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.

family-safe home cleaners Northbrook ..

In The News:

San Francisco Giants invite Jamie Grohsong to throw ceremonial first pitch at Oracle Park after he learned to play baseball with a bionic hand following an injury.

FBI warns cybercriminals are stealing family photos from social media to create fake proof of life images in virtual kidnapping scams targeting victims.

Instagram's new 'Your Algorithm' tool lets you control your Reels feed in real time. The app now gives you power to customize what videos you see.

Major Marquis fintech breach exposes 400,000-plus Americans' data through unpatched SonicWall vulnerability, with Texas hardest hit at 354,000 affected.

Free up iPhone storage fast by clearing large photos and videos from Messages app. Simple steps for iOS users to delete attachments without losing chats.

Scammers are flooding inboxes with fake tracking alerts that mimic real carriers, exploiting the holiday rush to steal logins and personal data.

The Fox News AI Newsletter brings you the latest news on AI technology advancements and the challenges and opportunities AI presents now and for the future.

Texas family reunites with missing 11-year-old cat Grayson after 103 days using Petco Love Lost's AI photo matching technology and community help.

Tired of AI customer service loops? These insider tricks help you escape "frustration AI" and get real human help when you need it most for urgent issues.

Unlock richer audio from your streaming apps with simple tweaks to volume normalization, equalizer settings, and quality preferences for cleaner sound.

Scammers are sending fake Facebook settlement payout emails that mimic legitimate notices from the privacy settlement administrator to deceive users.

Holiday shopping scams surge as fake refund emails target distracted consumers during Black Friday and holiday seasons, costing Americans billions annually.

The AI-powered IRMO M1 exoskeleton features four modes, including turbo, eco, training and rest for hiking, running, cycling and sports with eight-hour battery life.

OpenAI announced upgrades for its ChatGPT Images platform on Tuesday, saying the program can now make more precise edits and produce images more quickly.

Chrome for Android now turns web articles into AI-powered podcast conversations. Get hands-free browsing with Google Gemini's natural audio summaries.

LastPass faces $1.6 million fine from U.K. regulators after 2022 data breach exposed 1.6 million users. Password manager failed proper security controls.

Petco disclosed a data breach exposing customer Social Security numbers, financial account details, and driver's license information due to a software error.

Baseball teams can now analyze complete swing mechanics in normal training environments using Theia's markerless AI system that processes standard high-speed footage.

Smart home hacking fears overblown? Expert reveals real cybersecurity risks and simple protection tips to keep your connected devices safe from hackers.

MIT develops needle-free glucose monitor using light technology. Revolutionary device could replace painful finger pricks for diabetes management.

The ClickFix campaign disguises malware as legitimate Windows updates, using steganography to hide shellcode in PNG files and bypass security detection systems.

Researchers from Osaka Metropolitan University designed a 21-foot dome that combines aquaculture and hydroponics to create a self-sustaining urban food system.

The Fox News AI Newsletter gives readers the latest AI technology advancements, covering the challenges and opportunities AI presents.

ChatGPT data breach exposes personal info of users through partner Mixpanel. OpenAI confirms names, emails compromised in security incident.

Android rolls out Emergency Live Video for 911 calls, letting dispatchers see real-time scenes during emergencies. Great for holiday travel safety.

Oil Stocks CHK WLL - What Is Their Worth?

Stocks & Mutual Fund