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Chesapeake Energy Corporation (NYSE:CHK)

Business Update Call

December 8, 2008 9:00 am ET

Executives

Jeffrey L. Mobley - Senior Vice President of Investor Relations and Research

Aubrey K. McClendon - Chairman of the Board, Chief Executive Officer

Marcus C. Rowland - chief Financial Officer, Executive Vice President

Steven C. Dixon - Chief Operating Officer, Executive Vice President - Operations

[Nick Delauso] - Chief Financial Officer of Chesapeake Midstream Partners

Analysts

David Tameron - Wachovia Capital Markets, LLC

Michael Hall - Stifel Nicolaus & Company

Gil Yang - Citigroup

Joe Allman - J.P. Morgan Securities, Inc.

Brian Singer - Goldman Sachs

David Heikkinen - Tudor, Pickering & Co.

Thomas Gardner - Simmons & Company International

Biju Perincheril - Jefferies & Company, Inc.

Eric Hagen - Merrill Lynch

Wayne Cooperman - Cobalt Capital

David Snow - Energy Equities

Operator

Welcome to the Chesapeake Energy conference call. Today’s conference is being recorded. At this time I’ll turn the conference over to Mr. Jeff Mobley.

Jeffrey L. Mobley

Thank you for joining today’s conference call. I would like to begin by introducing the other members of our management team who are with me on the call today: Aubrey K. McClendon, our CEO, Marc Rowland, our CFO, Steve Dixon, our COO, and [Nick Delauso], our CFO of Chesapeake Midstream Partners. Our prepared comments should last about 10 minutes this morning and then we’ll move to Q&A. I’ll now turn the call over to Aubrey.

Aubrey K. McClendon

My major points today are these.

Number One. We continue to have plenty of liquidity. Late last week I noticed we had $1.5 billion of cash on hand and we are still managing to have between $2 billion and $2.5 billion of cash by year end as we expect to close VPP number 4 for about $450 million.

Number Two. We intend to build cash in 2009 and 2010 by as much as $4 billion as we continue to profitably monetize additional assets.

Number Three. If on the other hand we cannot monetize any additional assets in the years ahead, then we just live within our cash flow and grow by 10% in 2009 and 15% in 2010.

Number Four. Those of you who do not believe we will ever be able to sell another asset or find another partner, I would simply say that I believe you are wrong and ask everyone on this call: What other company in the industry in the past five months has sold $12 billion of assets for a $9 billion gain and still retained assets from those sales valued at $25 billion? We have created more value in the past few months than any other company in the industry yet our external value has plummeted. By taking all possible liquidity concerns away by today’s announcement, we believe the focus in analyzing our company can return to: What are the cash flows and profits we can generate and the asset values that we control?

Number Five. Despite rumors to the contrary Chesapeake is extremely well positioned to succeed in a low gas price environment. To remind you, we are 76% hedged at $8.20 per mcf for 2009 production and 50% hedged at about $9.50 per mcf for 2010 gas production, plus we expect to add 2.5 tcfe to our reserve report in 2009 at a cost of only $1.20 per mcfe. Will there be even one company in the industry who can find US reserves of 2.5 tcfe in 2009 at any price much less at $1.20 per mcfe? We don’t think so.

In addition we have no senior debt due for almost five years. Moreover we will generate $8 per share of cash flow in 2009 at $7 NYMEX natural gas prices and we have only $0.50 per share of operating cash flow downside per $1 additional decline in gas prices. Or said another way, let’s say you somehow believe that gas prices will average $4 per mcf in 2009. By the way we think that’s about 50% of the long-term break-even price needed to maintain flat production in the US. In that $4 case our cash flow per share will be about $6.50. Is that only worth a stock price of $11 or $12? We certainly don’t think so.

Finally we have other companies paying for $2.3 billion of our drilling costs in the next two years. That translates into a gift to our shareholders of about 1.5 tcfe of reserve adds at no cost. What other company can offer you that over the next two years?

Considering all of the above and now realizing that our budget is in balance, we hope you’ll agree with us that Chesapeake is exceptionally well positioned to ride out whatever storms 2009 bring our country and our industry and that our stock price should return to at least a peer group multiple which we think would take its price from today’s price up several times.

Next I would like to acknowledge that we’ve been very disappointed with our stock price performance for months and hope my discussion above and our press release yesterday afternoon highlights the multiple actions we are taking to bring our cash expenditures in line with our expected cash flows to manage to a cash neutral budget that does not depend on future asset sales.

As announced we are further reducing our 2009 and 2010 drilling budget by 31% and are reducing our leasehold and acquisition budget by 78% and are also significantly reducing our Midstream and other expenditures. Our cap ex has been reduced to a level that will be less than our operating cash flow which remains largely protected by the hedges I mentioned previously and again would highlight that these are about 3/4 of our natural gas production at $8.20 per mcf.

Additionally the combination of our drilling, carries and a likely 10% to 20% reduction in service costs will lead to drill bit finding and development costs next year of less than $1.20 per mcfe.

Many investors have questioned whether we are capable enough managers to adjust our spending to live within our cash flow. Honestly it’s much tougher to speed up the machine than it is to slow it down so I promise that this is within our managerial capabilities. In fact we have been doing this for months already. Yesterday’s announcement was the fourth time in the last four months that we have reduced our spending plans in response to further decreases in natural gas and oil prices and uncertainty in the US economy. If conditions require us to reduce our drilling further, we will do so.

We have been highly successful in monetizing assets this year and we still anticipate further monetization of certain mature assets through VPP transactions over the next couple of years, and we still strongly believe that we will be able to bring in additional partners to participate in our attractive leasehold positions. This gives us the opportunity to actually significantly increase our cash resources by up to $4 billion over the next two years.

However I want to emphasize that we are not counting on these sales or transactions to get to a cash neutral budget. I would also remind you that if we sell these additional $4 billion of assets, we are still a company that will grow at least 5% in 2009 and 10% in 2010.

Over the last couple of weeks we’ve been asked numerous questions about our business as our stock price has suffered more than our peer groups’ has. So for the next few minutes I will finish up by answering what we believe are some of the most frequently asked questions about Chesapeake recently.

Number One. Why does your stock price trade at $11 to $12 per share given the obvious value embedded in your assets?

There’s one reason only and that is the false rumor than Chesapeake does not have sufficient liquidity to be a going concern. This is the only reason investors would value $25 billion to $35 billion of proved reserves, that’s for our 12 tcfe of proved reserves, $25 billion to $35 billion of undeveloped leaseholds and $5 billion of other assets as being somehow worth less than $15 billion, which by the way is inclusive of the market value of our debt.

Remarkably, Chesapeake shares are now trading for about 1.4 times next year’s projected cash flow and about 4 times earnings. Assuming a NYMEX natural gas price of $7 per mcf we anticipate generating about $8 per share of cash flow and approximately $250 per share of earnings for 2009. We are not stock market valuation experts but suspect those numbers justify a stock price much higher than today.

Once investors understand Chesapeake is not going to run out of money we believe attention will again return to our strong asset value, profitability and exceptionally low planning costs.

Number Two. Another set of questions has arisen surrounding the universal shelf and other stockpilings we made the day before Thanksgiving.

In retrospect these filings were a mistake and we greatly underestimated how the market would react. I apologize for that and ask your forgiveness for it. Our intent was to create broad financial flexibility for an uncertain economic and commodity market environment over the next few quarters.

We thought we stated clearly in our follow up press release that we had no intention in the foreseeable future to use the universal shelf or the aftermarket or deliverable program to sell any stock for cash. But obviously the message was not believed or understood by the market place. We will work to correct this mistake immediately by terminating the distribution agreement today.

Again we have no present intention of issuing stock for cash. Also we will reduce the shares issuable under our S4 acquisition shelf registration from 50 million shares to 25 million shares for possible use in resolving certain disputed Haynesville leasehold transactions over the next few months. However at current stock prices we have no intention of using stock for those purposes either.

Number Three. Mentioning Haynesville leasehold transactions, some investors have asked about the leasehold disputes that we may have.

Given that there is some existing litigation on these matters, there’s not a whole lot I can say here except to say that we believe our ultimate exposure to renegotiated deals in the Haynesville is less than $300 million. Last week apparently one small brokerage firm was spreading false rumors that we have $1.5 billion of unfunded Haynesville deals. That is very far from the truth.

Number Four. Another question we have received centers around our strategy of monetizing leaseholds and producing assets and how can that be an important value creation strategy for an E&P company.

Because of Chesapeake’s unique skill, operating scale and demonstrated track record in being able to identify new plays and capture significant early leasehold positions in these plays we have proven that we can create and capture value through innovative joint ventures. We have also sold producing assets through VPPs for a per mcfe value at more than twice what we can easily replace them for through drilling.

For example, in the past five months Chesapeake sold $11.7 billion of assets through three joint ventures, two VPPs and one play exit. Our cost basis in those transactions was only $3 billion so we made a profit of $8.7 billion. Please stop and think about that for just a second. That’s almost $15 per share of value creation in five months from a company with a stock price below $15 per share. In addition our remaining interest in those plays have an indicated value of more than $25 billion and if we were motivated to somehow sell them in this environment, we believe they could be sold at fire sale prices of at least $15 billion or $25 per share.

One more thing. This profit margin of $8.7 billion from these joint ventures is over four times greater than our anticipated 2008 adjusted net income of over $2 billion from our traditional business of drilling wells and producing natural gas, which of course remains the backbone of our business strategy going forward. It is beyond me how the market can ignore this enormous value creation that occurs in our company through our singular ability to find new plays, acquire acreage early and cheaply, and then generate billions of dollars in profits and value by bringing in partners to help us develop this leasehold.

So as I conclude these remarks, let me remind you that we have approximately $1.5 billion of cash on hand as of the end of last week and should close the year at between $2 billion and $2.5 billion when our fourth VPP is completed. We have no debt maturities until November 2012. Our gas production is 76% hedged in ’09 at $8.20 per mcf and 50% hedged in 2010 at $9.50 per mcf. We are in full compliance with our revolving credit facility maintenance covenants. We have no senior note indenture maintenance covenants. We should end the year with about $12 billion in net debt and $18 billion in shareholders’ equity.

We have cut our cap ex by nearly 60% in the last few months. We have moved to a cash neutral budget. We can cut spending further if gas prices fall further. We have very valuable assets that we can monetize. We are working to build up the $4 billion of additional cash resources over the next two years. And we will still be able to increase our production by somewhere between 5% to 10% in ’09 and 10% to 15% in 2010 with no public equity or debt issuance needed for cash.

Now I’ll be happy to open the call up to your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from David Tameron - Wachovia Capital Markets, LLC.

David Tameron - Wachovia Capital Markets, LLC

Can you talk a little bit about how much flexibility you have with the joint ventures as far as toggling that cap ex program? What are your drilling commitments? Can you talk broadly about that?

Aubrey K. McClendon

I’ll just kind of tick through them. The only one of the three joint ventures right now where we have a drilling rig commitment for 2009 would be the Fayetteville where we told BP that we’ll stay above 20 rigs. I guess in the Marcellus we do have a use or lose it.

Let me kind of go one by one. In the Fayetteville we’ll remind you that BP pays 100% of our bills. We’ve said that we’ll keep our rig count there above 20. If for some reason it goes below 20, they have the right to go drill wells themselves. I think that it’s incredibly unlikely that we would drop rigs that are costing us nothing in 2009. That carry if you’ll recall was $800 million initially as of last week we had used only about $50 million of it and we’re projected to run out of it in November of 2009. But if we’re right about service cost reductions, we suspect that that carry will last through 2009 into 2010 but we have not modeled for that.

In the Haynesville we have no requirement to run a certain number of rigs. We have a motivation to drill as quickly as possible in an encouragement from Plains to do so. It helps their rate of return by getting the money in the ground more quickly. To remind you, that carry is about $1.65 billion there and they’re paying 50% of our bills in that area.

The Marcellus with Statoil we are at four rigs today adding about two a month. They’re paying 75% of our bills and there are yearly use it or lose it concepts but there are also make up provisions and carry forward provisions so we feel very confident that we will be able to capture and use that whole $2.125 billion carry there.

Again we don’t pay a partner if somehow we slowdown drilling but given that in those plays we’re either 50%, 75% or 100% carried, there is absolutely no incentive for us to slow down drilling in those areas. That’s a really important point that one huge advantage we have over every other company is if we wanted to cut our rig count to 50, we could do that and spend only $500 million a year for the next two years and we think almost keep our reserves flat just by doing that. So it’s an enormous competitive advantage.

David Tameron - Wachovia Capital Markets, LLC

The production growth for 2009, that 5% to 10% target, if I think about the VPPs, can you talk about the impact on 2009 versus ’08 and kind of give me an apples-to-apples number ’09 to ’08?

Aubrey K. McClendon

I’ll turn it to Marc but real quickly the 5% to be clear assumes that we do sell the VPPs in 2009. If we are not successful in selling a couple of VPPs in 2009, then we think our production growth will be just about 10%. I’ll see if Marc wants to supplement my comments.

David Tameron - Wachovia Capital Markets, LLC

Are you assuming fourth and fifth VPP or fifth and sixth VPP?

Aubrey K. McClendon

It’d be fifth and sixth. The fourth will close this year although the production impact doesn’t hit till January 1. So actually the budget does assume that three VPPs would kick in in 2009 and that’s why you have a reasonably wide gap between 5% and 10% growth.

Marcus C. Rowland

I’d just echo what Aubrey said. The comments are absolutely accurate with respect to the 5% to 10% guidance already having the VPPs taken out. I have not forecasted in 2010 what our production would be with no VPPs out of it to be comparable but I do have the exact number for third quarter of 2008. Had we not had VPPs, in other words pro-formed for being on a constant basis, our production would have been 23% up year-over-year. Without the VPPs it was 15%. So 8% to 10% additional growth if you were to compare apples-to-apples I guess, if that’s what you’re looking for.

Operator

Our next question comes from Michael Hall - Stifel Nicolaus & Company.

Michael Hall - Stifel Nicolaus & Company

I appreciate the show of prudence here. I think the market appreciates it obviously. As it relates to the acquisition shelf, is there any intention of using that shelf for any new leasehold transactions or negotiations or are those all old still to be closed deals?

Aubrey K. McClendon

Just for old deals and our thought was to resolve some disputes. We might be able to craft some solutions where people could be happy with stock, where they could be convinced that the stock would increase in value and maybe they could get the per acre value that they were hoping for while we at the same time could book the transaction at a per acre price that we thought reflected current market realities.

Michael Hall - Stifel Nicolaus & Company

As it relates to the rig count, it looks like you’re talking about bringing it down even further. Can you talk about where you’re stripping rigs out? Also in that context, to what extent have any what you call horizontal or maybe shale play rigs been dropped? And maybe as an industry how do we think about the slowness of maybe reducing shale rigs relative to conventional and how that might impact and how quickly declines actually catch up with the industry as we start to reset the cycle here?

Aubrey K. McClendon

We talked for some time and we see a significant bifurcation emerging between the very best shale plays and the costs associated with developing reserves in those shale plays and frankly everything else. I would identify for you those low-cost shale plays as being the Barnett to Fort Worth, the Fayetteville to Haynesville, and the Marcellus. We believe all of those have sub $2 finding costs and we think all other shale plays and all other conventional plays in general would have finding costs north of $2. You will see rigs I think come out of those higher cost plays.

Also for our own company we’re dropping rigs where we already have acreage held by production and using our rigs more in these shale plays where a) our costs are being covered by somebody else or b) we’re trying HBPs and leasehold. Remember in many of these plays we have 640 acre spacing and for every well we drill, to hold a section we’re warehousing up to seven locations for down the road.

I can’t speak to what other companies are doing but for us obviously the last rigs we’ll lay down will be the ones where we’re being carried and the first ones that we’re laying down are in plays where we already have leasehold, this HBP and we can just wait for a better day to drill it.

Michael Hall - Stifel Nicolaus & Company

Would you care to take a stab at maybe what you think the underlying decline is industry-wide on US production?

Aubrey K. McClendon

There are a lot of different numbers out there but if somehow theoretically you could take the rig count to zero today, I would expect that after a lag of three to six months you would end up with production probably 40% lower than where you are today.

I think one of the things that people are probably not thinking about as carefully as they should be is when you are defending production in the US of say 58 bcf a day rather than 52 bcf a day, remember that that incremental 6 bcf a day all comes from new plays. When you consider that probably 50% of all production in the US comes from wells newer than 30 months old, we think that this decrease in rig count that’s clearly underway will likely accelerate over the next two months and will go a long ways towards balancing the gas market by I’d say the fall or the beginning of the injection season of 2009.

That assumes the economy stays weak and I think there’s a chance that it doesn’t get a whole lot weaker and that gas demand doesn’t fall down as much as people think that it will. But when the rigs go down, the production will follow pretty quickly thereafter.

Operator

Our next question comes from Gil Yang - Citigroup.

Gil Yang - Citigroup

Going back to the flexibility issue to slow down activity, at what point or how much more could you slow down without risking losing leases on the tail end and bumping into rig commitments you might have?

Aubrey K. McClendon

I’d remind you that many of our rigs are owned by our own company. We have 130 rigs today. We’re going down to 110 or 115. Of those about 85 are owned right now today. Those would be the last ones to lay over so we don’t really have an issue with having a bunch of long-term contracts on rigs that would require us to drill things that we might not otherwise be willing to drill. So we have enormous flexibility with our drilling rig fleet given the fact that we own the vast majority of the rigs that we’re using today.

Gil Yang - Citigroup

Do you run into timing issues with respect to leases?

Aubrey K. McClendon

There’s some of that, sure. But mainly it’s in places like the Haynesville and the Marcellus and Fayetteville where we already are going to actually increase our rig count in those areas. We’ve reduced our Barnett count from a high of 43 or 44 and we’re now at what Steve?

Steven C. Dixon

32.

Aubrey K. McClendon

We intend to stay in the high 20s in the Barnett and we think that’ll get us the leasehold that we need HBP there. Are there some other random plays where we would have some lease exposure issues? Yes although in many of those areas the cost to replace those leases has plummeted as well so it’s a risk we’re willing to take.

Gil Yang - Citigroup

Can you give us an update on what your ceiling test write-down level would be given all the asset transactions that you’ve had profits on recently?

Marcus C. Rowland

Clearly the transactions that Aubrey spoke about in his presentation have reduced our full cost ceiling considerably. The most recent one of course Statoil just got factored in. I don’t have the exact number because you’ve got the interplay of those transactions reducing it, you’ve got the interplay of future development cost numbers going down, and you have the interplay of hedges which you get to count. As a rough guess right now I’m estimating that it’s somewhere probably just over $5 NYMEX that would be a trigger point but if I’m off $0.25 either way, forgive me.

Aubrey K. McClendon

The only other thing I would say is, and make sure I didn’t miss this Marc, we haven’t been able to book the carries so actually our ceiling test should go down in 2009 as we add these reserves at $1.20 during the course of the next year.

Marcus C. Rowland

That’s correct.

Aubrey K. McClendon

As we are guiding down our DD&A rate for both ’09 and 2010 to reflect adding reserves at a much reduced net cost to us.

Gil Yang - Citigroup

So you’ve been able to book the gains and that reduced your DD&A rate and your full cost ceiling test write-down level but not yet the carries which will be yet to come.

Marcus C. Rowland

Well, book the gains in the sense that they really weren’t income statement gains but the cash went into our full cost pool to reduce that and that’s the gain we’re talking about. We have a cash gain because we sold acreage for more than we had invested in it or sold reserves for more than we had invested in it and that’s true for the VPPs as well. When we talk about gain though, it’s not an income statement gain; it’s just a reduction in our balance sheet account for that.

Aubrey K. McClendon

It’s not an income statement gain for us because we’re full cost. If we were successful efforts, we would have multibillion dollars of gains this year from these asset sales.

Gil Yang - Citigroup

The danger with VPPs is that you’re exposed on the hedging and on the production costs. How have you thought about or what could you do to mitigate if prices are to rise, how you hedge the production cost side of the VPPs?

Marcus C. Rowland

You’re accurate in the sense that the retained volumes are not hedged from a cost standpoint, the volumes that you give up if costs were to go up you have exposed, but as a percentage of our overall volumes it’s immaterial and it’s not even calculable. You’ve seen no change in our operating costs per produced mcfe as a result of the three VPPs we’ve done to date. These are extremely minor volumes given our 12 or 13 tcfe approved reserves.

It’s kind of ironic that you’re asking about increased costs which the only way increased costs are going to come about is if you have substantial inflation in the revenue model. Right now obviously costs are going down dramatically. Fuel costs in the field and ad-borne costs which are two of the biggest costs will be dramatically reduced for both the retained volumes and our own volumes. So it’s an interesting theoretical question but it really I don’t think in this environment’s too relevant.

Aubrey K. McClendon

I want to highlight that for our production cost estimates for 2009/2010 we have not anticipated any per unit cost reductions but I’ll be extremely disappointed if we don’t see unit decreases of 15% to 20% in our production operations and probably that much in drilling operations as well. There’s lots of upside in this downside environment in terms of our cost structure.

Operator

Our next question comes from Joe Allman - J.P. Morgan Securities, Inc.

Joe Allman - J.P. Morgan Securities, Inc.

Could you talk about your cost decline assumptions in Schedule A, the new guidance, versus the prior guidance? I think you’re looking for a 10% to 20% service cost decline? How does that compare to Schedule B?

Aubrey K. McClendon

As I think I was saying, we anticipate those savings but we’ve not driven them into our model. The only Schedule A cost change we made is we estimated production taxes in 2009 would be $0.30 to $0.35 per mcfe versus on November 3 we had them at $0.35 to $0.40. That’s just because we lowered our expected 2009 gas price forecast to $7 from $8.

I think what you’ll see is when we release our year-end numbers, which I guess will be towards the end of January or first part of February, at that point we hope we’ll have some more transparency or clarity into what our production cost forecast could be and what our operating and drill bit cost reductions can be. In our gross numbers for drilling costs we have anticipated about 10% of cost reductions but not anything above that. And again I think we have upside there probably another 10% reduction.

Joe Allman - J.P. Morgan Securities, Inc.

Could you talk about any recent results in the Haynesville or the Marcellus or Fayetteville or Barnett or any other interesting places?

Aubrey K. McClendon

In the Fayetteville we’ve kind of let Southwestern take the lead there and every time they put out a release about good things that are going on in the field, that’s the same thing as what’s happening to us. We are a non-operator in something like 8% of the wells that they drill and that’s a significant part of our program. We’re both doing essentially the same thing over there. So as they talk about increasing EURs and decreasing costs per unit of production or reserve developed, we are experiencing the same thing.

In the Haynesville Steve I guess we’re at about 480 million a day of production?

Steven C. Dixon

No, we’d actually be above $90 million with these last two wells.

Aubrey K. McClendon

So we’ve got two wells coming on over the last weekend. We expect when they clean up this week we’ll both be around $15 million a day if they meet what the last handful of wells have done when they come on. We should be well north of $100 million by the end of the month because I think we have another four to five or six wells.

Steven C. Dixon

Maybe six.

Aubrey K. McClendon

Maybe six wells to get completed between now and the end of the year. We’re very pleased with what’s going on there in the Haynesville and are at 14 rigs today and I think we’re going to 34 or 35, something like that, by the end of 2009. It’s still a great play and again very, very pleased with what we’re finding there. We’re receiving confirmation from many other companies as well about their results also.

In the Marcellus we’ve not completed any wells lately but we’ll start completion work on a handful of new wells towards the end of this month and January.

I didn’t mention Barnett. Barnett continues to rock on I guess is the way to say it. We set a new production record last week of $800 something million gross a day. Low $800s; $825 million, something like that. Doing exceptionally well in the Barnett even as we scale back our activity there.

Joe Allman - J.P. Morgan Securities, Inc.

Looking back at 2008 if you had to do it all over again company-wise, what do you think you might do differently?

Aubrey K. McClendon

From an operating perspective I couldn’t imagine a better year for our company. We were early to new plays such as the Marcellus and the Haynesville, we completely pulled off transactions that nobody on this call thought we could do, we generated $9 billion of profits from those, and we have retained assets of $25 billion.

I think we had our best year of value creation ever in our company in 2008 and our stock price goes from $70 a share to $10 or $11 in five months. I think it sets up the kind of mother of all recoveries and I don’t know how many other stocks in the large cap universe you can hope to get a three or five bagger on in the next year or two, but Chesapeake can because we have the demonstrated asset value, we have the cash flows, we have the earnings capabilities, we have the hedges, we have the carries.

We just have distinctive and unique competitive advantages that have been completely overshadowed by this concern that somehow we’re going to spend every last dollar and go bankrupt. Those were the rumors. Those have been the rumors over the last couple of weeks so all I can do is point to track record of 15 years as a public company of starting with not much and building a pretty substantial enterprise from a pretty talented management team I believe, and I’m proud of our operating track record.

I’m sorry that our stock price has trailed that of our peers but that is not as a consequence of any operational issues we had. It’s been a bizarre year for sure but 2009 can be exceptionally rewarding for investors as they get comfortable with the fact that we are capable of living within our cash flow and as they look to see this strong assets and cash flow that we are generating. A pretty bizarre year but we look forward to better days ahead in 2009 and 2010.

Joe Allman - J.P. Morgan Securities, Inc.

Just financially do you think would you have maybe sold assets sooner than you did this year just to have cash on hand before you went out and bought a whole bunch of stuff?

Aubrey K. McClendon

I know you’ve referred to us as drunken sailors in regard of that as a potential insult to drunken sailors so I’ll ignore that and not respond in kind.

But I would say that we did hit pretty much top of the market for some of our transactions. I think if you look at our Fayetteville transaction and Haynesville transaction, it’s hard to argue that we did those at prices that were not attractive to us. They’re still very fair to our counterparties and they’re going to make a lot of money in those transactions. But we didn’t wait till things fell apart. We started to work on these transactions in April and May.

Then of course the Marcellus transaction did reflect a reduced gas price market and Statoil I think got a very attractive deal. But at the same time if you consider the deal from our perspective, it was very attractive as well.

I’m pretty proud that over five months we put together things that during that five months virtually nothing went right in the gas market or in the stock market or in the US economy. I think it’s an achievement that will stand the test of time as one of the best five months in the history of the industry in terms of value creation.

Joe Allman - J.P. Morgan Securities, Inc.

How long do you plan to stockpile cash and what do you plan on doing with all the cash?

Aubrey K. McClendon

My hope is that the bank market gets strong enough that we can start paying down our revolver and not be worried about being able to pull it back some day if we need it. I’ll turn it over to Marc.

Marcus C. Rowland

The obvious and correct use in our opinion of that is just as Aubrey mentioned, we have nearly $3.5 billion outstanding on our bank line today. You’ll recall we drew that at the end of September when we were, along with I think a lot of other companies, fearful that the bank market would just disintegrate and in fact that weekend one bank got taken over and one bank got bailed out. That constituted about $400 million of our bank lines. As we entered that weekend we weren’t sure what was going to happen.

When we see that the markets calm down, and perhaps it has already and we’re being over conservative, we’ll simply start to take the cash and apply it against our bank lines outstanding. Hopefully here within a year those will be down to zero or close to it and cash will actually mean liquidity and undrawn bank credit facilities instead of truly meaning cash.

Operator

Our next question comes from Brian Singer - Goldman Sachs.

Brian Singer - Goldman Sachs

Can you talk on the Midstream side about where you’re more specifically reducing your capital and your thoughts on what that means for growth in the key areas where you may be reducing and any Midstream constraints?

Aubrey K. McClendon

The areas that we have been out talking to the industry about I think we have discussions going on with a couple of strategics regarding the Barnett Shale and there are parts of that system that are mature enough we think to sell to interested parties. That would substantially reduce the amount of net cap ex we would have there.

Certainly in our Statoil transaction that reduced the Marcellus capital expenditures because they’ll participate with us in those Midstream investments that we make up there by roughly 1/3.

Then finally we have some discussions still with some infrastructure kind of funding sources that could help us. Then going forward in the Mid-Continent we have had a number of people contact us with regard to participating in traditional third-party build-outs rather than us taking on the entire cap ex ourselves.

Like many of our initiatives we’ve got a huge amount of variation in what we’ll try and do in different areas and it won’t be one single thing that will hit all as we expand from the Mid-Continent through Barnett, Haynesville, Fayetteville, Marcellus and other areas. There are different solutions in each one of the areas that we’re pursuing.

Brian Singer - Goldman Sachs

So your expectation is that ultimately the capital will be spent, just not by you as opposed to these are projects that are coming off the table.

Aubrey K. McClendon

Certainly some of it’s going to be spent by us, some of it will be funded by external sources and some of it will be done by other people. That’s the same as it is today. We do not exclusively connect to our own built systems.

Many of our wells are hooked to third party systems and I think just like our initiatives in the sale of part of our assets in joint ventures there is a time when these systems reach more of a mature stage where it’s not so operationally important for us to control everything about the design and build-out. It makes a lot of sense to monetize those in some way, either by long-term financing which we’re working on still or by actual asset joint ventures or sales even.

Brian Singer - Goldman Sachs

More broadly, if we’re sitting here six months from now and capital markets have improved and commodity prices have improved, how should we expect strategically if at all you could shift in terms of capital spending interest in acquiring acreage, etc.?

Marcus C. Rowland

I suspect, and I’ll let Aubrey jump in on this too, that within six months even if we h ad a radical shift and I don’t think I expect that necessarily, I don’t think our business strategy would be radically different or maybe even any different. We’re still going to execute on basically the same business plan that we’ve laid out here. I know we’ll be cash flow neutral at the worst and perhaps be building up cash, and I don’t see us reloading a bunch of rigs or particularly acreage expenditures given the landscape as I see it today.

Aubrey K. McClendon

The only thing I would jump in on is that I don’t view that there are big new shale plays out there waiting for us to go spend billions of dollars of leaseholds on. Again this year was an exceptional year, a bizarre year I just described it, and will go down in the annals of the industry’s history as one of the most fascinating to study I think in years to come.

But what did we learn during the year? We discovered out of nowhere the Haynesville; the Marcellus came into its own. But remember plays like the Floyd didn’t work out. It does not look like there’s going to be vast amounts of gas produced form the Conasauga West Texas shale plays have been disappointing. We have some other discoveries in that area that are going to create big value for us out there but it won’t likely be from shales.

I think the die is cast, the players have all been identified and at this point higher gas prices are not going to change our cash flows very much because of our hedged we are and secondly I think the industry has found at least in the US all of the major shale plays that are likely to ever be prospective. Now the shift moves away from spending billions of dollars to lock in once in a generation leasehold positions to going out and just drilling those. We can moderate the intensity of that drilling effort to fit our own cash resources as well as with what overall gas prices are doing.

Operator

Our next question comes from David Heikkinen - Tudor, Pickering & Co.

David Heikkinen - Tudor, Pickering & Co.

Thinking about each of your major shale plays, how much of your acreage is held by production? And then as I look at your rig count over the next two years, what’s the split of rigs that are just going in, drilling one well on a 640, trying to hold acreage versus rigs that are in development? I’m trying to think about a scale of how your acreage is held by production over time?

Aubrey K. McClendon

I don’t have the exact numbers in front of me but let me just talk about some generalities as I understand them.

In the Barnett about half of our rigs are drilling new acreage and about half are drilling on HBP acreage.

In the Haynesville 100% of our rigs are drilling on non-HBP leaseholds and that will be the case really for the next three years or so. At this point we believe that with our planned drilling over the next three or four years that we’ll be able to HBP 80% to 90% of what we have today and it’s possible that with some third party drilling in which we’ll be a non-operator we might be able to be at 100%. But for right now the vast, vast majority of Haynesville we will get to.

In the Fayetteville it’s about half and half as well in terms of non-HBP and HBP, and I think we’re just about done in the next 24 months on HBP acreage in the Fayetteville. In the Marcellus it’ll be like the Haynesville. We’ll be drilling wells there for years and years to come to hold leases.

But remember, most of our leaseholds in the Marcellus have got a seven to 10 year term on it and I think about 20% of our leasehold there is already HBP anyway.

We really don’t have exposure to vast tracks of acreage that are somehow going to expire. And the good news is even if we have a little bit of acreage that’s going to expire here or there, it’s replacement cost today is much lower than it would have been six months ago and obviously nobody’s giving any value to it in our stock price anyway.

David Heikkinen - Tudor, Pickering & Co.

As you think about acreage costs six months ago to now, can you walk us through dollar per acre or lease terms that you’re seeing? And in the Haynesville specifically, how many acres are in dispute in your total acreage?

Aubrey K. McClendon

I’m not going to go into detail on where acreage values are. I think the fact t hat we are in all of these plays and the only company in all these plays, I don’t really want to reveal from a competitive perspective what we’ve been able to do in terms of driving current leasehold costs down. But they’re down pretty substantially and we’re quite pleased with that.

With regard to the Haynesville, I don’t have the total net acres but it’s a small part of our overall position there. Again I’ll just reiterate that we think our ultimate exposure here is probably less than $300 million and we’ll spend the next few months trying to get those cleaned up.

David Heikkinen - Tudor, Pickering & Co.

If I ballpark to you 30,000 to 60,000 acres, would that be reasonable or not even in the ballpark with the $300 million exposure?

Aubrey K. McClendon

I know what you’re wanting to get to and I’m just going to say that the dollars involved are in our opinion less than $300 million.

David Heikkinen - Tudor, Pickering & Co.

We’ve had questions on the VPP side. Who are the buyers of those VPPs? What’s their financial position? The risk of the other side of the transaction? Can you talk about who’s buying those?

Aubrey K. McClendon

I’ll let Marc do it but believe it or not there are some financial institutions in the US that are still in business and still thinking about doing business. I’m sure Marc probably won’t specifically identify who they are but there are a handful.

Marcus C. Rowland

I’m not sure I completely understood your question. Are you referring to the buyers that have already executed the transactions?

David Heikkinen - Tudor, Pickering & Co.

Just looking forward and four, five and six; who are the prospective buyer types or just kind of broad brush?

Marcus C. Rowland

Broadly they’re the same type of institutions that have done them in the past. Believe it or not as Aubrey said, there are some financial institutions that are still looking for quality investments or loans. Obviously the rates have changed. There are other types of funds that are around that we’re in negotiations with and have expressed interest. There are still foreign banks also that look to this.

I’ll remind you what this is. This is an investment grade transaction that’s fully hedged from a price risk standpoint and the volumes that we’re providing have large cushions of comfort both on the producing side and on the tail end such that most people view this as an investment grade investment or loan, depending on how you want to look at it. I believe the rating agencies would view that as well.

Now that the whole market’s changed, the interest rate or the implied cost of those funds has increased but nonetheless it has increased to the point where for an investment grade type of investment it’s viewed as being better than many of the investments that they make.

Aubrey K. McClendon

The one common thread that you could tie all of the potential buyers together with would be that they all have active commodity hedging arrangements or commodity hedging desks so that kind of tells you the type of financial institutions playing here.

David Heikkinen - Tudor, Pickering & Co.

On the implied costs your last VPP had a $6.60/$6.80 a M value and now talking kind of $4.50. Is that an implication of 30% to 40% increase in implied costs or is it just the longevity of the asset and kind of the term of the production profile?

Marcus C. Rowland

Certainly the profile of the asset and the average [hap] life is a component of it but generally speaking just to broad brush it I would say that the investment thresholds are generally at least 500 basis points over LIBOR where our very first one that we did a year ago was 157 or 167 over.

Aubrey K. McClendon

Also the biggest determinant in value is the future gas price deck so if we’re at $4.50 today, it is because gas prices are lower today. I want to remind you that think about $4.50 per mcfe when we can sell it for that we’re finding that in 2009 at $1.20 per mcfe and Chesapeake’s valued at $1.50 an mcfe with giving no value to any of our other assets.

Pretty attractive arbitrage or said another way, if we could find a counterparty today that would do VPP for 10 times bigger than what it’s scheduled to be, we would end up selling only about 20% of our production and yet we could have bought 80% of our company on Friday with those proceeds. That seems like pretty good math to us and we’ll continue to pursue these because while we can’t do them on a 10X scale, if we continue to do them and arbitrage the difference between our company’s value and what we’re able to get from the cash market, it seems like pretty good finance to us.

Operator

Our next question comes from Thomas Gardner - Simmons & Company International.

Thomas Gardner - Simmons & Company International

Aubrey, I had a question regarding your production growth forecast. Is the increase in the 2010 guidance relative to ’09 entirely due to an increase in cap ex or do you have additional drilling efficiencies worked into that estimate?

Aubrey K. McClendon

No drilling efficiencies. It would simply be the mix of drilling and the cap ex and of course the ’09 base is somewhat suppressed because of the impact of the VPPs as well. That’s why you get a little bit of a percentage bump there.

Thomas Gardner - Simmons & Company International

Going forward, how do you think about efficiency gains? When does the increase in gains due to lower drilling times and higher initial rates start to be counteracted by let’s say infill drilling and other diminishing asset quality?

Aubrey K. McClendon

I understand the kind of theoretical basis of the question but we’ve really not seen that over time. All we continue to see are improving efficiencies and on these shale plays we’re finding that even if you put wells 500 feet apart, there’s not an enormous amount of cancellation of reserves. There’s some for sure but right now we assume booking of reserves based on the fact that the tighter the spacing, you will lose per well reserves. That’s the way we think about reserve adds.

But in terms of thinking about drilling efficiencies and thinking about frac job improvements over time, we really would never anticipate that. It’s just kind of a dividend or icing on the cake for us.

Thomas Gardner - Simmons & Company International

Your new guidance includes an increase in fourth quarter ’08 cap ex. Can you talk about what some of the factors were that drove that number higher?

Aubrey K. McClendon

The spillover from reducing your rig count always seems to run a little slower than what you’d like and there’s always a little bit of hangover or flop over from bills that come in late. It’s just a lag process from the time that you spud a well till you get a bill and you book it and get it billed out and get your bills collected and all that, and likewise in terms of leasehold.

We started to ramp down on leasehold earlier this fall and I saw that if you look at our fourth quarter 2008 leasehold cap ex expectation, I believe only about 6% or 7% of that is likely to be in the month of December with the vast majority of it being in October and November.

Things are coming down quickly but as we got more clarity in how the numbers were actually flowing together we went ahead and bumped up what we had to. But again it’s just a lag factor from dropping rigs and dropping brokers.

Operator

Our next question comes from Biju Perincheril - Jefferies & Company, Inc.

Biju Perincheril - Jefferies & Company, Inc.

The lease acquisitions by Statoil(5) 10:03.5] of $300 million, is that on top of the equity issue, the 25 million shares or is that inclusive of that?

Aubrey K. McClendon

That $300 million assumes that that is met with stock but again as I said in my remarks we’re not interested in issuing any stock at today’s price for whatever purpose. So again it is our view that we can use equity to resolve some of the value disagreements that we have underway right now but if we don’t get a cooperative stock price, then we’ll probably just manage it out over time for cash and work with it. But do not stack those two numbers, that $300 million, twice.

Biju Perincheril - Jefferies & Company, Inc.

If you look at your drilling budget and you’re looking at a 50% reduction in ’09 versus ’08 and if you look at your workforce, we know for each dollar spent there’s a tremendous amount of engineering and geologist work that needs to be done. Is there a need for adjusting your workforce?

Aubrey K. McClendon

No, not really. We have 7,500 employees. The vast majority of those are over on the service side of our business. I think our E&P operation is I think around 3,000 employees or so. The company’s going to continue to be growing. We’re just not growing at 20% or 25% at least on a reported basis.

Remember that when we do these VPPs it reduces our reported production to you but we are operating these wells still with essentially a zero working interest. So there’s still plenty of work to do. You have a growing enterprise here. Where we will be cutting back is in third party land brokerage usage. We’ve already eliminated about 1,000 contractors.

I think last month I heard that we had laid off 1,500 employees in Arkansas. I think we have 100 employees in total in Arkansas. It was rumored that we laid off 1,500 employees and we only had 100 employees. So like most rumors about us, it’s not true. We were laying off several hundred brokers and we’ll continue to do that going forward. We’ve got a right sized enterprise, we still will be the most active driller in the country, we’ll still be growing production if you were to add the VPPs back in at north of 10% and that requires actually more people over time.

We’re certainly being more careful with our costs all across the board and a time like this is really enjoyable in many ways because of the ability to get control over your costs. I would remind you that guys like Marc and myself have been in this business since the early ‘80s and the majority of our careers have been spent in a declining cost environment rather than inclining cost environments.

So I think we’re capable of managing a growing concern in a declining cost environment and delivering a lot of value to shareholders as a result of taking advantage of those cost reductions. We are talking to every single vendor we have right now working hard to get cost reductions aggressively across the board.

Operator

Our next question comes from Eric Hagen - Merrill Lynch.

Eric Hagen - Merrill Lynch

Are you pretty much satisfied where you are right now in terms of your joint ventures in major plays? Would you consider additional ones?

Aubrey K. McClendon

We’re thrilled with where we are. I’m exceptionally proud of who my partners are: Plains, Statoil, BP. Do we have other companies calling us for joint ventures? We do. Do we have other areas that we could work them into? We do. That’s why despite no confidence apparently in the market place in this management team’s ability to bring in another partner, I think that we will find the opportunity in 2009 and probably in 2010 to bring additional partners in.

There are European companies that want to establish a beachhold in the US natural gas business. This is a great time to do so. It’s handy to be the number one gas producer in the US, number one leasehold owner in the US. If you’re looking to establish a position in the US, it seems like your first phone call is likely to be to us particularly given the stamp of approval that companies like Statoil and BP have put on our company and our technical abilities and the quality of our assets.

Eric Hagen - Merrill Lynch

At what level are you done selling down in say one of your major plays? Is it when you get down to 50%?

Aubrey K. McClendon

It really depends on where the company is. If last week just to make it up say it’s the Fayetteville, if I could have sold the other 3/4 of Fayetteville for $5 billion and bought back 80% of our stock, I think that would have been a pretty good move and we’d still be producing over 2 bcf a day, still have 11 tcf of reserves and still have 15 million or 16 million acres of leasehold.

The extraordinary gap between the true value of our assets as demonstrated by asset sales through the year versus what the stock market says they’re worth is such an enormous gap that it’d be crazy for us not to try and take advantage of that. As long as our stock price remains at a ridiculous price we’re going to continue to consider asset alternatives that allow us to take advantage of what I think’s the biggest mis-market in true asset value versus asset valuation that I’ve ever seen. We’ll take advantage of it and shareholders will benefit from that.

Eric Hagen - Merrill Lynch

So that’s a realistic scenario. We should be surprised if you were to do another major transaction say in the Fayetteville and then repurchase a bunch of shares?

Aubrey K. McClendon

It’s possible and I wouldn’t limit it to the Fayetteville. Everything we have is essentially valued at zero in our stock price today that’s not a proved reserve so it certainly would behoove us to continue to make additional transactions I think.

Eric Hagen - Merrill Lynch

Now with Statoil as a partner, are we going to hear any data points internationally next year, the plays you’re interested in?

Aubrey K. McClendon

We’re just rolling into that with Statoil and I would imagine when we find something to work on together, I doubt we will trumpet it as I think the combination of their international stature and presence and our knowledge of gas shales would do nothing but attract competition. So I imagine we’ll be reasonably silent on any international news for the next couple years.

Operator

Our next question comes from Wayne Cooperman - Cobalt Capital.

Wayne Cooperman - Cobalt Capital

I was just curious if you had any sense of just the gas markets for the next couple years given what you’ve heard and what’s your view on demand and supply. I’m just hoping to get some clarity.

Marcus C. Rowland

I guess we think about that about 23 hours of every day. Clearly the inventory levels and the production increases and the economy with result in demand destruction have caused a short-term problem. That’s why we’re so heavily hedged going into this winter and spring and why we’ve converted so many of our kick-out levels to either collars or straight swaps.

Honestly our belief is it probably drops from here. It will set up the seeds of a tremendous bull run probably for the 2009/2010 winter season as rigs lay down and we talked publicly about that being 600, 700, 800 rigs potentially going down and the result on declines. But that won’t immediately affect production. There’ll be a lag and then there’ll have to be a decline period.

If Aubrey or Jeff have a different opinion they can jump in but my best guess is we see gas lower from here in the short term and that sets up a tremendous increase potential for gas in the 2009/2010 period.

Wayne Cooperman - Cobalt Capital

Do you have a number of how much you think production will be down in ’09 based on kind of your intelligence on rigs coming out?

Aubrey K. McClendon

I don’t know if we’re saying production will necessarily go down. I just think the rate of increase certainly will slow and the market will catch up to itself. I would also point out that last time I checked at least NYMEX futures were at 74% or 75% short so there’d be a pretty massive short recovery rally if you ever got any positive data points. I would also remind everything that I think the entire world oil business is sub-economic at $42 or $43 a barrel. I think the entire US gas business taken again in its entirety is sub-economic at today’s gas price as well.

Wayne Cooperman - Cobalt Capital

That’s why I guess I’m not sure why you don’t think you’ll see a big decline in production next year unless guys just keep producing at sub-economic levels.

Aubrey K. McClendon

You say big decline. First of all, people do produce gas for a time at sub-economic levels because they don’t necessarily replace it. They just produce it and of course the variable costs of producing it are relatively low. I’ll just say that everything you want to see happen to balance the supply/demand part of the market is underway right now.

Again assuming the economy just kind of stays where it is, lower gas prices will stimulate some incremental demand. I was talking to a coal buyer actually yesterday afternoon who knew of some switching that was actually going on now. The Obama administration is going to be very tough on coal. We’re very excited about that.

I think gas is going to pick up a lot of market share over the next four to five years. So again it’s been a crazy year, a brutal year for investors in natural gas but I think over the next three to four to five years people are going to make a whole lot of money being long natural gas rather than be shorted.

Operator

Our next question comes from David Snow - Energy Equities.

David Snow - Energy Equities

I had heard that the credit default swap market was active in some of your debt. I wondered if you could give us any idea of what that might be and if there are any payment schedules that are involved?

Marcus C. Rowland

I’m not sure I completely understand the question. Our debt which is publicly traded has had credit default swaps that have been traded by third parties for a long time. The company doesn’t have anything to do with that. We don’t trade in our own credit in the credit default swap market. That’s all third parties away from us. There’s no obligation; there’s no payment; we have no risk; we have no involvement. We are the issuer of the debt and what someone does away from us we don’t follow it and we don’t have anything to do with it.

Aubrey K. McClendon

I would remind you we have about $10 billion of outstanding senior notes. None of it’s due for just about five years and some of it’s not due for about 10 years. So for us to repay $10 billion of senior notes would require our proved assets to be worth about $0.80 in mcfe. If somebody wants to go bet money that we’re going to default and our assets are going to be worth less than $0.80 in mcfe, I guess they’re free to do that. But I wouldn’t view it as a very intelligent trade given the asset values that we have.

It does appear from what I read in the papers that it’s a market pretty easily manipulated and a market that once manipulated is used to create fear among stockholders. I suspect there’s been a fair amount of that that’s gone on.

David Snow - Energy Equities

Do you see any evidence yet of any slowdown in supply in the areas that you’re operating in or is it still to come?

Aubrey K. McClendon

Places like the Barnett I think are going to reach a lower peak than we would have thought of six months ago or three months ago if for no other reason than our own slowdown. I think you’ll see lower peaks in production and probably a longer plateau. I think that’s good news for the gas market and gas markets adjust themselves pretty quickly both up and down. And we’re going through that today. It’ll be a nice snap back I think when the economic news gets a little better and at that point we hope to have some more hedging opportunities for 2010, ’11 and ’12.

David Snow - Energy Equities

I was thinking more near term. I see the DOE is looking at the hurricane as having the only impact on supplies through September. Is there anything you see slowing down or is it all pretty much as it had been?

Aubrey K. McClendon

Other than hurricanes the only other thing I see is reduced rig count being likely to slow things down. There’s one other wild card out there which is Representative Waxman seems to have an issue with hydraulic fracturing and it is quite possible that the governor of production growth going forward could be it’s just tougher to frac wells. Given that about 99% of American wells have to be fracced these days that’s certainly something that nobody is calculating the impact of. But if somehow it became more difficult to fracture treat wells, it would definitely improve gas prices pretty dramatically.

David Snow - Energy Equities

That would make life very difficult for you I suspect as a non-traditional gas producer.

Aubrey K. McClendon

Actually I would disagree. We have a very large [HSE] department. I would actually think that it would be much harder on smaller companies that aren’t used to dealing with regulators. Frankly the more challenging the regulatory environment, the more we like it and the more we actually think we’ll be able to differentially perform going forward.

I think we have time for one more question.

Operator

Our last question comes from Biju Perincheril - Jefferies & Company, Inc.

Biju Perincheril - Jefferies & Company, Inc.

On the potential joint ventures, the existing agreements with Plains or BP or Statoil for that matter, is it clear that that does not preclude you from pursuing similar types of activities for those assets?

Aubrey K. McClendon

No, it does not. In fact if somebody showed up tomorrow and wanted to buy 20% of the Haynesville or for that matter 20% of the Fayetteville or 20% of something else we have, if the price was right and the embedded discount in our assets being sold were such that we could arbitrage the big difference between what the assets are really worth and what the stock market says they’re worth, we’d be very inclined to do just that.

Biju Perincheril - Jefferies & Company, Inc.

Have you had discussions with the strategic buyers for assets other than shale properties so for more some of your more conventional properties? Are you seeing interest from large international buyers for those kinds of facets?

Aubrey K. McClendon

We haven’t really pursued them yet because we’ve been so focused on finding partners in this big shale plays. Now that we kind of have them put to bed we’ll be working on some other things.

We already have a nice deep Anadarko Basin joint venture with BP that doesn’t get talked about very much but we are partners in a deep springer program that’s 18,000 to 20,000 feet deep. We’re drilling those kinds of wells in the Anadarko Basin.

I’m very excited about some new projects we have underway in the Permian Basin and I think those are going to create some opportunities for us to bring in some additional partners in new plays.

And then our long established plays could be somewhere like Sahara in Oklahoma where we have 900,000 acres. We drilled 1,500 wells so we have another 10,000 to go. 0.6 of a bcf or $800,000, would that be attractive to some company to come in and buy a quarter of that? I think it’s quite possible.

Again first class asset basis, a company that has shown itself to be attractive to some of the biggest companies in the world and a management team that knows how to reduce concepts to value-added transactions for our shareholders, and I would expect that you would see more of that although again we’re not budgeting for any of that. But I see no reason why we shouldn’t do that given that we make a lot more money.

Said another way and I’ll finish with this comment, if you just took our three joint ventures away from the company and made it its own E&P company, it would be the most profitable E&P company in the sector this year. I don’t think anybody else is going to make $9 billion this year in profits yet we’ll do it just by selling some leasehold and three transactions. I think that’s pretty impressive.

I appreciate the fact that I think we had over 600 people on the call today. I appreciate your interest in Chesapeake. If you have additional questions, please let us know. Thank you very much.

Operator

That does conclude today’s conference. You may disconnect at this time. We do appreciate your participation.

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