Top Stocks Set To Win In The Natural Gas Boom
As I work with a minus-14-degree wind chill outside, my thoughts often turn to natural gas. Four weeks ago, natural gas traded for $2.00. In mid-December, it’s at $3.37, up 68% over the last four months.
While trading natural gas futures is not a good idea for anyone but professional traders, investing in upstream energy producers gives you exposure to the price of gas and any gains generated by better-than-expected profits.
The best approach to investing to participate in natural gas gains is to buy shares of companies that operate in a region that exclusively produces natural gas and those companies only operate in that region.
The Marcellus Shale covers 95,000 square miles spread across New York, Pennsylvania, Ohio, West Virginia, Maryland, Virginia, and Kentucky. It is the second largest natural gas find in the world. The Marcellus had not been much of a natural gas production area until companies started using horizontal drilling and hydraulic fracturing (fracking). By 2015, the companies in the Shale were producing 14.4 billion cubic feet of gas per day, accounting for 36% of the shale gas produced in the U.S.
The Marcellus shale’s location near major population (and data) centers makes it a prime production area for providing electric power as demand grows.
Here are three upstream companies whose share prices will benefit from rising natural gas and increasing profits due to rising natural gas:
Range Resources (RRC) has core Marcellus acreage that gives the company 30 years of drilling inventory. It is free cash flow breakeven at $1.50 for natural gas.
EQT Corporation (EQT) recently bought-in the midstream company it controlled, giving EQT the best vertical integration of the three stocks listed here, from drilling to delivering.
Antero Resources Corp (AR) operates in the Utica Shale in Ohio and the Marcellus in West Virginia. It is an investment-grade company with unhedged exposure to natural gas. At $3.00 natural gas, Antero will generate $3 billion of annual free cash flow. Every $0.25 increase in gas adds $220 million to the bottom line.
Natural gas is often called a widow maker in the trading pits because its price can swing wildly against trader positions. The share prices of these three stocks can also be volatile. I have had successful results owning shares and selling call options (covered call trading) for extra income.
This post originally appeared at Investors Alley.
Category: Commodities
