JP Morgan Pair Idea In E&P Sector: Oasis Petroleum Upgraded, Whiting Downgraded

JP Morgan’s Michael A Glick mentioned that investors should stay selective after the recent rally in E&P stocks. The analyst recommended investment in companies that can sustain or quickly reestablish positive operating momentum as the overall industry begins to fight the decline curve.

Analyst Michael Glick noted that while many E&P companies have raised equity capital in 2016, most producers are expected to increase activity only after the prices stabilize in the $40s range.

“While we suspect many companies have taken advantage of the recent rally to add to hedge positions, we view incremental hedging as protecting cash flow versus changing the behavior of operators relative to activity levels,” Glick added.

Oasis Petroleum

Glick upgraded the rating for Oasis Petroleum OAS from Neutral to Overweight, while raising the price target from $6 to $9.

Oasis Petroleum’s per well productivity has increased on a y/y year basis after it redirected activity to the core of the basin in response to a downturn in commodity prices late last year. The company is well positioned operationally versus its oil-levered peers with flattish production levels, Glick stated.

Although Oasis Petroleum is often overshadowed by the Permian and other resource plays, its enhanced completions in the Bakken generate top-tier returns.

Whiting Petroleum

Glick downgraded the rating for Whiting Petroleum Corp WLL from Overweight to Neutral, while raising the price target from $7 to $8.

The downgrade is largely based on valuation, with the company’s shares up 140 percent since the last week of February.

Glick noted that Whiting Petroleum’s exit-to-exit decline rates of 20 percent are probably the highest among the sector, as it suspends completions early in the year. The company’s inventory of “DUCs (73 Williston/95 DJ) should provide flexibility to manage the decline in the event that commodity prices improve in the back half of the year (likely in the $40s/bbl), and the company’s growth in proved reserves during 2015 should continue to support the company’s liquidity,” the analyst added.