Money Morning
I've briefed Wall Street before.
This time, however, the 57th floor conference room
is packed.
Some heavy hitters invited me
to explain why natural gas is the upcoming energy play.
By the size of the crowd, it seems the word is getting around.
The last time interest was this high, natural gas
contracts on the New York Mercantile
Exchange (NYMEX) were racing past $14 and
the dominant players were making a fortune.
We're about to see them try it again.
Exxon Mobil Corp.'s (NYSE: XOM) recent acquisition
of shale gas producer XTO Energy Inc. (NYSE: XTO),
for example, is only the first
of several moves we're about
to see as the sector shakes itself out again.
This time, however, average investors
can move early and reap the benefits.
In a matter of days, gas contracts
have jumped more than 25%, approaching $6.
That's sparked an interest in production.
But there's a supply glut right now, so prices
can't go much higher.
Not in the near term, anyway.
And that means the largest producers
won't necessarily provide the heftiest returns.
For investors, the real money's in
operationally efficient companies, like the ones
I'm about to show you.
They boast prime field locations, too.
And they keep extraction costs low.
In the long term, of course,
the fundamentals for natural gas
are spectacular.
Demand Will Be Higher Than Analysts Expect
The Department of Energy projects a 15% rise in U.S.
demand over the next two decades.
But it will be higher than that. More power production
from gas generation (instead of coal)
and widening industrial applications
should push the increase closer to 20% to 22%.
It gets better, though.
Unlike crude oil, we have enough
gas reserves to cover all of our needs
for at least the next century.
And natural gas demand is
increasing much faster in
other parts of the world.
That gives U.S. producers
of liquefied natural gas
more export potential.
So how can investors
profit from natural gas now?
Here's what I told the fund managers
and high-net-worth analysts in New York…
* U.S. demand is returning and natural gas
is becoming the fuel of choice.
But a tighter market means cheaper production
will be nudging more
expensive operations out of the picture.
* Smaller producers - ones that can provide
constant volume at cheaper rates - will be
the smart investment moves. Lean, hungry,
niche operations are the ones who will make money.
* Unconventional production, especially shale gas,
is providing more volume at lower prices
than fast-maturing free-standing gas fields.
* Pipeline developments in the U.S. will be
leveling off major regional price differences
and improving the bottom line
prospects of well-focused companies.
Now, people who attend my Wall Street briefings
are usually making seven figures or more a year.
These "market gurus" are supposed to be
on top of the movers and make the correct calls.
But that's usually not the case, especially
in the energy market. That's why they call me in.
(It doesn't hurt, of course, that my data banks regularly
follow 523 publically traded North American oil
and gas producers, along with hundreds
of overseas service providers and companies.
As the energy sector heats up,
several new ones are added each week.)
But while I'm quite content to invoice
the Wall Street gaggle for my services,
I never give these overpriced prima donnas
investment advice.
They serve merely to drive
the current herd mentality in the Big Apple,
often adding to the problems.
They also burn out too quickly,
replaced by another crew of
even younger, less-experienced hot shots.
How young?
One of them actually rode into
my briefing on a skateboard!
These guys are not the real driving force
in the market.
That role is occupied by
millions of individual investors - the real
soul of the free market.
That's why I making my recommendations
here, for people like you...
The Top 5 Natural Gas Companies
Applying the four points above, these are
the top five natural gas producers to watch.
They have all moved up sharply
in recent trading and are
primed for further advances:
* Chesapeake Energy Corp. (NYSE: CHK):
Up 16%, December 8-18.
* Devon Energy Corp. (NYSE: DVN): Up 9%.
* EOG Resources Inc. (NYSE: EOG): Up 8.5%.
* Newfield Exploration Co. (NYSE: NFX): Up 19%.
* Range Resources Corp. (NYSE: RRC): Up 18%.
All of these companies are focused.
They're well managed. They have efficient,
cost-effective operations.
They're well located. And they're
of moderate size.
They also share another
interesting characteristic: They're all
primarily shale gas producers.
Devon and EOG are leaders in
the Barnett Shale (Texas), Newfield
in the Woodford Shale (Oklahoma),
Range in the Marcellus, where Chesapeake,
already a major shale gas producer
in the southwestern U.S.,
is now the largest lease holder.
And there are other producers
coming up right behind them.
As the Exxon acquisition of XTO indicates,
majors are looking to add companies
having developed shale gas production.
That will put the aforementioned
five in play as M&A targets.
[Editor's Note : Dr. Kent Moors, now
a regular contributor to Money Morning,
is the executive managing partner
of Risk Management Associates International LLP,
a full-service global management consulting
and executive training firm.
He is an internationally recognized expert
in global risk management, oil/natural gas policy
and finance, cross-border capital flows,
emerging market economic
and fiscal development, political,
financial and market risk assessment,
as well as new techniques
in energy risk management.
Dr. Moors has been an advisor to
the highest levels of the U.S., Russian, Kazakh,
Bahamian, Iraqi and Kurdish governments,
to the governors of several U.S. states
and the premiers of two Canadian provinces,
a consultant to private companies,
financial institutions and law firms
in 25 countries and has appeared
more than 1,400 times as
a featured television and
radio commentator in North America,
Europe and Russia.
He has appeared on ABC, BBC, Bloomberg TV,
CBS, CNN, NBC,Russian RTV,
and regularly on Fox Business Network.]
Link here
--
J-L K
Sent from Kigali, Rwanda
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