NEW YORK (TheStreet) -- Remember a few weeks ago when Chesapeake Energy (CHK), exhibiting the kind of (self-proclaimed) "discipline" it said would be required to rescue natural gas pricing, shut in some of its production?
Natural gas stocks and the price of natural gas rallied on the expectation that other exploration and production (E&P) companies would follow Chesapeake Energy's lead.
This week, natural gas prices have fallen by double digits (roughly 13%), as more data on the overabundance of natural gas and the warm winter weather crimping demand continue to win out over Chesapeake's discipline.
|A 10-year low in natural gas pricing doesn't have Exxon Mobil panicking.|
But there's another big reason why natural gas rallies triggered by announcements of production shut-ins need to be viewed with hesitation: Exxon Mobil (XOM).Exxon Mobil continues to take abuse for its $41 billion acquisition of XTO Energy, but looked at from another perspective, the biggest impact of the deal right now is not on Exxon Mobil, but on the U.S. natural gas supply and demand equation. Exxon Mobil's philosophy, in contrast to the discipline expected of smaller independent E&Ps, suggests that any upside in natural gas pricing predicated on more production being taken off line will be countered to some extent by Exxon Mobil's long-term focus. No matter what the specific issue, when markets panic the typical response from Exxon Mobil is to quote chapter and verse from its "long-term" playbook. When it comes to the historic slide in the price of natural gas and the panic on the part small E&Ps that can't make money in the current environment -- but at the same time, need the cash flow from natural gas sales to stay afloat -- Exxon Mobil, playing to form, shrugged this week. In its conference call on Tuesday with analysts, here was the most important statement from the largest U.S. natural gas driller in terms of how it is responding to the low natural gas pricing environment: "That's a very topical item today," said investor relations head David Rosenthal. "I know there's a lot of questions and a lot of interest in the U.S. gas business and what we're seeing and what we're doing ... we remain bullish on the future of natural gas as an energy source ... we are very pleased with our unconventional resource portfolio and look forward to a major participation in that space. Now as we all know, due to record production this year and record storage levels and a relatively mild winter to date, prices have weakened significantly recently. I can tell you that we have not curtailed any gas production."
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