Report Reveals Upside of Prolonged Recession on Company Cash-flow Expectations and Which Companies May Be Immune
East Daley Capital Advisors, Inc., an energy data and insights company, released a new report: "Market Fears Go Viral – The Varying Degrees of Midstream Immunity," which analyzes the market impact of the recent economic downturn as fears of Coronavirus spread. In the report, East Daley outlines a macro view of company financial and commodity market expectations using an extreme downside scenario and asset-level detail to determine the potential long-term impact and opportunities for the midstream energy market.
Coronavirus fears have hammered the financial markets over the past few weeks leading to wild volatility and equity markets selling off over 10%. Energy stocks have not been spared with WTI prices losing 25% since early January and midstream companies under East Daley’s asset-level coverage also losing an average of 25%. However, some assets are far more sensitive to shifts in commodity prices than others. Key findings from today’s East Daley’s report are as follows:
- Commodity prices have plunged 25% and energy equities have sold off aggressively due to recent fears of a world-wide recession as a result of the Coronavirus.
- The downside price forecast leads to forecasted peak to trough declines for U.S. oil and gas production of 1.3 MMb/d and 5.9 Bcf/d respectively.
- Using a downside scenario which assumes additional commodity price declines, East Daley’s midstream company models, which specifically forecast every major company asset, shows a wide discrepancy between recent equity fluctuations and forecasted sensitivity to lower prices.
- Excluding counterparty risk, eleven midstream companies are forecast to experience only a 0-5% EBITDA decline in the downside price scenario versus a much wider spread of -4% to -38% in YTD equity return.
- Midstream companies with the highest risk have G&P volume exposure to mid-tier basins, with potential 14-19% EBITDA downside when comparing January commodity prices to our price downside scenario.
"In this highly volatile environment with the potential for panic selling, opportunities could arise as many investors sell first and ask questions later," said Matt Lewis, CFA, Senior Director, Commodity at East Daley Capital. "As the market sentiment may be more negative overall, those disparities and varying degrees of immunity create opportunities to fine tune a strategy that could pay dividends throughout the year."
Overall, there is a wide discrepancy of cash flow impacts for specific midstream companies relative to the market’s perception given the drop in commodity prices. While the oil and gas market is feeling the effects of the Coronavirus fears, this report demonstrates that the degree to which certain companies will be impacted will vary as some assets are more sensitive to shifts in commodity prices than others.
To learn more, register now for East Daley’s upcoming webinar on What’s Next for Midstream on Thursday, March 5 at 3:00 p.m. EST featuring Matt Lewis.
About East Daley Capital Advisors, Inc.
East Daley Capital is an energy data and insights provider that is redefining how markets view risk for midstream and exploration and production (E&P) companies. In addition to using top-level financial data to predict a company’s performance, East Daley Capital digs deeper to deliver asset and commodity analysis that provides comprehensive, fact-based intelligence. Supported by a team of unbiased, experienced financial and commodity experts, East Daley Capital provides its clients with unparalleled insight into how midstream and E&P companies operate and generate cash flow, in addition to commodity forecasting. East Daley Capital uses publicly available fundamental data and intersects that data with a company’s reported financials to asset-level adjusted-EBITDA and distributable cash flow (DCF). The result allows for more informed investment decisions. Founded in 2014, the company is based in Centennial, Colorado. For more information visit http://www.eastdaley.com.
East Daley Capital