Upload
haanh
View
216
Download
1
Embed Size (px)
Citation preview
� Natural Gas Markets
� Company Overview
Company Overview
Thesis points
Key risks
Value-added research
1/24/10
� Thesis points
� Key risks
� Value-added research
� Current spot= $4.33
� Futures markets in contango
� Volatile industry
Futures markets in contango
Volatile industry
No perfect oil-gas parity
1/24/10
� Volatile industry
� No perfect oil-gas parity
� Founded 1989◦ Aubrey McClendon (current CEO)
� Started with 10 employees
Funded startup with $50,000
Entrepreneurial culture
Aggressive growth strategy
Recognized value of unconventional plays
1/24/10
� Funded startup with $50,000
� Entrepreneurial culture
� Aggressive growth strategy
� Recognized value of unconventional plays
� Leading independent producer of natural gas
� Most active driller of natural gas
Primarily focused on production and exploration
Thrive in shale plays
Leader in technology
1/24/10
� Primarily focused on production and exploration
� Thrive in shale plays
� Leader in technology
Revenues by Segment
Exploration and
Production
Marketing
Other Operations
� Positioned for growth◦ Large 2008 investment
� Well-hedged through 2010
Scaled-down operations
Innovative joint ventures
Employee retention
Strong lessor reputation
1/24/10
� Scaled-down operations
� Innovative joint ventures
� Employee retention
� Strong lessor reputation
Market ValuationCompany Current Price (3/23) 52 wk low 52 wk high EV/EBITDA P/E (fwd fye 2010) Debt/Equity (3/23)
CHK 19.50 9.84 74.00 4.4 x 6.89 1.17
XTO 35.37 23.80 73.74 5.8 x 14.44 0.58
RRC 45.85 23.77 76.81 8.8 x 45.85 0.25
SWN 34.14 19.05 52.69 8.9 x 17.33 0.06
HK 20.94 8.49 54.49 10.1 x 72.21 0.43
PXD 18.74 11.88 82.21 4.0 x 15.75 1.36
Average P/E (qtly avg trailing 5 yrs) 11
25%-75% 9 to 12
� Trading much closer to 52-wk low
1/24/10
� Trading much closer to 52-wk low
� Stock price is highly correlated with natural gas prices which are currently low
� EV/EBITDA attractive, but more capital intensive operations boost EBITDA
� Fwd-looking P/E is well below comps and historical average
� Highly-levered
� Market over-concerned with debt management
Profitability
� Middle-of-the-pack operating performance◦ Cost-cutting should ease margins
Balance SheetHighly liquid5 flexible
Asset monetizationLong-term maturities
Tangible assets that ‘sweat’ cash
Financial PerformanceOutperforming competitors
One-time impairment in 2008 artificially lowered 2008 ROE
2006 2007 2008 Average
CHK 59.641 69.208 62.577 63.809
XTO 79.090 79.904 78.942 79.312
RRC 80.833 82.668 81.665 81.722
SWN 50.586 52.097 53.810 52.164
HK 78.401 77.980 81.268 79.217
PXD 79.366 74.521 75.099 76.329
2006 2007 2008
CHK 38.007 47.341 33.962 39.770
XTO 55.363 56.182 52.363 54.636
RRC 40.619 48.144 39.489 42.750
SWN 36.361 32.272 30.393 33.009
Gross Profit Margin
Operating Margin
1/24/10
Balance Sheet
� Highly liquid@ flexible◦ Asset monetization
◦ Long-term maturities
◦ Tangible assets that ‘sweat’ cash
Financial Performance
� Outperforming competitors◦ One-time impairment in 2008 artificially
lowered 2008 ROE
HK 40.261 26.293 28.373 31.642
PXD 36.068 27.399 29.357 30.941
2006 2007 2008
CHK 19.716 20.603 12.149 17.489
XTO 27.370 31.714 21.295 26.793
RRC 15.929 15.732 9.663 13.774
SWN 13.308 11.336 13.433 12.692
HK (3.243) 6.033 2.633 1.808
PXD 19.112 5.774 7.953 10.946
Return on Equity
� Natural gas will rally
� Market misperceptions
Market misperceptions
Well-positioned for growth
Other considerations
1/24/10
� Well-positioned for growth
� Other considerations
� Economy recovery improves fundamentals
� Rig reductions tighten supply
� Policy (US CC&T) supports LT price
Policy (US CC&T) supports LT price
Inflationary concern bullish for commodities
1/24/10
� Policy (US CC&T) supports LT price
� Inflationary concern bullish for commodities
� Debt servicing will not be a problem◦ Liquid assets
◦ Operations scaled-down
◦ Access to financing
Operations scaled-downAccess to financing
Management is an assetDo not plan to access capital markets
Entrepreneurial culture slow to adapt to downturnAttracts employees
1/24/10
� Management is an asset◦ Do not plan to access capital markets
◦ Entrepreneurial culture slow to adapt to downturn
◦ Attracts employees
� Access to capital for strong reserve replacement during downturn (239%)◦ Off-sheet financing
◦ Cash carries
Nation’s largest on-shore leasehold inventory“land grab” strategy
Largest 3D seismic inventory
Shale will dominateIncreasing margins as conventionals decrease
1/24/10
� Nation’s largest on-shore leasehold inventory◦ “land grab” strategy
� Largest 3D seismic inventory
� Shale will dominate◦ Increasing margins as conventionals decrease
� Energy valuation unusual
� CHK is takeover target
Energy valuation unusual
CHK is takeover target
1/24/10
� History of takeover rumors
� Top-notch asset base
Top-notch asset base
Reduced management stake
Instant gains from premium
1/24/10
� Reduced management stake
� Instant gains from premium
� Sustained low NG prices◦ Liquid natural gas imports
◦ Prolonged economic recession
◦ Policy reform fails to pass
Off-balance sheet financing
Share dilution
Counterparty risk
Lack of transparency
Miss entry price
1/24/10
� Off-balance sheet financing
� Share dilution
� Counterparty risk
� Lack of transparency
Miss entry price
� “Ratios and reduced capex plans shows discipline. They have lots of valuable assets that buyers line up for.”
� Chris O’Sullivan, Chairman and CEO, Paloma Resources
� “Simple! CHK has the best acreage, best operations, and the best development team.”
“Simple! CHK has the best acreage, best operations, and the best development team.”
Jim Flores, Chairman and CEO, Plains Exploration and Production
“They produce their gas in good markets and manage their acquisitions well. They got overlevered but they were in great
plays, so once the market recognizes gas can be worth something, they will go right back up.”
S.P. Johnson IV, CEO, Carrizo Oil and Gas
1/24/10
development team.”� Jim Flores, Chairman and CEO, Plains Exploration and Production
� “They produce their gas in good markets and manage their acquisitions well. They got overlevered but they were in great plays, so once the market recognizes gas can be worth something, they will go right back up.”
� S.P. Johnson IV, CEO, Carrizo Oil and Gas
� “Chesapeake has a strong reputation with its lessors. The general counsel deserves a lot of credit.”
� Antone Peterson, Streit, Peterson, Hall & Keeney, LLP
� “Natural gas is the bridge fuel for the future. Because carbon emissions will be costly, natural gas companies are bound to come
general counsel deserves a lot of credit.”Antone Peterson, Streit, Peterson, Hall & Keeney, LLP
“Natural gas is the bridge fuel for the future. Because carbon emissions will be costly, natural gas companies are bound to
come out on top.”Dr. Mark White, PHD, Professor of Finance, McIntire School of Commerce
1/24/10
emissions will be costly, natural gas companies are bound to come out on top.”
� Dr. Mark White, PHD, Professor of Finance, McIntire School of Commerce