1. Chesapeake Energy (CHK) Drilling America’s Energy Future Stock Analysis HOLD Recommendation

2. Company Overview Chesapeake Energy is the second largest producer of natural gas in the United States behind ExxonMobil. They are based out of Oklahoma City, OK, and primarily drill in Texas and the Marcellus Shale in PA. Operations are focused on discovering and drilling unconventional oil and natural gas fields within the continental United States.

3. Recommendation Support LTM Price Movement Price Target of $20 Industry expanding due to new government backing on behalf of Liquefied Natural Gas (LNG) exportation. However, oil still reigns king in the transportation sector. Both natural gas and unconventional oil production costs decreasing as new technologies become available. The net loss created from higher than normal unusual expenses may be repeated in future quarters due to the high debt levels. Hedging in natural gas and oil futures could either help or hurt revenues depending on price fluctuation.

4. Cash Utilization Dividend- CHK pays an annual $0.35 dividend that is paid quarterly and has increased the dividend randomly over time. Recent increases include 11% in 2008 and 17% in 2011. The dividend has never decreased and has had steady payment since inception. Stock Repurchase Program- CHK announced a $25 million stock repurchase program to give back to shareholders. 5 Yr. Dividend Payments

5. Competitor Comparison Direct Competitor Comparison CHKAPCBPCOPIndustry Market Cap $14.31B$42.36B$129.57B$72.22B$54.75M Revenue per Employee $1.025M$2.56M$4.38M$3.57MN/A Quarterly Rev. Growth (yoy) 0.30%-0.10%0.05%0.02%0.16% Revenue (ttm) $12.32B$13.31B$375.58B$60.35B$15.93M Leverage 78.1%64.3%34.5%43.3%N/A EBITDA (ttm) $4.48B$7.63B$28.35B$21.82B$134.77K EBITDA Margin (ttm) 36.3%57.3%7.5%36.1%0.008% EPS -$1.46$4.74$3.62$6.72N/A P/E N/A17.8511.228.818.62 PEG (5 yr. Expected) 0.390.991.653.670.61 P/S 1.183.210.351.24.59 Dividend Yield 1.60%0.40%5.30%4.50%N/A

6. Competitors Overview Future natural gas and unconventional oil demand will spur earnings growth for Chesapeake while competitors fail to increase current market share. BP and COP in particular are already established companies who do not have as much of a reach in natural gas drilling, and instead focus on Gulf and international conventional oil drilling. Anadarko has an international reach in natural gas operations, especially in the growing Chinese market, therefore they are projected to have some future EPS growth.

7. Senior Management and Goals Comparison Chesapeake- CEO- Aubrey McClendon Founded the company in 1989, therefore he has shown great leadership which can be seen in its growth over the past 24 years. His view for the future of natural gas has yet to be attained, however its demand has grown substantially since the inception of CHK. Aubrey will be retiring from CHK on April 1 st, 2013 and future leadership is unknown. Anadarko Petroleum- CEO- Jim Hackett Mr. Hackett is extremely knowledgeable in the petroleum and natural gas industry, and his lofty goals have allowed Anadarko to prosper since he took over the CEO role in 2003. The company is expected to achieve significant future growth due to his idea to focus on the natural gas market and hedging natural gas futures during fluctuation. BP- CEO- Bob Dudley Mr. Dudley has focused more on conventional oil drilling due to his company’s history in that subfield of the Energy industry. He took over as CEO after the Deepwater Horizon incident, and has changed the company’s view in public opinion. However, his lack of action towards litigation from this incident, along with stagnant natural gas growth will hurt BPs future revenue. ConocoPhillips- CEO- Ryan Lance Mr. Lance has also focused on the conventional drilling of oil, much like BP. COPs history is based in oil drilling rather than natural gas. Lance’s developments of sustainable practices have been somewhat revolutionary in the industry, but future revenue will not grow substantially unless a higher position is taken in natural gas.

8. Macroeconomic Trends Uncertainty in Europe slowed the market for most of last year, but has yet to play a major role in 2013. Cyprus, Spain, and Greece still must be watched for new economic developments that could affect the European Union. A slowing of the Chinese economic growth will not allow for as quick an expansion of natural resource exploration, drilling, and sales that was previously projected at their past growth rate. Political unrest in the Middle East involving Syria, Bahrain, and Libya, among others, could collide with the ongoing conflict between Israel and Palestine. This would create a regional war that world powers must react to on some level. The Iranian nuclear threat has yet to become fully uncovered, therefore uncertainty lies in what could become a world threat

9. SWOT Analysis Strengths Smart Investments in Infrastructure Increasing Quarterly Revenues All Corporate Resources are Based within the Company Itself Unlike Competitors Weaknesses Falling Net Profits Poor Executive Financial Structure Inability to Expand Outside of the United States into Canada Where Unconventional Oil Fields are Plentiful Opportunities Maximize Revenues from Increasing Natural Gas Futures Capitalize on New Fracking Methods New Unconventional Oil Fields and Natural Gas Deposits Being Discovered Threats Decrease in Marcellus Shale Market Share due to Competition SEC Probe Discovering Unfair Benefits for CEO Environmental Activists Forcing Government Regulations against Fracking

10. Risks Current SEC probe into CEO Aubrey McClendon could uncover “conflicts of interest” in his executive compensation. As with anything involving energy discovery and production, there is always a risk for accidents. A fracking accident could step up federal regulations for fracking and increase production costs. Net income has been quickly decreasing due to low natural gas prices and increasing depreciation among company assets. Also, the revenue generated per employee is much lower than competitors and the industry as a whole. An inability to control the Marcellus Shale over competitors would be extremely damaging given its importance in the global natural gas market. CHK is very leveraged with a 78.1% debt to equity ratio. This could pose to be a problem in future years especially with the negative net profit of recent years. Alternative fuels could play a role in the future of energy, thus decreasing natural gas’ role in the global energy future.

11. Hold Recommendation Reiteration The global natural gas future is uncertain and prices fluctuate on a weekly basis usually negatively. Demand has yet to confirm the positives of investing billions in new drilling infrastructure. An uncertain company executive outlook in the near future could affect short term revenues and cash flow Highly levered finances will cause budget constraints for all aspects of corporate decision making. Chesapeake Energy is a hold in the short term because the risks outweigh the positives, in regards to industry forecasting and company financials. However, Chesapeake Energy is a phenomenal long term “buy” due to its steady dividend and the positive outlook for natural gas 10-15 years down the road.