Whenever someone mentions the idea of an economic recovery, I immediately start thinking about what would happen if natural gas rose back towards late 2007 and early 2008 levels. This won’t happen in the near term as it is anticipated that we will be in a weak hurricane season and there are still a few more shoes to drop in the economy. However, long term energy demand predictions and the loose fiscal and monetary policy of the United States have paved the way for another energy bull-run. Natural gas is currently trading around $3.70. With the forward curve looking at price closer to $5.70 by the end of this year, there is no better time to get in than now if you have faith in the commodity over the long term.

Petrohawk (HK) is exactly the type of high risk/high reward company that could help investors take full advantage of the coming upside in the energy markets. Petrohawk does employ a decent amount of leverage as they have about $2.4B in debt on only about $3.9B in stockholders equity. Obviously, the company’s estimates depict favorable statistics, but there is a reason there was a run on the stock that sent it below $9 a share from a $55 52-week high. Management fell into the same trap which many other natural gas companies did at the height of the market. Going forward Petrohawk will have to deal with the mistakes of issuing too much debt after thinking prices would never fall low again. The long term debt Petrohawk has outstanding ranges from 7.125% to 10.5%, and the company is going to have to execute at a high level in order to stay solvent.

Being as subjective as possible, I believe it is a good idea to give you both the good and bad. Fortunately for Petrohawk, I think there is more good than bad. The natural gas properties that Petrohawk controls are those with some of the highest margins in the industry. The company reports that in Q3 2008 their operating costs averaged at $0.92 per Mcfe (thousand cubic feet equivalent) which is better than most of its competitors. Currently, only about 10% of Petrohawk’s 1.42 Tcfe proved reserves are from the Haynesville Shale, the natural gas formation that is considered by many to be the best in the United States. Petrohawk estimates that the Haynesville Shale could potentially make up over 55% of the company’s 20.3 Tcfe resource potential. What makes Petrohawk unique is that most natural gas exploration and production companies don’t have fifteen times the resource potential compared to proved reserves, and I believe the market isn’t correctly pricing in this untapped potential.