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Market Sentiment Watch:
- Much lighter week on the economic data front,
- On the energy front we get the monthly EIA STEO and monthly reports from OPEC and IEA.
Please see the Housekeeping Watch near the bottom of today's post.
In today's post please find:
- The Week That Was,
- The Five Things,
- 1Q21 So Far,
- the updated 1Q21 calendar,
- BCEI - another deal?
- LPI transaction(s) comments,
- and some other odds and ends.
In case you missed The Wrap please click here. Note under this post a number of charts from Zorg, with our thanks.
Ecodata Watch:
- No economic data release scheduled.
The Week Ahead:
- Tuesday - NFIB small-business index, job openings, EIA STEO, OPEC Monthly,
- Wednesday - CPI, federal budget, EIA oil inventory report, IEA Monthly,
- Thursday - Jobless claims, PPI, EIA natural gas storage report,
- Friday - Retail sales, import price index, industrial production, capacity utilization, consumer sentiment, business inventories.
In Today’s Post:
- Holdings Watch
- Commodity Watch
- The Week That Was
- Stuff We Care About Today – The Five Things, BCEI, LPI, 1Q21 Calendar, 1Q21 So Far
- Odds & Ends
Holdings Watch:
ZLT (Zman Long Term portfolio)
- Last Week’s Trades:
- We sold our remaining PLUG position up 370%.
- We added to ACTC.
- We added ENPH for the first time (small, starter).
- The Blotter is updated.
Commodity Watch:
Crude oil closed up 2.1% last week at $64.90 and remains within our near term expected range. EIA data of late has been price supportive. OPEC data has been more mixed. This morning crude is trading up 50 cents.
- Cyber Attach Watch: Colonial Pipeline's two mainlines supply the east coast with 45% of gasoline needs remained down through the weekend after a ransomware attack shuttered some of the company's back office functions and they opted to shut in the lines for safety.
Natural gas rose 0.9% front month to end last week at $2.96 with the strip up 0.7% to reach $2.99. We have long said below $3 is too low and the market has corrected higher even as we weather the shoulder months on lower than expected injections due to favorable weather and strong export demand. Gas fired generation is about to pick up and should lend further support.
- TExpect a similar sized if slightly large injection this week vs last week.
- This morning gas is trading down 2 cents.
Weather Watch: Still mild.
- Last week: Gas weighted Heating Degree Days (HDDs) came in at 51 vs 55 normal and 53 in the prior week.
- This week's forecast: This week, CPC predicts HDDs will edge up to 55 vs 45 normal.
Strip Watch: Improving.
Rig Count Watch:
The Week That Was
Stuff We Care About Today
The FIVE Things (Changes or re-highlights in RED)
Biden Administration: :
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- Renewables. We have seen and continue to see Green/Renewable space names doing well under Biden - our sense is that after a fairly brief post inauguration dip that green space names will begin to base and then carry higher. WE SEE BASING PERIOD AS HAVING BEGUN IN LATE MARCH.
- Iran negotiating.
- Iran has moved to enrich to
20% 60% and has threated to enrich higher.
- U.S. has said it's mulling lifting some sanctions. U.S. reiterated this week of 4/30/21
- Israel has said it will prevent Iran from obtaining a nuclear weapon.
- Iran made false claims about progress (refuted by US State Department) on 5/2/21.
- Executive Orders On ESG & some other local government moves.
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- Paris Climate Accord re-entry. Done.
- We DID NOT see a federal lease frac or permit ban day one. We do see a 12 month study on health impacts relative to drill and frac setbacks.
- A federal lands new permit suspension for 60 days. Done. We thought to see some news here in April but did not.
- We expect year 1 to contain some form of reserve liability component. This is potentially a big threat to upstream valuations. This could be included in 2021 reserve reports due in early 2022. This one is a wildcard as we don't know timing for sure and certainly not how the calculation will run. It's possible some Democrats will side against this measure (Manchin of West Virginia seems a likely one but there are probably others). Not yet announced.
- We expect moves via executive order and legislation for renewable supportive policies. In progress.
- Coronavirus:
- U.S. opening up, some parts of Europe, Middle East, Asia, Latin America locking down again.
- Africa cases are not high compared to expectations.
- Increasing number of variants but these appear to be largely well addressed by vaccines.
- Vaccine efficacy for young kids shown to be high.
- India setting new global high records almost daily resulting in U.S. travel ban
- Regardless, expect very strong summer 2021 travel season, very very strong.
- Oil Production / Sentiment:
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- U.S. Production - Headed very gradually lower but expected to stall and turn very slowly up later this year.
- Rigs - Recent increase was year end positioning for 2021 and it slowed as expected into 2Q20. We do NOT expect another BIG jump without > $60 area looking sustainably. 1Q21 calls were marked by discipline comments relative to original budgets.
- Frac Spreads: 221 last week. New pandemic period high. Our play here is very much LBRT.
- LBRT thinks:
- 165 spreads needed to hold U.S. flat in 2021. That's just oil.
- and we need 25 to 30 more spreads to maintain natural gas production.
- additional 80 spreads to grow U.S. oil production by 1 mm bopd in 2021.
- Therefore, to MAINTAIN oil and gas production in 2021, at end of 2020 levels, we need 190 to 200 spreads (as an average for the year).
- we expect spreads to rise in 1H21 to handle DUC completions.
- STEO sees modest lower US oil production 2020 to 2021 with volumes rising by 3Q21.
- Storage levels:
- Crude stocks are modestly below with five year average.
- Gasoline stocks are modestly below five year average.
- Distillate stocks are modestly below the five year now.
- Expect positive YoY comparisons on U.S. throughput near term with weak stocks and strong cracks where they are.
- Sentiment - Improved with vaccine approvals. STRONG VACATION TRAVEL SEASON AT HAND ~ work related demand and further sentiment improvement.
- OPEC viewed as taking a MEASURED, CONSTRUCTIVE approach to early 2021. OPEC+ seems to have finally figured out how to play the new game of sell less, make more money.
- Natural Gas Sentiment: SHOULDER SEASON ALMOST OVER; THEN MOVE TO RECORD SUMMER DEMAND.
- Supply is weak
- LNG exports are holding near record high levels.
- Mexico exports holding near record high levels.
- Imports from Canada will edge lower after shoulder.
- Production is essentially flat now with year ago levels, still well off peak.
- Therefore, Net supply is down significantly YoY and not set to improve until later this year.
- Non heating demand remains solid to near record and below $3.25 ish expect a record summer for gas-fired generation.
- Shorts have grown increasingly confident again, poised for typical shoulder season weakness. The more to cover later.
- We simply expect better sentiment from gassy upstream names than we saw in 2020.
- Storage is NOT in record territory. It's in deficit to year ago and five year average levels now.
- NGL prices are near 1 year plus highs. Good for names like AR, and unowned RRC and SWN (but given where propane is, especially good for our AR.
- Propane prices inventories are very low. Propane and ethane pricing are counter-seasonally strong.
- Renewables:
- Sentiment is weak but the stocks appear to be basing. Expect bottom fish action soon, especially within solar and middle tier EV.
- Renewables are ~ 50% of assets in the portfolio via 12 names.
- We want to add more grid exposure and that means AMSC (unowned) or more STEM.
- We are working to balance our renewable holdings among Wind, Fuel Cells, Solar, EV, and Storage/Grid resiliency. We are currently heavily skewed towards Wind and Fuel Cells.
1Q21 Calendar
1Q21 So Far
Other Stuff
BCEI - Wall Street Journal reporting sources say BCEI to acquire XOG (unowned) in all stock, no premium deal.
- WSJ says the company to be largest DJ Basin player, to be renamed Civitas Resources.
- BCEI has spoke to still wanting to scale up in the wake of the HPR acquisition.
- We'll update this section if / when we see a press release.
- XOG:
- reemerged from bankruptcy in January and has much lower leverage now (and expected to be lower by mid year with net debt of $100 to $125mm).
- was expected to hold a conference call for 1Q21 results on May 14th.
- has 140,000 net acres,
- had preliminary volumes in 1Q21 of 71.6 MBOEpd (36% oil, 26% NGLs)
- compare to BCEI's guidance for the rest of this year pro forma HPR of 40 to 42 MBOEpd.
- XOG was guiding full year 2021 to maintenance in a range of 66 to 74 MBOEpd.
- All stock, no premium implies an exchange ratio of about 1.16x and would mean, about 35 mm shares issued on top of the < 31 mm BCEI has out now.
LPI announces "transformative transactions"
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- Selling gassy legacy PDP assets (37.5% of total PCD) for $405 mm (25,000 BOEpd, but 23% oil by production; 94 MMBOE 18% oil by reserves)
- Buy oily acreage as a direct offset of their oily assets and current focus in Howard:
- for $715 mm (14,500 BOEpd, 83% oil)
- Maintenance capex not provided.
- Reserves not provided.
- 35% first year decline called low.
- They call it long term accretive to Free Cash Flow and EBITDA. The put company cumulative FCF at > $700 mm due to this deal. .
- The non funded portion will go on the revolver.
- Long term deleveraging to 1.0x expected by 2025.
- We do not see that they are holding a conference call for these transactions but will check again in the morning.
- Their short presentation can be viewed here.
- Nutshell: Intuitively this makes sense. Swap gassy legacy for oily more core acreage makes sense. Our view is that they are paying up due to high prices ($49K per flowing BOEpd seems quite high) to accelerate a move to free cash flow status and generate more free cash flow over the next five years.
Housekeeping Watch: Intern #1 has her last State Cup this week before high school graduation. We will post a Thursday and Friday post early Thursday morning but I will be out of pocket much of both days for travel and sideline coaching.
Odds & Ends
Analyst Watch:
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