Chesapeake Energy Corp (CHK)

Natural Gas industry. Purchased CHK in real life portfolio today @24.6/share.

Leverage and producing natural gas assets and undeveloped reserves profile is the rationale to own Chesapeake Energy (NYSE:CHK) for a levered equity return. CHK is a pure play on U.S. Natural Gas, essentially a futures contract, albeit with less risk of price deterioration than a true financial futures contract as its stock price is backed by real producing assets. On a pure asset basis, CHK common equity is significantly undervalued.

The probability that CHK asset portfolio is acquired has risen dramatically and recent large investor movements indicate positioning to influence and benefit from either an outright sale of the company or significant asset dispositions once controlled properties come to full production. CHK already controls the proven reserves and has achieved significant leverage; therefore the company is positioned for a sale or unsolicited third party bid.

As mentioned, CHK is significantly levered. CHK leverage, strong production profile, and discount to its peer group on a price to earnings basis make it an attractive discounted asset candidate.

There will again be energy shortages in the U.S., increased fuel price volatility, and a marked need for new clean power generation, primarily natural gas derived due to its moderate construction time, proven efficiency and security of fuel supply.