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).
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.
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.
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).
Happy Mother’s Day! We hope everyone is set to enjoy their Sunday brunches with family today (05/13/18) and if you forgot a card for you mother, grandmother, wife, aunt, or friend, let this be a reminder to sneak out and get one…
Cash rules everything around me. – Wu-Tang Clan
This week hits the heart of E&P earnings season with over 25 reports and the equities come in with good momentum behind them, outperforming the S&P500 three weeks running. There are some concerns, but sentiment is positive and we believe this earnings season will be a tailwind for the group with supportive updates showing improving free cash flow profiles. PXD, OXY, CXO, WPX favorites into results. See Ginsberg’s technical take on the sector on page 3.
This past week kicked off 1Q18 earnings season for the E&Ps and with most of the natural gas producers reporting results, the big theme from the calls was corporate restructuring. EQT is separating the upstream and midstream businesses, AR is in a review process to figure out where they want to go with the AR/AM/AMGP structure, RRC may be forced to sell a portion of Southwest PA to reduce leverage and bring forward value, SWN is looking to divest the Fayetteville, and COG is working through multiple scenarios on where they want to take the company now that the three big infrastructure projects are coming online in a couple months. All of this is being forced by lower gas price expectations and the Permian becoming the new low cost supply source. We wonder what these companies may look like two years from now after all the corporate changes, but if we stay in a $2.50-2.75/mmbtu environment, growth expectations will likely moderate, and they could end up as FCF Yield vehicles.
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