As colder than average temperatures continue across most of the U.S., natural gas prices are heating up. Take Boston, for example, where natural gas prices are touching levels seen only twice previously over the last twenty years (during Hurricanes Katrina and Rita, with the second being the extreme commodity price run-up of 2008).
Source: EIA "December Natural Gas Prices Spike in Boston"
While Boston is an extreme example due to the Northeastern pipeline supply constraint issues, this trend is materializing in varying scales throughout the county.
So which companies are poised to benefit?
Climbing Chesapeake
Chesapeake Energy (CHKA.Q) would be one of the first to reap the benefits of increased natural gas prices. With 73% of its total production coming from natural gas Chesapeake stands to gain from any increase in pricing.
Over the last year Chesapeake has been the beneficiary of increased revenues and decreased operating expenses. This has allowed it to swing from a $3.19 per share loss in Q3 of 2012 to a profit of $0.24 in Q3 2013 with only a $0.29 increase in averaged realized natural gas prices over that same time. A result that produced 55% upside in the stock over that same period.
Plus, one of the hottest investors of late, Carl Icahn, increased his large position this last quarter yet again through Icahn Associates Corp., which now holds 66.45 million shares.
It's a gas, gas, gas
BP (BP -1.17%) is also in a prime position to benefit from U.S. natural gas pricing. We already touched on a the pricing argument for natural gas taking this stock higher when discussing Chesapeake, so let's see why this is also one of my top picks over the long run for other reasons.
If analysts projections are to be believed BP should see a growth rate of over 16% for 2014. Compare this to industry leaders ExxonMobil, which is projected to grow 7.23% over that same time, or Royal Dutch Shell, which is only projected to grow 6.19%.
Though still continuing its divestment program, to the tune of $66 billion currently, BP has also spent $17.5 billion in organic capital expenditures in just the first nine months of 2013 alone.
Finally, BP is becoming even more shareholder-friendly. This is evidenced by decreased debt, increasing dividend payments, and planned share buybacks.
Looking deeper
Earlier on I alluded to the variable of supply constraints impacting the end price for natural gas. Natural gas pipeline transportation companies would also be winners in high-demand scenarios, which is what we have here.
The best (and biggest) of the bunch is Kinder Morgan Energy Partners (NYSE: KMP), which I recommend for the yield-oriented investor. A solid distribution of 6.73% is on the high end, even in the MLP space. It can be relied on for years to come due to the nature of the business, where it serves as a toll collector on owned assets that require minimal maintenance, much like a railroad.
Highlights of Kinder Morgan's 2014 goals include a 6% cash distribution increase and $3.6 billion in acquisitions.
CEO Richard Kinder seemed positive about future prospects. "We see exceptional growth opportunities across all of KMP's business segments, including the need for more midstream infrastructure to move and store oil, gas and liquids from the prolific shale plays in the United States and the oilsands in Alberta, along with increasing demand for CO2," Kinder said.
Even a Fool knows
When things cool down some select sectors heat up. While this cold snap may be a short-lived phenomena, the prospects of Chesapeake, BP, and Kinder Morgan are not. All represent good long-term investments: BP for the potential to unlock value, Chesapeake for the continuing boom in natural gas and its exposure in that sector, and Kinder Morgan for its stability and yield. Depending on your investment goals, one of the three should be right for your portfolio.
