Cheap Natural Gas: The Winners & Losers
Tyler is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I may sound like a broken record here, but right now natural gas is cheap. I mean, so cheap some companies in the natural gas space are hurting. Times like this can prove to be very opportunistic for the right investor who can identify the winners and losers in these situations. Let’s take a look at some companies in the Natural Gas space and see what cheap natural gas means to them.
Winner: Westport Innovations (NASDAQ: WPRT)
You personally may not be running out to get a natural gas vehicle, mostly because there is probably a lack of infrastructure for personal consumers. This does not mean, though, that commercial and public companies are not lining up to take advantage of the cheap prices in natural gas. Waste services trucks, delivery trucks, buses; in fact almost any vehicle used in an area with a higher population density and has a central hub for filling is lining up to use natural gas vehicles.
This plays perfectly into Westport’s hands. As the technology leader in designing engines to run on natural gas and other forms of alternative fuels, they are well positioned to reap the rewards of these public service and commercial ventures looking to convert their fleets over to natural gas. Their partnership with engine manufacturer Cummins has helped to create a formidable tandem.
Loser: Chesapeake Energy (NYSE: CHK)
Chesapeake is just one of the several companies who have a lot to lose when the gas market goes south. As of late they have been trudging along by keeping natural gas production to a minimum and focusing more of their efforts on the development and extraction of liquids. The last numbers show that Chesapeake has converted 65% of their business to oil and have been trying to sell off parts of its holdings in order to keep the balance sheet propped up.
Winner: Clean Energy Fuels Corp (NASDAQ: CLNE)
So, maybe all that talk about converting to a natural gas vehicle got you thinking about having one yourself. As I mentioned, the infrastructure just isn’t there right now to support everyday consumers. Clean Energy fuels is trying to fix just that.
As one of the primary builders and operators of natural gas filling stations, Clean Energy Fuels is positioning itself well within the space. They have been growing at a staggering pace, but they are still trying to turn that growth into profitability. The reduction in gas prices could further customer demand for these filling stations, which has the potential to turn this company into a cash cow.
Loser: Heckmann Corporation (NYSE: HEK)
Perhaps the title of this loser should be “insert any oil & gas services company here,” because Heckmann is but one of the companies that struggles and will continue to struggle with low gas prices. Others (Schlumberger, Halliburton, etc.) who make their bread and butter on providing services to oil & gas rigs are really hurting. Many of the operators and owners are either unwinding their current holdings or are mothballing potential projects until the price makes it worth their while.
Heckmann is probably more susceptible to the gas unwind than the others because they rely solely on the gas industry. Others like Schlumberger and Haliburton have the luxury of providing their services in the oil maket as well, so they are definitely less exposed to gas prices. It just happens that oil prices are low right now, making those others suffer the double-whammy.
Can someone win when it’s cheap and when it’s expensive? Yes!
So, is there a company who provides a product or service to the supply end when gas prices are lucrative for exploration, yet also provides a similar product or service to users of natural gas when it is cheap? The answer is Capstone Turbine (NASDAQ: CPST). Capstone Turbine specializes in the design and construction of turbines which run on natural gas and other alternative fuel sources. Their product line is extremely lucrative for upstream oil & gas because they are able to run off-grid and provide the perfect match for explorations in remote locations. Conversely, they can provide a means for a wide range of clients to use natural gas, biofuels, and other alternative energy sources for co-generation (heat, air conditioning, and electricity).
Like Clean Energy Fuels, they are still trying to bring the company into sustainable profitability, but the platform they have to build off could provide a level of stability in a current gas market that is anything but stable. Capstone will be on my watchlist, what about yours?
TylerCrowe ownes shares of Westport Engineering. If you are of the wildcatting mentality, you can follow Tyler on twitter @TylerCroweFool. The Motley Fool owns shares of Clean Energy Fuels, Heckmann, and Westport Innovations and has the following options: long JAN 2013 $16.00 calls on Chesapeake Energy, long JAN 2013 $25.00 calls on Chesapeake Energy, long JAN 2014 $20.00 calls on Chesapeake Energy, long JAN 2014 $30.00 calls on Chesapeake Energy, and long JAN 2014 $4.00 calls on Heckmann. Motley Fool newsletter services recommend Clean Energy Fuels and Westport Innovations. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
