Natural Gas Prices Will Be Weak Through Q2

 |  Includes: DUK, NUVSF, PBA, STXPF
by: FP Trading Desk

It isn’t easy operating in Canada’s oil patch these days, and while number-crunchers are starting to warm to the idea of a rebound in crude prices, gas producers are not so lucky, analysts say. Well, except for the ones who can take advantage of others’ misfortune.

There’s no need to read between the lines in George Toriola’s research note:

“The consensus amongst most of the companies we met with is for weaker natural gas prices through [the second quarter of 2009], with some strength starting to return [in the third quarter] as industry supply response begins to reflect more significantly,” the Scotia Capital analyst wrote.

“We expect very low activity in [the second quarter] driven by a combination of seasonal constraints and very weak cash flow.

“We believe several companies within our coverage universe may experience production declines in [the second quarter of 2009], which together with weaker cash flows resulting from further natural gas price deterioration, could motivate [merger and acquisition] consolidation activity,” Mr. Toriola said.

There will be winners as companies gobble up competitors: Storm Exploration Inc. (OTC:STXPF), Progress Energy Resources Corp. (PGN) and NuVista Energy Ltd. (OTC:NUVSF) are in the best spots to pick off the weaklings, Mr. Toriola predicted.

Bonus points go to Storm and Progress for being the lowest cost producers the analyst tracks. He expects Progress to update investors on its drilling activity in the Montney, including its first horizontal well. Provident Energy Trust (PVX) is also a buy as it could release news on its corporate restructuring efforts, he said.