Natural Gas

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thecoloredsky
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Natural Gas

NG is back down close to its low in 2009:

http://www.finviz.com/futures_charts.ashx?t=NG&p=w1

I was reading from here: http://205.254.135.24/naturalgas/annual/ and it says that technology advances has brought the break even points down in the industry. Demand is lower because of warmer temperatures in winters. Production is increasing. Less disaster weather like hurricanes has kept production numbers high. All the while prices are, what seems to be, rock bottom and I'm thinking about jumping in. Anyone have any recommendations or experiences with Natural Gas companies or ETFs? Without having done much DD I see that UNG is an ETF that tracks natural gas futures.

Thoughts?

Edited by admin on 11/08/2014 - 06:17
Eric Original
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natural gas royalty trusts

I have long experience with some of the royalty trusts such as HGT and SJT.  Been out of them for a few years because I could see this natural gas glut on the horizon with the explosion of horizontal drilling.

HGT traded as high as 24 in 2011.  Was 21 as recently as early December.  When it got in the 15's I decided it was getting cheap enough.  I would have preferred 14, but decided to not be greedy and bought a bunch under 15 just two days ago.  It touched 14 this morning!   Ha Ha, a tad too early there, I guess!  I'm just thankful I didn't buy it at 19...18...17...16...

SJT is getting the same monkeyhammering.   From 24 to 18 since early December.  2011 high was almost 28.

Lately people fear that Nat Gas will go to zero.  I doubt it.

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Rico
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@Eric, I couldn't help

@Eric,

I couldn't help it--bought more SJT this AM.  Yield 9% (!)

Of course, I could be wrong, but all my trading experience tells me the recent action (especially this AM) feels like a gigantic, diarrheal flush of the entire NG sector.  In other words: capitulation.

Isn't that when you're supposed to buy?

Eric Original
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Absolutely capitulation!

Absolutely capitulation!  When folks are in an absolute panic to unload something, the smart move is to take some off their hands.  Someday, we'll look like geniuses Rico, when we are collecting big double digit yields based on our original cost.  But in the meantime, I go sit in the corner with the dunce cap on....

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Eric Original
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It's a start..

The cure for low prices is...low prices!  

Chesapeake to cut production.  That will help.

http://finance.yahoo.com/news/Chesapeake-cut-natural-gas-apf-1002841135.html?x=0

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Eric Original
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Couldn't resist--Ka Ching!

The bounce back in nat gas and in the royalty trusts in particular has been awesome.  I had intended to just hold it and collect distributions for a while, but I decided to sell my HGT this morning.  The profit was too much and too quick to resist.  I'm thinking another chance will come along to buy it back cheaper.  cool

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thecoloredsky
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thanks Eric and Rico

I'll check into those and I appreciate the responses. Drop a line in this thread if any other ideas pop up!

wink

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A broker friend

recommended BOIL a 2x fund and it's sister KOLD a 2x inverse fund.  If understand correctly these are based on futures.  There seems to be the potential for big gains in this energy source considering historical pricing.  I'm now trying to learn some more about NG; is it possible that it continues to go south?  If there's not much of an argument for it going further south then I'll certainly feel good about our timing for these low prices.

Eric Original
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The fundamental reasons for

The fundamental reasons for nat gas going south have been in place for 4-5 years.  Huge oversupply from shale gas formations that are newly economic due to new technologies of horizontal drilling and fracking.

The question right now is whether the price finally got cheap enough to get producers to cut back production.  That question is as yet unresolved.   Could still go either way.  That being said, I'm long HGT, in an attempt to get paid while I wait for a clear turnaround.

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Bsong
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Thanks EO! I hope we get a

Thanks EO! I hope we get a little more interest here.  I do believe as of Friday night that OI in NG had reached an all time high.  So hopefully we will see a turn up soon.  It seems to have some support at the 2.42 area.  Thanks again checking out HGT

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Article on futures ng

http://www.marketwatch.com/story/open-interest-in-natural-gas-at-a-record-2012-02-10

thecoloredsky
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Hey Eric O

Eric Original wrote:

The fundamental reasons for nat gas going south have been in place for 4-5 years.  Huge oversupply from shale gas formations that are newly economic due to new technologies of horizontal drilling and fracking.

The question right now is whether the price finally got cheap enough to get producers to cut back production.  That question is as yet unresolved.   Could still go either way.  That being said, I'm long HGT, in an attempt to get paid while I wait for a clear turnaround.

Eric O,

HGT pays out a monthly dividend of 8 cents per share based on the past two months. Is that a fixed payout or does it fluctuate? I also just did my taxes and noticed there's a section to report dividend earnings... would the tax rate on dividends be similar to capital gains taxes on stocks? Thanks for your recs! I'm definitely paying more attention to NG right now, just figuring out which vehicle I should roll with.

Eric Original
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HGT

The payout will vary every month depending on the actual price of nat gas for the month.  There is a lag involved, so with the recent plunge I'm expecting it to fall to around 5 or 6 cents.

To be honest, the tax reporting for royalty trusts can be fairly complicated.  It's not regular dividend income.  It's royalty income.  There are depletion deductions.  And there's more.  If you do your own taxes, I don't really recommend them.  Even if you are already having a professional do them, it may end up adding to your fees.  I tend to forget about that part because I do most of my investing and trading within my Roth IRA, and therefore don't have to worry about the complications.

MLP's (most of the pipeline companies are in Master Limited Partnerships) can add complexity to your tax situation too.  If it's in a regular taxable account, I think I'd probably just stick with the common stocks of some of the well known natural gas producers that are out there.   Encana, Chesapeake, etc.  Encana pays a nice 4% dividend.

I'm a big believer in K.I.S.S ( keep it simple, stupid).  And being a tax accountant myself, I see a lot of people just buy stuff they don't understand and not realize how much more they are paying us in tax prep fees just because of the complexity it.

Sorry I may have almost led you down an alley that might not have been much fun, but I'm glad you asked, and hopefully this clears things up. yes

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z28
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Thank You

Just wanted to say thanks for your work on the tax question.Will buy in my IRA.

Rico
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NG has had a great week.

NG has had a great week.  There is some support ~2.4, but don't make the mistake of thinking it's blue skies from here.  At some point, we'll break 2 on the downside, before this bear is done growling.  The supply overhang is just massive.

I did quite well using calls, during the panic a few weeks ago.  You can either come in short if it gets back to ~2.8 on the current enthusiasm, or just wait for the next panic sell-off to the low 2 area to back up the truck.  If I am lucky enough to be watching the market when/if that mythical 1 handle appears (believe me, it'll be brief), this will be me, and my UNG calls:

sherpa-porter-walking.jpg

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Natural gas at 1.99 looks

Natural gas at 1.99 looks tempting however the market is in such steep cantango its impoosible to hold onto it from one month to the next.

Eric Original
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2 bucks?

Just looking at the action in various nat gas vehicles today, like HGT, SJT, ECA, CHK, I'm just guessing that a lot of people may have had the idea of "I'll buy something when nat gas hits 2 bucks".

If history is any guide, all those people will have to experience a period of regret, where they wonder if maybe they made a mistake.

Therefore, I'll buy something at $1.80 cool
 

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Well, the 1 handle is

Well, the 1 handle is here.

Have we not seen the capitulation yet? Say, the 50% decline from 8 to 4, and then another 50% from 4 to 2. Lots of pain have been dealt over the last couple of months.

But hell, i know shit.

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Bottom picking

Eric, Do you think HGT @ mid 13's is a good entry point ? Bought a small tranche @ 13.64 just to watch it drop to $13.05 haha.  How much further are we dropping this thing? $12 $11 ?

Eric Original
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ID wrote: Eric, Do you think

ID wrote:

Eric, Do you think HGT @ mid 13's is a good entry point ? Bought a small tranche @ 13.64 just to watch it drop to $13.05 haha.  How much further are we dropping this thing? $12 $11 ?

Your guess is as good as mine.  But let's try this little exercise.  Though this is a long term look, not a short term trading look.  The last distribution was 7.8 cents, based on January production.  Spot nat gas has tanked about 30% since then, so let's trim the distribution to around 5.5 cents.  Heck, let's be extra careful and assume the distribution might go to 5 cents.  That's 60 cents per year.  If I pile in right here, I think I'm looking at long term yields of about 4.6%.  A ten year treasury is yielding 2.0%.  Which would you rather own for the long haul?

Just thinking out loud....

EDIT:  Let's say it even tanks to 4 cents.  Right now you are looking at a 3.7% long term yield.   Still, where else you gonna put some cash these days?  Well, maybe ECA, with a current dividend yield of 4.5%. It's a thought, but if nat gas can recover at all, I'd think the distributions on the HGT would grow faster than the ECA divs.  We're not buying any of this stuff if we don't think there's a bottom around here somewhere and that nat gas will be higher a few years from now.

Still just thinking out loud, with no clear answers....

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Rear Flank Downdraft
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Dropping a marker here....

...so I can keep up with the conversation. Still learning the ins and outs of the nat gas market and hoping to establish some positions in it soon to hold for what would appear to be while.....

So the consensus here is that we are the neighborhood somewhere of a bottom....with perhaps a bit more downside on the price of gas to come, so we could be holding for a few years?

Do the ETFs/companies prices correlate more or less to the spot price of nat gas over time?

....thanks Eric and others for your contributions here.

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