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General Electric (NYSE:GE) is diving headlong into the Australian natural gas industry, seeking $6 billion in equipment contracts over the next eight years. Analysts expect Australia to be number one in natural gas production by 2020. $180 billion worth of exploration and construction are occurring across Australia and GE is involved in each of those projects, providing turbines, gas compression machinery, and power generation equipment. The energy boom is driven primarily by insatiable demand from Australia's main trade partner (pdf), China, whose rapidly expanding economy appears to have dodged the threat of a hard landing.

How to Play the Australian Rise?

GE CEO Jeffrey Immelt has pulled out all the stops in his apparent quest to bankrupt the company's shareholders and the stock is an ugly investment. Therefore, the energy companies themselves, specifically Apache Energy (APA), Chesapeake Energy (NYSE:CHK), ConocoPhillips (NYSE:COP), and Exxon Mobil (NYSE:XOM), are the best way to play the upcoming gains in natural gas.

In February, Apache opened its new Devil Creek facility in Western Australia to supplement its Julimar offshore exploration project. The company located the Julimar and Brunello gas fields in 2007 with partnership with Kuwait Foreign Petroleum Exploration. Apache has 65% interest in the project and expects the fields to produce over 2.1 trillion cubic feet of gas. 140 million cubic feet of liquefied natural gas, 22 million cubic feet of conventional natural gas, and 3,250 barrels of natural gas condensate will be produced daily once the firm's revenue wells, off shore pipeline, and additional production facilities are complete. The company trades for $91 per share and has potential upside of 45% in the next year, consensus estimates place the stock at $132. The company offers a paltry $0.68 dividend, which yields just 0.70%.

ConocoPhillips, in conjunction with Origin Energy, will produce LNG from beds located off the coast of East Timor (Timor-Leste) and Australia in the Timor Sea. It also has coal bed methane wells in the northeastern Australian state of Queensland. In 2006, the company opened the Wickham Point LNG facility in Darwin to process natural from its Bayu-Undan gas field. Most of the production from this facility is purchased by Tokyo Electric Power Company and the plant will be expanded to accommodate new flows from other fields. ConocoPhillips' stock is especially attractive at the moment. The stock trades for $73 a share and sports a hefty 3.60% dividend. The price-to-earnings ratio stands at an inexpensive 8.12, the stock would be priced at $108 per share if it were valued at a more reasonable 12.00. That represents potential upside of 48%! The consensus one-year price target for this stock is just $82. Now, how often is the consensus wrong, especially on Wall Street? It's time to snap this juicy stock up.

Exxon, through its Exxon Mobil Australia subsidiary, has invested over $16 billion to develop 23 wells the in Bass Strait. Exxon also operates the Scarborough Field in the Carnarvon Basin and holds a 25% stake in the Gorgon Project, which will extract gas from wells off Australia's western coast. The stock trades for $85 per share at a P/E of 10.13. The one-year target for the stock is $95. Exxon offers a middling dividend with a 2.20% yield.

The last candidate, Chesapeake Energy, holds a 0% stake in the Australian natural gas game. This might lead you to question why this company made my list. My view is that the natural gas renaissance will spread from Asia and the Pacific to North America. Chesapeake is simply the best investment if this scenario plays out.

Similar to the 1970s conversion from gasoline to diesel in heavy trucks, American energy companies are now powering their drilling rigs with natural gas instead of diesel because the fuel is plentiful and cheap. Obama's energy policy pushes for a similar transition in motor vehicles, ditching expensive gasoline and diesel for cheap natural gas.

This is where Chesapeake comes in. The number two producer and number one U.S. driller of new wells stock is plummeting. The stock, which traded hands for better than $65 as recently as July 2008, is priced at just $17 today. The blame for this precipitous fall in share value rests on CEO Aubrey K. McClendon who sold hundreds of millions of dollars of shares during the height of the financial crisis. The effective vote of no-confidence against his company resulted a shareholder lawsuit against McClendon to reclaim lost value. To settle the lawsuit, McClendon bought back a $12 million map collection that he had sold to the company, a small price to pay for totally devaluing his shareholders' holdings.

No stranger to controversy, McClendon is now in the hot seat for pledging his $1.1 billion stake in the company's wells as collateral for business deals that would result in him owning the very same wells outright. Shareholders are understandably peeved at the immense conflict of interest this represents. So where's the bull case here? McClendon is, in my opinion, on his way out the door and at the perfect time. The company is uniquely positioned the capture the rise in American natural prices and production with operations in 17 states, which include natural gas shales in New York, Pennsylvania, Ohio, West Virginia, Texas, and Louisiana. It owns 2.2 million acres of natural gas shale and has 13,400 potential drilling sites in the continental U.S. Chesapeake, minus a CEO who treats the firm like an ATM and armed with vast resources of the unconventional fuel, is poised to pop.

The company is currently trading for $17 per at a very low P/E of 7.50. If the stock were priced properly, with a P/E closer to 12, it would trade for nearly $28 per share, 60% higher than its current price. This however, is only the beginning of Chesapeake's potential upside. The company will nearly triple its production of oil and natural gas liquids from 86,800 barrels per day last year to over 250,000 barrels per day in 2015. This 188% increase in production will, at today's energy price levels, bring the company's revenue over the $33 billion mark and its net income to nearly $4.75 billion. At its low P/E , the stock would trade for $54 per share (for a gain 209%), but at a more reasonable P/E of 12, shares would trade hands at $86 per share. That is a potential 405% gain in just four years.

In the meantime, you will pocket a dividend yielding 2%.

To summarize all this I really like the ConocoPhillips play, it is the best means to extract value from the Australian natural gas story. Sure, the profit from its natural gas facilities there won't push the stock up very much. It will be diluted by the company's various other exploration, drilling, and refining activities. Its dividend however, cannot be denied, and Australian LNG profits will line your portfolio from this clear buy.

Chesapeake, however, is a much heavier-hitting domestic play. Buying it now may feel like catching a falling knife, but its enormous long-term upside outweighs the nearer-term downside risk. Opportunities for a stock quintupling in a few short years are few and far between, especially in the market today. Chesapeake makes sense in your portfolio because natural gas makes sense for our country. The Australians get it, the Chinese get it, and even the U.S., which lacks an organized energy policy, will come to realize the economic viability of this resource. Buy and hold the stock with a five-year investment time-frame and long-term gains will topple and near-term losses. This company, especially at current valuations, is a screaming turnaround buy.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: General Electric's New $6 Billion Gas Project Will Boost Your Portfolio