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CHK - Chesapeake Energy

Chesapeake was a presenter at the Enercom Conference and I was very impressed with the long-term outlook. Several years ago CHK undertook a massive expansion program when they predicted that gas prices would rise sharply in future years. They went on an acquisition binge spending more than $8 billion on leases in the United States. This massive ramp up impacted their earnings because very little of the acreage had existing wells. CHK then implemented a massive drilling program that brought them to where they are today. They have 12.2 million net acres under lease, 153 operated rigs and 105 non-operated rigs working. This is allowing them to drill more than 2500 wells per year to turn their massive leasehold assets into proven and productive resource plays. They have vaulted into 3rd place in the U.S. in terms of gas production. They are now producing nearly 2 BCFE per day and are expanding production by 20% per year. They have proven reserves of 10.1 TCFE, unproved of 20.8 TCFE and a 10-year inventory of 28,500 new locations to drill. They will have ebitda of nearly $5 billion in 2007 with net income of nearly $1.6 billion. Their reserve replacement rate in Q2 was 416%. Their finding and acquisitions costs of $2.11 per MCFE is one of the lowest in the industry. Their business is all onshore U.S. east of the Rockies in lower cost fields.

CEO Aubrey McClendon said CHK has been dragging that $8 billion in acquisitions and 100+ rig build out phase for several years while ramping up to be the largest driller in America by a wide margin. Now that $8 billion in acquisitions has turned into a massive gas factory and is now turning into exploding profits for shareholders. CHK is an active hedger and the largest hedger in the industry. In the first half of 2007 CHK realized gains of $1.7 billion on their hedges alone. 59% of Q3-Q4 is already hedged at $8.66 per MCFE and 64% of 2008 production is hedged at $9.22 per MCFE.

The chart below shows how rapidly CHK has been growing its rig count and production.

I like CHK and I was very impressed with the presentation and their ongoing metrics. Since we already have an October put in place at $30 I am taking this implosion in gas prices as an opportunity to get into CHK cheap.

Link to company presentation in PDF format

Company info:

Chesapeake Energy Corporation (Chesapeake) is an independent producer of natural gas in the United States, and owns interests in approximately 34,600 producing oil and natural gas wells that are producing approximately 1.7 billion cubic feet equivalent (bcfe) per day, 92% of which is natural gas. The Company's operations are located in the Mid-Continent region, which includes Oklahoma, Arkansas, southwestern Kansas and the Texas Panhandle; the Forth Worth Basin in north-central Texas; the Appalachian Basin, principally in West Virginia, eastern Kentucky, eastern Ohio and southern New York; the Permian and Delaware Basins of West Texas and eastern New Mexico; the Ark-La-Tex area of East Texas and northern Louisiana; and the South Texas and Texas Gulf Coast regions. In July 2007, the Company announced the acquisition of Kerr-McGee Tower from Anadarko Petroleum Corporation and subsequent sale of tower to SandRidge Energy, Inc.

Buy 2010 $35 LEAP Call WZY-AG currently $6.60

Change profit stop on current insurance put to $28

Insurance put:
Oct $30 Put CHK-VF @ 90 cents. Profit stop $28

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HP - Helmerich & Payne *** Stop Loss $27.50 ***

HP is already starting to see some post conference buying so I added it as a play now rather than as a watch list candidate. They are somewhat insulated from oil and gas prices and business is booming. LEAPs are cheap!

Enercom presentation

Company Info:

Helmerich & Payne, Inc. is primarily engaged in contract drilling of oil and gas wells for others. It is also engaged in the ownership, development and operation of commercial real estate. The Company is organized into two separate operating entities: contract drilling and real estate. Helmerich & Payne, Inc.'s contract drilling business includes three business segments: U.S. land drilling, U.S. offshore platform drilling and international drilling. The Company's U.S. land drilling is conducted primarily in Oklahoma, Texas, Wyoming, Colorado, Louisiana, Mississippi, and New Mexico, and offshore from platforms in the Gulf of Mexico and California. During the fiscal year ended September 30, 2006 (fiscal 2006), Helmerich & Payne, Inc. also operated in eight international locations: Venezuela, Ecuador, Colombia, Argentina, Bolivia, Equatorial Guinea, Tunisia and Chile. Helmerich & Payne, Inc.'s real estate investments are located in Tulsa, Oklahoma.

Buy Jan 2009 $35 LEAP Call ZQA-AG currently $4.50

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HERO - Hercules Offshore *** Stop Loss $24.00 ***

HERO just completed the acquisition of TODCO in July and their company size and distribution with the addition of the TODCO assets is very strong. Calls are cheap and they have a very strong support base at $25 from the depression related to the TODCO acquisition.

Enercom presentation

Company Info:

Hercules Offshore, Inc. (Hercules Offshore) provides shallow-water drilling and liftboat services to the oil and natural gas exploration and production industry in the United States Gulf of Mexico and internationally. It operates a fleet of nine jackup rigs that are capable of drilling in maximum water depths ranging from 85 to 250 feet and a fleet of 64 liftboats with leg lengths ranging from 105 to 260 feet. Its services are organized in four segments, Domestic Contract Drilling Services, International Contract Drilling Services, Domestic Marine Services and International Marine Services. The Company's Domestic Contract Drilling Services and Domestic Marine Services are conducted in the United States Gulf of Mexico, its International Contract Drilling Services are conducted offshore Qatar and India, and its International Marine Services are conducted in West Africa. In July 2007, the Company completed the acquisition of TODCO.

2008 April $30 Call HIQ-DF currently $3.00

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GLBL - Global Industries *** Stop Loss $18.50 ***

Global is also seeing some post conference buying and it appears we are about to see a surge over $24 on the 30-min chart. Options are cheap and business is good. No pressure from oil and gas prices on their operations.

Enercom presentation

Company Info:

Global Industries, Ltd. is an offshore construction company offering a range of marine construction and support services in the United States Gulf of Mexico, Latin America, West Africa, the Middle East (including the Mediterranean and India) and Asia Pacific regions. These services include pipeline construction, platform installation and removal, sub-sea construction, project management and diving services. The Company provides services from shallow water to depths of up to 10,000 feet. The Company's business consists of two principal activities: Offshore Construction Services, which includes pipeline construction and platform installation, and removal services, and Diving Services, which includes diving and marine support services.

2008 March $25 Call GQO-CE currently $3.30


 

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