Natural Gas Multiple

Natural gas, while still seemingly high, is continuing to peak the interest of investors. T. Boone Pickens recently talked about how natural gas is still trading below its normal multiple to oil, which is traditionally 7-8. Given this normal multiple, natural gas should be closer to $14 per MMBtu, instead of under the $10 MMBtu that it has recently traded. Of course, this logic works if you believe oil will stay near $100 per barrel, which does not look like too bad a bet right now.

RealMoney.com is further stressing how one of the largest natural gas reserves in the world in Saudia Arabia is producing dry wells, and companies in the region, such as Total SA, are pulling out. If this gas cannot be acquired, supply will be less than expected.

On the other hand, Chesapeake Energy (CHK) has recently announced new natural gas discoveries. The company is expecting output increases of 21% this year, and 16% next year. The CEO, Aubrey McClendon, is also increasing his position in the company, purchasing another 1.5 million shares recently, raising his stock total to $1.2 billion. Obviously, he believes the story ........ and his company's prospects.

Ticker: CHK