Q3 2009 Earnings Call

October 22, 2009 10:00 am ET

Dispatch From the Marcellus: Natural Gas Prices and the Shale Paradox

In the middle of this decade, E&P companies were spurred on by rising commodity prices and easy credit to find and develop new sources of domestic natural gas–most notably shale gas. The forces that enabled this phenomenal growth in domestic gas production–the great asset and credit bubble–have vanished into air, into thin air.

The ETF Innovators Global Carbon Trading Index tracks the performance of 20 companies (summarized in accompanying table) from a starting value of 21,687 on 1/19/09 which are involved in a variety of green business activities, including the following:

• Financial exchanges for carbon credits
• Renewable energy projects resulting in the generation of carbon credits
• Greenhouse gas capture
• Waste-to-energy projects
• Investment funds which specialize in clean energy companies.

The Global Carbon Trading Index has lost about 15% of its market value in the past five weeks to a level of 18,497. Initial enthusiasm for the space (with the election of President Obama) has faded given the realities of a global economic slowdown and bear market for stocks.

Q4 2008 Earnings Call

January 29, 2009 10:00 am ET

The accompanying table(click to enlarge) includes 19 companies in the ETF Innovators (ETFI) Global Carbon Trading Index along with the prices of seven benchmark commodities and funds. The Carbon Trading Index rallied over the past month along with the overall market, although the gains were less than the overall market and the index has declined by more than 50% in the past six months.

Q3 2008 Earnings Call

October 22, 2008 10:00 am ET

click to enlarge

Living in a small town in Western Pennsylvania, I am within 20 miles of several active windfarms, a Gamesa (GCTAF.PK) wind turbine manufacturing plant, a resurgent coal mining industry, Waste Management (WMI) landfill gas capture projects, and natural gas exploration as part of the Marcellus Shale deposit.

CNX Gas (CXG) is an independent natural gas exploration and production company based in Pittsburgh with operations concentrated in the Appalachian basin, including many locations near my hometown in Western PA. The Company has increased its acreage position by 345% over the past three years to a total of 3.8 million acres through a mix of coalbed methane [CBM], unconventional shales, tight sands, and conventional deposits concentrated (63%) in the Appalachian basin. Proven reserves account for just 7% of the 3.8 million acres, with partially-assessed and un-assessed acres accounting for 46.5% each. The Company’s CBM assets alone are sufficient to achieve its 100 Bcf strategic goal by 2010 by simply tapping these reserves.

Q2 2008 Earnings Call Transcript

July 30, 2008 10:00 am ET

The Marcellus Shale is quickly becoming the biggest thing in the U.S. natural gas industry since the Barnett Shale. You can hardly watch CNBC without hearing Jim Cramer talk about the Marcellus Shale and his “wildcat drillers.” As investors, we know that if you want exposure to the Marcellus you cannot just buy any company with Marcellus acreage. You need to buy the company with the greatest exposure to the Marcellus if you want to maximize your investment gains.

Unfortunately, I have not been able to find any publicly traded company that is a true pure play on the Marcellus Shale. But, after looking at the different companies involved in the play, some clearly stand out as having more exposure than their peers. The following table shows the enterprise value per acre of the Marcellus Shale drillers:

Methane is a greenhouse gas with global warming potential. However, it is one of the cleanest burning fuels, as it is the purest form of natural gas and is much cleaner than burning coal. The sources of methane gas are natural gas fields, decaying organic wastes of solid waste landfills, such as manure, wastewater sludge, municipal solid waste and landfills, and coal deposits from coal bed methane extraction.

Coalbed methane generally consists of at least 95% methane unlike natural gas, which has methane plus significant quantities of ethane, propane, butane, and pentane, as well as carbon dioxide, nitrogen, helium and hydrogen sulfide. The heavy hydrocarbons need to be extracted before the natural gas is distributed, but methane can be used as fuel right away. Methane from coalbed reservoirs can be recovered economically, since it resides in coal seams at shallow depths.

Last week saw the price of crude oil inch closer to $140/ BBL. Some economists believe the price rise is mainly due to the world oil supply shortfall of about 4 million barrels per day [MBPD]. Proof of the shortage can be seen in the production numbers of the largest US multi-national oil companies ExxonMobil (XOM) and ConocoPhillips (COP), which fell 11% in Q1 2008. Last week Saudi Arabia agreed to increase crude oil production by 500,000 BPD to offset world shortfalls. So critical is the shortfall and the sensitivity of the gasoline price, that last week the US Senate defeated the Climate Change bill. Experts predict a crisis in 10 years when Iran curtails exports due to depleting crude oil production rates.

The US consumes about 21 MBPD of crude oil of which 5,102,000 BPD of crude oil is produced domestically. A typical refinery produces about 44% gasoline, 22% diesel distillates, 9% Jet fuel, 4% heavy fuel oil, 4% liquefied petroleum gas (LPG’s) and 17% other products. In 2008 US gasoline consumption is expected to be about 9,308,000 BPD of which 9,100,000 BPD is produced domestically.

CNX Gas Corporation (CXG)

Q1 2008 Earnings Call

The market sold off last week after seeing gains since the March 10th bottom. We broke the Russell 1,000 into deciles (10 deciles of 100 stocks) based on stock performance from 3/10 to Friday, April 4th and calculated the average stock performance of each decile during last week's selloff (4/4 close to 4/11 close).

As shown below, the stocks that were up the most during the rally were down the most last week, indicating that investors were taking recent gains off the table.

We recently gathered the amount of buy and sell ratings that analysts have on each stock in the Russell 1,000 to see which ones analysts are currently the most bullish or bearish on. We treat consensus analyst recommendations as a contrarian indicator. When a stock has a high percentage of buy ratings, it makes it harder for analysts to get more bullish on the stock, hence the next direction in ratings is down. Conversely, when a stock has a low percentage of buy ratings, things can't get much worse, and the upside is much larger.

There are many stocks that are down significantly this year that still have a high percentage of buy ratings. The poor stock performance means analysts will most likely begin to get more negative in their recommendations.

The bi-monthly short interest numbers were recently released, and below we highlight stocks with the biggest one-month increases and decreases in short interest as well as the stocks with the highest and lowest short interest as a percentage of float.  We also provide each stock's year to date percent change to show whether or not the shorts are winning or losing.  Over the last month, DLB, ATO, UNM and FWLT saw the biggest increases in short interest, but none of them currently have a high short interest as a percentage of float.  AIZ, FCS, ABI and GR saw the biggest one-month decreases in short interest.

click to enlarge

Q4 2007 Earnings Call

January 29, 2008 11:00 am ET

The results are in, and the list, which included names from several economic sectors, produced above-market returns.

Note in the results below that I omitted Laureate Education (LAUR), which I had mentioned in the article as in the process of being acquired as well as Hub Group (same reason, but I had neglected to mention it).