Energy Prospectus

Only 6 Bcf shaved off the HUGE deficit to the 5-year average.

Working gas in storage was 2,722 Bcf as of Friday, September 14, 2018, according to EIA estimates. This represents a net increase of 86 Bcf from the previous week. < 5-yr average is +80 Bcf
> Stocks were 672 Bcf less than last year at this time and 586 Bcf below the five-year average of 3,308 Bcf.
> At 2,722 Bcf, total working gas is below the five-year historical range.

The next two weeks will be the largest builds of the Fall Shoulder Season. By the 2nd week of October most of the home and businesses in the upper third of the U.S. will have fired up their furnaces, most of which burn natural gas for space heating.

My SWAG remains that storage will be 3,250 Bcf on November 16, 2018; 600 Bcf below the 5-year average. < This will make December very interesting for the "gassers".

Yesterday a rep from BP made a presentation to the Houston Energy Finance Group (a bunch of bankers).

One of the HEFG members is also an EPG member. He sent me the slides that BP spoke from. If you want to see the BP slides, send me an email: dmsteffens@comcast.net

This is what caught my eye: "LNG exports are ramping up and are expected to reach 10 Bcf by the first quarter of 2019.  U.S. Natural Gas supplies are up while gas demand is also up.  BP does not see a price increase for natural gas in the coming years unless we have a cold winter.  By the way, WSI has recently announced that they expect a cold winter for the 2018 – 2019 winter." Joe Bastardi at https://www.weatherbell.com/premium/ is now forecasting a major cold front to push from Canada down to Texas during the first week of October. Keep an eye on the Chicago forecast.

MY TAKE:
> In addition to the LNG exports ramping up FAST, U.S. exports of gas to Mexico are also ramping up from ~4.5 Bcfpd now to over 6.0 Bcfpd by 2020.
> Exports of 15 Bcfpd is a lot of gas!
> This coming winter heating season begins within 8 weeks and there is ZERO CHANCE that U.S. gas in storage will be within 500 Bcf of the 5-year average.
> 500 Bcf is a HELL OF A LOT OF GAS. < There is NO WAY that upstream companies are going to run out and complete a bunch of new gas wells to make up this difference, UNLESS THE PRICE OF GAS GOES A LOT HIGHER REAL SOON.
> If we have a cold start to winter (this is the current forecast), the utility companies will get worried about having enough gas in their regions to meet residential heating demand. The penalties for not maintaining adequate pressure in the gas deliver systems are HUGE. Plus, they will have a whole lot of pissed off customers. So... the utilities will go to the spot market to get supply and the "price war" is on.

I want to be CRYSTAL CLEAR: This is likely to be a short-term price spike for gas. It will only last beyond March if we have a very cold winter that drains storage. From where storage is beginning the heating season and with two more LNG export facilities coming on-line in Q1 2019, there is a chance we see an extremely tight U.S. gas market within a few months. But...winter will come to an end.

This is just the start of more "love" on the way for our gassers:

Range Resources (RRC +1.8%) is higher after B. Riley FBR upgrades shares to Buy from Neutral with a $22 price target, raised from $17, citing the firm's constructive outlook on natural gas prices.

Riley says RRC's multi-year effort to align its Appalachian infrastructure toward maximization of value and prices for its natural gas production uniquely positions the company to participate in the recent run-up in NGL prices, which the firm believes to be sustainable during the next 12-24 months.

The resulting increase in realized prices has the potential to materially increase free cash flows and re-rate RRC shares, Riley says, as it raises its forecasts for EPS and cash flow per share for H2 2018 through 2020.

Here are a few things to keep in mind:
> All of our portfolio companies sell a mix of crude oil, natural gas and NGLs. You can find their production mix at the bottom of the forecast models.
> The Permian Basin will not participate to the full extent in a natural gas price spike because the takeaway capacity issues in West Texas for gas are much worse than for liquids. Differentials out there are going to be over $1/mcf.
> The areas that should get the most love are the Haynesville, Marcellus/Utica, Mid-Continent (SCOOP/STACK) and the Eagle Ford. They all have a lot of midstream options.
> Hi-Crush Partners LP (HCLP) is the #1 frac sand supplier in the Marcellus/Utica. It takes a lot of HCLP sand to complete the horizontal wells in that regions.

In addition to the gassers (AR, RRC and GPOR) here are other Sweet 16 companies that will get a big boost from higher gas prices: XEC, CLR, EOG and NFX

In addition to gas, all of the ones listed above sell a lot of NGLs.