*** Chesapeake Energy ***

Nat Gas thread - http://www.advfn.com/cmn/fbb/thread.php3?id=20405982


Price now $21.24 Mcap $13,898m

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Google Finance page - http://www.google.co.uk/finance?client=ob&q=NYSE:CHK

Website - http://www.chk.com/Pages/default.aspx

Wiki - http://en.wikipedia.org/wiki/Chesapeake_Energy


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Seeking Alpha

September 01, 2010

Chesapeake Energy (CHK) has for some time been synonymous with the vast untapped opportunity in U.S. onshore natural gas shale plays. As gas prices have remained depressed relative to oil prices longer than most expected, it appears many investors have slowly but surely given up on the company.

While the near-term outlook for natural gas remains unfavorable, the underlying value of Chesapeake’s assets and the lagging stock price have once again attracted considerable superinvestor interest. Famed oil and gas investor Boone Pickens more than doubled his fund’s stake in Chesapeake during the second quarter. Carl Icahn’s firm boosted its position from two million to nearly 13 million shares, while Mason Hawkins’s Southeastern Asset Management slightly added to its stake, which amounts to a considerable 12% of Chesapeake. Only David Winters’s mutual fund went against the grain, selling out of a relatively small position.

Our analysis of Chesapeake suggests that the value of proved reserves alone may be sufficient to justify the recent stock price, based on NYMEX strip pricing. When one considers the fact that the company’s unproved reserves amount to roughly 15 times proved reserves, the upside in Chesapeake becomes clear.

It’s worth noting that the company is run by one of the most highly regarded executives in the business — Aubrey McClendon — and that Chesapeake can credibly claim to be one of the natural gas industry’s low-cost producers (Contango (MCF) is another). McClendon, who has shown shrewdness in timing the company’s purchases and sales of natural gas price hedges, has recently begun emphasizing crude oil reserves as a part of Chesapeake’s mix. This move appears to have been interpreted negatively by the market — after all, if the industry’s leader is perceived as moving away from natural gas, then what does this mean for the future of gas? However, we interpret McClendon’s moves simply as another way of safeguarding shareholder value, regardless of whether or not the relationship between oil and gas prices returns to its historical norm. After all, while McClendon may be better than most at predicting natural gas price, no one knows what the price of natural gas will be in five years.

This truism lies at the crux of the investment thesis for Chesapeake: If natural gas prices remain depressed, Chesapeake will likely preserve equity value (net income is projected at ~$3 per share in each of the next couple of years). However, if gas prices rise to the high single digits, shareholders may reap multiples of their investment.




New York times
Hedge Funds

Icahn Pushes Ahead With Energy Investments

August 16, 2010, 5:39 pm

The filings are out and it looks like the billionaire investor Carl C. Icahn has set his sights on four energy companies, two of which are heavily involved in exploration and production: Anadarko Petroleum and Chesapeake Energy. Mr. Icahn’s stakes in these companies could mean that he is thinking about a major shakeup in their capital structures.

Mr. Icahn invested nearly $1 billion in energy companies in the first half of the year, according to a recent regulatory filing. On Monday, he disclosed in another filing with the Securities and Exchange Commission that he bought two million shares of Anadarko in the second quarter. That equates to about 0.5 percent of its outstanding shares with a value of $72 million. Mr. Icahn also bought about 10 million more shares of Chesapeake, five times what he originally held. That equates to about 2 percent of the its shares with a value of $266 million.

Mr. Icahn also bought 1.3 million shares of NRG Energy, a power producer not involved in exploration for oil and gas. He rounded out his energy stock picks with a $10 million investment in Ensco, a relatively small oil services company.

His equity positions are noteworthy as they are giving him a foothold in two major exploration and production companies. As DealBook reported last week, Mr. Icahn is no stranger to Anadarko and may have been interested in capitalizing on the collapse and rebound of the company’s stock price in the second quarter because of its partial ownership in the Deepwater Horizon rig that caused the disastrous oil spill in the Gulf of Mexico. But Mr. Icahn may have bigger plans for the company and its $3.4 billion reserves of cash.

Mr. Icahn’s investment in Chesapeake is more pronounced. His first investment last quarter was small, at just $50 million, and has now grown to five times that amount. Chesapeake is going through a major transition as it tries to move away from natural gas and focus more on oil. Natural gas makes up 95 percent of Chesapeake’s production portfolio, which is problematic given the weak natural gas prices.

Chesapeake has been able to weather the weak prices as it aggressively hedged its portfolio at higher prices. This has made it one of the few energy companies to have positive free cash flow this year. But the company knows that it will need to diversify to more oil investments. It has already announced plans to sell off 10 percent of its holdings in the Marcellus shale natural gas field in Pennsylvania in the third quarter, so Mr. Icahn may have bought in to reap any benefits from that sale. But Mr. Icahn may push the company to do more deals or initiate a stock buyback in order to increase its stock price — and his bottom line.