about to take a u turn?, page-15

Hi Oz
thanks for the link
This note from Hartleys was sent to me
it refers to the same article

Natural gas in the United States is the year’s worst performing commodity and producers in the US have suffered accordingly.



Rigs for natural gas drilling are being idled at the fastest rate since 2002 (see article below).

· The nature of most gas wells drilled in the US is for high initial flow rates followed by a short period of plateau and then a sharp decline before another long plateau period at relatively low rates

· This means that as rigs are laid off, the gas supplied by the high initial flow rates will significantly decrease as new wells are not drilled, resulting in a sharp decline in supply

· Inventories are high and we are entering into a seasonally weak demand period for gas; however, we believe that gas may be the most oversold commodity in the world and a sharp rebound is possible in the short term. The number of short contracts for the gas market had also reached record highs; however, this number is beginning to decline.



We like:

Significant gas (and oil) producers

PSA, AMU, STX



Non conventional (longer term prospect ~12 months as is not producing large volumes; however, success is based on appraisal rather than exploration)

RFE



Followed by the more speculative end of town (exploration success required)

FAR, SUR, ADI



See Bloomberg Article

Natural Gas Rigs Closing as Short-Sellers Quit Means Prices Set to Double

Natural gas drillers from Devon Energy Corp. to XTO Energy Inc. are idling rigs at the fastest pace since 2002, setting the stage for this year’s worst commodity to almost double as supplies drop faster than demand.



Dave Wall

Oil and Gas Analyst

Hartleys Ltd


According to the article not only are we looking at a serious bounce caused by a supply squeeze but there could be some momentum in gas prices fuelled by a short covering rally