I remember reading a recent interview with CHK CEO where he pretty much said they are in the business of identifying plays early and taking positions before the prices got too hot. I think they see themselves as a land bank. It was posted here.
Given that CHK flipped some of the land for a significant profit to the Chinese in double quick time, I'm thinking that CHKs continued actions aren't all that surprising. Doesn't look like they were ever all that committed to the play. Not to worry, lots of others are very committed to it.
I guess its like any other hot spot. They go through phases. First there are the early comers who do all the hard yards and burn money trying to prove the potential. Then when the potential is identified there is a mad rush to lock in the leases by those that have the cash. Then when everybody is in and the land is all locked down the slow process of figuring out who has what begins. For some companies the idea of taking a quick 100% or 200% capital gain on the land is more attractive than sinking untold additional dollars into 3D, drilling, fracking etc, so they flip the land and use the free cash in the next deal.
I'd like to say thats the difference between SSN and CHK but that would ignore the fact that SSN sold off a chunk of their leases to CHK in order to free up cash also. SSN arguably couldn't develop much of its land without selling some and likewise CHK needs the cash for other operations given that they are now a little stretched. SSN being much smaller has less irons in the fire and the Niobara is an important strategic development for SSN. This is much less the case for CHK so their actions probably speak mroe about their overall position than anything specific to the area in question.
If these early SSN wells are successful these could reignite valuations in the area. If they are not then the clouds will look grey for a while. Have to agree with you that SSNs early wells are a bit of a bellwether for the play.
The good news is that we won't have to wait much longer to find out. Nov is the month.
SSN Price at posting:
11.5¢ Sentiment: Buy Disclosure: Held
