Tony Daltorio, Investment U Research
These days, the US natural gas market finds itself weighted down by doom and gloom.
With North America choking on the stuff and underground storage of natural gas potentially approaching 4 trillion cubic feet, pundits keep saying that the market will see prices plunge to $2 per million BTU, where it will stay for years.
To contrarian investors such as myself, that type of talk couldn't sound any more sweet…
Despite the gloom, we can still see a few glimmers of light in the natural gas market, such as drilling grinding to a multi-year low, barely a year after reaching its all-time high. Or the fact that some producers have voluntarily reduced output, deeming the present value of gas in the ground superior to current prices.
One way or another, US natural gas output has fallen 30% this year, the steepest rate of annual decline ever. But the demand side of the equation may also get a boost as some older, coal-fired generation plants shut down in favor of gas-fired plants.
As a resource, coal is traditionally cheaper. Yet because of environmental compliance fees – that could rise further if Congress passes the currently stalled cap and trade legislation – it costs significantly more by the time it reaches the consumer market.
With all of that factoring in, I firmly believe that prices will eventually rebound, and we could even see this glut melt into a deficit some day.
But while we wait for that to happen, the contrarian in me can't resist digging around for any gems among the rubble. And I found that gem in Anadarko Petroleum… a business that figured out that the best way to wait out the natural gas gloom, is to play in oil.
The Venus Discovery: It's Just That Beautiful
Anadarko Petroleum (NYSE: APC), named after the Anadarko basin in western Oklahoma and the Texas panhandle where it began operations, has ventured far beyond its original base.
Since 1985 when it began independent operations, it has grown into one of the largest independent oil and gas producers in the world, with 8 trillion cubic feet of the resource to its credit.
Though the company can claim status as one of the largest natural gas producers in the United States, with the majority of its reserves lying within US borders, Anadarko's real shine comes from its findings elsewhere.
It started with the 2007 discovery of Africa's largest deep-water field, Jubilee, off the coast of Ghana. Industry experts believe it holds up to 2 billion barrels of recoverable oil. All by itself, that discovery would turn Ghana into one of the world's biggest oil producers after it begins pumping next year.
