Chesapeake Energy Corporation (NYSE:CHK) has seen one of the biggest supporters of its business sell off his stock in the company. T. Boone Pickens has sold close to half a million shares in the past six weeks. He no longer has any shares in the company. The company opened at 14.98 this morning and was slightly up in early morning trading.
Pickens has been an ardent supporter of the natural gas industry for the last decade. He was one of the most vocal and public proponents of the position that the energy source offers a viable alternative to Middle Eastern Oil. His recent statements have revealed a change in his thoughts on the strategy and he has backed that up by getting out of Chesapeake and other big gas companies.
Tiger Legatus Master Fund was up 0.1% net for the second quarter, compared to the MSCI World Index's 7.9% return and the S&P 500's 8.5% gain. For the first half of the year, Tiger Legatus is up 9%, while the MSCI World Index has gained 13.3%, and the S&P has returned 15.3%. Q2 2021 hedge Read More
While financially completely withdrawing support for Chesapeake the hedge fund manager has verbally warned investors against betting against the company. He still believes the firm has potential. Natural Gas has been disappointing to investors who thought the industry would take off in 2012 or 2013.
The industry saw rapid supply expansion in the United States as the technology of fracking became more widespread. The vastly increased supply has seen the price of the commodity drop so low as to make it almost impossible to make a profit in the industry.
Despite his carefully worded warnings Pickens is not dropping out of the industry. In the first quarter, as he began his sell off of Chesapeake’s shares, he added shares in some of the country’s other big energy companies. Pickens bought stock in EnCana Corporation (NYSE:ECA) and Devon Energy Corporation (NYSE:DVN).
Those buys make it seem that the sell off of Chesapeake has less to do with the problems in the gas industry and more to do with Chesapeake’s unique problems. Chesapeake is being investigated by regulators in corporate governance and financing.
Chesapeake’s CEO, Aubrey McClendon, obtained personal loans using stakes he held in company assets. Some of those loans were given by financiers who were also involved with Chesapeake. He is now being investigated for conflicts of interest.
Chesapeake is going to remain CEO for the near future but was stripped of his chairmanship of the company’s board. Chesapeake actually take in more money from financing than it does from gas and oil sales. That funding structure has led to a huge shortfall in money.
Chesapeake will sell more than $2 billion worth of assets in the next two years in order to close the gap.