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Buy Chesapeake Energy (CHK) for cold-weather gains

Posted September 3, 2008

"To say that trading energy stocks has been difficult in recent months is a major understatement. When you see that even an industry giant like Chesapeake Energy Corp. (NYSE: CHK) lost money in its hedging activities, you know that trading activity during that quarter was extremely wild." — Horatio Marquez

by Horatio Marquez

Baltimore — (TFN):  To say that trading energy stocks has been difficult in recent months is a major understatement. When you see that even an industry giant like Chesapeake Energy Corp. (NYSE: CHK) lost money in its hedging activities, you know that trading activity during that quarter was extremely wild.

At Friday’s closing price of $48.40, Chesapeake Energy shares are down 35% from their 12-month high of $74. But the cause is clear.

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When crude oil prices shot up from about $100 per barrel to $135 per barrel a few months ago - and natural gas skyrocketed from $10 per billion cubic feet (bcf) to $13.50 per billion cubic feet at the same time, prompting all sorts of investigations into speculative activities by the Commodity Futures Trading Commission, and in turn prompting calls for Congress to make it harder for financial investors to buy energy futures - it’s no surprise to see that almost every energy producer that prudently hedges part of its production against price drops had losses in the quarter.

Most analysts - myself included - are asking: “If we would have started drilling in the Continental Shelf and other such places a while ago, would this have ever happened? Probably not.” But it did. Read on to learn more.

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Posted by Horacio Marquez · Filed Under Oil and Energy 

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