Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Silver Bulls Will Be Handsomely Rewarded - 21st Sep 20
Fed Will Not Hike Rates For Years. Gold Should Like It - 21st Sep 20
US Financial Market Forecasts and Elliott Wave Analysis Resources - 21st Sep 20
How to Avoid Currency Exchange Risk during COVID - 21st Sep 20
Crude Oil – A Slight Move Higher Has Not Reversed The Bearish Trend - 20th Sep 20
Do This Instead Of Trying To Find The “Next Amazon” - 20th Sep 20
5 Significant Benefits of the MT4 Trading Platform for Forex Traders - 20th Sep 20
A Warning of Economic Collapse - 20th Sep 20
The Connection Between Stocks and the Economy is not What Most Investors Think - 19th Sep 20
A Virus So Deadly, The Government Has to Test You to See If You Have It - 19th Sep 20
Will Lagarde and Mnuchin Push Gold Higher? - 19th Sep 20
RTX 3080 Mania, Ebay Scalpers Crazy Prices £62,000 Trollers Insane Bids for a £649 GPU! - 19th Sep 20
A Greater Economic Depression For The 21st Century - 19th Sep 20
The United Floor in Stocks - 19th Sep 20
Mobile Gaming Market Trends And The Expected Future Developments - 19th Sep 20
The S&P 500 appears ready to correct, and that is a good thing - 18th Sep 20
It’s Go Time for Gold Price! Next Stop $2,250 - 18th Sep 20
Forget AMD RDNA2 and Buy Nvidia RTX 3080 FE GPU's NOW Before Price - 18th Sep 20
Best Back to School / University Black Face Masks Quick and Easy from Amazon - 18th Sep 20
3 Types of Loans to Buy an Existing Business - 18th Sep 20
How to tell Budgie Gender, Male or Female Sex for Young and Mature Parakeets - 18th Sep 20
Fasten Your Seatbelts Stock Market Make Or Break – Big Trends Ahead - 17th Sep 20
Peak Financialism And Post-Capitalist Economics - 17th Sep 20
Challenges of Working from Home - 17th Sep 20
Sheffield Heading for Coronavirus Lockdown as Covid Deaths Pass 432 - 17th Sep 20
What Does this Valuable Gold Miners Indicator Say Now? - 16th Sep 20
President Trump and Crimes Against Humanity - 16th Sep 20
Slow Economic Recovery from CoronaVirus Unlikely to Impede Strong Demand for Metals - 16th Sep 20
Why the Knives Are Out for Trump’s Fed Critic Judy Shelton - 16th Sep 20
Operation Moonshot: Get Ready for Millions of New COVAIDS Positives in the UK! - 16th Sep 20
Stock Market Approaching Correction Objective - 15th Sep 20
Look at This Big Reminder of Stock Market Mania - 15th Sep 20
Three Key Principles for Successful Disruption Investors - 15th Sep 20
Billionaire Hedge Fund Manager Warns of 10% Inflation - 15th Sep 20
Gold Price Reaches $2,000 Amid Dollar Depreciation - 15th Sep 20
GLD, IAU Big Gold ETF Buying MIA - 14th Sep 20
Why Bill Gates Is Betting Millions on Synthetic Biology - 14th Sep 20
Stock Market SPY Expectations For The Rest Of September - 14th Sep 20
Gold Price Gann Angle Update - 14th Sep 20
Stock Market Recovery from the Sharp Correction Goes On - 14th Sep 20
Is this the End of Capitalism? - 13th Sep 20
The Silver Big Prize - 13th Sep 20
U.S. Shares Plunged. Is Gold Next? - 13th Sep 20
Why Are 7,500 Oil Barrels Floating on this London Lake? - 13th Sep 20
Sheffield 432 Covid-19 Deaths, Last City Centre Shop Before Next Lockdown - 13th Sep 20
Biden or Trump Will Keep The Money Spigots Open - 13th Sep 20
Gold And Silver Up, Down, Sideways, Up - 13th Sep 20
Does the Stock Market Really "See" the Future? - 12th Sept 20
Basel III and Gold, Silver and Platinum - 12th Sept 20
Tech Stocks FANG Index Nearing Critical Support – Could Breakout At Any Moment - 12th Sept 20
The Tech Stocks Quantum AI EXPLOSION is Coming! - 12th Sept 20
AMD Zen 3 Ryzen 4000 Questions Answered on Cores, Prices, Benchmarks and Threadripper Launch - 12th Sept 20
The Inflation Mega-trend is Going Hyper! - 11th Sep 20
Gold / Silver Ratio: Slowly I Toined… - 11th Sep 20
Stock Market Correction or Reversal? The Jury Isn't Out! - 11th Sep 20
Crude Oil – The Bearish Outlook Remains - 11th Sep 20
Crude Oil Breaks Lower – Sparking Fears Of Another Sub $30 Price Collapse - 11th Sep 20
Inflation by Fiat - 10th Sep 20
Unemployment Rate Drops. Will It Drag Gold Down? - 10th Sep 20
How Does The Global Economy Recover After This Global Pandemic? - 10th Sep 20
The Best Mobile Casino - 10th Sep 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Canadian Natural Gas Stocks: Intriguing Plays in a Divided Market

Companies / Dividends Aug 12, 2011 - 05:21 AM GMT

By: Keith_Schaefer


Best Financial Markets Analysis ArticleAugust is often one of the best months to buy natural gas stocks; gas prices and the commodities stocks overall are at a low.  There is often (but not last year!) a run up in gas prices in the fall – and stocks follow – as heating homes across North America use natural gas.

Every year at this time I think, what gas stocks should I buy for the fall run.  Last year both Peyto (PEY-TSX) and Donnybrook (DEI-TSXv) were two OGIB gas picks that had great fall runs in a weak gas market.  Another OGIB pick, Cinch Energy (CNH-TSX), was just taken out by Tourmaline (TOU-TSX) at a huge premium.

I’ll take a look at some of the bearish and bullish points for gas this fall, and offer up an investment idea for you to research at the end of the article.

The market is still divided on gas prices over the next year.  Most analysts and investors are in the bearish camp, citing the fact that gas production in the US is 4 bcf/d more today than a year ago.

But Calgary based energy analyst Peter Tertzakian says volume growth is slowing, as 2010 dry gas production was increasing more than 6 bcf/d over 2009.  And technical analyst Bill Carrigan still sees higher gas prices later this year that will be sustained.

One intriguing and potentially bullish factor for gas this year might be from securities regulators, not geologists.

Allen Brooks of PPHB Energy Investment Banking in Houston writes a wonderful and reasoned monthly column, and in his latest he mentioned a couple anecdotes that could suggest higher regulation of shale gas is coming – which could increase costs, but obviously it’s impossible to say how much.

Anecdote #1. the American securities regulator, the SEC, recently asked a shale gas producer going public to disclose how much frack fluid they were using per well, and what “additional chemicals” are being used by them.  But there is no law that says producers have to do that – leading to speculation (and it’s only that) that the Environmental Protection Agency (EPA) was behind the inquiry.

Anecdote #2. the Securities and Exchange Commission (SEC) has served subpoenas on a number of gas shale producers. According to a law firm, the subpoenas seek:
  • documents and information regarding the actual performance of shale gas wells against forecasted or projected performance
  • the propriety of decline curves used for the wells
  • the calculation and public disclosure of full-cycle margins

Brooks concludes that he doesn’t expect a Gulf of Mexico style drilling ban on fracking in the US, but more regulation will mean more costs which could lead to higher prices, and less natural gas drilling.

Brooks also points out an interesting statistic for the giant Marcellus shale play in New England that the natural gas bulls could use.  He says projections on future production for the Marcellus have increased dramatically between 2009 to 2011, with much of that increase based on future technology improvements that will increase production per well.

But the reality is that results are being extrapolated across the entire acreage of the play, and like most plays, production has sweet spots that are only a fraction of the play – intimating that the chances of those high projections coming true are slim. This again would be positive for the bulls.

However these are all ifs and maybes.  There is some concrete data that the bulls can point to– natural gas prices have held up better this spring and summer than most people (including me) expected.  And due to a very cold spring in Canada and a very hot summer in the US, storage levels for gas have gone from record high late last year to just below the five year average (though the storage gap has been closing for seven weeks in a row and if super hot weather doesn’t continue to push air-conditioning use…).

And data released by the US Energy Information Administration (EIA) does point to a relative flattening of gas production.  US production was down 0.2 bcf/d in May from April – but as mentioned above, that is still a 4 bcf/d or 6.8% increase Year over Year (YoY).

And that’s where the bulls get stopped—at least for now.  Because whatever arguments they have that shale gas wells will deplete fast and early and likely be shut in ahead of projections (their main point), right now incremental production is being coming onstream to meet demand as needed.

Bentek Energy estimated that Aug 2 was a record 62 bcf production from the US, a 1.1 bcf increase over estimated July production levels.

Calgary-based Union Securities analyst Warren Verbonac noted January and February gas futures – the highest priced months of the year usually – are only 35 cents higher than current prices, indicating the market’s confidence that whatever Old Man Winter throws at North America this year, the producers can fill demand.

The gas rig count has been stubbornly high, only retreating 6% this year so far to 877 rigs.  While the rig count declines, production increases, as the industry continues to improve its fracking methods and making up for any decline in the actual number of rigs drilling.

And the hurricane seasonality no longer affects gas prices as it used to, due to all the onshore shale plays now (though Louisiana has the fastest growing gas production in the US).

There are a couple other bullish points for gas.  Canadian production continues to decline as everyone up here drills for oil.  And in the US the trend towards liquid rich gas continues, where IP rates are generally much lower than for dry gas.  I expect the US to become a big gas exporter as LNG permits are issued and facilities built – but that’s years away.

To me, the good news is that prices didn’t collapse to sub-$2/mcf this summer, and storage has been depleted so that (especially for Canadians) a collapse in prices is unlikely.  But I don’t see gas moving much higher this fall to have any significant impact on producers’ cash flows.  I own one junior and one intermediate – Donnybrook and Peyto – and for now I will stick with those.  Painted Pony is also a great call on gas with its large Montney position and it has a large Bakken oil land block to back it up.  Right now I don’t see myself buying any other gas stocks for this year’s autumn gas market.

But there are still several Canadian juniors and intermediates making good cash flow at current Canadian prices, and to me represent one of the best calls on gas.  These are the wet gas, or liquid rich producers in Alberta’s Montney formation.  They have been some of the best performing stocks in the Canadian energy patch this year – especially companies like Celtic (CLT-TSX) and Trilogy Energy (TET-TSX) which were the first to produce natural gas from the Duvernay source rock in the Montney.  (Source rock=shale most of the time)

One junior stock that has also done well but may still have room to run is Cequence Energy (CQE-TSX).  They are focused in an area of the Montney called Simonette.  One of my favourite juniors, Donnybrook, is their partner on some wells there.  Cequence has a large drilling inventory, low costs and liquids rich gas production.  The higher value-add liquids allow them to have positive cash flow at $2/mcf at Simonette.

Cequence management has been able to increase production from 1300 boe to 8100 boe in 18 months, through one merger and organic growth.  They expect to exit this year with 10,000 boe/d production.  Note that they are raising $50 million right now.   Web site:

Finally, for the record, today’s natural gas price is $4 U.S. and $3.40 Canada.

DISCLOSURE: I own no stock in Cequence. I do own Donnybrook and Peyto.

About Oil & Gas Investments Bulletin

Keith Schaefer, Editor and Publisher of Oil & Gas Investments Bulletin, writes on oil and natural gas markets - and stocks - in a simple, easy to read manner. He uses research reports and trade magazines, interviews industry experts and executives to identify trends in the oil and gas industry - and writes about them in a public blog. He then finds investments that make money based on that information. Company information is shared only with Oil & Gas Investments subscribers in the Bulletin - they see what he’s buying, when he buys it, and why.

The Oil & Gas Investments Bulletin subscription service finds, researches and profiles growing oil and gas companies.  The Oil and Gas Investments Bulletin is a completely independent service, written to build subscriber loyalty. Companies do not pay in any way to be profiled. For more information about the Bulletin or to subscribe, please visit:

Legal Disclaimer: Under no circumstances should any Oil and Gas Investments Bulletin material be construed as an offering of securities or investment advice. Readers should consult with his/her professional investment advisor regarding investments in securities referred to herein. It is our opinion that junior public oil and gas companies should be evaluated as speculative investments. The companies on which we focus are typically smaller, early stage, oil and gas producers. Such companies by nature carry a high level of risk. Keith Schaefer is not a registered investment dealer or advisor. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer to buy or sell the securities mentioned, or the giving of investment advice. Oil and Gas Investments is a commercial enterprise whose revenue is solely derived from subscription fees. It has been designed to serve as a research portal for subscribers, who must rely on themselves or their investment advisors in determining the suitability of any investment decisions they wish to make. Keith Schaefer does not receive fees directly or indirectly in connection with any comments or opinions expressed in his reports. He bases his investment decisions based on his research, and will state in each instance the shares held by him in each company. The copyright in all material on this site is held or used by permission by us. The contents of this site are provided for informational purposes only and may not, in any form or by any means, be copied or reproduced, summarized, distributed, modified, transmitted, revised or commercially exploited without our prior written permission.

© 2011, Oil & Gas Investments Bulletin

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules