Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
TAT – Turkish Delight.
- Operations concentrated in Turkey, a preferable regime from an economic standpoint to develop oil and gas assets to many places on planet.
- Production profile is largely natural gas at the moment and gas in Turkey, which is almost all imported trades in excess of $9 / MMBtu.
- Production growth via re-entries and exploration is expected to grow significantly in 2010 and again in 2011, especially on the oil side.
- There are also some "swing for the fence" type plays, with large oil targets that are analogues to recent exploration in nearby Kurdish lands just over the border in Iraq.
- As far as volatility goes, this may be my most vulnerable name and as such it’s definitely one that I look to add on weakness not strength. Right now, I’d like to see them get further along in their Turkish plans before I consider adding any more.
SSN – Australian Based Bakken and Niobrara Play
- Micro cap with section sections in the Bakken (a little over 3,600 net acres) and 40,000 net acres in the Niobrara.
- The Bakken stuff is nice for cash flow and news events but I’m now in this one for the Niobrara play and the potential for a takeout of the name.
- This is not one that I would normally hold as long as I already have but I plan on holding it through year end and it should move better again following the closure of their rights offering. My expectation that oil prices will be higher through year end and into the next couple of years also provides a bit of comfort.
- If you put a $2,500 per acre on their Bakken position and ignore their other assets, the Niobrara acreage is valued at just under $1,100 per acre, which is not going to be considered pricey and part of my thought that this name goes away over time or get’s a better valuation that it doesn’t. At present, their acreage could prove enticing enough for EOG, who has a large slug of acreage just to the south of SSN, or some other Niobrara player to pick them up and it would barely be noticed even at a significant premium for most of the potential acquirers.
- However, there is no guarantee that all Niobrara acreage is created equal, in fact it is almost certainly not. EOG has been very active in the play having filed 10’s of drilling permits and is rumored to have good wells in the play. I plan on adding a real Niobrara play in terms of held stock (maybe EOG or SM or PETD and this name is only a wildcard and not a substitute for that).
EXXI – Oily Gulf of Mexico Player with Wildcard Potential in the Ultra Deep
- Management is exceedingly talented, John Schiller hails from Ocean Energy, used to work for APC’s Hackett and is a gas finding kind of guy.
- EXXI’s portfolio is a little different than most of your Shelf (shallow water) players:
- 1) It’s oily with 68% of production coming from liquids. Most names on the shelf are much gassier
- 2) It’s reserve life is longer at 11 years
- 3) It has a large inventory of drillable exploitation and exploration projects
- 4) It is at the forefront of the ultra deep Shelf play along with partner MMR
- Balance Sheet: on the extended side at 65% but that should come back into line this year and next as recently acquired work interests merely bumped their ownership in existing fields in the Gulf.
- The main reason I own it is the exposure to the deepshelf, not just the current Davy Jones target but another dozen prospects which, if they work, and that’s going to take at least 5 years to know for a majority, will yield a much bigger but lower cost company than the existing one.
NFX – Diversified Mid Cap E&P
- Management – proven group of guys as both explorationists and exploitantionists of things they acquire on the cheap. Conservative guys.
- Assets – Diversified set of mostly U.S. land based assets, with oil projects in the Deepwater U.S. and in Malaysia and offshore China.
- Both management and assets remind me of a smaller version of APC.
- Production mix is 71% natural gas but they have oily plays in the Bakken just starting to ramp and overseas that will continue to, which will result in a greater % of oil going forward.
- Balance Sheet: 42% debt to cap.
- Valuation:
SWN – Low cost, predictable natural gas player
- Management has taken the company from concept to major player, leader in the Fayetteville Shale of Arkansas expanding efforts/expertise into the Bossier shale of east Texas.
- This is another name that generally trades at a premium to the group due to the homogeneous nature of its reserves and the predictability of running what amounts to a gas manufacturing play instead of a true E&P company.
- Production growth is stout and predictable:
- 2010 up 32%, 2011 will likely be similar.
- 2010 has seen the name under-perform due to weak natural gas prices and a deliberately thin hedge position that was set up to capture rising gas prices.
- Valuation:
- P/CF
- Reserves: this is where they do look a touch expensive at a little over $4 / Mcfe but I think much of that is attributable again to the type of operation they’re running, referenced above. There simply is not exploration risk in their core play.
—- Looking at the ZLT and WIOWIO comments of today and yesterday you may be tempted to say, "Z you are overweight the Bakken. You’ve got AEZ, BEXP, KOG, SSN, and WLL who have big positions there." I’d respond that:
- AEZ is the small name with running room and likely to be the next BEXP like mover,
- KOG and WLL are the deep value names, obviously on quite different scales,
- SSN doesn’t really count (I hold it for the Niobrara) and either way, as a true penny stock, its a total wild card,
- and I am constantly watching NOG, CXO, CLR (pricey) and others in the area.
- I have been on the "oil is preferable to natural gas" in terms of E&P exposure for some time now and the Bakken is one of the more economic plays in the oily portion of the U.S.
Updated: 8/26/10
CURRENTLY HELD OPTION POSITIONS IN THE ZCAT (Zman Catalyst Portfolio)
The ZCAT Spreadsheet
No Positions
The ZIM Spreadsheet
The ZLT Spreadsheet
WIOWIO – Updated Week Ending 6/18/10 BEXP – Oily, growth, and a Bakken leader
- Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
- Production growth:
- 2010: Oil volumes increase 125%; total volumes forecast up 42%.
- 2011: Oil volumes forecast to double again.
- Balance Sheet:
- Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
- Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
- BEXP has 164,400 net acres between the two plays.
- Near future catalysts:
- a Three Forks test in Rough Rider – end of June/ early July
- a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.
HK – Gassy, growthy, heading to cash flow breakeven in 2012
- One of my longest term holds, through thick and thin
- Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
- Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I’d call the small player camp.
- Haynesville – still driving a majority of the growth
- Eagle Ford Shale – seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
- Balance Sheet:
- 46% debt to equity
- living within cash flow this year and ostensibly next (at least that’s their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
- Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year.
- Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
- Wall Street has been slow to believe in management’s discipline.
WLL – Cheap, Bakken player with running room to the south…
- Results to date have been some of the best in the Williston Basin
- And it is perpetually cheap:
- 2010 at 5.6x CFPS
- 2011 at 4.6x
- Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
- Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
- However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected … we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
- Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
- They speak at Macquarie today at 9:30 EST by the way.
WHX – Oilier than not high yield royalty trust
- Depleting asset with a terminal date around 2017.
- 58% of production from oil
- Smooth decline rate and hedges yield predictable disribution
- My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.
LINE -My gassier yield play, run more like a traditional E&P than your usual MLP
- 52% of production from natural gas
- But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
- Management has done an exceptional job of buying low and selling high in the asset market
- Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
- Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
- Current annual distribution is $2.52 leaving a current yield of 10%.
AEZ - Bakken midget, not as far as long but more running room
- > 76,000 net acres, roughly in the northeast corner of Rough Rider
- Their first two wells were impressive entries to the play (around 2,800 BOEpd each)
- #3 is expected late this month and will be a longer lateral, high stage count well
- #4 is the same, expected mid July
- Balance Sheet:
