In a 50 page note to clients today, Goldman Sachs energy analyst Brian Singer upgraded shares of Ultra Petroleum (UPL) and endorsed a couple of other medium-cap oil and gas names, and downgraded Chesapeake (CHK) to “Neutral” from “Buy.
Despite the big joint venture announced today with Total SA (TOT), which is a positive for the company, Chesapeake is about fairly valued after a 71% rise this year. The company’s got to grapple with how much acreage it will sell in its natural gas portfolio, which will affect cash flow this year, writes Singer. That’ll keep investors cautious on the name, he suggests.
But smaller players such as UPL ($7.9 billion market cap) and $6.61 billion Newfield Exploration (NFX) and $7.5 billion Questar (STR) can all benefit despite constrained natural gas prices this year. That’s because all-three have access to low-cost natural gas fields, with UPL mining the Marcellus Shale and Pinedale Anticline, Newfield exploring the Granite Wash and Woodford Shale, and Questar having multiple low-cost sources, writes Singer.
UPL shares are up $2.36, or 5%, at $52.22. Newfield stock is up $1.69, or 3.5%, at $49.92. Questar is up $1.45, or 3.5%, at $43.02.
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