Here there just seems to be a migration towards a goal without "filling in the blanks" for shareholders. That competitive advantage can be geology of the leases, or operating superiority, or sometimes vertical diversification (for example). Specialists, which in this case is a natural gas focus, generally need a competitive advantage. The other issue is management needs to state that they will be a low-cost leader along with exactly how the company will get there. Therefore, the Canadian companies can produce with Canadian dollar costs while using available takeaway capacity to receive revenue that is attached to the United States dollar. The Canadian competitors have a natural advantage because the Canadian dollar is usually weaker than the United States dollar. The problem with this emphasis is that the United States generally is not the low-cost natural gas producer. In fact, management appears to be emphasizing dry natural gas. Therefore, management wants to focus upon the natural gas area while getting rid of anything not natural gas. The current management is betting that normal industry cyclicality will return to the natural gas industry. Natural gas has had the worst of the challenges because the growth of the unconventional business caused a long price downturn (from a persistent oversupply of natural gas) that hurt the industry for years. The last few years, since the better days of the years ending around 2015, have been a real challenge. Chesapeake Energy Corporation (CHK) management recently announced that they will focus on basically natural gas basins while much of the industry is moving towards diversification. (Note: This article was in the newsletter on August 29, 2022, and has been updated as needed.)Įvery now and then one sees execution as though management read a book on the subject and then tried to go straight from that book to actual implementation. Generally, when management does not disclose, they also do not resolve challenges in the non-disclosed areas.Ĭosts per unit and revenue per unit are relevant to any investment as well as strategic management decisions. Much of the natural gas industry is diversifying, at least towards rich gas production. Typical industry disclosure for investors to evaluate the strategy is not disclosed by Chesapeake Energy here. Chesapeake Energy Corporation management is pursuing natural gas production.
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