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   Gold/Mining/EnergyChesapeake Energy CHK


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From: Dennis Roth8/6/2007 8:34:18 AM
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Growth, resource emergence, lower spending would yield upside - Goldman Sachs - August 06, 2007

What's changed

Chesapeake reported 2Q 2007 adjusted EPS of $0.71 versus our $0.70 and First Call consensus of $0.65. Total production was 1.87 Bcfe/d versus our estimate of 1.83 Bcfe/d. Operating cash flow was $1.08 billion versus our $1.04 billion. Management raised production and spending guidance.

Implications

Chesapeake continues to aggressively grow production and beat guidance. With Barnett Shale production in particular growing faster than expected for Chesapeake and most of its large peers, as well as Chesapeake's increased success in the Fayetteville Shale, the company can continue to receive more credit for its vast investment in unproved properties over the past 2-3 years. Chesapeake was one of the best performing stocks on August 3, due in part to the strong 2Q results and in part to comments from management that it expects more balanced free cash flow in 2009. If Chesapeake can maintain a high single-digit growth rate and have E&P spending within E&P operating cash flow, we believe the stock can outperform. We believe it is too early to assume this for now.

Valuation

Chesapeake shares (Neutral rated) trade at 5.0x 2008 EV/debt-adjusted cash flow versus 5.4x for Anadarko Petroleum, 4.8x for Devon Energy, 5.2x for EOG Resources, 6.1x for XTO Energy and 6.6x for EnCana (excluding its oil sands business). We believe the premium valuations at which EnCana and Anadarko currently trade versus Chesapeake are too wide. We see meaningful upside to Chesapeake shares if its returns and free cash profile improve. Chesapeake shares are at our $35 12-month discounted cash flow based target price. We see 1% downside for large-cap E&Ps and 8% upside for E&Ps overall.

Key risks

Commodity price volatility, drilling results, cost pressures and government pronouncements are key risks.

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From: Dennis Roth9/5/2007 8:17:10 AM
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Reduced drilling positive; asset sales should reduce overhang Goldman Sachs September 05, 2007

What's changed

Chesapeake announced it is temporarily reducing drilling activity due to low natural gas prices and separately plans to sell assets to avert the need to issue equity. Despite curtailments and asset sales, Chesapeake maintained production guidance for 2007 and 2008 and initiated double-digit growth guidance for 2009 with flat spending versus 2008.

Implications

We believe these announcements are a positive for both the sector and Chesapeake. We had previously thought Chesapeake’s 2007 and especially 2008 guidance was conservative, and we are now using estimates closer to guidance (though lower than company guidance for 2009). Management’s asset sale intentions should help reduce the overhang in Chesapeake shares regarding expected future equity offerings, though it may take actual announcements for full recognition. Reduced debt from asset sales is more positive for 2009 and 2010 estimates, which we are raising.

Valuation

Chesapeake shares (Neutral rated) trade at 4.6x 2008 EV/debt-adjusted cash flow, below XTO Energy, EnCana and Anadarko Petroleum and at a similar level to EOG Resources, Apache and Devon. We see 20% upside to a $39 12-month discounted cash flow based price target.

Key risks

Commodity price volatility, drilling results, cost pressures and government pronouncements are key risks.

Impact on related securities

We have expected companies to announce production shut ins earlier this year versus last year and believe these announcements support our view that a bottom in natural gas prices and E&P stocks is near due to our positive outlook for 2008 and 2009 natural gas prices.

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From: Dennis Roth11/8/2007 7:55:40 AM
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Chesapeake Energy Corp. (CHK): Flat debt, bullish LT gas view needed to reverse underperformance - Goldman Sachs - 11/08/07

What's changed

CHK reported EPS of $0.69 versus First Call consensus of $0.60 and our $0.66. Total production was 2,026 MMcfe/d versus our 1,978 MMcfe/d estimate. Operating cash flow was $1,085 million versus our $1,051 million estimate.

Implications

The underperformance in Chesapeake shares over the past three months indicates to us that the Street is skeptical that Chesapeake’s asset sale monetization strategy will be seen through and lead to a step-change increase in returns that justifies a higher multiple. Part of this is for good reason – since Chesapeake unveiled its drilling versus acquisition strategy in August 2006, the company has done more than $3.5 billion in acquisitions, and debt levels are higher by about $3 billion versus 3Q 2006. Announcement of the company’s first asset sale – in Appalachia – is expected to be perceived positively, though there is likely going to be continued noise around accounting and the true amount of production growth. We believe it will ultimately take quarterly results that show in line or better than expected cash flow without a major increase in debt for Chesapeake to be afforded more credit and a higher multiple.

Valuation

Chesapeake shares trade at 5.3x 2008 EV/debt-adjusted cash flow, versus 5.6x for EOG Resources, 5.5x for Apache, 5.8x for Anadarko Petroleum, 7.1x for XTO Energy and 7.5x for EnCana. We see 15% upside to a $46 12-month discounted cash flow based target price versus 16% for other E&Ps. We continue to rate Chesapeake Neutral relative to an Attractive coverage view.

Key risks

Commodity price volatility, drilling results and cost pressures are the key risks to our target price.

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From: Dennis Roth1/3/2008 7:31:42 AM
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Chesapeake Energy Corp. (CHK): VPP news expected, but may begin to narrow discounted valuation - Goldman Sachs - Jan 2, 2008

News
Chesapeake announced it closed a volumetric production payment, receiving proceeds of $1.1 billion for 210 Bcfe to be delivered over 15 years.

Analysis
The proceeds and reserves are in line with our estimates. However, we believe the headline sale price at almost $5.25 per Mcfe of proved reserves could be perceived positively. Chesapeake is still responsible for the costs of production, and as such, we expect controversy over the extent to which this will improve the company's credit ratings. We believe the ultimate success of this deal will be in the company's ability to show improved rates of return from reinvesting the proceeds in drilling.

Implications
We believe Chesapeake remains focused on using asset sales to help finance its aggressive drilling program, and further near-term monetization announcements could also be perceived positively. At 5.4X 2008E EV/debt-adjusted cash flow, Chesapeake shares
trade at a discount to the 5.6X-7.0X range of other large E&P growth stocks. In part Chesapeake's aggressiveness in drilling and past acreage investment is responsible for this discount, in our view. We see Chesapeake's multiple expanding if results from emerging areas such as the Fayetteville Shale and Appalachia are positive and, more important, there is greater confidence that the company can spend within its cash flow. We believe near-term catalysts from monetization announcements that could improve Street thinking make the stock attractive, as does our bullish view on natural gas. We rate Chesapeake Neutral relative to an Attractive coverage view. Our price target is unchanged.

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To: Dennis Roth who wrote (691)1/4/2008 12:04:29 AM
From: steve kammerer
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"We rate Chesapeake Neutral relative to an Attractive coverage view."

What's "an attractive coverage view"?

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From: Dennis Roth2/22/2008 8:31:38 AM
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Chesapeake Energy Corp. (CHK): Another quarter of higher-than-expected production, cash flow, debt - Goldman Sachs - February 22, 2008

News

Chesapeake reported 4Q 2007 adjusted EPS of $0.93 versus our estimate of $0.78 and First Call consensus estimate of $0.81.Total production was already reported at 2.22 Bcfe/d versus our 2.15 Bcfe/d. Operating cash flow was $1.3 billion versus our $1.2 billion estimate. Net debt rose slightly versus 3Q 2007 despite $1.1 billion in asset sales. While headline production guidance was maintained for 2008 and 2009, after impact of volumetric production payments guidance rose by about 90 MMcfe/d in 2008 and 135 MMcfe/d in 2009. Management raised E&P capital spending guidance by $550 million for 2008 and 2009.

Analysis

Chesapeake continues to beat production guidance as well as consensus estimates. At the same time, we have seen a trend of greater-than-expected spending and debt, and capital spending appeared well in excess of guidance for the quarter. The modest quarter-on-quarter rise in debt levels reflects Chesapeake’s stepped-up plans to monetize assets via volumetric production payments (in which Chesapeake is still responsible for operating costs of sold reserves) and an expected private midstream Master Limited Partnership with a goal of maintaining flat net debt. Ultimately, beating estimates without an increase in capital spending should raise the likelihood of equity outperformance, in our view.

Implications

Through its acreage and producing property acquisitions, Chesapeake has built a vast position in most of the key emerging shale and tight gas resource plays in the US. Evidence that other companies are embarking or will need to embark on their own “land grab” at much higher prices than Chesapeake is a key catalyst for Chesapeake’s multiple to expand. Chesapeake remains exposed to our bullish view on natural gas prices, though our Neutral relative to an Attractive coverage view reflects our preference for other stocks at present.

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To: steve kammerer who wrote (692)2/22/2008 8:34:33 AM
From: Dennis Roth
   of 725
 
>> What's "an attractive coverage view"? <<

It means they find the Natural Gas sector attractive.

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To: Dennis Roth who wrote (693)3/25/2008 9:29:53 AM
From: Dennis Roth
   of 725
 
Chesapeake Energy Corp. (CHK): Chesapeake news highlights rising industry potential in Haynesville - Goldman Sachs - March 25, 2008

News

Chesapeake announced exploration success in the Haynesville Shale (Louisiana), new oil developments in multiple unspecified areas and increases to production and capital expenditures guidance. Due to market conditions, expected financing via a private Master Limited Partnership appears to have been delayed, and management indicated it plans to tap the capital markets soon.

Analysis

The success seen in the Haynesville is positive not only for Chesapeake but for others that are active in the area. Among covered companies, Cabot Oil and Gas (Conviction Buy) has already drilled at least one Haynesville well in its Trawick joint venture in East Texas. We believe that Questar (Neutral) and EnCana (Sell) also are building acreage positions in Louisiana. Regarding Chesapeake's oil developments, we believe more specifics are required for Chesapeake to receive more credit.

Implications

In the immediate term, we believe the potential for a Chesapeake equity offering could act as a temporary overhang for the stock. Ultimately, success in these various plays would be positive, although greater detail on well costs and ultimate recoveries are needed. We rate Chesapeake Neutral relative to our Attractive coverage view. We believe to meaningfully outperform, Chesapeake likely will need to show not just better-than-expected production growth and better-than-expected operating cash flow as it has historically but lower-than-expected net debt as well. Our price target and estimates are unchanged.

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From: Brumar893/31/2008 1:45:04 PM
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Haynesville Shale: Could it Trump the Barnett?

31 March, 2008
Natural Gas Intelligence

Could the Haynesville Shale in northwestern Louisiana hold more natural gas reserves than the Barnett Shale? Chesapeake Energy Corp. CEO Aubrey McClendon said last week the Louisiana acreage may have a larger impact on the company than any other play in its history, including its Texas and Arkansas holdings in the Barnett and the Fayetteville shales.
Chesapeake now controls about 7.5 Tcfe in the Haynesville Shale and with its hoped-for additional leases, it could control "as much as 20 Tcfe over time," McClendon told financial analysts during a conference call.
The potential blockbuster news sent rumbles through the industry and lifted not only Chesapeake's share price, but the stock of other producers that operate in and around the East Texas/Louisiana region. Initial reaction by financial analysts was overwhelmingly positive, but some were taking a "show me the money" approach.
If the reserves numbers prove true, the news would be transformational for Oklahoma City-based Chesapeake, which is already one of the top U.S. gas producers.
"So, an already successful company continues to add more arrows to its quiver," said financial analyst David Lee Smith of the website Motley Fool. "As McClendon pointed out to analysts, if the company's targeted production additions are realized in 2008 and 2009, it'll have added in that two-year period a gas business equivalent in size to those of Apache Corp., El Paso Corp. or Occidental Petroleum..."
Details about the play's potential remain mostly hush-hush -- McClendon provided few numbers about flow rates or costs to drill. The company was forced to make an announcement, he said, because more competitors are entering the play, which in turn is pushing up leasehold prices. Chesapeake has been keeping the early results secret for the past two years to examine the Louisiana shale through its internal geoscientific, petrophysical and engineering research department. Drilling results from three horizontal and four vertical wells are promising, said McClendon. What the company now wants to do is add to the more than 200,000 net acres it is leasing in the shale, with a goal to capture 500,000 net acres by the end of 2009.
"We tried hard to keep our work a secret, and we were successful until the last two months," McClendon said. "We would have preferred to stay under wraps for the next few months to get more acreage cheaply, but now we need to escalate and we need to move accordingly...It is my personal belief that this is likely the most important operational announcement in Chesapeake's history...It's a great new play, and it has a chance of the being the most significant play in the company's history. We believe we control 7.5 Tcfe on 200,000 acres in the Haynesville, and it could be worth 20 Tcfe net to Chesapeake if we obtain 500,000 acres."
McClendon called it "a tall order to say that Haynesville could be bigger than the Barnett or Fayetteville shales, but the math clearly supports it."
"When you find a play this big right under everybody's noses, what does that say about the potential for the U.S. natural gas supply?" a financial analyst asked McClendon during the conference call.
"From the future of natural gas production and pricing in North America, I think this says we don't need a lot of LNG [liquefied natural gas] down the road," McClendon said. "It's my view we won't import a lot of LNG in the years ahead. Demand growth will soak up any additional gas supplies that we and others can bring into the market...We probably need to be building liquefaction rather than more regasification. I don't see a glut developing. We see what the best deepwater is doing. The best of what Canada can give us. The time frame over the next five years, there will be pretty strong growth in gas demand from electric generation. This is a great story. Gas prices are trading at a Btu discount to oil, and they are generating very attractive returns for natural gas producers such as ourselves...natural gas consumers are able to buy clean burning Btus at a 40-60% discount to oil Btus.
"This is great news for the country, for the industry," he said. "On a specific basis, people would recognize something special here. We do have an unconventional shale franchise that is second to none. We've been more focused on acquiring acreage than in publicity, and it's sometimes frustrating to see other people get the benefit from the things we are working on. We have developed a team of people here with more shale...experience than anyone in the industry. And we have a proprietary advantage, evaluating our own cores. That gives us a leg up on other folks."
McClendon added, "Other companies could have found this; there have been multiple penetrations of this zone in Louisiana. One of our competitors had taken a core sample in the last couple of years, but they failed to appreciate what we saw...We are talking about significant production, up to 3-5 Bcf/d out of Haynesville...We think we know a big play when we see it."
Finding information about how much gas the Haynesville wells are producing is sketchy. John Gerdes, an analyst with SunTrust Robinson Humphrey/the Gerdes Group, said "industry sources suggest recent horizontal Bossier/Haynesville Shale wells have commenced production at 5 MMcfe/d, which suggest 3 Bcfe of reserve recovery for a drill/complete cost of $7-8 million."
The Haynesville Shale is not exactly a "new" discovery. In fact, the Louisiana Oil and Gas Association reports that the Haynesville gas field was discovered in 1921, but gas-directed producers have stepped up their development in the region over the past few years as horizontal drilling techniques have been improved. The Haynesville Shale is on a trend that extends from the Deep Bossier and Austin Chalk plays, which run across Central and East Texas into northwestern Louisiana. An ExxonMobil Corp. predecessor company in 1991 reported that the Haynesville formation is located on the eastern part of the East Texas salt basin, and gas production is from ooid grainstones, which formed on a "dipping carbonate ramp." Gas is sourced from the underlying Smackover Formation deposits.
McClendon alluded to other producers now beginning to enter the play, but that's not entirely the case. XTO Energy Inc. late last year said it would pour most of its capital budget into emerging gas plays in East Texas and Louisiana (see NGI, Nov. 19, 2007), and other explorers are expanding development of the East Texas and northwestern Louisiana acreage, including Anadarko Petroleum Corp., Apache Corp., Cabot Oil & Gas, Devon Energy Corp., Cubic Energy Inc., GMX Resources, Goodrich Petroleum Corp. and Penn Virginia Corp. (see NGI, Jan. 21; Sept. 24, 2007; Aug. 6, 2007; June 18, 2007). EnCana Corp. agreed last year to buy out its closely held partner in the Amoruso Field of the Deep Bossier in East Texas, a field that CEO Randy Ereseman called "the best emerging unconventional gas play in North America" (see NGI, Nov. 12, 2007).
"The success seen in the Haynesville is positive not only for Chesapeake but for others that are active in the area," said Goldman Sachs analyst Brian Singer. And Zacks Investment Research analyst Sheraz Mian said the announcement is causing "all of us who like the [Chesapeake] stock to be a little bit more excited about it."
In fact, Friedman, Billings, Ramsey, & Co. Inc. (FBR) noted that the stock price appreciation of 10 Haynesville-leveraged exploration and production (E&P) companies resulted in a cumulative market cap increase of $3.1 billion.
FBR analysts Rehan Rashid and Greg Bordelon think everyone needs to take a step back and actually look at the data to date.
"Cognizant of the perils of fighting the tape, we are doing our best to straddle the line between unbridled enthusiasm stemming from a new, potentially massive discovery in the Haynesville Shale and pragmatic assessment of the net present value that should be afforded to those E&Ps [exploration and production companies] with possible exposure to the emerging play," the duo wrote in a note to clients. "Taking a step back, however, we note that it is very early in the play, even earlier than it is in the Marcellus Shale play that has garnered so much attention this year.
"To wit, our proprietary research finds that data on Chesapeake's results is available on only two wells," one of which had initial production of 0.2 MMcf/d, the other at 2.65 MMcf/d, which estimated recovery by FBR of 3 Bcfe. "This is a scant data set, suggesting to us that the marketplace may have jumped the gun a bit in ascribing value to the Haynesville E&Ps..."
Chesapeake had more news to unveil besides its Haynesville bombshell. McClendon also detailed two other new unconventional gas discoveries in the Granite Wash of the Anadarko Basin, as well as five new unconventional oil projects -- a departure for a producer that is 92% weighted to gas.
Developed internally two years ago, Chesapeake's Colony Granite Wash discovery in Oklahoma's Washita and Custer counties is now producing 40 MMcfe/d net from 12 horizontal wells. Chesapeake is using four rigs to develop its 60,000-net-acre leasehold, and the company believes the play will accommodate about 250 additional net horizontal wells over time. Nearby in the Mountain Front area of the Granite Wash, which is located in southwestern Oklahoma and the Texas Panhandle, Chesapeake has drilled three horizontal wells in the past three months. Chesapeake now controls about 75,000 net acres in the Mountain Front leasehold, and it is expected to accommodate about 400 additional net horizontal wells over time.
Chesapeake also is stepping up plans to build its oil business, which McClendon said was vital with today's commodity prices. Although McClendon offered few specifics, he said Chesapeake has identified five new unconventional oil projects, four of which have been developed on a proprietary basis. The projects, located in four different states, range in size from 100,000 acres to one million acres. Chesapeake has begun production in two of the projects, and initial drilling in the other projects is scheduled over the next 12 months.
In addition to the new discoveries and projects, Chesapeake intends to expand its drilling and leasing activities in the Barnett Shale of Texas, particularly in the core and Tier 1 sweet spot of Tarrant, Johnson and western Dallas counties. The company's net natural gas production in the Barnett Shale is now about 450 MMcfe/d, and it plans to increase its drilling activity to 45 rigs from the current 40 by year's end. In the Fayetteville Shale of Arkansas, Chesapeake's net gas production is now about 130 MMcfe/d, and the company plans to more than double its drilling activity there to 25 rigs from the current 12 by early 2009. Chesapeake also owns a leasehold position of 1.6 million net acres in the Marcellus and Lower Huron shale plays in the Appalachian Basin. The company has drilled 26 vertical and horizontal Marcellus and Lower Huron shale wells to date and plans to drill 165 vertical and horizontal wells through 2009.
As a result of the Haynesville Shale discovery and its other new discoveries and projects, the company plans to spend an additional $275 million this year and $675 million more in 2009 for drilling and leasehold acreage.

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From: JakeStraw7/18/2008 11:28:09 AM
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Chesapeake Energy CEO buys $43 mln in stock
marketwatch.com

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