Friday Morning – COG

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Market Sentiment Watch: China exports in focus (down 20% in February, well below expectations though note that China's oil imports hit their second highest level). In today's post please find the the natural gas review (bigger than expected, more to come, trough and peak forecasts falling), comments and a cheat sheet update for COG, and some other odds and ends. 

Story of the Day Watch:  The headlines read that Norway is punting it's energy stocks.  Yes and No.  Norway's Sovereign Wealth Fund is pulling out of some oil and gas investments. The $1 T fund owns $37 B in Oil and Gas investments and will be selling out of independents (like APC and APA which it owns), not the Majors.  In the small cap arena it is said to hold about $8 B. This move had been expected as recommended by Norway's central bank two years ago due to the fact that Norway makes most of it's money from oil and gas sales and needs more diversity. We agree with BBC's read that they are unlikely to rush to sell names and put pressure on them.  We note that of the top 10 holdings at the firm, only 1 is oil related, Shell and that was $5 B of the firm's holdings, and the 9th largest position.  Please find a list of U.S. upstream names held by the fund at the end of this post. 

Ecodata Watch:

  • We get Nonfarm Payrolls at 8:30 am EST (F = 175,000, last read 304,000), 
  • We get the unemployement rate at 8:30 am EST (F = 3.8%, last read was 4.0%), 
  • We get average hourly earnings at 8:30 am EST (F = 0.3%, last read was 0.1%), 
  • We housing starts at 8:30 am EST (F = 1.215 mm, last read was 1.078),
  • We get building permits at 8:30 am EST (no forecast, last read was 1.326 mm).


In Today’s Post:

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

Click the link directly below this to ... .

Holdings Watch:   


  • Yesterday's Trades: None
  • The Blotter is updated.
  • Look for rebalancing trades soon. 

Commodity Watch:

Crude oil closed up $0.44 yesterday at $56.66, more than erasing the prior days post inventories modest weakness. The rise came despite mounting fears of a slowing China, a rising dollar, and rising Libyan production.  This morning crude is trading off $1.25 prior to NFP on the China exports news. 

  • China Watch: February imports rose to 10.27 mm bopd (second highest monthly level on record to December's record) vs 10.07 mm bopd in January and vs 8.45 mm bopd in February 2017.   

Natural gas closed up $0.025 at $2.866 after EIA posted a slightly bigger than expected and much bigger than year ago and five year average withdrawal. We expect to get a larger withdrawal next week as well and most analysts' trough and peak storage estimates will be traveling lower which, in the eyes of most, will be price supportive. We have lowered our trough to 1.1 Tcf and our 2019 peak to under 3.3 Tcf (vs the 2018 peak of 3.24 Tcf). While dry gas has run roughly 10 Bcfgpd high on a YOY basis, demand has, via a combination of levers, more than adequately offset this growth.  While we expect April to be sloppy for prices, we expect this to be less than previously expected, and more fleeting than previously expected as generation, Industrial demand, and strong exports work to absorb strong supply which as previously noted should slow this year. This morning gas is trading flat. 

PointLogic Watch 

Natural Gas Storage Review 



Stuff We Care About Today

COG - Cheat Sheet Update

  • 100% natural gas name,
  • Widely under-spending expected in 2019 and beyond,
  • Increasing returns on capital employed and to shareholders,
  • Share repurchase program continues to drive share count lower,
  • Debt it already low,
  • Dividend has been increased but has room to grow,
  • Cost structure is excellent and guidance is for further improvement,
  • Differential guidance is improved over prior years,
  • COG has increased their hedge coverage but is still relatively lightly hedged (<25% of expected volumes),
  • We would expect the name to trade closer to a 9 to 10x forward multiple given the balance sheet and free cash flow, especially should prices come closer to our $3.25 average 2019 deck,
  • Note the 2020 EBITDA figure is nearly in line with the 2019 figure despite 15% Street expected growth. This does not match our views on prices, costs, and growth. 
  • COG remains our #! gassy name in the ZLT.


Other Stuff

  • MLook for a number of cheat sheet updates and Players pieces next week,
  • MGY - President picked up 12,000 shares at $12.30.

Sovereign Fund U.S. energy holdings:  Of the Fund's $37 B in energy, these are the U.S. oil and gas names they hold. 

  • Unowned names: APC, APA, CRC, CPE, CRZO, CDEV, CHK, CVX, XEC, CXO, COP, CLR, DVN, EQT, XOG, XOM, HES, LPI, MRO, MDU, MUR, NFX (ECA), NBL, QEP, RRC, SM, SRCI, WLL,  .Note the majors in this list should be exempt from sale plans. 
  • ZLT Owned names: COG ($73 MM, 0.8%), FANG ($137 MM, 0.9%), EOG ($487 MM, 1%), JAG ($6.5 MM, 0.3%), MTDR ($5.9 MM, 0.3%), OAS ($18.4 MM, 1.05%), PE ($34.9 MM, 0.7%), PXD ($200 MM, 0.9%), SWN (1.5%), WPX (0.7%)
  • We believe Service is exempt from the selling plans but they own many of the OIH names.

Odds & Ends

Analyst Watch:

  • TBA in comments

68 Responses to “Friday Morning – COG”

  1. 1
    Baylor Says:

    Jobs +20k ruh roh

    seems Fed got wayyy overzealous last year

  2. 2
    Viper1 Says:

    Saudi Arabia's Feb

    output 10.1 mil b/d, Mar to go lower, official tells

  3. 3
    Viper1 Says:

    China’s crude oil imports rose to the third-highest volume on record on a daily basis on increasing purchases by new private refineries, while natural gas imports eased as demand dropped amid warmer temperatures, customs data showed on Friday. China, the world’s biggest crude oil importer, took in 39.23 million tonnes of crude oil last month, the data from the General Administration of Customs showed.

    That is the equivalent of 10.23 million barrels per day (bpd), up 21.6 percent from 8.41 million bpd during the same period the year before.

  4. 4
    zman Says:

    We added a section at the bottom of the post that shows unowned and owned names in upstream in the US that Norway owns.  Repeating here:

    Sovereign Fund U.S. energy holdings:  Of the Fund's $37 B in energy, these are the U.S. oil and gas names they hold. 

    • Unowned names: APC, APA, CRC, CPE, CRZO, CDEV, CHK, CVX, XEC, CXO, COP, CLR, DVN, EQT, XOG, XOM, HES, LPI, MRO, MDU, MUR, NFX (ECA), NBL, QEP, RRC, SM, SRCI, WLL,  .Note the majors in this list should be exempt from sale plans. 
    • ZLT Owned names: COG ($73 MM, 0.8%), FANG ($137 MM, 0.9%), EOG ($487 MM, 1%), JAG ($6.5 MM, 0.3%), MTDR ($5.9 MM, 0.3%), OAS ($18.4 MM, 1.05%), PE ($34.9 MM, 0.7%), PXD ($200 MM, 0.9%), SWN (1.5%), WPX (0.7%)
    • We believe Service and Refining are exempt from the selling plans but they own many of these names.
  5. 5
    zman Says:

    NFP story:


    DJIA fut off 200, SPX fut off 20


  6. 6
    zman Says:

    Crude under $55 on China / Payrolls


  7. 7
    zman Says:

    Re 4 – that should be the full list, scrolled through their list of U.S. holdings, given the size of the fund they own just about everything.  About of the 1/4 of the funds value is U.S., far less is energy as noted.  Headlines make it sound like the $1T fund is pulling out of energy but then you look inside what they have and its $37 B in energy and you look inside that and about $8 seems subject to sale around the world, with the U.S. a piece of that. 

  8. 8
    zman Says:

    Analyst Watch

    CRZO (unowned) – Jefco cuts target from $19 to $15, says Delaware Basin venture not successful, says $ better spend in EFS.    Ouch. 

  9. 9
    Viper1 Says:

    Thx for going through that Norway holding list 

  10. 10
    zman Says:


  11. 11
    zman Says:

    re 9 – I was curious and they have a good website, you can use link in #10 to check their holdings.  I think I got about everyone we mention.  Many many service and refiner holdings as well, think those and the majors are going to be exempt from their punt. 

  12. 12
    zman Says:

    XOP off 4% shortly after open. 

  13. 13
    zman Says:

    VNOM (unowned at the moment) down 4%. 

  14. 14
    zman Says:

    Analyst Watch

    J Rice – noting that PDEC (unowned), SRCI (unowned), and HPR (owned) are all rural Weld County, and as we have noted that should make them less impacted by coming CO legislation.   

    HPR off 7% after a solid quarter is oil off a bit and a good deal of never ending CO panic.

    CO should just kill drilling/fraccing and see how that works out … it would definitely lift oil prices. 

  15. 15
    zman Says:

    Nrgy or RMD – can I get a quick P&F read on VNOM?

  16. 16
    nrgyman Says:

    RE 15:  The P&F shows a pullback after an extended breakout.  The pullback now just above the breakout level.  The daily chart shows today it filled the Feb 12 opening gap and is now trading just above that fill level.  

  17. 17
    zman Says:

    re 16 – thanks – working on a set of trades at the moment. 

    Re VNOM (unowned) – to my layman's TA eye, it sort of looks like $30 is in the near term cards, you?

  18. 18
    zman Says:

    ZTRADE – ZLT – Swapping SWN partially into COG

    SWN sold for $4.30. Taking a tax loss here.   The name has reduced leverage but is still outspending this year as it focuses on Appalachia modest growth.  The buyback that has been in place is exhausted. Much of their gas upside is limited near $3. We can wait around another 2 years to see return of capital or we can add to COG.  Please see our comments on SWN from the 3/1 post that covered the 4Q18 report. 

    COG – used about 40% of the proceeds from SWN sale to add to COG position at $24.72, taking COG  to 10% even of the ZLT.  Please see today's post for merits of the story (modest growth, strong balance sheet, dividend, strong free cash flow allowing for further share buybacks and potentially increased dividend). 

  19. 19
    zman Says:

    We owned SWN too long

    Here was our last piece on them


    Note the Nutshell:

    Nutshell: In Line quarter. Capital program is roughly aligned with EBITDA.  We can be patient and wait for them push that towards meaningful free cash or we can add to much lower leveraged, much higher free cash generating COG.  This quarter is fine. The guidance is what they can accomplish.  We will make a call on this name next week and after listening to today's call. 

    Call made, out. 

  20. 20
    zman Says:

    More trades today …

  21. 21
    zman Says:


    MGY – Added to our position, goes from ~ 8% to 10% even, added at $12.15.  Under spending cash flow is not a goal, it's a reality, has been and continues to be the plan to spend 50 to 60% of EBITDA each year and grow modestly.  Balance sheet is at 0.3x and the revolver is undrawn. They don't like debt. Eagle Ford provides near 100% of WTI type realizations (in 4Q 110%). Operating costs are low and trending slightly lower. As such, margins are high.  Don't expect buybacks here and dividends will likely be a thing of out years, not this year. Expect excess cash flow to be channeled to bolt on acquisitions that meet their same kind of margins and otherwise protection of the balance sheet. 

  22. 22
    nrgyman Says:

    RE 17:  VNOM is now sitting at the 200 dma, after filling that Feb 12 opening gap in a low-volume zone.  The bottom end of that zone is around $31, which is where the 50 dma sits.  The $30 level has stronger chart support.  All three levels are what I would call target prices.  One strategy, if one wants to get long VNOM, is to DCA at each target price level with larger increments at the lower levels.  

  23. 23
    zman Says:

    re 22 – thanks much and makes sense 

  24. 24
    zman Says:

    FANG, PXD, EOG – down 3 to 4% each.   We own very little EOG and I've held it for a long time since it forces me to be on their calls. I am on a lot of calls of names I don't own.  I need to either get bigger in EOG or let it go. 

  25. 25
    elduque Says:

    I would think that the Norway fund has been selling already, by the action of a few stocks over the last month or so, ex. OAS

  26. 26
    zman Says:

    re 25 – very well could be.  Author BBC story seemed pretty hooked in and I have to agree with him, they're not going to be slamming out of the names, would not make sense. 

  27. 27
    zman Says:

    re 25 – re OAS – more to say next week. I think they go away for me and WPX gets added to. 

  28. 28
    elduque Says:

    Crude sell off made no sense, other than dollar was stronger yesterday. 

  29. 29
    Viper1 Says:

    re 25 AGREE with that 

  30. 30
    zman Says:

    re 28 – It didn't sell off until today, held up well vs yesterday's dollar rally ($ down today by the way). 

    Today's oil punt is tied to worry over China and US economies. And it's $55 not like we are starting down $50 or something.

    Meanwhile you have politicians going after big tech now, talking about breaking up AMZA and others. I don't know about you guys but I could do with a little less input into the market from DC types.  

  31. 31
    zman Says:

    AR (unowned) – on that Norway list, probing new lows 

  32. 32
    nrgyman Says:

    RE 30:  Im anxious for maintenance season to end and driving season to begin–while Saudi imports continue to dwindle.  Might have to wait until April for it to really show up.  Meanwhile the market is offering attractive discounts to high quality names atm.  XOP sits just above the Jan 4 opening gap, which fills at $27.10.  Appears likely to fill before long.  Perhaps then we will see a turn-around in the E&P space.  The midstream sector has been holding up quite well, with the occasional big drop in certain names.  

  33. 33
    zman Says:

    re 32 – Agreed. I do think April is now going to be less bad for the gassy space. 

  34. 34
    bill Says:

    Norway is going to get scalped on their exit

    CRC down over 10 % at worst

    AR & GPOR down almost 7 %

    Bought all 3, tyvm

  35. 35
    zman Says:

    re 34 – heh

    OT – grabbing lunch, back shortly. 

  36. 36
    nrgyman Says:

    Midland crude selling at a premium to WTI today, according to this:


  37. 37
    Jerome Blank Says:

    My P&f take on Vnom…agree it is pulling back off an aging buy signal, it's not really in an actionable spot right now, if already in, certainly hold , also agree all eyes on the $30 support zone, which means you need to take it a little above that … 

  38. 38
    Jerome Blank Says:

    My P&f take on Vnom…agree it is pulling back off an aging buy signal, it's not really in an actionable spot right now, if already in, certainly hold , also agree all eyes on the $30 support zone, which means you need to take it a little above that, also looking at CXO and Fang … 

  39. 39
    elduque Says:

    Oil rigs to 834. down 10


  40. 40
    james T Says:

    NRGY  Have any comment on CRZO  re  Jefco ?

  41. 41
    Viper1 Says:

    I would think that a large fund that likes energy would contact Norway Fund and buy blocks of what they want negotiated prices 

  42. 42
    james T Says:

    Cushing draws 672 K    

  43. 43
    zman Says:

    re 36 – yep, has been inching higher this week, noted yesterday December was at a premium, and all months but July were at less than a buck discount. 

  44. 44
    zman Says:

    re 37 – thank you Jerome.  Don't be a stranger. 

    re 39 – plan's working. 

  45. 45
    zman Says:

    re 41 – at Jefco we used to do big crosses all the time like that, good for both parties. 

  46. 46
    Plainview Says:

    Have you done any work on ERII — Energy Recovery? Any thoughts ?

  47. 47
    zman Says:

    re 42 – thank you. 

  48. 48
    zman Says:

    re 46 – I have not, don't know, should I?  I see they have a very cool bumblebee looking robot on the website, what's the scoop?

  49. 49
    Jerome Blank Says:

    For a trade, would love to get COG at $23.50ish, this is the lower end of a tightening wedge, a break above $26 then points to a target of $30, stop loss on a fill at that price, must be below $22.50

  50. 50
    zman Says:

    Rig Counts Watch

    Oil down 9 to 834 vs 796 a year ago

    NG down 2 to 193 vs 188

    HZ rigs down 7 to 904 vs 848

    OH lost five, that's odd. All Utica.  

        Utica down 5 to 14 vs 23

    Marcellus gained 3 to 65 vs 57

    Permian lost 1 to 465 vsw 436

    Williston lost 3 to 53 vs 51



  51. 51
    zman Says:

    re 49 – thanks, feel free to drop as many on as you care to. 

  52. 52
    zman Says:

    Oil getting ready to test $56 from below, rally since rigs


  53. 53
    nrgyman Says:

    RE 40:  On CRZO, I bolted for a small loss.  No comment on Jefco's take, but they are worth considering.  CRZO's initial Delaware entry was in the gassier region, which doesn't help when the natgas is virtually given away in the Permian.  CRZO's more recent Delaware acquisition might be somewhat oilier, but their EFS assets have the highest oil mix in their portfolio.  If I had to guess, that would be the logic behind Jefco's take.  

  54. 54
    Viper1 Says:

    re VNOM i have  owned it for years and it usually trades off after the distribution for 6 to 8 weeks . Also it completed a 12 million share secondary on 2/27 @ 32 which was tested successfully today FWIW 

  55. 55
    zman Says:

  56. 56
    elduque Says:

    when does the reduction in the rigs, start to make a difference in production? two months, 6 months?

  57. 57
    zman Says:

    re 56 – no good rule of thumb for that really works these days. It could be either of your figures. The move to a greater % of pad vs single wells for a time extended cycle times, then that contracted. Now it really depends on how they are being used. It also depends on what DUCs are doing which may smooth it or not as they are completed or not.  

    From an EIA math perspective, lower rig counts impact forecasts. They use rig count times assumed productivity in the variouis basins x a time lag assumption less a base decline rate by area.  

  58. 58
    zman Says:

    Crude got it's $56 handle into the close. 

  59. 59
    james T Says:

    Wondering if the jobs number was bogus because of government shutdown ?  Seems like a huge month to month change.

  60. 60
    james T Says:

    re53  Thanks  for your input. 


  61. 61
    zman Says:

    re 59 – I saw some seasonality comments and a lot of "not to worry" about recession as this would not be a sign of that kind of talk. 

  62. 62
    zman Says:

    MGY just not really noticing group action. 

    VNOM (unowned) – shrugged off the 4% dip. 

  63. 63
    zman Says:

    PXD – down 6%.  Tim Dove out, message of 1 mm bopd by XX date likely a thing of the past too.  $2 B buyback in place but not really being tapped. PXD should get with the program and give investors what they want sooner now without Tim. 1Q19 call should be interesting. 

  64. 64
    nrgyman Says:

    CLR:  Now with a 39 handle.  Hamm should have waited a week before making his largest purchase in several years.

  65. 65
    zman Says:


  66. 66
    RMD Says:

    VNOM sorry, been busy.

    only thing I might add is stock stopped at 36, which is the P&F downtrend from the high at 44. 

    Its yield broke out from a range of 4+% -6+% (7/15 to 11/18 ) , peaked at ~7.7% on 1/4/19 and is now sitting on the top of the old range around 6%.

  67. 67
    elduque Says:

    Stocks prices relative to crude exceptionally cheap. 


  68. 68
    zman Says:

    re 66 – I will look at NOA (unowned), good to chat with you. 

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