Austin Skyline

Raymond James Energy Stat of the Week
by J. Marshall Adkins

Energy Stat: La La Land Gas Leak Trade; Played Out or Double Down?
March 27, 2017

As we exit the winter season, it is a good time to check in on the highly seasonal natural gas market and a topic we highlighted in August 2016. Recall, our thesis last time around was that in the wake of the Aliso Canyon storage disruption, certain Rockies gas producers that sell into California markets were poised to benefit from improved differentials to Henry Hub. We thought this would happen as California signaled to the broader U.S. market that storage was offline and incremental gas needed to flow into the region.

With a full winter of price action under our belt, did our projection of higher West Coast gas prices (and stronger inflows) come true? While the results weren't as dramatic as we were expecting-our thesis directionally played out as the West Coast saw increased gas inflows, moderate pricing premiums, and improved differentials for a few operators (e.g., SRC, QEP). In today's Stat, we: 1) update readers on Aliso Canyon, 2) detail the West Coast gas market structure, 3) outline the gas price action we saw this past winter, and most importantly 4) predict how things play out next and highlight the stocks that would benefit. In short, we still expect Rockies and San Juan Basin operators to continue benefiting from reduced gas storage capacity in the SoCalGas system. In our view, SRC Energy, QEP Resources, WPX Energy, and Anadarko Petroleum are the most notable E&P beneficiaries in our coverage universe.

This is a summary of a much more detailed commentary. Please contact your financial advisor for the full report.

There is no assurance any of the trends mentioned will continue in the future. Past performance is not indicative of future results. Investing involves risk and investors may incur a profit or a loss. Specific sector investing can be subject to different and greater risks than more diversified investments. Investing in commodities is generally considered speculative because of the significant potential for investment loss. Commodities are volatile investments and should only form a small part of a diversified portfolio. Markets for commodities are likely to be volatile and there may be sharp price fluctuations even during periods when prices overall are rising.

The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The S&P 500 is an unmanaged index of 500 widely held stocks. The Oil Services Index (OSX) comprises 15 of the largest oil service companies. The S&P SuperComposite Oil and Gas Exploration & Production Index (S&P Oil and Gas E&P) consists of all oil and gas exploration and production stocks included in the S&P SuperComposite 1500 Index. Investors cannot invest directly in an index. Additional information is available upon request.