25
Feb

Tuesday Morning – OII, MR, CDEV

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Market Sentiment Watch: Cautious market looking for a bounce after posting the worst single day loss in two years. In today's post please find the early read on oil inventories, the very early read on natural gas inventories (consensus looking for a withdrawal modestly above last week's pull as expected), comments on the OII quarter, comments on the CDEV quarter, comments on MR, and some other odds and ends.

Ecodata Watch:

  • We get Case Shiller at 9 am EST (no forecast, last read was 3.5%),
  • We get FHFA home price index at 9 am EST (no forecast, last read 4.9%),
  • We get consumer confidence at 10 am EST (F = 132.5, last read was 131.6).

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stuff We Care About Today – OII, CDEV, MR, LNG
  4. Odds & Ends

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24
Feb

Monday Morning – Covid-19 Fear Rises, 4Q19 Earnings Peak

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Market Sentiment Watch: Sentiment turns more fearful as markets eye Italy, Iran, and South Korea outbreaks. In today's post please find The Week That Was, The Five Things, a subscriber mailbag question, and some other odds and ends. In case you missed The Wrap please click here.

Ecodata Watch:

  • We get the Chicago Fed at 8:30 am EST (no forecast, last read was -0.35)

The Week Ahead: 

  • Tuesday - Case Shiller, FHFA home price index, consumer confidence,
  • Wednesday - New home sales, EIA oil inventory report,
  • Thursday - Jobless claims, GDP, durable goods, core capital goods, EIA natural gas inventory report
  • Friday - Advance trade in goods, personal income, consumer spending, core inflation, Chicago PMI, consumer sentiment. EIA 914 data.

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. The Week That Was
  4. Stuff We Care About Today – The Five Things, Subscriber Mailbag
  5. Odds & Ends

 

Holdings Watch:

ZLT (Zman Long Term portfolio)

  • Last Week’s Trades: None
  • ​The Blotter is updated.

Commodity Watch:

Crude oil rose 3.3% to close at $53.38 last week on a second week of bounce withe help of a better looking EIA weekly (see comments below) and thoughts that Russia will eventually come around to OPEC+'s thinking but not before the March meeting.  Brent closed up 3.8% on the week while the OPEC basket rose 5.5%. Please see The Week That Was for more details. This morning crude is trading down $2.

  • Russia Watch: Time for Russia to step up and be an OPEC+ partner.

Natural gas actually rose last week. Prompt month gas was up 3.7% at $1.905 on the week even venturing over $2 (briefly) for the first time since January. Two cargoes meant for Spain were rejected which took the wind out of gas' sails late in the week but we continue to expect a sub $2 Tcf trough and a trajectory for prices that is similar to that since in 2016 as more producers do the right thing by slowing their programs while non heating related demand continues to improve.  This morning gas is trading off 6 cents

  • India Watch:  Prices likely to be cut by 25% in India in April moving them in line with international pricing.

Weather Watch:

  • Last week: Near normal for second week.  Gas Weighted Heating Degree Days (HDDs) came in at 190 vs 192 normal and 200 (closest week to normal this year; normal would have been 203) in the prior week.
  • This week's forecast:  Not available at post time.

The Week That Was

Stuff We Care About Today

The Five Things:  (changes in red)

  1. 2020 Guidance: On average, flat to slightly up volumes, down capex. This has only been reinforced by the commodity price volatility of the last few weeks on both the oil and natural gas fronts.  Look for upstream names to slowly begin releasing their 2020 outlooks (January to February).  Capex is likely to be down modestly across the board (down less for oily names, down more for gassy names). Service names are likely to guide one quarter at a time (SLB did on Friday) with 1Q set to see a modest bounce relative to 3Q and 4Q19 levels (SLB said as much).  We plan to keep a running list of capex and volume guidance with the first list out very soon (names like COG have already put brackets on the new year, others are likely to wait for more confirmation on commodity prices and release guidance as late as the 4Q reports).  A majority of our names will look to generate free cash flow at $50+ in 2020 (some lower) and some gassy names will look to be cash neutral to slightly cash flow positive at a roughly $2.50 or $2.60 strip. COG should be cash neutral just under $2.25.  Expect upstream growth to take a backseat again in 2020 with FCF optimization (mix of volumes, price, cost vs capex) at forefront. While 2020 isn't official yet for most names the determination to be better than cash neutral is majority view and deemed critical by many.
  2. Coronavirus:  Fear of lower demand has likely taken about $10 out of global oil prices at this point. China infection rates appear to have slowed due to drastic containment measures. South Korea and a few other nations (of note, Italy, Iran) are seeing increased infected counts.  OPEC is likely to make a decision on proposed further cuts at the OPEC+ meeting in March after Russia stalled on recommendations by the JTC to further curtail group output by 0.6 mm bopd in 2Q20 and to extend the current 2.1 mm bopd in curtailments through year end 2020. There is increasing concern as we approach the end of February that the virus is more transmissable than expected.
  3. U.S. Production Directionality:  Pace of Lower 48 production growth is retreating - after a brief, expected bounce in rig counts YTD, counts are expected to trend flat to down in the rest of 1H20 while frac spreads over 30% off peak  We see EIA as missing the turn in production now, although, the latest EIA Drilling Productivity Report clearly anticipates rapid unconventional growth deceleration even as the DUC count starts to really drop.  We expect further downward revisions to the STEO forecast, particularly for oil growth, in early 2020 (though last week they did reverse course, moving their estimate higher due to prices (if not the reality of spreads and rigs).
  4. Natural Gas sentiment - remains in poor territory driven by mild winter weather.
    1. Exports hit almost weekly new highs
    2. Non heating demand remains solid to near record
    3. Production is over 2 Bcfgpd off record highs set in November 2019.
    4. The net short position is near record high territory
    5. We expect a storage trough likely between 1.8 and 2.0 Tcf at which point electricity generation and rising exports will take center stage.
    6. There is fear that China will impact global LNG markets via force majeure (we noted two cargoes were rejected recently from Spain).  No LNG is shipping to China from the U.S. at this time and operators are rejecting the FM proclamation at this time.
  5. 2020 Presidential Candidates: Sanders increased his lead with a bigger than expected win in Nevada.  In January he introduced a frac ban bill in the Senate. We reviewed the plan and noted there is no transition involved.  We expect a push by candidates to more fully embrace renewables and EVs and we continue to watch the energy rhetoric and plans which still range from the extreme (frac bans, revamp of SEC reporting to reflect climate change liability (mostly Warren) to measured (a push for further improvement of ESG - our mid and larger names are putting out stronger ESG reports now).  Frac bans are generally thought to be only applicable on federal lands (though Sander's plan says all land) which are generally western U.S. states (biggest hit to growth would be New Mexico portion of the Delaware).  The political climate in CA continues to worsen for producers. CO appears to showing some signs of less tension in the wake of recent clarifications by the state O&G agency (next worry item comes mid 2020 when proposals turn into action plans).   We currently hold >30% of the portfolio in Wind (3 names now), Solar, and fuel cells and we plan to add more exposure.
  6. Bonus Thing:  Renewables - we are over 30% renewables weighted now. We are interested in names with advantaged positions and products and have taken on those names that also have strong balance sheets.  The ZLT has never been this highly exposed to non upstream names. Please see the ZEB Positions page at upper left for our names.

Questions on the 5?  These are our top of mind thoughts at present. We keep it short for the post but please feel free to ask in comments

Subscriber Mailbag Watch:

Question: "When coronavirus gets here in more force, how would you expect it to affect something like NG prices? Would demand be crippled? Trying to mentally wrap my mind around that."

Z4 Comments:

  • Totally fair question given the concern over oil.
  • However, given what natural gas is used for in the States we would not expect any great direct demand impact. Exports could be slowed due to the LNG glut (so far we've seen no impact on exports).
  • Natural gas is simply not a transportation fuel. It's well under 1% of consumption for transportation in the States.
  • Demand is highly levered to electricity generation. Seasonally, generation will increasing in the next few months and we don't see a potential outbreak in the States impacting electricity demand unless we see widespread facility closures.  Normally flu season results in frequent short term school closures which are undetectable in the electricity data.
  • Industrial demand could take a hit but the uses are steel, glass, concrete, food prep, and other as well as some district heating, and are widely diversified across the geography of the U.S. To really dent that we'd have to have a wide spread factory shut down and that would signal a far worse concern for markets than for natural gas.
  • Residential and commercial demand would likely be less affected (again given people staying at home burn more, not less gas, even in summer for water and cooking).  Commercial could take a hit but unless it moves beyond very localized areas we doubt it would be notable in the numbers.
  • But again, what you don't see with natural gas that you do with oil is the affects of restricted travel.

 

Other Stuff

Odds & Ends

Analyst Watch:

  • MGY - Susquehanna trims target from $16 to $14.

22
Feb

Wrap – Week Ended 2/21/20

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Second week of gains for oil and natural gas this year. The ZLT was slightly up on the week helped by the renewable component of the portfolio.

Free pieces last week:

Post's Last Week

Additional Food For Thought on COG

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Questions and comments under The Wrap will be addressed in the Monday post.

The Blotter is updated.

Have a good weekend.

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21
Feb

Friday Morning – COG, FSLR

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Market Sentiment Watch: Coronavirus in or out of focus depending on when you look. Yesterday relatively less concern was cited among reasons for oil to continue its recent mini-recovery. Today concern of expansion to South Korea and within Chinese prisons has markets back on edge. Delays in supply chains are going to be increasingly common as manufacturing is taking longer to get back to work than expected just a few weeks ago. In today's post please find:

  • the natural gas review (in line withdrawal, see near term supply/demand table),
  • the oil inventory review (better than expected, throughput a record for time of year, net imports a record low for time of year, oil and gasoline both improve YoY and to their 5 year averages),
  • comments on the FSLR quarter,
  • comments on the COG quarter (modest beat on volumes, EBITDA, in line EPS, guidance reiterated, highlights U Marcellus),
  • link to the the updated calendar, (peak of 4Q energy reporting season is next week),
  • and some other odds and ends.

Ecodata Watch:

  • We get existing home sales at 10 am EST (F = 5.36 mm, last read was 5.54 mm).

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 - COG, FSLR
  6. Odds & Ends

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20
Feb

Thursday Morning – PE, MGY, PXD

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Market Sentiment Watch: Getting busier as earnings season rolls along. People want upstream to increase dividends and so far this season that's a go where feasible (FANG, CXO, DVN all increased yesterday). In today's post please find:

  • the oil inventory preview (API was a mixed bag) (11 am EST),
  • the natural gas inventory preview (10:30 am EST),
  • comments on the PE 4Q19 results (slight miss on volumes and reiterate guidance including $200 mm fcf at $50),
  • comments on the MGY 4Q19 results (miss on lower than expected spending, potentially non operated spend, look for good Giddings update the call),
  • comments on the PXD 4Q19 results (modest beat, guidance above Street, boosted dividend),
  • and some other odds and ends.

Ecodata Watch:

  • We get Jobless Claims at 8:30 am EST (F = 210,000, last read was 205,000),
  • We get Philly Fed at 8:30 am EST (F = 10.0, last read was 17.0),
  • We get Leading Economic Indicators at 10 am EST (no forecast, last read was -0.3%).

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watc​h - with oil and natural gas inventory previews
  3. Stuff We Care About Today - PE, MGY, PXD, VWDRY
  4. Odds & Ends

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