Chesapeake Energy Is Rejoicing as Natural Gas Rebounds

Natural gas' fundamentals are improving and Chesapeake along with other large producers are ready to increase their profits.

Jun 2, 2014 at 5:10PM

U.S. natural gas is seeing lower inventories, higher prices, and slow production growth; these are the ingredients for a strong turnaround. This is great news for Chesapeake Energy (NYSE:CHK) as its first quarter 2014 production on a barrel of oil equivalent basis was 71% natural gas. Chesapeake's push into oil and wet gas production helps diversify its income, but the improving natural gas market will be a major boost to its bottom line.

Natural gas fundamentals
US Natural Gas Marketed Production Chart

US Natural Gas Marketed Production data by YCharts

The amount of natural gas in working storage plummeted to levels far below those seen in 2013 or 2012. This is great news for the industry as it shows that consumption and production are finally falling in line. The fall in inventories occurred even though the November 2013 to March 2014 winter saw less natural gas consumption than the same 2012-2013 period.

While the temporary spike in Henry Hub prices above $7.00 per mmBtu is over, natural gas continues its slow upward climb. Stronger prices will help Chesapeake. The company is not going to abandon natural gas anytime soon. It estimates that after asset sales, its 2014 adjusted natural gas production will grow 4% to 6% year over year. With 64% of its 2014 natural gas production hedged, Chesapeake will benefit from increased natural gas prices without being fully exposed to market volatility.

Chesapeake is not the only company that will benefit 
ExxonMobil (NYSE:XOM) is big name that is seeing benefits from higher natural gas prices. From the first quarter of 2013 to the first quarter of 2014, its average realized natural gas price grew from $3.21 per mcf to $4.78 per mcf, helping to boost its first quarter 2014 upstream earnings by $410 million year over year. $410 million works out to be a 5.8% growth in its upstream earnings. 

The company has a good handle on future North American natural gas developments. It is already active in Canada's Montney and Duvernay shales. In the U.S., it is active in gas-rich shales throughout Texas, Louisiana, the Northeast, and elsewhere.

In the fourth quarter of 2013, Anadarko Petroleum (NYSE:APC) and Devon Energy (NYSE:DVN) were the third and fourth largest producers of natural gas in the U.S. after ExxonMobil and Chesapeake. Like Chesapeake, Anadarko is trying to bring down its 0.71 total debt-to-equity ratio by focusing on higher-margin production with immediate payoffs.

U.S. shale plays with significant natural gas production are a big part of Anadarko's new focus. In the first quarter of 2014, liquids accounted for 35.1% of its U.S. onshore sales volumes, giving improving natural gas pricing a big opportunity to boost its bottom line. Anadarko is also seeing good non-gas numbers in the Delaware Basin with 85% or more of production coming from liquids. 

Devon Energy is heavily exposed to natural gas. It accounted for 33% of Devon's first quarter 2014 production, but the company expects that in the fourth quarter of 2014, natural gas will increase to 43% of production. With 75% of its second to fourth quarter 2014 natural gas production already hedged, improving natural gas prices will help Devon to a limited degree in 2014.

The upside is that Devon has more flexibility than Anadarko or Chesapeake. Its total debt-to-equity ratio is only 0.59.

The market is moving 
Demand for U.S. natural gas is growing and inventories are falling. Compared to world standards, U.S. natural gas is still very cheap; this signals that the market has room to run. Strong natural gas prices will help Chesapeake and Anadarko create more stable businesses with lower debt loads. ExxonMobil, on the other hand, does not have big debt issues and its status as the largest U.S. natural gas producer in the fourth quarter of 2013 means that it is ready to profit.

Do you know this energy tax "loophole"?
You already know record oil and natural production is changing the lives of millions of Americans. But what you probably haven’t heard is that the IRS is encouraging investors to support our growing energy renaissance, offering you a tax loophole to invest in some of America’s greatest energy companies. Take advantage of this profitable opportunity by grabbing your brand-new special report, “The IRS Is Daring You to Make This Investment Now!,” and you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Joshua Bondy has no position in any stocks mentioned. The Motley Fool owns shares of Devon Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers