Shale Gas Companies: All Talk, No Walk?

Apr. 08, 2009 1:38 AM ETCRK, DVN, FCG, RRC, UNG, XTO11 Comments
Natural gas prices and stocks have held up better than I had expected. In trying to find out why, I found a couple analysts now indicating the economics that shale gas companies present in their financial statements is not as strong as what they express in their press releases.
This would actually be bullish for natural gas prices and natural gas stocks.
In other words, these gas companies allegedly talk the talk of cheap profitable gas in press releases but don’t walk the walk in showing it in their financials. Yet.
This newsletter has been part of the chorus that natural gas prices are going through a seismic shift downward because of the improved economics and technology behind horizontal drilling (HD) and multi-stage fracing (MSF).
I believe that the downturn in natural gas prices isn’t just cyclical because of the recession/depression and regular seasonal troughs; rather it’s a systemic issue. HD/MSF increases production per well dramatically, and opens up many new low-cost reservoirs, taking the marginal cost of natural gas down from $7.50/mcf to more like $4-5/mcf.
However, a couple prominent research firms have recently shown some data that could disprove this theory.
Ben Dell is the senior energy analyst at Bernstein Research in New York, one of the top sell-side research firms. In a March 27 research note, he notes “a growing discrepancy between the internal rates of return (IRR) presented in corporate presentations and company reported ROACE (return on average capital employed)... For example, in many plays companies claim to generate IRR’s above 100% at $7.50/mcf gas or claim that their production is economical even at $2-3/mcf gas prices, but at the same time report 6-7% ROACE at a corporate level over the last 3 years, when the average gas price was $7.50/mcf.”
Titled “Why the Haynesville Won’t Work…at $4, $5, or $6/mcf

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The Oil & Gas Investments Bulletin ( is an online subscription-based service that finds, researches, and profiles growing oil and gas companies that have high growth rates (or high growth potential.) Its team of writers work under Keith Schaefer, Editor/Publisher, who shares his knowledge of the oil and natural gas markets in a simple, easy to read manner. The Oil & Gas Investments Bulletin has a close association with another Seeking Alpha contributor Investing Whisperer.

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