Chesapeak Energy CHK: hedge fund or natural gas producer ?
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A while back I bought some Chesapeak Energy stock (NYSE:CHK) after it dropped from high of $75 to around $50, I knew its Q2 2008 results are not good because of its hedging loss. The following was an interview of its CEO McClendon on CNBC on Aug 19.
Well, the hedging loss extended to its CEO last week, as reported by Bloomberg, its chief executive officer, Aubrey McClendon, involuntarily sold “substantially all” of his common shares of the company’s stock over the past three days to meet margin loan calls.
Investors are concerned that Chesapeake and other U.S. oil and gas producers have hedging contracts with financial firms and other counterparties that won’t be able to pay for their output at the agreed-upon prices because of the global credit crisis, said Robert Goodof, who helps manage $25 billion at Loomis Sayles & Co. in Boston.
Note McClendon and Chesapeak made their name for hedging the natural gas production over the years, in addition to its advanced geo-science and drilling technology. It seems to me very odd that a verteran of commodity derivatives lost substantial his fortune on margin call. It’s certainly possible, because even investor guru Buffett is not immune from recent market crisis: his stock index derivative positions had a large paper loss in Q3 too.
Here is another article from MSN money.