Brandon Honey

Brandon Lee

David LightPresented December 4, 2008

Watch List Items

Chesapeake Energy Corporation(NYSE: CHK)

Overview

• General Corporate Information

• Strategy

• Natural Gas Background

• Trends

• Thesis

General Corporate Information

• Largest independent producer of natural gas in the US– Third largest overall in US

• Headquartered in Oklahoma City, OK

Strategy

• Build one of the largest onshore natural gas resource bases in the US

• Focuses on:– Exploratory and Developmental Drilling– Corporate and Property Acquisitions

• De-emphasized to focus on drilling• Medium/Small companies

Strategy

• Growth from drilling

• Control substantial land and drilling location inventories– “Land grab” leasehold program

• Develop proprietary technological advantages– Largest inventory of 3-D seismic information

Strategy• Focus on low costs

– Minimize lease operating costs– Minimize SG&A

• Mitigate commodity price risk– Hedging

• Improve balance sheet– Debt as a percentage of total capitalization was 47%

in 2007 compared to 137% in 1998• Financing

– Convertible preferred used to be primary method– Now gets capital by selling stakes in producing

properties

Natural Gas

• Clean, Abundant, Affordable, American

• Fastest growing energy source since the 1970’s– 120 year supply in US

• Cleanest Hydrocarbon in the world– Less CO2 emissions than coal– No mercury or particulate emissions

Natural Gas

• Cost of building a plant is 25% of building a capital intensive coal-fired power plant

• Affordability depends on– Abundance, reliability, efficiency, cost of alternative

sources of energy– Market forces

• Most drilling activity in 25 years• 98% of the natural gas used domestically is from

the US or Canada– 60% of oil is imported

Trends

• Provides an alternative to imported oil– Less subject to supply disruptions

• 22% of municipal bus systems in US rely on compressed natural gas

• Growing interest for compressed natural gas use in taxis and refuse trucks

• Auto manufacturers pressured to produce green energy efficient cars

• Utilities are choosing natural gas over coal more often for electricity

• Possible Carbon Tax• Tax credits for those cities and individuals using natural

gas vehicles

5-Year Basic Chart

Natural Gas

Thesis

Pros• Natural Gas usage will increase

– Continued stable demand from power plants– Huge upside if nat gas cars are adopted– White House support

• Well positioned in the right regions

Concerns• Liquidity• Natural Gas prices

Please Watch

• Current Price (12/1/2008): $15.00

• Model Valuation: