The U.S. Energy Information Administration reported today that natural gas stocks grew by 76 billion cubic feet since last week. Working gas in storage now totals 2.165 trillion cubic feet, above the high end of the five-year average range. That weighed on natural gas stocks Chesapeake Energy Corp. (NYSE: CHK), Devon Energy Corp. (NYSE: DVN), Petrohawk Energy Corp. (NYSE: HK) and Range Resources Corp. (NYSE: RRC)
The news hit the Henry Hub natural gas spot price for a loss of about 3%, and the Henry Hub futures price for a loss of 2%. Gas prices had been rising somewhat as some utility companies announced plans to switch to gas in their peaking plants. Prices around $4/thousand cubic feet have also helped natural gas compete with coal.
Producers like Chesapeake Energy, Devon, Petrohawk, and Range Resources have been falling steadily since the beginning of the year, although all but Petrohawk are still in positive territory for the past 52-weeks.
Chesapeake deserves special mention for its recent decision to issue preferred convertible shares, which has managed to give existing stockholders more reason to sell the shares. Although Chesapeake shares really haven’t done any worse than the others since the announcement on May 11th, if the company continues to poke shareholders in the eye as it tries to lower its debt it will have to sell more of its assets than it now plans to do.
Another group of shares that is getting hit by the swelling supply of gas are some of the services companies. Superior Energy Services, Inc. (NYSE: SPN) suffered a negative free cash flow in 2009, but did manage to turn that around in the first quarter. Like the producers, shares are higher for the past 52-weeks, but off about 5% since the beginning of the year.
A couple of natural gas ETFs are worth a look too. United States Natural Gas Fund ETF (NYSE: UNG) invests in trading physical and futures gas contracts. In the past year, it has lost more than 50% of its share price. Year-to-date, UNG’s NAV has fallen 31.5%. SPDR S&P Oil & Gas Equipment & Services ETF (NYSE: XES) has done considerably better, posting a gain of 11.45% in NAV and a share price gain of about 20% in the past 52-weeks. The iShares Dow Jones US Oil & Gas Exploration Index ETF (NYSE: IEO) follows roughly the same pattern as XES.
The moral of the story is that E&P and services companies are still in positive territory though they are giving back the good gains they have made since last year. The gas trader, though, is still getting hammered. There’s not much to recommend here.
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