Natural gas prices may be “rangebound” into 2011, but Goldman Sachs energy analysts expect exploration and production (E&P) companies that dominate the lower-cost North American resource plays to become “regional beneficiaries” versus integrated oils and private producers. The benefits derived from drilling specific plays warrant “premium multiples versus historical averages,” said the team.

The December rally in gas prices and recent mergers and acquisitions recognized the value of some onshore E&Ps, Goldman Sachs’ Brian Singer and his fellow analysts said in a note this week. The E&P group now trades at 6.5 times 2010 enterprise value/earnings before interest, taxes, depreciation and amortization (EV/EBITDA) on $5.50/MMBtu Henry Hub gas and $90/bbl West Texas Intermediate oil. This compares with the five-year average of 6.2 times EV/EBITDA, Singer noted.

“We have greater confidence that in aggregate our covered E&Ps can grow production while other listed and private producers should see declines,” the analysts wrote. “We expect a return to more normal demand growth in 2011 with potential acceleration in years beyond largely driven by increased gas-fired power demand.”

E&P stocks “deserve premium multiples to historical averages to reflect lower cost, lower risk and more visible growth potential. While new gas resource may otherwise lower natural gas prices, we estimate that E&P stocks would have similar overall upside in a scenario with a $1.50/MMBtu higher gas price without resource plays.”

As Goldman Sachs analysts see it, the keys to strong E&P performance this year will ride on three factors:

“While we see multiple emerging resource plays continuing to see efficiency gains, we view the Marcellus as among the lowest cost with less potential volatility in its position on the cost curve, barring stringent local regulations that limit drilling opportunities that we do not expect in Pennsylvania,” Singer wrote.

“We increasingly believe prospectivity in the play is rising, while proximity to eastern consumption markets provides a strategic advantage for relative rates of return.”

Analysts like the Granite Wash play that spreads across the Texas Panhandle into Oklahoma because “unlike most resource plays where companies need wide acreage positions to generate critical mass, the stacked pay nature of the Granite Wash play could lead to substantial resource upside from relatively small acreage positions.”

More asset sales, joint ventures and restructurings were predicted “as companies gain confidence in lower-cost shale growth. Over the last year we have seen EnCana announce a split-up of its growing gas assets from its oilsands and low-growth gas assets, Quicksilver Resources and EXCO Resources announce joint ventures for shale areas and Devon Energy announce offshore and international asset sales.

“We expect additional announcements similar to these from other E&Ps and view this as a positive catalyst for stocks.”

For 2010 and into 2011, gas prices are forecast to range between $4.50/MMBtu and $7.00/MMBtu “due to the material potential supply response” — both from production and near-term liquefied natural gas imports — “to higher prices and demand response (coal-to-gas substitution) to lower prices.”

The Goldman Sachs energy team continues to see 2010 Henry Hub gas prices averaging $5.50/MMBtu “and see a rebound to $6.50/MMBtu on average in 2011 (reduced from $7.00/MMBtu). Longer-term demand trends are improving due to coal plant retirements and pending carbon policy.”

©Copyright 2010Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.