Chesapeake Energy Corporation (CHK, CHK-B, CHK-D)

About Chesapeake Energy Corporation

Chesapeake Energy Corporation acquires, explores and develops properties for the production of crude oil and natural gas. Chesapeake Energy is the second largest independent producer of natural gas in the United States.

In addition to exploring and producing oil and gas from underground reservoirs, Chesapeake Energy Corporation provides marketing services, such as:

• Commodity price structuring
• Contract administration
• Nomination services

Chesapeake Energy Corporation owns major properties throughout the southwest, including oil and gas assets in Permain Basin and Mid-Continent, and gas assets in South Texas it purchased from Concho Resources Inc. in 2004. In addition to owning interests in approximately 30,600 producing oil and gas wells, Chesapeake Energy has proved reserves of approximately 7.5 trillion cubic feet of natural gas equivalent (tcfe). All of Chesapeake Energy's natural gas is onshore and approximately 92% of it, by volume, will burn clean.

Current Status of Chesapeake Energy Corporation

During 2005, Chesapeake Energy Corporation's favorable drilling results combined with high-quality acquisitions to generate substantial growth in its natural gas production. Average daily oil and gas production increased 30% to 1,284 mmcfe. With energy prices soaring, Chesapeake Energy stands to profit significantly - and so do its shareholders.

Chesapeake Energy Corporation was the country's leader in drilling activity in 2005, with an average of 73 rigs operating and 66 rigs not operating at any given time. As a result, Chesapeake Energy drilled 902 wells and participated in 1,066 wells drilled by other operators. Its success rate for drilling over the past 16 years averaged 93%, and improved to 98% in 2005.

Why Cutler Capital Management Invested In Chesapeake Energy Corporation

We believe Chesapeake's common stock is approximately 48% undervalued, and the convertible provides an opportunity to participate in this upside. If the stock rises 25% over the next year, we estimate that the convertible will rise 18%. If the stock falls 25%, we estimate that the convertible will fall only 12%.

Market Outlook As It Relates To Chesapeake Energy Corporation

Increasing prices of oil, gasoline and most other commodities are the economic story of 2006.

Chesapeake Energy Corporation's stock price has been volatile during the quarter, but its energy holdings bode well for the company's profitability throughout the remainder of 2006 and beyond.

As interest rates and energy prices continue to rise, it is important to understand the quality of corporate profits and cash flow to determine the true significance of these higher rates and rising prices.

We remain confident in the prospects of Chesapeake Energy Corporation. During the time since we first invested in Chesapeake Energy, we have seen management successfully execute its growth strategy, while also taking advantage of positive industry dynamics.

Chesapeake Energy's growth strategy combines an aggressive acquisition program with high organic growth from drilling new producing wells. Over the next two years, Chesapeake Energy Corporation should reap the benefits of its acquisitions, as it expands its drilling program and turns "unproved" and "possible" natural gas reserves into productive wells. Given its success rate with new wells, Chesapeake Energy Corporation stands to benefit significantly from this new drilling.

With earnings per share projected to grow 25% over the next two years, we believe there is more upside in the stock (and the convertible), which trades at 9.3 times expected 2006 earnings. Aubrey McClendon, co-founder and CEO of Chesapeake Energy Corporation, has aligned his financial interests with those of his shareholders, as he continues to buy common stock in the open market.

About Cutler Capital Management

Cutler Capital Management of Worcester, Mass. (www.cutlercapital.com) is an investment management firm specializing in investing in convertible securities, real estate investment trusts (REITs) and dividend-paying bank stocks to provide growth and income to high-net-worth investors, and charitable foundations and other non-profit organizations. Founder Melvin S. Cutler has researched and invested in securities since 1975 and currently manages more than $245 million in assets.

Cutler Capital currently manages two private investment funds to meet the differing investment goals, tolerance for risk and investment timelines of our clients. In each case, capital from like-minded investors is pooled and invested in a diversified group of convertible securities, REITs and dividend-paying bank stocks.

For performance information and other key features about Cutler's private investment funds please register here.