Chesapeake Energy Corp (CHK)

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An oil and natural gas exploration and production company engaged in the acquisition, exploration and development of properties for the production of crude oil and natural gas from underground reservoirs and the marketing of natural gas and oil.

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Avatar NetscribeEnergy (98.94) Submitted: 3/12/07 7:11 AM : Start Price: $29.80 CHK Score: 66.25

Chesapeake Energy is the third largest independent producer of natural gas in the United States. The company is also involved in producing crude oil and drilling activities, still about 92% of its 1.7 billion cubic feet equivalent per day production involves natural gas. It also has proven reserves of approximately 9 trillion cubic feet equivalent, with majority reserves based onshore, thus aiding the company to reduce the risk involved with international operations and import duty restrictions. Though Chesapeake’s major revenues involve sale and marketing of oil and natural gas, the Service operations revenue that consist of drilling and oilfield trucking operations creates a strong hedge for company’s regular natural gas business.

In 2006, natural gas averaged at about $6.73 per thousand cubic feet, as U.S natural gas consumption declined by 265 billion cubic feet, due to reduced heating demand during first two months of the year led by unusually warm weather. The price outlook in 2007 seems appealing for large natural gas players like Chesapeake, as gas consumption is expected to rise by about 900 billion cubic feet, guided by strong demand from residential sector for heating purpose and heightened industrial usage.

Chesapeake witnessed a strong 2006 as revenues were up by 57%, while net profits more than doubled as compared to previous year. This strong performance was led by realization of higher oil and natural gas prices, which was further backed by combination of production growth from drilling as well as increased capacity due to acquisitions. Looking ahead in 2007, the company is likely to continue the rising trend guided by its huge reserves, deep drilling expertise, and competitive advantage due to primarily domestic operations. The company also has an impeccable record of increasing production for 17 consecutive years and 22 consecutive quarters through number of acquisitions. Moreover with price outlook in 2007 looking very positive for the company, the further rise in production will act as major boost for Chesapeake, making it a strong investment.

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Avatar NetscribeEnergy (98.94) Submitted: 5/30/07 8:29 AM

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Chesapeake Energy Corp., the third largest independent natural gas producer in the U.S., ended its first quarter performance with a slide. For the three months ended 31 March 2007, revenues decreased 19% to $1.58 billion. The fall in top-line can be attributed to decreased sales from oil & natural gas. The profits also followed the declining path, falling 62% to $232 million, led by higher production expenses and an increase in general & administrative expenses. The bottom-line also affected by charge linked to financial instruments used to lock in energy prices and interest rates.

Taking a closer look, if one excludes extraordinary $193 million charge related to the value of natural gas, oil and interest rate hedges, company's net income comes to $425 million, which is quite closer to $444 million registered a year ago. Going ahead, the company projects a total production growth of 14% to 18% in 2007 and 10% to 14% in 2008. This growth could be possible when one considers the large capital spending projects undertaken by the company, like the development of 18,000 net acres in the Barnett Shale, Texas, which has the potential for 3,500 future drilling sites with production capacity of 6.3 trillion cubic feet of natural gas.

Further, considering the development in Arkansas Fayetteville Shale having a similar potential to produce another 6.4 trillion cubic feet of natural gas. The company is also mulling over the likely creation of some of its assets into separate limited partnerships as many of its counterparts. The same will generate a sizable growth for company’s shareholders in the long run, while also creating substantial cash flows for future projects, making Chesapeake Energy a healthy investment for a long term investor.

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Avatar jswillsjr (54.80) Submitted: 8/10/07 8:34 PM

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Thanks for the great summary. Seems to me like all of the fundamentals point in the same direction here. People just don't like gas as much as oil right now, and there's some concern about CHK's balance sheet after it's long acquisition spree over the past five years. I listened to the con call a few days ago, and it seems like their bets on are starting to pay - and they are only starting to harvest the enormous bank of acreage they've built. This could be one of those stocks that makes patient investors look smart over the course of many years. I'm buying and holding.

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Chesapeake Energy Corp (CHK)

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