Our appraisals of our three energy-related holdings did not fall in spite of large stock declines, because our models already incorporated lower commodity prices based on the futures curve pricing and the marginal cost of production in our various plays. Chesapeake (CHK) fell 20% in the quarter. While costs declined, capex remained on plan, and the company moved production estimates up slightly. During the two year tenure of the new board, balance sheet leverage has been reduced by $6 billion, primarily from noncore asset sales. CEO Doug Lawler is driving value recognition in ways he can control and is building additional upside with the $2–3 billion of annual discretionary capital spending that management projects should deliver strong returns on capital, even without higher commodity prices. The company’s 4.8 million net developed acres and 7.5 million undeveloped acres of oil and gas fields cannot be replicated.
From Mason Hawkins (Trades, Portfolio)’ Longleaf Partners Q3 2014 Management Discussion.
