CHESAPEAKE ENERGY $56.67 (New York symbol CHK; SI Rating: Extra risk) (405-848-8000; www.chkenergy.com; Shares outstanding: 573.7 million; Market cap: $32.5 billion) is a major U.S. producer of natural gas and an active driller of oil and gas wells.

The company’s primary operating area is the Mid- Continent region of the U.S., which includes Oklahoma, Arkansas, Kansas and the Texas Panhandle. It’s also active in South Texas, the Permian Basin area of West Texas, the Arkansas/Louisiana/Texas border region and the Appalachian Basin.

Approximately 92% of Chesapeake’s production is natural gas. Production averaged 2.2 billion cubic feet equivalent per day in the latest quarter, up 31.4% from 1.7 billion a year earlier.

In the three months ended March 31, 2008, Chesapeake’s cash flow per share rose 22.9%, to $3.06 from $2.49. The shares now trade for about 4.6 times annual cash flow. Debt is 38% of market cap.

Chesapeake continues to sell off assets with limited potential. It’s using the proceeds for other projects with much higher growth prospects. This includes a top-three position in nearly every major unconventional discovery in the U.S. east of the Rockies, including the Barnett Shale reservoir in West Texas, the Arkansas Fayetteville Shale, the Louisiana Haynesville Shale and the Appalachian Basin Devonian and Marcellus Shales.

Unconventional or tight gas formations require specialized fracturing techniques to release gas by cracking the sand, coal or shale with high water pressure and sand. Improvements in extraction methods will steadily increase production from these long-lived assets.

Chesapeake is still a buy for aggressive investors.