National Fuel Gas: A different way to play natural gas
Today's Financial News - Posted August 27, 2009
With oil prices high and gas prices low, investors are pondering the many ways to play the situation. As they follow the herd, National Fuel Gas (NYSE:NGS) leads us in another direction
By Andrew Snyder, TodaysFinancialNews.com
Baltimore – (TFN): The natural gas markets are awry. Even with reserves piling up and demand down, crude prices remain above $70 per barrel.
At the same time, the nation is getting ready to turn off its air-conditioning units and fire up its heaters, yet natural gas remains in ultra-low territory, below $3 per million BTUs.
The action has traders pondering their next move. With the oil/gas ratio above 23 (it averages somewhere around 8 or 10), many traders are hurriedly buying gas and shorting oil.
Only time will tell if the ratio will revert to its mean or if peak oil forces have permanently skewed the statistic.
In the meantime there are better ways to play the situation. Drive to the northern half of my home state of Pennsylvania and one of them will pop right out of the hills in front of you.
Thanks to the massive amounts of natural gas tucked into the folds of the Marcellus Shale formation, the same small towns once abandoned by the coal, steel and railroad industries are welcoming the revenues and jobs created by an influx of ambitious natural gas drillers.
Mountains roads that once saw the light, seasonal traffic from just a few deer hunters each fall are now bustling with trucks driven by seismologists, engineers and roughnecks. Their license plates are stamped with the names of states like Texas, Wyoming and Arkansas.
Not from ‘round here, is ya?
It is obvious by the overflowing motel parking lots and the out-of-state plates these folks do not plan to stay in the area too long. Just long enough to drill a few thousand feet, pump some water into the hole, break the earth and suck up some natural gas.
With annual depletion rates that soar as high as 80% or more, it won’t take long for the big boys to pack up and move on.
But there is one company that will be in the region as long as there is gas flowing. As a pipeline operator, National Fuel Gas (NYSE:NFG) will not be able to simply pump and run. The company will be one of the current boom’s long-term winners.
National Fuel Gas is no small-fry up-and-comer. With a market value of over $3 billion and four major business segments that cover all aspects of the natural gas market from exploration to getting the fuel to your water heater, the company is not going to explode in value overnight, especially because of its moves in the Marcellus Shale region.
But if you are looking for a large cap growth story, this may be a company for you.
We all know the role natural gas is going to play in this country’s future, whether the current administration or the “greenies” care to admit it.
With prices in ultra-low territory, the industry’s spoils are not going to go to the folks pulling the fuel source out of the ground. Instead, the money will flow towards the companies that can deliver natural gas to all the homes and businesses demanding the cheap energy.
With a growing pipeline and supply segment, National Fuel Gas will be a major recipient of the profitable growth in the northeast.
The headline to watch for is the news of the company’s recent open season (a period when pipeline companies take bids for future supply contracts). If the interest is above predictions, shares of the company will jump.
With much of the Marcellus Shale growth just starting to appear, the company is poised for several years of top-line growth.
Over the next four months, all sorts of natural gas investment opportunities will appear. The trick to maximizing your profit potential is investing in the long-term winners with sustainable growth.
In a volatile market, the Street will pay a premium for rock-steady revenues.
Next Article: TFN Special Report: The Top Alternative Energy Stocks Under $6
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