This Oil & Gas Stock Should Surprise You In 2013

| About: Chesapeake Energy (CHK)
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Becoming a leaner, more efficient oil and gas company, Chesapeake Energy (NYSE:CHK) is looking very attractive. The company has been selling off assets to pay down debt and build a considerable chunk of capital. The company recently sold $6.9 billion worth of gas fields and pipelines to Royal Dutch Shell (NYSE:RDS.A) and Chevron (NYSE:CVX). This sale of assets in the Permian Basin puts Chesapeake at the 85% mark toward a goal of $14 billion in sold assets.

The company's CEO, Aubrey McClendon regarding the deal stated, "These transactions are significant steps in the transformation of our company's asset base to a more balanced portfolio among oil, natural gas liquids and natural gas resources and production." Royal Dutch Shell is buying about 618,000 acres in the southern Delaware Basin portion of the Permian Basin for $1.94 billion. Royal Dutch Shell operates as an oil and gas company worldwide and holds interests in approximately 30 refineries, 1,500 storage tanks and 150 distribution facilities, and fuels retail network of approximately 43,000 service stations under the Shell brand name.

Royal Dutch Shell recently signed a 10-year contract with Transocean Ltd. (NYSE:RIG) for four new drillships for $7.6 billion. The ships are designed to drill wells up to 40,000 feet in water depths of up to 12,000 feet. Chevron gets about 264,000 acres in the Permian Basin in the asset sale deal. Chevron recently discovered natural gas offshore Australia in the Greater Gorgon Area, located in the Carnarvon Basin. The well, the Satyr-2, is located approximately 75 miles northwest of Barrow Island off the Western Australian coast, and confirmed about 128 feet of net gas pay. Chesapeake is raising about $3.3 billion from the sale of Permian Basin assets and is keeping roughly 470,000 acres in the Permian. The company also sold some land in Ohio's Utica shale formation for some $600 million in four separate deals. After that transaction Chesapeake has about 1.3 million acres left in the Utica.

Chesapeake recently began offering Oklahoma drilling leases for sale. Chesapeake is trying to unload roughly 28,360 net acres in three counties west of the Colony Wash field. The acreage has 117 wells already drilled there and does not include any of Chesapeake's drilling sites in nearby Texas panhandle. Another energy company proving successful in the Oklahoma region is the Apache (NYSE:APA) which has 2,500 producing wells and controls over one million gross acres primarily in western Oklahoma and the Texas panhandle. Apache hit pay-dirt in 2011 when it increased its production of natural gas liquids by 244% compared to the prior year. These selling of assets for Chesapeake do not spell trouble for the company, but sets the foundation for success on the horizon. I believe that this is the best time to get on board a company with a bright future. Though heavy into natural gas, that may play in Chesapeake's favor over the long run.

Still the second largest producer of natural gas behind Exxon Mobil (NYSE:XOM), Chesapeake is setting up for a stronger comeback. In the second quarter of this year, natural gas currently made up about 79% of the company's production. This is where a company like Chesapeake is set to profit big once natural gas prices begin their climb upward once again. Exxon Mobil will profit as well, but the company is also dependent on oil, which makes up a larger portion of its business.

Exxon Mobil recently purchased for $2 billion the drilling rights to 196,000 acres in North Dakota and Montana, increasing its Bakken presence by 50%. Exxon Mobil gained the number one spot of natural gas producer when it purchased XTO Energy in 2010. Chesapeake may be selling off assets in a flurry, but the company is holding onto those profitable positions of plays that butter the bread. Some are rich in natural gas and others in both oil and gas. This includes the successful Hogshooter play in the Texas Panhandle.

The company owns close to 30,000 net acres in this play where it announced this past June that an exploratory well had produced an average of approximately 7,350 boe per day during its first eight days of stabilized production. The company has completed two horizontal wells in the Hogshooter formation to date and plans on drilling 65 additional wells in the coming years. In the first eight days of just one of the wells, production averaged 5,400 barrels (bbls) of oil, 1,200 bbls of natural gas liquids (NGL) and 4.6 million cubic feet of natural gas (mmcf), or approximately 7,350 bbls of oil equivalent (BOE) per day. Regarding Hogshooter, McClendon commented,

We expect this new Hogshooter discovery to provide a significant boost to Chesapeake's focus on harvesting its existing assets for growth and value creation rather than on pursuing new leasehold.

In addition, this new Hogshooter development area should further enhance our growing liquids production, which we expect will have transformational effects on our company's operational and financial performance in the years ahead. Further, based on production results to date and our research of industry production records, we believe the Thurman Horn 406H well is one of the best oil wells drilled onshore in the Lower 48 in the past several decades. This discovery exemplifies the scale and quality of our world-class asset base and the skill and creativity of our technical teams. Their hard work and determination is continuing to create significant additional value for our shareholders and other stakeholders.

Forest Oil (NYSE:FST) is another player having success at Hogshooter. Forest Oil Corp primarily has interests in the properties in the Texas Panhandle; Eagle Ford Shale in south Texas; and the east Texas/north Louisiana. The company has completed five Hogshooter wells that have had an average 24-hour maximum production rate of 3,050 Boe/d.

In the second quarter of 2012, Chesapeake reported net income of $929 Million, or $1.29 per fully diluted common share, on revenue of $3.4 billion. The company has an operating cash flow of $895 million on revenue of $3.389 billion and production of 347 billion cubic feet of natural gas equivalent (bcfe). Additionally, the company is currently offering a dividend yield of 1.9%. Chesapeake has been in the natural gas business for over 23 years. The company has proven it can make money and survive through multiple challenges and come out even stronger than before. Right now is a good time to buy a company like Chesapeake and hold on for a long time.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.