“Is what’s good for natural gas bad for Lufkin?” Jim Cramer asked Monday on CNBC’s “Mad Money.” He noted that Lufkin shares got hammered today in light of a dramatic slowdown in U.S. drilling for natural gas.
And while the name Lufkin may not be well-known, most are familiar with the “donkeys,” or the oilfield pumping units that Lufkin manufactures — Cramer described them as “the things that go up and down to bring out the oil or the natural gas once the drilling is done.”
Shares of Lufkin were down more than 21 percent by the close of trading on Monday. Meanwhile, Southwestern Energy, Cabot Oil & Gas and Range Resources all roared ahead.
Surprisingly, these opposite swings are “two sides of the same story,” Cramer said.
Lufkin is a piece of the nat gas chain, and business has been horrible ever since rigs and services have rapidly shifted over to U.S. oil plays instead of U.S. nat gas plays, he said. “Because we are saturated with natural gas and have no place whatsoever to put it.”
Unless the drilling stops, the pure plays will continue to be obliterated, he added. That’s why he finds it so surprising that the major nat gas plays are “roaring,” along with pipelines closely tied to natural gas use.
Cramer said the nat gas market has been a “real bust” lately, as major firms like Chesapeake Energy and EOG Resources are swiftly shifting gears to embrace more oil. And gasoline giant Exxon-Mobil also appears to be backing away from nat gas after paying top dollar to purchase Xtreme Oil and Gas not long ago.
So, could nat gas be bottoming for real this time?
Cramer said he has felt increasingly inclined to say yes, but that it’s not bottoming for any good reason. “The marginal demand for nat gas right now is coming from the heat,” he said. And utilities use nat gas as a peak fuel just for the kind of short-term air conditioning demand we are seeing today, but otherwise, coal remains the true baseload fuel, he said, adding that he doesn’t expect this kind of demand to last for long.
“What’s really needed is a commitment to use natural gas as a surface fuel and the company that could have done the most to promote it is Exxon,” he said. “Because without a national chain that has thousands of stations natural gas can’t be adopted for anything but a small long-haul trucking business as well as inner city buses and garbage trucks.
At the end of the day, Cramer said the rally has been sparked by a supply shut-in and the heat, and that more drilling and cooler weather should reverse the trend. “So, while Lufkin is a signal that the nat gas drilling phase is winding down, it is the demand side that must change before a real bottom can be called.”
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