Wry & Dry

Canary in the mines

What's going on?.

The US' second largest gas producer (Chesapeake); the world's largest coal producer (Peabody) and the world's largest renewable energy company (SunEdison) are each standing on the bankruptcy cliff. 

Wry & Dry has been out with the magnifying glass, looking for clues.  Whilst each has its own issues, a 'mosaic' view (i.e. each piece tells you nothing, put them together and you see the picture) tells a different story. 

Chesapeake is into shale oil and gas, among other things.  It rode the heady wave of fracking, leasing massive hectareages (well, if one can have acreage...) of gas-laden land.  In March, Aubrey McClendon, the former CEO, was charged with rigging bids for oil and natural-gas leases.  Sadly, we'll never find out the extent of Mr McClendon's crimes, or how they affected the company, as last week he died in a car crash in Oklahoma City.

As the Oklahoma City Police Department said, "he pretty much drove straight into the wall."

Chesapeake's share-price is down 64% over 12 months. 

Peabody Energy has total assets of $10.9 billion.  And debt of $10.1 billion.  Hmm.  Not much room to breathe.  The rot started when it purchased Australian miner Macarthur Coal in 2011.  Its share price has fallen by 94% over the past 12 months.

SunEdison's share-price has dropped by 98% since December.  It had aggressively purchased solar- energy companies in the hope of a dramatic rise in customer demand.

SunEdison

What does the mosaic picture look like [2]?  

  • Ambitious CEOs
  • Aggressive takeovers, funded by debt
  • Assumptions that market prices would just keep on rising

Sound familiar?  There is this Australian company called Arrium...