Shale Gas Drillers Emerge as Refuge for Investors in Rout

  • Gas driller Southwestern Energy led gains in S&P 500
  • Gas-heavy companies should be immune to falling oil: analyst

U.S. natural gas drillers are emerging as an unlikely bright spot in this week’s collapse of energy stocks.

Gas drillers, led by Southwestern Energy Co. , were the top three performers in the S&P 500 Index, Thursday, as energy investors flocked to producers of the power-plant fuel in the face of sliding oil prices. Southwestern, which topped the index a second day, was followed by Consol Energy Inc. and Range Resources Corp. Cabot Oil & Gas Corp. also gained.

Gas-focused drillers are quickly emerging as a safe haven for investors wary of getting burned by the drop in oil prices, offering a reprieve to a group of companies that have been hammered by low natural gas prices. Southwestern said Thursday it’s slashing 45 percent of its workforce as new drilling slows.

“Gas all of a sudden becomes a more intriguing trade,” Subash Chandra, managing director of Guggenheim Securities in New York, said by phone.

Southwestern rose $1.42, or 19 percent, to $8.80 a share on the New York Stock Exchange. Range added $4.04, or 18 percent, to $26.03, while Cabot was up $1.50, or 8.8 percent to $18.65. Consol gained 19 percent.

Natural gas-heavy drillers are already lean after two straight years of price declines, giving them a leg up on oil-focused producers now taking measures to stem a supply glut, Chandra said.

That may sow the seeds of a recovery to begin in the second half of the year as supply and demand start to balance, Nicholas Potter, an analyst at Barclays Plc in New York, wrote in a report Thursday.

Spending Cuts

Royal Dutch Shell Plc, Europe’s biggest oil company, said it expects fourth-quarter profit to drop at least 42 percent after the rout in crude prices deepened. Canadian explorers Husky Energy Inc. and Whitecap Resources Inc. this week joined Vermilion Energy Inc. in making deeper cuts to their 2016 spending plans.

Gas futures have traded below $3 per million British thermal units since May. That compares to the $3.927 average since they started trading in April 1990.

Southwestern and other gas-heavy companies should be immune to falling oil prices, said Fadel Gheit, managing director at Oppenheimer & Co. “Gas has absolutely nothing to do with oil,” he said.

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