Sweet 16 Gassers - June 13

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dan_s
Posts: 34463
Joined: Fri Apr 23, 2010 8:22 am

Sweet 16 Gassers - June 13

Post by dan_s »

I have recently increased my valuations of the four Sweet 16 gassers (AR, CRK, EQT and RRC), only partially because of the recent spike in natural gas price.

The primary reason is that I now have a much higher level of confidence in my forecast models, which justifies using a higher multiple of operating cash flow to value their common stock. The stars are now in alignment for very tight U.S. natural gas and NGL markets in 2H 2021 and maybe even tighter in 2022 is we get a cold winter.
> We are now passed the low point of the year for natural gas demand (May) and gas in storage is still below the 5-year average.
> It is now clear that demand for U.S. LNG will remain very high all summer. Asian gas prices are over $10/MMBtu and Europe needs to rebuild their storage.
> The U.S. summer looks like it is going from Hot to Hotter. "As of 12:00 PM ET on June 13, the population-weighted nationwide temperature is 79.9°F which is 2.3°F warmer than yesterday and 4.3°F warmer than the historical average. Accumulated Natural Gas-Weighted Degree Days (GWDDs) through 12:00 PM EDT tally 2.8 GWDDs which is 0.2 GWDDs greater than yesterday through the same time and 0.7 GWDDs greater than average. This suggests a near average contribution of temperature to natural gas demand." - https://www.celsiusenergy.net/p/intraday-weather.html
> The number of rigs drilling for gas is still under 100, so there is not going to be a surge in U.S. gas production.
> A surge in associated gas from West Texas is not a threat this year.

I urge you all to read carefully our recent profiles on Goodrich Petroleum (GDP) and SilverBow Resources (SBOW). If natural gas stays over $3.00, they should both be doubles for us.
Dan Steffens
Energy Prospectus Group
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