A Natural Gas Investment: How and Why – Chesapeake Energy Corporation (CHK), Exxon Mobil Corporation (XOM)

In the past five years the area I live in has experienced a gold rush that many residents have never experienced in their lifetime. The majority of Pennsylvanians had no idea the land they owned was stockpiled with Marcellus shale and natural gas. The price of land began to skyrocket as individuals began leasing their properties to natural gas exploration companies. Unfortunately I was not able to partake in this sudden fortune, but would like to provide readers with an idea of how to take advantage of the natural gas boom in the U.S.

It is estimated that natural gas vehicles are around 30% cheaper to refuel than gasoline vehicles. Not only is natural gas cheaper, but it also burns much more efficiently and cleaner. Natural gas burns cleaner due to its lower carbon content. On average natural gas vehicles produce 70% less carbon monoxide than conventional vehicles. There is a definite economic and political advantage to using natural gas as an alternative to gasoline or diesel.

If natural gas is cheaper and cleaner, why isn’t everyone using it already? The main reason everyone is not already using natural gas is infrastructure. It will take a lot of time and money to add natural gas pumps, produce vehicles capable of burning the fuel, and extract enough natural gas to replace the supply of oil. This is not a far-fetched idea, as Exxon Mobil Corporation (NYSE:XOM) predicts that by 2040 natural gas demand will increase more than 60% and pass coal as the second most used fuel.

ExxonMobil is the largest natural gas producer in the U.S., and is also the largest energy company in the world. Exxon has vast product offerings in the energy sector, and with the majority of its revenue coming from oil exploration it also has increased its natural gas exploration to take advantage of this growing alternative. In 2011 Exxon Mobil Corporation (NYSE:XOM) produced an average 13.16 billion cubic feet of natural gas per day. With this high level of output Exxon is well positioned to capitalize on the growing natural gas industry.

Chesapeake Energy Corporation (NYSE:CHK) is the second largest natural gas producer in the U.S., with an average of 3.5 billion cubic feet of natural gas per day in 2011. It has interest or owns around 45,700 oil or natural gas producing wells. Chesapeake Energy has the largest leaseholds of any company in the U.S., and is the number one horizontal driller of shale wells in the world.

The advantage to investing in Chesapeake Energy Corporation (NYSE:CHK) over Exxon Mobil Corporation (NYSE:XOM) is its higher concentration in natural gas. For the fourth quarter 2012 62% of its revenue was from natural gas. Because it has a high focus on natural gas its stock will be more highly correlated with the gas industry. As natural gas usage grows and becomes more profitable it will see higher returns.