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CHK $32.08 - Chesapeake Energy

See commentary for play description.

Company Info:

Chesapeake Energy Corporation is the third largest independent producer of natural gas in the U.S. We are the most active driller of new wells in the U.S. and one of the leading consolidators of onshore U.S. natural gas assets. Headquartered in Oklahoma City, our operations are focused on exploratory and developmental drilling, and corporate and property acquisitions in the Mid-Continent, Permian Basin, South Texas, Texas Gulf Coast, Barnett Shale, Ark-La-Tex and Appalachian Basin regions of the United States. Our proved oil and natural gas reserves have increased seven-fold from 1.2 tcfe in 1999 to 8.4 tcfe as of September 30, 2006. Similarly, since 1999, our average daily production has grown at an annualized rate of more than 25% to approximately 1.66 bcfe per day, of which 91% is natural gas. We own interests in approximately 33,700 producing oil & natural gas wells and have built what we believe is one of the industry's largest inventories of onshore leasehold (10.5 million net acres) and 3-D seismic data (14.7 million acres) in the U.S. On this leasehold the company has identified an estimated 25,000 net drilling locations, representing an approximate 10-year inventory of drilling projects, on which we believe we can develop approximately 3.2 tcfe of proved undeveloped reserves and approximately 16.4 tcfe of unproved reserves. Added to Chesapeake's 8.4 tcfe of proved reserves, this brings the company's total reserves to approximately 24.8 tcfe.

BUY 2009 $35 LEAP VEC-AG currently $5.30

Insurance put: none

THE $38.37 - TODCO

Todco was on the verge of breakout out over resistance at $41 last weekend and I recommended a breakout target at $41 and a breakdown target of $39. We were blessed/cursed with a downgrade on Thursday slamming Todco to nearly $38 and triggering the breakdown entry point. I am pleased with the slightly cheaper entry but not the way we got it. Credit Suisse downgraded Todco to neutral from outperform. Morgan Stanely, Morgan Keegan, Deutsche Bank, Hibernia, Wachovia, Lehman, Smith Barney, CSFB, Raymond James, Bear Stearns and Jefferies still have a buy rating. That is good enough for me.

Company Info:

TODCO is a provider of contract oil and gas drilling services, primarily in the United States Gulf of Mexico shallow water and inland marine region, an area that TODCO refers to as the United States Gulf Coast. TODCO operates a fleet of drilling rigs in the United States Gulf Coast, which include 64 drilling rigs consisting of 27 inland barge rigs, 24 jackup rigs, three submersible rigs, one platform rig, and nine land rigs. Forty-eight of these rigs are located in shallow and inland waters of the United States with the remainder in Angola, Colombia, Mexico, Trinidad and Venezuela. TODCO reports the results of those operations in four business segments which, for its contract drilling services, correspond to the principal geographic regions, in which TODCO operates: United States Inland Barge Segment, United States Gulf of Mexico Segment, Other International Segment and Delta Towing Segment.

Breakdown target $39 hit 12/7/06

Position: 2009 $45 LEAP ZYU-AI @ $8.40


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