26
Jan

Wednesday Morning – All Eyes on Fed (and Wind and Oil Service)

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Market Sentiment Watch: Nervous market conditions

In today's post please find:

  • the oil inventory preview (looking for product builds (especially gasoline) to begin to normalize),
  • the natural gas inventory preview (over 200 Bcf withdrawal expected, likely another 200+Bcf pull next week as well),
  • comments on the RES quarter (beat),
  • VWDRY outlook comments,
  • and some other odds and ends.

Ecodata Watch:

  • We get the advance report on trade in goods at 8:30 am EST (no forecast, last read was $97.8 B),
  • We get New Home Sales at 10 am EST (F = 760,000, last read was 744,000),
  • We get the EIA oil inventory report at 10:30 am EST,
  • We get the FOMC statement at 2 pm EST,
  • We get Chairman Powell's press conference at 2:30 pm EST.

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watc​h - with oil and natural gas inventory previews
  3. Stuff We Care About Today - RES, VWDRY, 4Q21 Calendar Update (names are slowing filling in)
  4. Odds & Ends

 

Holdings Watch:

ZLT

  • Yesterday's Trades:
    • CRK – Added to our small position in CRK at $7.13, down 9% on the day on group, market, and stock specific weakness. The essentially all natural gas Haynesville focused company reported a solid reserve report last night and while full year volumes fell within the middle of the prior range 4Q volumes looked light to expectations (there were moving pieces within the quarter with a 3Q21 divestiture and there may be a 3rd party or offset frac related reason for the 4Q shortfall but we would not anticipate well performance as a reason). We see the name as a good long term way to play strong demand for Haynesville natural gas and the company has much tighter differentials relative to their gassy Haynesville peers (ready access to an abundance of pipeline infrastructure and to U.S. Gulf Coast LNG demand which is hold at record levels), exceedingly low operating costs, a much more exposed to upside hedge book in 2022, and therefore strong EBITDA margins. This is a modest growth, medium leverage, high margin, and as we see it under valued gassy play that will continue to use free cash flow to reduce debt to much more palatable levels in 2022. Further, our sense is they become an increasingly obvious acquisition candidate if the equity price doesn’t move to more appropriate multiples of cash flow and reserves this year. Please see our December update here. https://zmansenergybrain.com/2021/12/10/t-g-i-f-235/
  • The Blotter is updated.
    • Near term potential adds in Owned Names:
      • CRGY: 40% oil, 15% NGLs, maintenance mode program, free cash flow to debt paydown and return of capital.  We have only a token position here. 
      • HPK: Very oily. We add on weakness here.
      • CIVI: Oily.  Super cheap. Nice yield. Below $50 is highly tempting. We own a lot but at these prices can own more.
      • PTRA: Waiting a little longer. Good news ignored. 
      • ENPH: Same reasons as prior. Technical trading at the moment. 
        • Other owned solar names may see adds after earnings season.
      • RRC:  Using some AR proceeds to balance out our gassy position.
      • CRK: Same as RRC (we added a little yesterday as per above).
    • And in Unowned Names:
      • ROCC
      • EGY
      • RES (4Q21 call today)

Commodity Watch:

Crude oil closed up $2.29 yesterday at $85.60 with the rally attributed to strong demand that is not being overly disrupted by or expected to be disrupted by Omicron, better than expected consumer confidence readings, stronger than expected Chinese exports, and by the fear of Russian oil production disruption. We expect the large builds in gasoline to moderate soon. 

  • After the close, API reported: 
    • Crude:  Down 0.9 mm barrels
      • Cushing: Down 1.0 mm barrels
    • Gasoline: Up 2.4 mm barrels
    • Distillates: Down 2.2 mm barrels
  • This morning crude is trading up about 50 cents.

Oil Inventory Preview

This Week In History

Natural gas closed up $0.026 at $4.05 with the situation in Ukraine helping to buoy prices along with well freeze offs in the U.S. and despite a warmer forecast. Sources are citing further short covering (we've noted 2 weeks of positive CFTC numbers movement and this week's data on Friday (for numbers dated through Tuesday) may well yield a third. Shorts remain ... very short. Meanwhile, LNG exports were back over 13 (13.02) Bcfgpd yesterday. This morning gas is trading up a whopping 25 cents.

Natural Gas Storage Preview

Street is at -209 Bcf for tomorrow's report. 

  • Last Week: -206 Bcf
  • Last Year: -137 Bcf
  • 5 Year Average: -161 Bcf

Storage Watch: The top chart should push back down into deficit territory with this week's pull. 

Stuff We Care About Today

RES (Unowned) Reports Solid 4Q21 Beat;  Estimates to Climb. 

  • Revenues of $268.3 mm vs $240 mm expected
    • Revenues up 80.5% from 4Q20,
    • Look for the break down of segment components on the call (last quarter pressure pumping was 42% of total)
  • EBITDA of $39.4 mm vs $27 mm expected
    • EBITDA margin of 14.7% vs 12% last quarter and 5% in 4Q21.
  • EPS of $0.06 vs $0.03 expected
  • Active frac fleets:
    • 8 (as expected with the additional of the tier IV fleet at the end of 3Q) vs 7 in 3Q21.
    • As of the 3Q21 call they had 8 fleets working and at that time had no plans to add more in 2022.
  • Guidance:
    • Nothing formal. Look for color on the call.
    • However, we note:
      • Consensus 2022 revenue of $1.076 B is almost exactly the 4Q21 revenue annualized. They play in the spot market. We don't see pricing as flat for the year. Even if they stay at 8 spreads all year estimates are highly likely to move up in the wake of today's report.
      • Annualized 4Q21 EBITDA would be $156 mm ... this would assume nothing for further cost leverage on higher revenues from price increases. The Street for 2022 is at $143 mm.  Again, estimates are very likely headed higher but we'll hear what they have to say regarding net pricing on the call.
  • Return of Capital:  Not at this time (not expected)
    • Share Repurchase: None
    • Dividend: None
  • Balance  Sheet:
    • No long term debt
    • Cash at $82.4 mm.
  • Favorite Quotes Watch:
    • "fourth quarter revenues increased as strong current and forecasted commodity prices encouraged our customers to continue their drilling and completion activities."
    • "As we begin 2022, there are many indications of continued growing activity levels and improved pricing. We look forward to participating in this market with well-maintained fleets of equipment and trained crews. Our operational environment is being impacted by personnel shortages exacerbated by the current COVID surge. Our industry is also facing materials and parts shortages impacting many essential inputs, as well as price increases for raw materials and components. While we have been able to stay ahead of these issues, they may impact our utilization and profitability in the near term,"
  • Related Name Action:
    • We see the release as positive for our holdings in LBRT (ZLT #4), NEX (ZLT #6), and PUMP (ZLT #12).  It's likely also positive for our SLB holding.
  • Nutshell:  We don't own the name but as noted above are well exposed to the space. This is a strong quarter with rising revenues putting margin expansion on full display. The stock should pop and provide further legs for our owned names which will look increasingly cheap to RES on a relative 2022 E EBITDA basis while LBRT's multiple will look to be at less of a premium to its smaller pressure pumper peers.   Please see our recent requested update piece here.
  • Conference Call: Today, 9 am EST.

 

VWDRY - Preliminary 2021 Figures and 2022 Guidance Announced - Miss and Lower Than Consensus Respectively (not really surprising) - Supply chain and inflation impacts to continue through 2022.  

  • Opening Statement: "The wind power industry continues to be challenged by the current environment characterized by supply chain instability, which is causing significant cost inflation and delay in execution of projects. Furthermore, the current business environment severely impacts both visibility and profitability. The global business environment for wind energy remains volatile in the short term and prosperous in the long term."
  • 2021 Preliminary:
    • Record Revenues of EUR 15.587 B vs guidance of 15.5 to 16.5,
      • Street was at EUR 16.029 B
    • 16.6 GW deliveries,
    • EBIT of EUR 0.461 B (3% margin vs 4% guidance),
      • Street was at EUR 0.653 B
    • Warranty provision to 4.4% of revenues (elevated).
    • FCF of EUR 0.183 B
    • Price increases continue to address inflation.
    • Order intake of 13.9 GW.  Another 3.1 GW in preferred supplier agreements for the 15 MW massive offshore V236's as well.
  • 2022 Guidance:
    • Revenues of EUR 15 to 16.5 B 
      • Street was at EUR 16.9 B
    • EBIT margin of 0 to 4%. 
      • Street was at EUR 0.8 B.  2% on the revenue mid would be EUR 0.3 B 
    • "It should be emphasised that there is greater uncertainty than usual around forecasts related to execution in 2022, and the outlook seeks to take into account the current situation and challenges. In relation to forecasts on financials from Vestas in general, it should be noted that Vestas’ accounting policies only allow the recognition of revenue when the control has passed to the customer, either at a point in time or over time. Disruptions in production and challenges in relation to shipment of wind turbines and installation hereof, for example bad weather, lack of grid connections, and similar matters, may thus cause delays that could affect Vestas’ financial results for 2022."
  • Summary Quote Watch: "Group President & CEO Henrik Andersen said: “Everyone at Vestas did an outstanding job in 2021 to ensure record-high revenue despite a global business environment that became more challenging as the year progressed. Supply chain instability and rising energy prices as well as accelerated cost inflation from raw materials, transport, and turbine components, however, continued to amplify costs throughout the year, which severely impacted visibility and profitability. In this environment and without compromising on safety or quality, we achieved revenue of EUR 15.6bn, an EBIT margin before special items of 3 percent, and free cash flow of EUR 183m. We achieved an order intake of 13.9 GW, 3.1 GW of preferred supplier agreements on our V236-15.0 MW offshore turbine as well as strong performance in Service. In 2021 we also made strong strategic progress to strengthen Vestas’ foundation and customer focus. This progress included the integration of Offshore activities, the ramp-up of Development, and the establishment of one global organisational blueprint. We remain focused on executing our strategy and driving the energy transition forward with our customers but expect the current challenging business environment to continue throughout 2022, which hampers our outlook for 2022." 
  • Nutshell:  The wind group has been dropping swiftly over the last few months. We cut our position by almost half ahead of the 3Q report above $14.  The company has likely been receiving a number of inbounds in the wake of the smaller than year ago 4Q order flow as well as to address supply chain comments and decided to issue a rare preliminary report.  They also held a surprise conference call at 4 am EST which we were not aware of nor on. I will look for a replay of the call later this morning. The guidance appears to take into account a good amount of negatives and should help the stock stabilize (it was up > 5% post call)  but again, we were not on the call and as noted above, the outlook takes into account current thinking and further deterioration of the business environment could further hack back estimates. Regardless, estimates for 2022 will be reset this week (making them more believable).  The 2021 final results are set to be released on February 10th.
  • For reference, our October sale; "
    • 10/21/21 - VWDRY – We sold roughly 45% of our position at an average cost of $14.04, up 94%.In our note from early September here:https://zmansenergybrain.com/2021/09/03/t-g-i-long-weekend-8/We outlined some quick thoughts on medium term slowness in the wind market as well as levels we feel it could comfortably trade at over the next 12 months.  $14 was the low end of that range and it promptly fell before we could take a little off the table. In the last week they reported a large (2.1 GW order) for the super giant Empire Wind field off Long Island. In typical for Vestas delayed reaction fashion the name rallied a few days later. So we’re sticking with our prior thinking and taking the opportunity to reduce exposure ahead of the 3Q report which may see increased margin pressure on guidance due to inflation. Make no mistake, we like VWDRY. A lot. But we are short term cautious and are using the offshore news to push it down a bit in the portfolio. With this sale it moves from 5th largest to 8th largest position in the ZLT and our cost basis now computes as $8.42."

4Q21 Earnings Calendar Update

  • Note we get TSLA tonight which may help the EV space (or maybe just itself).
  • And we get the first gassy name of the quarter with CNX (unowned) reporting tomorrow.
See Calendar page for latest table.

Odds & Ends

Analyst Watch:

  • TBA in comments.

25
Jan

Tuesday Morning

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Market Sentiment Watch: Nervous market conditions. 

In today's post please find:

  • the very early read on natural gas inventories (another 200+ Bcf pull on the way, likely followed by another 200 Bcf range one next week as well),
  • the first edition of So Far This Quarter 4Q21,
  • a quick frac player comp table,
  • and some other odds and ends.

Ecodata Watch:

  • We get Case-Shiller home prices at 9 am EST (no forecast, last read was 19.1%),
  • We get consumer confidence at 10 am EST (F = 112.0, last read was 115.8),
  • We get API Oil Inventories at 4:30 pm EST. 

In Today’s Post:

  1. Holdings Watch - not comments
  2. Commodity Watch
  3. Stuff We Care About Today – So Far This Quarter, 4Q21 Calendar, Frac Comp, CRK
  4. Odds & Ends

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24
Jan

Monday Morning

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Market Sentiment Watch: Big week for data and Fed press conference on market's mind along with Ukraine.

In today's post please find:

  • The Week That Was,
  • The Five Things,
  • comments on the HAL quarter,
  • and some other odds and ends.

In case you missed The Wrap please click here.

Ecodata Watch:

  • We get Markit manufacturing PMI at 9:45 (no forecast, last read was 57.7),
  • We get Markit services PMI at 9:45 (no forecast, last read was 57.6).

The Week Ahead: 

  • Tuesday - Case-Shiller home prices, consumer confidence, 
  • Wednesday - Advance trade, new home sales, FOMC, Fed Chair Powell press conference, EIA Oil Inventories, 
  • Thursday - Jobless Claims, 4Q GDP, durable goods, pending home sales, EIA Natural Gas Storage,
  • Friday - Disposable income, consumer spending, PCE inflation, consumer sentiment, UMich 5 year inflation expectation.  

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. The Week That Was
  4. Stuff We Care About Today – The Five Things, HAL, 4Q21 Energy Earnings Calendar
  5. Odds & Ends

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22
Jan

Wrap – Week Ended 1/21/22

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After a strong start to the new year energy (old and new school) sagged sharply in the holiday shortened week, taking a cue from the ongoing weak start from the broad markets for 2022. We largely sat on hands with minor exceptions noted below.

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Free Stuff Last Week: None.  We have a piece in the hopper for Seeking Alpha that likely goes to press this week on an oily name.

Holdings Watch:

  • We added to one solar-segment name and one oily name.
  • We sold roughly one-third of our over-weight AR position, up 77% to our average cost.
  • The blotter is updated. 

Numbers of Note From The Wrap Table Below:

  1. Note XOP underperformance despite stronger oil.  Also note Service, buoyed by early commentary from NEX and then BKR (but less so by SLB on Friday even though it was quite positive), is up 15% on the year still with activity and pricing headed higher.
  2. Oil
    1. Up on prompt and '22 and '23 strips.
    2. Note speculators advanced further into the caution zone above 6.0x.
    3. The EIA weekly data was again year end skew with a large gasoline build. Look for implied demand to pick up in the next couple of weeks, blending to get sorted, and stocks to begin falling.
    4. Distillates remain very understored.
    5. Throughput appears to be starting the first maintenance turn of the year a little early and we've noted some press releases to that effect. Look for a shallow and short throughput dip followed by pandemic highs.
    6. Oil exports are picking up on increased demand.
  3. Natural gas
    1. Second week of lift off the 12+ lows for net speculative longs as better weather prompts more covering. Natural gas remains very net short.
    2. Storage was better than Street expectations. The early read for next week calls for another > 200 Bcf pull.
  4. Renewables - continued to fall with abandon. Wind was less down but otherwise the group continues to capitulate with solar and EV tied names on the worst end of performance.

Questions and comments under The Wrap will be addressed in the Monday post. Questions about the site can be directed to zman@zmansenergybrain.com.

Have a good weekend,

Z

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21
Jan

T.G.I.F – Dueling Inventory Reports, SLB, CRGY

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Market Sentiment Watch:  Nervous market conditions starting to impact traditional energy segments. Profit taking and profit protection are creating opportunities to add to positions.  We frequently add when others are selling but we are adding more slowly in the near term.

Housekeeping Watch:  Are we using the correct email for you?  If you're not getting ZBLAST's or are getting them at the wrong address contact zman@zmansenergybrain.com

In today's post please find:

  • the natural gas review (bigger than Street expected withdrawal; next week to be modestly smaller),
  • the oil inventory review (fairly neutral; look for implied gasoline demand to pick up near term),
  • comments on the SLB quarter,
  • a quick pro forma look at CRGY,
  • and some other odds and ends.

Ecodata Watch:

  • We get leading economic indicators at 10 am EST (F = 0.8%, last read was 1.1%).

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watc​h
  3. Natural Gas Inventory Review
  4. Oil Inventory Review
  5. Stuff We Care About Today - SLB, CRGY Quick Look, 4Q21 Energy Earnings Calendar
  6. Odds & Ends

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