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Every Thursday, EnerCom’s Oil & Gas 360® will deliver media stories, company updates, and research commentary covering the natural gas spectrum. The theme for this week: Turkey Day – Fire Up Your Gas Stoves!

NATURAL GAS INVENTORY (Week Ended 11/16/12)

Current: 3,873 Bcf
Actual Injection/(Withdrawal): (38) Bcf
Economist Average Estimate: (28) Bcf
Previous: 3,911 Bcf

Click here for the chart with five year averages.

NATURAL GAS IN THE MEDIA

*Good Gas, Bad Gas – National Geographic

The last rays of sun filter through the snow-covered spruces along the shore of Goldstream Lake, just outside Fairbanks, Alaska. Out on the lake Katey Walter Anthony stares at the black ice beneath her feet and at the white bubbles trapped inside it. Large and small, in layer upon layer, they spread out in every direction, like stars in the night sky. Walter Anthony, an ecologist at the University of Alaska Fairbanks, grabs a heavy ice pick and wraps the rope handle around her wrist. A graduate student holds a lighted match above a large bubble; Walter Anthony plunges the pick into it. Gas rushing from the hole ignites with a whoomp that staggers her. “My job’s the worst, because usually you catch on fire,” she says, smiling. In the gathering twilight she and her team ignite one bubble after another. The flames confirm that the bubbles are methane, the main component of natural gas. By counting and measuring them, Walter Anthony is trying to gauge how much methane is rising from Goldstream Lake–and from the millions of similar lakes that now occupy nearly a third of the Arctic region. The Arctic has warmed much faster than the rest of the planet in recent decades, and as the permafrost has melted, old lakes have grown and new ones have formed. Methane bubbles from their muddy depths in a way that is hard to quantify–until the first clear ice of fall captures a snapshot of the emissions from an entire lake. – Read More

*New Energy Industry Push For Drilling in the Atlantic – Wall Street Journal

One of the most significant energy issues facing President Barack Obama in his second term is whether to allow oil drilling off the coast of the Atlantic, where production has been off-limits for decades. The energy industry, eager to find out how much oil and natural gas exists under the Atlantic sea floor, already is pushing the administration to allow seismic companies to survey the area. If granted approval, the companies could begin mapping the ocean’s resources as early as next year. Depending on the extent of the resources, the U.S. could soon expand its production base and further cement its role as one of the world’s most dominant energy producers. The International Energy Agency last week said the U.S. is poised to overtake Saudi Arabia as the top global oil producer by 2020. – Read More

*Yates Family Said to Get Disappointing Bids for Oil Firm – Bloomberg

The family that owns Yates Petroleum Corp., one of the largest closely held U.S. oil and gas producers, may opt not to sell after getting lower-than-expected bids, said three people with knowledge of the matter. While Yates Petroleum’s board continues to evaluate the offers, the disappointing bids earlier this month mean it’s unlikely to be able to complete a sale of the Artesia, New Mexico-based company by the end of the year, two of the people said, speaking on condition of anonymity because the talks are private. The family had been seeking a sale by year-end in order to avoid U.S. tax-law changes that take effect Jan. 1 and would increase the family’s tax bill in a transaction, the people said. Yates hired JPMorgan Chase & Co. (JPM) earlier this year to solicit bids from among the world’s largest oil producers, in a sale that may have generated billions of dollars, the people said. Occidental Petroleum Corp. (OXY) and Concho Resources Inc. (CXO) are among the oil companies that reviewed Yates’ books during the sale effort, two of the people said. – Read More

*Gas drilling panel may require pollution insurance – AP

A state panel that is devising rules for hydraulic fracturing for natural gas in western Maryland may require drillers to have pollution insurance. The proposal is on the agenda for Tuesday’s meeting in Baltimore of the legislative committee of the Marcellus Shale Advisory Commission. A draft bill would require drillers to have environmental pollution liability insurance at least $5 million per loss. It also would require permitted drillers to post a performance bond of at least $50,000 per well. The bill would take effect July 1 if it is recommended by the full panel and approved by the General Assembly and the governor. The bill would govern drilling in the Marcellus shale, a large geological formation underlying parts of at least five states, including Maryland. – Read More

*Natural Gas Declines From One-Year High Before Inventory Report – Bloomberg

Natural gas futures fell from a one- year high before a government report today that may show a stockpile decline for last week. Gas fell as much as 1.2 percent before an Energy Department report today that may show a 28 billion-cubic-foot inventory decline in the week ended Nov. 16, based on the median of 24 analyst estimates compiled by Bloomberg. Prices rose 3 percent yesterday on forecasts for unusually cold December weather. “There is a little profit taking before inventories as people get their positions squared up,” said Phil Flynn, senior market analyst at Price Futures Group in Chicago. “We had a pretty good run up on the cold weather.” Natural gas for December delivery fell 2 cents, or 0.5 percent, to $3.812 per million British thermal units at 9:20 a.m. on the New York Mercantile Exchange. Prices rose to $3.832 yesterday, the highest settlement price since Oct. 31, 2011. Gas is up 12 from a year ago. – Read More

*Carl Icahn hikes stake in Chesapeake Energy to 8.9 percent – Reuters

Billionaire investor Carl Icahn, the second-largest shareholder in Chesapeake Energy Corp, has raised his stake in the U.S. oil and gas company to 8.9 percent, a regulatory filing shows. Icahn and investor Mason Hawkins, who owns 13.5 percent of Chesapeake, took control of the company’s nine-member board of directors in June in an effort to shore up its finances and deal with a governance crisis. The new board is contemplating strategies to reduce spending and debt, but nothing has been announced so far. The company’s third quarter earnings report showed debt rising to $16 billion and investors were disappointed when the company said some expected deal closings may be pushed into next year. “Chesapeake delivered solid operational results in the third-quarter, but remains short of capital and allowed some planned asset sales to slip to 2013,” analysts at Raymond James said in a note to clients. – Read More

*Natural gas trading to become more like coal, not oil – Reuters

New natural gas discoveries and rising demand are changing gas from a cluster of regional markets into a global marketplace, but instead of becoming a second oil market gas is likely to become more like coal. Because gas and oil were being produced largely by the same exporters and both fuels were often used in the same industries, gas has historically been pegged to the oil market through long-term contracts. But a rising disconnect between gas and oil suppliers and new bilateral contracts between exporters and their customers based on regional gas exchanges mean that gas, like coal, is more likely to take its cue from specific regional prices rather than global benchmarks, such as oil’s Brent crude. “A new relationship is developing between oil and gas prices,” Axa Investment managers said in a research report published this month. – Read More

*Rich Kinder’s Energy Kingdom –Forbes

The most important man in the American Energy Boom wears brown slacks and a checkered shirt and sits in a modest corner office with unexceptional views of downtown Houston and some forgettable art on the wall. You would expect to at least see a big map showing pipelines stretching from coast to coast. Nope. “We don’t have sports tickets, we don’t have corporate jets,” growls Richard Kinder, 68, CEO of Kinder Morgan, America’s third-largest energy firm. “We don’t have stadiums named after us.” That last line was a not-so-veiled poke at the last energy giant to dominate Houston, Enron, where Kinder served as president before Ken Lay nudged him aside in favor of the now incarcerated Jeffrey Skilling. Kinder Morgan is in many ways an Enron do-over. Enron ultimately manipulated energy as ephemeral chits in a global trading game–a fraudulent one at that. Kinder Morgan’s focus is far more tangible, and honest, encompassing 75,000 miles of pipe and 180 storage terminals capable of handling 2.5 million barrels of oil and 55 billion cubic feet of gas a day. Its publicly traded entities total $100 billion in enterprise value (equity plus debt). – Read More

*Pipeline Would Loosen Russian Stranglehold On European Natural Gas Supply – Forbes

Prospects for the originally proposed Nabucco natural gas pipeline from Turkey to Austria face considerable uncertainty, so Azerbaijan and Turkey are moving ahead to open an alternate “Southern Gas Corridor” route to bypass Russia and Iran and diversify European natural gas supplies.   As Europe looks to become more energy independent from Russian energy suppliers, one option of leverage will come from harnessing the Caspian energy supply. On track to be completed as early as 2017, the 1,240 mile Trans-Anatolian natural gas pipeline (TANAP) will transport 16 billion cubic meters of natural gas each year from the Shah Deniz II field in Azerbaijan to Europe via Turkey. TANAP announced new partnerships with energy giants BP, Statoil and Total SA this month. The pipeline’s success is important not just to Azerbaijan and Turkey but also to the European Union.  The market will support this pipeline, but there are significant political hurdles that will require U.S. leadership and a hands-on approach is not something the U.S. looks ready to do. While U.S. Secretary of State Hillary Clinton has voiced support for a Southern energy corridor, the U.S. must do more. Support can come in many forms, including a diplomatic push.  U.S. leadership could signal to Russia and Iran that the U.S. is committed to its longstanding allies in the region – namely Azerbaijan and Turkey. – Read More

*BP demands market price for natural gas – Business Line

Global oil company BP Plc has demanded a market price for natural gas to enable immediate development of a huge 10 trillion cubic feet (Tcf) of discoveries to help unlock up to $100-150 billion value. In a 12-page submission to the C Rangarajan Committee, which is examining terms of future contracts for exploration of oil and gas as well as basis for gas pricing, BP advocated a market price linked to liquid fuels like diesel, naphtha and fuel oil. This “right gas pricing regime” will enable immediate development of about 10 Tcf of discovered resources in the next 3-5 years by various operators, unlocking up to $100-150 billion of value at current LNG prices, BP, which is a partner of Reliance Industries in several oil and gas blocks, said. “The price so arrived will be legitimate (in line with New Exploration Licensing Policy/Production Sharing Contract), relevant (encourages investment, predictable, ensures smooth transition) and credible (reflects substitute fuels, helps index costs and provides sustainable supply for customers),” it said. Separately, RIL had told the panel that a price of more than $10 per million British thermal unit is needed to develop around 5.5 Tcf of discovered gas resources with RIL-BP. – Read More

*U.S. brushes off Iran-Iraq-Syria gas line – UPI

The U.S. government said plans by Iran to build a natural gas pipeline through Iraq to Syria may run into problems with economic sanctions. The semiofficial Fars News Agency in Iran reports that construction started on a natural gas pipeline through Iraq to Syria. The government said the project should be completed by June and requires about $3 billion in investments to support. A preliminary agreement on what Fars said was a $10 billion pipeline deal was signed by Iraqi, Iranian and Syrian oil ministers last year in Iran’s southern Bushehr province. Both downstream consumers are expected to take on Iranian gas from the South Pars offshore field to support electricity stations. Victoria Nuland, a spokeswoman for the U.S. State Department, brushed off the report, saying Washington has seen similar reports on the Iran-Iraq-Syria pipeline “six or seven or 10 or 15 times before, and it never seems to materialize.” – Read More

*Germany, Norway tie natural gas knot – UPI

Norwegian major Statoil announced Tuesday it signed an agreement with Germany’s Wintershall to deliver natural gas to the regional European market. Statoil said it will deliver 1.5 trillion cubic feet of natural gas to German and surrounding markets under the terms of a 10-year sales agreement. Wintershall Chief Executive Officer Rainer Seele said the agreement benefits both companies. “The agreement with Statoil, a long-term and reliable energy partner with Germany for decades, is a significant milestone for Wintershall,” he said in a statement. “For us this means that we can also use the volumes we produce from the North Sea in Europe in the future without having to expand our own infrastructure.” Germany is the second-largest natural gas market in Europe, consuming about 2.8 trillion cubic feet of natural gas per year. – Read More

RESEARCH COMMENTARY

*UBS Investment Research (11.19.12)

Forecasting a 15-25 Bcf withdrawal to be reported this week.  We expect the EIA to report a 15-25 Bcf withdrawal, vs 2011’s 9 Bcf injection and the 5-year average of a 9 Bcf injection. We estimate inventories declined to 3,891 Bcf, narrowing the surplus vs. 2011 and the 5-year average to 39 Bcf and 181 Bcf, respectively.

Weather cooler last week vs. 2011 and the 5-year avg.  Last week’s weather was 17% and 13% cooler than the comparable year ago week and 5-year average, respectively. Since September, weather has been 1% and 6% cooler than last year and the 5-year average. 90% of HDDs remain ahead of us.

Forecasting storage to exit the winter at 1.9 Tcf on March 31.  We estimate the weather-adjusted S/D balance tightened 1 Bcfd WoW for the week ending 11/2. We estimate the weather adjusted S/D balance has been ~0.6 Bcfd undersupplied vs. the 5-year average and ~2.7 Bcfd undersupplied vs. the year ago over the last month. We expect storage to exit next winter at 1.9 Tcf on March 31st (0.2 Tcf above the 5 year average).

E&Ps are discounting $4.50/Mcf long-term, normalized natural gas prices.  This compares to the 2012 & long-dated (2016) futures curves of $2.79/MMBtu and $4.48/MMBtu. Our top E&P picks are: APC, NBL, EOG, MRO and OAS.

*Macquarie (11.19.12)

Natural gas futures jumped 2.4% Friday to a fresh one-year high, spurred by signs of rising gas demand, as cold winter weather begins to arrive in the U.S. The December contract settled 8.7 cents, at $3.79 per mmBtu. Futures rose throughout the session, adding to gains earlier this week as colder temperatures begin to eat into natural-gas stockpiles. On Thursday, the Energy Department said U.S. gas stockpiles fell by 18 billion cubic feet, the first withdrawal of the winter-heating season.

 

Going into this week, we continue to believe that the market will remain in a trading range until there is some clarity on how the heating season evolves. On the prompt contract, the $4 mark is strong resistance. Weather reports this morning show a highly variable 6-10 day pattern with a cold shot in the Midwest next weekend but a warmer weather this weekend. Cold weather is expected to linger across the Midwest and make its way through the East Coast in the 11-15 day timeframe. This is causing the market to trade higher in early trading this morning, with Friday’s $3.79 close providing support to the bull camp.

*Raymond James Equity Research (11.19.12)

This week we toured the Eagle Ford shale, visiting some of the premier gas processing, NGL fractionation, and production sites. Bottom line: the Eagle Ford continues to be one of the most prolific U.S. plays. Putting the scale into context, from a developmental perspective, industry sources suggest an estimated 10 million acres could hold ~100,000 drilling locations. When assuming a pace of 2,500 wells drilled per year, this equates to ~40 years of drilling inventory. We estimate that production growth out of the three primary shale plays (Eagle Ford, Permian, and Bakken) represents ~100% of U.S. total oil growth (net of significant Alaskan production declines) and 39% of U.S. natural gas growth this year. When accounting for NGL growth, Eagle Ford liquids production is on the verge of exceeding 1 MMbpd. Given the robust production growth, midstream companies continue investing, providing much needed gathering & takeaway, rich gas processing, NGL fractionation/storage, and downstream distribution services. Billions of dollars have been spent and will be allocated over several years as favorable hydrocarbon economics, production trends and reserve reports drive capex through the drill bit. Ultimately, the Eagle Ford stands to be one of the best opportunities to move America closer toward energy independence and its attractive geographic proximity to the heart of America’s refinery and North American petrochemical industry doesn’t hurt either. In today’s Stat of the Week, we explore the scale of production growth and scope of infrastructure development in South Texas and what it means for companies that service the midstream/downstream value chains.

*Raymond James Equity Research (11.16.12)

Max Storage Avoided? With spot prices continuing to grind higher on the back of sustained coal-to-gas switching, coal has begun to take back some market share from natural gas. Therefore, we expect reverse-switching to occur as natural gas prices continue to trend higher. As expected, Hurricane Sandy threw a monkey wrench into Northeast demand and caused a lower-than-expected withdrawal. With that said, we believe the gas market is in relative equilibrium and that overall demand should continue to eat away at the y/y surplus. Storage seems to have peaked two weeks ago at 3,929 Bcf in storage and should continue to decline with colder weather on tap next week and beyond, alleviating any concerns of hitting max storage (4.0-4.1 Tcf). Going forward, we expect continued volatility as varying weather forecasts coupled with the increased demand should provide a floor for gas prices.

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.  The company or companies covered in this note did not review the note prior to publication.

 


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.