Wrap – Week Ended 5/11/12 – A Day In The Coverage Of A Quarterly Conference Call (Wrap In Progress)

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Comments on the wrap a little later in the weekend  (table at the bottom of the post) but first a day in the Life of Zman's Energy Brain, well, part of it anyway. Please find below our pre 1Q12 conference call note and live notes during the call as well as couple of trades that occurred in the morning when the market was concerned more with British Whales than Wattenberg Sharks. This is part of what we do every day. Enjoy. 

From Friday's Post:


BCEI Reports Better Than Expected 1Q12 Results; Much Oilier Than Expected Production Mix, and Strong Horizontal Niobrara Well Results

The 1Q12 Numbers: 

  • Production rose 21% sequentially, higher than I expected

  • If you straight line the quarters of 2012 at 20% each starting from 4Q11's levels you get right to the middle of their official guidance and to 4Q rate over 12,000 BOEpd. 
  • The production mix was much oilier than expected with oil coming in at 65% of production vs 59% expected. Natural gas liquids came in as expected at 11% of volumes.
  • Costs came in largely expected with good cost control exhibited on LOE. Production taxes were higher than expected but this is their lowest cash cost component and that's most likely a function of their higher oil mix with oil carrying higher taxes than natural gas. 
  • On a per unit basis, EBITDA came in at $48 / BOE. 
  • NGL pricing was the strongest i have seen in the E&Ps that report on 3 streams this quarter at $64.04 per barrel. 


Highlights of the Quarter:

  • Greater Wattenberg:
    • 5 new horizontal wells, 
    • IPs not given but,
    • Two of the new wells had enough time on line to yield 30 day average rates of 541 BOEpd
    • Prior to these two wells the average 30 day rate of the four horizontal wells drilled so far was 458 BOEpd and its now been dragged up to 486 BOEpd, 76% oil 
    • Looking forward color on how much of their nearly 30,000 net acres in the play is now derisked and how they feel about keeping a rig on that is set to leave in 3Q and therefore bump up the horizontal program to > the current 24 well plan. 
  • No mention of the Brown Dense Lower Smackover play which makes sense since they have said they are happy to let their HBP acres wait on others to crack the BDLS code. 
  • They reiterated guidance of  8,700 to 10,000 BOEpd which on the mid equates to ~ 110% growth,   

Nutshell:  Good quarter. It's not often we get unmodeled mix changes of that scale from one quarter to the next  … hello Wattenberg and thank you. I'm pleased with the quarter and the progression of the story. Estimates should rise on the oilier mix and the likelihood of an increase in volumes guidance4 on the second quarter call has inrease.   I continue to own shares of the common in the ZLT and ZMT and May and June calls in the ZMT.  Below please find an updated book report spreadsheet. Next week I will publish a quarterly model on them.  

Comments before and during the call on BCEI

Z ~ BCEI going to get ignored early it seems which is fine by me. If a rogue trader can give me a better entry on more June calls I will be happy to be the one guy on the planet who thanks him today. 

Z ~ BCEI – opening down 3+% on 3000 shares on a big beat due to the market action. 


BCEI – Added (20) May $20 calls for $0.20 with the stock off this morning with the group. See today's post for details on their strong 1Q12 results. 

Z~ ZTRADE – ZLT – BCEI Trading

BCEI – Added a trading position at average $19.22, see today's post for additional comments on the quarter announced last night. 

Subscriber ~ BCEI:  What took so long for the market to recognize the great report last night?  Love it when the market reveals obvious pricing inefficiencies :)

Z ~ BCEI 1Q12 Notes


$60.9 mm Capex for 1Q12 – budget is $250 mm so they are not out front on the year … that's OK, I'd rather see them front load a bit from a growth perspective but we knew the 24 hz well program in the Niobrara was going to be a big 2Q, 3Q spend.

From a stock perspective, analysts have been punishing people for spending up early in the year this quarter so from that angle it should make the sellside guys happy.

30 wells in the Wattenberg including 5 HZ wells

HZ Wattenberg

- CWC flat at $4 mm

- They have not seen any inflation

- They have no supply constraints

- Average for 6 HZ 486 BOEpd (72%) 

- 915 BOEpd IP from State Antelope well during this quarter, highest IP yet

- Stage count increased from 16 to 18 in a 4,000' lateral

- 324,000 BOE (65% oil, 35% rich gas (1330 to 1370 BTU gas)  - 356,000 BOE on a 3 stream EUR

- Location count is now 290 wells on 80 acre spacing (this is up from prior 215 ish)

- Participating in a 2Q extended reach lateral  - plan to drill their own long lateral   – $7 to $8 CWC costs, saying economics compete with any liquids play in the country. 

- says extended reach laterals are being tested by others (NBL) at 40 acre spacing 

Cotton Valley

- 147 remaining (added 10 locations via acreage adds)

- testing downspacing

- doubling capacity of their NGL plant – note the price they got for NGLs this quarter – guess propane in AR is worth more than in the Rockies



Z ~ Financial highlights

- largely undrawn revolver (see table in post)

- LOE falling but not yet there for the year (no kidding, at $12, going to $8 ish) 

- added 30 to the headcount, mostly accounting and IT types


Reiterate guidance for volumes and capex for 2012

"Thrilled by results in Wattenberg"

Q&A about to start …

Z ~ BCEI 1Q12 Q&A

Q) Thoughts on downspacing in the Wattenberg

A) Lots of confidence in the 80 acre spacing, encouraged by what they are seeing from the 40 acre spacing. Drainage from the verticals is very small so it makes sense that the 40 acre horizontal spacing would be the next step

Q) Thoughts on Codell

A) Codell thins to the east but they like what they see on about half of their acreage (the west half ) for the Codell

Q) Wattenberg – ramp?

A) 5 drilled in 1Q, only 3 were on line with the program. Spud to rig release is 14 days, HAL fraccing them in turn, saying spud to first production is only 44 days. Nice. Expecting all 24 wells to be on this year, with the last well being drilled in July. They are discussing upping the program for the back half of the year. 

Q) Wattenberg HZ program in 2013 – accelerate?

A) Based on results and market conditions we would accelerate

Q) Niobrara C bench question

A) Everything has been B bench so far, others testing C bench. So they will be looking at testing the C bench, said there have been about a dozen C bench tests. Think there is a barrier there to keep those volumes out of B bench wells, so the laterals for C will solely be for C, landed in the C. The B bench in some cases sees the fracs grow vertically into the A.They are working now to capture all three benches. 

Q) Wattenberg – days to production?

A) In early wells they had more non producing days, today days at 0 rate is very limited. Installing artificial lift in about 30 days post completion. Peak rate is in first 3 weeks, oil starts flowing within first 3 days. 

Q) IP on other 3 HZ wells?

A) Coming in as expected, have not planned to report those. 

Q) Longer rates on the older wells

A) Those 4 wells are collectively crossing the 60 day point, they are within our expectations. 

Q) Geological thoughts

A) Geology on the east side – have had no surprises there, on the plus side they have had some wells come in a little higher on the gas side (helps with lifting the oil), have not had any troubles keeping the laterals in zone (helps that they are using the exact same crews that they are using the exact same crews that NBL has drilled many, many  wells with)

Q) Mid continent question about strategy

A)  Always looking to expand acreage position. Results have been oilier this year there than they have been gassy, they are limited by processing so they can accelerate only after the aforementioned plant expansion slated for completion by 1Q13. Not that they won't

Q) Capex for 2012 … would you reduce it?

A) They said they are running right on track, seeing some lessening due to cost pressure.  I would not expect them to cut it but rather to expand slightly to keep drilling HZ Wattenbergs in the 2H12 

Q) Codell?

A) Very encouraged by other operator early results

Q) 2 extra stages

A) just did that so have not seen in well results yet. Early wells were 4mm pounds of sand and 16 stages with 250,000 pounds / stage.  They saw overlap in some of the 16 stages, exploring going with more than 18 but based on the that I would not expect a lot tighter frac stage spacing.

Q) Acreage acquisitions?

A) It is very competitive, lease prices up considerably, we continue to look for assets to pick up

Q) North Park Basin

A) Just completed the seismic program, we have 3 wells in the budget for 2H12, still working on optimizing that program … expect to hear more about this area from multiple operators. 

Q) Reason for the oil/gas mix shift

A) Bulk comes from Midcontinent region producing more oil as they recomplete wells there, also oilier results adding in from the Niobrara. Thinking going forward they think liquids will be in the 70 to 75% range … estimates going up on that for the beat, and then I would say its not just going to pop back down to 70% so estimates going up on that 2Q-4Q as well. 

Q) Revolver question

A) Wanted to make sure they had plenty of room to move so that's the reason for upping the revolver … said that the best deals are often given to the cash buyer … hmm, maybe they have a little M&A in mind. 

Q) Timing on 24 HZ wells 

A) July finish is probably 45 days ahead of schedule … hello 2Q and especially 3Q volume increase. 

Tone of call quite positive

Q) North Park Basin … what kind of data do you have

A) We've been in the NP Basin since 2006, EOG has drilled 7 Hz wells since 2007, last ones were 4,000' laterals with plain vanilla 4 mm pound fracs, we don't expect to have data ourselves to talk about until late 4th quarter. 

Nearly all analysts giving them congrats on quarter

Q) Wattenberg locations – what Bench are those

A) B bench is probably draining the A bench, but not the C, would not call it a doubling of their location count but it would be a significant add

Q) Wattenberg HZ program for 2013?

A) We're talking about it. We have lots of capital capacity , it will be up but he's not going to give a count, given that its April and they have less than 10 wells on I'm glad management didn't laugh at the question of the number of wells for 2013.

Q) Question on NGL price

A) NGLs for them is propanes plus with ethane being sent back into the natural gas.  

Call over. 


BCEI  - Sold (15) of the 30 (10 from yesterday, 20 from this morning) May $20 BCEI calls for $0.90, up 240% to my average cost, on the mid and easily, with the stock at $20.75. I continue to hold the second set of May 20s, the June 20s, and the common in the ZMT and ZLT. 

That's about it, other than fielding a bunch of other comments along the way ... come on by and try us out!



Wrap Comments will be added later ...


18 Responses to “Wrap – Week Ended 5/11/12 – A Day In The Coverage Of A Quarterly Conference Call (Wrap In Progress)”

  1. 1
    Zorgnak Says:

    re #196 on Friday…brod…I use the S&P Emini contract closing price at 4:15pm Eastern…It closed at 1350 on Friday. I'd be glad to kick this stuff around with you if you'd like. During the trading day I get pretty busy sometimes and can't really give the thoughtful answer I'd like.  Here's this week's look at the S&P futures.
    S&P 500 Futures Key Weekly Volume Profile Levels/Thoughts
    Market traded in a narrow balance between 1340 and 1365 waiting a catalyst after rejecting levels higher
    Futures rejected key acceptance at 1365 4 times and accepted lower value at 1347 for the week.
    Key levels for early next week will be 1347 and 1363.50.
    Expecting a move above 1363.50 would be a short lived without a macro economic shift.
    Expect 1370 as near resistance and far resistance at 1380.
    Volume and breadth stats are not supportive of a return to recent highs.
    Expect a break of 1347 tests 1342 and 1340.. Below 1340 the first major support isn't until 1325
    with Major long term acceptance below at 1304.Below 1325, 1304 becomes the  magnet.
    How the levels are reached is as important as the levels themselves. Watch the level of confidence
    of buyers/sellers as trading meets each level. A broken level has as much information value as one that holds.

    CLVN= Low Volume Rejection Area – CHVN = High Volume Acceptance/Congestion

    1389.50    CLVN
    1380-83    CHVN
    1369.50    CLVN
    1365          Major CHVN, Range Pivot 1325-1400
    1363.50    CLVN, Rally highs for week
    1353.50    CHVN
    1347.50    Major CLVN, VPOC for week
    1342         CLVN
    1340         CHVN
    1325         CLVN, Multilple Volume Gaps below
    1304       Major Acceptance

  2. 2
    elduque Says:

    Should be an interesting conference at 8.30 EDT with CHK on Monday morning. 

  3. 3
    brodway Says:

    Thanks for the informative post. I totally understand the being busy during trading hours.  Your input is extremely valuable to me, and i'm sure to many others. I especially find major support levels useful.
    To me, at the moment the market looks dull. With all the talk and what seem to be big moves, the VIX seems to be in a tight range. The buyers are on strike as there is no compelling story just yet to motivate them to buy or add.  The extreme moves come in on lighter volume and without any real conviction. Almost seems most of the action is coming from sell programs, which i'm sensing are mostly short positions increasing in some of the names. I've been seeing many names i follow develop increased short positions over last month and i sense this is the selling pressure we are seeing.
    Those holding long term positions are not selling as prices have corrected quite significantly. What i feel is important and the tv gurus are not addressing is that individual equities, specifically the small and mid cap names have corrected much more so than the large caps names that for the most part make up the S&P 500 and other important indexes.  We can probably names several dozen names that have corrected close to 50% since early spring. 
    This phenomenon i believe is creating some real bargains in names we follow via the ZLT and outside this forum. Bargains create some interesting opportunities that can result in significant gains by year end.
    This see saw action will probably result in speculators taking control of short term action, which at this juncture points towards a downward direction.  I find the 1340-1348 range as short term critical.  If some positive headline news fails to hit the tv screens by next week we could easily be testing the 1325 level.
    On a positive note, i have to say that on several occasions there seem to be buyers rearing their heads and take interest in names that we follow.  I have been closely watching for support levels in the names that usually circulate here and have identified buying at support levels for a good dozen or so names. This upward pressure come in EXXI (33), KOG (8.50), TPLM (5.50), NOG (18), ROSE (40), EOG (102) and since a couple days ago SSN (1.65). 
    Are there buyers at these prices? Absolutely. Can we go lower and see more compelling prices. The answer i feel is also Absolutely. 
    What this sell off offers, however, is substituting names that seemed pricey before that can now be added to one's portfolio at a significantly greater risk/reward than others held in the portfolio that seemed priced low, but didn't their prospects didn't quite jump out as much as others. This swap effect is what my portfolio is undergoing currently. I have added names like ROSE, WPRT, GPOR, HK and OAS. I was able to substitute them with names i was holding because i would not bring myself to sell the positions as i had already took enormous losses on.  I have come to the realization that I rather own good names cheap than bad names cheap.  

  4. 4
    Zorgnak Says:

    brod… I can relate to a number of your points..
    I too have a hard time with the analysis/opinion on financial television. So much so that I never watch it.
    The few times(there must be at least one?) it has served me well is dwarfed by a tsunami of toxic noise.
    Toxic in that I can be impulsive at times. TV analysis/opinion feeds an impulsive trading monkey in me
    creating havoc with my trading plan. I'm not immune to  making course changes based what Joe Blow thinks and so
    I isolate myself from all but a few trusted sources of information. The fewer the better, IMO.
    I too can see the ZLT stocks that are bargains relative to where they were earlier this year and to Z's metrics.
    I have to be careful not to get attached to relative value in a market cycle that doesn't care.
    You said, "I have come to the realization that I rather own good names cheap than bad names cheap." Me too.
    I'm glad you find my stuff useful. I don't know how all the great people at this site trade and so I don't know
    what, if anything, I post is useful. Good to hear feed back and let me know if there is something that I do that
    you find useful. I'll be more likely repeat it.
    Here's a long view chart of the S&P Futures and the three most important levels to my eye going forward.
    Major Acceptance at 1365 has been the most accepted level since Feb and the pivot for bulls and bears.
    If this area is rejected for lower prices then major support is at 1324.75. A break below this level rejects intermediate term accepted value above
    and leaves a large number of longs off sides.This pattern is often a strong liquidation set up.
    The volume stem below  1324.75 is typical of up trends and when/if 1324.75 breaks suggests a test  of the poorly auctioned
    areas below is probable.
    1262.50 Is the least important right now but if 1324.75 is broken with volume it's importance will grow.
    There's no time scale to any of this and there are ranges within these larger ones  that I post daily that will have to play out
    giving us additional clues as to what the market is trying to do and how well it's getting it done.
    A paradox is that 1324.75 might be the perfect place to buy. The context of how the level is reached and treated
    determines how aggressive I might want to be at that time. But it'll certainly be a level of interest.


  5. 5
    zman Says:

    Cha ching


  6. 6
    brodway Says:

    Let Mr. Obama know that good paying jobs are being created right here in America by an industry he has no support for.

  7. 7
    Zorgnak Says:

    To my eye XOP pulled back to a key area this week. It is testing the confluence of recent swing lows (51), a low volume
    support level(51.62) and major long term acceptance(51). Failure here would further reject the vast majority of price
    acceptance put in since the 2010 rally in E&P stocks.  This 51 area has been tested twice recently.
    The most recent bounce was on weak demand and was quickly rejected at the previous range high (53.75).
    A break of the current swing low would suggest a rotation lower to support at 48.79 and into a low volume zone with little in the way
    of major defined support until 45.50-46. Watch for volume demand or the lack thereof at this important level.

    E&P Breadth
     Intermediate and Short Term Breadth EMAs have turned over once again.
     Up/Dn volume % Ratio has turned over unable to reach any higher than neutral.
     % Decliners is rising once again.


  8. 8
    mimster90 Says:

    Chesapeake Energy receives $3 billion loan from Chesapeake Energy receives $3 billion loan from Goldman Sachs, Jefferies Group
    NEW YORK (AP) — Chesapeake Energy Corp. has received a $3 billion loan from Goldman Sachs and Jefferies Group, giving the company more time to sell assets and lower its debt.  …               

  9. 9
    zman Says:

    re 8 – Libor plus 700 bps  = ouch

    The ZMT and ZLT C portfolios are updated here:


  10. 10
    zman Says:

    Crude opened below $96


    Headlines say it fell on China and Greece. China I get and they are working to prop up their economy so I don't see that as a long lasting fade on crude. Greece I don't get, let it fail out of the eurozone, rest of Europe would be stronger taking the hit now than stretching it out over a longer time frame to the same final result. 

  11. 11
    zman Says:

    CXO on the tape with a $1B buy in the Permian. 

     – $5,000 per acre but production adjust that gets much cheaper

    –  $17.25 per proved BOE

    – $143,000 per flowing BOE

    Probably means pops for AREX, LPI,  CPE, SD, XEC, FST among others in the morning. 

  12. 12
    brodway Says:

    that XOP chart really shows how critical that 51 level is. tested it at least twice that i see and is key support. to my eye it holds while other sectors may see lower prices. you have to remember that energy started going down BEFORE (March) other sectors like technology and banks (April). i think we hold here and wait for others to correct a bit before going up sometime before Memorial Day.
    i'm surprised no one is talking about the driving season yet. this is a common theme around this time of year.

  13. 13
    zman Says:

    Re driving season – what's to talk about, gasoline demand hit the highest level it has all year last week, right on cue. 

  14. 14
    brodway Says:

    re: 13
    when are the financial gurus going to talk up energy again? let me guess…when they load up on them first….
    i don't know where everyone lives, but in the Northeast NY/NJ area the traffic situation has really perked up over last 2 weeks. when the bridges and tunnel start to get 1+ hour delays (like they did before 2007), you know people are out driving again.

  15. 15
    elduque Says:

    So CHK has 1.5m acres, times that by $5000= $7.5B. That would take care of a lot of angst. Not sure whether size is worth more or less. I do believe that the majors are having a difficult time growing resources. So it seem logical to me that one of them would step up to the plate.

  16. 16
    zman Says:

    re 15 – agreed. 

  17. 17
    PackMan Says:

    Z – great stuff
    Zorg – u 2 … Good discussion w Brodway
    CHK – rumors about Icahn tahing a big ? Position on Friday

  18. 18
    elduque Says:

    Well he knows the company and made a bundle a year ago. So probably has some validity to it.

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