Note from Morgan Stanley's research team - Jan 22

[dan_s]

Despite flattish oil prices YTD, E&Ps have declined by 7% & lagged the S&P 500 by 8% so far in 2024.

Looking ahead, 4Q earnings kicks off in the weeks ahead. Oil prices averaged -5% lower q/q, while Henry Hub natural gas was +13% higher. Much of this appears reflected in cons (MSe -2% vs cons). For US E&Ps, we expect much of the focus on 2024 guidance, which most will issue alongside results. We expect a widening capital efficiency divide. Alongside this note, we also mark our estimates to prices near the strip as of 1/5 ($75 WTI for oil and ~$3/$3.70 HH for 24/25). Our refreshed 2024 EBITDA estimates are in-line with consensus for oil E&Ps and -7% for gas.

Our stock picks for 2024 include COP, DVN, FANG & OXY within US E&P and CVE in Canada.