March 08, 2009
ENERGY (INDEPENDENT OIL AND GAS)
Henry Fund Research
Chesapeake Energy Corporation (CHK)
Alan Adams
alan-adams@uiowa.edu
Investment Recommendation
Current Price Target Price
BUY
$14.06 $23.81
INVESTMENT THESIS
(+) Falling natural gas prices and tight credit markets made financing difficult for Chesapeake in 2008 and raised concerns about the company’s ability to pay its debt obligations. For several weeks, concerns about Chesapeake’s liquidity and financing were widely discussed. By monetizing assets, issuing debt and using its bank line credit, much of the concern was alleviated. It sold $12 billion of assets in the second half of 2008 and increased its cash holdings. New financing and longer debt maturities were also secured. (+) With hedges on 78% of its 2009 estimated production (average price of $7.71 per mcf) and 48% of its 2010 estimated production (average price of $9.02 per mcf), CHK will survive the current low price environment better than most of its competitors. (+) Joint venture cost sharing agreements will significantly reduce CHK’s production costs in 2009 and 2010, allowing it to produce free cash flow in spite of low prices. (+) With top positions in the largest four shale plays in the U.S., Chesapeake has a high quality U.S. asset base that can find and produce gas at the most competitive prices in the industry. (-) As the world economy shrinks, natural gas use declines with it. Persistent, depressed economic conditions will keep prices low. Natural gas prices are unlikely to recover above $6 per thousand cubic feet (mcf) until the beginning of 2010, in the absence a significant supply event, such as a hurricane, or an unforeseen demand increase. (-) Unfortunately, for the U.S. natural gas industry, production is over-supplied and will grow in the near-term; near-term supply growth will exceed production declines from existing fields. Also, foreign natural gas projects may make domestic over supply worse by diverting their extra gas to the U.S. market.
Key Stock Statistics
52-Week Price Range Market Capitalization (B) Shares Outstanding (M) Institutional Ownership 60-Month Beta Dividend Yield Price/Earnings (ttm) Price/Book Price/Sales ROA (ttm) ROE (ttm) Projected 5-Year Growth $9.84-74.00 $8.78 624.5 69.9% 1.33 2.13% 12.30 0.56 0.78 2.63% 5.09% 11.7%
EPS ($)
Year EPS 2007 2.70 2008 0.95 2009E 2.55 2010E 3.06 2011E 3.21
All earnings represent earnings from operations and have been filtered from net nonrecurring gains.
Valuation Models
Discounted Cash Flow Economic Profit Relative PEG Average Valuation $23.81 $23.81 $36.50 $30.14
EXECUTIVE SUMMARY
We rate Chesapeake a buy opportunity. Past asset purchases are regularly exceeding production expectations and recent joint venture arrangements are significantly lowering costs over the next two years and beyond. In 2008 alone, management joint ventures added $8.6 billion of value versus a cost basis of $1.2 billion. During the current period of strain in the industry, management reacted quickly to position CHK to improve its market share and enhance shareholder value through innovative joint venture arrangements. If the market continues to decline, management has hedged a majority of Chesapeake’s 2009 and 2010 production to limit downside risk. As the market improves, CHK is best positioned to rise sharply versus its competitors.
bit. This strategy shift was critical in 2008 to stabilize cash flows and address liquidity concerns. Concerns existed in the market that CHK would be unable to meet maturing debt obligations due to its high capital expenditures, negative cash flow and reluctance of the market to support CHK’s financing needs in the tight credit environment. The Free Cash Flow Reporter showed that Chesapeake’s cash flow ending December 31, 2008 was negative $3,941 million, and was at a nine year low. This was the seventh consecutive ii quarter of negative cash flow . Market concerns were further heightened when CHK’s CEO, Aubrey McClendon, sold “substantially” all of his 33.5 million shares of the company’s stock and the stock dropped drastically. It was later learned that he was forced to sell to meet margin calls. Debt issuances, assets monetization and joint ventures agreements have since stabilized Chesapeake’s stock price and finances, although concerns linger. To address concerns, management is targeting an investment grade credit rating by 2010, is aiming to build $2-3 billion of cash in 2009-2010 and has refinanced into debt averaging 7.8 years to maturity. In the fourth quarter of 2008, Chesapeake was the leading producer of U.S. natural gas with daily production of 2,130 bcf/day, roughly 3.5% of U.S. iii production . In addition to industry leading production, Chesapeake also arguably has the best assets in the industry and is the most active driller in the U.S. Management projects that CHK’s assets will be developed at a cost of less than $2/mcfe for decades to come, while most of its competitors assets are developed at a cost of greater than $3/mcfe. CHK owns 12.1 tcfe of proved reserves, 57 tcfe of risked unproved reserve potential and 21.6 million acres of 3D seismic data. In March 2009, CHK operated 110 rigs and participated in 75 non-operated rigs. The chart below shows Chesapeake ranked fourth in natural gas reserve ranking and first in U.S. rigs drilling (Source: CHK March 2009 investor presentation).
Company U.S. Proved Natural Gas Reserves Proved Natural Gas Reserve Ranking U.S. Rigs Drilling on 2/27/09
COMPANY DESCRIPTION
Chesapeake Energy Corporation is a natural gas and oil company. It explores, develops and acquires properties for production of natural gas and crude oil from underground reservoirs, and it provides marketing and midstream services for natural gas and oil for other working interest owners in properties in which it operates. It has properties in: Alabama, Arkansas, Colorado, Kansas, Kentucky, Louisiana, Maryland, Michigan, Mississippi, New Mexico, Nebraska, New York, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Utah, Virginia, and West Virginia. As of December 31, 2008, all of Chesapeake’s twelve trillion cubic feet equivalent (Tcfe) of proved reserves are i onshore in the U.S., 94% of which are natural gas.
Chesapeake Properties
BP
14,532 11327 10920 8105 8369
1 4 5 7 6
28 110 34 35 42
Source: Chesapeake website – www.chk.com
Chesapeake
According to management, the company has shifted its focus from drilling inventory capture to drilling inventory conversion. Rather than emphasizing acquiring drilling inventory, the company is producing from it. Whereas the company aggressively pursued acquisitions from 1998 to 2008 and now owns 15.2 million net acres of leasehold, the largest U.S. inventory in the industry, its strategy has shifted to emphasizing its industry-leading drilling program and converting drilling opportunities into proved developed producing reserves through drill
ConocoPhillips
Anadarko
Devon
Chesapeake’s revenues were earned in categories: natural gas sales, oil sales, marketing sales and service operations. Figure 1, natural gas sales accounted
four gas As for
primary and oil seen in 58% of
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Chesapeake’s sales. Oil sales, gas & oil marketing sales and service operations makeup the remaining 42%. Chesapeake has successfully hedged its natural gas sales in the last seven years and currently has more than $1.5 billion in unrealized hedging gains.
providing cash to Chesapeake, these joint ventures provided the company with 2.5 tcfe of no cost future viii reserve adds . Cost offsets from these joint ventures in 2009 and 2010 should give the company one of the lowest finding costs and highest returns on capital in the U.S. E&P industry. To further improve its financial position and pay down indebtedness under its revolving bank credit facility, Chesapeake issued $1.425 billion in debt in early 2009. Both debt offerings were increased from initial estimates and were well received in the market. The notes are due in 2015. Although priced at a discount and yielding relatively high rates, the market’s desire for Chesapeake’s debt is a positive sign. A table detailing CHK’s debt maturities and constraints is included in the accompanying appendices.
Figure 1 - 2008 Chesapeake Sales
1%
Natural Gas Sales Oil Sales Gas & Oil Marketing Sales Service Operations
31% 58% 9%
INDUSTRY TRENDS
Source: Chesapeake 2008 Annual Report
We expect Chesapeake to weather the current recession by continuing to use its high quality asset base, proprietary technological advantages and top notch personnel to lower costs and produce high financial returns. Chesapeake is #1 in the Haynesville Shale with 460,000 net acres; #1 in the Marcellus Shale with 1.2mm net acres; #2 in the Barnett Shale with 310,000 net acres; and #2 in the Fayetteville Shale with 420,000 net acres. As the only producer with a #1 or #2 position in these “Big 4” U.S. shale plays, Chesapeake is positioned to lower costs by capturing iv scale and efficiency gains . While these “unconventional” shale plays have demanded that Chesapeake implement more costly state-of-the-art techniques and technology, this investment had paid off both in company earnings and recruiting. The company’s leading edge technology and training has helped make it an ideal employer for younger industry employees. Selected as one of FORTUNE magazine’s “100 Best Companies to Work For” in 2008, we expect Chesapeake to continue v attracting the best and brightest in the industry . The company’s in-house 3-D Seismic Visualization Center and Reservoir Technology Center are also sure to draw vi new-generation engineers .
Additional capacity added to meet higher demand in past years and meant to capture higher prices is now exceeding current demand and depressing prices. For the week ended April 3, natural gas storage in the U.S. was 35% higher than last year and 23% above the five ix year average . Additionally, economic declines internationally may drive international natural gas suppliers to seek storage and buyers for their product in the United States, adding more downward pressure on U.S. prices. By shifting its strategy and aggressively addressing financing concerns, Chesapeake will handle the cyclical nature of the natural gas industry, its volatility and increasing globalization better than some of its peers. According to the Energy Information Administration (EIA), petroleum and natural gas currently provide approximately 63% of the total energy consumed in the x United States. Natural gas accounts for 24% of this amount, up 2% from 2005. U.S. Energy Consumption - 2008 6% Petroleum 39% 23% 24% Natural Gas Coal Nuclear Renewable
Source: Report #DOE/EIA – 0383 (2009)
8%
RECENT DEVELOPMENTS
Joint venture agreements and recent debt issuances have improved Chesapeake’s cost structure and strengthened its liquidity. Through three joint venture arrangements in 2008, Chesapeake captured $8.6 billion in value, including $4 billion in cash payments vii and up to $4.6 billion in future drilling cost carries . The cash payments immediately helped Chesapeake solidify its financing position. Approximately $4 billion of joint venture cost carry receivables are not reflected in Chesapeake’s books. Effectively, in addition to
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Natural gas use in the United States is primarily broken down into four categories: electric power, industrial, residential and commercial.
Worldwide Natural 1980 - 2008
Gas
Consumption,
U.S. Natural Gas Use by Sector, 2007
13% 3% Industrial 34% 20% 30% Electric Power Residential Commercial Other
Source: EIA – Annual Energy Outlook, 2007
In November 2008, the EIA “projected that U.S. natural Sources: History: EIA, International Energy Annual (2005). Projections: EIA, World Energy Projections gas consumption would rise by 1.1% for full-year 2008, Plus (2008) fall by 0.2% in 2009 and remain below 25 Tcf per year xi through 2030. On March 10, 2009, the EIA reduced If natural gas demand in OECD countries grows as its 2009 natural gas consumption projection from a projected, more than one-third of the natural gas slight 0.2% drop to a forecast fall of 1.3%, due to consumed in those countries will need to be imported. worsening economic conditions. Consumption estimates vary greatly. Natural gas price Demand growth, such as in OECD countries and China, volatility, natural disasters and economic conditions may help absorb LNG imports normally bound for the U.S, as U.S. demand slumps. China’s consumption, in make estimating consumption difficult. Contrary to a particular, increased 19.9% in 2007 and is expected to small U.S. consumption decline in 2009 and a quick increase further as the country shifts away from its return to growth expected by the EIA, we expect accelerating recessionary conditions to result in heavy reliance on coal. In the absence of some negative natural gas consumption growth for at least external demand growth or a domestic supply constraint, growth in U.S. supply combined with lower the next 12 months and a slow return to low growth. All domestic consumption will keep downward pressure on U.S sectors using natural gas likely contracted in late natural gas prices. Rising prices and easier financing 2008 due market conditions. On March 10, 2009, the from 2002 to 2008 made it profitable for firms to Energy Department said that industrial natural gas xii demand will fall about 6 percent . Industrial usage develop “unconventional fields” such as the Barnett and Now, some of these declined due to reduced demand for natural gas- Haynesville shales. unconventional fields in the U.S. are profitable even intensive products. Commercial and residential users xiii with natural gas prices as low as $4 per mmBtu (Btu). reduced consumption to lower expenses. On a positive note, lower prices resulting from lower consumption Increased U.S. and International Capacities may encourage industrial users and other energy users to switch to natural gas from other fuels in the near Domestic U.S. and international natural gas capacities have grown. Once considered unprofitable during term. periods of low prices, unconventional shales and Globalization of markets is growing increasingly offshore drilling are now producing beyond expectations important in worldwide natural gas consumption. If and are profitable at current price levels. international consumption exceeds production, Unconventional natural gas production, led by gas domestic U.S. producers will have an external market shales, is expected to provide the majority of domestic for their gas. If worldwide production exceeds growth in gas supply. This growth in supply, paired with consumption, more natural gas may be imported to the reductions in consumer and industrial natural gas use, U.S. In 2008, the EIA believed that Organization for are resulting in spare capacity as demand drops. Economic Cooperation and Development (OECD) Offshore drilling and expansion in Alaska may further countries would account for 27 percent of worldwide boost excess capacity. production and 42 percent of consumption by 2030. According to the EIA U.S. Crude Oil, Natural Gas, and Natural Gas Liquids Reserves Report, “natural gas proved reserves increased by 26,641 billion cubic feet in 2007. Increases from the onshore Lower 48 States
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more than offset offshore losses in proved reserves. Total discoveries in 2007 were 29,091 billion cubic feet (bcf), which is 59 percent more than the 10-year average and 25 percent more than 2006 levels. Dry natural gas production grew to 19,466 bcf in 2007, xiv which is a 5 percent increase over 2006 levels”. Onshore, unconventional resources have significantly boosted reserves and production. In addition to increased U.S. domestic production from unconventional shales, new natural gas supplies are being added around the world. On February 18, 2009, the Sakhalin II project LNG plant in Russia will start production. It will be the world’s biggest plant, with an xv annual output capacity of 9.6 million tons. New supplies from Yemen, Qatar and Indonesia are also xvi expected to be added in 2009. In 2009, total xvii worldwide capacity is expected to increase by 20%. Zach Allen, a head of Pan Eurasian Enterprises, a management advisory firm that follows LNG markets, believes that LNG can be competitively priced as low as $3 per mmBtu. With dozens of new tankers capable of carrying natural gas entering service and three new terminals on line in 2008 in the U.S., prices in the U.S. could potentially be driven below the $4 per mmBtu level, effectively making some shale production unprofitable. If this new capacity exceeds higher priced Asian and European market needs, the U.S., with its storage capacity, could be its next destination. A November 20, 2008, IBIS World Oil Drilling & U.S. Gas Extraction Industry Report expected oversupply of natural gas in 2009, particularly resulting from new offshore producing fields. In a March 2, 2009 report, Salman Partners noted that natural gas oversupply is estimated at approximately 6 bcf per day. Also, Waterborne Energy anticipates that LNG shipments to the U.S. may average volumes of 1.9 to 3.1 bcf per day, a large increase from 2008.
Natural Gas Prices (1990 – 2008)
Lower prices reflect a number of fundamental changes in the industry. First, the economic downturn has greatly reduced consumption. Both industrial and commercial users are focused on cutting costs and laying off employees; with fewer employees less energy is used heating buildings and producing products. Energy efficiency is also slowing consumption. The EIA estimates that growth in electricity use slowed from 9% per year in the 1950s to only 1% in 2007-2008.
Source: EIA Annual Energy Outlook 2009
Lower Prices
Lower market prices, resulting from oversupply in the U.S., will bring in much lower levels of revenue in 2009 and result in less industry investment, but possibly attract new customers. Natural gas prices have lost over 70% of their value since hitting a peak price of $13.69 per mmBtu in July 2008. Prices have declined considerably from that peak, again reaching the $4 level. At the end of trading day (March 4, 2009), the 12-month strip, which is the average for natural gas futures contracts over the next year, was priced at $5.16 per mmBtu. The futures market indicates that prices will average less than $6 per mmBtu through 2012.
Second, supply increases are lowering prices. “Through the first 11 months of 2008, domestic production increased by 6.7 percent in comparison with the same period in 2007”, according to EIA’s Natural Gas Monthly, despite estimated production shut-ins of more than 400 bcf as a result of hurricanes in xviii September.” If natural gas prices remain low, as predicted, investments in new capacity will slow. Recently in the oil industry, OPEC nations delayed 35 oil-drilling xix projects as prices dropped and financing costs rose. Faced with the reality of sustained lower prices, energy companies are cutting spending and finding an appropriate match between supply and demand for their operations. CHK “cut capital spending plans four times in as many months—by a cumulative 61%--late xx last year.”
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Production and Rig Cuts
Ample supplies and surging production have depressed prices and forced producers to idle rigs, review production growth forecasts and cut investment. During the past three years, companies invested heavily and raised production levels in order to benefit from historically high natural gas prices. Now with oversupply and tight credit markets, gas prices have dropped drastically and companies are cutting production and capital expenditures rapidly to conserve resources. Some higher cost drilling opportunities are no longer economically feasible. Swift Energy, for example, currently has zero rigs operating, and it has stated that it will commence drilling again when the costs reflect the current operating and lower pricing environment. Industry-wide natural gas rigs were down to 916, down 540 from last year’s level of 1,456. Horizontal drilling, interestingly one of Chesapeake’s core skills, rigs is down the least in terms of percent change. Horizontal drill rigs were only down an annual rate of 8.6%. On March 2, 2009, Chesapeake announced that it was curtailing 7% of its current gross operated production to combat low prices and was considering an additional 10% reduction in its drilling activity during 2009 if prices remain low. Since Chesapeake is 80% hedged and $4 billion of its costs are born by other companies in 2009, it has more flexibility to cut production than other firms. So many rigs have been shut since September 2008, 45% of U.S. rigs, that demand may outpace supply in the fourth quarter of 2009 and push prices back over $7 xxi per mmBtu .
rather than natural gas. The President’s goal to replace imported oil and other fossil fuels with a “clean-energy economy” powered by wind, the sun and biofuels does not mention natural gas. If renewable energy sources receive billions of dollars of support, the natural gas industry will be at a disadvantage. With natural gas being a cleaner burning resource than oil and being primarily produced in the U.S., it would not be politically astute to ignore or severely disadvantage this industry. To follow through on campaign promises though, President Obama may re-instate the executive order banning Federal Outer Continental Shelf oil and gas production. Overall, we think it is likely that the new Administration will assist the natural gas industry in a publicized effort to enhance the environment and adopt more natural gas transportation methods.
Power Plants
In order to meet growing demand for electricity, the EIA predicts that 335 gigawatts of new electric generation xxii capacity will be needed by 2025 . Since natural gasfired combined cycle generation plants have many advantages over coal-fired plants, the EIA expects that 57 percent of new electric generation capacity built by 2025 will be natural gas combined-cycle or combustion turbine generation. Increased demand for electricity in general and retirement of older generation plants will create a requirement for electric generation that can be easily filled by natural gas use. Natural gas power plants are a good alternative to fulfill new electrical generation requirements for a number of reasons. First, natural gas plants have relatively low capital requirements and can be scaled to a customer’s needs. Second, natural gas plants are extremely energy efficient. According to NaturalGas.org, modern plants approach 60 percent efficiency, increasing electricity produced per unit of natural gas used, and increasing cost effectiveness. Third, natural gas systems can be quickly turned on and off to meet short turn requirements. Finally, natural gas is the cleanest burning fossil fuel; natural gas plants emit very few pollutants into the air. With more emissions regulations anticipated and uncertain market demand in the future, it is a smart business decision to build a natural gas plant instead of another electrical generator. We expect the percentage of electricity generated by natural gas to increase due to its environmentally friendly nature, its increased use of the fuel by future power plants and its lower relative cost.
U.S. Natural Gas Drilling Rig Count (Jan 2001 to Jan 2009)
Source: Baker Hughes Company Website
MARKETS AND COMPETITION
The natural gas industry is very competitive, capital intensive and extremely volatile. In order to compete, companies must have substantial capital to develop fields into production and take substantial risks. Proprietary information, economies of scale and integration across industries allow companies to achieve different levels of profitability. Within the
Political Support
Policies of President Obama and his new Secretary of Energy, Dr. Chu, may significantly impact natural gas markets. The Obama administration may remove tax benefits, restrict drilling and emphasize renewables
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industry, there are many formidable competitors. Six Noble Energy Inc. operators who have significant natural gas exploration and production operations are discussed on the Noble Energy is an independent energy exploration and following page and their stock performances are production company. The Company operates throughout major basins in the United States including charted in Figure 2. the Rocky Mountain region, the Mid-continent region, the Gulf Coast and in the deepwater Gulf of Mexico. Noble operates internationally in South America, the Middle East, Asia, the North Sea, and West Africa.
P/E Apache XTO Energy Anadarko Chesapeake 5.21 9.53 5.58 3.18 Sales (B) 13.44 7.33 14.64 10.74 4.02 ROE 28.29 17.56 18.38 13.28 25.32 ROA 15.54 8.59 6.55 6.18 11.08 EV/EBITDA 2.667 6.185 3.325 4.334 3.702
Noble 7.07 * Metrics are TTM
Figure 2 – Competitors’ Stock Performance Among these competitors in the U.S. natural gas industry, all are trading at less than nine times earnings, Apache Corporation with the exceptions of XTO Energy and Southwestern.
Apache Corporation explores for and produces natural gas, crude oil, and natural gas liquids. The Company has operations in North America, Egypt, Western Australia, Poland, and the People's Republic of xxiii China. XTO Energy shows a surprisingly low $19M in cash and debt of $11.12B. Chesapeake also had a lot of debt, $14.35B, when compared to its cash of $1.96B. Due to debt concerns, Chesapeake’s stock price is down over 50% while others in the industry are down less than 40%. Given depressed share prices, stronger players in the market could acquire reserves or otherwise consolidate the market by purchasing weakened and vulnerable companies. Major integrated oil and gas companies, such as Exxon, Shell or BP, that earned large profits during 2007 and 2008 could look to acquire smaller firms with financing problems. Currently, with less than 25% debt and sizable cash positions, Apache and Noble appear to be best prepared for additional declines in the market. With the exception of its debt position, Chesapeake has at least three competitive advantages over its competitors. First, Chesapeake is a “have” company. It is one of approximately 10 companies that have extensive acreage in each of the Big 4 shale plays. Chesapeake’s management believes that “Shale haves” will experience very low finding and development costs, lower operating costs, lower maintenance and operating risk, and higher growth rates than “Shale have-nots” for decades to come. Second, joint venture carries enable Chesapeake to drill economically even when other companies may not; the carries effectively lower Chesapeake’s costs. Third, other potential joint venture partners are seeking opportunities with Chesapeake because it has the best onshore leasehold inventory and 3-D seismic data.
XTO Energy Inc.
XTO Energy, Inc. is a natural gas producer that acquires, exploits, and develops long-lived oil and gas properties. The Company's properties are concentrated in Texas, Oklahoma, Kansas, New Mexico, Colorado, Arkansas, Wyoming, Louisiana and Alaska, all located in the United States.
Anadarko Petroleum Corporation
Anadarko Petroleum Corporation is an independent oil and gas exploration and production company with international operations. In the United States, the Company operates in Texas and surrounding states, the Rocky Mountain region, Alaska, and the Gulf of Mexico. Internationally, Anadarko has exploration and/or production operations in Africa, Asia, South America, and the Caribbean.
Chesapeake Energy Corporation
Chesapeake Energy Corporation produces oil and natural gas. The Company's operations are focused on developmental drilling and producing property acquisitions in onshore natural gas producing areas of the United States and Canada.
Southwestern Energy Company
Southwestern Energy Company is an integrated energy company primarily focused on natural gas. The Company explores for and produces natural gas and crude oil. Southwestern Energy also conducts operations in natural gas gathering, transmission, and marketing, as well as natural gas distribution.
Innovation
Recent advances in technology, past high energy prices and increasing concerns about energy security have sparked innovation. New technology has made old ideas less costly and new ideas potentially viable.
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Royal Dutch Shell is building an $18B plant in Qatar to xxiv transform natural gas to diesel fuel . If successful, this advance could radically alter the natural gas industry, enabling Shell to turn natural gas into highervalue fuel and lubricants. While Shell’s gas-to-liquid (GTL) fuel improves the performance of a car, it sells at a premium to conventional diesel and may not be profitable at current oil and gas prices. We think that widespread acceptance and distribution of such an alternate fuel is highly unlikely. Royal Dutch Shell, ExxonMobil, Chevron and the U.S. Department of Defense have all taken similar gambles and thus far not achieved large scale success. Australian coal seam gas is more likely to keep downward pressure on international natural gas prices and potentially push excess gas into the U.S. market. As advances in technology have lowered the cost of recovering gas from unconventional sources in the U.S. for Chesapeake, so too have advances made recovery of coal seam gas in Australia more viable. In the past, less expensive sources were pursued. Nationalization of assets, political pressures and violence in countries like Venezuela, Russia and Nigeria though encouraged broader thinking. Driven to safe, investor-friendly countries that are close to lucrative end markets, energy companies increased oil and gas deals in Australia last year to $16.6 billion according Price xxv WaterhouseCoopers . While possibly contributing to lower international natural gas prices in 2012, when five LNG plants are scheduled to start-up in Queensland, coal seam gas could be an opportunity for Chesapeake. Chesapeake’s technical expertise and experience with unconventional sources could make it an appealing partner for an international firm. During its 2008 Q4 earnings conference call on February 18, 2009, management specifically mentioned that several international players are very interested in the company’s Barnett Shale play and multiple discussions are ongoing.
the quarter ended December 31, 2008, even India’s economy slowed to 5.3%, its lowest rate of growth in xxvii Many countries’ economies, nearly six years . previously thought relatively immune from the economic downturn, are slowing significantly and resulting in less natural gas demand from commercial and industrial users. Worsening international economic conditions will continue to exacerbate reductions in natural gas use, and further depress natural gas prices in the near term. Not only is growth decelerating sharply in large nations, such as China, India and Brazil, but some emerging economies also surprised economists by reporting xxviii negative inflation-adjusted GDP. Declining trade, shrinking investment and slumping commodity prices are reducing demand for goods, and resulting in lower commercial and industrial use of natural gas. We believe negative or greatly reduced international GDP growth for the remainder of the 2009 will depress natural gas demand, and demand will not to see much improvement for at least one year. Similarly, natural gas demand has and continues to drop in the United States. In the November 26, 2008 Wall Street Journal, it was reported that “The U.S. consumer is in major trouble, with wage and salary income growth evaporating, credit extremely tight or unavailable, home prices continuing to decline” and “gross domestic product declined at a 0.5% annual rate in the July-September period.” Federal stimulus packages will boost federal spending and help blunt the U.S. GDP decline, but only moderately. As federal spending increases, state and local spending is decreasing. Lower income, sales and property tax revenues are forcing many states to cut spending and to delay state projects. We expect higher taxes, raised to offset deficits in some states, to contribute to further reductions in consumer and business spending.
In addition to growth concerns, unemployment is estimated by Goldman Sachs to rise as high as 9% in Economic Outlook 2009, with companies like Citigroup laying off 53,000 employees. In January 2009, Labor Department data GDP and Unemployment reported that 598,000 jobs were lost, the most in 34 International, national and local economies are years. Every week in February, more than 600,000 contracting, and are causing an associated rapid new claims for unemployment were filed. In California, decline in natural gas consumption. On November 28, the unemployment rate hit 10.1% in Januaryxxix. 2008 the Financial Times reported that “economic confidence in the 15-country [Euro zone] crashed this In light of these economic conditions and higher month to its lowest point since August 1993” and unemployment, international and domestic consumers, “economic news has been consistently gloomier than and companies have cut back. Cutbacks by consumers expected.” Data from the economic research group and businesses reduce demand for natural gas and Markit Economics showed that output, new orders and contribute to lower prices. Negative growth GDP and employment intentions in the euro zone’s associated unemployment in the international manufacturing sector fell to records lows in February. community also diminish natural gas demand and Meanwhile, forecasts from J.P. Morgan predict that at potentially cause a worsened oversupply condition. least 11 emerging economies including Russia, Mexico, Housing South Korea and Taiwan will shrink in 2009, and four xxvi other emerging economies will show no growth . For While many have taken signs of declining home inventories and lower reductions in home prices to be
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favorable signs of stabilization of the housing market, and are heartened to see a source of hope to support consumer confidence, declines continue. On February 26, 2009, the Wall Street Journal reported that the median home price dropped 14.8% in January to $170,300 from the year earlier level, and the year-overxxx year drop in December was 15.2% . With an inventory of 9.6 months at current sales rates, Ian Shepherdson of High Frequency Economics believes that home inventory is “still so high, at just under 10 months, that it guarantees further price falls. The stimulus package will slow price declines and assist in stabilization of the housing market, but a further 5-15% decline in sales prices is expected. This continued depression of housing prices will restrain consumer spending and contribute to delaying a recovery in consumer spending until 2010. Fear caused by declining home values, significant losses in personal portfolios and increased unemployment will slow spending by consumers and contribute to continued weakness in the natural gas consumption.
opportunities for an international strategic alliance to jointly explore unconventional natural gas opportunities worldwide”. With top positions in high producing shales and years of experience with unconventional plays, Chesapeake would make a good partner or acquisition for another company looking to gain knowledge and experience about unconventional natural gas plays.
Production Cost Advantage/Lower Costs
Joint venture cost carries should give Chesapeake the lowest finding costs in the industry and result in high returns on capital in 2009, 2010 and beyond. Also, with service and administrative costs dropping significantly due to low demand, management noted during its Q4 earnings conference call that the company’s joint venture carries will effectively pay for more than the $4 billion of expenses originally envisioned. These cost carries give Chesapeake a great cost advantage over its competitors. Resulting lower costs enable Chesapeake to produce profitability in several of its regions, even if natural gas prices drop further below $4/mmBtu. According to management’s March 2009 investor presentation, Chesapeake will be able to add Low Interest Rates 2-2.5 tcfe in reserves per year at $1.25/mcfe in 2009 Lower interest rates should help speed a recovery by finding and development costs and $1.50/mcfe in 2010. stabilizing mortgages rates, increasing consumer Most of Its competitors’ finding and development costs lending and encouraging more commercial lending. will exceed $2/mcfe. Due to bank bailout uncertainty and unknown levels of bad debt risk on bank balance sheets, we think credit Figure 3 – Finding and Development Costs markets will be slow to thaw. Unlike past recessions, we think the combination of housing, credit and financial crises will prolong recessionary conditions and delay recovery. If a “massive increase in corporate bond defaults in 2009” begins, as Standard and Poor’s is forecasting, interest rates will remain low and a xxxi recovery will be delayed well into 2010 . Companies and individuals have little to no capacity to extend purchasing and governments are constrained as well. With interest rates at the lowest level possible and with high debt loads, both the national Treasury and Source: CHK April 2009 Investor Presentation individual citizens need to delever but, in doing so, will continue to mute recovery into 2010. Lower Prices/New Uses for Natural Gas
CATALYSTS FOR GROWTH
International Interest in Asset Base
As Asian and European countries look for more independent sources of natural gas and seek new techniques of recovering natural gas, more joint ventures with Chesapeake are expected. Chesapeake’s experience with horizontal drilling and fracture stimulation could help other countries better tap their resources while best preserving the surrounding environment. During management’s fourth quarter (Q4) earnings conference, brief comments were made about pursuing additional joint ventures and ongoing discussions. In Chesapeake’s annual report management specifically stated: “Additionally, Chesapeake and Statoil Hydro are evaluating
Lower natural gas prices, particularly if lower in comparison to oil or other substitutes, will cause countries, companies and individuals to seek out new ways to use the cheaper source of energy. Building more natural gas power plants and powering vehicle fleets with natural gas are just a few of the new uses proposed for natural gas that would boost demand. T. Boone Pickens is a vocal advocate for increasing use of natural gas in transportation. Since transportation is a major use, if not the major use, of energy in the world, transitioning even a fraction of the 230 million gasoline-powered cars would make a significant difference. Some companies are experimenting with the change. UPS has deployed xxxii over a 160 natural gas trucks. By 2004, Honda had
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about 130,000 vehicles running on natural gas. Without a major technological advance though, natural gas use in vehicles will be small and kept to fleet vehicles.
xxxiii
Government/Regulation
The Obama Administration’s April 18 declaration that carbon dioxide and five other industrial emissions threaten the planet lays the groundwork for EPA or Congressional caps on carbon emissions. Such caps could produce Federal mandates to use cleaner energy, particularly for electricity production and transportation. Potentially, emissions caps could result in higher natural gas prices by encouraging construction of new natural gas-fired power plants and possibly conversion of vehicles to natural gas.
expected to divert more gas to the U.S. A ready supply of natural gas and gas in storage will keep prices depressed. Oversupply of natural gas will keep natural gas prices low and depress Chesapeake’s potential earnings. Management will likely to resist a takeover in part because of Chesapeake CEO Aubrey McClendon’s Founder Well Sharing deal—a 2.5% share of production. Potential bidders will also be put off by the golden parachutes protecting executive officers. Approximately 4.2% of CHK’s stock is owned by insiders. With the world economy projected to shrink this year, natural gas use will continuing experiencing declining use. Persistent, depressed economic conditions will keep prices low. Natural gas prices are unlikely to recover above $6 per million Btu until the beginning of 2010 in the absence a significant supply event, such as a hurricane, an unforeseen demand increase or a rebalancing of supply and demand, as tentatively indicated by a large reduction in drilling rigs. Popular alternative energy options that exclude natural gas because it is a fossil fuel will harm natural gas’ long-term consumption and development. Hydroelectric and solar power, are projected to provide an increased amount of energy generation going forward, and tend to get more attention than natural gas.
Reduced Competition
Some firms in the natural gas industry are highly levered and maintain high levels of debt to fund capital intensive projects and ongoing operations. Many such levered firms may go bankrupt or get consolidated as lower natural gas prices, tight credit markets and higher expenses increase financial strains. As more firms leave the market, or reduce their capabilities, such as reducing rigs, Chesapeake stands to gain from greater market share and higher prices resulting from lower supply.
INVESTMENT POSITIVES
With a company calculated net asset value of $30 billion, or $49 share, significant upside potential is not currently reflected in the company’s stock price or in its financial statements. Carry receivables of $4 billion are not booked and the company has a $1.7 billion open mark-to-market hedging position. These values will be reflected in the company’s value in the future. Chesapeake’s low cost structure gives it great flexibility to increase production sooner than many of its competitors when natural gas prices begin to recover, and also to stop production when it is not valuable.
VALUATION
We recommend Chesapeake as a buy recommendation because of its asset base, joint venture cost savings, hedging value and proven assets. Valuation models value Chesapeake at $23.81 and $36.50. But, due to uncertainties in CHK’s capitalization of interest expenses and leaseback agreements, we think $23.81 is the most accurate estimate of CHK’s value. At its current price of $14.06, it is almost 70% undervalued. Since the Fund currently holds this stock, we recommend maintaining the position. If Chesapeake’s capital requirements or liquidity deteriorate though, the position should be reevaluated. Since Chesapeake has increased its liquidity and established contingency plans to remain cash flow positive, we believe its financing is stable and reasonable for the current environment. If the target price of $23.81 is reached, it should be evaluated as a sell possibility.
Chesapeake’s industry technology and high quality assets will continue to attract parties interested in joint ventures with Chesapeake. Although the company’s existing joint ventures make a merger or acquisition unlikely, the possibility exists that a larger firm would acquire Chesapeake for its leading shale Caught in a downward economic spiral of low to plays, technology, 3-D seismic data, and debt. negative economic growth, increasing unemployment, difficult credits markets and declining personal wealth, INVESTMENT NEGATIVES consumers and the government have little room to Based on new natural gas recovery techniques and increase spending and even less confidence in the new finds in the United States, U.S. natural gas future. Despite near zero interest rates, the Fed and production will be well-supplied and is expected to Treasury buying 100’s of billions in assets and a grow in the near-term, in excess of declines from stimulus package over $750 billion, company earnings existing fields. In addition, foreign LNG projects are
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and unemployment will continue to falter. When the S&P falls below 800, we would selectively buy xx The Wall Street Journal. February 10, 2009. B1. undervalued industry stocks with little debt and strong xxi Jutia Group. “Natural Gas Drilling Shutting Down Due to earnings. A note of caution: be sure that companies Low Prices. http://jutiagroup.com/2009/03/17. have restated the value of their reserves or that you xxii http://www.naturalgas.org/business/demand.asp. have considered re-valuation of reserves in your “Natural Gas Demand.” xxiii Bloomberg – Company profiles. valuation. xxiv The Wall Street Journal. February 9, 2009. R8, 9. xxv IMPORTANT DISCLAIMER The Wall Street Journal. February 26, 2009. “Australian Coal-Gas Sparks a Deal Boom.” Guy Chazan. B2. This report was created by a student(s) enrolled in the xxvi Applied Securities Management (Henry Fund) program xxvii The Wall Street Journal. February 10, 2009. C2. at the University of Iowa’s Tippie School of xxviii The Wall Street Journal. Feb 28-Mar 1, 2009. C2. Management. The intent of these reports is to provide xxix The Wall Street Journal. February 10, 2009. C1. potential employers and other interested parties an xxx The Wall Street Journal. Feb 28 – Mar 1, 2009. A2. example of the analytical skills, investment knowledge, xxxi The Wall Street Journal. February 26, 2009. A3. Business Week. “Corporate Failures: The Worst May Be and communication abilities of Henry Fund students. Yet to Come.” Tara Kalwarski. p13. Henry Fund analysts are not registered investment xxxii Future Pundit. January 10, 2009. “Pickens Versus advisors, brokers or officially licensed financial FedEx on Natural Gas Versus Electric Cars.” professionals. The investment opinion contained in this xxxiii USAToday.com. October 26, 2005. “Natural Gas Civic report does not represent an offer or solicitation to buy not Perfect, but Honda Expanding Sales.” or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report.
REFERENCES
CHK 2008 Company Annual Report. Free Cash Flow Reporter. “Chesapeake’s Free Cash Flow Hits Nine Year Low. March 9, 2009. iii March 2009 Investor Company presentation. p2. iv March 2009 Investor Company presentation. p5. v Company News Release. January 22, 2009. “Chesapeake Energy Corporation Again Named to FORTUNE List of “100 Best Companies to Work For.” vi The Play. “Recruiting a New Generation of Industry Leadership.” p14. vii 2008 Company Annual Report. p1. viii March 2009 Company Investor presentation. p9. ix The Wall Street Journal. April 14, 2009. C10. x EIA December 2008 early release. xi Standard & Poor’s Net Advantage. “Natural Gas Distribution: Industry Surveys.” December 25, 2008. xii http://www.bloomberg.com. “Natural Gas Gains Most in 10 Weeks After Stockpiles Decline.” March 12, 2009. xiii The Wall Street Journal. February 9, 2009. R6. xiv EIA. Natural Gas Weekly Update. February 12, 2009. xv YellowBrix. “Sakhalin II Project to Start LNG Exports to Japan in March.” February 9, 2009. xvi The Wall Street Journal. February 9, 2009. R7. xvii EnergyCurrent: News for the Business of Energy. “Natural Gas Glut Could Hit U.S.” February 2, 2009. xviii EIA. Natural Gas Weekly Update. February 12, 2009. xix The Wall Street Journal. February 10, 2009. A12.
ii i
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Chesapeake Energy Corp. Valuation Model - Key Assumptions Production, Sales, Prices and Expense Projections Fiscal Years Ending December 31 2006 Actual 526,459 8,654 578,383 2007 Actual 654,969 9,882 714,261 2008 Actual 775,424 11,220 842,744 2009E Recession 806,441 11,669 876,454 2010E Rec/Growth 854,827 12,369 929,041 2011E Growth 906,117 13,111 984,783 2012E Growth 960,484 13,898 1,043,870 CV Growth 998,903 14,454 1,085,625
Net Production Natural Gas (mmcf) Oil (mbbls) Natural Gas equivalent (mmcfe)
Natural Gas and Oil Sales Natural gas sales Natural gas derivatives - realized gains Natural gas derivatives - unrealized gains Total Natural gas sales Oil sales Oil derivatives - realized gains Oil derivatives - unrealized gains Total oil sales Total natural gas and oil sales Natural Gas and Oil Sales Marketing Sales/mmcfe
$
3,343,000 1,269,000 467,000 5,079,000 527,000 (15,000) 28,000 540,000 5,619,000 2.73 $
4,117,000 1,214,000 (139,000) 5,192,000 678,000 (11,000) (235,000) 432,000 5,624,000 2.86 $
6,003,000 Projected together with a unit price of mmcfe 267,000 521,000 6,791,000 1,066,000 (275,000) 276,000 1,067,000 7,858,000 6,168,498 6,958,126 7,375,421 7,871,670 8,252,849 4.27 $ 2.86 $ 2.86 $ 2.86 $ 2.86 $ 2.86
Average Sales Price (excluding gains (losses) on derivatives): Natural gas ($ per mcf) w/o hedges Oil ($ per bbl) w/o hedges Natural gas equivalent ($ per mcfe) Total avg price (hedged + unhedged portions weighted price for remaining fractions) Expenses ($ per mcfe) Production expenses (Expenses/volume) $ Production taxes $ G&A expenses (expenses/volume) $ Natural gas & oil depreciation, depletion & amortization $ Depreciation & amortization of other assets $
$ $ $ $ 8.39 7.74 $
4.41 $ 45.21 $ 7.04 $
5.79 $ 56.00 $ 7.49 $
6.41 $ 61.01 $ 7.49 $
6.61 $ 64.42 $ 7.54 $
6.88 66.99 7.60
0.85 0.31 0.24 2.35 0.18
$ $ $ $ $
0.90 0.30 0.34 2.57 0.22
$ $ $ $ $
1.05 0.34 0.45 2.34 0.21
$ $ $ $ $
1.10 0.25 0.35 1.95 0.26
$ $ $ $ $
1.10 0.26 0.34 1.95 0.26
$ $ $ $ $
1.10 0.27 0.33 1.95 0.26
$ $ $ $ $
1.10 0.28 0.31 1.95 0.26
$ $ $ $ $
1.10 0.28 0.30 1.95 0.26
Chesapeake Energy Corp. Oil and Natural Gas Price Projections Natural Gas Futures (Week of March 2, 2009) (Henry Hub price) Jan Feb Mar Apr May 2009 $ 4.00 $ 4.06 2010 $ 5.85 $ 5.86 $ 5.74 $ 5.43 $ 5.45 2011 $ 6.76 $ 6.75 $ 6.57 $ 6.05 $ 6.02 2012 $ 7.12 $ 7.12 $ 6.89 $ 6.25 $ 6.13 Source: http://futures.tradingcharts.com/marketquotes/NG_.html Annual Average $ 4.41 $ 5.79 $ 6.41 $ 6.61
$ $ $ $
Jun 4.18 5.54 6.10 6.26
$ $ $ $
Jul 4.32 5.66 6.19 6.36
$ $ $ $
Aug 4.42 5.72 6.26 6.42
$ $ $ $
Sep 4.47 5.75 6.29 6.45
$ $ $ $
Oct 3.57 5.84 6.37 6.53
$ $ $ $
Nov 5.05 6.16 6.62 6.76
$ $ $ $
Dec 5.58 6.53 6.90 7.05
Oil Futures (March 12, 2009) (West Texas Intermediate price-NYMEX) Jan Feb Mar Apr May Jun 2009 $ 47.03 $ 47.97 $ 49.01 2010 $ 53.42 $ 53.87 $ 54.43 $ 54.80 $ 55.27 $ 55.76 2011 $ 58.96 $ 59.36 $ 59.76 $ 60.16 $ 60.54 $ 60.91 2012 $ 63.15 $ 63.41 $ 63.67 $ 63.92 $ 64.16 $ 64.39 Source: (http://futures.tradingcharts.com/marketquotes/index.php3?market=CL)
$ $ $ $
Jul 49.99 56.24 61.26 64.59
$ $ $ $
Aug 50.80 56.71 61.60 64.78
$ $ $ $
Sep 50.51 57.18 61.93 64.96
$ $ $ $
Oct 52.01 57.65 62.25 65.15
$ $ $ $
Nov 52.49 58.11 62.56 65.32
$ $ $ $
Dec 52.97 58.56 62.87 65.50
Annual Average $ 50.31 $ 56.00 $ 61.01 $ 64.42
Chesapeake Energy Corp. Consolidated Annual Income/Operations Statement Fiscal Years Ending December 31 (in millions) 2006 REVENUES: Oil & natural gas sales Oil & natural gas marketing sales Service operations revenue Total revenues OPERATING COSTS: Production expenses Production taxes General & administrative expense Natural gas & oil marketing expenses Service operations expense Natural gas & oil depreciation, depletion & amortization Depreciation & amortization of other assets Impairment of nat gas & oil properties & other fixed assets Employee retirement expense Total operating costs INCOME FROM OPERATIONS OTHER INCOME (EXPENSE): Interest & other income Interest expense Gain on exchanges or repurchases of Chesapeake debt Impairment of assets Gain on sale of investment Total other income (expense) INCOME BEFORE INCOME TAXES INCOME TAX EXPENSE: Total Income Tax Expense NET INCOME PREFERRED STOCK DIVIDENDS NET INCOME AVAILABLE TO COMMON SHAREHOLDERS Basic earnings per share Cash dividends per common share Common shares outstanding (millions) $ $ 5,619 1,577 130 7,326 2007 5,624 2,040 136 7,800 2008 7,858 3,598 173 11,629 2009E 6,168 2,507 136 8,811 2010E 6,958 2,657 181 9,796 2011E 7,375 2,816 221 10,413 2012E 7,872 2,985 236 11,093 CV 8,253 3,105 248 11,605
489 176 139 1,522 68 1,359 104 0 55 3,913 3,413
640 216 243 1,969 94 1,835 154 0 0 5,151 2,649
889 284 377 3,505 143 1,970 177 2,830 0 10,175 1,454
964 219 307 2,426 102 1,709 228 0 0 5,955 2,856
1,022 242 316 2,572 136 1,812 242 0 0 6,340 3,456
1,083 266 325 2,726 166 1,920 256 0 0 6,743 3,670
1,148 292 324 2,890 177 2,036 271 0 0 7,138 3,955
1,194 304 326 3,006 186 2,117 282 0 0 7,414 4,191
25 -301 0 0 117 -158 3,255
15 -406 0 0 83 -308 2,341
-11 -314 237 -180 0 -268 1,186
42 -807 0 0 0 -765 2,091
75 -807 0 0 0 -732 2,724
63 -315 0 0 0 -253 3,418
58 -334 0 0 0 -276 3,679
56 -347 0 0 0 -292 3,899
1,252 2,003 -89 1,904 4.78 $ 0.23 $ 398
890 1,451 -94 1,229 2.69 $ 0.26 $ 456
463 723 -33 623 1.16 $ 0.29 $ 536
816 1,276 -33 1,243 2.04 $ 0.29 $ 608
1,062 1,662 -33 1,629 2.57 $ 0.30 $ 633
1,333 2,085 -33 2,052 3.21 $ 0.32 $ 639
1,435 2,244 -33 2,211 3.43 $ 0.33 $ 646
1,521 2,379 -33 2,346 3.60 0.35 652
Chesapeake Energy Corp. Consolidated Balance Sheet Fiscal Years Ending December 31 (in millions) 2006 CURRENT ASSETS: Cash & cash equivalents Accounts receivable Short-term derivative instruments Inventory Other current assets Total current assets PROPERTY AND EQUIPMENT: Natural gas & oil properties, at cost based on full-cost accounting: Evaluated oil & gas properties Unevaluated properties Less: accumulated deprec, depletion & amortiztn of oil & nat gas properties Total oil & gas properties, at cost based on full-cost accounting Natural gas gathering systems & treating plants Buildings & land Drilling rigs & equipment Natural gas compressors Other Less: accumulated depreciation & amortization of other property and equipment Total other property & equipment Total property & equipment OTHER ASSETS: Investments Long-term derivative instruments Other assets Total other assets TOTAL ASSETS:
CURRENT LIABILITIES Accounts payable Short-term derivative instruments Accrued liabilities Deferred income taxes Income taxes payable Revenues & royalties due others Accrued interest Total current liabilities LONG-TERM LIABILITIES: Long-term debt, net Deferred income tax liabilities Asset retirement obligation Long-term derivative instruments Revenues & royalties due others Other liabilities Total long-term liabilities CONTINGENCIES AND COMMITMENTS STOCKHOLDERS' EQUITY: Cumulative convertible preferred stock Paid-in capital (includes common stock) Retained earnings (accumulated deficit) Accumulated other comprehensive income (loss) Treasury stock, at cost Total stockholders' equity (deficit) TOTAL LIABILITIIES AND STOCKHOLDERS' EQUITY
2007 1 1,074 203 87 31 1,396
2008 1,749 1,324 1,082 58 79 4,292
2009E 2,120 1,108 0 68 51 3,347
2010E 3,775 1,232 0 71 51 5,129
2011E 3,128 1,310 0 75 51 4,564
2012E 2,913 1,395 0 78 51 4,438
CV 2,783 1,460 0 82 51 4,376
3 135 225 58 23 1,154
21,949 3,796 5,292 20,454 553 429 301 127 241 200 1,450 21,904 699 339 321 1,359 24,417
27,656 5,641 7,112 26,185 1,135 816 106 63 327 295 2,152 28,337 612 4 385 1,001 30,734
28,965 11,216 11,866 28,315 2,717 1,513 430 184 482 496 4,830 33,145 444 261 302 1,007 38,444
28,965 12,338 12,341 28,962 2,826 1,574 430 424 377 709 4,920 33,882 0 0 0 1,007 38,236
28,965 13,571 12,834 29,702 2,939 1,636 447 424 377 734 5,089 34,791 0 0 0 1,007 40,927
28,965 14,928 13,348 30,546 3,056 1,702 465 424 377 759 5,265 35,811 0 0 0 1,007 41,381
28,965 16,421 13,882 31,505 3,179 1,770 484 424 377 785 5,447 36,952 0 0 0 1,007 42,397
28,965 18,063 14,437 32,592 3,306 1,841 503 441 377 815 5,652 38,244 0 0 0 1,007 43,627
860 112 419 38 0 318 142 1,890
1,262 174 712 0 5 433 175 2,761
1,611 66 880 358 108 431 167 3,621
1,172 66 678 0 0 396 167 2,480
1,303 66 754 0 0 441 186 2,750
1,385 66 802 0 0 469 198 2,919
1,475 66 854 0 0 499 211 3,106
1,544 66 894 0 0 522 221 3,246
7,376 3,317 193 160 30 200 11,276
10,950 3,966 236 408 42 241 15,843
14,184 3,763 269 111 49 150 18,526
13,306 3,763 247 111 44 150 17,621
14,243 3,763 274 111 49 167 18,606
14,401 3,763 292 111 52 177 18,795
14,754 3,763 311 111 55 189 19,183
15,182 3,763 325 111 58 197 19,636
1,955 5,878 2,914 528 26 11,251 24,417
960 7,037 4,150 -11 -6 13,095 31,699
505 10,841 4,694 267 -10 16,808 38,955
505 10,721 5,784 345 0 17,866 37,967
505 10,710 7,254 0 0 18,980 40,337
505 8,888 9,136 0 0 19,040 40,755
505 7,240 11,165 0 0 19,422 41,711
505 5,688 13,313 0 0 20,018 42,901
Chesapeake Energy Corp. Cash Flow Statement Fiscal Years Ending December 31 (in millions) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) Depreciation, depletion & amortization Deferred income taxes Unrealized losses (gains) on derivatives Realized losses (gains) on financing derivatives Stock-based compensation Loss (gain) on sale of investments Loss (income) from equity investments Gain on repurchases or exchanges of Chk senior notes Impairment of natural gas & oil properties and other fixed assets Impairment of investments Other Accounts receivable Inventory & other assets Accounts payable, accrued liabilities & other Current & non-current revenues & royalties due others Net cash flows from operating activities CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures Short-term investments & other assets Net cash flows from investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Net change in long-term debt Cash paid for common stock dividends Cash paid for preferred stock dividends Cash paid for treasury stock Net cash flows from financing activities Net incr (decr) in cash & cash equivalents Cash & cash equivalents, beginning of period Cash & cash equivalents, end of period
2006 2,003 1 1 -497 -136 84 -117 -10 0 0 0 3 -22 -126 1,025 -74 4,843
2007 1,451 2 1 415 -92 84 -83 0 0 0 0 8 -192 -65 430 126 4,932
2008 723 2,147 40 -712 38 132 0 38 -237 2,830 180 -1 -78 56 76 4 5,236
2009E 1,276 1,937 0 -880 0 101 0 0 0 0 0 0 -216 18 -641 -35 1,561
2010E 1,662 2,053 0 -678 0 111 0 0 0 0 0 0 124 -3 207 44 3,519
2011E 2,085 2,176 0 -754 0 122 0 0 0 0 0 0 78 -4 130 28 3,860
2012E 2,244 2,307 0 -802 0 134 0 0 0 0 0 0 86 -4 143 31 4,139
CV 2,379 2,399 0 -854 0 148 0 0 0 0 0 0 64 -4 108 23 4,262
-8,726 -554 -8942
-9713 0 -7922
-17649 -74 -9844
-737 0 -737
-909 0 -909
-1019 0 -1019
-1142 0 -1142
-1292 0 -1292
106 -87 -88 -86 4,042 -56 60 4
1,772 -115 -95 0 2,988 -2 3 1
1,984 -148 -35 -5 6,356 1,748 1 1,749
-455 -185 -33 -6 -679 144 1749 1,893
0 -192 -33 -6 -231 2,379 2120 4,499
0 -203 -33 -6 -242 2,599 3775 6,373
0 -215 -33 -7 -255 2,742 3128 5,871
0 -230 -33 -7 -270 2,700 2913 5,613
Chesapeake Energy Corp. Common Size Consolidated Annual Income/Operations Statement Fiscal Years Ending December 31 (All numbers expressed as % of total revenues) 2006 REVENUES: Oil & natural gas sales 76.7% Oil & natural gas marketing sales 21.5% Service operations revenue 1.8% Total revenues 100.0% OPERATING COSTS: Production expenses Production taxes General & administrative expense Natural gas & oil marketing expenses Service operations expense Natural gas & oil depreciation, depletion & amortization Depreciation & amortization of other assets Impairment of nat gas & oil properties & other fixed assets Employee retirement expense Total operating costs INCOME FROM OPERATIONS OTHER INCOME (EXPENSE): Interest & other income Interest expense Gain on exchanges or repurchases of Chesapeake debt Impairment of assets Gain on sale of investment Total other income (expense) INCOME BEFORE INCOME TAXES INCOME TAX EXPENSE: Current Deferred Total Income Tax Expense NET INCOME PREFERRED STOCK DIVIDENDS LOSS ON CONVERSION/EXCHANGE OF PREFERRED SHARES NET INCOME AVAILABLE TO COMMON SHAREHOLDERS
2007 72.1% 26.2% 1.7% 100.0%
2008 67.6% 30.9% 1.5% 100.0%
2009E 70.0% 28.4% 1.5% 100.0%
2010E 71.0% 28.4% 1.8% 101.3%
2011E 70.8% 28.4% 2.1% 101.4%
2012E 71.0% 28.4% 2.1% 101.5%
CV 71.1% 28.4% 2.1% 101.7%
6.7% 2.4% 1.9% 20.8% 0.9% 18.5% 1.4% 0.0% 0.8% 53.4% 46.6%
8.2% 2.8% 3.1% 25.2% 1.2% 23.5% 2.0% 0.0% 0.0% 66.0% 34.0%
7.6% 2.4% 3.2% 30.1% 1.2% 16.9% 1.5% 24.3% 0.0% 87.5% 12.5%
10.9% 2.5% 3.5% 27.5% 1.2% 19.4% 2.6% 0.0% 0.0% 67.6% 32.4%
10.4% 2.5% 3.2% 26.3% 1.4% 18.5% 2.5% 0.0% 0.0% 64.7% 35.3%
10.4% 2.6% 3.1% 26.2% 1.6% 18.4% 2.5% 0.0% 0.0% 64.8% 35.2%
10.4% 2.6% 2.9% 26.1% 1.6% 18.3% 2.4% 0.0% 0.0% 64.3% 35.7%
10.3% 2.6% 2.8% 25.9% 1.6% 18.2% 2.4% 0.0% 0.0% 63.9% 36.1%
0.3% -4.1% 0.0% 0.0% 1.6% -2.2% 44.4%
0.2% -5.2% 0.0% 0.0% 1.1% -3.9% 30.0%
-0.1% -2.7% 2.0% -1.5% 0.0% -2.3% 10.2%
0.5% -9.2% 0.0% 0.0% 0.0% -8.7% 23.7%
0.8% -8.2% 0.0% 0.0% 0.0% -7.5% 27.8%
0.6% -3.0% 0.0% 0.0% 0.0% -2.4% 32.8%
0.5% -3.0% 0.0% 0.0% 0.0% -2.5% 33.2%
0.5% -3.0% 0.0% 0.0% 0.0% -2.5% 33.6%
0.1% 17.0% 17.1% 27.3% -1.2% -0.1% 26.0%
0.4% 11.0% 11.4% 18.6% -1.2% -1.6% 15.8%
3.6% 0.3% 4.0% 6.2% -0.3% -0.6% 5.4%
9.3% 0.0% 9.3% 14.5% -0.4% 0.0% 14.1%
10.8% 0.0% 10.8% 17.0% -0.3% 0.0% 16.6%
12.8% 0.0% 12.8% 20.0% -0.3% 0.0% 19.7%
12.9% 0.0% 12.9% 20.2% -0.3% 0.0% 19.9%
13.1% 0.0% 13.1% 20.5% -0.3% 0.0% 20.2%
Chesapeake Energy Corp. Common Size Consolidated Balance Sheet Fiscal Years Ending December 31 (in millions) (as a % of total revenues) 2006 CURRENT ASSETS: Cash & cash equivalents Accounts receivable Short-term derivative instruments Inventory Other current assets Total current assets PROPERTY AND EQUIPMENT: Natural gas & oil properties, at cost based on full-cost accounting: Evaluated oil & gas properties Unevaluated properties Less: accumulated deprec, depletion & amortiztn of oil & nat gas properties Total oil & gas properties, at cost based on full-cost accounting Natural gas gathering systems & treating plants Buildings & land Drilling rigs & equipment Natural gas compressors Other Less: accumulated depreciation & amortization of other property and equipment Total other property & equipment Total property & equipment OTHER ASSETS: Investments Long-term derivative instruments Other assets Total other assets TOTAL ASSETS:
CURRENT LIABILITIES Accounts payable Short-term derivative instruments Accrued liabilities Deferred income taxes Income taxes payable Revenues & royalties due others Accrued interest Total current liabilities LONG-TERM LIABILITIES: Long-term debt, net Deferred income tax liabilities Asset retirement obligation Long-term derivative instruments Revenues & royalties due others Other liabilities Total long-term liabilities CONTINGENCIES AND COMMITMENTS STOCKHOLDERS' EQUITY: Cumulative convertible preferred stock Paid-in capital (includes common stock) Retained earnings (accumulated deficit) Accumulated other comprehensive income (loss) Treasury stock, at cost Total stockholders' equity (deficit) TOTAL LIABILITIIES AND STOCKHOLDERS' EQUITY
2007 0.01% 13.77% 2.60% 1.12% 0.40% 17.90%
2008 15.04% 11.39% 9.30% 0.50% 0.68% 36.91%
2009E 24.06% 12.58% 0.00% 0.77% 0.58% 37.98%
2010E 38.53% 12.58% 0.00% 0.73% 0.52% 52.36%
2011E 30.04% 12.58% 0.00% 0.72% 0.49% 43.83%
2012E 26.26% 12.58% 0.00% 0.71% 0.46% 40.00%
CV 23.98% 12.58% 0.00% 0.71% 0.44% 37.70%
0.03% 1.85% 3.07% 0.80% 0.32% 15.75%
299.60% 51.82% 72.23% 279.19% 7.54% 5.85% 4.11% 1.73% 3.29% 2.73% 19.79% 298.98% 9.54% 4.63% 4.38% 18.55% 333.29%
354.56% 72.32% 91.18% 335.71% 14.55% 10.46% 1.36% 0.81% 4.19% 3.78% 27.59% 363.29% 7.85% 0.05% 4.94% 12.83% 394.03%
249.08% 96.45% 102.04% 243.49% 23.36% 13.01% 3.70% 1.58% 4.14% 4.27% 41.53% 285.02% 3.82% 2.24% 2.60% 8.66% 330.59%
328.74% 140.03% 140.06% 328.71% 32.07% 17.86% 4.88% 4.81% 4.27% 8.05% 55.84% 384.55% 0.00% 0.00% 0.00% 11.43% 433.97%
295.68% 138.54% 131.01% 303.20% 30.00% 16.71% 4.57% 4.33% 3.84% 7.49% 51.95% 355.16% 0.00% 0.00% 0.00% 10.28% 417.79%
278.16% 143.36% 128.18% 293.34% 29.35% 16.34% 4.47% 4.07% 3.62% 7.29% 50.56% 343.90% 0.00% 0.00% 0.00% 9.67% 397.40%
261.10% 148.03% 125.13% 284.00% 28.65% 15.96% 4.36% 3.82% 3.39% 7.08% 49.11% 333.10% 0.00% 0.00% 0.00% 9.08% 382.18%
249.58% 155.65% 124.40% 280.83% 28.48% 15.86% 4.33% 3.80% 3.24% 7.02% 48.70% 329.54% 0.00% 0.00% 0.00% 8.68% 375.92%
11.74% 1.52% 5.72% 0.53% 0.00% 4.34% 1.94% 25.80%
16.18% 2.23% 9.13% 0.00% 0.06% 5.55% 2.24% 35.40%
13.85% 0.57% 7.57% 3.08% 0.93% 3.71% 1.44% 31.14%
13.30% 0.75% 7.70% 0.00% 0.00% 4.50% 1.90% 28.15%
13.30% 0.67% 7.70% 0.00% 0.00% 4.50% 1.90% 28.07%
13.30% 0.63% 7.70% 0.00% 0.00% 4.50% 1.90% 28.03%
13.30% 0.59% 7.70% 0.00% 0.00% 4.50% 1.90% 27.99%
13.30% 0.57% 7.70% 0.00% 0.00% 4.50% 1.90% 27.97%
100.67% 45.28% 2.63% 2.19% 0.41% 2.73% 153.91%
140.38% 50.85% 3.03% 5.23% 0.54% 3.09% 203.12%
121.97% 32.36% 2.31% 0.95% 0.42% 1.29% 159.31%
151.02% 42.71% 2.80% 1.26% 0.50% 1.70% 199.99%
145.39% 38.41% 2.80% 1.13% 0.50% 1.70% 189.94%
138.29% 36.14% 2.80% 1.07% 0.50% 1.70% 180.50%
133.00% 33.92% 2.80% 1.00% 0.50% 1.70% 172.92%
130.82% 32.42% 2.80% 0.96% 0.50% 1.70% 169.20%
26.69% 80.23% 39.77% 7.21% 0.36% 153.58% 333.29%
12.31% 90.22% 53.21% -0.14% -0.08% 167.88% 406.40%
4.34% 93.22% 40.36% 2.30% -0.09% 144.54% 334.98%
5.73% 121.68% 65.65% 3.92% 0.00% 202.78% 430.91%
5.16% 109.33% 74.05% 0.00% 0.00% 193.76% 411.77%
4.85% 85.35% 87.73% 0.00% 0.00% 182.85% 391.38%
4.55% 65.26% 100.65% 0.00% 0.00% 175.08% 376.00%
4.35% 49.01% 114.72% 0.00% 0.00% 172.49% 369.66%
Chesapeake Energy Corp. Value Drivers Fiscal Years Ending December 31 (in millions) 2006 NOPLAT EBITA Less: Taxes on EBITA Marginal Tax Rate Total Income Tax Provision Plus: Tax shield on Interest Expense Less: Tax on Interest Income Less: Tax on Non-operating Income Taxes on EBITA Plus: Change in Deferred Taxes NOPLAT INVESTED CAPITAL Operating Working Capital: Plus: Normal Cash (.8% of sales) Plus: Receivables Plus: Inventory Plus: Prepaid Expenses Plus: Other current operating assets Less: Accounts Payable Less: Other Accrued Liabilities Less: Short-term derivatives contracts Less: Revenues and royalities due to others Net Operating Working Capital Net PPE Net Present Value of operating leases Other operating assets Other operating liabilities NET INVESTED CAPITAL ROIC (NOPLAT/Invested Capital) NOPLAT Invested capital (beginning) ROIC (NOPLAT/Invested Capital) FREE CASH FLOW NOPLAT Net Investment (change in invested capital) Free Cash Flow (NOPLAT - Net Investment) ECONOMIC PROFIT Invested Capital (Beginning) ROIC WACC EP (Invested Capital*(ROIC-WACC)) NON-OPERATING ASSETS Cash on Hand "Normal" Cash Excess Cash Net derivative values Non-Operating Assets 3,413 38.5% 1,252 116 10 (16) 1,362 38 2,090 2007 2,649 38.0% 890 154 6 (86) 965 (38) 1,646 2008 1,454 39.0% 463 123 (4) (82) 499 358 1,313 2009E 2,856 39.0% 816 315 0 0 1,130 (358) 1,367 2010E 3,456 39.0% 1,062 315 0 0 1,377 0 2,079 2011E 3,670 39.0% 1,333 123 0 0 1,456 0 2,215 2012E 3,955 39.0% 1,435 130 0 0 1,565 0 2,390 CV 4,191 39.0% 1,521 135 0 0 1,656 0 2,535
586 135 58 0 23 860 419 112 318 -906 21904 0 1359 200 22,557
624 1,074 87 0 31 1262 712 174 433 -765 28337 0 1001 241 28,814
930 1,324 58 0 79 1611 880 66 431 -597 33145 0 1007 150 33,705
705 1,108 68 0 51 1172 678 66 396 -381 33882 667 1007 150 35,325
784 1,232 71 0 51 1303 754 66 441 -426 34791 685 1007 167 36,224
833 1,310 75 0 51 1385 802 66 469 -453 35811 705 1007 177 37,247
887 1,395 78 0 51 1475 854 66 499 -483 36952 727 1007 189 38,392
928 1,460 82 0 51 1544 894 66 522 -504 38244 753 1007 197 39,697
2,090
1,646 22,557 7.3%
1,313 28,814 4.6%
1,367 33,705 4.1%
2,079 35,325 5.9%
2,215 36,224 6.1%
2,390 37,247 6.4%
2,535 38,392 6.6%
2,090
1,646 6,257 (4,611)
1,313 4,891 (3,578)
1,367 1,620 (252)
2,079 898 1,180
2,215 1,023 1,191
2,390 1,146 1,244
2,535 1,304 1,230
22,557 7.3% 7.88% (132)
28,814 4.6% 7.88% (958)
33,705 4.1% 7.88% (1,289)
35,325 5.9% 7.88% (706)
36,224 6.1% 7.88% (640)
37,247 6.4% 7.88% (546)
38,392 6.6% 7.88% (491)
3 586 (584) 0 -584
1 624 (623) 0 -623
1,749 930 819 0 819
2,120 705 1,415 0 1,415
3,775 784 2,991 0 2,991
3,128 833 2,295 0 2,295
2,913 887 2,025 0 2,025
2,783 928 1,854 0 1,854
Chesapeake Energy Corp. WACC calculations $ $ 16.17 Stock Price (close as of Dec 31, 2008) 608 Stock Outstanding (in millions) 9,830,600,010 Market Capitalization 10.32% 1.33 5.00% 3.67% 10.0% 37.0% 14,184,000,000 9,830,600,010 505,000,000 24,519,600,010 7.88% 4.83% 3.0%
Cost of equity Beta Market Risk Premium Risk-free rate Cost of debt Tax rate Debt MV Equity MV Preferred Total Capital WACC Cost of Preferred Long-term growth
$ $ $ $
MSN money Henry Fund Consensus Used 30-year Treasury rate (as of March 3, 2009) Debt issued on Feb 2, 2009 (Effective tax rate company expects for 2008) as of Dec 31, 2008 as of Dec 31, 2008 as of Dec 31, 2008
Chesapeake Energy Corporation Discounted Cash Flow (DCF) and Economic Profit (EP) Model Valuation Fiscal Year Ended December 31st Assumptions: WACC CV Growth Rate CV ROIC Cost of Equity 7.88% 3.0% 6.6% 10.32% 2009E DCF Model FCF PV(FCF) PV(FCF) + PV(Non-Oper) + PV(JV receivable) - PV(Debt) - PV(Oper Leases) PV(Equity) Shares Outst. Target Price Target Price EP Model ROIC EP PV(EP) PV(EP) Invested Capital PV(Operations) + PV(Non-Oper) + PV(JV receivable) - PV(Debt) - PV(Oper Leases) PV(Equity) Shares Outst. Target Price Target Price 2010E 2011E 2012E CV
$ 23.81 5.88% 6.38% 6.88% 7.38% 7.88% 8.38% 8.88% 9.38% 9.88%
$ $ $ $ $ $ $ $ $
1.00% 47.63 41.17 35.81 31.30 27.45 24.12 21.22 18.67 16.40
$ $ $ $ $ $ $ $ $
1.50% 48.49 41.38 35.60 30.80 26.75 23.30 20.32 17.71 15.42
$ $ $ $ $ $ $ $ $
2.00% 49.58 41.64 35.33 30.20 25.94 22.35 19.28 16.63 14.31
Continuing Value Growth Rate 2.50% 3.00% 3.50% $ 50.98 $ 52.87 $ 55.56 $ 41.97 $ 42.39 $ 42.96 $ 35.01 $ 34.61 $ 34.08 $ 29.48 $ 28.59 $ 27.48 $ 24.97 $ 23.81 $ 22.38 $ 21.24 $ 19.92 $ 18.33 $ 18.08 $ 16.68 $ 15.02 $ 15.39 $ 13.95 $ 12.27 $ 13.05 $ 11.61 $ 9.95
$ $ $ $ $ $ $ $ $
4.00% 59.68 43.77 33.37 26.04 20.59 16.37 13.01 10.27 8.00
$ $ $ $ $ $ $ $ $
4.50% 66.78 45.01 32.37 24.10 18.26 13.92 10.55 7.87 5.68
$ $ $ $ $ $ $ $ $
5.00% 81.92 47.15 30.83 21.34 15.12 10.73 7.46 4.92 2.90
(252) (234) $ $ $ $ 23,564 1,415 4,000 14,184 667 14,129 608 23.24 23.81 Today
1,180 1,014
1,191 949
1,244 918
28,333 20,917 $ 23.81 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50% 7.00% $ $ $ $ $ $ $ $ $ 1.13 39.13 35.72 32.70 29.99 27.56 25.36 23.37 21.55 19.88 $ $ $ $ $ $ $ $ $ 1.18 38.18 34.75 31.71 28.99 26.56 24.37 22.38 20.57 18.91 $ $ $ $ $ $ $ $ $ 1.23 37.27 33.81 30.75 28.04 25.61 23.42 21.44 19.64 18.00 $ $ $ $ $ $ $ $ $ 1.28 36.38 32.90 29.83 27.12 24.69 22.51 20.54 18.75 17.12 $ $ $ $ $ $ $ $ $ Market Risk Premium
WACC
$ $
Beta 1.33 35.52 32.02 28.95 26.23 23.81 21.64 19.68 17.91 16.29
$ $ $ $ $ $ $ $ $
1.38 34.69 31.18 28.10 25.38 22.97 20.81 18.86 17.10 15.50
$ $ $ $ $ $ $ $ $
1.43 33.89 30.36 27.28 24.57 22.16 20.01 18.07 16.33 14.74
$ $ $ $ $ $ $ $ $
1.48 33.10 29.57 26.49 23.78 21.38 19.24 17.32 15.58 14.01
$ $ $ $ $ $ $ $ $
1.53 32.34 28.80 25.72 23.02 20.63 18.50 16.59 14.88 13.32
4.1% (1,289) (1,195) $ $ $ $ $ (10,141) 33,705 23,564 1,415 4,000 14,184 667 14,129 608 23.24 23.81 Today
5.9% (706) (606)
6.1% (640) (510)
6.4% (546) (403)
6.6% (10,060) (7,427)
$ $ $
Relative P/E Analysis - Chesapeake Energy Corporation (4/18/09) Relative PEG Analysis Ticker Company Price EPS 08A APA Apache Corp $68.94 $2.10 DVN Devon Energy Corp $52.15 -$6.95 EOG EOG Resources Inc $60.08 $9.73 NBL Noble Energy Inc $61.64 $7.56 OXY Occidental Petroleum Corp $59.64 $8.33 SWN Southwestern Energy Co $33.71 $1.64 XTO XTO Energy Inc $35.22 $3.56 Peer Average CHK Chesapeake Energy Corp $21.63 P/E 08 $ P/E 09 $ P/E 10 $ 1.16 12.80 45.72 41.54
EPS 09E $2.99 $2.17 $2.51 $2.15 $2.72 $1.38 $3.25
EPS 10E 5-Yr Gr $6.37 9.0 $4.43 5.8 $3.03 6.5 $2.74 7.3 $4.50 6.5 $1.86 40.5 $2.09 11.4
P/E 08 32.8 (7.5) 6.2 8.2 7.2 20.6 9.9 11.0 18.6
P/E 09 23.1 24.0 23.9 28.7 21.9 24.4 10.8 22.4 10.6
P/E 10 10.8 11.8 19.8 22.5 13.3 18.1 16.9 16.2 8.4
PEG 08 3.65 -1.29 0.95 1.12 1.10 0.51 0.87 0.99 2.07
PEG 09 2.56 4.14 3.68 3.95 3.37 0.60 0.95 2.75 1.18
PEG 10 1.20 2.03 3.05 3.10 2.04 0.45 1.48 1.91 0.94
$2.04
$2.57 PEG 08 PEG 09 PEG 10
6.5 $7.44 $36.50 $31.86