Description

Chesapeake Energy is one of the top 10 domestic Natural Gas producers.
It holds interests in 4700 producing oil and gas wells of which 90%
are natural gas wells located mainly in Oklahoma,Kansas Arkansas and
western Canada. Due to higher gas prices cash flow increased from $138
million in 1999 to $304.9 million last year.Net income was $190.6 million a 473% increase over 1999 and $1.48 per share.In a year when most gas producers production was flat to down CHK production rose 6.6% to 134BCFE.
Total cost per mcf were $2.05 and average selling price was $3.50 per mcf.
CHK has just recently completed the purchase of Gothic Energy which will
grow proved reserves by 30% to 1,656 BCFE.

Recently CHK completed a debt refinacing which will save $15 million
per year in interest costs and extends debt 5 years to 2010.

Last week CHK estimated 2001 results which forecast production to rise to
175 BCFE from 134 last year. Based on NYMEX prices for gas to average
$5.61 CHK expects 2001 cash flow to be $625 million or $3.70 per share.
Earnings are forecast at $275 million or $1.63 per share. This gives CHK a PE of 5 and a little over 2 times cash flow. CHK also is the second lowest
cost domestic producer of natural gas and will be the lowest as their
interest costs decline.

Thus CHK's PE and Cash Flow ratios are one of the lowest in the industry

Catalyst

We are entering 2001 with gas storeage at an alltime low and with new
production running behind last year we will see record prices this fall
and CHK cash flow jumps $16 million for each .10MCFE rise. The industry
normally sells for 5-6 times cash flow which would value CHK at $18-20.
As gas gets scarce industry takeovers will accelerate and CHK is a very
attractive target.
In addition CHK is redrilling old Chalk wells with amazing results
which payout in weeks.