NEW YORK (Associated Press) - Major exploration finds, higher production and climbing prices have pushed the natural gas sector back into investors' favor this year.
The Amex Natural Gas Index, which tracks the share performance of 15 companies, has climbed more than 25 percent since the start of 2008. Several individual companies have posted double-digit percentage gains as well.
Some analysts, though, are now trying to tame expectations that stocks and commodity prices will keep surging.
Commodity prices in general have been boosted by a weaker dollar, which has been falling amid concerns about the U.S. economy. Natural gas prices have marched upward along with those for oil, rising by more than 25 percent this year.
Shares in natural gas producers have also been supported by falling inventories, which are down 7.6 percent from year-ago levels, according to the Department of Energy. Colder weather than last winter has boosted the use of natural gas for heating.
In addition, exploration and production companies like Houston's EOG Resources Inc. and Southwestern Energy Co. have reported surging production, billions of cubic feet worth of new finds and positive outlooks.
EOG shares reached a new high Thursday after the company said it found crude oil at operations in Texas and Colorado. It also expects to begin producing gas at sites in Canada's Horn River Basin, with significant output beginning in 2010.
The company raised its 2009 and 2010 annual production growth forecast to 13 percent to 15 percent, compared with a previous average target of 10 percent.
Southwestern's stock has climbed more than 20 percent this year as investors became exuberant about its profit potential. The company said Thursday that its fourth-quarter earnings more than doubled on higher production and pricing. It also added 1 billion cubic feet of oil equivalent to its first-quarter production outlook.
"The positive news flow will continue," said FBR Research analyst Amir Arif. He rates the stock as "outperform," saying he expects Southwestern to boost production through better techniques.
Other stocks have seen similar gains. Fort Worth, Texas-based XTO Energy Inc. has risen almost 20 percent this year. It posted a sharply higher fourth-quarter profit and issued a better 2008 production outlook due to its previous and planned acquisitions.
Devon Energy Corp. shares have gained about 17 percent since the start of the year. The Oklahoma City producer said earlier this month that its fourth-quarter earnings more than doubled, on one-time gains from asset sales as well as higher production.
Though expectations for the natural gas industry have improved, it was not long ago that analysts were forecasting higher inventories and weak natural gas prices.
Citi Investment Research analyst Gil Yang says he is "bullish" on the natural gas sector, but believes some share prices have flown too high, too fast.
"Investors should take a more cautious view on the sector in the near term following strong performance of natural gas and natural gas equities in recent weeks," Yang said.
He downgraded four stocks on Thursday, cutting EOG, Southwestern, Chesapeake Energy Corp. and Quicksilver Resources Inc. to "hold" from "buy."
Banc of America analyst Michael Schmitz said that although prices may edge higher with oil, expectations "need to be reined in." That the natural gas sector's performance will likely be "quite volatile," he said, and investors should buy on price declines while remaining selective. Top of page
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