Price Drop Doesn't Faze Natural Gas Companies
Not even dropping prices can stop the oil and gas industry from forging ahead with drilling. Baker Hughes Inc. reports that 12 more rigs in the U.S. went to work in drilling for natural gas increasing the number to 905 rigs.
At the end of February, natural gas prices went down by 14% since the start of this year at below $5 per million British thermal units (BTUs). This amount is not sustainable even for successful shale plays Gas companies like Chesapeake Energy Corp, EOG Resources Inc. and Southwestern Energy Co. all took a hit on profits. Furthermore, the producers see more squeezing on profits with service providers increasing prices because of a greater demand for drilling rigs.
In the past, when the price of natural gas dropped, oilfield drilling and production also went down. This time natural gas companies have increased drilling activity and spending on capital projects. How that plays out depends on how long the $5 per million BTUs sticks.
Not all is bleak. The cold winter drove up gas demand to reduce the surplus of natural gas. The large surplus caused the prices to drop. As of this week, gas inventory is almost 4 percent below last year's levels. Also, with unemployment lower than the original forecast for February, the oil and gas industry is optimistic it will fuel gas demand.
In a Forbes interview, Advisors Asset Management Chief Investment Strategist Matt Lloyd says, "We are bullishly biased with natural gas for the long term. As we see the demand for oil rise in the economic recovery, alternative uses for natural gas will increase. Though currently it may be a value play, we can see this transform itself into a momentum play in 2011. We would not be surprised to see a modest increase in price by the end, say 15% or roughly 5.50 level."
Muhlenkamp and Company Founder Ron Muhlenkamp says, "Don't bet on the price of natural gas; bet on the companies that are able to produce a high volume of it."
R.W. Roge and Co. CEO Ron Roge believes natural gas has longer-term value and that natural gas will replace oil's market share in the U.S.
Hear what our oilfield clients sayWhat Our Clients Are Saying
- Brenda and Mark Neufeld,In our very first conversation I noticed that you not only understood our situation, but also the Oil & Gas trade. Capital Solutions has been an invaluable help... We have grown our business exponentially thanks to you. I can now probably qualify for a traditional line of credit (...but I'm not sure I want to).
B.N.M. Piloting Services
- Keri Gray,The HUGE difference I found since we are working with you... is in the day-to-day life... Since Capital Solutions is funding us there is no "fear"... when I talk to a vendor or need to make payroll. You guys have also bent over backwards... to make it work for us. I really appreciate that.
Energy Services
- George Del Toro,We were funded [in 10 days] (the approval process was very smooth). The way I spend my time has changed dramatically since then. I can spend as much time as I need visiting with customers and out on the field... In closing I would like to tell you that Capital Solutions has made it possible for GDT Well Service, Inc. to triple (300%) its business in the last year, without any of the "growing pains".
GDT Well Service