Chesapeake Energy – A Special Situation « V A L U E S E E K E R . N E T

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Chesapeake Energy – A Special Situation

January 18, 2007 by Eric Schleien

Chesapeake Energy recently updated their investor presentation which updated some of the following information.

3.6x Operating Cash Flow
9.4 Earnings

But my favorite part is the breakup value of the company.

In 2006 NAV increased 20% but what happened to Chesapeake’s stock price…. it was down 8%. Current NAV is 45 – 55 dollars per share and CHK has always moved in line with their NAV.

To use the lower end of the estimated NAV here is the breakdown based on a stock price of 30 dollars per share and PV 10 @ 7.50 (natural gas).

Proved Reserves – $20,233
Unproved Reserves – $9,840
Value of CHK Hedges – $1,867
Value of CNR Hedges – (294)
Other Assets – $2,187
Less Long Term Debt – 7,234
Less Preferred Stock (When Not Dilutive) – $0
Less Net Working Capital – (235)
—————————————————
Shareholder Value – $25,776
Shares – 531
Net Asset Value – $48.54
Current Price – $30
Current Upside – 62%

Posted in Chesapeake Energy, Commodities, Economy & Business, Energy, Everything, Investing, Joel Greenblatt, My Portfolio, Natural Gas, Oil, Security Analysis | 3 Comments

3 Responses

on January 19, 2007 at 2:34 am | Reply Dom

Great post. I see that the calculation is based on PV10@7.5. If $6 is assumed instead, does it mean proved/unproved reserve values will decrease by 20% (1-$6/$7.5)?
on February 9, 2007 at 2:52 pm | Reply shawn

no, if NG drops to 6, the profit available from the NG drops more than 20%. e.g. if it costs 2$ to pump and deliver the NG, then the profit at 7.50 is 5.50 while the profit at 6 is 3.00. The drop in profit is 45%.
on February 12, 2007 at 11:14 pm | Reply Charlie Munger

So what makes you belive that $7.50 is the correct estimate. I’m always scared of estimates.