Will Liquids-Rich Companies Weather the Dry Spell?

With the winter warmer and drier than previous years, natural gas companies are suffering from depressed prices. However, Raymond James Analyst Luc Mageau identifies liquids-rich companies that can create profits with or without a natural gas price rally. In this exclusive interview with The Energy Report, Mageau explains how to use well payout rates to evaluate a companys longer-term cash flow.

Historically, when weather fails to bail us out of the glut we have seen production shut-ins to curtail the problem. This time, I think we could be in a slightly different boatand we can blame the price of oil for that. You see, over the last several years, low natural gas prices have forced gas producers to derive cash flow from other sources. One major source has been incremental extraction of natural gas liquids NGLs.

The bottom line is that we continue to expect gas prices will stay depressed and oil prices to continue to thrive and as a result, oil stocks should continue to outperform in general.

Lets talk some more about your coverage universe. Crocotta Energy relies heavily on its liquids-rich assets. Please tell us about how one of those assets, Edson Bluesky, is insulating Crocotta from low gas prices.

Despite the equity dilution in December, over the course of 2012 you expect Strategics share price to almost double to C$1.50. How is that going to happen?