In a press release two days before its earnings release, Clean Energy Fuels (CLNE -0.89%) announced the signing of three important deals, each of which represents a significant win for the company. The news did little to move shares, suggesting that investors are taking a wait-and-see approach ahead of the release. Consensus estimates are for the company to lose $0.17.
In addition to the press release, the U.S. Energy Information Administration (EIA) recently announced a 9.8% increase in proven natural gas reserves (see table below). This is important for Clean Energy as the company continues its efforts to create "America's Natural Gas Highway", because natural gas remaining an affordable alternative to petroleum options is vital. While the stock is down about 5.5% in the last three months, it looks well positioned over the medium and longer terms.
|
|
Wet Natural Gas* |
|---|---|
|
U.S. proved reserves at Dec. 31, 2010 |
317.6 |
|
Total discoveries |
49.9 |
|
Net revisions |
(0.1) |
|
Net adjustments, sales, acquisitions |
6.0 |
|
Production |
(24.6) |
|
Net additions to U.S. proved reserves |
31.2 |
|
U.S. proved reserves at Dec. 31, 2011 |
348.8 |
|
Percentage change in U.S. proved reserves |
9.8% |
*Wet natural gas includes natural gas plant liquids. Columns may not add to total due to independent rounding. Source: U.S. Energy Information Administration, Form EIA-23 "Annual Survey of Domestic Oil and Gas Reserves."
Positive developments
In its press release, Clean Energy announced three deals:
- A 10-year deal with the LA Metro Board to provide compressed natural gas (CNG) and maintenance to CNG-powered buses; the contract includes the construction of an 11th filling station for the county's buses.
- A fueling agreement with Fox Transportation that includes a plan to deploy as many as 100 CNG delivery vehicles by year end; the fleet is expected to use 600,000 diesel-gallons-equivalent of CNG per year.
- A 10-year partnership with NG Advantage to build a natural gas compression facility in New Hampshire with the goal of bringing natural gas to energy intensive manufacturers that operate away from traditional pipeline options.
Each of these transactions has the potential to drive positive growth for Clean Energy over time and help the company continue to expand into new markets. CEO Andrew J. Littlefair said: "Clean Energy is at the forefront of this wave as we push the boundaries of natural gas into new industries and markets that only five years ago were simply not viable." As the company keeps pushing into these new markets, others are beginning to follow.
One such "follower" is Ford (F 0.66%), which is reportedly planning to release a CNG-powered option on the 2014 F-150. While the option is only expected to cost $315, to make the vehicle fully capable, buyers will need to outlay an additional $7500-$9500. Despite the expense, a recent report from Zacks.com suggests that consumers could realize gains from the switch within 24-36 months. This projection is based on the price of natural gas staying low, which is why the EIA report is so important. Unlike what you see in crude, natural gas production, while lagging increases in proven reserve growth, is growing fairly steadily. This will remain a critical feature for Clean Energy if it is to realize profitability and capitalize on its first-mover status.
Buying ahead of earnings
While the market seems content to remain on the sidelines, the longer-term prospect for Clean Energy looks very solid. You will want to keep track of production growth as well as how it relates to the cost of natural gas, as well as to the relationship between gas prices and oil prices. The later relationship will impact the relative attractiveness of gas and drive Clean Energy's ability to drive growth.
