But with the recent New York Times article and the recent announcement that Barnett shale royalties may be cut by as much as 25 per cent, I've gotten a bit more interested.
I said from the beginning that natural gas would have to get above $5.00 before it became worthwhile for a retail investor like me.
Now, with this most recent article from a very credible source, it looks like my original comment remains valid.
Management suggests that its land position, given the superior reservoir potential of the Utica shale, could be worth between 75% and 101% of the company's total market capitalization. Using the values suggested in the earnings release, Chesapeake estimates its land position is worth between $12,000 and $16,000 per acrem. That seems high, especially after we reviewed an investment analyst's report on another E&P company with meaningful exposure to the Utica shale, including acreage it owns in partnership with Chesapeake.Citigroup, on the other hand:
"Given that the Utica Shale is an emerging play, there are very few transaction comparables available to use as an anchor for our valuation. Even so, according to our research, over the past twelve months, transactions in the Utica Shale have been completed for an average of $2,200/acre ranging between $1,500 and $3,600/acre (i.e. most recent transaction implies $3,600 per acre; announced in 3Q11). In comparison, CHK indicated that its 1.25 million net leasehold acres in the Utica Shale could be worth $15 to $20 billion, which implies a value of $12,000 to $16,000 per acre."One caveat: analysts have been very wrong, most notably in the Bakken.
If the analysts are wrong here, it is in their under-estimation of the oil play in the Utica. Anyone who doubts that just needs to see how much a Bakken acre has appreciated in the past couple of years.