Saturday, February 19, 2011

Natural Gas Producers All Want To "Frack Oil": Who Will Pay A Premium For Their Natural Gas Assets

Natural Gas Just Another Basic Commodity

Virtually ever natural gas producer has changed their market tune and investor presentation overnight to read: "Shale Oil Producer".

So if these Producers can't make money in the U.S. Natural Gas market, who will buy their depressed assets at the "Premium" that Chesapeake Energy and others are touting as prime assets.

In layman's terms, what Sucker will pay a premium for severely depressed natural gas production assets with major environmental liabilities and and taxes forthcoming?

Therein lies the ultimate dilemma that U.S. Natural Gas Producers face; they have put themselves in a "no win situation, Checkmate". They all want to dump their natural gas production assets, in a massively depressed market environment, thus further driving down prices.

To boot, they have leasehold obligations that require the them to continue drilling driving prices into the ground, plus sizable debt to service and hedge obligations to meet.

Then there are the mounting environmental liabilities, lawsuits, pending EPA action to limit chemical injections into production wells, and public backlash, all which will stay with the Natural Gas Producers, even if they dump their production assets.

No asset buyer will take on "liabilities for production actions in the past" and will require that Natural Gas producers "indemnify them for all liabilities in the form of unconditional guarantees", a call option on the equity of every producer.

There are no trade secrets, no pricing power, no way to manipulate price due to oversupply, no cornering the market by hedge funds/traders, no mystique.

What the Natural Gas industry is missing is qualified senior energy professionals to re-invent the industry and revive what has become a high risk, stale, and tired sector.

Mr. Miller maintains a Sell Opinion on the U.S. Natural Gas Producers at the current time due to very poor industry fundamentals and lack of pricing power among other key factors.

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