Note from Stifel - July 19

[dan_s]

Energy & Power - Q221 U.S. E&P and Biofuels Earnings Preview -
by Derrick Whitfield
- In preparation for the upcoming Q221 earnings season, we are updating our commodity estimates to reflect strip prices through 2023, maintaining our long-term WTI and HH price assumptions of $55.00/bbl and $2.75/mcf, and revising our production and capital forecasts to reflect recent discussions with management. In short, we are adjusting 2021/2022 estimates for rig count (-0.3%/0.0%), capex (0.4%/0.1%), and EBITDAX (7.7%/13.6%) and increasing our 12-month price targets (6.6%). We are also outlining the most impactful themes and catalysts for the sector and coverage universe. For Q221 earnings, we believe investors are keenly focused on 2021 E&P capital and operational plans (assessing resolve to remain capital disciplined), the operating/regulatory environment under a Biden presidency and management views on the M&A environment. Lastly, we are highlighting AMTX and DVN as a focus names for the quarter as the stocks screen well on our quantitative (DVN - Buy - $25.78; price-performance vs. cash flow revisions, EV asset test) and thematic (AMTX - Buy, $9.25; ESG) assessments.

Devon Energy (DVN) investment thesis:
We are bullish on DVN as a late-stage transformation story and believe the WPX merger creates further opportunities for value
creation. Quantitatively, DVN screens as one of the five stocks in our Bellwether group that could return 100% of its enterprise value by 2028. Additionally, the
stock screens as best-in-class on our seven variable quantitative analysis tool. DVN offers the best relative value (2.7x 2023 Fwd. EV/DACF versus a peer
average of 4.7x) and the second-best P/NAV upside (pricing 51% of NAV versus a peer average of 58%) at below-average leverage (-0.6x 2023E Fwd. Net
Debt / EBITDA versus a peer average of 0.2x). Qualitatively, the stock offers peer-leading leverage to the Delaware with +400,000 net acres with perhaps the
best pound-for-pound acreage in the basin. We expect the resolution of the federal land overhang and continued execution on the return of capital program
(return up to 50% of excess FCF) to drive relative outperformance.