Tuesday, May 26

Chesapeake, McLendon Could Use Some

I’ve avoided any comments about our friend Aubrey McClendon recently, which may be good news to people who want to read about basketball on a basketball website.

But with news from Gerson Leason Group’s Michael Lynch that Chesapeake Energy is planning to sell $1 billion in assets in the near future, and further news that Chesapeake is expected to sell another $1.5 billion in 2010, I couldn’t help but mention it.

Bear in mind that Chesapeake is not selling these assets because the company wishes to further pad its bank statement. Rather, it is because portions of their more than $12 billion in debt financing are coming due soon, and with natural gas prices lagging, a stock price still off more than 50% from the highs of last summer, and the CEO embroiled in lawsuits … well, they need the money.

And, even more importantly, as Lynch points out:
the worldwide financial collapse which has impacted all nations coupled with a self-inflicted shale gas glut in the U.S. has seriously jeopardized the entire natural gas industry. Close observers think the market weakness will extend into 2010 and based on what is known about the planned LNG worldwide expansions, could last a decade [emphasis added]. That is why it is imperative for the shale gas drillers to align their budgets with their cash flow and prepare for inevitable bond maturities.
In other words, despite the optimistic statements from Mr. McClendon, it will get better before it gets worse. And, considering the Sonix rank at the bottom of the league in revenue, and that Chesapeake may very well be bought out by BP any month now, you’ve got to wonder, how much longer will he be able to continue subsidizing this team?

7 comments:

Anonymous said...

Nice job genius. Those revenue numbers are based on the 2007-2008 season while the tremendous fans in Seattle were bankrupting the team.

Anonymous said...

Since you are an Aubrey fan, check this:

http://newsok.com/chesapeake-backs-5-million-finish-line-tower-on-oklahoma-river/article/3371497

Why would they do this if they are destitute?

JAS said...

Well, anonymous, I wasn’t going to say anything, but check out the TV ratings for the Thunder during their first season in the self-proclaimed “Green Bay of the NBA”:

http://www.sportsbusinessjournal.com/article/62322

The 1.14 rating for local broadcasts was bad enough (6th worst in the league), but since OKC is such a small market, that works out to only 8,000 homes tuned into each broadcast. Only Charlotte (6,000 homes per broadcast) was worse.
And here’s how much OKC loves basketball in general, according to Men’s Fitness, which proclaimed OKC the second fattest city in the country:

“Basketball courts are practically nonexistent here, among the fewest per capita in our survey. There's just one court here for every 12,162 residents; the national average is one court per 6,909 people.”

http://www.mensfitness.com/lifestyle/205

nuss said...

If you think that OKC's revenues have gone through the roof this year, you're deluding yourself. Yes, ticket sales are way up from last year, but - as JAS alluded - ancillary revenue streams will never be as good in OKC as they were in Seattle.

As to the $5 million finish line, let me ask you this: If Aubrey was doing so great, why did he sell his wine and his art collection at a fraction of their value?

The bottom line is CHK is facing a huge money crunch in the coming 18 months. If nat. gas prices fail to improve, and bring with them a concurrent rise in the company's stock, the company is going to be in for hard times, and will likely change hands. So long as the team's ownership runs companies that make barrels of money in profits, it makes sense to own a basketball team that either loses money or breaks even, even just for tax purposes. But if the team's owners run companies that lose money, owning a basketball team which does the same isn't quite the deal anymore.

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