RESEARCH - Natural Gas / E&Ps - Curve Shifts Lower, Rig Count Rising - Jonathan Wolff +
2010 Gas Curve Shifts Below $5.50.
The 2010 natural gas curve is currently trading at $5.46 per MMBtu, falling 10% in the last month ($6.07) and down 23% from the beginning of the year ($7.13). Likewise, the hedging window to add on material price protection is closing.
Producers Have Been Hedging 2010.
Post Q2 earnings updates, we estimate the E&Ps are currently 39% hedged on 2010 North American gas production. This is a higher hedging level than typically seen for this time of year, indicating some producer uncertainty on gas and a need to maintain growth momentum. The hedging profile ensures prices above the current curve, including 23% through $7.62 per MMBtu swaps and 14% through ~$8.50/$6.00 per MMBtu collars. Gassy producers in our coverage with high levels of gas hedging for 2010 include APC (81%), NFX (74%), KWK (66%), HK (64%) and SD (62%). Gassy producers with light hedge books include DVN (0%), EOG (2%), ME (10%), SWN (15%) and CHK (19%).
Production Not Down Much Yet.
Last week's June 2009 EIA-914 report showed just slight declines in the onshore (0.3% mo/mo) despite significant rig count losses seen year-to-date (648 rigs dropped). Onshore yr/yr growth is indeed decelerating, down to 0.6 Bcf/d (+1.1%) in June versus a peak of 6.0 Bcf/d (+12%) in October '08. However, we see risk that production creeps higher in Q4 following Q3 shut-ins, Independence Hub maintenance, Boardwalk pipeline downtime and many producer plans to add rigs heading into 2010.
Rig Count Bounces Off the Lows.
Despite the weakness in the curve, the Lower 48 U.S. natural gas rig count has risen for the last six consecutive weeks, hitting 699 as of last Friday (8/28). The rig count is now up 5% (+34 rigs) from the 665 trough set on July 17. 11 of the 25 companies we follow raised capex along with Q2 results and many companies have discussed adding rigs and pushing growth higher for 2010.
Note published 2nd September 2009
Extracted from Credit Suisse Global Oil Daily 03 September 2009 |
