11
May

Wrap – Week Ended 5/10/13

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Comments will be included in the Monday post in The Week That Was section.

Also look for the 1Q13 earnings wrap on Monday. 

Holdings Watch:

  • TBA 

BCEI article from Friday can be viewed here

wrap 051013

 

11 Responses to “Wrap – Week Ended 5/10/13”

  1. 1
    elduque Says:

    Food for thought:

     

    What makes a stock just right, like the baby bear in the child's story of the three bears. What stocks this quarter switched from being either the mother bear or the papa bear. If you remember the story all three bears keep on living, it just the baby bear that has it just right. Obviously if it was easy, we wouldn't need Z to help us figure it out. 

    In looking back over the last few years of my being on the site, it has been my inability to figure out when a stock became the baby bear. Soome of the companies we follow seem to be constantly in the penalty box, either from too rapid growth (MHR), dilution of stock (PVA), or  their game plan takes a long time to turn the co. around (NFX). Some of the cos. I just couldn't see where the growth was coming from, even if Z was buying the stock (BCEI). I also have a built in bias to not want to pay too much for a stock, because some of their peer group appear to be cheaper (OAS, CLR, and EOG) seem to fall in that camp. 

    It appears to me that NFX is a stock that is getting closer to being a baby bear. The turnaround is complete, and the growth should be there. I think that it probably has been "just right" for last 6 months, but mr. market has failed to see it. I guess that is the other part of the equation. What causes the market to recognize that something is "just right".

    I am open to any and all suggestions, as to what makes a stock "just right".

    Incidentally, if you happened to stumble on this site accidentally or you are a regular reader on the weekends because it is free, you are really missing something by not subscribing. Z is not only a great analyst, but he really does care about what he writes and this website. In addition, there are any number of regulars who add great insight and depth; not only fundamentally but technically.  

    Enjoy your day and the weekend.

     

     

  2. 2
    crysball Says:

    Vaalco Energy  Q1  CC   notes  & Q&A

     

    This  will be  more  Qualitative  than  Quantitative .

     

    Q1    production, revenue  and earnings  were  below  analyst  expectations, however  the  analyst  [Leo  Mariani @  RBC]  completely  ignored  all  the  information  Vaalco  provided  in news  releases  and  presentations  at  conferences  this  year   about  an offshore  Gabon  [Avouma Platform] 3000 BOPD well going  offline   in late Q4  because  of    dual  ESP  failure. Additionally  2 wells  at  the Ebouri  platform  are  offline  because  of   H2S…….all  of  this    impacted  production.

    [note  Vaalco   CEO  seems  to  have a  contentious  relationship  with  Leo].

    Leo & an  analyst  from  Wells  Capital  were  on  the CC  and  asked  questions  on the CC.

    Vaalco   ended  the  Quarter  with  $102  million  in cash [down  from  approx  $142  million  on 12/31/12……but  much  of  this has  to  do  with    timing  of  receivables,  as  approx. $30  million  was  paid  on a timely  basis  on April 2nd.

    They  did not  dwell  on  US program  except  to  say    all  the dry  holes  were  written  off    last  year  or  in  Q1,  as they  operate  under  successful efforts  accounting  rules.

    The  balance  sheet  is  still pristine,……zero debt,  although  they  did  say  they  are  in preliminary  discussion    to  make  senior  debt  offering  later  in  2013   (more details  later  about  the  need…..given all their  cash).

     

    Offshore Gabon

    In Gabon  the  offshore  drilling  program    [6 wells~3 workovers  to replace  ESP’s  and  2  exploration  wells and 1 development well] started in Dec. is  proceeding.   They  completed  one  development   well    on  the Avouma  Platform  [EVAOM-3H]   in Q1,  an  OHGP   at  3,000 BOPD  natural  flow,  and  4,000 BOPD  with  ESP at  the  lowest  setting.   This well  is currently  on     ESP.   Additionally    they  replaced   both  ESP’s  on  another  Avouma  well  which  had   a single  ESP  failure   and  it  is back  in  service at  1,000 BOPD.   They  are  currently  replacing  both  ESP's  on  the final  Avouma   platform  well which  had  both  ESP’s  fail.   They  worked  on  this  well and  while  pulling the   failed  ESP’s  discovered a  restriction  in  the casing  so  moved  off  and  reworked the  other  Avouma  well.  In  they  meantime  they   determined  the  casing  restriction  would  not  impact  the  well  flow  [approx. 3,000 BOPD' and  are  back    working   to  replace  both  ESP ‘s  and  are  within  2 weeks  of  completing   this  well workover  .  Next  they will move  to the  Ebouri  platform  and  drill  a   combination exploration /development  well  on  the separate fault  block  directly  under  the platform.   They  will test  both  the Gamba  sands  and   the Lucinda  formation.    They  drilled  an  exploration  well  to  the Gamba  on this  location  previously  and  they expect   to  verify  the previous  data and after  testing  the  Lucinda   drill  a  horizontal  well  in  the Gamba  complete  it  as  an  OHGP  and  put  it  on production at   approx.1,000 + BOPD  some  time  in  late  July.     While at  Ebouri  they  will also  replace    the ESP’s     in  the  remaining  operating  well.

    Next  they  will  move  to  the MU  prospect  and  drill  an  exploration well [their  3-D seismic  tells  them  this  is a   30 million  barrel  of  removable oil   reservoir].  This prospect,  while  close  to  the   existing FPSO     will  likely  take  3  wells   to drain  the reservoir, and  while  it  could    potentially be  a subsea  completion,  they will  likely develop  it  with  a platform……..in part  economics  and  in part  leadtime……..as  they   indicated  in  the  CC    the leadtime  for  a subsea  tree  and  coiled  tubing   of  7 mile  length  is  virtually  the same as  design, develop,  build,  and install  of  a production  platform.

     

    They are currently finishing  off  the design  of  the stub  platform  [well sweetener to remove  H2S  on  the  2  shut  in  wells  nest to  the Ebouri platform] and  will make a decision  in  2H of 2013.  It  would  not  be  in place  until  2H 2016.  It  makes  economic  sense  to  do  this……..but  all PSA partners  must agree.

     

     

    ONSHORE GABON [Mutamba Concession]

    They  continue  to  work  on  the development  plan  for  the  recent  [2012]  discovery on N’Gongui  Island.  Vaalco  and partner  Total  will submit  in  2H 2013   and  anticipate approval    and  are planning for  production by  2H  2014……with  a connection  to the  nearby  Total  Atori   filed  gathering system  and  then  to the  nearby   Shell Pipeline.

     

    They  also  mentioned  they  continue  to  work  on  the renewal   of the Mutamba  concession  for a 3 year period  with  Total  and  the Gabon Oil  Ministry, but gave  no timeline.

     

    ANGOLA OFFSHORE [Block 5].  Vaalco  40%  WI  and  Operator

    Vaalco’s CEO  and  COO  met  with  the  Oil  Minister  of  Gabon  on  Tuesday  of this week  when  he  was  in  the  USA  for a meeting.    They  expressed  their  frustration  that Sonagol  [the   Angola National Oil  Company] had approved  the  new  proposed  Block  5 partner   several months  ago,  that  the  proposed partner  was  already  operating  in  Offshore  Angola,   and  was  a large  multinational  oil company……….but  the approval  had  been  sitting  in  the Angola  Oil Ministry’s  office  all this time without  action ,  and  in  the meantime the  Vaalco  concession  approaches  expiration [Nov. 2014].  He  personally promised  to  look  into  it  and get  back  to  Vaalco   soon  with  an  answer….soon………for  whatever  that  is worth.

     

    EQUATORIAL  GUINEA  OFFSHORE [Block  P] Vaalco 31%  WI

    In  late  April, Vaalco  sent  a  top  management  team  to   meet  with  GE Petrol [National Oil Company  who  is  a significant  active (not  passive) partner  in Block P] and the Oil  Minister  of EQ. Guinea.   All  seem  to  be  in agreement  to have Vaalco  become  the  Technical  Operator  of the block.  In  June  Vaalco  will  send a team  back  to  Eq. Guinea  to  lock  up  the final  details  and  Oil Ministry  Approval.   The  plan  is  to  drill  2 additional exploration  wells   on  large   sand  columns   adjacent  to  the  Venus  Discovery  a sand column  with  300’ oil column filled  bottom  to  top  with 17 to 31  million barrels of removable  oil [Devon  Oil & Gas ~ 2007].  Vaalco  has  located  two  Semisub  rigs  with  slots  available  in  Q4.  One  of  these  rigs  is  in  Eq. Guinea.

    They  have   processed   3-D  on  both  of these  new  targets.  The  intent  is  to drill  vertical test  wells  and  sidetracks  to characterize  the  reservoir  and  then  use  that  data  to definitize   the  infrastructure  required [size of FPSO,  # of  platforms, etc.]   IMHO events  in EQ. Guinea  are  moving  at  full speed…….largely  in  part  to  the  desire  of  GE Petrol   to   put   Block P  into  production,  and  Vaalco  has  the  technical ability  to  accomplish  that……….as  they  bring  a   track  record  and   15 YEARS  of good  relations  with the Gov’t.  of Gabon …….next  door  neighbor  to  Eq. Guinea.

     

    Q&A

    Q Leo Mariani RBC   (1)  When  will Vaalco  get  offshore   production  back  to  20,000 BOPD [currently 16,600 BOPD],   (2) and  he fished around  for  who  the  proposed  partner  is  in Angola  (3) Any change  in Capex in 2013.

    A   We will not    discuss  any  more  details  than  we  have  provided .about  the  proposed partner  in Angola, and  we  won’t  make  any  prediction about  timing.   

    When  they  move  the  rig from  Avouma [2 weeks]  they  will turn  all the wells  back  on  and  will be  between  17M ~18M BOPD.  If    The  platform  well at  Ebouri  works  it will  bring  them  to   19M to 20M BOPD   by  end  of  the year.   No change  in Capex,  it  might go  down  if  they  do  not  drill  either  Angola  or  Eq. Guinea   in Q4.

     

    Q Benjamin  Cooper  [Wells Capital]   (1) how  expensive  is  ESP  replacement  (2) color on Angola (3)Stock Buy Back~Capital Allocation  (4) Eq. Guinea  well  cost  for a   2 well program ~back  to  back

    A Vaalco  spent  1.5 million  of  just the pumps  in Q1,  not  counting  rig  time.   Vaalco  added   they  have  been  very  satisfied  with  the ESP  MTBF. 4 to  5+  years.  They  explained  it  is  their policy  to  replace  both pumps  if  one  fails  to  insure a  high  MTBF,  as  it  both  time  consuming  and  expensive  to  be  a  rig   out   offshore  wells….it  has  to  be  done  in combination  with  a regular  drilling  program.   They  would  NOT  discuss  Angola  further  than  what  they  outlined  about the  meeting  with  the oil  minister  this  week.   They  did say  they can’t  drill both    Eq. Guinea  & Angola  simultaneously.   Stock buy back  will be  discussed at  the upcoming B of  D  meeting  in June…….given  depressed  stock price.  Eq. Guinea wells  would    be  Semisub  and  cost  $35~$37  million  each  gross……..or  approx.  $10~$11 million each net  to Vaalco.

     

    Q Jamie  Wilen [Wilen  Investments  In.d. Investor]   (1) Mgmt  investment  (2)  stock buybacks.

    A SEC  requires   blackouts   for  mgmt.  when  a drilling   program  is underway,  and during  quiet  period  approaching   quarterly /annual reporting.   Additionally,  Vaalco  had  imposed  internal  blackouts  when  they  are  in negotiation  with   Governments or  PSA partners…………..when  you add  all  these  up   there  have  been  very  few  times  management  could  make   open market  buys   in  last  10  months.  CEO  said  hw  owns 5%  of Vaalco  and  the majority  of his  net  worth  is  in  the company  and  he  is  tapped  out.    CEO reiterated  what  he  said  earlier to  Wells  Capital……..and  said he  intends  to recommend  a modest  buyback  at  the  upcoming  B of D.  Meeting in  June.

     

    Q  Neil Nelson ~DERS  Group  (1)  If  the MU  [Offshore  Gabon ~Etame concession] exploration  well  is successful   inQ3   could  it  be developed  as  a subsea  completion  avoiding  the  leadtime and  cost  of  a  production  platform……..and  facilitate  cash  flow?    (2) Wasn’t there   not  a  second  discovery  in  Block P [Eq. Guinea] by  Devon ,  how  does  it  fit  into  your  plans  to  develop  Block  P?

    A   (1) Yes  it    may  be  possible  to  complete MU  with a subsea  completion,  however,    we  estimate  the  prospect at  30  million  barrels   of removable  oil,   and   expect  it  to  take at  least  3 wells to  drain  the reservoir.   Our  experience has  been  that  if  it  takes  more  than  two  wells  it  is  better  to  build  a  production  platform.   Also   current  lead  times  on  subsea  trees  and  coiled  tubing   for  FPSO  sea floor  lines  is  as  great  as  that  required  to  design, build,    & deploy a  production  platform. We are  inclined  toward  to  a production  platform,   pending  the upcoming drilling  results.  (2) Yes  the was  a second  discovery……….Europa……..but it  was  only  5-7  million  barrels  of  oil………….Our  drilling  plan  is  to  pursue the   2  much  larger  sand columns  prospects  identified from 3-D  seismic   near    the  Venus  discovery  [Devon  oil  2004/5]  which  is  part  of  Block P.  By   Exploration definitzation we  would  be  able to  determine  the   how   to  develop  the  Venus  discovery  and  these  two   added sand columns ‘just  like  Venus  geologically]  and   thus   size  the  FPSO, Production  Platform(s)  and  infrastructure.   Once  this  was  defined  the  Europa  discovery  could  be   developed,  but  it  is  small   in  the  big  picture  of  Block  P.

     

    NUTSHELL   Vaalco is  forcing  a  decision  on  Angola Block 5……..good  for them  they  have  done  everything  asked  by  Gov’t of Angola……for  years….however,  don’t expect  a quick  or necessarily  positive outcome given  the complex  history   on  Block 5  there  is obviously  some  underlying  problem  with  the  proposed  Block 5  partner…….even  though  they  are  currently  drilling offshore  Angola .   Do  expect  the    momentum    on  Block P  Eq. Guinea  to  continue   and  expect  some  major  announcement  in  late  July/August  timeframe and appoint  Vaalco  technical  operator  on Block P………and  based  on  all the signal expect  Vaalco  to drill  one  Exploration Well  in Block  P  with  a  Semisub  rig  in  late Q4.  Expect  offshore Etame  production  to recover  to  around  18,000  to  20,000 BOPD gross  by  year  end..  The  most  interesting  management  comment… ……..given  their  pristine  balance  sheet [no  debt,  $100+  million in the bank] was  they   are  beginning  to  explore  a  Sr.  Debt  offering.  They  are  preparing  for  a surge  in  capex  in  2014.…….. All the above  IMHO…….As  a footnote, added  to  my    overweight  position  at  the Friday  close @ $6.86.

  3. 3
    RMD Says:

    Z could you solicit comments from some of the engineers on the site about how big a problem sticking is, and how widespread by basin/rock type, so we glimpse how important the new FTK drilling tool might be?

  4. 4
    RMD Says:

    Z in post 11 Fri you said (re:FTK): APA lecturer engineer talking about need for products that the CNF 2.0 products would address.  What did you mean there?

  5. 5
    Dillon Says:

    re 3 – as a guy who works with drilling tools, I know there are lots of different tools out there that already do this type of thing. NOV makes one called the Agitator, Coil Tubing Technologies makes one called the Oscillator, Oil States just bought a company called Tempura that makes one, and Logan Oil Tools makes one called the Exciter actually haha. Some of these are striclty in coil drilling and some are used in both coil and directional. Maybe Flotek has a new way of going about this that will take off rather rapidly, but most of these are basically mud motors with the balance (eccentricity) of the motor being a little off as to create vibration to move the whole motor along and over ledges, edges, etc. downhole. I think the potential of Flotek seeing major revenue off of a tool like this compared to their chemical division is unlikely – JMHO though. If they use chinese motor components like they do on the rest of their actual drilling motors, I see it having a harder time taking off because of people's distrust of chinese product in this segment of the industry. It has definitely made its way over here and there are professionals that will make the case for chinese product in drilling but it still hasnt fully changed the stigma in most end users minds. If anybody else has thoughts on this I'd love to hear them as well RMD.

  6. 6
    Dillon Says:

    re 3 – pretty much most coil (thru-tubing drilling) BHA's have an agitator of some sort attached to them when they mill frac plugs which is 90% of all coil tubing work here in the states. I don't think it's near as big of a necessity in directional drilling but in certain areas there are needs for it. Directional tools are larger diameter than coil motor parts but I still think it will never be close to the chemicals division as far as a revenue generator for FTK.

  7. 7
    brodway Says:

    Eldque, 

    we are not alone in the NFX camp.

    Billionaire investor T. Boone Pickens added oil and gas producers Newfield Exploration Co.,Marathon Oil Corp. and Occidental Petroleum Corp. to his energy fund’s holdings during the fourth quarter.

    Pickens’s Dallas-based BP Capital Management LP bought 211,703 shares of Newfield valued at $5.7 million, 184,900 shares of Marathon valued at $5.7 million and 63,000 shares of Occidental valued at $4.8 million in the three months ended Dec. 31, according to a filing with the U.S. Securities and Exchange Commission.

  8. 8
    RMD Says:

    thanks, Dillon.  And I hear you re; chinese components.  At the NJ shore I gave up on regularily available (read chinese) stainless screws etc. and found suppliers who only carried USA- made high quality  parts.  They are happily resisting salt water like champions so far;  well worth the (much higher) price.

  9. 9
    choices Says:

    EMES-hi-yield IPO-5/8, priced at $17, projected yield ~14%; initial range $19-21; closed Fri $16.70 w/volume.

    seems like many are still going to the energy trough-somewhat concerned about no minimum qtrly distributions

    http://mlpprotocol.files.wordpress.com/2013/05/emes-ipo-roadshow-slides-may-2013.pdf

    http://www.sec.gov/Archives/edgar/data/1555177/000104746913005157/a2214576zs-1a.htm

  10. 10
    zman Says:

    Just stopping by between Mother's Day gigs

    1) Elduque – thanks much for the kind words and insight. I appreciate your patronage over the years and patience and inputl. 

    2) Crysball – thanks for that … I have started and stopped a handful of times in doing work there. Need to look again probably. 

    3/4/5) Sent a note to Wyoming and got back that he did not think it was that big a deal in drilling operation. Thanks much to Dillion, excellent stuff. 

    6) I did same, soft metal, heads twist off.   Chinese OCTG have been complained about forever. Same proppant although the source of that seems to be CRR and not so much E&Ps as I know some who keep experimenting with cheaper ceramic (presumably they mean Chinese, Brazilian prop). 

    7) another frac sand IPO – well, at least this one has a yield, will have a look. Problem I have with the lower grade ones is there are few barriers to entry and many of your bigger potential customers are pretty much all working to do it themselves at least in the US.  For the higher end you go up against Carbo which is tough and then imports which can suppress prices for long periods of time. 

  11. 11
    crysball Says:

    Retail  Gasoline  Prices  to  Decline && stay there) for  the  Summer  Driving  Period…..should  help  gasoline demand.

     

    From the EIA: Short-Term Energy Outlook
     

    Falling crude oil prices contributed to a decline in the U.S. regular gasoline retail price from a year-to-date high of $3.78 per gallon on February 25 to $3.52 per gallon on April 29. EIA expects the regular gasoline price will average $3.53 per gallon over the summer (April through September), down $0.10 per gallon from last month's STEO. The annual average regular gasoline retail price is projected to decline from $3.63 per gallon in 2012 to $3.50 per gallon in 2013 and to $3.39 per gallon in 2014. Energy price forecasts are highly uncertain, and the current values of futures and options contracts suggest that prices could differ significantly from the projected levels.

    Last summer, gasoline prices averaged $3.76 per gallon during the April through September period – so this is a little good news for drivers.

    According to Gasbuddy.com (see graph at bottom), gasoline prices are up to a national average of $3.58 per gallon. One year ago, prices were at $3.81 per gallon, and for the same week two years ago prices were just over $4.00 per gallon.
     

    http://www.OrangeCountyGasPrices.com/retail_price_chart.aspx?city1=OrangeCounty&city2=&city3=&crude=n&tme=1&units=us
     

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