Positive NG Article from Bloomberg---
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05/11 16:26 Natural-Gas Explorers Profit From Power Surge (Update2)
By David Wells
Houston, May 11 (Bloomberg) -- Shares of Swift Energy Co. and
other natural-gas exploration companies have surged this year as
supplies of the fuel have tightened, and some investors expect the
stocks to climb more as gas usage for power generation grows.
While the Standard & Poor's 500 and Nasdaq Composite indexes
have fallen in the past four months, Swift's shares have jumped 90
percent, Apache Corp. is up 56 percent and Burlington Resources
Inc. has risen 32 percent.
Though the winter in the U.S. was the warmest on record,
lowering demand, gas prices have climbed 54 percent this year as
supplies have dropped. Several gas-fired power plants are expected
to begin operating in the next few months, straining inventories
and brightening the prospects of producers.
``The strategy here for investors is to look at the names
that haven't risen enough to reflect higher natural-gas prices,''
said Kenneth Hoffman, manager of the Orbitex Strategic Natural
Resources Fund, which owns shares of Apache, Cross Timbers Oil Co.
and other exploration companies.
Gas supplies in the U.S. are 25 percent below last year's
levels, the American Gas Association estimates. The price of gas
rose to $3.352 a thousand cubic feet today on the New York
Mercantile Exchange, the highest closing price for June delivery
since the contract began trading in 1990. It was the highest
closing price for delivery in any month since November 1997.
Prices could rise further, say analysts at ABN Amro Inc. and
PaineWebber Inc., as the industry builds up supplies before winter
and hot weather requires utilities to burn more to provide power
needed to run air conditioners.
Natural gas prices likely will hover between $2.25 and $3.25
for most of the year -- 50 percent above the range of the past 15
years, Hoffman said. They may top $4 at times, he said.
Supplies Low
The higher gas prices are translating into bigger profits
for producers. In the past month, analysts' average full-year
earnings estimates rose 11 percent for Swift, 7.9 percent for
Apache and 7.3 percent for Burlington, according to First
Call/Thomson Financial.
Swift is expected to earn $1.64 a share this year, up from
$1.07 a year earlier, while Apache's profit is forecast to almost
double to $3.27, First Call said. Both had record earnings in the
first quarter. Burlington's profit for the year is expected to
more than double to $1.61.
Other explorers' shares have recorded big gains as well.
Cross Timbers has surged 92 percent this year, Devon Energy Corp.
has climbed 57 percent and Union Pacific Resources Group Inc.
jumped 72 percent.
Industrial manufacturers and utilities are switching to gas
in part because of high oil prices, which have more than doubled
since producing nations cut output in March of last year.
Rising energy prices gave exploration companies the biggest
average first-quarter earnings gains of any industry in the S&P
500, and drilling has picked up in the past year. Yet exploration
companies still aren't producing enough gas to meet projected
demand, said Eugene Nowak, an analyst at ABN Amro.
Fueling the Internet
Electricity generation is the fastest-growing use for natural
gas. More than 1,200 new power plants must be built in the U.S. by
2020 to meet demand, the Department of Energy predicts. Almost all
will burn gas, which pollutes less than coal, and the fuel's share
of the nation's power market is expected to double to 20 percent
within a decade.
The power will be needed in part because of the spread of
computers. Calpine Corp., a power-plant developer with gas-fired
projects in 20 states, forecast computers will consume half of the
nation's power by 2009, up from 13 percent today.
Computer makers sold 45.2 million machines in the U.S. last
year, according to market researcher IDC. In Houston, which has a
population of 1.8 million, Internet surfers use enough power to
require 3 million cubic feet of gas a day, the Texas Railroad
Commission said. That's 7 percent of Swift's daily production.
Cash Flow
Burlington's gas holdings are the third-biggest in North
America, accounting for about 80 percent of its 1.7 billion
barrels in petroleum reserves. Gas makes up about half of Apache's
807.2 million barrels of reserves, and 73 percent of Swift's 75
million barrels.
Exploration companies are often judged by their cash flow, or
profit before depreciation of assets and other non-cash expenses,
because it indicates their ability to afford drilling projects.
Swift's stock usually trades at four to seven times cash flow.
Swift expects cash flow of as much $5.25 a share this year,
meaning its shares should trade between $21 and $36.75. Its shares
rose 11/16 to 21 7/8 on the New York Stock Exchange today.
Apache, which normally trades between 4.5 and 7.5 times cash
flow, expects cash flow of about $10.25 a share this year, putting
its stock price at $46 to $77. Apache rose 1 11/16 to 57 11/16 in
NYSE trading, while Burlington rose 1 9/16 to 43 1/2.
Only the weather threatens the stocks' prospects, said ABN
Amro's Nowak. A cool summer and warm winter could send natural-gas
prices spiraling down, he said.
``For now,'' said Jim Walline, a portfolio manager for
Lutheran Brotherhood, ``it looks like we're in the sweet spot of
the energy cycle.''
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