Market Sentiment Watch: Market focused on Payrolls.  We're wrapping up a busy week on the conference call front with a few more calls.  In today's post please find the natural gas inventory review (smaller than expected injection (again) on the back of weaker production and weaker imports from Canada), plus comments on the EOG, HK, and BCEI (very interesting update and midstream sale) 3Q15 reports, along with some other odds and ends.


Ecodata Watch: 

  • We get Nonfarm Payrolls at 8:30 am EST (F = 177,000, last read was 142,000), 
  • We get the Unemployment Rate at 8:30 am EST (F 5.1%, last read was 51.5),
  • We get consumer credit at 3 pm EST (no forecast, last read was $16 B).

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch 
  3. Natural Gas Review
  4. Stuff We Care About Today - HK, EOG, BCEI
  5. Odds & Ends


Holdings Watch:

ZMT (Zman Medium Term portfolio):

Yesterday’s Trades:

  • None

ZLT (Zman Long Term portfolio)

Yesterday’s Trades: 

  • CPE - Added a Trading position at $8.74 after the conclusion of their 3Q15 call.  Company shifting to all central Midland Basin drilling and majority Lower Spraberry, allows them to maintain nearly the same growth rate as before for 2016 (nearly 20%) while spending 17% less than prior budget and attaining cash flow neutrality next year at a lower (sub $50) oil price deck. Please see notes on site 11/5/15 on their quarter. 

The Blotter is updated.


Commodity Watch:

Crude oil fell $1.12 to close at $45.20 yesterday, after: 1) gasoline prices dipped 2% due to rising crude throughput at refiners (and despite yesterday's much bigger than expected draw on gasoline stocks) and 2) Genscape indicated it expected a 383,000 barrel build at Cushing next week.  All noise in our view but bear stories on gasoline continue to abound and while Cushing has been coming in to the dismay of bears weekly a build there now was seen as bearish.  This morning crude is trading flat. 

Natural gas rallied a dime (4.5%) to close at $2.36 yesterday after EIA reported a third lower than expected and lower than five year average injection. The number pushed storage into all time record territory and this was as expected a buy the news, having sold the fear event. We doubt it has near term legs without cold weather but the traction is nice to see instead of the alternative which would be a test of $2 which we'd really rather not see at this time. This is natural gas and it's one of the most volatile commodities on the planet but clear demand is being bolstered by weak pricing here on the generation side and noted in the next bullets, while few seem to be watching, supply is really starting to ebb. This morning gas is trading up a penny. 

Bentek Data Watch:

  • Dry Gas Production Watch: Down 0.4% from prior week ... sounds familiar. Dry gas supply continues to edge lower and Bentek shows dry gas last week was only up 0.9% vs the year ago week.  It ran 3 to 4% over year ago levels most of the summer. 
  • Imports Watch: Volumes from Canada fell 10.4% week to week ... low prices in the States not exactly enticing. 


Natural Gas Storage Review

gas table 103015


gas graphs 103015

Stuff We Care About Today  

HK Reports In Line Quarter

HK 3Q15

The 3Q15 Numbers: Operating expenses at $17.04 per BOE, down 27% YoY despite the lower volumes. 


  • 4Q15 guidance: 39 to 41 MBOEpd; Street is at 40.2 MBOEpd
  • 2015 Capex: No change to prior guidance of $325 mm, 
  • 2015 Volumes: Not specifically state but see no reason with 4Q guidance that it would be changed.
  • 2016 Capex: Not yet, we've said $275 mm is likely, down from this year's $325 mm, 
  • 2016 Volumes: Not yet



  • 2 rig program continues, focused on the FBIR,
  • 3Q saw records for spud to rig release, feet drilled per day, and completion to sales (down 32% YoY) as they tighten up the program, 
  • AFE's now $6.8 mm, down from $8 mm last May and ahead of targeted levels, 
  • Wells on average continue to outperform the 801 MBOE core type curve. 

Eagle Ford

  • 1 rig program continues, 
  • Wells outperforming type curve, 
  • AFES at $6.8 mm, down from $7.5 mm last Spring, now with 500' longer laterals (at 7,500') and 33% more sand). 

Balance Sheet:

  • Liquidity of $827 mm
  • Borrowing Base: Previously reaffirmed at $850 mm. 

Other Items 

  • Hedges - they remain highly hedged in 2016 with 25.5 MBOEpd  (or roughly 80% of Street expected oil volumes for next year) at $80.59 per barrel.

Nutshell: In line quarter (EPS beat on as guide volumes). Story remains one of improving operations and oily and well hedged production profile that is slow slipping from a late 2014 peak meets high debt load.  We are not going to keep all of the heavily levered names in the portfolio as we look to clean house beginning next week and into year end but this is one we plan to hang on to at this time. We expect a number of questions on the call to focus on next steps for addressing the debt. We continue to own HK as a core acreage holder in the Bakken and EFS, levered, but well hedged name with a large drilling inventory and the ability to ramp production volumes when prices warrant. 

EOG Reports Strong 3Q15 Volumes and EBITDA; Monster Wells In The Delaware; Adds More Wolfcamp Resource Potential, Adds First 2nd Bone Potential

EOG 3Q15


  • 2015 Capex: Reaffirmed at $4.7 to $4.9 B, down 42% YoY, 
  • 2015 Volumes: Modest dip to guidance on UK asset timing, not a big deal
  • 2016: Look for a number of questions on this on the call. 

Permian (Delaware Basin)

  • 8 rigs running,
  • Increased reserve potential by 1.0 B barrels to 2.35 B BOE, via 500 mm BOE added to double up the Wolfcamp potential and 500 mm BOE as they add the new 2nd Bone Spring zone to the previously noted WC and Leonard. 
  • This takes the potential location count from 2,700 to 4,900 net wells, 
  • Best in play Wolfcamp well in their Thor 21 #701H well - IP of 4,375 BOEpd but the 30 day rate is the monster part of this at a whopping 3,490 BOEpd (of that, oil was 3,335 bopd).  That's best ins show. 
  • They also had two Second Bond Springs tests with 30 day rates of 2,09 and 1,785 BOEpd (drilled for $6.6 mm all in with a target of $5.7 mm),
  • Expect to hear about their first high density completion in the Wolf Camp on the call or on the next call (can't tell),
  • Added 26,000 net acres in Lea, NM and Loving TX counties for $368 mm (associated production of 750 BOEp), or about $12,700 / acre after adjusting for production. 

$50 is more than the new $95 Watch:   At least in the Delaware. They show 2012's $95 price generation 35%ATROR in the Wolfcamp vs current cost wells at $50 oil generating 45% returns.  

Balance Sheet:

  • Net debt to 3Q15 annualized EBITDA of 1.5x
  • Liquidity of $2.7 B,
  • Revolver $2 B (undrawn)

Other Items:

  • No hedges in 2016.

Nutshell: Good quarter and we'd say it's not cheap but for many many good reasons. We mostly stick around here to keep abreast fo their best in class practices (used to be for the Bakken and EFS but now for the Delaware as well) and to occasional trade off dips that make no practical sense to us. They should talk about the macro today (expect negative of natural gas and a more constructive oil view (but not highly constructive).  We continue to own a smallish position in EOG in the ZLT.

BCEI Reported Strong 3Q15 Results;  Positive Enhanced Well Data; Sells Rocky Mountain Midstream Segment; Together these two items make holding volumes flat in 2016 as previously hinted at quite a bit cheaper. 


The 3Q15 Numbers: Cash operating costs of $14.01 per BOE, down 16% sequentially and down 21$ YoY. Notably, EBITDA was off 33% YoY while realized per BOE prices were down 60% (impact of cost cutting felt there). 


  • 2015 Capex: Reiterated prior $420 mm budget, 
  • 2016 G&A to be reduced by $5.3 mm due to head count reductions,  
  • 2015 Volumes: tightened to 28 to 28.2 MBOEpd vs prior range of 27.8 to 29 MBOEpd; 4Q guidance is 27.5 to 28.1 MBOEpd vs current Street of 29.4 MBOEpd.  This should prompt questions
  • 2016 Capex: Not yet official. But they see an undrawn revolver with cash on the balance sheet at the beginning of 2017.  Last quarter they said a hold flat budget would be 80 SRL equivalent wells.  We put the our read of 2016 capex at $216 mm ($2.7 mm baked in for drill and complete) plus $40 mm for the MId-Continent, and $40 mm for midstream for a grand total of ~ $300 mm. Due to the RMI deal outlined below and due to new data regarding production enhancement in the Wattenberg (also below), this number is going to come down by the $40 mm for Midstream at a minimum and likely more for the higher per well first year production (looks to be up 20%).  The old capex number assumed they had a line of site on $2.7 mm all in well costs and now they are talking $3 mm (bigger frac adds $200K but you also have $850K in deal offsets in the first 112 wells).  The RMI deal does increase operating expenses by $2 to $2.25 per BOE (fee paid to the new midstream owner). 


  • Announces deal to sell Rocky Mountain Infrastructure (RMI) segment formed during 2Q for $255 mm: 1) $175 mm up front cash payment, 2) $20 mm payment upon completion of 16 more wells by BCEI, 3) $60 mm to be paid for drilling of 112 short lateral equivalent wells (works out to $535,000 per SRL "equivalent" well in "drilling incentives".  The key will be that they can do this with XRL wells killing 2 wells for 1 longer well bore,
  • Impact on Completed Well Costs is to reduce per well costs by $300,000 each for infrastructure BCEI would have had to install in addition to the drilling incentives.  Taking well costs from $3.4 to $3.1 mm and they see making their end of year target of $3.0 mm.  Questions will be asked re line of site on prior $2.7 mm.  Note that this is without the incentives for the first 112 SRL wells.  On those wells the cost is effectively under $2.5 mm.  
  • DJ Basin volumes up 5% sequentially,
  • Well costs at $3.4 mm for the SRLs and $5.1 mm for the XRLs. Targets with the RMI deal are $3 mm and $4.5 mm respectively.  Analysts rightly should question further non RMI cost cutting as others are already below these levels. Look for questions on this on the call,
  • Enhanced Completion Test outcome - BCEI test 50% increased sand load to 1,500 lbs per foot in SRLs (this was done in late 2014) and they now have 300 days of data. Sample size was not stated by they noted a 20% increase in cumulative production and 45% reduced time to payout relative to 1,000 lb per foot wells.  This will be the new standard in 2016 and in conjunction with the drilling incentives makes it easier to achieve flat levels with less wells (perhaps $50 mm cheaper). 
  • Mid-Continent (18% of volumes)- sales flattened to 2Q levels ... that's all we'd ask of this division.

Balance Sheet:

  • Net debt to 3Q15 annualized EBITDA of 2.3x and 2.2x net debt to TTM EBITDA ... very manageable (down from 2.8x at quarter end 2Q15) and again, their covenant applies to senior secured debt (not total debt) to EBITDA which was at 0.3x vs a max covenant of 2.5x,  
  • Liquidity of $594 mm (pro forma the $175 mm cash from the RMI sale),
  • Borrowing Base of $1 B with a commitment level of $475 mm and nothing drawn pro forma the RMI transaction.
  • Pro forma cash is $119 mm

Nutshell: Nice quarter, nicer deal. The deal takes an immediate half multiple out of leverage which should be well received, especially since the company only put this together as a thought in the Street's head last quarter. The SRL enhanced frac wells should also be well received as it's been a long time since we've thought about higher EURs out of BCEI. Look for analysts to ask about the net potential reserves or 500 MMBOE potentially moving up on this by 100 MMBOE (or close to it and for thoughts on reserve growth in the upcoming 2015 report). Last quarter they noted that for the equivalent o 80 SRLs they could hold volumes flat in 2016.  This just got cheaper both due to the deal and due to the uplift on the bigger fracs. This too should be well received. If the name dips on the 4Q guidance issue we will likely add a ZLT Trading Position. BCEI remains a Core Wattenberg player in the ZLT and is too cheap in our view. 


Odds & Ends

Analyst Watch:

  • TBA in comments

118 Responses to “T.G.I.F.”

  1. 1
    Zorgnak Says:

    SP 500 Futures- 2077 is major acceptance. I still expect a test of this level. 


  2. 2
    zman Says:

    NFP = 271,000

    Unemployment 5.0%

    US wages up biggest YoY since 2009

    Dollar zips higher, futures immediate reaction is fear of rate cut. 


  3. 3
    zman Says:

    Oil kneejerk


  4. 4
    zman Says:

    Mining sector down 5,000 in October = fantasy that they say it's only off that much. 

  5. 5
    zman Says:

    NG holding it's little 4% pop off the lows yesterday


  6. 6
    Zorgnak Says:

    Crude Oil-  Continues to trade in balance around major acceptance at 46.76. Weak demand volume. 


    XOP  Holding above major acceptance in spite of crude oil weakness. Key resistance at 40.88. 


  7. 7
    Zorgnak Says:

    NG Futures-   Watching 2.39. .30 volume gap above.


  8. 8
    Zorgnak Says:



  9. 9
    zman Says:

    Analyst Watch

    Goldman Sachs

    – sees US 2016 Summer demand exceeding production and imports, drawing on inventories sharply.  Not a typo. 

    – but sees weaker winter demand reversing a premature winter gasoline price rally (seasonal, nothing more)

    – but also adds inventory path does not breach gasoline storage capacity (to which we say no kidding, I wonder who implied it would).  

  10. 10
    zman Says:

    re 8 – yep.  And oil the mirror image, under $45 again. Never mind all those folks will be adding gasoline and therefore to oil demand. 

  11. 11
    zman Says:

    BCEI – early reaction a big plus, that's like money out of nowhere for them.   Offset is per BOE expense increase but that boils down to a little over $20 mm per year. 

  12. 12
    ctb14 Says:


  13. 13
    zman Says:

    HY Energy continues to come off wides reached in September. 

  14. 14
    zman Says:

    BCEI up a buck at the open. Will be on that call at 11 am EST. Expect it to really run here. 

  15. 15
    zman Says:

    Zorg – BCEI forming scoop chart, low valuation, it can really run here. 

  16. 16
    nrgyman Says:

    BCEI with a triple top breakout today in the P&F charts.

  17. 17
    zman Says:

    CLR – probing higher, still holding Nov Calls there. 

  18. 18
    Zorgnak Says:

    #15  Yep, "Bottle Rocket". 


  19. 19
    nrgyman Says:

    EOG Delaware wells:  Based on where these wells (and the acreage they bought) are located, who are the closest offset operators?  

  20. 20
    Zorgnak Says:

    CLR Breaking near resistance…supply at 37.39, far resistance at 39.51. I'm holding the calls as well. I'll be out at or below 39.51, unless crude turns higher


  21. 21
    zman Says:

    CNBC in the background

    Bob Pissani – sectors that are down,  well that's no surprise, energy down, because higher rates are bad for energy

    In talking here in the office with Petra a little while ago, I was just commenting that LOE is down big this quarter on a per unit basis.  No one talking abouit but mid teens percent down YoY is common this quarter. Normally the way you get a per BOE drop is volumes but there is a sequential per BOE step down here that is occurring with flat and down volumes everywhere. In my 20 plus years I have not seen the like of this.  So while well costs are widely reported down (capex), opex down sharply as well.  Combine that with G&A cuts and the $50 is the new $90 phrase starts to come into better resolution.  Note the EOG comment in today's post on the Delaware Basin  (higher returns now at $50 than 3 years ago at $95).  Saudi is going to get more than it bargained for. And the Pissani's of the world have no idea. 

  22. 22
    Zorgnak Says:

    CRZO  Still setup for higher


  23. 23
    zman Says:

    re 19 – have not pulled them on a map yet but MTDR is best fit.

    Getting on HK call in 4 minutes, will circle back to EOG 

  24. 24
    zman Says:

    re 22 – and CRZO could get some play out of big EOG as well

  25. 25
    zman Says:

    re 20 – thanks, would need crude to firm (on rigs perhaps or lower product estimate for US Lower 48 in next 2 weeks) to get there I think. 

  26. 26
    nrgyman Says:

    RE 21:  In fairness to Pissani himself (who I know you are not targeting with your comment), he was calling attention all day yesterday to how the E&P names are doing more with less (producing more with lower capex, a result of cost reductions and efficiency improvements).  He was highlighting this as a reason the E&Ps were showing recent strength and commented about how remarkable this is.

  27. 27
    zman Says:

    re 26 – understood, like I was saying many are talking about capex, and those coments (cost reductions and efficiencies speak to capex) but few are talking about the operating expense reductions we are now seeing.  Used to see it simply due to volumes rising. Now seeing it on operational efficiencies. 

  28. 28
    zman Says:

    HK 3Q15 Notes

    Reiterating guidance

    LOE down 6% sequentially

    G&A towards low end of guidance range and slight off 2Q

    Production taxes was below guidance

    Gathering was in line

    Operating costs were down 3% from 2Q and down 27% from 3Q14 ( on a per unit basis)

    Capex – $84 mm in 3Q, in line with exp.

    Capex – lower in 4Q, in line with full year guidance

    Floyd Comments

    – environment demands efficiency – we've been driving gains without hurting 

    – likely 3 rigs in 2016

    – should cost 25%less capex, keeps production flat – these are comments, not perfect guidance


    – noting the records for drilling ops outlined in the post

    – all completions are coming in under AFE

    – CWC well costs are $7.2 mm in 3Q with new wells at $6.8 mm 

    – 1/3 of the drop in Completed Well Costs are due to design changes (sticky)

    Eagle Ford 

     – also faster drilling and completing

     – expect to drill 2 to 4 well pads from now until the end of 2016 (few or no single shots)

    – 40% reduction in YoY completion times

    Will continue to work on reducing leverage

    Going to Q&A 9 minutes in ….

  29. 29
    tomdavis12 Says:

    CS US Focus List – Out MRO  In CXO

  30. 30
    macguyver Says:

    fyi….GST no firm data on new meramec well cause still cleaning up….all indications around ng shows, pressure, etc are good.  Mentioned neighbors (NFX i believe) drilling good wells right up against their acreage. 

  31. 31
    zman Says:

    HK 3Q15 Q&A

    Q) Bakken well – can get cheaper

    A) If prices stay as they are, trend is to go on below $7 mm 

    Q) EFS – drilling and stages per day – repeatable ?  If run ahead.

    A) Said 14 days is achievable  – this brings up issues of spending – if you drill faster you spend more – 

    Capex in 2015 of $325 mm and we may beat that. 

    At least 25% less in 2016 (so about $250 mm).   He reiterated this several times, will stick to this budget. Sounds very much like they will lay down rigs before they go over that budget if they drill faster.  Idea to keep production flat.  


    Q) Opportunities for de-everaging

    A) Not expecting any kind of big drop in the facility next year.

    Q) When did you shift to pad drilling in EFS – (they mentioned this last quarter and alluded to it in summer when we spoke with them)

    A) Doing all pads, only the one rig, quicker to market time (spud to POP)

    Call tone VERY NEUTRAL, somber comes to mind. 

    Q) Debt exchange oppy to do more – unsecured for 3rd lien

    A) there is not additional 3rd lien capacity.  We have some options available to us. 

    Q) Would you describe those options as capital market based or an asset sale

    A) No.  We have several levers we can pull. We are evaluating lots of different ideas. 

    And the waiting game continues

    Q) Production flat – YoY or exit

    A) A whole year's worth of work – our feeling is we need the EBITDA, we're hedged, we're going to keep it flat

    Q) In the EFS – how many have been done with the upsized frac, when make type curve change

    A) It's early days, and we are slow to increase type curve.  We have 3 flowing back now and 2 more completing … will have lots more data in a few months (although Floyd said they are going to be above curve). 

    HK call over, morose sounding call as was last quarter. Waiting game. 

    Jumping over to EOG in progress and will circle the first part of that call after the BCEI call. 

  32. 32
    zman Says:

    Thanks 29/30

    Taking notes on back half of EOG – out in a bit

    Noting OAS trying to move on that 200 day gently descending SMA again. Valuation would allow it to break out beyond that to upper teens. 

  33. 33
    nrgyman Says:

    RE 23-24:  Thanks.  Was thinking about CRZO and their Delaware acquisitions (more to come).  Capex appears to still be moving to the Delaware.  Those EOG wells were big–will give even more attention to the Delaware.  WPX has a prime position there now as well.

  34. 34
    RB Says:

    ERII…thx to whomever mentioned this one the other day.  I have a smallish position that has done very, very well…..nice breakout today…..https://stockcharts.com/h-sc/ui?s=ERII&p=D&yr=0&mn=8&dy=3&id=p84329826990&a=431327970

  35. 35
    Zorgnak Says:

    #25 Re CLR options….thanks…I will scale out beginning around 38 

  36. 36
    zman Says:

    re 33 – Thanks and good point re WPX – small move up on earnings there yesterday – one of the better calls of the quarter yesterday there. 

  37. 37
    macguyver Says:

    re 34…..that was moi!  thanks much

  38. 38
    Christian Says:

    Macguyver – Merci much for your obs on MHR prefs. Hope all made a killing on the rebound. The slide re assets was more or less clear in their Oct pres. but you brought it up v. timely/nicely. 

  39. 39
    zman Says:

    PE – on cusp of break to new levels

  40. 40
    macguyver Says:

    MHR => responsible adults are involved in decisions now.  2nd lien and bondhodlers refi'ing the revolver to take banks out of the process.  However they have not given management any real additional liquidity thus forcing a re-org of some sort.

    Good for the pfds I mentioned here a week ago…up another 25% today….have gone up 2-3x in a week


    Magnum Hunter Resources Announces Refinancing of Revolving Credit Facility

    Continues Suspension of Monthly Cash Dividends on Its Preferred Stock

    IRVING, TX–(Marketwired – Nov 5, 2015) – Magnum Hunter Resources Corporation (NYSE: MHR) (NYSE MKT: MHR.PRC) (NYSE MKT: MHR.PRD) (NYSE MKT: MHR.PRE) (the "Company" or "Magnum Hunter") announced today that it has refinanced its existing senior secured revolving credit facility with certain banks and obtained additional liquidity through a new senior secured term loan. The refinancing and additional liquidity are being provided, in equal amounts, by holders of more than a majority of the Company's second lien term loan agreement, and holders of more than a majority of the Company's 9.75% Senior Notes due 2020. These new lenders have also agreed to forbear from the exercise of certain rights and remedies with respect to certain events of default (including the failure to pay interest when due under the Company's 9.75% Senior Notes due 2020 and second lien term loan agreement) and work, in good faith, on negotiating the terms of a consensual restructuring with the Company.

    The new term loan credit facility consists of a single tranche term loan in the aggregate principal amount of $60 million, which funded on November 5, 2015. Approximately $44 million of proceeds from the new term loan credit facility were used to refinance existing loans outstanding and cash collateralize letters of credit outstanding under the prior revolving credit facility with certain banks. The remaining approximately $16 million of proceeds will be used for general corporate purposes of the Company and to pay certain transaction fees and expenses related to the new term loan credit facility. Furthermore, the new term loan facility includes an uncommitted incremental credit facility for up to an additional $10 million aggregate principal amount of term loans. The maturity date of the new term loan credit facility is December 30, 2015.

    The new term loan credit facility provides Magnum Hunter with near-term liquidity as the Company continues to work towards a comprehensive strategic alternative to enhance liquidity and address the Company's current capital structure. As previously announced by the Company on October 9, 2015, the Company has hired PJT Partners LP (NYSE: PJT) (the combination of Blackstone's advisory businesses and PJT Capital LP, a global financial advisory firm), as financial advisor, and Kirkland & Ellis LLP, as special legal advisor, to advise the Company's management and Board of Directors. In light of the Company's ongoing discussions regarding its capital structure, the Company will not issue a separate press release to report its third quarter financial and operating results or host a conference call to discuss its third quarter financial and operating results. The Company intends to file its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015 with the Securities and Exchange Commission on or before November 9, 2015.

  41. 41
    macguyver Says:

    re 38…thanks…sun shines on every dog's a&& someday!

  42. 42
    zman Says:

    EOG 3Q15 Notes (call joined in Q&A at 10:28 EST)

    Describing a very flexible year for Capex

    Focus on increasing returns and quality of inventory

    Delaware Basin – we're in the 3rd inning vs the 6th or 7th on the Eagle Ford

    Q) Enhanced completions-  Noting the 30 day rate on the Thor well (noted in post) – is the 3Q beat a function of 3Q wells or is it a function of wells drilled in 1H that held up better than expected

    A) A function of both – not exactly granular answer 

    Q) M&A – the deal for acreage – not your normal – should we expect more of these type of deals going to forward as opposed to organic leasing

    A) a combination of both – have ruled out the bigger M&A deals (corporate deals) due to asset quality – which is normal for them. 

    Q) Debt to cap thoughts – is some of next year's cash flow going to debt reduction

    A) We will not stretch the balance sheet.  Company is in fantastic shape to keep balance sheet in check and do small acquisitions.

     Q) Maintenance capex is it $4.8 B

    A) It's less than that, didn't get all of his response but less – CIRCLE BACK

    Q) DUCs timing

    A) We have a lot of flex – pace of spending and activity will be very much by the commodity price – not giving details, want to work our plan more first, it gets better each time we work the plan for 2016 over, 

    Q) If you match cash flow to capex in 2016, do you grow oil in 2016

    A) That's a good question. Depends on what those are , we're in good shape to have a strong year, will give #s in February 2016, have to wait for that. 

    Q) When ramp up in activity occurs are you concerns with equipment and people degradation that has occured

    A) Yes and we are spreading work around with the strong service companies to keep them going, thinks they can ramp up readily when prices improve. 

    Q) Delaware Basin – capital allocation ?

    A) 3 good plays now (WC, 2nd Bone, Leonard) – focusing most activity on the Lower Wolfcamp for 2 reasons: 1) strong returns vs rest of EOG portfolio and 2) focused on the Lower WC as they get a look at everything else on the way down so will have good idea of next targets as prices recover.

    Q) Brian Singer with Goldman – 2016 and spending – what are the impediments to growth in 2016 under a $40 to $50 environment

    A) It really goes back to cash flow, working to balance, still working through that and while the DUCs would help, we have to factor that relative to all the new plays. 

    Q) GS ? – Enhanced completions point to what kind of EUR you see in the Delaware

    A) We have not yet quantified the impact of better targeting and enhanced completions – so basically need more time – sounds like reserve size increase next year and 2016 will look for a bigger reserve report upgrade.

    Noting decline rate at the end of 2015 will be significantly lower than in 2014 –  this will be true for everyone that grew less this year … a bit obvious but it points to 2016 being easier to hold flat for less $ on the oil side.  With that said, the much lower rigs and fact that not everyone is able to spend and that wells can't all be 2x what they were pionts to further declines.  

    Call ended, very positive tone. 

    Jumping over to BCEI call 









  43. 43
    elduque Says:

    where is the call on their website


  44. 44
    Zorgnak Says:

    AREX  The other bottle rocket setup. in the making…    .70 back to breakout levels…then $1 upside after breakout.


  45. 45
    elduque Says:

    got it

  46. 46
    zman Says:

    President Obama to reject Keystone. Not shocking. 

  47. 47
    zman Says:

    BCEI 3Q15 Notes

    Slides lower right here: http://www.bonanzacrk.com/

    Walking through improved quarterly results.

    Volume ahead of expectations, record high,  up 4% seq.

    Cash costs were down 16%  seq – this is all in post 

    Highlighting the 33% drop in EBITDA vs the 60% drop in commodity prices YoY

    Shift to 1 rig from 2 causes the 4Q  guidance dip

    Slight improvement in differential to $8.98 per BO, best level since 3Q13.  Then said expect 4Q to see less than $4/BO  (had to have heard that wrong)

    Eliminated contractors and reduced headcount by 15%

    Cash G&A guide goes from $6.25 to $6/BOE

    Fall redetermination – received unanimous approval for the $475 mm redetermination.  This with the RMI deal allows them to handle contemplated activity levels

    Operations Update

    DJ Basin 

     – up 4% seq, or 1,000 boepd

     – better midstream (lower line pressures) helped drive the quarter.  Faced fewer periods of midstream downtime/bottlenecks, due to infrastructure adds came on line late 2Q,

     – Performance enhancements – this is outlined in the post – saying reduced payback period is critical to maintaining balance sheet strength during weak commodity prices 



     – flat with 2Q due to a good run of recompletions – sigh of relief that. 

    LOE cost savings

     $1.6 mm lower than expected 

     Supply chain organization working to get all costs down- working – LOE now in lower end of guidance prompting reduction in 

    Well Cost Reductions

     – we see BCEI as very competitive

     – achieving our cost reduction has returned payback periods back to early 2014 levels

     – 25% drop in spud to TD for SRL and 40% drop in spud to TD for XRL

      – so we released one rig but will stay on target to spud same number of wells

    RMI Deal

    – 70,000 net contiguous acres for optimal development with pads

    – designed with field wide centralized infrastructure backbone

    – purchase agreement with Meritage 

    – deal as described above in the post and on slide 9

     – this deal allows us to stay undrawn on credit facility into 2017

    by the way this is the value of the new chief here, he's a deal guy and this is the kind of thing they need right now. 

    Going to Q&A … 

  48. 48
    Zorgnak Says:

    CLR Nov 36 calls..sld 1 at 2.40

  49. 49
    zman Says:

    BCEI 3Q15 Q&A

    Q) Other assets for sale

    A) Mid-Continent now listed as assets held for sale – WOW, they have rejected that until today. Have receive interest over the quarter from a buyer. 

  50. 50
    zman Says:

    BCEI 3Q15 Q&A 2

    Q) JV on acreage conveyed in past, less likely after RMI

    A) We've never made that statement in public, would not steer you to JVs

    Q) Update on the new acreage

    A) Limiting factor up there was infrastructure, Meritage now going to build a central processing system up there and we will drill 8 wells up there. 

    Q) Plug and perf ?  

    A) Well payback times are critical to us. Will use more sand in majority of wells.  As to PnP, have completed a 3 well pad in the same section with a 5 well pad of sliding sleeves, early flowback, if it looks good we will consider it, PnP cost a bit more at $5.7 mm each for XLR vs $5.1 mm SS XLR well.

    2016 budget not yet done – we're in a good position to weather the storm, objectives are not around increasing production but are about increasing stock holder returns. 

    Lower threshhold for next year is 56 SRL wells next year and then will consider more wells on top of that if warranted. 

    "I agree, your flexibility is much better and continuing to improve"

    Best call tone here in a year. 

  51. 51
    zman Says:

    BCEI 3Q15 Q&A 3

    Clarification – Northern acreage – we already have several wells in the north, we are confident in what we have up there. 

    "Good morning and congrats on what looks to be a great transaction"

    No response from management – wonder what Wells Fitzpatrick did to tick them off  "crickets"

    SRL counts as 1, med reach counts as 1.5 and XRL counts as 2 wells

    $3.1 mm for SRL – takes you down to $2.4 mm with RMI incentives – the change to monobore takes you to $2.1 mm 

    Our confidence in the monobore wells is very high, would not be surprised to see us go all that way. 

    Um, that's $2.1 mm for an SRL, that's very imressive, and further reduces our capex guesstimate in the post. 


  52. 52
    zman Says:

    BCEI 3Q15 Q&A

    Q) You are flush with liquidity and your debt metrics are improved, what does it take to get you there

    A) one rig should drill at least 56 wells, Above that we will look at it but we have to maintain a strong balance sheet into 2016 and beyond. 

    Q) $2.4 mm to $2.1 mm – organic or service price 

    A)   1/2 is from monobore and 1/2 is from hybrid frac design (more slickwater, less gel) – so both are savings 

    The monobore we've done and others have done. We have not done the lower gel use case yet but will be doing, others have gone all slickwater.  So this last $0.3 mm is sticky savings.

    Q) 1,500 lbs easily translatable to XRLs

    A) yes, absolutely no problem doing that

    "Thanks guys, good show"

    Q) 2016 outlook

    A)  "Hey Ryan good to hear from you" – in talking to BCEI and others I have been told the analysts have been check in less and less and that sounded like a bit of a slap. 

    Budget not out yet, just reiterated the 80 SRL comment of the past for flat. 

    Q) Differentials – 4Q and into 2016

    A) We guide to the quarter  – $9 is a good one 

    Q) Cash G&A guidance – dipped significantly  – what's a good # for 4Q and on

    A) we just took the top range lower,

    Estimates likely a wash 4Q (lower volumes on the rig move, but also lower costs)

    But 2016 just got a lot cheaper to hold flat and not take debt up

    2015 it s was 96 to hold prod flat

    2016 it is 80 (didn't take into account the 20% increased 300 day production data)

    Q) Payback 

    A) XLR payback will be 3 to 4 years payback all in on current strip.

    Noting value of having the midstream partner moving forward to help not have the line pressure issues of the past. Said Meritage did good work for partners in the Powder and in Canada and then said they have been working on the RMI transaction for 15 months. 

    Midcont – $30 mm to keep it flat.  

    Q) RMI deal have any impact borrowing base?

    A) No impact.

    Really positive call continues … 

  53. 53
    elduque Says:

    BCEI- it would help to see a comparison between SYRG and PDCE, now that they all seem to have good balance sheet. 

  54. 54
    choices Says:

    Fairly interesting site, crude pricing by field:


    ND data sheet:


    This is a tad surprising if accurate:  Berman says Bakken shale not commercial  @$30 wellhead price:



  55. 55
    zman Says:

    re 53 – will have updated cheat sheets for BCEI and PDCE out next week. SYRG can update as well. 

  56. 56
    zman Says:

    re 54 – Bakken is a big place and Berman is cranky in my view. But yeah, at $30, no kidding. 

  57. 57
    elduque Says:



  58. 58
    zman Says:

    President Obama on TV now talking about State Departement decision to not approve Keystone. Way to let the Canadian election make the decision for you. 

  59. 59
    zman Says:

    BCEI Q&A Notes

    Q) Debt targets. 

    A) Debt matures 2021 and 2023 and lots of liquidity – we're in a very good position.  We're pretty set

    Clarification – on borrowing base – actually small effect, 5% in discussions don't see it as significant. 

    Q) mix of SRL vs XRL – seems like the deal pushes you to drill more of the extended reach laterals

    A) we're going to drill as many XRLs (still probably 50/50), only limited to the shorter laterals on the western side where we have a lot of SRL patterns already drilled

    Noting the North area is set up nicely for XRL drilling so the new processing unit up there will 

    Noting on today's pricing the increased sand loading,is $100K per well now, half as much as the $200 K noted in post. due to today's lower pricing.  

    "great execution the deal guys, great chat"

    What invested in the Rocky Midstream – put $100 mm into it all in. 

    "great, nice return" – that was Irene Haas

    Call over – one of the best of the quarter. 





  60. 60
    zman Says:

    BCEI – if it will take a bit of profit taking we'll add a Trading position.  Highly likely we do a bit of rebalancing next week and this one gets adds, here, below here or above current ($9.25) level. 

  61. 61
    zman Says:

    If anyone sees Kilduff's comments on CNBC talking about Keystone please post a link to it.  Good comments. 

  62. 62
    macguyver Says:

    well done BCEI

  63. 63
    zman Says:

    re 62 – pulling back now with market and group and with rig counts ahead which in my view are now overly watched. Not since Starzer left has BCEI had these good a call and a $2 more in the stock is peanuts compared to the change they have not managed.  

  64. 64
    macguyver Says:

    how much you think BCEI mid-con assets worth?

  65. 65
    Paul in Kansas City Says:

    Re:40; Great work!!

  66. 66
    zman Says:

    re 64 – depends on what the buyer intends for them, could milk them for cash flow and keep that minimal budget pace or could have ideas on growth there.  I spoke with the head of Mid-Con at a presentation about 2 years ago.  This is a vertical play with lenticular Cotton Valley sands. At present. One could try horizontals there and BCEI well might have tried to ribbon a lateral through multiple lenses but then prices fells and here we are focused on recompletions in the verticals.  It did 5.3 MBOEpd for the last two quarters, can do more with a bit more capital.  They have good infrastructure there too but not sure what that's worth.  Call it bigger than this deal with RMI, $250 MM as a low bar, maybe I'm way off but I think that's a pretty middle of the road number, I don't think overzealous but we'll see. 

  67. 67
    zman Says:

    Rig Count Watch

    Oil rigs down 6 to 572 vs 1,568 a year ago

    NG rigs up 2 to 199 vs 356 a year ago

    HZ up 8 to 585 vs 1,362

    Verticals down 7 to 105 vs 360 a yr ago

    Drops were Cana Woodford –  down 4, that could be just temporary

    and  EFS  down 3 to 72 vs 212 a yr ago

    Permian was up 3 to 232 vs 567 a year ago. 

  68. 68
    zman Says:

    Interesting reading watch



  69. 69
    nrgyman Says:

    Kelce Warren, CEO of Energy Transfer, interview coming up on CNBC.

    MTDR CEO also coming later.  

  70. 70
    zman Says:

    re 69 – thanks

    Offtopicthirty – headed to lunch

  71. 71
    sc4 Says:

    ot NRG or Others

    Compression Companies.  CCLP and two other firms reported this week. All had strong performance and yet  they are all yielding over 11% which suggests people are concerned that they can not sustain payouts. Given pressure on pricing this makes sence. But how are these firms now able to sustain profitability and appear to be grewing. Is this a one quater deal or are they an attractive home for some cash at this point in the cycle

  72. 72
    nrgyman Says:

    RE 69:  ETE's CEO Warren saying XL not economic at current metrics and likely would not be built now if it were approved.  They would wait for better metrics.  ETE is building a pipe from the Bakken to replace rail–this is currently economic and they will complete it.  He sees crude price higher by $5-$10 per barrel within a year.  He does not see natgas prices significantly higher, but regional difference will persist–thinks Utica/Marcellus region will remain price constrained.   Natgas will be well supplied in the US "for decades".  Mentioned increased Mexican exports, LNG and petrochemical industry growth projects as growth markets for natgas supply that they are actively investing in.

  73. 73
    sc4 Says:

    US exports of LNG- Raymond James recently did good piece on potential for U.S. LNG exports and the bottom line was other than contracts already signed, does not look promising. Problem is once you add gass, liquification and transport, you need over us $10 to sell profitablely while present prices closer to 7. These are long term contracts but look for 5 year rather than 20 year contacts in the future. Pricing will change but from here other than Mexico by pipeline ,Mr. Warren appears rather optimistic.

  74. 74
    sc4 Says:

    HRH price turki al Faisal

    Spoke last night at the Harvard Club of New York. The prince has excellent command of English and is clearly a very smart cocky. His speach moved around a lot but some points

    l.Saudii remembers u.s. help in Kuwait and will not walk from the relationship. The idea that saudi would lean closer to Russia or another power was not something he saw as at all possible.

    2.Essentially the U.S. at this stage does not really need Saudi oil. This was not an idea that he even muted.

    3.He indicated that he would not support breaking up Iraq into three countries but would not object to a federal government. Overall, he did not seem to give much weight to the deep differences among different groups there.

    4.Syeria- feels the Russian  want to keep president.He is willing to put Saudi boots on the ground there but only with a group of Arab partners.At the start of the speech suggested that he did not want u.s. military on the ground but by the end sounded as if he saw us as having to take  the lead. Not clear why they do not just go in now. No hard punch here when he should have said what he wanted.

    5.Cut price to get market as they were screwed twice before. Thinks low prices could prevail for one or two years. Oil pricing was not really part of his focus

    6.Noted that they had taken 2 million Syrians for resettlement in SA.( very suitable to replace south asian and sea guest workers as  sa people do not do those types of tasks).I wonders why SA did not take Palestinians  when the state of Israel was established. How times change No economic need then.


    He is a good speaker and a sophisticated one. Unfortunately the questions were not up to caliber. If Asaid leaves what are they going to put in his place? That issue got no attention.

  75. 75
    choices Says:

    #61:  CNBC, Kilduff;


    Oppenheimer's Gheit also not surprised but does not agree with decision

     no surprise politically on decision, Buffet, Gates benefit

  76. 76
    nrgyman Says:

    RE 73:  Warren didn't give any color on LNG and several of the peer LNG plans could get scrapped due to pricing competition and over-optimistic projections.  He did mention natgas substitution as a growth market.  Global environmentalism is a driver of that, especially for coal substitution.  Diesel is becoming another substitution target.  Nuclear another.  Warren is looking long term.

  77. 77
    zman Says:

    re 72-75 – thanks

    Analyst Watch

    PE – Raymond James takes target from $20 to $24

  78. 78
    nrgyman Says:

    MTDR CEO on CNBC now.

  79. 79
    zman Says:

    Analyst Watch

    MRD – Simmons – keeps $25 target, reiterates Overweight, trades at considerable discount to group despite numerous positives. 

  80. 80
    choices Says:

    ERII:  thanks Macguyver, bot small piece 10/21/2015

  81. 81
    zman Says:

    re 78 – thanks

  82. 82
    macguyver Says:

    79 — uh huh….thnx

  83. 83
    macguyver Says:

    re ERII….future cash flows and growth are hard to model both in the bizz with SLB and their other businesses…think around 6-7 you can point to SLB payments and some conservative assumptions to get value there.  Could be worth 10-20 who knows.  But once you get up north of 9-10 just realize it'll be volatile in both directions because who the heck knows right now….it's all a guess.  Small changes in initial bizz with SLB and growth rates make a huge difference. 

    Not telling anyone what to do…just sharing my thoughts.

  84. 84
    sc4 Says:

    Re 73

    thanks the additional color. Hope he is right as the added demand could help.There are several balls here each with lots of variations i.e.

    l. sell price.2.duration of contract,  3. transferability of shipment.

    But sea shipment to asia or europe does not look promising for the forseable future on an economic basis. Should LNG availability shift in the 2018-19 timeframe then the game could change.Again a ten to fifteen dollar rise in oil prices would not be bad either.


  85. 85
    zman Says:

    BCEI – resilient after a small pull back off the surge. Expect upgraded targets from the Street next week. I'm checking out a bit early as it's quiet and it's been a long week. Have a good weekend, the wrap will be out Sunday. 


  86. 86
    Zorgnak Says:

    Thanks Z…

  87. 87
    Baylor Says:

    Thanks for crushing it as always z

  88. 88
    macguyver Says:

    from GST call: "In Appalachian our average realized NGL price for the third quarter is actually a negative $1.56 per barrel."

  89. 89
    PackMan Says:

    Z – what is your take on HK / why was the tone of the call muted ?

    A slow path for a turnaround ?


  90. 90
    choices Says:

    ERii-your take is appreciated, will try to dig a little more this wknd.

  91. 91
    ButlerBaby Says:

    31 – HK comments on spending timing versus price increase echo SLB and CLB – 2 phases: repair balance sheets and get confirmation of sustainability, then ramp

  92. 92
    Mark Wetzler Says:

    #75 With regards to XL Pipeline, I don't see much benefit for USA. We would take all of the environmental risk in exchange for the profits from constructing the pipeline, temporary jobs etc. and the transport revenues. Canada  would get a market for their trapped energy without the environmental risk when they couldn't even get their own citizens to approve a pipeline on the Pacific coast to export to Asia. BRK continues to transport energy by rail but I doubt that factored into the decision to veto. There is no compelling reason to have built this with so much excess energy of our own except the desire to appease a close and dependent ally.

  93. 93
    zman Says:

    re 89 – yes, slow path, no growth, not things analysts want to hear right now.  Unless you are growing quickly and then they want you, in general, to slow down

    re 91 – yes

    re 92 – yep and I've never said I am in favor of it.  I don't see it as a benefit to stocks at Cushing or along the Gulf Coast.  I don't want to see Canadian oil sands development encouraged at this point as prices there are in the $20s, not $40's just doesn't make sense. However, I find the idea of a pipeline becoming a political football as silly since pipelines are built all the time and we have many large pipes crossing the border already (many but not all natural gas). Frankly, we don't need Canada's gas either and that's been sorted out by a decline from a common level of 8 to 9 Bcfgpd years ago to just over 2 Bcfgpd now. Not needed.  End of day, I see cancel of the pipeline as long term crude price supportive. However, I do get the non friendly govt sourced oil argument.  The cure for that, more than inviting Canadian barrels south of the border, is the eficiency gains we are now seeing on both capex and opex. 


  94. 94
    ButlerBaby Says:

    93, part 3, last phrase – says it all

  95. 95
    PackMan Says:

    Z – one other HK question.  What is your view of the quality of HK's assets ?


  96. 96
    Zorgnak Says:

    Politifact on Keystone


  97. 97
    Terry Barton Says:

    Z, thanks for 55 be nice to see. Also nice call the other day on BCEI.

    Have a great weekend!

  98. 98
    zman Says:

    Thanks – been at a tournament most of the weekend, nice to get outside. 

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  116. 116
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  117. 117
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