Low prices could hit exploration companies

Natural gas prices may have rebounded since hitting the skids last June, but it will take more time for that bounce to put a spring in the steps of companies that find it.

Independent exploration companies are likely to take a beating in their fourth quarter returns, revealing a disconnect between the price of natural gas and the companies most invested in finding it, an analyst’s note said Friday.

Anadarko, Chesapeake, Apache and other independents will report fourth quarter returns in the next couple of weeks, and James Sullivan, an analyst with Alembic Global Advisors, predicts lackluster news pretty much across the board.

These companies switched out of dry natural gas investments last year, hoping strong prices for natural gas liquids would boost their returns. But the strategy has come back to haunt them, as their returns are now being pulled down by weak natural gas liquids prices, especially for ethane and propane.

Newly independent ConocoPhillips, which spun off its refining division last June, is expected to have the strongest results of the group, benefiting from its ability to fund growth by selling assets, Sullivan said.

“Conoco has reported a number of large asset sales, is likely to register robust volume growth in the North Sea and Eagle Ford, and has comparatively small exposure to price-challenged commodities,” Sullivan wrote, predicting better than expected returns for the company.

The companies will receive some compensatory offset in their fourth quarter returns from an increase in production that had been postponed by weather and maintenance-related outages in the Gulf of Mexico and the North Sea fourth quarter, Sullivan said.