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Change We Can Believe In

|Includes:BHP, Chesapeake Energy Corporation (CHK), CLNE, DVN, FSYS, GE, HK, TVIA, WPRT, XOM
Last week Chesapeake Energy (NYSE:CHK) announced that it would invest $1 billion dollars in Clean Energy Fuels (NASDAQ:CLNE) over the next decade to help fund the build out of its fueling stations.  Last Friday morning BHP Billiton (NYSE:BHP) announced its intent to purchase Petrohawk Energy Corporation (NYSE:HK) for more than a 60% premium.  If the casual investor wondered if change is taking place in the oil and gas industry when Exxon Mobil (NYSE:XOM) bought XTO Energy several months ago, then the events of this week were a big dose of validation.
Change is happening and we can all benefit from cleaner air, cheaper energy costs, and energy independence. I know there are those that can, but who would want to argue against those benefits? At the very least the pros outweigh the cons (potential harm to the environment), do they not? So, what is the change and how can we as investors take advantage of the opportunity?
The change is that technology has enabled us to access significant new deposits of natural gas and even oil. Energy companies are starting to realize the U.S. has significant energy resources, and how to get them to the consumer. In addition, other companies are inventing technology and methods to aid in the distribution of resources to consumers.
The opportunity is finding the best companies with the best products, services and prospects as we transition from oil to natural gas, at least for transportation purposes. From companies like Chesapeake and Devon Energy Corporation (NYSE:DVN) in exploration and development to Clean Energy Fuels, which designs, builds, finances and operates fueling stations for vehicle fleets. Other companies with innovative products also stand to benefit from the oncoming transition to natural gas such as Westport Innovations, Inc. (NASDAQ:WPRT), Fuel Systems Solutions, Inc. (NASDAQ:FSYS), and even General Electric (NYSE:GE). Westport Innovations, Inc. is a manufacturer of alternative fuel, low-emissions technologies that enable engines to operate on fuels, such as compressed natural gas, liquefied natural gas, hydrogen, and biofuels. Fuel Systems Solutions, Inc. engages in the design, manufacture, and supply of alternative fuel components and systems for use in the transportation, industrial, and power generation markets. General Electric makes advanced gas turbines.
The companies listed above are just ideas in the natural gas and oil industry. There is an abundance, almost unlimited amount of energy everywhere, not just in the U.S. The problem is not a lack of energy; it is harnessing sources of energy in the most economical and environmental way possible, and then distributing it to consumers. Companies like Chesapeake are at the forefront of the technology to do this in the natural gas and oil industry. In addition to oil and natural gas, there is coal, wind, solar, biomass, geo thermal, kinetic and others that I have not even thought of. In addition, there is nuclear energy, even if it is less favorable after the Japan tragedy. But I digress.
We need to use the technologies and inventions the above companies have created to our advantage until we reach a similar point with even more sustainable energy sources. While there are many people against the continued use and drilling for fossil fuels, most of them still ride in automobiles and fly in planes, which rely on fossil fuels. Especially people the likes of Al Gore. When was the last time you saw him riding a bike or jogging to the store? 

The point of all of this is that free markets will gravitate towards products and services that are less expensive, efficient, or allow us to become more productive. Subsidies or not, investors need to realize the (natural gas) energy revolution is beginning and represents a significant investment opportunity. Say what you will about Chesapeake CEO Aubrey McClendon, but he just made a decision that knocked down the proverbial domino. The events of last week is a sure sign we will use more of our oil and gas domestically, rather than being an exporter. I feel he realizes we have a chicken or egg situation and decided to take action. To clarify, the outstanding question up until last week was what is going to come first, compressed natural gas vehicles or the filling stations to fill the tanks? With the investment last week, it appears we are going to get the fueling stations first, which will then give consumers confidence they will be able to refuel their cars. Demand for natural gas will increase, provided auto companies producer affordable vehicles – some of them have.
Unlike our government, which recklessly spends taxpayer money, McClendon and Chesapeake are not investing in Clean Energy Fuels for nothing. I assumed they see a win, win opportunity for both companies. By investing in Clean Energy Fuels, not only is Chesapeake helping to expedite the build out of fueling stations, which will eventually make Clean Energy Fuels profitable more quickly, but this would increase demand for natural gas vehicles, which would increase demand for natural gas. In addition, Chesapeake is looking for an actual return on investment as it has preferred shares and will receive a dividend. That is how investing is done – with the intent that both sides win, and the intent to minimize the downside risk.

Regardless of taxes, regardless of regulation, great American minds and entrepreneurs press on.  When we reach a roadblock, we adjust and move forward. The natural gas industry does not need government subsidies to have an impact. Those willing and able to see its benefits realize the opportunity even as companies such as Solazyme (SZYM) improve upon technology to eventually mass produce sustainable renewable energy. A revamped natural gas industry is emerging because good old fashion American vision, technology, entrepreneurial spirit and free markets will win out in the end. 

Disclosure: I am long CHK.