Natural gas prices have
been rising recently because fears of running out of storage capacity
are no longer warranted and a collapse in prices is no longer in the
cards. Investors looking to participate in the rise could look at
natural gas ETFs like the United States Natural Gas Fund (UNG) or the United States 12 Month Natural Gas Fund (UNL).
However, many investors are looking for E&P companies well
positioned to benefit from rising natural gas prices. An earlier article
talked about the 3 Key Reasons Chesapeake Is Positioned to Benefit From Rising Natural Gas Prices. And another article detailed the potential upside in natural gas prices - The Natural Gas Storage Glut Could Become A Deficit By October. In addition to Chesapeake (CHK), Cabot Oil & Gas (COG) is also well positioned to take advantage of rising natural gas prices, but for somewhat different reasons.
The first key reason Cabot is well positioned is unlike Chesapeake, Exxon (XOM), and Encana (ECA) Cabot is still focused on drilling for natural gas and growing its natural gas production. Cabot still has 2/3 of its rigs focused on natural gas drilling. Of the top 20 natural gas producers in the lower 48 United States, Cabot was number 2 in production growth. In 2Q 2011 Cabot produced 474 Bcf in gas for the quarter and that rose 37.4% to 651 Bcf in the 2Q 2012.
The second key reason Cabot is well positioned for rising natural gas prices is Cabot is concentrated in two of the best natural gas plays in the country; the Marcellus and the Pearsall Shale. The Marcellus has received a lot of hype and most investors are familiar with it. In addition to Chesapeake and Cabot other large Marcellus players include Talisman (TLM) and Chevron (CHV). Less well known is the emerging Pearsall Shale that sits under portions of the Eagle Ford. One Pearsall well in LaSalle County had an initial 24 hour production rate of 6.2 mmcfpd and 740 Bopd. Cabot was able to sell 17,500 net acres to large Japanese Energy company Osaka for $14,300 per acre to fund a joint venture drilling program operated by Cabot. This sale occurred in June of 2012 when natural gas prices were in a collapsed state in the U.S. In addition to Chesapeake other E&P companies with a sizable position in the Pearsall Shale relative to their overall size include Sanchez Energy (SM), Matador Resources (MTDR), Crimson Exploration (CXPO), and U.S. Energy (USEG).
The final key reason Cabot is positioned to benefit from rising natural gas prices is Cabot is not heavily hedged. Whereas Chesapeake is unhedged starting in early 2013, Cabot will not be unhedged until early 2014. But its rapid growth will afford it lots of unhedged natural gas production in 2013. The hedges held by Cabot for 2013 are costless collars with floors as low as $3.09 and ceilings as high as $6.20. Unlike a direct investment in natural gas investing in companies like Chesapeake and Cabot some have operational risks and exposure to the global financial markets which have been volatile over the last few years. But owning a company like Chesapeake or Cabot could afford an investor a return greater than the rise in the underlying natural gas commodity.
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The first key reason Cabot is well positioned is unlike Chesapeake, Exxon (XOM), and Encana (ECA) Cabot is still focused on drilling for natural gas and growing its natural gas production. Cabot still has 2/3 of its rigs focused on natural gas drilling. Of the top 20 natural gas producers in the lower 48 United States, Cabot was number 2 in production growth. In 2Q 2011 Cabot produced 474 Bcf in gas for the quarter and that rose 37.4% to 651 Bcf in the 2Q 2012.
The second key reason Cabot is well positioned for rising natural gas prices is Cabot is concentrated in two of the best natural gas plays in the country; the Marcellus and the Pearsall Shale. The Marcellus has received a lot of hype and most investors are familiar with it. In addition to Chesapeake and Cabot other large Marcellus players include Talisman (TLM) and Chevron (CHV). Less well known is the emerging Pearsall Shale that sits under portions of the Eagle Ford. One Pearsall well in LaSalle County had an initial 24 hour production rate of 6.2 mmcfpd and 740 Bopd. Cabot was able to sell 17,500 net acres to large Japanese Energy company Osaka for $14,300 per acre to fund a joint venture drilling program operated by Cabot. This sale occurred in June of 2012 when natural gas prices were in a collapsed state in the U.S. In addition to Chesapeake other E&P companies with a sizable position in the Pearsall Shale relative to their overall size include Sanchez Energy (SM), Matador Resources (MTDR), Crimson Exploration (CXPO), and U.S. Energy (USEG).
The final key reason Cabot is positioned to benefit from rising natural gas prices is Cabot is not heavily hedged. Whereas Chesapeake is unhedged starting in early 2013, Cabot will not be unhedged until early 2014. But its rapid growth will afford it lots of unhedged natural gas production in 2013. The hedges held by Cabot for 2013 are costless collars with floors as low as $3.09 and ceilings as high as $6.20. Unlike a direct investment in natural gas investing in companies like Chesapeake and Cabot some have operational risks and exposure to the global financial markets which have been volatile over the last few years. But owning a company like Chesapeake or Cabot could afford an investor a return greater than the rise in the underlying natural gas commodity.
More articles by HiddenValueInvestor »
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