Industry Overview
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100%Companies vs SPX Index
CHK US Equity SPX Index APA US Equity ECA US Equity
Retu
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2007 2008 2009 2010 2011 2012 2013 2014
Industry Overview
Diversified Natural Gas• Production, marketing, and
transportation• Economic forces of supply and
demand• Regulatory and geopolitical risks• Energy prices and the economy
Price/Book 1.6Price/Earnings 25.7Price/Sales 2.1ROE 6.3Debt/Equity 0.5Operating Margin 18%Revenue Growth, 3yr average
-11.8%
History of Natural Gas Diversified
• Technological advancement and commercial development
• Household and water heating, cooking, electricity• Supplies around 41% of energy used by U.S. industries• Cleaner environment and more efficient • Halliburton Oil Well Cementing Company, 1949
Company Overview
• Ticker Symbol: CHK• Market Price: $22.90.• Second largest natural gas producer in
the U.S.
History of Chesapeake Energy Corporation
• Founded in 1989• Aubrey K. McClendon and Tom L. Ward in Oklahoman City, OK• investment in the company was only $50,000.00
Qualitative Assessment• Chesapeake has hedged very well against the current fall in Natural Gas Prices• 16.09 billion current market cap• Acquisition, exploration, and development of properties for the production of
natural gas, oil, and natural gas liquids (NGL) from underground reservoirs in the United States.
• It owns interests in approximately 46,800 natural gas and oil wells. As of December 31, 2013
Quantitative Analysis
2/20/0
87/9
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11/26
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CHK vs Natural Gas
NGA ComdtyCHK US Equity
Retu
rnEViews OLS Regression Output
EViews OLS Regression Output
Intrinsic ValueDCF Valuation CHK (1)
WACC 6.9%Cost of Equity 10.76%Weight of Equity .510
BETA 1.19Expected MKT Return 9.44%Risk Free 2.34%
Cost of Debt 2.21%Weight of Debt .388Cost of Preferred Equity 5.6%Weight of Preferred Equity .102
EBITDA Multiple 5.3x(+)PV of Future CFs (MM) $9,353(+)PV of Terminal Value (MM) $26,582Implied Enterprise Value (MM) $35,935(-)Current Net Debt & Pref Equity (MM)
$17,256
Equity Value (MM) $18,680(/)Shares Outstanding (MM) 665Intrinsic Stock Price $28.08
HOLD: (Market Price=$22.90) < (Intrinsic Value=$28.08)
Company Overview
• Ticker Symbol: APA• Market Price: $75.10 • CEO: G. Steven Farris • 1970: Company changed name to “Apache Corporation” to symbolize a movement to
more diversification
History of Apache Corporation
• Founded in 1954 in Minneapolis, MN.• Founders were Truman Anderson, Raymond Plank, Charles Arnao, and 41
shareholders • Initial equity was $250,000.00• Apache recently merged with Mariner Energy, acquiring assets in Deep-Water
Gulf of Mexico
Qualitative Assessment
• Apache holds over 27 million gross acres of land• Australia, Argentina, Canada, Egypt, United Kingdom and the United States• Apache holds a large amount of undeveloped land in Australia
Quantitative Analysis
2/20/08 2/20/09 2/20/10 2/20/11 2/20/12 2/20/13 2/20/14
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APA vs Natural Gas
NGA ComdtyAPA US Equity
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EViews OLS Regression Output
EViews OLS Regression Output
Intrinsic ValueDCF Valuation APA (1)
WACC 8.2%Cost of Equity 10.4%Weight of Equity .764
BETA 1.13Expected MKT Return 9.44%Risk Free 2.32%
Cost of Debt 1.386%Weight of Debt .236
Pretax Cost of Debt 2.31%Tax Rate 40%
EBITDA Multiple 4.8x(+)PV of Future CFs (MM) $1,176(+)PV of Terminal Value (MM) $38,103Implied Enterprise Value (MM) $39,279(-)Current Net Debt (MM) $10,816Equity Value (MM) $28,463(/)Shares Outstanding (MM) 376Intrinsic Stock Price $75.60
HOLD: (Market Price=$75.10) < (Intrinsic Value=$75.60)
History of Encana Corporation• Founded 2002• Merger of PanCanadian Energy Corporation and Alberta Energy
Company Ltd• CEO: Douglas Suttles• Roots go back to 1800s• Divesting many of its assets to concentrate on core competencies
Qualitative Assessment
• 9.6 million acers of oil and natural gas reserves• 5.3 million acers are undeveloped• One of the largest Natural Gas explorer and developer
in Canada• Significant increases in Natural Gas liquids 71% growth
rate • Dropping Oil and Natural Gas prices are a cause for
concern
Quantitative Analysis
3/31/2008 3/31/2011 3/31/2014
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ECA vs Natural Gas
NGA ComdtyECA US Equity
Retu
rnEViews OLS Regression Output
EViews OLS Regression Output
Intrinsic ValueDCF Valuation ECA (1)
WACC 7.5%Cost of Equity 9.44%Weight of Equity .742
BETA .85Expected MKT Return (Canada)
10.75%
Risk Free 2.03%Cost of Debt 2.08%Weight of Debt .258
Pretax Cost of Debt
3.75%
Tax Rate 44.7%EBITDA Multiple 5.3x(+)PV of Future CFs (MM)
$168
(+)PV of Terminal Value (MM)
$21,589
Implied Enterprise Value (MM)
$21,757
(-)Current Net Debt (MM)
$4,558
Equity Value (MM) $17,199(/)Shares Outstanding (MM)
740.96
Intrinsic Stock Price $23.21
BUY: (Market Price=$17.70) < (Intrinsic Value=$23.31)
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