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.
What does the mosaic picture look like ?
- 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...