In this edition, energy analyst Joel South talks about natural gas and gives his reasons why it could reach $4.50-$5.00 in 2013. While high prices led to overproduction causing 10-year lows in 2012, Joel looks to high oil margins as the reason natural gas production will not increase as prices creep toward the $5 range.
In a recent presentation, Chesapeake Energy's (NYSE:CHK) senior vice president of research, Jeff Mobley, stated that his company would need an average price of $6.50 per thousand cubic feet to compete with the rate of return the company gains from oil production in the Eagle Ford.
In fact, Chesapeake expects the natural gas rig count to remain depressed, even with $4 natural gas. Large natural gas producers are leaving their production unhedged going forward, as they believe analysts are overestimating the number of producers looking to move back into natural gas production once prices edge past $4. With an increasing number of companies focusing their 2013 capital expenditures to target the projects with the highest return on revenue, natural gas producers with no hedges in place could be in for a good 2013.
Joel South has no positions in the stocks mentioned above. Taylor Muckerman has no positions in the stocks mentioned above. The Motley Fool owns shares of Ultra Petroleum and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, long JAN 2014 $30.00 calls on Chesapeake Energy, short JAN 2014 $15.00 puts on Chesapeake Energy, long JAN 2014 $30.00 calls on Ultra Petroleum, long JAN 2014 $40.00 calls on Ultra Petroleum, long JAN 2014 $50.00 calls on Ultra Petroleum, and short JAN 2014 $20.00 puts on Ultra Petroleum. Motley Fool newsletter services recommend Ultra Petroleum. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.