After hitting its bottom in May Chesapeake Energy (CHK) seems to be forming a base, currently trading near $20, based on prospects for its "oil-rich" energy plays like the Utica Shale.
But if CHK, or other big exploration outfits like Cabot Oil & Gas (COG), Apache Corp. (APA), and PetroQuest (PQ) are to gain long-term traction, the problem of the natural gas glut must be dealt with.
That's the job of Clean Energy Fuels Corp. (CLNE ).
CLNE, which has plunged nearly 28% in the last six months, mainly due to that same glut, is in the business of converting vehicles from gasoline to natural gas. In addition to doing fleet conversions it's building stations supplying both compressed natural gas (CNG) and Liquified Natural Gas (LNG) - it has 273 so far.
Most of the company's stations are located in the northeast near plays like the Marcellus Shale. There is also a cluster in southern California. It seems to be absent in major plays like the Bakken, where flaring is common, but that should just spell opportunity.
The question for investors is whether CLNE will get the capital needed to make this obvious opportunity pay off, and right now that's an open question. The company's debt to assets ratio is currently around 25%, but it has been rising steadily year-over-year, and the income statement holds little promise. The company's only break-even year was 2010, and the first quarter of 2012 was brutal. The company is currently burning cash like a Bakken play burns gas.
When prices for natural gas were better, CNLE's cash position was better. It showed nearly $300 million in positive cash flow during the second half of 2011, against a negative $100 million for the first half of 2012. It's a play on cheap natural gas, and rising prices are bad for its business. It needs new gas supplies in order to prosper. It needs someone to bring all that Bakken gas to market.
This performance isn't just bearish for CNLE. It's bearish for the whole natural gas complex. Getting product to market, and creating demand for product, are essential ingredients in a functioning business, and current infrastructure is way behind the curve in natural gas. That's why prices in the U.S. remain such a bargain, and why drillers who find gas associated with their oil plays are burning it off.
If infrastructure and final demand cooperate the current energy boom can go into overdrive. Until they do, it can't.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.