... for context onlycanaccords perspective
Natural Gas (NGAS : NYMEX : US$3.58), Net Change: -0.06, % Change: -1.75%
Peyto Exploration & Develop.* (PEY : TSX : $24.45), Net Change: -0.11, % Change: -0.45%, Volume: 336,044
Timeto get gassy? On Thursday, natural gas futures ticked up after theEIAreported the first storage withdrawal of the season, whichsurprisedconsensus and forced some short covering. The EIA reported a 1Bcfstorage withdrawal, which was well below Street’s 10 Bcfinjectionexpectation and Canaccord Genuity’s 8 Bcf estimate. Storage nowstandsat 3,851 Bcf, 1% above last year and 7% above the five-yearaverage. Oncomparative metrics, the year-over-year storage surplusexpanded by 22Bcf to 46 Bcf, while the five-year average surplus swelledby 28 Bcf to261 Bcf (largest since December 2010).
The injectionimplies a modest week-over-week loosening in thesupply/demand balanceand suggests the market has been almost 3 Bcfpdoversupplied on afour-week moving average basis.
While certainly supportive relativeto consensus, the surprisewithdrawal is likely not a sign of sea changein the underlyingsupply/demand fundamentals. That said, CanaccordGenuity PortfolioStrategist Martin Roberge thinks we may be at or near abottom.
He believes the highlight in November was the temporaryplunge innatural gas below coal prices. Also, while the price of naturalgascould revisit 2009 lows around $3.0 mmbtu, he believes a bottomingphaseis forming.
Why? First, natgas is much cheaper than it was in2009 vs. other sourcesof energy. Second, producers are finally showingsome discipline withU.S. gas rig counts falling from 936 to 865 over thepast six weeks.Third, injections have been much below consensus inNovember. Fourth,December exhibits a positive seasonality for naturalgas prices. Andfifth, natgas has been shorted against most commoditiesin 2011 andshort-covering rallies to protect gains are likely
before year-end.
For investors looking for natural gas leverage, Peyto (~88% of production) offers investors high leverage to
changes in the underlying commodity.
Forevery +$1/Mcf change in natural gas prices, Canaccord Genuityestimatesits contingent NAV increases by ~$9/share. Despite its highgasweighting, Peyto has peer average group cash flow netbacks, owing to itsstatus as the lowest cost operator in the Basin.