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

Anadarko Petroleum Corporation (NYSE:APC) is the third largest producer of natural gas in the U.S., producing 2.5 billion cubic feet of natural gas per day in 2012. 22% of Anadarko’s revenue came from natural gas, and 62% came from oil for the full year 2012. Although it is the third largest producer, it is still more heavily invested in oil exploration than natural gas. This doesn’t mean its revenue mix will not change as natural gas becomes more profitable. At this point in time with the cost of oil rising it is more profitable for both Anadarko and shareholders for the focus to be on oil.

Stock comparison
ExxonMobil Chesapeake Energy Anadarko Petroleum
Market cap: $400.45 billion $12.94 billion $40.22 billion
Dividend yield: 2.55% 1.78% 0.45%
10-year total return: 11.88% 10.60% 13.70%

Because of natural gas’ allure, both economically and politically, if one were to invest in the industry there are many individual factors that would determine which one of these three stocks to pick. Chesapeake Energy Corporation (NYSE:CHK) would be for the investor who has an enthusiastic outlook for natural gas, because the company’s high concentration it will benefit it more than the others if natural gas meets or exceeds analyst expectations over the next 20 years.

The second stock would be for the investor who is seeking not only capital appreciation but income. ExxonMobil offers an attractive dividend yield of over 2.5% and has shown consistent dividend increases. This investment would also offer more diversification if natural gas prices stay suppressed, and if it takes longer or there is less growth than anticipated.

Third, Anadarko Petroleum offers the skeptic natural gas investor an out, with much more resources and investments in oil exploration. If natural gas fails to meet expectations you would have the better hedge with its higher concentration in oil. If natural gas falls somewhere in between you can still benefit from the fact that nearly one fourth of its revenues comes from natural gas.

The article A Natural Gas Investment: How and Why originally appeared on Fool.com and is written by John Kolb.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.