Chesapeake Shows Its Muscles
Jesse Bogan, 10.15.09, 04:45 PM EDT
Despite negative market fundamentals, the company raises its drilling budget.



HOUSTON -- Storage tanks may be nearly full, a gathering wave of liquefied natural gas imports threatens to swamp the market, and more environmental regulations seem likely, but one of the largest independent natural gas exploration and production companies in the U.S. is drilling away, saying it expects prices to rise out of the trough.

Oklahoma City-based Chesapeake Energy ( CHK - news - people ) has bumped its drilling budget up by another $300 million this week to a total of $4.55 billion after signing a recent joint-venture amendment in an unconventional shale play. The company doesn't expect to add more hedges until prices get above $7 per thousand cubic feet (natural gas continued to trade under $5 Thursday), and it expects to increase its production and reserves by 60% over the next four or five years.


Chesapeake, a standout in the industry for self-promotion and production, brings in the equivalent of 2.2 billion cubic feet of natural gas per day. It reiterated to analysts at an investor gathering in New York on Wednesday that it's drilling one out of every seven gas wells in the U.S., or one out of every four in the Haynesville, Marcellus, Fayetteville and Barnett shale plays. Of its 101 drilling rigs, 85% of them are in shale, which tend to have impressive initial flow rates yet expensive drilling costs.

Industry analysts took note Thursday.

"We continue to believe that despite [Chesapeake's] strong stock performance this year, its upside potential in the next 12-18 months is much greater than the downside risk from continued low natural gas prices," Oppenheimer & Co. energy analyst Fadel Gheit wrote to investors Thursday.

Oppenheimer has an "outperform" rating for the company with a target price for the next 12-18 months pegged at $35. Chesapeake gained 44 cents Thursday to close at $28.93, about a buck below its 52-week high.


Post a CommentCalyon Securities analyst Jeb Armstrong also raised Chesapeake's target price from $33 to $36.


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