Btw just for laughs UNG has been down 16 of the last 17 days ...and of course there is a fabulous premium thanks to the CFTC.
The open arrives shortly.
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Interesting Bloomberg article:
http://www.bloomberg.com/apps/news?pid=20601072&sid=aigAPuv6tUNc
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Gas Producers Face Credit-Line Cuts on Drop in Prices (Update2)
By Edward Klump
Aug. 31 (Bloomberg) -- Natural-gas producers in the U.S. are heading for a day of reckoning with their banks as soon as this week.
At issue are so-called redeterminations, where banks review gas companies’ credit lines periodically and adjust amounts that can be borrowed when fuel reserves securing the debts change in value. The next redeterminations for many producers are in September, and this time around, plunging gas prices will cause credit lines to be slashed, Southwestern Energy Co. Chief Executive Officer Steven Mueller said.
“A lot of guys barely held on last redetermination, and we’ll just see what happens here,” Mueller said in an interview in Houston, where Southwestern is based.
Without the financing needed to keep their rigs operating, producers such as Forest Oil Corp. and Chesapeake Energy Corp. may need to raise capital by selling shares or bonds, said Haag Sherman, chief investment officer at Salient Partners in Houston. Companies may also opt to seek buyers, creating acquisition opportunities for larger producers such as Devon Energy Corp. and Apache Corp., he said.
“I’d be building my war chest if I were the big guys,” said Sherman, who helps manage $7.3 billion at Salient. “It could be a great year and a half for M&A activity.”
U.S. gas futures, which traded as high as $13.694 per million British thermal units in 2008, this month dropped below $3 for the first time since 2002. Prices collapsed after gas production from shale formations surged and the recession sapped demand for the heating and power-plant fuel. The Energy Department in Washington estimates that industrial gas demand will drop 8.6 percent this year.
Pressure to Sell
Sherman said credit lines may be cut by 40 percent for some producers. If gas stays below $4, “you’re going to see people like rats off a sinking ship,” he said.
“It definitely could lead to some distressed asset sales or distressed corporate sales, for sure, if the banks want to play hardball,” said Jim Byrne, an analyst at BMO Capital Markets in Calgary.
There’s little cause to hope that gas prices will rise enough in the next few weeks as credit lines are reviewed, said B.J. Willingham, chief investment officer at Moncrief Willingham Energy Advisers in Houston. Only when cold weather arrives will there be support for higher prices, he said.
“Storage is just so close to full there’s no place to put the gas,” Willingham said Aug. 25. “The industry is going to be plagued with that problem for the next eight weeks.”
Price Outlook
Benchmark gas prices will average $3.75 for the rest of this year and may climb to about $4.50 in 2010, Standard & Poor’s predicted in a report this month. Most U.S. gas-drilling projects need prices at $6 to $8 to be worthwhile, S&P said.
“Clearly, there’s some negative implications for the over- levered, checkbook-type of operators who are going to need a pretty good recovery in prices in order to continue going forward,” said Ted Harper, who helps oversee about $6.1 billion in assets at Frost Investment Advisors in Houston.
Shale-gas producers such as Southwestern and Oklahoma City- based Chesapeake signed mineral-rights contracts that require them to drill within a certain time period to keep their leases, regardless of prices.
Southwestern, the only oil and gas producer in the Standard & Poor’s 500 Index whose shares rose last year, doesn’t face a redetermination this year because its credit line isn’t secured by reserves, CEO Mueller said. The company has drawn $196 million of the $1 billion line, he said.
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Click on above link for rest of article
just give the stuff away!!!
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