Chesapeake Granite Wash Trust (PK)【CHKR】株式ニュース

Chesapeake Granite Wash Trust was a non-filing entity in Chesapeake's bankruptcy in June 2020, and CHKR has made two cash distributions since then. Tapstone Energy submitted a stalking horse bid of $85 million for all of Chesapeake's 700,000 acre mid-Continent holdings, which included the 40,000 acres in Washita County underlying the CHKR Trust and slightly over half of the CHKR units.

Tapstone, led by former CHK executive Steve Dixon, won the bid for $130.5 million and they completed the transaction in mid-December 2020. It should be noted that Tapstone also declared bankruptcy earlier in 2020, but had $300 million in fresh capital after they emerged in spring. Three years ago, they filed to go public (offering was cancelled), but the prospectus is still available on SEC.gov.

Chesapeake had a legacy position in the Granite Wash in Anadarko trend and the proceeds from the trust were used for a drilling program that ended in 2016. Units of the trust were issued for $19 back in 2011. Over time, by my calculations they have returned $12.91 in aggregate distributions. No bueno, but I feel that the remaining production may compensate CHKR holders who buy it today (the trust expires in 2031).

If distributions stay at the November 2020 level, CHKR is no bargain whatsoever. However, I feel that it's very likely that distributions will increase in 2021, reflecting not only rising commodity prices but the resumption of production from the wells that Chesapeake shut-in.

CHKR's production is a nice mix of dry & wet gas, as well as oil. CHKR is most exposed to natural gas liquids (NGLs = ethane, propane, butane, isobutane and natural gasoline). Due to impact of extreme commodity price pressures (COVID-19 dented demand, Saudi/Russia flooded market with supply) in early 2020, Chesapeake shut-in many wells.

At the low point in May 2020, the amount CHKR received for oil declined to $17.91 barrel and NGLs was $4.48. They were actually paying someone to cart away the natural gas! However, prices have about tripled since then to $45 - $50 / barrel for oil and $13 - $14 by my estimation for NGLs. And natural gas prices are higher too.

These are horizontal wells that are drilled fairly deep; they produce like gangbusters in the first year or two, but thereafter the decline is relatively shallow. In the 3rd quarter of 2020, volumes produced declined 30% - 40%. That is of course is partially attributable to natural declines, which by my estimation is 11%-12% / year.

However, in my opinion production declines are primarily attributable to Chesapeake shutting-in production in March / April of 2020. By my estimates, approximately 25 wells had not resumed production by October 2020. It could be that there are mechanical problems or additional investment that Tapstone needs to incur to bring the wells back on stream. That is a big wild card in my opinion, but it should begin to be resolved when CHKR reports its results in February.

Doing some research on the private market for royalty interests, a cheap acquisition would be 30-40 months production (30x their monthly royalty check). If the seller drives a hard bargain, you might pay up to 50x monthly production (or more if there are development possibilities).

Using current prices for the units ($0.26), CHKR is now trading for 650 months production (based on the November 2020 distribution), but around 26 months production (based on the May 2020 distribution). As you probably remember, distributions look back about three months (in other words, November 2020 represented June 1 - August 31st).

So the question in my mind is whether May 2020 or November 2020 is more representative of distributions going forward. I would be happy with one cent in the February announcement and 2 to 2.5 cents for the three announcements thereafter in 2021. (I am long CHKR units).

As a side note, I find it remarkable the shares in bankrupt companies, including Chesapeake, have ripped higher this year. Chesapeake Energy has $7 billion of debt that appears will not be repaid in bankruptcy, which by my observation looks to be winding up in February 2021. Because creditors ahead of the preferred and common shares in the capital stack will not be fully repaid, in my opinion the common shares (CHKAQ) and four versions of preferred stocks (CHKG/H/L/P) will be rendered worthless. Nevertheless, they have recently appreciated much more rapidly than CHKR.