RBC Capital
Mid- to -Small Cap E&Ps: Increasing Commodity Price Forecast
Event
Revised RBC Capital Markets commodity price forecasts and company estimates.
Investment Opinion
Increasing Commodity Price Forecasts . For natural gas, we have raised our 2004, 2005, and 2006 forecasts to $5.75/Mcf, $5.35/Mcf, and $4.50/Mcf from $5.25/Mcf, $5.00/Mcf, and $4.25/Mcf, respectively. For oil, our 2004, 2005, and 2006 forecasts are now $36/Bbl, $34/Bbl, and $30/Bbl raised from $32/Bbl, $30/Bbl, and $26/Bbl, respectively. Our longer-term forecast for gas increases to $4.25/Mcf from $4.00/Mcf and for oil increases to $28/Bbl from $26/Bbl.
Stocks Have Some Upside; Some Appear To Be A Good Buy. Previously, using our old price deck, the stocks in our universe were trading 5% above our NAVs one year out. After incorporating our new price deck, we think the stocks have 5-10% upside to our revised one year NAVs. We have upgraded our rating on Stone Energy to Outperform from Sector Perform. Based on our new commodity price forecast we now see above-average upside in SGY shares. Additionally, we believe the following stocks will outperform the group: SKE, DNR, REM, PVA, VPI, & XTO.
Gas Supply/Demand To Remain Tight . Though storage looks adequate now, we think gas supply/demand will remain tight and that prices will average above $5/Mcf through 2005. We think two factors contribute most to vary near-term natural gas prices: oil prices and summer weather.
$40/Bbl Oil Not Fundamentally Supported, But May Be Here For A While. Fear of supply shortages weigh heavily on crude prices. Turmoil in the Middle East, 5-year low gasoline inventories in the U.S. heading into the summer driving season, and a volatile political situation in Venezuela are fortifying today's prices. |
