3 natural-gas stocks to heat up your portfolio
A brutal winter, higher prices and a critical shortage of pipeline capacity are boosting profits and share prices of these energy companies.
Below-zero temperatures ushered in by a parade of winter storms across the U.S. are mostly to blame for the highest natural gas prices in five years.
That has many people counting down the days to spring. Higher temperatures in the months ahead should offer some relief from winter and costly gas bills.
Weather-related increases in demand are contributing to the short-term hike in natural gas prices and critical levels of inventory.
However, even if Mother Nature spares the Northeast and Midwest from extreme winters in the future, we still lack the pipelines in the U.S. to deliver enough natural gas to consumers -- and gas-fired power plants -- that need it most.
It makes surging production a moot point as long as bottlenecks prevent it from being delivered. Much of the gas is pumped more than 1,000 miles from the Gulf Coast to the Northeast.
In New England, power plants' use of natural gas has jumped from 30 percent of electricity produced to 52 percent since 2001, with not a single new pipeline built. The region has seen electricity prices soar. Steven Gold, assistant secretary for energy for Massachusetts, said, "That's not unusual for this time of year, but the price spikes are getting sharper and more frequent. They've probably grown about tenfold."
Across the U.S., as many as 10 pipeline projects are in the works to deliver an extra 2 billion cubic feet of gas from the Marcellus Shale into the Northeast and mid-Atlantic, according to Bloomberg New Energy Finance. Half that capacity won't be completed until late 2018. That pipeline capacity needs to start coming online if we are to avoid a crisis coming down the pike, say industry experts.
Further, natural gas is slowly taking the place of coal as a cleaner energy alternative. With many coal plants close to retirement in the Northeast, demand will continue to rise.
The spike in natural gas prices may not be as close to ending as many think.
These three companies are well-positioned to profit from the Polar Vortex and pipeline shortage.
National Fuel Gas (NFG)
This diversified energy company conducts business in the eye of many storms, providing natural gas to 735,000 customers in Western New York (Buffalo) and in Erie, Pa. Although the utility portion of the company does particularly well when gas prices are high, exploration and pipe production is the real bread-and-butter for this small-cap company.
NFG owns an integrated gas pipeline system extending from southwestern Pennsylvania to the New York-Canadian border, and east to Ellisburg and Leidy, Pa. It also operates 27 underground natural gas storage fields, four underground natural gas storage fields and the Empire Pipeline, a 249-mile integrated pipeline system.
Like most companies in this arena, it performed much better in fourth quarter of 2013. Production for the year was up 44.8 percent, coming mostly from the Seneca Appalachia properties.
NFG'S first-quarter earnings were $82.3 million, up 21 percent from the year-earlier period. The company said its profit rose across all segments. NFG increased its earnings guidance for fiscal 2014 to a range of $3.10 to $3.40 per share (the previous earnings guidance had been a range of $3.05 to $3.30).
Shares of NFG are up nearly 7 percent year-to-date and 33 percent over one year.
Cabot Oil & Gas (COG)
This $16.5 billion independent oil and gas company's primary development, exploration and production grounds are in the Marcellus Shale in Pennsylvania with approximately 200,000 net acres under lease and expanding. A well in this region costs Cabot $6 million to drill and complete and generates a 115 percent internal rate of return. Not too shabby.
It also has partnered with EOG Resources (EOG) in Eagle Ford Shale in south Texas with approximately 60,000 net acres and 43 producing wells.
Since 2010, production has grown at an annual rate of 45 percent, and reserves compounded 23 percent annually from 2009 to 2012. In third-quarter 2013, Cabot's production surged 61 percent year over year, while net income nearly doubled.
COG shares are up 43 percent over a year and 17 percent in the past six months. The company reports earnings on Feb. 20 after the market close.
Athlon Energy (ATHL)
This Texas company operates mainly in the Permian Basin area of Texas and recently announced that it will acquire 5,645 acres in northern Midland Basin near its existing operations in Midland, Upton, Martin and Andrews counties.
As a result of the new acquisition Athlon expects average daily production to exceed expectations given at its IPO in August 2013.
Besides strong output, the $2.6 billion company has also been able to reduce costs by cutting down on lease operating expenses significantly – to $7.19 per barrel of oil equivalent in the third quarter of 2013, from $10.21 a year ago. Meanwhile, revenues have surged 65 percent to 180 percent in each of the past four quarters.
The stock is up 12 percent in just the past month.
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These hot movers could rise by double digits in coming months.
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