Energy Prospectus

Working gas in storage was 3,466 Bcf as of Friday, September 22, 2017, according to EIA estimates. This represents a net increase of 58 Bcf from the previous week. Stocks were 127 Bcf less than last year at this time and 41 Bcf above the five-year average of 3,425 Bcf. At 3,466 Bcf, total working gas is within the five-year historical range.

The average storage build for this week is 84 Bcf, so a big bite was taken out of the delta to the 5-year average.

The last two weeks' builds of over 90 Bcf were the result of reduced demand for power generation caused mild weather and Hurricane Irma. Irma caused a big drop in electricity demand in Florida. The demand was there but the power was knocked out by the storm. Electricity demand has bounced back. BTW the power outage in Puerto Rico has nothing to do with this since they do not use natural gas for power generation.

There is still a chance that we see ngas storage move below the 5-year average before winter starts. A cold start to winter may push ngas prices over $3.50, but high prices will not last for long unless a really cold winter drains storage. I am using $3.00 for gas in all future years in my forecast/valuation models. AR, GPOR and RRC will all be fine if ngas stays around $3.00.

Dan, Sounds like you've been reining in your forecast of a spike in natgas price (?)

Yes, my forecast for natural gas has softened a bit. Hurricane's Harvey and Irma combined with mild weather in the first three weeks of September reduced natural gas demand for power generation. That's what kept natural gas storage levels above the 5-year average in September. Normal weather in September would have pushed storage 100 Bcf below the 5-year average. It is still possible that we see a dip below the 5-year average in October. It is quite warm and humid in the SE quarter of the U.S. and we have lots of gas fired powered plants down here.

We have an abundant supply of natural gas in this country. The issue this winter will be deliverability. If we have a cold start to the winter, causing storage to stay below the 5-year average most of the winter, then we may see a spike to $4.00. If storage is at or below the 5-year average at the end of March, then demand to refill storage will support the price all year.

My forecast/valuation models are based on $3.00/mcf for Henry Hub gas for 2018. A spike in Q1 could keep the average price higher all year.

If the price of oil moves firmly above $55/bbl we will see increased drilling budgets and more associated gas from the Permian Basin and the Eagle Ford. Good news is that Mexico will take all the gas we can send them.

Antero Resources (AR) has 100% of forecast natural gas production for 2018 hedged at $3.91/MMBtu. That makes AR the "safest bet" for natural gas. GPOR and RRC will both be fine if gas averages $3.00 forever. I like GPOR because I think Wall Street is grossly underestimating what they have going up in Oklahoma.

Go to the AR, GPOR and RRC forecast models and you will see that all three companies have very strong production growth locked in.