Lotta smart guys are saying we have put in a bottom in natural gas and a top in oil.
But the smartest guy I know in the patch, EOG Resources ( EOG) CEO Mark Papa, the man who deemphasized natural gas drilling when everyone else was going gaga for it, is saying the opposite.
He told me tonight on "Mad Money" that natural gas, at a two-month high, has gotten ahead of itself and that crude's still in short supply globally and that $105 a barrel is the natural price for the stuff.
Papa's a big believer that North America can be energy independent in a decade through a combination of aggressive drilling aided by new technologies, plus exploitation of natural gas. But he just doesn't see the will in the country to exploit natural gas for what it can be used for, which is why he is willing to let his own drilling budget go entirely away from natural gas. He's putting all of his chips on oil and natural gas liquids and thinks natural gas should be sold. Only a very cold winter can alleviate the glut and Papa isn't the kind of guy who bets on the weather.
The good news is that he thinks that the Eagle Ford shale is the biggest find since Prudhoe and the more he drills the bigger it is, telling me that the 800 pound gorilla is developing into the 1,000 pound gorilla. He is so sure of its potential that his company built its own rail line out of Texas to go to Louisiana so it doesn't get stuck in Cushing getting a lower price. He's getting the equivalent of Brent prices for American oil.
Now, I am not as bearish on natural gas as Papa or my charitable trust wouldn't be buying Devon ( DVN) here (another oil and gas company that, while shifting toward oil with alacrity, still has much more exposure to nat gas as a percentage of revenues than EOG.
But I do think that his skepticism must be aired because everywhere I go I hear there's a bottom at last in natural gas and this two-month high may be the beginning of something big.
I hope it is. But hope should never be part of the investing equation.
I agree with him on oil; wouldn't mind if EOG ended up owning MHR eventually, in fact. But I don't agree that the US will ever be energy independent on carbon fuels without some drastic reductions in usage or efficiency or both. But that is a topic for other threads.
Offering: Magnum Hunter Resources Corporation Common Stock Follow-On
The registration statement for Magnum Hunter Resources Corporation Common Stock IPO is expected to be declared effective and the offering to be priced this evening, May, 10, 2012. The confirmation is expected to occur [between 7:00 pm ET and 12:00 am ET this evening]. Allocation [will not occur prior to 12:00 am ET tonight].
Wouldn't be at all surprised if they pulled the deal due to "market conditions". Underwriters will have to price new shares at a discount to tonite's close....RTQ 4.91. Of course, net to Magnum will be less than offering price due to placement fee's etc.