For just about the past year (2008-2009), natural gas prices have been in a major secular decline, breaking below the $3.00 mark with some analysts having speculated they could go to zero. Just this past week, however, we’ve seen a small surge in the nat gas index and investors are responding with inflows of cash back into some withering gas stocks.
If you missed the broad market bottom back in March 2009, you might still have a chance to get in close to the natural gas bottom. But no matter what period we’re in, these are some of Canada’s biggest natural gas plays, and they’re worth checking out.
Natural Gas Industry Price Forecasts and Update (August 25, 2009)
Natural Gas Plays in Canadian Companies and Stocks
Encana (TSX: ECA) – Encana recently announced it is going to separate its oil and gas divisions. Some have speculated that the oil division (Cenovus Energy), which is smaller, could become a nice takeover candidate by a U.S. company. The gas division will remain a nice cash cow, however, and continue under the Encana name. So buying the stock today is buying its gas, and here it is just about as blue-chip as any Canadian energy company can be. Currently pays 2.7% dividend.
Talisman Energy (TSX: TLM) – Talisman is another major large-cap energy player. Recently under new management and significantly improving. Pays 1.3% dividend.
Birchcliff Energy (TSX: – BIR) – Headquartered in Calgary, Birchcliff represents a weighting of about 70% natural gas and 30% gas liquids and oil. Pays no dividend.
TriStar Oil & Gas (TSX: TOG) – TriStar will soon be taken over to form part of the new PetroBakken corporation, but some analysts are still recommending it as a buy because it could still be undervalued in relation to what it will bring to PetroBakken. If you buy and continue to hold in your brokerage, the shares will convert automatically for you when the merger is completed. Pays no dividend.
Nuvista Energy (TSX: NVA) – NuVista also comes highly recommended and is worth checking out. It pays no dividend, however.
There are several other gas companies worth checking out, as well. Don’t stop your research with these five. Check out the pipelines: TransCanada (TRP), TransAlta (TA) and utility companies like Enbridge (ENB), too.
Canadian Natural Gas Trusts
Until 2001, you can still play natural gas through the income trust structure. After 2011, these will convert back to a corporation structure, which mostly means the distributions will become dividends and will be taxed as such. Many of the companies will keep the same level of payouts, but don’t expect any distribution increases from here on into 2011. Still, they are great sources of monthly income until then.
Daylight Resources (TSX: DAY.UN) – Daylight is a favorite among many analysts right now. It has recently enjoyed much of the small surge in natural gas prices and will most certainly benefit from any further rise. Pays 11.5% distribution.
Paramount (TSX: PMT.UN) – Paramount is an energy trust (launched 2003) completely focused on natural gas production. If you want a monthly income and aren’t interested in the Claymore ETF, check this one out. Pays 11.5% distribution.
Bonavista Energy (TSX: BNP.UN) – This is another stock well-recommended by oil and gas analysts, and the market seems to think so, too. Pays a 9.4% distribution right now.
Other trusts you might want to check out, though some of them also include oil portfolios, are Penn West Resources (PWT.UN), Pengrowth Energy (PGF.UN), and Progress Energy (.UN). One evenly-weighted (50% gas, 50% oil) trust that many analysts think highly of is Arc Energy Resources (AET.UN).
Natural Gas ETFs
Claymore Natural Gas Commodity ETF (TSX: GAS) – This is the one Larry Berman recommends for a pure Canadian natural gas play in Canadian dollars. It’s not leveraged or hedged and just tracks the price.
Horizons BetaPro ETFs. Horizons BetaPro is a Canadian company that has recently moved into the ETF market with its many offerings of leveraged ETFs which are products intended for specialized investors. I would not recommended leveraged ETFs to beginners or amateur investors. Nevertheless, it does offer two leveraged natural gas ETFs: the NYMEX Natural Gas Bull Plus ETF (HNU) and the NYMEX Natural Gas Bear Plus ETF (HND). These are power tools, dear readers. You need to do careful research and handle with extreme caution should you choose to pick them up. Horizons also offers another natural gas ETF, not leveraged: the Winter-Term NYMEX Natural Gas ETF (HUN).
Investors in Canada and the United States know that natural gas is a “domestic” product, which means there aren’t any pipelines or easy ways to ship it and export it abroad. This means consumption and supply is closely tied to the North American market. During a market downturn, if there is less demand for oil, there will be less demand for nat gas, too, since a good portion of it is used for the energy needs of oil sands producers.
Natural gas stocks are practically a cottage industry in Canada, with many oil producers and refiners also involved in the business of gas. The two sources of energy are thus often grouped together for purposes of analysis. Take Suncor (TSX: SU) as an example. Suncor has recently announced it will be selling off its natural gas assets, however, to focus on oil.
If you’re looking at oil stocks, check out their profiles to see whether they have interests in natural gas as well, and what weighting they offer between the two. You don’t want to get stuck with a 70% oil stock when you thought you were buying natural gas, and vice versa. This is also why some of the pure play commodity ETFs can be so attractive.
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