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Why Barclays Downgraded The Oil & Gas E&P Sector

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Thomas Driscoll of Barclays on Wednesday downgraded the U.S. oil and gas E&P large-cap sector to Negative from Neutral while the SMID-cap oil and gas E&P sector is being downgraded to Negative from Positive.

The analyst now sees an average downside to equity price targets of approximately 4 percent for large caps and 15 percent from SMID-caps.

“Investors are discounting crude prices that are approximately 30 percent higher than the current strip,” Driscoll argued in his note. “Despite the continued weakness in crude prices in recent weeks, the market has been slow to re-calibrate commodity price expectations lower.”

Driscoll adds that equity investors are pricing in WTI crude assumptions of close to $75 per barrel in 2016, compared to current strip prices of $57 per barrel. The analyst also notes that an abundance of “relatively cheap” oil supply from U.S. producers could further delay a price recovery.

Bottom line, downside risk outweigh potential gains even if oil prices recover, according to Driscoll.

The analyst downgraded shares of Continental Resources, Inc. (NYSE: CLR), Devon Energy Corp (NYSE: DVN), Kosmos Energy Ltd (NYSE: KOS), Marathon Oil Corporation (NYSE: MRO), RSP Permian Inc (NYSE: RSPP) and Whiting Petroleum Corp (NYSE: WLL) to Equal-Weight, from Overweight.

Also, the analyst downgraded shares of Cheaspeake Energy Corporation (NYSE: CHK), Halcon Resources Corp (NYSE: HK), Resolute Energy Corp (NYSE: REN) and Sandridge Energy Inc. (NYSE: SD) to Underweight, from Equal-Weight.

On the other hand, shares of Range Res Corp. (NYSE: RRC) were upgraded from Equal-Weight to Overweight.

Latest Ratings for CLR

DateFirmActionFromTo
Nov 2020Morgan StanleyMaintainsUnderweight
Nov 2020TD SecuritiesMaintainsHold
Sep 2020Northland Capital MarketsInitiates Coverage OnMarket Perform

View More Analyst Ratings for CLR
View the Latest Analyst Ratings

 

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Posted-In: Barclays E &P gas Oil Thomas DriscollAnalyst Color Downgrades Analyst Ratings

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