My Job

[dan_s]

I get 30 to 50 analysts reports PER DAY. I can't possibly read them all, but I do scan them for energy sector news, especially updates on our model portfolio companies.

Today I got 36 fresh company updates just from the BofA Global Equity Research Team.

Just in the last two months, there has been a significant improvement in the Wall Street Gang's outlook for commodities in general and specifically upstream oil & gas companies. I think the head of Goldman Sachs commodity research's recent prediction of $65/bbl Brent by year-end 2021 gave the entire Wall Street Herd permission to rotate lots of money into energy stocks. As of today, all of the Sweet 16 stocks are up 16% to 33% since January 1st. I have been doing this for 20 years and I can't remember a year starting off anything close to this good. Of course the Sweet 16 was extremely oversold based on any reasonable method of evaluation. If Brent does go to $65/bbl all of the Sweet 16 companies should double from where they are trading today.

Read what TPH said about natural gas and NGL prices today. We are one good cold spell from much higher gas prices.

Raymond James outlook for natural gas:
"We were less optimistic on U.S. natural gas prices compared to crude oil (RJ forecasts $70/bbl WTI in twelve months)- this is but one of many arenas in which the world looks vastly different a year later. While we are actually adjusting our Henry Hub price forecast $0.25/MMBtu lower (or ~7%) relative to our prior gas market update in October 2020 (reflecting severely disappointing winter 2020 weather/demand), we remain confident in a bullish trajectory for U.S. natural gas fundamentals. The short story is this: U.S. natural gas production and U.S. LNG exports have experienced strong and largely offsetting recoveries since October, but mild weather has kept U.S. inventories from normalizing as much as we previously expected.

We now think it will take a Henry Hub price of $3.25 to balance the U.S. market vs. our earlier forecast for $3.50.

The most impactful update to the U.S. gas market over the past year has been the reset in our U.S. associated gas production growth forecast. After fueling over 75% of total dry-gas volume growth since the end of 2017, associated gas production from oil-plays (Bakken, Eagle Ford, Midcon, Niobrara, and Permian) is set to lead the declines in 2021 (representing ~2/3 of estimated supply reduction). The drop-off in D&C activity due to the COVID-19 pandemic (e.g., oil basin rig count falling from 580 at YE19 to under 160 for July-September) will be felt hardest in 2021 (see oil supply outlook on page four). Also helping to keep gas volumes at bay is a commitment to "maintenance mode" by substantially all the Appalachian operators in 2021 (not a single one in our coverage has targeted growth) - this decision jives with our longstanding theme of capital discipline and returns for E&Ps. Due to the combination of these two factors, we have U.S dry gas volumes declining 3.4 Bcf/d in 2021 (Nov-Nov. gas year) which points to a much tighter gas market this year.

On the demand side, in the context of the aforementioned process of energy transition, it is necessary to look at the electric power sector through both a short-term and a long-term lens. Short term, price-induced fuel-switching in power plants from more expensive gas towards coal will act to largely offset tightness resulting from other demand drivers. These include: 1) the ongoing recovery and ramp in U.S. LNG exports, which we model up ~2 Bcf/d Y/Y in 2021; 2) growth in U.S. pipeline exports into Mexico; 3) additional tightness in the U.S. industrial gas demand, which we model ~0.5 Bcf/d Y/Y in 2021; and 4) a slight recovery in what we refer to as "base power" demand. Also worth noting: incremental wind and solar generation loosen our model by more than 1 Bcf/d Y/Y in 2021.

Send me an email if you'd like to read RJ's full report. dmsteffens@comcast.net

[dan_s]

New report from Goldman Sachs today: "Fast Forwarding to a Tight Oil Market"