We are presently owned by a group of investors who don’t think gas prices will ever go above $4. I want to be owned by investors who live in a part of the world that believes gas prices will never go below $10.
That part of the world is Asia, where Chesapeake has already sold stakes in some of the company’s Eagle Ford play to Cnooc Ltd. (NYSE: CEO) for more than $2 billion. The company also sold a stake in the Utica shale to France’s Total SA (NYSE: TOT) for $2.3 billion earlier this year.
Chesapeake’s theory is that natural gas prices demand for natural gas from Japan, South Korea, China, and other Asian buyers will keep the price for liquefied natural gas (LNG) around its current range of $16/thousand cubic feet, nearly 8x US natural gas prices. In order to realize that price, though, Chesapeake needs an export terminal, and the one closest to being started is the Sabine Pass LNG receiving terminal owned by Cheniere Energy Partners LP (AMEX: CQP). First deliveries from that terminal are not due for another five years.
In order to monetize Chesapeake’s assets, McClendon has no choice but to seek partners, and his recent 52-city tour of Asia is a pretty good indicator of where those partners are likely to come from. In Chesapeake’s favor is the long-term view held by potential Chinese investors. In McClendon’s view, Chesapeake is sitting on assets worth about $100 billion and the company’s debt of $10 billion does not raise the doubts among Asian investors that it does among US investors:
They [Asian investors] don’t say, ‘You’ve got $2 billion too much debt.’ They say ‘You’ve got what the world wants, and someday gas prices are going to be unlocked from the jail cell where they are today, and you’re going to be the biggest winner.
Chesapeake’s shares are down about -2% this morning, at $24.08 in a 52-week range of $2041-$35.75.