Energy Market Update: Chesapeake Energy (NYSE: CHK) Fully Priced At $25/Share

December 22, 2010 (Investorideas.com energy newswire) - CHK is fully priced with speculative valuation embedded into the stock price following the announcement that Carl Icahn has taken a 5.8% stake in the Company.
Mr. Miller is a longtime advocate and supporter of CHK and has published many long term favorable opinions on the Company and its operations, due primarily to management's ability to execute on attracting large capital partners to offset substantial capital production cost and structure volumetric production payments (VPP's) on natural gas production.
However, investors must do their homework on CHK and Mr. Miller has been cautious in his recommendations that shareholders stage their capital at risk in CHK over time.
Mr. Miller believes that CHK is fully priced at $25.00/share given the substantial speculative price run up following Icahn Enterprises increasing their stake to 5.8%.
As a comparison, while Dynegy Inc. was relatively easy to manhandle by investors like Icahn Enterprises, due to extremely weak management and a fragmented shareholder base, CHK is well run at the operational level, a much larger enterprise, has multiple very large joint venture partners including Total, BP, Statoil, and other who will back up the Company in any attempt to disrupt its operations and their significant investments.
Mr. Miller believes it is very premature to assume that there will be any material control play in the near term on CHK and even if Icahn Enterprises does attempt to exert some influence, it will ultimately be minimal in the near term.
CHK is facing substantial valuation issues regarding the future value of cash flows, including potential implementation of what we refer to as "environmental taxes" on its natural gas fracking operations due to concerns regarding groundwater contamination, excessive drilling across the sector for the duration of 2011 (which is beyond CHK control), substantial leverage and debt service (interest payments), and carbon emission uncertainties, which all serve to place a "hard cap" on CHK common stock price, irrespective of any activist shareholder activities or desires.
The net result is that CHK all in production cost curve looks to be positioned to rise, while the natural gas price curve is subject to continued weakness due to industry capital expenditure and drilling commitments for 2011.
These factors, when combined with the uncertainties surrounding the production decline curves of the Shale Gas leaseholds lead to a near term price cap for CHK common stock.

Subscribe to Karl Miller and energy news here:
http://www.investorideas.com/RSS/feeds/Energy.xml
Energy Investors can research energy stocks with the natural gas stocks directory:
http://www.investorideas.com/Companies/NaturalGas/Stock_List.asp
The oil and gas stocks directory lists publicly traded stocks from multiple global stock exchanges including TSX, ASX, OTC, NASDAQ and NYSE.
http://www.investorideas.com/OGSN/stock_list.asp

This column, Energy Commentary from Karl Miller, is the opinion of Karl Miller. Content found in the articles is subject to the terms found in the InvestorIdeas.com disclaimer and does not represent a recommendation of investment advice by Mr. Miller. Investors should seek the advice of a qualified investment professional prior to making any investment decisions.
Our sites do not make recommendations. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. We attempt to research thoroughly, but we offer no guarantees as to the accuracy of information presented. All Information relating to featured companies is sourced from public documents and/ or the company and is not the opinion of our web sites. This site is currently compensated by featured companies, news submissions and online advertising. www.InvestorIdeas.com/About/Disclaimer.asp