08
May
Wednesday Morning – More Earnings
Market Sentiment Watch: No U.S. economic data today would normally spell at least a pause for the "nothing but up" U.S. broad markets. Chinese export and import numbers both topped estimates (questionable data quality there) and German Industrial Production was also above expectations but so far U.S. futures are yawning at the news. We have another fairly active day in energy land with Bakken stalwart OAS reporting a big quarter along with results from several other names of interest.
Ecodata Watch:
- No economic data scheduled
In Today’s Post:
- Holdings Watch
- Commodity Watch
- Oil Inventory Preview
- Stuff We Care About Today – OAS (pleased), MCEP (pleased), WHZ (displeased), GPOR, SD, SN
- Odds & Ends
Holdings Watch:
ZMT (Zman Medium Term portfolio):
Yesterday’s Trades:
- EOX – Added 300 shares in the ZMT for $6.56. Earnings tomorrow and not looking for a beat (tougher call with the early stage ones) but expecting commentary on their nascent Bakken operated program. ZMT shares are taken with the idea of hold periods of 3 to 9 months. We also hold the shares in the ZLT. ā
ZLT (Zman Long Term portfolio)
Yesterday’s Trades:
- GST - Sold the trading only position in GST taken on 4/22 for $2.86, 23%. Valuation is not compelling to us here. And we don't need another single digit midget and highly indebted gassy turning oil growth stroy at the moment. We now have no postion in GST in the ZLT.
- OAS – Added another trading postion in OAS at $35.65. Company 1Q13 call is tomorrow. We expect continued growth albeit slight in the quarter and the Street has gravitated to the high end of the guidance rance for the quarter. Look to them point to swelling volumes in 2Q and especially in 2H13 and to hihglight increased testing of the first bench of the Three Fork with deeper bench tests to come in 2H13. As usually, expect this cheapish name in the Bakken players to point to falling well costs, a smoothly running program and to free cash flow in the latter half of 2014 with no need for equity issuance in between. Look for them to offer up best in show EBITDA per BOE in the Bakken once again this quarter.
āThe blotter is updated.
Commodity Watch:
Crude oil eased $0.54 to close at $95.62 yesterday. We continue to see WTI as slightly higher than that it should be at this time give the data and that it really should hover closer to $90 unitl we see better domestic and export product demand. After the close, the API released a fairly benign looking report with another draw on Cushing and inventories there are threatening to close with year ago levels. The report did not indicate a big ramp in gasoline yet but we expect one ... any week now. This morning crude is trading flat.
Natural gas dropped another 9 cents (2.3%) yesterday to close the day at $3.92 yesterday as more normal shoulder season weather apporached promptimg fears of what near high gas production can do to storage before cooling load really kicks in. Our sense continues to be that profit taking bouts will be short lived and that gas is range bounced in front of Summer. This morning gas is trading flat.
Early Read On Natural Gas Storage:
Street is at +86 BCF for tomorrow’s report.
- Last Week: +43 Bcf
- Last Year: +30 Bcf
- 5 Year Average: +69 Bcf
- 10 year Hi: +107 Bcf
- 10 year Low: +30 Bcf
Oil Inventory Preview
API Watch:
- Crude: UP 0.7 mm barrels (with Cushing down 0.6 mm)
- Gasoline: Down 0.2 mm barrels
- Distillates: UP 1.1 mm barrels
Stuff We Care About Today
MCEP Reports In Line 1Q13 Results
Guidance: No change in outlook noted.
Highlights:
- Slightly better than expected production and for us much better than expected pricing led to a nice beat.
- No operational color in the press release but they will give plenty on the call.
Nutshell: As expected quarter, for the Street, better than we were looking for on volumes and especially on prices. We'll have a model update here in coming days after we've had a chance to digest management's comments but we continue to see higher distributions as highly likely in the back half of the year as distribution coverage becomes excessive for this almost all oil MLP player.
OAS Reports Big 1Q13 Beat; Tightens 2013 Guidance Higher
The 1Q13 Numbers: Volumes top upper end of guidance range and Street Consensus and yield a best-in-group for the quarter and best-in-all-time-show for OAS in terms of EBITDA per BOE as the figure tops $70 / BOE for the first time.
Guidance:
- 2Q guidance of 29,000 to 31,000 BOEpd. The Street is at 31,000 BOEpd now,
- 2013 Guidance inched up from a range of 30 to 34,000 BOEpd to a range 31 to 34,000 BOE with the new mid point implying 45% YoY growth.
- Some analysts may view guided 2Q flat spot as troubling but the pad drilling comment and road restriction make that guidance make sense. Considering the beat of this quarter and management's ongoing propensity for conservatism we would suggest that anyone bothered by it should adopt a longer term view.
Highlights:
Operations update:
- Cost per well in 1Q13 averaged $8.4 mm which is a bit ahead of schedule as the company has been looking for average CWC to be $8 mm at year end.
- Not much in the way of well updates are per usual but look for color on the cal tomorrow regarding ongoing TFS tests. One other thing we don't see in the release is commentary about weather related impacts and "produced" vs "sold" volumes. Having handled many of the infrastructure issues for Basin development in advance of their growth instead of in tandem with or after drilling wells continues to yield benefits, especially during "tough winter conditions"
Balance Sheet:
- 55% net debt to cap
- Revolver is untapped with a $900 mm line tield liquidity of just over $1 B at present.
- They formed Oasis Midstream Services (OMS) and put their midstream assets and salt water disposla system into it. Neutral to move to cash flow but as they say it gives them future optionality. Comment on that would be that midstream companies carry a higher multiple than upstream ones ... so maybe a few years down the road this segment gets monetized via an MLP. Note that LOE for the quarter looks high bit it's part of reflecting OMS and the G&A portion for
Nutshell: Very solid quarter. You can see the benefits of their infrastructure buildout in this first really weather impacted quarter in over a year as having the majority of production and water handling moving via pipe is of great benefit when the road conditions become tough. Estimates will be traveling slightly higher followign this release and while we don't think management is necessarily bagging the Street on the 2Q guidance we do think may want to rein in some over exuberant modeling which can create a future miss out of what would be an outstanding quarter given conditions in the Basin. Given the oiliness and resulting top tier EBITDA margins, rapid growth, solid balance sheet and no need for an equity deal and still low mutiples of 2013 and 2014 TEV/EBITDA of 6.0x and 4.6x respectively we see no reason at this time to pare back this top 5 core position in the ZLT.
Other Stuff
WHZ reports $0.63 distribution
- Quarter saw production of 4,637 BOEpd (76% oil) vs our expectation of 4,586 BOEpd (77% oil ... this was another quarter in which production did not decline quite as fast as expected.
- LOE came in at $29 / BOE, up again but less than we were modeling due to the trajectory from prior quarters.
- Development costs were the highest they have been yet at $3.467 mm for the quarter and we and apparently the Street were expecting this to fall off but no joy in that. No explanation for the ramp was given.
- Nutshell: Sticking to a 9% decline and flowing the development costs through at the current level produces an annual distribution close to $2.20 but I'm not firm on that number for now. Mulling a punt here as the volumes are doing very much what they are supposed to but the cost structure is much less predictable, at least to me than I had expected. At a $2 annual distribution would yield a 14% to current number but I'd rather be invested in a more predictable yield vehicle.
āOther Other Stuff
GPOR 1Q13 Quick Look
- Production of 6.4 MBOEpd vs 7.85 MBOEpd;
- EBITDA of $99 mm vs $44.9 mm expected.
- I dont' follow them closely and don't own them but the EBITDA number is not a clean number and EPS was below consensus and CF from operations before changes in working capital was below expectations at $0.49 vs $0.54 expected.
- I know, big grow story here in program, just paying attention for the Utica and didn't note anything earthshakingly new out of them on the play at this time.
SD 1Q13 Quick Look:
- They have found capital discipline after a 2 month search for it. Congrats on that.
- EBITDA of $270 vs $243 mm expected
- But back to the main story, 2 month review of company strategy, assets and spending levels has led them to embrace capital discipline via a 17% reduction in capex for this year from prior estimates and a 33% reduction vs 2012 levels ... they are inching volume guidance back however only slightly from 34.3 MMBOE to 32.7 MMBOE (4% lower) with the majority of the hit coming on the natural gas side of the ledger.
- Noted some Miss Lime wells with IPs >1,000 BOEpd (3 of them) and four wells with 30 day IPs over 462 BOEpd ... little OEDV, who drills A LOT less wells on the eastern side of the play can probably given them a run for their money on those results and sport a higher oil cut. SD after all drilled 122 wells in the play in the quarter ... talking about 3 or 4 of them seems rather choosy.
- I don't own it. They have $2 B in liquidity and I do wish them good luck, realy, but I don't see a reason to own it here either though I do think that if the Street buys the capex chop vs the production trim that the name will likely rally in the short term. I'll let the dust settle and take another look soonish when I run out of other stuff to look at after quarter end.
SN 1Q13 Quick Look:
- Production in line with expectatoins at 3.9 MBOEpd. Note that current production is 7.5 MBOEpd as their expected ramp starts, with the increase coming from new well drilling and that new completions and an acquisition are expected to drive volumes at the end of June to 12 MBOEpd.
- Revenue of $31 mm vs $33 mm expected
- EBITDA of $17.5 vs $24 mm expected
- We have so far managed to avoid owning this relatively new to the public Eagle Ford name. We chose BCEI as our IPO of the end of 2011 instead. CC at 2 pm EST.
Tomorrow we get earnings from EOX and CLR.
Friday we get reprots from FTK and BCEI.
TLM is pulling out of the hunt for shale gas in Poland. The news may cause a shudder in the shares fo FXEN (which we don't own).
Odds & Ends
Analyst Watch:
- BCEI - Northland initiates coverage with Outperform
- EOG - Canaccord raises target from $176 to $194, rating stays Buy,
- NOG - SunTrust ctus target from $19 to $18, ratings stays Buy,
NOG on the tape with a $200 mm 8% senior deal to pay down it's revolver and to fund capex. Pretty much as expected, maybe sooner than we'd have expected but a non-event. Rate about as expected. Underscores lack of need for an equity offering any time soon.
May 8th, 2013 at 7:09 amAnalyst Watch
BCEI – that Northland target is $44.
May 8th, 2013 at 7:14 amS&P Areas of Interest 5/8 8:35 AM ES 1618.
Notes/Thoughts
Notes…. Volume Gap above 1593 to 1608. Short term bulls in control above 1613. Little market structure in either direction. $USD continues to trade soft, testing lower range support at 82. Treasuries off to support(TLT 120). O/N Mkts supportive. Demand volume, breadth supportive. POMO supportive through the end of the month.
Thoughts ……. Expecting consolidation above 1593. Expect dips to be bought. Wait for them.
1613 Current short term volume pivot/Short term bulls in control above this level
1593.50 Range High/Broken to the upside/Gap below 1608
1583 Minor CHVN
1573.25 CHVN/Weekly volume pivot/Short term bulls in control above
1546-55 Major CHVN/ Intermediate Volume Pivot
1526.50 Major CLVN/Current Intermediate Range Low
1508.75 Long Term Volume Pivot
SP500 Futures/ Short Term
http://www.charthub.com/images/2013/05/07/ES_Master_1305070533.png
$USD /DXY Testing support at 82/TLT at support.
http://www.charthub.com/images/2013/05/08/DXY_Master_1305080538.png
http://www.charthub.com/images/2013/05/08/Stock_Master390_1305080542.png
May 8th, 2013 at 7:54 amCrude Oil
Demand volume flattening out after big push to resistance at 96. 93 is the major acceptance level below. Weekly charts showing positive demand volume and improved ease of movement.
http://www.charthub.com/images/2013/05/08/Crude_Oil_Multi_Period_1305080557.png
May 8th, 2013 at 8:00 amNat Gas
At defined support (3.91) with demand volume coming off quickly now on the daily and weekly time frames.Not expecting a big bounce here.
Noting that on the monthly time frame we have positive demand volume for the first time since 9/2008…
http://www.charthub.com/images/2013/05/08/NG_Master_1305080602.png
May 8th, 2013 at 8:06 amBDI at 892
Brent/WTI narrowing at 8.3
TYX at 2.99%
May 8th, 2013 at 8:07 amMorning and thanks Zorg
Analyst Watch:
CRZO – RBC ups target by $4 to $32, rating Outperform
GDP – RBC ups target target from $17 to $18, rating stays Outperform
OAS – RBC ups target from $40 to $44, rating stays Sector Perform … 20% upside apparently not warranting an upgrade … fine, please up it another $4 next quarter and maintain your mark to market Hold rating. š
May 8th, 2013 at 8:09 amGood morning..
May 8th, 2013 at 8:17 amNG bouncing off $3.90, choppy, light volume trading expected in front of Thursday's bigger than normal number. Conitnue to expect bouts of profit taking to be pretty short lived.
http://www.investing.com/commodities/natural-gas
May 8th, 2013 at 8:25 amNOG: Summary of sellsider comments – BMO, HowardW, KLR Group LLC, Northland Capital, SuntrustRH, Global Hunter, RayJ. Well costs above expectations. Road (load) restrictions causing 2nd Q numbers to have low expectations. No urgency to buy stock. FCF '16. Crude mix 90% up from 88%. Beat came from lower cap spend. Waiting on 2nd half production ramp. PV10 = $13.50/sh. RayJ @ underperform mostly due to their much lower crude price expectations. I will touch bases with Erik with a few questions. My only other point is that with 10.8mm shares short out of 63.7mm shares outstanding the second half of this year might get a little interesting. Stock is for patient investors only.
May 8th, 2013 at 8:27 amCrude back over $96
Why? Good question. Think its a bit full of itself at the moment given the weaker Spring – to – date gasoline demand we've seen and the definite deceleration in exports. $96 is a great price for our names and with many railing volumes to more new points-anywhere-but-Cushing each quarter the dislocation from WTI prices continues to grow. Combine that with ongoing volume growth as you have with the Bakkens which drives down per unit cash costs to a point where you have what happened last night with OAS hitting an all time high for EBITDA per BOE depsite WTI being well off all time and farily far off past 24 month prices.
May 8th, 2013 at 8:30 amre 10 – yep
May 8th, 2013 at 8:32 amre: 6
Who would have guessed that just over a few short months the spread between WTI and Brent went from 22 to 8 dollars. The Saudis are probably not ecstatic with oil hovering around $100
May 8th, 2013 at 8:33 amRBC Capital Mkts reiterated Carrizo Oil & Gas (CRZO) coverage with Outperform rating and price target $32
May 8th, 2013 at 8:34 amPrevious price target: $28
Z: Three weeks ago all you heard from the Bakken names is low expectations (weather). Guess the OAS numbers knocks that out of the box. My two cents on tape action is the int'l lowering of interest rates (following the Bernack model) has the deflation camp running a bit. That might help the rotation toward E&P names.
May 8th, 2013 at 8:37 amre 13 – we said $10 to $15 early in the year. I do recall an analyst last fall calling for a blowout to $40 … so not him obviously. It just makes since given a) Europe's weakness and b) the US declining demand for imported crude, especially from west Africa.
May 8th, 2013 at 8:39 amre: 16
American oil independence another day closer to reality. Can't wait !!!
May 8th, 2013 at 8:40 amre 15 – On OAS, I think they havd a couple of things going for them into the quarter 1) higher than expected net well adds and 2) it's hard to overstate the value of a five pipes gathering system … 85% of gross volumes flowing through pipes now. If you look back at the winter of 10/2011 so many well sites couldn't be reached due to water so onsite tanks fill up, wells shut down. Not this time. Everyone else to varying degrees is tying wells to pipes, saves a lot for the oil but also for trucked water costs, and this is TPLM's thrust with Caliber as well.
May 8th, 2013 at 8:45 amPSE – any thoughts.
May 8th, 2013 at 8:46 amre 17 – only 7 mm bopd more to go … I don't see it. Not without a big step change in natural gas for transportation consumption. You've got the EFS and the Bakken as drivers. Maybe you get OK growth out of the Spraberry … but doubling from here? Nah, not at least near current oil prices. Meanwhile you have Alaska and CA that are going to help to offset the new growth.
May 8th, 2013 at 8:47 amre 19 – yes, congrats to Eli who I am pretty sure owned it. Otherwise, its PXD taking out one of their monetizations. Maybe we see more of this over the next 2 years from some names when they go into free cash flow mode. I don't track PSE but it makes sense since PXD has been saying for months now that the Spraberry will be 2nd only to Ghawar. Bold claim but the case has been pretty strongly made and PSE holds non-op interests there.
May 8th, 2013 at 8:50 amMCEP call in 10 minutes. Stock trading …. basically not trading. Thin.
May 8th, 2013 at 8:51 amre: 20
gas for transportation use is an important step, but i don't think anyone can stop it from happening. it may not happen in this presidency but it will be a topic of serious conversation in the next 5 years.
anyone hear Chris Christie got lap band surgery. he may slim down just in time to be nominated as the next president.
May 8th, 2013 at 8:52 amFun Run of the Day… watching the MHR Cs running toward their call price of $25. Would be absolutely SILLY for MHR not to call these puppies, at some point soon after their 10-K is filed. (And granted, Gary Evans has shown himself higly capable of producing Mounds of Silly.) Meanwhile, enjoying the cummulative divvy.
May 8th, 2013 at 8:53 am#17 — oil independence… I think when people refer to "American Oil Independence," what they are really saying is "North American Oil Independence." Not sure if it becomes a reality… but it remains a possibility (depending on nat gas switching, as z says).
May 8th, 2013 at 8:58 amEOG extending the gap as the Street takes targets close to the $200 mark. Listened to an interesting interview on M&A and why its more cautious now than in the past. Essentially CEOs don't get fired for not making acquisitions, they get fired for making them and then having things go wrong and in the case of E&P and Energy in general that can be an overly optimistic long term price deck. Guy was saying eaiser for CEOs to get tossed now so instead they do nothing at a time when there are bargains to be had. Feels like the Bakken could use a little more consolidation, been since QEP we saw a decent sized deal and really that was less corporate of a deal so you need to go all the way back to BEXP. Worry of production and what that does to price keeping people gun shy for now.
MCEP call about to begin, notes to follow.
May 8th, 2013 at 9:00 amNFX Pushing through congestion at 23.25….size buyers on the soft open
http://www.charthub.com/images/2013/05/08/Stock_Master390_1305080659.png
May 8th, 2013 at 9:00 amre 25 – yeah, it's NAM. Would make sense to change a few rules and let E&P and the refiners compete on the world stage a bit more. Jones Act is really so early 20th Centruy type thinking.
May 8th, 2013 at 9:01 am#26 Fishing in the Bakken… Gotta believe XOM is putting stinky bait on a hook and throwing it over the side. Will be shocked (Shocked!) if we don't see XOM make some sort of M&A move there this year. (If XOM doesn't chose to grow it's Bakken acreage, then they will move to sell… XOM doesn't like to be in plays in a Small Way. Doesn't make sense to allocate your people to projects that are not Needle-Movers.)
May 8th, 2013 at 9:04 amre 27 – thanks for watching … sleeper has awakened and all that for the ZLT. Meanwhile the ZMT's remaining 50 $24 strike May calls will wake up to here.
May 8th, 2013 at 9:04 amre 29 – Hear ya, on the one hand, if they will pay that much for Cross Timbers then KOG should look like a bargain, especially as they get back on track and double up volumes this year. On the other, XOM moves more glacially than I do. Still waiting for CVX to figure out what to do with all that cash as well. They could roll up several Bakken players in a blink but again, it's a risky move and why bother when no one expects you to grow domestic volumes anyway š
May 8th, 2013 at 9:07 am#28 — Agreed. The Jones Act (1920) made sense when Warfare depended on ships. We showed the value of the Jones Act during WWII, when the US could spit out ships at an amazing speed, because we had the shipyards and the workers. Post-WWII, they didn't want to lose that capability by putting domestic shipyards outta biz. Hence the "financial support" of forcing point-to-point shippers in the US to use US built and flagged ship. But — like any subsidy the Govt gets involved in — this has also created a tremendous international inefficiency. You can get a ship built for about half the price (and just as good) in a Korean shipyard. So IMHO, Jones Act is an anacronism at this point. But shipyards are staffed with Union Welders… so doubt it gets undone any time soon.
May 8th, 2013 at 9:13 amCrude through the 96 resistance (tentative) with 98 next resistance level.
http://www.charthub.com/images/2013/05/08/Crude_Oil_Multi_Period_1305080714.png
May 8th, 2013 at 9:16 am#30 as soon as I said that sellers hit the button……23.25 still a pause area
May 8th, 2013 at 9:17 amMCEP Notes
– after the increase in the distribution the coverage ratio is still over 1.2x (1.21x) … expect this to climb swiftly in the back half.
Operations update in prepared remarks – minimal – most drilling on new producers in Hugoton, one injector, some workovers.
– no changes to hedge book since last call:
– 2013 – 75% of oil hedged at $98,
– 2014 – 70% hedged at $93
10 mintues and then to Q&A
Q) G&A was higher than expected
A) $0.6 to $0.7 mm was one time bonuses and auditing, expect $1.4 mm run rate
Q) reduced tax break
A) 5 year exemption for each unit.
Q) Coverage ratio – where do you want it.
A) We want it to be over 1.15 x and we look 2 to 3 years out .. (we have them going over 1.4x later this year).
Q) Production incline
A) As we stated in the past, we plan to guide quarterly, but not yet there, will do.
Q) PDP decline rate?
A) about 10% (that's same as in the past)
Q) Exit rate for 1Q13 ?
A) Didn't provide that.
Q) 2015 hedges thought process?
A) Given backwardartion, giving up $7 to $8, just not enticing. $90 or above is an area we have targets. We'd like to be at least 3 years hedged but right now it doesn't make sense to add.
Q) Performance individual fields?
A) No change since last we talked. All of them are performing same as in 4Q Q .
Q) Acquisition future
A) May do some non flood projects … no color on how big or when they would be … have 2 in the pipeline
Tone of call is positive.
Q) Was weather a factor in 1Q
A) Not really … a few down days due to roads or loss of power, didn't slow down any drilling,
Q) Capex pattern over the year
A) Hump in the middle of the year (higher in 2Q and 3Q)
That was quick, call over. No guidance, will circle back with them late today, and more thoughts tomorrow here but nothing pointing to them not seeing strong further potential for distribution increase in 2H13.
May 8th, 2013 at 9:24 amHear ya Zorg – group trading with market and moot point anyway in front of EIA in 5 minutes. Need to see that move higher in gasoline very soon. Reversal in imports expected this week or next should help with the headline crude number, No change expected this week for exports.
May 8th, 2013 at 9:26 amEIA Oil Invetories
Crude Up 0.2 mm barrels
Gasoline DOWN 0.9 mm barrels
Distillates Up 1.8 mm barrels
…
May 8th, 2013 at 9:30 amMore EIA
Utilization cranked back up to 87%
Imports fell by nearly 0.6 mm bopd to 7.6 mm bopd … back to the bottom of the barrel
Demand
Gasoline – basically unchaged at 8.4 mm bpd
Distillates – also unched at 3.66 bpd
Domestic producution his another 21 year high at 7.369 mm bopd
Cushing stocks did retreat 0.8 mm barrels to 49.1, up 5 mm bo YOY (slowly improving)
Nutshell: Better on imports and refining but not yet seeing gasoline pick up. Pretty neutral, crude may like in on the headline numbers.
May 8th, 2013 at 9:34 amFor those in VLO calls from before the time of the CST spin out the calculation is now
1 VLO at 39.79 + 0.1 CST at 30.96 = a VLO strike equivalent price of $42.89.
May 8th, 2013 at 9:37 amOAS call in 20 minutes.
May 8th, 2013 at 9:38 amre 32 – thanks BOP, good historical color. My next cocktail party monologue now forming.
May 8th, 2013 at 9:40 amOAS call aobut to start, notes in a bit.
May 8th, 2013 at 10:00 am26 Z: I also heard that guy Woolery (M&A guy) on CNBC make that point. He also indicated less M&A because of the many gov't rules & regs that CEO's did not have to deal with in the past. More of these unintended consequences.
May 8th, 2013 at 10:03 amMHR rippage… why? Gary had a few sit-downs with investors yesterday, ahead of presenting at RWBaird today. Seems he let a few gems fall from the jewel bag. For one) will call the Cs soon after the K is filed; two) thinks current auditors will complete K ahead of schedule (by mid-June); three) recent pipeline sale in the zip code of MHR's midstream assets went for way-more than expected ("way-more" means it about doubles the valuation of MHR's midstream that is currently priced into the stock); four) Gary no longer thinking "MLP" for the remainder of the midstream stuff…. now salivating at the sound of "SOLD! To the highest bidder." Thinking they could get enough cash to make the company net-debt free by EOY.
Gary does know how to tell a spellbinding tale. And that, my friends, is why MHR and the Preferreds (Cs and Ds) are ripping.
May 8th, 2013 at 10:04 amOAS 1Q13 Notes
1) In 2011 we had one of toughest winter on record … our efforts paid off this year as we delivered production over the top end of our guidance
2) We have reduced well costs In early 2012 $10.5 to $8.4 mm CWC in 1Q13 … on track to be at $8 mm by YE13
Spend $111 mm less this year and complete same number of wells as 2012
3) Increasing net realized prices and lower cost structure … 55% of SWD in pipes another 20%, so there is room to grow that
Operations Update
Spacing comments
– pilots
– early results suggest 4 wells per reservoir appear OK, little interference, EURs look like single shot wells
– 22 piliots this year including some looking at 6 wells unit per zone.
Extensional program in TFS
– seeing results in 4 areas that are similar to Bakken well
– 15 more extensional tests this year
– think its now economic over most of their acreage … more data late this year
Lower bench – cores are encouraging, will drill first well late this year or early next.
Pad drilling
– gathering the data this year to shift to 80+% pad development in 2014.
…
May 8th, 2013 at 10:10 amre 43 – good point Tom, thanks.
May 8th, 2013 at 10:11 am23 – Brodway: Yeah Christie got the band done in Feb. Still looks big. Not likely to get my vote. My perception is, he is a big bully.
May 8th, 2013 at 10:20 amM&A topic: If natgas transportation does take off in next 5 years, as the bulls argue, then what will this do to the price of WTI? This could be another hesitation on the part of CEOs: gov't policy–if DC supports natgas transportation, then paying up now for oil assets may bite them in the future. Everyone is loaded with natgas assets now and for the foreseeable future, so natgas M&A might remain weak–unless a financially weak firm is willing to sell quality natgas assets for a great price (eg CHK now).
May 8th, 2013 at 10:23 am47 Don't forget spiteful. š
May 8th, 2013 at 10:25 ambop – at what price are the MHR.C CALLABLE?
May 8th, 2013 at 10:26 am$25 + all accrued and unpaid dividends.
May 8th, 2013 at 10:28 amOAS 1Q13 Q&A
Q) Well cost question
A) Staying with $8 mm CWC, but optimistic they could do better
Q) Do you see yourself as a cost advantaged buyer due to our infrastructure
A) think it does on the edges, things in the center are HBP, stuff on the edges is more cost sensitive.
Q) Question about the OMS optionality
A) Don't need the liquidity now, just gives optionality, nothing near term, just gives options go forward
Positive tone on the call, expect that to continue.
Q) ability to pick up acreage
A) we continue to be able to build it piece by piece
Funny no FCF timing question, no rough question on how much pad drilling saves as you go to 80+%
Q) Why form OMS, what are you seeing on SWD trends
A) Its more about optionality for us, we have a large system for SWD that continues to grow, put the assets in there, in case we want to do something with it in the future.
Q) Lower bench question
A) Widespread cores. Visual inspection but testing of the cores is being done. They do have logs but want to match them to the cores. "We're encouraged by what we've seen across the position "
AND
"the second bench is present across the position", seeing oil saturation there and see porosity increase .. said they see thin interbedded layers…sounds pretty encouraging. Nothing really new on the call up until they said that, stock likely perks up here.
May 8th, 2013 at 10:30 amre 48 – let me circle back post call. NG is so tiny for transporation as to be non-existent, in short I think that's too short a time line.
May 8th, 2013 at 10:32 amEqual Energy $EQU buying again… last time this happened the results were pretty good
May 8th, 2013 at 10:33 amre 54 — Equal Energy Insiders***
May 8th, 2013 at 10:33 amThanks, DE! Equal Energy (EQU) is a company in transition. Don't know where it will end up yet… but whatever it does, it will be done at a higher stock price.
May 8th, 2013 at 10:37 amre 56 – Yup pricing at Conway is a disaster, but Equal has good acreage on the Hunton/Woodford border that I think someone will be willing to pay more than $4 for (current Montclaire Energy offer)
May 8th, 2013 at 10:41 amOAS Q&A
We are encouraged that by year end the extensional tests will push them to call TFS economic over most of their position
Q) Cost reduction in 1Q13?
A) A little was on lower pricing, rest was efficiency due to well design and cycle time … so less service cost reduction (HAL would like that comment)
Q) Question on the word optionality of OMS ? Asked about MLP or what in the future
A) We're just focused on growing it in an efficient way. Too early to say.
Q) Three Forks extensional program question
A) 15 wells spread across the position (5 in North Cottonwood, some in East Red Bank, some in Montana) . Spread across the rest of 2013.
Q) New Ventures Group
A) They spend all of there time of late looking at deals inside the Willston (glad to see themnot hurry to expand outside of the Basin)
Q) Efficiency questions ..
Spud to rig release is 23 days (a little up in 1Q but that was due to a bunch of pilot hole drilling so they could get those cores through the four benches of the TFS
Rgi moves post release and spud have been 5 to 8 days … as they go to Pad that drops to 1 day.
Now basically you are at 12 wells per year (a couple of years back this more liek 8 wells per rig per year)
They're trying to keep analysts from knocking these numbers down too low.
Said for the pads you are 65 to 75 days for spud to batch completion to first sales.
2014 – may be a little higher in terms of drilling pace than 2013
…
May 8th, 2013 at 10:48 amOAS Q&A
We continue to test higher % of sand relative to ceramic. Another knock to CRR thinking … as CRR would say we have to educate these guys on why they need our prop. My sense is OAS is well educated.
May 8th, 2013 at 10:51 amOAS Q&A
– pads were less in 1Q13, will increase to 60 to 70% on the year (so more savings to come)
– Commented that Montana south of Elm Coullee and east the Brockton fault area looks a lot like North Dakota, said they are interested in multiple zones there beyond Bakken/TFS/ implied beyond Red River as well … have been focused on the Bakken in ND and then TFS in both all this time, will get to the other stuff in coming years.
Call over … as usual, conservative approach to guidance and careful not to let analysts run wild. The TFS comments were probably the most important of the call in terms of future well inventory here. Potential for the TFS to be good in multiple benches over much more of their area than they now give themselves credit for is well, kind of a big deal. Also, in the past, the thinking from them has been centered on 3 and 3 (3 Bakken and 3 TFS) per unit and vaired by area with some getting 3 and 2 type thinking about the future. They sounded pretty confident in 4 and 4 today.
May 8th, 2013 at 11:00 amOfftopicthirty, grabbing a run, back in a bit.
May 8th, 2013 at 11:03 am#44 MHR – great color BOP, Thx
To add a liitle, at Baird this a.m., he actually put a price on the pipeline at 400-500 million. Using the lower range thats $2.37 a share I believe. If he can get that and assuming a clean 10K & Q in the next 60-90 days I think MHR goes past $8 in a heartbeat. With that in mind I've been taking in MHRprE over the last couple weeks as the strike price is $8.50 (2.941176 conversion ratio)
http://www.magnumhunterresources.com/Magnum_Hunter_Resources.pdf
May 8th, 2013 at 11:16 ambop — so even if u cHased MHR.C and bot at todays price, you'd get 10% for about 5 months?
May 8th, 2013 at 11:50 ambop – also have expiring calls in EXXI AT 24 AND 25. any thoughts on what to do? have a pretty good sized gain in stk(thks to u)
May 8th, 2013 at 11:53 amSWN has been easing last few days. watching it as i own less than i would like to and expect gas prices to firm again over $4 in short order. Zorg mentioned that 35.50 seemed like support, but that has been violated so thinking 35 handle may be next stop.
May 8th, 2013 at 11:56 amMCEP – reacting about as expected, muted, optimistic tone from sell side, all seemed pleased, but this is a thin, small issue name that's not yet well known. Up slightly on a hand full of buys.
SD – don't own it, initial nod from market over new found disicipline now turning red. No interest by me here.
May 8th, 2013 at 12:05 pmCRZO trudging higher in wake of earnings yesterday. Name not expensive, starting to get a warmer reception. Updated tear sheet there next week.
May 8th, 2013 at 12:07 pmEXXI – post quarter "enough is enough" buing comtinues. Bar set low enough that people think there won't be more issues now that management really appears to be addressing the infrastructure issues head on.
May 8th, 2013 at 12:09 pmAnalyst Watch:
BCEI – saw the analyst bullets from the Northland initiation this morning. Nothing new to those comments.
May 8th, 2013 at 12:11 pmWHZ – have to say didn't expect that to be green today. Maybe some doing the math and saying the yield didn't fall or thinking that at this point development costs must come down next few quarter which when combined with the shallowness of the decline and still lofty crude prices means the next distributon would be up.
May 8th, 2013 at 12:16 pmWHX up 10% LOLZ… I'm gonna short it above $9 (if it gets there again) like its my job
May 8th, 2013 at 12:24 pmz – re 71 WHX also up today. seems like they shouldn't be relatted to me
May 8th, 2013 at 12:25 pmre 71 – hear ya, not in that one but may take puts or short if it will keep popping. That's just silly.
May 8th, 2013 at 12:26 pmz EXXI thks think i will resort tol plan c and re-sell te options to june or july
May 8th, 2013 at 12:28 pmWHZ action most encouraging. I'm trying to get Baird's take on it, but your's in 70 is logical conclusion; wonder of mgt is pointing that way?
May 8th, 2013 at 12:29 pmAny new thoughts on one of my long holdings – PVA?
May 8th, 2013 at 12:31 pmre 75 – ha, what management? You definitely get a bump on price for the coming quarter due to oil and gas pirces and maybe that offsets production delcines. But the costs are just unprredictable at the development line.
May 8th, 2013 at 12:32 pmre: 74
i like that strategy. on it already.
May 8th, 2013 at 12:38 pmMPO call replay: mgt kept saying they were "extremely excited" about what was going on, but never conveyed excitement in their careful reading of the scripted talk. Other LA acreage shifted to back of griddle while acq.s take over the front of the griddle (good question by TPH); so much for the original reason we went public ! Drilling prime/known locations first for near term cash flow. Only 'good ' news which IS quite intriguing, is willing to take on even more debt, and get lenders to lend to them, because stock is so cheap; last insider buys at ~$7.50 and $5.50 were not good indicators (at least in the short run); wonder if we see more buying.
May 8th, 2013 at 12:39 pmRe PVA – They report after the close, looking for them to talk about intergrating the new acreage from MHR and for them to be very focused on the debt … I ran the numbers after the MHR deal and I got a higher YE13 debt/EBITDA ratio than they did. I spoke with them about it and they are saying a lower number still than I see with both of excluding divestitures. I think maintaining the current growth track on liquids and improving resuts in the EFS without letting the debt spiral too much higher is key. Investors on the other hand will want to see what the Pearsall shale test did. If that's bad they probably push the name back down, even though that's a side story here. Granted, if its good, people will glom onto the name for that as well.
May 8th, 2013 at 12:40 pmThank you. Always informative and often actionable. GREAT!
May 8th, 2013 at 12:42 pmre 79 – yeah, the problem with North Cowards Gully success is that the Wilcox is an exploration play and therefore not homogeneous and therefore not something most analysts will spend a lot of time on as they can't put it easily into an excel model. I continue to remain at arms length from them, good resumes, smart guys, but now quite diworsified.
May 8th, 2013 at 12:43 pmre 81 – You're welcome … I dunno about the "often actionable" comment though … so much is bits that go into a largely whole … if only I could black box myself and just yell Buy, Buy, Buy into a camera …it would make things so much simpler.
May 8th, 2013 at 12:45 pmre:83 How about "synergistically actionable over time."
May 8th, 2013 at 12:53 pmre 84 – Oh, I like that and am going to steal it.
May 8th, 2013 at 12:59 pmLOL … no quarterly charge for use.
May 8th, 2013 at 1:01 pmCLR – looking for strong quarter out of them as well, slight edge to over vs under on volumes as there was some bad weather in both areas (ND and OK) early and mid quarter. We think they did about 120 MBOEpd in Feb and not shockingly, the Street is just about there (119.5) for 1Q13 consensus. Look for them to talk about more 2nd and some 3rd bench of the TFS tests on the call, and to highlight lower well costs (just like OAS), better differentials (just like OAS) and to point out that pad drilled wells are coming under $8 mm routinely. Decent change they go ahead and nudge guidnce higher slightly without increasing Capex. Likely no comment on the divorce proceedings. A bunch more dta on the deeper TFS could put a little more spring in the step of the rest of the Bakken player camp.
May 8th, 2013 at 1:14 pmWHZ: It strike me that WLL should consider a PXD/PSE for WHZ and the other step-child as well
May 8th, 2013 at 1:14 pmre 88 – I thought about that but they are looking to raise cash at the moment. Have mentioned recently selling one of their two EOR projects and the words MLP or Trust were I believe uttered. They want to raise cash to pursue more inventory and growth oppy's from what I gather. I don't own it for the last year plus or so, have been mulling getting closer to the story again. Slowest growth in the Bakken but also the most mature and more per share production of any of thier peers.
May 8th, 2013 at 1:18 pmCRZO nosing right up to the breakout point…volume looks supportive for more
http://www.charthub.com/images/2013/05/08/Stock_Master390_1305081121.png
May 8th, 2013 at 1:22 pmre 90 – heh, I sent that one over to Stewie
May 8th, 2013 at 1:35 pmHoueskeeping Watch:
You can follow us on Twitter by searching for @zmans
May 8th, 2013 at 1:36 pmRefiners reversing rapidly today
PXD chairman said he sees gasoline demand flat to declining next 5 to 10 years with export demand rising.
May 8th, 2013 at 1:40 pmre: 87
Zman. the way you have been going, i wouldn't be surprised if you bought some 90 calls and actually made money on them. š
May 8th, 2013 at 1:41 pmhi andy! Had to step away for a while.
MHR pref Cs are callable any time after MHR's (new) auditors get the K done and filed with the SEC. They can be called in full or part at $25.00 each plus any unpaid (but accrued) dividends due at 10.25% per annum. From what I can tell, all divvies were paid thru 3/1/13. So accruing for March and April and May and (probably) June at $0.2135/mo plus and appreciation of the preferred stock price from where it is (currently $24.85) to where it will be called ($25.00). These preferreds were a strong buy once we knew the PVA asset sale was going thru… even so, the stock traded between $22 and $24 for about 3 weeks. Not quite like "picking up a twenty-dollar bill on the sidewalk"… but close to it.
May 8th, 2013 at 1:42 pmre 94 – thought about it, near ones look a little rich, and my conviction level isn't hugely high on the volumes. I expect a beat but as you know, it's not why I'm htere.
May 8th, 2013 at 1:45 pm#91…not likely today's biz..but sure looks pretty
May 8th, 2013 at 1:48 pmre 97 – yeah, weekly chart for me does indeed.
May 8th, 2013 at 1:52 pmEOX – last of the reporters tomorrow that I really care about , numbers not as important here as they are a) tinu and therefore subject to a lot more comlpetion timing risk and b) about to anounce their first set of operated wells in the Bakken.
May 8th, 2013 at 1:53 pmNFX Form 4s bringing the shares in today. Directors getting their shares, management selling some likely for taxes … would like to see some open market buys out of these guys.
May 8th, 2013 at 1:58 pmre: 96
Right….its the 5 year plan.
May 8th, 2013 at 2:07 pmDoing some reading, shout if you need something, thanks for the questions and coments today.
May 8th, 2013 at 2:28 pmSad news out of NFX, just saw one killed at a well site accident last night in the Uinta. Best wishes to my friends there.
May 8th, 2013 at 2:30 pmBrodway – took 5 of those CLR $90 Mays at $0.48. It's beyond WildZtrade risk level so I'm not blasting that one out. today. Back after the close with brief comments as out names report and detailed comments in the Thursday post.
May 8th, 2013 at 2:44 pmEOX on the tape
Production in line with estimates
EBITDA of $2.2 mm vs $3.5 mm expected
1st operated Bakken well with IP of 1,801 BOEpd and 30 day rate of 1,025 BOEpd which is a good rate and especially good for their first operated effort.
2nd one completing, drilling 6th now.
May 8th, 2013 at 3:11 pmWhat's your take on PVA earnings, Z?
May 8th, 2013 at 3:16 pmPVA on the tape
Production of 15,857 vs 15,700 BOEpd Street
EBITDA of $60.3 mm vs $57 mm expected
Peak rates walking higher in the EFS and 30 day rates of 830 BOEpd is a nice improvement
Upping guidance to reflect MHR to an oil growth range of 60 to 7*% (looks liek they just added in the current MHR production)
Deets in the morning post.
May 8th, 2013 at 3:22 pmre 106 – hey Quarry, long time, no chat. Re PVA – modestly positive.
May 8th, 2013 at 3:36 pmCLR on the tape
Volumes of 121,500 BOEpd, about 2,000 BOEpd above the Street. Nice (up 14% seq. , 42% YoY)
Says ahead of plan to reduce completed well costs to $8.2 mm by year end
EBITDA was a record at $622 mm, Street was was $609 mm
May 8th, 2013 at 3:40 pmCLR -now has 6 wells in the lower benches of the TFS with IPs > 1,000 BOEpd and performing in line with their local area counterparts in the Bakken and upper TFS. Several of these are long range stepout wells.
May 8th, 2013 at 3:44 pmCLR – no change in guidance for volumes for spending for the year at this time.
May 8th, 2013 at 3:46 pmZ – big move down by VLO after being up early. Any news?
May 8th, 2013 at 8:55 pmre 112 – Best I could see it was this:
PSX chairman said he sees gasoline demand flat to declining next 5 to 10 years with export demand rising.
May 8th, 2013 at 9:02 pmadding to that, the group came off right around that time. Nobody in refining investor land wants to hear about lower long term gasoline demand.
May 8th, 2013 at 9:04 pmmichael kors Watch Smart
Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Wednesday Morning – More Earnings
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