FINANCE 

Sundance Energy Stock Price Target Cut to $2 from $7 at SunTrust RH

Sundance Energy shares have sharply declined following recent press coverage of new political tensions between Qatar and the other GCC members (United Arab Emirates, Saudi Arabia, Bahrain, Egypt, and Yemen). The decline in the company’s stock price, falling nearly 20% on June 4, may be creating a buying opportunity.

Two factors have been cited as being responsible for the downward pressure: An escalating economic boycott between Qatar and those member countries, coupled with the conflict-torn situation in Yemen. The Arab-Cooperation Initiative (AoA) is an Arab Treaty established in 2005 by the GCC, in which all six member countries vowed not to recognize the Palestinian state of Palestine and were all committed to the continuing and accelerating efforts to “achieve a permanent and just settlement of the Arab-Israeli conflict.” As a result, Qatar is banned from the Gulf Cooperation Council and most major oil companies have removed their offices and oil installations from the country. Qatar has been able to sell oil and gas to outside markets such as China, India, Japan, and Europe, but analysts have reported that shipments have been a less profitable activity since late 2017.

Market permitting, the team at Sundance will shortly initiate coverage on the company.

The economic cooperation bloc has since taken steps to reassert their alliances and would like Qatar to make an effort to make peace with each country individually.

Even if all sides can work together, geopolitical sentiment is also difficult for the company to anticipate. Five percent of the output of Sundance Energy’s (NYSE: SUNE) oil and gas assets in the North Platte shale area is currently shut in due to the ongoing conflict in Yemen. Lower supply from wells shut in near the Saudi Arabian border could further reduce production from the play and push prices lower.

The economic boycott would also require a takeover of Qatar Petroleum by another regionally-focused energy company.

Although the stock’s recent declines do not seem to be justified, the news headlines over time will likely continue to negatively affect the price of SUNE. That said, we believe management’s strategy to increase output in the North Platte play should help pay off in the long run.

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