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roundup21NATURAL GAS INVENTORY (Week Ended 12/26/14)

Current: 3,220 Bcf

Actual Injection/(Withdrawal): (26) Bcf

Economist Average Estimate: (35) Bcf

Previous: 3,246 Bcf

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ANALYST COMMENTARY

UBS Investment Research (12.31.14)

Storage withdrawal below expectations

Storage fell 26 Bcf, below consensus expectations of 32 Bcf and the UBSe range of a 35-45 Bcf withdrawal. This week’s withdrawal is below both the 97 Bcf withdrawal in the comparable week last year and the 5-year average of a 114 Bcf withdrawal. Inventories decreased to 3,220 Bcf, widening the surplus vs. last year to 246 Bcf and narrowing the deficit vs. the 5-year average to 74 Bcf.

Weather last week was warmer than 2013 and the 5-year average

Last week’s weather was 15% and 18% warmer than the comparable week last year and the 5-year average, respectively. Since September, weather has been 10% and 4% warmer than last year and the 5-year average, respectively. Approximately 61% of HDDs remain ahead of us.

Forecast a 115-125 Bcf withdrawal next week

We forecast a 115-125 Bcf withdrawal next week, compared to 2013’s 157 Bcf withdrawal and the 5-year average of a 149 Bcf withdrawal. Over the last month, the weather-adjusted S/D has been 4.3 Bcfd oversupplied vs. last year and 3.5 Bcfd oversupplied vs. 5-year average. Given the current weather-adjusted oversupply, we forecast storage to exit the winter at 1.9 Tcf (above the 5-year average of 1.71 Tcf).

E&Ps discounting long-term prices of $4.00/Mcf This compares to the 2015 & long-dated (2018) futures curves of $3.11/MMBtu and $4.00/MMBtu. Our top E&P picks are: APC, CHK, EOG, EPE, PXD, and WLL.

Analysis

Last week’s withdrawal implies that the weather-adjusted S/D balance loosened ~1.85 Bcfd WoW. We estimate the weather-adjusted S/D has been 4.3 Bcfd oversupplied vs. last year and 3.5 Bcfd oversupplied vs. 5-year average over the last 4 weeks. The 2014 storage injection season set a record injection of 2.8 Tcf, exceeding the previous record of a 2.5 Tcf injection in 2003. And while storage is entering the winter ~0.3 Tcf below normal, the weather-adjusted S/D balance is ~3 Bcfd oversupplied because of robust production growth. Assuming normal weather, storage is tracking to enter the winter of 2015-16 well above 4 Tcf. Consequently, we expect downward pressure on the 2015 natural gas strip to tighten the S/D balance. We forecast a 115-125 Bcf withdrawal for next week. We forecast natural gas prices will average $4.45/MMBtu in 2014 and $3.75/MMBtu in 2015.


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Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.