This week's consensus storage estimate is a +93Bcf injection, compared to a +54Bcf injection in 2016 and the 5-year average of a +72Bcf injection. At the consensus estimate, this week’s storage would be ~63Bcf above the 5-year average, and given the low/high range of injections for the next three weeks (based on 10-year average injections), total storage should stand between (~59)Bcf below and ~120Bcf above the 5-year average by the end of September.
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Activism is on the rise in the E&P sector as investors focus on ways to unlock value against the backdrop of a flat commodity price environment and poor YTD stock performance. Despite overall improving well productivity from Gen 3 completions, two increases to FY17 production guidance, reduced LOE guidance, and adding acreage at or below ~$20k/acre, Peer Perform-rated EGN is one of the producers being targeted by activists. We caught up with both sides of the debate this week to discuss the timeline for the current court proceedings before the film starts rolling on what may turn into My Cousin Vinny Part Two.
We are upgrading SWN from Underperform to Peer Perform and increasing our PT to $7/sh from $6/sh. Our upgrade is based on 1) valuation on multiple fronts doesn’t justify our prior rating and 2) there is an increasing probability that SWN may look to divest the Fayetteville position. Both now support a Peer Perform rating in our view, though it’s the latter, at least the threat of it in an environment of increasing activism, that provides enough reason not to be Underperform. To be clear, this is not a positive natural gas price call. Our flat price outlook of $3/mmbtu remains unchanged, but we are being cognizant that the forward curve continues to hold around this level with winter heating season looming around the corner. The downside risk to our PP rating would be no action coming out of the Fayetteville.
This week's consensus storage estimate is an +80Bcf injection, compared to a +57Bcf injection in 2016 and the 5-year average of a +64Bcf injection. At the consensus estimate, this week’s storage would be ~32Bcf above the 5-year average, and given the low/high range of injections for the next three weeks (based on 10-year average injections), total storage should stand between (~81)Bcf below and ~117Bcf above the 5-year avg. by the middle of September.
E&Ps at heart are growth oriented and investors have been rewarding this for a long time, but change is in the air with mounting pressure to focus more on returns and generating positive free cash flow (WR estimates outspends of ~35%/~15% in 2017/18). Investors essentially want what the companies could look like in 2020, today. This got us wondering, what would the E&Ps look like if they went into maintenance capex mode in 2018? Would they generate positive free cash flow, which producers would stand out, and would E&Ps look attractive relative to other sectors? Our cut says 1) At $50/$3 pricing our coverage generates a positive 3% FCF yield at maintenance level spending while $40/$2.50 would be sector cash flow breakeven only when including hedges, 2) ECA, CLR, CXO, FANG, RSPP, COG look the best at $50/$3, and 3) the ~3% FCF yield would still be the lowest amongst market sectors, suggesting that in order for E&Ps to be more attractive, say vs. ~5% FCF yield Tech and Healthcare offer, crude oil would need to be $55-60/bbl, a small ask just to get the conversation going.
This morning,9/6/17, we had the opportunity to catch up with Rick Muncrief (CEO), Kevin Vann (CFO), and David Sullivan (IR) at WPX Energy, and while the breakfast selection was less than desirable, the conversation and path WPX is on reinforced our positive outlook on the equity. While the industry is facing challenges both internally and externally, the strategy at WPX remains simple – continue to execute. The story of WPX isn’t dissimilar from others that are making the switch from a natural gas past to a crude oil future, but WPX’s execution of the transition has been better than most and they continue to chip away at investor concerns surrounding growth targets and leverage. Both were focal points of our discussion, and we left with more confidence in the outlook. Details within.
This week's consensus storage estimate is a +49Bcf injection, compared to a +39Bcf injection in 2016 and the 5-year average of a +58Bcf injection. At the consensus estimate, this week’s storage would be in line with the 5-year average, and given the low/high range of injections for the next three weeks (based on 10-year average injections), total storage should stand between (~85)Bcf below and ~122Bcf above the 5-year avg. by mid-September.
While the flip of the calendar from August to September signals the end of summer, it also starts one of the best parts of the year. The sports calendar gets good again (new optimism can come even to us Knicks fans) and while the oppressive city summer weather cools off, the energy conference season heats up. This includes the inaugural Wolfe Research Oil & Gas Leaders conference on September 28th in NYC that will focus on key sector themes in the form of panels and fireside chats with many leading producers and service providers. Below we outline some key themes we believe will be in focus over the coming weeks along with questions for our coverage within. We look forward to seeing many of you in NYC later this month.
This week's consensus storage estimate is a +25Bcf injection, compared to a +46Bcf injection in 2016 and versus the 5-year average of a +65Bcf injection. At the consensus estimate, this week’s storage would be ~91Bcf above the 5-year average, and given the low/high range of injections for the next three weeks (based on 10-year average injections), total storage should stand between (~45)Bcf below and ~195Bcf above the 5-year avg. by September.
Wolfe Research's Senior E&P analyst, Josh Silverstein, hosted a webcast examining E&Ps with the insight of Wolfe Research Technical Analyst Rob Ginsberg.
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