The Chesapeake Good-News Machine

These days, you'd have to search long and hard for a company that trumps Lehman Brothers' flow of news, as the big brokerage tries to avoid following Bear Stearns into the financial abyss. But among the leaders in good news, indicating superb management -- and perhaps being in the right place at the right time -- is natural-gas producer Chesapeake Energy (NYSE: CHK  ) .

Monday's news was that Chesapeake has formed a joint venture with Goodrich Petroleum (NYSE: GDP  ) , in which Chesapeake will pay Goodrich about $178 million for working interests in deep strata of the Bethany-Longstreet field of Caddo and DeSoto parishes in Louisiana. That is in the Haynesville Shale of East Texas and Louisiana, and Chesapeake already has told us that Haynesville will probably be a massive play.

That's a significant deal for Chesapeake. With less than two decades under its corporate belt, the company, as CEO Aubrey McClendon told us at the company's recent annual meeting, is on the verge of surpassing BP (NYSE: BP  ) and Anadarko Petroleum (NYSE: APC  ) to become the largest U.S. natural-gas producer. Chesapeake will probably stake that claim before your kids return to school in the fall.

For Oklahoma City-based Chesapeake, the Barnett and the Fayetteville shales of Arkansas are already taking a back seat to the immense promise of the Haynesville. McClendon is still playing it close to the vest regarding specific Haynesville metrics, but he has said that the company has five rigs operating there, expects a minimum of 12 by year's end, and is looking for 30 or more by the finish of 2009.

But one key metric available on Chesapeake indicates why Fools would be well advised to keep a close eye on this Motley Fool Inside Value selection: A $1,000 investment at the time of the company's IPO 15 years ago would today be worth more than $50,000 today. The company's shares have appreciated by about 64% in just the past year.

All of this, along with the ascendancy of what McClendon calls "clean-burning, American-produced natural gas," has me watching Chesapeake closely. I hope my energy-investing Foolish friends will join me.

For related Foolishness:

Chesapeake is a recommendation of the Motley Fool Inside Value newsletter service. The market-beating service, which provides two deep-value stock ideas to subscribers each month, is yours today with a 30-day free trial.

Fool contributor David Lee Smith doesn't have financial positions in any of the companies mentioned. The fool has a newsworthy disclosure policy.


Read/Post Comments (3) | Recommend This Article (12)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 16, 2008, at 2:11 PM, EricSchleien87 wrote:

    If you go to their investor presentation on their website, they prepare a monthly update on the companies Net Asset Value.

    ====

    (Using information from the investor presentation on chk.com)

    With the different price decks the NAV varies.

    So at $8.50/btu the NAV is $87.96

    $9.00/btu the NAV is $96.95

    $9.50/btu the NAV is $105.97

  • Report this Comment On June 16, 2008, at 5:26 PM, TexasLonghorns wrote:

    CEO also bought over 200,000 more shares last week at around 59.50 a share.

  • Report this Comment On July 01, 2008, at 8:58 AM, Cuchulainn1 wrote:

    What's not to love about a wildcatter whose CEO buys more stock with every paycheck?

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