Scotiabank remains bullish on long-term outlook for natural gas firms, but sees the sector facing several challenging months as the North American natural gas supply and demand balance recalibrates.
Says that the sudden collapse of natural gas prices has shifted the near-term calculus for investing in the sector.
Brokerage sees average 2023 NYMEX prices firmly below $4/mmBtu on warmer temperatures for rest of winter.
Sees NYMEX price collapse to put pressure on 2023 capital budgets and reduce gas focused drilling activity as the year progresses.
Adds that it is now seeking safety and sustainability from the most defensive names instead of pursuing positive rates of change and abundant shareholder returns.
Sees Canadian firms as more sustainable than the U.S. firms, with lower break-evens, higher growth and dividend yields, stronger balance sheets, and better asset level returns.
Tourmaline Oil Corp and Topaz Energy Corp stand out as the most attractive natural gas-weighted names in the sector.