HFI Research: Natural Gas Price Forecast - June 29

[dan_s]

Comments below are from HFI Research June 28 at 7PM CT

"We’ve been taking a look at natural gas-weighted E&Ps, with a preference for those that have a meaningful portion of their production in liquids. Our interest stems from our bullish long-term outlook for North American natural gas. For the foreseeable future, the world will consume increasing quantities of gas, and few places in the world possess bountiful natural gas reserves that can be extracted at a lower cost than the U.S. and Canada. As North American natural gas demand increases by 12% with the arrival of LNG export facilities over the next few years, natural gas prices are likely to increase as the marginal cost of extracting such massive volumes ticks higher.

E&Ps with low-cost production weighted toward natural gas will fare well with this bullish macro backdrop. We prefer those that also have meaningful liquids weighting because they possess a built-in financial cushion during those inevitable times when a glutted natural gas market drives prices far below production cost. During those gas market downturns, cash flow from higher-value crude oil and NGLs can significantly reduce the risk of value destruction."

It is extremely important that you know the production mix of each company in your portfolio. I show production mix and hedges at the bottom of each company's forecast model.

My Top Picks for those of you bullish on U.S. natural gas prices:
> EQT Corp. (EQT) is currently the largest producer of natural gas in the U.S. Merger with Equitran Midstream will make it even stronger.
> Antero Resources (AR) + Antero Midstream (AM) that want dividends < Produces a lot of NGLs
> Range Resources (RRC) < Over $450 million of free cash flow this year is locked in. Pays a dividend and has lots of Running Room.

Other Sweet 16 with over 50% of Boepd production from natural gas and NGLs
> Crescent Energy (CRGY) + SilverBow Resources (SBOW): Merger will close soon and the Wall Street Gang will love this company.
> Devon Energy (DVN)
> EOG Resources (EOG) < Largest company that I follow. Nice dividend + incredible Running Room.
> Magnolia Oil & Gas (MGY) is unhedged
> Ovintiv (OVV) with 63% natural gas and NGLs
> Permian Resources (PR)
> SM Energy (SM): last week's stock price dip is a buying opportunity.
> Veren (VRN)
> Vital Energy (VTLE) trades at deepest discount to my valuation.

High Yield Income Portfolio
> Black Stone Minerals (BSM) is an MLP that is heavily weighted to ngas. Very good hedges lock in free cash flow for 2024.
> Kimbell Royalty Partners (KRP) with dividend yield over 11%. < Production mix is 50% natural gas + 16% NGLs
> Coterra Energy (CTRA) is a large-cap gasser with a deep inventory of "Running Room"
> InPlay Oil (IPOOF) is a Canadian Junior upstream company with 40% natural gas + 16% NGLs. Will be getting better prices from a new gas processing agreement in 2H 2024. InPlay should report a nice increase in production from Q1 to Q2.