Shares in shale gas stocks generally outperformed the S&P 500 through late October 2023 until a warm start to winter and uncertainty about the in-service dates of Gulf Coast LNG terminals brought an end to the party.
Most US shale gas stocks ended 2023 below the S&P 500, in contrast to 2022, when most of those stocks added double-digit percentage increases in value while outperforming the stock market index.
Natural gas prices at the benchmark Henry Hub dropped 26.5% on the warm temperatures in November 2023, dragging the top 10 stocks in shale gas exploration and production companies down with them. Even rumors of potential mergers and acquisitions deals, in the wake of megadeals by Chevron Corp. and Exxon Mobil Corp., failed to excite investors about the sector as 2023 came to a close.
Gulfport Energy beats S&P 500
Of the top 10 US shale producers, only Utica Shale driller Gulfport Energy Corp. outperformed the S&P 500 in 2023, gaining 80.9% in value between Dec. 30, 2022, and Dec. 29, 2023. Four shale gas E&P stocks posted double-digit percentage losses over the year.
One analyst said Gulfport's stock has room to run.
"This small-cap should begin showing up on investor screens as it continues to execute operationally with improving capital efficiencies," Siebert Williams Shank oil and gas analyst Gabriele Sorbara told clients when he started covering Gulfport on Dec. 19, 2023. "We believe [Gulfport] remains underappreciated by the market at the current valuation, as our $200 [price target] offers 51.6% upside on a conservative 3.3x 2025 EV/EBITDA multiple."
Gulfport closed the last day of 2023 down less than 1% to $133.20 per share on moderate trading volume. It ended 2022 with a 2% gain.
Missing in action: LNG demand
The absence of significant new demand for natural gas at LNG export terminals in 2023 and 2024 dimmed the lights on shale gas stock performance in 2023.
Rusty Braziel, founder of energy market analytics firm RBN Energy, predicted in 2022 that 2023 gas prices would be low because of a lack of demand. "Production was growing fast and, for the first time since 2015, no new LNG export capacity was slated to come online," Braziel wrote on RBN's blog on Dec. 28, 2023. "We predicted grim market conditions, and that's exactly what we got."
Braziel forecasts that 2024 will be another year featuring too much gas supply, too little gas demand and low commodity prices.
With the disappointing outlook for LNG demand along the Gulf Coast, the top gainers in the shale gas group were Appalachian operators: Gulfport, Range Resources Corp., CNX Resources Corp. and EQT Corp. These companies trimmed expenses and ran maintenance drilling programs while waiting for more gas demand.
After leading the sector in gains in 2022, Appalachian driller Antero Resources Corp. and Haynesville operator Comstock Resources Inc. gave back a significant amount of those gains in 2023. Investors punished both for spending more than expected in the 2023 third quarter.
Pure-play Haynesville Shale driller Comstock — the operator closest to the Gulf Coast and perhaps the stock most influenced by new episodes in the ongoing LNG terminal soap opera — spent more than expected in the third quarter of 2023 to expand production and processing in anticipation of future LNG demand. Its shares trailed the S&P 500 for most of the year and lost another 21% in November 2023 as commodity prices collapsed.
Buying on the dip
Analyst Taylor McKenna with Kopernik Global Investors said the shale gas sector and its product could be setting up for a big rebound.
"We have seen this recently with natural gas in the US, trading below $2/Mcf in 2020, then above $9 in 2022, and now back below $2.50," McKenna said. "This presents many opportunities for active investors. We were happy to own a lot of natural gas back in 2020, trimmed substantially as prices increased, and are now adding exposure back as we are again below incentive prices."