Tags: Chesapeake | Energy | gas | CHK

Chesapeake Energy a Hot Play on Natural Gas

By    |   Wednesday, 14 Dec 2011 03:49 AM

Chesapeake Energy (CHK) represents a hot play on natural gas, as the second-biggest producer of the commodity in this country. While natural gas prices are depressed now, energy demand isn’t, and at some point prices will rebound. Meanwhile, it has non-gas assets to fall back on.

Chesapeake has put together a portfolio of assets that includes virtually every major unconventional play in the United States, according to Morningstar. The company has more than 14 million acres of onshore oil and gas assets.

Its holdings include the Barnett, Haynesville/Bossier, Marcellus, Eagle Ford, Niobrara, Permian, and Anadarko Basin regions. Chesapeake continues to increase its activity in liquid-rich assets as part of its quest to diversify away from natural gas, which gives it some cushion while waiting for natural gas prices to bounce back.

The company’s profit soared 65 percent in the third quarter, to $922 million, up from $558 million a year earlier. Revenue jumped 54 percent to $3.98 billion.

Standard & Poor’s analyst Michael Kay has a four-star buy rating on Chesapeake shares. “From 2006-2009, CHK was at the center of a major land grab for shale gas assets,” he writes.

Liquid focus

“As gas fundamentals have weakened, and conversely strengthened for liquids, the focus has switched to higher-margin unconventional liquids. CHK has built a solid position at more than 12 liquids-rich plays with 5.5 million net acres,” Kay notes.

Kay expects some of the cash from Chesapeake’s asset sales to be used toward shoring up the company’s balance sheet, reducing debt and increasing liquidity.

He notes the company’s forecast for capital expenditures of $6.2 billion to $6.8 billion in 2012, up from $6 billion to $6.5 billion in 2011. Chesapeake also sees organic production growth decelerating to 16 percent in 2012 from 24 percent in 2011.

The company next reports earnings Feb. 22.

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Chesapeake Energy (CHK) represents a hot play on natural gas, as the second-biggest producer of the commodity in this country. While natural gas prices are depressed now, energy demand isn t, and at some point prices will rebound. Meanwhile, it has non-gas assets to fall...
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