Cramer Last Night -- Natural Gas

(c) 2010 F. Bruce Abel




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Jim'srating onthis stock
STOCKSYMBOL
Closingprice thatday
Full Company Name
EQT
44.81
Equitable Resources Inc. (EQT)



[Beginning of Cramer's verbatim comments for this segment...]Jim: The President may not be a supporter of natural gas of the industry. In fact, the Department of Energy overview portion of its budget names every form of alternative to oil and they all get better treatment except for natural gas…including the chimera of clean coal. Even though natural gas, I think, is the best option we have for transition fuel that will lower carbon emissions, break our addiction to foreign oil and potentially create hundreds of thousands of much needed jobs in this country. If we would only embrace it! So, this is just another point where we'll have to agree to disagree with Obama, especially considering the long term strength of the natural gas producers.Take Equitable Resources Inc. (EQT), the natural gas producer and distributor. It operates every step of the natural gas food chain from finding it to pumping it out of the ground to delivery to your home. And it just reported a genuine upside surprise on Thursday. The stock's up 6% since the last time we spoke to EQT CEO, September 21st. It was at $42.09 then. But more important, the stock's up 55% over the last 5 years. S&P's down 8% in that period. Up 419% over the last 10 years, S&P down 23%. Up 522% over the last 15 years, versus 132% for the S&P and up a whopping 610% over the last 20 years, S&P up 231%. I'm sorry, that's truly incredible outperformance which is why I keep featuring these stocks.EQT is one of the lowest cost producers of natural gas out there. With total production cost of $2.30 per 1,000 cubic feet. An average fining development cost for just $1.14 per 1,000 cubic feet over the last years. That's at 4 times what they can sell it for…they can sell it for 4 times of that.The only other natural gas company that follows even comparable's Ultra. EQT is also growing its production up. 19.5% year-over-year for the 4th quarter. Company sees 20% production growth for 2010. It's a growth stock. Much of the growth here comes from the Marcellus Shale in Appalachia where EQT's drilling like crazy. Company plans to have 40-50 new wells in the Marcellus Shale in 2010, expects production there to double for the year. This stuff's incredible!It's thanks to the Marcellus that EQT's proven reserves hit 4.1 trillion cubic feet at the end 2009, up 31%. The company also has a total 26 trillion of potential resources. EQT's one of the best natural gas producers out there. How do they do it? Let's talk to EQT's CEO, Murry Gerber, to find out more about the future of natural gas and his great company...

Jim: Mr. Gerber, welcome back to Mad Money…Mr. Gerber: Thanks for having us Jim.Jim: Alright, sir I was so excited you know getting ready for that State of the Union address because all my friends in natural gas and big oil companies were saying "this is it, you pay attention Cramer! You big doubter, you big cynic! He's coming out for natural gas, you're going to hear it. You're going to hear natural gas and money and it's going to be"…uh…did I miss that part? Was I out getting like..uh…a soda or something during that part of the speech?Mr. Gerber: You didn't miss it. It wasn't there! [chuckles] Oh, brother!Jim: Now, is that because…is it just happening too soon? I mean, I read some interview with that woman who works for Fox, who ran for President or whatever. And she was saying that she felt it was really a good idea to have a pipeline coming from Alaska to the lower 40…um…I think that's her term. We have a lot of natural gas in this country. We're going to be exporting soon if this President doesn't it start backing it, aren't we?Mr. Gerber: Well, that's right Jim. I mean, we've got 120 years of supply of this stuff and we're finding it at really low cost. It's abundant, it's cheap, it's American as you pointed out. You know, we bought 4.5 billion barrels of oil last year from foreign countries. Spent $350 billion. All that money could've been spent right here in America.Jim: Alright, I got a skeptic this weekend. Stops me and says "oh listen, all that natural gas…Jim, in the end all they can do is heat homes with it. It's impractical to think that it could reduce the amount of oil that we bring in with this fuel. Because all it does is have a couple of buses, some waste management trucks in your home." That's not true is it?Mr. Gerber: No! No, no, no, no. We can fuel all the cars in the country, reduce our imports by 75%. I think a great stimulus plan would be to build natural gas pipelines along the interstate highway so you can go coast to coast in a natural gas vehicle. We could do it in 5 years Jim, with the right kind of well.Jim: But, but that would probably create about couple of million jobs wouldn't it?Mr. Gerber: Well, we already have 3 million jobs in the natural gas industry in 32 states. But I think you're right, I think it's another 2 or 3 more million jobs.Jim: Is your industry not the only industry…I review every single industry group in the S&P 500. I believe that the natural gas industry's the only industry in this country that's actually created double digit growth in jobs in the last 2 years in this country.Mr. Gerber: You probably know better than I do, but I know we've created double digit growth in jobs. And certainly in Pennsylvania, we think about 50,000 jobs have already come from the Marcellus Shale.Jim: Now, wait a second…you're a coal state. How come you're not…why aren't you a big believer in the concept of clean coal? Because you know everyone tells by 2040, 2050 clean coal could be dominant!Mr. Gerber: Well, maybe that's true maybe it's not. I don't know anything about coal, I just know we're pumping gas out of the Marcellus in the Heron Shale and we drilled 700 wells last year and we're really trying to do our part to get our country energy independent.Jim: Alright, we had the Sierra Club on last week. They favor drilling but I know that I read…the NY Times seems to have a problem with drilling. They say that you're poisoning wells all over the country.Mr. Gerber: Well, I think there's this whole red herring on franking, we've been doing it for 60 years. EQT's been drilling Shales for a very long time. And I don't get it really, because number 1 there're a lot of protections that we put on these wells. We triple cays, we test all the water wells all around our locations. The EPA and a bunch of environmental groups have done numerous studies on fracking. Nobody's found anything out. And the state's are doing a great job. I know here in Pennsylvania Governor Rendell's beefed up the Department of Environmental Protection and so far nobody's found anything wrong!Jim: Well then, why isn't there a big champion in Washington? I mean, I can't even find a Senator who'll come on and say "you know Jim, I listen to your show"…maybe because they don't listen to this show! But I can't find anyone in Washington who'll come on and say "you know what? I've listened to Murry Gerber from EQT, and I heard what Aubrey McLenon said and what Larry Nichols said from Devon, and I listened to Mr. Simpson from XTO and you know, Jim Hackett from Anadarko…and you know what? Maybe those guys have a point. Maybe we should stop paying the bad guys money!" Where is the guy who doesn't…who wants to stop sending money to people who hate us?Mr. Gerber: I don't know who that person is in the U.S. Congress. I hope they'll stand up and say that because you're absolutely right. If you're not for natural gas you are for foreign oil…I don't get it!Jim: Now, how are you able to have such low fining cost…because it seems like even with natural gas at 5 and change you're making a ton of money!Mr. Gerber: Yeah, we break even at a very low natural gas price. Part of it is because EQT bought half of our acreage position on Appalachia in 2000, when no one could spell Appalachia and we bought it for a very, very cheap price. At the time, less than 50 cents an mcf gas in the ground, now it's a dime probably. So we have a structural advantage. But beyond that the team has done a very good job technologically. We're the lowest cost driller in the Marcellus Shale, certainly in the Heron we've invented that air drilling stuff and we're doing a great job there. So it's just been an attention to the details. This is our only base and we know Shales, we've been drilling them here for 50 years. We kind of got the drill, sort of speak.Jim: You know…I was reading a professor quoted…they always got professors who can…professors can talk about anything. I got to get one of those jobs. You can say whatever the heck you want! People talk…Times calls you all the time. Hey, it's professor Cramer, let's see what he has to say! But he was saying that the idea that we really have a 100 years of natural gas is just fanciful. That's just unproven. In no way that it could've happened in the last 2 years. That that's just pie in the sky by the natural gas guys trying to get us hooked on some fuel. Is it pie in the sky to think that we've discovered all this natural gas in the last 2 years?Mr. Gerber: No, absolutely not. I don't know…all the great things in the world come…they don't come in a normal distribution. They all come at the tails of distributions. We found that out with the financial crisis. But great innovations happen, they happen quickly and they happen aggressively and that's exactly what happened with natural gas.Jim: Now, you are somewhat hedged right? It's not like you're just rolling the dice to see where natural goes. Could you give us…like, for those of us who are trying to model how your earnings are going to be…if natural gas goes to $3 you're still okay right?Mr. Gerber: Well, we're still okay. We hedged a long time ago when we made that purchase of that acreage that I mentioned when we were a very small company. And we are about 35% hedged in 2010, a little less next year. But keep in mind the low cost structure is the hedge. I mean, we're in the commodity business. You have to be low cost and that's how we view it and we don't see a lot of upside, downside risk on hedging right now.Jim: But…one last question Murray. I mean, I was looking at the size of your company, okay, because I'm listening to the Exxon call today…yeah, I'm on those calls! Some are better than others! And you guys aren't that big! I mean you're only $5.8 billion. I mean if I were B.P. and I had to get in this business I would just call you and say "hey listen, I'll pay you 8 billion" I mean…no, honestly…Mr. Gerber: Is that an offer?Jim: After what happened to XTO it is not wrong to think what would happen? What would happen? You like being independent, don't you?Mr. Gerber: Well, we've got a lot to do Jim. And we think that this company, if we prosecute the growth strategy that we've got in front of us is a $15 billion company in a few years and so we're just going to keep working on that, working on that organic growth.Jim: I agree with you. Murry Gerber, Chairman and CEO of EQT. Thank you so much for coming on this show.Mr. Gerber: Thanks Jim.
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