Reserve reporting season is around the corner and with 15+% y-o-y declines in expected SEC benchmark pricing and lower planned activity, the Northeast producers will be facing downward pressure on reserve bases from PUD writedowns. Last month CVX took a $5Bn+ impairment charge on its Appalachia assets and RRC reported today they expect to take a significant non-cash impairment on its Terryville assets that currently carry a $2.7Bn value. In addition to the expected Terryville writedown, RRC’s YE19 reserves removed 601Bcfe of PUDs due to lower planned activity and 18Bcfe from price declines. RRC’s total reserves increased 1% y-o-y despite these two revisions due to positive performance revisions. In Exhibit 2, we show the PDP vs. PUDs gas reserves split at YE18 for the rest of the gas-weighted E&Ps in our coverage group.
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Happy Sunday. The first of a new decade that’s bound to bring a lot of change to the way we think about how energy is supplied, produced, and consumed. It also brings a new way of corporate thinking for the E&P sector, including a 10-year plan (COP) that has real merit to it and a true focus on returning capital to shareholders at a reasonable price ($50 WTI). To this end, we update our sector level and individual company questions for management ahead of conference and 2020 budgeting season that has a big focus on FCF and how capital will be returned to shareholders.
For the holiday shortened week, our E&P Index was +1.1% vs. the S&P500 +0.6% and WTI +2.1%.
For the week, our E&P Index finished +8.6% vs. the S&P500 +1.7% and WTI 0.5%.
Our E&P index was +4.2% vs. the S&P500 +0.7% and WTI +1.5%.
For the week, our E&P Index was +7.2% vs. the S&P500 +0.2% and WTI +7.1%. Good finish to the week as OPEC’s quota reductions and good economic news lifted crude oil on Friday (12/9/19), sending all the stocks in our E&P Index higher. Off the OPEC news, we provide some updated sector thoughts Like the Knicks moving on to yet another coach to turn things around, maybe the E&Ps have started to bottom as well. Additionally, we provide some thoughts on EOG into the “meet & greet” this week and since we’re hosting EQT for client meetings in NYC, we lay out some questions ahead of the management meetings.
For the week, our E&P Index was -3.6% vs. the S&P500 +1.0% and WTI -4.1%. It was a Black Friday indeed for the E&Ps as WTI fell 5%, pushing every stock in our our Index lower.
Earlier this week, Qatar announced plans to build two additional “mega trains” with combined capacity of 16mmpta, following a new study which boosted North Field reserves. The new trains will add to Qatar’s existing expansion plans and help solidify the country’s position as the top global LNG exporter. Through 2027, Qatar now plans to increase LNG production capacity by 64%, rising to 126mtpa from 77mtpa currently (previous plans called for 110mtpa by 2025). The expansion adds to the growing global LNG supply base, with the U.S., Russia, Mozambique, and Canada all developing major projects over the next five years in an increasingly competitive marketplace that has seen prices decline through 2019.
For the week, our E&P Index was -5.3% vs. the S&P500 +0.89% and WTI +0.8%.
We’ve updated for the 2020 outlook that shows spending of $1.7-$1.9Bn, 8% YoY oil growth, and $125mm of FCF generated pre-dividend at $50/bbl WTI. DVN is reallocating capital from STACK to Delaware and Powder River basins, and we increased our expectations for Permian/PRB oil growth while reducing the STACK capital and volume profile, as we now expect DVN runs less than 3 rigs there in 2020. No change to $28 TP.
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