The Wolfe Utilities and Power team updated its 5-year outlook for U.S. power supply and we again incorporate the data into our macro supply/demand model. The key takeaway from the update is all about the accelerating trend of renewable capacity additions at the expense of other fuel sources, with natural gas additions decelerating following a long period of being the replacement for coal. After +5Bcfpd of growth from 2017-2019, based on the current slate of projects in development, we forecast only 1.2-1.4Bcf/d of new capacity growth in 2023 over 2019 or less than 0.3Bcf/d per year.
Search Coverage List, Models & Reports
Search Results1-10 out of 282
It was another volatile week for the E&Ps this week as sector performance got off to a good start, faded towards the middle, and then rallied back on Friday to finish +6.9% for the week vs. the S&P500 +1.0% and WTI -2.8%. Performance between the sub groups continues to be split, with the rally in gas names continuing for a second week.
As of this writing, WTI is over $59/bbl and Brent is over $65/bbl on news of the drone attacks on Saudi Aramco’s production facilities, taking off over 5mmbpd of global supply for an unknown period.
This past week, we sat down with management teams in Houston and Dallas to discuss early thoughts on 2020 capital plans, operational updates, the sudden positive turn in sector stock performance and the potential for another Astros-Yankees postseason matchup. We left each meeting on a positive note and had one key takeaway from the trip - generating positive FCF continues to remain first and foremost before anything else.
While the E&Ps have strongly bounced back over the past two weeks, in part due to the market shift towards Value over Growth and Momentum, the sector is still -34% YTD vs. the S&P500 and increasingly has the feeling of being left for dead. Whether due to fear over oil prices heading below $50/bbl on weakening demand/plentiful supply, the rise of renewables, Energy shrinking to <5% of the S&P500 pie, or historical sector value destruction, we see the market’s perception of the E&Ps more about concern than opportunity. There’s still plenty for the E&Ps to prove, but with the sector pricing in $45/bbl WTI and trading at the widest margin (6.5x) to the S&P500 on NTM EV/EBITDA going back to 2001, we see good value in the E&Ps and believe this short rally could wake up the market to an improving outlook.
Inside this week we have two features, the first is we look at the S&P 500 Energy Index vs. the ISM Index as it broke 50 this week. FYI, Energy was the best performing sector this week. Second, we sat down with HES this week for a catch up, with notes inside.
August marked more of the same 2019 blues for the E&Ps, with our benchmark Index falling a steep 17.3% last month. Driving the poor performance were global economic fears, WTI/Brent prices moving lower by 6%/9%, and operational missteps during 2Q earnings that caused outsized moves in multiple equities. Given the magnitude of the selloff with crude oil prices still near $55/bbl, investors remain cautiously optimistic, with a small majority expecting the sector to both end higher by YE19 and outperform the S&P 500 (see our 8/26 Survey note). We see the same potential, but the execution bar remains high and the follow through on FCF generation remains key. EOG and FANG remain top picks.
It’s back to the grind this week and in preparation for the upcoming conference season, inside this weekend we provide a list of sector and company level questions across our coverage universe. We touch on the key issues around growth rates, return of capital, M&A, and asset specific questions/catalysts that can drive sector and stock performance through the rest of the year.
Across three energy sub-sectors, we encounter almost no investors that are bullish crude oil prices for 2020. Sliding GDP forecasts, currency headwinds, trade war impacts, and non-OPEC supply fears have increasingly stressed expectations. However, the two components that led us to be constructive on crude heading into the year – decelerating US production growth and IMO 2020-driven low sulfur demand pull – remain intact. We examine both in this note.
We polled clients last week on sector and commodity views, getting a total of 85 responses. Overall, we’d characterize the outcome as showing conflicting views of the Energy sector, not the doomsday outlook that sentiment suggests, likely as a result of the YTD stock performance while crude continues to hold in the mid-$50’s. However, if there was one thing that was clear, it’s what path E&Ps should go down. Full results inside and thanks to those that participated!
- 1 of 29
- next →