Oil & Gas Prices --

[dan_s]

If you would have told me on Christmas Day that WTI crude oil would be $96/bbl and Henry Hub natural gas would be $5/mcf on February 3rd, I would have bet the farm that our Sweet 16 Growth Portfolio stocks would be up YTD. Add in that natural gas liquids are at least 20% higher and it is a slam dunk that first quarter results are going to be very strong for this group.

This will be confirmed in a couple weeks when Q4 results and guidance start pouring out.

Higher NGL prices may be the most important change in my outlook for the sector. Lots of the liquids produced in the shale plays are NGLs, not crude oil. BTW this is one reason that all this talk of the U.S. becoming energy independent is foolish. We will never produce all the crude oil we need, but we already have more than enough NGLs and we are exporting them at an increasing pace.

Over the weekend I took a hard look at Newfield Exploration (NFX), primarily because Stifel upgraded it to a BUY with a $35 price target. My valuation is $38/share. Newfield is FINALLY selling off their international divisions to focus on their four growth plays in the U.S. (Anadarko Basin, Uinta Basin, Bakken/Three Forks, and Eagle Ford). Domestic production will be up ~16% this year AND they produce a lot on natural gas and NGLS, so revenues will be up more than 25%.

I can give you a long list of E&P companies that I now believe are trading at a deep discount to their break-up value. That and $5 will get you a cup of coffee on Wall Street. When FEAR is driving the market there doesn't seem to be much interest in value plays.

I co-founded EPG in 2001. Since then there have been several years when most of our gains were made in the 2nd half of the year. I think this will be one of those years.

I think we will see the low for crude oil prices in the 2nd quarter. The main reason is that 90% of the people on this planet live above the equator. Many of them still heat their homes with oil. When spring finally arrives the demand for oil will dip. Q2 is also when a lot of refineries do maintenance and demand for crude oil dips. However, I now think WTI will dip no lower than $88/bbl (where there is very strong support) and it should not stay below $90/bbl for long. I base this on the fact that I believe global GDP growth is over 3.5% and will move higher in the 2nd half of this year. If global growth does accelerate, then Brent will move over $115/bbl and WTI should follow it over $100/bbl.

Plus, the sharp increase in natural gas prices (which could go higher) and NGLs is going to give a lot of E&P and midstream companies a real nice revenue boost.

Hang tough my friends, fundamentals do make a difference in the long-run (but sometimes it is a very painful wait).

[ghrcap]

The NG 12 month strip was $4.59 on close today, showing slow but steady progress higher. The futures are back over $5 tonight. Maybe we'll have a better day tomorrow for the gassers.

[dan_s]

I now think there is a chance that natural gas tests $6.00 this month. IMO that is the price needed to see any movement of rigs back to the dry gas shale plays. It still may not be enough.

[dan_s]

Actually the fastest "cure" for high natural gas prices is high natural gas prices. If Ngas is allowed to go over $6.00 it will cause E&P companies to drill more in the dry gas plays.

I don't think $5.00 is enough to cause much of an increase in drilling for gas. As a result, the price of gas could really shoot up next winter if we go into the season with lower supply.