Energy News -- For Investors Only

I don't have access to CNBC for the WTI price crawler, but two sources suggest the price of oil surged $1.12 today, solidly over $100/bbl. This is at 2:21 p.m. central time.

US now producing more than 10% of the world's oil; about half of that coming from "tight oil."

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HAL, SLB, and HP all traded at new highs today. 

This caught me by surprise; I'm not sure if the SeekingAlpha contributor noted the reason for the incredible "change" in natural gas production in the United States. If this is due to a conscious and collective decision by the natural gas industry, this is quite remarkable:

According to EIA data, in 2013, total US natural gas production increased by one percent. It was the smallest increase since the shale gas fracking revolution began. If it wasn't for one particular shale gas field, which also happens to be by far the largest one, total US production would have entered a decline. Marketed daily production in the United States is just over 70 Bcf/d, and the Marcellus shale field added about 4 Bcf/d in new production year-on-year, which means that all other sources of natural gas contributed to a decline of 3Bcf/d.

In light of this, recent EIA data on tight oil & gas drilling productivity in regard to the Marcellus should be concerning when it comes to future prospects of continued healthy gains in US natural gas production going forward. For the month of March, it predicted an increase in the legacy decline rate of 45 million cubic feet per day. Then the March report, which predicts April's overall performance, predicted that there will be another large leap in the legacy production decline, this time of almost 100 million cubic feet per day.

We cannot know for sure what the legacy decline rate will do for the rest of the months of 2014 and beyond, but one thing we now know for sure is that Marcellus production increase for this year will be far less than it was last year. Given that last year Marcellus production increase only barely managed to make up for declines in production elsewhere in America, I think it would be fair to assume that EIA's forecast of a 2.4% increase in US domestic natural gas production is overly optimistic for 2014. The only thing which will in fact keep total production from experiencing a slight decline is a flattening out of the production decline rate in other shale gas fields such as Haynesville, where drilling activity is showing some signs of picking up slightly.

While the EIA predicts that there will be a 2.57 Bcf/d increase in production by 2015, I think there is reason to doubt that assessment.

In addition to taking us down the road to New England, one wonders if this might be a good news story for coal? 

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Howard Weil: After re-calibrating our model with data from the 10-K, we are lowering our FY14 EPS estimate from $11.82 to $10.98. As a result, we are also lowering our price target on CVX from $135/share to $125/share. CVX is trading around $118 today.

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Enbridge is of interest to three writers in last 24 hours: Motley Fool, Zach's, and, Seeking Alpha.

Seeking Alpha:

Enbridge's main competitive advantage is its wide network of pipelines. Once a pipeline is in place in a certain geography, it's pretty hard to compete with. It works the same way as with a railroad. If one is already in place, very often there is not enough demand to carry the development of a second one. This enables the first one to charge great rates.

If a competitor would want to build a copy of the initial pipeline it's faced with difficulties. It is hard to get the regulatory approval required. Meanwhile the original pipeline can upgrade its capacity at lower cost than the development cost of a new line. Finally, a new pipeline is not so different from the already installed one. A new development is unlikely to be able to transport at much lower costs or greater speed.

Basically, a pipeline can operate as a monopoly in a specific geography, though its returns are somewhat limited by regulators and substitutions.

Valuing this company just by its P/E is dangerous. It trades at 90 times ttm earnings and at a price/cash flow of 12.3 (3yr average) or 5 times book. This is not exactly reassuring that the company can be acquired at a fair price.

However, with ttm operating margins are at the lowest point they have been in 10 years at 4.1%. Usually operating margins are hovering somewhere around 10%.

Motley Fool:

Here’s the thing: this pipeline network is almost impossible to replicate. Any new projects would need the the buyout of every landowner along the proposed path. Additional pipelines would also be subject to a long, expensive government approval process. So, even if you had $10 billion to spend, chances are you still couldn’t compete with the company.

This creates a nearly impenetrable barrier to competition. And this has allowed Enbridge to earn excess returns for shareholders year after year.

Zach's (advertisement for a research product):

Our focus would also be on leading energy transportation and distribution company Enbridge Inc. (ENB-Free Report). The company recently received approval from Canada's pipeline regulator, National Energy Board (:NEB), for flow reversal and expansion of its Line 9B between Westover, Ontario and Montreal, Quebec. Combined with the previously approved project to reverse Line 9A across Sarnia, Ontario and Westover, this project will enable the delivery of North American crude oil to Ontario and Quebec based refineries. The reversal and expansion are expected to be in service by the fourth quarter of 2014.