david_pescod July 14, 2006e-mail: david_pescod@canaccord.com
July 14, 2006
SHININGBANK ENERGY INC. TR. (T-SHN.UN) $21.16 -0.84
CYRIES ENERGY (T-CYS) $10.72 +0.20
Who would have thought six months ago, we’d be seeing
what we see today in the natural gas sector...or what’s
left of it. Six month ago, gas was $15 an mcf and the sky
was the limit. Coal bed methane was the rage and you
couldn’t find a drilling rig no matter what you offered.
Today gas is almost a third that price and inventory
levels are near record highs and while we may have written
about this gas problem several times over the last two
months, if you want to get a really bearish viewpoint, go
to ROB-TV on July 13th (watch past videos, 10:15 am) to
hear Bill Gwozd of Ziff Energy give you the bearish view
on gas that could go on for the next three months. Have
you ever thought the possibility of gas going to $2.00 an
mcf?
Oh yes, and that top chart, which shows you where gas
prices have gone, it doesn’t show you where costs of production
have gone, which are way up! Costs of everything
from land, to drilling, to personnel to you-name-it,
costs have soared while revenue has gone down.
There are many producers that are not having any joy
at these prices at all, so no wonder drilling in the natural
gas sector is being cut back dramatically. And that’s why
all of a sudden folks, if you want a drilling rig, you can
find one.
In the interim, all sorts of companies have been hurt
and hurt big time. Whether it’s a gassy stock like Cyries
Energy, Delphi Energy (DEE) or Accrete Energy (GZ), or
one of the most gold-plated of income trusts such as Shiningbank
Energy, which if you go to their website probably
tells you that they are 77% natural gas. Which is great
when gas is $15 an mcf. But at this level….
So the question is, how low does gas go and how low
does it take the gassy stocks with them before...
hopefully...we hit a bottom and then hopefully, head
to more reasonable price expectations.
Meanwhile, the debate continues about the price disconnect
between oil and gas and we note some people
suggesting that just maybe it’s permanent.