Implications of Cheap Natural Gas on Public Policy and Investing

Investors like to examine pricing anomalies, particularly related to commodities that could be viewed as substitutes but trade at radically different prices. One barrel of crude oil has approximately six times the energy content of one thousand cubic feet (mcf) of natural gas. One mcf of natural gas is approximately equivalent to one million BTUs (MBTU). Despite the energy equivalence, for a variety of reasons, the pricing relationship between oil and natural gas is almost never exactly six to one. Read this article for our analysis.

Contango Provides Updated Perspective on Gulf of Mexico Situation

In a presentation today, Contango Oil & Gas CEO Kenneth Peak stated that the economics of oil and gas exploration in shallow Gulf of Mexico waters have improved significantly compared to 2008 conditions due to a dramatic decrease in dayrates for the jackup rigs used in shallow waters that has more than offset moderate increases in administrative and insurance costs. Mr. Peak also spoke at length about the new permit process in place and Contango’s efforts to adapt to changing regulatory requirements. Read this article for more details.

Bernanke Persists in ‘Pushing on a String’ With QE2

The mid-term election results appear to match what market participants expected in the days leading up to voting yesterday. We will refrain from political commentary other than to make the observation that there is a difference between “benign gridlock” when the country’s course is essentially sound and gridlock when our fiscal situation is heading for disaster — which to us seems more like a suicide pact than a political strategy. Meanwhile, the Federal Reserve is set to announce the details of its second round of quantitative easing later today. QE2 is essentially a euphemism for printing money, which in our modern economy takes the form of the Federal Reserve buying treasury bonds of intermediate to long term maturities. Read this article for more commentary.

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