Home
>
Stocks & Mutual Fund
>
Oil Stocks CHK WLL - What Is Their Worth?

Oil Stocks CHK WLL - What Is Their Worth?

(1) CHK stock price $16.74, NAV $32.5

CHK is my favorite oil or natural gas stock. Here is updated Net Asset Value (NAV) table from CHK July 2004 earning release:

Table CHK PV-10 per share NAV vs Natural gas price

N Gas price NAV per share

$4.50 $16.11

$5.00 $19.60

$5.50 $23.11

$6.00 $26.61

$6.50 $32.5

PE = 10 or 10% of earning yield is considered reasonable valuation for non-growing business. PV-10 Net Asset Value (NAV) is standard calculation for value of oil or natural gas reserve assuming current production cost and expenses. When N gas price = $4.5, CHK will make $1.611 per share per year true profit with current production/exploration expenses. CHK is worth $16.11 at $4.5 gas price in this case. We can imagine that as if CHK is a bank deposit account, the interest rate is 10%, if we deposit $16.11 principle there, each year we get 10% interest returns or $1.611 interest per year.

For the 1st half of 2004, natural gas price was between $5 and $7 averaging at $6.0. Natural gas price was as high as $9 in later half of 2004. CHK stock price is still below $17 recently and its reported quarterly net income severely under-estimated its true profitability.

* Margin of Safety - CHK

Wall Street analysts have been predicting significantly lower N. gas price or oil price in 2-3 years ahead. Therefore, CHK or the whole oil and gas stocks are trading as if N. gas price between $4 - $5 range or oil price between $20 - $30 range.

First of all, I disagree that oil or natural gas will go down much from here. Inflation, weak dollar, China and US strong economy justifies the current high energy price. Energy price will stay high for quite long term. Wall Street analysts are still living in past memory of low oil price in 1990's world. In fact, current oil price is still at half of price of 1970's peak if we adjust inflation from then.

Second of all, even if I am wrong and wall street analysts are right, and natural gas price crashing down to $4.5 or oil price crashing down below $30 in next 2-3 years, CHK current stock price has already factored in such low energy price (see above table).

Third, the NAV value is a moving target. Specifically for CHK, NAV is growing at 20% to 25% per year recently.

* CHK - NAV growth 20% or $3 per share per year

Neither CHK nor WLL pay dividend. They all reinvest their profit into acquiring or drilling for more oil or gas reserve. Therefore, reserve based NAV adjusted by cash or debt reflect true net asset value for the stock. Reserve based NAV increase per year reflect their true earning of business.

CHK NAV value per share has been growing at 20% - 25% per year rate or $3 per share currently. Even if energy stocks continue to trade at current low valuation to its true earnings, CHK stock price is likely to increase 20% - 25% return per year just due to its NAV increase. If Wall Street finally accept high energy price as norm in the future, then CHK can reward shareholders even more.

CHK mainly achieved this excellent operation performance by following measures:

Low cost drilling and fast organic production growth. Current quarter yearly organic production growth is 11%. This is one of highest in the industry.

Excellent acquisition track record. Over past few years, CHK has been able to dramatically increase production of acquired property in short term so that CHK's acquisitions have been accretive to current shareholders. Even though the latest acquisition is slightly dilutive in per reserve basis, it is expected to be accretive in cashflow or earning basis. Successful out-performing hedging program. CHK has been able to obtain above industry hedging prices over past years. CHK is not locked into long term contract of low prices as many do. For the current quarter CHK realized a low gas price due to past hedging so that their earning per share is flat compared to last year. CHK hedging is light in 2005 or beyond so that higher price can be expected in 2005 or beyond.

(2) WLL stock price $31, NAV $63

WLL is trading at discount even to private acquisition price and very low multiples to its cashflow. WLL also has very experienced management team with long track record in oil gas business.

WLL reported $63 per share PV-10 NAV at latest quarterly earning report. Currently WLL is trading significantly below its PV-10 NAV value. In fact, WLL is trading at big discount to its peers too. WLL is trading at $1.32 per Mcfe reserve. The current average industry acquisition price was $1.5 per Mcfe reserve over past 1.5 years.

For the 1st half of 2004 WLL generated 18% of annualized return after replacing all the reserve depletion. The recent acquisition of $44 million acquisition is accretive at $1.11 Mcfe per reserve cost. It is accretive in either reserve , cashflow or revenue basis. With more accretive deals like this, WLL NAV growth can be 20% per year or more instead.

The recent 2 quarters reported yearly organic production of only 2%, much lower than expected 5% - 10% growth. However, production growth is over-rated performance measurement in Wall Street. Most importantly, WLL did not waste any money into over-spending. WLL simply did not spend extra expected drilling capex. WLL reserve replacement drilling cost was still low. From investor point of view, even if WLL production growth is not as good as CHK, WLL NAV can still grow at 18% to 20% per year with smart accretive acquisition and low cost drilling.

(3) Conclusion

I continue to like WLL and CHK. I continue to hold WLL CHK in Blast Investor Real-time Plus model portfolio.

Article by Henry Lu of BlastInvest LLC, a premium investment newsletter publisher in Connecticut. Visit http://www.blastinvest.com for FREE "how-to" investing assistance, web services and more.

ohare limo service Grand Rapids ..

In The News:

The International Olympic Committee on Friday announced plans to use AI in various Olympic aspects, including athlete identification, training and judging.

Tech guru Kurt "CyberGuy" Knutsson explains an easy trick to avoid squinting while working or surfing the web by zooming in on your personal computer.

Streaming giant Roku has recently been targeted by a pair of cyberattacks, and the company confirmed over a half million Roku accounts were compromised.

The Land Aircraft Carrier combines an all-terrain, six-wheeled vehicle with a two-seat aircraft, which features electric vertical takeoff and landing.

The European Union has sent TikTok a "request for information" on the video sharing platform's newest app, TikTok Lite, under the Digital Services Act, with the aim to clean up social media.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

The FBI is warning the public about a recent phishing scam via text that claims its targets owe money in Pennsylvania for unpaid road toll charges.

Your Apple Music settings may be revealing to your contacts what you're listening to. Kurt "CyberGuy" Knutsson explains the process to change those settings.

Learn how to secure social media accounts, implement legacy contacts, and create a digital estate plan to protect your online assets from 'ghost hackers' after your death.

A ported phone number scam is leading to more people having their identities stolen by sophisticated scammers. Kurt “CyberGuy" Knutsson tells you what you need to know.

The Great Pacific Garbage Patch, a vast marine debris vortex, is being tackled by The Ocean Cleanup’s innovative technologies. Kurt “CyberGuy" Knutsson explains.

Discover easy solutions to tame autocorrect frustration on iOS and Android devices. Turn off, customize and add personal touches to your typing experience.

Kurt “CyberGuy" Knutsson reveals the six top things to do right now before it’s too late: Tech and life choices that can keep your safer on and offline.

Kurt “CyberGuy" Knutsson shows you some simple steps to discreetly hide apps or an entire app page on your iPhone for decluttering or confidentiality.

The ambient light sensors on smartphones may be turned into cameras, according to researches at MIT. This could pose a threat to people's privacy.

The Autonomous Road Repair System from tech firm Robotiz3d uses artificial intelligence technology to locate potholes and promptly seal them.

Scammers have stooped to using artificial intelligence to scan obituary websites to create fake obituary websites to target the grieving.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

A Mercedes-Benz Manufacturing factory in Hungary is using humanoid robots to help with human staffing shortages on the factory floor.

Some video games act like unregulated banks, according to CFPB, which has begun monitoring the situation. The agency says children may be most at risk.

Ascender the robot is capable of climbing stairs with heights up to 8.7 inches, and it can give every corner of your home a deep cleaning.

Tax-return scams are on the rise, and one tax expert from a cybersecurity firm says filing your taxes on time is one way to avoid tax scams.

The innovative XPENG Robot Unicorn is inspired by the mythical unicorn, and you may forget the robot is not actually a living creature.

Stay up to date on the latest AI technology advancements and learn about the challenges and opportunities AI presents now and for the future.

The Federal Trade Commission, the federal agency to report scams to, is being impersonated as part of a new sophisticated phone scam.

Oil Stocks CHK WLL - What Is Their Worth?

Stocks & Mutual Fund