The resource values of onshore shale gas plays are expected to firm up dramatically in the next three years, and there is 50% to 75% upside on several stocks for investors taking a three-year view without any move in the commodity, says Amir Arif, an Analyst at Stifel, Nicolaus & Co., Inc.
“There is definitely a long-term upward bias that I think investors should be buying the bids, again, on the quality companies that don’t have any funding issues. Those are the names that you know will survive the next two or three years, and those are low on the cost curve,” he said.
Arif likes Cabot Oil & Gas Corporation (COG) because it is low on the cost curve and has the ability to grow organically 20% to 30% without having any funding gaps. He says Cabot, which is developing the Marcellus shale, will perform well over the next two to three years.
“The names that we are less interested in are those that are higher on the cost curve in terms of gas production, and just because gas prices stay low, they can grow production, but they are not doing it economically. So they are not going to create any value, and that means the balance sheets will only erode further,” Arif said.