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Wednesday, September 22, 2010

Longleaf on CHK and other holdings

I wish I could ask him how CHK is going to increase in stock price if natural gas never goes above $5.

http://www.gurufocus.com/news.php?id=107630
Posted by Devon Shire at 2:56 PM
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2 comments:

  1. Swizz,

    Me again! I'm also in CHK(don't think you are currently).......but i know you know this company.....wondering why still so hesitant given your obvious belief in their assets, there already fairly impressive oil assets/properties, and their seemingly genuine move to placate to the investment community with debt paydown........i know you say minus $5 gas is bad for the stock, and it certainly is......but if you truly believe their assets are tremendously undervalued here at $3.90 per mcf.........wouldn't a rise to $5 be icing on a big cake? I mean, do you feel gas is going to $2??? I think there is an obvious push and sentiment at least in the U.S. for it to be the "fuel of the future" and i don't see a better portfolio of assets, especially amongst independents, than CHK. I'm just curious why you seem so hesitant to invest based solely on NG prices.........also, the current disconnect between oil and gas is way off based on historical divide........and isn't also the time to invest(as Aubrey tries to point out!) when natty gas is hated by everyone?

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  2. I'm concerned that the acquisition prices for the acreage being bought and sold in thse shale plays may decrease going forward if it becomes apparent that $4 is the long term price for natural gas. Those acquisition multiples ($$ per acre) is how the CHK NAV is supported.

    As far as nat gas being the fuel of the future, I'm not willing to risk money on that. Might be the case but I have no conviction that it is so why risk money when I don't have to.

    Regarding the disconnect between oil and nat gas....why is that even relevant ? The are used for completely different things so why would they move together simply based on their energy potential ?

    I think sayings such as the time to invest when natural gas is hated is dangerous. It often pays to be contrarian, but a lot of people sure hated homebuilders and banks in 2007....and it turned out to be for good reason. Remember the supply/demand relationship for natural gas that existed in 2004 to 2007 is no longer relevant. There is a huge new source of gas in these shale plays, so $8 natural gas from $3 years ago is not a meaningful data point. The more meaningful data point might be what price now stops these shale plays from being developed and that might be $4.

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