHK for us. His analysis showed a deeply undervalued stock price. http://www.gurufocus.com/news.php?id=100055
Today CHK announced the following:
“Chesapeake Energy Corporation ("Chesapeake", NYSE: CHK) and CNOOC Limited (NYSE: CEO; SEHK:00883) today announced the execution of an agreement whereby CNOOC International Limited, a wholly-owned subsidiary of CNOOC Limited, will purchase a 33.3% undivided interest in Chesapeake's 600,000 net oil and natural gas leasehold acres in the Eagle Ford Shale project in South Texas. The consideration for the sale will be $1.08 billion in cash at closing, subject to adjustment. In addition, CNOOC Limited has agreed to fund 75% of Chesapeake's share of drilling and completion costs until an additional $1.08 billion has been paid, which Chesapeake expects to occur by year-end 2012”
That is $1billion up front and another $1billion over the next two years in drilling costs being carried. If a 33% interest is worth $ 2 billion, I guess the entire Eagle Ford acreage of CHK is therefore worth $6 billion. Pretty simple really.
Now here is what Aubrey told us about what he thought CHK was worth in the last company conference call:
“I recently listened to the last quarterly conference call and CEO Aubrey laid out exactly what he believes CHK properties are worth.
1) Marcellus - $15 bil
2) Haynesville/Bossier - $15bil
3) Barnett - $7bil
4) Fayetteville - $5bil
5) Eagleford - $4bil
6) Conventional assets - $8bil
7) Midstream/Drilling Rigs - $6bil
8) Drilling carries - $3bil
9) 12 early stage oil plays - $5bil
Total assets $68bil
Less debt $12bil
Net assets $56bil
Total shares 758mil
Value per share $73.88
Share price $21”
Aubrey had $4 billion penciled in for the Eagle Ford and it turns out he was actually not just being realistic but conservative as the deal today suggests $6 billion.
Aubrey is kind enough to give us some more valuation hints in the press release today that accompanies the CNOOC deal:
"When completed, this transaction will successfully accomplish another component of Chesapeake's strategic and financial plan outlined in May 2010 designed to increase shareholder value. This brings the combined proceeds from our shale development ventures, including upfront cash payments and drilling carries, since 2008 to approximately $13 billion. Chesapeake has continued to maintain a majority position in each of the five major projects subject to development arrangements ranging from 67% to 80%. The implied pre-development value of Chesapeake's retained interest in those shale ventures is approximately $37 billion based on the valuations in the sale transactions."
I have to admit it is hard to ignore this continuous stream of deals that supports a much, much higher value per share figure. The question really boils down to who is smarter.
1) The stock market and the value it is assigning to CHK’s assets
or
2) The combined expertise of CNOOC, Total, Statoil, PXP, BP, Exxon etc who are studying the assets of CHK and XTO and paying the prices Aubrey is using in his valuation figures.
Realistically, how can EVERY one of these oil and gas companies be out to lunch and overpaying ? I don't own CHK in any meaningful amount. I may wish that I did.
Today CHK announced the following:
“Chesapeake Energy Corporation ("Chesapeake", NYSE: CHK) and CNOOC Limited (NYSE: CEO; SEHK:00883) today announced the execution of an agreement whereby CNOOC International Limited, a wholly-owned subsidiary of CNOOC Limited, will purchase a 33.3% undivided interest in Chesapeake's 600,000 net oil and natural gas leasehold acres in the Eagle Ford Shale project in South Texas. The consideration for the sale will be $1.08 billion in cash at closing, subject to adjustment. In addition, CNOOC Limited has agreed to fund 75% of Chesapeake's share of drilling and completion costs until an additional $1.08 billion has been paid, which Chesapeake expects to occur by year-end 2012”
That is $1billion up front and another $1billion over the next two years in drilling costs being carried. If a 33% interest is worth $ 2 billion, I guess the entire Eagle Ford acreage of CHK is therefore worth $6 billion. Pretty simple really.
Now here is what Aubrey told us about what he thought CHK was worth in the last company conference call:
“I recently listened to the last quarterly conference call and CEO Aubrey laid out exactly what he believes CHK properties are worth.
1) Marcellus - $15 bil
2) Haynesville/Bossier - $15bil
3) Barnett - $7bil
4) Fayetteville - $5bil
5) Eagleford - $4bil
6) Conventional assets - $8bil
7) Midstream/Drilling Rigs - $6bil
8) Drilling carries - $3bil
9) 12 early stage oil plays - $5bil
Total assets $68bil
Less debt $12bil
Net assets $56bil
Total shares 758mil
Value per share $73.88
Share price $21”
Aubrey had $4 billion penciled in for the Eagle Ford and it turns out he was actually not just being realistic but conservative as the deal today suggests $6 billion.
Aubrey is kind enough to give us some more valuation hints in the press release today that accompanies the CNOOC deal:
"When completed, this transaction will successfully accomplish another component of Chesapeake's strategic and financial plan outlined in May 2010 designed to increase shareholder value. This brings the combined proceeds from our shale development ventures, including upfront cash payments and drilling carries, since 2008 to approximately $13 billion. Chesapeake has continued to maintain a majority position in each of the five major projects subject to development arrangements ranging from 67% to 80%. The implied pre-development value of Chesapeake's retained interest in those shale ventures is approximately $37 billion based on the valuations in the sale transactions."
I have to admit it is hard to ignore this continuous stream of deals that supports a much, much higher value per share figure. The question really boils down to who is smarter.
1) The stock market and the value it is assigning to CHK’s assets
or
2) The combined expertise of CNOOC, Total, Statoil, PXP, BP, Exxon etc who are studying the assets of CHK and XTO and paying the prices Aubrey is using in his valuation figures.
Realistically, how can EVERY one of these oil and gas companies be out to lunch and overpaying ? I don't own CHK in any meaningful amount. I may wish that I did.
- CEO Buys, CFO Buys: Stocks that are bought by their CEO/CFOs.
- Insider Cluster Buys: Stocks that multiple company officers and directors have bought.
- Double Buys: Companies that both Gurus and Insiders are buying
- Triple Buys: Companies that both Gurus and Insiders are buying, and Company is buying back.
