Video on why it is a good time to buy energy stocks: https://www.bnn.ca/video/why-rbc-capita ... ks~1375313
Good comments on why money managers have been so afraid to invest in energy stocks.
RBC Capital advising clients to go long on energy sector
RBC Capital advising clients to go long on energy sector
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: RBC Capital advising clients to go long on energy sector
The "Wall Street Herd" is getting it.
Drew Venker, CFA – Morgan Stanley
April 20, 2018 5:48 AM GMT
Fundamentals for E&Ps and oil are the strongest since the downturn began in 2014, but transient concerns could lead investors to neglect this compelling opportunity.
Top pick: CLR, most likely re-rating: EGN. Most cautious on PE into 1Q. Upgrading WLL to EW.
A compelling opportunity for those who can look past transient issues. E&Ps have lagged oil prices 11% YTD despite sustained capital discipline, FCF generation, debt reduction and return of cash to shareholders. They now trade at 8.4x 2018 EBITDA vs 10.4x a year ago and the 3-year average of 10.3x. This underperformance vs. is partly due to disbelief that current oil prices are sustainable, but a more significant driver has been a general lack of interest in the sector. Nevertheless, fundamentals for E&P and oil are the strongest they have been since the downturn began in 2014, and appear set to strengthen into 2019.
We recommend investors look past concerns about Permian infrastructure and not miss the opportunity to buy high quality E&Ps while sentiment and valuations remain depressed.
Top pick: CLR. We see potential for EGN to re-rate with solid execution and upside to production.
We expect E&Ps to remain committed to pledges of capital discipline despite the significant increase in oil prices YTD.
This should drive multiple expansion and temper cost inflation. Best ways to play: ECA, EGN, XEC, and CLR. Permian infrastructure worries may be overdone, but oil services congestion in the Permian could put execution at risk in 2H18. While we expect Permian oil differentials and takeaway capacity to be the primary focus of the Street throughout earnings (and be problematic at times this year), it will be a transient issue that should be resolved by 2019. Gas differentials are more likely to linger into 2020, because most producers are reluctant to sign long-term capacity agreements that would underpin major takeaway expansions.
Drew Venker, CFA – Morgan Stanley
April 20, 2018 5:48 AM GMT
Fundamentals for E&Ps and oil are the strongest since the downturn began in 2014, but transient concerns could lead investors to neglect this compelling opportunity.
Top pick: CLR, most likely re-rating: EGN. Most cautious on PE into 1Q. Upgrading WLL to EW.
A compelling opportunity for those who can look past transient issues. E&Ps have lagged oil prices 11% YTD despite sustained capital discipline, FCF generation, debt reduction and return of cash to shareholders. They now trade at 8.4x 2018 EBITDA vs 10.4x a year ago and the 3-year average of 10.3x. This underperformance vs. is partly due to disbelief that current oil prices are sustainable, but a more significant driver has been a general lack of interest in the sector. Nevertheless, fundamentals for E&P and oil are the strongest they have been since the downturn began in 2014, and appear set to strengthen into 2019.
We recommend investors look past concerns about Permian infrastructure and not miss the opportunity to buy high quality E&Ps while sentiment and valuations remain depressed.
Top pick: CLR. We see potential for EGN to re-rate with solid execution and upside to production.
We expect E&Ps to remain committed to pledges of capital discipline despite the significant increase in oil prices YTD.
This should drive multiple expansion and temper cost inflation. Best ways to play: ECA, EGN, XEC, and CLR. Permian infrastructure worries may be overdone, but oil services congestion in the Permian could put execution at risk in 2H18. While we expect Permian oil differentials and takeaway capacity to be the primary focus of the Street throughout earnings (and be problematic at times this year), it will be a transient issue that should be resolved by 2019. Gas differentials are more likely to linger into 2020, because most producers are reluctant to sign long-term capacity agreements that would underpin major takeaway expansions.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: RBC Capital advising clients to go long on energy sector
•The severity of the storage draws alongside production disappoints in the "Rodney Dangerfield club" will push oil prices higher. Based on fundamentals alone, we see $85/bbl WTI.
•If market history has taught us anything, it's that the consensus will be late once again to the party.
Read: https://seekingalpha.com/article/416284 ... ng-started
•If market history has taught us anything, it's that the consensus will be late once again to the party.
Read: https://seekingalpha.com/article/416284 ... ng-started
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: RBC Capital advising clients to go long on energy sector
I love this part:
"Again, coming into 2018 - for one reason or another -- we could not understand the logic behind IEA and the sell-side analysts' assumptions for big storage builds in Q1. Every data point we looked at pointed to the opposite direction. If everyone said 1+1 equaled 11, would you believe them or do your own work?"
"Yet, that's how the market analyzed the oil fundamentals for the last 16 months. We still remember the number of articles addressing how OPEC would cheat on the production cut agreement, or how the deal was fake. Yet, the average compliance OPEC's production cut since January 2017 has averaged above 100%. If you can't accept facts, then perhaps you shouldn't be in the business of oil market analysis."
"But now that WTI is at a new multiyear high, and Brent is solidly above $70/bbl, if you think the oil rally is over, you are mistaken. It's just getting started."
-----------------------------
MY TAKE: Because of under-investment in long-term projects outside of the U.S. shale plays, by the end of this summer we will see an under-supplied global oil market. It only takes a small percentage of under-supply to make the oil price go up big. The more data I see, the more it points to a significantly under-supplied oil market heading into 2019. The U.S. shale plays CANNOT MEET GLOBAL DEMAND FOR OIL ON THEIR OWN.
"Again, coming into 2018 - for one reason or another -- we could not understand the logic behind IEA and the sell-side analysts' assumptions for big storage builds in Q1. Every data point we looked at pointed to the opposite direction. If everyone said 1+1 equaled 11, would you believe them or do your own work?"
"Yet, that's how the market analyzed the oil fundamentals for the last 16 months. We still remember the number of articles addressing how OPEC would cheat on the production cut agreement, or how the deal was fake. Yet, the average compliance OPEC's production cut since January 2017 has averaged above 100%. If you can't accept facts, then perhaps you shouldn't be in the business of oil market analysis."
"But now that WTI is at a new multiyear high, and Brent is solidly above $70/bbl, if you think the oil rally is over, you are mistaken. It's just getting started."
-----------------------------
MY TAKE: Because of under-investment in long-term projects outside of the U.S. shale plays, by the end of this summer we will see an under-supplied global oil market. It only takes a small percentage of under-supply to make the oil price go up big. The more data I see, the more it points to a significantly under-supplied oil market heading into 2019. The U.S. shale plays CANNOT MEET GLOBAL DEMAND FOR OIL ON THEIR OWN.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group