The analysis below first appeared in Motley Fool CAPS in March. You'll find more CAPS coverage from this contributor on more than 60 stocks in the energy sector, including ConocoPhillips
In 2006, the price of natural gas averaged around $6.73 per thousand cubic feet, as domestic natural gas consumption declined by 265 billion cubic feet. This was largely due to unusually warm weather during the first two months of the year, which reduced heating demand. The price outlook in 2007 seems appealing for large natural gas players like Chesapeake; gas consumption is expected to rise by about 900 billion cubic feet, resulting from strong demand both from residential heating and increased industrial usage.
Financially, Chesapeake had a strong 2006. Revenues were up by 57%, and net profit more than doubled from previous-year levels, all thanks to higher oil and natural gas prices. In addition, through targeted acquisitions, the company increased its production from drilling and its capacity.
Looking ahead to 2007, the company is likely to continue to rise, with its huge reserves, deep drilling expertise, and the competitive advantage that arises from its primarily domestic operations. The company also has an impeccable record of increasing production for 17 consecutive years and 22 consecutive quarters, thanks largely to acquisitions. Moreover, with the price outlook for natural gas in 2007 looking very positive for the company, the further rise in production will act as major boost for Chesapeake, making it a strong investment.
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