I just saw a Florida Power & Light TV commercial where they literally show a coal plant being blown up and replaced by a shiny new natural gas plant. They're bragging about how green they are. Believe me, these power companies aren't switching it all back. And since they're a utility and their margins are protected, they'll just charge more.
So we're below the 5-year average, but we're really above it. The bears are in denial.
Bears have this delusion that coal prices won't ever increase, putting a permanent cap on natural gas prices. That's irrational. With coal more in demand because of rising natural gas prices, coal producers will demand higher prices for their coal, which will feed back into the natural gas market and prices for both commodities will follow each other higher.
It warms up in the spring. Spring is not a market event. I'm saying demand will at least stay flat from 2011 and production will continue declining. I don't see where people get the idea we're going to race against the norm and have enormous builds. They say markets climb a wall of worry. Well, the nat gas market has climbed a Mt. Everest of worry for 12 months and it's still climbing!
Powerburn was predicting storage levels would be 2.1 or 2.2 TCF now. He was only off by 500 BCF. Give me a break.
Also, on 6 million real BOE, it's selling for around $200 per flowing barrel. Since they just paid $400 per flowing barrel, I'd say these assets are selling for a big discount to fair value.
Yup. -37. The bears kept saying we're above the 5-year average. Look at the inventory. Well, that's gone. Now they're saying storage doesn't matter. Rigs don't matter. Storage doesn't matter. They're starting to sound ridiculous. Longer we hang around these levels, the more likely we break out of this price range.
If you figure 6 million real BOE as an year-end number and $80 EBITDA per barrel, then you're close to 2X debt over EBITDA. Next year it falls closer to 1X with four rigs running all year. Seems like a good deal to me. I'm a buyer.
The greatest gains in drilling efficiency happened years ago. Over the past 12-24 months, there was been almost no gain in drill times. Yes, in some plays wells are drilled faster because the laterals are shorter, but if you look at the company's own presentations, with only very few exceptions, there was no gain in drilling efficiency in 2012. Sorry, but those are the facts. And you see it in the production estimates. The companies are simply unable to keep production flat with sub-400 rigs. They are telling you that. I'd believe them.
Production has dropped and will continue to fall over the course of 2013. Seeking Alpha is not a definitive source of anything factual. Go to the company presentations. I defy you to show me what company is reporting a meaningful increase in drilling efficiency from 2011 to 2012. The biggest efficiency gains happened in 2007-2009, which is what you would expect. It's a typical decline curve. Best returns are in the beginning.
Deflation? What deflation? The price of everything but natural gas is up. Nat gas has lots of catching up to do...
Are you saying all the shifted demand in electricity generation will just flow back to coal? You've got utilities who are being forced to become cleaner and burning nat gas is a lot cheaper than retrofitting a dirty coal plant. Some demand may shift back, but most can't or won't. Also, you have more use coming from residential, transportation, and industrial that will offset any switching back. Even if demand stays flat this year, with production down 5% and no more excess inventory, there's going to be an enormous hole to plug this year. We burned an extra 900 BCF last year. 5% less production as predicted by the companies (or more) is a decrease of 1.2 TCF. 2+ TCF is a big hole to fill, and $4 gas ain't gonna do it.
2012 dry gas production: 1129 BCF
2013E dry gas production: 1030-1070 BCF
According to the April investor presentation, only 14% of 2013 CAPEX is being directed at dry gas and liquids will represent 100% of total production growth. What the hell are you talking about?
Apache never said they were selling deepwater GOM, although I wish to God they would, along with international and LNG. Become a smaller, better capitalized, faster-growing pure domestic onshore oil and gas company. But Farris is such a genius he doesn't need any help.
They needed 5-600 rigs last year to keep production basically flat. Drilling efficiency is not improved YoY. 400 rigs (or fewer) just aren't enough to keep production flat, which is why the biggest nat gas producers are all predicting a decline in production of 5-10% even with completing already drilled wells. On top of that, we won't have an excess inventory this year to burn. Finally, demand is increasing. Put it all together, and you really only have one direction for nat gas prices to go: up.
And the rest of the company (Horn River, Niobrara) is worth $500 million. Sounds about right.