Friday, April 25, 2008

Natural Gas: Another Sector that Won't Quit - Southwestern Energy (SWN) +15%

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Much like fertilizer, I've been waiting (im)patiently for a pullback in the natural gas group.

While I've been devoted to coal since early last fall, I missed the first part of the natural gas move but woke up to the movement in mid February [Feb 11: An Interesting Development in Natural Gas]

I posted the charts of 6 stocks (this is a very large sector with many large, medium and small players) whose charts were beginning to show some very interesting strength. Let's look at the price appreciation since

CHK +30%
DVN +25%
EOG +35%
KWK +27%
RRC +15%
SWN +39% (with today's spike)

I was a bit skeptical of the early move, so it took me some time to begin to "believe" and I created 2 positions a month later [Mar 17: Beginning First Natural Gas Play - Cabot Oil & Gas (COG)] and [Mar 19: Second Natural Gas Play - EOG Resources (EOG)] I have only had about a 2% stake with these 2 combined so I believe I really missed the boat on this one. Since then I've been waiting for this pullback than never arrives.

I'm still wondering what exactly is driving this group - my guess back in February was perhaps as some coal companies are moving from 10% of production for export to 30%, that is leaving less "energy resources" in the US, which natural gas is coming in to fill the "relative shortage"; coal being much easier to transport overseas. Or it could just be tracking up with the massive move in crude. Either way, with results like this from Southwestern Energy (SWN) - you just have to sit back and applaud.
  • Southwestern Energy Co's (SWN) quarterly profit more than doubled, beating Wall Street expectations, helped by an increase in production and higher realized natural gas prices.
  • The company raised its second-quarter natural gas and oil production outlook.
  • For the first quarter, the company reported net income of $109 million, or 31 cents a share, compared with $51 million, or 15 cents a share, a year ago. Analysts on average were expecting earnings of 25 cents a share, before items, according to Reuters Estimates.
  • Gas and oil production rose 71 percent to 39.1 billion cubic feet of natural gas equivalent (Bcfe).
  • Southwestern's average realized gas price was $7.70 per thousand cubic feet (Mcf), including the effect of hedges, up from $6.71 per Mcf in the same quarter last year. (consider the spot market price is north of $10 and you see the earnings power coming in the future)
  • Average realized oil price was $96.55 per barrel, compared with $55.17 per barrel in the year-ago quarter.
  • The company raised its second-quarter natural gas and oil production outlook to 41.5 to 42.5 Bcfe, up from 36.0 to 37.0 Bcfe.
What I really like about Southwestern is their ability to not only partake in the price increases, but increase their production. This was one I seriously considered but definitely a lost opportunity. Hopefully we get some panic in this group as the dollar "strengthens" ;)

Long Cabot Oil & Gas, EOG Resources in fund; no personal position


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