Natural Gas "Super Spike" possible this winter - Oct 3
Posted: Mon Oct 03, 2022 11:08 am
Notes below are from Neal Dingmann at Truist Financial (a very sharp energy sector analyst).
Southwestern Energy Company (SWN)
Top Positioned E&P for Continued Strong Gas Prices; Increasing PT To $11 From $7, Upgrading To Buy
We believe Southwestern has ample takeaway capacity, positive upcoming financials, and
efficient operations that will all take advantage of the continued strong natural gas prices
we forecast. Specifically, we believe dry gas prices have the potential for a “super-spike”
this winter and next year as upticks in demand may be met with limited incremental supply,
causing prices to spike to what the market will dictate in certain regions. We are surprised the
shares have only appreciated the same as our coverage group YTD despite ample catalysts,
which we believe provides an opportune entry point.
If Oil Prices Have You Worried, Better To Be Dry Than Wet
While a potential recession has been commanding the macro environment over the past few
weeks and could continue to do so for several more week/months, we note the relationship
between oil and NGLs remains much stronger than that of natural gas. As a result, we believe
operators in the dry gas Haynesville could be somewhat more insulated than the liquids rich
northeastern names. We model SWN with only a 12% liquids cuts in FY23 and expect the
Haynesville to command more capital going forward, firmly placing Southwestern in the dry
gas category in investors’ screens. < VERY BULLISH for Comstock Resources (CRK), which is 99% dry gas with lots of running room in the Haynesville.
While the industry typically is not discriminatory based on
liquids cuts or hedging profiles, some liquids gas operators stocks and various other overall
liquids levered stocks have underperformed in recent weeks and could continue for a bit
longer. Further, we think the potentially stronger cash flows for dry gas names especially
those like SWN that have low priced hedges rolling off in an oil pullback could allow the gassy
players to ramp share buybacks or increase relative payouts, leading to outperformance in
the stocks.
CRK's hedges after December, 2022 are collars with very high ceilings.
Southwestern Energy Company (SWN)
Top Positioned E&P for Continued Strong Gas Prices; Increasing PT To $11 From $7, Upgrading To Buy
We believe Southwestern has ample takeaway capacity, positive upcoming financials, and
efficient operations that will all take advantage of the continued strong natural gas prices
we forecast. Specifically, we believe dry gas prices have the potential for a “super-spike”
this winter and next year as upticks in demand may be met with limited incremental supply,
causing prices to spike to what the market will dictate in certain regions. We are surprised the
shares have only appreciated the same as our coverage group YTD despite ample catalysts,
which we believe provides an opportune entry point.
If Oil Prices Have You Worried, Better To Be Dry Than Wet
While a potential recession has been commanding the macro environment over the past few
weeks and could continue to do so for several more week/months, we note the relationship
between oil and NGLs remains much stronger than that of natural gas. As a result, we believe
operators in the dry gas Haynesville could be somewhat more insulated than the liquids rich
northeastern names. We model SWN with only a 12% liquids cuts in FY23 and expect the
Haynesville to command more capital going forward, firmly placing Southwestern in the dry
gas category in investors’ screens. < VERY BULLISH for Comstock Resources (CRK), which is 99% dry gas with lots of running room in the Haynesville.
While the industry typically is not discriminatory based on
liquids cuts or hedging profiles, some liquids gas operators stocks and various other overall
liquids levered stocks have underperformed in recent weeks and could continue for a bit
longer. Further, we think the potentially stronger cash flows for dry gas names especially
those like SWN that have low priced hedges rolling off in an oil pullback could allow the gassy
players to ramp share buybacks or increase relative payouts, leading to outperformance in
the stocks.
CRK's hedges after December, 2022 are collars with very high ceilings.