Chesapeake Energy CEO Aubrey McClendon’s ‘Big Bet’: A Cold Winter

  • Joe Wertz

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Devon Energy and Continental Resources will hedge oil and natural gas in 2013, but not Chesapeake Energy.

The Oklahoma City natural gas giant’s CEO Aubrey McClendon is going all-in on a bold weather wager, reports the Journal Record‘s Sarah Terry-Cobo:

He’s betting that a cold winter will drive up demand for the heating fuel, increasing the price from the decade lows it reached this year.

It’s a risky move, considering Chesapeake has billions in debt, Argus Research analyst Philip Weiss tells the paper.

Chesapeake is also hoping that a slowdown in drilling will reduce supply and raise prices, the Journal reports. During the company’s third-quarter conference call earlier this month, a Wells Fargo analyst asked executives why they weren’t planning at least some hedging to guard against volatile energy prices:

McClendon said their view of the market is driven by information that other people don’t have. Because Chesapeake knows it will cut production and influence the industry, supply will drop and prices will rise.

News of a colder winter is buoying natural gas producers, The Wall Street Journal reports. But analyst Weiss says other factors — increased supply from new pipelines going online and record-high storage — could lead to a surplus and smother prices.

But another analyst, Greg Womack, president of Womack Investment Advisers in Edmond, tells the paper that Chesapeake’s decision makes sense:

Because they are drilling for more oil and natural gas liquids, a higher-priced byproduct, the company is reducing its exposure to gas prices, he said.

Natural gas prices have bottomed out, which means most of the risk is gone, he said.