Several North American Oil & Gas Exploration And Production Companies Downgraded Amid Current Environment: Here's Why

Bernstein analyst Bob Brackett assessed the performance and changed several North American oil & gas exploration and production (E&Ps) companies' ratings amid the macro environment. 

The analyst continues to expect the E&P of hydrocarbons (crude oil, natural gas, and coal) to remain a strong industry for several decades. In particular, the analyst projects oil-focused E&Ps to achieve higher average prices through the cycle but continues to face the cycle nonetheless.

Brackett updated forecasts by marking 2023 crude prices to market at $80/bbl and implemented the updated international gas price deck, which places TTF at $15/mmbtu in 2025. 

Brackett maintained an Outperform rating on both Hess Corp HES and ConocoPhillips COP and raised the price target to $189 (from $185) and $143 (from $139), respectively. He sees these companies performing well despite falling oil prices. 

HES: The analyst cites HES' ~30% working interest in the high-quality Stabroek block offshore Guyana and partnership with other major oil companies as driving factors for volume and cash flow. The analyst expects HES to return about half its current market cap through dividends and buybacks through 2030.

Brackett estimates adjusted EPS of $5.99 (vs. $7.29 prior) in FY23 and $11.86 (vs. $12.11 earlier) in FY24. 

COP: The analyst expects the company's incremental production to be driven by international LNG and the Willow project in Alaska by the end of this decade. The analyst projects the portfolio blend of long-cycle and short-cycle assets to enable consistent returns through the cycle. 

Brackett sees adjusted EPS of $7.92 (vs. $9.77 prior) in FY23 and $11.52 (vs. $11.29 earlier) in FY24.

On the other hand, Brackett downgraded both APA Corp APA and Kosmos Energy Ltd. KOS to Market-Perform (from Outperform) at a reduced price target of $9 (from $12) and $50 (from $51).

KOS: The analyst believes in the near-term strategy focused on developing LNG fields off Mauritania & Senegal, connecting infrastructure-led exploration targets to existing platforms, optimizing key oil assets (Gulf of Mexico, Ghana, Equatorial Guinea), and undertaking value-accretive M&As. 

Adjusted EPS is estimated to be $1.47 (vs. $1.68 prior) in FY23 and $2.30 (vs. $2.31 earlier).

APA: The analyst notes the company's focus on bringing Egypt back to production growth by modernizing its production-sharing contract with the host country and garnering additional cash from the Permian and platforms in the North Sea. 

Adjusted EPS is expected to be $7.13 (vs. $8.16 prior) in FY23 and $9.35 (vs. $10.30 earlier) in FY24.

Also, the analyst reduced the rating on EOG Resources Inc (NYSE: EOG) and Devon Energy Corp (NYSE: DVN) to Market-Perform (from Outperform) with a lowered price target of $146 (from $155) and $48 (from $62), respectively, on lower visibility to the upside. 

EOG: The analyst sees EOG's active onshore exploration program to target new liquids and natural gas plays as a unique upside catalyst. Moreover, EOG's expertise and leadership aid it in driving rich dividend yield and has a mid-to-high-single-digit growth potential, says the analyst.

Brackett sees adjusted EPS of $11.87 (vs. $13.14 earlier) in FY23 and $13.64 (vs. $14.72 prior) in FY24.

DVN: The analyst believes shaky strategic decisions have occasionally marred DOV's performance but appreciates the company's refocus on its cash return strategy (post-merger with WPX Energy) by introducing the industry's first variable dividend.

Adjusted EPS is projected to be $7.09 (vs. $7.91 earlier) in FY23 and $7.39 (vs. $7.91 prior) in FY24.

Price Action: HES shares are trading higher by 1.34% at $163.58, COP shares by 0.18% at $125.54, APA by 0.87% at $42.56, and DVN by 0.75% at $49.77, EOG by 0.27% at $134.39, while KOS shares are trading lower by 3.17% at $7.49 on the last check Tuesday.