Analyst: Jeremy Leach and JohnPaul Bennett Thursday, November 5 th, 2009

Overview  An oil and natural gas exploration and production company, engages in the acquisition, exploration, and development of properties for the production of crude oil and natural gas from underground reservoirs  Provides marketing and midstream services for natural gas and oil for other working interest owners in properties it operate  Only located in the United States, no global presence

S trengths W eaknesses O pportunities T hreats  Low operating costs  More development-focused with many core plays  Contracting more acreage deals  No global presence  Selling of ownership instead of relying on debt or equity to fund its growth  Recent discovery of shale fields and drilling fields  Returns will increase as firm increases its production  Subject to volatile commodity prices and an ever-changing regulatory environment (tax regulation)  Profits fluctuate with oil and gas prices  Spend too much for leasing acreage, unconventional strategy Sources: Yahoo Finance, Morningstar

Basic Info   Ticker: CHK   Sector: Energy   Current Price: $24.35   52-Week Range: $9.84– $30   Market Cap: $15.5B   Beta: 1.36 * Reuters & Morningstar

Time-Series Analysis * Morningstar TTM EBTMargin(%) (34) ROA(%) (9.06) ROE (29.37) Revenue Growth (%) 54.3(23.9) N/A EPS (49.8)(88.7) (39.8)(56.5)N/A P/E P/S P/B

Cross-Sectional Analysis * Morningstar CHKIndustry S&P YearAverage P/E P/B P/S Dividend Yield (%) N/A

1-Year VS S&P 500 w/ RSI * Yahoo Finance

1-Year Chart w/ 100 and 200 – Day Moving Averages * Yahoo Finance

Intrinsic Value  Morningstar Fair Value Estimate: $46  Three-Stage DDM Calculated Fair Value: $6.22  Three-Stage FCFE Calculated Fair Value: $  Average of Three-Stage Models: $63.19  With 15% Margin of Safety: $53.65 – $72.73  $24.35 < $53.65 = Suggests Undervalued

Headlines Earnings and revenue comparisons with the year-earlier period were quite weak, severely hampered by the slump in commodity prices – Zacks.com Since 1999, Chesapeake has grown by leaps and bounds, however, it will become increasingly difficult for the firm to expand at its historical rate as commodity prices are a large determinant of sales and profit growth as profits fluctuate with oil and gas prices – Morningstar Changing tax legislation in the U.S. could have a negative effect on future cash flows – Morningstar Moved from being an acquisitive company with many emerging plays to a company that is more development-focused with many core plays – Morningstar CEO Aubrey McClendon faced heat for his 2008 $112.5 million compensation package… making him the highest-paid CEO in the U.S., even though the stock fell 59% Chesapeake has been criticized for spending too heavily to lease acres – Reuters Changing tax legislation in the U.S. could have a negative effect on future cash flows

Discussion