James West, Senior Managing Director, Evercore ISI
James West is a senior managing director at Evercore ISI responsible for research coverage of the drilling and production of oil and natural gas and detailed fundamental research on companies involved in solar and wind power, battery and power storage technologies, and hydrogen.
The LNG sector of downstream energy is one of the hottest right now due to the global sanctions directed at Russia. This creates an opportunity for North America to support its European allies through increased shipments of LNG to European markets. This in turn will create tremendous demand for support for the extraction of natural gas, processing it to LNG, and efficient delivery to LNG terminals.
“The ones that we think are the best positioned for what’s happening in North America — that would be the companies in the fracturing industry, which would be companies like Liberty (NYSE:LBRT), NexTier Oilfield Solutions (NYSE:NEX).
They are experiencing somewhat of a short squeeze on their equipment where their high-spec equipment, their ESG-friendly dual fuel and electrical equipment are basically sold out and a pricing recovery is underway today.
The other area in North America is the land drillers and we think three of the high-spec land drillers are really best positioned to perform well in here and see increasing day rates.
Day rates have moved from the high teens to the low-20s and now we believe fully loaded including directional drilling services, etc., are now moving closer to $30,000 per day.
That would be Helmerich & Payne (NYSE:HP), Patterson-UTI (NASDAQ:PTEN) and Precision Drilling (NYSE:PDS).
On the flip side, there are a couple of niche technology companies that we like. ChampionX (NASDAQ:CHX) is one of those.
It’s a leader in artificial lift and production chemicals.
Bristow Group (NYSE:VTOL) is the leader in offshore transportation.
And then we do like Chart Industries (NASDAQ:GTLS), which is a leader in cryogenics, which will be heavily used in some of the transition technologies, such as hydrogen, carbon capture and then also in the water treatment area — plus they’re a big player in LNG.
We think LNG is going to be the major transition fuel to move us from a world of hydrocarbons to a world of lower-carbon energy sources.”
Ben Nolan, Managing Director, Stifel Financial
Benjamin Nolan, CFA, is a Managing Director in the Transportation sector, covering Shipping and Energy Infrastructure including LNG shipping at Stifel Financial (NYSE: SF).
“…at the moment, everybody wants LNG.
And the problem is that these export projects take many years to develop and produce. So you can’t just decide that you want more.
It won’t happen overnight.
The good news is that there are a number of projects that are being constructed now.
In fact, one in the U.S. in Louisiana just came on stream and is shipping its first cargo as we speak.
But again, it’s going to be a slow growth process for incremental LNG. So I think, as we look out today, prices are high.
It doesn’t seem as though there’s any real reason that they should be falling back, at least anywhere in the next year or two.”
The process of converting natural gas to LNG is capital intensive:
“Taking that natural gas, condensing it down to a size that makes economic sense to transport it when you refrigerate it and get it cold enough to be a liquid — it condenses down to 1/600th of its size.
And then you can move it and power the world.
The challenge is, it’s really expensive to get something negative 260 degrees. So that’s a challenge.
Again, it takes some time.
It’s pretty expensive to do. But if you’re doing it in scale, then there’s both the resource and the demand.
So LNG is, you might argue, a sort of an old energy, not perfectly clean source of fuel, but it is cleaner, and I think almost definitively is very much still a growth business.”
Mr. Nolan also likes Chart Industries (NASDAQ:GTLS):
“I also think that some of the people who produce the equipment that is used for LNG have some nice tailwinds behind them.
The one that I would call out there is Chart Industries (NASDAQ:GTLS), that makes the equipment that liquefies it, that turns it from a liquid back into a gas, that puts the tanks that would go on trucks on trucks.
And so I think as the volume increases and it’s produced and consumed and everything else, there are the sort of picks-and-shovels type players that would really stand to benefit. Chart is the one I would call out there.”
Sunil K. Siball, Managing Director and Senior Energy Infrastructure/Utilities Analyst, Seaport Global Securities LLC.
Sunil K. Sibal is a Managing Director and Senior Energy Infrastructure/Utilities Analyst at Seaport Global Securities LLC.
He has more than 25 years of progressive international experience in the energy sector, most recently at Seaport Global, which he joined in 2014 to cover and build out the firm’s MLP/midstream infrastructure research.
“…One name I want to highlight is Williams (NYSE:WMB).
They operate and manage a set of infrastructure assets that primarily facilitate the movement of natural gas from wellhead to end users, whether those end users are electricity generation plants in the U.S. or LNG liquefaction plants, which basically export this gas to customers in Europe as well as Asia.
So Williams will continue to play a very pivotal role during this energy transition time, especially as the U.S. production sets to a new norm.
The way WMB is participating with this clean energy transition is they’re reducing their own carbon footprint by increasingly relying on renewable sources of power for their own usage.
So they’ve launched an initiative to use solar power for electricity which basically feeds their compressor machines, etc.
So those have been some of the steps they are taking.
They are also part of a hydrogen initiative, which is one of the cleanest energy sources.
So they’re part of a group of companies that is looking at making hydrogen a more significant part of the energy mix. So I do like Williams in that regard.”
Get all the LNG and Natural Gas stock picks from James West, Benjamin Nolan and Sunil K. Sibal by reading their entire interviews in the Oil and Natural Gas Downstream and Midstream Report, exclusively in the Wall Street Transcript.
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