Exxon: Here's Why We Just Spent $41 Billlion On Natural Gas

[bobbyw24]

Here's a great example of a company sticking its money where its mouth is.

This morning, Exxon (XOM) announced that it's spending $41 billion to acquire XTO Energy (XTO), a major player in natural gas and unconventional shale.

This announcement comes just a few days after the company made a major presentation about the natural gas, and how its era had arrived.

So, longsuffering natural gas bulls, your moment may have finally arrived!



http://www.businessinsider.com/exxon...al-gas-2009-12

[tmosley]

Pfft.

Natural gas is the most difficult to transport form of energy. If you are going to invest in it, you'd best invest abroad, as the natural gas in the US will be the slowest to rise as monetary inflation hits prices. The only way you could really do worse is to invest in real estate!

[HOLLYWOOD]

Besides NAT GAS, Big Big SHALE player... when Crude sky rockets, all set to crush that shale for the crude squeeze.

Nice monopoly

[bobbyw24]

Natural Gas: Energy for Today and Tomorrow


Natural gas is a vital component of the world's energy supply today and it is believed by many to be the most important energy source of the future. Natural gas is abundant worldwide, has multiple applications across many sectors, and is one of the cleanest, safest and most environmentally friendly of all energy sources. Once considered largely a waste product of oil production, natural gas is currently experiencing a huge increase in demand around the world.

As recently as 50 years ago, worldwide natural gas consumption was relatively insignificant. Today, natural gas meets more than 20% of the world's primary energy requirements and offers great opportunities for developing economies looking for new sources of power. (Aruvian's R'search, July 2009)

What is Natural Gas?

Natural gas is colorless, shapeless, and odorless in its pure form. Natural gas is combustible, and when burned, gives off a great deal of energy. But unlike other fossil fuels, natural gas is clean burning and emits lower levels of potentially harmful byproducts, such as carbon dioxide, into the air. Demand for natural gas could increase dramatically as global climate change legislation increases demand for low-carbon fuels.

Natural Gas Supply Chain

Found in reservoirs underneath the earth, natural gas is commonly associated with oil deposits. The process of locating natural gas deposits has transformed dramatically over the last 20 years with the advent of advanced new seismic technology.

Once a potential natural gas deposit has been located by a team of exploration geologists and geophysicists, it is up to a team of drilling experts to dig down to where the natural gas is thought to exist. These innovations and techniques both decrease the cost, and increase the efficiency and success rate for drilling natural gas wells.

Once brought from underground, natural gas is refined to remove impurities like water, other gases, sand, and other compounds. Some hydrocarbons are removed and sold separately, including propane and butane.

After refining, the clean natural gas is transmitted through a network of pipelines. Transportation of natural gas is closely linked to its storage; excess gas can be stored underground for an indefinite period of time.

Uses of Natural Gas

Natural gas has many uses residentially, commercially and industrially. Without any way to transport it effectively, natural gas discovered pre-World War II was usually just vented into the atmosphere, burnt, or left in the ground. After World War II welding techniques, pipe rolling, and metallurgical advances allowed for the construction of reliable pipelines. Once the transportation of natural gas was possible, new uses were discovered, including:

* Heating homes

* Operating appliances, such as water heaters and oven ranges

Natural gas is one of the cheapest forms of energy available to the residential consumer. Historically, it has been much cheaper than electricity as a source of energy. The Department of Energy (DOE) estimates that in 2007, natural gas was the lowest cost conventional energy source available for residential use. According to the DOE (2007), natural gas costs less than 30% of the cost of electricity, per Btu (British thermal unit).

* Commercial uses. The commercial sector includes office buildings, schools, churches, hotels, restaurants, and government buildings. The main uses of natural gas in this sector include space heating, water heating, and cooling.

* Industrial uses. This includes providing the base ingredients for such varied products as plastic, fertilizer, anti-freeze, and fabrics. Industry is the largest consumer of natural gas, accounting for 25% of natural gas use across all sectors.

Because of its low cost and clean burning nature, natural gas has become a popular fuel for the generation of electricity. There are two primary forces at work that serve to increase today's demand for natural gas in electric generation:

1. The increased demand for electricity in general

2. The retirement of old nuclear, petroleum, and coal powered generation plants

Investing in Natural Gas

In addition to having numerous uses, natural gas has caught the eye of investors as a result of changes in the global economy and the environment. Due to supply increases from significant natural gas discoveries, and relatively low demand caused by the state of the global economy, natural gas prices are currently low. But we don't expect them to stay that way for long. With many governments threatening to cap industrial carbon emissions, corporations are being forced to explore alternative energy sources, and natural gas is far and away the most cost-efficient option.



There are three sectors of natural gas to look at for investment purposes – the explorers and producers, the transporters (aka the pipelines), and the ETFs. Our featured companies represent producers and pipelines. Both are in foreign countries that show a great deal of promise within the natural gas industry. In addition to the investment merits of these companies, their share prices will benefit from a continued decline of the dollar, which we believe is inevitable.

The first featured company is based out of Canada, where there is a very strong market for natural gas. In addition to Canada's abundant supply increasingly being used locally, the vast majority of natural gas imported by the U.S. comes from Canada (Energy Information Administration, 9/29/2009). The second featured company is located in Australia, which is also a significant producer, consumer and exporter of natural gas, and is expected to grow. It is estimated that Australia's underlying gas demand will grow an average of 4% annually over the next 10 years due to increased use of gas in electricity generation, mining and energy-intensive refining. (ABARE Energy Update, 2008)



FEATURED COMPANIES

Company #1

Company Description

Company #1 is a natural gas exploration and production company. We like this company for its high quality assets, profitable business model, proven track record, and current yield of 12.5% (Bloomberg, Dec. 2009). With increased government regulation on carbon emissions imminent, new energy sources are coming into high demand, and we think Company #1 is well positioned to help meet that demand.

Investment Highlights

This company's assets have a long reserve life and are approximately 100% natural gas and natural gas liquids. It discovered and developed practically all of the high quality natural gas assets it currently owns (Q3 Press Release, Nov. 11, 2009), generating profits that could be difficult to match through acquisition activity.

The company has a historically proven business model designed to grow its value, assets, production and income. It achieves these goals by operating on three basic principles. First, it uses its technical expertise to achieve strong returns through the development of internally generated ideas and projects. Second, it keeps up a low payout ratio to fund its growing inventory. Third, its core asset base is comprised of quality, long life natural gas reserves. Company #1 closely monitors costs to be sure that capital is only invested when good returns can be generated.

Company #1 has a low operating costs because it produces from reservoirs that do not have the added cost of water or sour gas disposal. Additionally, its wells have relatively high productivity.

Risks

Risks specific to this company include the possibility of dry wells, regulatory issues, and royalty taxation. Please also review the general risks of investing in natural gas companies, which are delineated at the conclusion of this article. Call a broker to discuss these risks before making any investing decisions.

Conclusion

We believe Company #1, with its ten year track record, is an excellent natural Energy Trust. We find that a solid current yield, combined with exceptionally high quality assets, gives this Company a positive outlook.



Company #2

Company Description

Company #2 is a natural gas infrastructure business, owning and/or operating upwards of $8 billion in gas pipelines and distribution assets. We like this company for its unrivalled portfolio, attractive growth opportunities, stable cash flow, excellent internally managed workforce and a solid current yield of 9.4% (Bloomberg, Dec. 2009).

Investment Highlights

This company is the biggest mover of gas in its region by pipeline length, capacity and quantity. Its integrated portfolio creates revenue through unique operating synergies. It oversees and controls all of its assets. Additionally, it manages a natural gas distribution company.

The company's strategy is designed to provide maximum value to security-holders. It aims to achieve this by concentrating on natural gas infrastructure assets in the expanding gas market and improving its portfolio, drawing revenue and synergies from its considerable asset base, seeking opportunities that make use of its experience and skills, and keeping up a strong balance sheet.

Company #2 has a wealth of attractive growth opportunities and a strong balance sheet. Growth highlights for 2009 include an expansion of several natural gas pipelines, numerous attractive investments, and the construction of a new gas pipeline. In 2009, its balance sheet was strengthened by selling a portion of its assets that were showing minimal growth and also by completing its 2010 debt refinancing.

Risks

The risks of investing in Company #2 include the possibility of damage to the infrastructure (fires, explosions, etc.), and competition within the natural gas transportation industry in Australia. Please also review the general risks of investing in natural gas companies, which are delineated at the conclusion of this article. Call a broker to discuss these risks before making any investing decisions.

Conclusion

The estimated increase in demand for natural gas in Australia, along with this company's exceptional assets, makes a strong case for investment in Company #2. Its dividend payout is currently set at $0.16, giving it a solid yield of about 9.4% (Bloomberg, Dec. 2009). We think this is a good infrastructure option for investors looking to add natural gas to their portfolios.
Company #2 Stock Chart



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General Risks of Investing in Natural Gas Companies

1. Operating risk: There is always danger of encountering operational issues, technical problems, geological interruptions, other disruptions and unexpected delays.

2. Commodity risk: These companies are exposed to the volatile price of natural gas. There is always substantial risk to the downside due to this exposure. The timing and magnitude of commodity price fluctuations are always significant risks that, in most cases, strongly affect the value of companies focused on a specific commodity, such as natural gas.

3. Industry risk: Companies in the natural gas industry are subject to price and supply fluctuations, and fuel prices, which will vary with supply and demand factors including weather, economy, and political conditions.

4. Country risk: There is never any guarantee that existing laws, regulations, rules, permits and licenses will not be changed, updated, altered or withdrawn in the future. Governments can always make changes to laws, regulations and rules.

[LibForestPaul]

Maybe they are expecting a supply glitch in their crude oil.

[Zippyjuan]

As we try to move to cleaner sources of energy, natural gas is the biggest alternative source of energy and could experience a boom in demand. I have shares in a utility with lots of investment in natural gas.

[Arklatex]

Positives on Nat Gas:

It's cleaner
It's undervalued


Personally don't own except though Franco Nevada FNV.TO