The comments come three days after Chesapeake agreed to sell a third of its interest in south Texas' Eagle Ford shale formation to Chinese state-run Cnooc for $2.16 billion in cash and drilling funding.Chesapeake, better known as a natural gas company, is now turning its focus on oil, similar to what EOG is doing in the Bakken.
No more significant oil or gas shale fields will be discovered in the United States. It's over.
I don't know about you, but that seems to increase the value of the Bakken in my mind. The Bakken is in a politically stable country. It is in an oil-friendly state. Takeaway capacity is increasing, thereby lowering shipping costs. Percent of recoverable oil is higher than originally predicted. The basin is relatively close to its customer (just a pipeline away from Cushing).
For Bakken investors, Chesapeake is an interesting play. Even though I doubt we will see Chesapeake in the Bakken, those who understand investing in the Bakken, understand what Chesapeake offers.
Chesapeake ... will ... shift its focus from natural gas to become a major oil producer. Natural gas prices have been in a prolonged slump due in part to the glut of supply created by the shale frenzy. But gasoline-like condensate, which trades on par with oil, is abundant in many shale formations--although not in volumes that could drive the price of oil down.According to the CEO:
"We sit on 10 [billion] to 15 billion barrels of oil that will change the valuation of this company over time."
Although its P/E is 22, it's 1-year, 2-year, and 5-year charts are very interesting. And even with all the press about CHK in the past few days, it still trades near its 52-week low; CHK has been trading in a very narrow range. But, wow, a lot of debt, especially when compared to Hess and EOG. That explains why it had little choice to sell a third of its interest in the Eagle Ford prospect (south Texas) to CNOOC. This sorta reminds me of BEXP a year or so ago when that company had a severe cash flow problem. Look at the 2-year chart for BEXP. Fossil-energy companies have a way of turning things around.
Mouth watering?
Want fries with that? Unlike BEXP, CHK pays a dividend, albeit not much, but twice what Hess or EOG pay. I wouldn't count on that dividend however; CHK will need a huge amount of cash to develop its property (again, the CNOOC connection).
Anyway, enough of this. More than I planned to post about a non-Bakken company. I don't hold any CHK and probably won't buy any only because I am fully invested and I have nothing I want to sell. But one never knows what might happen. Maybe swapping PBR out for CHK.....
They've sure increased their exposure to the Niobrara via SSN.
ReplyDeleteI did not know that, thank you. I have not followed natural gas a rule; the Bakken is predominantly an oil play. But it looks like I need to start following gas. There's too much activity, too much noise. Something is going on despite the low price for NG. My hunch: the big boys know exactly what is going on and they are positioning themselves now.
ReplyDeleteAgain, I really appreciate you stopping by.
I think that was an oil play. It confirms your point and theirs. And makes me think they're looking at the Bakken, too.
ReplyDeleteMy bad. I was trying to answer comments "on the fly" in between classes (at school as substitute teacher).
ReplyDeleteOf course, you are correct. It is oil. Again, my error -- that was the whole point of the article -- CHK looking to focus on oil, rather than natural gas.
Interesting if CHK buys out someone in the Bakken.