Wednesday, February 18, 2009

CHK posts $866 million 4th quarter loss on massive asset writedown

CHK reported earnings for the fourth quarter of -$866 million, primarily due to weak natural gas prices that caused a $1.73 billion writedown on the value of their energy reserves. Management predicts that rig counts will bottom out during the first half of 09' at 105-106. Before the impairment charge, CHK reported revenues of $,2981 billion, a 43% increase YOY.

Despite the massive write-down, I believe that CHK is still the leader in its peer-group due in part to their asset monetization strategies and their exceptional hedging (80% of 09 est. production hedged at above $7 per mcfe). Demand for natural gas will continue to slump during the first half of 09' however, as the economy recovers and commercial demand for natural gas increases, CHK should benefit nicely. Current price target - $37.97

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