Even with fewer rigs put to work, excessive natural gas production continues to weigh on the outlook for natural gas prices and the stocks of explorers working in gas fields.
Natural gas futures for April are off 5 cents today, to $2.246 per million British thermal units. There’s more optimism for next winter, with futures for December 2012 and into 2013 above $3.00, according to the Chicago Mercantile Exchange futures prices on the Web.
Alan Armstrong, CEO at Williams reiterated at the IHS CERA energy conference this week that the U.S. is running out of natural gas storage, which is at a record for this time of year due to the surge in productionÂ and warm weather weakening demand. He expects more production to get shut in, and that could mean lower profits for gas producers.
In light of this, note how companies focused to varying degrees on natural gas have performed in the past year and year to date. It’s a decidedly mixed bag. The third percentage is the projected earnings growth for 2012 versus 2011. Profit growth estimates don’t evenly correlate with stock performance:
- Chesapeake Energy (CHK) -26% 12-month change, 8% YTD change, EPS -35% in 2012
- Devon Energy (DVN)-20% 16% 6%
- El Paso (EP) 58% 7% 19%
- EOG Resources (EOG) 7% 15% 33%
- Range Resources (RRC) 29% 2% 3%
- Southwestern Energy (SWN) -13% 2% -15%
- Ultra Petroleum (UPL)-46% -22% -37%
- Williams (WMB) 21% 10% -5%
- Source: Thomson Reuters, based on 3/7/2012 close
Write the analysts at energy research and banking firm Simmons & Co.:
“Gas Producers Are Despondent: At our energy conference in Las Vegas last week, gas producers were extremely pessimistic with none of them highlighting the lower gas-directed rig count as a reason for incipient optimism. Their sentiment was summed up succinctly by one producer who stated, Âlower for longerÂ as it relates to natural gas. … Our caution is buttressed by the fact that, to date, the productivity of the gas industry (doing more with a lot lessÂwitness recent record Barnett [Shale] production with half the rigs of the peak) has markedly exceeded everyone’s expectations …”