Chesapeake Energy Corporation

Chesapeake Energy Corporation “America’s Champion of Natural Gas” ChartWatchers Patricia Tompkins Phil Krieg Steven Pitchford Jens Nordgaard Michael Kaufman

Company Profile • Founded in 1989 by Aubrey K. McClendon and Tom L. Ward. • Based in Oklahoma City, Oklahoma. • Objective was to build a natural gas exploration and production company using new applied technologies, specifically horizontal drilling. • Integrated their new horizontal drilling technology with aggressive property consolidation “land rush”; predominately small to medium size corporate and property acquisitions. • Owns interest in approximately 43,600 natural gas and oil wells, producing 2.6 bcfe per day. • Most active driller of new wells in the US in 2009. • Trades on NYSE under “CHK”

Key Executives

Products and Services • Exploration, production and development of crude oil and natural gas reservoirs • “Big 6” natural gas shale plays in USA • 2.9 million acres • Drilling and exploration technology development • Marketing and midstream services for working interest owners in managed properties

Horizontal Drilling

Key Statistics

Income Statement

Technical Analysis

Bollinger Bands

Strengths • Number one combined leaseholder of the Big 6 shale plays in the U.S. (2.9 million acres) • 2nd largest producer of natural gas in the U.S. • Documented 19 consecutive years of production growth • Most Active driller in the U.S. (1 out of 7 new mines is drilled by Chesapeake) • 60% of their future production is covered by hedging, guaranteeing them a specified price in uncertain times • Proven ability to form joint ventures to raise capital and increase production while maintaining a controlling position

Weaknesses • They are the only company in their industry without investment grade credit rating • High amounts of debt may significantly reduce their ability to expand production in the coming years • Natural gas is most commonly transported by pipelines which are politically unstable and heavily regulated • Transportation of natural gas outside of North America is costly as it must liquefied and shipped, then sent to regasification plants, and transported through pipelines • Lag time between when new prospects are found and actually start producing • Failure to invest in green technologies

Opportunities • Investing in fuel cell technology could help curb environmental regulations and pollution • Creating new pipelines and investing in transportation technology • Low overhead and production costs, combined with low finding costs, should provide Chesapeake with high returns • Large differences between estimated amount of recoverable and known natural gas amounts • Strategic land acquisitions and partnerships have put them in a strong market position • Continued hedging and improved market stability as we bounce back from the great recession could help solve their debt problem

Threats • Volatile resource prices have a significant impact on the companies profit margin even with constant production growth • Large amounts of debt may hinder their ability to create new mines and acquire new properties • Pipelines in the U.S. are almost near capacity leaving little room for production growth without new investment • High costs associated with research and development as well as maintaining existing mines • Environmental policy and regulation stemming from climate change and ecosystem preservation • Business success is determined by mining a nonrenewable resource • Largest global competitor Gazprom produces 17% of the worlds natural gas and controls the worlds largest natural gas reserves, found in Russia

Recommendation • CHK is positioned very well strategically for long-term increases in production • Recent borrowings for acquisitions show willingness to invest • However, significant amounts of debt troublesome for future cash flows and financial flexibility • $12.3 Billion in LT Debt (49% of total book capitalization) • Variability of nat gas prices can cause material fluctuations in net income over time • 93% of output from nat gas • Expect to shift allocation to 80% nat gas/20% crude – bearish on nat gas? • Current Price: $26.74 • We expect CHK to perform slightly better than 2009 due to increased production output • Short-term outlook: Hold

Chesapeake Energy Corporation