How Chesapeake Energy Can Be Saved (From Itself): Opinion

After a stabilization in the price of natural gas around the $2 mark this week, many experts expect prices to head lower this summer to the $1.50 to $1.75 range, and reach, if not go below, the cash costs of gas producers. Meanwhile, Exxon's earnings this week showed even greater natural gas production versus oil -- though even Exxon said during its conference call with analysts that an attempt is underway to move to more liquids-rich U.S. drilling basins.

In the final analysis, if Buffett won't invest, and McClendon won't sell his well holdings, and Icahn's Oklahoma lunch invite was a one-time event, and Raymond can't or won't be added to Chesapeake's reputation war chest (like former Berkshire Hathaway executive Simpson) this Exxon hedge fund concept might be the best option to save Chesapeake, by destroying it.

In fact, as the talk about a Chesapeake "death spiral" picks up, other hedge funds are probably hard at work and already thinking about how best to pick the company's bones clean. The easy short money in Chesapeake Energy shares was from $25 down to $17.50. Now the hard work begins, and not just for McClendon.

McClendon said to us last November of his company's aggressive land acquisition strategy over the past five years, "This has been a very short window and you either win or lose and the only way to make sure you are a loser is to sit it out."

At that time, McClendon said the land grab in natural gas acreage was over and that there was a year or so left in the land grab for oil acreage in the shale. When we asked him if the company would sell itself lock, stock, and barrel to a major once the last land grab was over, McClendon laid his vision clear: Not a chance.

"After that, we move into full steam development of what we have. There is nobody bigger than us with the resources we have onshore to do the job. There is nobody else to turn the company over to, so we move away from the five or six year period, which will feel like an eternity to some investors, and move from asset capture to development, and when we make that move, it will be an exciting time."

Whether or not McClendon will still be around for that exciting time has never seemed more legitimate a question to ask than it does right now.

-- Written by Eric Rosenbaum from New York.

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