8 Natural Gas Stocks to Watch

NEW YORK (TheStreet) -- Natural gas prices to date have increased nearly 3% and are expected to double over the next few years as U.S. producers gain access to international markets and excess supplies begin to shrink.

A chief energy economist said a turnaround in natural gas prices is imminent, following the International Energy Association's (IEA) bullish outlook and warm weather forecasts. The IEA forecasts that by 2015, natural gas prices will increase to an average $9 a million Btu in Europe, $5.60 a million Btu in U.S. and $11.50 a million Btu in Japan.

As per the IEA report, natural gas demand worldwide could rise more than 50% by 2035, amounting to more than a quarter of global energy demand as compared to the current 21%. The report further added that ample supplies of cheap natural gas, strong demand from emerging markets and the cloud over nuclear energy could be the forerunners for a "Golden Age" for natural gas.

The U.S., accounting for almost 19.2% of global supply, is the world's biggest natural gas producer, recent IEA statistics show. For the first time ever, the Department of Energy authorized and approved a plan for Houston-based Cheniere Energy ( LNG) to export liquefied natural gas from a terminal in Louisiana. Although exports may push U.S. natural gas prices higher, they would still be trading three times lower than in the European and Asian markets.

8. Wisconsin Energy ( WEC), a diversified holding company, operates through its three subsidiaries: Wisconsin Electric Power, Wisconsin Gas and We Power. It conducts its business in two segments: utility energy and non-utility energy.

Of the 18 analysts covering the stock, 39% recommend a buy, while the remaining rate a hold. There are no sell ratings on the stock. The stock's average 12-month price target is $32.72, which is 6.2% higher than the current price, as per a Bloomberg consensus.

Net income for the first quarter of 2011 was $170.9 million or 72 cents per share, compared to $129.7 million or 55 cents per share in the year-ago quarter. The company's Oak Creek power plant, which became operational in January, and cold weather boosted earnings by $32 million. As of March 31, 2011, the company added 1,900 electric customers and 3,200 natural gas customers from the year-ago period. Operating revenues were up 6.4% to $1.3 billion.

Looking ahead to 2011, the company has reaffirmed its earnings per share guidance to range from $2.05 to $2.10 versus $1.92 recorded in 2010. Meanwhile, WEC paid a quarterly dividend of 26 cents per share on its common stock, 90 cents per share on its preferred stock, 3.60% Series, and $1.50 per share on the 6% preferred stock, payable July 31, 2011.

7. Kinder Morgan Energy Partners ( KMP), a pipeline transportation and energy storage company in North America, has interests in almost 28,000 miles of pipelines and 180 terminals. It has five business segments: products pipelines, natural gas pipelines, CO2, terminals and Kinder Morgan Canada. While it transports natural gas, refined petroleum products, crude oil, carbon dioxide, and other products, it stores petroleum products and chemicals and handles bulk materials such as coal and petroleum coke.

Of the 16 analysts covering the stock, 31% recommend buying and 63% rate a hold. The stock's average 12-month price target is $76.17, which is 6.9% higher than the current price, as per a Bloomberg consensus.

Kinder reported net income of $337.8 million for the first quarter of 2011, as compared to $298.8 million in the prior year's same quarter. Meanwhile, distributable cash flow before certain items stood at $382.2 million, up 85 year-over-year. Looking ahead to 2011, the company estimates a 4.5% increase to $4.6 per unit in its cash distributions. The company believes that it is on track to meet or exceed the target.

For the first quarter of 2011, the company increased its dividend by 7% from the first quarter of 2010 and paid $1.14 per share. The company recently acquired a newly constructed petroleum coke terminal in Port Arthur, Texas, for almost $67 million from TGS Development Group. Earlier in May, Kinder Morgan announced a definitive agreement to pay $920 million to purchase midstream shale assets from Petrohawk Energy. Further, KMP plans to invest $220 million to build a new crude/condensate pipeline with a capacity of approximately 300,000 barrels per day (bpd).

6. Oneok Partners ( OKS) engages in the gathering, processing, storage and transportation of natural gas in the U.S. with operations divided into three segments: natural gas gathering and processing, natural gas pipelines and natural gas liquids. The company also owns natural gas liquids systems, connecting natural gas liquid (NGL) supply in the Mid-Continent and the Rocky Mountain regions with market centers.

Of the 13 analysts covering the stock, 54% recommend buying, while the remaining suggest a hold. There are no sell ratings on the stock. The stock's average 12-month price target is $90.22, which is 7.4% higher than the current price, as per a Bloomberg consensus.

Net income for the first quarter of 2011 was $150.9 million or $1.16 per share, compared to $83.9 million or 57 cents per share in the year-ago quarter. Revenue increased to $2.5 billion from $2.2 billion in the first quarter of 2010. Distributable cash flow (DCF) was $184.5 million versus $122.3 million in the year-ago quarter.

The company plans to spend almost $1.2 billion to expand its ability to ship gas byproducts from the central U.S. to Gulf Coast. Related pipeline work and plant construction are expected to complete by the end of 2013.

The company has raised its quarterly cash distribution to $1.15 per unit from $1.14 per unit. Oneok recently announced that the board of directors has approved a 2-for-1 split of the partnerships common units and Class B units. The split, which is expected to be completed on July 12, 2011, will increase liquidity for its unit holders. For full year 2011, the company has reaffirmed its net income guidance range between $525 and $575 million and distributable cash flow to range from $625 to $675 million. Capital expenditure is forecast at $1.1 billion.

5. CMS Energy ( CMS), is a Michigan-based energy company operating in three business segments: electric utility, gas utility, and enterprises. The company's subsidiaries are Consumers Energy Company (Consumers) -- an electric and gas utility; and CMS Enterprises Company (CMS Enterprises) -- a domestic independent power producer (IPP).

Of the 14 analysts covering the stock, 64% recommend buying and the rest rate a hold. There are no sell ratings on the stock. The stock's average 12-month price target is $21.13, which is 8.4% higher than the current price, as per a Bloomberg consensus.

Net income for the first quarter of 2011 was $135 million or 52 cents per share, compared to $85 million or 34 cents per share in year-ago quarter. Operating revenue increased to $2.06 million from $1.97 million in the first quarter of 2010.

CMS paid a regular quarterly dividend of 21 cents per share on its common stock. Looking ahead to 2011, the company reaffirms its 2011 sales to increase by almost 2.5% from the 2010 levels. It forecasts 2011 adjusted earnings of $1.44 per share, increasing 6% from 2010. CMS plans to invest more than $6 billion in subsidiary Consumers Energy through 2015, making it one of the largest investors in Michigan.

4. Williams Partners ( WPZ), a diversified limited partnership formed by William Companies, is an integrated natural gas company focused on exploration and production, midstream gathering and processing, and interstate natural gas transportation. The company's operations are spread across the Rocky Mountains, Gulf Coast, Pacific Northwest, Eastern Seaboard, and the Marcellus Shale in Pennsylvania.

Of the nine analysts covering the stock, 67% recommend buying and the remaining suggest a hold. There are no sell ratings on the stock. The stock's average 12-month price target is $57.25, which is 10.9% higher than the current price, as per a Bloomberg consensus.

For the first quarter of 2011, the company recorded 33% increase in net income to $307 million, or 81 cents per share, from the year-ago quarter. Distributable cash flow to partnership operations increased to $441 million from $273 million in the first quarter 2010. Meanwhile, cash distribution coverage ratio increased to 1.60 times from 1.25 times in the fourth quarter 2010.

Looking ahead to 2011, the company has raised its adjusted segment profit guidance by 7% for 2011 and by 5% for 2012, based on higher-than-expected per-unit NGL margins and benefits of growth capital. Meanwhile, it expects to increase distribution to its limited-partner unit holders by approximately 6% to 10% annually. Moreover, with the acquisition of a 24.5% interest in the Gulfstream interstate gas pipeline system from Williams for $330 million, the capital expenditure guidance for 2011 and 2012 has increased.

3. OGE Energy ( OGE) is an energy and energy services provider, offering physical delivery and related services for electricity and natural gas. The company operates through four segments: electric utility, natural gas transportation and storage, natural gas gathering and processing, and natural gas marketing.

Of the nine analysts covering the stock, 44% recommend buying and the rest rate a hold. There are no sell ratings on the stock. The stock's average 12-month price target is $54.75, which is 12.8% higher than the current price, as per a Bloomberg consensus.

For the first quarter of 2011, the company recorded net income of $24.8 million as compared to $24.2 million in the year-ago quarter. During the quarter, its electric utility sales increased to 6.7 MWH from 6.5 MWH with total customers rising 0.8% to 784,582. For the natural gas midstream operations, total throughput volumes increased to 1.79 British thermal units (Tbtu) per day from 1.74 Tbtu earlier.

The company has reaffirmed its 2011 earnings per share guidance in the range of $3 to $3.20 and forecasts a gross margin of $1.105 to $1.115 billion, based on sales growth of 0.8% on weather-adjusted basis.

2. Copano Energy ( CPNO), provides midstream services to natural gas producers, including natural gas gathering, compression, dehydration, treating, marketing, transportation, processing, conditioning and fractionation services. The company's operations are spread across Texas, Oklahoma, and the Rocky Mountains.

Of the nine analysts covering the stock, 33% recommend buying and the rest suggest a hold. There are no sell ratings on the stock. The stock's average 12-month price target is $37.60, which is 13.6% higher than the current price, as per a Bloomberg consensus.

For the first quarter of 2011, the company's total distributable cash flow increased 8% to $33.4 million from $30.9 million for the first quarter of 2010. Revenue for the quarter increased 9% to $289.9 million with total gross margin expanding by 18% to $60.3 million. Copano swung to a net income of $3.5 million from a net loss of $1.3 million recorded in the first quarter of 2010.

Eagle Ford Gathering, a 50:50 joint venture between Kinder Morgan Energy Partners and Copano Energy, recently announced a long-term agreement with Williams Partners to process Eagle Ford Shale production at Williams Partners' Markham processing plant. This will initially provide Eagle Ford Gathering 100 million cubic feet per day of processing capacity at the Markham plant, with an option to increase its capacity to 200 million cubic feet per day.

Earlier in April 2011, the company announced to expand processing facilities at its Houston Central Complex in Texas to meet producer demand in the rapidly developing Eagle Ford Shale play. The project consists of a new 400,000 Mcf per day cryogenic processing plant, bringing Copano's total processing capacity at its Houston Central complex to 1.1 Bcf per day with an expenditure of almost $145 million.

1. DCP Midstream Partners ( DPM), owns, operates, acquires and develops a portfolio of midstream energy assets. The company's operations are divided into three main segments: Natural Gas Services, Wholesale Propane Logistics and NGL Logistics.

Of the eight analysts covering the stock, 50% recommend buying and the rest rate a hold. There are no sell ratings on the stock. The stock's average 12-month price target is $46.33, about 14.3% higher than the current price, as per a Bloomberg consensus.

Total operating income for the first quarter of 2011 was $425.1 million versus $403.7 million in the first quarter of 2010. Additionally, distributable cash flow during the quarter increased to $46.4 million from $31.7 million in the year-ago quarter. The distribution coverage ratio (paid) also widened to 1.55 times from 1.29 times in the earlier year period.

The company recently unveiled entering an agreement to acquire the Seaway Products Pipeline Company from ConocoPhillips to create new natural gas liquids transportation capacity from the Mid-Continent to the premium Texas Gulf Coast markets. The pipeline will have a target capacity of almost 150,000 bpd of Y-grade NGLs and will require a total investment of $750 million to $850 million.

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