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Small-cap US natural gas stocks vulnerable after big gains
By Thi Nguyen
NEW YORK, Feb. 16 (Reuters) - Shares of even the most obscure U.S. natural gas producers have shot up on the back of record gas prices, but money managers warn many have peaked for now.
These stocks are unlikely to rise further because many have already more than doubled since December and many natural gas customers have switched to other fuels, money managers said on Friday. In addition, U.S. gas prices have leveled to around $6 per thousand cubic feet (mcf), down from an all-time high of over $10 per mcf late last year, they added.
``The easy money has certainly been made,'' said Tim Ghriskey, a portfolio manager with Dreyfus Fund who helps manage $4 billion in assets. ``Given that natural gas and commodity prices have come down and given that these stocks have gone up so far and so fast, I think they are very vulnerable in the short term.''
For the same period, other small-cap oil and gas companies also surged on increased natural gas prices. Dallas-based independent energy company Remington Oil and Gas (NasdaqNM:ROIL - news) surged 71 percent, while Cabot Oil & Gas (NYSE:COG - news), a production company with 95 natural gas exposure, has jumped 43 percent.
``Natural gas has been a premium fuel not sold at a premium price for a long time,'' said Alan Ackerman, chief market strategist at Fahnestock & Cock, who started to recommend Tengasco from October. ``Now natural gas stocks are attracting lots of attention because the price is at a premium due to short supply.''
``Buyers of these stocks are stimulated as companies are expected to deliver gas at prices that are good for them,'' said Ackerman, who also likes independent oil and gas company Ocean Energy Inc. (NYSE:OEI - news), which gained 42 percent since Dec. 1.
A lot of energy-consuming companies have been switching to other fuels, which will contribute to the vulnerability of natural gas stocks in the short term, said Ghriskey. Ghriskey's fund owns natural gas stocks Anadarko Petroleum Corp. (NYSE:APC - news) and Williams Cos Inc. (NYSE:WMB - news), which gained 12 percent and 24 percent, respectively.
A special case is Knoxville, Tenn.-based oil and gas firm Tengasco Inc. (AMEX:TGC - news), which has gained 75 percent since Dec. 1. The company, which has a market value of only about $135 million, plans to announce in early March it has completed the only natural gas pipeline in Tennessee, Chief Executive M.E. Ratliff, who has a 37 percent stake in the company, told Reuters on Thursday.
That will help put Tengasco into the black this year for the first time ever, investors said.
``I suspect the stock will go higher at least in two or three more years,'' said Ed Gray, managing director at White Oak Capital Management Inc. which has $800 million under asset management and holds about $1.49 million worth of shares in Tengasco.
White Oak also owns shares in other natural gas-related businesses including Kinder Morgan Inc. (NYSE:KMI - news), a major U.S. natural gas retailer and pipeline owner; Houston energy company El Paso Corp. (NYSE:EPG - news) and Pittsburgh energy provider Equitable Resources (NYSE:EQT - news). The stocks have gained 33 percent, 17 percent, and 7 percent, respectively since Dec. 1.
Tengasco on March 8 will announce that it has completed its 63-mile (100 km) pipeline and will start delivering natural gas from its Swan Creek Field, Tengasco's Ratliff said.
Among other clients, Tengasco said it has signed a 20-year contract with Eastman Chemical Co.(NYSE:EMN - news) to supply about $20 million worth of gas a year, or 80 percent of natural gas the world's largest supplier of plastic packaging will need.
The only brokerage analyst who covers Tengasco, Mark Michelsen at St. Louis-based Kenny Securities, estimated that revenue for 2001 will jump to about $35 million, mainly from natural gas, from about $6 million last year.
Michelsen estimated the company's earnings per share this year at $1.99, compared with a loss of 6 cents a share last year, and set a price target of $20 for the end of the year.
In the long term, natural gas stocks should be good investments because demand will continue to remain quite high, said Dreyfus' Ghriskey.
``Corporations and users of energy want to be less dependent on oil and things like OPEC,'' said Ghriskey, referring to the organization of oil exporters that controls a large part of world's supply of oil. ``And the fact that natural gas is more environment-friendly than crude oil will help as well.''
Ghriskey expected acquisitions to take place with natural gas companies which should benefit small-cap natural gas stocks. |
