Anyway CNBC put out an article this morning highlighting CHK's hedging strategy, which involves selling long dates call options on natural gas futures, some 70,000 of them. They are betting on the price of natural gas staying under 8 dollars through 2013 and 2020. They could be setting up for a huge pounding if nat gas spikes..
(CNBC's Net Net writes) Chesapeake Energy, one of the country’s largest gas producers, boasts that its “offensive” hedging strategies have created more than $5 billion in gains in the last decade. But as it piles on longer-dated bets on gas prices, juicing short-term cash supplies and potentially curbing future profits from rising prices, some analysts and investors have grown concerned.They need more cash..
During the prior three quarters, through June 30, Chesapeake sold more than 70,000 long-dated call options in a bet that natural-gas prices would remain below about $8 between the years 2013 and 2020, according to company filings. During the same period, natural gas prices sank from just under $5 to the current levels of about $3.90 after briefly
“Chesapeake needs more cash to support its activity than its operations can generate, despite management’s contention that the company has ample liquidity,” wrote Philip Weiss, energy-company analyst for Argus Research, in a recent note. He added: “We do not believe one can reliably forecast how high (or low) commodity prices…may be over the next three to ten years.”