Newspaper article THE JOURNAL RECORD

McClendon's Big Bet: OKC-Based Chesapeake CEO Not Hedging Natural Gas in 2013

Newspaper article THE JOURNAL RECORD

McClendon's Big Bet: OKC-Based Chesapeake CEO Not Hedging Natural Gas in 2013

Article excerpt

Chesapeake Energy Corp. CEO Aubrey McClendon does things differently. And next year, McClendon has placed a big bet: The company isn't hedging its most produced commodity, natural gas. He's betting that a cold winter will drive up demand for the heating fuel, increasing the price from the decade lows it reached this year.

During a third-quarter earnings conference call Nov. 2, McClendon told analysts that Chesapeake was heavily hedged for the fourth quarter of 2012, but isn't so at all for 2013. They're waiting for natural gas prices to improve. As Chesapeake and others slow drilling, he said, supply will decrease.

Other exploration and production companies like Devon Energy and Continental Resources have hedging strategies for both oil and natural gas in 2013. But Chesapeake doesn't. Philip Weiss, an analyst with Argus Research, said he isn't so sure that is a wise move for Chesapeake, considering the company has billions in debt.

"I don't think I would go into 2013 unhedged," Weiss said. "To me, that isn't prudent."

During the conference call, Wells Fargo analyst David Tameron asked Chesapeake executives why they wouldn't hedge at least a small percentage of natural gas production to protect shareholders from volatile commodity prices. McClendon said their view of the market is driven by information that other people don't have. Because Chesapeake knows it will cut production and influence the industry, supply will drop and prices will rise.

"When we roll over, we think we will pull the whole market with us," McClendon said. "And we think that the (futures) prices that we see out in 2013 do not reflect that."

Shrugging off a Wall Street Journal article published Nov. 2, McClendon said it was impossible for natural gas production to remain flat next year. Chesapeake's gas production is down 25 percent from its peak.

Though production is down and a cold winter is expected, other factors could keep natural gas prices flat, Weiss said. …

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