Tag: CHK

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My election night experience

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Was on the road on election night. I left the training class at 4:25 at North Little Rock and headed to the LIT airport. When I listened to NPR at around 5:30 PM, the poll in east coast was about to close. When I got to Atlanta for transfer, it was 8:30 PM EST, so I watched CNN and got to know PA became Obama land. One more flight later, about 10:45 PM when the MD-88 plane landed at STL, and I turned on the radio immediately. Obama won and was about to give acceptance speech.

Direct flight between STL and LIT
Yesterday I found out Southwest does offer a direct flight between STL and Little Rock (LIT). Oh well, the good thing is I read the CFA stuff during the delta flight. Otherwise I will have more time to waste on TV and Internet.

The market reaction
The stock market already had a big run before the Obama win. The stock market decided to hold two sell off days on Wed and Thurs. In a way, that signifies the challenges lies ahead for Obama administration. The expectation is so high, from health care, to economy/jobs, to Iraq, to his ethnic group (African American, though theoritically Obama is mixed race, half black half white).

It’s hard to do many of these in a tough economy.

The margin call
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Why CHK is a sell?

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Chesepeake Energy CHK logo

Macro environment
This morning on my way to work, I found the regular unleaded gas is sold for $2.88 at Shell station near my home. The oil is coming down, amid the slow down of US economy, the No. 1 consumer of the light sweet crude: American consumes 25% of world crude production. Natural gas price is closely tied to the oil price. The Pickens plan, which calls for natural gas powered cars, to reduce the importing of foreign oil, has not gotten too much traction. Neither presidential candiate mentioned much natural gas as a part of the energy solution. The natual gas car is unlikely to happen at least in Detroit, because the car makers financial problems, and the consumers got squzzeed.

The margin call
Again I would not take the margin call of CEO at its face value. The analysis goes like this:

1) If the CEO REALLY sold its stock at margin call, for a company made its name from hedging natural gas production (derivatives trading), it’s like a high school math teacher can not solve primary school math problem. It’s possible, but unlikely.

2) If the CEO sold its stock intentionaly, but publicly declares he sold it out of margin call. He is lying. Again I would not trust him.

It’s more or less like the Bill Clinton 1998, either way his reputation will be tarnished, and people will doubt his judgement for a long long time.

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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.
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MO tax holiday, CHK hedge backfires

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It’s the holiday season again, this weekend is the MO tax holiday for back-to-school season. Quote the MO state gov web site:

Section 144.049, RSMo, establishes a sales tax holiday during a three-day period beginning at 12:01 a.m. on the first Friday in August and ending at midnight on the Sunday following. Certain back-to-school purchases, such as clothing, school supplies, computers, and other items as defined by the statute, are exempt from sales tax for this time period only.

Cheseapeke Energy Hedging backfires
Last night CHK reported its 2Q 2008 earning, it incurred a big loss because of in 2Q the natural gas price went up much higher than the bets CHK put together. Here is another analysis by bullishbankers for CHK. Like many things else in life, you get the upside, and you can get the downside too. Hedging is a perfect example. One interesting thing I noticed from the earning report is in cash flow statement, CHK has one million dollars at the end of 1Q, and zero cash at the end of 2Q. They raised cash since then (again, read the bullishbankers analysis, and CHK own press release).

BTW, to my readers, always apply your independent thinking when reading other bloggers’ (including yours truely) work.

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Cummings CMI and my energy play

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My 2 cents on Cummins CMI (a while ago)
I have watched CMI for a few months now, have not pulled the trigger yet. There was a brief chance around March 17. I dare not to buy it after it went above 50. Like commodity, short term CMI has some selling pressure because:

1) It’s an infrustructure/transportation play, with US/global economy slow down, its business should also slow;
2) At Micro level, I know Dodge Ram trucks use CMI diesel engine. Chrysler just announced the Ram production cut, so…

But I still like it because their diesel engines are very very good. I know very few manufacturers can make their quality diesel engines. A related thing, is the bio-diesel, if this becomes a reality, diesel engine will be more popular.

Today CMI got a huge lift after reported strong earning (seekingalpha: cummins engine chugs along nicely).

My energy plays
Oil, natural gas and oil services. I have Marathon Oil (intergrated oil), Chepeseake Energy (NG), Devon Ennergy (NG). And yesterday I added Smith International (oil service).

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Analyze CHK hedging strategy: I

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Chesepeake Energy logo

Chesapeake Energy (NYSE: CHK) is a stock I have known for a while. I traded it in year 2006, I did not hold it for long term partly because I usually don’t hold a stock for more than a year (until Mindray), more importantly I did not understand all the natural gas price volatility, CHK’s hedging strategy etc. Fast forward two years, the natural gas and CHK stock have been doing very well until last week, and I have studied the CFA a bit.

Chesepeake is a natural gas (plus a bit oil) explorer and producer, it’s No. 2 US natural gas according to its investor presentation (click its July 16 presentation here). Natural gas is nothing new, it’s mainly being used in power generation, industrial and residential (heat) use. Exploring and producing natural gas is not a sexy thing either, except CHK claims it has the best geo-scientists and engineering team in the industry. The ultimate differentiator of CHK, compared to its peers, is its large hedging strategy. Using hedging, basically it tries to get a predetermined fair price of its product (natural gas), or in other words, it tries to get a fair profit from exploring and producing the natural gas. It lays out its hedging positions in its quarterly report, and it regularly put updates.

How about its hedging results? Here are some articles I saw from seekingalpha.

Article one, article two.

Why hedging?

Continue reading Analyze CHK hedging strategy: I

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401k, oil and gas

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401k
Last week my old 401k at Vanguard was merged to my new 401k. I don’t know if you paid attention to your 401k or IRA lately, not a fun thing to do. I did a quick calculation, my old 401k portfolio lost 7.56% of its value from Dec 31 2007 to July 7 2008 when it was transferred into new account. It appears I did ok considering the market dropped quite a bit in 1st half of the year.

Oil and gas
The relief at gas pump is coming. Not from federal goverment. The crude oil price has been dropping 3 days in a row in the futures market (refer to Bloomberg energy price here). Natural gas also goes lower with the oil pullback. Notice I used the word pullback. I don’t think we are going to see $50 oil or $2 a gallon gas. So, I was buying oil and natural gas stocks 3 days in a row. I bought Marathon Oil (NYSE:MRO) on Tuesday, Devon Energy (NYSE:DVN) yesterday, and Chesapeake Energy (NYSE:CHK) today, all in small amounts. Because I know the oil and gas could drop more, so as the stocks. But long term, 6 months or a year from now, I am quite bullish on them.