Chesapeake Energy Corporation (CHK), United States Natural Gas Fund, LP (UNG), Apache Corporation (APA): Investments You Should Consider

One value-oriented gas investment

Apache Corporation (NYSE:APA) is a value-oriented bet on U.S. gas. It’s a less-leveraged play than Chesapeake Energy Corporation (NYSE:CHK), since Apache is much more diversified in its asset base, both within the U.S. and internationally. That said, if gas prices soar, Apache Corporation (NYSE:APA)’s top quality on-shore assets should make the company’s value soar as well. The company’s shares have slumped to multi-year lows on a litany of operating hiccups.

Even if the aforementioned operational problems prevented Apache Corporation (NYSE:APA) from reaching its production targets, and produced weaker-than-expected capital efficiency, there are some bright spots that should not be overlooked. The Permian and Central Region assets (on-shore U.S. assets related to shale) sharply exceeded expectations, and there might be a lot more to come from this side.

Having under-performed its large cap peer group by 32% over the past 12 months, Apache Corporation (NYSE:APA)‘s shares trade at a 44% discount to peers on 2014 cash flow multiples. While Apache should trade at a discounted valuation, given its above average offshore leverage and higher reserve replacement costs, I think the current discounted valuation is too wide and should narrow going forward.

Bottom line

The three options mentioned above are valid plays that should benefit hugely if the U.S. starts exporting LNG. While the ETF is a pure play on price, Chesapeake Energy Corporation (NYSE:CHK) and Apache Corporation (NYSE:APA) are leveraged bets. They should benefit from a cash flow perspective, and from a higher valuation of their asset base (above all in Chesapeake’s case). The U.S. energy revolution just started, so let’s get ready to benefit from it.

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