Seeking Alpha: Range Resources Another Growth-Oriented Marcellus Play

Within the world of natural gas-weighted E&P companies, Cabot Oil & Gas (COG), Southwestern Energy (SWN), and Range Resources (RRC) often seem to get grouped together in coverage and analysis. Along with other names like Chesapeake Energy (CHK), Ultra Petroleum (UPL), and EQT (EQT) these are some of the more interesting names leveraged to the expansion on shale gas production from the United States.

Even moreso than for Southwestern, Cabot, and Ultra Petroleum, Range Resources' value seems skewed toward ongoing drilling and production/reserve growth. With over 10,000 drilling locations in the Marcellus alone and a very interesting position in Oklahoma and Kansas, that forward-looking skew to the valuation doesn't seem unreasonable. I am concerned about the returns on capital here, though, as well as the balance sheet-adjusted production growth and while the valuation is interesting, I wouldn't recommend ignoring those concerns.

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Range Resources Another Growth-Oriented Marcellus Play

Seeking Alpha: Differentials All The Difference For Cabot Oil And Gas

There are a lot of numbers supporting an argument that Cabot Oil & Gas (COG) is one of, if not the, best dry gas producers in the country. The company has shown exceptional capital productivity, as well as low lifting and finding & development costs. Add that to some top-notch acreage in the Marcellus, and Cabot has delivered top-notch adjusted production growth and returns on employed capital.

That's not what is driving the shares right now, though. All of the positives at Cabot seem to be taking a back seat to worries that production growth in the Marcellus will overwhelm takeaway capacity and force Cabot to accept weak differentials. This is most definitely a risk, as every $0.25/mmbtu has a roughly $5 to $6 impact on NAV, but I believe growth-hungry midstream and pipeline companies will address these infrastructure challenges, leaving Cabot meaningfully undervalued today.

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Differentials All The Difference For Cabot Oil And Gas 

Seeking Alpha: The Market Seems To Be In Tune With Southwestern Energy

Southwestern Energy (SWN) has emerged as one of the top natural gas E&P companies in the U.S., with large positions in both the Fayetteville and Marcellus regions. Southwestern has managed to lower its costs through significant integration, including company-owned rigs and midstream assets, but the company is looking at a significant slowdown in balance sheet-adjusted production growth (a major driver of value). Today's valuation looks pretty fair and reasonable, suggesting that upside is not surprisingly tied to better natural gas prices and/or positive exploration results in New Ventures acreage.

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The Market Seems To Be In Tune With Southwestern Energy

Seeking Alpha: Ultra Petroleum And Weighing The Short Versus The Long

Sometimes it's just not enough to have low-cost assets when you're an exploration and production (E&P) company. Although Ultra Petroleum (UPL) has long boasted some of the most economical natural gas assets in the continental United States, the prolonged stretch of sub-$4/mmBtu natural gas prices has made it difficult for the company to get ahead. Comparing Ultra Petroleum's share price performance over the last two years to oil-heavy E&P companies like Oasis (OAS) and Whiting (WLL) or more balanced operators like Noble (NBL) tells the tale - Ultra shares are down 33% while the worst of those three others is still up almost 30%.

Even though gas prices have recently spiked over $4, nobody seems to be willing to assume yet that these prices will persist. That makes assessing the value of Ultra Petroleum an interesting time-dependent exercise. Even with the recent addition of oil-producing Uinta acreage, Ultra's 2014 EBITDA likely won't be high enough to justify buying today, but if you look instead at a long-term NAV based on natural gas prices of $3.50 or higher, a different conclusion presents itself.

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Ultra Petroleum And Weighing The Short Versus The Long

Investopedia: A New Era For Chesapeake Energy

Chesapeake Energy (NYSE:CHK) had a well-earned reputation as the riverboat gambler of the natural gas world. If there was a hint of meaningful natural gas in an area, you could usually count on Chesapeake to be among the those bringing out the biggest checkbook to gobble up acreage. The end result of that policy was a large reserve base, but also a stretched-out balance sheet and weak profitability as natural gas prices plunged.

Now the company starts a new period. A new CEO brings at least the hope of better capital allocation, while an aggressive divestiture program should help fill the funding gap. While I think Chesapeake's economic returns are going to be impacted for some time to come by the aggressiveness of past days, I do believe the shares may offer decent value today if you believe in the future of natural gas usage in the U.S.

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Investopedia: The Wait For $5 Gas Could Be A Long One At Ultra Petroleum

Reputations, good and bad, can be surprisingly sticky. Ultra Petroleum (NYSE:UPL) has long been lauded for its high-quality operations, its cost leadership, and the quality of its properties/reserves. While the first part is absolutely still true, I have bigger questions about the quality of Ultra's properties and how the company will generate value over the long-term. While I will certainly acknowledge that higher gas prices will be the rising tide that lifts all boats in the natural gas space, I'm increasingly concerned that Ultra Petroleum is a high-quality operator with medium-quality assets and, as such, maybe not the horse to ride for the long term.

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Investopedia: Cabot Oil And Gas Looks Like A Reasonable "Buy And Wait" Story

Everybody knows the deal these days on natural gas. E&P companies like Cabot Oil & Gas (NYSE:COG) have been incredibly successful at finding and exploiting new sources of natural gas, but the U.S. energy infrastructure has not shifted as radically. Consequently, inventories are high and prices are low, which has kept a lid on many of the stocks. Although Cabot's near-term valuation wouldn't suggest that it's a compelling buy, I think a longer-term perspective suggests a different answer.

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Investopedia: Will Low Prices Gas Halliburton's Margins?

With oil prices hovering near the triple-digit mark, it would make sense that the big energy service companies would be strong. But then who ever said the market always makes sense? With investors worried that the plunging price of natural gas will curtail activity (and margins) in North America, the Big Four ((Schlumberger (NYSE:SLB), Halliburton (NYSE:HAL), Weatherford (NYSE:WFT) and Baker Hughes (NYSE:BHI)) have been relatively weak of late. Unfortunately, while Halliburton's fourth quarter results weren't all that bad, margins worries look to be the story for 2012.

Fourth Quarter Results - Over Here, Over There  
On a headline basis, there wasn't all that much wrong with Halliburton's quarter. The company's revenue was better than expected and earnings were basically OK. Margins, though, are going to drive the discussion.

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http://stocks.investopedia.com/stock-analysis/2012/Will-Low-Prices-Gas-Halliburtons-Margins-HAL-SLB-BHI-WFT0124.aspx

Investopedia: Chesapeake Making The Best Of A Tough Situation

Here's a question for natural gas investors to ponder: How much growth do you really want? Natural gas prices are still low and reserves are a limited asset, so does it really make sense for these companies to cash out a meaningful amount of these assets too cheaply? Certainly, these companies need to fund their operations and establish enough production to hold valuable leases, but production at below-trend prices is a mixed blessing. 


Chesapeake Energy (NYSE:CHK), one of the largest independent natural gas producers, continues to walk that tightrope while remaining very highly leveraged to future rises in natural gas. (For more, see Natural Gas Industry: An Investment Guide.)


Decent Q1 Performance
Chesapeake reported over 6% sequential production growth for the first quarter, with realized prices up about 2%. Within those numbers, the company reported strong growth in its oil and liquids production - up nearly 9% on a sequential basis and up 56% from last year. 



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Investopedia: A Win-Win For Chesapeake and BHP?

Whenever a significant deal is announced between two companies, there is an immediate interest in figuring out which company got the best of the deal. When looking at Monday's transaction between BHP Billiton (NYSE:BHP) and Chesapeake Energy (NYSE:CHK), investors should keep an open mind with respect to the notion that maybe both parties are getting something they need out of this transaction. 

The Terms of the Deal
In the deal announced Monday evening, Chesapeake achieved its stated goal of selling its 75% interest in the Fayetteville shale, a gas-rich area extending across Arkansas. Chesapeake is selling this asset base to Australian mining major BHP Billiton for $4.75 billion in cash, and the two companies will execute a service agreement to assure a smooth transition in operations.

BHP Billiton is acquiring about 2.5 trillion cubic feet (natural gas equivalent) of proven reserves, with a total potential reserve base of maybe 10 trillion cubic feet. The deal also includes related midstream assets, but the companies did not provide a breakdown of value assignment in the press release.

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Can Sasol Liven Up North American Gas?

For years now, natural gas bulls have sputtered and fumed over the expanding gap between the price of oil and natural gas. From an energy-content point of view, natural gas is extremely cheap and oil is relatively quite expensive. Typically those gaps do not persist, but there is a problem in this case - natural gas just is not as useful; it does not go into car gas tanks, it does not make diesel or jet fuel, nor any of the other follow-on products that come out of a barrel of oil. 

If Sasol (NYSE:SSL) has its way, though, the road to change may be in sight. 

A Tie-Up with Talisman   

Sasol, the large South African synfuel specialist, announced an agreement on Monday whereby it was acquiring a 50% operating interest in one of Talisman's (NYSE:TLM) shale gas assets. Sasol is paying a bit more than $1 billion for 50% of the Farrell Creek development in the Montney Shale. The way the deal is structured is a little unusual, though. Sasol will pay $263 million in cash upfront, and then fund three-quarters of Talisman's development costs up to the announced purchase price.

 
The Asset 
Montney is a bit like Canada's Barnett, Haynesville or Marcellus - a geological formation that contains huge amounts of hydrocarbon resources (natural gas, mostly), but requires advanced exploitation technologies to access. According to reports, this development may contain upwards of 9.6 trillion cubic feet of natural gas - clearly a sizable reserve base. An important part of the asset, though, is the fact that it is also relatively close to established pipeline infrastructure - given the problems that companies like Ultra Petroleum (NYSE:UPL) used to have in getting full value for its gas (due to a lack of infrastructure), that is not a trivial factor.
 

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Stocks With Good Growth, But Poor Outcomes

Given the stock market's bottomless appetite for growth, it stands to reason that companies posting solid growth will see good performance in their stocks. In most cases, this is true. But like every good rule of thumb, this is one that has some exceptions to it. Examining a list of some of the notable "growth underperformers" this year might be a good place to start an investor's after-Christmas shopping. 

No Good News in Healthcare 

If any sector is due for a rebound in 2011, healthcare might just be it. These companies already had enough problems with the recession - a poor job environment and overall economic worries have either taken away people's health insurance or made them very nervous about spending any extra money. As a result, patient visits are down, procedure counts are down, and hospitals are skittish about buying any non-essential equipment. Then the FDA decided to pick 2010 as the year to make a statement that it was prioritizing safety above all else and that new drugs and devices would have to pass a new and unpublished "double secret probation" to reach the market.

In that environment, both Intuitive Surgical (Nasdaq:ISRG) and Nuvasive (Nasdaq:NUVA) have found 

their status as one-time med-tech growth darlings come into doubt. Both have posted excellent and distinctly above-average growth (roughly 40% and 35%, respectively) and yet lagged the broader market by a meaningful amount (9% and 13%, respectively). Both stocks may be basing, but investors will need to see some assurance in the next quarterly report (or two) to feel comfortable about pushing these stocks up again. (For more, see Investing In The Healthcare Sector.)

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Ultra Petroleum - Low-Cost, High-Quality

Sometimes the best you can hope for is to own a good house in a tough neighborhood. In what has been a tough market for natural gas, shareholders of Ultra Petroleum (NYSE:UPL) have done relatively better than most. 

And why not? Ultra is a low-cost producer in the field, and couples that with significant production growth. The real question is whether or not the market will continue to value Ultra when the inevitable rally comes in natural gas prices. 


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Of course it figures ... less than an hour after I post my "sorry, possibly no posts today", an Investopedia piece goes up!

Earnings From a Couple of Gas Giants

There is an argument out there that closely analyzing the quarterly financial performance of energy companies is basically futile. The impact of energy prices is so significant, the thinking goes, that it renders the company-specific details basically meaningless. 

But if you look at long-term charts of the players in the energy space, you will see that the stocks of efficient and savvy producers outperform over time. So while a penny of earnings here or there is not going to dominate the discussion around Devon Energy (NYSE:DVN) or Ultra Petroleum (NYSE:UPL), investors would do well to dig in and appreciate what distinguishes the best operators. 


http://stocks.investopedia.com/stock-analysis/2010/Earnings-From-A-Couple-of-Gas-Giants-DVN-UPL-APA-SWN-CHK0511.aspx