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.

taxi to O'Hare Belle Rive .. Lockport Chicago limo O’Hare

In The News:

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 number of people affected by a UnitedHealth data breach in February 2024 was actually higher than previously reported and was the largest medical data breach in U.S. history.

A phishing campaign uses Google Calendar to schedule fake meeting invitations that appear legitimate, redirecting targets to phishing sites.

Toll road text scam: Fake messages claim unpaid fees, seek payment via fraudulent links. Kurt “CyberGuy" Knutsson says this scam is becoming increasingly sophisticated and widespread.

Kurt “CyberGuy" Knutsson says these steps ensure that your friends and family get to the exact moment you want them to see. Try it out and streamline your sharing experience.

Tech expert Kurt “CyberGuy" Knutsson offers tips on how to protect your identity: Be vigilant, monitor accounts, use smart security, know theft response.

Tech expert Kurt “CyberGuy" Knutsson says cybercriminals are exploiting iMessage phishing protection, tricking users to reactivate links.

It's hard to imagine life without in-flight Wi-Fi these days – but sky-high web surfing comes with its own set of privacy concerns. Here's how to protect yourself.

Over 400,000 cases of credit card fraud were reported in 2024 to the Federal Trade Commission. The CyberGuy explains how to protect against becoming another victim.

A nondescript metal box transforms into a fully functional electric motorcycle that blurs the line between vehicle and urban infrastructure.

Many apps unrelated to location still ask users for tracking permission, and Texas Attorney General Ken Paxton has filed a lawsuit seeking to end this alleged practice by Allstate.

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

Melody, the artificial intelligence-powered robot, is life-sized and represents a move toward creating robots that resemble people in appearance and interaction.

Here are five easy smartphone rules from the National Security Agency that you can follow to better protect your mobile device from hackers and scammers.

A U.S. robotics company has developed "Jennie," a robotic pet powered by artificial intelligence that's designed to comfort those facing mental health challenges.

Healthcare records for more than 184 million Americans were breached in 2024, but you can take steps to minimize that risk. Kurt the CyberGuy explains.

The Skyrider X1 from Rictor claims to be the "first amphibious flying passenger motorcycle," and it combines land and air travel in one sleek design.

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

Home inventory and restoration apps help itemize and track every item in your home in the event you have to make an insurance claim after a natural disaster.

The White House launched a new cybersecurity safety label, the U.S. Cyber Trust Mark, intended to help consumers make informed decisions on smart device safety.

Today's tech can help make life so much easier — if you know how to use it. Here are a few tips on the quickest and best ways to make your phone, laptop and other devices work for you.

Tech expert Kurt “CyberGuy" Knutsson offers Windows 11 restart fixes: Update drivers, run system scans and check hardware.

Sony and Honda's Afeela 1 EV launches with advanced tech and entertainment for $89,900. Tech expert Kurt “CyberGuy" Knutsson gives his takeaways.

With limited hard drive space, tech expert Kurt “CyberGuy" Knutsson offers these tips for storing large video files and photos.

Tech expert Kurt “CyberGuy" Knutsson says the $236,000 Yangwang U9 electric hypercar boasts 1,287 horsepower and can jump obstacles.

Oil Stocks CHK WLL - What Is Their Worth?

Stocks & Mutual Fund