Jolie Rouge


all ur parentheses Я belong to me


Sept. 2017 – Why Chesapeake CHK is a value investment

  • Chesapeake Energy Corp $CHK is a play that’s coupled with WTI Oil Price.
  • Paying debts is good for business. Selling assets you can’t work is good for business.
  • Oil Prices are on an up trend, it may be a bumpy ride, but it’s a ride. $CHK is helped by a macro-view.
  • Don’t panic.

It wasn’t long after reading Joel Greenblat’s “The little book that beats the market” that I decided to knuckle down and just try it out. Now I popped over to his investment screener, and I did add a few of his pics to my watchlist, I even bought one, but CHK was my first ever 100% researched, found on my own, value investing buy.

That was about 12 days ago, and I’ve yet to see anything serious enough to change my opinion, so I’ve decided to put a little money on CHK to see if it pans out. Not too long, maybe a day or so, after I’d bought CHK, Callum Turcan from seekingalpha.com wrote the article “Boy, Was I Wrong On Chesapeake” and naturally my heart sank. Had he seen something I hadn’t? He’s more experienced than me, after all, I’ve only just finished reading a few books and watching a few lectures.

That lasted for about 2 minutes as I read his article. It was histrionic, there was nothing particularly new there, except a few admissions from Doug Lawler that didn’t seem as dire to me as they did to Callum.

Don’t get me wrong, $CHK is not in the greatest shape, but that’s kind of the point. $CHK looks like a decent enough value play if you consider the books. All stocks have risk, but $CHK is one area where you could benefit from taking a bit of the macro-picture into account. Harvey had just hit the gulf coast and people still aren’t sure what all the damage will lead too.

$CHK offloading assets (this was before the sale to Chevron of Permian Basin acreage) seemed to me the right idea. $CHK had debt to pay off, and the best kind of company is the one paying its debts. No one wants to see a company fail when it can pay back its creditors, least of all its creditors. Chesapeake had become too big, too spread out for what it could deliver on, plain and simple. Trimming up and focusing on where it could do best was always going to be the sensible play.

Ultimately what came of Callum’s worries? Not much, we all got to see a bit of red (and we may see a bit more), but $CHK has been on the rise since the announcement of its selling of most of its Permian Basin acreage to Chevron, which lead to an uptick in my $PBT position which I worried was too connected with my $CHK anyway.

To my mind, $CHK is not a good company without a higher price in oil and nat gas, so being long Chesapeake Energy Corp is the same as being long oil and gas in general. That comes into a question of macro trends, not a hope for a specific spike in oil, but a recognition that oil is likely to go up, and so we are likely to see increased earnings in companies like $CHK. That’s because the world is currently in a general fog produced by enviromentalist nuts about global warming and renewable energy. The moment a country like China comes out with a firm commitment to electric cars I know it’s all over but the crying. Governments always lie and misdirect. Whatever they say they are doing, in reality they’re doing the opposite. So while China is suddenly all gung-ho on electric cars, they’re making political inroads to the middle-east, specifically Iran. Who the hell do you think makes their missile systems, and builds their roads? China. Maybe the Chinese suddenly have a hankering for dates and ankle porn, but I doubt it.

Once ISIS Declared the new Caliphate, Oil Prices would crater.

The main purpose of the drop in oil was to combat ISIS, that’s not the official line of course, but it’s the reality. ISIS was a bid at building a revolutionary state, and one thing that revolutionary states need in spades is capitalisation. It became obvious very quickly that the new Caliphate was making an aggressive bid for the oil wells and planning to sell oil on the cheap through the black market. The thing is, the discount on $106 a barrel, or really $115+ a barrel, which is what it should have been with so much turmoil in the middle-east and south America, is a lot better than the discount on $48 a barrel.

V. Putin holds a meeting with key diplomats and business leaders 2 days after the Islamic Caliphate is declared.

With ISIS seriously on the run, OPEC countries and other oil and gas interests can breathe a sigh of relief and get back to business as usual. That’s my read on this situation, the drop in oil prices was a self-inflicted wound to undercut the chaos bid in the middle east. Didn’t you ever stop to wonder how so much chaos in the world, from Venezuela to Syria, led to a drop in oil prices? Some economists really tried to trot out that old nag, Supply and Demand, to explain it. Bullshit. Too many people are just credulous fools, they actually believe IEA reports and official statistics. It’s like we learned nothing from the 2007 crisis.

Never trust the officials.

With those issues contained, and America being forced to misdirect to North Korea so that people forget about their middle-east spanking, countries like Russia and the other OPEC producers are going to want their oil revenues back up where they belong. Rising prices is good for $CHK, and for most Oil stocks, but the climb back should be easy does it. One needs to maintain kayfabe after all.