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TheStreet Open House

Natural Gas Stocks Are Poised to Explode

Stock quotes in this article: HUSA, DEJ

NEW YORK (TheStreet) -- Natural gas prices were already on a steady upward move before the latest price catalyst appeared in the form of Russia's invasion of Ukraine.

Russia's threats regarding curtailing natural gas flow to Europe put an even bigger emphasis on U.S. production. The U.S. doesn't export its natural gas but starting in 2015 permits issued by the Dept. of Energy will allow American companies to begin to exporting the valuable commodity.

This past week we saw trader interest intensify in the sector with small independent oil and gas producer Houston American Energy (HUSA) gaining 51%. This large move in Houston American will likely bring momentum traders back into forgotten natural gas companies.

One such company that will likely garner the attention of traders is Dejour Energy (DEJ). Dejour has interests in approximately 130,000 net acres of oil and gas leases throughout Canada and the U.S. Unlike Houston American, Dejour has annual revenue of $7 million from its producing wells. Revenue increased 55% from $1.6 million in the third quarter of 2012 to $2.4 million in the same quarter a year later. This increase was primarily attributable to higher prices and an increase in natural gas production.

Dejour and Houston American are both small-caps and are vulnerable to extreme volatility.

In December, Dejour signed a $27.5 million letter of intent with a Singapore based energy company to develop Dejour's natural gas properties in Colorado. Two weeks ago Dejour's board of directors voted to terminate the deal. The muted market reaction to this news (the stock still trades 40% above the initial deal announcement) is proof the board's decision was the right one, especially considering the increased market attention to natural gas assets in North America.

In August 2012, a major U.S. exploration and production company drilled a Niobrara/Mancos well, midway between Dejour's two Colorado leaseholds. The Unconventional Oil & Gas Center ranks the discovery well as the No. 1 Niobrara Shale producing well in the U.S.

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