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PetroQuest Energy Inc. Message Board

  • cdknop cdknop Aug 8, 2007 5:58 PM Flag

    A Bearish Outlook for PQ

    The weekly natural gas inventory report comes in at 9:30 tomorrow. Chances are, it will show another small build, around 10-25 BCF. That compares with a significant draw-down last year.

    Mild summer. No hurricanes. Predicted mild winter. Increasing LNG supplies going into 2008, as Corpus and other facilities come on-line. New Anadarko pipeline in Louisiana in ramping up natural gas supply ahead of schedule, and expected to flow over 1 BCF/DAY by year's end (already over 150MMCF/day). For Petroquest, with it's 50% debt ratio, the credit market is a concern. If natural gas prices plunge, petroquest will not be able to get future loans and will not be able to finance its debt. In that scenario, it will have to sell some of its assets at then fire-sale prices. It's hard to believe this could happen to a company with good cash flow numbers, but it is entirely possible. Especially when the drilling program isn't particularly exciting. In this business, if you don't keep drilling, your production will go down. Look at what happened to Pogo (PPP), which was bought by PXP a few days ago. The company languished without a drilling plan, and then was bought out at essentially no premium.

    All this is is happening while other natural gas producers increase production. With demand staying down and actually decreasing this year, that bodes badly for prices. Coal prices are also down, and going lower. Look at the futures... by 2009 the average is 7.50/MMCF. That will go lower as LNG spreads increase. They have so much excess gas in Africa, it takes a lot of convincing for them not to flare it. As LNG capacity and cost goes down, much of that LNG will be coming to the Gulf coast.

    There are storm clouds on the horizon for natural gas producers.

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