Romney or Obama: Whom Should Chesapeake Lobby For?

Chesapeake Energy (NYSE:CHK) might be pushing hard in order to move away from being a pure-play gas producer, but its assets indicate that it’s better positioned to take advantage of its gas production business. Natural gas prices have risen since their slump in April, but the turbulence has not died out. As a result, the level of uncertainty surrounding Chesapeake Energy’s gas business is still alive, pushing it to mull harder on a time when it would change course and get back to its core business. Adding to this uncertainty is the U.S. Presidential election in November that will be contested between the two candidates holding diverging views about the U.S. energy landscape. ^[1] President Obama has been considered in the views of most people as being more pro-clean energy compared to Mitt Romney. We delve into some more detail about the impacts that either candidates will have over the ongoing business of Chesapeake Energy upon election.

We have a $21 price estimate for Chesapeake, implying a nearly 10% upside to the current market price.

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Romney: In For Domestic Exploration & Not Under The Environmentalist Pressures

In his strategy for making the U.S. energy independent, Mitt Romney is encouraging further oil drilling initiatives and the efficient use of available energy resources, while at the same time looking into alternative sources such as bio-diesel, ethanol, and nuclear power. He is not in support on the environmentalist lobby which advocates less drilling due to environmental concerns. He has also criticized policies which limit energy exploration and curtail growth as a result of regulations imposed by the Environmental Protection Agency (EPA).

The former governor, is however supportive of energy trade as reflected by his criticism over Obama’s decision of not allowing the Keystone pipeline to bring oil from Canada. It is thus believed that oil and gas exploration companies may fare better under a Romney administration.

Obama: Pro-clean energy & Convinced For Environment Protection

Obama, on the other hand is considered a strong advocate of clean energy, to harness the power of wind, solar, and bio-fuels. He strongly supports developing strong technologies that reduce oil usage in auto-motives, buildings and plants. The president believes that the $4 billion in subsidies available to oil companies should be directed towards the development of alternative energy sources by enhancing the clean energy tax credits program. Due to its abundance in terms of availability in the US, he is also supportive of the use of natural gas as a means of powering vehicles and is encouraging  scientists, engineers and entrepreneurs to focus on developing this resource for further use.

While both presidential candidates are in favor of oil exploration within the country, energy efficiency and clean energy, Obama appears to be more concerned about the environmental impact of the non-clean fuels and wants to curtail fossil fuel usage.

From Chesapeake’s perspective, either Presidential candidates victory could have a significant bearing on its business depending on whether it intends to focus more on oil exploration vs natural gas production. Chesapeake Energy has, however, displayed flexibility in production between liquids (which includes natural gas liquids and oil) and natural gas. In Q2, it achieved a 65% growth in liquid production while natural gas production remaining flat. Liquids now form nearly 22% of production and 70% of total revenues for Chesapeake compared to 16% and 40%, respectively in the same period during the prior year.

While the Obama administration may work towards reducing oil usage by adopting a pro-clean energy stance, both candidates happen to be supportive of the of use of natural gas and NGL for helping power America’s future. A Romney administration would likely encourage more oil drilling and would thus benefit Chesapeake if it were to enlarge its oil franchise. Eventually the company may end up settling down with a customizable mix of its operations in order to be least affected by either candidate’s selection.

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1. Romney vs Obama Candidate comparison, candidate-comparison.org [↩]