Replies to This Discussion

Permalink Reply by Skip Peel - Mineral Consultant on January 11, 2012 at 9:09

LOL!  Not you Krkyoldhag.  The companies who are struggling to maintain cash flow and service debt are the ones who may have to sell.  A number already have.  They have more dry shale gas on their plates than they can say grace over.

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Permalink Reply by Hopeful About Natural Gas on January 11, 2012 at 9:15

Duh - elementary questions - but what is the approx break even price for HS gas?  I have read that they are pumping to service debt that they must pay off.  But, where would their break-even price be?  And, how would hedges effect it?

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Permalink Reply by tc on January 11, 2012 at 10:35

This is not an elementary question, but more like an MBA question.  What expenses do you count for break-even?  Also it will vary between companies, but in the 1st qtr of 2011 when Goodrich was much more Haynesville they report Lease operating expense of $0.18/mcfe, production taxes of $0.10/mcfe and transportation cost of $0.26/mcfe for a total of $0.54/mcfe.  So for $.50 you can get gas out of the ground and to the market and that could be considered a break-even price.  However, this doesn't include the cost of your G&A (employees & buildings).  It also doesn't include the cost of DD&A (leases, drilling, infrastructure) and interest.  For Goodrich these non-included cost equal to $5.12/mcfe.  So break-even can range from $0.50 to $5.62/mfce depending and what you expenses you count. 

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Permalink Reply by DrWAVeSport Cd1 on January 11, 2012 at 11:20

GHShalers,

Again...the nat gas supply cart before the nat gas demand horse...

U.S. Storage/supply is so great, the U.S. could supply all of China and still have enough for U.S., at $3/mcf.

And nothing is going to stop this scenario.   Just look at CHK.  So many deals and pre-payments/loans of VPPs, JVs that have to stay "satisfied" with "production moneys," and Master Limited Partnerships (pipeline deals) that have to be paid in production dollars if the MLPs are going to keep their  "unit" dividend payments and per "unit" prices...unsustainably high...and outrageously higher than the Co's common stock prices/dividends (because CHK knows its common stockholders are schmucked, IMO) and, thus these VPPs, Master Limited Partnerships, drop-down entities, JVs, HUGE Billion $ debts, Credit/Financing Companies/Banks/Brokers,  ALL must get paid, paid on time, and paid per their "contracted" legal instruments.

Do you think CHK can "nickle and dime" those "contracted" legal SEC-filed financial instrument holders...to death????  Like CHK gets away with its UMOs/Royalty/Mineral owners????  No way.   They have to produce and produce and produce, and pay off as contracted, or they're going to be under water in their financials in the same vein as the U.S. home owners have been in their mortgages.  

If you "owe" everybody, and their brother, in an effort to "finance" your "dreams," "company,""company execs," "personal wealth," etc., etc., etc...  And, you don't keep tap dancing as fast as you can, metaphorically speaking, the less money someone is willing to pay to see you "tap dance," the more "tap dancing" one has to do just to maintain the status quo, let alone make a profit and take a breath.

Without the U.S. "demand" side of nat gas increasing exponentally with the U.S. "supply" side of nat gas, ALL O&G Companies need to destroy their financial presentations showing $5, $6, $7/mcf nat gas prices in their financial "what if" models/scenarios, where many of their imaginary "billions of dollars" worth of company wealth is pictured and "produced" as "real" numbers.  LOL

That's one reason why CHK gets "killed" in its stock price.  The U.S. nat gas environment just isn't showing/backing up CHK's exaggerated painted picture of financial strength/health or CHK's "PR" of an even "better" future picture of what is yet to be... 

No one wants to see a "death by suicide," of the new U.S. natural gas shale bonanza.  But the O&G Companies are holding their life in their own hands.  U.S. Shale Management is out of control and has been for a long time, from the very first land grabs and fever-pitch of "how much can we get leased up and HBP" and then "flipped," and show profits.   As we see with the Michigan lawsuits against CHK and it "shell" companies, nothing has changed or slowed down.  Their greed and spending sprees know no bounds and is negatively affecting the price of nat gas as well as their own stock prices.  

IMO, if some of these O&G Companies don't get around a table and get a hold of this out of control greediness, spending, and these "shell" bogus leases-and-lying lawsuits, nat gas prices will be the least of their worries. 

Just run down the picture of Denbury/Denbury Management to Encore to CHK to Enduro Royalty Trust/Enduro Operating LLC and look at the "holdings" in the Haynesville Shale...  Our LA Sonris site can take you on that ride.  IMHO, their investors need to spend a day on the LA Sonris lite site and take a good look around.

Again, hoping I'm wrong, and there is a successful sustainable plan for Americans to be the winners in this U.S. Shale Natural Gas supply, and not just one that feeds O&G Company greed. 

Dec. 21st, 2011, report that U.S. EPA closing 32 coal-fired power plants, is encouraging for nat gas, but much more demand has to be forthcoming sooooooon.

Fingers crossed.

DrWAVeSport Cd1 1/11/2012

 

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Permalink Reply by Krkyoldhag on January 11, 2012 at 16:46

I predict that the bottom will be $2.40  and then climb a few cents a day back and forth til about May or June.  By then the realization will hit that we are NOT going to get the Keystone Pipeline and will have to  explore use of this abundant energy source.  Gas will be $5 plus by then per gallon.

Let's see if the kranky old woman still has any savvy in a few months.

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Permalink Reply by Henry on January 11, 2012 at 15:28

Two interesting things I saw/read lately...

1.)  On CNBC today ("Fast Money"), one of the traders said that a Republican President would be horrible for natural gas prices.  Why?  Because he would remove all restrictions on drilling, and the market would be even more flooded.

2.)  I read in the Hulbert Digest, that one of the few stock funds that the best newsletters of recent years were recommending was Fidelity Select Natural Gas (FSNGX).  I guess it will take some patience to make that one pay off.

I won't predict what the bottom will be.  NatGas is so low already, that it doesn't matter to me if it goes lower.  I am more interested in when the bottom will be reached, regardless of whether it is $2.00 or $2.50.  I don't see things getting better for at least a few years. 

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Permalink Reply by dbob on January 11, 2012 at 16:04

I call bottom of 2.15 - in October of this year.  Why October?  Crystal ball says uncertainty before the election, with an uptick of economic activity regardless of who wins.  Also, by October, we will have reached the point at which we are 1 year or more out from most of the HBP drilling and completion activity in the Haynesville, and well outside the Barnett peak.  Eagle Ford and Bakken feeding frenzy will continue, but targeting wet stuff.  Marcellus will continue to ramp, but concerns over HF, coupled with the low gas price, will keep a lid on activity.  Crystal ball also says that by October, the prognosis for most of the announced export projects, polyethylene, and GTL plants will be better known.  Those facilities when they become more certain, will hedge heavily to keep costs down in a recovery scenario.  That hedging alone will put a floor on the price at some level.   We will also have more certainty over the new clean air regs by that point, which will influence balance of new power plants being built.  

The sustained low price environment will also likely spur hedging and construction of CNG/LNG fleet fueling centers, particularly for the largest of fuel users - think Walmart and Ups.  Crystal ball doesn't know who it will be, but some freight mover will hedge at an ultra low price, particularly relative to diesel, and lock in a competitive advantage for years.  

So if the bottom is October of 2012, when do we get back to say above $4.00? Crystal ball says here that will happen in October of 2013.  Why October of 2013? continued fall off of Haynesville and Barnett below replacement activity, coupled with further economic strength, a return of normal weather patterns, and actual projects (export, gtl, power plants, CNG/LNG, etc) coming online.  

Wildcard is Israel and Iran - Particularly if current administration stays in, look for Israel to bomb Iran, and Iran to close the straight of Hormuz - that action will either cause price spike or price crash.  Price crash if we don't stand up to them, price spike if we get to demonstrate what a modern carrier group with JDAMS can do.   

 Incidentally, brother took a commercial flight that went over parts of North Dakota 

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Permalink Reply by Hopeful About Natural Gas on January 11, 2012 at 22:18

dbob,  you might have put your finger on the best natgas investment in the foreseeable future:

"some freight mover will hedge at an ultra low price, particularly relative to diesel, and lock in a competitive advantage for years. "

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Permalink Reply by Krkyoldhag on January 11, 2012 at 16:42

But if a Democrat wins we looking at the oil industry being nationalized..I know that sounds far fetched but I am really old and remember stuff most history books don't even talk about anymore.

I remember hogs being slaughtered and buried in pits by the government.  I remember cotton farmers being told what and when to plant.    I remember ration stamps (still have some in fact).  I remember a government that put whole families in concentration camps on the West Coast. I remember when money was silver and gold. 

Government can do just about anything if they call it for the common good.

I even remember when we had analog TV and didn't need digital covertor boxes..  and AM radio that really kept one in touch.  And fireflies.

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Permalink Reply by Bradley McWilliams on January 14, 2012 at 15:36

Then the O&G companies would work as well as does the post office...

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Permalink Reply by Robert Griffin R on January 15, 2012 at 3:26

Post office works just great for me, always has. Never lost a single piece of mail, that I know of, during 6 years of college, 35 years working, 10 years retirement and changing addresses a couple dozen times over the years.  Better performance record than any other government activity. Just my experience and opinion.

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Permalink Reply by P.G. on January 12, 2012 at 11:07

If speculators are locking in futures at these low prices...what happens if market prices go up?

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