Upgrades from Seaport Global
Posted: Wed Mar 30, 2016 11:22 am
It’s been a wild ride for the E&P space thus far in FY16; inventory concerns drove oil prices down to $26/bbl, which was followed by the biggest short squeeze seen over the last 10 years as oil cleared $40/bbl only one month later on hopes that a coordinated OPEC-led production freeze might make a meaningful dent in supply. We think the volatility has driven investor paralysis to a record high, with many questioning whether fundamental analysis even matters in this market, or if it’s time to ditch their beloved Permian winners. Of course fundamentals matter, and to that end, a key aspect of this report takes a hard look at what FY17 could look like for 50 of our covered names. We think the results are telling and we’re comfortable advocating for increased exposure to some names with slightly more hair on them, which should protect investors in the event of a move back toward $50/bbl. Our relative rankings on the next page show a number of newcomers to the Top-10 list (Continental Resources, Callon Petroleum, Marathon Oil, Oasis Petroleum, Gastar Exploration (GST)), which we think are positioned well vs. expectations. We also advocate getting as much leverage to the [Sooner Trend Anadarko Basin Canadian and Kingfisher Counties, or STACK,] play as possible, and in this regard Continental Resources and Newfield Exploration have taken the pole position away from Permian family members Parsley Energy (PE) and Pioneer Natural Resources (PXD) in this quarter’s ranking.
I agree 100% that all of us should add more exposure to SCOOP & STACK. I track closely the four largest companies active in these two plays (CLR, NFX, DVN and XEC). Well results have gone from GOOD, to GREAT, to FANTASTIC. Get to know is going on in Central Oklahoma by reading our profiles on each of these Sweet 16 companies.
In all, Seaport Global upgraded seven companies to Buy–Continental Resources, Callon Petroleum, Marathon Oil, OAS, Rice Energy (RICE), Petroquest Energy (PQ), and Lonestar Resources (LNREF)–while downgrading 11 others, including Whiting Petroleum (WLL), Southwestern Energy (SWN), WPX Energy (WPX), Laredo Petroleum (LPI), Jones Energy (JONE), and Northern Oil & Gas (NOG), which were cut to Sell.
At this point, I rate LPI and JONE as holds. Both companies have very good hedge positions for 2016. However, they will be in trouble if oil prices do not rebound by year-end. - Dan
I agree 100% that all of us should add more exposure to SCOOP & STACK. I track closely the four largest companies active in these two plays (CLR, NFX, DVN and XEC). Well results have gone from GOOD, to GREAT, to FANTASTIC. Get to know is going on in Central Oklahoma by reading our profiles on each of these Sweet 16 companies.
In all, Seaport Global upgraded seven companies to Buy–Continental Resources, Callon Petroleum, Marathon Oil, OAS, Rice Energy (RICE), Petroquest Energy (PQ), and Lonestar Resources (LNREF)–while downgrading 11 others, including Whiting Petroleum (WLL), Southwestern Energy (SWN), WPX Energy (WPX), Laredo Petroleum (LPI), Jones Energy (JONE), and Northern Oil & Gas (NOG), which were cut to Sell.
At this point, I rate LPI and JONE as holds. Both companies have very good hedge positions for 2016. However, they will be in trouble if oil prices do not rebound by year-end. - Dan