发帖
雷达卡
ARE NATURAL GAS PRODUCERS IN DENIAL?
Lowering our commodity price assumptions – Could still get lower
Since our last industry update in mid-December 2008, the global economies have
continued to weaken. As a quick recovery does not appear to be in the cards, we are
lowering our price assumptions to reflect the economic reality. For 2009, we project an oil
price of $45.00/bbl (WTI) and a natural gas price of $5.00/mmbtu (Henry Hub). For 2010,
we expect prices to recover with oil at $60.00/bbl (WTI) and natural gas at $6.00/mmbtu
(Henry Hub). As a consequence of these revisions, we are reducing our earnings
projections and price targets across the board. We believe there could be further downside
to these estimates based on the current US natural gas glut. In our view, production is still
growing, demand is soft and there is a distinct threat that “homeless” LNG cargos are
heading to the US this summer. We expect gas storage numbers to show weak year-overyear
comparisons starting in March, with no relief in sight for 2009.
The industry will continue to cut spending as this harsh reality is internalized
Within the E&P space, most producers have already announced a few rounds of capex and
production cuts for 2009. The number one concern among producers is liquidity. The
current sentiment in the oil patch is that this downturn will be worse than any of the other
ones in previous cycles over the last 20 years. Despite this sentiment, we are still seeing
guidance for positive natural gas production growth for 2009 in recent earnings updates.
Are producers in denial? In part, producers are still generating cash based on the money
hedges that were put in place during 2008. Others are drilling to secure new leases. In our
view, the US gas market will not establish equilibrium until 2010. We expect more negative
revisions to production guidance in the upcoming months.
Valuation looking more compelling – stick with strongest balance sheets
We continue to brace for a prolonged period of economic dislocation. Under our current
commodity price assumptions, most companies under coverage are barely breaking even
on an unhedged basis. In some cases, $45/bbl oil and $5.00/mmbtu gas will likely result in
negative cash flow for a prolonged period for some producers, thus stressing their balance
sheets. We are downgrading Cano Petroleum to HOLD from Buy and Warren Resources to
SELL from Buy largely due to margin compression and related balance sheet stress. We
would invest in companies with the leanest cost structures and strongest balance sheets.
On the oily side, we favor Concho Resources and Arena Resources, both oily Permian
producers. On the gassy side, we favor EOG Resources and Approach Resources.
京公网安备 11010802022788号
