As for the Energy sector, this past week started off well but ended poorly with some stocks taking a beating Thursday and Friday. This year’s high fliers, CRC and WLL, took the biggest moves lower and in general, the outperformers over the past three months found themselves towards the bottom of the list. Crude oil falling over 2% on Friday will do that, but we’re encouraged by some Permian producers holding ground.
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Yesterday (6/12/2018) the EIA updated its short-term energy outlook which got us thinking what better time than mid-year to stack our U.S. natural gas supply/demand model versus theirs side-by-side to see where we’re different (see page 3 for comparison).
Yesterday (06/12/18) the EIA updated its short-term energy outlook which got us thinking what better time than mid-year to stack our U.S. natural gas supply/demand model versus theirs side-by-side to see where we’re different (see page 3 for comparison). On natural gas demand, the EIA bumped its 2018 forecast higher by 0.5bcf/d versus its last publication in May to 89.4bcf/d while its 2019 forecast went largely unchanged at 92.7bcf/d, with the revision to 2018 largely driven by higher than expected Res/Com and Power burn YTD. Excluding imports/exports, the EIA’s demand forecast averages 1.5bcf/d higher than our model for both 2018 & 2019 with the main delta versus Wolfe being Res/Com & Power Gen. We’d note that both demand outlooks 1) continue to show relatively flat Power Gen demand going forward, 2) are in-sync when it comes to LNG exports, but 3) differ when it comes to pipeline imports/exports with the EIA assuming on average 1.8bcf/d higher imports and 1.4bcf/d higher exports across both years. On natural gas supply, the EIA raised its forecast for 2018/19 by roughly 0.5bcf/d each year with total L48 supply coming in nearly 1bcf/d lower than our model in both years. Interestingly both models assume 2.5bcf/d of L48 supply growth in 2019 vs 2018. As a result, the EIA sees year-end working gas storage of 2.95Tcf for 2018 and 2.86Tcf for 2019, some 700+bcf below our estimates in each year, which helps explain their above-consensus $3/mmbtu price forecast versus our below-consensus $2.50/mmbtu forecast.
We reviewed the proxy materials for all 35 E&Ps under coverage to see how CEOs and management teams were compensated. Most important to us during this review was looking at the key drivers, how they have changed over the past two years, and what’s to come for 2018, more so than absolute pay. The good thing in our eyes is that producers took investor messages to heart over the past year and stepped up efforts to add more returns and debt-adjusted per-share metrics, so we see this proxy scrub as a positive support driver for the group. Company-by-company details within.
Happy Sunday and welcome back to the Jam. This past week, we traveled to Texas, visiting clients and companies and had a good back and forth on Permian infrastructure over a BBQ lunch with Keith, following the PAA/PAGP analyst day. Thanks to our clients for providing some feedback on the “good” Texas music recommendations last week and I share World Cup memories and thoughts too.
Happy Sunday and thanks for the feedback on our Miley-Taylor Index. Apologies if I got Party In The U.S.A stuck in your head, but for the week, Team Miley was +6% over Team Taylor. Overall it was an up and down week, but Energy was +2% vs. the S&P500, an encouraging sign considering some skittishness around supply trends leading up to the June 22nd OPEC meeting and WTI down almost -1.5% on the week.
E&P management teams always have a lot to juggle, some more than others, with QEP fitting squarely into that camp. Not only are they working the A&D markets non-stop for the next 12 months en route to pure-play status, but they must also navigate a challenging Permian operating environment and can’t afford slip ups on the cornerstone asset during the transition. Execute on both, repurchase $1+Bn of shares, and we can see the stock continuing to work from here, but we remain Peer Perform rated given the 20% outperformance year to date that closed the multiple gap versus peers while risks remain along the path.
Welcome to the unofficial start of Summer! Hopefully you have something brewing for the holiday weekend to take your mind away from the sea of red on Friday. Here at Wolfe, we’re keeping the vibe going into the week with the 10th Year Anniversary Party on Thursday, an event we hope to see a few of you at. This week also marks my first anniversary at Wolfe and with that, we figured there is no better time to launch a new product.
Thanks for the continued feedback. While there is some caution following the sector’s strong 3-month performance, Energy sentiment remains positive across the sub sectors with the OIH and XLE reaching 2018 highs to go alongside the XOP that topped its YTD high two weeks ago. Despite a little OPEC spook today, we still think momentum is positive though, with $60+/bbl WTI and E&Ps improved business models remaining key drivers of support.
Busy week here at Wolfe but it was a good week. CXO management meetings in Toronto on Monday (05/14/18). Large Cap transition on Tuesday (05/15/18). Webcast on Wednesday (05/16/18). NYC marketing on Thursday (05/17/18). Plymouth martini, dry, with a twist on Friday (05/18/18).
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