Gas price Forecast for 2010
Highlights from today's Tudor Pickering Holt email:
Revising stance to bullish 2010 gas outlook on steep supply declines ($7.50/mcf new estimate; $5.50/mcf prior). Long-term gas outlook moved down to $6.50/mcf (from $8/mcf) on ample supply. Only 1,500 rigs (1,100 gas) needed to add 1bcf/day to gas supply. Bullish short-term stock implications; long-term…not so much.
Gas Prices – Going up then coming down.
· The past dictates the future – production declines will lead to a tightening gas market.
· Taking our 2010 estimate up to $7.50/mcf from previous estimate of $5.50/mcf.
o Q1 at $7.00/mcf, Q2 at $8.00/mcf, Q3 at $7.50/mcf, and Q4 at $7.50/mcf.
· Taking our 2011+ estimate down to $6.50/mcf from $8.00/mcf.
Sector Implications – More detailed sector reports coming soon (with stock specific recommendations), but here are the key sector takeaways.
Oil Service
· Much steeper 2010 US activity recovery and thus positive implications for our 2010 company-specific earnings and cash flow forecasts.
o Nice trade in gassy names.
· Beyond late 2010, US activity looks flattish at 1,500 rigs with too much oil service capacity.
o Cycle-to-cycle earnings will be lower for North American service companies.
o While the gassy OSX trade looks good, the investment thesis is poor.
· Two underlying themes in the 2010 rig count increase.
o Oil-directed activity likely shows continued steep increases.
o Incremental gas activity = shale focused.
· Rigs vs. services
o The rig market doesn’t get very tight…idle rigs puts a cap on pricing.
o Service intensity of shale plays allows some service lines to achieve pricing increases 2H’10.
E&P
· We are entering an environment of “Haves” and “Have Nots” with the emergence of prolific gas shales.
· E&P companies will be more shale focused and wary of conventional areas.
· 2010/2011 are likely the gas Wonder Year(s)…own some natural gas/debt-leveraged companies in this time period.
· Long-term E&P investors should focus on shale and/or low cost companies.
These guys have been right a whole lot more than they have been wrong. I think they are spot on with their forecast.
Jay
Revising stance to bullish 2010 gas outlook on steep supply declines ($7.50/mcf new estimate; $5.50/mcf prior). Long-term gas outlook moved down to $6.50/mcf (from $8/mcf) on ample supply. Only 1,500 rigs (1,100 gas) needed to add 1bcf/day to gas supply. Bullish short-term stock implications; long-term…not so much.
Gas Prices – Going up then coming down.
· The past dictates the future – production declines will lead to a tightening gas market.
· Taking our 2010 estimate up to $7.50/mcf from previous estimate of $5.50/mcf.
o Q1 at $7.00/mcf, Q2 at $8.00/mcf, Q3 at $7.50/mcf, and Q4 at $7.50/mcf.
· Taking our 2011+ estimate down to $6.50/mcf from $8.00/mcf.
Sector Implications – More detailed sector reports coming soon (with stock specific recommendations), but here are the key sector takeaways.
Oil Service
· Much steeper 2010 US activity recovery and thus positive implications for our 2010 company-specific earnings and cash flow forecasts.
o Nice trade in gassy names.
· Beyond late 2010, US activity looks flattish at 1,500 rigs with too much oil service capacity.
o Cycle-to-cycle earnings will be lower for North American service companies.
o While the gassy OSX trade looks good, the investment thesis is poor.
· Two underlying themes in the 2010 rig count increase.
o Oil-directed activity likely shows continued steep increases.
o Incremental gas activity = shale focused.
· Rigs vs. services
o The rig market doesn’t get very tight…idle rigs puts a cap on pricing.
o Service intensity of shale plays allows some service lines to achieve pricing increases 2H’10.
E&P
· We are entering an environment of “Haves” and “Have Nots” with the emergence of prolific gas shales.
· E&P companies will be more shale focused and wary of conventional areas.
· 2010/2011 are likely the gas Wonder Year(s)…own some natural gas/debt-leveraged companies in this time period.
· Long-term E&P investors should focus on shale and/or low cost companies.
These guys have been right a whole lot more than they have been wrong. I think they are spot on with their forecast.
Jay
Views: 30
Replies to This Discussion
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Permalink Reply by Dion Warr, CPL on
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Jay:
So it would appear that these guys got the HBP all you can in the HA/HS by 2011 memo. What happens past 2011? 2005-06 leases not drilled will expire, 2007 not too far behind. The rebuy will be S-L-O-W. Some of the smaller 'haves' will want to f/o rather than lose 2008 leases, but the two-year kickers will bite into some of the E&P budgets. Plus, some of the older HOSS/CV/LCV will need to be revisited by old-guard producers in order to hold their leases just a bit longer. This will cause some rigs and crews in the HA/HS to get busy just to do that. Do they have a projection as to rig allocation re: tight gas / shale in their numbers??
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Permalink Reply by Dion Warr, CPL on
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Jay:
Agree as to your comments as to rig count. The main players will not be able to withstand infill development at a deficit or near-deficit very long. I don't surmise that they bought into this play planning on making their revenues on the flatter sides of the production curves.
That being said, Tudor is quoted as returning to 1500± rigs at late 2010, vs. current rigs at 968 (688 ng), which would be +530 (+410 ng). There doesn't seem to be enough announced ramp-up in activity (plus what the outside observer would surmise from the proposed uptick) to account for this, even taking in the bulge in drilling going into late '10 for HBP purposes.
Then again, Tudor most likely has better resources than I do, and people pay for their advice in this arena, and I just scrawl on the walls of GHS (for as long as Keith will let me). Maybe this fits together in a manner that I'm not seeing. What are your personal observations as to how this will unfold, particularly as to HA/HS development?
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Permalink Reply by VSC DeSoto South on -
I would love to see more of the details in this report. Will you be posting them or are they available without being a Tudor customer?
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Permalink Reply by Mattie on
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We rely on these guys for info as well - they do a pretty good job - very strong on the finance/accounting side, but have also added some strength to their fundamentals/physical expertise in the past couple of years.
I personally don't agree with the theory of a big rebound in 2010, but hope I'm wrong. I still am of the conviction that next year will be tough on NG - crude oil and NGL's will be okay, but just don't see it on gas.
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Permalink Reply by Bobi Carr ("parker") on
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Jay,
Thanks. We'll have to get Keith to install a countdown to Q1 2010 clock on the site.
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Permalink Reply by Spring Branch,mineral owner on
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Thank you for the info, Jay. It put a smile on Paul III's and my face! Like you say, eve=n if they are wrong by 2 bucks, $5.50 beats $2.90 and then some!
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