U.S. natural gas prices hit a six week low fee, closing at $7.75/MMBtu on Monday with the Wall Street Journal saying the market lost momentum due to US production surpassing 100 Bcf/day for the first time ever. Chances are now that sufficient US production will be sufficient to meet local demand in the final months before winter arrives. Prices are expected to remain depressed unless there is an eruption of stormy activity in the Gulf of Mexico that could disrupt production.
Meanwhile, European benchmark gas prices continued to decline, falling nearly 9% on Monday to their lowest level in two months on the back of improving European energy markets thanks to a combination of actions successful policies as well as a price-induced demand response. Indeed, the German Minister of Economy, Robert Habeck, revealed that the country natural gas storage levels are approaching 90% thus giving it a chance to get through the winter season. He warned, however, that the gas storage will likely be empty by the end of winter.
Understandably, natural gas and LNG stocks lost momentum alongside the commodities they track. For example, the US Natural Gas Fund, LP (NYSEARCA: LNG) is down 20.3% in the past 30 days, but is still up 108.9% year-to-date. However, structural tailwinds will likely continue to outweigh “cyclical headwinds” Strategas Securities LLC Christopher Verrone, partner and head of technical analysis, told Bloomberg. Investors should therefore use the latest pullback in gas stocks as a buying opportunity. Here are some top picks.
Market capitalization: 42.1 billion
Cumulative returns since the beginning of the year: 64.0%
Cheniere Energy, Inc. (NYSE: LNG) is an energy infrastructure company primarily engaged in liquefied natural gas (LNG) business in the United States. Cheniere is one of the few pure-play LNG companies in the United States; the company owns and operates the Sabine Pass LNG terminal in Cameron Parish, Louisiana; and the Corpus Christi LNG terminal near Corpus Christi, Texas. The company also owns the Creole Trail pipeline, a 94-mile pipeline connecting the Sabine Pass LNG terminal to various interstate pipelines; and operates the Corpus Christi Pipeline, a 21.5-mile natural gas supply pipeline that connects the Corpus Christi LNG Terminal to various interstate and intrastate natural gas pipelines.
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Back in March, DoE-approved expanded permits for Cheniere Energy’s Sabine Pass terminal in Louisiana and its Corpus Christi plant in Texas. The approvals allow the terminals to export the equivalent of 0.72 billion cubic feet of LNG per day to any country with which the United States does not have a free trade agreement, including any Europe. Cheniere says the facilities are already producing more gas than covered by previous export permits.
Market capitalization: 13.6 billion
Cumulative returns since the beginning of the year: 78.0%
EQT Corporation (NYSE: EQT) operates as a natural gas production company in the United States. The company produces natural gas, natural gas liquids (NGLs) including ethane, propane, isobutane, butane and natural gasoline.
As of December 31, 2021, EQT had 25 trillion cubic feet of proven reserves of natural gas, NGLs and crude oil on approximately 2.0 million gross acres, including 1.7 million gross acres in the area. Marcellus.
EQT Corp. unveiled a plan centered on producing more liquefied natural gas by dramatically increasing natural gas drilling in Appalachia and around the country’s shale basins, as well as the capacity of pipelines and export terminals, which it says it would not only strengthen US energy security, but also help break the world’s dependence on coal and on countries like Russia and Iran.
Market cap: $12.6 billion
Cumulative returns since the beginning of the year: 40.0%
Ovintiv Inc.(NYSE: OVV) is a Denver, Colorado-based energy company which, together with its subsidiaries, is engaged in the exploration, development, production and marketing of natural gas, oil and liquids. natural gas.
The Company’s principal assets include Permian in West Texas and Anadarko in West Central Oklahoma; and Montney in northeastern British Columbia and northwestern Alberta. Its other upstream assets include Bakken in North Dakota and Uinta in central Utah; and Horn River in northeastern British Columbia and Wheatland in southern Alberta.
In June, Mizuho upgraded the OVV to $78 from $54 (good for nearly 60% upside from the current price), citing improved tailwinds.
#4. Devon Energy Corporation
Market cap: $43.2 billion
Cumulative returns since the beginning of the year: 47.8% BofA analyst Doug Leggate advised investors to focus on oil companies with the potential to increase free cash flow through consolidations or other cost-cutting measures, naming Devon Energy (NYSE: DVN), Pioneer of natural resources (NYSE:PXD), and EOG Resources (NYSE: EOG).
Devon is a perfect match for this playbook, and although Leggate released his advice earlier in the year, the case for it only grows stronger.
DVN stock was one of the best performing energy stocks thanks to strong earnings and continued cost discipline, including a variable dividend structure.
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Following the merger with WPX Energy last year, the company announced fixed and variable dividends, which pleased Wall Street. In the second quarter, Devon paid up to 50% of available cash as a variable dividend, bringing the total dividend to $1.55 per share. The stable share has been indifferent, currently shedding just over 1%. But if the latest convertible payout is a sign of the future, shareholders could receive more than 10% in total.
Some Wall Street analysts had previously pointed to the potential for DVN to post a dividend yield of up to 8% by the end of the year. Devon has already surpassed this figure and now boasts a juicy forecast dividend yield estimated at 9.7%.
#5. Chesapeake Energy Corp.
Market cap: $12.4 billion
Cumulative returns since the beginning of the year: 65.8%
Commodity price hedging is a popular trading strategy frequently used by oil and gas producers as well as large consumers of energy commodities such as airlines to protect against market fluctuations. During periods of falling crude prices, oil and gas producers normally use a short hedge to lock in oil prices if they believe prices are likely to fall further in the future.
Unfortunately, hedging also means that these companies cannot reap the benefits of rising gas prices and may in fact result in hedging losses. However, some daring producers betting on a commodity recovery are hedging very little or not at all.
Tudor Pickering Rates Chesapeake Energy (NYSE:CHK) a Buy, saying the company remains one of the few producers to remain relatively unhedged.
It might seem like an odd choice given Chesapeake’s history, but it makes sense at this point.
Widely considered a pioneer in hydraulic fracturing and the king of unconventional drilling, Chesapeake Energy is in dire straits after taking on too much debt and expanding too aggressively. For years, Chesapeake borrowed heavily to fund an aggressive expansion of its shale projects. The company has only managed to survive through a series of asset sales (which management opposes), debt restructuring and Mergers & Acquisitions but couldn’t prevent the inevitable – Chesapeake asked Chapter 11 in January 2020, becoming the largest U.S. oil and gas producer to file for bankruptcy protection in recent years.
Fortunately, Chesapeake successfully emerged from bankruptcy last year with the ongoing commodity rally providing the company with a major lifeline.
The new Chesapeake Energy has a strong balance sheet with low leverage and a much more disciplined CAPEX strategy.
The company is aiming for <1x long-term leverage in an effort to preserve balance sheet strength, target production is 400+ thousand barrels/day and intends to limit CAPEX to $700-750 million of annual capital expenditure and a positive FCF. CHK says it expects to generate more than $2 billion in FCF over the next 5 years, enough to significantly improve its financial position.
By Alex Kimani for Oilprice.com
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