Chad Brand

Anadarko's Dual Acquisition Doubles Its Size

I would agree on some points and disagree on others.

There is no doubt that the energy industry is cyclical, but I do not believe the cycle has peaked yet. The NG stocks have been weaker relative to the oil names since the underlying commodity price has been relatively weaker and the stocks in the short term track the gas price. the question is, does NG present a better value now because of that. We could be one category five hurricane away from $10 NG, but the stocks are pricing in $6. And I do not think we will have warm winters every year. That is a big reason why inventory levels are high right now.

I disagree that LNG will bring down NG prices from here. Both the 12 month and 72 month futures strips are pricing gas at more than $8, and LNG being considered in that pricing. I think the futures markets are right about NG price trends. If we go to $3 then, yes, the stocks have peaked. However, I am taking the other side of that trade. The next $2 move should be up, not down, and could come as soon as a storm hits, or we get a cold winter. All of this gas drilling is proving extremely profitable, and the firms are even hedging production (APC to hedge 75% of production from their mergers) to lock in prices since the futures markets are over $8.