M O R G A N S T A N L E Y R E S E A R C H
April 16, 2010
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Exploration & Production
Industry View
In-Line
Morgan Stanley & Co. Incorporated
Stephen Richardson
Stephen.I.Richardson@morganstanley.com
+1 (1)212 761 3741
Sameer Uplenchwar
Sameer.Uplenchwar@morganstanley.com
+1 (1)212 761 4487
Stuart Young
Stuart.Young@morganstanley.com
+1 (1)212 761 8194
Brian Lasky
Brian.Lasky@morganstanley.com
+1 (1)212 761 7249
Headwinds for Natural Gas Stocks
We see near-term headwinds for E&Ps
– Look for revisions to 2010e EPS as Q1 earnings season gets
underway, we see ~20% downside to EPS at the current
strip for gas stocks
– Robust oil prices, and the ongoing US industrial recovery
temper this view
Look for signs of discipline from the upstream
– With ~60% of our coverage unable to organically fund
activity at the current strip, look for activity to fall during Q2
– While likely a constructive sign for commodity fundamentals,
this does imply lower growth for the stocks
Deal flow likely continues
– With funding a challenge, and the risk of a prolonged period
of sub-$5/mmbtu natural gas, producers are looking for
options
– Asset sales, capital raises, and joint ventures are all viable
alternatives
– The environment benefits those with financial flexibility
M O R G A N S T A N L E Y R E S E A R C H
April 16, 2010
2
Stephen Richardson, (212) 761-3741, Stephen.I.Richardson@morganstanley.com
Table of Contents/Overview
1.
Between Low Gas Prices and a Hard Place
3
2.
Overweight Rated Stocks
19
3.
E&P Fundamentals
28
4.
Valuation
40
5.
Company Fundamentals
44
M O R G A N S T A N L E Y