A few months ago, we told you to buy Chesapeake Energy (CHK) for exposure to the natural gas market.

If we were bullish then, we’re hyper-bullish now.

Since Chesapeake’s Founder and CEO, Aubrey McClendon, resigned, the case for buying the company has only gotten stronger.

Reasons include:

  • Better leadership.
  • A stronger cash position.
  • Insider buying.
  • Analyst upgrades.
  • And higher natural gas prices.

I’ll start with the leadership change…

[ad#Google Adsense 336×280-IA]Chesapeake is among the top five largest players in the natural gas space, and it also has significant oil operations.

But it was severely undermined by McClendon’s risk-taking and questionable behavior.

During McClendon’s reign, CHK amassed hundreds of thousands of acres of land in U.S. shale plays – particularly the prolific Marcellus shale.

At the time of these acquisitions, it seemed like a great deal.

Natural gas prices were above $6 per thousand cubic feet (mcf) and CHK was riding high.

Of course, McClendon leveraged the hell out of CHK’s balance sheet to buy the properties, racking up more than $10 billion in debt. So when natural gas prices crashed, CHK’s share price tumbled down with them. The stock cratered from a high of more than $60 to the low teens last year.

McClendon’s personal fortune plunged, as he had loaded up on the company’s shares. And allegations of “self-dealing” (i.e., using Chesapeake wells as collateral for personal loans) hurt Chesapeake’s reputation.

After a year of speculation and mounting shareholder pressure, McClendon stepped down. Chesapeake stock has soared 40% since December, as a result.

Shares got an added boost this [past] week when the company announced Robert Lawler had accepted the position as CEO.

Lawler is no small fish. He’s the former Vice President of Texas-based Anadarko Petroleum (APC), one of the bigger and more successful players in the energy industry. He also has a ton of experience in the Marcellus shale region.

And that’s not all.

Behind the scenes, a more interesting bit of news took place – something that didn’t cross the wires.

Chesapeake Director and Non-Executive Chairman, Archie Dunham, bought 450,000 shares of Chesapeake on the open market – a trade worth over $9 million.

Furthermore, Chesapeake reported better-than-expected numbers in the past quarter – thanks to its oil production – and has received several analyst upgrades. Most recently, analysts at Susquehanna upgraded the stock from a neutral to a positive rating.

Meanwhile, natural gas prices have doubled over the past year, breathing new life into Chesapeake’s remaining assets. You see, Chesapeake divested many of its non-core assets in an aggressive effort to relieve its cumbersome debt burden. However, it kept its prime holdings, so as not to fully mortgage its future.

When you add all of this up – a new, aggressive and experienced CEO, lower debt service, higher natural gas prices, insider buying, analyst upgrades, and strong earnings and guidance – the stage is finally being set for a big time surge in share price.

Chesapeake should be part of any portfolio looking for serious exposure to the natural gas market, and I would recommend adding to or initiating a position during any pullback.

And “the chase” continues,

Karim Rahemtulla

[ad#wsd-article]

Source: Oil & Energy Daily