Been reading the 10Q/10K- trying to get a handle on the Net Present Value of proved reserves in relation to Enterprise Value. What I found was- a repeat story in the making. My guess is there will be other E&P's with writedowns dwarfing what was seen before, based on the delta between $10/mcf and an anticipated sub $3/mcf come year end.
12/31/00 reserves valued using $10 mcf then discounted in the usual fashion. I figure we can expect at least a 1.7 billion non cash writeoff come year end. Fortunately, they got their debt situation in much better shape than 97, so the risk of default seems much lower.
Rough numbers work out as follows;
3.2 billion discounted value with $5/mcf gas
- 75m delta for each .10 decrease in gas pricing
1.5 billion decrease in net present value for $3/mcf gas
1.7 billion NPV at $3/mcf
1.0 billion debt (subtract)
.2 billion hedge value (add)
900 million value/164 million shares -> $5.48
Like I said- rough numbers- don't account for changes in finding costs or taxes going forward. But I think it's quite likely that we will see some selling pressure if the headline numbers read a 1.X billion charge near year end.
I also noted a couple of instances of acting like a venture fund in the 10Q. Specifically, a stake in SEV which operates in Columbia, despite the assertion that CHK planned to sell a canadian interest to focus on basin resources with a higher return. Secondly, a 49% stake in Ram Energy, something I haven't checked into yet. This one comes with what appears to be a put option with an $8.85/share. Only a 10 million dollar nominal amount, so it won't likely impact valuation much.
In summary, I've decided to hold off purchase of additional shares pending a year end fire sale.
===
PROVED RESERVES
The following table sets forth our estimated proved reserves and the present value of the proved reserves (based on our weighted average prices at December 31, 2000 of $26.41 per barrel of oil and $10.12 per mcf of gas). These prices were based on the adjusted cash spot prices for oil and natural gas at December 31, 2000.
...
Actual future prices and costs may be materially higher or lower than the prices and costs as of the date of any estimate. A change in price of $0.10 per mcf for natural gas and $1.00 per barrel for oil would result in:
- a change in our December 31, 2000 present value of proved reserve of $62 million and $13 million, respectively; and - a change in the December 31, 2000 present value of proved reserves for us and Gothic combined of $75 million and $14 million, respectively.
If the present value of our combined pro forma proved reserves were calculated using a more recent approximation of NYMEX spot prices of $24.00 per barrel of oil and $5.00 per mcf of gas, adjusted for our price differentials, the present value of our combined pro forma proved reserves at December 31, 2000 would have been $3.2 billion.
edgar-online.com
On March 30, 2001, we issued 1.1 million shares of Chesapeake common stock in exchange for 1.3 million shares of RAM Energy, Inc. common stock, representing 49.5% of its outstanding equity securities. Our shares were valued at $8.854 each, or $9.9 million in total. We agreed to adjust the consideration for our acquisition of RAM shares by making a cash payment to the RAM shareholders equal to the shortfall if they sell the Chesapeake shares they received at a price that is less than $8.854 per share. We have registered the Chesapeake shares for resale. We also received an option granted by one of the RAM shareholders to purchase an additional 1.0% of RAM's outstanding equity securities. The option is exercisable for a year beginning in February 2002 for an aggregate exercise price of $202,000 in cash. In May 2001, we purchased options to purchase RAM's 11.5% senior notes due February 15, 2008 at an average of $792 per $1,000 face amount of the notes. The option premiums were $0.6 million. On July 2, 2001 we exercised the options and received $12.1 million of RAM's 11.5% senior notes for a total purchase price of $10.7 million, which included accrued interest of $0.5 million. The notes we acquired represent approximately 11.7% of RAM's outstanding 11.5% senior notes.
On July 24, 2001, we purchased $22.5 million principal amount of 12% senior secured notes due 2004 issued by Seven Seas Petroleum Inc. and detachable seven-year warrants to purchase approximately 12.6 million shares of Seven Seas common stock at an exercise price of approximately $1.78 per share. The shares issuable upon exercise of the warrants will represent 20% of Seven Seas common stock after completion of a rights offering and other transactions contemplated by Seven Seas. Seven Seas has granted us registration rights with respect to the warrant shares. Seven Seas common stock is listed for trading on the American Stock Exchange. The chairman and chief executive officer of Seven Seas has granted us an option that could require him to purchase a portion of our notes and warrants if he has not invested at least $10.0 million in Seven Seas notes after the proposed rights offering The 12% senior secured notes and $22.5 million of notes acquired by other parties are secured by a pledge of substantially all of the assets owned by Seven Seas, including all of the Seven Seas' subsidiaries which hold the concessions to the company's oil and gas interests in Colombia.
Chesapeake is currently planning to sell its Canadian assets, which are located in the Helmet Field of northeastern British Columbia. The estimated reserves related to these assets totaled approximately 177 bcfe at June 30, 2001, which represent approximately 10% of our total reserves as of that date. The Canadian assets produce approximately 12 bcfe a year. We have received several offers for these properties and anticipate closing a sale late in the third quarter or early in the fourth quarter of 2001. Chesapeake expects to report a gain from the sale and intends to re-deploy the sales proceeds into debt reduction and/or further investment in our core U.S. operating areas, where we receive higher gas prices, possess greater operating efficiencies and achieve higher rates of return.
biz.yahoo.com |
