Wednesday, May 9, 2012

Chesapeake's Deepest Well - Wall Street

Reuters keeps hammering away....

(Reuters) - Far from the drilling rigs of Oklahoma, America's second-largest natural gas producer is having to dig ever deeper into the well that really fueled its growth: Wall Street.
In a Times Square office building, a team tapped by Chesapeake Energy Corp deployed more than 40 bankers, lawyers and other experts to plot another chapter in that strategy.
Dubbed Glenn Pool, it was more financial engineering than petroleum engineering. In essence, Chesapeake sold future rights to the gas in its wells. The deal took in approximately $850 million last year.
Glenn Pool proved so innovative that a trade magazine honored it this March. In an especially creative twist, the borrowings were chopped into two slices and sold to investors - akin to the way subprime housing loans were turned into securities and sold last decade.
Deals like Glenn Pool are known as volumetric production payments, or VPPs. These and other sophisticated financings are central to the business model of a company that in some ways resembles a hedge fund, using borrowed money to make big financial bets.
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