In todays WSJ:
A hot summer has not been enough to offset the surplus of natural gas that has accumulated over the past two warm winters in the U.S., and absent a cold winter, signs point to another season of misery for natgas producers, according to Jinjoo Lee of The Wall Street Journal's Heard On The Street column.
Natural gas inventories are still ~9.6% higher than the five-year average, the U.S. Energy Information Administration said in a report this week.
Drillers have cut back on natural gas production but not enough to completely work through the surplus; S&P Global Insights estimates U.S. natgas output during April through October will average 101.7B cf/day this year, a mere 1B cf/day lower than a year earlier.
Prices might stay under pressure for a while longer, as Lee notes the Matterhorn pipeline that will carry gas away from the Permian Basin is expected to start up before year-end, helping relieve the regional glut but adding supply to other regions.
Also, the gap between natgas prices for delivery in October compared to December has been very high, which Eli Rubin at EBW Analytics says may encourage a surge of production toward the end of the year.
"All of that isn't great for natural gas producers, but it could be a nice reprieve for heating bills this winter," Lee writes.
Natural gas
Re: Natural gas
My view is that the coming surge in demand for the rest of the decade is going to soon flip to a supply shortfall for natural gas. Downside risk is the potential election of the Communist Presidential Candidate. Doubtful but very possible imho. Afterall we elected a near-corpse in last election.
That said I see opportunities in some well capitalized gassers with lots of running room, AR, RRC, EQT are good names to start stacking on price dips. Possibly CRGYin Ef but I going to monitor their coming results. I liked SBOW but need to become more acquainted by the KKR outfit.
And last and possibly least CRK to watch to see if they can produce some actual evidence that they western Haynesville is economic at $3ish gas prices.
I believe names above will lead E&P shareholder returns in next 12 months with majority of returns coming in the form of share price appreciation.
That said I see opportunities in some well capitalized gassers with lots of running room, AR, RRC, EQT are good names to start stacking on price dips. Possibly CRGYin Ef but I going to monitor their coming results. I liked SBOW but need to become more acquainted by the KKR outfit.
And last and possibly least CRK to watch to see if they can produce some actual evidence that they western Haynesville is economic at $3ish gas prices.
I believe names above will lead E&P shareholder returns in next 12 months with majority of returns coming in the form of share price appreciation.
Re: Natural gas
AR, RRC, EQT, CRGY and even CRK will become very profitable companies if U.S. natural gas prices firm up in the $3.00 to $4.00 trading range.
For example, Antero Resources (AR) is on pace to generate approximately $900 million of operating cash flow this year with a realized natural gas price of $2.33/mcf (my full year forecast). It is free cash flow positive now.
AR has been getting approximately a $0.25/mcf premium on their natural gas and they have a negative differential to WTI of approximately $15/bbl on their condensate. They are selling about 200,000 bpd of NGLs at a blended price of around $28/bbl for the year.
AR's production mix on a Boepd basis is approximately 62% natural gas, 2% condensate and 36% NGLs
If their 2025 realized prices for natural gas, condensate and NGLs are $3.50, $65 and $32 the Company's operating cash flow will more than double to approximately $1,964 million next year per my forecast model. < TipRanks' operating cash flow forecast for 2025 is $1.8 billion.
My updated forecast for AR can be found on the EPG Website home page. Forecast models for EQT and CRGY are under the Sweet 16 tab.
FWIW: My operating CFPS forecast for 2024 is slightly lower than TipRanks' forecast and my CFPS forecast for 2025 is slightly higher than TipRanks' forecast. If I change the 2025 natural gas price in my forecast to $3.20/mcf, the revenue matches TipRanks consensus forecast for next year.
CRGY has the most upside to my current valuations.
Comstock Resources (CRK) is on my Watch List, but not in any of my three model portfolios. CRK has the most to gain from higher U.S. natural gas prices because ~99% of its production is natural gas and NGLs. Haynesville gas is very "dry", so CRK does not produce many NGLs. Its "concentration risk" to natural gas is why I dropped it from the Sweet 16 over a year ago.
For example, Antero Resources (AR) is on pace to generate approximately $900 million of operating cash flow this year with a realized natural gas price of $2.33/mcf (my full year forecast). It is free cash flow positive now.
AR has been getting approximately a $0.25/mcf premium on their natural gas and they have a negative differential to WTI of approximately $15/bbl on their condensate. They are selling about 200,000 bpd of NGLs at a blended price of around $28/bbl for the year.
AR's production mix on a Boepd basis is approximately 62% natural gas, 2% condensate and 36% NGLs
If their 2025 realized prices for natural gas, condensate and NGLs are $3.50, $65 and $32 the Company's operating cash flow will more than double to approximately $1,964 million next year per my forecast model. < TipRanks' operating cash flow forecast for 2025 is $1.8 billion.
My updated forecast for AR can be found on the EPG Website home page. Forecast models for EQT and CRGY are under the Sweet 16 tab.
FWIW: My operating CFPS forecast for 2024 is slightly lower than TipRanks' forecast and my CFPS forecast for 2025 is slightly higher than TipRanks' forecast. If I change the 2025 natural gas price in my forecast to $3.20/mcf, the revenue matches TipRanks consensus forecast for next year.
CRGY has the most upside to my current valuations.
Comstock Resources (CRK) is on my Watch List, but not in any of my three model portfolios. CRK has the most to gain from higher U.S. natural gas prices because ~99% of its production is natural gas and NGLs. Haynesville gas is very "dry", so CRK does not produce many NGLs. Its "concentration risk" to natural gas is why I dropped it from the Sweet 16 over a year ago.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Natural gas
TipRanks: "In the last 3 months, 14 ranked analysts set 12-month price targets for AR. The average price target among the analysts is $35.82. The 14 price targets range from $30 to $44."
AR closed at $26.49 on 9/13.
AR closed at $26.49 on 9/13.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group