One of the classic bull cases for Chesapeake Energy has been that its "great collection of assets" implies that the stock trades at a huge discount to net asset value. Morris notes this argument, but as a way of saying that if it's a fact, it's still not a reason to buy Chesapeake shares.
"Thus, despite being relatively inexpensive on NAV [net asset value], we see no compelling reason to step up aggressively on CHK's shares at this juncture with nothing, in our view, to revitalize natural gas prices any time soon and many hurdles yet ahead for Chesapeake to meet its objectives," Morris wrote in his downgrade.
Last Friday, Chesapeake Energy announced a $5 million gift to the University of Kansas to build a high-tech auditorium on the UK campus as part of an energy center that will, in Chesapeake's words, produce the next generation of this country's energy leaders (that's why you are paying $5 million, ostensibly, Chesapeake shareholders; ultimately the UK energy center will help to fuel the shale drilling boom that will fuel Chesapeake Energy).
If you think that's some tortured logic at a time when the Chesapeake management has done little as far as shareholder value, Chesapeake noted in its gift to UK that the company's chief operating officer, Steven Dixon, is a UK alumnus.Dixon has made close to $40 million over the past four years at Chesapeake, a period of time during which long-term holders of the company's shares have made no money. It wasn't Dixon, though, who was making the gift to UK as a wealthy alumnus, but Chesapeake Energy. Chesapeake made the $5 million gift on the same day that its shares hit a four-year low -- the bar has been set even lower on Monday morning after the Citi downgrade, with shares off by close to 4% and below $20. As has often been said, with some derision, about Chesapeake Energy CEO Aubrey McClendon -- whether it's a high-priced bottle of wine while he is wining and dining a Rolling Stone writer, using Chesapeake Energy money to advertise in a basketball arena of a team he partly owns, making a donation in the name of Chesapeake Energy to his COO's college, or amassing that great collection of assets -- the CEO sure knows how to spend money. As far as Citigroup is concerned, though, even if McClendon can turn from spending to making some money, even to the tune of the $10 billion to $12 billion it claims will cover its funding gap, it's not going to be anything like a gift for Chesapeake shareholders in the near-term. -- Written by Eric Rosenbaum from New York. >To contact the writer of this article, click here: Eric Rosenbaum. >To follow the writer on Twitter, go to Eric Rosenbaum. Follow TheStreet on Twitter and become a fan on Facebook.
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