Natural gas prices in the US have hit a fresh six weeks low, closing Monday at $ 7.75 / MMBtu with the Wall Street Journal claiming the market lost momentum due to US production breaking above 100 Bcf / day for the first time ever. Chances are now that large US production will be sufficient to meet local demand in the last few months before winter arrives. Prices are likely to remain low unless there is an outbreak of storm activity in the Gulf of Mexico that could disrupt production.
Meanwhile, European gas benchmark prices continued to decline, dropping nearly 9% on Monday to a two-month low, thanks to improving European energy markets thanks to a combination of successful policy actions and response to price-induced demand. Indeed, German Economy Minister Robert Habeck has revealed that the country is natural gas storage levels are approaching 90% thus giving it the opportunity to withstand the winter season. However, he warned that the gas depot will likely be empty by the end of winter.
Of course, natural gas and LNG stocks have lost momentum along with the commodities that follow. For example, the United States Natural Gas Fund, LP (NYSEARCA: LNG) is down 20.3% over the past 30 days, but is still up 108.9% year to date. However, structural favorable winds are likely to continue to prevail over “cyclical headwinds” such as Strategas Securities LLC Partner and head of technical analysis Christopher Verrone told Bloomberg. Investors should, therefore, use the latest withdrawal of gas shares as a buying opportunity. Here are some better choices.
Market capitalization: 42.1B
YTD Returns: 64.0%
Cheniere Energy, Inc. (NYSE: LNG) is an energy infrastructure company that primarily engages in liquefied natural gas (LNG) related businesses in the United States. Cheniere is one of the few pure play LNG companies in the United States; the company owns and operates the Sabine Pass LNG terminal in Cameron Parish, Louisiana; and the Corpus Christi LNG terminal near Corpus Christi, Texas. The company also owns the Creole Trail pipeline, a 94-mile pipeline that connects the Sabine Pass LNG terminal with various interstate pipelines; and operates the Corpus Christi Pipeline, a 21.5-mile natural gas supply pipeline that connects the Corpus Christi LNG terminal with various interstate and intrastate pipelines.
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In March, the extended permits approved by the DoE for Cheniere Energy’s Sabine Pass terminal in Louisiana and its Corpus Christi plant in Texas. The approvals allow terminals to export the equivalent of 0.72 billion cubic feet of LNG per day to any country with which the United States does not have a free trade agreement, including all of Europe. Cheniere says the facilities are already producing more gas than covered by previous export permits.
Market capitalization: $ 13.6 billion
YTD Returns: 78.0%
EQT Corporation (NYSE: EQT) operates as a natural gas production company in the United States. The company produces natural gas, natural gas liquids (NGLs), including ethane, propane, isobutane, butane and natural gasoline.
As of December 31, 2021, EQT had 25.0 trillion cubic feet of proven natural gas, NGL and crude oil reserves on approximately 2.0 million gross acres, including 1.7 million gross acres in the Marcellus game.
EQT Corp. unveiled a plan focused on producing more liquefied natural gas by significantly increasing natural gas drilling in Appalachia and around the country’s shale basins, as well as pipeline and export terminal capacity, which it believes does not it would only increase the energy security of the United States, but they also help to break global dependence on coal and on countries like Russia and Iran.
Market cap: $ 12.6 billion
YTD Returns: 40.0%
Ovintiv Inc.(NYSE: OVV) is a Denver, Colorado-based energy company that, along with its subsidiaries, explores, develops, produces and markets natural gas, oil and natural gas liquids.
The company’s principal businesses include Permian in west Texas and Anadarko in west-central Oklahoma; and Montney in northeastern British Columbia and northwestern Alberta. Its other upstream businesses include Bakken in North Dakota and Uinta in central Utah; and Horn River in northeastern British Columbia and Wheatland in southern Alberta.
In June, Mizuho updated the OVV to $ 78 from $ 54 (good for nearly a 60% upside from the current price), citing an improvement in favorable wind.
# 4. Devon Energy Corp
Market cap: $ 43.2 billion
YTD returns: 47.8% BofA analyst Doug Leggate advised investors to focus on oil companies with the potential to increase their free cash flows through consolidation or other cost-cutting measures, naming Devon Energy (NYSE: DVN), Natural resource pioneer (NYSE: PXD) e EOG resources (NYSE: EOG).
Devon fits that playbook to the tee, and as Leggate issued his advice earlier this year, the reasons for this are only getting stronger.
DVN stock was one of the best performing energy stocks thanks to strong earnings and continued cost discipline, including a variable dividend structure.
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Following the merger with WPX Energy last year, the company announced more variable fixed dividends, which went well on Wall Street. In the second quarter, Devon paid up to 50% of the free cash as a variable dividend, bringing the total dividend to $ 1.55 per share. The stable share remained indifferent, currently losing just over 1%. But if the latest convertible payment is a sign of the future, shareholders could receive closer to 10% overall.
Some Wall Street analysts had previously indicated the potential for DVN to exhibit a dividend yield of up to 8% by the end of the year. The Devon has already surpassed that and now sports a juicy forward dividend yield of 9.7% estimated.
# 5. Chesapeake Energy Corp.
Market cap: $ 12.4 billion
YTD Returns: 65.8%
Commodity price hedging is a popular trading strategy often used by oil and gas producers, as well as large consumers of energy commodities such as airlines to protect themselves from market fluctuations. During times of falling crude oil prices, oil and gas producers typically use a short hedge to freeze oil prices if they believe prices may fall further in the future.
Unfortunately, hedging also means that these companies are unable to reap the benefits of rising gas prices and can actually lead to hedging losses. However, some daring manufacturers are betting on commodity rally hedging to a limited extent or not at all.
Tudor Picking Rates Chesapeake Energy (NYSE: CHK) a Buy, saying the company it remains one of the few producers that remain relatively uncovered.
This might seem like an odd choice given the Chesapeake story, but it somehow makes sense at this point.
Widely regarded as a fracking pioneer and the king of unconventional drilling, Chesapeake Energy has been in dire straits after getting too much debt and expanding too aggressively. For years, Chesapeake has borrowed heavily to finance an aggressive expansion of its shale projects. The company has only managed to survive through cycles of asset sales (which management is against), debt restructuring and BUT but it couldn’t prevent the inevitable – Chesapeake filed for it Chapter 11 in January 2020, becoming the largest US oil and gas producer to seek protection from bankruptcy in recent years.
Luckily, Chesapeake has successfully emerged from bankruptcy last year with the ongoing commodity rally that offered the company an important lifeline.
The new Chesapeake Energy has a solid balance sheet with low leverage and a much more disciplined CAPEX strategy.
The company aims to <1x leva finanziaria a lungo termine nel tentativo di preservare la solidità del bilancio, la produzione target è di oltre 400mila barili / giorno e intende limitare il CAPEX a $ 700-750 milioni di spese in conto capitale annuali e FCF positivo. CHK afferma che prevede di generare > $ 2 billion in FCF over the next 5 years, enough to significantly improve its financial position.
By Alex Kimani for Oilparmi
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