Zman’s Energy Brain ~ oil, gas, stocks, etc…

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05
Jan

GST Notes

 

(GST) Hits Big Deep Bossier Well - 01/05/09

  • Belin #1, 
    • deep Bossier well (18,000 foot), (about 130 days to drill and complete so not cheap but I don’t have the well cost)
    • completed in 2 zones at a combined 41.2 MMcfepd gross. They have a 40% net revenue interest before or an IP rate of 16,500.
    • management indicated the well has further uphole potential which could stretch the deliverability here 
    • previous estimates put these wells at a little over 8 Bcfe EUR
    • prior to this, the best well at their E. Texas Hill Top area was the 23 MMcfepd IP Wildman well.
    • GST had previously indicated they had logged 150 feet of pay here but had not flow rates at the time (
  • The net production from this well roughly doubles the company’s production from Texas (17.2 MMcfepd through the first nine months of 2008) and greatly increases total company volumes (23 MMcfepd through the 9 months)
  • Reserve: as of mid year 2008, Netherland-Sewell (arguable the #1 or #2 reserve engineers out there) put total company reserves at 70.2 Bcfe.  That’s not a lot of reserves to support the current valuation but when these names can move on big news for short stints and it has been hammerd of late.
  • Hedges: about 40% of 2009 volumes at $8.75
  • Net debt to total cap of 46% which is high.
  • Other plays: Marcellus shallow CBM in the Powder River of Wyoming and in Australian.
  • Capex - like everyone else, the 2009 capital budget falls sharply (down 68% to $43mm if they get a proposed JV in Appalachia done)
  • I see no Street estimates for the name, it looks as if most coverage has been dropped.
  • Technically the stock has been basing with the group after having been abaondoned in the back half of 2008, though the stock did rally in Friday’s "rising tide" environment
  • Nutshell: At 42 cents per share this is below even single digit midget status with pure option like value in a common share. (CHK) has partnered with them in East Texas and made moves in the past like they wanted to buy them but this looks doubtful in the current environment. I may buy a little in an IRA this morning.
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04
Jan

Wrap - Week Ended 1/02/09


Other than a significant plunge in the rig count I don’t have a lot to add to my post from Friday morning outlining what happened in 2008 with a prognostication or ten thrown in for good measure. Click here to access that post. I’ll have some rig charts and comments out with the Monday post along with the regular features and a group multiple update and later in the week, a look at the Single Digit Midget list for 2009.

 

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02
Jan

Friday - Day 1, 2009

 

This is likely to be another slow day for the market and I plan to save my truly ground breaking work for next week and afterword. First, a look back at the year that was with brief comments:

2008 Was …

1) … A Bad Year For Equities. I know, I know… dub. But it was bad for the broad indexes on a very similar basis for energy and non-energy names. Despite having strong fundamentals than the broad markets the Majors and E&P stocks fell roughly as much as the Dow and S&P. Service vastly underperformed and while I’ve been staying away from most service names and I believe this area will continue to suffer losses as rig counts decline into decade low low levels by early 2Q09, they will probably have a pretty good back half of 2009, especially the deepwater names. 

2) … Oil’s Worst Year Ever. After hitting an all time high mid year oil has not been able to gain much traction unless you count the last week of 2008. 2009 will likely be better. If the global economy stabilizes. To that end, refining cracks will need to improve or the U.S. refiners, and I’m thinking of the mid cap and smaller independent ones here (so everyone on the usual list but VLO and SU could be in for consolidation (very doubtful in the first half) or bankruptcy.

  • Prediction for prices? I hate these as they depend on so many variables and I take in fresh variables daily that add to my thoughts but if I had to guess now I’d say average price for crude of $60 with a year end price of $70 to $80. Higher than current levels of

3) … Not Too Great For Natural Gas Either. Natural gas suffered first from fear of too much supply and then from a broad based decline in industrial activity. Lower 48 U.S. natural gas production probably grew 7% (excluding the impact of hurricanes Gustav and Ike)  in 2008 which is an unprecedented amount. Past years have seen gas growth close to flat with individual years growing or receding by 1 to 2%. So 2007 and 2008 were outliers brought about by accelerated activity in shale plays. Much of this growth comes from wells which decline at a rate of 80% (or more) in the first year so the only way to get growth each year is to drill more wells, and for that, you have to have gas prices that support level of activity or projects start getting shelved in order of lowest to higher IRR. Gas itself appears to be basing in a range of $5 to $6.25 now but the outcome of January weather will have the first shot at price determination early in the year (very cold = $6.50, very warm = $5) before a decline rig count (see next bullet) can start shoving natural gas production down in the really high decline rate plays.

  • Prediction for price?: Average $6 to $7 with a close of 2009 closer to $9.
  • Prediction of supply growth for 2009: 1 to 2%.

4) …Busy, Busy, Busy for Rig Operators; 2009 Will Be Less So. New shale plays seemed to spring forth each month and while prices were high, operators dusted off old rigs and had new ones built at pace not seen in a decade as capital discipline was replaced with initial production exuberance. But once prices had peaked and quickly tumbled and the financial markets made borrowing to bridge the gap between capex and cash flow exceedingly painful, operators were forced to cut back on their plans and started laying off rigs left and right, especially as the fourth quarter drew to a close. Now this is mostly a gas rig phenomenon and the numbers in the table don’t really do what’s going on justice so let me insert a chart here:

  • Prediction for rigs:
    • Gas rigs ultimately fall to around 1,000 by late 1Q, early 2Q.
    • Horizontal rigs: down 50 more from current levels for the year’s average of 540 or so. Fund managers will watch for this as a sign that gas supplies don’t get too out of hand as the prolific plays are mostly being tapped horizontally
    • Prices will fall.

5) …Speculator Heaven Until They Got The Wrap For High Commodity Prices And Abandoned Ship. I have a problem with blaming everything on buyers who provide liquidity because you don’t like what they buy. If a group of traders bought cars and drove up the price of cars to the benefit of the Big 3 Congress would pin a medal on them. Anyway, while there were some speculative excesses, the sell down of crude that came with a sputtering of the global economy has resulted in literally dozens of delayed large scale oil development projects and countless smaller ones. Also, in the case of natural gas, speculators were short natural gas all year and yet gas rose at high as the mid $13s before tumbling back to earth. The net short position for natural gas is actually at one of its lowest points in the last year.

 

6) … A Pretty Normal Year For Peak Gas In Underground Storage. At present, gas in storage is 2.3% below year ago levels (yep, despite all that extra production) and only 2% above the 5 year average for this time of the year. I don’t expect the falling rig count to show up in the weekly numbers until March and not in the monthly supply numbers (which are released 2 months after the fact) until April. I do expect a slightly bigger year for LNG imports in 2009 as new supply comes on line but for continued declines from Canadian imports with the effect of imports being flat to slightly higher next year, probably not a supply / demand buster. 

7) … A Wild and Nonsensical Year For Coal. Just pointing out that while coal pretty much ended the year where it started with both U.S. western and eastern coals actually up 8% YoY, the coal companies got literally slaughtered falling 64%. KOL, the coal ETF, is a rather imperfect way of looking at the group as it contains both suppliers and consumers of various coals but taking a look at the performances of the big U.S. coal miners ACI, BTU, MEE (down 64%, 63%, 61% respectively) confirms a lousy year for the group. Note how close all three of those coals are down pretty much the same amount? Not a lot of though going into stock prices there right now. While steel production is weak at present and while electricity demand is off 1 year to date, the drop in the miners is, in my opinion (which everything around here generally is unless otherwise noted), unwarranted.

8.) … A Bad Time For Green Energy If Not For Green Rhetoric. This one kills me. Obama wins, talks of 2 to 2.5 million "green collar" jobs and oodles of green for the makers of anything, well, green, and the group falls out of bed because oil did. As the sun shall rise again, so shall the solars. 2009 may not be the best year for them, at least the first half anyway, as global capacity is seen exceeding global demand due to the weak global economy by about 20%. My thought is to go with the low cost producer and the one landing the utility contracts as they are forced to augement their generation capacity with green energy (by the way, that would be FSLR).

9) …And An Unbelievably Poor Time for Shipping Things Around The Globe. Like oil, dry bulk rates went from all time highs to long term lows. Unlike oil, they really fell apart crashing to levels that are below the cost of operating a ship on a daily basis. When the economy recovers so will these guys. I will be taking a look at whose balance sheet and contract vs spot status put them in the best position for the rebound (and no, its not DRYS I’m thinking of).

 

Other Stuff We Care About Today:

Commodity Watch:

  • Crude rallied sharply Wednesday closing up $5.57 at $44.60 on a bit of late year short covering that got out of control after a slightly bullish set of oil numbers (gasoline and distillate inventories grew at a slower rate than expected) and stocks of crude at Cushing fell as well. This morning crude is giving back $2 of Wednesday’s gain as traders take short term profits and the dollar puts on a 1% rally.
    • OPEC Watch: Angola took over as head of OPEC yesterday (OPEC rotates the presidency on something like an annual basis). They are a growing African producer (unlike Nigeria) and new to the Cartel as of Jan. 1 2007 so look for their voice to be somewhat more moderate than recent group pronunciations as they may be likely to look out for number 1 more than they do for the Cartel. The real power still rests with Saudi but this could mean we hear less talk prior to actionable meetings out of the group.
    • Russia Watch: 2008 production fell 0.9%, the first annual drop in a decade. Get used to it. This is the world’s second largest oil producer starting to roll over due to natural declines and a lack of enough spending.

 

  • Natural gas fell 24 cents to end the year at $5.60  after a slightly disappointing gas storage number was released mid day Wednesday. I say slightly disappointment because it was a holiday week in a weak economic setting and the miss was indeed slight. Gas is off a dime this morning. 
    • Russia to Ukraine: Happy New Year, No Gas For You. Unable to come to terms over a debt of as much as $2 billion Ukraine owes to Russian, Medeyev/Putin turned off the pipes during the dead of winter providing heat for a majority of that country and 1/5 of the gas supply to Europe. Russia also increased supplies via alternate routes to Europe but Western Europe pointed out that they have adequate storage of gas to withstand "days but not weeks" of disruptions. Maybe a slight boost here for LNG prices and therefore a very slight boost for U.S. gas prices.

 

 VLO Announces Reduced Capacity Due To Weak Gasoline Margins.  Valero says it downed fluid catalytic crackers at St Charles and Corpus Christi "indefinitely" due to weak margins. Price takes care of price.

 

I’ll go back to the usual format next week. At that time look for a multiples table tab on the many energy sub sectors we follow around so that I can better keep track of estimate movements within individual groups.

Odds & Ends

Analyst Watch: (SUN) goes from Buy to Hold at Soleil, Piper cuts (CSIQ) to sell, and (ESLR) pick up at Buy at Stanford Research.

 

 

 

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28
Dec

Wrap - Week Ended 12/26/08

A week that was ill-attended even by holiday standards with little volume and less news. While the markets did little before Christmas that wasn’t reversed on Friday there are a couple of interesting data points to take away.

1) Rig Counts Continue To Fall. Not unexpectedly both gas and oil counts fell again last week. What is interesting to see is the stronger than to date seen dip in horizontal rig activity. This is where your big wells comes from, be it oil from the Bakken or natural gas from any one of a number of supply / demand busting equation (at least that’s the perception) shales. Take away the horizontal activity and U.S. onshore production will follow all the more quickly. 

2) Gas In Storage Fell With Cold Weather, Again … Ok, usually that’s a given. But three weeks ago it appeared the wheels had come off the Industrial natural gas demand train as big heating degree day readings translated into sub par storage withdrawals. Then the last two weeks of cold and an erradication of the front six months contango disincentivized traders from storing gas and selling it later and wa-la, average-ish storage withdrawals.

3) … And Natural Gas Noticed… Again, usually not a big deal for gas to move up into colder spells during the winter but so far no joy until this past week. The week just past is likely to show warmer temps when the numbers are out on Monday so this little rally of last Tuesday ("Gas-OPEC’s" first meeting) and Wednesday may not be sustainable through the arrival of this week’s storage number but we appear to be putting in floor.

4) …But The Natural Gas Monthly For October Revealed A Mixed Bag for Production. The Gulf of Mexico was still far from recovered from September’s stormy weather so I won’t give them much thought except that they continue to decline. Texas suffered from power outtages in September but was more than recovered in October setting a new State gas produciton record at 20 Bcfgpd. Notably Oklahoma and Wyoming, two important and recently growing states eased slightly in October and who can blame them given the differentials they are getting they should take a breather on new wells. I don’t expect to see a reaction in the supply math to those falling rigs until the February or March numbers are out) but I’ll have more comments in Monday’s piece with more thoughts there.

5) Last but not least, oil fell again even as OPEC threatened to hold another emergency rate slashing meeting for mid January. Stories are circulating that this time they mean it. We’ll see. The market liked news that production cuts out of several names were being confirmed by Asian crude buyers on Friday giving crude its best performance since the day before the last disaster of an OPEC meeting, albeit under very light trading conditions (less than one-third of normal volumes). Analysts and those traders that like to go on TV are for the most part setting their sites on numbers like $25 for 2009 I think with the intention of getting numbers too low so that they can offer the pleasant surprise of raising company numbers in the case of the former and get long before they suddenly pronounce the light at the end of the tunnel to be a candle and not a train in the case of the later. Since its end of the year prognotication time I’ll be adding my guestimate for prices (for natural gas too) in posts this week.

If I don’t see you in comments this week have a happy and safe remainder of 2008 and a more prosperous 2009.

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23
Dec

Tuesday Morning (In Progress)

 

 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crack Spread Update
  4. Stuff We Care About Today
  5. Odds & Ends

Holdings Watch:

(SWN) - $10KP Trade - Added (2) SWN January $30 Calls (SWNAF) for $1.55 with the stock at $27.30.

Commodity Watch:

Crude oil fell $2.45 to $39.91 yesterday. Blame weak eco news out of Japan and a lightly attended market. This morning oil is trading  flat.

  • MEND Watch: Remember the Movement for the Emancipation of the Nigerian Delta? They used to move oil prices on a weekly basis. They are threatening to step up attacks in the Delta again if former rebel leader Henry Okah is allowed to die in custody from torture and a kidney ailment. MEND has severely impaired Nigerian production to the tune of one third of Nigeria’s current 2 mm bopd production capacity and is threatening to shut down the remainder.

 

  • China Production & Refining Capacity Rises: China said it will pump 3.77 mm bopd in 2008, up 1.1% from 2007 figures. Unlike the U.S., Chinese oil production has been slowly but steadily rising each year since 1981. They noted refined product capacity is up a whopping 16% on a YoY basis (not good news for U.S. refiners who had saved their bacon this year by exporting diesel).

Natural gas fell 4 pennies to to $5.29 yesterday despite record or near record cold that gripped the vast majority of the U.S. The forecast shows a moderation for the south and southeast beginning today which won’t get too many people excited about gas prices however the temps, though warmer, will still keep heaters on pretty constantly. Having looked over the data for tomorrow’s storage number I’m still thinking we see a number close to 150 for the withdrawal, which is slightly smaller than the year ago number but better than the five year average. This morning gas is trading up slightly

  •  Gas OPEC Watch: Here’s another acronym to get used to: (GECF) - Gas Exporting Countries Forum. The group will be based in St. Petersburg and will originally consist of Algeria, Bolivia, Brunei, Egypt, Indonesia, Iran, Libya, Malaysia, Nigeria, Trinidad and Tobago, UAE, Qatar, Russia, Venezuela and two observer members — Equatorial Guinea and Norway.I don’t see them having the same clout with natural gas prices as OPEC does (from time to time) with oil prices, at least not in the U.S.. For Europe, this is very likely a headache and it could be mean firmer global LNG prices.

 

  • Rig Count Watch: Rigzone article looking for 1,000 off from the peak, (the talk has migrated from 100 to 200 a few months back to 800 and now to 1,000 see the article here.  I still expect the numbers to start to be affected in the Spring.

 

  • Where Has All The Gas Production Growth Come From? Answer, everywhere. However, if you look at the most recent production update on the natural gas tab you can see the big driver have been Texas and Wyoming with decent sized producers like Oklahoma inching higher.
    • Texas onshore rigs down 14% (133 rigs) since the end of August,
    • Wyoming down 14% since mid September,
    • Oklahoma down a whopping 23% (hello nasty basis differentials); that’s 50 rigs since October.
    • Even Lousiana, the new land of gas and honey has seen rigs decline by 8% (though admittedly those will be all conventional rigs and not ones hunting in the shale).
    • Total U.S. land rigs down 13% (264 rigs so far) over the same time frame.

 

Crack Spread Update: Small rebound. Nothing to write home about and with the bankruptcy of one smaller private refiner yesterday you have to be seriously concerned about over leveraged names like WNR (mkt cap = $527 mm, debt = $1.3B, EBITDA = $370 mm this year (if they’re lucky) . Anyway, I may play around in the survivors early in the new year (the big threesome of VLO, SUN, TSO) but I do expect a public company or two to go under in the next 6 months if cracks don’t make a drastic recovery.

Price Deck Update: Estimates falling fast, not fast enough for natural gas. Analysts are tripping over themselves to slash their 4Q and 2009 oil and gas price estimates. The only thing that has fallen faster in the price of natural gas. I expect the decline in gas prices to moderate and reverse in the next month or two at the most. As rigs tumble, so too will the number of high initial production wells being drilled and with those goes the growthy part of production.

Odds & Ends

Analyst Watch: TBA

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