The CEOs of big-time natural gas producers like
Chesapeake Energy (NYSE: CHK),
BP (NYSE: BP), and
EOG Resources (NYSE: EOG) have been talking
up the beaten-down commodity lately. These executives are
always worth listening to, because they provide plenty of
interesting data points during their quarterly conference
calls and other presentations. That said, it's just as
important to watch what they do.
Take EOG. CEO Mark Papa talked in August about how the
company had "become more bullish regarding 2010 and 2011 gas
prices." EOG says it has an elaborate natural gas supply
model supporting this sentiment. Nevertheless, keep in mind
that the company -- perhaps taking a cue from
Apache (NYSE: APA) -- is making a determined
move toward a more balanced gas / liquids production split.
EOG's guidance is for a drop from 75% / 25% in 2007 to a
50-50 split by around 2013.
Maybe EOG is
super-bullish on oil and just plain old bullish on
gas. The company's
de minimishedging for 2010 in either commodity could
actually support such a view.
Then there's
XTO Energy (NYSE: XTO), which is
feeling no painthanks to a hedging strategy that locked
in some stratospheric commodity price realizations for 2009.
XTO's
modus operandiwon't change in 2010, with the company
having just locked in 55% of total production at an average
natural gas-equivalent price of $9.63 per thousand cubic feet
(mcf). That, of course, includes some heady oil hedges, and
we know that oil is trading at an
historic premiumto natural gas.
Isolating the natural gas hedges, we see that XTO has
layered on an additional 520 million cubic feet per day of
swap transactions, at around $5.84 per mcf. That price might
sound high compared with today's depressed spot market, but
it's about in line with where the early 2010 futures are
trading. It's also quite a bit lower than that $7.50 to $8
gas that EOG's Papa has talked about, or the $6 to $9 range
that Chesapeake's Aubrey McClendon apparently foresees.
In its press release, XTO Chairman Bob Simpson assured
investors that he and his colleagues "remain confident of a
stronger natural gas environment" next year. That may be so,
but caution is actually the word that comes to mind.
This article was originally published as
Why Listen to Natural Gas CEOs?on
Fool.com
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