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Citi analyst Scott Gruber thinks lower gas prices will cut into free cash flow for Coterra, Ovintiv, and Devon Energy.
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Natural-gas prices have tumbled this year because of warm weather and high levels of gas in storage in Europe and elsewhere. U.S. prices are down 45% to $2.46 per million British thermal units.
The drop has impacted stocks of some natural-gas producers, though not nearly as much as the price of the commodity itself. As natural-gas prices stay low, however, the impact could widen and pressure a larger group of companies. Stocks of oil producers that also produce significant amounts of gas are vulnerable to the decline, too. Overall, free cash flow for large-cap producers could fall 33% from 2022 levels, according to Citi analyst Scott Gruber. That could keep some oil companies from being able to boost their dividends and buybacks as much as they did last year.
Gruber thinks that the drop will be a problem for the free cash flow of several companies. Oil producers that derive significant amounts of revenue from natural gas and natural gas liquids include
Coterra Energy
(ticker: CTRA),
Ovintiv
(OVV),
EOG Resources
(EOG), and
Devon Energy
(DVN), notes Gruber. Oil makes up 32% of Coterra’s revenue; that number stands at 45% for Ovintiv, 72% for EOG, and 73% for Devon.
Citi expects natural-gas prices, which last year briefly rose above $9 per million BTUs, to average $2.70 this year, and $3 in 2024. European and Asian natural-gas prices are…
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