After the stock market received a shockingly conclusive election result in November relative to expectations, volatility sharply compressed and triggered a massive air pocket relief rally across various sectors and single names. See that gap you can drive an 18 wheeler through in early November in the VIX chart below? That type of unforeseen vol compression created massively unpredictable spikes across the market ranging from banks to all sorts of small caps and momentum shitcos du jour.
Unfortunately, this spike also set the stage for a negative divergence in the SPY which has led to weakness since. The index itself moved up on the vol crush, but couldn’t sustain its momentum. The names that spiked largely got weaker, then eventually the Mag7 and other crowded names started rolling over. By now it’s self-evident - whether its JP Morgan, Tesla, or anything in between on the earnings quality spectrum, the damage has been pretty meaningful.
Interestingly enough, one of (if not the only) sectors that have not held the election bump is energy, particular the natural gas complex. Let’s dig in here and examine why.
I’ve attached below for reference the current top 35 holdings in the Energy Exploration & Production index (ticker XOP), ranked by percent weighting. You can nitpick with Devon and Ovintiv, but by my own filtering in the final “Subsector” column, I count only one pure play oil producer in the top 15. As for natural gas producers, they make up 5 of the top 7 on this list, and both Devon/Ovintiv have seen their production become increasingly gas heavy over the years. This table represents a solid encapsulation of what is happening in the US shale patch.
HFI Research (whom I strongly recommend for anybody looking to get familiar with the actual energy sector fundamentals) boils down the problem with US shale pretty concisely with the below chart. US crude oil production is rolling over. It might not be clear as day yet, but it peaked 2 years ago and has struggled to ramp back up. Could you argue that it’s because WTI prices have come down hence drilling is slowing? Not really. Look at the second chart below which tracks associated gas production. When oil is produced, every barrel equivalent of oil also produces some amount of natural gas - this is referred to as “associated gas.” US associated gas production has been increasing significantly, implying that while shale oil companies are trying to at least maintain or even grow production, they’re unable to extract more oil and are actually yielding more gas. This pretty clearly implies terminal decline, particularly in the Permian Basin.
The XOP wasn’t always dominated by natural gas producers at the top of the list. Over the past few years, there has been some consolidation in the Permian, causing a few mid/larger cap names to fall off the list. The largest such example was Pioneer Resources, which was acquired by Exxon Mobil in October 2023 at an enterprise value of $65bn. As a truly ironic testament to the state of US shale, Pioneer’s ex-CEO Scott Sheffield went on national TV last week and publicly proclaimed the dirty little secret: shale oil is running out of “Tier 1” inventory. Hearing Sheffield say this so publicly after being the country’s longstanding front-man for US shale dominance really put the situation into perspective.
In evaluating Sheffield’s comments paired with the data above, it also helps to review the monthly charts for the 3 largest pure play oil producers in the XOP today - ConocoPhillips, EOG and OXY. Conoco and EOG look like they’re trying to carve out a bottom but still aren’t too appealing, and OXY as always looks like something nobody should ever own under any circumstances, even the Warren True Believers. The market clearly is not gung ho for shale oil equities.
There are a few names in the oil-levered complex that do look potentially promising and are setting up well technically, which I will cover in more detail later this upcoming week. But what has been most peculiar is the strength in the other piece of the usually crappy pie - natural gas equities.
Unlike oil, which has had mixed signals between a rangebound commodity and a basket of equities that has a few strong names but many more laggards, natural gas and its related tickers have held up extremely well. Look at the monthly chart of Henry Hub natural gas settlement prices - you tell me, does this look like something that wants to go higher or lower in the intermediate term? Looks pretty bullish if you ask me.
As is often the case when it comes to commodities, the reason for this strength is due to supply vs. demand. Antero Resources’ latest company presentation lays out some of the key data well. While much noise has recently been made about how natural gas is vital for datacenter power supply (it is but this isn’t the key demand node), natural gas equities have rightfully decoupled from the AI complex since Deepseek in January due to the true demand lever - liquified natural gas (LNG).
The United States has historically oversupplied natural gas, but over the last decade has slowly been building out LNG infrastructure that has begun to tilt the equation. The only way countries with no natural gas production or pipeline connectivity can import the commodity overseas to heat / air condition homes and power industrial productivity is in liquified form. Building this infrastructure including pipelines, liquefaction facilities and ports takes time, but the US is in the final steps of achieving the LNG buildout in the Gulf. Now with less regulatory overhang in DC, the added LNG demand is slowly creating a supply shortage which may take years to balance out. Paired with increasing datacenter demand, seasonally low domestic storage, parts of Europe permanently shifting away from Russian gas even after the war ends, the market has been sniffing this out and bidding the entire complex up. The charts suggest some of these moves may just be getting started.
Let’s explore some of these appealing natural gas equities.
EQT Resources (“EQT) - $32bn Market Cap
EQT is the largest pure play natural gas producer in the US. Run by CEO Toby Rice, who has become a spokesperson for the entire industry, EQT’s acreage is primarily in the Appalachian Basin. Thanks to its stake in the recently constructed Mountain Valley Pipeline (“MVP”), EQT has superior connectivity to the datacenter fairway. EQT is the most likely company to make a flashy outsized PR announcement on a “direct natural gas supply deal” with a hyperscaler. Note that even if they were to make such an announcement, it doesn’t actually matter - all of these producers have to market their gas and sell it to somebody. Meta isn’t paying more for gas than anybody else, and if they are it won’t be by more than 1-2%.
On the corporate front, EQT runs a pretty straightforward hedging program and has a fairly median balance sheet - nothing remarkably superior vs. peers, but nothing that should keep you away from owning/trading it.
The actual EQT investment thesis is extremely straightforward - if natural gas equities stay bid, EQT will get that bid due to its sheer size relative to the peer group.
The EQT chart looks rock solid and primed for higher. Daily is trying to break through this recent resistance in the mid $50’s with moving average confluence supportive in the low $50’s. 10+ year monthly cup and handle with a monthly golden cross last year, where the 50 month moving average crossed above the 200 month moving average. All time high’s from 2014 are at ~$60/share, so you’re looking at a pretty big measured move higher if the stock can push through that level. EQT will be the go-to generalist name for folks chasing natural gas exposure in equity markets.
Expand Energy (“EXE”) - $25bn Market Cap
This was previously Chesapeake Energy, which emerged out of bankruptcy in 2021 with a clean(er) balance sheet and corporate strategy. In 2024, Chesapeake acquired Southwestern Energy and rebranded to become the current EXE. Fairly well timed acquisition by Chesapeake given where natural gas prices were at the time - this acquisition also diversified Chesapeake’s acreage away from the Appalachian Basin into the Haynesville Basin . This Haynesville acreage has helped EXE strengthen its value proposition - marketing exposure to LNG end markets. EXE has significant connectivity into Transco and SONAT, the 2 pipelines most closely linked to the LNG corridor, so as long as the buildout in the Gulf remains on schedule EXE should continue to benefit.
Post-merger, EXE has a fairly similar corporate approach to EQT. They hedge regularly and have a decent amount of debt that needs to get paid off over time. This is not a reason to either love or avoid the stock, just a fairly middle of the road situation.
EXE has a better chart than EQT. It broke out to all time highs this past week, so there is no overhead supply that has to be chewed through. Because EXE is a younger stock, it has less of a memory - the chart is free to roam higher right now. The company just got included in the S&P 500 index, which has helped with introduced forced buyers.
Similar to EQT, EXE will receive a lot of generalist flow due to its market cap and production profile. I personally like the chart more than EQT, and am keeping an eye on potential entry points in the coming days.
Antero Resources ($AR) - $13bn Market Cap
Similar to EQT, AR is a pure play Appalachian producer. That is where the similarities end. Unlike its larger producer peers, AR does not hedge and has a very clean balance sheet. In a higher natural gas price environment, being unhedged means you capture all of the natural gas upside unlike most other producers. Additionally, the debt profile below means much less financial burden - AR has no maturities until 2029, and even those longer dated maturities have AR coming out with much lower leverage than most of its peers. While other companies in the space have leverage targets that they want to hit over the next few years with a debt paydown, AR has already achieved its goals.
AR has much more wet gas than its Appalachian peers. What this means is that when AR produces gas, that gas also comes with a lot of non-gas liquids (“NGL’s) like propane which can also be sold in the market. With emerging markets around the world stimulating, the next few years appear to be a favorable environment to be selling NGL’s which are key components for infrastructure buildout.
Additionally, CEO Paul Rady owns 5.5% of AR stock. This is a key differentiator, as management’s incentives are fully aligned with shareholders - this has been a problem with US shale in the past, where CEO’s who don’t own much stock often get paid out on production targets that do shareholders no good whatsoever. Management has consistently been publicly averse to M&A even dating back to COVID when it almost went bankrupt; this is indicative of extreme confidence in AR’s existing acreage/ inventory and is comforting confirmation that dilutive M&A will not be pursued in the near future.
AR is also integrated and has firm transport to premium end markets including the LNG corridor. What does this mean in English? Unlike most peers, AR has in-house capabilities to handle water delivery pre-production, then gathering, compression, processing and fractionation to make its molecules pipeline quality and ready for shipping. Firm transport means that unlike competitors who pay a price that fluctuates with the price of gas, AR has paid a fixed fee to have its products flow no matter what on various pipelines. This fixed fee is advantageous in a higher price environment. Also, the outsized access to the LNG userbase is a nice bonus.
The chart here is rather unique. The daily is in a tricky spot with this potential triple top, but the 8/21/50 moving averages are all supportive below in the high $30’s. The monthly is flirting with a breakout that should quickly send it to $45+ when it’s above the blue line, but looks even more interesting when you zoom out.
The yearly chart shows that AR is currently flirting with a breakout that could send the stock back to prior all time high’s in the mid-high $60’s, quite the explosive risk/reward if you ask me.
AR is my preferred vehicle for NG exposure - I plan to allocate the most weight to this name when I decide to get involved in these names.
Comstock Resources ($CRK) - $6bn Market Cap
Every subsector in the stock market has at least one name that can offer right tail upside risk in the absolute most bullish scenario for the broader group. CRK is that for natural gas equities. Its acreage, balance sheet, unpredictable management, and overall health are all absolutely terrible. This name just has one silly thing going for it. Of the $6bn market cap, ~75% is privately owned by Jerry Jones (yes, that Jerry Jones). Of the remaining $1.6bn in public float, $400mm of it is short interest. So you have a $6bn market cap company with a pretty small float and high short interest, which can make a name ripe for a short squeeze. And that’s before you look at the chart which makes you say WHOA.
The CRK daily chart looks constructive, very similar to the other names above.
Then you see the monthly chart.
Then you see the yearly.
You get the point. Through $22/$23, the monthly chart has an air pocket to $28 which can probably happen pretty quickly. Beyond that, this thing can get pretty nutty. I personally don’t have much appetite for this name because it’s a cartoon, but a fun setup to keep an eye on nonetheless. Sidenote if this ever does epically squeeze that’s a pretty clear siren that the natural gas trade is just about over.
Beyond EQT/EXE/AR/CRK, other natural gas producer equities include Devon Energy (“DVN”), Ovintiv (“OVV” - still the dumbest ticker rebrand I’ve ever seen), Gulfport (“GPOR”), Coterra (“CTRA”), and CNX (“CNX”). I won’t be diving into them here for various reasons, but feel free to contact me directly and I’ll offer one off thoughts if interested.
Beyond producers, there are also some infrastructure oriented names that have been less volatile since the MLP bust in the back half of the 2010’s. Let’s cover a few!
Williams ($WMB) - $73bn Market Cap
WMB is the premiere natural gas pipeline company in the US with infrastructure that can never be replaced or duplicated. WMB’s crown jewel is Transcontinental Pipeline (“Transco”), which originates in all of the key production basins in the northeast and runs all the way southwest to the LNG fairway in the Gulf and to various production zones in Texas. No other pipeline can or ever will replicate Transco’s ability to access basically every key valuable region west of the Mississippi that requires natural gas - this is our heavyweight champion pipeline.
A few years ago, WMB was on the verge of building Constitution Pipeline before regulatory hurdles popped up. Constitution would’ve been a massive project which would’ve helped serve the under-piped northeastern states like New York and Massachusetts which currently compete to import gas at much higher costs than you’d expect given their geographic proximity to some of the largest gas producing fields on the planet. If Trump’s recent rhetoric about building pipelines in these areas ever actually gains steam, WMB will directly benefit as Constitution will be all systems go again.
WMB is a forever stock. It currently pays a 3.5% dividend annually which is sure to consistently grow. This is the type of name that you can tuck away and forget about, and you’ll open your portfolio in 5 years and see that it just steadily outperformed the index and never cost you a second of sleep. Interestingly enough, the chart is on the verge of an all time high breakout.
On the daily, you’re looking at a potential triple top in the high $50’s / low $60’s with a lot of supportive moving averages in the mid-high $50’s.
The monthly speaks for itself.
You’re looking at a potential 10+ year base breakout to all time highs. When this breaks to the upside, the move should be pretty violent to $70+ if not even an 8 or 9 handle. Might need a little more time, but worth keeping an eye on here for sure.
Kinder Morgan ($KMI) is another natural gas pipeline name that is worth monitoring but I will not cover in detail here. Energy Transfer ($ET) too, but that’s an MLP that I’d advise to never buy unless you truly want to own it forever.
Cheniere Energy ($LNG) - $51bn Market Cap
As implied by the ticker, LNG is the alpha dog in the US liquified natural gas infrastructure buildout. LNG has existing infrastructure which allows the company to have natural gas shipped on pipelines to its Sabine Pass and Corpus Christi facilities, where the company’s trains liquify and prepare gas for export to various global utility / energy trading companies.
LNG has been a public company for a long time, and has meaningful institutional familiarity. When money wants to flow into this sector, LNG has no natural competitors. Venture Global, the #2 domestic player in the space, just went public, but is still in the process of post-IPO price discovery. That is very much not the case with LNG, at least in part due to its shareholder friendly capital allocation program instituted last year. The company authorized an up to $4bn increase in its share buybacks through 2027, meaning the company has runway to buy back an additional ~3% of its market cap in the market annually over the next 3 years. LNG also just instituted a dividend which it plans to grow regularly over the coming years.
From a regulatory perspective, the current presidential administration is very supportive of the LNG industry as a whole. The 3 million barrels of annual oil equivalent production that Treasury Secretary Scott Bessent publicly wants the US to ramp in the coming years is most easily achievable via natural gas to meet LNG demand. With the global stimulus theme in 2025, as well as European storage at seasonal lows, LNG is poised to benefit for quite a while here.
The chart suggests much higher prices are in store. The blue diagonal trendline on the daily chart implies that a breakout has just happened, with room to run back to the recent all time highs in the mid $250’s.
On a monthly chart, you have a 2.5 year base between ~$140-$185/sh that broke to new all time highs late last year. Since that base breakout, LNG has been tight for 4 straight months, with the 8 month moving averages providing support both in February and March. The March candle is inside the range of the February candle, implying potential compression before further expansion.
LNG is another forever stock that will likely continue to outperform the index in the interim/long term. It’s a slow mover, but in the current market environment slow movers that go up are about as good as you can find.
It’s an exciting time for the energy complex, and natural gas equities seem poised to benefit from structural / macro tailwinds that can lead to outperformance in the months ahead. I’ll cover some more oil specific names later this week, in the meantime I hope you all enjoy the rest of your Sunday.
Great write up! Many oil or NG companies issue K-1 form which is a headache in tax seasons😅
Superb one mate, thoroughly enjoyed reading it. If you could, please share your thoughts on Shell and BP for non-US investors. Thank you