Tue Dec 30 2014
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Energy Guru Bets Big on Chesapeake

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Archie Dunham is no ordinary investor when it comes to energy stocks.

He’s got a blue-blooded resume that perfectly conveys his expertise and success in the energy industry.

Dunham has worked his way from the ground level ofConocoPhillips (COP) – a company worth close to $ 100 billion today – all the way up to chairman!

He retired in 2004, but you can’t just shut expertise like that off. Dunham is still playing the market in a big way, and I always make a point to follow his moves.

So it’s no surprise that Dunham has found the perfect bet to make in this season of depressed oil and gas prices.

Follow the Oil Shark

I’m sure Dunham knew there was a possibility of lower oil and gas prices. That’s why he’s been investing heavily in Chesapeake Energy (CHK).

Since May of 2013, Dunham has bought more than $ 25 million in shares of Chesapeake. He made his latest and biggest purchase just a few weeks ago when he plunked down more than $ 11 million on the open market to buy 500,000 shares.

Dunham has a lot of choices in the market – literally hundreds of energy opportunities and vast resources – yet he’s choosing to ride Chesapeake into the future.

It certainly makes sense.

Chesapeake hasn’t been idle over the past few years, and there’s a good reason why Dunham has chosen the company as his faithful steed in this race.

Since the departure of Chesapeake’s Chief Executive Officer, Aubrey McClendon, the company has begun to “right” itself after years of piling on debt from land acquisitions in the major U.S. shale and gas regions.

That strategy was a risky bet made by McClendon at a time when natural gas prices were much higher. The bet did not pan out, and – while the company survived – its market capitalization has fallen from more than $ 42 billion in 2008 to around $ 12 billion today.

Yet the company today is far stronger now (and only getting more so).

In the past two years, the firm has shed billions in debt and shored up its capital position at just the right time… when assets are getting cheaper.

It arguably sold major shale assets close to their peaks, like the deal with Southwestern Energy (SWN) for almost $ 5 billion (inked a few months ago and closed this past week). Other deals include sales of property and subsidiaries that have reduced the debt load of the company to less than half compared to the McClendon days.

The company also maintains a huge cache of producing assets and has diversified its revenue and income stream from a pure natural gas play to one that incorporates natural gas, liquid natural gas, natural gas liquids, and a large crude oil component.

Chesapeake is beginning to make money again, even at the current depressed prices.

It has a strong hedging program and is doing the right thing by rationalizing its operations to focus on efficiency rather than size.

With its debt load reduced, the company now has over $ 9 billion in liquidity and just announced a $ 1-billion share buyback program – something few companies can afford in the current environment.

Dunham trusts it, and so should you.

Consider adding shares of this turnaround energy play. They could double your investment in the next few years, maybe even more if prices recover to previous levels.

And “the chase” continues,

Karim Rahemtulla

With an expertise in emerging markets and energy, Karim Rahemtulla is regarded as one of the country’s foremost resource and developing world analysts. Educated in England, Canada and the United States, Karim is fluent in several languages. His undergraduate studies were completed in Economics/Foreign Languages, and his graduate coursework was completed in Finance. Learn More >>

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