25
Aug

Wrap – Week Ended 8/24/12

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Weekend Feature (originally aired in the Friday post)

 

High Priced Williston Basin Acquisition Makes For Nice Comps

QEP Buys Sweet Spot Acreage in the core of the play

  • QEP pays $1.38 B for 27,600 net acres primarily in a nearly contiguous block in east McKenzie County, North Dakota with some acreage also to the north in Williams County

First, let's get our bearings. Map of North Dakota counties, with the blue circle being the general area of the acquisition.

Here's the more detailed map showing QEP's new acreage in purple

  • The new acreage position has current production of 10,500 BOEpd 

  • This is truly a sweet spot having been operated by private Helis until now who puts reserves for 2010 and later long laterals at 1.16 MMBOE for a Bakken well and 990 MMBOE for a Three Forks well. That kind of claim would put the area on par with the sweetest of the sweet spots in the Williston Basin, the Austin Parshal area to the east of the Sanish field area. 
  • On a raw acreage basis this would come to $50,000 (exactly) per net acre but the production should be accounted for so that number isn't . 

  • And adjusting the acreage for current production at a fairly conservative $80,000 per flowing BOE yields a remaining value of $540 mm or an adjusted per acre value of $19,565 … a still very high sum indeed.
  • By comparison the Bakken pure plays we follow do not see acreage values like this on an unadjusted or production adjusted basis. 

This acreage is not far from NOG's core Windsor area and NOG has acreage adjacent to the purchase on the Dunn County side of the line which you can see as that block of yellow sections in the map below. A good guesstimate would be that NOG has about 35,000 net acres or roughly 19% of its total Williston Basin position in McKenzie and Williams Counties.  Note that this transaction is worth more than the entire TEV of NOG as of yesterday's close, with NOG producing more and having 180,000 net total acres. 

  •  KOG also has its core Fort Berthold Indian Reservation position in Dunn County and its Smokey position in McKenzie County in close proximity.  

  • OAS has big concentrations of acreage in Williams and McKenzie counties, to the north of QEP's position. 
  • TPLM has a big portion of its North Dakota acreage due west of the QEP position in McKenzie County

Conference Call with QEP: Today, 8:30 am EST

Nutshell: It's been awhile since we've had a good sized Bakken acreage acquisition comp in the Basin. This one is in an area of big wells although parts of the area itself are fairly lightly drilled. The price on the surface seems high but much of the Williston will, over time, give up at least the five zones that are being talked about now (middle Bakken and four benches of the Three Forks) and likely more. Looking forward to the conference call and what should be a little renewed interest in the group. It does come at a time of slow mental activity for the market and on a down futures day but if this is what you have to pay to take out contiguous blocks of acreage then it strongly highlights our names as undervalued at present. 

 

Sundance Sells South Antelope (Williams County, Helis operated) as part of the QEP deal for $172.4 mm for 3,900 acres.

  • This equates to a sales price of:

     

    • $49 per proved BOE (reserves engineered by Netherland Sewell so they might be a bit conservative but that's a very high figure)

    • $344,000 per flowing BOE … obviously very high on the 500 BOEpd they had here.
      • This was roughly one-third of the company's total … trust me, they are happy with the accelerated return on this and notably, even after the sale they are sticking with their 24 month production target of 5,000 BOEpd.   

    • and $44,205 per acre

  • They expect to defer the tax gain on the sale and see net cash proceeds of $171 mm. After repaying their revolver this will leave them with cash of $146 mm or about $0.53 per share vs yesterday's close price of $0.59. They still have just over half of their Bakken acreage (5,000 net acres at $10K each = $0.18 including their EOG operated Phoenix position which abuts the QEP purchase, as well as multiple acreage positions in the DJ Basin (both in and out of the Wattenberg) and North Park basin (over 17,000 acres), the Atoka in Colorado (nearly 40,000 net acres), the Pawnee in Kansas, the Miss Lime in northern OK  (14,500+ net acres and look for well results in 4Q), and proved reserves of about 2.7 mm BOE ($0.15 per share at $15 /BOE in the ground)
  • I'd note that SDCJF's position was a minority interest, non operated position. If more privates decide to pull the plug and sell this same kind of monetization could occur for the likes of, oh I don't know, say a name like NOG. 

Nutshell: Evolutionary event for the company. Frees up capital to reinvest in their other plays where they have larger working interests and can operate like in the Miss Lime and elsewhere. The company mix is 80% oil and on planning to more than triple production over the next two years (albeit from a small production base) and they have near term (probably October) catalysts in the form of tests in the Miss Lime and Wattenberg.  If you think about it, they got paid $44K/acre for minority interest, no-operated assets. Makes one wonder if other private players in the Basin will see this and put a for sale sign in their window, cashing in on the Street's desire for position growth. Either way, it was a very good day for them and we continue to own Sundance in the ZLT.

The Wrap Comments

1) Uneventful week in the markets as expected. 

2) Despite the gyrations, natural gas closed essentially where it started and the week and despite the larger than expected injection we continued to make good progress in eroding the surpluses to the YOY and 5 year averages. 

3) Speculators are increasing their net long oil position as prices rise.  The distillate inventories shortage will play an increasingly important role in WTI price support this Fall.

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32 Responses to “Wrap – Week Ended 8/24/12”

  1. 1
    crysball Says:

    OT: One for the good guys:
    http://news.yahoo.com/drone-strike-may-killed-haqqani-network-leader-113857381.html

  2. 2
    Baylor Says:

    What's the impact if Isaac on the z portfolio near term?  

  3. 3
    zman Says:

    PDVSA's refinery fire still burning. 

    re 2 – probably minimal. Cat 1 should not do much if any damage offshore to infrastructure. May cause a delay of the Davy Jones 1 flow test though not for more than a day or three. Slightly rise to natural gas likely but not certain. Often the lack of damage news leaves NG lower than where it started. If the storm strengthens / slows that can change but that's not anticipated. Will make for a low natural gas storage injection report a week from this coming Thursday. 

  4. 4
    zman Says:

    Gulf output shutter is small so far, at 1.6% of NG and 8% of Gulf oil production. Expect those numbers to bloom to over half of Gulf production by Monday. 

  5. 5
    zman Says:

    Now looking for a Cat 2 in the Gulf, still should not be a lot of offshore damage, onshore different matter. Stay safe. 

  6. 6
    zman Says:

    PDVSA explosion story

    http://www.ft.com/cms/s/0/cd69bf8e-eee9-11e1-bcf6-00144feabdc0.html#axzz24agqPTRV

  7. 7
    crysball Says:

    More   update  on  PVDSA  refinery  explosion /ire
    http://news.yahoo.com/refinery-blast-kills-24-venezuela-86-hurt-165431537–finance.html
    Hugo's  PR  machine   is  being a  'little optimistic'  to say   the  refinery  will be  back  up  on Tuesday……….after  24 dead and 86  injured.

  8. 8
    ram Says:

    Re 5 – Does it look like it's aiming for the refinery's?

  9. 9
    Zorgnak Says:

     
    S&P 500 Futures Weekly Notes/Thoughts
    Notes…Market pulled back to volume pivot at 1397 and held above important short term support at 1392. Congestion above 1416. Low volume zone below 1392. Demand volume positive,weakening and not confirming last week’s price highs. Breadth supportive. Currency spread( USD/EUR, AUD/JPY) bounces weakening within long term downtrend. Sector rotations positive. SPX/Long-Short bond ratios nuetral. POMO buying peaks into month end.  Fed minutes sparked an oversold rally at support. Friday bounce met minimums with a close above 10 day MA. 1416 Resistance. 1392 support. GDP Wed Pre-Mkt. Jobless Claims and Personal Income  Thursday Pre-Mkt. Central bankers  speak  at end of week and after Friday close.  Low volume and poor market structure.  
    Thoughts…Expecting another upside attempt to resistance at 1416.25 this week. Last week’s long swing trade setups fired early on trader reaction to the Bernanke letter to Congress.  The upside minimum expectation for the setups was reached by the close on Friday.  A break above congestion 1423-33 has little resistance to 1440-1471. A break of Friday’s low would negate upside expectations . A break below 1392 has little support to 1364. Very little market structure in either direction with low liquidity  into the end of week econ reports and weekend presentations by Bernanke/Draghi/et al.   Re-pricing around these events could become disorderly before and after the weekend/holiday.  
    CLVN=Low Volume Rejection Zone – CHVN= High Volume Price Acceptance and Congestion Zone
    1423-33     Minor CHVN/Congestion, Low volume zone to 1440 and above. 1424.75 swing high.
    1412-1416 Minor Resistance, CLVN
    1397          Short term volume pivot. Short term bullish bias above. Tested last week
    1392.50     Minor Support, CLVN….low volume zone below to 1373.75 and below . Held on test last week
    1383           Minor Support, CLVN, Gap below
    1373.75     Minor  Support, CLVN
    1351          CHVN, Short/Intermediate term Volume Pivot. Intermediate Bullish bias above.
    1340.25    CLVN. Break lower works to 1321.
    1321         CLVN, Support
    1309         Major Long and Intermediate CHVN
    S&P Futures
    http://www.charthub.com/images/2012/08/25/ES_Composite.png

  10. 10
    Zorgnak Says:

     
    XLE
     Big Cap energy Demand volume supportive of another test of resistance at 72.61 after rejection of long term acceptance  at 71 . DeMark exhaustion sell set up on weekly looking more like a pause than reversal atm as long as Friday’s low is not broken . Major long term supply above 73.44.
    http://www.charthub.com/images/2012/08/25/Stock_Weekly_2.png

  11. 11
    Zorgnak Says:

     
    OIH
    DeMark weekly exhaustion sell set up. Resistance at 41.93. Demand volume weakening.  Expecting sideways trading below resistance. 40 is long term acceptance with support at 38.43. Weaker overall look than XLE
    .http://www.charthub.com/images/2012/08/25/Stock_Weekly_2_2.png

  12. 12
    Zorgnak Says:

     
    XOP Weekly DeMark exhaustion sell setup. Friday’s low at 52 is important support. Resistance at 55. Demand volume flattening. Expecting one more upside try at resistance into the end of the month.
    http://www.charthub.com/images/2012/08/25/Stock_Weekly_2_3.png

  13. 13
    Zorgnak Says:

     
    FCG  Nat gas stocks continue to base below 17.17. Demand volume is flattening.  See sideways below 17 until Demand volume picks up again.
    http://www.charthub.com/images/2012/08/25/Stock_Weekly_2_4.png

  14. 14
    Zorgnak Says:

     
    Crude Oil Futures
    Expecting tests of minor support. Demand volume flattening short term. Longer term demand volume intact. Major support/resistance 91/97.50. Minor support levels on chart.
    http://www.charthub.com/images/2012/08/26/Crude_Composite_2.png

  15. 15
    Zorgnak Says:

     
    Nat Gas Futures
    Holding defined support at 2.70. Near/Far resistance 2.87/3.03. Far support 2.50. Longer term demand volume positive. Intra-day DeMark exhaustion buy setup with a down open on Monday.
    http://www.charthub.com/images/2012/08/26/NG_Composite.png

  16. 16
    zman Says:

    Thanks Zorg, good stuff. Noting coal dropping off with natural gas, but not enough to inspire much in the way of switch back. 

  17. 17
    zman Says:

    Looks increasingly like a Mississippi Gulf Coast hit. Should shut down a substantial piece of Gulf production for several days. It'll be a 2 by the time it comes ashore, would expect minimal damage offshore from that. 

  18. 18
    nrgyman Says:

    RE 17:  More talk likely to occur about another SPR release, as much as it is unneeded?  May be just the excuse needed to temporarily push down oil prices ahead of an election.

  19. 19
    Zorgnak Says:

    Iran Nuke Talks….
    http://www.reuters.com/article/2012/08/24/nuclear-iran-end-idUSV9E8H800Y20120824

  20. 20
    milepost_43 Says:

    Shutins….is there a DOE link that shows shut in production? thanks

  21. 21
    zman Says:

    MMS BOEM press releases will be here

    http://www.boem.gov/BOEM-Newsroom/Press-Releases/index.aspx

    None out yet

    Reuters story out earlier saying 24% of Gulf oil and 8% of Gulf NG production now shut in.

    Weather Insight says 95% chance Isaac hits heart of Gulf oil and gas production off LA and MS. 

    Also talks about some refining closures that will likely occur, not the big refining complex near TX/LA border though. 

  22. 22
    choices Says:

    Jeff Miller's weighing week ahead-not much import w/Jackson Hole-some cmts on the SA article worth a look:
    http://tinyurl.com/cs2ejs2

  23. 23
    zman Says:

    Crude up a little on Brent rise and Isaac

    http://www.cx-portal.com/wti/oil_en.html

  24. 24
    zman Says:

    Looks likely now most Gulf production will be shuttered Sunday to Wednesday.   For natural gas thats about 6% of total US production, probably takes 12 to 20 Bcf out of the Thursday report week after this one. There will be some demand offset to that though slight, as rain brings down temps and reduces cooling load. 

  25. 25
    zman Says:

    COP reporting all Gulf production (Shelf and Deepwater) shut in as of Sunday afternoon. 

  26. 26
    zman Says:

    NG getting a 2% bounce early

    http://www.barchart.com/detailedquote/futures/NGU12

  27. 27
    milepost_43 Says:

    ISAAC….11pm ET update….still slipping West……mouth of MISS 8pm Tues………http://tinyurl.com/9jahnz9

  28. 28
    zman Says:

    re 27 – glad its not stronger, that's a very unwelcome track. 

  29. 29
    Zorgnak Says:

    #22 thanks for sharing that….I find his stuff to be well worth reading

  30. 30
    Read Full Report Says:

    Read Full Report

    Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Wrap – Week Ended 8/24/12

  31. 31
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  32. 32
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