Given the continued weak outlook for U.S. natural gas, explorers with exposure to high rates of return (ROR) in liquids-focused plays, both in the onshore, as well as the shallow waters of Gulf of Mexico’s Outer Continental Shelf, provide the best upside going forward, according to the energy team at Credit Suisse.
The favored exploration and production (E&P) companies also need to have “capital flexibility and liquidity to fund development in the volatile commodity price environment,” said analysts.
Onshore plays with liquids exposure and high ROR are the “super rich” Marcellus Shale, along with the Eagle Ford and “potentially” the Utica shales, said the analysts. “Top picks” currently are onshore producers Rosetta Resources Inc. and Petroleum Development Corp., as well as OCS operator Energy XXI (Bermuda) Ltd.
Credit Suisse also has reduced its natural gas price forecasts for 2015 and beyond, and analysts adjusted their net asset value (NAV) and earnings per share (EPS) prices for 1Q2012, “reflecting the Global Commodities team’s forecast revisions,” which were announced on Friday.
The long-term natural gas price forecast was cut by $1.00/MMBtu to $4.50 from $5.50, while interim oil price forecasts were increased. The firm maintained its long-term Brent and West Texas Intermediate (WTI) oil forecasts at $90/bbl and $84/bbl, respectively.
Goldman Sachs analysts on Wednesday cut its 2Q2012 and 3Q2012 New York Mercantile Exchange gas price forecast to $2.10/MMBtu from $2.90/MMBtu and $2.75/MMBtu (see Daily GPI, April 13). Goldman’s average price forecast for 2012 was reduced 70 cents to $2.40/MMBtu from $3.10, and the 2013 price was cut by 25 cents to average $4.00/MMBtu from $4.25.
For the first three months of 2012, Credit Suisse said its marking-to-market gas prices were reduced to an average of $2.77/MMBtu from a previous estimate of $3.20/MMBtu. WTI oil prices were increased to $102.85/bbl from $90.
“Following the increase in our near- and medium-term oil prices, lowered natural gas price forecasts and recent company updates, our 2012 and 2013 EPS estimates increase by 9% and 11%, respectively. Relative to consensus, we are 22% above the Street in 2012 and 50% above in 2013.”
The NAVs for gas-focused producers are expected to fall 8% under Credit Suisse’s revised commodity price forecast, while the NAV for oil-focused E&Ps would increase by 1%.
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