Another Natural Gas Bull Sticks His Neck Out

I was focused on writing the 4^th issue for subscribers, due out the second week of September, but I came across a research article I wanted to share with readers.

Martin King, an energy analyst at First Energy in Calgary is the latest to trot out the “it’s-darkest-before-the-dawn-buy-natural-gas-stocks-now” theme, in a 5 page note on August 31. I’ll tell you about his key points in a minute.

But first, I want to say this guy has a track record that I follow. Back on February 19 of this year, he put out a similar research note on natural gas stocks that was uncannily accurate. Just like now, sentiment for natural gas stocks was very low, and he stuck his neck out saying it’s time to be a contrarian and buy.

And natural gas stocks did have a strong spring - much stronger than I anticipated. Investors following Mr. King’s thesis made good money through the spring as the Amex Natural Gas Index went from 300 to 480 over the next 3 months, and Canadian natural gas stocks bottomed within 10-14 days of his call, and had a great spring. Both the index and many stocks jumped 50% or more in the next 3 months.

So this man has my attention. I am now going to introduce a natural gas stock to subscribers in my next issue.

On the supply side, King says producer shut-ins will be huge, lowering supply. The new shale gas and unconventional plays will not make up for the natural declines in conventional North American gas production.

On the demand side, he says there is a possibility of a record natural gas withdrawal from storage this winter season. And any pick-up in industrial demand could have a dramatic impact on storage, he adds.

While he is calling for higher natural gas prices than most people for next year, he does expect gas to hit the low $1 range in Canada and low $2 range in the US before the end of October. That is the time to be buying natural gas stocks, he says.

His arguments are similar to what both Tristone Capital out of Calgary and Sanford Bernstein & Sons Co. out of New York have said recently.

After looking at the many factors surrounding natural gas, everybody is looking into their crystal ball and guessing at future prices. I will be telling subscribers in my next issue what some of my favourite natural gas stocks are in case Mr. King, Tristone and Bernstein are correct.

Comments

[Mad Hedge F...:]

bring on the guillotine. Just when I get comfortable with my view on Natural Gas, I get a scratchy, reverberating cell phone call from one of the major formations telling me that I’m being way too bullish. Gas won’t bottom at $2. The free fall will continue until it hits $1. National storage will be completely full imminently top out, and when it does, the producers will have to shut down completely. Since these guys are leveraged up the wazoo, this will trigger a string of bankruptcies, and the majors will fall like dominoes. A hedge fund bust won’t define this bottom, as these guys are all playing from the short side. UNG can’t step in as a buyer of last resort, as the SEC won’t let it issue more stock, and the current shares are trading at a ridiculous 20% premium. One thing we do agree on is that the bottom will look ugly, whatever the spark is. Well, it takes two to make a market. Conclusion: keep NG nailed to your screen, as the widow maker is where the volatility lives.

Sep 03 11:03 AM

[GMiki1:]

I think SEC just signed off on more shares--heard someone mention the new shares on CNBC just now. The EIA numbers were benign said one trader. Can we live without nat gas? I don't think so. Even if we have no uptick in industrial demand. I'm cautiously bullish for now, more bullish for a year or two from now.

Sep 03 11:21 AM

[cctiger:]

The lowest break-even price for NG producers that I can find from all the analysis is about $3.6/mbtu (some as high as $7). So, I concluded that NG price can not stay below $3.6 for long...

From many experts articles, I got the impression that UNG is the best vehicle to invest in NG and assuming UNG is well corelated with NG price. So, I graduately loaded up UNG, GAS, HNU when NG price was below $3.6...

Obviously, I am losing big right now... but what made me worry most is that I may used a wrong vehlcle [UNG] to play NG price since even when NG price eventually rise, UNG may not rise with it due to Contango situation of the future contract price. Did I missing something?

Sep 03 12:03 PM

[Buck East:]

MHFT, love your take and you and I have been right all along here. The super leveraged independents have to keep producing, its there only source of cash, got to hold leases which they massively overpaid for, and they are headed for reckoning with their creditors, and yes there will be BKs and bank failures in the oil patch unless they are backstopped with cheap federal money. New discoveries coming out all the time, there is gas everywhere, everywhere---have you seen the IP numbers and EURs coming out of Granite Walsh? Staggering, Buck. $0 to $1?

Sep 03 01:47 PM

[mplaut:]

Play NG with MLPs that are hedged and producing a lot of NG. They pay a distribution and although they will probably not rocket up as much as some of the more leveraged players, they are safer and will probably have nice gains. JMO.

Sep 03 02:12 PM

[mind_geek:]

Names? If you give advice, you may want to mention the other 50% of the equation here!

Short sellers will drive NG prices down to unheard of lows, then the greedy hedge fund traders will be piling in as they are giving "advice" in any media outlet possible (such as here) to get out of it. Do you really think Mr. Mad Hedge Fund Trader is really going to give you timely advice?...(good advice yes, timely...no way!)

I would hope people have learned by now that this is common practice and the reason why they make the majority of the money in the market. Theres no way NG will go below $2..it will be close, but I would bet money thats the target price for hedgies to start buying.


On Sep 03 02:12 PM mplaut wrote:

> Play NG with MLPs that are hedged and producing a lot of NG. They
> pay a distribution and although they will probably not rocket up
> as much as some of the more leveraged players, they are safer and
> will probably have nice gains. JMO.

Sep 03 05:16 PM

[Tsy Fox:]

Just a few facts on the current NG situation;

For the week ended Aug. 28 NG supplies rose to 3.323 trillion cubic feet. Inventories are the highest for that week since the Dept of Energy began publishing data in 1993. With storage capacity at 3.9 trillion, another 577 bcf will completely fill storage to the max. At today's rate of injection, in just 9 short weeks we will reach the 3.9 trillion cap. Looking at the calendar, it's starting to look like we will be having a Halloween party like we've never had before, with a possible CHK Bankruptcy filing.

Sep 03 07:28 PM

[ACDC:]

completely wrong about ung. the rollover can kill you , even if gas gets to 10, you can still loose money on ung. the dec futures are at 5usd for example.


On Sep 03 12:03 PM cctiger wrote:

> The lowest break-even price for NG producers that I can find from
> all the analysis is about $3.6/mbtu (some as high as $7). So, I concluded
> that NG price can not stay below $3.6 for long...
>
> From many experts articles, I got the impression that UNG is the
> best vehicle to invest in NG and assuming UNG is well corelated with
> NG price. So, I graduately loaded up UNG, GAS, HNU when NG price
> was below $3.6...
>
> Obviously, I am losing big right now... but what made me worry most
> is that I may used a wrong vehlcle [UNG] to play NG price since even
> when NG price eventually rise, UNG may not rise with it due to Contango
> situation of the future contract price. Did I missing something?

Sep 03 08:24 PM

[mbkelly75:]

UNG may very well have been the absolute worst way to play it. It does not actually invest in NG at all - it uses the futures of NG and rolls them over monthly. I just found some good companies that paid a dividend, that had been beaten up much worse than they deserved to be (CANROYs and MLPs) bought them and collected the dividends, re-invested the dividends in the stock that paid them, thus lowering my cost-basis/share and have been waiting it out. Some that I bought too early and got creamed on - I bought more and lowered my cost-basis that way also. The dividends are paying me to wait (7% and up - most paid monthly and compounding faster because of it). I will eventually do well - all I really have to do is wait. I bought with the long-term in mind so waiting is kinda built in and I am not worried about it. I check to make sure the stock is broken and not the company weekly as I do with all my stocks, but that is a part of my regular routine, weekly checks to see if everything is still solid, reading 10Qs, etc, just keeps me up-to-date.

Sep 04 12:12 AM

[Aricool:]

Hi cctiger,

Re low cost NG producers. In DBLE's last Earnings transcript they said their cost was $2.75, among the lowest. However, I believe I've heard some of the majors in the Shale plays get even down to $2. So don't be so sure about shut ins. Also, I read an article earlier in the year that predicted storage maxing out, and it said that the Shale plays cannot relly cut production b/c they drill 100's or 1000's of wells, whereby unlike oil it is too costly cut them all off. Better to sell at any price than to flare the excess. North Dakota flares all of it's huge NG production.

My understanding is that the gulf NG producers can easily shut-in, but they are only 17% of production.

Although rig counts were cut down a lot, I think they just pumped more out of fewer rigs and the majors did not cut much. No OPEC-like insentive.

I've heard that it won't be until Nov. before the prior cuts have any effect.

It would be very helpful if anyone knows what is the average cost of the real lowest cost NG producers that produce enough to keep the glut going. Actually, I just remembered that this does not even matter because most all producers are 100% hedged for '09 at $5-7. So, they'll keep pumping at full rates no matter the spot price. A guaranteed crash and burn for NG price! Is < $2 possible?

I jumped out of UNG at around 16, and even got my freind to jump out recently at 12. If I were you I'd still jump out at 9 b/c UNG's NAV is around 7 and it had to roll on 10-15% contango, so it could be even worse. Take that money and try averaging into a bottom with HNU and don't look at it until December.

Disclaimer I own DBLE @ 4.

Cheers!
Ariel-

On Sep 03 12:03 PM cctiger wrote:

> The lowest break-even price for NG producers that I can find from
> all the analysis is about $3.6/mbtu (some as high as $7). So, I concluded
> that NG price can not stay below $3.6 for long...
>
> From many experts articles, I got the impression that UNG is the
> best vehicle to invest in NG and assuming UNG is well corelated with
> NG price. So, I graduately loaded up UNG, GAS, HNU when NG price
> was below $3.6...
>
> Obviously, I am losing big right now... but what made me worry most
> is that I may used a wrong vehlcle [UNG] to play NG price since even
> when NG price eventually rise, UNG may not rise with it due to Contango
> situation of the future contract price. Did I missing something?

Sep 04 12:48 AM

[Aricool:]

UNG got a million shares, but the chose not to issue them due to expected regulations (max position sizes).

The question is not whether we can live w/o NG, the question is one of maxing out storage during the lowest demand months (after summer and before winter). Read my reply above and you'll see why it is very likely NG will even plunge further from here.

If you look at the last recessions NG droped to around $2.5-2.7 in real terms (adjusting for inflation); however, that was when US NG production was believed to have peaked, which is why we later created infrastructure for LNG imports- and those lows were before we became the Saudi-Arabia of NG with massive supplies. So, it would stand to reason that we'll see below $2 easy; esp. since we got so quickly to $2.5 w/o resistance.

Ariel-

On Sep 03 11:21 AM GMiki1 wrote:

> I think SEC just signed off on more shares--heard someone mention
> the new shares on CNBC just now. The EIA numbers were benign said
> one trader. Can we live without nat gas? I don't think so. Even if
> we have no uptick in industrial demand. I'm cautiously bullish for
> now, more bullish for a year or two from now.

Sep 04 12:57 AM

[Aricool:]

why can't it go under $2? If most of the producers are 100% hedged for '09 (hence likely why their stock prices are not in the toilet w/ NG price) and they have to produce to keep their valuable leases and we have a 100 year supply, then why stop production at any price when you're getting top (hedged) $ any how??? Someone needs to explain to me why will they given these (and many other simar) factors.

Besides, did you notice that rig counts bottomed in early June and actually started to uptick in July-Aug. Also, day rates never came down enough. Not a good sign if you believe in major production cuts.

Ariel-

On Sep 03 05:16 PM mind_geek wrote:

> Names? If you give advice, you may want to mention the other 50%
> of the equation here!
>
> Short sellers will drive NG prices down to unheard of lows, then
> the greedy hedge fund traders will be piling in as they are giving
> "advice" in any media outlet possible (such as here) to get out of
> it. Do you really think Mr. Mad Hedge Fund Trader is really going
> to give you timely advice?...(good advice yes, timely...no way!)
>
>
> I would hope people have learned by now that this is common practice
> and the reason why they make the majority of the money in the market.
> Theres no way NG will go below $2..it will be close, but I would
> bet money thats the target price for hedgies to start buying.

Sep 04 01:10 AM

[aarc:]

-----------------------
Contango is now easing.

A few weeks ago, contango between near months was around 30% spread for several months and prices in the far months were $6, $7, and $8 if my memory serves me right. At that time spot price was in the low $3 and UNG at $12 before they plunged down like crazy.

Now, September spot price is still holding at the mid $2 of August after the rollover (went up due to contango then dropped like a rock and back to mid $2) and the spreads in near and far months eased quit a lot except for Sept/Oct roll-over.

UNG price however is going down this past few weeks like there is no tomorrow toward the NAV price and the premium is getting smaller by the day very fast. It is as if they are in a collision couse; well not really, since NAV is going down at a rate of something like 60mph while UNG is going down at 120mph or 180mph. Upon collision, what will be the effect to their prices?

Looks like UNG will not be losing much money in the far months with the contangos not as bad as before.

It was like USO early this year, the massive monthly price spreads due to contango prevented USO to appreciate in value as oil price spiked up from $33 to the $70's. USO was performing then as if a 0.50x ETF rather than a 1x ETF. Now USO is performing like a 0.8x ETF from the bottom as compare to the percentage performance of CL on the same period. Not a good performance but at least less bad than before (seems like I heard that phrase so many times it's deafening already, but it is there to see).

So in the next several months, if this contango spread will keep easing, UNG will be able to ease up a bit on the losing side every roll-over date and not perform as if it is a 0.30x ETF and getting less every month. Or should I say performing like a 1.7x ETF to the downside since it keeps plunging faster than NG?

UNG is now at 86% discount from it's high of $64 last year to today's close of $9 and will keep getting cheaper as it approach the NAV which is still going down incrementally almost everyday if not everyday.

NG is now at 82% discount from it's last year's high.

The pronounced price discount disparity is due to, I believe, caused by the massive loses of UNG with the contango effect every rollover date. Can't help it, but buying NG contracts and paying for the contango every month will result in massive losses too as the spot price kept going down anyway. At least with UNG, they retain major portion of capital in cash rather than "investing" them all into NG/NN/etc. contracts/swaps. So the rollover loses are less with buying UNG on the way down than buying NG contracts in the same direction.

86% discount is not bad at all. Price may go down to $1 and UNG might even go down to $3 or $5 short term assuming armageddon scenario for nat gas.

I don't think the ETF UNG will go bankcrupt even with an armageddon scenario above since the fund owes no dept nor is incurring massive unsustainable monthly expenses unlike MER, LEH, or WAMU, etc. With their massive cash in hand, perhaps the interests alone can support their monthly expenses. The more they can issue new shares; the more cash they can have and the expense/capital ratio will get smaller.

If I really want to invest medium- to long-term with natural gas - I will have no choice but to buy more on the way down; try to catch the bottom, or wait for the turn around and chase it like crazy since this type of plunge usually results in a similar reaction on the way up after hitting bottom - or all of the above.

Looking at the monthly chart of NG. It has a history of going down like crazy for several months and spiking up like there was no tomorrow recovering previous losses in practically the same period it went down. Then repeat the process ad infinitum?

My hope is that the government starts using it's most viable resource to solve the high price of oil. Unless global economy turned for the worse; oil price projection is headed toward $80 to $84 and can spike up to a maximum limit of $114 for the next several months based on technical analysis alone.

I could be very wrong; last time I measured the limit run for oil was a maximum of $117 without having to correct for several months before going up further. Oil violated usual statistical runs I used for TA and went straight up to unimaginable $147 last year. And then it dropped like a rock to $33. Same happened with Shanghai and Szenshen indexes when they overun the usual statistical limits of normal rallies. They collapse like the tulip manias of yester-decades.

Who knows, oil suppliers may have learned their lessons of keeping the price runs slow'er. Then oil can keep going up to $180 in the next 5 to 8 years.

That will give greater pressure for the US government to find alternative sources of energy. Natural gas investment, then, can become a very long-term play with government support.

Sep 04 03:55 AM

[User 305589:]

CHK bk?? Are you kidding??? Nothing is ruled out these days, of course, but before these guys go bk, most other players will have done. the CHK guys went very well prepared into this storm and they predict unvoluntary shutdowns for the 4th quarter this year. Still, they are in excellent financial shape and the löowest cost producers in the u.s. if i had to pick any NG producer whi will be a 4-5 bagger from here over the coming 5 years, it would be chk.
LOl, really funny that you picked the best of the breed as a bk
try kwk and other crappy producers...



On Sep 03 07:28 PM Tsy Fox wrote:

> At today's rate of injection, in just 9 short weeks we will reach
> the 3.9 trillion cap. Looking at the calendar, it's starting to look
> like we will be having a Halloween party like we've never had before,
> with a possible CHK Bankruptcy filing.

Sep 04 05:47 AM

[jarco:]

Reviewing the latest financials from CHK, I don't see your bankruptcy scenerio. Debt:equity and debt srvice appears mansgeable. With drilling and land buys dwindling, cash flow looks pretty good verses net profits which will tank. They're getting cash with JV's. Where do you see Chapter 7?


On Sep 03 07:28 PM Tsy Fox wrote:

> Just a few facts on the current NG situation;
>
> For the week ended Aug. 28 NG supplies rose to 3.323 trillion cubic
> feet. Inventories are the highest for that week since the Dept of
> Energy began publishing data in 1993. With storage capacity at 3.9
> trillion, another 577 bcf will completely fill storage to the max.
> At today's rate of injection, in just 9 short weeks we will reach
> the 3.9 trillion cap. Looking at the calendar, it's starting to look
> like we will be having a Halloween party like we've never had before,
> with a possible CHK Bankruptcy filing.

Sep 04 08:42 AM

[receipt:]

One way to go long natural gas is Horizons BetaPro NYMEX Natural Gas Bull +ETF (HZBBF). Currently priced below $2.00!

Sep 04 08:54 AM

[Joe Shareho...:]

Nat Gas will eventually rise as an inflation hedge if nothing else. Read more at joeshareholder.blogspo....

Sep 04 08:57 AM

[mc2406:]

When will the professional politicians own up to the fact hat natural gas is cheap, environmentally clean and in the US??? Start subsidising the development of CNG engines for autos, and all public transportation and city/state vehicles. I'm afraid they just can't "eat crow" and admit that big oil has the answer to much of our energy problems.

Sep 04 09:38 AM

[hat_trick3:]

one thing is for certain, this situation will be great for heavy industrial users of NG, especially chemicals and tar sands players.

Sep 04 10:13 AM

[WPSPIKER:]

the biggest problem with CHK is the people who are giving away share holders money into their own pockets...
if/when they stop doing that it will be a company worth investing in again.. Until then the STOCK will remain broken but not the company.

mark

Sep 04 10:27 AM

[badbernanke:]

I don't recall whether I read the earlier article, however if it mentioned the huge divergence between oil and NG prices as an indicator that NG had room to go up, then I did. My reaction then was "well, oil also has room to go down ". I bought puts on several oils and made some good money in a very short time.

I love NG, but it is a victim of its own success with shale drilling and a slowing economy. Unless there are big changes in domestic consumption, NG probably will remain oil's little brother for some time to come.

Sep 04 10:43 AM

[cyberclark:]

With Russia the biggest player in Natural gas; the ones who will ultimately shape the market value I would say a settling of about 2.00 is where we are headed. No science or special insights.

Russia is building new lines with China. Indonesia has huge reserves they are plugging into tankers. It is cheaper to take gas off a tanker in NY than build a pipeline.

A bit of a navel gaze; Natural gas has tanked and it will stay that way for some time to come; long term

It is to be noted the spread in BTU between Natural Gas and coal makes natural gas at 2 to 3.00 a win. ENMAX - (The City of Calgary) is building a new natural gas fueled generation facility and, they are sitting in the middle of a coal field.

No one can survive at 1.00. 2.00 and 3.00 is operationally doable.

Sep 04 11:02 AM

[canary:]

In Washington, only the Dept of Energy recognizes natural gas as an important source of transportation energy. It is low cost, clean burning , weakens the Jihad movement, and provides US jobs.
Keep those letters flowing to our Congressmen.
Canary

Sep 04 11:07 AM

[Buck East:]

Agree partially, but do you consider the fundamentals of the market at all? Production is still going up and we are heading to storage capacity. Pleas tell me where the aggregate source of demand is for all that gas. Cash for clunkers?


On Sep 03 05:16 PM mind_geek wrote:

> Names? If you give advice, you may want to mention the other 50%
> of the equation here!
>
> Short sellers will drive NG prices down to unheard of lows, then
> the greedy hedge fund traders will be piling in as they are giving
> "advice" in any media outlet possible (such as here) to get out of
> it. Do you really think Mr. Mad Hedge Fund Trader is really going
> to give you timely advice?...(good advice yes, timely...no way!)
>
>
> I would hope people have learned by now that this is common practice
> and the reason why they make the majority of the money in the market.
> Theres no way NG will go below $2..it will be close, but I would
> bet money thats the target price for hedgies to start buying.

Sep 04 01:19 PM

[jcrash:]

Why would there be a "record withdrawl from storage" when industrial use is basically at decade lows?

Sep 04 01:30 PM

[joeevan:]

APL, AHD, XTEX


On Sep 03 05:16 PM mind_geek wrote:

> Names? If you give advice, you may want to mention the other 50%
> of the equation here!
>
> Short sellers will drive NG prices down to unheard of lows, then
> the greedy hedge fund traders will be piling in as they are giving
> "advice" in any media outlet possible (such as here) to get out of
> it. Do you really think Mr. Mad Hedge Fund Trader is really going
> to give you timely advice?...(good advice yes, timely...no way!)
>
>
> I would hope people have learned by now that this is common practice
> and the reason why they make the majority of the money in the market.
> Theres no way NG will go below $2..it will be close, but I would
> bet money thats the target price for hedgies to start buying.

Sep 04 02:00 PM

[tuj:]

"On the supply side, King says producer shut-ins will be huge, lowering supply. The new shale gas and unconventional plays will not make up for the natural declines in conventional North American gas production."

Bzzz wrong. When you can grow production more than 10% YoY from *one play*, shale is not just a phenomena, its a game-changer. Not to mention the technologies used in shale have some applicability to enhanced recovery in conventional plays. Then consider that many shale producers hedged forward at quite high prices and you have a setup for force majured injections and maybe even flaring.

Sep 04 03:09 PM

[Knightgolfer:]

your not alone. I loaded on UNG and now I don't know if I should hold or jump ship


On Sep 03 12:03 PM cctiger wrote:

> The lowest break-even price for NG producers that I can find from
> all the analysis is about $3.6/mbtu (some as high as $7). So, I concluded
> that NG price can not stay below $3.6 for long...
>
> From many experts articles, I got the impression that UNG is the
> best vehicle to invest in NG and assuming UNG is well corelated with
> NG price. So, I graduately loaded up UNG, GAS, HNU when NG price
> was below $3.6...
>
> Obviously, I am losing big right now... but what made me worry most
> is that I may used a wrong vehlcle [UNG] to play NG price since even
> when NG price eventually rise, UNG may not rise with it due to Contango
> situation of the future contract price. Did I missing something?

Sep 04 08:46 PM

[Don-n-ABQ:]

Didn't Martin King's "getting the call right" in February (really March) have more to do with the bottom put in the broad-overall market than anything to do with supply/demand or NG specifically?

Wasn't the overall market just so oversold that darts would have had the same effect?

Are some of these analysts forgetting to factor in shale/new technologies/LNG?

Shouldn't there be half as many NG E&Ps as there are now?

Do we really have 100 years worth of NG capacity?

The big boys (ExxonMobil, Shell, Royal Dutch, Chevron, BP, ConocoPhillips [the BIG-6]) have spent billions and billions over the past five or so years to get LNG from there to here, are they going to put all of that capital investment on hold?

At what point do all of these new NG pipelines (like Alaska, etc) and new LNG terminals projects (that are planned but shovels haven't flung dirt yet) get put on hold indefinitely?

At what point does the Federal Government change policy here?

Don't the "BIG-6" still have more lobby and campaign-contribution dollars than guys like T. Boone Pickens, J. Larry Nichols, Aubrey McClendon, Clay Bennett, and David P. O'Brien?

These other guys might be able to buy votes and policy in Oklahoma, Colorado, New Mexico, and Alberta, but what about in California, Illinois, Michigan, Massachusetts, New York, Toronto, Ottawa, and Washington D.C.?

Maybe Pickens giving $250 million to the Oklahoma State Cowboys football team and Bennett buying the SuperSonics and moving them to OKC was the sign of a long term top in the NG market?

Okay, maybe I didn't give the right answers, but maybe I gave you the right questions?

Sep 04 10:05 PM

[Ricard:]

The fact that this article is one of the 'most popular' on SA is to me a warning sign.

There are too many people that are probably in my position (I have no investing experience in this sector) that have taken positions in things like UNG. Not only that, most NG related stocks have vastly outperformed relative to the NG spot price. This points to a strange kind of bubble IMHO, one that risks catching a lot of people in a value trap as opposed to your typical run-away growth scenario.

Sep 05 11:13 AM

[LOLcapitali...:]

Your lack of understanding of the global natural gas market is embarrassing. Please confine your comments to subjects that you may add to the conversation in some meaningful way.

I won't point out all of your errors as they are too numerous. (In fact, I'm impressed at how many ways one can be wrong in so few words.) You are careless with your terms ("majors" means something to people who know oil&gas and there will be no bankruptcies among them) and you idea of UNG being a "buyer of last resort" demonstrates a deep and fundamental misunderstanding of the North American Natural Gas Market.

I am ignoring the old adage about arguing with a fool; however, please stop clouding these discussions with shots-from-the-hip regurgitation of what you hear on CNBC.

On Sep 03 11:03 AM Mad Hedge Fund Trader wrote:

> bring on the guillotine. Just when I get comfortable with my view
> on Natural Gas, I get a scratchy, reverberating cell phone call from
> one of the major formations telling me that I’m being way too bullish.
> Gas won’t bottom at $2. The free fall will continue until it hits
> $1. National storage will be completely full imminently top out,
> and when it does, the producers will have to shut down completely.
> Since these guys are leveraged up the wazoo, this will trigger a
> string of bankruptcies, and the majors will fall like dominoes. A
> hedge fund bust won’t define this bottom, as these guys are all playing
> from the short side. UNG can’t step in as a buyer of last resort,
> as the SEC won’t let it issue more stock, and the current shares
> are trading at a ridiculous 20% premium. One thing we do agree on
> is that the bottom will look ugly, whatever the spark is. Well, it
> takes two to make a market. Conclusion: keep NG nailed to your screen,
> as the widow maker is where the volatility lives.

Sep 05 12:01 PM

[H. T. Love:]

On Sep 04 12:57 AM Aricool wrote:

> UNG got a million shares, but the chose not to issue them due to
> expected regulations (max position sizes).

Since they had 436.84(?) units already outstanding, a million would not be worthwhile to them. They requested a billion.

<snip>

Sec authorized 1B new units issuance. Here is the SEC "EFFECTIVE" document.

www.sec.gov/Archives/e...

Here is the current version of the prospectus as "effective".

www.sec.gov/Archives/e...
HardToLove

Sep 05 01:17 PM

[H. T. Love:]

LoL! 436.84 *million* units.

Sorry,
HTL


On Sep 05 01:17 PM H. T. Love wrote:

> On Sep 04 12:57 AM Aricool wrote:

Sep 05 01:18 PM

[elliot_mllr:]

Agreed. In fact many of the mid-streams have the vast majority of their revenues from fee based services (pipelines, treating, fractionation, processing, etc. ), and if one is really bearish on gas look at NRGY with its massive storage facilities and salt caverns in the Marcellus play.


On Sep 03 02:12 PM mplaut wrote:

> Play NG with MLPs that are hedged and producing a lot of NG. They
> pay a distribution and although they will probably not rocket up
> as much as some of the more leveraged players, they are safer and
> will probably have nice gains. JMO.

Sep 05 06:05 PM

[Aricool:]

jarco,

CHK is not in a solid position, however. They're going into the storm with a very weak balance sheet. A current ration of < 1 when they are hedged for '09 at a high $ should be very concerning b/c those hedges will drop off in 2010, and if the low end '10 EPS est. of .66 happens, then CHK would be very cash flow negative b/c their LFCF during these "good times" is only around .85/share
on around $2.5/share earnings. In this scenario, since they only have .86 cash it is not too hard to see how they would default on debt unless they could raise funds in a secondary. They likely would violate debt covanents, all of which could risk chapter 11, or at the very least a huge crash in there stock. With NG prices about to plunge into next year, not a safe situation by a long shot. Again, CHK is not the "best in bread" balance sheet or company you make it out to be. Of course, if th rosy scenario plays out for NG next year, thn CHK (and the sector) will be fine.

Cheers,
Ariel-

On Sep 04 08:42 AM jarco wrote:

> Reviewing the latest financials from CHK, I don't see your bankruptcy
> scenerio. Debt:equity and debt srvice appears mansgeable. With drilling
> and land buys dwindling, cash flow looks pretty good verses net profits
> which will tank. They're getting cash with JV's. Where do you see
> Chapter 7?

Sep 06 02:04 AM

[mbkelly75:]

A current ratio of <1 is a danger sign regardless of how they hedged. One of the things I look for in ANY investment is a current ratio >1. Although I have a preference for using the Quick Ratio instead of the current ratio. It give a better look at how the company's cash is doing. Especially now - cash is a REALLY good thing to get a quick look at. I look for the Quick Ratio >=1 and go from there.

Sep 07 02:55 PM

[Fighting Yoda:]

Nat Gas demand supply is completely out of whack. Supplies keep growing despite huge production cuts and demand keeps falling - both industrial and electricity. Electricity consumption will fall for the 2nd consecutive year this year and is predicted to fall further next year.
Supplies keep on coming online - shale, LNG, new discoveries. we have completely run out of storage capacity. Get out of Nat gas, and UNG is the worst way to play it in any case - it does not even track.

Nat gas is the true indication of where the US recovery is - we have not yet hit bottom - still long way to go. Nat gas can easily hit the $ 1 handle by end of year - maybe that would be a good entry point.

Sep 07 03:53 PM

[Don-n-ABQ:]

Well, Friday night and into early Saturday morning I tried to convince myself that NG was still going down. But, I couldn't. The more I thought about it, the more I was convinced that a long-term low was set being set with last week and this.

Here is my thinking:

1) Big users of NG locked in long-term contracts back in 2007 & 2008 as the price of NG was on the rise from the $7.00 area up to an all time high of around $12.49. These big users wanted to cap the top of their price with a long-term contract and inked deals to do so. These deals where done on certain quantities that were projected at the time, during a global upswing coming from the B*R*I*C countries. When the global slump hit, it drew out these quantities longer than both the users and the suppliers thought possible. This has caused a little bit of a vacuum in NG, causing the price to fall artificially below what would have been the normal bottom, or my fair value of $3.32 (out 3.11-3.62 /in 3.24-3.51).

2) Speculation has further pushed the priced below these levels. Just like oil went above $116.00 last summer and then below $44.00 this spring, the price of NG was pushed up to above $12.00 last year and now below $3.00 by speculators.

But, if NG gets any cheaper you will see China either buy assets outright or sign joint agreements with places like Russia, Kazakhstan, Kyrgyzstan, Iran, Malaysia, Indonesia, East Timor, Canada, etc. Then they'll go and build 100 NG-fired power generation plants. You won't see NG fall much further in my opinion.

Any thoughts?

Sep 10 07:48 AM