This summary is based on the fourth quarter fiscal 2007 earnings call conducted by Chesapeake Energy Corp. (CHK: chart) on February 22, 2008.

Management:

- SVP of IR and Research: Jeff Mobley
- Chairman and CEO: Aubrey McClendon
- EVP and CFO: Marc Rowland

Key Investors Issues

- Net Income was down 65% to $158 million or 33 cents a share.
- Revenues were up 11% to $2.1 billion
- Average daily production increased 34% to average 2.219 bcfe, an increase of 193 mmcfe, over the 1.653 bcfe of daily production in 2006.

Full Year Highlights:

- Revenues rose 6.5% to $7.8 billion from $7.3 billion in the prior year.
- Income dropped 35% to $1.2 billion or $2.69 a share.
- Long term debt increased to $11 billion.

Fourth Quarter Highlights

Net income of $158 million or 33 cents per share was down 64.6% from $446 million or $2.93 a share in the prior year due to higher operating costs.

- Revenue of $2.1 billion, were up 11% from $1.9 billion in the prior year on production of 204 billion cubic feet of natural gas equivalent (bcfe).
- Operating cash flow was $1.3 billion
- Average prices realized were $8.11 per thousand cubic feet of natural gas (mcf) and $72.58 per barrel of oil and natural gas liquids (bbl), for a realized natural gas equivalent price of $8.43 per thousand cubic feet of natural gas equivalent (mcfe).

Realized gains and losses from oil and natural gas hedging activities generated a $1.73 gain per mcf and a $13.66 loss per bbl.

- Excluding hedging activity, the firm’s average realized pricing differentials to NYMEX were a negative 59 cents per mcf and a negative $4.44 per bbl.
- Average daily production increased 34% averaging 2.219 bcfe, an increase of 193 mmcfe, over the 1.653 bcfe of daily production in 2006.
- Production of 204.2 bcfe was comprised of 187.8 bcf (92% on a natural gas equivalent basis) and 2.74 mmbbls (8% on a natural gas equivalent basis).
- Average daily production for the quarter of 2.219 bcfe consisted of 2.041 bcf and 29,728 bbls.

Macroeconomic Fundamentals:

- The firm sees many bullish factors that have developed in the evolving overtime that lead it to conclude that natural gas prices may have upside in them during the next two years.
- Among these are rising electricity usage in the US, stubbornly high oil prices, higher coal prices, emerging environmental trends, and for the first time in a long time, winter weather that this year is near the 30-year average and above the 10-year average.
- All of these factors are supportive of stronger natural gas prices than seen during the past two years.
- However, to natural gas consumers, there will be plenty of natural gas to meet needs and at affordable prices, especially when compared to oil prices and when compared to coal prices with future carbon costs built in.

Human Resources Management:

- The firm has about 6,500 employees, with 4,000 of them are in the E&P operation and 2,500 work for the service businesses.
- Of those 4,000, 2,500 work in the headquarters in Oklahoma City, of which 40% are younger than the age of 30 which is an improvement from 10% five years ago.
- Furthermore, in the eight months, since July 1, 2007, the firm has hired almost 425 people in Oklahoma City, with the majority younger than the age of 30.
- The firm was recently rated one of the 100 best employers in the US by Fortune Magazine, a designation that only two other E&P companies received.

Future Value Creation Possibilities:

- Management believes the future augurs well for value creation for the firm and other well-positioned ENP companies.
- Unit costs are on the decline as service industry capacity continues to expand faster than the rig count is increasing, and at the same time, gas prices are moving up, which should provide the opportunity to accomplish multiyear gas hedging at or above $10.
- The firm has growth and proved reserves of 2 Tcfe per year, and these added reserves should be worth $7 billion to $8 billion a year value.
- The unrisked, unproved reserve is expected to increase by at least 5 Tcfe and those book reserves are worth around $1 in Mcfe, so that would create $5 billion of value per year.
- For every 10 cents change in natural gas prices, the value of the firm’s crude reserve increases by almost $400 million or 80 cents per share, and could create an additional $4 billion of value creation over the next two years.

Production Guidance:

- The firm, at the beginning of the period, had nearly $2 billion of preferred stock outstanding.
- It redeemed virtually all of the 5% and the 6.25% preferred stocks for a total right at $1 billion, effectively reducing the amount of preferred stock outstanding by over 50%.
- The company issued common stock for the present value of the dividend stream of the preferred less the common dividend stream, which is greater than the place of the preferred, saves $55 million in fixed charges per year and improves the balance sheet.