Based on recent price movements (1), low hedging levels for 2013 and analyst forecasts, it is likely natural gas prices will be lower for the next few years than they were in 2011. In comparison, I estimate oil price forecasts are flat to positive and coal price forecasts are negative.
If forward prices and analyst forecasts for 2012 hold true, I believe it will be another bad year for the independent power producers, another good year for liquids MLP’s and another bad year for the coal miners. On a side-note, I believe the the delay in the implementation of CASPR is temporary and the EPA will succeed in implementing CASPR after some modifications.
In my opinion, it makes sense to remain long regulated utilities and short some coal names.
(1) Jan 2013 contract NG prices have declined approximately 30% over the past year. Producers have only hedged 13% of their total production for 2013 and are unlikely to do so with 2013 calendar strip prices below $4. This lack of hedging should translate into lower capital expenditure.
Disclaimer: I am long some regulated utilities.
The motion for an examiner was made by U.S. Bank NA, as indenture trustee for the Roseton and Danskammer SLOB bonds. In response, Judge Cecila G. Morris, the bankruptcy judge for the Dynegy case has ordered the appointment of an independent examiner for the bankruptcy of Dynegy Holdings. The examiner will study a series of transactions including a restructuring that took place a few months before the bankruptcy filing. As a result of this restructuring, the valuable coal and natural gas assets were re-organized into bankruptcy remote entities while the HoldCo and Dynegy Northeast were forced to file for bankruptcy.
Bankruptcy examiners are appointed to study allegations of fraud, dishonesty and mismanagement. In this particular case, the charge of fraudulent conveyance is the most pertinent in my opinion. In fact, there is a precedent regarding fraudulent conveyance: in mid-2010, the Tribune Company’s exit from bankruptcy collapsed after a bankruptcy examiner identified fraudulent conveyance in the LBO of Tribune Company. However, this case is not as straight forward: Would Dynegy Holdings have survived without the restructuring and have market conditions worsened since the restructuring? Please email me if you are interested in discussing further.
Discalimer: I have no position in Dynegy and do not plan to initiate one in the next 48 hours.