Natural Gas Hedges

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sl6886
Posts: 138
Joined: Tue Jul 14, 2020 7:57 am

Natural Gas Hedges

Post by sl6886 »

Dan,

I know you're not as bullish as G&R, but their Q1 2022 Commentary out today provides rich detail on their unbelievable call that the Marcellus field is in the process of plateauing within the next 6 months, which according to them, once recognized will flip the domestic natural gas price from $8 to global pricing (>$30). If the spot price goes there, doesn't a 4x swing in commodity pricing provide a greater X multiple on these stocks?

I can build a list based on your research, but i'm wondering two things:

First, do you have a list in descending order of most exposed to least exposed to spot price for the natural gas companies you follow?

Second, if a person were to believe in $25-$30 spot pricing for nat. gas, and want to key that in to your company-specific spreadsheets, does the price keyed in need to be adjusted for the hedge?

Thanks.
Scott
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Natural Gas Hedges

Post by dan_s »

On my forecast models, just go to the bottom and see what percentage of their gas is unhedged. Take the unhedged percentage and multiply it by the price you think gas price may go to.

For example:
Comstock has ~22% of Q3 gas hedged at $2.68 and ~28% hedged at $3.83 and 50% unhedged
So, assuming Raymond James' forecast of $9.00 gas in Q3 is accurate Comstock's realized Q3 2022 gas price should be close to the following:
$0.59 = $2.68 X 22%
$1.07 = $3.83 X 28%
$4.50 = $9.00 X 50%
$6.16 is what you should plug into the forecast model spreadsheet.
====

For 2023: Comstock's only hedges are collars in Q1 and Q2 with $9.56 and $10.17 ceiling that cover ~40% if their production. So, if G&R's $30/mcf gas price forecast is correct, Comstock's realized gas prices in 1H 2023 would be near $20/mcf. That would push Comstock's operating cash for over $10 Billion ($43/share) for the year and a $200 price target for the stock would be "conservative". Just remember that $30 natural gas prices in the U.S. is "crazy talk" at this point.
Dan Steffens
Energy Prospectus Group
Fraser921
Posts: 2955
Joined: Mon Mar 22, 2021 11:48 am

Re: Natural Gas Hedges

Post by Fraser921 »

That's a neat formula..ty

The problem with forward price forecast it assumes those same prices forever

Thats why some of these names are trading at 3 times fcf. If these prices stay elevated , the multible should at least double
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