Covestor manager Pilecki to stick with Chesapeake

Chesapeake (CHK) is mired in controversy, but Covestor Manager Derek Pilecki who runs the Long Only Energy model is not selling it. He is bullish on long-term natural gas fundamentals to boot.

"The asset value is still there for Chesapeake based on its land holdings," Pilecki says. "I do not have plans to sell it in the near term."

Analysts at Capital One Southcoast today backed up Pilecki's point, saying that Chesapeake's net asset value is 73% higher than where the stock closed Wednesday night -- largely reflecting the value of the land if it were to be sold.

Chesapeake still has many unknowns. The stock saw its busiest trading day ever this week following a Reuters story that said CEO Aubrey McClendon has been moonlighting as a hedge fund manager and trading the same commodities the company produces, raising conflict of interest concerns and questions about management's focus.

There are now calls for a Justice Department review  –  in addition to an ongoing IRS audit.

Chesapeake only makes up about 1.8% of Pilecki's model, so he is not as heavily leveraged to it as other energy names. But he is keeping it as a small part of his overall bet that natural gas prices will rise, lifting E&P company values. He sees fundamentals driven by three factors:

• A switch to natural gas from coal among energy providers
• More trucks running on liquefied natural gas in the next few years
• Completion of an export facility that should lift export demand for U.S. liquefied gas

Covestor manager Tyler Kocon, however, who has about 1% exposure to Chesapeake in his Bakken Shale model, says he may liquidate his position. His model holds oil shale plays right now including Kodiak Oil & Gas (KOG), Triangle Petroleum (TPLM) and SandRidge Energy (SD).

Kocon says that Chesapeake's land acreage is indeed high; it could be worth as much as $30 bln to $35 bln -- as much as triple its market cap of $11 bln.

However, he says the company is unlikely to realize full value for that land, as it now needs to sell assets -- perhaps at a steep discount.

"They're in a bad situation in terms of debt, and they have to unwind assets to pay the bills," Kocon said. "Then with what (CEO) McClendon has done, it makes you scratch your head."

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