B of A Top Picks in our Sweet 16 - August 27

[dan_s]

Bullet points below are from BofA's summary of their Virtual Energy Summit Day 1 (August 27, 2020)

> Last week in our top 2H20 ideas report, we highlighted Ovintiv (OVV) as our leading beta idea with more room to run, given greater confidence in the company’s “stay-flat” capex scenario. Our fireside chat with CEO Doug Suttles reinforced our positive view based on 1) improving capital efficiency (under-appreciated), 2) natural gas torque and 3) benefits from significant cost cuts.

> Our call with Matador Resources (MTDR) management (Matt Hairford, President & David Lancaster, EVP/CFO) reinforced a line of sight to positive FCF anchored by stellar
recent well results (under-appreciated) along with solid capital efficiency momentum.

> Devon Energy (DVN) and Pioneer Natural Resources (PXD) are leading the charge with their respective investment cases defined by specific growth targets moderated from any prior period, with the cost base being right sized to reaffirm that these changes are permanent. Critically, this is being accompanied by the necessary disclosure to allow the market a transparent assessment of value, based on discounted cash flow that can be readily compared with the broader market.
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MY TAKE: A high percentage of the upstream companies are saying what Wall Street wants to hear: (a) they are committed to live within cash flow from operations, (b) know that investors want FCF that turns into dividend payments and (c) companies that outspend cash flow will be trashed by the Wall Street Gang. This means that there is not going to be a significant increase in drilling activity this year NO MATTER WHAT OIL & GAS PRICES DO. So, U.S. oil production will stay on steady decline.