Natural Gas Storage Report - Dec 31

[dan_s]

Working gas in storage was 3,756 Bcf as of Friday, December 25, 2015, according to EIA estimates. This represents a net decline of 58 Bcf from the previous week. Stocks were 532 Bcf higher than last year at this time and 448 Bcf above the five-year average of 3,308 Bcf. This is actually a larger draw than I was expecting, since it was so warm in Texas last week.

We should see the first triple digit draw from storage next week (for the week ending 1-31-2016). Based on the weather forecast (cold moving deep into the South), we should see 700-800 Bcf drained from storage during the 31 days of January. If we get a weekly draw over 200 Bcf, I think we will see natural gas prices over $3.00/mcf. Last January, gas topped $4.00/mcf (the "Good Old Days").

Crude oil trades on a global market and natural gas trades on a regional market.

[dan_s]

Here are a few thing to consider when it comes to natural gas:
1. Yes, there is a lot more gas in storage than the 5-year average. But, we may need more.
2. El Nino winters start warm, then turn cold & wet. Most El Nino winters hang around deep into April.
3. Several coal fired power plants have shut down and have been replaced by gas fired power plants. A big one is just up the road between here and San Antonio. Today is running full bore.
4. Exports of LNG start soon.
5. We are going to export a lot more gas to Mexico via pipeline. See our profile on ONEOK Partners.
6. Natural gas production is one decline. See EIA's monthly Drilling Productivity Report. From December to January, onshore U.S. gas production is expected to drop by over 10 Bcf and it will continue to drop by that amount month after month. We are not completing nearly enough new wells to offset the declines of existing wells.

This is why I have added more exposure to gas in the Sweet 16.

[dan_s]

As natural gas price move higher, these are the Sweet 16 companies that will get the most attention from the market.

SWN: IMO this one is grossly oversold
RRC: Tops in the Marcellus/Utica
GPOR: Tops in the Utica
AR
DVN
SM
EOG
XEC
NFX

GST: Their Marcellus/Utica package should draw more attention. Several companies are still working the dataroom with help from TPH.

[bearcatbob]

"GST: Their Marcellus/Utica package should draw more attention. Several companies are still working the dataroom with help from TPH."

I cannot think of a worse time to sell these assets. Unless GST is desperate for the money to complete their SCOOP buy - selling now is beyond stupid. IMO.

[mkarpoff]

There is no way of telling whether or not selling now is stupid. If they get a decent price it would shore up their finances, and possibly allow them to expand drilling in the Stack without drawing on their credit line. Since the Stack play is much more profitable than the Marcellus, it makes sense to me.

[dan_s]

I have talked to Russ and Mike about this. They do not have to sell the Marcellus/Utica package, but they definitely see MUCH HIGHER upside in Oklahoma. My "hope" is that they get an offer over $150 million. The sale would also allow them to lower G&A and focus all of their efforts on Oklahoma.

Regardless of what happens with the sale, Gastar has more than enough liquidity to fund an 8-10 well drilling program in STACK. Good results in STACK are what will determine the future of this puppy.