This is one of our biggest discoveries in U.S. history.
Those are the words Aubrey McClendon used to describe Chesapeake Energy Corp.'s (NYSE: CHK, Stock Forum) property along the Utica shale. McClendon is the CEO of Chesapeake, the second-largest natural gas company in the United States. It's one of the most aggressive shale drillers in the world.
Over the past two years, Chesapeake has acquired over 1.2 million acres in the Utica. The huge rock layer is located in eastern Ohio and Pennsylvania. The formation is a few thousand feet below the now-famous Marcellus shale.
McClendon believes Utica will be more profitable than any other shale discovery in the U.S.
The area has abundant water, which is useful for fracking (the special technique drillers use to extract oil and gas from shale rock). It has an existing transportation system. And it has a large base of experienced workers in the region.
McClendon estimates Chesapeake's Utica acreage is worth anywhere from $15 billion to $20 billion. To put that in perspective, Chesapeake's market cap is $21 billion.
I always take what I hear from a company's CEO with a whole shaker of salt… But if McClendon's numbers are accurate, this discovery makes Chesapeake an immediate takeover target by one of the major oil companies.
There are other players with exposure to the Utica shale: They include large-cap companies like Range Resources Corp. (NYSE: RRC, Stock Forum), Consol Energy Inc. (NYSE: CNX, Stock Forum), and Talisman Energy Inc. (TSX: T.TLM, Stock Forum).
Each of these companies will benefit from this huge shale discovery. But each has a market cap over $10 billion. And the real money will be made by buying the smaller players in the industry.
You see, once these discoveries take place, smaller companies line up to buy acreage in the producing shale area. If one of these small companies makes a discovery, the value of its stock could triple or quadruple.
Take Cabot Oil & Gas Corp. (NYSE: COG, Stock Forum) for a recent example. This mid-cap explorer has acreage in the Marcellus, the Eagle Ford, and other shale areas. It jumped from under $30 a share last year to over $60 today. I've seen the same thing happen many times in the natural gas industry.
Right now, natural gas stocks are getting hammered. But when the selloff stops, my advice is to buy some of the smaller natural gas players with exposure to the Utica shale.
If McClendon is right, this area will see tremendous drilling activity over the next five to 10 years. That should send a handful of small-cap explorers up triple digits or more.