BrotherMaynard

Beaten Down Natural Gas Likely to Stay Down, Making Producers a Short

horizontal drilling production rates only just went negative in february. those are the most productive nat gas rigs out there. so despite the aboslute fall in # of rigs, the quality and productivity of rigs that have been laid down for months is much lower. rigs cost money and make no mistake, e&p's won't waste a lease.

Beaten Down Natural Gas Likely to Stay Down, Making Producers a Short

From a note put out by Gil Yang at Citi, today:

"We believe that natural gas prices below the cost of marginal reinvestment is no longer sufficient to balance the market. Instead we believe that prices may need to fall below the marginal cash cost of existing production to incentivize shutting in production from existing wells. Thus, prices may need to fall to below marginal cash production costs which are probably in the $2-3.50/Mcf
range.

Our new commodity price forecasts reflect this view where we are setting 2Q and 3Q prices to levels anticipating several weeks of gas falling to ~$3.50/Mcf and below and possibly below $3 for a short time later this year."

Beaten Down Natural Gas Likely to Stay Down, Making Producers a Short

"Although I do understand (and agree) that dollar weakness should act to support all commodities in general"

oil and the dollar have nothing to do with supply and demand. yes a euro can buy more dollars, and therefore buy more oil, but what about the people already holding dollars? A weaker dollar, in and of itself, means that they can't buy as much oil as before. Last time i checked, the dollar was the most pervasive currency on the planet. if you look at any period during the 90's, this dollar/oil inverse "trade" did not exist. i have an idea why it started picking up during the past few years, but i'm not going to say it, as its far from conclusive.

Chesapeake: When Gas Prices Will Recover

"Barclays: US gas needs to go below $4 to balance oversupplied market"

www.platts.com/Natural...

Chesapeake: When Gas Prices Will Recover

Great rationale, weiwentg. this site needs more of this sober analysis. commodities are a completely random variable. all a conservative investor can do is buy a business that can thrive no matter what the price -- Be it $2nat gas or $12 nat gas. CHK used to be able to do that until their capital structure recently became prohibitave. This is, again, where mcclendon's ideologue-mentatlity ("nat gas will never go to $2") has seriously jeoprodized its long-term prospects. Yes they have lots of valuable real-estate...but this is precisely the worst time in history to attempt large-scale, premium-inclusive, monetization of large assets. I'd throw Rio Tinto in this bin, too.


On Dec 11 09:17 AM weiwentg wrote:

> It does sound to me like Aubrey has a handle on his company's financial
> situation and his hedge book. However, what worries me is that he
> seems to assume he can sell assets in every environment. He managed
> recent large sales to BP and Norsk Hydro in a very difficult environment,
> but that's not a reason to assume he can keep doing that. Remember
> what Charles Prince said about how Citi was still dancing?
>
> The comment about Aubrey being a buccaneer really did it for me.
> The guy is hyper-aggressive. I happen to think he has a high chance
> of making it big. That said, there's downside risk in that if natural
> gas gets under, say, $4 for an extended period, I can see a situation
> in which he drives the company into the ground (meaning it needs
> a highly dilutive capital injection or files bankruptcy). Sub $4
> natural gas is a bit of a doomsday scenario, but you can never tell
> what commodity prices will do.

Chesapeake: When Gas Prices Will Recover

Other famous ideologues - Bernie Ebbers, John Mackey, Jeff Skilling...all lived in a perpetual state of denial. The reason why everybody likes them so much is simultaneously why they shouldn't be liked and their stocks should be avoided.