A recent article by The Motley Fool argued that Chesapeake Energy Corp. (NYSE: CHK) was a much better investment than Citigroup Inc. (NYSE:C). According to Philip Durell's analysis, Chesapeake Energy is one of the country's largest independent oil and gas companies. 92% of the company's assets are in natural gas. Chesapeake Energy has spent $14 million purchasing land on which to ramp up its drilling program. The company currently has proven reserves of 9 trillion cubic feet equivalent in natural gas, enough to last 15 years at current usage levels. Additionally, probable reserves amount to another almost 18 trillion cubic feet equivalent.
The Fool likes Chesapeake Energy for a number of reasons. Natural gas prices do not fluctuate wildly. Gas futures on the NYMEX run between $6.90-$9.20 per million cubic feet equivalent depending how far out the delivery date would be. This is a very profitable price range for Chesapeake Energy, which owns and leases more than half of its 135 drilling platforms. Due to its land purchase program, Chesapeake Energy is able to concentrate drilling platforms, thus reducing operating costs. The company also has experience in various forms of gas drilling and exploration.
Durrell thinks the stock is currently undervalued, trading at 60 cents on the dollar, making it a much better investment option than Citigroup.
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