Thursday Morning – MRD



Market Sentiment Watch: Energy eyes the IEA.  "Changes to the data in this month's Report confirm the direction of travel of the oil market towards balance. The net result of our changes to demand and supply data is that we expect to see global oil stocks increase by 1.3 mb/d in 1H16 followed by a dramatic reduction in 2H16 to 0.2 mb/d.​" and "Any changes to our current 2016 global demand outlook are now more likely to be upwards than downwards, as gasoline demand grows strongly in nearly every key market, more than offsetting weakness in middle distillates." ~ IEA.   Nice of them to join us. 

In today's post please find comments on the oil inventory report (record refiner utilization for this week of the year, record gasoline demand for this week of the year, a lack of a surge in imports, and importantly, a big drop in production (we see US Lower 48 onshore oil volumes as closing on 1 mm bopd off peak now). The positives resulted in better than expected inventory moves and were partially counterbalanced by a build at Cushing (we see peaking very soon). Please also find the natural gas storage preview (looking for a much below average and year ago injection), a view of the Shopping List name performance year and quarter to date relative to the commodity ETFs and other bench marks, a wrap and cheat for MRD, and some other odds and ends. 

Ecodata Watch:

  • We get Jobless Claims at 8:30 am EST (F = 270,000, last read was 274,000), 
  • We get the Import Price Index at 8:30 am EST (no forecast, last read was 0.2%). 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watc​h
  3. Oil Inventory Review 
  4. Stuff We Care About Today - MRD Wrap, PVAH
  5. Odds & Ends


Holdings Watch:   


  • Yesterday's Trades: None

The Blotter is updated.

Shopping List performance 051216

Commodity Watch:

Crude oil closed up $1.57 (3.5%)  yesterday at $46.65 on a fairly bullish (as weekly reports go) EIA inventory report.  Highlight of the report was an 80,000 bopd reported drop in week to week US Lower 48 oil production. As noted previously we expect acceleration in the decline in the weekly reports but see this drop as a "catch up" number and not the start of a more precipitous decline than our prior thoughts of roughly 30,000 bopd per week of decline into summer. This morning crude is trading flat on follow through from yesterday's solid EIA report and this morning's IEA monthly comments. 

  • IEA Watch 1: Demand forecast left unchanged at up 1.2 mm bopd. The annual number is in line with OPEC who delivers their monthly report tomorrow but IEA noted that 1Q16 demand grew faster (than they expected) at 1.4 mm bopd as they note, despite NAM's mild winter.  They note economic headwinds as a reason for not raising their annual demand figure now and then note that Inda is the "star performer" for demand.  As noted in the opening paragraph, they see the risk of change to their 2016 demand forecast as weighted to the upside. 
  • IEA Watch 2: Supply from Iran is growing faster than expected. Saudi output was steady at 10.2 mm bopd. Not news and as IEA points out there are offsets in other OPEC and Non OPEC producer disruptions (Nigeria, Libya, Ghana, Canada).  On the Non OPEC side IEA now forecasts a 2016 drop of 800,000 bopd, a bigger drop than last month's forecast of down 710,000 bopd.  


Natural gas inched up $0.015 to close at $2.17 in a somewhat higher than recent volume session as warm weather further invaded the U.S. forecast and the consensus build expectation for today's inventory report remained well below year ago and five year average levels. This morning natural gas is trading flat early. 

Street is at +59 Bcf for today's report. 

  • Last Week: +68 Bcf
  • Last Year: +112 Bcf
  • 5 Year Average: +88 Bcf
  • 10 Year High: +112 Bcf
  • 10 Year Low:  +56 Bcf

Oil Inventory Review

exp vs act 050616


EIA 050616 A


EIA 050616 B


EIA 050616 C

Natural Gas Storage Preview

Stuff We Care About Today

MRD Wrap and Cheat

  • 1Q16 saw small volume beat and EBITDA miss,
  • Costs: Per unit LOE and Cash G&A guidance trimmed slightly; GPT and Production tax guidance maintained. Mid points result in cash operating expense (pre interest expense) of $1.40 per Mcfe  for 2016 vs $1.50 in 1Q16 and 4Q15, and $1.47 as a 2015 average.
  • Note that due to strong hedges they realized a per Mcfe price of $4.19 in 1Q16 even as natural gas, representing 73% of their production averaged $1.98 in the quarter. They continue to be well covered in the remainder of 2016 and 2017, see below. 
  • However a capex decrease and volume guidance increase were the story of the quarter.
  • Volume growth expectations were shifted up from 18% to a higher mid point of 20%, 
  • While the budget was cut a whopping $75 mm (down 21%) to $275 mm mid (down 69% from 2015 levels)
  • This was done on the back of much lower than previously forecast well costs (down on drilling and completing efficiencies) with the average completed well cost dropping from a prior $11.8 mm to a new expected $8.7 mm with a line of sight on $8.4 mm by YE 2016,
  • Balance sheet remains solid and management reiterated their projection of being < 2.5x net debt to EBITDA with > $500 mm at YE16.
  • Borrowing base: $1 B reaffirmed in April. 52% drawn (see last bullet below).
  • Catalyst wells coming in 2H16 on the Jefferson Parish expansion area where they have good vertical well control, seismic, and believe the well results will be similar to their core Terryville results. 
  • MEMP - de-consolidated reporting coming with the 2Q16 report, 
  • Do they do a secondary now?  Don't know but have to think there is a chance of an offering out there near to medium term with the mini rebound the shares have now experienced. They have said they see debt/EBITDA down slightly by year end as noted above and see liquidity over $500 mm at year end and that all works without an offering given the hedges and production growth and lower costs but still, the revolver is 52% drawn now.  If they use the $75 mm in capex savings noted yesterday to pay down debt it takes debt down further than that and bolsters liquidity more than the > $500 mm they now see at YE15.  But my sense would be that they take that money and use it to keep rigs working longer this year adding new wells and use some of it to completed DUCs and thereby increase production more than the current 20% over 2015. In that case, it might make sense, in light of how "more growth" and "lower debt" are more in vogue at the moment, to pop a secondary and at least cut the revolver balance in half.
  • Nutshell: Predictable response in the shares with that kind of capex cut and volume guidance raise. The story remains one of big, consistent wells across a large swath of north Louisiana with a solid balance sheet and improving cost to growth metrics. It's gassy and we added more earlier this week and  may add more in 3Q16.  

MRD 051116


Other Stuff

  • LINE  (unowned) - filed Chapter 11.
  • PVAH - filed Chapter 11 (this should not be much of a surprise as they had gone radio silent in the last two months); given the decline in the position in 2015 a move to zero has virtually no impact on the ZLT (it was down to a 0.1% of assets).

Odds & Ends

Analyst Watch:

  • TBA in comments.

56 Responses to “Thursday Morning – MRD”

  1. 1
    zman Says:

    Link to IEA's latest comments, increasingly bullish tone from the French


  2. 2
    zman Says:

    WTI hanging out just under $47. 


  3. 3
    nrgyman Says:

    FSLR:  Good overview article from SA on FSLR, for those interested in learning more about the name.  Solar names still at/near lows, and could go lower in this bear market for solar stocks, but valuation is looking interesting.  FSLR is the premier name in the space, imo, with no net debt and significant growth opportunities ahead.


  4. 4
    Baylor Says:

    Woohoo. May hit $47

    saudi Arabia ain't gonna be liking this


    here come the US rigs!!!!!  Jk :). That was my best GS impersonation 

  5. 5
    RB Says:

    WTI…it would be hard to overstate how much I love the progression of base building, consolidation and breakouts on this chart.  Simply fantastic….https://stockcharts.com/h-sc/ui?s=%24WTIC&p=D&yr=0&mn=6&dy=3&id=p81550032126&a=448745873

  6. 6
    zman Says:

    re 4/5 – I hear your enthusiasm and would say that the progression in oil prices is so far fairly well in line with our quarterly read for 2016 and is attributable to a strong domestic demand for crude, imports that not jumped higher, and oil production which has closely tracked our model. In short I am pleased. 

  7. 7
    RB Says:

    CXO  just sold half my CXO trading shares….at 120.03…

  8. 8
    RB Says:

    paid 110.83 for 'em…love the action…added some core at that I'm holding as well….

  9. 9
    zman Says:

    PE – approaching all time high, at new cycle high/52 week hi

    RSPP – approaching all time high, at new cycle high/52 week hi

    MRD – awake. 

  10. 10
    zman Says:

    re 8 – nice trade.

  11. 11
    zman Says:

    RICE – $10 to $19 in since end of February – so many names were overly beaten down in sympathy with some that deserve to be. 

  12. 12
    zman Says:

    Oil and group taking profits. 

  13. 13
    james T Says:

    re12 Yeah that was a rapid sell -off

  14. 14
    ButlerBaby Says:

    PVA files chapter 11

  15. 15
    zman Says:

    re 13 – not concerned as we've had a good run this quarter as noted in the post and those kind of moves attract hot money. Hot money doesn't care about valuations or stories. It knows the very basics and it trades charts and momentum. Not that there is anything wrong with that but it can lead to moves I categorize as too far too fast. I like them driving new highs.  When the stocks peel back from those highs to natural support, ease of movement back to those recent highs is, well, easier.  Will be interesting to see how much appetite there is for dip buying. 

  16. 16
    zman Says:

    re 14 – yes, see bottom of post. 

  17. 17
    ButlerBaby Says:

    Franklin out of HK position entirely

  18. 18
    zman Says:

    re 17 – radio silence is deadly.  Holding two conference calls in a row where you don't take questions (for no good reason other than you are a cranky CEO) is like putting the stock in a coma. 

  19. 19
    zman Says:

    Adding to that, I've written recently we are mulling a punt for HK now, have not said that before.  

    Also looking at a WLL exit. 

  20. 20
    zman Says:

    Nrgyman – saw your link on EPA methane limits and wells last night.

       This has been coming for some time now. Most companies have kind of shoulder shrugged about it. 

       Notably the regulations, according the WSJ, only apply to new wells. 

       I have not seen anyone from industry say implementation will be high cost (at least not latey) though API has made noise to that effect but that's their job. Likely biggest cost to come from monitoring, then some wellhead changes, not sure that any subsurface requirements will be included but we shall see later today. 

    The EPA should watch Cowspiracy:


    Not to be confused with Cowtastrophy here:



    NG inventories in 5 minutes. 


  21. 21
    zman Says:

    EIA Natural Gas Inventory Report

    +56 Bcf (just under expectations but the delta is rounding error)

    Smallest injection for this week of the year since 2012 which it tied.  (last 3 years +98, +105, +112)

    This puts storage at 2,681 Bcf

    Up 43.8% YoY (vs up 49% as of last week) 

    Up 43.5%  (vs up 47% as of last week)

    Natural gas reaction is a small rally off pre report weakness



  22. 22
    nrgyman Says:

    RE 20:  Thanks.  Agree likely to be modest costs added to new wells, from what I've seen.

  23. 23
    zman Says:

    re 22 – it's the cows man, even the UN says so. 


  24. 24
    nrgyman Says:

    RE 23:  Yep.  This is a bone given to the enviro supporters of the administration.  Good news is that it should mollify the fossil fuel critics somewhat.  Admin can point to steps taken to rectify concerns.  Are anti-flaring regs included in this?  If not, could see that coming too before long.

  25. 25
    Baylor Says:

    Re 6 – I continue to pray every day we stave off recession. I suspect the elite do what is necessary at least until the election. It is probably RISK ON at least until then. 

    Never fight the fed 

  26. 26
    zman Says:

    re 24 – they are supposed to be coming with flaring rules as well.  When North Dakota did it turned out to be an easy thing for producers to handle. It all depends on the stage of development a field is in (infrastructure) so it's a lot easier now than it would have been say 5 years ago as rigs were marching across South Texas in the Eagle Ford and the horizon was lit up like Dubai on New Years Eve. 

  27. 27
    zman Says:

    Getting on a call, back in a bit. 

  28. 28
    zman Says:

    Here, reading, shout if you need something. 

  29. 29
    nrgyman Says:

    NFX:  Looking to sell its EFS assets, among others:


  30. 30
    zman Says:

    re 29 – Thanks and yeah, it's the 4th core region but honestly doesn't really matter to the story (they've added more barrels in the Anadarko Basin in the last 3 quarters than the current size of the EFS for them). Would be happy to see them streamline a bit. They're not the kind of guys to talk about what they will get for it, $500 mm sounds rich to me. 

  31. 31
    ctb14 Says:


  32. 32
    james T Says:

    Z  -Only thing that matters is when electric utilities oome back in Canada,  if they stay off for a while oil price stays strong,   when it comes back on I would assume we sell off.   Article yesterday had 1 to  2 week timeframe on some of the production.     

  33. 33
    zman Says:

    re 32 – Sure, I guess if your time frame is quite short. From a near, medium, and long term perspective we are balanced markets. So the dip in Canadian production is merely news of the week but the road forward is much improved without it.   

  34. 34
    zman Says:

    re 32 – I can absolutely never say that only one thing matters. Its a big puzzle that's coming together quite nicely. 

  35. 35
    nrgyman Says:

    Apparently some refineries are scrambling to get crude due to the oil sands interruption–midcon refiners who process heavy oil like Whiting and Wood River.  With the Canadian tap temporarily reduced they are having a hard time getting alternative heavy crude (eg from the Gulf) due to pipeline reversals.  These refineries may have to reduce production until oil sands deliveries return.  Ironically, if this scenario plays out, crude inventories could increase with the oil sands production outage.  

  36. 36
    zman Says:

    re 35 

    Saw the Reuters story, thought it was a bit excessively adjective laden.  I don't have storage data by api as far as I know but refiners have over 100 mm barrels in on site storage and that would seem to not all be light oil. I would expect the bigger players to have less of an issue but if they cut runs it will its not going to be to zero. And that oil they are not consuming is also not entering the country. I get that they are blending and not running eats into light oil consumption too but I doubt we see 1 mm bopd in cuts and that's the kind of hiccup that is on the way (lack of imports) for a short time. Last week's import data showed a negligible effect, minor PADD2 dip, not sure it was even related.   

  37. 37
    zman Says:

    Group drifting into the afternoon except for the Permians which continue to be solidly green.  New all time high PE. 

  38. 38
    zman Says:

    Offtopicthirty, grabbing lunch, back in a bit. 

  39. 39
    RB Says:

    OT General Market these whip saw action days are tough on the nerves.  I try and follow the market sentiment and the a/d line and stuff like that.  This is an excelllent article on the markets current sentiment…..https://pensionpartners.com/sentiment-and-the-holy-grail/

  40. 40
    RB Says:

    here's some commentary on the time surrounding the technical action on crude, I found interesting.


  41. 41
    RB Says:

    FWIW, I'm going to take some XOP that I flipped this morning, given the opportunity at 33.81; will take a bigger load at 33.58, given the opportunity.  I think things are bullish, but they do fluctuate…and I like it when it flucs around….

  42. 42
    zman Says:

    re 39 – mostly I'm just being patient with the moves.  As oil prices start to play out as expected this year, estimates will start rising again and valuations that are now looking to 2017 (or will be in the next few weeks in general as people start to look to next year's EBITDA at the mid point of the current year) will start to lift, both on prices and on assumptions that activity will indeed trough and start to pick up on higher prices as well, making those out year multiples less stretched. 

  43. 43
    tomdavis12 Says:

    RSPP New High. 🙂

  44. 44
    zman Says:

    re 43 – pretty pleased. 8.9 mm shares still short at last check. 


  45. 45
    RB Says:

    the sentiment article I posted in #39 above suggests, a high probability of an upside resolution, of some significance,  to this noise….

  46. 46
    zman Says:

    Re 45 – thanks

  47. 47
    zman Says:

    In tomorrow's post:

       Bakken Players update with group table and updated cheat sheets

       Comments re the OPEC monthly – expecting demand forecast to be firm and non OPEC forecast to sink further

       Gas storage slide show and Bentek data update



  48. 48
    Skeptcl Says:

    14/15–PVAH bonds up about 8-9 points. Anyone see any details on the restructuring terms?

  49. 49
    Baylor Says:

    Re PVA coming out of restructuring ring, it seemed they had some good assets and Soros' crew was like shiny for a sale. Will they retain most of those assets?  When they re-emerge, will they potentially be a good investment after they restructure?

  50. 50
    RB Says:

    Stats on crude oil generating a golden cross signal after 300 or more days in a death cross….+26% or more a year later…….so we should see $50+ oil in 2017 and I'd say easily looking at the charts….


  51. 51
    zman Says:

    re 48 – so far there is this:


    re 49 – potentially however that team did not make the most of the assets. They are Gomez and Lavaca and EOG managed to complete much better looking wells offset their locations. Given that there are many options out there for me to look at I don't plan on chasing a management team that didn't make good decisions before (recall they lowered sand loads without understanding the impact, causing them to substantially miss a couple of quarters while trying to save a bit on the wells, only to reverse later. 

  52. 52
    zman Says:

    EPA rules




  53. 53
    zman Says:

    re 52 – there is a line in there that says estimated costs of $590 mm, a little vague. 

  54. 54
    zman Says:

    Food for thought.

    oil prod 050616 B


  55. 55
    zman Says:

    Here ya go CTB

      All depths  
        Total  Footage  
      Spuds (1,000') Avg wellbore
    2006       41,028            265,455          6,470
    2007       38,833            265,320          6,832
    2008       43,898            300,627          6,848
    2009       23,770            166,064          6,986
    2010       34,346            250,735          7,300
    2011       38,695            287,618          7,433
    2012       39,447            299,752          7,599
    2013       38,988            297,756          7,637
    2014       41,748            330,422          7,915
    2015       21,181            175,725          8,296
    Jan-April 2016         3,679              32,254          8,767
  56. 56
    Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Wrap – Week Ended 5/13/16 (in progress) Says:

    […] And MRD Wrap and Cheat can be found here.  This link also contains the weekly oil inventory review slide show.  […]

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