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Gold/Mining/Energy : Canadian REITS, Trusts & Dividend Stocks
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To: russet who wrote (1595)10/2/2001 9:25:53 AM
From: stan_hughes  Read Replies (1) of 11633
 
russett - Actually, what you described only serves to depress prices even longer, because an increasing supply of shut-in gas wells is being created that will be sitting there waiting to offset any demand.

Those shut-in well owners will have already eaten the capital cost of drilling and written down the reserves on ceiling tests. Therefore, they will be willing to accept low prices to resume production going forward when the demand finally does materialize, because all they will need is to cover their very low operating costs to generate positive cash flow from those wells. Better some cash flow than none, assuming you can find a buyer for your gas.

This is exactly the kind of vicious cycle that kept the gas bubble alive and well for many, many years in North America in the 80s and 90s. I think the best you can hope for over the next 12 months is to have the NG price stabilize, but there's little reason to expect higher prices under the kinds of circumstances you see taking place around you.

I give high marks to the 2001 hedgers for now, but remember that hedges run out. And those same hedging practices can prevent you from participating in the price recovery down the road if you've locked in too much production for too long at lower levels - lots of examples of that early last winter.

When the industry and its investors finally accept the current realities and come clean with revised financials, you should see a bottom in the stocks, including the trusts. Right now no one knows where the bottom is. What do you think things will be trading for if NG starts to approach a buck at Empress? You're not going to want to be long, I can tell you that.
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