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On Wednesday, KeyBanc Capital Markets highlighted several insights from recent meetings with oil and gas investment clients in the Midwest, noting a shift in focus towards oil and continued interest in natural gas. The firm’s analyst, after engaging with long-only clients, reported a change in investor sentiment and priorities from the second half of 2024 and the first quarter of 2025, with a particular emphasis on understanding the oil macro environment and the role of natural gas as a safety trade.
The discussions, which took place against the backdrop of a stabilizing but lower crude oil price, revealed that investors were seeking guidance on oil after the recent earnings season. KeyBanc reiterated its view that oil’s weakness was policy-driven and that OPEC+ had not yet significantly increased supply. The firm maintains its forecast for West Texas Intermediate (WTI) crude at $66 per barrel for 2025 and $65 per barrel for 2026, suggesting an upward trajectory for oil prices.
In contrast to the uncertainty surrounding oil, the sentiment towards natural gas was almost unanimously bullish, buoyed by expectations of secular demand growth. However, KeyBanc urged caution, pointing to substantial production growth that has gone largely unappreciated. The firm does not anticipate a meaningful decline in U.S. oil production, which implies that associated gas production is unlikely to decrease.
KeyBanc also addressed investor surprise regarding the modest reductions in oil production and capital expenditure (capex) forecasts for their coverage group. The adjustments to 2025 estimates were slight, with only a 0.7% decrease in expected oil production and a 2.4% cut in capex. Further, projections for 2026 suggest no anticipated contraction, with both capex and oil production forecasted to be above 2025 levels.
Despite the year-to-date underperformance in energy equities, with the S&P Oil & Gas Exploration & Production Select Industry Index (XOP) down 7% compared to the S&P 500’s 1% gain, investors remained receptive to stock-specific ideas. KeyBanc discussed several companies, noting EOG Resources (NYSE:EOG), Inc. as a frequently owned name. The firm also identified EXCO Resources, Inc. as under-owned but offering relative value against its natural gas peers. Smaller names like Matador Resources (NYSE:MTDR) Company and Ion Resources were highlighted as interesting liquid producers, with Gulfport Energy (OTC:GPORQ) Corporation presented as another value proposition.
In other recent news, Matador Resources Company reported its first-quarter 2025 earnings, revealing an earnings per share (EPS) of $1.99, surpassing the forecasted $1.84. However, the company reported revenue of $909.9 million, which fell short of the expected $959.65 million. Despite the earnings beat, Fitch Ratings upgraded Matador Resources’ Long-Term Issuer Default Ratings from ’BB-’ to ’BB’, citing successful debt reduction and positive free cash flow generation. The rating upgrade reflects Matador’s strong asset base and financial flexibility, with expectations for continued free cash flow and low leverage. Additionally, BofA Securities initiated coverage on Matador Resources with a Buy rating and a price target of $56, praising the company’s diverse growth strategies and strong management team. Matador Resources is also projecting a 17% increase in oil production by the end of the year, with a record second quarter anticipated. These developments highlight Matador Resources’ strategic focus on growth and financial stability amidst a challenging macroeconomic environment.
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