Obama May Bring New Market for Gas Producers Chesapeake, XTO

By Dan Lonkevich

Nov. 5 (Bloomberg) -- Oklahoma oilman Aubrey McClendon figures president-elect Barack Obama, who favors a windfall- profits tax on petroleum producers and resists allowing new drilling on federal lands, will help his business.

Like other energy companies focused on onshore gas wells in the U.S., McClendon's Chesapeake Energy Corp. stands to benefit should Obama and a Democrat-led Congress push for use of compressed natural gas in automobiles.

``The Democrats have been very engaged about compressed natural gas in the last few months,'' McClendon, chief executive officer at Oklahoma City-based Chesapeake, said in an Oct. 28 telephone interview. ``A Democratic administration is more likely to pursue the use of CNG as a fuel.''

McClendon cited a bill that Democrats Rahm Emanuel of Illinois and Dan Boren of Oklahoma introduced in the U.S. House in July. The measure called for incentives to install CNG pumps at filling stations, build CNG-powered cars and induce Americans to buy them, fostering a new market for a fuel now used mostly for heating, power generation and the making of plastics and fertilizer.

Chesapeake is among the largest onshore gas producers in the U.S. Other major independent producers, those that don't also own refineries or chemicals plants, include Devon Energy Corp., XTO Energy Inc., Anadarko Petroleum Corp., EOG Resources Inc., Southwestern Energy Co. and Ultra Petroleum Corp.

Bill to Resurface

Boren said the bill will be reintroduced in January. The goal is to have 10 percent of vehicles in the U.S. converted to CNG by 2015, he said. ``I agree that an Obama victory would make it easier to pass this legislation,'' Boren said in an Oct. 30 telephone interview.

Natural-gas-fueled vehicles displaced about 250 million gallons of gasoline use in the U.S. last year, according to NGVAmerica, which represents companies lobbying for use of CNG as a motor fuel. That's equivalent to about 0.2 percent of U.S. gasoline demand. The industry's goal is to surpass 10 billion gallons by 2020, according to the Washington-based trade group.

Obama plans $150 billion in spending over 10 years to accelerate development of alternative energy sources and plug-in hybrid cars. Such investment will help create ``the fuel- efficient cars of the future,'' he said in an Oct. 28 campaign speech in Chester, Pennsylvania.

Republican candidate John McCain also called for investment in alternative energy sources, along with more drilling for fossil fuels to help reduce reliance on foreign oil.

`Equally Concerned'

Billionaire oilman Boone Pickens met with both candidates in August to discuss his proposals for reducing petroleum imports and said Obama and McCain were ``equally concerned about the problem.''

Pickens is the largest shareholder in Seal Beach, California-based Clean Energy Fuels Corp., a supplier of gas for buses and other vehicles.

``Either way, there's going to be more support for natural gas as a fuel for cars,'' said Richard Kolodziej, president of NGVAmerica.

Any benefits to gas producers from the political push to increase use of CNG will take years to materialize, said Michael Kahn, who helps manage $1.3 billion, including Chesapeake shares, at A.R. Schmeidler & Co. in New York. The companies also produce at least some oil, which could become subject to a proposed windfall-profits tax that would kick in when crude rises above $80 a barrel.

Tax Burden

``I'm concerned about Obama's support of a windfall-profits tax on oil companies because it will hurt the same domestic companies this bill is depending on,'' said Boren, the lawmaker from Oklahoma. ``It's a non-starter for me.''

Chesapeake's McClendon has promoted gas as an alternative to oil that's cheaper than crude and more plentiful in the U.S. Other gas producers have been reluctant to push for legislation to spur use of the fuel in automobiles, a situation that may change if prices drop, McClendon said.

``An extended period of $5 to $6 natural gas may change some minds,'' he said.

Gas futures in New York rose above $13 per million British thermal units in July, the highest since December 2005. The futures tumbled below $7 last month.

To contact the reporter on this story: Dan Lonkevich in New York at dlonkevich@bloomberg.net.