Energy, Energy Service, Natural Gas &amp; Oil Sectors

Top 670. Aug 30, 2001 6:35 AM

» lcha - Re: Re: oil drilling primer

In response to message posted by JenL_2:

http://www.geocities.com/oilfieldpilot/A... .....Jen

What a woman! 99.9% of doodlebuggers are men. I only know of one other woman that has done it long term. Her pics really give you an appreciation of the environment these people work in.

-- posted by lcha

Natural-Gas Futures Tumble Amid Concern About Supply

Top 671. Aug 30, 2001 7:19 AM

» JenL_2 - NG Futures

This from 8/29 WSJ:

By JOHN EDMISTON

Natural-gas prices fell to their lowest level in 21 months on the New York Mercantile Exchange, as the market remains awash in supply.

On its last trading day, the price of the September contract fell 12 cents to $2.295 a million British thermal units, the lowest settlement since the January contract expired at $2.344 in December 1999.

<img src="/files/mysites/jen2/ngfutures.gif" width=220 height=277 align="left"> Prices fell to as low as $2.25 a million BTUs intraday after the American Gas Association issued another bearish storage report. The AGA said the U.S. inventory of natural gas rose 76 billion cubic feet last week to slightly less than 2.5 trillion cubic feet. That is 351 billion cubic feet more than a year ago and 161 billion cubic feet more than the five-year average for that week.

"It's bearish, but less bearish than it has been," said Kyle Cooper, an energy analyst in Houston with New York brokerage house Salomon Smith Barney. "Some demand, not much, seems to be coming back, but we're also down below the $2.40s."

Prices have fallen 19% since last Wednesday and are 50% below last year's expiration of the September contract.

The 12- month price average is $2.904 a million BTUs, its second decline below $3 since March 2000.

In early August, the September contract was at $3.194.

Prices pushed as high as $3.61 by Aug. 15, before more inventory and low demand amid mild summer weather sent prices reeling.

Traders expect natural-gas inventories to reach as high as 3.075 trillion cubic feet this year, near the highs of 1998 and 1999.

Art Gelber of Gelber & Associates, expects prices to slip further.

"The market returns from whence it came," he said, adding that moderate summer weather is what made it easier to build large storage reserves.

Some traders believe an active September of hurricanes and other storms could disrupt the flow of supplies and boost prices.

Ed Kennedy of Pioneer Futures Inc., in Miami, expects to see defensive buying in the October contract, possibly as early as Thursday.

"I wouldn't go home" with short positions on the October contract, he said.

Still, many traders say prices for the October contract could fall to as low as $2.10 per million BTUs, though others believe such a price skid would prompt some buying for technical reasons.

The downward spiral in gas prices should continue until the market sees its first cold temperatures in the Northeast -- still a couple of months away, according to Gerry Saccente of ABN AMRO, New York....

Subscribe to WSJ Online @ http://www.wsj.com

.....Jen

-- posted by JenL_2

Top 672. Aug 30, 2001 7:49 AM

» Rande - Re: Re: NG Futures

In response to message posted by Kirk:

Amazing too how fast it came down after the courts and the FERC got serious about investigating the price spikes and mandating restitution, especially when the whistle-blowers starting tooting their whistles. Probably all just a big coinkinkydink. smile

-- posted by Rande

Top 673. Aug 30, 2001 7:53 AM

» Kirk - Re: Re: Re: NG Futures

In response to message posted by Rande:

If true, then it would not surprise me to see the courts overturn the contracts for high priced energy. Remember, in our country a contract is deemed void if obtained using illegal pressure.

Man lower energy prices and a return of GDP growth could really be a nice kicker to earnings... especially to companies like one of my favorites FedEx.

-- posted by Kirk

Top 674. Aug 30, 2001 9:02 AM

» lcha - Re: Re: Re: Re: NG Futures

In response to message posted by Kirk:

Yes, it's true. The energy companies are so much smarter than everyone else that they can manipulate prices at will. Most energy company execs brains are actually 4 times bigger than the average tech exec brain, who seem not to be able to manipulate their prices as well.

Could you even possibly think that natural market forces took care of a short term supply/demand imbalance? Your CA thinking, that energy companies are inherently evil will set up the next energy crisis that will be longer term than the last one.

Here is what will happen with NG prices at these levels. NG drilling will stop. It is already slowing down. It will take a few months for current projects to work through the system but look for a plummet over the next several months. Even with 50% more wells being drilled last year, we only increased NG production 2%. Remember, this is not a case of increased supply but of falling demand, now due to a recession like environment.

This NG drilling drop, with the expected and inevitable drop in NG production, will happen at a time when we will be be bringing a bunch of new NG fired power plants on line. A new and long term source of NG demand.

If you believe this economy will ever pick up again, you should be very worried about the effects of increased NG demand and falling NG production. When the next price spike in NG occurs, and it will occur, don't blame the E&P companies.

If you read some of my old post going back to last year, I made it clear that a deep, protracted recession would kill my bullishness on NG E&P companies. I am still very bullish longer term but with factory utilization now at 77%, a level not seen since the early 90's, we are in the environment I feared.

-- posted by lcha

Relax: Energy Costs Aren't Heating Up Again

Top 675. Aug 30, 2001 5:56 PM

» JenL_2 - Re: NG Futures

In response to message posted by lcha:

More on the topic from 8/30 SmartMoney.com:

By Roben Farzad

THAT THE RESILIENT consumer is holding the weight of the entire economy on his back is old, tired news already. Sure, the likes of Corning (GLW) and Gateway (GTW) are in the throes of the most painful corporate-spending slowdown in recent memory, with layoffs and negative preannouncements piling on day after day. But Joe Six-Pack, $300 tax-rebate check in hand, is still making it out to the Home Depot (HD) and Best Buy (BBY) to do his part to help the sagging economy. And just as soaring fuel prices last year are blamed for helping us get in this rut in the first place, the widespread easing of energy costs this year is being banked on as a catalyst for an eventual recovery. That, too, is old news.

What wasn't in the plans, however, was a recent spike in Midwest gasoline prices. Two weeks ago, a fire shut down Citgo's Lemont, Ill., refinery, one of the few that churn out the region's cleaner-burning summer blend. The average cost of regular unleaded gasoline in Chicago and Milwaukee soared to about $1.85 a gallon — a 31-cent increase since the Aug. 14 blaze that's also 34 cents above the national average. The rest of the country also got a taste of this mini supply shock, as the nationwide average inched up six cents in the past week. It's with that piece of information that much of the press started hinting at a new wave of energy-cost spikes that could take money out of Mr. Six-Pack's pockets, and even help stir the slumbering monster of inflation.

Not likely. Rather, a quick look at trends in the energy sector reveals that cost declines are still in the offing, making for the equivalent of an ongoing tax cut that will further prop up consumer spending, while leaving the inflation-fearing Fed free to keep cutting interest rates to its heart's content.

For starters, that gas-price spike in the Great Lakes region is proving to be a tiny blip on the national energy radar. That's because the Environmental Protection Agency intervened Tuesday and allowed Citgo to sell its winter blend of gasoline (of which it has a comfortable supply) two weeks ahead of schedule — and nearly a week before the all-important Labor Day driving rush. So there won't be a run on inventories in other regions — or higher prices nationwide.

Switching from Kalamazoo to Kuwait, even though OPEC's crude-oil production cut of one million barrels begins in earnest this Saturday, 10 members have pumped 4% more than promised so far this month. According to investment bank Friedman Billings Ramsey, this cheating comes as Iraq ramps up production and oil shipments to Asia drop off. Translation: Despite production cuts, crude supply stands to outstrip declining global demand. That could ultimately make for a nifty discount at the pump.

Then there's natural gas, the commodity that pretty much came out of nowhere this time last year to spawn all that talk of an energy crisis. California couldn't get enough of the stuff, and pipeline operators and producers like El Paso (EPG) and Williams Cos. (WMB) seemingly couldn't charge enough for it. Very little attention has been paid to the more recent state of affairs, in which the price of natural gas has plummeted to $2.40 per million cubic feet, or mcf, from a one-year high of $10/mcf. Not only did the prediction of an intolerably scorching summer in California never materialize, but industrial demand for the fuel has also pulled back. According to ABN Amro, industry now represents 24% of overall domestic natural-gas demand, compared with 30% two years ago.

The good news for consumers is that inventories of gas — which will fire the overwhelming majority of newly built power plants — are being stockpiled at a record pace. With the American Gas Association reporting a large storage injection for the week ending Aug. 24, the year-over-year storage surplus has now ballooned to 351 billion cub feet, or bcf, from 296 bcf two weeks ago. The domestic underground stockpile of natural gas is thus 16% larger than last year's levels and 9% more than the five-year average. In other words, storage is hitting record levels while industrial demand drops and the overall economy borders on a recession. The Amex Natural Gas Index has duly dropped 22% year-to-date.

Barring a harsh and early winter, the price of natural gas is widely expected to slide further, perhaps down to $2.00/mcf. "In the short term, at least, consumers can expect to enjoy even lower natural-gas costs — certainly lower than they were last year," says James Whipkey, an energy analyst at ABN Amro.

Even sporadic worries of rising heating-oil prices look overblown. Though distillate stocks remained unchanged last week while refineries focused on the Citgo shock, they are still a healthy 7% higher than where they stood a year ago. "No big deal," observes Deutsche Banc's Jay Saunders. Inventories are sufficient, he adds, and no big surprises should come out of this commodity corner unless the winter proves much harsher than expected.

All that is reflected in what may be the energy sector's most forward-looking benchmark, the Oil Service Index, which has shed in excess of 42% in the past three months. That means the market is pricing in less business for drillers and explorers, whose services are ostensibly less in demand while the industry draws down on its growing inventories.

Put it all together and you still have an increasingly benign energy cost outlook for consumers. So while there may be many reasons for worry about the state of the economy and the health of the American consumer, this isn't one of them.

At least the government is getting wise and increasing their stockpiling of NG - maybe this will help even out the boom-bust cycle. But cheap energy prices will probably increase consumption which will probably cause another energy crisis .....Jen

-- posted by JenL_2

Top 676. Aug 30, 2001 6:30 PM

» lcha - Re: Re: NG Futures

In response to message posted by JenL_2:

It's a shame that the remedy for our energy crisis was to put hundreds of thousands of people out of work and thereby reduce energy demand. Maybe another million people will lose their jobs and NG, electricity and gasoline prices will REALLY go down. With the extra money I'll have I could donate more change to the homeless stockbrokers on the street corners.

Sorry, I went and got sarcastic again.

Seriously, lower energy prices are good for the consumer unless the prices are lower because we shut down factories. Then it only benefits the consumers that have jobs.

-- posted by lcha

Top 677. Sep 1, 2001 9:27 PM

» JenL_2 - Barron's Interview with Susan Byrne

9/3 Barron's has the latest in a string of interviews with value and fixed income fund managers. Most of them seem to find value in the energy sector.

An Eye for Yield

In this market, says a money manager, look for stocks that provide high total returns

by Sandra Ward

(excerpts)

An Interview With Susan Byrne... After lowering her forecast for corporate profits this year and with expectations of modest growth next year, Byrne is keeping sharply focused on "total return" investments -- companies delivering solid earnings growth, paying sustainable dividends, and offering higher returns than what are available from other asset classes. Cyclicals are in her mix, as are real-estate investment trusts and, yes, energy companies, a group she thinks remains very much misunderstood.....Her approach, honed in 30 years of investment experience, is simply to buy stocks at a discount to their growth rate in industries that are best positioned according to her macroeconomic outlook....

Q: Is there any sign of growth in capital spending?
A: We are seeing a shift in capital spending. As a percentage of GDP, post-World War II capital spending has always been around 14%. In the last half of the 'Nineties, it moved way outside that band -- almost two standard deviations outside of the average -- and most of that was fueled by technology. That doesn't mean there will be no capital expenditures going forward or that the rates of return are not favorable in other areas. After all, if technology got 60% of the money, there were a whole lot of things that didn't get funded and are starved for capital. If you think in that context, look at what's participated in a kind of stealth recovery, a broad move most obvious in the small- and mid-cap stocks but also in some large-caps...

The point is, you need to be where the money is going. Think about what didn't get funding.

Capital expenditures associated with the finding of energy, the processing of energy, the transporting of energy, the transmission of energy -- these areas had zero money spent on them for a generation, and yet some of the highest rates of return available on invested capital are in those industries. These are areas of infrastructure that very much bear on productivity and have been ignored but are now getting funding and showing good performance......

Q: What does this mean for portfolios?
A:Beyond cyclicals, people should look for companies that could be considered solid total-return candidates.

Q: Companies that pay dividends?
A: Yes, and companies with the ability to grow the dividend, not just pay it. If we are talking about an environment of slow growth, low interest rates and low inflation, the big competition for your money is 2½%-3% on a money-market fund and 4½% in bonds. For some, there will be high-yield instruments, but that is not my milieu. In that kind of environment, a barbell approach that includes the best cyclical recoverers with the best fundamental valuations -- and that may or may not include technology, depending on your risk tolerance -- as well as good moderate growers with good yields should provide a rate of return modestly above the historical 8%-10% returns of the equity market.

Q: What are some of these total-return stocks?
A:.....When you talk about companies that pay dividends and will have the ability to increase those dividends, you can continue to own energy stocks. Whether it is Exxon Mobil, or Chevron, or Conoco, or Williams, each of these names should have good growth and less debt and the ability to increase dividends over the next three years.....

Q:Any areas that are proving to be real anomalies in this kind of environment?
A: I really believe people have completely misunderstood the natural-gas and E&P [exploration and production] companies. People think energy stocks are all about price increases, and that's that. But that's not it. What you are looking for is demand for the product. There is demand for natural gas because it is clean. There are utilities coming on line in the next three years that only use natural gas. You want to go with those companies that have the ability to increase their production, and that has nothing to do with price because a company whose earnings are increasing as a result of increased production is actually growing.

Q: What are some picks there?
A: You can be involved in the high-quality companies, the Apaches, the Anadarko Petroleums, the Devon Energys, each of which have strong profiles of increasing their production 15%-20% in 2002. That means that they will have increasing earnings and increasing cash flow. And on current earnings they are selling under 10 times, and on current cash flow they are selling at three times. I don't know what the market is afraid of, but it is obvious there is no confidence. That's what creates value for folks like ourselves, and we are continuing to be there. But, boy, it is not a popular position.

Q: Funny how the sentiment shifted.
A: The momentum buyers took it too far, then they all got out and now the stocks aren't acting well.

Q: So what's going to get these values recognized?
A: Either the public will recognize them or private deals will continue. There's been substantial merger activity going on at fairly substantial premiums because the companies are selling at huge discounts to private market value. There are a number of very small names whose production is moving up and which are trading at huge discounts and could be acquired easily, much as Devon is acquiring Mitchell Energy & Development. That purchase will be accretive right out of the chute. There are other names like Mitchell: Quicksilver Resources, Remington Oil & Gas, Cross Timbers, Spinnaker Exploration and Ocean Energy. Nuevo Energy has a profile not too dissimilar from Triton, which was just bought at a 50% premium. And Nuevo has a nice exposure in western Africa. My bet is that a year from now Nuevo won't be here. So either the prices will go up in the marketplace or you'll continue to see consolidations at big premiums.....

Subscribe to WSJ & Barron's Online @ http://www.wsj.com

.....Jen

-- posted by JenL_2

Top 678. Sep 2, 2001 7:00 AM

» lcha - Re: Barron's Interview with Susan Byrne

In response to message posted by JenL_2:

Good post Jen. Thanks.

I couldn't have said it better myself and there is little commentary to add to that one.

-- posted by lcha