Investors Versus Traders: A Battle for Oil & Gas Profits

The Energy Report: Looking back to your last interview with The Energy Report in November, you seem to have called the bottom in gas prices correctly. What's your view of where things are headed now?

Robert Cooper: We expect a reasonably robust pricing scenario ahead. Here's why: In 2013, we will likely see flat natural gas supply growth; this will be the first year in the last several that this will be the case. The natural gas rig count is at 350, the lowest since 1995. The declining rig count has taken its toll on almost every U.S. shale basin; the only basin that's growing is the Marcellus, and it is growing partly because infrastructure constraints are being alleviated. Unless productivity undergoes another massive step higher, or drilling time is cut in half again, rig count matters as a predictor of natural gas production levels. Natural gas liquids (NGL) prices are weak, and this impacts the ability of explorers and producers (EPs) to reinvest at the same level as even a year ago. This further reduces the probability that capital will be redeployed to dry gas plays.

TER: Your May 9 report shows gas storage 28% lower year over year and 5% below the five-year average. What are the implications of that? Continue reading "Investors Versus Traders: A Battle for Oil & Gas Profits"

Oil and Gas Volatility Creates Winners and Losers: Robert Cooper

The Energy Report: It's been about one year since we last spoke, Robert. What do you think have been the most significant developments in the North American oil and gas industry since then?

Robert Cooper: It's a dynamic business, and a number of changes have occurred. First, the macroeconomic backdrop remains murky, resulting in persistent volatility in equity and commodity markets. Investors remain wary of putting on riskier trades because the visibility simply isn't there. The fear that some Monday morning we'll wake up with a negative surprise is inhibiting risk taking and impacting small-cap growth equities, particularly.

"The winners tend to be experienced managers with proven track records."

Second, the rapid increase in U.S. oil production has negatively impacted Canadian producer net-backs. The spread between Canadian light oil prices and the U.S. equivalent has been much more volatile than historical rates. The lack of pipeline capacity has exacerbated this trend and given rise to alternative methods of transportation, such as oil-by-rail. But overall, the "differential risk" has been added to the list of risk factors investors assume when investing in the oil and gas sector.

Finally, the natural gas market, after a period of massive oversupply, has, in our view, self-corrected and appears to have returned to balance. Continue reading "Oil and Gas Volatility Creates Winners and Losers: Robert Cooper"