Note from Raymond James on March 17 afternoon
Posted: Tue Mar 17, 2020 6:05 pm
As detailed in yesterday's Energy Stat, we are cutting our 2020 oil price forecast for the third time in the past three months, and this third cut is the deepest.
> We anticipate that WTI will bottom at a quarterly average of $25/Bbl (the lowest since 1999) in 2Q, followed by a V-shaped bounce to $35 in 3Q and $45 in 4Q, and then a slower recovery to an average of $55 in 2021.
> Most E&P companies can and will survive even this ultra-depressed scenario. Some will not, the difference being largely a function of balance sheets.
As before, however, our company-level estimates are based on the current level of the futures strip: which, needless to say, is horrendous after the past week: worse (for 2H20 and 2021) than even our much-reduced forecast. While we do not believe that the current strip is predictive of how the fundamentals will look in six or 12 months; nonetheless, this is the scenario that is embedded in all of our company models.
However, it should be emphasized again that we view most of these rating changes as a near-term call on oil prices going much lower in 2Q than the current futures strip is indicating. In fact, we think oil has the potential to test the $20/bbl threshold in the upcoming quarter (we hope we're wrong!).
Following the rating changes (six downgrades, two upgrades) that we published a week ago - which, bizarrely enough, already feels like the "good old days"! - we are now making more changes. This time, we are upgrading one stock while downgrading 14 others. To provide a clear picture of how our E&P and integrated ratings currently look, following the exceptionally busy series of recent changes, here is a summary:
Reiterating Strong Buy: KRP, MRO, OXY
Upgrading to Outperform: COG
Reiterating Outperform: BP, BSM, COP, CVX, DVN, EOG, HES
Downgrading to Outperform: CXO, FANG, MNRL, PE, PXD, VNOM, WPX, YPF
Reiterating Market Perform: CLR, EC, LPI, MUR, PBR, SM, QEP, XEC
Downgrading to Market Perform: APA, CRC, KOS, MTDR, NBL
Reiterating Underperform: CHK, CNX, OAS, RRC, SWN, WLL, XOM
Downgrading to Underperform: QEP
> We anticipate that WTI will bottom at a quarterly average of $25/Bbl (the lowest since 1999) in 2Q, followed by a V-shaped bounce to $35 in 3Q and $45 in 4Q, and then a slower recovery to an average of $55 in 2021.
> Most E&P companies can and will survive even this ultra-depressed scenario. Some will not, the difference being largely a function of balance sheets.
As before, however, our company-level estimates are based on the current level of the futures strip: which, needless to say, is horrendous after the past week: worse (for 2H20 and 2021) than even our much-reduced forecast. While we do not believe that the current strip is predictive of how the fundamentals will look in six or 12 months; nonetheless, this is the scenario that is embedded in all of our company models.
However, it should be emphasized again that we view most of these rating changes as a near-term call on oil prices going much lower in 2Q than the current futures strip is indicating. In fact, we think oil has the potential to test the $20/bbl threshold in the upcoming quarter (we hope we're wrong!).
Following the rating changes (six downgrades, two upgrades) that we published a week ago - which, bizarrely enough, already feels like the "good old days"! - we are now making more changes. This time, we are upgrading one stock while downgrading 14 others. To provide a clear picture of how our E&P and integrated ratings currently look, following the exceptionally busy series of recent changes, here is a summary:
Reiterating Strong Buy: KRP, MRO, OXY
Upgrading to Outperform: COG
Reiterating Outperform: BP, BSM, COP, CVX, DVN, EOG, HES
Downgrading to Outperform: CXO, FANG, MNRL, PE, PXD, VNOM, WPX, YPF
Reiterating Market Perform: CLR, EC, LPI, MUR, PBR, SM, QEP, XEC
Downgrading to Market Perform: APA, CRC, KOS, MTDR, NBL
Reiterating Underperform: CHK, CNX, OAS, RRC, SWN, WLL, XOM
Downgrading to Underperform: QEP