Sector Snap: Natural gas producers
NEW YORK (AP) — Shares of natural gas producers edged higher Tuesday and Bernstein Research suggested that activity in energy rich shale plays of the Northeast will allow companies with exposure to the region to capitalize on higher prices next year.
Analyst Bob Brackett initiated with an "outperform" rating on Cabot Oil & Gas, Range Resources Corp. and Southwestern Energy. He thinks the price of natural gas will average $3.75 per 1,000 cubic feet next year — a 33 percent increase from its closing price Monday — on lower rig counts, a "bullish" outlook for gas in storage and a continuing switch by utilities from coal to natural gas. The price of natural gas hasn't hit $3.75 since November of last year.
The warmest winter on record reduced demand for natural gas for heating. But U.S. drillers kept producing more than ever. It's led to a glut and fears that the nation's storage facilities would run out of room by this fall. Natural gas prices hit a ten-year low early in April. For the second-quarter natural gas prices averaged $2.35 per 1,000 cubic feet, compared with an average of $4.38 a year earlier.
All three companies rated by the analyst have stakes in the Marcellus Shale, a wide swath of rich gas land spanning from Northern Virginia to Ohio on the West and New York to the north.
Brackett recommends those companies over other producers including Chesapeake Energy Corp., Devon Energy Corp. and Encana Corp. The analyst said Cabot is a good buy because of its strong exposure to Marcellus and strong production results in Texas. Range Resources, he said, has the most potential to be acquired because of its aggressive capital program. And Southwestern "has a highly capable and transparent management team" and some "intriguing" albeit risky new ventures.
In midday trading, Cabot shares rose 4.6 percent, or $2.22, to $44.33. Range Resources added $3.33, or 4.5 percent, to $71.09. Southwestern Energy gained $1.13, or 3.3 percent, to $33.66.