BASIC THESIS of VALUATION: U.S. Pure Gasoline is extraordinarily undervalued in comparison with the World value, and to Oil on a Btu foundation. 1 Barrel of Oil has equal Btu’s of 6mmBtu’s of Nat Gasoline. The futures value is predicated on 1mmBtu…. So, when you multiply the futures value by 6, you get the equal Btu’s for 1 barrel of Oil. So, even when U.S. Nat Gasoline rises to $10, it would nonetheless be solely equal to paying $60 for a barrel of Oil. Since Nat Gasoline burns a lot cleaner than Oil, it needs to be priced at a premium…… Due to this fact, U.S. Nat Gasoline ought to now be buying and selling above $15…. Which might nonetheless be lower than half the worldwide value, which is within the mid $ Thirties.
THE CATALYST: Two paradigm shifts are coming collectively to trigger a dramatic change within the provide/demand equation for U.S. Nat Gasoline.
#1) After Shale Oil/Gasoline trade LOST over $300 Billion, the administration groups now have incentives primarily based on returning free money stream to traders, quite than producing extra provide.
#2) 6 years in the past there have been ZERO LNG EXPORTS, now LNG accounts for about 15% of U.S. manufacturing. AND over the past 6 years exports by pipeline to Mexico have elevated by about 50%.
These 2 paradigm shifts have radically modified the Provide/demand equation of U.S. Nat Gasoline to the purpose that the U.S. could have an epic Nat Gasoline storage SHORTAGE for this coming winter.
VALUE BASED Nat Gasoline INVESTMENTS: I refuse to put money into Shale Gasoline manufacturing firms as a result of the reserve life*** of their wells is only some years, in comparison with 50 or extra for standard reserves…. There are only a few publicly traded 100% standard Nat Gasoline autos, apart from San Juan Basin Royalty Belief (SJT), at the moment yielding over 13%, primarily based on its final 6 months of distributions.
*** SJT was shaped in 1981, and each single yr for the final 40 years, the 10K/annual report has had an estimated reserve lifetime of 10 to 12 years. Clearly, whoever is making these estimations has NO clue what they’re doing. Based mostly on the final 10 years, I discovered a manufacturing depletion price of about 2% per yr. Which signifies that SJT will probably be producing a considerable amount of gasoline for an additional 50 years or extra. Additionally, there was nearly zero spent on re-drilling current wells to stimulate extra manufacturing, or drilling new wells, each of which might tremendously prolong the lifetime of SJT’s royalties.