Cabot has had massive production growth in the core area of the hottest gas play in the country, where the economics of northeastern Pennsylvania support $2.25-$2.50/mcf gas commodity prices, according to industry estimates. But Cabot was also up 102% in 2011, and that's why it's down this week by 9%. It's expensive on a relative valuation basis. A lot of its peers have been so shunned already because of the low natural gas pricing environment that they likely have less room to fall, like a Southwestern Energy or Chesapeake.

Finally, the chart provides a review of the extent to which E&P companies have hedged their exposure to nat gas pricing. As noted above, hedging has been an important strategy for gas E&Ps, but it decreased significantly at year-end 2011. This is a double-edged sword in cases where companies have highly levered balance sheets and a year-over-year decline in hedging. Less hedging might force companies to deal with the in-the-ground natural gas well reality more directly, but it could also lead to cash flow issues.

Chesapeake Energy would be the prime example of risk in this regard. Chesapeake sold off all of its natural gas hedges as of the end of 2011. In a previous article, TheStreet noted the explanation given by the company for this decision, and the fact that it exposed the company to greater balance sheet risk should natural gas prices continue to fall, as the prices have to start 2012.

For TheStreet Ratings take on Chesapeake Energy, click here .

There are other examples of companies with levered balance sheets and little or no hedging protection, like Comstock Resources ( CRK). As a rule of thumb, lack of hedging in a weak commodity price environment will burn companies heavily weighted to that commodity.

Bryan McNamara, an analyst at IHS, explained that hedging has allowed drilling to continue over the past few years even when not economic due to weak spot pricing. Yet one thing that may be changing now is the ability for companies to put hedges back on quickly. McNamara said it's been common in the industry to take hedges off toward the end of a year and then add them back on in a new year's winter months, based on the assumption when the winter gets bad and natural gas prices spike it will be possible to hedge exposure at $5. "I don't see that now. It will be hard to do again this year," McNamara said. "For companies with a significant debt load, there could be issues."

For TheStreet Ratings take on Comstock Resources, click here .

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