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With natural gas prompt month rallying almost 25% over the last month, one would think there are some bullish fundamentals at play. That, or the price was so cheap it had nowhere to go but up.

Our firm has compiled published production for 60 stocks using Q1 2012 10Q filings. Our findings suggest that the production side is not as bullish as the press may lead us to believe. Total gas production increased 1% versus Q4 2011, and over 8% when compared to Q1 2011. Our sample incorporated filings for 61 producers representing 25 bcf/day of North American gas production. Gas production growth is declining, dropping from 3.1% growth in Q4 and 1.5% growth in Q3.

The following tables summarize the top 5 and bottom 5 stocks based upon the % change in North American gas production for Q1 2012 vs Q4 2011 and Q1 2011:

Increasing Gas Production
CompanyProduction per dayLast QuarterOne Year Ago
Magnum Hunter Res (NYSE:MHR)49,02243.2%527.6%
Rex Energy (NASDAQ:REXX)45,15632.1%216.3%
EV Energy (NASDAQ:EVEP)112,78028.0%44.9%
ConocoPhillips (NYSE:COP)1,998,00024.0%25.7%
Swift Energy (NYSE:SFY)101,09917.7%15.2%

Decreasing Gas Production
CompanyProduction per dayLast QuarterOne Year Ago

Plains E and P (NYSE:PXP)

234,001-26.6%-11.2%
Contango Oil and Gas (NYSEMKT:MCF)60,956-14.4%-14.7%
McMoRan Exploration (NYSE:MMR)96,649-14.2%-25.5%
Goodrich Petroleum. (NYSE:GDP)82,044-12.3%-14.1%
Crimson Exploration. (NASDAQ:CXPO)23,782-10.4%-29.1%

A change in production is not indicative of a change in relative value. Many other factors should be taken into account, including current commodity prices, changes in the balance sheet, and the stock's price relative to its peers. That said, production is a critical driver of cash flows.

Decreases in gas production may not lead to lower cash flows if the producer is switching its focus from gas to liquids. Several companies have implemented this strategy, even as gas is rising and oil falling. The most aggressive switchers, on a % change are:

Gas to Liquids Ratio
CompanyQ1 2012Q4 2011Q1 2011

Kodiak Oil (NYSE:KOG)

0.090.060.06
Oasis Petroleum (NYSE:OAS)0.080.060.05
Chevron (NYSE:CVX)0.300.240.30
ATP Oil and Gas (ATPG)0.370.310.28
Swift Energy (SFY)0.550.490.5

Growing liquids production versus natural gas is a wise and winning strategy with crude to gas spreads north of 40. These aggressive switchers run the risk the spread will return to historical norms, but we don't see that happening while gas production continues to grow.

Source: Natural Gas Production Update: Not As Bullish As It Would Seem