Sweet 16 Breakeven prices are very low

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dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Sweet 16 Breakeven prices are very low

Post by dan_s »

Note from Neal Dingmann at Truist Financial
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Energy: Breakeven Prices Suggest Some E&Ps 2023 FCF/Shareholder Returns Could Be Limited

We have spoken to several E&Ps who suggest they will lean into buybacks given
their stock price has fallen >20% YTD; resulting in what they believe to be materially
undervalued equity value. However, some E&Ps will be limited on what they can
repurchase given their 2023 FCF could be moderate given their breakeven prices and
the potential for continued, relatively low commodity prices. We calculated breakeven
prices based on four scenarios: hedged/unhedged with current tax rate/20% flat cash
tax rate with only ~25% of oily E&Ps having a breakeven prices below $40.

We calculate NOG (Buy), COP (Buy), and FANG (Buy) have the lowest breakeven
prices based on current tax rates with existing hedges.

Most E&Ps Still Materially Profitable
While all our E&Ps still generate positive FCF at current strip prices, several companies'
2023 FCF could be moderate if oil and natural gas prices remain near current levels the
remainder of the year. So while there is little change to all operators percent shareholder
return payout, the total payout could be limited.
• FANG - lowest breakeven of any operating shale only company
• NOG - lowest breakeven of any E&P aided by its non-op nature, hedges, and limited
taxes
• COP - lowest breakeven of any operating E&P aided by their notably low decline rate

Most E&Ps Remain Bullish
While a couple natural gas companies have decreased activity due to lower commodity
prices, most oily E&Ps operations remain status quo. Further, despite likely lower
current/near-term FCF than prior few quarters, no operator has yet to suggest a notable
change to its shareholder returns other than beginning to favor more stock buybacks
over variable dividends. We believe a big driver of the unchanged return plans is the
limited leverage by many E&Ps, thus enabling a material amount of FCF to continue to
go to investors versus having to repay debt. However, we will continue to watch closely
if commodity prices fall from here to see if any operator decides to begin preserving
more FCF.

E&P Returns Track Oil Return
Our average E&P price has fallen 16% YTD versus the price of oil down 17% for the
same period. However, the group has held up slightly better than oil the past three years
with the group down 39% on average from their highs the past three years versus the
current price of oil down 49% from its three year high. What is notable YTD is the
dichotomy of the group with some E&Ps still having positive stock returns while other
E&Ps are down >30%. This is different than last year when the group moved more in lock
step with nearly all operators' stock prices benefiting as commodity prices increased.
Dan Steffens
Energy Prospectus Group
Fraser921
Posts: 2955
Joined: Mon Mar 22, 2021 11:48 am

Re: Sweet 16 Breakeven prices are very low

Post by Fraser921 »

I don't want to break even!
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