Shares Of Gas Companies Sink On Falling Natural Gas Prices

By Shara Tibken Of DOW JONES NEWSWIRES NEW YORK (Dow Jones)--Shares of gas companies dropped Tuesday as natural gas futures were pressured by profit taking and concerns about excess supply. Natural gas prices have climbed about 10% this month as traders, who had bet heavily on falling prices, bought back contracts in anticipation of hot summer weather that can spur additional demand for natural gas-fired power generation. Forecasts for a busy hurricane season have also bolstered prices. Storms that form in the Atlantic can go on to threaten supplies from the U.S. Gulf of Mexico, which represents about 11% of domestic gas output. Last week, prices breached the $5 mark for the first time since February. Investors were hopeful prices would remain above $5, but profit taking, as well as worries about excess supply and low demand dragged the prices below that level. "Prior to the last few days, we finally saw some strength in gas after suffering through a pretty weak shoulder," RBC Capital Markets analyst Leo Mariani said. "There were expectations momentum could continue, but it stalled out." Natural gas for July delivery on the New York Mercantile Exchange recently traded 9 cents, or 1.85%, lower, at $4.783 a million British thermal units. Natural gas futures have come under pressure this week as traders look to book profits off the recent run up in prices. "Basically, the industry is the victim of its own success," Oppenheimer analyst Fadel Gheit said. "We can find gas a lot easier and produce it a lot cheaper. But unfortunately, demand is something we cannot control. Until gas is mandated to replace coal in electricity generation, it's likely gas will remain depressed relative to oil." The decline in natural gas stocks weighed on the broader energy sector, which was recently the weakest segment in the Standard & Poor's 500 index, off 1.4%. Among the biggest decliners were Range Resources Corp. (RRC) down 5% to $45.69, and Pioneer Natural Resources Co. (PXD) down 4.4$ to $67.89. SM Energy Co. (SM) lost 4.3% to $45.14, and Southern Union Co. (SUG) slid 3.3% to $22.71. Meanwhile, Capital One cut its rating on PetroQuest Energy Inc. (PQ) to neutral from add, recommending investors take profits as the company's stock price has neared the firm's price target. The company's shares fell 6.5% to $7.80. Analysts said shares of gas companies will likely remain volatile in the near term as investors pay close attention to the hurricane-filled summer months. The entire energy sector has been hammered by worries about the oil crisis in the Gulf of Mexico following an explosion on BP PLC's (BP) Deepwater Horizon rig in late April. Oppenheimer's Gheit said he had expected the crisis to boost natural gas companies as consumers and the government look for alternative investments and sources of energy. Instead, investors have been selling shares of energy companies across the board, though many have seen relief in previous trading sessions. "I thought that what happened in the Gulf would be beneficiary to domestic gas producers, but it really has not turned out to be," Gheit said. -By Shara Tibken, Dow Jones Newswires; 212-416-2189; shara.tibken@dowjones.com (Jason Womack contributed to this report.) (END) Dow Jones Newswires June 22, 2010 13:00 ET (17:00 GMT)