Friday Morning – PE, EOG



Market Sentiment Watch: Payrolls Friday but it's U.S. and China at the G20 later this month that everyone cares about as the White House seeks to arrive at a trade deal by then. In the energy space we've seen three lackluster deals in a week. We've owned none of the names in question having given up on NFX earlier this year after years of loyal ownership. We do see further group consolidation but our sense is that our core holdings will demand much better premiums. In today's post please find the the natural gas review (smaller than expect injection yielded a further increase in the storage deficit; look for a slightly bigger injection next week but our peak expectation remains in good shape and price supportive), comments on the PE quarter (3Q18 beat, no change to guidance, best in 3Q show Permian pricing), comments on the EOG quarter (monster beat), and some other odds and ends. 

Ecodata Watch:

  • We get Nonfarm Payrolls at 8:30 am EST (F = 202,000, last read was 134,000),
  • We get unemployment rate at 8:30 am EST (F = 3.7%, last read was 3.7%),
  • We get average hourly earnings at 8:30 am EST (F = 0.1%, last read was 0.3%),
  • We get the trade deficit at 8:30 am EST (F = -$53.6 B, last read was -$53.2 B),
  • We get factory orders at 10 am EST (F = 0.5%, last read was 2.3%)

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watc​h
  3. Natural Gas Inventory Review 
  4. Stuff We Care About Today - PE, EOG
  5. Odds & Ends


Holdings Watch:   


  • Yesterday's Trades: None
  • The Blotter is updated.

Personal Account:

  • PE - Added a personal account trading position at average $23.895.  The 3Q18 report is due out after the close and we could wait but with the stock off 25% since the last report and with estimates having risen mid single digits 2018 to 2020 since then and with our expectation of one of the best if not the best differentials among "Permians" this quarter (again) we see the name as overdone and trading well below where it should on forward multiples. It's also entirely possible we get a sneak peek at 2019 (higher volumes, lower costs, narrowed outspend) as they roll the simplified development program forward. And we may see a small asset sale. We continue to own PE as the largest position in the ZLT or I'd likely add more there as well. 

Commodity Watch:

Crude oil fell $1.62 yesterday at $63.69 on high volumes after the Bloomberg survey noted below and the granting of at least eight waivers to import Iranian oil when sanctions go into full effect on Monday (The waivers are not official yet, not all eight have been disclosed yet, and they are not permanent waivers, they just buy those countries time. We expect OPEC to begin a round of increasingly loud price supportive chatter as early as next week. This morning crude is trading off 20 cents early. 

  • OPEC Watch 1:  Bloomberg survey for October showed a month to month rise of 430,000 bopd, a day after Reuters survey showed group production up 309,000 bopd. 
  • OPEC Watch 2:  Tanker tracker Oil Movements sees a big spike in the next 4 weeks OPEC shipments, with volumes seen moving up 680,000 bopd in the week ended Nov 17.
  • Saudi-Kuwait Watch:  The WSJ reports the U.S. is attempting to broker a neutral zone deal to restart production. The U.S. is really transparently trying to cut oil prices.  Saudi and Kuwait officials say zone issues are "a long way from being resolved".  


Natural gas closed off two cents at $3.24 after EIA reported a smaller than expected injection that again increased the storage deficit. To be clear, natural gas is doing well to stay near current levels this time of year and is near the upper end of our near term expected range. Further, while we note the Point Logic data below shows we hit another new record for exports this week (next week's storage data) we expect a slightly larger injection next week as yet again higher production offset milder demand weather this week.  We see storage peaking around 3.3 Tcf (unless we get a really warm period in the next couple of weeks) which should be price supportive for natural gas. We do see November as likely sloppy as withdrawals will be smaller than normal early on given high production and expected warmer than normal temperatures. This morning gas is trading off 5 cents early. 

PointLogic Watch 

Natural Gas Storage Review 


Stuff We Care About Today

PE Reports Strong 3Q18 Results; No Change To Guidance; Probably Close to Best in Show 3Q18 Permian Oil Realized Prices; Balance Sheet Improved, Asset High Grading Under Way, More Strong Well Results; Improved Takeaway Insurance for 2019. 

The 3Q18 Numbers:

  • Oil differential: $6.66 below WTI and a $7.43 premium to the average Midland price. As they were in 2Q, we expect PE to sport one of the best if not the best realized oil price among Permians this quarter. 

Cash costs:

  • LOE: $3.72 per BOE  (vs $3.66 in 2Q and guidance for the year of $3.50 to $4.25)
  • G&A: Record low at $3.07 per BOE (vs $3.12 in 2Q and guidance for the year of $3.25 to $3.65)


  • 2018 volumes: No change vs prior guidance of 106 to 111 MBOEpd (64% oil and up 60% on mid), 
  • 2018 capex:  No change vs prior guidance of $1.7 B (which was increased from $1.5 B on mid with the 2Q call).
  • 2018 cost guidance:  No change. They reduced per unit cost guidance with the 2Q release. 
  • 2019 guidance: Not yet.  But they did say expect free cash flow by YE19.


  • Holding flat at 16 rigs for the last 4 quarters now despite the higher well count noted for this year's program on the 2Q call. This quarter they set another record for completed lateral footage and added 45 net wells (9.4K' average; > 420,000' of stimulated lateral in the quarter).  This improvement is largely a function of more rapid completions. 
  • D&C/ft costs down 9% sequentially (more regional sand, longer laterals, shorter cycle times).  Last quarter there was a substantial inflation based increase in both sub basins that may have pressured the name so this is a bit of welcome news.
  • Noted improved takeaway deals for 2019 providing more than adequate flow assurance next year. Favorite quote watch: "Parsley's reduced exposure to less favorable Midland basis differentials is the product of a proactive marketing strategy that began diversifying regional pricing exposure nearly 18 months ago. "

Each quarter they try to showcase an area.  This quarter it's Martin County:

  • Noting the best rate for PE from a 3 well pad, the Hayeden Pad in east Martin,
  • Second pad also strong and both running ahead of industry average cumulative production curves in Martin.
  • Noted high % of recycled water caused no degradation and they are accelerating use of recycled water which will further reduce D&C costs while lowering LOE. 

Balance sheet:

  • Liquidity: $1.2 B (cash plus undrawn $991 mm revolver),
  • Net debt to annualized EBITDA of 1.3x vs 1.5x at 2Q.
  • The liquidity and debt metrics exclude $170 mm in cash to be received in 4Q from acreage high grading efforts (excised 1,200 BOEpd at 55% oil cut and 11,850 net acres that were non core). Again, this divestiture does not impact their 2018 guidance. 

Nutshell: Strong quarter. 60% growth 2018 growth, better than peer group costs and realizations (NGLs saw a 15% sequential increase in prices too), yielding top of upper quartile EBITDA margins, an increasingly strong balance sheet, and a reversal to lower D&C/well/ft and rising estimates for 2018, 2019, and 2020 are all juxtaposed against a stock price that has fallen 25% since the day before the 2Q call. We continue to own PE as the largest position in the ZLT, currently at about 9% of the portfolio and added a Personal Account position yesterday as noted in the Holdings Watch section above. 

EOG Reports Monster 3Q18 Beat; Half a $B in Free Cash; Guidance Edged Up 

The 3Q18 Numbers:

  • Generated free cash of $503 mm (after capex and dividends) (over $1 B through the 9 months)
  • Oil and NGLs volumes were above range. 
  • Pre hedge realized oil (not just Permian but everywhere) was $69.53 in the quarter, best in the last 3+ years for them. 


  • 2018 volumes: Oil volumes inched up to 19% YoY growth (basically just tightened higher)
  • 2018 capex: Increased to $5.8 to $6.0 B vs prior guidance of $5.4 to $5.8 B. Normally this might be viewed as a negative but given the balance sheet, "premium" returns being generated, and the ample and higher than expected free cash being generate the continuity the reload to forestall end of year budget exhaustion makes perfect sense.  
  • 2019 volumes and capex: Not yet.  


  • Austin Chalk - Noting 14 gross / 10 net wells with IP30's of 2,485 BOEpd (73% oil )from an average 5,000' lateral.  This is the strongest rate of the quarter by play on a per foot basin.  This may have read through for MGY in Karnes for A. Chalk. 
  • Anadarko Basin - Oily Woodford - working on spacing - 4 well Ted package running above type curve. Deflation - EOG expected D&C costs to be down 5% vs 2017 (giving examples of Bakken, Eagle Ford, Wolfcamp all down now vs 2017),
  • Secured 65% of 2019 service needs and they self source 25% of their well costs. They see lower well costs in 2019 again. 
  • Reiterated they are replacing "premium locations " (30% ROR at $40 oil/ $2.50 NG) at 2x the rate they are drilling them. Now have about 9,500 locations (13 years at current pace).
  • Divesting UK assets with proceeds due in 4Q (should be a small sum). 

Balance sheet and Other:

  • Net debt to annualized EBITDA of 0.4x.
  • They plan to cut the debt essentially in half from just over $6 B now by 2021. 

Nutshell: As the heading of their press release stated, it was an outstanding quarter.  We doubled our position in EOG in the ZLT in September at $115.03 but it's still a smaller position for us and we are likely to increase it again in the next few weeks to months. 



Other Stuff

  • We will have the 2nd iteration of So Far This Quarter in next Tuesday's post.
  • Next week's 3Q18 reports from names of interest: LPI, PDCE, 
  • And from owned names: REI, JAG, XOG, FANG, OAS, and PXD.
  • As always, if you know of a name reporting and don't see it on the list please let me know. 
  • MGY and unowned ROAN report the following week. 
  • RRC (unowned) - New director Steve Grey picked up 7,804 shares open market at $15.56.   Mr Grey was the founder and CEO of RSP Permian.  Nice board pick up. 

Odds & Ends

Analyst Watch:

  • TBA in comments

88 Responses to “Friday Morning – PE, EOG”

  1. 1
    zman Says:

    Analyst Watch:

    HK – Imperial ups target from $5 to $6  (in wake of water sale and ahead of 3Q report)

  2. 2
    zman Says:

    Interesting reading watch


  3. 3
    zman Says:

    Analyst Watch

    HCLP (unowned) – Barclays cuts from Equal-weight to Underperform, target goes from $13 to $5.  Wow, timely. 

    From our trading blotter. 

    9/6/18 – HCLP – We sold our small HCLP position for $12.20, up 6% on a distribution adjusted basis. Increased price and utilization risk has crept into all of the sand stories for 2H18 and estimates are falling for most names. Will continue to monitor and may re-enter if we see extreme sand group weakness and at that time still expect strong 2019 demand levels. 

  4. 4
    zman Says:

    NFX – $150 mm breakup fee

  5. 5
    zman Says:

    PE call in 45 minutes



  6. 6
    zman Says:


  7. 7
    zman Says:

    PE called up 5% early

  8. 8
    zman Says:

    NBL (unowned) 3Q call comments on Prop 112

    I want to take a moment to discuss next week's vote in Colorado. As a part of the Colorado community for many years, we have taken a leadership role in opposing Proposition 112. I'm proud of the engagement of our employees in helping the community understand the substantial negative impacts Prop 112 would have on Colorado's economy. While the results of the vote will not be known until next week, I remain confident that the measure will be defeated.

    We continue to receive questions regarding future impacts under different scenarios in the state. Rest assured, we have completed thorough contingency planning and have plans in place for all potential outcomes.

    I want to reiterate that we have been strategic in how we have set up our DJ Basin position. Through a number of transactions over the past several years, we have concentrated our acreage in the oil-rich rural areas of the basin. In the meantime, we have also been protecting our drilling inventory through proactive permitting, including the Comprehensive Drilling Plan I previously mentioned.

  9. 9
    zman Says:

    Payrolls +250,000

    Wages +3.1%  

    Unemployment 3.7%

  10. 10
    zman Says:

    PE in 10 minutes, notes to follow. 

  11. 11
    zman Says:

    Good energy election stakes map


  12. 12
    zman Says:

    REI up 17% on tiny volumes, caught a buy rec from a buck shop in Atlanta. 

    PE about to start. 

  13. 13
    zman Says:

    PE 3Q18 Call Notes

    Bryan's last call. 

    Talking about importance of scale, reasons for such fast growth

    7th largest Permian rig program

    Value scale but driving for value. 

    "couldn't feel better about the state of the company as I hand off reins" – Bryan goes Exec Chair after this. 

    Moved to Austin to attract top talent

    Decided to accelerate path to free cash flow. 

    Will continue to generate top tier returns and volume growth per share and soon layer on free cash flow.

    Have now established line of site to significant and sustainable free cash flow

    May reduced equipment levels, if can do more with less will

    Outspend has been compressing and has tapered at more stable activity level (the 40+ wells per quarter on 16 rigs)

    Steady activity translating into efficiency for both drill and complete ops

    One-run lateral comments – slide 6- shows they are approaching 50% of wells drilled – no tripping out on these. Nice.

    COO comments on Martin County

     – recycled water was used on Hayden (proof of concept given the results)

     – drilling a 6 well pads with co-dev of WC A / B

    Transactions – slide 11 has the $170 mm divest outline

      – good acreage but makes sense to raise cash 

      – says this cash nearly covers the rest of their expected outspend.

      Revolver – fully undrawn and no near term debt maturities. 

    Noting 1.5x net debt to TTM EBITDA is down nearly 0.5x last 6 months

    Noting they have increased basis hedges since last call 

     4Q18 guidance comments

        – commitment to budget remains guiding force

        – look for less volume growth in 4Q on weather and planned down time – this is done to make sure they don't over top the 2018 budget. 

      – still making full year guidance, 

    Going to Q&A 19 minutes in  …  





  14. 14
    bill Says:

    3 lol

    Hard to believe EOG opening lower

  15. 15
    zman Says:

    re 14 – it's the capex guidance, silly as that sounds given the beat and their situation, see comments on this in post. 

  16. 16
    zman Says:

    PE 3Q18 Q&A

    Q) looking to accelerate free cash – how do you look at next step with free cash – activity vs other things

    A) Job #1 is to get there. Then have menu of options. One use is return to shareholders (there's a big one sitting across the table from me)

    Q) 2019 – well pads and concentration of activity

    A) There will be a moderate increase in pad size, so 1 to 1.5 wells more per pad on average. Plan to evenly deploy rigs inside the core. (they have a massive inventory to go after in the core). 

    Q) deliberate reduction of equipment utiization – how does that work with the service providers

    A) we try to be transparent with them. We have been with many of them for 10 years, but try to tackle as a team … it's not a tight market which is fortunate for us (people can't really balk at you and run to demand somewhere else)

    Q) Infrastructure spend

    A) we saw a nice reduction this quarter, due to prior year's pre spend, see that grinding down over time. 

       Excited about the recycled water pilot, will roll out methodically and don't see it as a big increase on infrastructure spend

    Q) completion efficiency

    A) seeing it as sustainable go forward (not going to go into details on how achieved)

    Q) free cash transition – what variables impact pulling forward or pushing out. 

    A) we back in 5 to 7% inflation on that (labor), heavily hedged but still have exposure on the marginal barrel, and then just need to stick to budget

    Comment – use of more local sand was a big deal to the quarterly reduction in D&C

    Also a lot of line items were lower cost this quarter, including diesel

    Q) M&A ?

    A) pruning some, buying extensions elsewhere (not big deals)

    Q) D&C per lateral foot; how much is sand

    A) probably about 50%; rest is higher lateral length and then some inflation reduction

    Q) local sand increase in 2019 vs 2018 

    A) yes, will grind north. Used about 50% local sand in 3Q.  In Delaware, testing now (need more crush strength on the depth), could go as high as 70% ish by late 2019. 

    Q) why not ramp like hell to jump up the NAV … what's wrong with that (as he notes that hasn't worked well for industry in the past but thought he'd ask). 


    A) NAV per project or ROR per project. If you have a big inventory you can move to ROR. Ran through incremental capital vs NPV adds.  

        ZComment: How about because ever last investor over the last year has demanded a move on free cash and return of capital. 

    Q) pruning

    A) pruned all non core, focused on trades and bolt ons for lateral expansion

    Q) what if $50 oil 

    A) it wouldn't be a kneejerk, given hedging but yes, moderate and stick to budget

    Q) weather 

    A) 4 lane highway washed out in w TX, not really a material impact to us, but has throttled some rig moves which actually helped with our need to pull back a bit in 4Q

    Q) is going free cash flow sooner a defensive move or something else


    A) definitely more mature, volatility is constant in the industry, it allows to weather storms. Says flipside the run in oil has been with strong dollar and takeaway is about to improve in the Permian and shale is allowing US shale to grow within cash flow and compete with other industries for cash flow. 

    Q) corporate decline

    A) 2018 started 45% and goes down 2 to 3% next year and thereafter.  On the gas side mid 20%s.  

        – leveling off the rig count naturally, but slowly, pulls the corporate decline lower. 

    Q) how does 2020 look in terms of free cash or cash neutral 

    A) objective is to have volume growth and free cash flow growth, obviously depends on commodity prices

    Q) well place on production guidance for 4Q

    A) have said 165 gross wells, that leaves 30 or so for 4Q (did 46 this quater), then said it will be down a few in 4Q, maybe 35, maybe 40, and then cadence is not an immediate snap back in 1Q and then higher 2Q-4Q19 

    Q) New focus on cash flow neutrality – thoughts on new metrics to add to incentive plan for 2019

    A) Yes, fulsome discussion going on on that. 

           Good answer.  Last year at this time I recall OAS saying it was too late to add them in to the coming year. Not well received.  

    Q) Monetizations question

    A) massive position (7,500 mineral acres) – volumes growing on it.  Needs to mature a bit. 

    Also, the water gathering entity now of serious size

    2 things that could be monetized. 

    Tone OK. Analysts sound like it's Friday.  

    Stock up 4% at end of call. 

    Call Over 

    Getting on EOG call, notes in a bit. 


  17. 17
    james T Says:

    Large players buying ECA after the dip yesteray, also this morning.  Let see if it lasts.

  18. 18
    zman Says:

    re 17 – thanks.  I see ECA (unowned) as having gotten a bargain for NFX (unowned).  But I have no interest in owning the comboco.

  19. 19
    tomdavis12 Says:

    PE  Got the impression the new guy Matt will be a bit more conservative than the outgoing Bryan. When asked about the lower rig count Bryan just attributed to a new sheriff in town. With EOG getting knocked for some overspend, it seems clear what the street wants.

  20. 20
    zman Says:

    EOG 3Q18 Call Notes (stock down 1.5% at start of call)

    Encouraged by new prospects currently under evaluation

    In 2019 – not going to increase capex at expense of efficiency 

      – production growth next year is strictly an outcome of returns based focus

    3Q18 highlights

       – seeing best returns in company history

        – well on way to achieve stretch goal of 5% D&C reduction 

        – took advantage of service softness now by taking contracts through 4Q19 

    Retained high performing completions crews for that lower price in 2019 (this is part of the capex increase) as it adds another 20 wells over plan)

    Delaware – 201 wells YTD with > 150% ATROR – testing variety of spacing, package size across the foot print. 

       – gains from sand yes, but bigger gains from drop in spud to TD times (down 10 days) and increasing use of zippers and then water use practices.   

    Eagle Ford – consistent – almost 10 years in now – still experimenting – in 3Q, had more western EFS wells, thinner yes but also less faulted so longer laterals mean higher returns. 

    Anadarko Basin – Woodford Oil pad – 4 well Ted pad  – = or >  1 mm boe type curve (660's wells in same zone) – supports 660' spacing as optimal. Still early days, getting to and below price

    PRB – Turner Play in 3Q, but testing Mowry and Niobrara now and will spud a co-dev spacig test of both by YE18.

    Oct 1 – $350 mm bond repaid, first part of the $3 B they plan to pay down now to 2021.

    1) making signif progress on well spacing in Delaware and elsewhere, optimizing NPV, see cap efficiency much improved in 2019

    2) on track for the 5% savings by end 2018, sees more cuts 2019

    3) replacing premium inventory much faster than drilling and improving the quality of the premium

    4) culture of pleased but not satisfied making for sustainable improvments

    5) becoming one of the lowest cost producers out there with sustainable returns through the commodity cycle. 


    Going to Q&A 22 minutes in …   



  21. 21
    zman Says:

    re 19 – yep

  22. 22
    zman Says:


  23. 23
    tomdavis12 Says:

    In looking at the CVX quarter, I came away with less expectations for Permian adds. The net crude price they received in the 3rdQ was $69/bl. Maybe the $10 differential between Brent & WTI makes capex overseas more attractive. If SLB and HAL are correct that not enough money has been spent overseas to keep up with production, maybe projects overseas have better economics.  

  24. 24
    zman Says:

    EOG 3Q18 Q&A

    thanks, congrats on a good result

    Q) increase in capex and what a normalized run rate on capex is

       – yep, this is the gripe on the quarter

    A) 4Q will be down as planned at start of year but to maintain momentum on efficiency we are keeping some equipment that we would have released, this allows us to further drive down well costs. 

       Well costs are down 3% across plays (EFS down 2%, WC down 3%, and 4% in the Bakken) … so keep running, stay efficient, keep those guys at a lower locked in cost in 2019. 

      Our 2019 program will be less front end loaded, a little more balanced so run rate would be more even across the quarters but with further capital efficiency.

    Q)  growth vs higher or lower free cash 

    A) very committed to generating free cash. We look at program based on improving returns, but we are not focused on growing faster. 

    Q) capital efficiency in 2019 vs 2018, deliver more oil for a $ invested

    A) we will get off to faster start (from an efficiency standpont) than in 2018.  Saying the same thing again and again. 

    Analysts sound bored. 

    Q) GS – discuss service cost lock in decision. 

    A) we see at favorable prices but it was really to maintain highly efficient, saw prices as low, maybe not bottom of trough.  Just wanted to maintain efficiency into 2019.

    Q) what and where are the drivers of well improvement next year

    A) multiple things – a) frac tech, b) better execution in targets (landing the lateral more tightly), c) better target zone selection. We just don't see an end to these improvements going forward. Very robust information system.

        None of this new

        The number of times management uses the word "again" has to be a metric I can use.  

    Q) prioritize uses of FCF

       – debt reduction is a high priority

       – then increase the dividend

       – we have no interest in pricey corporate M&A

    Q) At last, an Austin Chalk question!


     – Have been co-developing with Eagle Ford

     – Prospective across entire S. TX position 

     – More complex so sweet spots not everywhere – this is not news

      – added 10 net wells, noting the rates from the release 

    "OK, thanks for the color" – there was absolutely nothing new said on this.  

    Q) What is the 65% locked in Service of ? 

    A) 65% of per well costs  (there is a slide on this) 

    Please let this fall to double digits so I can average down. 



  25. 25
    zman Says:

    EOG 3Q18 Q&A 2

    Q) why pick one premium over another ?


    A) 9,500 locations – goal is to bring quality up, not all the same, we see all as having room to improve, and we drill the highest rate of returns we have. 

    Q)  Mowry and Nio spacing vs Turner

    A) feel like we understand the Turner now.  Given the other two are newer to EOG, will test those at 660' to start. 

    Call ending. Super sleepy tone. 

  26. 26
    zman Says:

    LBRT – good to see the follow through higher in the wake of what will be a 2 quarter dip (4Q trough in results).

  27. 27
    zman Says:

    re 23 – less expectation for Permian adds for CVX or their thoughts on Permian growth from a macro standpoint?

  28. 28
    zman Says:

    Oil down a buck on a run of stops at $63. 

    Waivers / Exemption driving oil lower at the moment. 

    Still 8 waivers 


    SUPERTANKER TRACKER: U.S.-Bound Ships Drop to Lowest in a Year BBG

  29. 29
    zman Says:

    re 28 – down 50 cents now.  Silly traders. Stops at obvious round number levels are for suckers. 

  30. 30
    zman Says:

    I should own even more PE. 

    The single digit midget pick ups this week working pretty well post earnings.

    Most names so far this quarter in our owned listed moving well post earnings. 

    I guess others have little interest in owning ECA/NFX (unowned) either. 


    Here, doing some Friday filing, contemplating more coffee. Shout if you need something. 

  31. 31
    brodway Says:

    A few interesting tidbits

    S&P approached 200dma from below and retreated….obviously seeking conviction and a bit of see saw action is expected before fear subsides….

    Oil approached long term support at 62.50 – 63 range (June low) and attempting to find a bottom….i think it finds it as  long term bull (healing) in oil is intact ….

    Anyone catch Currie this morning on Bloomberg radio? He has really turned bullish on oil and clearly stated being overweight oil is the way to go…..Sees global glut gone and in fact sees signs of constraints in global supply…..

  32. 32
    zman Says:

    Pompeo: Of the eight countries receiving the waivers, six will import at “greatly reduced levels,” he said. The other two are at or near zero but receiving a waiver gives them flexibility and time to end their dependence on Iranian oil imports. BBG

  33. 33
    zman Says:

    re 31 – thanks – re Curie I got two of his reports in a week which is rare. 

  34. 34
    brodway Says:

    re: 30

    I still own some NFX….but will be out on any sustained rally in ECA…..thinking upside bounce comes once deal is digested

    PES/ECR/HK pick up were clever and timing impeccable…..i too added to my HK and think risk/reward there makes sense

    agree with PE….by far my largest holding now….will add on any retreat into 23 handle….not rushed



  35. 35
    zman Says:

    From the White House

    President @realDonaldTrump is reimposing all sanctions lifted under the unacceptable Iran deal. The U.S. is reimposing the toughest sanctions ever on Iran, targeting many of the corrupt regime’s critical sectors.

  36. 36
    brodway Says:


    other than some technical reasons, any idea why MGY is seeing persistent and organized selling ?

    at what point does it make sense to add more? i'm not as heavy there as ZLT 

  37. 37
    zman Says:

    re 34 – thanks and hear ya. 

    OT – going to go vote, back shortly.

  38. 38
    brodway Says:

    can you vote in Colorado? 🙂

  39. 39
    zman Says:

    re 36 – stepping out the door

     It was resilient until October arrived. It's a less well known name. It's coming up on earnings.It's gone from an all time high of $15 at the end of September to 12.30 now which given the hit on the group in October is not out of line. Volumes have been a bit lighter of late than they were in the constant move up.  You had two lackluster EFS buyouts this week alone. And in October you had the Permian diffs improve.  Otherwise, pretty quiet and they don't report until week after next. 

  40. 40
    nrgyman Says:

    ET:  FERC approves final two laterals for the Rover pipeline, completing the install of full system capacity.


  41. 41
    nrgyman Says:

    SPWR:  Apparently issued a "going concern" notice in the latest 10-Q.  SA article out stating it is on a path toward BK, forecasting a sub-$1 PT.  Solar space is tough sledding atm.

  42. 42
    elduque Says:

    Having been around here for a long time, I believe that managements are starting to realize that co. performance, low ebita no's, cheap NAV's really mean nothing to the investment public. This is evidenced by how cheap they trade relative to the underlying commodity and on a relative basis to the market. 

    Stock options obviously have not worked as a form of compensation. Therefore, what do you do. Well listening to PE they are going to go into a cash flow model, seemed to be better received than EOG, which continues to reinvest there cash. 

    I like COG for that reason. I am also not thinking of selling my NFX as the combined co. is going to increase dividend and buyback shares. 

    Its like you can grow the most unique tulip in the world, but if no one wants to buy it, not much of an investment. 

  43. 43
    zman Says:

    re 38 – heh, heh

    Speaking of that, I got a detailed break down poll last night.  

    Can't really post as it's a huge spreadsheet. But if you want to know what groups are for and against I got ya covered. 

  44. 44
    zman Says:

    re 40 – thanks much

    re 41 – good to know, thanks.  FSLR (unowned) forecast moves about a lot from Q to Q. 


  45. 45
    nrgyman Says:

    RE 43:  What are the recent polls showing (pass/fail by how much?) for each of the two relevant props/amendments?

  46. 46
    zman Says:

    re 42 

    A few thoughts: 

      –  Multiples are relative to each other (for instance within a play like the PE vs FANG) and to themselves over time (PE in 2015 vs PE in late 2018). 

    As you know I am not an NAV guy for reasons extolled many time in the past.  

    But a multiple of cash flow (essentially EBITDA) is much like a PE so it does matters. 

    But the make up of the factors influencing the multiple (what's important to make it high or low) changes over time. 

    You can't have a high stock price with no EBITDA, it just doesn't work. 

    But you can have a low EBITDA multiple if you do a number of things wrong or get caught on the side of back luck or even if you just, as part of a collective, do your job too well (gassy space).  

    The variables that drive high EBITDA multiples are good managements, good rock (and runway), lower F&D costs, lower costs, growth (and more recently DAPS growth), commodity price directionality and strong balance sheets. 

         – Free cash vs Outspend has become more of a weighted factor on the EBITDAS metric over the last 18 to 24 months and so you can have lower debt metrics not boosting the ebitda multiple as much as they once would have IF you are outspending to achieve that (with greater outspend tied to more EBITDA metric suppression if that stresses the balance sheet. 

    What PE is doing is far from unique.  Every name we follow in the Permian seeks to do that over time and the idea that they said end of 2019 today only means that they are looking at it arriving a couple of quarters earlier than it otherwise was set to. 

    EOG is free cash flowing now (half a $B this quarter alone). The hit on the quarter was the usual hit that happens late in the year with companies that up capex and said capex really doesn't do anything for them in terms of current year production since a 4Q spud is 1Q19's volumes in large part. For the record, I get what they are doing but the reaction is all too typical (beat, but a capex raise and only nudge up in volumes … it's short sited but commonplace).  

    As to holding NFX, can't blame you.  ECA got a steal.  I don't follow ECA (unowned) and never really felt the need to and over the long run, it did poorer than NFX.  NFX, smart guys, would still be around had they monetized China 2 years ago and then Bakken more recently, maybe the Uinta too.

    COG – cash flow tsunami on the way. 




  47. 47
    zman Says:

    LBRT – nice to see. 

    Prop 112 – polling to fail

    Amend 74 (the taking amend) pollig to pass 

        These were from the LBRT call and NBL (unowned) noted above said similar on Prop 112. 

        But we will know Tuesday. 

    The Poll I got last night was more recent and just for 112 and shows it failing from what I can tell, it's broken down a ton of different ways. 

  48. 48
    zman Says:

    Oil rigs off 1. 

  49. 49
    zman Says:


    $54 mm authorization remaining

    Call it an average price of $20,

    That's 2.7 mm shares. limited to 25% of avg trading volume by rule 10B-18 

    20 day average is 800,000 shares so they could be doing about 200 K per day (about 14 days). 

    Or, as they did last quarter, they might not be open market at all and take some stock of someone's hands who wants out of it in a negotiated deal.  

  50. 50
    zman Says:

    Rig Count Watch

    Oil down 1 to 874 vs 729 year ago

    NG flat at 193 vs 169

    HZ up 2 to 929 vs 764

    Verts down 3 to 65 vs 61

    OK gained 3 (all Cana-Woodford), TX lost 4

    Marcellus and Permian dropped 2  (the verts most likely were Permian rigs)

    Most everything else flat. 



  51. 51
    brodway Says:

    Prop 112 – polling to fail


    That's all the information i need

  52. 52
    brodway Says:

    am i the only one scratching my head as to why EOG is getting sold off 

  53. 53
    zman Says:

    re 52 – it's the 2018 capex guide up. 

  54. 54
    zman Says:

    Guessing we are going to see some Presidential tweets next week of the market apocalyptic variety. Wednesday. 

  55. 55
    elduque Says:

    Thanks Z for 46. I still think that if you are going to grow without distributing anything, you are going to be left behind. 

    re NFX- Not sure why they chose to sell now. Weren't they going to be cash flow positive next year. 


  56. 56
    brodway Says:

    re: 53

    i get it, but if something works wouldn't they want more of it ?

  57. 57
    brodway Says:

    also surprised by the MTDR reaction….it was most resilient in the week prior to earnings and getting sold off post good report

  58. 58
    brodway Says:

    HAL looks very much in accumulation mode…..Sold some out of the money puts for income…..

  59. 59
    elduque Says:

    re 56- who is the "they" that wants more. I think the mood is such that we don't want more wells and if you have extra cash, use it in away that distributes it back to the shareholder. Market for our cos., other than in short bursts has been limp at best. 

  60. 60
    zman Says:

    re 55

    – I don't disagree with that. 

    – But I think it's should reasonably be times to a maturation of the company. 

    – No one should expect a 10,000 BOEpd Permian to kick off a dividend or buyback shares.

    – From a sustainability standpoint, they're just too small (with oil anywhere near here at least). 

    – Lower volumes mean higher per unit cash costs meaning that for the same $68 oil  (near the 3Q avg) that a PE converts into $36/ BOE of EBITDA, the little guy might be in the low $20s. 

    – And PE is well over 100,000 BOEpd now … and they are not to FCF yet.

    – Their operating costs are tiny and they could go into low growth maintenance mode and kick off a bit of free cash right now but again, if you want return to shareholders you want it to be consistent and sustainable. 

    – I see some analysts expecting people to go to that mode and "give something back" too soon. 

    – That's where the high growth that got you into the position to just consider it comes into play  … in a negative way. 

    – So much of your production is recent vintage that you have that 40 to 50% corporate decline rate to fight. 

    – And that's for a company of size.  For little guys, it can be worse. They also can have bigger hits on production due an event that might encompass a greater % of their well portfolio, from weather to offset frac ops.  

    – So as I like to say, growth and fcf are an outcome of all the good planning that goes into going after the best returns you can afford given your balance sheet. 

    Re NFX

       – If I were them I would have been tired of fighting the Street.

       – Everything from Parent/Child issues on a neighboring pad that was overzealously guided as to expectations to the west of STACK two quarters back and which was then misconstrued to mean something about NFX's STACK child EURs to the occasional quarter where they completed wells in a known gassier window of the Anadarko Basin, only to be punished by the Street for having a gassier cut that quarter and despite the fact that not only did they beat on volumes that quarter but they beat on oil … they just had more gas that analysts expected …. that would be trying   

    Meeting your own expectations and guidance quarter after quarter and still getting called for "falling short" of some analysts excel math has got to wear on a guy. 


  61. 61
    zman Says:

    re 57 – yeah, that one is a head scratcher to me. 

    re 58 – noted it keeps reflecting from the $35 level. 

  62. 62
    zman Says:

    OT – grabbing lunch

  63. 63
    james T Says:

    I know its XLE not XOP, but you are still going to have to wait until XLE Oscillator gets down near the bottom, most likely.


  64. 64
    501xx Says:

    Hey, Bond guys: any short to medium term E&P bonds looking good?

  65. 65
    brodway Says:

    Elduque…they are those that aren't seeing what i'm seeing…..those that are selling not buying…..

    bought more EOG today at 102

  66. 66
    bill Says:

    COG Now green on the day

  67. 67
    bill Says:

    65 good move, imho

  68. 68
    brodway Says:

    COG under heavy accumulation…….as Zman noted earlier this week there may be a continued effort to buy back stock there…..

    LBRT acting in same way…..

    With some buybacks, takeovers (or take unders) there is certainly more activity in the space….I think this continues into 2019

  69. 69
    elduque Says:

    Broadway- on Sept 10th EOG was trading at 114.32 and FANG at 112.10. I bt EOG today, but I did short some FANG.

  70. 70
    brodway Says:

    that could be an interesting pair trade Eldque, but i like them both and own them both in about same dollar amount…hope it works out for you…..

    did sell CXO a couple weeks back and redeployed cash into EOG and FANG…..going to add to MTDR with NFX proceeds soon enough

  71. 71
    brodway Says:

    liking the way CDEV is holding up in this last selloff…..looking for 18 handle to get back into the name….

    thinking CRZO will be a good buy at 17 should it get there again on retest….warming up to the name

  72. 72
    zman Says:

    EOG = speed bump in the stock

    PXD acting like they're going to buy someone of size.   I'd be fine with PE at $35 in case they are listening. 

  73. 73
    zman Says:

    Analyst Watch

    PE – Seaport reiterates Buy and $39 target. 

  74. 74
    brodway Says:

    re: 72

    i'd be ok with .3 shares of PXD for 1 share of PE

  75. 75
    brodway Says:

    MTDR December 25 puts paying  .90 cents…..that seems like a good deal

  76. 76
    bill Says:

    Dec NG  low 3.166  high 331.3  current 329.5  up 5.8 cents on the day

  77. 77
    nrgyman Says:

    RE 72  🙂

  78. 78
    zman Says:

    re 74 – I'd prefer $20 in cash/sh plus 0.15 a PXD share + debt assumption. Too easy to give back a "premium" with an all stock offer. They could to the cash piece with current cash on the balance sheet and the pro forma net debt / EBTIDA would still be bullet proof. 

  79. 79
    zman Says:

    re 76 – just noting colder winter forecast out today. 

  80. 80
    brodway Says:


    what is your midstream view given recent drop in prices? still ENB, AMGP and EQM as top picks? or have you identified new higher paying options

  81. 81
    zman Says:

    This is the one from the CPC that was out last week (much warmer than normal)


  82. 82
    zman Says:

    and this is sitting on weather.com's site now

  83. 83
    zman Says:

    Ending the week up about 4%, OK after the last three weeks of down, down in the group. 

    The Wrap will be out on Saturday


  84. 84
    zman Says:

    Analyst Watch  – ECA (unowned)

    Jefco from $17 to $14

    CIBC from $15 to $13 (and to Underperform from Neutral)

    RBC from $16 to $14

    Raja from $18 to $17 and to Outperform from Strong Buy


  85. 85
    this page is not affiliated Says:

    this page is not affiliated

  86. 86
    nrgyman Says:

    RE 80:  Still like all three–even more now with lower prices.  Also ET and MPLX are very attractive.  I still like EPD and TRGP but so does everyone else so they are not as cheap as the previous names.  Still solid choices though.  AM/AMGP and EQM/EQGP are each going through simplification or divestment atm and we are entering the YE period so there are likely to be odd moves (people selling/buying for various reasons not related to fundamentals).  They are also single-basin Appa midstreamers that currently focus on gathering and processing vs longer transmission so they have less diversification and higher risk than the other names mentioned.  That said, their growth profiles are superior to any of the other names so there is potential reward for the higher risk.  AM/AMGP will become AM by the end of Q1 and will be one of the best looking midstream names (C-corp, no K-1s, no taxes until after 2021, low debt (3x is low for a midstreamer), high DCF coverage and rapid future growth) with metrics that look superior to almost everyone else (except current yield, but that will change with growth).  AM/AMGP also has a JV with MPLX in Appa that is very promising (included in the metrics, not additional to them).  As always, please DYODD.

  87. 87
    brodway Says:


    thank you for the Midstream thoughts….continue to think that these names offer compelling value and income opportunity with several names yielding in the 7-9% exceeding compelling real estate deals in this rising interest rate environment

  88. 88
    found it Says:

    found it

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