Oil & Gas Price Targets from Credit Suisse - Mar 15
Posted: Tue Mar 15, 2022 9:09 am
Raising 2022-23 and long-term Brent/WTI oil price forecasts. We are raising our
2022 Brent/WTI oil price forecasts ($/Bbl) to $100/$96 (from $75/$72) and raising
2023E to $85/$82 (from $68/$65), as we see tighter S/D fundamentals in the near to
medium term. We are also increasing our long-term (2026+) Brent/WTI price forecasts to
$65/$62 (from $62/$59). We believe Russia’s invasion of Ukraine is a game changer for
global oil markets. Russia is currently the world’s second largest producer of crude (~10.8
MMBbld) and we believe public companies globally will be pulling back capital from Russia,
leading to sharp production declines; buying Russian crude will also become significantly
more challenging. In our view, it is also unlikely US E&Ps respond in a meaningful way
to fill the supply void given logistical/supply chain constraints and pressure to prioritize FCF
and cash returns. Even with a potential Iran deal and additional supply from OPEC+, we
see the global oil market well undersupplied for the foreseeable future. See our more
detailed note outlining changes to our oil price forecasts and latest S/D balances.
Increasing US natural gas price forecasts on tighter S/D fundamentals, more
constructive long-term outlook. We are raising our 2022 US natural gas price forecast
to $4.35/MMBtu (from $3.70) on higher than expected 1Q22 actuals (bid-week Henry
Hub $4.75 vs. CSe $4.00) and more constructive S/D balances, with upward revisions to
our Power sector demand estimates more than offsetting modestly higher supply forecasts
(revised 2022 CSe ~98 Bcfd, ~1.5% above EIA) and leaving the US gas market ~1 Bcfd
undersupplied this year, moderately tighter vs. our prior estimates. We’re raising our
2023/24/25+ forecasts by $0.25/MMBtu (to $3.50/$3.25/$3.00) as we expect
incremental LNG export demand, relatively stable Power sector consumption (which
continues to prove more resilient than expected, even at much higher gas prices) and
incremental supply growth (CSe bottoms-up model ~3% per annum, also above EIA) will
on balance keep the market modestly undersupplied medium-term; over the longer-term,
we see a more constructive environment for US natural gas as it relates to Energy
Transition/Security and incremental 2025+ LNG export demand.
Raising CFPS estimates & target prices. We raised 2022-23E CFPS for our US E&Ps
by ~25% on average, driven by the higher Brent/WTI & US natural gas price forecasts;
overall we raised target prices ~20% (TPs based on blended 2023E EV/DACF, FCF yield
and P/NAV methodology). For the US/Canadian Majors, we raised 2022-23 CFPS
estimates by ~15% on average, and target prices by ~12%. For our US Royalty Minerals
universe, we raised 2022-23E CFPS and target prices by ~24% and ~15%, respectively.
Top stock picks. In E&P, we favor OVV, COP, DVN, PXD & EQT. Within our Integrated
Oils coverage, we prefer CVX, CVE & SU. Top pick of the Royalty Minerals names is KRP.
2022 Brent/WTI oil price forecasts ($/Bbl) to $100/$96 (from $75/$72) and raising
2023E to $85/$82 (from $68/$65), as we see tighter S/D fundamentals in the near to
medium term. We are also increasing our long-term (2026+) Brent/WTI price forecasts to
$65/$62 (from $62/$59). We believe Russia’s invasion of Ukraine is a game changer for
global oil markets. Russia is currently the world’s second largest producer of crude (~10.8
MMBbld) and we believe public companies globally will be pulling back capital from Russia,
leading to sharp production declines; buying Russian crude will also become significantly
more challenging. In our view, it is also unlikely US E&Ps respond in a meaningful way
to fill the supply void given logistical/supply chain constraints and pressure to prioritize FCF
and cash returns. Even with a potential Iran deal and additional supply from OPEC+, we
see the global oil market well undersupplied for the foreseeable future. See our more
detailed note outlining changes to our oil price forecasts and latest S/D balances.
Increasing US natural gas price forecasts on tighter S/D fundamentals, more
constructive long-term outlook. We are raising our 2022 US natural gas price forecast
to $4.35/MMBtu (from $3.70) on higher than expected 1Q22 actuals (bid-week Henry
Hub $4.75 vs. CSe $4.00) and more constructive S/D balances, with upward revisions to
our Power sector demand estimates more than offsetting modestly higher supply forecasts
(revised 2022 CSe ~98 Bcfd, ~1.5% above EIA) and leaving the US gas market ~1 Bcfd
undersupplied this year, moderately tighter vs. our prior estimates. We’re raising our
2023/24/25+ forecasts by $0.25/MMBtu (to $3.50/$3.25/$3.00) as we expect
incremental LNG export demand, relatively stable Power sector consumption (which
continues to prove more resilient than expected, even at much higher gas prices) and
incremental supply growth (CSe bottoms-up model ~3% per annum, also above EIA) will
on balance keep the market modestly undersupplied medium-term; over the longer-term,
we see a more constructive environment for US natural gas as it relates to Energy
Transition/Security and incremental 2025+ LNG export demand.
Raising CFPS estimates & target prices. We raised 2022-23E CFPS for our US E&Ps
by ~25% on average, driven by the higher Brent/WTI & US natural gas price forecasts;
overall we raised target prices ~20% (TPs based on blended 2023E EV/DACF, FCF yield
and P/NAV methodology). For the US/Canadian Majors, we raised 2022-23 CFPS
estimates by ~15% on average, and target prices by ~12%. For our US Royalty Minerals
universe, we raised 2022-23E CFPS and target prices by ~24% and ~15%, respectively.
Top stock picks. In E&P, we favor OVV, COP, DVN, PXD & EQT. Within our Integrated
Oils coverage, we prefer CVX, CVE & SU. Top pick of the Royalty Minerals names is KRP.