Third, the entire exploration and production sector is shifting gears to the search for liquids as a result of the low natural has pricing -- natural gas liquids and oil most importantly. Yet the horizontal well drilling techniques enabling the search for liquids find a lot of what is referred to as "associated gas" as part of the hunt for oil. According to one Wall Street estimate of the Eagle Ford drilling region -- one of the most popular liquids rich plays right now -- an Eagle Ford well produces 4 times the gas of a conventional Barnett vertical well. In effect, this means it would take a crash in oil prices to slow the production of natural gas. The decline in natural gas prices alone won't do it.
So what does the E&P stock investor do to limit the pain if he has been invested in exploration and production stocks?
The chart above provides a superficial view of the most important data points to review in terms of assessing the risk of prolonged weakness in natural gas prices to your energy stock holdings, and related to the drilling market dynamics discussed above. There are three key data points to assess stock risk at the most basic level in a low natural gas pricing environment.First, look at the total gas production of an E&P stock first. Even more important, look at the percentage of total production that is natural gas. Sure, "Cabot Oil & Gas" sounds good and balanced as a brand name, but the company is 96% natural gas production. One important caveat is that Cabot operates in the Marcellus shale, where natural gas production continues to be economic. That's a far cry from the Haynesville, where it costs more to take natural gas out of the ground than a company can sell it for now. The rig count in the Haynesville is down 35% year over year, as of January, and the rig count in the Barnett is down 20% year over year. The rig count decline for both nat gas plays has declined by a similar percentage since year-end 2010, the biggest declines in any U.S. drilling region, with the total U.S. rig count up 13% since the end of 2012. For TheStreet Ratings take on Cabot Oil & Gas,
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV