Tag Archives: Energy

Chesapeake Energy: Blind Faith In The Future
April 22, 2018 6:04 pm|Comments (0)

Chesapeake Energy (CHK) management today announced the payment of preferred dividends in cash. Mr. Market remarkably appears to accept this as proof positive of the continuing company financial progress by keeping the preferred stock and bond prices at decent levels. Yet the common stock appears to disagree.

Source: Seeking Alpha Website April 20, 2018

Maybe it is time for the preferred and bondholders to have a good look at the underlying fundamentals shaking up the common shareholders for a dose of reality. Progress is in the eyes of the beholder. So maybe it is time to get together for a far more unanimous assertion as to the current fundamental situation.

Source: Chesapeake Energy Fourth Quarter, 2017, Earnings Press Release

The market appears to have forgotten that the company lost billions in the previous year. The return to profits in 2017 was accompanied by puny cash flow that could not even cover the capital budget. Therefore, some part of the cash spent on dividends, interest, and capital expenditures was paid for by either property sales as well as more debt. This is not a case where preferred dividends and interest were affordable to the company. Clearly as shown above, the cash flow could not handle either. Therefore the payment of both is definitely not a sign of company health.

Instead it is a sign of management valiantly trying to hang onto reasonable credit terms and market acceptance. So far, management has been able to refinance debt and improve the debt profile tremendously. But the common price action may be the beginning of the end of this strategy. The market appears to be heading towards a new reality that may increase the forward challenges for management. If that is the case, it may turn out to be bad news for both bondholders and preferred stockholders as well as common shareholders.

Source: Chesapeake Energy March, 2018, Scotia Howard Weil Energy Conference Slide Presentation

The whole problem can be neatly summarized above. Despite all the ballyhooed progress management has made involving the gas operations (or any operations for that matter), legitimate free cash flow remains elusive. Not only is free cash flow elusive, but sufficient cash flow to service the debt has been delayed by weakening gas prices. Gas production appears to be in overdrive as a consequence of increasing oil production. Investors can probably blame rising oil prices for the rapidly expanding supply of gas in the face of weak gas prices.

Management is running hard to keep the operational improvements ahead of the weakening gas prices. The first slide does show some cash flow progress with the expectation of more cash flow progress this year. But the market appears tiring of the delay of obtaining sufficient cash flow.

It is not unusual to post earnings after years of impairment charges and losses. All that is necessary for earnings is a very conservative impairment charge reporting strategy followed by an aggressive (but GAAP approved) routine reporting strategy. Of those two the conservative impairment reporting strategy is by far the most important. The more conservative the impairment charges, the more likely that profits will be reported in the near future.

Source: Chesapeake Energy March, 2018, Scotia Howard Weil Energy Conference Slide Presentation

The company financial strain shows in the company presentation. Despite the improvements in production shown above, the management is opting to maintain production. Clearly, management needs to grow production considerably to escape the debt stranglehold on the company finances. Yet as shown above, the best that management can accomplish is production maintenance.

Oil production in particular should be coveted enough until production increases of oil are a high priority. Yet that does not appear to be the case for the Eagle Ford as shown above. Overall production growth, if any, will not be sufficient to change the overall financial health picture.

The common stock appears to be responding to this reality. There is every chance that management should suspend the preferred dividends regardless of the consequences to drill more oil wells. All the equities would benefit from this strategy.

Source: Chesapeake Energy March, 2018, Scotia Howard Weil Energy Conference Slide Presentation

The cash flow from operations (the GAAP measure) is projected to be insufficient yet again to properly service the debt. Not much debt is currently due. However, the company does have a negative working capital balance and will need the current property sales to fill the gap between budgeted expenditures and cash flow from operations. The roughly $ 10 billion debt balance was probably not decrease materially even with the property sales.

Oil prices have definitely rallied to some decent price levels. But there are far too many projects that can breakeven at far lower prices for oil prices to stay at current levels or higher for more than a year. That is probably not enough time for this company to resolve its financial challenges.

The common stock may be reflecting the dim financial outlook of the company. Maybe it is time for the other securities to pay attention. Buy and hold investors may want to avoid all the securities of this company until the current situation resolves itself. There is far safer preferred stocks and bond investments than Chesapeake Energy.

Management has done very well to achieve the progress made. But that progress does not represent an investment opportunity. Disciplined traders may yet have some trading opportunities in the securities of Chesapeake Energy. But the company securities are far too dangerous for a buy and hold strategy.

Disclaimer: I am not an investment advisor, and this article is not meant to be a recommendation of the purchase or sale of stock. Investors are advised to review all company documents and press releases to see if the company fits their own investment qualifications.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.


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Clean Energy Is a Bright Spot Amid a Dark Tech Cloud
January 1, 2018 6:00 pm|Comments (0)

The mood around tech is dark these days. Social networks are a cesspool of harassment and lies. On-demand firms are producing a bleak economy of gig labor. AI learns to be racist. Is there anyplace where the tech news is radiant with old-fashioned optimism? Where good cheer abounds?

Why, yes, there is: clean energy. It is, in effect, the new Silicon Valley—filled with giddy, breathtaking ingenuity and flat-out good news.

This might seem surprising given the climate-change denialism in Washington. But consider, first, residential solar energy. The price of panels has plummeted in the past decade and is projected to drop another 30 percent by 2022. Why? Clever engineering breakthroughs, like the use of diamond wire to slice silicon wafers into ever-skinnier slabs, producing higher yields with less raw material.

Manufacturing costs are down. According to US government projections, the fastest-growing occupation of the next 10 years will be solar voltaic installer. And you know who switched to solar power last year, because it was so cheap? The Kentucky Coal Museum.

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Tech may have served up Nazis in social media streams, but, hey, it’s also creating microgrids—a locavore equivalent for the solar set. One of these efforts is Brooklyn-based LO3 Energy, a company that makes a paperback-sized device and software that lets owners of solar-equipped homes sell energy to their neighbors—verifying the transactions using the blockchain, to boot. LO3 is testing its system in 60 homes on its Brooklyn grid and hundreds more in other areas.

“Buy energy and you’re buying from your community,” LO3 founder Lawrence Or­sini tells me. His chipsets can also connect to smart appliances, so you could save money by letting his system cycle down your devices when the network is low on power. The company uses internet logic—smart devices that talk to each other over a dumb network—to optimize power consumption on the fly, making local clean energy ever more viable.

But wait, doesn’t blockchain number-crunching use so much electricity it generates wasteful heat? It does. So Orsini invented DareHenry, a rack crammed with six GPUs; while it processes math, phase-­changing goo absorbs the outbound heat and uses it to warm a house. Blockchain cogeneration, people! DareHenry is 4 feet of gorgeous, Victorian­esque steampunk aluminum—so lovely you’d want one to show off to guests.

Solar and blockchain are only the tip of clean tech. Within a few years, we’ll likely see the first home fuel-cell systems, which convert natural gas to electricity. Such systems are “about 80 percent efficient,” marvels Garry Golden, a futurist who has studied clean energy. (He’s also on LO3’s grid, with the rest of his block.)

The point is, clean energy has a utopian spirit that reminds me of the early days of personal computers. The pioneers of the 1970s were crazy hackers, hell-bent on making machines cheap enough for the masses. Everyone thought they were nuts, or small potatoes—yet they revolutionized communication. When I look at Orsini’s ­blockchain-based energy-trading routers, I see the Altair. And there are oodles more inventors like him.

Mind you, early Silicon Valley had something crucial that clean energy now does not: massive federal government support. The military bought tons of microchips, helping to scale up computing. Trump’s band of climate deniers aren’t likely to be buyers of first resort for clean energy, but states can do a lot. California already has, for instance, by creating quotas for renewables. So even if you can’t afford this stuff yourself, you should pressure state and local officials to ramp up their solar energy use. It’ll give us all a boost of much-needed cheer.

Write to clive@clivethompson.net.

This article appears in the January issue. Subscribe now.


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Global IT Spending in Energy Sector Industry Research – Trends, Drivers, Strategies, Applications …
January 28, 2017 8:00 pm|Comments (0)

“One of latest trends in the market is emergence of cloud computing. The shift from CAPEX to OPEX model is the primary reason driving the increasing …


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Microsoft commits to 50% renewable energy use in their Data Centres by 2018
October 1, 2016 3:50 am|Comments (0)

Data centres, central to cloud computing, is believed to consuming about 3 per cent of the global electricity supply and account for about 2 per cent of …


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Hawaii-Based Firm Unlocks “Dark Energy” Data in National…
August 21, 2016 8:25 am|Comments (0)

R.P. Delio and Company announce that the latest commercial installations of their Waypoint Power™ “SCADA in the Cloud” subscription-based platform has taken it across the Nation, to Georgia, New York,…

(PRWeb August 21, 2016)

Read the full story at http://www.prweb.com/releases/2016/08/prweb13627829.htm

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Why Energy Storage May Be The Most Important Technology In The World Right Now
April 2, 2016 4:00 am|Comments (0)

Renewable energy and electric cars are becoming competitive with technologies based on fossil fuels. Still, if they are to become truly transformative, we need to develop a new generation of batteries to power them.

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