发帖
雷达卡
ENERGY E&P SECTOR
Fundamentals Take a Back Seat to Sentiment for Now, but There Are Many Reasons the Basics (the Base Decline, Rig Counts) Still Should Win Out
Highlights
•
The rig count continues to head downward, and we doubt its impact has been felt, particularly in natural gas prices. (See Table 2.) As a reminder, we note that on January 1, 2009 the U.S. rig count stood at 1,623—it has since declined to 1,170, or by 453 rigs. This is a 42% drop from the September 12, 2008 peak of 2,031. We do not believe the supply-capping reality of this has yet been baked into the natural gas price. The 33% year-over-year decline also appears to be the largest in percentage terms in 20 years.
•
OPEC’s credibility in adhering to production quotas appears to have strengthened – Crude seemed to stabilize during February to roughly a $33/bbl to $45/bbl trading range, and at least some of the credit appears to belong to OPEC’s output cuts, although lower than expected production in some non-OPEC regions (for example, Russia, the North Sea) appears to have contributed as well. Later this month, during OPEC’s scheduled March 15 meeting, we will hear whether additional cuts are on the way. Statements made by individual OPEC members to date have been mixed regarding future quotas. However, anecdotes of delays in moving forward with new large-scale projects by OPEC members have also begun to mount.
Natural Gas
•
Natural gas below $4/mmbtu in the past month was not all driven by the macro economy – we have seen the smallest storage draws in years in the producing (central/southern) and western parts of the country. (See Table 1.) Natural gas pricing has indeed been weaker than we expected, but did see some additional pressure from a mild winter in the southern, central and western U.S., beyond the macroeconomic factors. Natural gas storage levels in those regions are over 30% above the 5-year average.
•
After last fall’s dire $25/bbl oil prediction failed to come to pass, now a $2.50/mmbtu natural gas fear appears to be circulating. We are entering the “shoulder months” of seasonal weakness in demand for natural gas, and an argument can always be made at this time of year that a trough lies ahead. But in our view, near-term pessimism for both oil and gas has been more the result of anticipated macroeconomic trouble being priced into near term futures, while on the other hand, the case for the unsustainability of low prices is reflected in the fairly steep contango (upward slope) on the futures curves. (See Table 16 and “Will Natural Gas Go Down to $2.50?” section below.)
•
For the prospects of E&P stocks, the very near term is less relevant, in our view, than is what will happen to the strip, particularly the futures for next winter. (See Table 3.) The December 2009 future is priced at $5.50/mmbtu, the lowest level we have seen for year-ahead winter futures since January 2004. If historical trends going back to the 1990s persist, $2.50/mmbtu natural gas during the shoulder months would imply roughly $2.88/mmbtu for next winter, representing a decline of close to 50% from where the 12/09 future is now.
•
We find it difficult to reconcile some observers’ bearish outlook for natural gas with the fact of the base decline, not to mention the rig count. For an investor to maintain a bearish stance on the sector right now, given its current low levels, would seem to imply the expectation of a worst-case scenario for commodity prices. Seeds of such a stance could be 1) that the investor believes the economy will be considerably worse a year from now than it is today (not merely flat with today), or 2) that the cuts in industry activity will prove ineffective at getting ahead of the slowdown in demand. We see it as unlikely that both conditions will come to pass as 2009 progresses. This is particularly the case, given a U.S. natural gas base decline that we have heard some observers estimate may be as high as 30% per year. As such, we do not foresee the 12-month strip price falling greatly below where we are now ($4.80/mmbtu), and we believe an increase to be more likely as the year goes on.
•
We do not see any signs that suggest that current U.S. natural gas production of approximately 57 bcf/d can be sustained in a $4/mmbtu price environment, which 1) discourages rapid development of new plays, 2) appears to be lower than the marginal cost of finding and producing the average new mcf of natural gas, and 3) delays industry understanding of the nature of the new, aggregate shale-gas decline curve (e.g., Barnett + Woodford + Fayetteville + Haynesville + Marcellus shales), making the outlook for aggregate production in the next few years more uncertain.
Crude and Natural Gas Demand
•
For now, we don’t think the worst case outcome of the current commodity pricing situation is the most likely case. The IEA (International Energy Agency) is now forecasting 2009 global demand of 84.7 mmbbl/d. This figure represents demand shrinkage of 1.2% for the year. Such a decline is not, in our opinion, of a magnitude that meaningfully changes long term fundamental trends or our long term bullishness for crude. What it does do is provide a one-year retrenchment in what we foresee as a multi-year growth curve. The same also applies to the natural gas side, for which the U.S. Department of Energy predicts demand will decline by 1.3% in 2009 and then increase by 0.6% in 2010. Provided these estimates do not show a big further deterioration, neither the crude nor natural gas outlook suggests we are in a bearishly game-changing scenario, in our opinion.
Recommendations and Near-Term Factors
•
Lowering targets on two names. Also as a nod to the difficult near term sentiment for E&P, we are lowering price targets on the two names we cover that we believe have been discounted by the market most irrationally given the low-risk (and long life) nature of their potential reserves. We are lowering our price target on Quicksilver (KWK-$4.35-BUY) to $36 from $45 and on micro-cap Cano Petroleum (CFW-$0.27-BUY) to $5 from $11. These new targets do not assume the stocks will regain their highs, as the targets are one-third and one-half less than those figures for KWK and CFW, respectively. Yet, the targets do still assume substantial upside, our case for which we discuss below. (See “Recommendations Summary” section.)
•
Cost improvements represent a positive shoe that has not entirely dropped. Some E&Ps began to enjoy service cost improvements in November and December of last year, but the bulk of that upside probably will not be felt fully until 2Q09 earnings estimates firm up. Depending on the region and the service or material, some costs appear to be headed for 10%-40% improvements.
•
Our favorites, particularly for the long term: ARD, EAC, CXO for oil, KWK, UPL for gas. While the year-end metrics and the macroeconomic picture will give us all plenty to digest, based on several of our covered companies’ fundamentals and strong property inventories, we continue to particularly like our oil exploitation names such as ARD, EAC and CXO, and our natural gas names that have a history of steadily and aggressively driving down operating costs (and doing so as effectively as the Big 6 independents, in our view), such as KWK and UPL.
304844.pdf
(876.09 KB, 需要: 500 个论坛币)
京公网安备 11010802022788号
