Note from Raymond James - Nov 22

Note from Raymond James - Nov 22

Postby dan_s » Mon Nov 22, 2021 11:38 am

We’ve almost closed the books on 2021 and as we prepare to welcome in a new year, many of us here at RJ are already thinking about our New Year’s resolution. In similar fashion, our E&P coverage universe also has a New Year’s resolution — reduce hedged volumes (or unnecessary weight, if you will) to generate record cash flow!

Despite the recent pullback in both commodities (oil and gas), they are still hovering at multi-year highs and there is arguably no better time than the present to leave behind the burden of out of the money hedges. In fact, much of our coverage is already well on their way with oil hedges as a percentage of total volume down by nearly 50% for 2022 when compared to 2021, giving our coverage greater exposure to this bullish commodity backdrop.

In our most recent hedging update, we noted several themes emerging as E&Ps began to lock in 2022 hedges. Now that the vast majority of FY22 hedges are in place, we take an in depth look into next year’s hedges versus those of FY21, starting with oil hedges:

* 2022 oil hedges down by nearly half versus 2021 levels
* Oil backwardation discouraging further hedging; many operators burned by bad hedges in 2021
* Only 6 of our companies have greater than 50% of 2022 oil volumes hedged; majority at or below 30%
* Only 1 large-cap (HES) with over 50% of 2022 oil hedged; only one other even above ~30% (EOG)
* Same names letting it ride: APA, AR, CLR, COP, MNRL, and OXY are unhedged on oil, pretty similar to where they stood in 2021

If you'd like to see the full report on hedges from RJ Energy Sector Team send me an email: dmsteffens@comcast.net
Dan Steffens
Energy Prospectus Group
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