For Immediate Release
Chicago, IL – June 1, 2010 – Zacks.com Analyst Blog features: EOG Resources (EOG), Anadarko Petroleum Corp. (APC), Devon Energy Corp. (DVN), Nabors Industries (NBR) and Halliburton Company (HAL).
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Here are highlights from Friday’s Analyst Blog:
Natural Gas Stockpiles Grow Further
The specter of a continued glut in domestic gas supplies still exists, with storage levels remaining 16% above their five-year average. Following the end of the three-month cold snap (from Dec. ‘09 through Feb. ’10), there has been a significant reduction in space-heating demand.
Further pressurizing the commodity is the rapid rise in the number of drilling rigs working in the U.S. (the natural gas rig count has climbed 46% from a seven-year low reached last July) that signals a supply glut later this year in the face of sluggish industrial demand. Meanwhile, production from dense rock formations (shale) remains robust and demand from power plants remains soft.
There are concerns among traders that the market will be oversupplied in the short- to medium-term, with rig counts going up and industrial demand still struggling due to the weak economy. These factors translate into limited upside for natural gas-weighted companies and related support plays. Given the depressed state of the commodity, natural gas prices have dropped to around $4.30 per million Btu (MMBtu), after attaining this year’s peak of $7.51 per MMBtu on January 7 (referring to Henry Hub spot prices).
The gap between supply and demand is expected to reverse in the coming months as producers bet on the improving U.S. economy and forecast of an active hurricane season that begins next week and runs through November.
Until then, we maintain our cautious stance on natural gas-focused E&P players such as EOG Resources (EOG), Anadarko Petroleum Corp. (APC) and Devon Energy Corp. (DVN).
Additionally, we remain skeptical on land drillers such as Nabors Industries (NBR), as well as natural gas-centric service providers such as Halliburton Company (HAL). Although we expect the land rig count to continue with its steady rise during 2010, the large amount of excess capacity in the sector will weigh on dayrates and margins well into the year.
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