Buck East

Another Natural Gas Bull Sticks His Neck Out

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.

Another Natural Gas Bull Sticks His Neck Out

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?

Natural Gas: Grim Outlook Through Late 2010

"With the decline in prices, it simply isn't economical enough to justify drilling new holes right now, even with the incredible reduction in daily rates for most service companies."

They are drilling new holes because they are compelled to replace their reserves, and because some cash flow is better than none when you have so much debt like most Shale E&Ps.

Baker rig count up for last five consecutive months.

Two Natural Gas ETFs to Track the Rise in Gas Prices

There has not been much of the reduced drilling, Shale companies are still drilling shale wells as for most it is their only source of cash and they are staring down the barrel of debt. Baker NG rig count up for the past 5 months--what do you think of that?


On Aug 16 12:06 PM basehitz wrote:

> I was surprised the tracking error of UNG to NG wasn’t much greater
> for that 6-month period. It gets a lot trickier now.
>
> 1) Contango had been 3-5% from April-July, but has ballooned over
> past 3 weeks to 11% currently. We are currently in the middle of
> the UNG roll period. If it stays this high, that’s an ugly negative
> roll yield to take each month.
>
> 2) Next we have the UNG fund currently not issuing new shares despite
> recent approval. Instead, managers are currently examining investment
> alternatives, such as swaps and soon-to-be-regulated futures contracts.
>
>
> 3) There’s the ongoing CFTC debate over new regulation, likely in
> the form of position limits.
>
> 4) NG storage at 3.152T vs estimated storage capacity of 3.789T (per
> EIA). If injection rate avg of past 3 weeks continues linearly, it
> is expected to exceed storage limit in mid Oct, which is not the
> end of typical injection period.
>
> 5) Energy prices in general are influenced by the general market,
> which looks tired.
>
> 6) Finally we have a trio of storms heading across the Atlantic.
>
>
> Regarding playing FCG instead of UNG. . . Charting OIH vs FCG over
> 1 year period. is a good correlation. OIH holds a large component
> of international and deepwater oil drilling, which is attractive
> and my preference.
>
> Long term, it seems beyond question there will be stronger NG prices
> next year given the depletion rate characteristics for active shale
> fields coupled with reduced drilling. Short term, is a tricky call.
> You know traders will be jockeying for position with these storms
> Monday.

Two Natural Gas ETFs to Track the Rise in Gas Prices

"when the economy gets back on an earnest growth path," and what what will be the forces that create that phenomenon, pray tell? Fed direct deposits into people bank accounts? Cash-for-clunkers, and cash-for-chickens, and cash-for-gas-wells? Laughable. Mad Hedge, I have been with you all along, definitely $2 handle, $2.75 is pretty likely. Where will prices go when storgage is MAXED OUT? Obtw, Baker Hughes NG rig count up for the past five months.

Energy Investing: Natural Gas Looks Especially Interesting

Rig counts going down-->production going up. Look at RRC Q2. The world is awash in gas. Who is going to use it all?

Housing Bubble, The Sequel

I think there is in Texas


On Jul 15 02:31 PM Gdub53 wrote:

> there is no such word as "irregardless"...

Housing Bubble, The Sequel

Home prices must drop to the point of affordability before a recovery in housing can begin, so even falling home prices are desirable. The sooner home prices fall to the point of affordability, the better of everyone will be. This recession and a rising savings rate are both necessary ingredients to restore fiscal sanity. Deflation should not be feared; deflation should be embraced. What should be feared is the reckless expansion of consumer and corporate credit made possible by Fed policies under both Greenspan and Bernanke. Deflation is not the problem, it is the cure for those reckless policies.

Oil and Gas Producers' Cash Flows All About the Hedge

As for NG-heavy producers, all carrying big debt (read: most) that rely on hedges are in serious trouble. How will they be able to continue to hedge above the cost of production in a world quite awash in NG?

Natural Gas ETF: Nowhere to Go but Up, Yet It Keeps Going Down

Skrangeo, love your comment and agree totally. Also, don't forget about LNG imports. Also, "re Once natural gas prices get driven down into the low $2s, companies WILL start shutting in production and dropping even MORE rigs. This well help the oversupply get worked off, and only THEN will prices start to turn upwards." please know that you can't really effectively shut in a shale well and expect to be able to get it back the way it was before the shut in. Once they're frac'd they flow through the decline curve--which is pretty steep. So, rather than shut-ins it might make sense to say that less new wells would be spudded. EXCEPT: sometimes new wells have to go in to HBP acreage, as you said, and furthermore, most of these shale producers took on huge debt to fund their acreage acquisitions, and when that debt comes due they will need some cash flow, any cash flow, to service the debt unless they can roll it over (not bloody likely). Another reason that sub $2.50 spot prices won't herald a huge decrease in production: the most prolific shale players are hedged into 2010 significantly at profitable or near-break-even levels. Cheap gas is going to be with us for a while


On Jul 09 10:36 AM skrangeo wrote:

> here's the deal with natural gas (and the reason I've made money
> buying/selling puts on UNG)
>
> With the boom in prices came a boom in drilling. And, at the higher
> prices, the exploration plays like the Haynesville were very economic.
> And along with the drilling came a soaring production increase. And
> along with everything else came a HUGE drive up in prices for acreage
> (especially exploration acreage, up from $2k an acre a couple of
> years ago to around $30k an acre in the hottest areas).
>
> As production soared, and demand dropped (economic downturn, mild
> weather), oversupply has become a HUGE issue. The storage of natural
> gas has just literally smashed old records. There is ~30% more natural
> gas in storage right now than the past 5 year average. Simple economics,
> supply >>>> demand = huge drop in prices.
>
> As prices have dropped, many areas have become uneconomic. It’s pretty
> widely known that the breakeven economics for the Barnett is around
> $5 - $5.50/mcf. Right now, it is around $3.45/mcf. Thus, drilling
> programs have been slashed all over. The rig count is down 55% since
> October.
>
> Well, you would think that the major drop in rigs would lower production
> and help the situation. Unfortunately, here is the kicker. These
> new shale plays, being drilled up through the use of horizontal wells,
> are bringing on MONSTER wells. A vertical well in an “average” formation
> might come on at 1 mmcfd. These new Haynesville wells are coming
> on at 15-25 mmcfd. So, one new Haynesville well basically take the
> place of 15 “average” wells. So while the rig count has dropped drastically,
> the wells coming online right now are so much stronger that production
> hasn’t hardly been affected.
>
> If that weren’t bad enough, here is kicker #2: most of that high
> $$$$ acreage was exploration acreage (meaning, no production to hold
> the leases yet). And, most of those leases were 2 year leases. Now,
> if you take a section (640 acres), you only need 1 well producing
> on that lease to hold it. And, at 40 acre spacing, there is the potential
> per section for 640 / 40 = 16 drill locations. Now, at $30k/acre
> and 640 acres in a section, you already have $19 million in sunk
> costs per section. You have literally hundreds of millions (billions?)
> of dollars tied up in non-producing acreage with a shortly expiring
> time clock. If they don’t get at least one well drilled and online
> to hold the lease, they risk losing all of that sunk money.
>
> So, even if wells are uneconomic now, they are still drilling to
> get one well per section online to hold the lease. This allows them
> to have that backlog of the remaining 15 locations so that when prices
> recover, they have access to those reserves. They are willing to
> drill an uneconomic well today so that they don’t lose the lease
> that they have already spent tons of money on. And, since they have
> to keep drilling for this reason, it just continues to add to the
> current oversupply (regardless of prices).
>
> Having said all of that, we are going to start seeing physical limitations
> on natural gas storage (you can’t cram 6 lbs of shit into a 5 lb
> bag). There is already more natural gas in storage in the central
> region than at the peak of last year (2nd week of November). And,
> we still have 3.5 months of storage to go! Yikes! Due to this, the
> price is going to get driven down sharply because there will be nowhere
> for the natural gas to go. Once natural gas prices get driven down
> into the low $2s, companies WILL start shutting in production and
> dropping even MORE rigs. This well help the oversupply get worked
> off, and only THEN will prices start to turn upwards.

Game Over for U.S. Oil, Natural Gas ETFs?

Any real limits on commodity speculation will be quietly killed in committee when the news cycles to the next celebrity death. GS, MS, and the usual suspects will exert their influence to prevent reform, as they did with the audit the Fed bill. Without speculation America has no industry; gaming and speculation is all the oligarchs can do, they need loopholes and govt cartels to control markets, therefore, they will not permit reform.

Are Oil ETFs Showing Us How Natural Gas ETFs Will Trade?

Do you mean, "Haynesville," and "Louisiana?"


On Jun 15 10:30 AM Mad Hedge Fund Trader wrote:

> So your research first. Every evening, after the cleaning staff has
> swept up the discarded trade tickets from the floor, the networks
> have swapped relentlessly opinionated commentators for game shows,
> and all but the most ambitious traders have decamped for the bars
> across the street, I sit down and go over my portfolio, asking myself
> a few key questions. Have I gone completely insane? What have I missed?
> Are these the positions of someone who has gone completely barking
> Mad (oops)? Just as I was going through this exercise last night,
> a long time friend from the energy industry, who used to put me up
> in his Dallas mansion when I was wildcatting for natural gas in the
> Barnet Shale a decade ago, called me up and told me I was out of
> my tree putting people into NG at $3.60. Huge discoveries, such
> as the Hainesville shale in Alabama, have made available enough NG
> to last the US another 50 years. The new generation of fracting technology,
> while great for taping into marginal, low grade fields, is much more
> difficult to turn off when prices are low without causing permanent
> damage. And then there is the looming threat of large scale LNG imports
> from abroad. The big gas companies will be forced to dump whatever
> they have on the market at any price, possibly taking prices this
> summer down to $2, or even $1. This, after all is the mother of all
> overshoot contracts. Of course, one could argue that these risks
> are what already took it down to $3.20, and that industry demand
> will happily soak up the excess supply. Did I mention that the hurricane
> season started yesterday? Only Mr. Market knows for sure, and he
> ain’t talking. In the past month, my calls have enabled traders to
> catch a 50% move in NG, followed by a 20% move (www.madhedgefundtrader...
> ). No one will think less of you if you want to cash out here at
> $4.30 and stay on the sidelines until a more definitive bottom is
> put in. As they love to tell you in flight school, there are old
> pilots, and there are bold pilots, but there are no old, bold pilots.

Are Oil ETFs Showing Us How Natural Gas ETFs Will Trade?

This is a great observation--what if there were no ETFs? What would all commoditiy prices be like? Are etf's supporting mini-bubbles?


On Jun 14 11:40 AM energytrader wrote:

> There are serious problems with UNG, that the author fails to discuss.
> 1) The negative effects of the roll of the contracts related to these
> ETFs, with the current contango in the nat gas market they will lose
> anywhere from 2-5% as they sell the current front month and move
> in the next front month as the next month's contract are more expensive.
> 2) UNG is the gorrilla in the nat gas market (basically they are
> the largest buyer by a long shot!) as such they are responsible for
> nat gas not trading in the $2-3 range since they are supporting the
> entire market with their buying. The combination of losing value
> due to the roll and then being the main buyer the ETF will eventually
> no longer be able to support the nat gas market.

Are Oil ETFs Showing Us How Natural Gas ETFs Will Trade?

Gigem--right on, fully agree.


On Jun 14 08:57 AM Gigem77 wrote:

> The U.S. is about two months away from reaching full storage for
> natgas. That will happen at different times in different districts.
> Once that happens, production must be curtailed. Curtailment will
> drive spot prices lower and hit the earnings of natgas producers.
> Spot prices in the west and mid-continent are already in the 2.50-2.75
> range, intelligencepress.com/.../
> There is no indication that industrial demand is increasing despite
> the historically low prices. Companies like CHK have already cut
> production by several hundred million cubic feet per day. This gas
> can easily be brought back to the market should demand increase and
> is thus an overhang weight on prices.
>
> The rig count is misleading because the shale plays are so incredibly
> productive. Watch production, not the rig count.
>
> UNG and other etfs represent speculation in futures and swaps. They
> do not and can not take delivery of natural gas. Thus they cannot
> take gas off of the market. If these vehicles diverge from the
> reality of the physical market, the shorts will sell them into the
> dirt.

Will Natural Gas Be the Next to Rally?

Mark--I generally agree with you, but don't make too much of producing in order to hold leases. Re: holding by production--most Haynesville and Barnett leases are 3 year primary terms, while in the Marcellus your're looking at 5 to 10 years. Also, most leases have renewal options in them, and even if a company lost a lease, the big land plays are over and the cost of executing a new lease way, way down. Technical problems with Shale shut-ins and hedge positions are the biggest reasons why you won't see large scale shut-ins, and the very high volume shale wells, like 4bcf+, will lose money sub $3, but not that much--so its more economical to keep flowing them when factoring in cost of shut in and refracing.


On Jun 08 01:51 PM Mmarrkk wrote:

> Why is LNG favored? Because people invested billions and billions
> into the facilities and now will run them at their ultra low operating
> cost structure and ship the gas. Once you've made a $5 billion investment,
> you have to get revenue, even if you make a very small profit margin.
>
>
> Shale gas production increasing like a flying banshee...whatever
> that means. But yes, gas production from the shales continues to
> skyrocket, even though storage is very high and prices are at or
> below the increment cost to drill, complete and operate the new shale
> wells. Part of that has to do with the expiration of leases...you
> have 3 years to drill and if you don't you lose the lease and have
> to re-lease at higher costs. So folks are drilling lots of wells
> to "hold the leases" with production. Production holds the lease
> for as long as the production continues.