Lehman Brothers analyst Thomas Driscoll is looking for exploration and production company shares, particularly the “gassier” ones, to have a solid year in 2003 because of an expected market “squeeze,” which he predicts could be similar to one in 2000 when storage injections were “woefully inadequate” and gas shortage fears caused prices to skyrocket to $10 by December.

“The most compelling evidence of a coming natural gas squeeze is that natural gas storage withdrawal rates are 4 Bcf/d stronger than they should be given winter heating demand,” said Driscoll, noting that withdrawals this winter have been 40% greater than the five-year average while the weather has been only 4% colder than normal.

“This winter has been a lot like 1999-2000 when storage draws were much stronger than the weather,” he added. “Gas prices doubled off December 1999 lows by June as storage buyers competed for scarce supply. Prices doubled again by winter — storage [was] inadequate to meet winter demand.”

Driscoll predicts the industry will exit the traditional heating season on April 1 with only about 600-700 Bcf of gas in storage. “The average refill (could be tough) would yield only 2,500-2,600 Bcf by the end of October,” he said, when at least 3 Tcf will be needed. As a result, he expects prices to rise enough to force marginal end users out of the market.

He raised his gas price forecast for the year by 50 cents to $5, and said energy company share prices are trading near historic low multiples of forward cash flow, according to his estimates. Driscoll reminded investors that in 2000, exploration and production company shares rose an average of 118%.

©Copyright 2003 Intelligence Press Inc. All rights reserved. The preceding news report may not be republished or redistributed, in whole or in part, in any form, without prior written consent of Intelligence Press, Inc.