Energy Firms Enter Reset Mode

By LIAM DENNING Updated June 6, 2012, 9:48 p.m. ET

When the world goes to hell, analysts go to Excel—and cut their forecasts. Oil and gas investors should beware.

The Wall Street consensus for average 2012 Brent and West Texas Intermediate crude prices is $112 and $100 per barrel, respectively, according to FactSet Research. U.S. natural gas is tipped at $2.78 per million British thermal units.

Those forecasts are starting to look optimistic. Brent must average $109 for the rest of the year to meet its forecast. That is 9% above today's price. WTI, meanwhile, needs to average just over $100 and that is 17% above today's price. Gas needs to average $3.02, or 22% higher. All these averages are also higher than energy futures prices.

This is a big problem for U.S. exploration and production, or E&P, companies. Expectations of lower prices impact valuations, cash flow forecasts and fund-raising capacity.

Take Chesapeake Energy . In financial projections given a month ago, the company saw 2012 operating cash flow at $3.15 billion if gas averaged $3 and WTI $100. At $2 gas, that figure drops to $2.56 billion. Such sensitivity may help explain why Chesapeake caved so quickly to activist Carl Icahn's demands.

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Chesapeake Directors Lose Re-Election Bid

By RUSSELL GOLD Updated June 8, 2012, 2:33 p.m. ET

Chesapeake plans to sell assets in three transactions totaling more than $4 billion in cash, as the natural-gas company struggles against mounting debt. Daniel Gilbert reports on Markets Hub. Photo: Bloomberg.

Chesapeake Energy Corp. CHK +2.78% shareholders handed a stinging rebuke to the embattled company's management, overwhelmingly voting against two members of the board of directors standing for re-election.

Only 27% of shareholder votes were cast in favor of board member Richard Davidson, the former CEO of Union Pacific UNP +0.03% Corp.; V. Burns Hargis, president of Oklahoma State University, received 26.4% of votes cast.

Both men tendered their resignations, the company said, under a measure that drew 97.1% of votes, requiring directors who don't receive a majority of votes cast to offer to step down. Chesapeake said in a statement that the board would "review the resignations in due course."

In a nonbinding vote, shareholders weighed in against the company's executive-compensation plan, which was drew only 20% of votes. And 60% of shares were cast in favor of allowing major shareholders to nominate board candidates for inclusion on company ballots, making Chesapeake only the second major company whose shareholders approved so-called proxy access rules.

Chesapeake, the second-largest producer of natural gas in the U.S., announced the results at its annual meeting in Oklahoma City.

In recent weeks, Chesapeake has faced extraordinary scrutiny and a plunging share price as low natural-gas prices and high debt levels have generated a liquidity crisis. Earlier this week, it agreed to shuffle its board, allowing two large shareholders, Carl Icahn and Southeastern Asset Management, to appoint a majority of the board members.

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Chesapeake Energy Pays the Piper

By LIAM DENNING Updated June 8, 2012, 1:25 p.m. ET

Like a comedian, Chesapeake Energy's appeal rests largely on timing. Namely, can it sell enough assets quickly enough to bridge its yawning funding gap this year and next?

Friday's announcement of various midstream disposals totaling about $4 billion was timed to perfection, not least because it came ahead of one of the company's livelier annual shareholder meetings. Under renewed pressure from Carl Icahn, Chesapeake is shaking up its board and accelerating disposals, such as these.

Does it bridge the gap? It certainly helps, not least because it will make it easier to pay off the recent $4 billion bridging loan before its terms worsen at year-end.

Using the midpoint of Chesapeake's guidance, it still needed another $8.1 billion of disposals to bridge its projected funding gap this year. The latest disposals cover roughly half that before accounting for impacts on free cash flow.

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Chesapeake Faces Costly Cuts

By DANIEL GILBERT June 7, 2012, 8:14 p.m. ET

Chesapeake Energy Corp.'s largest shareholders, who are set to take control of its board after Friday's annual meeting, want the company to stop spending billions of dollars more than it makes selling natural gas and oil.

Company executives, who have defended the hefty spending, say they can cut back if they have to. But dialing back on drilling, which accounts for more than half of Chesapeake's projected capital spending this year, could be difficult and costly.

Chesapeake's fast growth in recent years has come with deadlines and obligations that force it to spend billions of dollars a year to drill—or to sacrifice some of its investments and face financial penalties.

The Oklahoma City, Okla., company, whose market value is about $11 billion, declined to comment or respond to questions about its drilling commitments and their costs.

Just to maintain its current energy production, however, Chesapeake must drill new wells to offset the natural decline of existing ones. That would require it to add about 950 wells this year, at a cost of $3.8 billion, according to Morningstar Inc. analyst Mark Hanson.

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Big Oil Eyeing Chesapeake Energy

Ailing Nat Gas Producer Considered a Good Catch

Ken Silverstein | Jun 07, 2012

It’s possible that Chesapeake Energy could be in for a soft landing. As it continues to descend in value and in public confidence, the once high-flying natural gas producer is attracting some high-profile suitors: big oil companies.

To read the entire article go to: http://www.energybiz.com/article/12/06/big-oil-eyeing-chesapeake-energy&utm_medium=eNL&utm_campaign=EB_DAILY2&utm_term=Original-Member

Inside The Lavish And Leveraged Life Of An Infamous CEO

Reuters |  By John Shiffman, Anna Driver and Brian Grow

Posted: 06/08/2012 8:25 am Updated: 06/08/2012 8:26 am

To read the entire article go to: http://www.huffingtonpost.com/2012/06/08/inside-the-lavish-and-lev_n_1580357.html?view=print&comm_ref=false

In an annex at the headquarters of Chesapeake Energy Corp, a unit informally known as AKM Operations manages a top company priority: the personal business of its namesake, Chief Executive Aubrey K. McClendon.

Read the whole story at Reuters

Exelon Intent on Changing with Power Market

By CASSANDRA SWEET June 8, 2012, 12:10 p.m. ET

NEW YORK—The U.S. natural gas boom has fundamentally changed the power market, and Exelon Corp., the nation's largest nuclear power plant operator, intends to change with it.

Since the Chicago-based electricity company purchased Baltimore-based Constellation Energy Group in March, it appears to have adopted the smaller company's entrepreneurial spirit, along with its customers, power plants and retail power business.

For years, Exelon pursued a traditional hybrid business model of operating utilities in Illinois and Pennsylvania and running a merchant power business in which it sold power from its plants to other utilities at wholesale prices. Now, Exelon plans to sell more power directly to end-use customers, who pay higher prices than those on the wholesale market, where prices have plunged to historic lows.

"We want the opportunity to compete for business every place that we can," Exelon Chief Executive Chris Crane said in an interview. "We are after all levels of sales activity and all levels of channels to market."

A slump in power prices and demand has driven power-plant operators to look for new businesses to boost their profit margins. For Exelon, the retail power business it acquired with Constellation has become the company's biggest new growth business.

Exelon plans to expand the retail power business in Texas, Illinois, Pennsylvania and Maryland, which have deregulated power markets. Exelon also is eyeing potential new opportunities to sell retail power to customers in California, Arizona, Michigan and Ohio, where the company sees possible future policy changes that would open up those power markets to competition.

A key market for power-plant operators is Texas, where power generation supplies remain limited while demand continues to grow with the state's economy.

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CPUC Safety Concerns Delay Gas Storage Project

June 08, 2012    William J. Kelly

Original source: http://www.cacurrent.com/storyDisplay.php?sid=6166

After lengthy debate, the California Public Utilities Commission June 7 postponed a decision on whether to approve converting a depleted natural gas field in Sacramento into a gas storage facility to serve Sacramento Municipal Utility District power plants and other facilities. Commissioners agreed to decide the matter June 21.

Pleading for approval with several mitigation measures, commissioner Tim Simon called the proposed project “the poster boy for natural gas safety.” He also said the project was needed to enhance reliability at SMUD power plants and to boost the economy.

Commissioner Mike Florio questioned the need for the project given the current glut of natural gas and the state’s huge storage capacity. He also challenged the wisdom of approving a facility where a leak could be “catastrophic,” even though he granted the probability of an accident is extremely low.

North Dakota’s Oil Boom Brings Damage Along With Prosperity

Posted: 06/08/2012 4:30 pm

By Nicholas Kusnetz, Special to ProPublica:

Oil drilling has sparked a frenzied prosperity in Jeff Keller's formerly quiet corner of western North Dakota in recent years, bringing an infusion of jobs and reviving moribund local businesses.

But Keller, a natural resource manager for the Army Corps of Engineers, has seen a more ominous effect of the boom, too: Oil companies are spilling and dumping drilling waste onto the region's land and into its waterways with increasing regularity.

Hydraulic fracturing — the controversial process behind the spread of natural gas drilling — is enabling oil companies to reach previously inaccessible reserves in North Dakota, triggering a turnaround not only in the state's fortunes, but also in domestic energy production. North Dakota now ranks second behind only Texas in oil output nationwide.

To read the entire article go to: http://www.huffingtonpost.com/2012/06/08/north-dakota-oil-boom-problems_n_1581949.html?ref=green

Alpha Natural to Cut Kentucky Mine Output, 150 Jobs

By MELODIE WARNER June 8, 2012, 10:35 a.m. ET

Alpha Natural Resources Inc. plans to reduce coal output at its Kentucky mines and eliminate about 150 jobs, citing continued market pressures and new regulations on coal-fired power plants that make production from the area uneconomic.

The coal producer said it will discontinue mining at four mines and idle two coal-preparation plants in Pike and Martin counties. The company will also scale back production at several other mines and close four contract mines.

Alpha Natural has about 14,500 employees. Of the 436 workers affected, the company said 286 will be offered other positions.

The production cuts will reduce Alpha's shipments of thermal coal by an additional two million tons this year and four million tons in 2013.

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