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By now, most investors have come to understand how critical the liquidity situation at Chesapeake Energy (CHK) is. In previous “bearish” observations on CHK, many bulls disagreed vehemently with our analysis of the financial statements, concerns about earnings quality and the numerous off-balance sheet obligations.

Take Chesapeake’s use of Volume Production Payments (VPP) in recent years as an example. According to Maclyn Clouse, professor of finance at the University of Denver (Daniels College of Business): “One of the things true about any oil and gas company is their balance sheets are incredibly nontransparent. Chesapeake Energy’s balance sheet is much more complex than the rest of the industry. They are using off-balance sheet debt and every type of derivative product available. It is very hard to understand from their statements for an average investor or anyone not incredibly well-versed in oil and gas accounting.”