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Gold/Mining/Energy : Chesapeake Energy CHK

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To: Dennis Roth who wrote (693)	3/25/2008 9:29:53 AM
From: Dennis Roth	of 726

Chesapeake Energy Corp. (CHK): Chesapeake news highlights rising industry potential in Haynesville - Goldman Sachs - March 25, 2008 News Chesapeake announced exploration success in the Haynesville Shale (Louisiana), new oil developments in multiple unspecified areas and increases to production and capital expenditures guidance. Due to market conditions, expected financing via a private Master Limited Partnership appears to have been delayed, and management indicated it plans to tap the capital markets soon. Analysis The success seen in the Haynesville is positive not only for Chesapeake but for others that are active in the area. Among covered companies, Cabot Oil and Gas (Conviction Buy) has already drilled at least one Haynesville well in its Trawick joint venture in East Texas. We believe that Questar (Neutral) and EnCana (Sell) also are building acreage positions in Louisiana. Regarding Chesapeake's oil developments, we believe more specifics are required for Chesapeake to receive more credit. Implications In the immediate term, we believe the potential for a Chesapeake equity offering could act as a temporary overhang for the stock. Ultimately, success in these various plays would be positive, although greater detail on well costs and ultimate recoveries are needed. We rate Chesapeake Neutral relative to our Attractive coverage view. We believe to meaningfully outperform, Chesapeake likely will need to show not just better-than-expected production growth and better-than-expected operating cash flow as it has historically but lower-than-expected net debt as well. Our price target and estimates are unchanged.

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