This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither MHI nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of MHI/Virtual Investing Club. Copyright(c) 2007. All rights reserved
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Coming natural gas shortage creates a profit bonanza! For the last several years, commodity shortages have been handing savvy investors multi-million dollar fortunes. First it was oil, then gold, now corn, soybeans and wheat are sky-rocketing. Many commodity markets are starting to become over-extended and may soon suffer significant corrections. However, in our opinion, the current commodity boom isn't over yet and should continue to run into at least 20102012. There are several commodity markets that are now putting in a bottom after a multi-year bear market correction. One such market is natural gas. In 2005 the price of natural gas hit a high of $15 per cubic feet (mcf). Then, due to abnormally high reserves, the price of natural gas collapsed all the way down to $5 before stabilizing. Currently, natural gas now sits around $8 mcf. Our methods, which include fundamentals, technicals, and investor psychology all suggest that natural gas is now in the very early stages of the next bull market advance which should last for the next 3 to 5 years pushing the price of natural gas as high as $30 mcf.
Natural Gas – A Repeat of The Oil Crisis Think back with me for a moment to 1999. At the time investors were enamored with dot com and technology stocks and the economy was in a “new era” and had reached a permanently high plateau of prosperity. At the time oil was trading near $15 a barrel and to most it seemed like a bad investment. On the surface reserves were high and therefore, prices had been declining since the previous oil crisis in the 70's. What most investors failed to see was that emerging economies around the world were beginning to rise out of abject poverty and get their foot up on the first “rung” of the economic ladder. There are 3.8 billion people living on the continent of Asia making up more than 60% of the total world population No one bothered to look at what might happen if these consumers started competing for scarce resources. Well that day has arrived and their rapid economic expansion is guzzling huge amounts of energy. What seemed like sufficient oil reserves at the time, had grossly under-estimated this “new” demand. Commodity markets, like all financial markets, have a tendency to continually over and under-estimate supply and demand. This is why the experience panic buying near the culmination of a bull market top and panic selling near a bear market bottom.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither MHI nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of MHI/Virtual Investing Club. Copyright(c) 2007. All rights reserved
We feel the panic selling that occurred in the natural gas market from 2005 into late 2007 has significantly underestimated true world wide growing demand for natural gas. The good news, financial markets are forwarding-looking prediction machines. We believe the 26% spike in the price of natural gas since the beginning of 2008 is the markets signal that we need to rapidly increase reserves, and until we do, the price of natural gas will continue to rise. In my opinion, because of new market developments true demand for natural gas has been grossly underestimated and we are going to see a “shock & awe” bull market in natural gas.
Why Most Investors Never Get Rich! The reason the average investor never “hits the home run” and in fact usually loses money, is they have a hard time understanding that the best time to buy is when an investment or market has fallen out of favor and no one is paying attention to it anymore. Conversely, the worst time to get involved with an investment trend is after is has become apparent to the majority of investors. By then, the trend has already been in place for an extended period of time, has usually moved several hundred per cent, and is now vulnerable to a deep bear market correction. Getting involved with an investment or market when it is unpopular to do so is a “contrarian” approach and can be difficult to do until you prove to yourself that it really is the only significant “edge” you can gain in the market. Warren Buffet religiously lives by this approach. He waits until a market is unpopular and has therefore been significantly discounted. Then and only then will he commit capital. One word of caution, being a contrarian doesn't mean you jump in anything that has experienced a “gut wrenching” bear market correction. There must be a strong argument for why the market you are considering will rebound in the future and once again become popular. Buying when it is unpopular and holding until the market becomes popular again can produce staggering gains. The fact that the price of natural gas lost nearly 75% of its peak 2005 value, has created an opportunity where most investors have over-estimated reserves and under-estimated the coming demand. They have failed to recognize how new and changing industries will create unexpected future demand.
Natural Gas - Possibly The Most Lucrative Investment Opportunity of Your Lifetime! I believe the coming bull market in natural gas will rival that of oil. Throughout this report I will present several arguments to prove my case. Ultimately it will be your decision as to whether you agree or not. As I mentioned earlier, we have 3.8 Billion new consumers in the world competing for very scarce natural resources. McKinsey & Company, consultants to two-thirds of the Fortune 1000 companies, estimate that by 2011 China will have 290 million “middle class” families earning 25,000-40,000 yaun per year. These consumers are spending their new found wealth on everything from food and clothing, to cell phones and cars. The Chinese automobile industry doubles every six years. And still, there are only 9 cars for every 1,000 people. Compare that to the US, where there are 900 cars per 1000 consumers, and you can see the growth opportunities that exist in emerging countries around the world.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither MHI nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of MHI/Virtual Investing Club. Copyright(c) 2007. All rights reserved
But a far greater concern is meeting growing electricity demand throughout the world. The current power crisis in South Africa attests to how dire the situation really is. It is estimated that Eskom, the country's state owned power company, will spend $39 billion by 2012 building new power plants. By 2025 this figure will have grown to $129 billion. South Africa is not alone. China plans to build 500 new power plants in the coming years, and Russia is slated to spend $480 billion on electrical infrastructure over the next 12 years.
20 Trillion Needed to Meet Surging Energy Demand! The International Energy Agency (IEA), an independent energy official based in France, recently reported that the world will have to spend $20 trillion dollars to meet surging energy demand. The lion share of that money will be poured into meeting electricity demand. The graph below says it all.....
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither MHI nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of MHI/Virtual Investing Club. Copyright(c) 2007. All rights reserved
Natural Gas – The New Kid on The Block! Currently, the majority of the worlds electricity is produced by coal-fired power plants. But “environmentalists” are hell-bent on changing that. I'm sure you're aware, coal is the dirtiest burning fossil fuel, and coal-fired power plants account for 25% of worldwide carbon dioxide emissions. To put that into perspective, every car, truck, bus, ship, plane and locomotive on the planet combined, account for less than 15% of total carbon emissions. With all the hype about the vast damage the transportation industry causes to our environment, it's less than 40% of the damage caused by coal-fired power plants. There are now 36 developed countries around the world that have signed on to the Kyoto Protocol to fight CO2 emissions. To incentivize businesses to cut the amount of carbon they release into the atmosphere, they are handing out carbon credits which can be converted directly to cash. But new legislation threatens to put the screws to some companies, forcing them to pay $13 to $40 a ton for carbon dioxide emissions. Which could end up costing many companies as much as 100 million a year in additional expenses. Worse still, the Chinese government is forcing banks to withhold loans to heavy polluting industries who aren't meeting the required standard of greenhouse gas emissions. A few companies have even seen previous loans yanked out from underneath them. As a result coal projects the world over are being dumped and power plants are scrambling to do whatever they can to stop burning coal. Energy consultants Wood Mackenzie, say that more than 50% of coal capacity announced since 2000 has already been canceled. As global concerns over the environment continue to mount, governments around the world will keep implementing schemes designed to reduce carbon dioxide emissions. During 2007 alone, US Congress introduced more than 125 pieces of new legislation just to address climate change. The bedrock of these plans, as far as worldwide electricity is concerned, will be natural gas-fired power plants, which are voracious users of gas. Here in the US, 1/3 of all natural gas is consumed by power plants, even though they only represent a fraction of total users. Over the next 17 years The Energy Information Administration (EIA) expects 57% of new electricity generation to come from natural gas, because it burns incredibly clean with virtually no no harmful pollutants. I know what you are thinking? What about solar, wind, and nuclear. Sure, there is a lot of hype around these renewable energy sources right now, and I believe there are tremendous long-term investment opportunities in renewables. But these sources of energy are a long way off from meeting immediate worldwide power needs.
Natural Gas Is The Bridge To The Future Natural gas-fired electricity is immediate, it puts off no harmful pollutants, and provides power when the wind isn't blowing and where the Sun doesn't shine. Many industry insiders consider it the “bridge fuel to the future” until renewable sources such as wind, solar and nuclear are fully developed. Jay Copan, senior vice president for the American Gas Association said: “...there will not be anything besides natural gas generation plants built for the next 10 years at least” This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither MHI nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of MHI/Virtual Investing Club. Copyright(c) 2007. All rights reserved
Mark Snell, CFO of Sempra Energy whose business units control a 30% stake in the San Onofre nuclear plant had this to say: “We think other energy solutions will come, but it will take time. In the meantime, over the next 20 years or so, the only effective way for us to have some semblance of a clean energy footprint is with gas”
In Mexico, natural gas consumption is expected to more than double over the next 20 years. It's already the fastest growing fuel source in Europe, Australia, New Zealand, and Central and South America. In China and India natural gas consumption is slated to increase from 11 trillion cubic feet today, to over 48 trillion by 2030. That's an increase of 345%.
Where's It All Going To Come From? Herein lies the rub. Last year the number of oil wells that were drilled increased 28%, natural gas wells declined 1%. Bloomberg news says natural gas reserves are at their lowest level, for this time of year, since 2004. Unlike oil, when commercial inventories of natural gas go down there is no government safety net like the Strategic Petroleum Reserve. The chart below paints a “chilling” picture, showing reserves reaching “panic” lows by 2010!
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither MHI nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of MHI/Virtual Investing Club. Copyright(c) 2007. All rights reserved
The hurdles that face the natural gas industry are too many to list. However, in my opinion, the single biggest challenge is an increase in decline rates for existing wells, which have more than doubled from 14% to 31%. What does this mean? Simply, that new technologies are making it much easier and faster to drain natural gas out of the reservoir. Increased efficiency is good. However, rapidly rising decline rates have put the industry on an exploration treadmill, and production hasn't kept pace with how fast gas is being sucked out of existing wells. For over 10 years, US production has been stuck at 27 trillion cubic feet per year. To further exacerbate the problem, recently depressed prices have caused exploration budgets to fall off a cliff, adding to the likelihood of shortages in the very near future.
Foreign Despots Control The Worlds Natural Gas! Also, just like oil, 75% of the worlds natural gas reserves are located in politically unstable countries found in the Middle East and Eurasia. Russia, Iran, and Qatar alone account for 58% of total worldwide supply. Unfortunately these countries are run by thugs who champion state control of commercial enterprises. In 2006, Bolivia nationalized its energy resources causing private capital to disappear and plans to expand pipelines were scrapped altogether. Venezuelan President, Hugo Chavez is trying to make both natural gas and petroleum assets subject to state control. And Gazprom, Russia's gas monopoly is definitely not a commercial enterprise. It is the single most important instrument of the resurgent Russian state. Gazprom hasn't opened a new gas field in over 15 years, and new projects such as the Shtokman field are still years away from coming online. The coming natural gas crisis has eerie similarities to oil back in 1999. And look at the wealth that has been created by investors who saw it coming.
Oil at $100 a barrel will force natural gas prices higher! Both natural gas and oil are found together in wells. Natural gas is priced in units of 1,000 cubic feet (mcf). Oil is priced in barrels. One barrel of oil produces about the same amount of energy as 6,000 cubic feet of natural gas. If prices were to trade at perfect parity, oil would trade 6 times higher than the price of natural gas, or about $42 per barrel. Over the last 10 years oil has traded at a slight premium, roughly 7.8 times the price of natural gas. Even under this scenario oil would be priced at $54 per barrel. With oil at $100 a barrel, it is trading at a multiple13 times that of natural gas. So either oil is incredibly expensive or natural gas is “dirt” cheap. Despite what the pundits on TV say about expensive oil, adjusted for inflation, crude is actually 20% cheaper today than it was in 1979. And the current crisis is much worse than it was back then – Today it's near catastrophic! Royal Dutch Shell's production fell 4% in 2007 making it the fifth straight year that production has fallen. They expect it to fall again in 2008. Shell is not alone, production for all the major oil producers has been falling. The reality is major oil companies can't find any new suitable projects to invest in. The “easy” oil is gone and they know it.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither MHI nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of MHI/Virtual Investing Club. Copyright(c) 2007. All rights reserved
The world's top oil investment banker, Mathew Simmons, believes it could easily reach $300 a barrel. So don't count on falling oil prices to bring the gap between crude and natural gas back to more normal levels. It's a near certainty that natural gas will spike higher to close this gap. At $100 a barrel, natural gas would have to double just to catch up. If oil were to hit $150 a barrel natural gas would have to rise to $19. Should oil eventually hit $300 a barrel, natural gas would have to trade at $38. That would be a 442% increase just to maintain historic price parity without factoring in the massive increase in worldwide electricity demand and the “environmental” movement putting coal-fired power plants in “check mate”!
The Canadian Crisis! Currently, Canada is the world's third largest producer of natural gas with 98% of total production coming from the Western Sedimentary Basin. However, the basin is in serious danger. Production has been in decline for years and depletion is a real concern. In 1985 Canadian reserves of natural gas were estimated at 99 trillion cubic feet. By 2005 that number had dwindled to 56 trillion cubic feet, a loss of 43%! The really large gas fields have all been discovered and drilled. Now the focus is on smaller, more dispersed fields, which of course, have higher extraction costs. But even output among these smaller fields is declining very rapidly. The Energy Information Agency, sees Canadian natural gas continuing to decline through 2025. Dwindling reserves coupled with bone dry wells are forcing producers to look to more unconventional sources such as tight sands, shale, and coalbed methane. Unconventional supply is an untapped gold mine and has already risen from 22% in 1990 to 56% today. Royal Dutch Shell's chief executive Jeroen van der Veer, says “the easy gas and oil are gone. The only way to meet rising demand is by tapping into more difficult resources”. This is why his company, over the next twelve months, plans to invest 29 Billion into Alberta oil sands and liquefied natural gas at Sakhalin 2. It is estimated that British Columbia holds trillions of cubic feet of natural gas in its shales. If you are wondering what shale gas is, it is gas produced from pores and fractures of shales, which is an abundant type of sedimentary rock that is found all over British Columbia. The challenge with extracting natural gas from unconventional sources is it is much more expensive. However, this hasn't deterred major gas producers from pumping over a billion dollars into British Columbia through purchases of natural gas and oil leases. Why are companies willing to spend so much money on hard to get resources? Because beggars can't be choosers, that's what's left. The only other alternative, which still lacks major development in order to meet growing worldwide demand, is liquefied natural gas (LNG). LNG may provide some solutions in the in the long-run, however, estimates show that the selling price of LNG in India, Japan, and Korea is 80% higher than the current US natural gas price. So until natural gas prices here in the US double, LNG makes no economic sense.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither MHI nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of MHI/Virtual Investing Club. Copyright(c) 2007. All rights reserved
One Company Is Solving The Natural Gas Crisis! One company that is leading the field in helping natural gas producers extract gas from unconventional sources is Natural Gas Services Group, Inc. (AMEX: NGS). The increased ability to efficiently extract natural gas from “hard to get� resources is reflected in Natural Gas's recent financial numbers. Some of it's major customers include: Dominion Resources, Energen Corporation, XTO energy, and Devon Energy Net income for the nine months ended Sept. 30, 2007 rose 65% to 8.7 million, compared to net income of $5.3 million for the same period in 2006. Earnings per share increased 53% to $0.72 a share form $0.47 and revenue increased 14.7% from 46.2 million to $53 million. Right now NGS has a market cap of 214 million. We believe as conventional sources of natural gas continue to dry up and reserves continue to dwindle, NGS is positioned to significantly grow its market share. We feel it provides a great long-term investment opportunity. Forbes currently ranks the company on its list of the best 200 small American companies to own.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither MHI nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of MHI/Virtual Investing Club. Copyright(c) 2007. All rights reserved
NGS
NATURAL GAS SERVICES GROUP INC. Sector: Basic Materials Sub-Industry: Oil & Gas Equipment & Services
Business Description
Rating-
BUY
Monthly Chart
Natural Gas Services Group, Inc. provides small to medium horsepower compression to the natural gas industry. The Company focuses primarily on non-conventional natural gas production such as coal bed methane, gas shales and tight gas. According to the Energy Information Administration, this is the largest and fastest growing segment of natural gas production in the U.S. The company also engages in engineering and fabricating natural gas compressors; and designing and manufacturing reciprocating compressor frames, cylinders, and parts. In addition, it engages in designing, fabricating, selling, installing, and servicing flare stacks and related ignition and control devices for the onshore and offshore incineration of gas compounds, such as hydrogen sulfide, carbon dioxide, natural gas, and liquefied petroleum gases.
Chart reprinted permission Qcharts www.quote.com
Market Cap 52 Week High All-Time High Current Price % from 52 week high % from all-time high Fundamentals
Trailing PE Price/Book Price/Sales Return on Assets (ROA) Return on Equity (ROE) EPS growth ttm Revenue growth ttm Total debt to capital
NGS 20.73 2.05 3.25 7.88% 10.51% 46.95% 16.02% 11.82%
225M $19.90 $39.99 $18.70 -6.00% -53.24%
Industry 19.16 5.17 3.53 16.09% 33.08% 55.81% 27.99% 27.15%
Chart and Trend Analysis Below is a monthly chart of Natural Gas Services Group Inc., From the high in mid 2005 NGS underwent a severe correction taking the share price from a high around $39 to a low of $10. This large sell off coincided with a significant drop in the price of natural gas. Even though the price of natural gas itself has dropped significantly over the last several years, because it is such a clean burning alternative fuel its demand will only continue to grow over the next several decades. We believe the price of natural gas has found a bottom and will start rising again very soon, taking with it the price of NGS. Between 2006 and mid 2007 price appears to have formed a cup with handle pattern which often occurs right before a stock breaks out to a new high and starts a strong bull market advance.
Outlook The fundamental highlights for NGS are the year over year sales and earnings growth. For the last three years the company has grown top line revenues at a clip of 68% per year with earnings growing at a blistering 45%. The most recent quarter earnings grew by 40% when compared to the same quarter a year earlier and the company expects next years earnings to increase by 45%. The P/E ratio is currently 21.60 which is in line with the industry standard. The price-to-book ratio is currently at 2.11 which indicates a discount when compared to the industry average of 5.35 and a price-to-book value of 2.83 for the S&P 500. The company currently has 25 million in cash and only 15 million in debt and should have very little trouble meeting future financial obligations.
Entry Price Initial Stop Price Initial Price Target Hold Time
$18.85 or current market price 30% Trailing Stop $30.00 6-18 Months Allocate up to 4% of capital
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither MHI nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of MHI/Virtual Investing Club. Copyright(c) 2007. All rights reserved
Economic Trends As the “Green Energy� movement continues to gain steam, natural gas will continue to be a major player among alternative energy sources. Unlike fossil fuels, natural gas is clean burning and emits lower levels of potentially harmful byproducts into the air. It is one of the cleanest, safest, and most useful of all energy sources. Many utilities, for example, have shifted away from coal or oil to natural gas to produce electricity. As a result, demand for natural gas is expected to rise by more than 20 percent between now and 2030 (EIA Annual Energy outlook 2006). Currently, natural gas provides approximately a quarter of the nation’s total energy supply. Since 1996, domestic production of natural gas has grown at an annual rate of well below one percent. The primary reason for such slow growth is the existing gas fields in the U.S. are slowly being tapped out, forcing domestic producers to drill more wells and extracting gas more efficiently from existing wells. Natural Gas Services Group manufactures, and rents natural gas compressors that enhance the production of natural gas wells and provides maintenance service for these compressors. By outsourcing their compression needs, customers of NGS are able to increase their revenues by producing a higher volume of natural gas due to greater equipment run-time. It also allows companies to reduce their compressor downtime, operating and maintenance costs and capital investments and more efficiently meet their changing needs. We believe NGS is well positioned to benefit from increased natural gas exploration.
This report is for information purposes only and should not be considered a solicitation to buy or sell any security. Neither MHI nor any other party guarantees its accuracy or makes warranties regarding results from its usage. Redistribution is prohibited without the express written consent of MHI/Virtual Investing Club. Copyright(c) 2007. All rights reserved