By Roger Nachman
It's cold outside, and gas is starting to heat up. No longer are we going to see the dreg prices of $3 per BTU, as we've seen the past couple of years.
Yes, we still have piles of the resource, but we are figuring out a way to use it in other sources. In addition to using it to heat homes, we are moving closer to using it for fuel, and public transportation across the country uses natural gas as a fuel for its fleet of buses. As oil continues to get expensive (and it will in 2011, believe me), we are going to have to look for alternative sources of fuel, and with an abundance of natural gas, this is the obvious place to start.
I can't predict the future and give you a specific target price for natural gas given the fact that we've had an enormous supply of the commodity over the pas few years. What I can tell you, is 12 months from now, natural gas will be higher than where it is today. This I would bet the bank on. Why?
Just following the big money. It really is that simple. Earlier this year, Exxon Mobil (XOM) closed its acquisition of XTO Energy, for around $40 billion, and this made Exxon the largest natural gas producer in the country. Exxon doesn't invest its money for a quarter or two. It invests in the long term. Rex Tillerson and co. will start to see the benefits of the XTO acquisition next year, and shareholders will thank them.
Another name to consider is Chesapeake Energy (CHK), run by Aubrey Mclendon. Carl Icahn recently upped his stake in the company to 5.8%, saying he sees tremendous value in the company. Icahn also recently made a huge natural gas bet in the form of Dynegy (DYN).
UBS was positive on the Icahn stake announcement.
CHK has terrific shale assets but has been criticized for too aggressively acquiring undeveloped acreage, and a perception of poor financial discipline has caused CHK to trade at a steep discount to NAV. CHK may be vulnerable to activists given 1) it is trading 69% below its 2008 high stock price, 2) insiders control just 1.2% of shares outstanding (CEO McClendon controlling <0.5%), 3) recent criticism for its compensation of its CEO, and 4) a staggered board with 4 of the 9 seats up for re-election in 2011.
I see 2011 and beyond as being the time in this country when natural gas begin to take over and transition the country from an oil based company, to eventually natural gas.
Where will you be when that move comes?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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