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If you think natural gas prices will remain high or grow higher, Chesapeake Energy (CHK) could be for you. Founded in 1989 with $50,000, the company has grown through acquisitions and is now the second largest independent producer of natural gas in the US with a market cap near $10 billion.

Most of the company’s reserves are in Arkansas, Oklahoma, Texas, and Kansas. Asset concentration has been key to the company’s strategy, since it allowed CHK to create scale and gain expertise in the region.

Justin Perucki of Morningstar recently wrote about the company:

Historically, Chesapeake has targeted natural-gas resource plays located close to its existing assets, with price tags of less than $500 million. Its recent acquisition of Columbia Natural Resources was a bit of a departure from this strategy; it cost $2.2 billion and is located in the Appalachian basin. . . . Although management believes the geology in the region is similar to what the firm encounters in its other fields, a slipup could prove costly, especially if natural-gas prices fall. At today's current gas prices, we think shareholders would be better served if Chesapeake concentrated on extracting natural gas instead of acquiring more acreage and potential reserves. However, if gas prices remain high, returns could be phenomenal. (emphasis added)

Although management is hedging fairly extensively, we give them credit for putting their money where their mouth is. Not only has the company acquired gas assets aggressively, but they have done so using more leverage than competitors (apparently, the banks are giving them credit too).

Further, insiders have purchased over $100 million worth of stock since the summer. Judged by dollar flows, these guys believe in what they’re doing.

We don’t have a view on gas prices so our own money isn’t going into Chesapeake, but if you do, you might want to take a closer look and see if the stock is for you.

CHK 1-yr chart:

Source: Chesapeake Energy Should Profit From Higher Natural Gas Prices (CHK)