Monday, June 25, 2012

The Coming Glut in Natural Gas Liquids (CHK; APA; APC; EOG)

All the names are down over 2% with CHK now off over 6%.
Someone at MarketBeat understands how important this stuff is. They get the hat tip for the Reuters story immediately below and this one from the WSJ's Heard on the Street column:

New Liquidity Problem for Gas Stocks 
After drilling U.S. natural-gas prices into a deep hole, exploration and production companies have raced to embrace liquids. This is sensible, given Brent crude oil trades at $91 a barrel compared with a per-barrel equivalent price for gas of about $15.80.

But not all liquids are oil. Natural-gas liquids, or NGLs, are a growing part of the mix. These are usually priced between gas and oil. But like gas, frantic drilling is fueling a glut. Benchmark Mont Belvieu NGLs have dropped from about $60 a barrel in December to less than $35, according to Credit Suisse.
So investors need to ask the E&P companies: What's in your barrel? Ideally, lots of crude oil. Of the large-cap E&P companies, Apache and Anadarko Petroleum  look better-placed on this score, with crude accounting for north of 30% of their output last year.

EOG Resources  and Noble Energy NBL  also look promising, with ISI Group projecting oil to account for about 40% of output at both in 2013. In addition, Sanford C. Bernstein points out that some companies, such as Noble, produce a proportion of their gas overseas, where prices are usually higher than in the U.S....MORE