Chesapeake Granite Wash Trust (CHKR)
Chesapeake Granite Wash Trust (CHKR) has nothing to do with granite counters in your bathroom. It is a royalty trust, meaning it pays out royalties to shareholders from its energy holdings. In this case, it represents royalty interests in 69 Chesapeake Energy (CHK) natural gas wells and 118 wells that are in development. CHKR also is a relatively new trust, just more than two years old.
The trick with royalty trusts is that you don’t overpay for the value that the underlying trust actually holds. Royalty trusts also have dissolving dates. So you don’t want to pay a price that is way above the total distributions the trust will make before it dissolves. Trusts also are subject to concerns (not necessarily realities) over energy oversupply and if drilling doesn’t yield the results that are expected.
CHKR’s nearly 25% yield is outstanding, but I’m a little concerned with how fresh the trust is. Plus, two-thirds of the wells are in development and not producing.
Two-I am concerned that Chesapeake is too new for results to be proven. Two-thirds of the wells are in development, not producing, and that’s just too much unknown for me. None of this is to say that CHKR is a bad holding … it’s just too risky for my blood.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets @ichabodscranium.