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  • rrb1981 rrb1981 Apr 26, 2009 10:12 AM Flag

    Don't know why this continues to go up with natural gas falling.

    I don't disagree that many producers will go broke, but I would bet my bottom dollar that a heck of a lot of small, independent privately held producers go under before the well capitalized independents (read EOG, DVN, RRC, NFX, XTO, XCO, HK, KWK, CHK, ATN, APC, APA, XEC, SWN) go under. While the shale plays have proven that the US has many decaded of supply at hand, the point remains that the US must drill it to extract it. With prices at $3.20/mcf, drilling is slowing down (not grinding to a halt, which would really hasten the solution). I think most producers have stated that they need around $6.00/mcf to keep things steady. The pendelum swung to far upward and resulted in an oversupply. Now it will swing too far the otherway and result in serious supply decreases. Eventually equillibrium is reached. My guess, and the futures strip says that price is around $6.00/mcf to $7.00/mcf.

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    • Very good post.

      I would add that winners will be those positioned for
      (a) low cost producer status (like those who know how to leverage that horizontal frac) or
      (b) any kind of premium advantage, for instance closer on the pipe to eastern markets (watch Utica Shale JPs).

      Also take a look at those MLPs such as Williams that transport the commodity. Will do well as volumes ramp back up post-recession, meanwhile you get paid to wait.

      I like anybody involved in and around Haynesville shale right now. 2010-2016 I love the St. Lawrence lowlands.

      Good luck longs.

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