Chesapeake Granite Wash Trust (NYSE:CHKR) is a trust that was created to own the royalty interest of 69 existing and 118 developed horizontal wells of Chesapeake Energy (CHK). The trust is entitled to 90% of the proceeds from the existing wells and 50% of the proceeds from the developed wells. Proceeds are revenues from the sale of oil and gas minus postproduction costs and taxes. Furthermore, Chesapeake Granite Wash Trust plans to enter into hedging arrangements alongside its affiliates for 37% of the trust's expected revenues.
For the three months ended in September 2011, Chesapeake Granite Wash Trust expects that its properties will produce $27.7M in oil and gas revenues. This will result in $25.4M cash available to be distributed trust unit owners.
The company's initial public offering of stock on the NYSE occurred on November 10, 2011. The company offered 20 trust units each for $19. This was at the bottom of the $19-$21 price range. The trust has originally planned to sell 23.4M trust units. The deal raised a total of $380M. The lead mangers of the deal were Morgan Stanley and Raymond James.
The trust owns more wells which are developed than existing. These developed wells are not yet drilled and will need to be by the Chesapeake Energy before they are useable. This means that the value of the trust's assets are based heavily on expected size of the reserves. If these figures are incorrect, then the trust may be overvalued. In addition, if Chesapeake Energy fails to effectively drill the wells, then the trust's reserves may not be completely tapped.