Five Stocks to Watch for if We Frack
Soroush is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The energy debate has shifted in recent years, to say the least. It used to be impossible to read any sort of political news or opinion piece without hearing clangorous cries to end U.S. dependence on foreign oil. Relying on the Middle East for energy was, as the argument went, a national security issue, as well as an environmental liability. That notion has gained traction as businessmen have scoured the country for potential opportunities to augment the domestic energy sector. When a chance for energy independence became increasingly possible, however, green lobbies changed their tune. The controversy now revolves around the extraction of shale gas, a natural gas withdrawn from rock formation through hydraulic fracturing, or fracking. While environmentalists have managed to secure tight regulations on the industry, recent studies have debunked many of their claims. As New York’s Democratic Governor Andrew Cuomo looks to expand the process, it is worth exploring which companies will benefit most from legalized drilling of the natural gas. We’ve already given you some food for thought on the future of fracking (here’s one possibility); here are some more investment ideas.
Chesapeake Energy (NYSE: CHK) has had a rough year in the court of public opinion. As the face of fracking nationwide, it is often the subject of critical profiles and visceral vitriol. It dominated headlines in the spring when Reuters reported the many improper actions of its CEO, Aubrey McClendon. While dealing with this PR snafu, Chesapeake has quietly broadened its stamp on America’s natural gas map. Despite its debt-ridden balance sheet, the Oklahoma City-based company has continually announced plans for more wells, and it has become the leading energy producer in Ohio. While it missed earnings estimates last week, its record quarterly profit led to a surge of 11%. Chesapeake has been one of the most outspoken proponents of hydraulic fracturing, as developing easier ways of extracting its various shale plays could power it to the rank of top natural gas producer in the U.S.
If Chesapeake is portrayed as the exemplar of domestic energy nefariousness, its foreign oil corollary is Exxon Mobil (NYSE: XOM), the world’s largest company. Exxon Mobil is not only America’s largest oil company; it also tops the list of natural gas producers in the company. Looking to capitalize on the talks of a natural gas boom, it announced the $41 billion all-stock acquisition of Houston-based XTO Energy in late 2009. While it has yet to see its desired results in the natural gas field, it is continuing to pour $185 into further exploration over the next five years. Exxon Mobil points to data demonstrating that shale gas will account for 60% of American natural gas production by 2035 in making its investments and has been consistent in casually shrugging off EPA remonstrations. Exxon’s annual “Outlook for Energy” makes the bold claim that natural gas will pass coal as the world’s second-largest fuel source by 2025. Exxon is placing a long bet on fracking and that it is confident will cement its place as the leader in energy for decades to come.
Exxon Mobil has not been the only company to suffer from unmet expectations of the natural oil boom. Like Exxon, ConocoPhillips (NYSE: COP) is a leader in the natural gas field whose value has faced the burdens of outsize regulations. The two companies, in addition to Chevron (NYSE: CVX) have scoured the world, exploring for gas-rich basins. As one of the largest natural gas producers in the United States, it is not surprising that ConocoPhillips has drawn specific fire from the EPA and other environmental groups. The company’s stock has plummeted every time such measures have been taken. In fact, between late March and early May, the stock price fell 31%. While ConocoPhillips’ value has crawled steadily upward the past couple of months, it has ample room to grow when the rules for fracking in this country ease up to meet the company’s expectations.
There is one certainty about shale fields in the United States: They are robust. Yet, while current estimates say American energy interests can be covered with fracking for the next hundred years, no one is quite sure exactly how robust. Energy authorities are constantly finding new developments, as demonstrated by the recent Associated Press report that The Marcellus Shale is becoming the most productive natural gas field in the country. The Marcellus Shale, which lies under parts of New York, Pennsylvania, West Virginia, and Ohio, was barely acknowledged as a potential energy depot as recently as 2008. Most energy producers have staked claims to part of the field, although not without tussles with environmental factions. Cabot Oil & Gas (NYSE: COG) has come under fire several times for fracking violations, although it continues to increase its presence in North Central Pennsylvania, in hopes for eventual regulatory restrictions. Its production has now reached over 600 million cubic feet per day, a 2011 rate 154% above the previous year.
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This article is written by John Kocsis and edited by Jake Mann. They don't own shares in any of the companies mentioned above. The Motley Fool owns shares of ExxonMobil and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2013 $25.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, and long JAN 2014 $30.00 calls on Chesapeake Energy. Motley Fool newsletter services recommend Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.