Energy Prospectus

Note received this morning from Goldman Sachs Equity Research shows all three of their Top Picks for 2021 are among the "Elite Eight" in the Sweet-16.

Goldman Sachs thinks the rest of the Wall Street Gang is undervaluing upstream oil and gas companies: "We now see valuations of E&P stocks reflecting WTI oil prices of ~$60/bbl vs. our mid-cycle price of $66/bbl WTI." < Note below that GS now forecasts oil prices will move to the $80 to $85/bbl range in 2022 and 2023.

As highlighted by Damien Courvalin and our other Commodities Research
colleagues, we recently raised our 2022-2024 Brent price forecasts from
$75/$65/$65 per bbl to $81/$85/$70 per bbl to reflect expectations for reduced
OPEC spare capacity as global demand recovers, likely structural cost inflation
across the oil curve and a higher oil price required for US producers to grow given
the higher hurdle rates the investment community is demanding for reinvestment. In
this note, we look at the implications for US E&Ps, where we have had a bullish
view on the group over the last year. Our top through the cycle Buy ideas (on a
combination of valuation, capital returns and asset quality) among US independents
remain: PXD (on the Conviction List), DVN and FANG. That said, for investors with a
long-term constructive view, we also see significant total return upside to HES and
OXY (also Buy), where we believe the asset quality and deleveraging potential,
respectively, are underappreciated by the market.

Also note that GS has increased their Brent Oil price forecast for 2022 from $75/bbl to $81/bbl and 2023 from $65/bbl to $85/bbl. Those oil prices will SIGNIFICANTLY INCREASE ALL OF MY SWEET 16 VALUATION.

GS also likes EQT. It should be noted that GS leans toward very large companies for its Top Picks.

"As noted by Samantha Dart and our
other Commodities Research colleagues, we see potential for favorable tail risk to gas
prices if weather is colder than expected during winter of 2021/2022. However, we
remain on the sidelines following ~60% outperformance for less-hedged gas producers
(COG, CRK, RRC and AR) since mid-August. Among gas stocks, we prefer EQT — while
we acknowledge EQT is less exposed to current favorable gas futures and faces a
potential equity overhang from selling shareholders post the Alta deal, we continue to
see potential for shares to outperform over the next year as hedges roll-off, the balance
sheet improves and the path for capital returns becomes more visible."

GS comment on Ovintiv (OVV), which is definitely one of my Top Picks for the next six months because I think their balance sheet will be in great shape compared to what it was at the end of 2020 and they have a production mix that looks better with each passing day.

"Higher commodity price environment can allow for select producers (including
OVV and OXY) to narrow the valuation gap compared to peers. We see potential for
producers (OXY, OVV) that trade at a discount to peers on FCF yield to market cap to
close the gap relative to peers by repairing the balance sheet and, in the case of OVV, by
repurchasing shares. We are also positive on the NGL exposure of OVV, where we are
positive on the outlook for propane, in particular."

Ovintiv production in 2021 will be approximately 542,500 Boepd with a mix of:
> 26.7% crude oil
> 9.2% plant condensate that gets a realized price premium to their crude oil of ~$3/bbl
> 48.4% natural gas
> 15.7% NGLs < Which I now expect to be sold at a much higher realized price than what I used in my forecast for Q4 ($25/bbl) and 2022 ($23/bbl).

If you find this interesting read our updated profile on OVV, which you can find under the Sweet 16 tab on the EPG website.

Smaller companies that GS is recommending:

Magnolia Oil & Gas (MGY)
PDC Energy (PDCE)

"We believe there is a room for small cap ideas in the Energy portfolio, as well.
Among E&Ps, we highlight MGY, which has low-cost undeveloped inventory in the
Karnes/Giddings area (South Texas) and attractive capital returns in the form of dividends
and share repurchases. We are also positive on PDCE — although we recognize in the
near-term shares may be volatile until investors gain confidence in production and capital
spending execution. We also note that PDCE has more limited undeveloped inventory
following up-spacing in Delaware Basin and believe investors will look for confidence in
PDCE’s ability to acquire permits in Colorado and through low-cost bolt-ons/acquisitions.