RBC Capital Markets - Upstream Valuations

[dan_s]

RBC Capital Markets (9-26-2019) says that the upstream oil & gas companies that they follow are trading as if WTI will average $46.50/bbl and HH gas will average $1.90/mcf in 2020
RBC forecast is that that WTI will average $62/bbl and HH gas will average $2.63/mcf in 2020. < This compares to my forecast assumptions of $60 WTI and $2.40 HH.

RBC note below:

"Round Trip: Since the announcement of the attack on Saudi Arabia oil prices have retraced 10% and is now roughly flat with prices prior to the attack. Likewise, E&P equities also made a round trip with current stock prices flat to levels prior to the strike. Conflicting headlines have left investors wondering the future direction of the market and have also raised questions on the future of a geopolitical risk premium as discussed by our commodities team here. Over the past two weeks we met with investors on “both sides of the pond” and note sentiment felt less positive overseas. Investors continue to grapple with the long-term value in energy and the premium on yields needed to compensate for industry cyclicality. In the U.S. this week we hosted meetings with Matador Resources (MTDR) management. Our discussions centered around the positive rate of change that is occurring with capital efficiency and the value its midstream asset provide. We came out of the meetings incrementally positive regarding improving capital efficiencies, FCF outlook, and organic growth."

Below are RBC's net asset valuations ("NAV") based on 9/26/2019 NYMEX strip prices for the Sweet 16 companies that they cover
CLR = $73
CXO = $151
EOG = $133
FANG = $212
PXD = $220
MTDR = $40
OAS = $19
PE = $39
RRC = $30

NAV = (PV10 of P1 reserves + working capital - LT debt) / share count