Monitoring The Marcellus: Survival Is Not Mandatory

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Includes: CHK, CVX, RDS.A, STO, UPL
by: Dallas Salazar

Summary

Natural gas has fallen from $2.25 to $1.97 over just the last thirty days.

We thought now would be as good a time as any to update our “Monitoring of the Marcellus” risk management and data-visual series.

We take a data-first as of last close, spatial view of the Marcellus and try to determine what story the unbiased data is telling.

We also try to identify outliers – from both a long and short standpoint – across several ownership durations that might be able to help investors generate alpha.

This deep into the current credit cycle we recommend being extremely data-reliant – but not data blind – in that margin for error is virtually non-existent.

With natural gas falling from $2.25 to $1.97 over just the last thirty days - plummeting from what appeared to be the first series of higher highs in over a year (put in from mid-December 2015 to early-January 2016) - we thought now would be as good a time as any to update our "Monitoring of the Marcellus" risk management and data-visual series. As with prior coverage, we'll use 12-Month Default Probabilities, Credit Default Swap (CDS) pricing, aggregate Marcellus exposure per E&P - in both natural gas breakeven-pricing and trillion cubic foot equivalent ownership (TCFE) terms, and EBITDA growth/contraction rates in our credit-risk and valuation analysis.

We take a data-first, as of last close, spatial view of the Marcellus in an effort to try to determine what story the unbiased data is telling. We also try to identify outliers - from both a long and short standpoint - across several ownership durations that might be able to help investors generate alpha. This deep into the current credit cycle we recommend being extremely data-reliant - but not data blind - in that margin for error is virtually non-existent. We also recommend investors pay particularly close attention to the rate of change for credit data as, again, this has historically been highly predictive. Credit data is virtually always a leading indicator of equity pricing direction.

Our last update yielded several outlier-identified big winners:

  • Chesapeake (NYSE:CHK): -51%
  • Ultra Petroleum (NASDAQ:UPL): -44%
  • Statoil (NYSE:STO): +14%
  • Royal Dutch Shell (NYSE:RDS.A): +9%
  • Chevron (NYSE:CVX): +2%

We hope you enjoy our BI-derived, data-visual dashboards and that this presentation provides something of value in risk management.

Good luck and enjoy.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Editor's Note: This article covers one or more stocks trading at less than $1 per share and/or with less than a $100 million market cap. Please be aware of the risks associated with these stocks.

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