by Monica Gerson
According to Goldman Sachs, the risk/reward profile for natural gas is improving “following the pullback in recent weeks. The analysts say, “(1) we expect a potential demand pickup at the expense of coal if prices fall from here; (2) we continue to expect below-consensus LNG imports; and (3) industrial and electricity data points have improved.” “The key driver of a potential bottom is whether the rig count falls. While E&Ps we met in Texas are unlikely to drop rigs, much of the upside surprise vs our base case to the rig count has come outside key resource plays and from producers not under coverage,” the analysts add.

Goldman Sachs mentions that “we continue to have a Neutral coverage view on E&Ps, in part pending greater confidence in a rig count double-dip. We reiterate key E&P themes – Granite Wash/Marcellus Shale/Bossier Shale exposure and restructurings – that underlies our Buy ratings on XCO, UPL, NFX (each of which we met, we raise our 6-mth DCF/multiples based target price on NFX to $66 from $63), DVN, EOG and STR. We also believe oil resource expansion will remain potential catalysts via the Eagle Ford Shale, Monument Butte, new onshore oil plays and deepwater exploration. Commodity volatility, drilling results, costs, gov’t pronouncements are key risks.”

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