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Argus Research’s Phil Weiss nailed the this afternoon’s explosive reveal from Chesapeake Energy that cash and credit concerns have forced them to delay selling off some of their assets.In their 10Q filing today, Chesapeake said
“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..As a result, we may delay one or more of our currently planned asset monetizations, or select other assets for monetization…”
In his May 3 note, Weiss warned of just such an eventuality.
“We have also raised the question in the past as to whether potential acquirers who recognised the company’s weak financial position could smell ‘blood in the water,’ making them less willing to meet management’s expectations for sales proceeds.
“We believe that management needs to recognise that its view of both natural gas and natural gas liquids prices may be too optimistic and that it may not be as easy to raise the necessary cash via asset sales as it has been in the past. Despite claiming on multiple occasions that it believes the land grab is over and that it is time to enter ‘manufacturing mode,’ CHK continues to outspend peers for leaseholds. We think it needs to quench its insatiable desire to add acreage and slow spending to more moderate levels in order to protect its financial viability.“
Weiss was named the No. 2 stock picker in the country by Reuters in 2009, so we can’t say we’re that surprised he called it.
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