Shut 'em in

[attachment=8371:UNG.png] Pressure to shut in on land gas wells is increasing. Prices for nat gas have dropped below the point of zero return for the investor part of ownership, leaving them no incentive to keep newly drilled wells flowing. Expect a growing consensus of opinion supporting shut-ins. Producers are already taking rigs to storage, so all 3 pieces of the equation is rapidly reaching a consensus point. BW

Yup, but trade wise is it a good short even though we are in the season where it should go up. Referring to UNG. I am out of it 2 weeks ago. NEW YORK, Sept 23 (Reuters) - Chesapeake Energy Co <CHK.N>, which has cut its spending on natural gas well drilling, expects other energy producers to begin reducing exploration spending in coming months. "While we may be the first, we will certainly not be the last," Chief Executive Aubrey McClendon said during a conference call on Tuesday. On Monday, Chesapeake, which says it is now the largest U.S. natural gas producer, announced it had cut its capital expenditure for drilling 17 percent through 2010, trimming its forecast for gas production growth. Natural gas producers had ramped up exploration and production activities during the first half of the year, when natural gas futures <NGc1> prices nearly doubled, reaching a peak at $13.69 per thousand British thermal units in early July. Since then, natural gas futures have slipped more than 40 percent to trade at about $8. When that price goes below $7.50, production at many wells becomes uneconomical, McClendon said. "If those prices stay out there for very long the industry will have to restrict its capital expenditures," he said. The number of rigs drilling natural gas is likely to drop by 200 to 400 in the coming six months as companies pare back spending on rigs that were hired when gas prices were rising, he added. A total of 2,018 rigs were drilling for oil and gas in the United States, oilfield services company Baker Hughes said in its most recent weekly report. Chesapeake's shares were flat at $40.89 on Tuesday on the New York Stock Exchange, outperforming the Standard & Poor's Energy index <.GSPE>, which was down 1.2 percent. (Reporting by Matt Daily, editing by Gerald E. McCormick and Brad Dorfman)

Skymaster

I am a Royalty Owner. The investors I spoke of are the "boyz" the producer invites in to invest in the cost of developing the well. They - teaming with the producer - make money when (and only when) the price exceeds the cost of production, AND if (and only if) the purchaser actually pays for delivery. Believe it or not, they sometimes don't.

Royalty owners are paid regardless, howbeit at a much lower rate when prices are low. As a paper speculator (that's what you are) you would seek entries when it is clearly disadvantageous for investors to invest; hence, little/no incentive for drillling....such as now. Comprende?

As you can see, the price (of da papuh stuph) has popped 1.6% since I opened the thread, giving you paper speculators an opportunity to try to make a buck, if you agreed with my thesis.

BW




[quote name='skyymaster' date='Sep 29 2008, 02:12 PM' post='401561']
Yup, but trade wise is it a good short even though we are in the season where it should go up. Referring to UNG. I am out of it 2 weeks ago.