With the exception of oil refineries not being able to pass along costs as quickly as oil prices are rising, the energy complex is having a field day in today’s commodities marketplace. Prices continue to rise as pundits wonder just how high they can go. Unlike oil, however, gas is a commodity that has a solid foundation. If a home uses gas to heat or cook, its owners are stuck with paying what the market dictates. This may be true with home heating oil as well, but unlike gasoline, homeowners cannot simply decide to use less; a certain amount of heat is necessary to keep pipes and people from freezing. Taking advantage – as some energy companies are being charged with doing – may offer a moral quandary, but as natural gas prices rise somebody is destined to profit under capitalism.
Domestic Energy Corp., an oil and gas exploration and development company, works to exploit both worked-over and new gas and oil wells in Tennessee shale regions. The company recently announced that it is now actively engaging in the Chattanooga shale regions after test results indicated gas deposits at shallow depths and in sufficient quantities.
In the last year, a competitor (Consol Energy Inc.) drilled its first horizontal well in the region, finding 3.5 MMCF of natural gas. The company feels that this well indicates their opportunities will prove out as profitable in the region, and warrants moving forward with Tennessee’s approximately 1,000 abandoned gas wells. To take advantage, the company has purchased rights (May 14, 2008) to 90 of the wells as a first step in the region, along with construction of modern transportation systems to existing markets.
While many investors have been involved with the escalating price of crude oil, they have virtually ignored the natural gas component that is following along with oil’s rise. Prices have been on the move as of late, even as the heating season comes to an end, because many manufacturing and production facilities have converted to natural gas. If this company can bring new sources of gas to market in a timely fashion, they should be in the right place at the right time. Their efforts will need to be aggressive, but even if they do miss the start of the 2009 heating season, they are still positioned to show solid returns if gas maintains its current trend.
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