"After coal, natural gas is the No. 2 source for power generation; and the largest source of gas production in the US is now unconventional reserves," explains Neil George.
In his Personal Finance newsletter, the advisor looks at two favorites plays on this trend: Chesapeake Energy (NYSE: CHK) and XTO Energy (NYSE: XTO). Here is his review.
"Unconventional reserves now account for close to 40% of all domestic gas production. In addition, with the possible exception of deepwater fields, unconventional production is the only domestic source of gas that's likely to show real growth in coming years.
"The term 'unconventional' refers to any gas field that can't be produced economically using traditional well technologies. But, using a combination of new techniques, wells drilled in unconventional fields are prolific producers. US natural gas producers remain on a 17%-plus tear in gains so far this year.
"Chesapeake Energy is heavily leveraged to one of the most exciting unconventional plays of all, the Barnett Shale play located near Fort Worth, Texas.
"During the weaker gas price environment of the past two years, Chesapeake has been building a large acreage in the region. That investment is now paying off in the form of accelerating gas production growth at a time when gas prices are rising.
"Production surged 34% in the fourth quarter over the same quarter in 2006. And Chesapeake's proven reserves jumped 21% year-over-year.
"As Chesapeake accelerates its drilling activity, it will gradually be able to book more reserves as proven; management believes it could add as much as 2 trillion cubic feet in new reserves annually for the next few years. Buy Chesapeake Energy under 55.
"Like Chesapeake, XTO Energy has a strong position in the Barnett Shale play; XTO reported growth of 25% over the same quarter last year from Barnett.
"The company is relatively new to that region, entering Barnett only in 2004. But production growth has remained consistent since it started producing from the region, and XTO now has an impressive 250,000-acre position in the core of this hot region.
"XTO has also been an aggressive acquirer in recent years. And by drilling more aggressively, the company should be able to boost production at many of the properties it bought from utility Dominion Resources. XTO Energy rates a buy under 70."
Each day, Steven Halpern's TheStockAdvisors.com offers the latest market commentary and favorite investment ideas from the nation's leading financial newsletter advisors.
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Reader Comments (Page 1 of 1)
4-23-2008 @ 3:51PM
Sheldon L said...
This story goes a long way in explaining why Precision Drilling (PDS) is up 75% in the last four months.
4-24-2008 @ 9:26PM
Taylor said...
Steve Halpern--- while I'm not that familiar with Neil George, it seems that "energy will never go down" is the current consensus....with the exception of Kyle T Mason (www.themasonjournalrecord.com) who says exactly the opposite....he says oil has topped for now....who do you believe? Jimmy Rodgers? George Soros? Ed Seykota?......