Analyst Says Chesapeake's Assets Make it an Attractive Investment

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From Seeking Alpha:
You can tell something must be going right for Chesapeake Energy(CHK) when its stock price goes up on a day, October 9, 2012, when the overall market (SPY) goes down by approximately -1%. CHK went up demonstrably the next day with a positive overall market. A quick check indicates that CHK is seeing very positive events in many areas. In Q2, CHK, the second largest producer of natural gas in the US, had to suffer through an abyss in natural gas prices and substantially lower oil prices than in Q1 2012. On top of this, CHK was mostly unhedged in Q2.
How have things improved? US natural gas prices hit bottom in late April of Q2 2012 at $1.902/Mcf. US natural gas prices are at $3.584/Mcf as of this writing. That's about an 88% gain from the bottom in Q2 2012. It is also significantly above the breakeven point for CHK of approximately $2.70/Mcf. At least a part of the reason for the climb in natural gas prices has been the colder than normal recent temperatures and a forecast for an el Nino winter in North America (colder than normal). Unfortunately, CHK will not be able to completely benefit from this as CHK has taken on 64% hedges for natural gas production at $3.03/Mcf for Q3 and Q4 of 2012. Still the Q4 results should still show some upside for the unhedged natural gas production. The Q3 results should also show a still large improvement over Q2 results with regard to natural gas profits.
Nymex WTI Oil prices hit a near-term bottom of $77.28/barrel in late June 2012. They recovered to a near-term high of $100.42/barrel in mid-September 2012. However, they have since fallen to $91.90/barrel as of this writing. Many are saying there is near-term oversupply. Hence oil prices may fall further, especially with the seemingly continual world economic growth downgrades. In juxtaposition to the over supply issues are the many troubled political situations in the Middle East and North Africa which might send oil prices higher at any time. For Q3 and Q4 2012, CHK has liquids 31% hedged at $101.34 per barrel. This will provide a good base for good oil production earnings, and the still good oil prices will provide further good profits.
Read the rest of this analysis by clicking here.

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