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Market Sentiment Watch:

• We are thankful for many things including your patronage. We hope you and yours are well this holiday season. 
• We get A LOT of economic data as well as both EIA weekly reports today.

Housekeeping Watch: 

• Site improvements ~ send us your thoughts with "Site Improvements" in the subject line to zman@zmansenergybrain.com.  
• If you are not getting ZBLAST trade notices at the correct email address please email us on that as well. 
• This is generally a pretty quiet week and we are taking Friday off. We plan to add the oil inventory slide show and the natural gas storage slide show by Friday morning to this post. I'll be in and out on Friday. 
• If you don't follow us on twitter you might consider it.  See that little blue bird follow button above. 

In The Black Friday Sale 

A lot has changed at Z4 Research (www.zmansenergybrain.com) over the last couple of years including our research offering. While we continue to cover the oil and gas macros and U.S. upstream we have expanded to include a number of names in the fuel cell, wind, and other renewables segments.  We'd like to offer new and returning subscribers a one month, $25, full access test drive of the site to get reacquainted.   So please come check us out or give us as gift to someone who might want a little bit of energy in their stocking.

In today's post please find:

• the oil inventory preview (really benign report expected; API reported a bigger than expected crude build but EIA should look less bearish),
• the natural gas inventory preview (the range of estimates is all over the map at last check; we are looking for a 10 to 20 Bcf withdrawal; we get the report today due to the holiday),
• and some other odds and ends.

Ecodata Watch:

• We get jobless claims at 8:30 am EST (F = 720,000, last week was 742,000),
• We get the 3Q GDP revision at 8:30 am EST  (F = 33.5%, initial was 33.1%),
• We get durable goods at 8:30 am EST (F = 0.5%, last read was 1.9%),
• We get advance trade in goods at 8:30 am EST (F = -$80 B, last read was -$79.4 B),
• We get new home sales at 10 am EST (F = 980,000, last read was 959,000),
• We get consumer sentiment at 10 am EST (F = 77.0, F = 77.0),
• We get personal income at 10 am EST (F = -0.4%, last read was 0.9%),
• We get consumer spending at 10 am EST (F = 0.3%, last read was 1.4%),
• We get core inflation at 10 am EST (F = 0.0%, last read was 0.2%),
• We get the EIA oil inventory report at 10:30 am EST.
• We get the EIA natural gas storage report at 12 pm EST.

Thursday and Friday have no economic data releases schedule. The market will have a short session on Friday, closing at 1 pm EST.

In Today’s Post:

1. Holdings Watch
2. Commodity Watc​h - with oil and natural gas inventory previews
3. Oil Inventory Slide Show - TBA when available
4. Natural Gas Storage Slide Show - TBA when available
5. Quick Stuff
6. Odds & Ends

Click the link directly below this to ...  Continue Reading »

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Market Sentiment Watch:

• The presidential transition is moving ahead.
• Headline from the 3rd vaccine is "200 mm doses this year, 3 billion next".  Very good news.  But some bad case numbers between now and then end of winter will likely prompt some pauses in what's been a heady vaccine bounce along the way.
• Market appears pleased with Biden cabinet intentions so far with Janet Yellen for Treasury the key one so far.
• The move to appoint John Kerry as U.S. climate envoy could be more nuanced for the U.S. energy complex (first blush obviously good green/renewables and wary/increased risk for U.S. oil and gas concerns but how much of an increase is as of yet uncertain ... listen for chatter in coming days ... our sense is that Kerry is likely to push for aggressive emissions targets early in his tenure).
• We understand a czar for domestic climate issues will be appointed soon to work in conjunction with Kerry. 

Housekeeping Watch: 

• Site improvements ~ send us your thoughts with "Site Improvements" in the subject line to zman@zmansenergybrain.com.  
• If you are not getting ZBLAST trade notices at the correct email address please email us on that as well. 
• This is generally a pretty quiet week and we are likely to take Friday off. If you have questions please feel free to ask them. There are no dumb ones here. 
• If you don't follow us on twitter you might consider it.  See that little blue bird follow button above. 

In today's post please find:

• the early read on oil inventories (very benign report expected again accompanied by a larger drawdown of distillates),
• the very early read on natural gas inventories (Street consensus ranges from small build to small withdrawal; we're looking for a modest pull),
• the drilling and completion graphs,
• comments and a cheat sheet update BLDP,
• comments and a cheat sheet update BE,
• cheat sheet for comparison for PLUG,
• and some other odds and ends.
  

Ecodata Watch:

• We get Case-Shiller at 9 am EST (no forecast, last read was 5.7%),
• We get consumer confidence at 10 am EST (F= 97.3, last read was 100.9), 
• We get API inventories at 4:30 pm EST. 

In Today’s Post:

1. Holdings Watch
2. Commodity Watch - Drilling and completion YTD
3. Stuff We Care About Today –  BLDP, BE, PLUG, MGY
4. Odds & Ends

Holdings Watch:

ZLT (Zman Long Term portfolio)

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

Commodity Watch

Crude oil rallied $0.64 to close at $43.06 yesterday, moving up on news of a third successful vaccine, a bounce in equity and commodity markets in general, and a sudden rise in Middle East tensions. 

• Iranian backed (likely) Houthis struck a site in Saudi from Yemen with a cruise missile (confirmed mid day yesterday and Saudi took more actions in terms of mine removal in the Red Sea while calling the strike on its facility a move against critical infrastructure),
• Libya's NOC HQ repelled an attack yesterday,
• Look for a holiday uptick in air traffic soon but note the recent data has been less than constructive save the last few days,
• While prices are in the upper end of our near term range we don't see a move over $44 as sustainable at this time (yes it can break it on vaccine thoughts and a couple more good weeklies out of EIA but let's set how OPEC/OPEC+ acts at the end of this month - we don't see a 6 month extension but 3 months is probable).
• This morning crude is trading up 50 cents. 

Early Read on Oil Inventories:

• Crude: Up 0.1 mm barrels
• Gasoline: Up 0.5 mm barrels
• Distillates: Down 2.5 mm barrels

This Week in History:   Year Ago and 5 Year Average Inventory Levels.

Maintenance Mode Watch:  This is what it looks like (except for the Haynesville which has solid economic vs the several of the others here; we own GDP to capture that).

Natural gas rallied $0.06 to close at $2.71 yesterday on a colder than previously expected forecast for the November 28 to December 7th period for the South and for the 28th through the 2nd for the Midwest by the The Commodity Weather Group.   

• The early read on storage is a draw on stocks of -5 Bcf (Reuters survey) to a 7 Bcf build for the Bloomberg survey participants.
• We expect a 10 to 25 Bcf withdrawal.  Note that due to the holiday we get this number tomorrow.   
• This morning gas is trading up 2 cents. 

Stuff We Care About Today

BLDP Cheat Sheet Update

• The quarter was covered here on November 6th.
• In a nutshell we were underwhelmed with the results which were light on the top and with commentary that confirmed that the scope of work with Audi has taken a downturn (they'd previously gotten a release to sell the tech to others which is not exactly a raving review of joint done development).
• Estimates have fallen for 2020 and 2021 in fairly dramatic fashion since the call.
• The company is moving along a number of promising avenues however this is not yet translating into the kind of revenue growth we are seeing at PLUG.
• Nevertheless, the shares, after a brief post quarter pause, have run in the last few weeks and are testing levels not seen since the summer Hydrogen rally. Note that BLDP has far under performed PLUG and we expect that some are simply piling in and do not really understand what they own.
• We had planned during the summer and up through their end of September analyst day to add to our holdings here (we have a 2% position but we are now looking to wait ~ our version of a Hold rating).  If the name breaks on out we may liquidate the position and watch it for a time.
• After the close they conducted a bought secondary at $19.25 to raise $250 mm (gross) which is incorporated to the cheat sheet below (general balance sheet bolstering purposes and not surprising given the move in the shares and the ease with which PLUG conducted a much larger secondary last week).

• The quarter was covered here. It was an OK with a revenues miss and EBITDA beat on one time deferred revenue item but it was more upbeat and continues to be more upbeat in our view than BLDP.
• Due to Covid they previously suspended guidance. Estimates have eased modestly since the call.  They did indicated they see "slightly better" revenue in 4Q20 relative to year ago levels.

What's different since our last update? 

• Balance sheet is in much better shape.  Pro forma a recent green bond update their interest expense is largely close to 2% coupon type maturities and they are flush with cash.  They now have no net recourse debt.  They've also pushed the nearest debt maturity out to 2025, cut interest expense by nearly 3/4's and cut absolute debt by > $140 mm since early this year.
• They have seen an increase in interest from more geographic regions than just California due to wider spread natural disasters including along the Gulf Coast. They now have 103 micro grids installed.  They are increasing ties with utilities due to natural disasters.   More catalyst type news here to come.
• Innovation continues:
  • Hydrogen - Solid Oxide Electrolyzer (SOEC)
    • Management notes, and we concur based on multiple sources, that solid oxide electrolyzers are more efficient relative to low temperature PEM and Alkaline electrolyzers.
      • Solid oxide 13 to 31% more efficient (electricity per KG of H2) by 2030.
      • 19 hydrogen patents and produced hydrogen 15 years ago but held off on commercializing the technology then due to economics.
      • Their electrolyzer is the same core tech as their fuel cell. As with all fuel cells, you basically run it in reverse with electricity the input instead of hydrogen and hydrogen the output instead of electricity.
        • It also utilizes the same existing supply chain as fuel cells.
        • Same manufacturing process.
        • Same partners.
        • Same monitoring equipment.

• • • • They expect to be the low cost solution at scale (9 to 24% cost advantage over other electrolyzers).
        • Costs down from $5,886 per kW in 2015 to $2,715 in 2019 and $2,420 in 3Q20 with eyes on ~ 900 in the future with the near term release of Bloom Version 7.5.
        • They expect to be below the cost of CMI's (unowned) electrolyzers.

H2 Markets:

•  They see a total addressable market of $50 B by 2025 (Green H2 for Industrial, Pink for US and EU nukes, Blue and Gold in the US, Green in transport in the EU, Japan, South Korea, and green for blending into the NG pipelines in the EU).n
• Note the Gold H2 is carbon negative.
• Building partnerships (so far SK where they have the utility scale fuel cell install doing well - see below and Samsung for ships).  Upcoming is electrolyzers with SK for H2 based transporation (generation and fueling stations) in South Korea with first deliveries set for December.
• They also have a number of projects in the works to bring both pink and gold to commercialiality.

Other items of note: 

• • Skid product - pre assembled product allowing them to drop in a system more easily vs concrete poor and tie in. This thing basically sits in a parking lot and is good to go. Also allows them to do temporary installs.
  • Utility Scale - In South Korea 167 power modules now 2 years old and none of have required replacement; has maintained 100% availability in the 2 year period. For reference, traditional power sources are generally in a range of 70 to 90% availability with wind at about 30% and solar at about 20%.  They see increasing opportunities on the international side.
  • Management continues to speak to reduced product costs (variety of means including helping their suppliers with their process) and longer life of new fuel cells.
  • We may still add the name back when we see a good spot of weakness in the group.
• Investor day in December -  (we don't have the date yet). 

• We previously did a post quarter update here.
• We're just including a fresh cheat sheet for comparison to the above.
• They should announce the location of the Giga factory (guessing somewhere in New York) any week now.

Other Stuff

• MGY CEO bought 40,000 shares @ $5.77 on 11/19/20, as expected and we were a bit surprised we had not seen a form 4 more closely in the wake of the quarter.
• The KCAC merger vote is tomorrow. We are voting yes. We look forward to new data shortly after the merger closes.
• VWDRY had a turbine collapse in Sweden (likely heavy winter weather related but not sure - news was out yesterday).
• Colorado Watch:  COGCC adopting new rules including 2,000' setbacks. This was expected. We walked through these issues previously with BCEI and expect little if any notable impact on their operations from the new regulations.  Story here. 
• Look for additional owned name cheat sheet updates soon.
• GM and potentially Toyota looking to re-align with California on air standards. Not at all surprising. Story here. Note the part about GM getting BEV prices down to ICE prices in 5 years. 

Odds & Ends

Analyst Watch:

• TBA in comments. 

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Market Sentiment Watch:

• Last week market's moved sideways on mixed to poor economic data and rising Covid numbers with more good vaccine news serving to ward off any serious thoughts of profit taking. This morning reports indicate the Oxford vaccine may be up to 90% effective. 
• On Friday the White House said 40 mm vaccine doses would be available by year end and some said 50 mm are possible. Fingers crossed on that and a steady rise in availability of 2 to 3 different vaccines into 1Q21.
• We get a raft of new data on Wednesday including both the oil and natural gas inventory reports out of EIA.

Housekeeping Watch: 

• Site improvements ~ send us your thoughts with "Site Improvements" in the subject line to zman@zmansenergybrain.com.  
• If you are not getting ZBLAST trade notices at the correct email address please email us on that as well. 
• This is generally a pretty quiet week and we are likely to take Friday off. If you have questions please feel free to ask them. There are no dumb ones here. 

In today's post please find:

• The Week That Was,
• The Five Things
• and some other odds and ends.

In case you missed The Wrap please click here.

Ecodata Watch:

• We get Chicago Fed at 8:30 am EST (no forecast, last read was 0.3). 

The Week Ahead: 

• Tuesday - Case-Shiller, consumer confidence, 
• Wednesday - Jobless claims, 3Q GDP, durable goods, advance trade in goods, new home sales, consumer sentiment, personal income, consumer spending, core inflation, EIA Oil Inventories, EIA Natural Gas Storage,  
• Thursday - Market closed for Thanksgiving, 
• Friday - No economic data release scheduled.  

In Today’s Post:

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

Holdings Watch:

ZLT (Zman Long Term portfolio)

• Last Week’s Trades: We took 1/4 of our PLUG position off the table for a 414% gain. We added to our SWN position twice. 
• ​The Blotter is updated.
• We remain VERY long.

Commodity Watch:

Crude oil rose 5% to close at $42.15 last week, moving up on more good vaccine news, thoughts of stronger travel (relative to recent), and another big draw on distillates (heating oil was up 7%) and distillate stocks are almost back to middle of range for time of year. OPEC is also now more than likely to hold quotas at subdued levels through march when they meet at month's end. This morning crude is trading up about 1%. 

• Iran Watch:  The U.S. moved B52's into the region over the weekend.
• Interesting Chart of The Week Watch:  Much less troubling levels reached.   We now expect a move to low end of range for distillate stocks without a bigger than expected rebound in throughput near term, lifting prices and cracks over the winter. 

Natural gas slumped 11.5% to close at $2.65 on poor weather and the resulting bigger than expected larger than expected late season storage build that weather brought:

• This week we expect a modest withdrawal (EIA reports storage a day early this week),
• This morning gas is trading up > 2%. 

Weather Watch:  Still mild

• Last week:  Gas weighted Heating  Degree Days (HDDs) came in at 118 vs 143 normal and 95 in the prior week.
• This week's forecast:  This week, CPC predicts HDDs will hold at 117 vs 160 normal.

​The Week That Was

Stuff We Care About Today

The Five Things (Changes in Red)

1. Election 2020:
   1. Biden won (not yet official);
   2. Senate may stay R (but more difficult to read now, given mail in ballot request count). 
   3. Expected impacts:
      1. We see Green/Renewable space names doing well either way.
      2. We see oil moving sideways with Biden victory (so far (first few days) so good),
      3. Executive Orders
         1. US to re-enter Paris climate accord,
         2. We do not see a federal lease frac or permit ban day one. Many are suggesting this. We say unlikely.
         3. We do see a study of 6 to 12 months in duration on health impacts relative to setbacks.
         4. We expect year 1 to contain some form of reserve liability component if the Senate does not maintain R control.
         5. We expect near term air and water quality regulations.  Note that this should have little impact on US upstream names who were already in compliance with Obama era tighter regulations.
         6. We expect moves via executive order and legislation for renewable supportive policies.
      4. Natural gas is likely boosted on completions fear, and potential permitting delays or suspensions in the next year (NM, WY, GOM).
2. Coronavirus:
   1. New cases - Rising, especially in the U.S. and Europe.
      1. Re-lockdowns across Europe and increasingly in the U.S.
   2. Asia not showing signs of second wave.
   3. Vaccine said to be available on a limited basis in December; widely available as per Trump in April.
      
      1. Expect uptick in end of year travel season but poor levels on a historical basis
      2. Expect strong spring travel season.
      3. More vaccine data is set to arrive almost weekly this fall.
   4. Re-openings of schools are generally not being tied to Covid increases. Sports doing pretty well so far.  Small gatherings in homes noted as the new spreading events. Worry from this over the coming holiday's and a tie to higher cases.
3. Oil Production / Sentiment:
   1. U.S. Production - Headed gradually lower.  Prices are not high enough to warrant activity that can more than slow declines or maintenance levels depending on the operator.
      
   2. Rigs - Rising were rising into Thanksgiving. This is year end positioning for 2021 and we expect it to slow very soon.
   3. Frac Spreads:  Back down to 127 last week.    This is not close to enough to hold U.S. production flat at the 4Q20 level in 2021. Not. Close.  Expect sloppy action between Thanksgiving and Christmas. Then ramp. 
      1. LBRT thinks:
         1. frac spreads will be at 100 by YE2020 (so we're way above that now and the LBRT call should reflect that w  but we may see some slippage around Thanksgiving).
         2. 165 spreads needed to hold U.S. oil flat in 2021.
         3. additional 80 spreads to grow U.S. oil production by 1 mm bopd in 2021.
         4. and we need 25 to 30 spreads to maintain natural gas production.
      2. Therefore, to maintain oil and gas production in 2021 at the then current end of 2020 levels we need 190 to 200 spreads.
   4. Storage levels in the U.S. are elevated but normalizing.
   5. Sentiment - improving since the election.
   6. M&A expectations are likely still increasing. Next deals likely Permian, Eagle Ford.
   7. Libya - production/exports rising rapidly as peace breaks out.
4. Natural Gas Sentiment: Weather driven.
   1. The 2021 Strip is weaker than it should be now. 
   2. Exports are strong. 
      1. LNG exports have rebounded to record high levels.
      2. Net supply is down significantly YoY. 
   3. Non heating demand remains solid to near record,
   4. On colder weeks we have not been able to discern weakness from the Commercial segment.   
   5. Dry Gas Production
      1. Production is down from year ago levels and is ebbing.
         
      2. Production has fallen almost weekly over the last several months.
         
      3. Production should fall further in 4Q20/1Q21 as less ethane rejection occurs due to higher prices and demand for ethane.
   6. The large net short position we started the year with has evaporated.
   7. We expect better sentiment from gassy upstream names than we have seen so far in 2020.  Gas sentiment needs colder weather. 
   8. Thoughts of consolidation within the gassy space have increased. 
5. Renewables: 
   1. Sentiment remains strong.
   2. We are just under 60% of assets in the portfolio via 8 names (PLUG, TPIC, VWDRY, BWEN, JKS, KCAC, BLDP, and HCAC).
   3. Concerns in the space for some names due to "buy American" them  (for us really just JKS). We think this concern is a bit overblown and/or misunderstood.  

Other Stuff

• Look for additional post quarter cheat sheet updates this week.
• JKS - we are waiting on the company to announced their 3Q20 report date (it is now late by historical standards).
• HCAC - presents at the Jefferies Virtual Truck Summit today at 10 am EST. This appears to be closed to Jefferies clients only but here is the most recent presentation.  New items of note are comments regarding a coming new vehicle reveal and 5,000+ subscription vehicle waitlist sign ups. 
• KCAC - shareholder vote to approve the merger with Quantumscape on Wednesday. We expect approval. We look forward to more data from the company allowing us to do another update there (it's been since early September since we've had much material to say). 
• BWEN - approval with Seeking Alpha for a new piece has been granted. Look for a free to the public piece from us on SA in the next couple of weeks. This is basically a different version of our recent writings on the name following our post quarter chat with management. Likely this gets timed for the next dip in the shares.
• OII - we plan to add a new Seeking Alpha piece there soon.

Odds & Ends

Analyst Watch:

• OII - Zephirin Group ups target from $6 to $8. 

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Solid week with the ZLT up 5.5%.

This week's closed trades:

• "11/16/20 - PLUG - Taking profits on 1/4 of our position at $24.43, up 414%. You may see us take more profits soon on this better than expected performance in the name. We will have our post quarter cheat sheet update in tomorrow's post and we will have live notes on the site today from the Cummins Hydrogen Day starting at 10:30 am EST."

The Blotter is updated.  We made two additions to the portfolio this week as well.

This week's free posts:

• FLMN

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

Have a great weekend,

Z

Housekeeping Watch:  If you are not getting trade notices from us at the correct address please email us at zman@zmansenergybrain.com

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Market Sentiment Watch: 

• Market again has Covid on it's mind. Pfizer to seek emergency approval today. 

Housekeeping Watch:

• If you see an area on the site that is a bit stale let us know at zman@zmansenergybrain.com. 
• If you are not getting ZBLAST trade notices at the correct address please let us know. 

In today's post please find:

• the natural gas review (bigger than expected build; expect a modest pull from storage next week),
• comments and a cheat sheet update for GDP (new look at 2021 and new upside targets),
• and some other odds and ends.

Ecodata Watch:

• No economic data release scheduled.

In Today’s Post:

1. Holdings Watch
2. Commodity Watc​h
3. Natural Gas Inventory Review
4. Stuff We Care About Today - GDP
   
5. Odds & Ends
6. Odds & Ends

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