Friday, February 12, 2010

Chesapeake: The Copernicus Strategy

There was a post at the Financial Times web site yesterday suggesting that one of the reasons behind Chesapeake Energy's strategy of engaging in joint ventures with larger, often international partners is to remain an independent company and avoid a corporate takeover.  The theory is that with so many codified partnerships it would be too messy and contentious of a deal for an acquirer to undertake. 

I think that this line of thinking is true, but I submit that it is selling Chesapeake short.  I think the company is following more ambitious strategy, what I call the Copernicus Strategy.  Chesapeake wants to be the center of the natural gas universe and have all the other companies in the industry revolve around it, much as the planets in our solar system revolve around and depend upon the sun.  It wants to be the first company that comes to mind when you hear "natural gas." 

Chesapeake is quick to point out its ranking in terms of production or acreage by geographic area.  It is the most aggressive entrant to a new play and usually is the first and loudest to shout about it.  The deals with big integrated oil companies are ones where these companies effectively submit to Chesapeake, paying a premium for access to the company's acreage and knowledge.  It allows Chesapeake to become a partner in future deals and the all around go-to guy for natural gas.

It is important for all of the company's stakeholders (shareholders, partners, lessees, etc.) not to underestimate Chesapeake's outsized ambitions. 

But that's just my opinion.

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