Sprott Analyst Has Zero Doubt on Higher Natural Gas Prices

Introduction: We talked with Sprott Asset Management Research Analyst Eric Nuttall about the natural gas situation in Canada and the fate of many CBM gas producers and developers. Since our last conversation spot natural gas prices have dropped by 15 percent. Natural gas storage levels are about 2.5 trillion cubic feet, some 423 billion cubic feet higher than a year ago.

Eric Nuttall told us, “Nearly all small-cap natural gas producers have taken it in the teeth this year. The price decreases in their stocks have been absolutely brutal. There are now companies whose stocks are down 40 percent year-to-date, and yet are still strongly growing production on an adjusted share basis.” How will the CBM and natural gas sector pan out through the end of this year? He believes the gas storage surplus will correct itself.

StockInterview: How are the lower natural gas prices impacting Coalbed Methane producers?

Eric Nuttall: For many CBM or shallow gas producers, this means their current drilling program is likely uneconomic, suggesting deferrals in drilling programs until natural gas prices strengthen. It is this very supply response that we need to balance storage levels, so it should not come as a complete surprise.

StockInterview: What, then, should investors do while storage levels are rebalancing?

Eric Nuttall: I would view this period as an opportunity for medium to long-term minded individuals to start building positions in not just unconventional gas producers, but conventional ones as well. The long-term fundamentals are still extremely bullish for natural gas. Many quality names are down 20 to 40 percent year-to-date.

StockInterview: How do you view the long-term fundamentals for gas?

Eric Nuttall: North American natural gas production has been in decline for several years. Most incremental production is coming from smaller, more expensive-to-drill, thinner economic, higher decline pools and reservoirs. Over the past five years first-year decline rates on natural gas wells have doubled to 50 percent. The base decline rate has also doubled to approximately 25 to 30 percent. Pool size has also decreased materially over that time frame. The Western Canadian Sedimentary Basin and much of the US producing basins are mature. Consequently, higher and higher natural gas prices are required to create incentive for producers to drill increasingly marginal wells.

StockInterview: And you expect a continuation of declining natural gas production? And that is that your premise for higher natural gas pricing?

Eric Nuttall: Conventional gas production has been in decline for many years, and the growth areas have largely been unconventional, such as the Piceance Basin (tight gas), the Barnett Shale (shale gas), and the Jonah Field (tight, deep gas). Also, many of the growth assets, such as the Barnett Shale, are already a few years into development, and because the wells have such a steep decline rate in the first few years, it is only adding to the depleting base that we have to make up. It is unlikely that over the next three years, the increase in unconventional gas can offset the decline in conventional, because the depleting base is so much larger. The major natural gas basins in North America are mature. Decline rates are increasing. Pool size is decreasing. Rig count is increasing yet production is at best flat. Until LNG imports increase in a material way, which is not expected for at least four or five more years, I think the case for healthy natural gas prices is intact.

StockInterview: Earlier, you noted drilling was more expensive.

Eric Nuttall: Over the past year, onshore drillings costs are up over 15 percent while operating costs are up over 10 percent. A recent Wall Street Journal article commented on how rig rates for the Gulf of Mexico, on very deep drilling platforms, are as high as $520,000 per day, up from $185,000 a few years ago. And the drilling platforms are still leaving the Gulf of Mexico! Although many are leaving the Gulf of Mexico to go to more prospective areas such as the West African Coast, the current rig situation is still somewhat tight in the Gulf. We have only begun to see signs of moderating rig rate pricing.

StockInterview: How would bad weather, such as a hurricane, impact natural gas prices?

Eric Nuttall: Short term, you would see both natural gas and related stocks surge. If a hurricane strikes the producing area of the Gulf, and we almost need one to – to correct the surplus supply situation. Initially, you’ll have an emotional upward response. Only after assessing the status of production platforms and sub-sea infrastructure would we know the longer-term impact.

StockInterview: Should investors be watching the Weather Channel and ready to phone their stockbrokers?

Eric Nuttall: Timing on any natural gas investment right now is tricky. You need to have a medium- to longer-term focus. We probably have another two months of volatility. There are two camps right now on natural gas. One camp is saying that due to bloated storage levels companies are going to increasingly lay down their drilling rigs, cut production guidance, and stress their balance sheets. Then in the fall, when companies set their 2007 budgets, they will be using low gas prices and presenting moderating production growth profiles to their investors.

StockInterview: What does the other camp say?

Eric Nuttall: Another camp says that the current natural gas strip already discounts the present and forecasted storage levels. Also, stocks are cheap on a price-to-cash flow and price-to-net asset value ratios, and now is the time to load up on the stocks. I lean towards this viewpoint. But I am also admitting that until the fall, barring a severe hurricane, it is likely that the stocks are going to trade sideways, as opposed to in any clear direction.

StockInterview: One equities strategist, whom we interviewed, suggested some time in August we might start to see the natural gas stocks moving higher.

Eric Nuttall: There is the potential that we might endure another month or two of flat trading in small cap natural gas stocks. By the end of August, it is likely that we will have had both a supply and demand response – worries of massive laying down of rigs, forced well shut-in’s, and overleveraged balance sheets should have subsided. Investors will begin to focus on the natural gas strip rather than spot prices, which currently are around $9.00 for the upcoming winter and $8.00 for next summer.

StockInterview: And until then?

Eric Nuttall: Until that time comes, I think it likely, as a group, the large caps will outperform. They are more weighted towards oil, and have recently been catching a bid on the heel of a huge $22 billion all-cash takeover by Anadarko of Western Gas and Kerr-McGee. Importantly for unconventional gas investors, Anadarko paid around $2.00 for 3P (Possible) Mcf, which is very healthy (Western Gas was predominantly tight gas in Wyoming and coalbed methane in the Powder River Basin). It speaks to Anadarko’s view of strong long-term natural gas fundamentals. These all-cash transactions likely set the bottom in the large caps.

StockInterview: What do you see for the near-term?

Eric Nuttall: Many people have been hoping that warm weather or hurricanes would assist in working off the excess supply, but Mother Nature hasn’t been terribly helpful so far this summer. It appears that we will exit the natural gas injection season at least 10% over last year. Barring any incredible heat waves or significant hurricanes, natural gas prices are likely to remain sub-$6.50 until the fall. Unless we have a serious hot spell or a significant hurricane, it is likely that natural gas stocks will be very volatile without clear direction over the summer into the fall. I would think not until the fall, probably September – October, when people begin to focus not on natural gas spot prices, but on the strip pricing for the winter, which is still over C$10. Until that time comes, I wouldn’t see any clear direction in the stocks. The market is now providing opportunities to buy companies with high quality management for below-average multiples, commonly measured on a price-to-cash flow metric.

StockInterview: Have you given up on the CBM sector or is it coming back?

Eric Nuttall: There is zero doubt in my mind that natural gas is an excellent long-term investment. We’ve peaked in our ability to increase production meaningfully, just as we have with light oil. I think for there to be an increase in long-term natural gas supply, you have to provide incentive to producers to go drill wells that increasingly have lower economic rates of return. And to do that, you need higher natural gas prices. One of the few remaining growth prospects in Canada for natural gas production is coalbed methane. At current gas prices, the economics are very challenging. So to get a supply response from coalbed methane producers, you again need higher gas prices. The current surplus in gas storage will correct itself, and investors should position themselves ahead of natural gas stocks reacting to this inevitability.

COPYRIGHT © 2007 by StockInterview, Inc. ALL RIGHTS RESERVED.

Productivity is Not a Bad Thing

Productivity is a great thing. I do not believe that you have to schedule every minute of your day or that you have to be in work mode 24/7. I do believe that it is important to do our jobs and do them well — whether you are an investment banker, an office manager, an artist, a stay at home parent, or a research analyst.

I read a lot of books and blogs and I have seen people on both sides of the productivity issue. Some people say “get as much done as possible.” Others have a “who cares about productivity?” or an anti-“life-hack” attitude. Of course, there is everything in between.

The dictionary defines productive in the following ways:

productive

–adjective

1. having the power of producing; generative; creative: a productive effort.

2. producing readily or abundantly; fertile: a productive vineyard.

3. causing; bringing about (usually fol. by of): conditions productive of crime and sin.

It is not a bad thing to produce, to generate, to create. Most everything we have in life was produced–the food we eat, the clothes we wear, the movies we watch, the music we listen to. I would be pretty let down if musicians stopped producing great music for me to listen to. I do not plan on being a hunter or farmer any time soon, so I appreciate the productivity of people who help produce the food that is on my table.

While we often have to go the extra mile at work, or put in more time at certain points, do not work yourself to death. Work is important–but if it kills you, what good is that? Step back for a minute if you feel overwhelmed. Take time for yourself. Relax. Have fun. Take a vacation–even if it means not leaving town, but just spending time at home with family and friends–or alone.

Once you adopt a healthy view of productivity, you will stop seeing it as the enemy. You will not feel as pressured to always be in “go!” mode or to shun the idea entirely.

What is your view of productivity and how does it impact you?

Copyright 2008, Alaia Williams. All rights reserved. No portion of this article may be reproduced without the express permission of the author.

Get the Most From Market Research Companies

Market research companies help your company and businesses to grow with pace you want providing market stats and reports with deep market analysis. Hiring a company is always a good decision for new start-ups and also for growing business. Reports with eye on future market trends, competitors and with view to customers’ perspectives always is helpful for all businesses. When a company hires a company, that’s always a right decision for the betterment and growth of the company.

Keeping an eye on future market and potential clients is what a good business house thinks of. Past market trends and future market trends always help to analyze the potential market situation in particular market segment. That’s possible with survey which is provided by companies with their expertise to target certain people to respond. Survey is not mere asking people about their response to certain product or services, but it is aimed to know what customers needs, likes or dislikes, their outlook on new products. Survey can also help the companies to come out with changing market trends and new perceptions about the products.

Company has team of research analysts who understand and analyze the market scenario with the help of online. Online is not a mere simple research tool for a company but this needs expertise to use in the right way to come up with authentic market stats and data. Data collated with online is well drafted in the form of reports delivered to companies who need for their market segments. To make a survey successful you need a database of past clients, present clients or potential clients as per the need to which survey is aimed.

When a company hires companies their aim is to know what is the market demand, what new concepts are coming up in the market, what the customers are looking at. This is possible only with certain questions the company gets answered with online done by companies. Doing online is not as easy as it spells, but it needs a certain amount of expertise, knowledge of particular market segment, understanding the importance of research resources to fetch the authentic data.

I am sure this article will help the growing companies to understand the importance and usefulness of reports from companies. Online is the well defined research tool used these days to know the market scenario, do competitive analysis and come up with new concepts which are the need of the current competitive market? All this is possible with the help of company who understand what the client needs, what sort of reports is the best for your business, gets the questions answered with online market survey and who else than Visha Consultants can provide the same. The company is the best company in India who understand the market well to help your business grow. To know more well visit http://www.vc-india.com

A Career in Market Research

Market research offers a wide array of job profile from which you can make your selection. In essence, the market research wing of any company plays a pivotal role in helping the company make profits through selling their products. This department collects facts, analyzes them, and compiles the findings into a report which also contains suggestions about the possible steps that the company needs to take in order to sell its products.

Market research careers are high paying jobs and have been identified to be job spheres that hold much promise of growth. While an average employee earns around 61k annually, few of the best professionals working in this department for the top notch companies rake in over 100k a year.

Now if this little trivia has got you interested in market research jobs, then allow me to elaborate on the conditions that you need to fulfill in order to bag a job. Not only do you need a bachelor’s degree in marketing, you need to have other qualities as well. Depending on your attributes, you are sorted in to different working units within the market research department.

To understand market research career profiles, you need to understand the types of job posts available in this wing:

• Market Research Manager- If you have good supervisory ability and can do justice to the authority that has been put in your hands, you are a definite manager material. All you need to do is to ensure that the subordinate staff are doing their bit and compiling the report on time. If the department runs slow and fails to turn in their key findings on time, a company is rendered paralyzed for without the feedback from this wing they will be unable to market the product.

• Market Research Executive/ Analyst- These people play an important role within the wing itself. Not only do they chalk out the course of action plan that this wing is going to undertake in order to file the report, but they also play a hefty role in analyzing the facts collected by others working in this department.

People who are market research analysts or executives need to have a critical reasoning faculty apart from the ability to analyze and deduce results from a set of given facts. These are also the employees who work non-stop in identifying the key findings of the primary research work and in filing a strategy based advice report. Since this report is mostly presented in front of the company executives, people working in this unit cannot possibly suffer from public speaking phobia. Finally they also need to have a good grasp over the language, for it is their way of presenting the facts in paper that will earn them brownie points.

• Market Research Worker/ Interviewer- These are the people who are credited with carrying out the work at grass root level. From designing online polls and questionnaire to conducting face to face interview in order to feel the pulse of the market and collect data; they are the nuts and bolts that hold the department together.

Now that you have a fair bit of idea about market research job profiles, I am sure you will be able to get a clearer picture and judge for yourself, if this is the right job sphere for you or not!