Weather Dominates Fundamentals: Global Equity Research

Natural Gas
Weather Dominates Fundamentals

Global Equity Research
OUR TAKE: Slightly Negative. Natural gas production levels in recent months have us
Daily Edge | Pre-market questioning our maintenance model as we rang in the new year surging to an all-time high
Thursday, January 13, 2022 (nearly 100 bcf/d). We expect the dynamics of an undersupplied international market to keep
US feedgas flows running at or near record levels but have become more concerned about
Analyst Team Link to ScotiaView growing volumes. We are revising our 2022E price deck down by almost $1 to $3.75/mmbtu
and keeping our out years unchanged.

Holly Stewart, CPA | Analyst

Scotia Capital (USA) Inc. | 713-393-4512

Alonso Guerra-Garcia | Analyst Adjusting 2022 forecast; out years unchanged. We are making downward revisions to our

Scotia Capital (USA) Inc. | 713-393-4525 2022 price deck, assuming the year will average $3.75/mmbtu, down $0.94 from our previous
Joe Vandrick | Associate price deck of $4.69. Our 20% revision is a result of higher-than-anticipated production growth
Scotia Capital (USA) Inc. | 713-393-4511 during 2H21, guiding our production forecast higher moving forward while also taking into
Target Changes account withdrawals that have been 197 bcf lower than the 5-year average during November
New Old and December. 2023 through our long-term forecast remain intact (see Exhibit 1).
NFG-N US$65.00 US$64.00
SWN-N US$6.00 US$7.00 KEY THEMES DRIVING OUR OUTLOOK
Coverage Summary
Rating 1-Yr. Target Return
• U.S. production back to growth mode. In our last update (Changing Market Dynamics;
This report is intended for replaceme@bluematrix.com. Unauthorized distribution of this report is prohibited.
AM-N SP US$11.00 15.2%

AR-N* SP US$22.00 13.8%
Gas Crunch Goes Global) we highlighted stagnant production levels which were vacillating
CNX-N* SP US$15.00 -1.3% between ~90-94 bcf/d. Fast-forward three months and production averaged 95.8 bcf/d
CTRA-N* SO US$28.00 37.3% in 4Q and approached 100 bcf/d at the end of the year. We have shifted our 2022 supply
EQT-N* SO US$28.00 20.6% forecast higher from just under 95 bcf/d to now 96.6 bcf/d following the growth in 4Q. We
NFG-N* SO US$65.00 5.3% suspect TIL timing has recently artificially boosted volumes as producers looked to take
RRC-N* SP US$24.00 16.2%
advantage of record winter pricing but expect a higher production level to be sustained
SWN-N* SP US$6.00 26.3%
into 2022.
*Companies with pertinent revisions
• Early winter weather weighed on res/com demand. 4Q21 gas heating degree days have
measured 19% below normal (but 8% below last year), weighing on both residential
and commercial demand which in 4Q21 averaged 25.4 bcf/d, or 1.3 bcf/d below 4Q20
levels and a massive decline of 3.7 bcf/d from the 4Q19 average. The unseasonably warm
weather has helped push storage levels back above five-year averages, altering the bullish
fundamentals that existed as we headed into winter.
• LNG feedgas remains the engine. Recent feedgas flows have averaged 12 bcf/d, well
ahead of the 2021 average of 10.7 bcf/d as JKM and TTF strip pricing of ~$27/mmbtu
continues to create a strong incentive for LNG exports to be pulled into the international
markets. As we look to 2022, Sabine Pass Train 6 and Calcasieu Pass are the two capacity
additions expected to be in full service by midyear, putting full export capacity at 12.8 bcf/
d (or feedgas capacity of ~14 bcf/d). European storage levels sit 23% below the five-year
average.
• Moderate electric sector growth remains likely. The latest update from S&P Global
predicts gas-fired capacity will grow by over ~14 GW in 2022 while coal will continue its
retirement trend by 7.4 GW. We peg incremental power burn of 0.8 bcf/d given this new
generation as well the fact that coal-to-gas switching is nearly tapped out.
• Industrial sector down but not out. The EIA shows industrial demand hit a recent low
during the depths of the COVID crisis of 19.9 bcf/d, springing to ~21.6 bcf/d in October
2021 when spot prices were hovering around $5-$6. The price inelasticity of demand gives
us confidence in a flat to low growth profile in 2022+.
Production: January 12, 2022, 21:00 ET. Dissemination: January 13, 2022, 06:23 ET.
For Reg AC Certification and important disclosures see Appendix A of this report. Analysts
employed by non-U.S. affiliates are not registered/qualified as research analysts with FINRA in
the U.S. unless otherwise noted within this report.
Daily Edge | Pre-market

Thursday, January 13, 2022
REVIEWING
2021 – A DYNAMIC YEAR FOR NATURAL GAS
• Pricing ripped higher. The weighted average bid-week Nymex price rose 85% in 2021 to average $3.85/mmBtu, a yearly price not
experienced since 2014. Henry Hub jumped to a yearly average of $3.83 or up 91% y/y.
• Production gains exceeded 2020 declines. According to Bloomberg, US production grew nearly 2.2 bcf/d or ~2.5% after falling 1.2 bcf/d
in 2020. Exit-to-exit (Dec. to Dec.), the data shows growth of 5.5 bcf/d as the final quarter of 2021 demonstrated over 2 bcf/d of growth
sequentially.
• Demand was again supported by exports. Volumes leaving the US market helped sustain a healthy Nymex pricing dynamic as LNG and
exports to Mexico combined for y/y demand growth of 4.5 bcf/d. This supports the declines in both power and industrial demand which
lost 1.4 bcf/d of consumption.
MODIFYING THE PRICE DECK
Exhibit 1 - Natural Gas Price Deck Revisions

Source: FactSet; Scotiabank GBM estimates.

Global Equity Research 2

R
ecalibrating our Production Forecast
Supply rose rapidly in 2021 to record levels. Bloomberg data points to three consecutive quarters of production growth beginning with
2Q21 production up 3.7 bcf/d, 3Q21 up 690 mmcf/d, and 4Q21 up 2.2 bcf/d, rounding out the year at 95.8 bcf/d in 4Q21. The data also
shows US production reaching an all-time high of 99.2 bcf/d on December 28th. Exit-to-exit, production rose 5.5 bcf/d or 6%. This recent
increase has us revisiting our prior forecast in which we called for 2022 to see only modest growth of 2.2 bcf/d annually to an average of 95
bcf/d. We have heard of producers shifting TIL schedules to be heavier in the winter months resulting in higher 4Q production levels. Our
revised expectations call for a gradual ramp in US volumes through 2023.
Forecasting 3% growth in 2022. We estimate production volumes will dip in January to ~96 bcf/d from just over 97 bcf/d in December due
to freeze offs and TIL timing before gradually increasing to end the year at ~97.7 bcf/d. This equates to exit-to-exit (4Q to 4Q) growth of 1.0
bcf/d (1%) and y/y production up 3.0 bcf/d (3.0%). See Exhibit 2 where we highlight our 2022 production forecast as well as Exhibit 3 which
outlines the quarterly production cadence, broken down by key basin.
Exhibit 2 - U.S. Dry Gas Production 2020-2022E

Source: Bloomberg; Scotiabank GBM estimates.
What is driving the growth? From December 2020 to December 2021, US production was up ~5.5 bcf/d or 6.0%. Out of the seven major
basins tracked by the EIA only the Anadarko and Appalachia showed exit-to-exit declines (and Appalachia was up for the year). The Permian
grew ~2.5 bcf/d exit to exit in 2021 and the Haynesville was up 1.5 bcf/d, accounting for the majority of US production growth. We expect
growth to continue in both the Permian and Haynesville throughout 2022, but do anticipate some of the Haynesville consolidation to
dampen the pace of development over time.


BASIN
SPECIFIC FORECASTS:
• Appalachia – Our forecast calls for 550 mmcf/d of incremental volume in 2022 and 650 mmcf/d in 2023, all predicated on northeast
producers sticking to the maintenance production plan. Private activity made up 25% of the volume in 2021, meaning if private producers
take advantage of higher pricing, our forecast may be slightly understated.
• Haynesville – 2021 was an active consolidation year for the basin, with three of the top eight producers in terms of volume being
acquired. Our basin rig model assumes the current rig count of ~50 rigs remains constant over the next two years, implying 1.0 bcf/d of
growth in 2022 and 1.4 bcf/d in 2023, or +7% and 9%, respectively. As a side note, with the acquisition of GEP and Indigo, SWN now runs
~16% of the Haynesville rigs.
• Permian – We base our Permian expectations on colleague Paul Cheng’s 15 upstream producers under coverage who collectively produce
~8 bcf/d gross in the Permian or ~40% of basin production. Assuming covered Permian growth rates and similar growth patterns on
the remaining dry gas footprint equates to volumes increasing ~10% or ~2 bcf/d to an average of ~20 bcf/d in 2022, followed by similar
growth in 2023.
Exhibit 3 - Quarterly Gas Production Estimates

Source: Bloomberg; EIA; Scotiabank GBM estimates


A
nother Forecasted Year of Demand Growth
Demand trends – a historical perspective. Natural gas demand has grown at a rapid clip since 2016, averaging a five-year CAGR of 4.5%,
or an increase of 19.6 bcf/d to round out 2021 at ~99 bcf/d. LNG has made the biggest impact by far, transforming the U.S. natural gas
landscape and adding an incremental 9.4 bcf/d of demand over those five years. The electric sector has grown by 3.6 bcf/d in that same time
frame, followed by exports to Mexico (2.1 bcf/d), the industrial sector (1.3 bcf/d) and the residential sector (1.1 bcf/d). In Exhibit 4 below, we
highlight demand growth of nearly 4% in 2021 (6% vs three-year average), this year driven by another astonishing year of relative growth,
48% to be exact, in LNG feedgas demand, followed by an 18% increase in exports to Mexico. Our forecast calls for the trend to continue in
2022 with expected demand growth of 3.0% and 3.7% in 2023.
Exhibit 4 - U.S. Natural Gas Supply and Demand

Source: Bloomberg; Scotiabank GBM.
Electric sector has seen two consecutive years of declining consumption. U.S. natural gas generation capacity has increased to ~490 GW
as of the latest EIA update, up 14% from the gas-fired footprint in 2014 of ~429 GW. As most are aware, coal experienced a trend in the
opposite direction, declining 30% from 2014 capacity levels of ~303 GW to today’s generation level of ~212 GW. We expect both trends to
continue, with S&P Global forecasting 14.3 GW of gas fired capacity added in 2022 followed by 7.8 GW in 2023. We would note that the EIA’s
planned additions are lower at 9.5 GW in 2022 and 6.5 GW in 2023. We forecast the potential for incremental demand amounting to ~2.3
bcf/d and 1.3 bcf/d in 2022/2023 respectively assuming 160 mmcf/d per GW. See Exhibit 5.
S&P Global anticipates a decline in coal-fired capacity to the tune of 7.4 GW in 2022 followed by a decline of 4.9 GW in 2023. Coal grew
its utilization rate in 2021 after declining in the previous two years as natural gas pricing rose and utilities had coal inventories on hand to
burn. Inventories at the power plants fell from 17% below the 10-year average at the end of 2020 to the latest data of 45% below the 10-
year average. We do not anticipate much incremental gas-to-coal switching in 2022, but suspect coal-fired generation will remain above
prior levels given higher natural gas prices. We view our natural gas-fired power burn forecast to be somewhat conservative, estimating
consumption of 31.6 bcf/d in 2022 (+0.8 bcf/d) and 32.6 bcf/d in 2023 (+0.9 bcf/d).


Exhibit
5 - Forecasted Coal Fired Retirements and Gas Fired Additions
Source: S&P Global Market Intelligence; Scotiabank GBM estimates.
A slow start to winter weighing on res/com demand. While Europe has experienced a cold start to the winter, 4Q21 gas heating degree
days measured 19% below normal (8% below last year) in the U.S., weighing on both residential and commercial demand. From October
through December residential and commercial demand averaged 25.4 bcf/d, a nearly 1.3 bcf/d drop from 2020 levels and a massive decline
of 3.7 bcf/d from 2019 actuals of 29.0 bcf/d. This is a material reason why weather is such a needle mover for inventories – assuming res/com
demand noted in 4Q19 over the past three months of 2021 would have equated to inventories 336 bcf below current levels, or closer to 8%
below the five-year average.
Assuming relatively normal weather next year, we are forecasting res/com demand of 22.2 bcf/d in 2022 and 23.7 bcf/d in 2023, up from
21.9 bcf/d in 2021.
Industrial demand could resume growth mode in 2022. Bloomberg data points to a decline in industrial demand to the tune of 0.4 bcf/
d in 2021 after a decline in 2020 of 1.3 bcf/d. The EIA data paints a different picture however, with YTD demand through October up 1% or
0.2 bcf/d. In its latest EIA Short-Term Energy Outlook, the agency notes its expectation for growth of 0.8 bcf/d in 2022, citing the industrial
sector insensitivity to price due to limited or no alternatives for feedstock. Our forecast calls for growth of 0.6 bcf/d or 3% in 2022 and 0.3
bcf/d or 1% in 2023 driven by economic growth.
Exports to Mexico, what's ahead? The US has grown its exports to Mexico for eleven consecutive years as our production base has
grown and natural gas infrastructure has expanded. Exports have grown at a CAGR of 9.5% over the last five years, with growth of ~15% in
2021. Looking at the country’s sources of natural gas, pipeline imports make up ~75% of total supply, creating a continued outlet for U.S.
production. Annual pipeline exports to Mexico from the US averaged 6.6 bcf/d in 2021 (Bloomberg data), peaking on June 17 at 8.0 bcf/d.
Mexico has continued to experience declining natural gas supply even as demand ticks materially higher. Per the EIA, in June 2021, power
plants in Mexico used ~4.9 bcf/d of natural gas for power generation (+19% y/y) while the industrial sector demand averaged 3.3 bcf/d (+31%
y/y). We are not forecasting in new pipeline additions in 2021 noting ample capacity that is available today. We show modest growth in
exports of 0.2 bcf/d or 3% in 2022 and a similar 0.2 bcf/d in 2023.


LNG
– Full Steam Ahead
Global market tightness hinging on winter. LNG prices continued their ascent in 4Q, reaching as high as $60/mmbtu in December and
12-month strips that touched as high as $44/mmbtu, as the global undersupply and winter weather drove market volatility. In Europe,
storage ended the year at just 56% full, or 23% below the normalized 5-year average (see Exhibit 7). Russian pipeline imports were lower
than anticipated due to their own winter strength and more rapid storage withdrawals that showcased pulls at a 10-year high. Reports of a
Nord Stream 2 approval to not occur before 1H22 also contributed to shifting the futures curve higher. Late in the quarter, a flip in the trading
arbitrage between Europe and Asia, also propelled by bottlenecks in the Panama Canal and more robust storage levels in Asia amid milder
weather, shifted LNG trading flows to Europe to refill storage. As a result, more recently, the JKM and TTF prompt month have averaged
lower at ~$27/mmbtu (12-month strip ~$22/mmbtu), although with pricing still 275% higher y/y. The market is not yet out of the woods as
uncertainty remains regarding the strength of winter globally as well as the Russian pipeline flows dynamic.
Exhibit 6 - JKM and TTF Prices Rose ~364% Y/Y in 2021 on Average
Source: Bloomberg; Company reports; Scotiabank GBM.


Exhibit
7 - European Gas Storage Ended 2021 23% Below the Normalized Five-Year Range (2015-2019)
Source: Bloomberg; Scotiabank GBM.
Record U.S. LNG feed gas flows supported by new projects and record margins. Feed gas flows set new records in 4Q21, averaging
8% higher sequentially (+17% y/y) as record high pricing spreads drove LNG utilization higher. This occurred while SPL T6 began to take
significant feed gas amid its commissioning process. As a result, in December feed gas flows set a new daily record of 13.1 bcf/d. Looking out
to 2022, SPL T6 (0.8 bcf/d) is on track to reach substantial completion in 1Q22 with first LNG reached in November. Calcasieu Pass has yet
to average meaningful feed gas flows (~15 mmcf/d average since September), although we expect the facility to begin commissioning its
liquefaction trains and eventually reaching a 1.4 bcf/d run-rate later this year.
Beyond these projects, just Golden Pass is under construction with targeted in-service in 2025/2026, although Venture Global’s next project
(Plaquemines Parish) and Tellurian’s Driftwood project have begun early siting works ahead of formal FIDs. We currently anticipate 2022
exports to average 10.8 bcf/d (or feedgas of 11.9 bcf/d), up 12% y/y, and a more moderate 8% increase in 2023 to 11.7 bcf/d (feedgas of
12.8 bcf/d) given we do not anticipate further facility additions following the startup of SPL T6 and Calcasieu Pass.


Exhibit
8 - U.S. Pipeline Flows to LNG Terminals (2020 to Date)
Source: Bloomberg; Scotiabank GBM estimates.
Where Could We Be Wrong?
Our price deck remains above $3 over the next several years, predicated on the fact that we believe storage fundamentals will remain tight at
least through 2023. Today, we sit 3% above the five-year average but given any sort of normal weather over the last two months, we would
remain at a deficit. We outline potential alternative bullish and bearish scenarios in the bullets below:
BULLISH THESIS – WHAT DRIVES US HIGHER FROM HERE?
• A colder winter trumps all. Assuming temperatures are 10% colder than normal in February and March would result in an incremental
~1.5 bcf/d of natural gas demand from the residential and commercial sectors based on our model. Our base case assumes we enter
injection season 2% below the five-year average (normal weather), while we calculate that a 10% colder winter could push storage levels
to ~11% below.
• Production holds steady from 2H22. Although this appears to be an unlikely scenario in our view based on the oil rig count up 75% y/y
and gas rig count up 26%, investors continue to call for maintenance production from U.S. producers, even in the face of $80/bbl oil and
$3.70/mmbtu gas. While most large public companies are calling for flat to modest growth, we expect this volume in aggregate (along
with the privates) to equate to total production growth on the year.
• LNG exports continue to tick higher as capacity is added. LNG send outs have been a driver behind a tight US market and given the
natural gas shortages overseas, we expect LNG exports to be running near full capacity for the foreseeable future. Total capacity stands
at 10.6 bcf/d, with another 2.1 bcf/d being added over the next six months. We expect volumes to tick higher over the course of 2022,
taking average volume closer to 11.7 bcf/d by year-end 2022.


BEARISH
THESIS – WHY DO WE MOVE LOWER?
• Supply continues to grow at a rapid pace. In our last price deck update in October 2021, production levels were holding steady with a
natural gas focused rig count hovering around 98 and oil rig count at 445. Fast-forward to December and production levels are around ~4
bcf/d higher at 96-100 bcf/d and both the oil and gas rig counts have shifted up by 8%. The signs are pointing toward at least moderate
growth in 2022, but if production accelerates further, fundamentals will deteriorate.
• Significant declines in the international pricing environment. TTF and JKM strip pricing of ~$27/mmbtu respectively are well above
Nymex, incentivizing a robust export market for US LNG feedgas flows. Should the pricing environment materially change, this arbitrage
will diminish. In recent history (summer 2020), US LNG margins vanished resulting in feedgas flows dropping to 3.8 bcf/d or 38% of
estimated feedgas capacity.
• Demand stays stagnant. Our best guess calls for overall demand growth of 3.0 bcf/d in 2022, which outside of an uptick in exports,
includes a y/y pick-up in res/com, industrial and the electric sector. Risks include weather, a stronger shift to renewables or further
reliance on coal in the power sector, as well as natural gas production growth in Mexico.
Exhibit 9 - Scotiabank GBM Supply and Demand Model

EIA actuals through October 2021. Scotiabank GBM estimates beginning November 2021 through 2023
Source: EIA; Scotiabank GBM estimates.


A
ppalachian Estimate Revisions
2022 forecasts decline on lower natural gas assumptions. Our 2022 natural gas pricing assumption declines to $3.75/mmbtu from $4.69/
mmbtu, our NGL expectations move higher to $38.04/bbl from $37.80/bbl and WTI shifts up $1.99 to $71.01/bbl. The changes have driven
a 10% decrease in EBITDA and an 11% decrease in CFPS. Our estimates now sit 3% below consensus on average, with standouts that include
AR, at now 8% below the Street and SWN at 4% lower than consensus expectations.
2023 estimates rise on higher NGLs. Our 2023 natural gas price deck is unchanged, our NGL forecast shifts to $33.08 from $29.92 and oil is
unchanged at $72. These moves have resulted in a 3% boost in average EBITDA and CFPS.
Minimal price target revisions. Limited changes to the out year forecasts translates into modest updates to our price targets. We revise our
NFG target up $1 or 2% to $65 after updating the PDP valuation to reflect recently updated FY21 reserves. SWN price target declines $1 or
14% to $6 after shifting the discount rate in our NAV valuation model to 9% from 8% to better reflect a slightly heightened level of execution
risk as the company works to integrate two large scale Haynesville acquisitions into existing operations.
Exhibit 10 - Price Target Changes and Quarterly Estimate Revisions

Source: FactSet; Scotiabank GBM estimates
Exhibit 11 - Annual Estimate Revisions
Source: FactSet; Scotiabank GBM estimates.


Pertinent Data and Revisions

Price Rating 1-Yr. Target 1-Yr. Return
AM-N US$10.50 SP US$11.00 15.2%
AR-N US$20.76 SP US$22.00 13.8%
CNX-N US$15.88 SP US$15.00 -1.3%
CTRA-N US$22.54 SO US$28.00 37.3%
EQT-N US$24.66 SO US$28.00 20.6%
NFG-N US$63.28 SO US$65.00 5.3%
RRC-N US$22.42 SP US$24.00 16.2%
SWN-N US$5.04 SP US$6.00 26.3%
Antero Resources Corporation (AR-N; US$20.76)

New Old
Key Data EBITDA (M)21E: US$1,706 EBITDA (M)21E: US$1,753
EBITDA (M)22E: US$2,214 EBITDA (M)22E: US$2,603

CNX Resources Corporation (CNX-N; US$15.88)

New Old
Coterra Energy Inc. (CTRA-N; US$22.54)

New Old
EQT Corporation (EQT-N; US$24.66)
New Old
National Fuel Gas Co. (NFG-N; US$63.28)

Valuation: Sum-of-the-Parts approach to NAV, less debt
Key Risks: Commodity prices, midstream availability, project timing and execution, government regulation
New Old
1-Yr. Target US$65.00 US$64.00
Range Resources Corp. (RRC-N; US$22.42)

New Old



Southwestern Energy Company (SWN-N; US$5.04)
Valuation: Sum-of-the-Parts approach to NAV, less debt
Key Risks: Commodity prices, midstream availability, project timing
New Old
1-Yr. Target US$6.00 US$7.00


Appendix A: Important Disclosures
Company Disclosures (see legend below)*

Antero Resources Corporation I
Coterra Energy Inc. N1, N2
EQT Corporation G, I, N1, U
We, Holly Stewart and Alonso Guerra-Garcia, certify that (1) the views expressed in this report in connection with securities or issuers that
we analyze accurately reflect our personal views and (2) no part of our compensation was, is, or will be directly or indirectly, related to the
specific recommendations or views expressed by us in this report.
This document has been prepared by Research Analysts employed by The Bank of Nova Scotia and/or its affiliates. The Bank of Nova Scotia,
its subsidiaries, branches and affiliates are referred to herein as "Scotiabank." "Scotiabank" together with "Global Banking and Markets" is the
marketing name of the global corporate and investment banking and capital markets business of The Bank of Nova Scotia and its affiliates.
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research independence being compromised by any interactions they may have with other business areas of The Bank of Nova Scotia. The
compensation of the Research Analyst who prepared this document is determined exclusively by Scotiabank Research Management and
senior management (not including investment or corporate banking).
Research Analyst compensation is not based on investment or corporate banking revenues; however, compensation may relate to the
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disclosures.
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Time of dissemination: January 13, 2022, 06:23 ET. Time of production: January 12, 2022, 21:00 ET. Note: Time of dissemination is defined
as the time at which the document was disseminated to clients. Time of production is defined as the time at which the Supervisory Analyst
approved the document.
*Legend
G Scotia Capital (USA) Inc. or its affiliates has managed or co-managed a public offering in the past 12 months.
I Scotia Capital (USA) Inc. or its affiliates has received compensation for investment banking services in the past 12 months.
N1 Scotia Capital (USA) Inc. had an investment banking services client relationship during the past 12 months.
N2 Scotia Capital (USA) Inc. had a non-investment banking securities-related services client relationship during the past 12 months.
U Within the last 12 months, Scotia Capital Inc. and/or its affiliates have undertaken an underwriting liability with respect to equity or
debt securities of, or have provided advice for a fee with respect to, this issuer.


Rating and Price Target History
National Fuel Gas Co. (NFG-N) as of January 12, 2022 (in USD)
12-20-2018 01-30-2019 04-15-2019 06-27-2019 08-13-2019 10-08-2019 01-14-2020 04-07-2020 05-06-2020 06-15-2020
Price: 53.68 Price: 57.22 Price: 60.94 Price: 51.87 Price: 47.32 Price: 43.31 Price: 44.84 Price: 37.19 Price: 38.73 Price: 40.83
Rating: SP Rating: SP Rating: SP Rating: SP Rating: SP Rating: SP Rating: SP Rating: SP Rating: SO Rating: SO
Target: 57.00 Target: 58.00 Target: 60.00 Target: 56.00 Target: 53.00 Target: 48.00 Target: 46.00 Target: 40.00 Target: 44.00 Target: 46.00
70
65
60
Price (USD)
55
50
45
40
35
30
Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22
08-14-2020 10-13-2020 04-15-2021 07-15-2021 10-14-2021

Price: 45.32 Price: 42.41 Price: 50.87 Price: 51.31 Price: 57.50
Rating: SO Rating: SO Rating: SO Rating: SO Rating: SO
Target: 51.00 Target: 52.00 Target: 53.00 Target: 56.00 Target: 64.00
*Represents the value(s) that changed.

Ratings Legend: FS=Focus Stock; SO=Sector Outperform; SP=Sector Perform; SU=Sector Underperform; T=Tender; UR=Under Review; CS=Coverage Suspended; DC=Discontinued Coverage
Source: Scotiabank GBM estimates; FactSet.
Southwestern Energy Company (SWN-N) as of January 12, 2022 (in USD)

12-20-2018 06-27-2019 10-08-2019 01-14-2020 04-07-2020 05-08-2020 06-15-2020 10-13-2020 11-13-2020 01-14-2021 03-05-2021
Price: 3.46 Price: 3.06 Price: 1.79 Price: 2.05 Price: 2.07 Price: 3.20 Price: 3.33 Price: 2.81 Price: 3.05 Price: 3.83 Price: 3.96
Rating: SP Rating: SP Rating: SP Rating: SP Rating: SP Rating: SP Rating: SP Rating: SP Rating: SP Rating: SP Rating: SP
Target: 5.50 Target: 4.50 Target: 4.00 Target: 3.00 Target: 2.50 Target: 2.75 Target: 3.50 Target: 4.00 Target: 4.75 Target: 5.00 Target: 5.50
12
10
Price (USD)
6
0
Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Apr-19 Jul-19 Oct-19 Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21 Jul-21 Oct-21 Jan-22 Apr-22
04-15-2021 07-15-2021 10-14-2021

Price: 4.25 Price: 5.03 Price: 5.17
Rating: SP Rating: SP Rating: SP
Target: 5.75 Target: 6.00 Target: 7.00
*Represents the value(s) that changed.

Ratings Legend: FS=Focus Stock; SO=Sector Outperform; SP=Sector Perform; SU=Sector Underperform; T=Tender; UR=Under Review; CS=Coverage Suspended; DC=Discontinued Coverage
Source: Scotiabank GBM estimates; FactSet.


Definition of Scotiabank, Global Banking and Markets Equity Research Ratings

Scotiabank has a three-tiered rating system, with ratings of Sector Outperform, Sector Perform, and Sector Underperform. Each Research
Analyst assigns a rating that is relative to his or her coverage universe or an index identified by the Research Analyst that includes, but is not
limited to, stocks covered by the Research Analyst.
The rating assigned to each security covered in this report is based on the Scotiabank, Global Banking and Markets Research Analyst’s 12-
month view on the security. Research Analysts may sometimes express in research reports shorter-term views on these securities that may
impact the price of the equity security in a manner directly counter to the Research Analyst’s 12-month view. These shorter-term views
are based upon catalysts or events that may have a shorter-term impact on the market price of the equity securities discussed in research
reports, including but not limited to the inherent volatility of the marketplace. Any such shorter-term views expressed in research report are
distinct from and do not affect the Research Analyst’s 12-month view and are clearly noted as such.
Ratings

Sector Outperform (SO) Other Ratings

The stock is expected to outperform the average 12-month total
return of the analyst’s coverage universe or an index identified by Under Review – The rating has been temporarily placed under
the analyst that includes, but is not limited to, stocks covered by the review, until sufficient information has been received and assessed
analyst. by the analyst.
Sector Perform (SP) Tender – As of January 25, 2021, Scotiabank GBM discontinued the
Tender rating.
The stock is expected to perform approximately in line with the
average 12-month total return of the analyst’s coverage universe or Risk Ranking
an index identified by the analyst that includes, but is not limited to,
The Speculative risk ranking reflects exceptionally high financial
stocks covered by the analyst.
and/or operational risk, exceptionally low predictability of financial
Sector Underperform (SU) results, and exceptionally high stock volatility. The Director of
Research and the Supervisory Analyst jointly make the final
The stock is expected to underperform the average 12-month total
determination of the Speculative risk ranking.
return of the analyst’s coverage universe or an index identified by
the analyst that includes, but is not limited to, stocks covered by the
analyst.
Focus Stock (FS)

As of April 29, 2019, Scotiabank GBM discontinued the Focus
Stock rating. A stock assigned this rating represented an analyst’s
best idea(s); stocks in this category were expected to significantly
outperform the average 12-month total return of the analyst’s
coverage universe or an index identified by the analyst that
included, but was not limited to, stocks covered by the analyst.
Ratings Distribution
As of December 31, 2021
Companies Rated Investment Banking Service Provided
in Each Category in the Last 12 Months
Rating Count Percentage Count Percentage
Sector Outperform 287 51% 100 35%
Sector Perform 245 44% 64 26%
Sector Underperform 29 5% 1 3%
For the purposes of the ratings distribution disclosure FINRA requires members who use a ratings system with terms different than
“buy,” “hold/neutral” and “sell,” to equate their own ratings into these categories. Our Sector Outperform, Sector Perform, and Sector
Underperform ratings are based on the criteria above, but for this purpose could be equated to buy, neutral and sell ratings, respectively.


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Weather Dominates Fundamentals: Global Equity Research

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Natural Gas

Weather Dominates Fundamentals

Holly Stewart, CPA | Analyst

AM-N SP US$11.00 15.2%

MODIFYING THE PRICE DECK

Exhibit 1 - Natural Gas Price Deck Revisions

Source: FactSet; Scotiabank GBM estimates.

Exhibit 2 - U.S. Dry Gas Production 2020-2022E

Source: Bloomberg; Scotiabank GBM estimates.

Exhibit 3 - Quarterly Gas Production Estimates

Source: Bloomberg; EIA; Scotiabank GBM estimates

Exhibit 4 - U.S. Natural Gas Supply and Demand

Source: Bloomberg; Scotiabank GBM.

Source: S&P Global Market Intelligence; Scotiabank GBM estimates.

Source: Bloomberg; Company reports; Scotiabank GBM.

Source: Bloomberg; Scotiabank GBM.

Source: Bloomberg; Scotiabank GBM estimates.

Where Could We Be Wrong?

BULLISH THESIS – WHAT DRIVES US HIGHER FROM HERE?

Exhibit 9 - Scotiabank GBM Supply and Demand Model

Source: EIA; Scotiabank GBM estimates.

Exhibit 10 - Price Target Changes and Quarterly Estimate Revisions

Source: FactSet; Scotiabank GBM estimates

Exhibit 11 - Annual Estimate Revisions

Source: FactSet; Scotiabank GBM estimates.

Pertinent Data and Revisions

Antero Resources Corporation (AR-N; US$20.76)

EBITDA (M)22E: US$2,214 EBITDA (M)22E: US$2,603

CNX Resources Corporation (CNX-N; US$15.88)

Coterra Energy Inc. (CTRA-N; US$22.54)

National Fuel Gas Co. (NFG-N; US$63.28)

Range Resources Corp. (RRC-N; US$22.42)

Appendix A: Important Disclosures

Company Disclosures (see legend below)*

Rating and Price Target History

08-14-2020 10-13-2020 04-15-2021 07-15-2021 10-14-2021

*Represents the value(s) that changed.

Southwestern Energy Company (SWN-N) as of January 12, 2022 (in USD)

04-15-2021 07-15-2021 10-14-2021

*Represents the value(s) that changed.

Definition of Scotiabank, Global Banking and Markets Equity Research Ratings

Sector Outperform (SO) Other Ratings

analyst. by the analyst.

Focus Stock (FS)

© The Bank of Nova Scotia 2022

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