Goldman Sachs upgrades E&P Sector to Attractive

Goldman Sachs upgraded the E&P sector to Attractive and said that natural gas prices are near a bottom. They believe that prices could hit $6/mmbtu before the end of the year. They say that E&P stocks reflect low long term natural gas prices and see a 28% upside to their target prices. Reasons for their optimism include:

1) More coal to gas substitutions,
2) Broader demand appears to be improving,
3) A potential 100 to 140 rig count reduction that is unlikely to reverse until gas prices significantly improve, and
4) More moderate storage builds.

Goldman Sachs says "the Street is too bearish" and "E&P stocks are attractively valued after pullback." The Street is overestimating summer storage builds and prices will rise. They are upgrading E&P stocks to Attractive from Neutral because natural gas prices are near bottom and likely to rise in the coming months and they see limited downside to natural gas prices.

Canadian Spirit Resources Inc. (SPI) is one the companies that we expect to see improved share prices as gas prices and sentiment improve. We should see a reversal of recent weakness with:

1) The upcoming Sproule Resource Report to be released shortly,
2) The completion of the c-A48-I horizontal well into the lower Montney, and
3) The spudding of the c-18-I horizontal well into the upper Montney in June.

The risk/reward of SPI is still very attractive due to its exposure to some of the best Montney land available and a well funded JV partner in Canbriam. Analysts are saying that SPI's story is among the best out there and several have recently issued very upbeat research.