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Strategies & Market Trends : Strictly: Drilling II -- Ignore unavailable to you. Want to Upgrade?

To: terry richardson who wrote (29600)	3/19/2003 8:47:26 AM
From: Art Bechhoefer	Respond to of 36161

You're right that a PE of 48 for CHK makes it look expensive, but CHK is also quite leveraged, meaning that if oil and gas production increases substantially this year over last, the resulting profits will make that PE drop in a hurry. Another thing to note on CHK is that they borrowed heavily (using their hedged positions as collateral) in order to acquire more assets. Their actual proven reserves increased substnatially over the past year as a result of those acquisitions. Finally, the additional revenues they're getting this year have allowed them to retire some loans, lowering debt service costs and increasing the likelihood of greater profits in the future. One potential problem for UCL is that it participates in exploration and production in S.E. Asia in joint ventures involving states like Indonesia, Bangladesh, and Malaysia. Often the states will place demands on the company that limit profits. For example, Indonesia wants UCL to use its natural gas discoveries in northern Sumatra for an electric power plant selling power at about 4 cents/kwh. Whereas UCL believes about 6 cents/kwh is more reasonable. (Note that it is not uncommon to sell power in the U.S. at 12 cents/kwh or higher.)