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Chesapeak Energy - Some Assistance Please?



March 13, 2010 – Comments (0) | RELATED TICKERS: CHK

A couple of days ago, Chesapeake Energy Corporation (NYSE: CHK) came up during a discussion with a friend of mine.

My comments were directed around the company as a long-term investment and were based on various articles I had read on the web.

His comments were based on his knowledge of the gas industry, and since he is a gas trader, having spent several years on the floor of the NYMEX, I of course yielded to his expertise.

So overnight I get an e-mail from him that was a follow-up to our prior conversation, and knowing less about gas trading than hog knows about the hereafter, I simply don't have the faintest idea what most of what he said actually means.

Okay, so I understand the last sentence; but the rest of it? Some assistance  for the old guy would be appreciated.

Here's what I received.

"It almost reads as fiction, but I dug around yesterday, trying to figure out how CHK hedged 60%+ of their 2010 natty at $8+. The results are nothing short of astounding.

It seems Aubrey and company has sold naked crude calls on the curve, converted the BTU’s and labeled them natty hedges, thus gaining roughly $3.50 on the hedge values. CHK, being 93% gas and only 7% oil, is basically speculating crude futures and calling it a gas hedge.

With crude now pushing higher #’s, CHK is clinging to the rim of a toilet that just flushed, one more push up in crude and they are likely toast."

Thanx for any help.


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