Top Gassers - Stifel's update on ngas market Oct 22
Posted: Thu Oct 22, 2020 10:25 am
Stifel published a detailed update on the upstream oil & gas sector this morning. Below is what they have to say about the U.S. natural gas market.
My Top Picks that will benefit from higher natural gas and NGL prices are RRC, CRK EQT, GDP, BSM, XEC and OVV.
----------------------
Stifel's comments:
Natural gas macro outlook becomes more constructive post-COVID-19.
• We forecast a supportive natural gas backdrop in the near-term due to declining associated gas volumes from oil-weighted basins
and rising export volumes from LNG expansions and Mexico pipeline extensions.
• Referencing Figure 19, we estimate an undersupply of 5.2 Bcfpd in 2021 as expected production adds in the Appalachian and
Haynesville trends will be challenged to offset associated gas declines from the oil-weighted basins, leaving resilient domestic and
international demand in a precarious position as U.S. storage exits 2021 at the low end of the five-year range.
• Regarding demand, we expect demand to shrink by 1.7 Bcfpd from 2019 to 2021E, primarily due to a decrease in power generation
and partially offset by increases in export volumes. To balance the market in 2022, we estimate a Henry Hub price of ~$3.60/mcf is
required to fund the incremental activity.
We expect second derivative natural gas plays to benefit from macro tailwinds.
• Based on our increasingly bullish view on natural gas fundamentals as we look toward 2021 and 2022, we expect second derivative
natural gas stocks to outperform peers. In a $3.50/mcf scenario, we estimate non-dry gas names such as BSM, CDEV, CLR, KRP,
PHX, and SM to benefit disproportionally (Figure 5).
• From an asset perspective, we estimated the NPV uplift when using a $3.50/mcf gas price compared to strip prices as shown in
Figure 6. Outside of Appalachia and the Haynesville, select areas within the Eagle Ford and Anadarko basins experience the largest
NPV uplift. Furthermore, when looking at the top 20 plays from an NPV perspective under a $3.50/mcf scenario (Figure 7), the
composition shifts slightly from the Delaware and Williston Basins to Appalachia and the Anadarko Basin.
• Net-net, we expect a more constructive gas macro environment to substantially widen the opportunity set for multi-basin operators.
My Top Picks that will benefit from higher natural gas and NGL prices are RRC, CRK EQT, GDP, BSM, XEC and OVV.
----------------------
Stifel's comments:
Natural gas macro outlook becomes more constructive post-COVID-19.
• We forecast a supportive natural gas backdrop in the near-term due to declining associated gas volumes from oil-weighted basins
and rising export volumes from LNG expansions and Mexico pipeline extensions.
• Referencing Figure 19, we estimate an undersupply of 5.2 Bcfpd in 2021 as expected production adds in the Appalachian and
Haynesville trends will be challenged to offset associated gas declines from the oil-weighted basins, leaving resilient domestic and
international demand in a precarious position as U.S. storage exits 2021 at the low end of the five-year range.
• Regarding demand, we expect demand to shrink by 1.7 Bcfpd from 2019 to 2021E, primarily due to a decrease in power generation
and partially offset by increases in export volumes. To balance the market in 2022, we estimate a Henry Hub price of ~$3.60/mcf is
required to fund the incremental activity.
We expect second derivative natural gas plays to benefit from macro tailwinds.
• Based on our increasingly bullish view on natural gas fundamentals as we look toward 2021 and 2022, we expect second derivative
natural gas stocks to outperform peers. In a $3.50/mcf scenario, we estimate non-dry gas names such as BSM, CDEV, CLR, KRP,
PHX, and SM to benefit disproportionally (Figure 5).
• From an asset perspective, we estimated the NPV uplift when using a $3.50/mcf gas price compared to strip prices as shown in
Figure 6. Outside of Appalachia and the Haynesville, select areas within the Eagle Ford and Anadarko basins experience the largest
NPV uplift. Furthermore, when looking at the top 20 plays from an NPV perspective under a $3.50/mcf scenario (Figure 7), the
composition shifts slightly from the Delaware and Williston Basins to Appalachia and the Anadarko Basin.
• Net-net, we expect a more constructive gas macro environment to substantially widen the opportunity set for multi-basin operators.