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North America's Greatest Natural Gas Hoards

By Matt Badiali, editor, S&A Resource Report

Wednesday, January 12, 2011

As I've shown you over the past two days, huge forces are escalating natural gas consumption.

This demand won't cause a short-term explosion in natural gas prices. But it's a no-brainer to start hoarding the stuff right now… in advance of the coming consumption boom.

You see, the natural gas price may be at historic lows today… but it will rise again at some point. Many roads may lead to higher natural gas demand. But the simplest is this…

Natural gas is the cheapest source of clean energy in North America today

According to the EIA, solar power costs about $4,800 per kilowatt. The cost of wind ranges from $1,800 to $3,500 per kilowatt. The cost of a natural gas turbine is just $650 per kilowatt.

On the other hand, it costs about $2.91 to buy enough coal to generate 1 million BTUs of energy. A million BTUs of natural gas costs $4.58. The tradeoff comes from the soot and pollution generated by burning coal. Natural gas combustion produces one thing… carbon dioxide. That difference will matter more and more in the future.

To quote legendary commodity investor Jim Rogers, "The best cure for low prices is low prices." Eventually, the utility of natural gas and its low cost will create demand. We simply have to be patient.

In investment terms, we want to own enormous reserves that can be produced when the natural gas rally cranks up. We want to buy companies that the market has left for dead… but that will have enormous natural gas production in the future. Essentially, we want a "call option" on natural gas.

We want to own "PUDs."

PUD stands for Proven Undeveloped Reserves. These are undrilled gas wells with zero exploration risk. Typically, PUDs are located between two producing wells or in the middle of proven fields just waiting to be drilled. We know the gas is there… The company that owns it just hasn't drilled it yet because prices are too low.

Right now, the stock market is practically giving away natural gas PUDs

The price of natural gas is so low, investors aren't willing to pay for the future production of PUDs. Companies only get credit for current production and cash flows… Promising, nonproducing properties are selling for peanuts.

Below is a table of natural gas producers that trade on the stock market. I figured out the price of each company's PUDs per share, in thousand cubic feet (MCF) equivalent increments. We want to buy massive amounts of PUDs as cheaply as possible.

Company
PUD per Share
Price per MCF

Galleon Energy
8 MCF
$ 0.53

ATP Oil and Gas
14 MCF
$ 1.18

Penn Virginia
11 MCF
$ 1.62

Petroleum Development
22 MCF
$ 1.86

Goodrich Petroleum
7 MCF
$ 2.79

Berry Petroleum
15 MCF
$ 3.02

Sandridge Energy
2 MCF
$ 3.35

Chesapeake Energy
9 MCF
$ 2.95

EQT Corporation
15 MCF

$ 3.02

Energy XXI Bermuda
9 MCF
$ 3.13

Since I first showed you this table in November prices have climbed. But it's just a fraction of what could happen if natural gas heads up from $4 to $6 or $8 in the coming years. If that happens, these assets will skyrocket in value.

The best resource investors I know are slowly building up a portfolio of the best undeveloped reserves they can find. Now is the time to buy, when the market hates natural gas. With a little patience, your investment will double or triple over the next few years.

Good investing,

Matt Badiali

Lloyd:

You are right I have not been keeping up with NXT as I once did. I still have faith in the company and am content with letting them to their thing to move it forward.  Instead of contacting them fairly often like I once did I am satisfied to watch things unfold as they release PR's to us, which I expect we will be hearing more from them in the not to distant future. 

I am sorry have no pull on any of the data you are refering to.

I also wish you and yours good health and prosperity in the New Year