Stifel's Take on US oil & gas industry - Nov 23

Stifel's Take on US oil & gas industry - Nov 23

Postby dan_s » Tue Nov 23, 2021 11:05 am

Michael Scialla and Stephen Gengaro are very sharp analysts at Stifel that send me a lot of reports.

Oil & Gas Exploration and Production
3Q E&P Review: Managements Reevaluating Return of Capital Plans - Michael S. Scialla
With the tailwinds of robust oil, natural gas, and NGL prices, the majority of E&P companies reported strong 3Q21 results highlighted by margin expansion, cost containment, and accelerated return of capital to shareholders. Managements continued to exhibit capital discipline, pushed FCF payout levels higher, and advanced ESG initiatives. In spite of this positive backdrop, the Energy sector continues to fight for institutional investor relevance. Our bellwether group's 2022 average dividend yield of 5.5% (more than double the S&P 500 average) has yet to meaningfully attract the attention of value and/or income investors. We suspect this lack of support from new investor types, coupled with valuations that lag the low end of the historical range, have E&P managements contemplating a change to their return of capital strategies. To date, most models have been largely designed to maximize return of FCF in the form of dividends. In our view, share repurchase programs, which were initiated or expanded by 6 of our 8 bellwether companies during 3Q21, are likely to become a more prominent piece of the payout mix if dividends fail to expand the investor base or lead to long-term share price appreciation.

Oilfield Services & Equipment
Sharp Rise in 2022 Profitability for Pressure Pumpers; Recent Weakness Creates Compelling Risk/Reward - Stephen Gengaro
We believe U.S. pressure pumping profitability will rise sharply in 2022 driven by high commodity prices, tightening pressure pumping supply and demand, and improved industry discipline. We expect rising activity and strong net pricing improvement to drive sharply higher EBITDA per fleet in 2022-23, and push share prices 50% higher over the next several quarters.
We believe this is a rising tide scenario, and continue to recommend Liberty (LBRT, $9.29, Buy), NexTier (NEX; $3.51, Buy), and ProPetro (PUMP: $8.04, Buy).
Dan Steffens
Energy Prospectus Group
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