The Top Five Natural Gas Companies to Watch

The Top Five Natural Gas Companies to Watch

by | published December 24th, 2009

NEW YORK – I've briefed Wall Street before. This time, however, the 57th floor conference room is packed. Some heavy hitters invited me to explain why is the upcoming play.

By the size of the crowd, it seems the word is getting around.

The last time interest was this high, natural gas contracts on the New York Mercantile Exchange (NYMEX) were racing past $14 and the dominant players were making a fortune. We're about to see them try it again.

Exxon Mobil Corp.'s (NYSE:XOM) recent acquisition of shale gas producer XTO Energy Inc. (NYSE: XTO), for example, is only the first of several moves we're about to see as the sector shakes itself out again.

This time, however, average investors can move early and reap the benefits.

In a matter of days, gas contracts have jumped more than 25%, approaching $6. That's sparked an interest in production. But there's a supply glut right now, so prices can't go much higher. Not in the near term, anyway. And that means the largest producers won't necessarily provide the heftiest returns.

For investors, the real money's in operationally efficient companies, like the ones I'm about to show you. They boast prime field locations, too. And they keep extraction costs low.

In the long term, of course, the fundamentals for natural gas are spectacular.

Demand Will Be Higher Than Analysts Expect

The Department of Energy projects a 15% rise in U.S. demand over the next two decades. But it will be higher than that. More power production from gas generation (instead of coal) and widening industrial applications should push the increase closer to 20% to 22%.

It gets better, though.

Unlike crude oil, we have enough gas reserves to cover all of our needs for at least the next century. And natural gas demand is increasing much faster in other parts of the world. That gives U.S. producers of liquefied natural gas more export potential.

So how can investors profit from natural gas now?

Here's what I told the fund managers and high-net-worth analysts in New York…

  • U.S. demand is returning and natural gas is becoming the fuel of choice. But a tighter market means cheaper production will be nudging more expensive operations out of the picture.
  • Smaller producers – ones that can provide constant volume at cheaper rates – will be the smart investment moves. Lean, hungry, niche operations are the ones who will make money.
  • Unconventional production, especially shale gas, is providing more volume at lower prices than fast-maturing free-standing gas fields.
  • Pipeline developments in the U.S. will be leveling off major regional price differences and improving the bottom line prospects of well-focused companies.

Now, people who attend my Wall Street briefings are usually making seven figures or more a year. These “market gurus” are supposed to be on top of the movers and make the correct calls. But that's usually not the case, especially in the energy market. That's why they call me in.

(It doesn't hurt, of course, that my data banks regularly follow 523 publicly traded North American oil and gas producers, along with hundreds of overseas service providers and companies. As the energy sector heats up, several new ones are added each week.)

But while I'm quite content to invoice the Wall Street gaggle for my services, I never give these overpriced prima donnas investment advice. They serve merely to drive the current herd mentality in the Big Apple, often adding to the problems. They also burn out too quickly, replaced by another crew of even younger, less-experienced hot shots.

How young? One of them actually rode into my briefing on a skateboard!

These guys are not the real driving force in the market. That role is occupied by millions of individual investors – the real soul of the free market.

That's why I making my recommendations here, for people like you…

The Top 5 Natural Gas Companies

Applying the four points above, these are the top five natural gas producers to watch. They have all moved up sharply in recent trading and are primed for further advances:

  • Chesapeake Energy Corp. (NYSE:CHK): Up 16%, December 8-18.
  • Devon Energy Corp. (NYSE:DVN): Up 9%.
  • EOG Resources Inc. (NYSE:EOG): Up 8.5%.
  • Newfield Exploration Co. (NYSE:NFX): Up 19%.
  • Range Resources Corp. (NYSE:RRC): Up 18%.

All of these companies are focused. They're well managed. They have efficient, cost-effective operations. They're well located. And they're of moderate size. They also share another interesting characteristic: They're all primarily shale gas producers.

Devon and EOG are leaders in the Barnett Shale (Texas), Newfield in the Woodford Shale (Oklahoma), Range in the Marcellus, where Chesapeake, already a major shale gas producer in the southwestern U.S., is now the largest lease holder. And there are other producers coming up right behind them.

As the Exxon acquisition of XTO indicates, majors are looking to add companies having developed shale gas production. That will put the aforementioned five in play as M&A targets.


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  1. Charles Zachary
    December 24th, 2009 at 07:23 | #1

    The article above is the usual claptrap of imaginative Wall St. drama that rarely takes place as written about. A projection regarding some recent decisions in the boardroom of XOM would be much more interesting. The big investors like Sorros, saw this comming before this Wall St board meeting.

    The greatest omission or de-dramatization here regards ECA (EnCana) rumored to be XOM’s next buyout and whether or not it is, Sorros and many many others have found this to be a solid harbinger now – perhaps in the long run, far better than some of the above mentioned, however only time will tell.

    EnCana is Canada’s largest natural gas supplier and their plans for the future are magnificent within Canada and the USA. They just gave a major grant to an AMerican University and are developing beautifully in leaps and bounds within Canada itself. Even if XOM does not buy it, it will stand and persevere without any strains into the new marketplace as both innovator and producer. It is a shame to write an article and leave this major player out since it will be in the forefront soon enough and then all of the heard can start chewing in some more northern pastures for the pastimes – will will be past by the time EnCana starts to be the new herd-on-the-street.

  2. ScottinKorea
    December 24th, 2009 at 07:47 | #2

    What happens if the US has to pull its troops out of the middle east due to the fact that it can no longer afford to stay there and fight the terrorists etc? I suspecvt that the price for natural resources will go very high. North America still has a lot of natural gas, but if the terrorists take over in the middle east then I suspect that they will quickly stop the exportation of crude oil and natural gas. What Exxon seems to be doing is very logical. Exxon correctly realizes that the writing is on the wall for the end of the war in the middle east as per Obama’s statement that he is sending in the new troops as a measure for providing support in the eventual withdrawal (exit strategy) of all of the troops. The writing is clearly on the wall that the end of the war is in sight and that following withdrawl, energy prices will have to rise much higher. Exxon is buying up the last remaining untapped natural gas in order to be able to supply the demand that will eventually be much higher once the taps are finally turned off. Natural gas can be converted into liquid fuel and it can be burned diractly in internal combustion engines. The purchase of XTO by XOM is a very important statement to the whole world. It shows what XOM really thinks about the future. Yes, change really is coming.

  3. Roger Southwick
    December 24th, 2009 at 08:04 | #3

    I’m interested in non US natural gas stocks, expecially Canadian. Do you have any recommendations?

    Regards, Roger Southwick

    December 24th, 2009 at 08:31 | #4


  5. Ken Didier
    December 24th, 2009 at 09:52 | #5

    I guess you did not like any Cdn companies such as Transcanada or Enbridge.

  6. Gene Slattery
    December 24th, 2009 at 10:27 | #6

    You will never know how much I appreciate advice from the caliber of writers that I get from your web site…Thank you

  7. James
    December 24th, 2009 at 13:19 | #7

    I appreciate the natural gas tips. However, I have heard rumblings about folks in New York city trying to stop some of the gas drilling in surrounding regions (including Marcellus I think) due to concerns about contamination of their watershed. How big of a risk is this to the companies mentioned?

  8. Robert Matthews
    December 24th, 2009 at 15:42 | #8

    How valuable would a solvent with 360 constituent parts be? …One that can disolve a candle in about one minute or disolve the oil out of a shale?

  9. Gordon Maddox
    December 24th, 2009 at 23:01 | #9

    Question concerning your post that we can soon turn our money into “gold dollars”
    at the raate of one to one and that each Gold Dollar is backed by one gram of 24 karat
    gold. One ounce of gold is equivalent to 31.103 grams. Dividing this 31 into the
    current price of gold—around $1,000 gives a value of one gram of gold is at least $$32!
    Did the author make a mistake and mean the Gold Dollar is backed by one grain of
    gold? There are 480 grains in an ounce and this works out to more than $2 per grain.
    Please answer this directly. Thank you Gordon Maddox

  10. Robert Pyatt
    December 25th, 2009 at 09:02 | #10

    Please sign me up for Money Morning newsletter

  11. Craig Lipinski
    December 29th, 2009 at 16:08 | #11

    How can you recommend Chesapeake Energy Corp. (CHK)? This is one of the most corrupt companies I have ever researched!
    1. Q: How much stock do insiders own? How much stock have insiders purchased?
    A: Extremely little.
    2. Q: How much was the CEO paid in the last 5 years?
    A: An ungodly amount
    3. Q: Why did the company buy the CEO’s collection of old maps?
    A: Because the Board of directors are idiots and corrupt.
    4. Q: Why did the CEO buy so much stock on margin and they have to sell it all?
    A: Because he only rents the stock, he has no interest in long term performance or the share holders.
    5. I could go on and on but I think you get the point.

    I would love a response.

  12. Gary Mechler
    December 29th, 2009 at 20:24 | #12

    I just want to be signed up on my yahoo account for the Money Morning Newsletter. I am deleting my current subscription in my comcast account.

  13. Frank janesick
    January 5th, 2010 at 08:05 | #13

    It might be better investing in the pipelines than a producer. Pipelines have a fixed transportation cost, the more they transport the more they make. While producers, have a lot of competition.

  14. FG
    January 7th, 2010 at 11:05 | #14

    Gary ~ I have had a yahoo account for many years, the finance format is great. I also have Money Morning newsletter and great.

  15. S. Tsui
    January 10th, 2010 at 10:13 | #15

    Why did you not give any Canadian natural gas stock picks? These have been moving up in price quite rapidly. Not only is there price appreciation on these stocks but price appreciation on the Canadian currency against the US dollar.

  16. Judi Wells
    January 12th, 2010 at 08:56 | #16

    What is your take re. last year’s attempted buyout of NRG and it’s rebuttal as to price? Are they still a player? Thanks Judi

  17. Peter Dodge
    February 5th, 2010 at 11:03 | #17

    Please send me information on this 360 component solvent. Very interesting… Peter

  18. Peter Dodge
    February 5th, 2010 at 11:07 | #18

    I am aprincipal in Heldt separator corp which has a tool that leaves water below ground in Nat gas production and Coal Nat gas. We are looking at this need for an environmental solution that is also very profitable. If you have specific thoughts on a marketing approach into this market space please advise by return email… Thanks… Peter

  19. December 29th, 2010 at 15:14 | #19

    Been in need of this sort of information for a while now and finally found it. Great stuff you have got in this article, finally someone who gets it.

  20. February 26th, 2011 at 17:17 | #20

    I subscribe to Dr. Moors newsletter and he knows what he is talking about. Just about all of his energy stock recommendations are profitable and look like they will be heading higher.

  21. January 13th, 2012 at 14:54 | #21

    I’m also interested in non US natural gas stocks, expecially Canadian. Do you have any recommendations?

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