Tuesday, February 24, 2009

Are natural gas producers in denial?

March Natural gas was recently at $4.226, up .1229.
From the Financial Post's Trading Desk blog:

While global economies continue to weaken, natural gas production appears to be growing despite soft demand and the threat of liquefied natural gas heading to the U.S. this summer without a home.

Many producers in the exploration and production space have made more than one round of spending and production cuts for 2009. Their primary concern is liquidity, while the sentiment in the oil patch is that the current downturn will be worse than previous cycles in the recent past.

But despite this negative backdrop, recent earnings updates show guidance for positive natural gas production growth this year. This has prompted Canaccord Adams to ask: Are natural gas producers in denial?

Analyst Irene Haas explains that producers are still generating cash based on the money hedges put in place during 2008. Others are drilling to secure new leases.

“In our view, the U.S. gas market will not establish equilibrium until 2010,” Ms. Haas said in a research note. “We expect more negative revisions to production guidance in the upcoming months.”>>>MORE