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Natural Gas Bargain Justifies Obama's Stance

by: Kurt Wulff September 22, 2008 | about stocks: CVX / PCZ / XTO    
Kurt Wulff

Kurt Wulff

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Low market cash flow multiples (EV/Ebitda) for oil and gas stocks are a sign of opportunity in buy recommendations including Chevron (CVX) – 4.6 times, Petro-Canada (PCZ) - 3.3 times and XTO Energy (XTO) – 6.5 times. The low multiples would be appropriate if oil price were to decline to a long-term level of about $70 a barrel and natural gas price would be no higher than a long-term level of about $10 a million btu. Instead, we see long-term oil at $100 a barrel and a more likely ratio of oil price to natural gas price of 7 to 1, rather than the current extreme of 13 to 1.

The great bargain in natural gas justifies the new emphasis on the clean fuel from Mr. Barack Obama in his acceptance speech for his nomination as the Democratic candidate for U.S. President. We object to Mr. Obama’s previous support for a “windfall” profits tax on oil and his demonizing of our buy recommendation, ExxonMobil (XOM). On the other side, the presumptive Republican nominee has picked a vice presidential running mate who has been unfriendly to oil producers. Governor Sarah Palin has promoted a “windfall” profits tax on Alaskan producers that reaches 50% before consideration of Federal income tax. The Palin tax effectively delays the Alaskan natural gas pipeline for another generation, in our opinion. Back to the numbers, estimates for Next Twelve Months cash flow (Ebitda) have been rolled forward to the period ending September 30, 2009 from the period ending June 30, 2009 with little effect on the relative ranking by market cash flow multiple.

Originally published on September 2, 2008.

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This article has 20 comments:

  •  
    Sep 22 08:42 AM
    The US is a net importer of Natural gas, How will its greater usage reduce dependance on Foreign Oil over the next year or two or until there is an equilibrium at best?

    TBoone and Family have sold 2.2 Million shares of CLNE into its rally, I guess he either needs more money for ads or doesn't see anything happening anytime soon.
    Reply
  •  
    Sep 22 08:54 AM
    T. Boone still owns 34 million shares of CLNE, at the last count I saw, and is still the largest stockholder. So what, if he sells a few shares. He has strong beliefs about peak oil, and he is putting his money where his mouth is. His plan may not be perfect, but he is way ahead of whoever is in second place.
    Reply
  •  
    Sep 22 10:27 AM
    This article and the Petro China article listed in today's email, simply confirms a growing trend in higher taxes on oil and gas by the free world and the dictators alike.
    It will now be impossible to drill, drill, drill, like T. Boone advocates. It will only be drill. Sometimes.The cure of course, seems that everytime a tax goes up, so does the price of oil.
    Reply
  •  
    Sep 22 10:58 AM
    Our reserves for Natural Gas are good for somewhere in the neighborhood of 100 years. We are busy kissing the behinds of the world oil producers at present, which includes Hugo Chavez in Venezuela, who just signed a pact with China to the one of their largest oil suppliers. Why wouldn't we want to use a fuel that was abundant, clean burning, and made in America, than keep sending our money to people who hate us? I hope T. Boone makes gazillions off of wind energy and natural gas, because I'd rather see him make it than some sheik or tin horn dictator.
    Reply
  •  
    Sep 22 11:24 AM
    We all know the benefits of natural gas. I think Kurt's point was that Obama is more pro-nat gas than Palin.
    Reply
  •  
    Sep 22 12:48 PM
    I don't have a clue where you are getting your figures from: as of 09/15/2008 T Boone held 16.5 mil directly
    and 3.3 mil indirectly, in September he sold 1.1 mil from his indirectly owned shares. (about 25%).

    Madeleine Pickens: Held 1.9 mil as of 09/15/2008 directly having sold 1.1 mil and owns 17.9 indirectly.

    Between the two of them they hold 39.8 both directly and indirectly.

    My point is they sold.

    The Wind Corridor he talks about can also be used as a solar corridor. TBoone isn't making squat out of Nat. Gas. He is an Oil Trader.

    We have 150 years of coal, so what. Other countries liquify it. The Nat. Gas you talk about has to be gathered using many more pipelines than your normal punch a hole in the ground oil. It will be many years before we will be self sufficient in Nat. Gas.

    With the current ongoing crisis and associated expenditures, what will be avaiable to subsidize the scale of activity needed to use Nat. Gas as a fuel for cars?

    TBoone needs Billions to purchase his Turbines, where is he going to get the funding to complete their purchase? Certainly not from the earnings of CLNE.
    Reply
  •  
    Sep 22 12:55 PM
    As much as I have a cynical view of T. Boone pushing his own book of business, according to a recent article, his wife sold shares of CLNE. She also had an acceptable reason to do so.... Can't remember what it was... Just more noise...

    Anyway! Novocain/Pain in 2009!
    More Republicans! That's the ticket!

    jegan ;-)
    Reply
  •  
    Sep 22 01:10 PM
    Indicating a preference for nat gas has absolutely nothing with the actualization of a gas plan. Obama is a liberal senator from the party that has thwarted every conceivable type of energy - natural gas distributors were investigated in several years ago because of high prices. Any energy bill will come with alot of collective socialist strings -just like the bill being held up today. Along with cyncial election year tactic of global warming - obama has embraced ethanol for votes, and his party has demonized LNG terminals, nuclear, oil drilling -, oil transport, car manuf.. royalty trusts.
    Scaring precious capital out of the country that would pursue energy independance is the real threat with all branches of government -overwhelmingly socialist. T

    he rest of the developing world is moving toward capitailism while we are moving left of France (which at least allows nuclear). Follow how they vote and where their campaign money is- not a little vapid utterance to carry them through the national debate (like rescinding his tax increase - for the time being).
    Reply
  •  
    Sep 22 01:14 PM
    There seems to be little money in conserving
    Reply
  •  
    Sep 22 02:23 PM
    There is a lot of money to be made in conserving.

    I had a problem in the Past with TBoone's crusade, I don't any longer. If it adds to the electricity avaiable, Great! From my standpoint, the only type of alt. Energy that won't involve a massive infrastructure buildup to support its usage is All Electric Transportation. The more research, the better. I personally believe we are close to solving the range and recharge problems.

    All CNG does is replace one fossil fuel with another.
    Reply
  •  
    Sep 22 11:14 PM
    On the other side, the presumptive Republican nominee has picked a vice presidential running mate who has been unfriendly to oil producers."
    -- More to the point she is clearly unstable and insane.
    Reply
  •  
    Sep 23 04:27 AM
    So, I guess the people of the State of Alaska are also unstable and insane since she has an 86% approval rating on the job she has done.

    People in glass houses shouldn't cast stones.

    The current financial crisis started with the Switch in control of Congress or isn't control of both Senate and House considered to be a majority.

    Unstable and Insane? Where does the Speaker of the House rank? Bush has a very low approval rating, the rest of Congress has vastly underperfomed him.
    Reply
  •  
    Sep 23 09:34 AM
    Let me try to understand your premise -

    Obama, Biden and the Democrats are better for domestic energy exploration and production than McCain and Palin?

    So, what's next? Let me guess -

    The sun will rise in the west. The Saudis want to sell oil for $20 a barrel. And Iran is really trying to promote world peace.

    These examples make just as much sense as your premise!
    Reply
  •  
    Sep 23 11:01 AM
    hey paulk, how are you doing? You have to cheer up.

    Remember its always darkest before the storm begins.
    Reply
  •  
    Sep 24 12:42 PM
    Obama's stance? Obama's plan? Has he actually offered any concrete ideas besides his hollow message for "change"?
    Reply
  •  
    Sep 24 02:41 PM
    Currently the U.S. is not a net importer of NG. This will not be the case if we make a dramatic shift to NG powered vehicles...newly discovered shale gas will not come cheap.
    Reply
  •  
    Oct 08 02:04 PM
    PCZ or Petro-Canada and the others have taken a big fall, but more from speculation as a P/E that low, even in a down market, for a diversified companies which is has vertical and horizontal integration is not based on fundamentals or reality. I think the Obama/Palin political situation combined with the uncertainty in general about the direction of America's energy goals, ie oil or gas or other drive this gyrations.
    Reply
  •  
    Oct 21 01:08 PM
    I don't think that when Barack Obama was talking about "clean energy" he meant natural gas. Obama opposes increased drilling. If you want natural gas, you've got to drill.
    Reply
  •  
    Oct 22 03:55 PM
    The US is a importer of Natural Gas, but mostly from Canada and Mexico. paultaut, although the use of 'net importer' is true, it is a little misleading when you look at the numbers. We are a net importer because we do not export due to cost and political issues surrounding domestic LNG plants. Right now our domestic pipelines are full and storage is rather high. In many basins, production is curtailed due to take away capacity - not by limitations of production. The EIA idicates that we are importing 300,000 MMSCF per month, but consuming 5,165,000 MMSCF per month or a whopping 6% (w/ 99% coming from Mexico or Canada) - I wouldn't guess that a change in gas demand would lend us to significant foreign imports and definitely not foreign imports outside of North America. Sure, we have some plants for LNG which receive some foreign tankers (mostly from Trinidad), but their usage is limited due to the market. Case in point - when gas was at $14, our LNG plants were at 7-% capacity. Why? Because the rest of the world will pay much for MCF then we will.
    Reply
  •  
    Nov 02 03:35 PM
    CHK is the natural gas stock of choice at these prices. under 20.00 is simply too cheap. They are the largest NG producer in the nation.
    Reply
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