16
Oct
Wrap – Week Ended 10/15/21
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Solid week with the ZLT up 4%.
- Oily names continue to perform well while the gassy segment is taking a pause as investors wax and wane between fear of chasing the month gas price and missing out on the move in the strip.
- The mark to market and mark to reality for oil and natural gas price decks is in full swing and estimates are rising accordingly. Our unhedged and least hedged names have in common strong balance sheets and solid plans for return of capital and are in many cases at cycle (and in one case) all time highs.
- Maintenance mode continues to be the mantra but we expect some small 4Q to 4Q growth to be included in a number of names when they guide (more so on the oil side but some smaller and mid cap gassy names outside of Appalachia will grow as well).
- Oil service looks poised in front of a set of 3Q21 reports that will lead the group in the third quarter calendar and which we expect to be largely positive with color on upstream capex as up modestly in NAM and up more for long cycle international projects.
- SLB reports on October 22 kicking off that segment's earnings season for us.
- Renewables showed new signs of a rounding bottom last week, especially in the solar segment where the threat of additional tariff action continued to appear to fade. COP26 and solid 3Q reports are near term drivers there.
Housekeeping Watch: Look for the first iteration of the 3Q21 energy earnings calendar in a post this week.
Free stuff last week: None but we do have a number of articles in the hopper at Seeking Alpha for distribution soonish.
Holdings Watch:
- We added an additional gassy upstream name to the portfolio and added to the name during the week.
- Month to date we have added to two gassy upstream names and returned one previously traded gassy name to the portfolio, and added to two of our service name positions.
- The blotter is updated.
- The positions is updated.
- Current sector weights:
Numbers of interest from The Wrap table below (in rough order of appearance):
- Oil service outperforming as we approach earnings. Investors have been through "shared pain" but to a much lesser extent "shared gain". The time is at hand for net pricing gains. Frac spreads continue to return to work at pace. Doubtful this recent second leg is based on pre mid 2021 economics especially given wage inflation.
- TAN ETF up 11% on the week. Rare sort of move this year and especially rare without positive thoughts on the infrastructure bills. Our names here are off the beaten track so to speak, non module in nature and sport higher growth rates than the solar segment as a whole.
- 3-2-1 crack. Generic crack over $23. We previously said to expect fall refiner maintenance to be short and shallow. No change to that thinking.
- Natural gas prices. Front month needs a break to be sure, had said so since it approached $4 and then international stories really sent it higher. Front month is often noise. See calendar 2022 and 2023 strips. Super strong. Way above Street price deck. Estimates in the gassy group rising.
- Other natural gas:
- Rigs down 1 - just seeing no move to grow, has been stuck in this range near 100 for a couple of months now. We do not expect growthy plays from Appalachian players for 2022 given pipeline constraints. Look for larger names to be fairly adamant about this on the coming round of calls. We do expect to see growth from the Haynesville and for plays like the Fayetteville to get a rig for the first time in 3 years soon. The rest of gassy growth in 2022 is expected to come from associated gas oil plays. New Mexico in the lead there.
- Nymex spec net longs remain near lowest level (most net short) of the year.
- The natural gas storage report was below us and consensus. Weather is breaking from extreme mild to almost normal near term. We expect End of Season storage to tip into the upper half of our long established 3.4 to 3.6 Tcf range.
- Natural gas prices are ahead of themselves but less driven by the current domestic storage levels than usual in this odd season.
- While not in the table, we would just note that NGL pricing remains more than robust and is going to be quite a bit more meaningful for a number of our names during the 3Q21 reporting season than usual.
- Uranium continues it's volatile, rapid ascent.
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Have a good weekend,
Z.
