R59...A good example for NG is Aspen (a favorite on this board, or was at one time). From their Annual Report: estimated NG reserves June 04 = 2.534Mcf, June 05 = 2.278 Mcf, June 06 = 2.7 Mcf. If you know anything about Aspen it's that they hit about every damn well they drill. Yet even with this they still don't increase reserves much. It's because the wells hit less amounts and run out quicker.
People worry about NG drilling drying up. Hmmm....If Aspen doesn't keep spending money on the search for more NG, the company will completely run out of reserves (at their current drawdown) in about 4-5 years. Completely out of business. That's why it never gets a premium in stock price because if they don't keep their success rate up the company won't be around.
That's just one example. Multiple that by an entire industry. That's why even the big boys (HAL, SLB) in their CC calls said that, even if we have a mild winter and drilling decreases, it'll clear itself up in a quarter or two. Because long-term these companies MUST drill to survive because their reserves aren't great enough. If noone drills, then excess storage will get used up quickly and then the problem of decreased production comes into play.
As for where prices go on NG....I don't know. I'm suprised at the run-up in futures this month. I have to admit that I am enjoying those Arctic fronts starting to roll down early. People say that the mid-west will be warmer, but that doesn't include Chicago, all of Michigan, Illinois, Wisconsin, Ohio.... A lot of NG users in those states. Hell, a cold spell in Chicago is worth the entire states of Nebraska & Kansas combined!
Dave
