Friday Morning – COG



Market Sentiment Watch:  In today's post please find the the natural gas review (in line injection; expect a bigger, likely record build next Thursday as we continue to wade into the slack demand prompted by the mildness of this spring), comments on the SWN quarter (beat, no change to guidance, story continues to slowly improve), comments on the COG quarter (nice beat, above guidance volumes, best diffs in over 5 years, strong ROCE, guidance reiterated, dividend increased, balance sheet further improved), comment on XOM and CVX when they get around to reporting, next week's extremely busy earnings calendar, and some other odds and ends. 

Ecodata Watch:

  • We get 1Q19 GDP at 8:30 am EST (F = 2.3%, 4Q18 was 2.2%),
  • We get the consumer sentiment index at 10 am EST (F = 97.0, last read was 96.9).

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watc​h
  3. Natural Gas Inventory Review 
  4. Stuff We Care About Today - COG, SWN, XOM (TBA), CVX (TBA), the 1Q19 Energy Earnings Week 3 Calendar
  5. Odds & Ends


Click the link directly below this to ... .

Holdings Watch:   


  • Yesterday's Trades: None
  • The Blotter is updated.
  • Look for more re-balancing trades soon. 

Commodity Watch:

Crude oil traded off into the close yesterday, trading down $0.68 (1%) to close at $65.21 on medium high volumes.  Lack of further momentum likely yielded some profit taking as some market players questioned the impact of no waiver renewals (people think China will continue to import along with India and others to some smaller extent) and the impact of a temporary issue with Russian crude quality. This morning crude is trading close to $64 this morning on overnight profit taking. 

  • Nigeria Watch: After sabotage of the major Nembe Creek line last week, Chevron reports five wells affected by fire.  As expected post election, strife heating up. 


Natural gas rebounded $0.05 close at $2.51 yesterday after EIA reported an essentially in line injection (albeit nearly double the five year average injection for this week of the year).  Our sense is that gas is trying to find a bottom. We see late spring and early summer pricing working higher as soon as we have notable heat.  Storage is now above year ago levels but withdrawals when on to the end of April last year and we are still ~22% low to the five year average for this time of year. April pricing is doing what we thought it would.  As noted below we are looking for another week of slack demand next week. We should get a bump to near record levels to Mexico the following week and then we should get more help from cooling low as we start to exit the shoulder season. This morning gas is trading off 2 cents. 

PointLogic Watch

Natural Gas Storage Review 


Stuff We Care About Today

COG Reports 1Q19 Beat on Volumes; Differentials, ROCE, Balance Sheet, Costs Improve; Volume and Capex Guidance Reiterated, Dividend Increased.

The 1Q19 Numbers:

  • Volumes above top end of guidance.
  • Differential:  $0.06 discount to Nymex (best differential since 2Q13) vs $0.42 discount in 4Q18 and $0.50 discount in 1Q18.
  • Opex down 6% YoY.  
  • Free cash flow of $308.4 mm in the quarter, in line with 4Q's 296.6 mm.
  • TTM ROCE moves up to 20.4% from 15.9% at YE18
  • 1Q19 Capex was $204.3 mm, essentially 1/4 of the expected full year $800 mm. 


  • 2019 Volumes: Reiterated prior guidance for 20% growth. 
  •       2Q19 volume guidance of 2.3 to 2.35 Bcfgpd vs Street of 2.34 Bcfgpd. 
  • 2019 Spending: Unchanged guidance of $800 mm,
  • Free cash flow estimate for 2019:  Unchanged vs prior.
  •     @ $2.50 NG = $475 to $525 mm
  •     @ $2.75 NG = $600 to $650 mm
  •     @ $3.00 NG = $700 to $750 mm


  • There was no operations update with the release this time. 
  • Dividend increased to 9 cents per quarter from $0.07.
  • Further share repurchase:  They previously announced shares were reduced by 8% as of the 4Q press release (not a typo, same as SWN below); waiting on word of scope of further purchases.
  • Favorite Quote Watch: " "Even when stress-testing our five-year plan to natural gas prices that are significantly below the current forward curve, Cabot's anticipated free cash flow profile would enable the Company to continue to grow its dividend over time to a yield that is competitive relative to the broader equity market."

Balance Sheet: 

  • 0.4x net debt to annualized 1Q19 EBITDA vs 0.7x last quarter; net debt to TTM EBITDA fell to 0.8x, 
  • Liquidity of $1.8 B; revolver remains undrawn.

Nutshell: Nice quarter. Everything moving in right direction. We own COG as a top 3, currently 9%, position in the ZLT. 

SWN Reports Strong 1Q19 Results; More Liquids Rich That Expected; No guidance mentioned (so unchanged)

  • Production of 2.0 Bcfepd (78.5% natural gas) vs 1.88 Bcfepd (84% NG) expected, 
  •     SW Appalachia - still smaller of the two Marcellus segments but driving the growth more now and it's the more liquid rich area. 
  •        SW Appa was down > 1% from 4Q and up 37% YoY; now 38% of volumes (new high as a % of total)
  •        NE Appa was down 5% from 4Q and up 4% from year ago.  
  •     Differential: ($0.20) off Nymex; NGL prices were 26% of WTI for the lighter components and 49% for the C3+ pieces (propane, butane, etc). 
  • LOE was $0.90 / Mcfe vs $0.94 a year ago and $0.93 last quarter (despite getting more liquids rich, this is the impact of getting rid of higher cost Fayetteville volumes)
  • EBITDA of $319 mm vs $274 mm expected
  • EPS of $0.27 vs $0.21 expected
  • Net debt to EBITDA of 1.7x (compares to 1.85x at 4Q),
  • No borrowings on the revolver, 
  • Guidance: No mention of annual guidance which means they didn't change it. Pretty normal for them with the 1Q19 release and they'd be foolish to walk up capex this year. 
  • They did note they are track from a capex/ft standpoint towards this year's guidance. 
  • As noted previously they completed their $200 mm buyback authorization (eventually reduced shares out by 8% ... more please; no word yet on a possible reload).
  • SWN trades at a fairly inexpensive looking 4.4x and 4.1x Street 2019 and 2020 E EBITDA respectively.
  • Conference Call: Today, 10:30 am EST.

XOM Reports 1Q19 Miss

  • EPS of $0.55 vs $0.72 expected
  • Upstream helped offset downstream weakness (weaker margins, more than expected maintenance, liquids volumes up 5% YoY on Permian ramp, 
  • Sees reaching > 1 mm bopd in Permian before 2024 (acceleration)
  • We don't follow the Majors closely, just paying attention for general and Permian color. 
  • Conference Call: Today, 9:30 am EST.

CVX (unowned)  Announces 1Q19 Beat; Press Release Reads as if OXY bid for APC does not exist.  

  • EPS of $1.39 vs $1.30 expected
  • Upstream volumes up 7% (Permian and Australia)
  • "the company recently announced that it entered into a definitive agreement with Anadarko Petroleum Corporation to acquire all of its outstanding shares. Wirth commented, “The combination of Anadarko’s high-quality assets and people with Chevron’s portfolio strengthens our leading position in the Permian, builds greater deepwater Gulf of Mexico capabilities and will grow our LNG business. We believe this transaction will unlock significant value for shareholders.” "
  • Conference Call: Today, 11 am EST.

Next Week's Earnings


Other Stuff

Housekeeping Watch:  I will be traveling this weekend beginning at 1 pm EST. The Wrap will be released Sunday evening. I will check in tonight late and over the weekend. 

Odds & Ends

Analyst Watch:

  • TBA in comments

51 Responses to “Friday Morning – COG”

  1. 1
    zman Says:

    Oil moving off highs as expected, see Monday post for our near term expected ranges in The Week That Was (we're still well above at present):



  2. 2
    Baylor Says:

    Wow the fed really screwed up last year

    amazing gdp number 

  3. 3
    zman Says:

    GDP 3.2%. 

  4. 4
    zman Says:

    Armed Pirates Attack Oro Negro Oil Platform in Mexico: Reforma BBG

  5. 5
    zman Says:

    COG call in 15 minutes, notes to follow … 

  6. 6
    zman Says:

    SWN (unowned) – bid up 3%

  7. 7
    zman Says:

    COG 1Q19 Call Notes

    Record free cash flow, adj earnings, production

    20.4% ROCE vs 8.3% at TTM of 1Q18

    ROCE now about S&P500 levels

    4th dividend increase in last 24 months

    Plan to continue to increase dividend, even if NG prices are significantly lower than here

    Have been in blackout period for most of this year, so have not been buying back shares.

    But plan to get back to buying back, especially if gas prices weaken further.


    13 wells came on in 1Q19, all were TIL'd in March, 7 of those in last week of the month

      So they beat despite a lack of early quarter completions

     Current strip is $2.75, directly in line with our budget. 

    46% of volumes hedged 2Q to 4Q now. 

    Reaffirmed $800 mm and 20% volume guidance

    ROCE of 22 to 23% expected

    Thinking mid range for free cash scenarios ($600 to $650 mm fcf)

    Going to Q&A 9 minutes in … 



  8. 8
    bill Says:

    Your call on NG has been right on the mark. June NG is up 3 cents at the moment. Hopefully, the lows have been reached. Fear, currently is ruing the day at the moment.

    Im surprised no one takes a run at one of these guys

  9. 9
    zman Says:

    re 8 – blind squirrel finds nut!  But thanks. It's a big slug of YoY gas growth … so the shoulders should be sloppy but these gas prices along with heat and less coal = 2019 topping 2018 for power burn, then you have Mex Ex that finally moves higher and LNG ratching higher quarterly through the year plus likely top of range to record Industrial demand.  Dry gas growth is up to be sure but it's slipping slowing higher now. 

  10. 10
    bill Says:

    EQT up 6 % today

    COG & SWN pushing 3 %

  11. 11
    zman Says:

    re 10 – from yesterday's post:

    EQT (Unowned Big Cap Marcellus / Utica Gassy/Liquids Rich Name) Reports 1Q19 Beat; Edges Guidance Up, Story Continues To Improve, Notes 30 Fewer Wells Planned Now for 2019

    • Volumes just above top end of guidance range at 4.25 Bcfepd,
    • EBITDA of $710 mm vs $694 mm expected,
    •      Vs Capex of $476 mm in the quarter.
    • NG differential was in the middle of the expected range at ($0.02) for the quarter, see guidance below
    • EPS of $0.83 vs $0.72 expected,
    • Adjusted free cash flow was $171 mm in 1Q19, (sees $300 to $400 mm fcf this year),
    • Showing off strong efficiency gains (drilling and completions),
    • Noting $500 mm in net debt reduction since end of year. 
    • Net debt to 1Q19 annualized EBITDA should be close to 1.5x, 
    • Guidance – volumes for full year nudged higher by 10 Bcfe to a new range of 1,480 to 1,520 Bcfe,
    • Guidance – much wider differential for 2Q (seasonal) but reiterates full year differential.
    • Guidance – no change to EBITDA guidance.
    • Guidance – they noted negotiating an early reduction to the horizontal rig count that will result in 30 fewer wells being drilled this year with 15 fewer spud (111 spuds now vs 126 at last note in January). Wells turned in line  at 140 vs prior 147.  Expect to see questions about 2020 growth coming out of this reduction. 
    • Nutshell:  This is likely to be well received though the well reduction comment may call the Street's 2020 growth thoughts into question (but probably not). Like COG, they are committed to sustainable free cash generation. They have a bit more debt and different margins than COG's all gas, lower cost structure, but they are of increasing interest.  
  12. 12
    elduque Says:

    AR- first day in a few that we have gone above opening range. Have to believe that the stock should do really well after buying restrictions are removed. Management has bt stock as well as co can. 

  13. 13
    bill Says:

    12– Recently, they bought back a slug of stock at 14. Seems to me at 7, they will be buying hands over fist. The other thing that baffles me, is their holding in AM market value is about what the stock is selling for here. Buy the company and spin of AM and you get the rest for free. Makes no sense, imho

  14. 14
    bill Says:

    AR was 8.25 just 3 days ago. Selling down to 7.20 in 3 days…amazing. I wonder how algo's are contributing to the selling with all the buyers on sidelines due to fear, margin calls and no insider buying. .. a perfect storm on the downside.

  15. 15
    zman Says:

    CNBC says Trump called OPEC and told them to bring prices down. 

  16. 16
    zman Says:

    Adding to 15:

    “The gasoline prices are coming down. I called up OPEC. I said, ’You’ve got to bring them down. You’ve got to bring them down, and gasoline’s coming down,” Trump told reporters en route to a National Rifle Association event in Indianapolis.

  17. 17
    zman Says:

    COG 1Q19 Q&A

    Q) upper Marcellus

    A) not seen anything to deter our expectations that eur is above our current 2.9 Bcfe /1,000'.  Pleased. Want more data as per usual

    Q) buyback vs dividend … short sited question, wants to know if they get div to S&P by end of year, sheesh 

    A) were comfortable on buybacks during the first quarter, will have more discussions on how to allocate between the two, but main thing is they will give back minimum of 50% of free cash, that will happen. 

    Q) industry consolidation

    A) if it is good for the shareholder my job is to evaluate it. Pretty standard answer here. 

    Q) color on long term diffs

    A) diffs in 1Q were as expected, 2Q basis has widened with shoulder as expected, longer term strong diffs here to stay. 

    Q) color on blackout and buybacks, what's it look like for 2Q

    A) we have a consistent period on 10K and 10Q time, he's not going to spill on size

    Q) midstream question from GS?

    A) In basin demand – looking very very hard at a number of things, nothing to say today, want to find right project from a timing, scale, community -lot of prospects.  Said in last 18 months 1.4 Bcfgpd of growth in the 6 counties added, lot of people looking to add demand. 

    2021 project – transcript

    Penn East – moving along for NJ permits, complete on the PA side.  Construction maybe 6 to 12 months away.  

    Referred to buybacks as opportunistic for now. 

    Q) any updated thoughts if strip goes substantially < $2.75

    A) we have bandwidth of $2.50 to $3.00.  If it goes below that substantially we won't have a knee jerk reaction, may make some adjustments but must remember we will make significant cash flow below $2.50.  

        If we get stressed, we can still make money below $2 gas.  But there will be a self correcting mechanism as the industry cannot. 

    Q) divest equity investment in Atlantic Sunrise now?

    A) wanted seat at table for AS and Constitution.  Longer term they won't be part of the country and we are assessing when to monetize. 

    Q) M&A – any dry gas in Appa (as opposed to the usual assumption you guys would be looking for oil)

    A) we monitor all the activity, agnostic to the commodity, just has to be more of the same (in terms of returns),

    Q) modeling

    A) yes, takes into account expected maintenance, completion related shut ins

    Q) service inflation thoughts

    A) flattish, a lot of the big pieces are locked into long term contracts, then you have increased efficiencies. 

    Q) Thoughts on Haynesville slowing down?

    A)  The majority of operators there are now private.  Activity vs soft spot in strip likely means less allocation. Sees a little bit activity as we move forward. 

    Q) industry growth

    A) disciplined, no push to grow harder.   COG will remain disciplined, modest growth

    COG – good call tone, quarter well received, nothing really new with the call, same plan going forward (low debt, disciplined spending, high returns, return of cash, etc). 





  18. 18
    zman Says:

    COG up 2% at end of call. 

    OT, grabbing coffee, back shortly. 

  19. 19
    zman Says:

    re 14 – would suspect we see a lot of bottom fishing in the more-levered-than-Cabot, less-free-cash-than-COG gas names in May.

  20. 20
    zman Says:

    re 19 – would expect sawing action as you have trapped longs using pops to run away from the same names. 

  21. 21
    zman Says:

    MR up 3%.  Odd. 

  22. 22
    zman Says:

    SWN (unowned) 1Q19 Q&A

    Q) Outlook for pricing

    A) have been adding basis protection, note the $2.85 hedge of 70% this year and higher % 2Q,3Q.  2Q and 3Q will be wider than 1Q, looking for Nymex less $0.50

    Q) Tioga County well in pr

    A) landed normal lower Marcellus – longer lateral vs offsets, optimized completion (just ongoing design improvements).  We're please with it but expect similar development pace there going forward. 

    Q) SW PA – wet gas portion until now given softer liquids pricing

    A) we have super rich and rich gas, capital allocation is done on returns for all projects, so we can adjust the drill schedule on fly.   In aggregate will stay in line with cash flow. 

    Q) 15K' laterals, what portion of acreage can you do that on. 

    A) well positioned, will be able to maintain those kind of lateral lengths, saw a 20% per ft reduction from that, can do these kind of lengths in both regions

    Trading action in SWN looks a lot like that of RRC the other day. (both unowned)


  23. 23
    zman Says:

    From today's post:

    Lack of further momentum likely yielded some profit taking as some market players questioned the impact of no waiver renewals (people think China will continue to import along with India and others to some smaller extent) and the impact of a temporary issue with Russian crude quality.

    Now there's this:

    "Rumor that USA is giving China a waiver on Iranian oil. Thats Half the oil iran exports."

    That call into OPEC noted above is going to fall on very deaf ears. 


  24. 24
    zman Says:

    You can almost hear Al Falih's chuckle now. 

  25. 25
    zman Says:

    Rig counts at 1 pm EST.

  26. 26
    zman Says:

    Would not be surprised to see a little cynical group bounce soon.  If the U.S. gives China a waiver, that would be nearly 1 mm bopd.  Goes again Bolton but I could see it happening.  And then Saudi's trust but verify stance comes into play and they don't lift as much for June. Net net you don't get Saudi, UAE to increase volumes as much to meet seasonal rise in demand if you leave Iran in play. 

  27. 27
    elduque Says:

    Z- macro opinion: CLB said in the conference call that they were seeing major projects going into development stage for the first time in a couple of years. In order for that to happen, it would seem to me that people are feeling better about the long term price of Crude or have the offshore cos. reached the stage where they have to develop something with the depletion rates eating into their reserves. 


  28. 28
    zman Says:

    SWN (unowned) 1Q19 Q&A 2

    Q) NE – what kind of capex and rigs needed to hold flat

    A) NE is about $300 to $350 mm (what we are doing this year)

    Q) 3Q and 4Q rig count

    A) we previously said front end loaded the year, then we fall off 2H19, it will be reduced from where it is (decline to peg a #)

    very focused on reducing capex and opex. 

    Q) what need to see from U Marcellus to be a bigger piece of program

    A) it will play a piece but it won't need to do much better (volume or costs) to get it to be a bigger piece of the mix.  Also good for COG. 

    Call over, tone fine. Would not be surprised to see it saw higher in May/June but see some failed rallies first. 


  29. 29
    zman Says:

    re 27 – honestly both.  Some of that is NOCs feeling the pressure of decline rates (you can do things to mitigate declines for only so long before you need true replacement of reserves). Some of that is major independents and Majors balancing better prices and much lower DW day rates. 

    As noted recently, we do not own but are likely to take a position in long watched but not owned for many years OII (oh eye eye) roughly on that theme.  


  30. 30
    zman Says:

    CPE (unowned) – 25% of shares out now short, up from 20% two weeks ago.  Tops list of names we care about I was just sent by a friend of the site. 

  31. 31
    zman Says:

    Worth reading as a refresher before their 1Q19 call:


  32. 32
    zman Says:

    Borrowed from next Monday's post. 

    Street has nudged back above us to $60.50 for this year and added a buck plus to next year as well. Recall consensus was $68 for this year in October last year. We continue to sit at $60 where we have been since December 2017.

  33. 33
    zman Says:

    re 30 – here's that table:

  34. 34
    tomdavis12 Says:

    Quote from Thurs. Capital Economics – "We still expect oil prices to fall this year as sluggish global growth weighs on oil demand, US shale output grows strongly and investor aversion to risk assets like commodities increases."

    Short positions. Not only is the CPE at 25% but in the last period April 1-15 there was an increase of 11.4mm shares or 25%   JAG is also at 26.7% but did decline during the same period. 

  35. 35
    zman Says:

    re 34 – thanks

  36. 36
    Baylor Says:

    Wow. That was fast

  37. 37
    zman Says:

    Just off a call, what was fast?

  38. 38
    zman Says:

    Rig Count Watch:

    Oil DOWN 20 to 805 vs 825 a year ago 

    NG down 1 to 186 vs 195 year ago

    Horizontal down 13 to 873 vs 901

    Permian down 3 to 460 vs 452  (TX dropped 9 rigs)

    Eagle down 4, Bakken down 3

  39. 39
    zman Says:

    Modest knee jerk on the rig count


  40. 40
    Baylor Says:

    How much of ARs production is in colorado?


  41. 41
    Baylor Says:

    Re 37 just the woosh down from just a couple of days ago as hot money flees


  42. 42
    zman Says:

  43. 43
    zman Says:

  44. 44
    zman Says:

  45. 45
    zman Says:

    re 40 – that's funny

    re 41 – ah. 

    OK, so as per the housekeeping watch I have to get on the road but will check in late tonight and over the weekend. The Wrap will be out Sunday evening. 

    Early Beerthirty. 

  46. 46
    Viper1 Says:

    Trump says he did not speak to SAUDI but to OPEC ,OPEC chief statement "I have not spoken to Trump'

  47. 47
    Viper1 Says:

    Any thoughts? Re.  VNOM Q4 the average oil price for VIPER  was 48.73  the reason it was low was the BIG differential in Permian crude price vs. WTI, 18 dollars at one point, the cause were bottlenecks. That has closed so I expect a better ave oil price Q1 WITH Tue's release. The St.  I see the St. ave is 54.75 for Q1 

  48. 48
    Viper1 Says:

    Sorry for the typos at the end Its Friday 

  49. 49
    Baylor Says:

    Well, if you were looking to buy something on Monday, we’re right back where we started and the oppy RE-presents itself. Gotta be nimble in this commodity market

  50. 50
    zman Says:

    re 46 – but of course

    re 47 – it was much smaller yes, but oil prices were also lower vs 4Q18. This is all well known so would not expect diff fears to be a problem for most but not all of the names this quarter, some did do some locking in below where prices calmed to, so like FANG is lower, but it won't hurt them a lot and that too is well known.  

    re 48 – ha

    re 49 – four weeks of up, one weeks of down about 2.5%. 


  51. 51
    official website Says:

    official website

    Friday Morning – COG | Zman’s Energy Brain ~ oil, gas, stocks, etc…

Leave a Reply

Zman's Energy Brain ~ oil, gas, stocks, etc… is is proudly powered by Wordpress
Navigation Theme by GPS Gazette