EOG Resources The Favorite Energy Play At Atlantic Equities

In a note released Tuesday, Atlantic Equities named EOG Resources Inc (NYSE: EOG) its favorite energy play. The firm believes EOG is one of the best placed exploration & production companies to manage at current oil prices.

Lowering Oil Price Forecast Despite Undersupply

Analyst Barry MacCarthy is of the view that crude oil prices, though they could recover from oversold levels, may not reach the levels he previously assumed. Accordingly, the analyst lowered his WTI crude oil forecast for the second half of 2017 from $75 per barrel to $57.50 a barrel. The 2018 forecast is also lowered from $65 per barrel to $52.5 per barrel.

On updating his bottom-up shale outlook, the analyst said the global markets would be undersupplied by 1 million barrels per day in the second half of 2017 and by 0.2 million barrels per day in 2018. However, the bullish impact of the undersupply, according to the analyst, will be neutralized by E&P's obsession with drilling new wells despite the low corporate-level return.

EOG Resources: Best Placed

Atlantic Equities noted that EOG's Permian performance continued to lead peers, going by the four record Permian wells reported with the company's first-quarter results. While noting that the company's target oil CAGR is 15–25 percent to $50–$60 barrels per day by 2020, the firm said it sees scope for in-house improvements to bring the required price down over time.

The firm views EOG as one of the best placed E&Ps to manage at current oil prices.

Modest Growth Seen For Schlumberger

The firm thinks Schlumberger Limited. (NYSE: SLB)'s businesses will see only modest activity growth, given the prospects of a limited rebound in oil prices. Therefore, the firm sees a lengthier time frame for the tightening of capacity utilization.

"Customers will continue to exert downward pressure on costs wherever they can, such that oil prices around current levels are inconsistent with strong pricing power for service providers," the firm said.

Since the revenues and earnings are benchmarked against oil prices, the firm lowered its estimates for Schlumberger.

Hess Trades Closely In Line With Oil Prices

The firm noted that Hess Corp. (NYSE: HES) has traded closely in line with oil prices and not bottom-up news flow. The scenario isn't likely to change against the macro backdrop, the firm said.

The firm indicated that the development approval for phase 1 of the Liza field was not the positive catalyst it hoped it would be. Additionally, the firm thinks Guyana suffers as a non-shale play, with first production beyond the horizon of many investors.

Rating/Price Action

As such, Atlantic Equities upgraded shares of EOG Resources from Neutral to Overweight and raised the price target for the shares from $98 to $100. Meanwhile, the firm downgraded shares of Schlumberger from Overweight to Neutral and cut its price target from $86 to $68. The shares of Hess were also downgraded from Overweight to Neutral, with price target going down from $68 to $45.

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