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CS Oil and Gas Price ForecastsMaintaining near/medium term oil price forecasts; raising 2025-26E+. We’ve left our 2023 and 2024 Brent/WTI forecasts unchanged at $85/$82 and $80/$77, but raised 2025E to $75/$72 (up from $72/$69). We increase our long-term, normalized Brent/WTI forecasts to $70/$67 (up from $65/$62), mainly due to inflation in the upstream supply chain and structural underinvestment in the sector (oil & gas project capex reduced by >25% between 2015 and 2021), which in our view mean crude prices will remain elevated amid tight supply and limited significant projects coming online. ▪ Increasing US natural gas price forecasts. We are raising our 2022 US natural gas price forecast to $7.05/MMBtu (from $5.60) on much higher than expected 3Q22 actuals (bidweek Henry Hub $8.20 vs. CSe $5.50) and an increase to our 4Q22 forecast to $8.00 (up from $5.00 prior). Factoring in the prolonged shutdown of the Freeport LNG facility (~2 Bcfd of feedgas demand, expected to be partially back online by mid-November), we show storage inventories building to ~3.4 Tcf heading into this winter withdrawal season, ~7% below the five-year average which should provide continued support to near-term prices, though rising US supply could be a headwind: our bottoms-up model shows 4Q22 dry gas production >100 Bcfd (~2% above EIA). Our 4Q22 price forecast is ~10% below the current futures strip. Assuming LNG exports recover toward full capacity in 2023 (~12.5 Bcfd), moderate supply growth (~4% YoY, modestly above EIA) and relatively stable Power sector demand, we see the US gas market ~1.0 Bcfd undersupplied next year and raise our 2023 price forecast to $5.25, up from prior CSe $4.00 but below the current 2023 futures curve of ~$6.50/MMBtu. We’ve maintained our long-term, normalized US natural gas price forecast of $3.50/MMBtu. ▪ Raising CFPS estimates, NAVs and target prices. We raised 2022-23 CFPS estimates for our US E&Ps by ~8% on average, driven by the higher US natural gas price forecasts (CFPS for our gas-weighted E&Ps +22% vs. oily E&Ps +4% on average). Our 2P NAVs increased by ~11% on average, reflecting the higher long-term oil price forecasts and updated US natural gas deck. On average we raised target prices by ~8%. For the US/Canadian Majors, we increased 2022-23 EPS forecasts by ~3% on average. ▪ Top E&P stock picks. We favor OVV, FANG, COP and DVN among the oil-weighted E&Ps. Of the gassy names, we like CHK and EQT. |
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