Thursday Morning – Mini Earnings Avalanche

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Market Sentiment Watch: China data kicking the year off much better than expected with January exports rising 9.1% (a drop of 3.2% was the consensus forecast) while imports were only off 1.5% (a 10% drop was expected; though imports from the U.S. tanked 41%). In energyland, due to reserve reporting requirements, 4Q earnings are spread out over a longer than normal quarterly time frame. This leads to dearths and gluts of reports. Today we get a glut of names of interest reporting as noted below. Some of our comments may be more brief than usual. If something isn't clear, please ask and we will respond or track down an answer.  In today's post please find the oil inventory review (negative side of neutral as weeklies go), the natural gas preview (smaller number this week, then larger pulls into the back half of February; strip remains over sold), comments on a flood of names as noted below (pleased to see discipline actually materializing),  and some other odds and ends. 


Ecodata Watch:

  • We get jobless claims at 8:30 am EST (F = 225,000, last read was 234,000),
  • We get retail sales at 8:30 am EST (F = 0% headline and -0.1% ex autos vs 0.2% prior for each),
  • We get PPI at 8:30 am EST (F = 0.1% vs last read of -0.2%). 

In Today’s Post:


  1. Holdings Watch
  2. Commodity Watc​h
  3. Oil Inventory Review 
  4. Stuff We Care About Today - PXD, LPI, MRO, OII, AR, ECR
  5. Odds & Ends

Click the link directly below this to ... .

Holdings Watch:   


  • Yesterday's Trades: None
  • The Blotter is updated.
  • We plan to carve out part of the ZLT for a VNOM position soon (during the quarterly reporting season).  Please see our mini model in this past Tuesday's post. 

Commodity Watch:

Crude oil closed up $0.80 yesterday at $53.90 after IEA maintained its 2019 demand forecast and the EIA reported a weekly set of data that we saw as on balance slightly negative vs expectations and OK in the scheme of how we see things unfolding this year. Net imports set a new modern history low, helping to avoid a blowout sized crude build as throughput tumbled well below record territory (something we see as largely seasonal but also run cut related on poor margins and therefore to be short lived). In the wake of the EIA STEO and the OPEC and IEA monthlies oil is actually holding up a bit better than we would have expected this week.  This morning crude is trading up near a percent. 

  • Russia Watch 1: Bi partisan bill in the senate designed to sanction banking, energy, and entities dealing in Russian debt. It would impose sanctions on entities supporting oil development in Russia.
  • Russia Watch 2: Novak says he expects Russian compliance with OPEC+ deal to improve in February saying volumes should be at least 150,000 bopd below December levels.  Novak's message to Russian oil companies is that the deal is positive for them. He also said there is no plan to attempt to produce more to offset lost Venezuelan output. 
  • Nigeria Watch:  The Delta Avengers are back and threatening oil infrastructure attacks if President Buhari is re-elected this weekend. 
  • Iran Watch:  VP Pence speaking to European Union tells them to import no Iranian volumes. 


Natural gas closed down $0.11 at $2.58 (in line with last Friday's recent history low). We see gas as overdone to the downside but until we trough and get through spring, unlikely to mount a sustainable push over $3 (strip).  This morning gas is trading flat.


Natural Gas Storage Preview

Street is at - 87 Bcf (Bloomberg) for today's report. 

  • Last Week: -237 Bcf
  • Last Year: -183 Bcf
  • 5 Year Average: -160 Bcf

Oil Inventory Review



Stuff We Care About Today

PXD Reported Soft 4Q18 Results (volumes and costs were fine); Guiding Slightly Below Street on Volumes, More Below Street on Capex; Doubled The Dividend

The 4Q18 Numbers:

  • Differential from WTI: ($9.47) vs ($11.90) last quarter (before derivatives and the uplift from firm transport). 
  • Production costs were $8.70 / BOE vs $9 to $11 guidance

1Q19 Guidance:

  • 1Q19 volumes guidance of 302 to 317 MBOEpd 
  •      Street is at 327 MBOEpd, 

2019 Guidance: 

  • 2019 Capex of $3.1 to $3.4 B with D&C capital down 11% vs 2018. 
  •       Street is at $3.7 B 
  •            (on mid point of guidance this 12% below expectations),
  •       PXD projects cash flow of $3.2 B. (assumes a $53 oil price)
  • 2019 Volumes of 320 to 335 MBOEpd  (up 12 to 17%),
  •      Street is at 336 MBOEpd 
  •          (on mid this is 2.5% below expectations).      


  • Stackberry Pad (stacked middle and lower Spraberry and Jo Mill) - second pad of 8 wells outperforming offset Spraberry wells by 35% and they are calling another 40,000 net acres derisked for "stackberry" development. A third pad is in progress and two more pads will be added late 2019 (look for questions on location inventory impact).
  • Wolfcamp D - positive results - noted a new 2 well pad with 20 day cumulative production of 120,000 BOE (72% oil), strong rate,
  • Greater focus on multi well pads: 2019 to be 40% at 4+ wells vs 10% in 2018; many at the 24 wells per pad level,
  • Look for questions on 2019 vs 2018 lateral per foot savings (water recycling, sand deal, pressure pumping deal),
  • No color on further zone delineation beyond the stackberries and more WC D in the release,
  • Reserves:  Drillbit F&D of $11.77/ per BOE vs $8.46 per BOE for 2017; they are unlikely to chest pound this year about that number. 

Other Items:

  • Balance Sheet:  Remains super strong with 0.3x net debt to 4Q18 annualized EBITDA (and with about $1.4 B in cash, liquidity remains strong at $2.9 B),
  • Divestiture Update: $865 mm non core sold in 2018; no comment in the release regarding remaining divestitures but they do note guidance for the Eagle Ford and other South Texas assets for volumes.
  • Semi Annual dividend doubled to $0.32 per share.
  • The $2 B share buyback announced in December. $328 mm (2.4 mm shares) bought back under the new program. Look for color on the call on their appetite if prices are above their $53 planning deck noted above (as to choices between buyback and spend more on the drillbit). 

Nutshell: Miss on the quarter on prices. Guidance is OK, getting more bang for the buck on lower wells costs but cash flow vs capex will likely be investor focus on the call and there's not much gap there on their $53 deck (but granted, there will be more vs where the Street is on oil now). Expect modest weakness early but for call to set tone going forward. It appears they are willing to grow slower and slowly edge towards more of a share holder return of capital mode focused on overall returns (ROCE focus). 

Other Stuff

LPI (Unowned) Reports 4Q18 Miss; Slams on the capex brakes

  • Production of 70.653 MBOEpd (40% oil) (up 5% YoY) vs 69.6 MBOEpd (40% oil) expected,
  •      Oil was up 7% for full year 2018, less than expected. 
  • EBITDA of $132.4 mm vs $146 mm expected,
  • EPS of $0.16 vs $0.24,
  • 4Q18 differential of ($6.68), that's going to be strong this year. 
  • But they are gassy, and gas came in at $0.63. 
  • Guidance:
  •       2019 volumes of 74.35 MBOEpd; but ... total up 9%, oil down 5%.
  •       Street was at 71.5 MBOEpd.
  • Capex 2018 A: $598 mm with $575 mm for Drilling & Completion & $23 mm infrastructure,
  • Capex 2019 E:  $365 mm ($300 mm D&C) and infrastructure;  plans to drop from 3 rigs to 1 by 3Q and from two spreads to one (Sees 2H19 as free cash positive and the full year as cash neutral),
  • 90% hedged at $48 floor. 
  • We do not own the name (exited at $8.77 in March 2018) and do not currently plan to re-enter at this time. 
  • Conference Call: Today, 8:30 am EST. 

MRO (Unowned) Reported Essentially In Line 4Q18 Results; Maintains Disciplined Guidance

  • Production of 411 MBOEpd (50% oil) vs 416 MBOEpd (50% oil) expected,
  • EPS of $0.15 vs $0.14 expected, 
  • 2018 A Capex: $2.3 B
  •       Free cash of $865 mm.
  • 2019 Capex guidance: $2.6 B ($2.4 B D&C);
  •       D&C > 90% focused on their big four U.S. shales (EFS, Bakken, MidCon, Permian)
  •      designed to free cash flow at oil over $45 (including the dividend)
  •      They see two year free ash of $750 mm at $50 and > $2.2 B at $60 (which is the Z4 2019 price deck),
  • 2019 volume guidance of 4% growth on mid of range of 410 to 430 MBOEpd on mid (with oil up 10%), 
  •            Street is at  435 MBOEpd. 
  •            1Q19 guidance is 390 MBOEpd with Street up at 415 MBOEpd. 
  • Balance Sheet: Not included in the release. 
  • Noted some interesting low cost wells in Dunn County (Bakken)
  • Not a name we own or have historically followed. Largely paying attention for non followed player growth, budgeting, as well as for color on the LA EFS play.  
  • Conference Call: Today, 9 am EST. 

AR (Unowned Gassy) Reported Strong 4Q18 Results; Guides Capex to Low End

  • Production of 3.213 Bcfepd (70% natural gas) vs 3.1 Bcfepd (71% natural gas) expected,
  • EBITDA of $584 mm vs $560 mm expected,
  • Differential:  +$0.19 to Nymex (pre hedge)
  • Guidance: Capex to be at low end of previously guided range, down 20% from 2018; capex expected to be within cash flow. 
  • Largest NGL producers in U.S. with ability to move nearly half to exports,
  • Marcellus - spud to TD times down to 11.5 days; stage count per days continues to inch up quarterly (5.2 stages per day 2018, by November at 6.0)
  • Marcellus - 5 rig program,
  • Balance sheet: Improved to 2.2x net debt on standalone basis. 
  • AR remains fully hedged for expected 2019 natural gas production. 
  • We do not own Antero having exited the position in May 2017 for $20.40. It may be time to take another harder look here.  
  • Conference Call: Today, 11 am EST. 

OII (Unowned Service) Reports Essentially In Line 4Q18 Results; Guidance Suggests Stability and Modest Improvement. 

  • Revenue of $495 mm vs $488 mm expected, 
  • EBITDA of $31.1 mm (6% margin ... quite low) vs $30.9 mm expected,
  •      EBITDA was positive for all segments; ROV's continue to be the overwhelming bulk of the cash flow. 
  • Guidance:
  •      2019 EBITDA guidance range of $140 to $180 mm; they are guiding to a return to positive cash flow after a negative 2019 with capex of $105 to $120 mm.
  •              this compares to 2018 A of $142 mm 
  •      Street is at $183 mm


  • Subsea Projects - "better" results expected in 2019. Dayrates appear to have stabilized.
  • Subsea Products - strong order intake late last year and to date in 2019. 
  • ROV's - increased days on hire, better regional mix, and stable pricing.   
  • 1Q19 guidance is well below Street due to "unallocated expenses". This is a function of performance based incentives picking back up as they see increased offshore activity this year.  It's been years since they did this. Interesting. 
  • Balance sheet remains solid with interest easily funded and the revolver remains undrawn,
  • We do not own the name, we pay attention here for signs of improvement (or not) in the deepwater macro and this is more upbeat a release from them than we have seen in the last few years. 
  • Conference Call: Today, 11 am EST. 

ECR Announces 4Q Production and 2018 Reserves

  • 4Q18 volumes of 404.5 MM/d (above top end of guidance range),
  • Reserves were up 28% to 1.86 Tcfe.
  • Given the approaching and now fully approved merger in a few weeks this will be moot.

This Week's Calendar

Odds & Ends

Analyst Watch:

  • TBA in comments

85 Responses to “Thursday Morning – Mini Earnings Avalanche”

  1. 1
    zman Says:

    LPI (unowned) call in 5 minutes, notes to follow. 

  2. 2
    zman Says:

    LPI (unowned) 4Q18 Notes

    Presentation here: http://www.laredopetro.com/investor-relations/events-and-presentations/corporate-presentations.aspx

    Slowing pace as noted in the post, making this a transition year. 

    Plan is to hold oil volumes flat from 4Q19 levels in 2020 and 2021.

    Pullback on drilling allows corporate decline rate to fall making for lower maintenance capital needs to do this. 

    Reducing G&A

    Ops Update – Wow, the Earth Model really taking a hit today

    Negative revisions to oil reserves, positive revisions to natural gas reserves 

    Revised type curve type curves are on slide 6  (oil cut goes from 51% on the first five years to 39%)  … happy we are not in for this. 

    They note that going to wider spaced wells will drive an inflection in oil, better type curve vs the tighter spaced wells, the program they are wrapping up now. 

    Slide 11 shows various oil price vs activity scenarios

    $365 mm capex will be adjusted based upon how cash flow is doing

     – negotiated cost savings are factored into this

      – said they think more efficiency gains are to be had (but if you cut rigs …)

    Financials – Rick Butterbaugh, good guy, used to chat with him when he was at KMG

    – only 9% of reserves are PUDs (only about 6 months of activity)

    – NG – well below expectations. This is Waha. Nov and Dec were -$1.74 and – $4.58 to Henry Hub, yep

    2019 budget

     – balance D&C with op cash flow on annual basis 

    – $54 and $2.90 deck

    – this is the $365 mm (82% D&C)

    – front end loaded, outspend in 1Q, neutral in 2Q, and then free cash positive in 2H19 (as they are then at 1 rig and no completions crews to 0.5 crews in 3Q but 0 in 4

    – hedges – 90% is avg floor at $48 but has maintains upside. 

    Going to Q&A 22 minutes in

    I will jump to MRO in 8 minutes … 



  3. 3
    zman Says:

    LPI 4Q18 Q&A

    Q) GS question on narrow vs wide spaced wells by quarter in 2019

    A) 1Q – 15 wells (narrow), 2Q – and then the rest are wide spaced (out of full year 28)

    Q) what's wider space history – how many wells, when do we see the better results out of the widers, 2020 or sooner. 

    A) history back to 2016

    Q) stifel – is your new type curve overly punitive

    A) pause … we try to play middle of the road, where we are today this is how we see it. 

    Will circle back to this transcript. 

  4. 4
    zman Says:

    Harvest on the tape noting they are done selling their MGY shares, all 4.2 mm sold.  Pressure relief. 

  5. 5
    nrgyman Says:

    CLR:  Up on this report:


  6. 6
    zman Says:

    MRO (unowned) 4Q18 (the Marathon E&P)

    We don't believe it's a mystery what investors are looking for:

    Assets, strategy (returns first, sharing cash flow w/ shareholders), and ability to differentially execute.

    Capital discipline definition –  ensure every $ advances returns at enterprise level, prioritize sustainable free cash at conservative prices.   Emphasize high value oil growth to keep margins high. 

    Must support sustainable CF and not in connection with asset sale proceeds. 

    Says for many this is aspirational, for Marathon this is reality. 

    Notes the unchanged $2.3 B capex for 2018 that didn't change. We stuck to the #. 

    Looking at 2019

     – no change to plan

     – returns, free cash, and return of cash flow to shareholders … production growth is an outcome (instead of free cash is an outcome of growth … I like this guy).

     –  will be organic free cash flow > $45 (see comments on this in post)

     – adding more return metrics to management incentive measures

    Working to extend the core of Bakken and EFS – working on "hundreds" of potential location adds – extension areas, spacing, leasing around existing. 

    Noted the emerging LA Austin Chalk. 

    2019 Program 

     – oil growth will exceed BOE growth

     – as noted, highly focused on Bakken, EFS, Delaware, STACK/SCOOP

     – wells to sales fall another 10% this year in EFS (down again but volumes up on better productivity)

    – N Delaware – upper WC – sounds cautious

    – exploration spend down markedly

    Going to Q&A 17 minutes in …


  7. 7
    zman Says:

    PXD –  "Expect modest weakness early but for call to set tone going forward."

    Set to open down 4%, a little more than it was up yesterday. 

  8. 8
    nrgyman Says:

    EQM and ETRN agree to a IDR elimination deal.  ETRN will remain the GP and own 60% of EQM, but with no IDRs.  Deal closes this month.  


  9. 9
    zman Says:

    MRO (Unowned) – Q&A

    Q) Bakken – details on meaningful reduction in CWC, is that sustainable. 

    A) $5 mm, we didn't give this until today. We are working both productivity and capital reduction side.

       Follow – is it depth or geology that all you to deliver such "tremendously" lower costs

      A) minor differences, not much different in the completion. We have delivered this kind of cost in other areas of the Bakken as wel. Teams are charged up to continue this and improve it further.  

         That's $5.0 mm for a 10K' lateral. Nice. 


  10. 10
    zman Says:

    Oil set to open lower now, back to $53.50, Brent about $10.25 higher. 


  11. 11
    zman Says:

    MRO – positive analyst tone, lots of great quarters guys. 

  12. 12
    nrgyman Says:

    TELL:  Signs MOU with Petronet (India's largest LNG importer) for LNG equity stake and volume commitments for its proposed Driftwood LNG export facility.


  13. 13
    zman Says:

    Thanks Nrgy – on calls through lunch but will circle to it, EQT (unowned) didn't report in time for me to review. 

  14. 14
    next Says:


    Thursday Morning – Mini Earnings Avalanche | Zman’s Energy Brain ~ oil, gas, stocks, etc…

  15. 15
    zman Says:

    VWDRY – breaks to new 52 week high on the open. 

  16. 16
    zman Says:

    re 12 – thanks

    PXD opens down 3%. Call in 30 minutes. 

  17. 17
    zman Says:

    Nrgy – the AR (unowned) quarter looked interesting.  We sold it basically double current price. Time for a new look. 

    Tom – there were interesting tidbits in the OII (oh eye eye) (unowned) comments. 

  18. 18
    zman Says:

    Can't look, reason for Broad market drop on the open?

  19. 19
    zman Says:

    re 15 – TPIC should be next up to do that. Earnings later this month. 

  20. 20
    zman Says:

    PXD – off 2 to 4% pre call now as bottom fishing continues. 

    MRO (unowned) – up 6%, call in progress, very positive. 

  21. 21
    nrgyman Says:

    RE 17:  Yep, but the market doesn't like AR (unowned) early.  AMGP (owned), on the other hand, is liked this morning.  AMGP and AM set to combine in early March.  This could be affecting AR (some arb trading).  AR is tempting under $9, near all time lows.

  22. 22
    zman Says:

    re 21 – agreed, and I don't really mean today, but it's time for me to update it in the next few weeks. 

  23. 23
    zman Says:

    MRQ (Unowned) Q&A 2

    Momentum is such that in 2020 we enjoy even more capital efficiency

    Q) adding inventory now vs prior thoughts of upgrading what you have

    A) remarkable success in EFS and Bakken- 3x uplift in productivity in the extension areas … so you get additional sites as well as just improved thoughts on what you had there before as potential locations.

    Q) Delaware spacing question

    A)  Testing 8 wells per section in the L WC vs base case of 3 with an upside case of 6 … but focus for now remains on the U WC. 

    Q) Delineation in EFS and N Delaware


    EFS – recognize that the potential is hundreds of locations, have dedicated trials of concepts, will want to see longer term performance – hard to put a time scale on that but teams see potential for hundreds of the mature assets. 

    On the Permian – very dense, up to 10 or 11 benches – it will be a different point in time for different intervals – 2/3 of program U WC and then meaningful tests of other intervals. 

    Q) what factors did you not add to exec comp 

    A) we look at it every year, various metrics, we believe that multiple financial metrics are required  cash returns, DAC per sh, and now return of cash …. almost 70% of metrics on the score card are financial. This one was added in part because it could be calculated externally (transparent)

    Q) deal market thoughts – described as a clogged drain – definitely a buyers market – are the returns for acquisitions approaching. 

    A) always will look at small bolt ons that give locations and not necessarily bring PDP production – don't want to add locations that are high return some day but are impactful now. So it's a high bar. 

    Q) SCOOP – how much of the acreage can go to 8 / section

    A) very encouraged (but too early to say) ; feels more like development vs delineation

    Q) free cash flow by asset – Bakken and EFS are but the other two are not, correct, and if not when turn. 

    A) we have assets that span the full development cycle – Bakken and EFS are fcf positive across range of prices;  the SCOOP/STACK are clearly moving towards self funding, and N Delaware – still aways from that, team on right trajectory, strong growth but on small base and it is the only area that still have leasehold obligation.  

      Folllow Q – OK – not really growing now, so how to think when you say you are adding Bakken/ EFS

       A) it is such a large and diverse position, it will have parts moving into development before the total does, fits into whole portfolio, don't need to really push it ahead

    … about to get on PXD


  24. 24
    zman Says:

    MRO (unowned) – expect Delaware activity level flat with 2018

  25. 25
    tomdavis12 Says:

    17  Z  Noticed some sellsiders warming up to the RIG backlog. Looks like trades only. RIG now mostly only UDW rigs with their recent mergers. 

  26. 26
    tomdavis12 Says:

    Weak retail sales reason for market lower.

  27. 27
    zman Says:

    MRO – service cost inflation ?  across all service lines – flat to a little bit of deflation. 

  28. 28
    zman Says:

    re 25 – thanks for the color … rates still in gutter last I checked, maybe stabilizing?

    re 26 – thank you. 

    PXD about to start. Down 3% at start of call. 

  29. 29
    zman Says:

    LPI (unowned) – down 3% now, would have expected more dip, maybe mostly flushed out now. 

  30. 30
    zman Says:

    PXD 4Q18 Call Notes

    Presentation here: http://investors.pxd.com/investor-presentations

    PXD at $141, down 3% at start of call

    2018 was a very strong year, look forward to better 2019 that is more capital efficient (cf up 88%)


     2017: 4%

     2018: 9%  (would have been higher but liquidated hedges in 4Q that impacted P&L)

    > $400 mm cf uplift from firm

    4Q18 – divested non core assets, sold pumping, decomissioning sand mine

    Repurchased $328 mm (last two months, at $136)

    Doubled the dividend. 

    Capex to be down 11%

    Production to be up 15% 

    Balance sheet one of best in industry at net debt/ebitda of 0.3x

    Lowest break even basis and largest position player


    265 to 290 wells on production, more wells for $350 mm less capex  (

    Cash flow "easily enough to pay for capex) – slide 5

    Slide 6 – capital efficiency slide – savings on pumping, sand, water – good water fall chart (steps through $3.3 B in 2018 getting down to $2.95 B D&C in 2019)

       – pressure pumping savings could be as much as $650K per well  (run by PUMP (unowned) very lean)

       – sand – $350 to $400 K per well, also sand change out allows big save on chemicals. 

      They do see some inflation later in the year, but minimal 

         – using 2% inflation rate, focused on 2H19 (expecting higher industry activity to drive that)

    Slide 7 – Pillars to enhance shareholder value 

    focus on returns –  ROCE above peer average in 2018 (9% PXD vs 6%) – this is due to low cost acreage – our acreage put together in the 1990s at $500/acre, done litte acq since. 

    capital discipline –   slide 9 – shows $2.2 B is maintenance capital, then other uses 

    return of capital – touting the 700% growth in the dividend in the div since 2017 (start with very small base, that won't continue at that rate) and then the buyback. 

    preserve strong balance sheet – bubble chart slide 11 shows them super strong 

    highly repeatable program – slide 12 shows footprint. 

    Slide 13 – slide that often gets ignored – cumulative 12 month oil production – best in class. 


  31. 31
    zman Says:

    NG inventories in 10 minutes. 

  32. 32
    zman Says:

    PXD 4Q18 Notes 2

    Stackberry chart – slide 14 – shows the outperformance of the 8 wells noted in the post (MS, LS, Jo Mill)

    Water use slide 15 – going to 30% recycle – helps with the well cost comments above – also shows a Pioneer Pad (24 wells, much smaller surface footprint than what you get with say 6 4-well pads)

    FT comments 

      Added $458 mm of cash flow in 2018

       175 MBOpd of Permian oil, 80% was exported in 4Q18 – gets Brent related pricing

    Tim's summary slide – slide 18

    We don't need to do large acquisitions to grow, unlike some of our peers.  Sorry PE, not in the cards that they be your guys. 

    Going to Q&A 28 minutes in ….  


  33. 33
    zman Says:

    NG Inventories 

    – 78 Bcf

    Takes inventories to 1,882 Bcf

    Down 1.6% YoY

    Down 15.0% to 5 year (333 Bcf gap)

    No change to our trough thoughts of a mid point of our ranges of 1,500 Bcf and peaks under 4 Tcf this fall. 


  34. 34
    zman Says:

    PXD Q&A

    Q) the market isn't paying for your model … do you think maybe you should slow down growth, analyst notes Marathon stock price reaction to their moves.  Maybe slow more and buy shares more aggressively. 

    A) we are slowing down. we are going to keep debt to < 1x, didn't really say if they would use the balance sheet to buy shares.   Repeating they are on track to get to the ultimate goal of free cash generation that allows more share repurchase and higher dividends. 

    Q) how confident are you that you won't bust the budget in 2019 as you did in 2018

    A) we came in hot on capital because we were so efficient, so we kept going, then had some land and gas processing expenses that hit in 4Q, so we came in hot, but that's behind us. Looking at 2019, the costs are largely contracted for sand, for pressure pumping, this is contractual. 

       – that's probably about as good an answer as he could give. 

    Q) finer mesh sands

    A) the results have been just as good, no reason not to take advantage of cost savings, have proven it. 

      Congrats on the cost savings 

    q) 2% inflation – lot of your peers are talking 5 to 10% deflation. 

    A) it could be up 4 to 5% by end of year … labor will drive that higher.  Have not seen much this year including rig costs are lower (tied to oil prices) but expect when the pipes open up for activity to increase and we all see the DUC counts. 

        "great, thankyou, nice quarter"


  35. 35
    RMD Says:

    EQT ccall going into Rice claims in detail; also have many slides with Rice claim/EQT response side by side.

    Replay only last 1 week = not shareholder friendly guys.

  36. 36
    zman Says:

    PXD Q&A 2

    Q) completion design changes

    A) this is the first year that all areas are dialed in to specifics by areas, not 3.0 or 3.0+, using machine learning to set that.

    not on the lower mesh sand (less coarse) you get to use less gel, surfactant, so you get the lower fluids costs and yet not seeing a change in well performance (says our data and peer data confirm no impact). 

    Q) bigger pads – just for Stackberry for the 3 zones or will see in the regular WC program

    A) not only stackberry, but also for co-developed WC A / B  – operations efficiencies and best way to avoid parent child.  The only downside is the longer cycle times. 

    Q) GS question – initiating and executing on the capex plan.  What % of budget will be spent in 1Q so there are no surprises in terms of trajectory (good question)

    A) 1Q will be higher, you have higher rigs, and you don't get sand savings until 2Q. 1Q will be higher than run rate of 2Q-4Q.   Will help you model offline. 

    Q) GS wanting to know 2019 capex won't rise. People don't trust that they won't lift it again. 

    A) they said what gets focused on gets fixed. 



  37. 37
    zman Says:

    re 35 – thank you RMD – did you see the LPI (unowned) stuff, reminds me of Approach … so much for the "Earth Model"

  38. 38
    zman Says:

    PXD Q&A 3

    We don't consider the 1 mm barrel target as the main driver. 

    Q) POP times didn't go up despite going to a greater % of wells on the bigger pads.  Can you give POP times on smaller

    A) 3 well takes about 170 days.  For each well you add to a pad you add 30 to 40 days. 

        we are 50% 3 well pads in 2019

        40% will be 4 well and greater

        Only a small % is 7 to 8 well sized pads.

        the average was 150 days and it goes to 200 days this year.  

    Q) 2019 – a lot of budgets are using $50; is there something about the $53

    A) we use $53 because it helps discuss in light of US industry … understand we are talking about $60 Brent for the budget … good point. 

    Jumping to AR (unowned) call – will circle to OII (unowned) this afternoon. 

  39. 39
    nrgyman Says:

    PXD mgt sure seems to see higher oil prices in 2019.  If they do climb from here PXD needs to keep capex steady and let the FCF roll in.

  40. 40
    zman Says:

    re 39 – they are using $60 Brent.  Brent is $64 now.   Agreed your last. 

  41. 41
    zman Says:

    AR (unowned) 4Q18 Call Notes

    5.2 stages per day assumed in 2019 budget (note comments on recent 6.0 stage/day rate)

    1 additional stage per day = $200K per well savings.   That puts significant downward pressure on the budget. 

    #1 NGL producer with significant export capability, #5 NG producer in U.S.

    Holds 40% of core undrilled liquids rich in Appa

    2019 Plan – no change from Jan 8 release

      16 to 20%

      Spending to stay within cash flow (hedged out on gas)

      Sees deflation for service and materials costs 

      Budget does not include further efficiency gains nor deflation thoughts. 

      Noting the balance sheet down at 2.2x and big growth last year, strong margins.

    Midstream Simplification 

    AR will be more easily evaluated vs other E&Ps

     –  on standalone – debt will be our debt – not consolidated, so screens showed inconsistencies between sellside analysts and investors. Big fan of names that deconsolidate and simplify. 

     – still own 31% of AM (unowned) 

    4Q18 – record volumes, 17% seq growth – we will get an updated cheat sheet out here soon. 




  42. 42
    tomdavis12 Says:

    PXD  Like that they quoted $400mm higher CF for every $5/bl increase in price. I will be using their average $136 buy back price as my average down number. Lowest break even cost in the Permian sounds good to me.  Z Thanks again for your great notes.  What kind of grade would you give this quarter? 

  43. 43
    james T Says:

    Anyone  why is PE not joining the party lately ?

  44. 44
    zman Says:

    AR (unowned) 4Q18 call note 2

    10 to 15% CAGR now to 2023

    15 to 20 cent premium to Nymex

    Noting new macro slide show on their site. Slide 12 today summarizes. Sees strip as too low (hey, you and me both pal). 

    Here's that full slide show (this is new and I've not looked it over yet)




  45. 45
    nrgyman Says:

    RE 41:  That comment about screens showing inconsistencies between consolidated vs stand-alone debt is an important point.  The simplification resolves that and makes evaluation easier.  Less than 4 weeks away from that event now.

  46. 46
    zman Says:

    re 42 – B

    re 43 – it looks a lot like PXD and FANG – 4Q drop, bounce in January, basing into earnings. A lot charts look pretty similar.   They guided late last year, what we have not really seen for most of these guys is the combination of better WTI from the post OPEC+ meeting lows and the substantial destruction of the Mid-Cush diffs. 

    AR (unowned) starting Q&A

  47. 47
    zman Says:

    re 45 – yes. 

  48. 48
    zman Says:

    AR 4Q18 Q&A notes

    Q) marketing line

    A) we used to be able to buy about 0.5 Bcfgpd to buy and sell, collect the spread, and offset FT charges for not being full.  Right now spreads are small but notes spreads will improve as pipes in the area fill up.  Said its not in the guidance at all so that's incremental if they buy and sell more to offset that cost.

    Q) POP cycle

    A) 200 days on the really big pads …. but using concurrent operations to keep it smooth, they can drill and have a frac spread both operating on same pad or be drilling out plugs on one well by drilling or completing other wells (I would guess they would suspend drill ops on the pad at the time of the actual frac though).   Wyoming could say for sure.  Anyway, their attempt smooth out the cycle.  

    Q) guidance implied

    A) 5.2 stages per day. Feel good about ability to beat that.  Mentioned maybe 6.25 stages per day (which gets you that $200K savings vs current capex plan)

    Q) Hedges beyond 2020

    A) watching things – have seen things level off (same here, each week in the weekly data) – noting a big decline on the US reserve base. Will take more drilling.  About half of the plays are dragged along by liquids but it's really the dry gas plays that are vulnerable, can they make up the decline? 

    Call over 10 minutes early … positive tone here. 


  49. 49
    zman Says:

    WTI just under $54, Brent just over $64.  Good


    Grabbing coffee, back shortly. 

  50. 50
    zman Says:

    Pretty clear from the call that if you are thinking PXD is going to buy PE you may be waiting forever. 

  51. 51
    RMD Says:

    37 LPI: the Gang Who Couldn't Shoot Straight. Ditto AREX though it looks like the Wilkes Bros. may have taken over. Hmmm.

    AR  :  – still own 31% of AM (unowned) . Reminds me of SN who IPOed with the wrong corp. structure, favoring the family over the shareholder. I pay no attention to AR's debt structure.  TTI/CCLP may apply though; CCLP's debt in theory runs to the partnership, parent is not on the hook.  But, big but, TTI's CFO largely comes from the CCLP distributions, starving CCLP of growth capital when demand is > supply (as now), so they lose share big time…total mess IMO.


  52. 52
    tomdavis12 Says:

    PE  If a bigger fish were to make a 25% higher offer (approx $23/sh.), could that be done on an accretive basis?

  53. 53
    zman Says:

    TVA closes Paradise Unit #3 in KY

    Units 1 and 2 were converted to NG in 2017

    Trump publicaly told TVA to consider all aspects in keeping the plant open. 

    It's 49 years old, in need of repairs, economically poor, and not needed. 

    That's about 1.15 GW, not sure if they replace it with NG or not … more trend, that's about the size of two decent sized nukes. 

    A little fun with math:

                             1,150 Mw (net nameplate)      
                             8,760 hours /yr        
    50% Assumed utilization      
                       5,037,000 Mwh        
                5,037,000,000 Kwh        
                             7,000 btu/kwh (hate rate, efficient gas fired unit)  
        35,259,000,000,000 btu        
                       1,037,000 btu /Mcf (average)      
                     34,000,964 Mcf        
                                  93 MM/d        
    34 Bcf        


  54. 54
    zman Says:

    re 51 – the Rice famity did that too.  I did some work for Dan the senior back in the day.  Definitely the smartest guy in the room. 

  55. 55
    zman Says:

    re 52 – a major using cash could. 

  56. 56
    zman Says:

    re 53 – TVA votes to close it over Trump objection


  57. 57
    nrgyman Says:

    RE 50:  Previous PXD comments that they have "decades" of low-cost core inventory suggested that PXD never needed a merger to grow.  They don't, as they reiterated today.  The real reason for an accretive merger is improved shareholder returns (through synergies and efficiencies).  If they can use their higher-than-peer multiple to negotiate an immediately accretive deal through an all-stock transaction, even if it increases their extremely low debt metrics somewhat, the shareholders should benefit.  A PE merger could do that (depending on price), and offer plenty of optionality going forward (so many synergies that can reduce costs and improve returns, not to mention potential asset sales).  So PXD is correct that they don't need a big acquisition to "grow" and shouldn't entertain one.  But to improve shareholder returns over the long term?  Still conceivable.  The market's current mindset won't like it though, even if it will (depending on price) deliver what it ultimately wants.  

  58. 58
    zman Says:

    re 57 – true, just some people talk about it being a good fit. I don't see it happening, now less than ever, much like I don't expect someone like EOG to buy anything. PXD is in its own little world.  Looking at it from a return standpoint, they highlight the low low cost of their acreage in the calculation.  Take in PE's acres and you skew that.  It sounded to me like it's at all on their radar.  

  59. 59
    james T Says:

    re 46  Thanks on PE.

  60. 60
    zman Says:

    CLR (unowned) – thanks for the heads up, stock gave back the gains, will look at after lunch. 

    Going to lunch. 

  61. 61
    zman Says:

    re 59 – I refuse to sell any down here in the ZLT.  I am looking to carve out  a bit of space for VNOM (currently unowned) and others will take a small nick and we may punt a couple of names from the portfolio which I see as dragging feet on discipline and covered by other positions (yes, I am looking at OAS as an exit these days, can replace with recently added WPX and not lose sleep and maybe a tax loss in SWN – we will see – had been previously thinking since November to shake up the portfolio more, started with the adds of wind, and there will be more soon on that front and in terms of more CF positive names like a Marathon). 

  62. 62
    Skipton Says:


    see above No 100 % renewable energy in the foreseeable future. A well reasoned argument

  63. 63
    nrgyman Says:

    RE 58:  Agree, though I'll bet they looked at it.  One concern is that if you do have "decades" of inventory then how does that blend with the climate change movement after about 12-15 yrs?  Adding to that inventory, without acceleration of production (which is not needed or wanted atm) adds risk to the portfolio in the out years–especially with millennial PMs (who don't like fossil fuels) taking control in that time frame.  Perhaps this is yet another reason for the market shift away from growth toward shareholder returns.  

  64. 64
    zman Says:

    Reviewing the funding bill with my team at the @WhiteHouse!

    From the president. 

  65. 65
    zman Says:

    OK – really going to lunch now. 

    Re 62 – will circle to in a bit. 

    re 63 – they have to look at it if they are doing their fidu, just don't see them biting. 

  66. 66
    zman Says:

    re 62 – will try to get to that overnight. 

  67. 67
    Skipton Says:

    Z absolutely no rush just for long term thinking

  68. 68
    Viper1 Says:

    been on a few calls GTLS one of the best i have heard along with MRO . TELL a step closer to FID MOU 

    Limited INDIA (PLL) wherein PLL is exploring the possibility of investment in the Driftwood project, which includes a proposed liquefied natural gas (LNG) terminal, along with natural gas production, gathering, processing and transportation facilities

  69. 69
    james T Says:

    re64 Trump might not sign because poison pill provision allows local officials to veto their respective parts of the wall.   

  70. 70
    zman Says:

    re 66 – thanks for sending, will look. 

    re 68 – yeah, that was a good call. 

    re 69 ruh roh

  71. 71
    zman Says:

    PXD – no real move to sell it off, down less than 2% now. 

  72. 72
    zman Says:

    ECR up 7%, positive reaction to above guidance volumes.  Note that the acquisition is not in those volumes and that the acquiree was what last drove guidance up with the 3Q call. 

  73. 73
    nrgyman Says:

    Trump will sign the funding deal after all, but also intends to issue a state of emergency backed by GOP Senate leaders.  Per CNBC.

  74. 74
    zman Says:


  75. 75
    nrgyman Says:

    MRO:  Z, do you have an estimate of what the TEV/Ebitda multiple is for MRO using the Q4 numbers and expected growth?

  76. 76
    zman Says:

    re 75 – at $17.00 it's about 5.0x, have not seen a 4Q balance sheet yet, estimates on the working capital and debt.  The EBITDA is Street, that could be a touch high, so maybe you are low 5x's on the 2019 numbers. Not a name I have historically tracked as it's part of the splits and is a bit above my normal size but not much.  I'll have a cheat sheet out here in a week or so. 

  77. 77
    zman Says:

    And I do not have a model there at this time. 

    Beerthirty, back in a bit. 

  78. 78
    nrgyman Says:

    RE 76:  Thanks.

  79. 79
    zman Says:

    Midland $1.10 over WTI today.  Last September that was $18 under. 

  80. 80
    zman Says:

    From tomorrow's post:

  81. 81
    RMD Says:

    Feb. 14, 2019 4:59 PM ET|About: The United States Brent Oil… (BNO)|By: Carl Surran, SA News Editor 

    Saudi Aramco halted oil production this week at Safaniyah, the world's largest offshore oilfield, in an unplanned shutdown that removes 1M bbl/day of heavy crude from the market, according to a report from Energy Intelligence.

    The potential impact on oil prices depends on how long the field is down, says Price Futures Group's Phil Flynn, and "the thinking is that the field produces heavy crude, and the world is short of that [type of] oil" because of the OPEC output cuts and U.S. sanctions on Iran and Venezuela.

  82. 82
    zman Says:

    re 81 – Thanks. As a guess, would not expect that to last long, not really how they turn on and turn off production, and not to their benefit as a deliberate act given it will spike heavy prices, hurt world market margins and lead to great levels of run cuts.  

  83. 83
    zman Says:

    Back in a couple of hours. 

  84. 84
    zman Says:

    re 82 – said to be a damaged power cable. Also said potentially offline until March?!

  85. 85
    zman Says:

    I saw that Aspiration Bank ad on NBC.  Your deposits won't fund oil drills, or pipelines. 

    Go to their site. They are pitching green mutual funds. 

    The Redwood fund (nice name)  –  invests in good stewards of the planet  –  A few of their holdings Amazon, facebook, delta airlines, Amex, united health, ashland (specialty chemicals including for oil and gas, ha, oh, and wrinkle cream).   Maybe a little cross promotional action there? Naaahhh. Couldn't be. 

       What they don't have.  Wind names.  Solar names. 


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