Look’s like CNBC got on the Natural Gas (UNG) bandwagon yesterday. The trader in the video picks EOG (EOH), Chesapeake(CHK) and Quicksilver (KWK). I disagree.
Why? Remember the Chesapeake CEO said under $7 or $8 for natural gas no one makes money? Well, that mean gas can rise near 100% before most producers start turning a profit. Because of that, I would avoid the producers here. If gas rallies to $6 from its current sub $4 level, these guys still do not make any money and the thesis for buying the stock remains null. I like either the pure gas, (UNG) OR the Oil (USE) and Gas Services plays like last week’s Exterran Holdings (EXH).
Disclosure (“none” means no position):None ……yet
3 replies on “More Gas Chatter…..”
I actually like Hugoton Royalty Trust (HGT) as a natural gas play here. It’s available at near the PV-10 value which is based on natural gas priced between $4 and $5. If gas stays between those levels before moving northwards you’re getting paid a dividend to wait for the gas prices to improve. Priced at the PV-10 value implies a YTM of 10% in a run off provided that gas stays in the $4-5 range.
MCF makes more money at any price than any other producers because it has the lowest costs.
the only way nat gas go up in this economy before next winter is the government to legislate cap and trade policies, which will make the cost of gas competitive with coal.
we are in the injection season and already reserves are higher than 5 year averages. so it does not matter how many wells are being shut.
Also LNG imports will keep nat gas prices depressed. Japan and Europe are not importing due to weak economies so some of LNG are washing up on the US shores.
the commodity will not go up but I like the idea of buying low cost producer with hedging programs which will surprise to the upside.