Sideways trading action continued in the energy groups. All questions under the wrap will be addressed in the Subscriber Mailbag section of the Monday post.
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An article which assesses the effect of a Republican victory on energy related companies. http://www.marketwatch.com/story/21-stocks-that-would-win-with-a-republican-congress-2014-11-01?page=2
November 2nd, 2014 at 1:11 pmZ, taking a simplistic view, if a co. has an EBITDA margin/boe of $50 at $100 oil, would the margin/boe drop to $30 if oil drops to $80? I am assuming no short term changes.
November 2nd, 2014 at 5:44 pmre 2 – assuming everything else is the same, it would fall a little less than the absolute drop in prices as your production taxes are going to be tied to a percent of pre hedge revenue.
November 2nd, 2014 at 6:11 pmCold weather
http://www.barchart.com/detailedquote/futures/NGZ14
November 2nd, 2014 at 6:29 pmThis might sound like a complaint post, but it's not.
I am trying to wrap my head around some of the gargantuan price drops in various names, particularly since mid-Sept.
I realize of course the role a sharply falling oil price has played, and the resultant negative sentiment. As Z has been saying for quite some time now "this seems overdone". Nat Gas started to follow oil down, but is now back above $4 tonight, after being in the 3.60 range last week.
I was going to ask folks here to help me grasp how $REXX (as just one example) is now the $7 range, vs. 16-20 where it spent much of the year.. I went looking back through the site for Z's analysis, updates and various commentaries. It is interesting to look at the conversation on 9/15, and then again on 10/20 where Z covered REXX updates. On 9/15, it seems that we were trying to understand a price that had fallen to the $14's. Now it is 7's.
It turns out that there is some interesting conversation about REXX in the comments from 10/20, the gist of which is that I am not alone in trying to understand a $7 handle price, let alone 14. The company seems to be killing it; yet ….
If anyone has any insights to add, please do. Would be nice if these names turned around soon …
November 2nd, 2014 at 7:20 pmREXX is a bit of a special case as it started to retreat from somewhat loftier valuations earlier in the year as basis in their region blew out. Operationally it's done better than expected but the expanding balance sheet, at a time when price realizations tumbled (I don't mean gas prices, I mean what they are getting paid which has widened far from the index price) yielded a stall, then a rapid retreat when summer didn't show up and storage was rebuilt at a more rapid than usual pace due to strong lower 48 natural gas product. Then, oil prices retreated. And this exacerbated the decline and the fall really got out of control. To sum up Operations better than expected driving a number of beats and increased volume forecasts but realized prices blew out leading to lower than expected commensurate EBITDA growth.
Some food for thought so you know when I say something looks overdone I'm not just talking about the stock price:
Z I know it is not your focus but would be interested in any thoughts you had on slca vers emes. slca is a low yield c corp which is doing well while emes is an mlp which actually has a very high yield(relatively speaking), good potential and no IDR. I want to hold a sand company for the long run and while many analysts have had positives on slca, it seems to me that despite the k-l , emes could be more interesting. Both have good growth potential and you are paid a lot more to wait on emes. I'm not asking you for investment advise rather asking how you evaluate the two firms. Probably can not go wrong with either but would value your views. tia sc4
November 2nd, 2014 at 7:58 pmSC4 – understood, planning to have more sand comments in two to three weeks after we get the 3Q14 reporting season out of the way. Have not yet listed to the replay of EMES and we have HCP reporting on Tuesday, might has well have their latest thoughts in hand too before commenting since, as you point out, it's not really my area.
November 2nd, 2014 at 8:03 pmZ – 6 – thanks. Interesting data.
November 2nd, 2014 at 8:15 pmre 9 – Pack – OK, is this look useful to you?
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November 2nd, 2014 at 8:54 pm8- yes but there is a saying- in the land of the blind the one eyed is king. You are far from one eyed and could have observations that help. My proclivity is to go with emes. But I may be missing something scla is a pure play.-In all events, value your views. best sc4
November 2nd, 2014 at 9:13 pm11 PS- checked the achieves but could not find anything on hclp- am I missing something or was it only in the blog section. HCLP appears to be an mlp with gp and probably idr. Yield a bit below emes. That says little about the future.
Tom or others if you have views on these firms please do chime in as well. tia sc4
November 2nd, 2014 at 9:41 pmJust some broad sand comments early October:
http://zmansenergybrain.com/2014/10/10/friday-morning-15/
and end of May
November 2nd, 2014 at 10:10 pm10 – yes, graphic seems to show the value disconnect.
One of the issues the energy bears are focusing on is the rise in debt levels (across many of these companies); and the exposure of high yield debt investors to this sector. Still, for REXX market cap below even 2010 levels is just nuts.
November 2nd, 2014 at 10:46 pm