For the week, our E&P Index was -2.9% vs. the S&P500 +1.8% and WTI -0.3%. The volleying in sector performance continues with oil unable to break direction at $40/bbl, challenging outlooks ahead for the E&Ps, valuations still above strip pricing, and election risks looming. It’s the last point that is now in greater focus as the Presidential election is just months away and within, we outline some baskets around the outcomes and provide our thoughts on how the outcomes will impact the sector over the coming years.
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Weekly Energy JAM highlighting thoughts and themes for 2Q earnings season including 2020/2021 outlooks, balance sheets and long term growth plans
After quickly exploding to 23% following the early-March OPEC meeting, the HY Energy credit spread has round tripped to settle around 10% over the past two weeks. However, a lot has changed over this period and after another full look at credit pricing across the sector, we have four key takeaways: 1) With both credit spreads and the XOP 60-65% off mid-March lows, risk/reward isn’t skewed entirely in one direction. 2) Credit & equity risk hasn’t uniformly improved, setting up ripe relative value opportunities across equities and cap structures. 3) The window for some producers to refinance 2021/22 maturities at attractive rates is open, which could help push back maturity risk.
With WTI stuck at $40 and rising COVID cases creating market headwinds, the sector recovery has stalled over the past month. However, through all the choppiness, we continue to look for relative value opportunities, and inside this week, we look at YTD company performance from a different angle - how has Enterprise Value changed this year. While we typically look at stock performance to determine out/underperformance vs. our Index, how Enterprise Values have changed could also shed light on some opportunities and perceived market risk. Directionally, some change in EV performance makes sense with the natural gas producers still at the top and HES right behind them, but there are a few standouts, like OXY being the #2 Large Cap performer at -20%, while EOG and CXO are towards the bottom of the list, down 41%. See the performance chart inside, along with some thoughts on the OXY warrant and HY issuances on Friday.
With the virtual conference circle winding down and 2Q earnings season thoughts now rolling in, we thought about a few themes that could start factoring into stock performance in the back half of the year. One of them is politics and how the Presidential election could impact the Energy sector. We provide some updated views around this theme and other thoughts from the past week inside.
In a whirlwind week, our E&P Index finished -7.9% vs. the S&P500 -4.8% and WTI -8%.
As we showed in our note earlier this week with the average E&P 2021 EV/EBITDA multiple up 76% since 3/6/20 (the early March OPEC meeting) and most stocks at or above 3/6/20 levels, we believe there’s an increased likelihood the E&Ps may look to the equity capital markets to improve financial strength. With that as the backdrop, we ran a scenario in which each E&P were to issue 5% of shares outstanding to see how much it can improve interest expense, FCF, and the EV/EBITDA multiple. See inside for more details.
While life is opening back up and most weekend nights for us still seem to evolve into a backyard firepit session. We had a good one on Friday night with a few friends and in the midst of an 80’s session, unsuspectingly, a back to back Huey Lewis & The News songs came on. Here’s the playlist that came out.
Happy Sunday. We hope you caught you breath. For the week, our E&P Index was +40.5% vs. the S&P500 +4.9% and WTI + 11.5%.
The old saying...if you can’t beat em, join em...spoke loudly this past week. Nothing like downgrading a stock and then having it blast higher right in your face a day later. Quite the opposite of when we launched coverage on RICE with an Outperform, only to have it taken out by EQT three days later.
Inside this week, we provide some updated sector thoughts and lessons learned following Friday’s rally and the OPEC+ meeting that came in as expected.
For our music this weekend, we’re going with an AC/DC playlist. While still well off positive territory (hey, we can’t all be #workfromhome technology), it certainly felt this week like the sector was Back In Black.
The past two weeks we’ve done our share of client and company catchups and there are two key themes & questions coming out of conversations. First is how to think about certain groups of stocks, especially as the XOP has essentially flatlined over the past month. Second is regarding shut-in volumes coming back online faster than expected, with every company fielding this question and having different answers. We provide our thoughts on both inside.
For the week our E&P Index was +10.3% vs. the S&P500 +3.2% and WTI +12.6%. In our conversations with investors and companies this past week, there was one big concern that consistently came up as WTI got back over the $30/bbl mark. We touch on this inside, along with other concerns we have right now based on the forward plans each company outlined during 1Q earnings.
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