OT: roni (CHK)
During the past five years, the company has actively consolidated ownership in key Mid-Continent gas fields through acquisitions of long-lived gas reserves owned by AnSon, Hugoton, DLB, Enervest, OXY, Barrett, Apache, Gothic, Staghorn, Questar, Sapient, Ram, Canaan, Focus, EnCana, Priam, Williams, OG&E, ONEOK, Vintage, El Paso and now Oxley....Through this consolidation effort, Chesapeake has emerged as Oklahoma's largest natural gas producer, with an estimated 2003 gas production market share of 16%. In addition, the company is the operator of or a participant in approximately 50% of the 125 wells currently being drilled in Oklahoma, providing the company with unequalled access to current geological information across the state.
Well, with that and some info from people here at work I have a couple thoughts on CHK, but I'd take them with huge salt-lick-sized chunks of NaCl.
There are a few prominent names in that list of reserves acquisitions and CHK seems to be pursuing a nice plan. I have (now) heard that CHK management is well respected in the biz.
Even though they are proud to be the largest producer in OK, and one of the largest 8 independent producers headquartered in OK City, that still makes them a small-to-mid-sized player in natural gas. I guess it doesn't matter as long as they make money and increase the value of the company. If they continue agressive growth, they may survive to become one of the big boys of gas. The way things are going, they may themselves become an acquisition... something to consider if investing in them.
They, like most producers, have a lot of hedge positions. My concern is that they have so many and that their hedge positions are not transparent at all.... meaning it is difficult to determine the real impact those positions might have in the current natural gas market climate (they could very well reduce the company's financial performance in a very strong gas market -- most players are not hedging much on gas right now because there is virtually 0 chance that prices will ease much in the next 24-36 mos.
But it might take a team of people to unravel those hedges and accurately state the upside/downside potential of them on CHK's bottom line in the end.
People around here tell me that the reason I haven't really heard of CHK until now is that they've been acquiring their capital equipment along with the companies they've bought up and haven't purchased much new stuff.
125 wells can be drilled by just a handful of rigs and makes them pretty small in that respect. Each rig can drill multiple wells without moving, using directional drilling techniques where you end up drilling downward in a curve until you actually strike deposits horizontally, or in the case of oil, you come in underneath horizontally. This helps maximize the amount you get out of the ground. It is not uncommon these days to drill a mile or so down, and a mile or more horizontally. So one rig can drill out in all directions if properly located. This means more production more quickly (and also means depleting the field more quickly).
All-in-all, I'd say CHK is interesting and could be a trade-able play in natural gas. Their hedges bother me, but that's a personal thing.
Now that the cat is out of the bag concerning the gas situation in North America, many good entry/price points have disappeared from this segment of the gas sector. I'm currently researching who makes what for whom in the emerging liquified natural gas (LNG) sector -- a sector that will eventually become a key player as we continue to consume more and more of North America's dwindling gas reserves.
As Greenspan even pointed out, LNG is our only hope of maintaining a gas supply into the future as well as the only real factor that could eventually bring natural gas prices back down. But LNG on any significant scale is still a few years out since the infrastructure is still being built (liquifaction plants, LNG ships -- a whole new kind of ship had to be designed and compared to oil tankers, the number of LNG ships is tiny as is the entire LNG fleet of ships' capacity -- and there are still only a very few ports in the US that can handle LNG).
The capital spending on LNG infrastructure is just now ramping up and my thoughts are that there is going to be a lot of money spent and made in bringing LNG online as a viable and significant source of energy for North America (and other areas of the world where gas supplies are not easy to deliver to end-user distribution systems).
Another factor is the amount of gas being pumped back underground in Alaska after being separated from crude oil. The North Slope producers have been stockpiling as much as possible against the day that they'd either be able to move/sell it via pipeline (currently planned to connect the North Slope with Chicago, but still years away), or via LNG (but so far they haven't even started putting any LNG infrastructure in place, betting everything, for now, on the pipeline which would be about the same price to build, but much cheaper to operate).
Jim
(is Jim)
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