Chesapeake Granite Wash Trust (CHKR)

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This company completed an initial public offering (IPO) of its stock in 2010. View articles that reference this company. Recent IPOs:   Globe Specialty Metals   •   LogMeIn   •   Invesco Mortgage Capital   •   Medidata   •   Chemspec

 

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Remi Cossart

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.^[1]

Business Overview

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.^[2]

New Updates

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.^[3]

Trends & Forces

Uncertain reserves in the developed wells

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. ^[4]

1. ↑ CHKR S-1/A 2011 PROSPECTUS SUMAMRY "Summary" p.1-3
2. ↑ CHKR S-1/A 2011 PROSPECTUS SUMAMRY "TARGET DISTRIBUTIONS AND SUBORDINATION AND INCENTIVE THRESHOLDS" p.55-56
3. ↑ Renaissance Capital - IPO Home "Chesapeake Granite Wash Trust prices IPO at $19, at low end of the range" 11 Nov 2011
4. ↑ CHKR S-1/A 2011 PROSPECTUS SUMAMRY "The Development Wells" p.3-4