Record natural gas prices yet to boost energy shares
By Gelu Sulugiuc
NEW YORK (Reuters) - Energy company shares are yet to feel the benefit of this week's spectacular rises in natural gas prices as investors wait for commodity values to settle before buying into gas-heavy firms, analysts said Tuesday.
U.S. natural gas futures prices set new all-time highs on Tuesday but share prices for exploration and production (E&P) firms are yet to reap much reward as they plateau after sharp gains already this year.
"E&P stocks have had a heck of a year already in an awfully dismal (stock) market backdrop," said Frank Bracken, analyst with Jefferies and Co.
January Henry Hub natural gas prices on the New York Mercantile Exchange (NYMEX) settled Tuesday at $7.384 per million British thermal units (mmBtu) after matching Monday's all-time contract high of $7.95.
Bracken said that sharp falls on oil prices -- down some 15 percent since late November's Thanksgiving holiday -- were also taking the wind out of energy firms equity performance. NYMEX January crude settled at $29.53 a barrel to a near-four month low.
E&P company shares -- up more than 40 percent already this year according to Standard & Poors index of oil and gas companies will make further gains if gas prices stay strong into next year, the analysts said.
Forecasts of an average natural gas price next year of $4.00 per mmBtu and oil price of $25 per barrel would be "terrific prices for E&P stocks" if they come true, said Greg McMichael, an analyst with A.G. Edwards.
"Historically, those are as good as it gets. If prices settle there, then these E&P stocks have got another 20 percent (growth potential) in them," said McMichael.
McMichael said Evergreen Resources and Louis Dreyfus Natural Gas were examples of E&P stocks with a high natural gas exposure that will do well.
Evergreen closed Tuesday 5/8 firmer at $30-1/4 per share, up from its year low of $26-3/4, while Louis Dreyfus closed up 3/16 cents at $35-3/4, up from a year low of $15-3/4.
Remington Oil and Gas and Cabot Oil & Gas were others with room to grow if energy prices remain strong next year, Bracken said.
Remington Oil is "the most successful growth story in the Gulf," Bracken said. "They're poised to grow at 20 percent a year for some time."
Cabot Oil and Gas a production company with 95 percent natural gas exposure, should also perform well, he added.
"They will report production growth in the fourth quarter with some discoveries in South Louisiana that have a large reserve life," the analyst said.
But life won't be all that merry for all E&P companies, analysts said. One disappointing story is Pennaco Energy , a natural-gas intensive production company with significant holdings in coalbed methane fields in the Rocky Mountain region.
"Their share price is lagging because they revised their production forecast down a couple of times in the last three to six months," McMichael said. "They have not met expectations, otherwise their share price would be closer to $20."
Pennaco shares closed at $13 per share Tuesday, up 5/8. Shares have only hit a high of $17-3/4 this year but have come off a low of $6-7/8. |
