Is Oil Price Too High?
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- Arleen Wilcox
- 5 years ago
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1 Is Oil Price Too High? Summary and Recommendation The $39 a barrel price indicated for light sweet crude oil in May 2004 implies a gain of 39% over cash price in May 2003, less than the 70% gain that might signal an economic recession. While resource value holds relatively firmly, stock price declines to particularly low McDep Ratios for current times. Stocks we recommend for a full unlevered portfolio position, designated B1 in the valuation tables, include Norsk Hydro (NHY), McDep Ratio 0.53; Burlington Resources (BR), 0.63 and ChevronTexaco (CVX), More volatile stocks we recommend for a half unlevered position, designated B2, have McDep Ratios similarly low and comprise two Chinese stocks, a Russian stock and three small cap North American independent producers (see tables). Moderate Trend for Crude Oil Price Looking back 30 years, we see that annual gains in monthly average U.S. landed cost of imported crude oil spiked above 70% in six instances, some of which were accompanied by or followed by an economic recession as in and (see chart). As a result crude oil price gains remain moderate, particularly those expressed by gradually rising six-year futures around $ Annual Gain in Monthly Crude Oil Price, Source: U.S. Department of Energy - Landed Cost of Imports 100 Percent Oct-74 Oct-76 Oct-78 Oct-80 Oct-82 Oct-84 Oct-86 Oct-88 Oct-90 Oct-92 Oct-94 Oct-96 Oct-98 Oct-00 Oct Neither he nor his spouse trade a subject stock within a week before or after a change in rating. 1
2 Recent spikes occurred at 156% in December 1999 and 75% in January Each followed a downward spike the previous year that diminishes the upward spike. The historical data end in January Another chart plots cash and futures for light sweet crude that takes the expected monthly gain through 2006 (see chart). The highest monthly gain ahead is 33% in September 2004 to an expected $ That price would have to be $48.14 to trigger a 70% gain. Annual Gain in Monthly Crude Oil Price, Light Sweet - Cash and Futures Percent Jan-00 May-00 Sep-00 Jan-01 May-01 Sep-01 Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Norsk Hydro Concentrates on Oil, Natural Gas and Aluminum Like some other recommendations, Norsk Hydro has given back some of its gains lately. Investors need to keep in mind that the current price excludes the annual cash dividend of $1.61 since Thursday, May 6. It also excludes the separately distributed shares of fertilizer company, Yara, priced at $7.40 when U.S. trading began on April 2. Meanwhile, reported first quarter operations reflect continued strong generation of cash flow with oil and gas volumes up from the fourth quarter and a year ago. Ratings Explained Further Q: Please explain why you are rating additional stocks due to the Global Settlement. What do the different ratings mean? A: The Global Settlement of Conflicts of Interest seems to present a worthwhile opportunity for McDep Associates to expand its business, but it requires a modification in how we present our work. The demand is exclusively for single stock analyses with buy, sell and hold ratings. We analyze more stocks now to calculate a McDep Ratio and have been rating only those we thought were most interesting considering what we know about Neither he nor his spouse trade a subject stock within a week before or after a change in rating. 2
3 each one. Investors can anticipate what we might say about a stock by the McDep Ratio, but that is not what the Global Settlement would use. So we have expanded the stocks we are rating buy or sell to possibly qualify them for use in the settlement. All the ones we expect to add look like buys rather than sells in the context of where we think the energy business is headed. Most of the additions do not have McDep Ratios as low as previous recommendations. Thus, we created the B3 category. Among those B3 stocks, Devon Energy (DVN) looks better and could be competitive with existing recommendations. B1 s are full position buys. B2 s have either political risk or size risk and are half position buys. B2 s include the two Chinese companies, the Russian company and the small cap exploration companies. Forthcoming single stock analyses will carry only simple buy, sell or hold ratings. We will point out differences in McDep Ratio that quantify differences in total return potential. Buy recommended income stocks covered in our companion publication, McDep Energy Income Producers, are rated B1 for full unlevered positions. The income feature may reduce investment risk and the principal assets are well-defined. The Global Settlement creates the most demand for independent research on the stocks most covered by major investment banks. There is little or no demand from that source for research on other stocks. Some of our best ideas including NHY and Berry Petroleum (BRY) as well as the income stocks Canadian Oil Sands Trust (COSWF) and San Juan Basin Royalty Trust (SJT) are not widely covered. Of course, that is partly why the latter can be attractive. We intend to continue to seek out money-making investment ideas regardless of demand as a result of the Global Settlement. Kurt H. Wulff, CFA Neither he nor his spouse trade a subject stock within a week before or after a change in rating. 3
4 Table 1-1 Energy Producers Rank by McDep Ratio: Market Cap and Debt to Present Value Price Net ($/sh) Market Present Debt/ Symbol/ 10-May Shares Cap Value Present McDep Rating 2004 (mm) ($mm) ($/sh) Value Ratio Mega Cap Exxon Mobil Corporation XOM B , , BP plc BP B , , Shell Transport and Trading Co. plc SC B ,587 67, Royal Dutch Petroleum RD B ,033 98, Total S.A. TOT B , , ChevronTexaco Corporation CVX B ,066 95, Total or Median 842, Producer/Refiners - Large Cap and Mid Cap Kinder Morgan, Inc. KMI S , Valero Energy Corporation VLO , Murphy Oil Corporation MUR , Imperial Oil Limited (30%) IMO B , Marathon Oil Corporation MRO B , ConocoPhillips COP B , ENI S.p.A. E , Petro-Canada PCZ B , Suncor Energy SU B , Norsk Hydro ASA NHY B , PetroChina Company Ltd (10%) PTR B , Lukoil Oil Company LUKOY B , Petroleo Brasileiro S. A. PBR ,096 28, Total or Median 254, Independent Natural Gas and Oil Canadian Natural Resources Limited CNQ , XTO Energy Inc. XTO B , Encana Corporation ECA B , Apache Corporation APA , Occidental Petroleum Corp. OXY B , Pogo Producing Company PPP , Unocal Corporation UCL B , Anadarko Petroleum Corp. APC B , CNOOC Limited (19%) CEO B , Pioneer Natural Resources Company PXD , Burlington Resources BR B , Devon Energy DVN B , Total or Median 121, B1 = Buy full unlevered position, B2 = Buy half unlevered position, B3 = Alternative buy S2 = Short half unlevered position McDep Ratio = Market cap and Debt to present value of oil and gas and other businesses Neither he nor his spouse trade a subject stock within a week before or after a change in rating. 4
5 Table 1-2 Energy Producers Rank by EV/Ebitda: Enterprise Value to Earnings Before Interest, Tax, Deprec. Price Divd or ($/sh) EV/ EV/ Distrib PV/ Symbol/ 10-May Sales Ebitda P/E NTM Ebitda Rating 2004 NTM NTM NTM (%) NTM Mega Cap Exxon Mobil Corporation XOM B Total S.A. TOT B BP plc BP B Shell Transport and Trading Co. plc SC B Royal Dutch Petroleum RD B ChevronTexaco Corporation CVX B Median Producer/Refiners - Large Cap and Mid Cap Kinder Morgan, Inc. KMI S Imperial Oil Limited (30%) IMO B Murphy Oil Corporation MUR Suncor Energy SU B Valero Energy Corporation VLO ConocoPhillips COP B Marathon Oil Corporation MRO B ENI S.p.A. E Petro-Canada PCZ B PetroChina Company Ltd (10%) PTR B Norsk Hydro ASA NHY B Petroleo Brasileiro S. A. PBR Lukoil Oil Company LUKOY B Median Independent Natural Gas and Oil XTO Energy Inc. XTO B CNOOC Limited (19%) CEO B Occidental Petroleum Corp. OXY B Anadarko Petroleum Corp. APC B Pioneer Natural Resources Company PXD Unocal Corporation UCL B Apache Corporation APA Canadian Natural Resources Limited CNQ Burlington Resources BR B Encana Corporation ECA B Pogo Producing Company PPP Devon Energy DVN B Median EV = Enterprise Value = Market Cap and Debt; Ebitda = Earnings before interest, tax, depreciation and amortization; NTM = Next Twelve Months Ended March 31, 2005; P/E = Stock Price to Earnings; PV = Present Value of oil and gas and other businesses Neither he nor his spouse trade a subject stock within a week before or after a change in rating. 5
6 Table 1-3 Energy Producers Determinants of Present Value NG & O N. Am. Adjusted McDep Prod/ Gas/ Reserves/ PV/ NG&O Ratio Symbol/ Ebitda Ebitda Prod Ebitda Ebitda/ 10-May Rating (%) (%) NTM NTM mcfe 2004 Mega Cap Royal Dutch Petroleum RD B Shell Transport and Trading Co. plc SC B Total S.A. TOT B BP plc BP B ChevronTexaco Corporation CVX B Exxon Mobil Corporation XOM B Median Producer/Refiners - Large Cap and Mid Cap Kinder Morgan, Inc. KMI S Valero Energy Corporation VLO Marathon Oil Corporation MRO B Petro-Canada PCZ B Murphy Oil Corporation MUR Norsk Hydro ASA NHY B Petroleo Brasileiro S. A. PBR ENI S.p.A. E Imperial Oil Limited (30%) IMO B ConocoPhillips COP B PetroChina Company Ltd (10%) PTR B Suncor Energy SU B Lukoil Oil Company LUKOY B Median Independent Natural Gas and Oil Pogo Producing Company PPP Canadian Natural Resources Limited CNQ Encana Corporation ECA B Devon Energy DVN B Apache Corporation APA Unocal Corporation UCL B Burlington Resources BR B Pioneer Natural Resources Company PXD Anadarko Petroleum Corp. APC B Occidental Petroleum Corp. OXY B XTO Energy Inc. XTO B CNOOC Limited (19%) CEO B Median Neither he nor his spouse trade a subject stock within a week before or after a change in rating. 6
7 Table 2-1 Independent Natural Gas and Oil Producers - Small Cap Rank by McDep Ratio: Market Cap and Debt to Present Value Price Net ($/sh) Market Present Debt/ Symbol/ 10-May Shares Cap Value Present McDep Rating 2004 (mm) ($mm) ($/sh) Value Ratio Short Life Spinnaker Exploration Company SKE , Western Gas Resources WGR , Southwestern Energy Company SWN The Houston Exploraton Company THX , Newfield Exploration Company NFX , Denbury Resources Inc. DNR Cimarex Energy Company XEC B , St. Mary Land and Exploration CompanySM Stone Energy Company SGY , Chesapeake Energy Corporation CHK , Energy Partners Ltd. EPL B Westport Resources Corporation WRC , PetroKazakhstan Inc. PKZ , Range Resources Corporation RRC Forest Oil Corporation FST , Total or Median 21, Long Life Ultra Petroleum Corp. UPL , Unit Corporation UNT , Quicksilver Resources Inc. KWK , Penn Virginia Corporation PVA Swift Energy Company SFY Evergreen Resources, Inc. EVG , Whiting Petroleum Corporation WLL Magnum Hunter Resources, Inc. MHR Encore Acquisition Corp. EAC B Berry Petroleum Company BRY B Vintage Petroleum, Inc. VPI Total or Median 10, Micro Cap Abraxas Petroleum Corporation ABP Purcell Energy, Ltd. (US$) PEL.TO Buy (B) and Sell (S) rated stocks scheduled for quarterly single stock analyses. McDep Ratio = Market cap and Debt to present value of oil and gas and other businesses Numeral after B or S signifies half position recommended(2) or alternative idea(3). Neither he nor his spouse trade a subject stock within a week before or after a change in rating. 7
8 Table 2-2 Independent Natural Gas and Oil Producers - Small Cap Rank by EV/Ebitda: Enterprise Value to Earnings Before Interest, Tax, Deprec. Price Divd or ($/sh) EV/ EV/ Distrib PV/ Symbol/ 10-May Sales Ebitda P/E NTM Ebitda Rating 2004 NTM NTM NTM (%) NTM Short Life Western Gas Resources WGR Southwestern Energy Company SWN Spinnaker Exploration Company SKE Denbury Resources Inc. DNR Range Resources Corporation RRC Chesapeake Energy Corporation CHK Westport Resources Corporation WRC Stone Energy Company SGY St. Mary Land and Exploration Company SM Cimarex Energy Company XEC B Newfield Exploration Company NFX Forest Oil Corporation FST The Houston Exploraton Company THX Energy Partners Ltd. EPL B PetroKazakhstan Inc. PKZ Median Long Life Ultra Petroleum Corp. UPL Quicksilver Resources Inc. KWK Unit Corporation UNT Evergreen Resources, Inc. EVG Penn Virginia Corporation PVA Encore Acquisition Corp. EAC B Swift Energy Company SFY Berry Petroleum Company BRY B Whiting Petroleum Corporation WLL Magnum Hunter Resources, Inc. MHR Vintage Petroleum, Inc. VPI Median Micro Cap Abraxas Petroleum Corporation ABP Purcell Energy, Ltd. (US$) PEL.TO EV = Enterprise Value = Market Cap and Debt; Ebitda = Earnings before interest, tax, depreciation and amortization; NTM = Next Twelve Months Ended March 31, 2005; P/E = Stock Price to Earnings; PV = Present Value of oil and gas and other businesses Neither he nor his spouse trade a subject stock within a week before or after a change in rating. 8
9 Table 2-3 Independent Natural Gas and Oil Producers - Small Cap Determinants of Present Value NG & O N. Am. Adjusted McDep Prod/ Gas/ Reserves/ PV/ NG&O Ratio Symbol/ Ebitda Ebitda Prod Ebitda Ebitda/ 10-May Rating (%) (%) NTM NTM mcfe 2004 Short Life Spinnaker Exploration Company SKE Energy Partners Ltd. EPL B PetroKazakhstan Inc. PKZ Newfield Exploration Company NFX The Houston Exploraton Company THX Cimarex Energy Company XEC B St. Mary Land and Exploration Company SM Stone Energy Company SGY Chesapeake Energy Corporation CHK Westport Resources Corporation WRC Western Gas Resources WGR Forest Oil Corporation FST Denbury Resources Inc. DNR Southwestern Energy Company SWN Range Resources Corporation RRC Median Long Life Penn Virginia Corporation PVA Unit Corporation UNT Whiting Petroleum Corporation WLL Magnum Hunter Resources, Inc. MHR Swift Energy Company SFY Encore Acquisition Corp. EAC B Vintage Petroleum, Inc. VPI Berry Petroleum Company BRY B Ultra Petroleum Corp. UPL Quicksilver Resources Inc. KWK Evergreen Resources, Inc. EVG Median Micro Cap Purcell Energy, Ltd. (US$) PEL.TO Abraxas Petroleum Corporation ABP Neither he nor his spouse trade a subject stock within a week before or after a change in rating. 9
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More informationMeter Reader A Weekly Analysis of Large Cap Oil and Gas Stocks May 1, 2012
Royal Dutch Shell (RDS/A) LNG and GTL Profit Gains Meter Reader Symbol RDS-A Ebitda Next Twelve Months ending 3/31/13 (US$mm) 58,500 Rating Buy North American Natural Gas/Ebitda (%) 2 Price (US$/sh) 71.54
More informationKinder Morgan Energy Partners The Game Goes On
McDep Associates Page 1 Kinder Morgan Energy Partners The Game Goes On Rating: Sell S&P 500: 1235 Symbol KMI KMP KMR KMx Rating Sell Sell Sell Price (US$/sh) 89.48 53.79 48.63 Pricing Date 7/20/05 07/20/05
More informationIndustry Idea Analysis of Oil and Gas Stocks September 1, 2015
MRO, DVN, COP, OXY, EOG Resilient Large Cap Independent Producers Present Value by Segment (%) Price North Rest of Dist. (US$/sh) EV/ Enterprise Amer. World Yield Symbol/Rating 31-Aug Market Value Natural
More informationMeter Reader Monthly Analysis of Oil and Gas Stocks June 12, 2018
Positive Charts Summary and Recommendation Meter Reader Fifteen of the twenty-two stocks in our research have price charts with three momentum measures all pointing up. All 15 are in the golden cross pattern
More informationMeter Reader A Weekly Analysis of Large Cap Oil and Gas Stocks January 29, 2013
Improved Crude Oil Price Outlook North American Advantage Summary and Recommendation An uptrend in long-term oil price and reduced geographic differences may benefit oil and gas producers in 2013, including
More informationIndustry Idea Analysis of Oil and Gas Stocks November 22, 2016
Income Payers Sparkle CRT, DMLP, PBT, SBR, SJT Present Value by Segment (%) Price North Rest of Dist. (US$/sh) EV/ Enterprise Amer. World Yield Symbol/Rating 21-Nov Market Value Natural Natural Oil Down-
More informationMeter Reader A Monthly Analysis of Oil and Gas Stocks June 13, 2017
Value Beckoning Meter Reader Price Oil Dist. (US$/sh) Market Enterprise EV/ EV/ PV/ Prod'n/ Yield McDep Symbol/Rating 12-Jun Cap Value Market Ebitda Ebitda PV NTM Ratio 2017 (US$mm) ($mm) Cap NTM NTM (%)
More informationMeter Reader A Weekly Analysis of Large Cap Oil and Gas Stocks February 28, 2012
ConocoPhillips (COP Buy) Shale Oil Growth with Alaska Upside Symbol COP Ebitda Next Twelve Months ending 12/31/12 (US$mm) 28,100 Rating Buy North American Natural Gas/Ebitda (%) 5 Price (US$/sh) 76.43
More informationIndustry Idea Analysis of Oil and Gas Stocks Intraday July 30, 2018
Durable Cash Generators CVX, RDS, SU, XOM Price Oil Dist. (US$/sh) Market Enterprise EV/ EV/ PV/ Prod'n/ Yield McDep Symbol/Rating 30-Jul Cap Value Market Ebitda Ebitda Ebitda NTM Ratio 2018 (US$mm) ($mm)
More informationIndependent Stock Idea Intraday November 2, 2017
Marathon Oil (MRO) Shale Oil Value Symbol MRO Ebitda Next Twelve Months ending 9/30/18 (US$mm) 2,570 Rating Buy North American Natural Gas/Ebitda (%) 8 Price (US$/sh) 14.99 Natural Gas and Oil Production/Ebitda
More informationReentry Point to Buy Natural Gas
Reentry Point to Buy Natural Gas Summary and Recommendation A decline of 71% in the spot price of natural gas is enough to justify renewed buy interest in our best fuel. Our immediate action is to revise
More informationIndustry Idea Analysis of Oil and Gas Stocks September 25, 2017
Cash, Fracking and Inflation CRT, DMLP, PBT, SBR, SJT Price Oil Dist. (US$/sh) Market Enterprise EV/ EV/ PV/ Prod'n/ Yield McDep Symbol/Rating 22-Sep Cap Value Market Ebitda Ebitda PV NTM Ratio 2017 (US$mm)
More informationIndependent Stock Idea February 2, 2018
ConocoPhillips (COP) Raise NPV to $80 on Higher Cash Flow Independent Stock Idea Symbol COP Ebitda Next Twelve Months ending 12/31/18 (US$mm) 14,200 Rating Natural Gas/Ebitda (%) 23 Price (US$/sh) 59.35
More informationMeter Reader A Weekly Analysis of Large Cap Oil and Gas Stocks May 23, 2011
Statoil ASA (STO) Nordic Oil and Gas Stalwart Meter Reader Symbol STO Ebitda Next Twelve Months ending 3/31/12 (US$mm) 30,900 Rating Buy North American Natural Gas/Ebitda (%) 0 Price ($/sh) 24.01 Natural
More informationIndependent Stock Idea Intraday September 4, 2018
Suncor Energy (SU) Oil Value Upside Symbol SU Ebitda Next Twelve Months ending 9/30/19 (US$mm) 12,600 Rating Natural Gas/Ebitda (%) 0 Price (US$/sh) 40.35 Natural Gas and Oil Production/Ebitda (%) 78 Pricing
More informationIndependent Stock Idea May 18, 2017 Intraday
Dorchester Minerals, L.P. (DMLP) Midland Basin Spotlight Symbol DMLP Ebitda Next Twelve Months ending 3/31/18 (US$mm) 40 Rating North American Natural Gas/Ebitda (%) 46 Price (US$/sh) 16.50 Natural Gas
More informationIndependent Stock Idea Intraday March 1, 2018
EOG Resources (EOG) Raise NPV to $130 on Production Independent Stock Idea Symbol EOG Ebitda Next Twelve Months ending 3/31/19 (US$mm) 8,500 Rating Natural Gas/Ebitda (%) 9 Price ($/sh) 100.82 Natural
More informationIndependent Stock Idea Intraday August 8, 2017
San Juan Basin Royalty Trust (SJT) BP Tests Best San Juan Well in 14 Years Independent Stock Idea Symbol SJT Ebitda Next Twelve Months ending 6/30/18 (US$mm) 24 Rating North American Natural Gas/Ebitda
More informationMeter Reader A Weekly Analysis of Large Cap Oil and Gas Stocks March 30, 2010 Lower ConocoPhillips NPV to $95 from $105
Lower ConocoPhillips NPV to $95 from $105 Symbol COP Ebitda Next Twelve Months ending 3/31/11 (US$mm) 25,600 Rating Buy North American Natural Gas/Ebitda (%) 8 Price (US$/sh) 51.15 Natural Gas and Oil
More informationIndependent Stock Idea Intraday August 7, 2018
Dorchester Minerals, L.P. (DMLP) Q2 on Trend Independent Stock Idea Symbol DMLP Ebitda Next Twelve Months ending 6/30/19 (US$mm) 66 Rating Natural Gas/Ebitda (%) 43 Price (US$/sh) 18.45 Natural Gas and
More informationMeter Reader A Weekly Analysis of Large Cap Oil and Gas Stocks July 3, 2012
Gazprom (OGZPY - Contrarian Buy) Dividend Double Approved Symbol OGZPY Ebitda Next Twelve Months ending 6/30/13 (US$mm) 62,000 Rating Contrarian Buy North American Natural Gas/Ebitda (%) 0 Price (US$/sh)
More informationIndustry Idea Analysis of Oil and Gas Stocks December 20, 2017
Top Line Premium and Bottom Line Upside CRT, DMLP, PBT, SBR, SJT Price Oil Dist. (US$/sh) Market Enterprise EV/ EV/ PV/ Prod'n/ Yield McDep Symbol/Rating 19-Dec Cap Value Market Ebitda Ebitda PV NTM Ratio
More informationMeter Reader A Weekly Analysis of Oil and Gas Stocks January 7, 2014
Six-Year Futures in 2014 Oil Up, Natural Gas Up More Summary and Recommendation Meter Reader We call six-year futures of oil to increase to $90 a barrel in 2014 from $82 today and six-year futures for
More informationIndustry Idea Analysis of Oil and Gas Stocks August 20, 2018
Small Independents Strategic Value, Uncertain Price BIREF, CRC, RRC, WLL Price Oil Dist. (US$/sh) Market Enterprise EV/ EV/ PV/ Prod'n/ Yield McDep Symbol/Rating 20-Aug Cap Value Market Ebitda Ebitda Ebitda
More informationMeter Reader Special Mid-Year Ranking of Oil and Gas Stocks July 2, 2018
Outperformance in First Half 2018 Attractive Value, Auspicious Momentum Summary and Recommendation After outperforming in the first half of 2018, oil and gas stocks stay at attractive value with the median
More informationMeter Reader A Weekly Analysis of Energy Stocks Using the McDep Ratio July 23, Let's Contango
Let's Contango Summary and Recommendation An upward sloping futures price curve, known as contango, implies growing profits for natural gas producers. Commodities usually trace a downward sloping futures
More informationMeter Reader A Weekly Analysis of Large Cap Oil and Gas Stocks April 16, 2013
Chevron (CVX) Deflation Resistance Symbol CVX Ebitda Next Twelve Months ending 3/31/14 (US$mm) 50,800 Rating Hold North American Natural Gas/Ebitda (%) 2 Price ($/sh) 116.57 Natural Gas and Oil Production/Ebitda
More informationMeter Reader Special End of Year Analysis of Oil and Gas Stocks December 31, 2018
2018 Final Summary and Recommendation At the end of 2018, oil and gas stocks look attractively priced for future appreciation in 2019 and beyond. We think an overreaction to surprise oil inventory build
More informationMeter Reader A Weekly Analysis of Large Cap Oil and Gas Stocks May 14, 2013
EOG Resources (EOG) Raise NPV to $180 on More Big Wells Symbol EOG Ebitda Next Twelve Months ending 3/31/14 (US$mm) 7,400 Rating Hold North American Natural Gas/Ebitda (%) 12 Price ($/sh) 133.66 Natural
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