[ROCKMAN]

Plant - Tsk tsk. Many companies that filed Chapter 1 have been some of the most active drillers once they were restructured. As I just pointed out under the article in the news section Chesapeake, upon filing Chapter 11, has now arranged a $1 billion loan so it can keep operating. Assets may be sold under restructuring. Or the debt owners may end up owning most if not all of the company stock. If that happens repaying $7 billion in debt plus interest payments disappear off the books and the company may be functioning very well off of existing cash flow. As well as potential new credit lines. Will be a number of months before we know how the dust settles.

BTW back when oil prices originally crashed 83 of the 84 companies that filed Chapter 11 came out financially viable. Of course, that was then. After the latest shock who knows: I don't keep up with now that I've retired. Wife and I just sit back and coast along since we have zero debt to deal with didn't even file Chapter 11. After 40 years in the oil patch I knew how to play the long game. Essentially cashed out during the last boom. LOL.

[Plantagenet]

$this->bbcode_second_pass_quote('ROCKMAN', 'P')lant - Many companies that filed Chapter 1 have been some of the most active drillers once they were restructured. As I just pointed out under the article in the news section Chesapeake, upon filing Chapter 11, has now arranged a $1 billion loan so it can keep operating. Assets may be sold under restructuring. Or the debt owners may end up owning most if not all of the company stock. If that happens repaying $7 billion in debt plus interest payments disappear off the books and the company may be functioning very well off of existing cash flow. As well as potential new credit lines. Will be a number of months before we know how the dust settles.

BTW back when oil prices originally crashed 83 of the 84 companies that filed Chapter 11 came out financially viable. Of course, that was then. After the latest shock who knows: I don't keep up with now that I've retired. Wife and I just sit back and coast along since we have zero debt to deal with didn't even file Chapter 11. After 40 years in the oil patch I knew how to play the long game. Essentially cashed out during the last boom. LOL.

[rockdoc123]

I defer to Rockman on the Chapter 11 arguments as I know being in the Houston oil patch he has been "close to the sand face" for a couple of decades. I agree with him completely that in almost all cases the company has come out stronger and done pretty well.

But a few things which actually make this look like a very good bet to come out of Chapter 11 smelling like roses, especially if oil and gas prices recover somewhat.

IN terms of their debt it is important to note that approximately 40% are notes that do not mature until 2025 – 2027. As well $1.9 billion is a revolving credit facility (so not something that has been used necessarily and would be netted out of total debt). Hence the debt that must be paid back is in reality is $7.5 billion (pretty close to the number Rockman pointed to).

According to CHK first quarter 10K they have $34.748 billion in assets when production, equipment etc is calculated at cost. When you take into account DD&A already credited to those assets the total asset value is $16.19 billion. Of the total asset value Proved oil and natural gas properties make up a value of $30.765 billion. No amount is calculated for Probable or Possible reserves which are generally a good percentage in the sorts of plays CHK has been chasing. That value may be indicated in terms of an NPV on filings to the SEC that I am not aware of. Given DD&A already taken on the oil and gas properties is $20 billion and that value does not reflect the actual value if sold today (i.e. DD&A is an accounting procedure for taxation purposes) the ratio of debt to net asset value is quite close to 0.5 which is pretty respectable. Even with the addition of reorganization loan debt it looks OK. The issue is that with current prices the properties aren’t throwing off necessary cashflow although using forward strip they will be.

From the other side of the ledger they have $2.39 billion in current liabilities and $9.40 billion in long term debt. Note that debt was at $22 billion just 3 years ago. Again the actual debt repayable will be about $7.5 billion.

Their revenues in first quarter were $2.54 billion and if you look at only the cost part of the operating expenses (ie ignore DD&A and one time impairments) that equates to positive cash flow of approximately $868 MM. That is the number the group reorganizing will look at, ie. the ability of the company to operate withing cashflow and spin out positive cash. They will also look at potential value growth if they obtain all or a portion of the existing market cap value of $115.9 MM realizing that the 52 week high was closer to $10 billion in market cap and a large proportion of that potential 86 times increase in value is directly attributable to the large drop in oil price.

Note that during the period of Chapter 11 cashflow from operations will be improved by about $160 MM as interest will stop accruing (until Chapter 11 is solved) and pref dividend payments will cease.

My point is this should actually look pretty good to the group restructuring the company.

[GoghGoner]

Those assets are worth only what somebody else will pay to own them. I used to believe that were actually valued in some legit way but they are not and may be worth very little when the bidding is done.

[coffeeguyzz]

Rocdoc
Excellent breakdown.
Chessy's assets in the PRB are pretty good, but still very much in the evaluation phase.
Local pipe owner is speaking up about contractual commitments being honored.
Much back and forth yet to be finalized.
Their EF purchase via Wildhorse ($4 billion) looked a lot more attractive at $60/$65 WTI than $40, but that's the way it goes.

Relating to NEPA exclusively, their top 6 current wells - 2 each on 3 pads - have produced ~49 Bcf (thattsa 'B' as in 'Billion') in under 8 months online each.
Those numbers are simply astonishing. (For some context, those wells can already supply the yearly residential gas needs of Cincinatti, Pittsburgh, St. Louis, Buffalo and still have plenty to spare. 6 wells, ~$50 million cost. 8 months production).
Incredible tangible value to be had if/when legacy debt is addressed.

GG. Chevron just had an open Data Room exercise the past few days for qualified, potential buyers for their near 1 million net Appalachian Basin acres.
We may get to see in a few months just what this productive, yet off-the-fairway leasehold is worth in hard money to professional operators.
The 'giveaway' from Shell (SWEPI) to NFG/Seneca a few weeks back should provide a clue.
While Shell lost their ass, Seneca may be in a position to profitably produce under $2/mmbtu.

Rockman
So good to hear from you and hear that you are doing well.
Your legendary contributions on TOD to an anxious world during the Deepwater Horizon tragedy will long be remembered - and appreciated - by the several thousands who learned from your informed, compassionate contributions.
Best wishes to you.

[Plantagenet]

$this->bbcode_second_pass_quote('coffeeguyzz', '
')Chessy's assets in the PRB are pretty good, but still very much in the evaluation phase.
Local pipe owner is speaking up about contractual commitments being honored.
Much back and forth yet to be finalized.
Their EF purchase via Wildhorse ($4 billion) looked a lot more attractive at $60/$65 WTI than $40, but that's the way it goes.

Relating to NEPA exclusively, their top 6 current wells - 2 each on 3 pads - have produced ~49 Bcf (thattsa 'B' as in 'Billion') in under 8 months online each.
Those numbers are simply astonishing. (For some context, those wells can already supply the yearly residential gas needs of Cincinatti, Pittsburgh, St. Louis, Buffalo and still have plenty to spare. 6 wells, ~$50 million cost. 8 months production).
Incredible tangible value to be had if/when legacy debt is addressed.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'C')hesapeake may have some great acreage with productive wells but the company has still been losing boodles of cash.....the company lost almost half a billion dollars in 2019 and they've lost hundreds of millions more this year and its gotten so bad they are welching on the money they owe to their own contractors and service companies.

[Plantagenet]

$this->bbcode_second_pass_quote('', 'A')s to 'welching', almost always companies who are in dire straits work to pay off their contractors and service providers either through a schedule or at a discount. It has been that way as long as I can remember.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'T')hats a nice fantasy but in reality Chesapeake failed to pay off its creditors and now has gone bankrupt. The list of creditors listed in the bankruptcy filing include multiple contractors and service providers that Chesapeake welched on.

[coffeeguyzz]

... and Whiting - despite being in bankruptcy - is still producing almost as much as it was 8 months ago.
Don't know for how long that may continue ... decades, perhaps.
One never knows.

It is kinda amusing to see so many Peak Oil types waving this non stop banner of financial precariousness regarding the shale boys since at least 2012, by my reading.
At the mid point of 2020, one might think a better understanding of how these systems function (financial, that is. The operational aspects have NEVER been understood by the Peak Oil community ... and probably never will be) would well serve the anti hydrocarbon folks.

At least if they sincerely wish to deal with Reality.
Referencing long running incompetents like Art Berman and David Hughes guarantees an unbroken record of simply being wrong.

[Plantagenet]

$this->bbcode_second_pass_quote('coffeeguyzz', '
')
It is kinda amusing to see so many Peak Oil types waving this non stop banner of financial precariousness regarding the shale boys since at least 2012, by my reading.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'I')t is kinda amusing to see so many oilie types frantically waving this non stop banner of financial success regarding the shale boys and claiming service companies are all getting paid, even as service companies are listed right on the sworn bankruptcy filings in the bankruptcy courts as NOT getting paid and a couple of dozen companies in the shale biz have just gone bankrupt and more oil companies and service companies in the shale biz are going bankrupt even as we speak.

[coffeeguyzz]

The Hi Crush proppant company used above as an example - I presume - of collateral damage in BK proceedings is actually only one of at least 3 proppant companies seeking Chapter 11 releif ... Vista Proppant and Covia being the other 2.

Particulars from Covia's filing this week may further enlighten observers of 'how these things work' ...
Covia was formed by a merger of companies 2 1/2 years ago.
Currently has 1,600 employees, 32 mining facilities, 2,000 customers, amongst other assets ($250 million cash equivalent liquidity also).
By shifting its current $1.6 billion in debt to equity ownership by debt holders, $1 billion in debt is expected to be eliminated, along with modification of ~$200 million/year expenses related to railcar leasing and excess production capacity.

This is a tiny example, one of thousands that occur annually in the US.
There are a wide range of factors that can and do play roles in these affairs, including fraud, incompetence, bad timing/disruptive events, on and on.
It is simply one aspect of how the capitalistic system works.

Future operations - including potential landlords, employees, vendors - will ALL be mindful that a formerly bankrupt company is seeking to continue to engage with the marketplace.
It will be determined largely by individual decisions - case by case - how/if emerged-from- bankruptcy companies fare going forward.

This current situation with a worldwide pandemic coupled with a flooding of supply in the hydrocarbon world is clearly unprecedented.
The upstream operators have actually displayed - once again - an astonishing degree of adaptability, resourcefulness and resilience.

Those of us with some familiarity with this culture are not the least surprised.

[Plantagenet]

$this->bbcode_second_pass_quote('', ' ')oil prices collapsed....

[coffeeguyzz]

This is actually falling down funny.
The above poster SHOULD be embarrassed by the stunning degree of ignorance displayed by those debt numbers, but my experience over the years would indicate the lack of self awareness precludes any realistic chance of enlightenment.

65 million dollars owed to the top service providers?
65 million?
This company has something like 9 billion in total debt ... the bulk to their note holders (aka lenders).
Without getting into the weeds, that 65 million is probably just a few days revenue for the company.
Chances of 100% payback to those vendors (absent squabbles about poor performance, etc.) should be total.
If not, Chessy will have a VERY tough time lining up future vendors.

65 freaking million ... really?
If the Hi Crush people are being driven to BK over a 5 million dollar non payment, that would indicate financial stresses going far beyond the situation with only Chesapeake.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'C')ontrary to your claims, they are welching on their payments to service companies. Thats what happens when companies go bankrupt....they don't have enough cash to pay all their obligations and debts so they go into CHP 11 bankruptcy.

[Plantagenet]

$this->bbcode_second_pass_quote('coffeeguyzz', '
')The above poster SHOULD be embarrassed by the stunning degree of ignorance displayed by those debt numbers, but my experience over the years would indicate the lack of self awareness precludes any realistic chance of enlightenment.

[rockdoc123]

$this->bbcode_second_pass_quote('', 'Y')ou and crockdoc are the ones foolishly claiming that oil service companies who did work for Chesapeake had been paid for their work.

[ROCKMAN]

Plant -- Sentiments cares for Chesapeake? LMFAO!!! Do you forget what I've explained I've done for much of my career? One of the reasons I know so much about Chapter 11 filings is that they are prime hunting grounds for companies to fuck over. As I've explained many times we are all very predatory. Be it financially wounded companies or service companies unsophisticated landowners. We are always looking for leverage. At some point CHK may be great stock acquisition. But very tricky timing and not for the faint hearted. My former billionaire owner made hundreds of $millions in quick profits doing exactly this. Some of which I helped him. Of course I felt bad for any geologist that might have lost his job as a result. OTOH he chose the wrong company to work for. As I have also pointed out many times: its not personal...just business. I've passed on a number of big salary offers in my career avoiding companies with unsustainable business plans.

And a couple of times didn't and paid a price for it. LOL

[Plantagenet]

$this->bbcode_second_pass_quote('ROCKMAN', 'A')t some point CHK may be great stock acquisition. But very tricky timing and not for the faint hearted.