So far, this analysis has focused on individual stocks that are tied to long-term natural gas narratives finding favor among investors. There are basket trades that relate to the natural gas story, as well.
On Tuesday, Stifel recommended a basket of natural gas-weighted independent exploration and production companies that have more oil per dollar invested in their shares than other dry gas counterparts. In other words, as Stifel analyst Amir Arif wrote, it's "poor man's oil exposure."These stocks include Comstock Resources (CRK), Penn Virginia (PVA), Crimson Exploration (CXPO) and SandRidge Energy (SD). Stifel notes that investors have gravitated towards oil weighted equities and shunned the gas names, creating some trading opportunities for the next few months in some of these gas-weighted names that have sufficient oil exposure to turn operations around if gas hits a seasonal bottom. In its recent 2012 outlook, Comstock -- which is roughly 95% natural gas weighted -- said it will be spending 97% of its 2012 budget on the hunt for oil. "Given the crowded nature of the oil weighted names, some of these gas weighted names, which have some liquids exposure, are today providing better oil production exposure per dollar invested than most of the oily names do," Stifel says. The firm argues that these gas E&Ps provide more liquids production exposure per dollar invested than Gulfport Energy (GPR) and Continental Resources (CLR), specifically. It's one more trade that finds a way to capitalize on the low natural gas prices, as opposed to shunning the entire natural gas stock sector, but without having to make a call on whether pricing bottoms at an even lower point. "The real lows might not happen until the fall if storage capacity gets tested which would force gas to move closer to its marginal cash operating costs of approximately $1.75/mcf. As a result, we believe the pure dry gas drillers will have a more difficult time turning around operations until gas prices improve, which currently looks like a 2013 event at the earliest," Stifel wrote. Longer-term (2-3 years), Stifel says it does make sense to stick with the names with the better asset quality, strong liquids drilling inventory, and no funding issues. However, if funding issues are manageable (Comstock is always on bankruptcy watch) and gas approaches a seasonal bottom (the drag from natural gas moving lower is alleviated), then "these names become attractive trading opportunities since they provide more attractive liquids production exposure for each dollar invested."
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