Apache (APA.US) and Consol (CNX.US) downgraded by Barclays: the natural gas marketing dividend is fading, and the risk of core assets has not yet been eliminated

On Wednesday local time, Barclays PLC Sponsored ADR downgraded the ratings of Apache Corporation (APA.US) and CNX Resources Corporation (CNX.US) from "hold" to "sell", with target prices of $24 and $34 respectively. However, due to the overall increase in the energy sector, these two stocks rose by 4.69% and 1.75% respectively. Barclays analyst Betty Jiang pointed out that Apache Corporation is a typical case, reflecting the trend of traditional asset valuations recovering while U.S. shale asset valuations declining. She currently estimates that with current market prices, the independent free cash flow yield of the Permian Basin will only be 3.8% by 2026. This yield offers significant premium space compared to larger-scale U.S. pure shale oil companies with higher quality reserves. Additionally, the analyst mentioned that the significant income Apache Corporation receives from natural gas marketing - a major support for the company's free cash flow in 2024 to 2025 - is expected to be significantly reduced. This is due to the expansion of the Permian Basin's export capacity mitigating the natural gas price differential in the Waha region, as well as global liquefied natural gas prices weakening compared to the U.S. market. CNX Resources Corporation's stock price is roughly in line with the unleveraged free cash flow yield of natural gas exploration and production companies, despite the significantly shorter sustainable extraction time of its resource inventory. While the market has considered the development potential of the deep Utica shale gas field in its valuation, the potential risks of this gas field have not been fully eliminated, as noted by Betty Jiang. After Occidental Chemical Corporation (OxyChem) successfully completed its spin-off transaction, Barclays PLC Sponsored ADR decided to upgrade Occidental Petroleum Corporation (OXY.US) stock rating to "hold". Betty Jiang's analysis states that although this move can accelerate debt reduction, bringing it below the target level set after acquiring CrownRock, Occidental Petroleum Corporation also loses a source of free cash flow that could help buffer against energy commodity cycle fluctuations. Looking ahead to 2026, Betty Jiang expressed positive views on several energy companies. She is particularly bullish on Ovintiv (OVV.US), believing that the company's successful transition to a focus on the dual core liquid business of the Permian Basin and the Montney Shale formation after selling its Anadarko Basin assets is promising. She also has confidence in EQT Corporation (EQT.US), pointing out that the market has not fully recognized the structural growth potential and profit margin advantage the company gains in the natural gas sector through the integration of midstream operations. Additionally, Betty Jiang sees Viper Energy (VNOM.US) as a high-quality investment target in the Permian Basin, with its current valuation at a low level.