Learn more about Hart Energy Conferences
Get our latest conference schedules, updates and insights straight to your inbox.
Merrill Lynch's E&P analyst John Herrlin has reduced his rating to Neutral from Buy on Canadian Natural Resources, EnCana Corp., Energy Partners Ltd. and Newfield Exploration Co. "Why now? There could be multiple types of commodity-price risk in 2005 to reduce netbacks at the wellhead," he says. He expects natural gas prices will wane in 2005 and oil prices will wax. On some measures, "the stocks aren't expensive versus the market." However, they are pricey at $41 oil and $5.75 gas. "Does this mean that we are bearish on any of those companies' longer-term prospects or the sector? No. We are concerned about the intermediate term after strong outperformance, and see nothing wrong with taking some profits." He adds that this could change if investors flock to energy stocks anyway, North American gas prices are better than his $5.75 forecast, M&A among publicly held companies spurs speculative valuations, basis differentials narrow meaningfully for North American gas or light/heavy oil and/or more investors discover energy. As for Canadian Natural, EnCana, Energy Partners and Newfield, "the stocks could go up or down another 10%...over the next 12 months, and that is fine," he says. "However, last year, many of them rose more than 30%. At this stage, we think it's time to pause, or take a time out." Overall, "we continue to believe that investors should be Overweight the energy sector," he says. However, he isn't optimistic about independents' potential for growth in earnings. Upstream operating margins may have peaked, and the industry has run out of good or inexpensive assets to buy, he says. "We've been known to say that the Street rents, and doesn't own E&P or other beta energy stocks...Is there a danger of E&P stocks becoming portfolio accessories or attire?" -Petroleum Finance Week
Recommended Reading
Turning Down the Volumes: EQT Latest E&P to Retreat from Painful NatGas Prices
2024-03-05 - Despite moves by EQT, Chesapeake and other gassy E&Ps, natural gas prices will likely remain in a funk for at least the next quarter, analysts said.
Arctic Vortex Pumps Up Natural Gas Demand, But It Won’t Last
2024-01-16 - Cold temperatures caused higher gas usage and dropped production, but the spike in demand is unlikely to have lasting effects.
DUG GAS+: Chesapeake in Drill-but-don’t-turn-on Mode
2024-03-28 - COO Josh Viets said Chesapeake is cutting costs and ready to take advantage once gas prices rebound.
Midstream Builds in a Bearish Market
2024-03-11 - Midstream companies are sticking to long term plans for an expanded customer base, despite low gas prices, high storage levels and an uncertain political LNG future.
Natural Gas Producers’ Game Plan for LNG: Wait Out 2024
2024-01-08 - Natural gas production has risen over the past decade with the potential to keep growing, but 2024 will test the market’s patience as E&Ps await LNG export capacity to come online.