11
May
Wrap – Week Ended 5/10/13
Comments will be included in the Monday post in The Week That Was section.
Also look for the 1Q13 earnings wrap on Monday.
Holdings Watch:
- TBA
BCEI article from Friday can be viewed here
11
May
This entry was posted on Saturday, May 11th, 2013 at 3:48 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
Zman's Energy Brain ~ oil, gas, stocks, etc… is is proudly powered by Wordpress
Navigation Theme by GPS Gazette
Food for thought:
What makes a stock just right, like the baby bear in the child's story of the three bears. What stocks this quarter switched from being either the mother bear or the papa bear. If you remember the story all three bears keep on living, it just the baby bear that has it just right. Obviously if it was easy, we wouldn't need Z to help us figure it out.
In looking back over the last few years of my being on the site, it has been my inability to figure out when a stock became the baby bear. Soome of the companies we follow seem to be constantly in the penalty box, either from too rapid growth (MHR), dilution of stock (PVA), or their game plan takes a long time to turn the co. around (NFX). Some of the cos. I just couldn't see where the growth was coming from, even if Z was buying the stock (BCEI). I also have a built in bias to not want to pay too much for a stock, because some of their peer group appear to be cheaper (OAS, CLR, and EOG) seem to fall in that camp.
It appears to me that NFX is a stock that is getting closer to being a baby bear. The turnaround is complete, and the growth should be there. I think that it probably has been "just right" for last 6 months, but mr. market has failed to see it. I guess that is the other part of the equation. What causes the market to recognize that something is "just right".
I am open to any and all suggestions, as to what makes a stock "just right".
Incidentally, if you happened to stumble on this site accidentally or you are a regular reader on the weekends because it is free, you are really missing something by not subscribing. Z is not only a great analyst, but he really does care about what he writes and this website. In addition, there are any number of regulars who add great insight and depth; not only fundamentally but technically.
Enjoy your day and the weekend.
May 11th, 2013 at 12:13 pmVaalco Energy Q1 CC notes & Q&A
This will be more Qualitative than Quantitative .
Q1 production, revenue and earnings were below analyst expectations, however the analyst [Leo Mariani @ RBC] completely ignored all the information Vaalco provided in news releases and presentations at conferences this year about an offshore Gabon [Avouma Platform] 3000 BOPD well going offline in late Q4 because of dual ESP failure. Additionally 2 wells at the Ebouri platform are offline because of H2S…….all of this impacted production.
[note Vaalco CEO seems to have a contentious relationship with Leo].
Leo & an analyst from Wells Capital were on the CC and asked questions on the CC.
Vaalco ended the Quarter with $102 million in cash [down from approx $142 million on 12/31/12……but much of this has to do with timing of receivables, as approx. $30 million was paid on a timely basis on April 2nd.
They did not dwell on US program except to say all the dry holes were written off last year or in Q1, as they operate under successful efforts accounting rules.
The balance sheet is still pristine,……zero debt, although they did say they are in preliminary discussion to make senior debt offering later in 2013 (more details later about the need…..given all their cash).
Offshore Gabon
In Gabon the offshore drilling program [6 wells~3 workovers to replace ESP’s and 2 exploration wells and 1 development well] started in Dec. is proceeding. They completed one development well on the Avouma Platform [EVAOM-3H] in Q1, an OHGP at 3,000 BOPD natural flow, and 4,000 BOPD with ESP at the lowest setting. This well is currently on ESP. Additionally they replaced both ESP’s on another Avouma well which had a single ESP failure and it is back in service at 1,000 BOPD. They are currently replacing both ESP's on the final Avouma platform well which had both ESP’s fail. They worked on this well and while pulling the failed ESP’s discovered a restriction in the casing so moved off and reworked the other Avouma well. In they meantime they determined the casing restriction would not impact the well flow [approx. 3,000 BOPD' and are back working to replace both ESP ‘s and are within 2 weeks of completing this well workover . Next they will move to the Ebouri platform and drill a combination exploration /development well on the separate fault block directly under the platform. They will test both the Gamba sands and the Lucinda formation. They drilled an exploration well to the Gamba on this location previously and they expect to verify the previous data and after testing the Lucinda drill a horizontal well in the Gamba complete it as an OHGP and put it on production at approx.1,000 + BOPD some time in late July. While at Ebouri they will also replace the ESP’s in the remaining operating well.
Next they will move to the MU prospect and drill an exploration well [their 3-D seismic tells them this is a 30 million barrel of removable oil reservoir]. This prospect, while close to the existing FPSO will likely take 3 wells to drain the reservoir, and while it could potentially be a subsea completion, they will likely develop it with a platform……..in part economics and in part leadtime……..as they indicated in the CC the leadtime for a subsea tree and coiled tubing of 7 mile length is virtually the same as design, develop, build, and install of a production platform.
They are currently finishing off the design of the stub platform [well sweetener to remove H2S on the 2 shut in wells nest to the Ebouri platform] and will make a decision in 2H of 2013. It would not be in place until 2H 2016. It makes economic sense to do this……..but all PSA partners must agree.
ONSHORE GABON [Mutamba Concession]
They continue to work on the development plan for the recent [2012] discovery on N’Gongui Island. Vaalco and partner Total will submit in 2H 2013 and anticipate approval and are planning for production by 2H 2014……with a connection to the nearby Total Atori filed gathering system and then to the nearby Shell Pipeline.
They also mentioned they continue to work on the renewal of the Mutamba concession for a 3 year period with Total and the Gabon Oil Ministry, but gave no timeline.
ANGOLA OFFSHORE [Block 5]. Vaalco 40% WI and Operator
Vaalco’s CEO and COO met with the Oil Minister of Gabon on Tuesday of this week when he was in the USA for a meeting. They expressed their frustration that Sonagol [the Angola National Oil Company] had approved the new proposed Block 5 partner several months ago, that the proposed partner was already operating in Offshore Angola, and was a large multinational oil company……….but the approval had been sitting in the Angola Oil Ministry’s office all this time without action , and in the meantime the Vaalco concession approaches expiration [Nov. 2014]. He personally promised to look into it and get back to Vaalco soon with an answer….soon………for whatever that is worth.
EQUATORIAL GUINEA OFFSHORE [Block P] Vaalco 31% WI
In late April, Vaalco sent a top management team to meet with GE Petrol [National Oil Company who is a significant active (not passive) partner in Block P] and the Oil Minister of EQ. Guinea. All seem to be in agreement to have Vaalco become the Technical Operator of the block. In June Vaalco will send a team back to Eq. Guinea to lock up the final details and Oil Ministry Approval. The plan is to drill 2 additional exploration wells on large sand columns adjacent to the Venus Discovery a sand column with 300’ oil column filled bottom to top with 17 to 31 million barrels of removable oil [Devon Oil & Gas ~ 2007]. Vaalco has located two Semisub rigs with slots available in Q4. One of these rigs is in Eq. Guinea.
They have processed 3-D on both of these new targets. The intent is to drill vertical test wells and sidetracks to characterize the reservoir and then use that data to definitize the infrastructure required [size of FPSO, # of platforms, etc.] IMHO events in EQ. Guinea are moving at full speed…….largely in part to the desire of GE Petrol to put Block P into production, and Vaalco has the technical ability to accomplish that……….as they bring a track record and 15 YEARS of good relations with the Gov’t. of Gabon …….next door neighbor to Eq. Guinea.
Q&A
Q Leo Mariani RBC (1) When will Vaalco get offshore production back to 20,000 BOPD [currently 16,600 BOPD], (2) and he fished around for who the proposed partner is in Angola (3) Any change in Capex in 2013.
A We will not discuss any more details than we have provided .about the proposed partner in Angola, and we won’t make any prediction about timing.
When they move the rig from Avouma [2 weeks] they will turn all the wells back on and will be between 17M ~18M BOPD. If The platform well at Ebouri works it will bring them to 19M to 20M BOPD by end of the year. No change in Capex, it might go down if they do not drill either Angola or Eq. Guinea in Q4.
Q Benjamin Cooper [Wells Capital] (1) how expensive is ESP replacement (2) color on Angola (3)Stock Buy Back~Capital Allocation (4) Eq. Guinea well cost for a 2 well program ~back to back
A Vaalco spent 1.5 million of just the pumps in Q1, not counting rig time. Vaalco added they have been very satisfied with the ESP MTBF. 4 to 5+ years. They explained it is their policy to replace both pumps if one fails to insure a high MTBF, as it both time consuming and expensive to be a rig out offshore wells….it has to be done in combination with a regular drilling program. They would NOT discuss Angola further than what they outlined about the meeting with the oil minister this week. They did say they can’t drill both Eq. Guinea & Angola simultaneously. Stock buy back will be discussed at the upcoming B of D meeting in June…….given depressed stock price. Eq. Guinea wells would be Semisub and cost $35~$37 million each gross……..or approx. $10~$11 million each net to Vaalco.
Q Jamie Wilen [Wilen Investments In.d. Investor] (1) Mgmt investment (2) stock buybacks.
A SEC requires blackouts for mgmt. when a drilling program is underway, and during quiet period approaching quarterly /annual reporting. Additionally, Vaalco had imposed internal blackouts when they are in negotiation with Governments or PSA partners…………..when you add all these up there have been very few times management could make open market buys in last 10 months. CEO said hw owns 5% of Vaalco and the majority of his net worth is in the company and he is tapped out. CEO reiterated what he said earlier to Wells Capital……..and said he intends to recommend a modest buyback at the upcoming B of D. Meeting in June.
Q Neil Nelson ~DERS Group (1) If the MU [Offshore Gabon ~Etame concession] exploration well is successful inQ3 could it be developed as a subsea completion avoiding the leadtime and cost of a production platform……..and facilitate cash flow? (2) Wasn’t there not a second discovery in Block P [Eq. Guinea] by Devon , how does it fit into your plans to develop Block P?
A (1) Yes it may be possible to complete MU with a subsea completion, however, we estimate the prospect at 30 million barrels of removable oil, and expect it to take at least 3 wells to drain the reservoir. Our experience has been that if it takes more than two wells it is better to build a production platform. Also current lead times on subsea trees and coiled tubing for FPSO sea floor lines is as great as that required to design, build, & deploy a production platform. We are inclined toward to a production platform, pending the upcoming drilling results. (2) Yes the was a second discovery……….Europa……..but it was only 5-7 million barrels of oil………….Our drilling plan is to pursue the 2 much larger sand columns prospects identified from 3-D seismic near the Venus discovery [Devon oil 2004/5] which is part of Block P. By Exploration definitzation we would be able to determine the how to develop the Venus discovery and these two added sand columns ‘just like Venus geologically] and thus size the FPSO, Production Platform(s) and infrastructure. Once this was defined the Europa discovery could be developed, but it is small in the big picture of Block P.
NUTSHELL Vaalco is forcing a decision on Angola Block 5……..good for them they have done everything asked by Gov’t of Angola……for years….however, don’t expect a quick or necessarily positive outcome given the complex history on Block 5 there is obviously some underlying problem with the proposed Block 5 partner…….even though they are currently drilling offshore Angola . Do expect the momentum on Block P Eq. Guinea to continue and expect some major announcement in late July/August timeframe and appoint Vaalco technical operator on Block P………and based on all the signal expect Vaalco to drill one Exploration Well in Block P with a Semisub rig in late Q4. Expect offshore Etame production to recover to around 18,000 to 20,000 BOPD gross by year end.. The most interesting management comment… ……..given their pristine balance sheet [no debt, $100+ million in the bank] was they are beginning to explore a Sr. Debt offering. They are preparing for a surge in capex in 2014.…….. All the above IMHO…….As a footnote, added to my overweight position at the Friday close @ $6.86.
May 11th, 2013 at 1:49 pmZ could you solicit comments from some of the engineers on the site about how big a problem sticking is, and how widespread by basin/rock type, so we glimpse how important the new FTK drilling tool might be?
May 11th, 2013 at 3:20 pmZ in post 11 Fri you said (re:FTK): APA lecturer engineer talking about need for products that the CNF 2.0 products would address. What did you mean there?
May 11th, 2013 at 3:43 pmre 3 – as a guy who works with drilling tools, I know there are lots of different tools out there that already do this type of thing. NOV makes one called the Agitator, Coil Tubing Technologies makes one called the Oscillator, Oil States just bought a company called Tempura that makes one, and Logan Oil Tools makes one called the Exciter actually haha. Some of these are striclty in coil drilling and some are used in both coil and directional. Maybe Flotek has a new way of going about this that will take off rather rapidly, but most of these are basically mud motors with the balance (eccentricity) of the motor being a little off as to create vibration to move the whole motor along and over ledges, edges, etc. downhole. I think the potential of Flotek seeing major revenue off of a tool like this compared to their chemical division is unlikely – JMHO though. If they use chinese motor components like they do on the rest of their actual drilling motors, I see it having a harder time taking off because of people's distrust of chinese product in this segment of the industry. It has definitely made its way over here and there are professionals that will make the case for chinese product in drilling but it still hasnt fully changed the stigma in most end users minds. If anybody else has thoughts on this I'd love to hear them as well RMD.
May 11th, 2013 at 4:38 pmre 3 – pretty much most coil (thru-tubing drilling) BHA's have an agitator of some sort attached to them when they mill frac plugs which is 90% of all coil tubing work here in the states. I don't think it's near as big of a necessity in directional drilling but in certain areas there are needs for it. Directional tools are larger diameter than coil motor parts but I still think it will never be close to the chemicals division as far as a revenue generator for FTK.
May 11th, 2013 at 4:44 pmEldque,
we are not alone in the NFX camp.
Billionaire investor T. Boone Pickens added oil and gas producers Newfield Exploration Co.,Marathon Oil Corp. and Occidental Petroleum Corp. to his energy fund’s holdings during the fourth quarter.
Pickens’s Dallas-based BP Capital Management LP bought 211,703 shares of Newfield valued at $5.7 million, 184,900 shares of Marathon valued at $5.7 million and 63,000 shares of Occidental valued at $4.8 million in the three months ended Dec. 31, according to a filing with the U.S. Securities and Exchange Commission.
May 11th, 2013 at 4:52 pmthanks, Dillon. And I hear you re; chinese components. At the NJ shore I gave up on regularily available (read chinese) stainless screws etc. and found suppliers who only carried USA- made high quality parts. They are happily resisting salt water like champions so far; well worth the (much higher) price.
May 11th, 2013 at 10:13 pmEMES-hi-yield IPO-5/8, priced at $17, projected yield ~14%; initial range $19-21; closed Fri $16.70 w/volume.
seems like many are still going to the energy trough-somewhat concerned about no minimum qtrly distributions
http://mlpprotocol.files.wordpress.com/2013/05/emes-ipo-roadshow-slides-may-2013.pdf
http://www.sec.gov/Archives/edgar/data/1555177/000104746913005157/a2214576zs-1a.htm
May 11th, 2013 at 11:45 pmJust stopping by between Mother's Day gigs
1) Elduque – thanks much for the kind words and insight. I appreciate your patronage over the years and patience and inputl.
2) Crysball – thanks for that … I have started and stopped a handful of times in doing work there. Need to look again probably.
3/4/5) Sent a note to Wyoming and got back that he did not think it was that big a deal in drilling operation. Thanks much to Dillion, excellent stuff.
6) I did same, soft metal, heads twist off. Chinese OCTG have been complained about forever. Same proppant although the source of that seems to be CRR and not so much E&Ps as I know some who keep experimenting with cheaper ceramic (presumably they mean Chinese, Brazilian prop).
7) another frac sand IPO – well, at least this one has a yield, will have a look. Problem I have with the lower grade ones is there are few barriers to entry and many of your bigger potential customers are pretty much all working to do it themselves at least in the US. For the higher end you go up against Carbo which is tough and then imports which can suppress prices for long periods of time.
May 12th, 2013 at 10:03 amRetail Gasoline Prices to Decline && stay there) for the Summer Driving Period…..should help gasoline demand.
From the EIA: Short-Term Energy Outlook
Last summer, gasoline prices averaged $3.76 per gallon during the April through September period – so this is a little good news for drivers.
According to Gasbuddy.com (see graph at bottom), gasoline prices are up to a national average of $3.58 per gallon. One year ago, prices were at $3.81 per gallon, and for the same week two years ago prices were just over $4.00 per gallon.
http://www.OrangeCountyGasPrices.com/retail_price_chart.aspx?city1=OrangeCounty&city2=&city3=&crude=n&tme=1&units=us
May 12th, 2013 at 1:12 pm