Do you Invest in Natural Gas Companies?

[KFRCanuk]

 

http://en.wikipedia.org/wiki/Hydraulic_fracturing

 

HBO has a documentary on the subject tonight

http://www.hbocanada.com/details/?id=51407

[Myth465]

A ban on this would suck for shale plays, but would be a positive for natural gas.

 

MCF, L, and SD would benefit significantly.

[T-bone1]

I don't think there is any chance of a ban . . . maybe in a few wealthy suburbs of New York, but not in economically depressed areas like Western Pennsylvania (Marcellus Shale), Eastern Lousiana (Haynesville shale) etc.

 

Shale Drilling for natural gas is one of the few areas of the economy producing jobs, and the fears of groundwater contamination are severely overblown. I have never heard of a good operator contaminating groundwater, and the BP fiasco shows that it is in the economic interest of these companies to behave in an enviromentally responsible fashion.

 

I watched that documentary, "gasland".  It is a little funny to see people complain about seeing nothing but natural gas rigs out of their windows after they themselves just leased the (previously worthless) land to the E&P company for $thousands an acre.

 

Each well needs local crews to build a drilling platform, lots of truckers to bring in the rig, a crew to drill the well, a crew to frac the well with associated equipment, they need to source and likely buy water locally, buy cement, drillpipe and casing, they need to dispose of the wastewater and remediate the land when they are finished. They also need to build and bury small pipelines ("midstream") to get the gas to a gathering plant (that needs to be built), where the gas can be treated and compressed and then put into a pipeline.

 

We are talking about a great deal of American jobs, as well as the only plausible path to any sort of cheap domestic energy and associated energy security.

[Guest Bronco]

T-bone,

 

That is all well and good, but you mistake this administration for one that cares about private sector jobs.

 

I don't see anything in your post that talks about kissing the teachers union's asses, or giving more unemployment benefits.  Therefore, it is not relevant to 2010.

 

(hope you get the sarcasm).

[T-bone1]

Bronco . . . I did mention that all of the drilling and fracking equipment would need to be trucked in (teamsters)

 

I realize you are kidding, but I hold a similar view of our corrupt government.  The democratic governor of Pennsylvania, Ed Rendell, put 5 of his deputies and staffers in charge of studying a state excize tax for natural gas extraction - like other states have. One year later, there is no tax and all five of these staffers are working for natural gas companies.

 

I'm not saying this is a good thing, only noting that the gas companies have gotten tired of being out-lobbied by the coal companies and started playing the game. There are shale plays in about half the states right now . . . thats a lot of congresspeople and senators.  XOM, BP (not a good thing right now), Shell, DVN, HAL, CHK, ECA, are major players in shale . . . thats a lot of influence to be throwing around.

 

Bottom line, I think some combination of lobbying/bribery, job creation, and rural economic development will ensure that the federal government doesn't do anything stupid.

[T-bone1]

btw, I just saw the poll at the top of this page . . .

 

I'm not sure what is meant by the "environmental impact of hydraulic fracturing" . . .

 

I don't think there is anything unsafe about fracturing, nor is there any serious negative environmental outcomes (all extraction industries have some negative environmental outcomes).

 

I agree that some of the chemicals in frac fluid are toxic . . . most chemicals are. If a company operates in a safe manner there is almost no chance that they will ever contaminate anything.  Moreover, the industry is working on this, for instance they are replacing some of the most toxic frac chemicals (meant to inhibit bacteria growth in the fluid) with powerful UV lights inside the system. If properly cased and cemented there is no way for these chemicals to get anywhere near groundwater.

 

There is the problem of water disposal. Sometimes the wastewater is pumped deep underground into abandoned drillholes.  This doesn't make me feel all warm and fuzzy, but it is safe (there have been very rare istances of this activity possibly causing tremors when done in a fault zone). Hypothetically a containment pond could leak before the wastewater is partially evaporated then treated and disposed of, but this is like anything else . . . as long as a company is responsible there is no problem.

 

Bottom line, there are environmental concerns with fracking just like any other extractive energy technology, but these concerns are currently overblown and are less serious than nuclear waste disposal, fly ash disposal, coal mining, deepwater drilling, etc.

[Sea Island]

T-Bone, I believe the jury is still out on the safety of frac drilling. In addition, as we have seen, any type of drilling is only as safe as the operator and it only takes one willing to push the envelope a little to ruin the industry. I would rather see more LNG facilities built and experiment with fracing in Poland/Germany etc., let them deal with contaminated ground water.

[KFRCanuk]

btw, I just saw the poll at the top of this page . . .

 

I'm not sure what is meant by the "environmental impact of hydraulic fracturing" . . .

 

Well if you get a chance to catch the HBO documentary, you should.

 

It shows the impact of drilling/fracturing on drinking water. One tends to think that natural gas is clean but clearly that isn't the case if you consider the numbers of wells, the resources required to construct the wells, the chemicals in fracking fluid and the emissions, not only burnt fuel but gas leaks.

[Sea Island]

KFRCanuk, and thats just what is known.

[biaggio]

Devon Energy CEO Expects Consolidation Of Independent Natural Gas Producers – And Higher Gas Prices In 2011

http://www.gurufocus.com/news.php?id=105169

 

-a contrarian view from an insider? Or wishful thinking.

 

-I have read elsewhere the same theories re low nat gas prices , that is  lots of supply due to shale gas which is easy + cheap to find but depletes quickly + the fact that producers leasing land in 2008 have to drill or they will lose right to drill

 

[biaggio]

http://www.cnbc.com/id/39213463

 

Chesapeake Energy's 'Offensive' Hedging Strategy

 

 

"CEO Aubrey McClendon will pocket more gigantic bonus payments based on quarterly results while he is selling the future of the company down the drain."-comment from reader at end

[twacowfca]

Large increases in reserves are not bullish for prices.  Prices will tend to track the marginal cost of production from developing the least economical reserves that are available to meet demand at a particular price.

[doc75]

http://www.cnbc.com/id/39213463

 

Chesapeake Energy's 'Offensive' Hedging Strategy

 

 

"CEO Aubrey McClendon will pocket more gigantic bonus payments based on quarterly results while he is selling the future of the company down the drain."-comment from reader at end

 

FYI:  The reader who commented also refers to the current president as "Hussein".  This is a warning flag for me.

[RRJ]

Thanks for the posts on this.  I've been looking at natgas companies for a while, and have about decided to put it in the too hard pile, but it's at such a low that it's tempting to invest in some of these well run companies with strong reserves. 

 

I tend to agree with Myth that natgas prices are likely to see a long-term low level due to irrational drilling (irrational from the point of view of the whole industry, not irrational for individual companies, which need to keep drilling to keep the lease alive or to keep some revenues coming in).  We probably won't see prices above $5.00 per mbtu for some time.  Even the CEO of Sandridge commented that the economics of natgas have changed recently, prodding him to do the Arena deal and balance the natgas with oil.

 

So in the end, big picture, buying a natgas company seems to be a bet on the growth in demand for natgas, which in turn is a bet on a lot of things like political and regulatory climate, and whether electric cars take off, and whether the price of oil rises to "force" the conversion of power plants to natgas, and whether nuclear power or solar takes off to eat up some of the demand, etc.  I cannot get comfortable saying we will definitely reach significantly higher demand for natgas. 

 

I do like T-bone's political analysis ---there are a lot of new states -- and therefore Senators and Congressmen with natgas lobbies at home now than there were even a few years ago.  That will matter.  Still too hard, but would love someone with insight to help clarify this for me if I'm missing something.  If I can get comfortable with the big picture first, then I sense a good value play in the best run of these companies (probably Sandridge, Contango, and maybe a few others).  Thanks.