Natural Gas Forecast : BABY It’s Cold Outside

Natural Gas* (NG : NASDAQ : US$4.92), Net Change: -0.26, % Change: -5.06%

Quicksilver Resources  KWK $ 3. 11  Net change  -1
Bellatrix Exploration* (BXE : TSX : $8.33), Net Change: -0.18,
Painted Pony Petroleum* (PPY : TSX : $7.63), Net Change: -0.33, %
Paramount Resources* (POU : TSX : $41.99),
EnCana* (ECA : TSX : $19.99), Net Change: -0.19, % Change: -0.94%,
ARC Resources* (ARX : TSX : $28.21), Net Change: -0.35,
Remember: All Things Come in Waves. With another wave of cold weather upon the eastern U.S., Bentek Energy forecasts that U.S. demand will peak today at 131 Bcf/d.

I mpacting field activity and infrastructure issues). Storage levels in both Canada and the U.S. are now tracking below their respective five-year historical averages. Using Bentek’s next two-week forecast draws, and then assuming average (five-year) historical draws, would result in just over 1.2 Tcf of gas in storage in April, ~30% lower than the five-year average and at a level not seen since 2008 when gas prices averaged ~US$10/Mcf that month and over US$8.50/Mcf for the year.

The front end of the forward curve has increased by ~US$0.85/Mcf since January 15, with months 12+ showing little change reflecting the
market’s perception of little to no change to its longer-term outlook. In the view of the Canaccord Genuity Energy Research Team, continued lingering of the “polar vortex” that has created significantly cold weather patterns in central and eastern U.S. (and Canada) will continue its torment on storage and push summer and winter 2014 contracts higher.

According to the Energy Research Team, Canadian intermediate gas weighted stocks are on average currently discounting prices in the low US$4/Mcf range, materially below spot prices and a ~10% and 3% discount to current 2014 and 2015 forward strip pricing respectively.
Their top Intermediate E&P stock remains Bellatrix Exploration given its attractive valuation, high leverage to gas prices and leading capital efficiencies. On the small cap side, Painted Pony Petroleum, provides the greatest leverage to rising gas prices, with upcoming LNG activity providing another potential tailwind for the stock in 2014. Painted Pony and ARC Resources have a large leverage to prolonged improvement in gas pricing due to their substantial NEBC Montney resource exposure.

Quicksilver Resources is a turnaround play – now deleveraging and drilling .

For pure torque to an AECO basis improvement, they highlight Paramount Resources, which is highly levered to changes in gas price movements and is poised to more than double production over the next 12 months.


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