Leslie’s Notebook

The current market crisis is astonishing for its depth and breadth. Lehman Brothers’ credit default swaps are held by some 350 financial institutions around the world. This is like one huge global margin call. No one seems to be immune. The lack of confidence and trust in markets and market participants is somewhat akin to what happens during a run on the bank–something I experienced first-hand in 1983 when I lived in Midland, Texas. Indeed, Wachovia had $5 billion withdrawn before and during the days Citi and Wells Fargo were fighting over it. Wells won. Let’s hope it doesn’t end up with buyer’s remorse.

Combined with lower commodity prices and stocks that have tanked beyond all reason, we are seeing an early Halloween. Investors are clearly spooked.

The flight to quality is so overbooked, weary–and wary–investors are standing in line 10 deep at the counter!

E&P companies that have low debt ratios and that operate within cash flow, have good acreage positions and reserve growth in sight for 2008 and 2009, should do well, but their cash flows will be anemic compared to first-half 2008–unless production growth can overcome that.

Meanwhile, natural gas prices will be under pressure for the rest of the year. The EIA reports that natural gas production onshore was up 12% year-over-year through July, increasing by 5.8 Bcf a day. The Powell Barnett Shale Newsletter out of Fort Worth reported earlier this year that as of January 2008, some 1,459 wells were still in the pending file at the Texas Railroad Commission–and that their production averaged an aggregate 1.5 Bcf a day at the time.

This is why T. Boone Pickens and Aubrey McClendon are pushing more gas use, and why House Speaker Nancy Pelosi finally gets it and agrees. 

–Leslie Haines, editor-in-chief, Oil and Gas Investor, lhaines@hartenergy.com

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