Alamo

Betting on Natural Gas, Part II: Investing Ideas

Continuing our reliance on foreign national oil companies is absurd in view of the fact that we presently have proven reserves of natural gas to offset our "crude mania".

There appears to be overwhelming support in congress to transition this nation to one using compressed natural gas (CNG) in the national transportation sector although that body has been woefully slow to act. Quite possibly, at the end of the healthcare debate congress will get behind the CNG fueled transition issue.

Keeping the present 250 billion dollars currently being "exported" each year here in our economy has to be a powerful economic stimulous plan.

With 60 million homes in the US already served with natural gas and an increased availability of the home re-fueling units (Phill units) America could be driving on CNG relatively soon. Presently, those Phill compressors are too expensive to find widespread use, but I could see a situation where economy of manufacturing scale could make them more reasonably priced as well as more efficient. That potential 60 million market base should be a strong motivator.

Additional pertinent details on the positives of natural gas use in America can be found at :
America's New Natural Gas.com website

Chesapeake: When Gas Prices Will Recover

After carefully reading the CHK Conference call for Q3 '08, I came away satisfied that Chesapeake management has a handle on future developments whether or not, natural gas prices rise or fall. Considering that these comments were made in a highly uncertain economic climate Aubrey McClendon's team has hedged major percentages of 2009 and 2010 reserves at attractive prices. (75% in '09, 50% in'10)

Those hedges should be entirely sufficient to carry CHK profitably forward during the economic uncertainty going forward. Bottom line is the uncontrovertible fact that Aubrey McClendon has acquired very valuable undeveloped reserves and negotiated deals with companies that wanted a percentage of access to those properties. With the hefty cost involved in developing gas reserves I think it makes perfectly good business sense in sharing those costs while retaining half (or more) of the production when it does come on line.

The trick is "being firstest with the mostest", and when it comes to American unconventional natural gas reserves Chesapeake is at the top of their game. CHK and McClendon didn't become the top natural gas producer in the US by being stupid.