Watch for falling hedges.

While Henry Hub gas prices have grown from about $3.60 per Mcf in early November 2013 for December delivery, past $5 for March delivery, hedging may not be much of an option as futures remain lower than the current contract.

“Despite anticipated exports and increased use for power generation, we’re looking at a much different curve,” said Sylvia Barnes, managing director and group head, oil and gas, for KeyBanc Capital Markets Inc. “It means we are getting crushed and this is serious.”

With KeyBanc colleagues, Barnes presented a markets update to industry members in Houston preceding the NAPE
Expo conference.

What to do? “We’re supportive on the near term, natural-gas side but it’s going to be really hard to stomach hedging beyond 2014 on the oil side. So what’s our advice to producers? Be nimble. Be ready to move quickly if there is any change in the market.”

Meanwhile, debt and equity investments are flowing to producers, said Randy Paine, KeyBanc Capital Markets president, and indications are that they will remain open. The U.S. economy is growing, interest rates are low and a great deal of financial risk has been removed by the Frank-Dodd Act, he noted.

Actually, more money is flowing to oil and gas producers than in 2007, when West Texas Intermediate was marching to about $100 bbl. by year-end and gas to about $8 per Mcf.

“So these factors—a growing economy, a low interest rate environment and a recovered financial system—are producing record levels of capital-markets activity,” he said.

For example, high-yield issuances in 2013 were 2.7 times that of 2007. Among these, issuances to the oil and gas sector were 3.5 times greater in 2013. Syndicated-loan commitments to oil and gas producers were about the same in
each year. Oil and gas IPO raises were 2.8 times greater in 2013; follow-on and convertible notes offerings were 1.5 times more.

“And I think it will continue,” he said. “(But) some people might say, ‘We are entering a new bubble. I wouldn’t have thought we would be well beyond where we were in 2007. Are you concerned about that?’

“My answer: ‘No. I’m not.’ ”

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