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Tuesday, the latest industry report by Benchmark on the gas and exploration & production (E&P) sector provided insights into the US oil industry's current landscape, influenced by global tariffs. The report highlighted that despite the upcoming shoulder season, which has not yet begun, and heating degree days (HDDs) forecast to remain at 100 for a third consecutive week, the year-over-year (y/y) storage deficit is decreasing due to increased net supply and a shift from gas to coal.
The analysts at Benchmark noted a potential reversal of last year's trend from coal to gas during the upcoming summer, as gas prices are currently running high. The decision-making of gas producers in the midst of tariff turmoil is pivotal, with last week's rig count showing no significant change in gas-rich basins.
Expand Energy (NYSE:EXE), which Benchmark rates as a Buy, is planning to ramp up gas activity, basing its strategy on a conservative price assumption of $3.50 to $4.00, compared to the rest-of-year strip price of $4.11. The report suggests that gas prices would need to drop considerably to affect companies' capital expenditure plans. According to Benchmark, if the y/y storage deficit decreases to 200 from the current 491, gas prices might approach the lower end of Expand Energy's price assumption. The last time gas prices dipped below $3.00 was in early January, prompted by a shift from a y/y storage surplus to a deficit due to cold temperatures.
Furthermore, the report observed consistent performance trends among companies, with those that were previously deemed expensive remaining so, and underperformers continuing to lag. In the gas sector, names like EXE, Antero Resources (NYSE:AR), and Range Resources Corporation (NYSE:RRC) were mentioned for their strong one-week and year-to-date performance. In the oil segment, EOG Resources (NYSE:EOG) and Magnolia Oil & Gas (NYSE:MGY) were highlighted for their leading positions. Devon Energy (NYSE:DVN) was also favored by Benchmark for its moderate performance, low free cash flow (FCF) breakeven, and significant upside potential to a $70 net asset value (NAV), which implies a 17% increase. InvestingPro analysis reveals that EOG's recent stock performance has created an attractive entry point, with the stock trading near its 52-week low and showing strong cash flows that sufficiently cover interest payments. For deeper insights into EOG and other energy sector leaders, investors can access comprehensive Pro Research Reports covering 1,400+ top stocks, available exclusively on InvestingPro.
In other recent news, EOG Resources reported its fourth-quarter 2024 earnings, surpassing analysts' expectations with an earnings per share (EPS) of $2.74 compared to the forecasted $2.57. However, the company fell short on revenue, reporting $5.6 billion against the anticipated $5.88 billion. Raymond (NSE:RYMD) James adjusted its financial outlook for EOG Resources, reducing the stock's price target from $175.00 to $154.00, while maintaining a Strong Buy rating. Meanwhile, Mizuho (NYSE:MFG) Securities downgraded EOG Resources from Outperform to Neutral, setting a new price target of $140, citing a reassessment of the company’s net asset value.
UBS also revised its price target for EOG Resources, lowering it from $165.00 to $160.00, but maintained a Buy rating, pointing out challenges in production and rising operational expenses. Benchmark, on the other hand, kept a hold rating on the stock, with financial results expected to align with market consensus, projecting an EPS of $2.77 and EBITDA of $3.1 billion for the first quarter. Despite these adjustments, EOG Resources continues to focus on shareholder returns, with Raymond James forecasting ongoing share buyback activities in the first quarter. These developments reflect the company's strategic adjustments in response to varying financial and market conditions.
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