txlaw Posted March 8, 2012 Posted March 8, 2012 So I mentioned a month or so ago that I had been selling down some of my stake in US financials to buy nat gas-related stocks in the US. I was pleased to see both Wilbur Ross and WEB recently commenting on the almost unbelievable collapse in nat gas prices in the US. That gives me comfort that my reasoning is sound, at least over the medium to long term. I'm curious to see whether other board members have also been scooping up nat gas-related names.
Parsad Posted March 8, 2012 Posted March 8, 2012 We haven't bought anything yet, but I've been digging around trying to find out what is the best way to take advantage of this. The actual natural gas companies haven't been discounted enough...hopefully they will soon as their hedges run out. Cheers!
racemize Posted March 8, 2012 Posted March 8, 2012 This is on my list, but I haven't had much time to dig into it. I talked to a previous CTO/CEO in the exploration industry and he mentioned SWN being one of the best run companies, though the valuation doesn't appear cheap.
original mungerville Posted March 8, 2012 Posted March 8, 2012 Txlaw, What nat gas stocks have you been buying and why those particular ones / ie what was your filter.
AZ_Value Posted March 8, 2012 Posted March 8, 2012 I've also started looking into nat gas recently. Trying to see what plays are available beyond names like CHK. It seems to be where some of the smart money in the industry like Exxon are positioning themselves. If nat gas is really to be how we power ourselves in the future names like wprt might be interesting. Txlaw, care to share what names you've been buying?
bmichaud Posted March 8, 2012 Posted March 8, 2012 You guys should take a look at WPX Energy (WPX) - currently trading for less than $19. BV is $28 per share after deconsolidating Apco Oil & Gas. Apco is worth $5 per WPX share assuming $70 trading price and a 30% liquidity discount. Net debt less than 1x EBITDA, 18% of capital. The Company is shifting capex towards liquids plays, but gas is still projected to be 60% of production in 2012, so you have a nice call option on rising prices. The Rails are an interesting way to play gas as well, since rising gas prices will reduce the speed with which utilities convert to gas.
Guest Hester Posted March 8, 2012 Posted March 8, 2012 Parsad is right, nat gas is extraordinarily cheap but the stocks generally aren't that cheap. Contango Oil & Gas is the best nat gas E&P, but again, not dirt cheap .
bathtime Posted March 8, 2012 Posted March 8, 2012 Good post on SWN's potential liquids play (written by my favorite independent energy analyst): http://seekingalpha.com/article/399751-southwestern-energy-street-proves-dense-regarding-new-play
biaggio Posted March 8, 2012 Posted March 8, 2012 I am looking at PEY on TSE again. Sold several weeks ago as I did not like them issuing shares.(or did not know why they were) Seems cheap: at $17.44 selling at 69% of PV 10 of $25 Insiders own 8% (waiting for them to buy). Managers seem like good guys, honest and able. Low cost producer-they are making money at today's prices- their cost this past year has been ~ $2 per MCF They are paying a dividend I think they had a conference call today, as their year end earnings were announced last night http://www.peyto.com/news/YearEnd2011Release.pdf Mar 10,2012 Edit: PV 10:$20.42 http://www.peyto.com/news/2011Reserves.pdf operating cost was $2 per BOE
Buckeye Posted March 8, 2012 Posted March 8, 2012 Would Loews be a good way to play this? They already own the pipeline and E&P business, but also offer the diversification through Diamond Offshore and CNA. There were some remarks on their last earnings call (also mentioned on this board) about how current Capex are greatly exceeding the current returns of many projects within the industry and they feel this should open up some acquisition opportunities in the near future. They have also recently drastically reduced their share buyback which may mean they are saving their money to take advantage of this. My thought is let them be opportunistic, while protecting shareholder wealth along with still providing a diversified income stream through their other businesses. Any thoughts?
mranski Posted March 8, 2012 Posted March 8, 2012 Loews to me is a good way to play this with the stability of conglomerate income. PMT is another one where the owning family has a good history of results and the price keeps tracking down. Might wait a few quarters for the really low prices and effect of expiring hedges to produce some even better entry points resulting from really poor results.
Sea Island Posted March 9, 2012 Posted March 9, 2012 Encana and Chesapeake are both cheap. Dirt Cheap and good values as well. If you don't want management screwing things up, try San Juan Basin Royalty Trust, SJT.
WarrenWatsa Posted March 9, 2012 Posted March 9, 2012 Wilbur Ross bought XCO, and has been buying at much higher prices than it is now... I'm not sure if PMT will remain solvent long enough to see the comeback of NG.
Parsad Posted March 9, 2012 Posted March 9, 2012 Loews to me is a good way to play this with the stability of conglomerate income. PMT is another one where the owning family has a good history of results and the price keeps tracking down. Might wait a few quarters for the really low prices and effect of expiring hedges to produce some even better entry points resulting from really poor results. I don't think natural gas has bottomed yet. It will go even lower. There is just so much production and money being put into fracking. I thought it had bottomed a couple of years ago and I was wrong. Sometimes things get extraordinarily cheap and I think the players in this industry are going to get hit as their hedges come off. Usually the analysts are optimistic as you start to get cheaper and cheaper, and then some of them start throwing in the towel when they find they were wrong...that's when you know to buy. Right now people think it is cheap, but it will probably get cheaper. Cheers!
Guest valueInv Posted March 9, 2012 Posted March 9, 2012 Loews to me is a good way to play this with the stability of conglomerate income. PMT is another one where the owning family has a good history of results and the price keeps tracking down. Might wait a few quarters for the really low prices and effect of expiring hedges to produce some even better entry points resulting from really poor results. I don't think natural gas has bottomed yet. It will go even lower. There is just so much production and money being put into fracking. I thought it had bottomed a couple of years ago and I was wrong. Sometimes things get extraordinarily cheap and I think the players in this industry are going to get hit as their hedges come off. Usually the analysts are optimistic as you start to get cheaper and cheaper, and then some of them start throwing in the towel when they find they were wrong...that's when you know to buy. Right now people think it is cheap, but it will probably get cheaper. Cheers! Wouldn't you expect consumption to shift to nat gas as the differential with oil keeps rising? Any idea how fast it is possible to shift consumption?
txlaw Posted March 9, 2012 Author Posted March 9, 2012 I've been buying two nat gas-related stocks. XCO --------- By far my largest nat gas-related position. Reasonable people can disagree on the NAV here, particularly given one's outlook on nat gas prices in the future, but I think the downside is minimal and the upside could be stupendous given the ratio of proved reserves to probable and possible reserves. The operators are rationale, unlike some other nat gas firms, will shut down production if its uneconomic, and have articulated a hurdle rate for returns. More importantly, I have been looking for companies that can be used as platforms to acquire resources at dirt cheap prices. I think Exco fits the bill very nicely. Doug Miller and Co are excellent deal makers. They have a nice strategic alliance with BG that could prove very fruitful in the future (think LNG export) and where the potential negatives (e.g., over-reliance on and contractual obligations to BG that cause liquidity crunch) won't happen. They already have folks lined up to do JVs, including current shareholders, and they were even turned down on a rather large deal where they already had all the money raised. Current shareholders include Wl Ross & Co, Oaktree, and Ares Capital. And on the board, you have Boone Pickens and Wilbur Ross (just recently named). Debt is not an issue, as they can likely sell off midstream assets or do other deals that would allow them to entirely pay off their debt in the next 3 to 6 months (according to Miller). And based on the recent bid for TGGT (midstream asset) I do think the equity investments are carried on the balance sheet at haircuts to IV. There is even the possibility that there will once again be a going private bid for the company, but I wouldn't count on it. I highly recommend reading the Exco CCs. NRG ------- We've discussed NRG on the board, so I won't rehash the analysis. Suffice it to say, I think the sucker is cheap and that it is cheap because the price of the stock is levered to nat gas prices. As with XCO, I think of NRG as an investment vehicle rather than as a purely operating company. They focus on ROIC and I like they way they think. The recent deal with MidAm shows you that they know what they're doing. I own the 2014 LEAPs.
WarrenWatsa Posted March 9, 2012 Posted March 9, 2012 Loews to me is a good way to play this with the stability of conglomerate income. PMT is another one where the owning family has a good history of results and the price keeps tracking down. Might wait a few quarters for the really low prices and effect of expiring hedges to produce some even better entry points resulting from really poor results. I don't think natural gas has bottomed yet. It will go even lower. There is just so much production and money being put into fracking. I thought it had bottomed a couple of years ago and I was wrong. Sometimes things get extraordinarily cheap and I think the players in this industry are going to get hit as their hedges come off. Usually the analysts are optimistic as you start to get cheaper and cheaper, and then some of them start throwing in the towel when they find they were wrong...that's when you know to buy. Right now people think it is cheap, but it will probably get cheaper. Cheers! I agree. Wilbur Ross is usually early, too. Too much optimism on NG right now. Am hearing about it everywhere right now. Not what bottoms are made of. Everyone was talking about Japan early last year and only now is it rallying - after so many fell asleep on it. Maybe next year...
Parsad Posted March 9, 2012 Posted March 9, 2012 Loews to me is a good way to play this with the stability of conglomerate income. PMT is another one where the owning family has a good history of results and the price keeps tracking down. Might wait a few quarters for the really low prices and effect of expiring hedges to produce some even better entry points resulting from really poor results. I don't think natural gas has bottomed yet. It will go even lower. There is just so much production and money being put into fracking. I thought it had bottomed a couple of years ago and I was wrong. Sometimes things get extraordinarily cheap and I think the players in this industry are going to get hit as their hedges come off. Usually the analysts are optimistic as you start to get cheaper and cheaper, and then some of them start throwing in the towel when they find they were wrong...that's when you know to buy. Right now people think it is cheap, but it will probably get cheaper. Cheers! Wouldn't you expect consumption to shift to nat gas as the differential with oil keeps rising? Any idea how fast it is possible to shift consumption? I would think that transition already began, but will take another year or two to really start to make any sort of dent in supply. Just far too much production, and it isn't really so much as a glut, but a complete structural change due to the way gas can be produced and they are getting even more efficient in their methods. But the price and oversupply is a good thing. Any changes that can be made in the way North American's rely on foreign energy, the better for our own national security and independence. Cheers!
Eric50 Posted March 9, 2012 Posted March 9, 2012 Corridor Resources (CDH) is very cheap. Incredible potential upside with strong downside protection.
petec Posted March 9, 2012 Posted March 9, 2012 I've just begun a position in UPL, more because I have known it for years than because I've scoured every other option. I think it trades on roughly its proved NAV assuming a marginal cost of $4, and its 2P NAV assuming a marginal cost of $3, so I don't see long term downside. I do see, and am hoping for, short term downside because there is a lot of optimism out there and I'd love to buy in size as others throw in the towel. Here's hoping. On the long term view I'd caution people not to confuse demand increases with price rises. I'm very bullish on long term gas demand (due to the oil/gas differential) but not necessarily on the price (because the marginal cost continues to fall - in other words, supply can meet demand). The marginal cost is king and it's very hard to work out what it is and how much further it can fall.
Uccmal Posted March 9, 2012 Posted March 9, 2012 The oil/gas differential has been way out of whack for years now. Until more natural gas cogen plants are built or gas becomes a wodespread transport fuel that's not going to change. LNG would bring prices up but that is years away. The supply side needs to come under control. I have been looking at Encana. Wont buy until the hedges start to come off, and the dividend is getting squeezed. ECA is around $19 right now. I am thinking closer to $10. It is the second largest NA gas producer to XOM. Thanks for the tip on Peyto Biaggio. Will have a look. To all board members. It wasn't so long ago that Oil was close to 10 a barrel, and then along came peak oil etc. Nat gas could easily move into the sub 2 range for a long time. From my perspective as the US gains energy independence, and IT technology is integrated into transport, transmission, and alt energy sources the price of oil could very well come way down as well. So I wait. Got no cash anyway which keeps me from doing dumb things.
gordoffh Posted March 9, 2012 Posted March 9, 2012 [shadow=red,left]I have been looking at Encana. Wont buy until the hedges start to come off, and the dividend is getting squeezed. ECA is around $19 right now. I am thinking closer to $10. It is the second largest NA gas producer to XOM[/shadow] hope you are way off base here - price has already fallen substantially reflecting current situation -I guess one can tell i have a postion here - started accumulating 3 - 4 weeks ago [shadow=red,left]To all board members. It wasn't so long ago that Oil was close to 10 a barrel, and then along came peak oil etc. Nat gas could easily move into the sub 2 range for a long time. From my perspective as the US gains energy independence, and IT technology is integrated into transport, transmission, and alt energy sources the price of oil could very well come way down as well. [/shadow] the US influence on oil prices isn't what it used to be - the rest of the world is taking up the slack and in technological advances and US energy independence my have some effect but i don't see some long lasting price breakdown in the immediate future - peak oil is here for awhile
bmichaud Posted March 9, 2012 Posted March 9, 2012 Petec - very interesting thoughts. Perhaps niavely I just assumed the more expensive older methods would continue to represent the marginal cost, but I guess lower prices may drive that type of production offline, which would lead to the more efficient methods setting the marginal cost. However, I have a good friend that runs a successful long/short energy shop who believes the price of gas will rise to the global price of $9 sometime in 2013/2014 time frame. Perhaps there are more expensive extraction methods worldwide that he believes will set the price. I'll have to ask... Regarding the price of oil....Exxon Mobil just came out with a $185 billion five year capex budget and is projecting very little production growth. Given XOM's stringent ROI standards, the only way to reconcile this (big capex, small production growth), IMO, is that XOM believes the price of oil is NOT going down. This is confirmed, again IMO, by Tillerson saying the cost of extraction is rising and that XOM's production growth rate is declining due in part to quota sharing agreements that stipulate a lower share of volume when prices rise. Further, for my own sake since I tend to have a more pessimistic view of the global economy, I think it is enormously bullish that greatest operator perhaps in corporate history is committing to a $185 billion capex budget based on a commodity who's price would, in theory, be strongly affected by a Chinese slowdown and/or a developed world slowdown.
bathtime Posted March 9, 2012 Posted March 9, 2012 Corridor Resources (CDH) is very cheap. Incredible potential upside with strong downside protection. Can you elaborate on the downside protection for CDH. Trapeze has made this argument, but they've made the wrong call on this one before. Cash position is only $7m, how long can they keep the lights on? What's the likelihood of potential upside working out in your view?
Junto Posted March 9, 2012 Posted March 9, 2012 Bought a small position in WPX recently in the low $18's.
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