Wednesday’s FT has a story about the shuffling of US gas acreage among companies. Two things are happening simultaneously. First, the value of undeveloped shale properties has risen as the opportunities for profitable development become ever clearer. Second, while oil prices have climbed, natural gas prices have collapsed. Companies want to shift production to fields heavy in liquids and temporarily cut back production in fields filled with dry gas.
If companies already have acreage with liquids, great. Alternatively, if the company is cash rich, then it can afford to buy a new field with liquids. But companies with neither are under pressure to sell their dry gas acreage in order to fund acquisition of fields with liquids. Many companies are in this position, so plenty of properties are up for sale at the same time. Is that driving prices for dry gas acreage down even further than the fundamentals justify?
It would be a nice question to test empirically. There is plenty of academic literature about both fire sales and contagion. This could be another case study.
How much does the fire sale discount add to the value of companies with the liquidity to take advantage of it? How much does it subtract from the value of companies caught short of cash?
Betting the Business 