Energy Prospectus

Susan and I are now back in Houston. Her mother's funeral was July 29 and we had a few things that need to be settled up there. I had hoped to get on the Forum several times but the days were long and for some reason I could not log onto the Forum from our hotel. Sorry for the delay in getting this posted.

Working gas in storage was 3,294 Bcf as of Friday, July 22, 2016, according to EIA estimates. This represents a net increase of 17 Bcf from the previous week. Stocks were 436 Bcf higher than last year at this time and 524 Bcf above the five-year average of 2,770 Bcf. At 3,294 Bcf, total working gas is above the five-year historical range.

This is a very bullish storage report, which confirms what I have been telling you for several months. The U.S. natural gas market is tightening and it is going to be MUCH TIGHER by the time winter heating season rolls around.

Injections to storage over the last 12 week have been SIGNIFICANTLY lower than the 5-year average. During this period injections have been 669 Bcf compared to the 5-year average of 983 Bcf. Two things are happening. One, U.S. and Canadian gas production is on steep decline (~0.5 Bcfpd month after months). The largest declines are showing up in the Eagle Ford, Bakken and Permian Basin. Second, demand is increasing for power generation, industrial demand and exports. We are now exporting over 3.0 Bcfpd to Mexico via pipeline. LNG exports are about a Bcf per day. LNG exports are expected to grow to 9.0 Bcfpd by 2020.

If we have a normal winter (the current forecast), I think we see natural gas trading over $3.50/mcf by Christmas and over $4.00/mcf in Q1 2017.

Also, a lot of investors seem to focus on the fact that storage levels are still way above the 5-year average. Keep in mind that the U.S. gas market is now 8-10 Bcf per day larger than it was five years ago. With so many areas now more dependent on electricity from gas fired power plants we need more gas in storage to insure no interruptions in fuel for those plants. Industrial users also want adequate feed stock in inventory to insure a steady flow.

The U.S. is the world's largest consumer of natural gas and NGLs + it has very limited import capacity for both.

PS: If we do see a draw from storage this summer, we will see a big spike in natural gas prices.

My Top Picks for exposure to rapidly improving prices for natural gas and NGLs are AR, GPOR and RRC. If you can only own one, make it RRC. I believe the merger with MRD will make RRC a "Power House" gas company. RRC has released Q2 results that beat my forecast. EQT is Robert Rapiers top pick for gas and I like it too, but need some time to focus on it more (hopefully in August). - Dan

RANGE ANNOUNCES SECOND QUARTER 2016 RESULTS
FORT WORTH, TEXAS, JULY 26, 2016 RANGE RESOURCES CORPORATION (NYSE: RRC) today announced its second quarter financial results.
Highlights –
 Announced pending merger with Memorial Resource Development Corp.
 Second quarter company production averaged 1,421 net Mmcfe per day, up 4% from the prior-year quarter, with Marcellus production averaging a record 1,379 net Mmcfe per day, up 16% from the prior-year quarter
 Unit costs reduced by 8%, or $0.24 per mcfe, compared to prior-year quarter
 Total debt at lowest level since May 2012
 Completed the sale of central Oklahoma properties for $77.7 million
Commenting, Jeff Ventura, the Company’s CEO said, “Range continues to perform at a high level operationally. Our Marcellus assets continue to deliver excellent results, as drilling and completion activities become more efficient, and recoveries are increasing as we drill longer laterals. We are encouraged by the recent improvement in commodity prices, particularly natural gas and natural gas liquids. Range is well positioned to take advantage of an improving price environment with an industry-leading inventory of high-quality drilling opportunities, a diversified portfolio of transportation alternatives for our products, and an existing footprint of over 200 well pads in Appalachia. The existing pad inventory will allow Range to reduce costs and increase efficiencies for future development and, importantly, speed the pace of development when warranted, as much of the required infrastructure is already in place.
The proposed merger with Memorial is on track, with closing estimated to occur late in the third quarter. We look forward to integrating the Range and Memorial teams, combining two of the most prolific, high-quality natural gas plays in North America.”