NEW YORK (Dow Jones)--U.S. natural-gas producers are no longer able to rely on futures markets to protect their bottom lines.
Companies had shielded themselves from the brunt of the two-year slump in natural-gas prices with the help of hedging programs that use the futures market to guarantee a selling price. Because companies enter into these contracts years in advance, producers' recent returns have been inflated by hedges dating from when gas traded between about $6 and $10 per million British thermal units.
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Chesapeake Energy (NYSE: CHK) sell opinion is reaffirmed: Mr. Miller’s opinion regarding Chesapeake Energy remains the same. The stock is substantially overbought. The current price level is well ahead of the Company's ability to generate cash flow per share in 2011 and 2012 given capital expenditure commitments, leasehold obligations, and capped prices due to forward sales through volumetric production payments (VPP's) and other hedges.
See Mr. Miller's Initial Sell Rating: