The asset bubble that is ChesapeakeEnergy Corp. (NYSE:$CHK) is continuing with its asset sales for the acreage it has amassed using massive leverage. In its most recent quarter, the company increased its output and made significant improvements in crude output but this was overshadowed by management tumult and a massive sale of its shale acreage to a Chinese firm at a price which is three times less than Chesapeake’s own estimates.
The China Petroleum and Chemical Corp (NYSE:$SNP), more commonly known as Sinopec, is purchasing half of Chesapeake’s850,000 acres of oil and gas assets at the Mississippi Lime shale field for $1.02 billion. Through this deal, Asia’s biggest refiner will considerably increase its shale footprint in the U.S. And, as I said at the outset, Sinopec won’t be paying any premium for the privilege. While some analysts have identified that the sale is $200 million below estimated value, Chesapeake itself had the land valued at an estimated $7,000 to $8,000 per acre for the property in July 2012. Calculating from the mid-point of $7,500, the asset is being sold at less than one-third of what Chesapeake valued it at less than 8 month ago.
In early December, Marathon Oil (NYSE:$MRO) announced a $5.2 billion capital budget for 2013 and ConocoPhillips (NYSE:$COP) plans to invest $15.8 billion in the next year. But the biggest announcement came from Chevron (NYSE:$CVX) which will make investments of $36.7 billion in 2013, which is 12% more than its planned budget for 2012–$3.3 billion of which is allocated for its affiliates. About 90% of $36.7 billion will go towards upstream crude oil and natural gas exploration and production while 7% will go towards downstream operations.
ConocoPhillips (NYSE:$COP) is showing renewed interest in the lucrative Asia-Pacific oil market.It is gearing up to resume its biggest Chinese operations as well as having made a “final investment decision” on the Malaysian offshore project as it divests from China’s neighbor Kazakhstan. These represent an important diversification tool as the world heads towards a stagflationary, low-growth period.
Royal Dutch Shell (NYSE:$RDS.A) posted a surprise slump in profits recently but that hasn’t deterred the company from investing heavily in liquefied natural gas and unconventional fuel sources. Shell is putting its bet on increasing energy demands from emerging economies in the future. In my mind, a good bet.The company’s annual income dropped by 6% to $27 billion as it missed analysts’ estimate for the fourth quarter. Shell posted a profit of $5.6 billion in the fourth quarter, a 15% increase, but considerably below analysts’ estimate of $6.3 billion.
Russia’s state owned energy giant OAO Gazprom ($OGZPY), which holds the world’s largest natural gas reserves, recently released its third quarter results in which its net income nearly doubled to $10.1 billion versus analysts’ estimate of $9.6 billion while revenues increased by 18% to $37 billion. Gazprom will need to make serious changes to maintain this level of performance as there are shifts coming to the European gas market that seek to drag down prices and profits.
Peter Pham is an author, international fund manager, and a registered financial director by the Cayman Monetary Authority (CIMA). In 2013 he published his first book entitled, The Big Trade: Simple Strategies for Maximum Market Returns. He currently manages the portfolio of a global hedge fund and runs an asset management company, Phoenix Capital. (read more)
The Big Trade: Simple Strategies for Maximum Market Returns
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