CHESAPEAKE ENERGY CORPORATION (CHK)

Transcription

1 CHESAPEAKE ENERGY CORPORATION (CHK) Click to edit Master subtitle style

2 Company Overview Thesis points Natural Gas MarketsKey risks Value-added research Company Overview Thesis points Key risks Value-added research

3 Futures markets in contango Volatile industry Current spot= $4.33 No perfect oil-gas parity Futures markets in contango Volatile industry No perfect oil-gas parity

4 Operations Brief history Financials Operations Financials

5 Funded startup with $50,000 Entrepreneurial culture Founded 1989 Aggressive growth strategy Aubrey McClendon (current CEO) Recognized value of unconventional plays Started with 10 employees Funded startup with $50,000 Entrepreneurial culture Aggressive growth strategy Recognized value of unconventional plays

6 Primarily focused on production and exploration Leading independent Thrive in producer shale plays of natural gas Most active driller Leader of natural in technology gas Primarily focused on production and exploration Thrive in shale plays Revenues by Segment Leader in technology Exploration and Production Marketing Other Operations

7 Operations Geographically

8 Scaled-down operations Innovative joint ventures Positioned for growth Employee retention Large 2008 investment Strong lessor reputation Well-hedged through 2010 Scaled-down operations Innovative joint ventures Employee retention Strong lessor reputation

9 Market Valuation Company Current Price (3/23) 52 wk low 52 wk high EV/EBITDA P/E (fwd fye 2010) Debt/Equity (3/23) CHK x XTO x RRC x SWN x HK x PXD x Trading much closer to 52-wk low Average P/E (qtly avg trailing 5 yrs) 11 25%-75% 9 to 12 Stock price is highly correlated with natural gas prices which are currently low EV/EBITDA attractive, but more capital intensive operations boost EBITDA Fwd-looking P/E is well below comps and historical average Highly-levered Market over-concerned with debt management

10 Gross Profit Margin Average CHK XTO RRC SWN HK PXD Operating Margin CHK XTO RRC SWN Balance Sheet Highly liquid flexible Asset monetization Long-term maturities Tangible assets that sweat cash Profitability Financial Middle-of-the-pack Performance operating Outperforming performance competitors One-time impairment in 2008 artificially lowered 2008 ROE Cost-cutting should ease margins HK PXD Return on Equity CHK XTO RRC SWN HK (3.243) PXD Balance Sheet Highly liquid flexible Asset monetization Long-term maturities Tangible assets that sweat cash Financial Performance Outperforming competitors One-time impairment in 2008 artificially lowered 2008 ROE

11 Market misperceptions Well-positioned for growth Natural gas will Other rally considerations Market misperceptions Well-positioned for growth Other considerations

12 Policy (US CC&T) supports LT price Inflationary concern bullish for commodities Economy recovery improves fundamentals Rig reductions tighten supply Policy (US CC&T) supports LT price Inflationary concern bullish for commodities

13 Operations scaled-down Access to financing Management is an asset Do not plan to access capital markets Entrepreneurial culture slow to adapt to downturn Liquid assets Attracts employees Operations scaled-down Access to financing Debt servicing will not be a problem Management is an asset Do not plan to access capital markets Entrepreneurial culture slow to adapt to downturn Attracts employees

14 Nation s largest on-shore leasehold inventory land grab strategy Largest 3D seismic inventory Access to capital for strong reserve replacement during downturn Shale (239%) will dominate Off-sheet Increasing financing margins as conventionals decrease Cash carries Nation s largest on-shore leasehold inventory land grab strategy Largest 3D seismic inventory Shale will dominate Increasing margins as conventionals decrease

15 Energy valuation unusual CHK is takeover target Energy valuation unusual CHK is takeover target

16 Top-notch asset base Reduced management stake History of takeover Instant gains rumors from premium Top-notch asset base Reduced management stake Instant gains from premium

17 Off-balance sheet financing Share dilution Sustained low NG Counterparty prices risk Liquid natural gas imports Prolonged economic recession Policy reform fails to pass Lack of transparency Miss entry price Off-balance sheet financing Share dilution Counterparty risk Lack of transparency

18 Simple! CHK has the best acreage, best operations, and the best development team. Jim Flores, Chairman and CEO, Plains Exploration and Production They produce their gas in good markets and manage their Ratios acquisitions and reduced well. They capex got plans overlevered shows discipline. but they They were have in great lots of valuable plays, assets so once that the buyers market line recognizes up for. gas can be worth Chris O Sullivan, something, Chairman they and will CEO, go Paloma right back Resources up. S.P. Johnson IV, CEO, Carrizo Oil and Gas Simple! CHK has the best acreage, best operations, and the best development team. Jim Flores, Chairman and CEO, Plains Exploration and Production They produce their gas in good markets and manage their acquisitions well. They got overlevered but they were in great plays, so once the market recognizes gas can be worth something, they will go right back up. S.P. Johnson IV, CEO, Carrizo Oil and Gas

19 general counsel deserves a lot of credit. Antone Peterson, Streit, Peterson, Hall & Keeney, LLP Natural gas is the bridge fuel for the future. Because carbon emissions will be costly, natural gas companies are bound to come out on top. Chesapeake Dr. Mark White, has a PHD, strong Professor reputation of Finance, with McIntire its lessors. School of Commerce The general counsel deserves a lot of credit. Antone Peterson, Streit, Peterson, Hall & Keeney, LLP Natural gas is the bridge fuel for the future. Because carbon emissions will be costly, natural gas companies are bound to come out on top. Dr. Mark White, PHD, Professor of Finance, McIntire School of Commerce