Chesapeake Energy Corp. (CHK, Financial) filed Annual Report for the period ended 2010-12-31.
Chesapeake Energy Corp. has a market cap of $23.29 billion; its shares were traded at around $35.61 with a P/E ratio of 12 and P/S ratio of 2.5. The dividend yield of Chesapeake Energy Corp. stocks is 0.8%. Chesapeake Energy Corp. had an annual average earning growth of 14.7% over the past 10 years. GuruFocus rated Chesapeake Energy Corp. the business predictability rank of 2-star.Hedge Fund Gurus that owns CHK: Carl Icahn of Icahn Capital Management LP, T Boone Pickens of BP Capital, Louis Moore Bacon of Moore Capital Management, LP, Steven Cohen of SAC Capital Advisors, George Soros of Soros Fund Management LLC. Mutual Fund and Other Gurus that owns CHK: Mason Hawkins of Southeastern Asset Management, Oak Value of Oak Value Capital Management, Arnold Schneider of Schneider Capital Management, Ronald Muhlenkamp of Muhlenkamp Fund, Richard Snow of Snow Capital Management, L.P., Charles Brandes of Brandes Investment, John Buckingham of Al Frank Asset Management, Inc., David Dreman of Dreman Value Management, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, RS Investment Management, Mario Gabelli of GAMCO Investors, Jeremy Grantham of GMO LLC.
In these five industry participation agreements, we received upfront cash payments of approximately $5.9 billion and future drilling cost carries of almost $7.0 billion for total consideration of $12.9 billion compared to our original cost of approximately $3.1 billion of the assets we sold. Moreover, Chesapeake retained an 80% interest in the Haynesville and Bossier Shale properties, a 75% interest in the Fayetteville Shale properties, a 67.5% interest in the Marcellus Shale properties, a 75% interest in the Barnett Shale properties and a 66.7% interest in the Eagle Ford Shale properties. Each of our industry participation partners has the right to participate proportionately with us in any additional leasehold we acquire in our respective industry participation areas. On February 11, 2011, we closed our sixth significant industry participation agreement, as described under Recent Developments Niobrara Industry Participation Agreement below.
On August 3, 2010, Chesapeake Midstream Partners, L.P. (NYSE: CHKM), which we and Global Infrastructure Partners (GIP), a New York-based private equity fund, formed to own, operate, develop and acquire midstream assets, completed an initial public offering of common units representing limited partner interests and received net proceeds of approximately $475 million. In connection with the closing of the offering and pursuant to the terms of our contribution agreement with GIP, CHKM distributed to GIP the approximate $62 million of net proceeds from the exercise of the offering over-allotment option, and Chesapeake and GIP contributed the interests of their midstream joint ventures operating subsidiary to CHKM. Chesapeake and GIP hold 42.3% and 40.0%, respectively, of all outstanding limited partner interests, and Chesapeake and GIP each have a 50% interest in the general partner of CHKM. CHKM makes quarterly distributions to its partners, and at the current annual rate of $1.35 per unit, Chesapeake receives quarterly distributions of approximately $20 million in respect of its limited partner and general partner interests. On December 21, 2010, we sold our Springridge natural gas gathering system and related facilities in the Haynesville Shale to CHKM for $500 million and entered into ten-year gathering and compression agreements with CHKM.
On February 11, 2011, we issued $1.0 billion of 6.125% Senior Notes due 2021. We used the net proceeds of $977 million from the offering to repay indebtedness outstanding under our revolving bank credit facility. The offering is a part of our 2011 liability management program, which includes extending the maturity profile of our outstanding indebtedness while also retiring approximately $2.0 to $3.0 billion of our shorter-dated senior notes as part of our 25/25 Plan.
Form Value-Creating Industry Participation Agreements. Since 2008, the company has entered into six significant industry participation agreements. Through these agreements, the company has collaborated with other leading energy companies to accelerate the development of the companys properties in the Haynesville and Bossier Shales, the Fayetteville Shale, the Marcellus Shale, the Barnett Shale, the Eagle Ford Shale and the Niobrara Shale. Including the Niobrara agreement, which we entered into on February 16, 2011, we have sold leasehold and producing property assets with an original cost to us of approximately $3.4 billion to our partners for $6.5 billion of total cash consideration and $7.7 billion of drilling cost carries while retaining a majority interest in each play. The remaining drilling cost carries of approximately $4.0 billion (including the Niobrara industry participation agreement), as of December 31, 2010, will be extremely valuable in the years ahead by enabling the company to develop reserves in these unconventional plays at greatly reduced costs. We are also considering opportunities for additional industry participation agreements to develop certain of our other properties. Additionally, in 2009 we formed a joint venture with GIP for certain of our midstream assets in the Barnett Shale and Mid Continent. We and GIP have since sold a portion of the equity in this venture to the public through a master limited partnership, Chesapeake Midstream Partners, L.P.
Improve our Balance Sheet. Our 2011 strategic and financial plan calls for a 25% reduction in our long-term debt while growing net natural gas and oil production by 25% by the end of 2012. We believe this reduction of our debt and continued growth in our asset base will lead to our long-term debt to reserves ratio (long-term debt net of cash divided by our estimated proved reserves) decreasing to less than $0.50 per mcfe at year-end 2012 compared to $0.73 per mcfe at year-end 2010. We believe the reduction in our debt will lower our borrowing costs, increase our financial flexibility and increase our stock market valuation. Additionally, we believe our improved credit metrics described above will lead to a more favorable debt rating by the major ratings agencies.
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Chesapeake Energy Corp. has a market cap of $23.29 billion; its shares were traded at around $35.61 with a P/E ratio of 12 and P/S ratio of 2.5. The dividend yield of Chesapeake Energy Corp. stocks is 0.8%. Chesapeake Energy Corp. had an annual average earning growth of 14.7% over the past 10 years. GuruFocus rated Chesapeake Energy Corp. the business predictability rank of 2-star.Hedge Fund Gurus that owns CHK: Carl Icahn of Icahn Capital Management LP, T Boone Pickens of BP Capital, Louis Moore Bacon of Moore Capital Management, LP, Steven Cohen of SAC Capital Advisors, George Soros of Soros Fund Management LLC. Mutual Fund and Other Gurus that owns CHK: Mason Hawkins of Southeastern Asset Management, Oak Value of Oak Value Capital Management, Arnold Schneider of Schneider Capital Management, Ronald Muhlenkamp of Muhlenkamp Fund, Richard Snow of Snow Capital Management, L.P., Charles Brandes of Brandes Investment, John Buckingham of Al Frank Asset Management, Inc., David Dreman of Dreman Value Management, Ruane Cunniff of Ruane & Cunniff & Goldfarb Inc, RS Investment Management, Mario Gabelli of GAMCO Investors, Jeremy Grantham of GMO LLC.
Highlight of Business Operations:
Chesapeake continued the industrys most active drilling program in 2010 and drilled 1,445 gross (938 net) operated wells and participated in another 1,586 gross (211 net) wells operated by other companies. The companys drilling success rate was 98% for both company-operated and non-operated wells. Also during 2010, we invested $4.6 billion in operated wells (using an average of 131 operated rigs) and $815 million in non-operated wells (using an average of 123 non-operated rigs) for total drilling and completion costs of $5.4 billion, net of drilling and completion carries of $1.2 billion.In these five industry participation agreements, we received upfront cash payments of approximately $5.9 billion and future drilling cost carries of almost $7.0 billion for total consideration of $12.9 billion compared to our original cost of approximately $3.1 billion of the assets we sold. Moreover, Chesapeake retained an 80% interest in the Haynesville and Bossier Shale properties, a 75% interest in the Fayetteville Shale properties, a 67.5% interest in the Marcellus Shale properties, a 75% interest in the Barnett Shale properties and a 66.7% interest in the Eagle Ford Shale properties. Each of our industry participation partners has the right to participate proportionately with us in any additional leasehold we acquire in our respective industry participation areas. On February 11, 2011, we closed our sixth significant industry participation agreement, as described under Recent Developments Niobrara Industry Participation Agreement below.
On August 3, 2010, Chesapeake Midstream Partners, L.P. (NYSE: CHKM), which we and Global Infrastructure Partners (GIP), a New York-based private equity fund, formed to own, operate, develop and acquire midstream assets, completed an initial public offering of common units representing limited partner interests and received net proceeds of approximately $475 million. In connection with the closing of the offering and pursuant to the terms of our contribution agreement with GIP, CHKM distributed to GIP the approximate $62 million of net proceeds from the exercise of the offering over-allotment option, and Chesapeake and GIP contributed the interests of their midstream joint ventures operating subsidiary to CHKM. Chesapeake and GIP hold 42.3% and 40.0%, respectively, of all outstanding limited partner interests, and Chesapeake and GIP each have a 50% interest in the general partner of CHKM. CHKM makes quarterly distributions to its partners, and at the current annual rate of $1.35 per unit, Chesapeake receives quarterly distributions of approximately $20 million in respect of its limited partner and general partner interests. On December 21, 2010, we sold our Springridge natural gas gathering system and related facilities in the Haynesville Shale to CHKM for $500 million and entered into ten-year gathering and compression agreements with CHKM.
On February 11, 2011, we issued $1.0 billion of 6.125% Senior Notes due 2021. We used the net proceeds of $977 million from the offering to repay indebtedness outstanding under our revolving bank credit facility. The offering is a part of our 2011 liability management program, which includes extending the maturity profile of our outstanding indebtedness while also retiring approximately $2.0 to $3.0 billion of our shorter-dated senior notes as part of our 25/25 Plan.
Form Value-Creating Industry Participation Agreements. Since 2008, the company has entered into six significant industry participation agreements. Through these agreements, the company has collaborated with other leading energy companies to accelerate the development of the companys properties in the Haynesville and Bossier Shales, the Fayetteville Shale, the Marcellus Shale, the Barnett Shale, the Eagle Ford Shale and the Niobrara Shale. Including the Niobrara agreement, which we entered into on February 16, 2011, we have sold leasehold and producing property assets with an original cost to us of approximately $3.4 billion to our partners for $6.5 billion of total cash consideration and $7.7 billion of drilling cost carries while retaining a majority interest in each play. The remaining drilling cost carries of approximately $4.0 billion (including the Niobrara industry participation agreement), as of December 31, 2010, will be extremely valuable in the years ahead by enabling the company to develop reserves in these unconventional plays at greatly reduced costs. We are also considering opportunities for additional industry participation agreements to develop certain of our other properties. Additionally, in 2009 we formed a joint venture with GIP for certain of our midstream assets in the Barnett Shale and Mid Continent. We and GIP have since sold a portion of the equity in this venture to the public through a master limited partnership, Chesapeake Midstream Partners, L.P.
Improve our Balance Sheet. Our 2011 strategic and financial plan calls for a 25% reduction in our long-term debt while growing net natural gas and oil production by 25% by the end of 2012. We believe this reduction of our debt and continued growth in our asset base will lead to our long-term debt to reserves ratio (long-term debt net of cash divided by our estimated proved reserves) decreasing to less than $0.50 per mcfe at year-end 2012 compared to $0.73 per mcfe at year-end 2010. We believe the reduction in our debt will lower our borrowing costs, increase our financial flexibility and increase our stock market valuation. Additionally, we believe our improved credit metrics described above will lead to a more favorable debt rating by the major ratings agencies.
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