The very large recent acquisition by Western Gas of Anadarko's Colorado assets, including a 1,700- mile gathering system, represents two very obvious conclusions. First, Anadarko was interested in raising capital in front of any liability and fines from the Gulf spill, but second, and more importantly, both Anadarko and Western Gas believe that the future of natural gas development and throughput are only going to rise — and rise significantly over the next several years.
Anadarko's share price will continue to be tethered to natural gas prices and although Western Gas's distribution is not, they are still banking on increasing drilling and production around its newly purchased pipelines. Both companies, in essence, are betting big on increased demand for natural gas and an increasing price.
The same can be gleaned from the latest Master limited partnership rollout, Chesapeake Midstream Partners. This is the latest subsidiary of a natural gas parent to debut as an MLP, almost exactly in the same form as Western Gas.
Chesapeake Midstream is using its capital raise to purchase midstream assets, mostly in the Barnett shale region of North Texas. Despite an unclear distribution return, the new IPO priced at the absolute upper end of its range, at $21 dollars a share and succeeded on the Street, where it is now trading at almost $23 dollars a share. Again, the timing of the IPO and success of the offering demonstrate the optimism for the growth potential surrounding Chesapeake's shale assets, both in the Barnett and Marcellus shale regions.
From both of these deals we can make a solid case for owning both of these types of stocks, both the upstream parent companies, more tethered to commodity prices and the midstream partner MLP's, less connected to raw natural gas prices but still dependent upon the growth of more and more producing assets surrounding their processing and transport pipelines.
By their individual and spectacular success even during depressed prices and current oversupply of natural gas, both the Western Gas and Chesapeake Midstream deals signify a bold bet among industry insiders as to the future of the natural gas: They are betting on increasing growth and rising prices.
We should listen to the insiders. I think they will turn out to be right. Both Anadarko and Chesapeake are trading at extreme historical discounts, while their subsidiaries are positioned to benefit from their parents' growth while delivering a tasty distribution. It is worth looking into all four stocks for your portfolio.
Disclosure information was not available for Dicker or his company.