10
Jan

Thursday Morning – Permian Players

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Market Sentiment Watch: Shutdown continues but market remains primarily focused on China hopes. In today's post please find the oil inventory review (as end of year time noisy as expected), the natural gas preview (consensus continues to call for a much smaller than normal one, trough estimates likely to rise), the Permian Players Group 1 Short Form multiples table, and some other odds and ends. 

Ecodata Watch:

  • We get jobless claims at 8:30 am EST (F = 227,000, last read was 231,000),
  • We get wholesale inventories at 10 am EST (no forecast, last read was 0.8%),
  • We get speeches from five Fed heads today.

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watc​h
  3. Oil Inventory Review 
  4. Stuff We Care About Today - Permian Players Short Form Update (archived under Permian)
  5. Odds & Ends

 

Holdings Watch:   

ZLT

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

Commodity Watch:

Crude oil closed up $2.58 yesterday at $52.36 on high volumes despite a noisy weekly report out of EIA as Saudi went out of their way to reiterate their price supportive stance and as traders took a new report of bigger than expected Aramco reserves and a proposed bond offering as a sign that Saudi will take steps to keep prices high in front of an Aramco IPO that is now believed to be likely in 2021.  This morning crude is trading just over $52.

  • Libya Watch:  Instability appears to be mounting as outage at El Sharara continues over security concerns. Bigger emerging concern is Libya attracting growing ISIS prescence. 
  • TA Chart Watch:  Repeat of Tuesday's comments with a follow up chart at the bottom:  "TA Layman's Eye View Watch: Kind of interesting point we are at. We have seen massive volatility since the start of October (murder of Khashoggi) with crude then breaking the 50 day SMA (black line) and riding the bottom of volatility channel (that's a Donchian channel), flattening during early December (OPEC / OPEC+ meetings) and then breaking lower on no real news with (our view) the help shorts into year end.  As OPEC and OPEC cut back on production exports and as guidance for 2019 spending in the states and elsewhere gets a reset lower.  New year and we are seeing some days of obvious covering but more just constructive action with a bit less volatility which gives oil a chance to get off the bottom of the channel for the first time in 3 months while also thinking about $50 (nice round target) and if that passes, $55 which is the next nice big round stop level and notably that would be above the 50 day moving average. Anyway, I got my start in the early 90's reading charts and sometimes I go back there, by no means a CMT, just find it interesting."

Chart 1 - Tuesday - original chart

Chart 2 - Thursday - still interesting. 

Price Deck Watch:

  • Street now at $63.86 for 2019; peaked last fall at $69,
  • We remain at $60 for 2019.

Exports Watch: Gasoline edition.  Mexico reporting widespread fuel shortages. Look for U.S. gasoline exports to pop near term. 

 

Natural gas closed up $0.017 at $2.984 as the weather forecast shifted during the day from positive at month's end to more of a neutral outlook. This morning gas is trading just over $3. 

 

Natural Gas Storage Preview

Street is at - 76 Bcf for today's report. 

  • Last Week: - 20 Bcf
  • Last Year: - 359 Bcf
  • 5 Year Average: - 182 Bcf

Oil Inventory Review

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Stuff We Care About Today

Permian Players Group 1 Short Form Update

  • The 10 names that comprise Permian Players Group 1 on average fell 31% in 4Q18,
  • Year to date, through 6 trading days, they are up an average 19%,
  • Generally speaking, the biggest drops and largest pops line up and the smaller names are outperforming the larger names in the quick bounce (which you'd probably expect ... we would), 
  • One name, CXO (unowned but well liked here and reviewed recently here) has matched it's 4Q drop in those first 6 days. 
  • Oil prices are up 15% since year end.
  • The Mid-Cush differential continues to hold in much less threatening territory for 2019 vs where it was in 4Q and especially in 3Q at the wides at over a $17 discount to WTI.

 

 

Other Stuff

  • Look for a requested name cheat sheet update soon,
  • Look for an alternative energy name soon,
  • Look for our 2019 oily thoughts soon,
  • Look for additional Catalyst List updates next week.

Odds & Ends

Analyst Watch:

  • TBA in comments

59 Responses to “Thursday Morning – Permian Players”

  1. 1
    Viper1 Says:

    2019 (Bloomberg) – Goldman Sachs left its energy conference earlier this week with more confidence in a "buy quality on sale" strategy.  Analysts led by Brian Singer says in note the bank sees upside to oil prices, though shale growth looks on track to keep long- term oil expectations among equity investors in a $50-$55/bbl WTI range.  Says investor sentiment mostly negative, with "many still seeking more meaningful reductions in producer volume growth ambitions/fiscal restraint." "Given this negativity, the path of least resistance for Energy equities remains higher." Little confidence from companies and investors that shale M&A would be "impactful to the macro and well received." Reiterates buys on EOG, MPC, FANG.

     

  2. 2
    Viper1 Says:

    Reuters) – Norway’s oil output in 2019 will be smaller than previously forecast and will reach its lowest level in three decades, the Norwegian Petroleum Directorate (NPD) said on Thursday. Investment in Western Europe’s largest oil producer and Europe’s second-largest gas producer behind Russia surged after a decline due to the slump in oil prices in 2014 to 2016.  Despite that, oil output in 2017 of 86.2 million cubic meters (mcm), or 542 million barrels, missed the 90.2 mcm forecast made a year ago, NPD said on Thursday. 

  3. 3
    zman Says:

    re 1 – thanks.  Brian is smart.  He's probably on 15 of the 40 or so calls we are on each quarter. He's often one of the most cautious voices out there. 

    re 2 – thanks

  4. 4
    zman Says:

    As we approach equity open

    WTI backed off to $51.50

    Brent just under $61. 

    https://www.dailyfx.com/crude-oil

  5. 5
    zman Says:

    Natural gas at $3.04 an hour before report time. 

    https://www.dailyfx.com/natural-gas

    2019 consensus holding at $3.14 vs our $3.25.  If you missed our 2019 gassy thoughts piece it was in last Wednesday's post here and we maintained our $3.25 at at time. 

     

  6. 6
    zman Says:

    Interesting reading / tangled web watch: Good for round #s view

    https://www.reuters.com/article/us-usa-crude-exports-corpuschristi/u-s-oil-export-boom-sparks-a-battle-to-build-texas-ports-idUSKCN1P40HE

  7. 7
    zman Says:

    Analyst Watch

    HAL – Jefco cuts from $38 to $34

    HAL – Morgan cuts from $42 to $38

  8. 8
    zman Says:

    Here, still dug in on a new name, shout if you need something. 

  9. 9
    zman Says:

    Housekeeping Watch:  The site is open to the public today. I am working on an alt energy name. Feel free to myspace, facegram, tweeter out or otherwise email friends with the link to the site. 

  10. 10
    zman Says:

    Natural Gas Quick Look

    – 91 Bcf but there was a reclass this week, implied flow is -87 Bcf (better than expected), helps explain last week's paltry number vs expectations of about 2x that week. 

    Storage is now 2,614 Bcf

    7.2% below year ago  (recall a few a weeks back this was 19% below)

    15.1% below the five year average or 464 Bcf below (was > 700 Bcf 4 weeks back)

     

  11. 11
    zman Says:

    NG holding $3.04 post numbers.

    Back to modeling.

  12. 12
    zman Says:

    Volumes remain very light in the group after the recent run and with oil a bit stalled. 

  13. 13
    Viper1 Says:

    good rest  needed 

  14. 14
    Viper1 Says:

    FANG test of 50 ma  so far holding 

  15. 15
    zman Says:

    re 13 – my thoughts as well, too much of a V-up and you have profit taking and re-shorting concerns.  Would rather stair step on a roughly weekly basis. Note YTD moves in Permian section.  That's a lot of ground covered and while it was overdone to down side, you do have fewer players in the space involved at the moment than just prior to Oct 3 peak. 

  16. 16
    zman Says:

    Adding to 15 – I know of some hedge funds claiming they are out of energy investing, period.  I sort of doubt it but nevertheless, they are out for now. 

  17. 17
    elduque Says:

    Thanks for the update on the permians

  18. 18
    zman Says:

    re 17 – you bet.  I transitioned more of the multiples to our Z4 $60 and managed the multiples a bit lower in most cases to be more conservative.   Street estimates continue to fall but that's a good thing and would expect another round of adjustments to all the ones that have not guided 2019 capex yet.  

  19. 19
    zman Says:

    Tom – are you seeing much movement in distressed HY you were looking at? I've not seen a marked move off the lows yet in names that were pressured sharply in December. 

  20. 20
    brodway Says:

    XOG building confidence in an attempt to follow others in bounce higher

  21. 21
    zman Says:

    re 20 – we do not own the name, seeing nice greening in the group off the morning lows and extending on better volumes. Only name we own in the DJ (as a pure play) is HPR. 

  22. 22
    tomdavis12 Says:

    I saw more distress in HY non-energy in Dec. My own holdings in energy have been the bigger names so I don't spend a lot of time looking at the CRC's. Since its great that you put out all the bonds of your holdings, I would be happy to look at anything and maybe more clearly define – size,144, last few trades.

  23. 23
    zman Says:

    re 22 – PES bonds … got whacked … not showing a lift … stock acts better with oil and then post 4Q guidance yesterday (mixed bag but could have been worse).  If you see something I don't, let me know, those things trade by appointment.  At the lows I got questions re that being a BK risk. 

  24. 24
    tomdavis12 Says:

    PES if you know anyone with a blomberg on their desk, that's where you will get the quick answer. I have to call someone since I do not. Will ask around.  

  25. 25
    zman Says:

    re 24 – don't trouble yourself, I've got that covered. 

  26. 26
    zman Says:

    … just noting that the stock was following the bond lower, stock lifted with oil/turn of calendar/end of tax loss selling, and the bond is just sitting there. 

  27. 27
    zman Says:

    Is today some sort of holiday?

  28. 28
    nrgyman Says:

    RE 6:  ENB-led JV proposes another offshore oil terminal to load VLCCs for oil export:

    https://seekingalpha.com/news/3422150-enbridge-led-jv-proposes-texas-offshore-oil-terminal-receive-vlccs?app=1#email_link

  29. 29
    zman Says:

    re 28 – it's almost like we see one new one each week. 

  30. 30
    nrgyman Says:

    RE 29:  I can recall discussing, not long ago, the idea for the need of another LOOP-type offshore oil platform in TX dedicated to exports.  At that time there were no proposals.  Now there are 4 that I know of, in addition to efforts to modify at least two ports (CC and Houston), to accommodate the VLCC oil tankers which are much more efficient (lower total cost) at moving oil from the US to export destinations.  The efficiencies are needed in order for US oil exports to be competitive in the global markets. 

    Imo, not all of these offshore proposals will be built.  Perhaps only 1 or 2.  The stronger sponsors should have an advantage.  This one, involving a JV of ENB, KMI and German name Oiltanking, has strong sponsorship.  EPD and MMP each have their own proposals.  Then there is the Trifigura proposal in CC.  It will be interesting to see who gets one built first, which might give pause to others.  Nobody wants to spend multiple $Bs to find their investment underutilized.

     

  31. 31
    zman Says:

    re 30 – yep, did you see #6 above. 

  32. 32
    nrgyman Says:

    RE 31:  Yes I did.  Thanks for sharing it.  Ref'd to it in post 28.  The ports are also competitors to the offshore proposals.  They don't want to invest heavily and see business move offshore.  The ports have another problem:  they also import/export trade from other industries and the oil trade could make it more difficult for non-oil industries at these ports with congestion, etc.  Port congestion could also impact the VLCCs, making ports less attractive to oil exporters.  

  33. 33
    zman Says:

    re 32 – roger that.  The good news is, we're seeing capacity added at a faster-than-many-expected-a-few-month's-ago pace.  So far globe not having a problem taking the lighter barrels.  

  34. 34
    nrgyman Says:

    RE 33:  As light sweet crude produced by shale gradually takes market share in global markets, I seen concern expressed that global refining capacity (which is geared for heavier and sour crudes) could run into limits for the light sweet crudes.  Somewhere there has got to be a refiner (or those who want to profit from building/modifying one) who sees the benefit of maxing out on plentiful, cheaper light sweet crude to use as a profit maximizing strategy–and is willing to make an investment to process more of it.  No doubt they are processing as much as they can now and have some room to process even more, but the LT production growth projections of shale suggest light-sweet processing limitations could be a factor.  

  35. 35
    Viper1 Says:

    who would Thought 10yrs ago the exports of LNG and CRUDE would be at this level ? LNG was to be imported now ET looking to reverse the Lake Charles facilities . really amazing and something that gets so little press and IMO kept the world form a depression in 09 

  36. 36
    zman Says:

    re 35 – Not I, I was pleased to get Canada mostly right a few years back, with their ng volumes to the states falling off a cliff.

    Here, reading, shout if you need something.  It looks likely that we wiil have the alt energy name in tomorrow's post.   

  37. 37
    nrgyman Says:

    RE 35:  Certainly not the US refiners, who invested over $35B to upgrade their refineries to process heavy, sour crude oil just before the shale boom took place.  One reason they have not been so interested in investing to grow light sweet capacity.  Likely to keep WTI at a discount to heavier grades.  Could be an opportunity for someone to take more advantage of it by investing in light sweet capacity (the cheapest to newbuild), especially once the 2020 shipping rules reduce demand for heavy bunker fuels produced by heavy crude grades (but not light sweet grades).  

  38. 38
    zman Says:

    re 37 – true

    Group showing HOD action as we approach the close. 

  39. 39
    zman Says:

    Good to see, get it done early, this has pressured market in past while they are hedging

    MEXICO FINMIN COMPLETES 2019 OIL HEDGE AT $55/BBL BBG

  40. 40
    zman Says:

    Beerthirty, back in a bit. 

  41. 41
    zman Says:

    FANG out with their inaugural corporate responsibility report. 

  42. 42
    bill Says:
  43. 43
    bill Says:

    chk announced monster wells in the marcellus

    73.4 mcf per day!

    Also, Chesapeake experimented with unleashing “32 million pounds of Hell on Earth” (meaning frac sand) to frack a Marcellus well in Wyoming County, PA, which subsequently had an IP rate of 61 MMcf/d

  44. 44
    zman Says:

    re 43 – love to here the cost per foot on that one. 

  45. 45
    Wyoming Says:

    We've already run larger than 3200#/ft designs.  Old news.

  46. 46
    zman Says:

    re 45 – hear ya, I didn't check to see if CHK (unowned) was talking 32 mm pounds in the lateral as stated above or 3,200 #/ft.  I've seen some as high as 5,000 #/ft.  As you know, could be great for flashy IP but EUR a different matter hence my cost comment. 

  47. 47
    zman Says:

    Hey Wyo – have they moved you or are you still in OK?

  48. 48
    Wyoming Says:

    Been in Houston a little over 2 years now.  Tulsa was closed about that time.

  49. 49
    zman Says:

    re 48 – Houston runs central/west OK?

  50. 50
    Wyoming Says:

    Everything

  51. 51
    zman Says:

    re 50 – well, yeah, I guess so.  Let me know when I can come out and buy you lunch, been awhile since I was on a pad. 

  52. 52
    zman Says:

    Expecting a smaller withdrawal next week:

  53. 53
    zman Says:

    From tomorrow's post. 

  54. 54
    zman Says:

    Stepping out for an hour. 

  55. 55
    Viper1 Says:

    https://www.bloomberg.com/amp/news/articles/2019-01-11/the-winners-and-losers-of-big-oil-s-offshore-spending-revival?__twitter_impression=true

  56. 56
    Michael Says:

    Nice work, Z.  Been doing work on JAG myself and think it compares very favorably to CPE in particular: better balance sheet/lower leverage, much lower loe, similarly high 78% oil content.  My only question is acreage and growth prospects.  Does anyone have any particular insight as to the relative merits of their acreage?

  57. 57
    zman Says:

    re 56 – hey, just sent you an email on this. 

  58. 58
    Michael Says:

    Thx! Thoughts on management?

  59. 59
    zman Says:

    re 58 – happy to discuss, can we move over to today's post? 

    https://zmansenergybrain.com/2019/01/11/friday-morning-vestas/

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