The Play on $6 Natural Gas

Ultra Petroleum CEO Michael Watford told Mad Money that he expects natural gas’ price to reach $6, which is twice the commodity’s present price. If that’s the case, then investors want to buy a company with the best chance to take advantage of that increase.

Enter Devon Energy. Sixty-six percent of this oil-and-gas driller’s properties are natural gas, and most of it is unhedged. While that’s a negative with nat gas fetching only about $3 per thousand cubic feet, it’ll be a big plus once prices move higher.

Devon has hedged just 16% of its natural-gas production for the third quarter and 35% for Q4. For 2010, the company has no hedges at all.

“If natural gas is really headed to $6,” Cramer said, “Devon’s the way to play it.”

The Mad Money host did have some concerns, though. Devon’s average finding costs worldwide over the past three years for natural gas have been $3.60 per thousand cubic feet and $2.68 here in the US. So the company needs higher prices if its unhedged production is going to be profitable.

Also, DVN has lagged its peers. While Apache is up 16% this year, Anadarko up 41% and Chesapeake Energy up 43%, Devon is down 5%. There’s money to be made, though, if DVN can catch up.

Cramer invited Devon CEO Lawrence Nichols onto Mad Money to gauge the company’s chances of doing just that. What’s the next big catalyst? Will Nichols be able to maintain his track record of solid execution? Watch the interview to find out.

Cramer’s charitable trust owns Devon Energy.

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