FP Trading Desk ( interesting article)
Higher natural gas forecast leads to upward EPS revisions for energy companies
Merrill Lynch has hiked its natural gas price forecast (Henry Hub, NYMEX) to US$7.50 mmbtu from US$6.90, but it still remains below consensus estimates, analyst Andrew Fairbanks said in a note to clients.
The firm’s 2008 forecast moves to US$7.25 from US$6.90, roughly 6% below analyst estimates, he added.
As a result of these upward revisions, many of the Canadian integrated oil companies and oil and gas trusts Mr. Fairbanks follows are getting higher earnings per share estimates (EPS) for the first quarter of 2007.
Some of these names include Petro-Canada, Husky Energy, Enerplus Resources Fund, Pengrowth Energy Trust, PrimeWest Energy Trust and Penn West Energy Trust.
“Although we are now more bullish than the Street on the prospects for natural gas prices over the next two years, and think the opportunities for upside EPS surprises are better for natural gas-leveraged names than anytime in the last 18 months, we are retaining our largely neutral stance on the oil-levered Canadian Integrateds and bearish outlook for most trusts,” Mr. Fairbanks said, adding that higher gas prices equate to higher costs for oilsands operators.
Meanwhile, for trusts, higher gas prices can lead to more earnings and cash flow, but this will not be sufficient to prevent distribution cuts caused by high capital spending in his view.
For the integrateds, higher natural gas expectations has led Merrill Lynch to boost EPS estimates by roughly 10¢ per share on average this year
