From Wall Street Journal 1-23-2023
Fed set to slow pace of rate hikes, could deliberate when to pause this spring reports the WSJ
The WSJ's Nick Timiraos noted Fed officials preparing to slow rate hikes to 25 bps next week and could begin debating what they need to see on labor demand, spending and inflation before deciding to pause this spring. Officials unlikely to provide specific guidance, but instead stress data-dependency. On inflation, Chair Powell and other officials have narrowed their focus on labor-intensive services by excluding prices for food, energy, shelter and goods. Compared two scenarios officials considering, one where they will want to see sharper slowdown in hiring if high wages driving services inflation, and another where services inflation might moderate faster if driven largely by lingering effects of global dislocations. Policymaker views mixed with some potentially pushing to delay pause if economy doesn't weaken in coming months while others may argue for earlier pause if impact of rate hikes takes longer to play out or are more potent. Some policymakers suggested they will make a point of not ruling out future rate hikes even if they pause.
Fed Update - Very good news for oil prices
Fed Update - Very good news for oil prices
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Fed Update - Very good news for oil prices
More good news Freeport applied to reopen
Added to NG rally
Added to NG rally
Re: Fed Update - Very good news for oil prices
Trading Economics:
"WTI crude futures were trading around $82 per barrel on Monday closing in on the highest level since November 16th as investors continued to assess the global demand outlook while bracing for further sanctions on Russian oil. Still, trading will likely remain subdued as many Asian markets were offline for the Lunar New Year holidays. Last week, both the IEA and OPEC offered a bullish outlook for 2023, saying that the reopening of the Chinese economy will boost demand. On top of that, the rise in China’s traffic ahead of the Lunar New Year vacation bodes well for fuel consumption. On the supply side, the EU and the G7 nations will cap prices of refined Russian products starting in February, in complement to their price cap on Russian crude in place since December and an EU embargo on imports of Russian oil by sea. At the same time, OPEC+ decided in December to stick with their policy of restricting global supplies by 2 million barrels per day, a move due to run through the end of 2023."
The "Paper Traders" control the day-to-day moves in the oil price, but if the Chinese economy gets back to growth mode and investors can just have less fear of the Fed, investors will have more faith in oil price. That should lead to "multiple expansion"for the upstream companies. All of our upstream companies are still trading at ridiculous low multiples of operating cash flow. They are all going to report strong Q4 results.
I decided to take a more detailed look at AR and CRK today since both of them are virtually unhedged beyond 2022.
Antero Resources (AR) was trading at $30.21 when I posted this.
> Antero's realized natural gas price in 2022, net of cash settlements on their hedges, was approximately $4.70/mcf.
> Their high BTU gas sells at a ~$0.35/mcf premium to Henry Hub prices.
> They have a good marketing team that is able to sell some of their gas at spot prices that are much higher than Henry Hub.
> In 2022, AR generated ~$3.1 billion of operating cash flow ($10.54/share) and free cash flow over $2.1 billion.
> Heading into 2023, AR's balance sheet is in great shape.
> My 2023 forecast is based on an average realized gas price of $4.30/mcf thanks to the high BTU premium and some high spot market prices.
> My 2023 forecast shows operating cash flow of approximately $2.3 billion. Assuming AR has a $1.0 billion capex program, it should generate a lot of FCF.
> They already have an aggressive stock buyback underway and I expect them to start paying dividends this year.
TipRanks: "In the last 3 months, 5 ranked analysts set 12-month price targets for AR. The average price target among the analysts is $52.25. The most recent update was from JP Morgan on 1/11/2023 with a price target of $42.00. Mizuho Securities updated their price target to $51.00 on 1/9/2023.
Comstock Resources (CRK) was trading at $12.97 when this was posted
> CRK is the closest stock we have to a pure gasser in all three of our model portfolios. 99% of their production is dry gas from the Haynesville shale.
> CRK's realized natural gas price (net of cash settlements on their hedges) was $4.60/mcf in 2022
> They generated approximately $1.7 billion of operating cash flow and over $650 million in free cash flow
> Their balance sheet is also in great shape heading into 2023.
> All of their hedges are now collars with $3.00 floors and ceilings over $9.50, so the company is basically unhedged in 2023.
> Like AR, Comstock can also take advantage of some high spot market pricing and they have access to the Gulf Coast LNG export facilities. I don't know if they have been able to get some better prices from the LNG exporters, but I think they may surprise us with some better than expected realized gas prices this year.
> My 2023 forecast, based on realized gas prices of $3.75/mcf, is for CRK to generate over $1.4 billion of operating cash flow this year, which should generate close to $400 million of free cash flow.
> CRK does pay a small dividend and I expect them to fund a stock repurchase program.
TipRanks: "In the last 3 months, 4 ranked analysts set 12-month price targets for CRK. The average price target among the analysts is $18.67. The 4 price target range from $14.00 to $25.00."
AR and CRK both have low cash expenses. They will remain free cash flow positive even if natural gas were to average $3.00 all year.
"WTI crude futures were trading around $82 per barrel on Monday closing in on the highest level since November 16th as investors continued to assess the global demand outlook while bracing for further sanctions on Russian oil. Still, trading will likely remain subdued as many Asian markets were offline for the Lunar New Year holidays. Last week, both the IEA and OPEC offered a bullish outlook for 2023, saying that the reopening of the Chinese economy will boost demand. On top of that, the rise in China’s traffic ahead of the Lunar New Year vacation bodes well for fuel consumption. On the supply side, the EU and the G7 nations will cap prices of refined Russian products starting in February, in complement to their price cap on Russian crude in place since December and an EU embargo on imports of Russian oil by sea. At the same time, OPEC+ decided in December to stick with their policy of restricting global supplies by 2 million barrels per day, a move due to run through the end of 2023."
The "Paper Traders" control the day-to-day moves in the oil price, but if the Chinese economy gets back to growth mode and investors can just have less fear of the Fed, investors will have more faith in oil price. That should lead to "multiple expansion"for the upstream companies. All of our upstream companies are still trading at ridiculous low multiples of operating cash flow. They are all going to report strong Q4 results.
I decided to take a more detailed look at AR and CRK today since both of them are virtually unhedged beyond 2022.
Antero Resources (AR) was trading at $30.21 when I posted this.
> Antero's realized natural gas price in 2022, net of cash settlements on their hedges, was approximately $4.70/mcf.
> Their high BTU gas sells at a ~$0.35/mcf premium to Henry Hub prices.
> They have a good marketing team that is able to sell some of their gas at spot prices that are much higher than Henry Hub.
> In 2022, AR generated ~$3.1 billion of operating cash flow ($10.54/share) and free cash flow over $2.1 billion.
> Heading into 2023, AR's balance sheet is in great shape.
> My 2023 forecast is based on an average realized gas price of $4.30/mcf thanks to the high BTU premium and some high spot market prices.
> My 2023 forecast shows operating cash flow of approximately $2.3 billion. Assuming AR has a $1.0 billion capex program, it should generate a lot of FCF.
> They already have an aggressive stock buyback underway and I expect them to start paying dividends this year.
TipRanks: "In the last 3 months, 5 ranked analysts set 12-month price targets for AR. The average price target among the analysts is $52.25. The most recent update was from JP Morgan on 1/11/2023 with a price target of $42.00. Mizuho Securities updated their price target to $51.00 on 1/9/2023.
Comstock Resources (CRK) was trading at $12.97 when this was posted
> CRK is the closest stock we have to a pure gasser in all three of our model portfolios. 99% of their production is dry gas from the Haynesville shale.
> CRK's realized natural gas price (net of cash settlements on their hedges) was $4.60/mcf in 2022
> They generated approximately $1.7 billion of operating cash flow and over $650 million in free cash flow
> Their balance sheet is also in great shape heading into 2023.
> All of their hedges are now collars with $3.00 floors and ceilings over $9.50, so the company is basically unhedged in 2023.
> Like AR, Comstock can also take advantage of some high spot market pricing and they have access to the Gulf Coast LNG export facilities. I don't know if they have been able to get some better prices from the LNG exporters, but I think they may surprise us with some better than expected realized gas prices this year.
> My 2023 forecast, based on realized gas prices of $3.75/mcf, is for CRK to generate over $1.4 billion of operating cash flow this year, which should generate close to $400 million of free cash flow.
> CRK does pay a small dividend and I expect them to fund a stock repurchase program.
TipRanks: "In the last 3 months, 4 ranked analysts set 12-month price targets for CRK. The average price target among the analysts is $18.67. The 4 price target range from $14.00 to $25.00."
AR and CRK both have low cash expenses. They will remain free cash flow positive even if natural gas were to average $3.00 all year.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group