Where is the Bottom for Chesapeake Energy (CHK)?

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In an effort to outlast the Natural Gas Liquid (NGL) price free-fall along with the current oil and natural gas pricing glut, Chesapeake Energy Corp. (CHK) announced they will eliminate common stock dividends in the third quarter of 2015. Chesapeake Energy also announced that the sale of the CHK Cleveland Tonkawa LLC assets to redeem preferred shares in the subsidiary should also close in the third quarter 2015.

According to this July 21, 2015 CHK press release, which dropped share prices another 6% in early morning trading, eliminating the common stock dividend will save Chesapeake Energy about $240 million annually. By redeeming the preferred interest in CHK Cleveland Tonkawa LLC, Chesapeake Energy should eliminate about $75 million in annual dividend payments. Chesapeake Energy CEO Doug Lawler explained the financial moves to shareholders saying:

This … (the financial moves) … is part of a broader disciplined approach that began two years ago to decrease the company’s financial complexity and increase our liquidity. The company’s liquidity position remains extremely strong with more than $2 billion of unrestricted cash on our balance sheet and an undrawn $4 billion revolving credit facility as of June 30, 2015. We continue to move forward with multiple opportunities that will strengthen our cash flow generation capabilities, and I look forward to future announcements regarding the ways we are creating additional value in the months ahead.

Years ago, before NGL prices dropped nearly 65%, CHK made moves to increase its positioning in the NGL market. The decline in NGL prices, in combination with the slump in oil and natural gas prices, has battered CHK stock. Chesapeake Energy Corp (CHK) stock is currently selling near a 52-week low of $9.40 per share on July 7, 2015 well below the high of $27.97 per share almost a year ago.

So, has CHK stock hit bottom? Analysts are mixed with target prices ranging as low as $5.00 per share and as high as $24.00 per share with a mean target just under $14.00. The next earnings date is due out August 5th 2015.

At this point, the CHK stock price is so intrinsically connected to NGL, natural gas and oil prices it would make sense to watch these commodities closely for an entry point. There is little doubt that oil and gas prices will eventually rise, and with it could be some nice gains for CHK shareholders with a long-term view at the current 52-week lows.

Oil Pipelines Looking Smarter Every Day

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Some lawmakers who voted against the Keystone XL pipeline are probably back-peddling now. As we reported in previous Keystone pipeline articles the best way to stop fiery oil-tank rail car derailments is to cut down on the congestion. This is best done using oil pipelines.

In only the last three months there have been 5 rail car derailments involving tank cars carrying crude oil. The latest catastrophe was carrying Bakken crude which derailed in North Dakota. The shipment couldn’t even make it out of the state.

So now groups like the Sierra Club are calling for a ban on oil transportation by rail cars. So if green groups oppose both rail and pipeline transport what can energy companies do? This is ridiculous as we’ve pointed out in previous articles. From a November 2014 Keystone Pipeline article:

The truth is very simple; pipelines are how most of our domestic energy is delivered for processing and distribution. Without this network of pipelines all these green-crazed reporters wouldn’t be so warm and comfy this winter — or enjoy the gasoline they pump into their cars. They must think energy companies sprinkle magic fairy dust to achieve the delivery of the massive amount of energy we consume each and every day.

Since the construction of new pipelines has become a legislative nightmare the railroad industry has been forced to pick up the slack. And now the incidence of tanker derailments has steadily climbed.

So to fix the problem the Feds have instituted a bevy of new regulations for railroad oil transportation. However, most experts agree they will have little or no effect on the occurrence of the fiery accidents. Some of the new regulations include speed limits of 50 MPH, phasing out old tank cars and the addition of advanced braking systems (known as Electronically Controlled Pneumatic brakes or ECP’s) by 2021.

The 50 MPH speed limit regulation will do little according to experts. This is because many trains carrying oil tanks have already reduced speeds below 50 MPH. In fact, none of the major derailments in the last 2 years involved any train going over 50 MPH. It was reported that the train in the recent North Dakota derailment was traveling just 35 MPH.

Some of the regulations make sense like phasing out older thinner-shelled tank cars with newer models with thicker shells and thermal shielding. In the case of the latest derailment in North Dakota these new tank cars may have prevented the explosions that occurred. However, all these new regulations do not tackle the real problem with the rail system: old railroad tracks. The problem isn’t old tankers, bad brakes or high speeds. The problem is a crumbling, overused and exhausted railroad system.

When it all is said and done, the eco-groups can complain all they want but energy transport must go on. The decision is how it should be accomplished. Pipelines make sense and move product efficiently and cost effectively. They would also ease railway congestion and the incidence of these fiery accidents. Fewer tankers on the tracks equals less derailments.

It sounds like common sense to me. Keystone XL pipeline anyone?