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Haynesville Shale Natural Gas

Why Chesapeake Energy is Still a Buy

Written by Ian Cooper
Posted August 5, 2008 at 3:51PM

By now, I'm sure you've heard of the Haynesville Shale. We've covered it extensively in Energy and Capital and in the pages of Wealth Daily. It was even recently covered on CNBC, weeks after we first brought it to your attention.

And if you've heard of the Haynesville Shale natural gas formation, you've also heard about Chesapeake Energy (CHK), a stock that helped Pure Energy Trader readers realize quick gains of 16% and 19% in less than a month.

But 16% and 19% are nothing, as compared to long-term gains we could realize, especially if the Haynesville natural gas find proves to be the world's fourth largest. CHK's CEO Aubrey McClendon has said the Shale could hold more than 250 trillion cubic feet of natural gas and supply U.S. needs for about 10 years.

Better yet, an insider just bought 750,000 more shares of the beaten down company, or $43 million worth of stock, and he's been a steady long-term buyer.

  • In April 2007, he bought 100,000 shares
  • In November 2007, he bought 50,000 shares
  • In December 2007, he bought 50,000 shares
  • In February 2008, he bought 200,000 shares
  • In March 2008, he bought 400,000 shares and another 100,000 shares
  • And just recently, he bought 600,000 and now another 750,000.

Nor does it hurt that a potential Hurricane in the Gulf of Mexico could send oil and gas cost higher; or that a war between Iran and Israel could lead to $200 oil on a closed Strait of Hormuz; or that the eventual reset of Option ARMs could lead to a weaker dollar.

But it's the Haynesville Shale that gets us the most excited.

The Haynesville natural gas shale is found in a vein approximately 11,000 feet underground.

Although the Haynesville shale is being touted as one of the largest onshore natural gas fields, it's a little too tell exactly how much natural gas is down there.

But it's not stopping companies from rushing to grab acreage in the play, including CHK, XTO Energy, Range Resources, and Quicksilver Resources.

As the third largest producer in the United States, Chesapeake is no stranger to natural gas. Natural gas makes up 92% of the company's production. With success in the Barnett, Marcellus and Haynesville shales, Chesapeake has had an impressive year so far.

In March, the company announced plans to develop its 300,000 acres in the Haynesville shale and expects to pick up another 200,000 acres in the future. Chesapeake even stated, "...the Haynesville shale could potentially have a larger impact on the company than any other play in which it has participated."

And it doesn't hurt that lawmakers are taking an interest in the Haynesville Shale.

"Imagine if tomorrow you could announce a new energy plan that would in one stroke cut your constituent's gasoline bill in half, reduce our oil imports, improve our air quality, enhance national security, strengthen the dollar, reduce greenhouse gas emissions and create tens of thousands of new jobs in the U.S," Aubrey McClendon said before Congress. "I believe your upcoming reelection chances would be even higher than they already are."

And several lawmakers already seem convinced, describing natural gas as a "bridge to a renewable energy future - and a replacement for coal."

Rep. Rahm Emanuel D-Ill. And Rep. Dan Boren, D-OK, for example, have already introduced a bill that could result in having 10% of all vehicles powered by natural gas by 2018. And, in addition to providing tax credits, the bill could also require that Big Oil companies install at least one natural gas pump at each of their stations, says a article.

And as for hurricanes, the CHK CEO says the days of being "concerned that hurricanes will damage the infrastructure for natural gas is ‘pretty much over.'"

Again, what's not to like? Buy. Hold. And sit tight with CHK. Patience will pay off.

Good Investing,

Ian L. Cooper




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