Is now the time to buy natural gas stocks?

[dan_s]

Watch this video and let me know what you think. I'm bullish on XEC.

http://www.thestreet.com/_yahoo/video/1 ... 8560120001

[setliff]

not as long as supply stays near 5 yr avg.

btw, xec is taking a hit today and if candlestick holds it is signaling a correction.

[dan_s]

I will take a hard look at XEC tomorrow. I got tied up in a meeting all afternoon.

The Market sees XEC as a gasser but it is moving more capital to oil. On the surface the 3rd quarter looks very good. XEC has made a strong run since their operations report confirmed my forecast model. It is do for a bit of a pullback. Stocks never go straight up.

[dan_s]

Here's the point: With so much capital shifting to oil drilling / development, will we soon see a sharp decline in natural gas supply and therefore increasing prices? In my former life with Amerada Hess, we always said when the price of gas got to 1/10 the price of oil it was time to buy the gassers. Today, the price of natural gas is less than 1/22 the price of oil.

November 4, 2010
Permian Basin: Something for Everyone
By Peter Staas
Over the past year the strategies of integrated oil companies such as Chevron (NYSE: CVX) and ExxonMobil Corp (NYSE: XOM) have diverged from those of independent producers such as Chesapeake Energy Corp (NYSE: CHK) and Devon Energy Corp (NYSE: DVN).

As we noted in The Future of Shale Gas Is International, the Super Oils have invested heavily in natural gas--Exxon in US unconventional plays and Chevron in Australia and Asia--moves that counter field depletion and a wave of resource nationalism. With balance sheets that are stronger than some sovereign nations, these energy giants can afford to invest for the longer term.

US independents, on the other hand, many of whom spearheaded the shale gas revolution, are increasingly shifting their production mix and capital spending to oil, condensate and liquids-rich unconventional fields.

EOG Resources (NYSE: EOG), for example, recently posted its first quarter where revenue from its oil operations accounted for more than 50 percent of total sales and has put some of its noncore shale gas assets on the sales block.

Meanwhile, Chesapeake Energy Corp, the second-largest producer of natural gas and most active US driller, announced ambitious plans to double the company’s liquids output to 100,000 barrels per day by the end of 2012. Management expects this production growth to propel Chesapeake into the ranks of the top 10 US liquids producers. With the No. 1 or No. 2 acreage position in five major liquids-rich unconventional plays, CEO Aubrey McClendon believes the firm has the scope to double its output again to 200,000 barrels per day in 2015.

Although these strategic shifts stand out in the competitive landscape, EOG and Chesapeake are far from the only firms that are following this course of action. One of the biggest takeaways from presentations at the Barclays Capital CEO Energy-Power Conference in September was that depressed prices were prompting many natural gas-focused producers to beef up their oil exposure.

Much of this interest has focused on the emerging Eagle Ford Shale in Texas and the Bakken Shale, a low-cost play that, as my colleague Elliott H. Gue noted in Oil Shale versus Shale Oil, offers producers internal returns of more than 100 percent. But mergers and acquisitions (M&A) have also picked up in the Permian Basin, a vast play stretching from southwest Texas and into southeast New Mexico, which offers a little something for everyone.

Prolific Permian

One of the most prolific US oil plays, the Permian Basin is home to 20 of the country’s top 100 producing oil fields, a remarkable recovery after many in the industry had given it up for dead only 10 years ago.

Drillers sank the first wells in the Permian in the early 1920s, but the field’s heyday didn’t come until the 1940s and 1950s, when prolific output from the Spraberry trend helped to fuel the Allied effort in World War II. At the height of its glory days, wells in the Permian yielded initial production (IP) rates of more than 600 barrels of oil per day (bbl/d), but by the 1990s IP rates had dwindles to a measly 40 to 70 bbl/d.



Source: Permian Basin Petroleum Association

But recent advances in drilling techniques and technology, coupled with oil prices elevated not by an OPEC embargo but by rising demand, have revivified this legacy play.

In 2009 Occidental Petroleum Corp (NYSE: OXY) was the leading producer in the Permian Basin, extracting the equivalent of 201,000 barrels of oil per day from the play. About 60 percent of this output comes from enhanced oil recovery (EOR) projects in the mature areas of the Permian, an approach that involves injecting carbon dioxide (CO2) into the field to increase well pressure and output. Kinder Morgan Energy Partners LP (NYSE: KMP) is another important player in the Permian’s EOR projects.

Although increased CO2 availability in the Permian should enable both operators to increase output from their EOR operations, exploration and production (E&P) are ramping up investments in a handful of established and emerging unconventional plays.

Linn Energy LLC (NSDQ: LINE), for example, has completed four acquisitions in the Permian Basin’s Wolfberry trend thus far in 2010, making the area the company’s largest operating region. Meanwhile, Apache Corp (NYSE: APA) acquired BP’s (NYSE: BP) oil and gas operations, acreage and infrastructure in the Permian for $3.1 billion, and Concho Resources (NYSE: CXO) purchased the assets of Marbob Energy, an early mover in some of the play’s emerging areas, for $1.25 billion. Natural gas-focused pipeline operator and E&P outfit El Paso Corp (NYSE: EP) also forked over $180 million for 123,000 acres in the Permian’s Wolfberry trend during a record university lands sale that benefits the University of Texas and Texas A&M systems.

Much of the uptick in M&A activity has focused on the Wolfberry trend, a lower-risk play in the Midland and Central Basin portions of the Permian that includes two formations: the shallower Spraberry and the so-called Wolfcamp, a deposit that’s about 10,000 feet below the surface. While the Wolfberry’s attractive economics and reliable results make the play attractive for natural gas-focused producers seeking to diversify their portfolios, a profusion of smaller operators also make the region ripe for consolidation.

In contrast, larger operators are driving development in the Permian’s emerging Bone Spring play, an area to the west of the Wolfberry that extends into New Mexico. Roughly 250 wells had been drilled in the area as of mid-September, targeting the Avalon and/or Leonard Shale, with production rates ranging from 300 to 600 bbl/d.

Third-quarter and fourth-quarter results from EOG Resources and Devon Energy should reveal more about how this emerging shale play is shaping up. Concho Resources, another leading acreage holder in the Bone Spring, has focused its drilling activity in other regions while its rivals de-risk the play.

From mature conventional fields to established and emerging shale oil plays, the Permian Basin offers something for E&P firms of all stripes.
24 Billion Barrels of Oil

Ask your average investor to name the states most closely associated with oil production, and they'll likely mention Texas or, perhaps, Louisiana. But a better answer these days is probably North Dakota.

As recently as 2000, North Dakota and Montana were considered minor states in terms of crude oil output. Both produced a bit of oil, but production had declined steadily for well over a decade; no self-respecting energy producer gave either State a second thought.

What a difference a decade makes. Oil production from the Williston Basin in North Dakota and Montana will approach 350,000 barrels of oil per day by the end of this year. And some analysts estimate that this region could produce well north of 1 million barrels of oil per day by the middle of the decade.

In 2008, the US Geological Survey estimated that the region’s Bakken Shale formation contains as much as four billion barrels of oil, a figure that caused a considerable stir among investors. But the largest producer in the region recently pegged the area’s recoverable reserves at six times that amount. And none of these estimates factor another formation located just below the Bakken, the Three Forks.

[mrmuileh]

Chevron's acquisition of Atlas is another indication that some of the majors think the timing is good to invest in NG shares.

You make more money investing in groups that are out of favor before they move than you do by investing in groups that are in favor and have already made most of their move.

I think that NG is an excellent contrarian play right now, if you are not expecting to make money overnight.

MrMuileh (Phil)

[bearcatbob]

FWIW - there is a local radio show by a stock guy who I respect a lot. He has begun touting natural gas stocks. I think the bottom is in - now for the turn.

Bob

[bearcatbob]

http://www.thestreet.com/video/10931245 ... 6105499001

[dan_s]

My Sleeper Play for 2011
By Keith Kohl | Wednesday, December 1st, 2010
We've heard too much whining lately over natural gas.
“There's no money to be made... Prices are too far in the gutter... We'll never see a dime in shale stocks.”
Believe me, it gets tiresome after a while.
And the excuse that's my personal favorite: "I'm waiting for energy prices to return to 2008 levels before I even think of buying."
When another analyst told me as much during a recent phone call, I could barely contain my anger.
It was the worst bit of advice I've heard in a long time.
I was mad because you could've lost a lot of your hard-earned money following that line of thinking.
It could take years for oil and gas prices to reach those levels again, and the natural gas supply glut plaguing North America is just one reason you shouldn't expect to see $14/Mcf anytime soon.
You'll regret waiting, too. Let me explain...
Texas' peak oil woes
When we talk about declining production, we typically throw Alaska and California — the second and third largest producing states in the U.S. — into the mix.
Today, let's just focus on the Lone Star State.
Because as you can see below, Texas' oil production has been in trouble for decades:


Unlike Alaska and California, however, companies in Texas are tapping into new opportunities.
And even though the state will never return to its former production levels, every bit helps.
Tapping into Texas shale
Every shale story starts in the Barnett.
The first well was drilled in 1981 by Mitchell Energy, later acquired by Devon Energy.
However, it wasn't until 2000 that production started to ramp up. By 2006, nearly two billion cubic feet of natural gas were being produced from the Barnett on a daily basis.
Now it appears that Texas has struck shale success — twice.

The Eagle Ford formation

You may remember us talking about the Eagle Ford formation before. It's located in South Texas and lies directly beneath the Austin Chalk shale formation.
But this isn't your typical shale story... There's something special about the Eagle Ford shale.
Unlike the Barnett, Marcellus, or even Haynesville plays, the Eagle Ford formation holds a significant amount of both oil and gas.
So far this year, companies have been grabbing as much land as possible:
• Marathon Oil Corp. recently acquired 17,000 acres in a $10 million deal with Denali Oil and Gas. Marathon also has the option to purchase another 58,000 net acres at a later date. If Marathon ends up taking all 75,000 acres, it would cost them up more than $200 million.
• Chesapeake Energy recently shelled out nearly $200 million to Antares Energy Ltd for 23,180 net oil and natural gas leasehold acres.
• Remember when we talked about China's shale boom? CNOOC paid $2.16 billion for a stake in Chesapeake's Eagle Ford acreage.
And if you believe there's no money to be made over the long run, think again...

Now that millions have been spent buying the acreage, we can expect the drilling to heat up. And 2011 is shaping up to be a huge year for South Texas.
Another way to play shale
It's easy to get swept up with who's buying whom or what someone's latest production results were. But what you may not know is that there's another way to play this shale boom.
I'll give you a hint: It's all about improving the technology that's unlocking these massive shale formations.
In fact the last time my readers dipped their hands into fracking technology, they walked away with an quick 30%.
We've uncovered one company that's still flying under everyone's radar.
It just became public a few months back, and its new fracking technology could change the entire shale game.
Soon, I'll tell you all about this new opportunity.
Until next time,

Keith Kohl
Editor, Energy and Capital