Energy Prospectus

Opening Prices:
> WTI is up 78c to $76.86/Bbl, and Brent is up 82c to $79.80/Bbl.
> Natural gas is up 4.8c to $3.863/MMBtu.

AEGIS Notes
Oil

Oil prices were up about 1% Tuesday morning as OPEC+ holds its January meeting
> The cartel is expected to agree to another output boost for next month, in line with the group’s plan set back in the summer of 2021
> Ratifying a 400 MBbl/d increase for February comes amid concerns that demand could be weakened by flare-ups, including China, the biggest oil importer (BBG)
> OPEC’s Joint Technical Committee, which studies the market for the group, sees a surplus of 1.4 MMBbl/d in 1Q 2022, about a quarter less than it estimated a month ago (Bloomberg)

Venezuela has doubled its oil exports in December from a year earlier, increasing production in defiance of U.S. sanctions
> Exports averaged 619 Mbbl/d in December
> The heavily sanctioned country was able to export more oil with support from Iran, which boosted the supply of a key ingredient that aids the production, according to Bloomberg

Natural Gas

Gas is up by 4.8c this morning, near $3.863
> Overnight weather models were encouraging, snapping the consecutive streak of bearish forecasts. The 6 – 14-day range accounted for most of the gained gas-weighted HDDs, with the January total increasing by 11 to 944.7 HDDs
> The U.S. lower-48 region is still on track for its coldest week (week ending Jan 7) of the heating season so far, with an average temperature of 40.5 °F.
> The next two weeks are supposed to be even colder at 40 °F (week ending Jan 14), and 39.4 °F (week ending Jan 21)
> Lower-48 dry gas production is still struggling to return as freeze-offs have likely kept the production offline. Production was at 93 Bcf/d yesterday, nearly 3 Bcf/d removed from the prior week’s level of 96 Bcf/d
> Appalachian production fell below 34 Bcf/d for its first time since mid-November. Canadian imports have helped offset some of the declines, as they increased by nearly 3 Bcf/d week-over-week

New York natural gas prices jump five-fold from Thursday
> A winter storm slamming the East Coast is driving up demand for natural gas and causing New York City natural gas prices to surge
> An unusually mild December has bred a sense of complacency with regards to cold weather, and the dropping temperatures are causing a scramble to secure supplies
> AR, EQT, CTRA and RRC all have excellent marketing groups that can sell some of their gas at inflated spot market prices. Sub-freezing temps and lots of snow will continue to cause well freeze-offs in January.

Crude is making a push to 80.

The curve is flattening out and producers that desire to hedge can book a price north of 76 thru Sept. This going to generate oodles of FCF for low hedgers like CLR, MRO others

Note from Stifel 1-4-2022

"The combination of rising oil demand and underinvestment in supply will likely underpin strong oil prices in 2022, setting the stage for rising global upstream activity. This should support sharply higher oil service profitability, including an average year-over-year EBITDA increase for the three large cap names of 30%. While ESG initiatives, decarbonization, and uncertainty around long-term oil demand are headwinds, we do envision solid upside for several names in our universe. On the large cap side, we favor Baker Hughes, in midcap world ChampionX and Cactus, and among U.S. pressure pumpers we lean toward NexTier. We also believe small-cap value investors should own TETRA, which has made solid progress with its low-carbon initiatives."

Higher D&C activity should benefit Solaris Oilfield Infrastructure (SOI), which is in our Small-Cap Growth Portfolio. My valuation is $12.00 and the company pays a nice dividend.

NexTier Oilfield Solutions, Inc. (NEX, $3.87, Buy; Target $7.00)
NEX Provides 4Q21 EBITDA Guidance 25% Above Consensus; Clearly a Positive - Stephen Gengaro at Stifel
NEX provided a 4Q21 operational update including $500-510 million in revenue and $75-80 million in EBITDA (including $18 million from asset sales). Excluding the gains, the midpoint of EBITDA guidance of $59.5 million exceeds our above-consensus estimate by 11% and is 25% north of the consensus. Rising activity and the impact of NEX's integrated model helped bolster results, and management indicated "market indicators suggest that the pace of market recovery is increasing and frac service supply is rapidly tightening." This supports our views, and we believe is positive for NEX, as well as pressure pumping peers including Liberty (LBRT: $10.65, Buy) and ProPetro (PUMP: $8.69, Buy).