The article below may indicate how companies in the shale gas industry may do in the not-too-distant future:
AQUA-PURE UNVEILS ROVER SYSTEM FOR SHALE GAS OPERATIONS (Aqua-Pure introduces Rover waste water treatment
2011-10-25 09:53 ET - News Release)
Betting Heavily on Natural Gas Prices
by David Fessler, Investment U Senior Analyst
Tuesday, November 15, 2011: Issue #1643
Most natural gas drillers have been scrambling to reposition their drill rigs over oil-rich acreage… And why not?
With oil once again hovering near the $100-a-barrel mark, you can hardly blame them.
But Monday’s news from BHP Billiton Limited (NYSE: BHP) contradicts that notion.
Billiton announced that it plans to spend somewhere around $4.5billion on shale gas development. That’s not a typo. Perhaps even moreamazing is that’s just what it’s going to spend next year.
That’s an enormous amount of money compared to what some othernatural gas companies are spending. Many of them have repositioned theirrigs and their business plans around drilling for shale oil.
But the real message Billiton is telegraphing is far more exciting than the $4.5 billion it’s planning on spending next year.
The Long-Term View on Gas
What do they know that all the other companies don’t?
Nothing, of course…
It’s just that Billiton is taking a long-term view on natural gas. They’ve developed and are executing a business plan that will pay off for decades to come.
Billiton is betting the price of natural gas here in the UnitedStates will rise more than 50 percent in less than 10 years. It alsofeels the LNG export opportunities here are too good to pass up.
To quote BHP Petroleum’s CEO Michael Yeager, “This [shale gas] isgoing to be a game-changer around the world, and for BHP Billiton not tobe a part of it would be irresponsible.”
His quote was part of an investor presentation he’s giving to allay shareholder fears about the company’s foray into shale gas.
Going All In
And what a foray it’s been. In just the last year, BHP made twoacquisitions totaling $17 billion. In return for its investment, itswallowed natural gas producer Petrohawk Energy, and some prime acreagefrom Chesapeake Energy Corporation (NYSE: CHK).
But BHP is just getting started. It plans to spend $5.5 billion by2015, and as much as $6.5 billion annually by 2020 on American shalegas. Both numbers are about a billion higher than the company’s previousestimates.
It’s clear from BHP’s past moves and the money it’s throwing at shalegas moving forward that it sees prices for gas gradually rising fromtheir present near-record lows.
It’s not too surprising, really. With seemingly limitless supplieshere, many utilities are looking at natural gas as the fuel of choicefor new power plants. They’re also spending billions to convert existingcoal-fired plants to run on it.
A Contrarian Strategy
And we have yet to even scratch the surface as far as natural gas-powered transportationgoes. But many of Billiton’s competitors, lured by rising oil prices,have switched to drilling for oil, since it brings higher margins.
Wells cost the same to drill and hydro-frack, regardless of what’sdown the hole. And right now, oil gives them a higher rate of return foreach dollar spent drilling.
But Billiton is a huge, diversified resource exploration andproduction company. Shale gas fits right in with its portfolio of ironore, coal, copper, uranium and petroleum businesses.
The company plans to spend $80 billion in the next five years toexpand production across its entire portfolio of commodities. Naturalgas from shale fits right in with its plans. The company is projecting545 billion cubic feet (bcf) equivalent of natural gas next year.
Yeager also commented on concerns by some investors and analysts thathydro-fracking has problems. “The technology used here has been provenand used for a long, long time. We’re subject to inspection at any time…I think the opportunity for the industry to cut corners at any level issmall.”
The reality is that over the next few years, natural gas prices willslowly rise for reasons mentioned earlier. Billiton is positioningitself to be one of the top producers and exporters here in the UnitedStates. Investors who want a diversified mining and natural resourceproduction company would be hard-pressed to find a better play than BHPBilliton.
Good investing,
David Fessler
NB. AQE Management should take notice and prepare for this opportunity!