Chesapeake (CHK, Financial) gained 2% in the quarter and rose39% from its low point in May. The substantial governance changes we discussed in last quarter’s report not only lifted the stock, but also improved the prospects for more conservative capital allocation going forward. The company announced $6.9 billion in asset sales during the quarter and anticipates approximately $2 billion more this year. In spite of the company’s progress, the stock was down 14% YTD. Although the natural gas price moved up in the quarter, it remains below the marginal cost of production for most plays. Natural gas also impacted CONSOL,which was flat in the quarter but down 10% YTD.Continued switching to cheap gas has pressured coal prices, and CONSOL owns both natural resources. The supply/demand imbalance should self-correct as natural gas drilling has declined substantially in response to low price, and demand has increased at electricity plants. Longer term demand from industrial plants, LNG exports,and conversion of trucks to this clean and abundant energy source would support an increase in natural gas prices and a higher value for both Chesapeake and CONSOL.
From Longleaf Partners' Q3 2012 Report.
From Longleaf Partners' Q3 2012 Report.
