13
Jun

Thursday Morning – OPEC, Permian Players

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Market Sentiment Watch: This post is open to the public. The Holdings Watch Grids will be tabled until Friday. Oil is up a touch this morning on two apparent tanker attacks in the Gulf of Oman (see below).  In today's post please find the oil inventory review (not as bearish as API or recent weeklies; internals are slowly improving), the natural gas preview (Street is looking for +111 Bcf which still looks a bit high to us), comments on the OPEC Monthly (US supply forecast edged lower, global demand estimate reduced on slow start to the year and fears of trade war impacts), the Permian Bar and Scatter charts, and some other odds and ends. 

Ecodata Watch:

  • We get jobless claims at 8:30 am EST (F = 218,000, flat with last week),
  • We get the import price index at 8:30 am EST (no forecast, last read was 0.2%). 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watc​h
  3. Oil Inventory Review 
  4. Stuff We Care About Today - Permian Bar and Scatter
  5. Odds & Ends

Holdings Watch:   

ZLT

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

Commodity Watch:

Crude oil fell $2.13 (4.00%) yesterday to close at $51.14 on medium high volume in the wake of what we viewed as a fairly neutral report (crude stocks were up, not down, but the internals continue to improve post maintenance and EIA slowed their roll for their weekly guess at crude production while throughput edged up and exports remained upper band). Global demand fear appears to be ruling the week so far with stories citing weak US and China PMI's and then highlighting prior periods of weaker oil demand. We see the late day sell off in crude on significant volume as likely tied to fears OPEC's monthly revision on demand out this morning and on IEA's initial demand forecast for 2020 due out Friday. This morning crude is trading at $52.75 on the following off Iran.

  • Iran Watch:  Two tankers severely damaged (one claims it was attacked), at least one on fire and abandoned in the Gulf of Oman, off Iran, near Hormuz. Both were hit at the same time, before 6 am local. We only label this as an Iran watch since Iran media first reported explosions on the tankers and they're going to be likely to be blamed for this. This comes a month after less severe attacks on 4 tankers that are widely attributed to the work of Iran. 

OPEC Monthly Watch:

  • Non OPEC 2019 supply forecast was revised slightly lower last month; this report they held non OPEC supply flat.  U.S., Norway, Brazil were revised lower and were offset by expected growth from China and the U.K.
  • Global demand: Revised lower on poor 1Q19, particularly weak March for U.S. and Canada.  2H19 is expected to rise seasonally by 1.2 mm bopd over 2H18. Sees trade disputes behind slower growth. 

 

Natural gas closed off 1.3 cents at $2.386.  Noise. This morning gas is trading off 3 cents. 

 

Natural Gas Storage Preview

Street is at +111 Bcf for today's report. 

  • Last Week: +119 Bcf
  • Last Year: +95 Bcf
  • 5 Year Average: +92 Bcf

Oil Inventory Review

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Stuff We Care About Today

Permian Bar and Scatter - Group 1

 

Other Stuff

  • HPR - CFO buy 7,500 open market,
  • Look for the Permian Players update soon,
  • Look for a requested cheat sheet on CPE (unowned) update soon,
  • Look for comments on CRK (unowned) soon.

Odds & Ends

Analyst Watch:

  • TBA in comments

67 Responses to “Thursday Morning – OPEC, Permian Players”

  1. 1
    zman Says:

    Tanker attacks were in Iranian waters, explosions said to have been on both, one reported sunk earlier and then revised as not sunk but may be sinking. 

  2. 2
    elduque Says:

    Robry: 93 and 108

    Thanks for the tables.

  3. 3
    elduque Says:

    AR- Warburg Pincus no longer has members on the board and sold all their shares 16,09100 at 6.10. Would think that is partly responsible for the poor performance of the stock. 

  4. 4
    Viper1 Says:

    Thx for the refinery response Z 

  5. 5
    zman Says:

    re 3 – yes, that makes sense. 

    re 4 – you bet, feel free to redirect. 

    WTI hanging out above and below $53 depending on when you look as we approach equity open.  

    Thoughts:

    1) not a lot of reaction there or Brent on a tanker attack day.  This is likely due to demand fears (see below) and IEA tomorrow (also demand fears and the first French view on 2020 demand).  Oil really not discounting Hormuz potential yet tit for tat responses likely. 

    2) OPEC report speaks to high probability of curb roll.  2H to face uncertain demand due to trade issues and global GDP impact.  Cuts to demand were for already impacted volumes in 1Q.   Russia really ought to pay attention.   Iran and Saudi at OPEC meeting will be interesting. 

    3) no one U.S. will be upping capex with the 2Q19 reporting period. Plenty upstream US will be addressing cash flow on a $50 to $55 deck.  Capex was largely front end loaded so free cash flow becomes a touch easier as the year progresses near current strip price. 

  6. 6
    zman Says:

    re 5 – see thought 1:

    PENTAGON OFFICIAL- MILITARY MEETING AT THE MIDDLE COMMAND LEVEL AND CHIEF OF STAFF HELD THURSDAY MORNING TO DISCUSS GULF DEVELOPMENTS

  7. 7
    zman Says:

    Iran video of one of the two tankers. 

    https://twitter.com/i/status/1139141268687261696

  8. 8
    brodway Says:

    MKM Partners initiated WPX Energy (WPX) coverage with Buy and target $15

  9. 9
    nrgyman Says:

    CPE trimmed 2019 production and capex guidance:

    https://seekingalpha.com/news/3471026-callon-petroleum-lowers-2019-production-guidance?app=1#email_link

  10. 10
    bill Says:

    3. I wonder what the dispute was about

  11. 11
    zman Says:

    re 8 – thanks. Finger on trigger when I start buying things again. 

    re 9 – thanks, was just working on their file. Reduction a function of previously announced sale.  May wipe out the preferred with proceeds. 

  12. 12
    nrgyman Says:

    CPE:  With the recent asset sale do they plan to retire the preferred?

  13. 13
    nrgyman Says:

    RE 12:  oops. missed #11.

  14. 14
    zman Says:

    Adding to 11 – it's a very minor change

    2019 E (includes capitalized items) 610   6 rigs at start, 4 rigs by mid year, 5 rigs at year end. (5 rig avg)
     (based on a $50 oil and $2.75 gas priced deck) ($495 to $520 mm D&C)
    Original all in was $615 mm mid     1 completion crew at start, 2 by mid year. 
         
          Development Focus: Increasingly weighted to Delaware; primary WC A
         
          Well Count: 47 to 49 placed on production
         
          Lateral Length: 7,400 Midland; 8,400 Delaware. 
          D&C Costs per 1,000:  
          Midland guide down 18% to $0.9mm/1K
          Delaware guide down 14% to $1.2 mm/1K
          Transition year to bigger pad sizes; codevelopment of U&L WC A, stacked with WC B, some LS and 2nd BS as well
         
         

    $5 mm off capex, no change to wells popped

    Cost guidance all same

    volume reduction is biggest change but that's due to the asset sale. 

    Estimates will come off a bit but they get the monetization to impact leverage. 

    We do not own the name. 

     

  15. 15
    nrgyman Says:

    CPE:  Why does CPE capitalized interest, a practice at variance with the rest of the industry?  Doesn't that draw attention to their debt in a negative way?

  16. 16
    zman Says:

    re 12/13 – don't know for sure, all proceeds ($245 mm plus potential for $60 mm more in time) to go to de-lever.  They mentioned the preferred at the time of the deal, would make sense to kill it now but dunno if they will. 

  17. 17
    zman Says:

    NG inventories in 5 minutes

    NG down 2.5 cents at $2.36 just ahead of report.

  18. 18
    zman Says:

    Natural Gas Quick Look

    +102 Bcf   (as per post and Friday and Monday comments, Street was too high this time)

    vs +111 Bcf  consensus

    2,088 Bcf in storage

    10.0% over year ago

    9.9% under five year average

    As noted in the weekly data, not seeing a further fast rise in volumes, starting to see big pickup in generation demand (despite the blue spot), and seeing record /near record Mex Ex and LNG Ex

     

  19. 19
    zman Says:

    US Official: "Highly Likely" Iran Behind New Tanker Attacks In Gulf Of Oman – CBS

  20. 20
    james T Says:

    Now reporting tankers hit by torpedo's ?  

  21. 21
    zman Says:

    re 20 – really? That would be a pretty serious escalation. 

  22. 22
    james T Says:

    re22Yes, Exactly,  hear it on several sources,  Submarine, will a stinger type device knock hole in tanker ?

  23. 23
    zman Says:

    re 22 – I don't know.  By stinger you mean some sort of shoulder launched anti aircraft missile being shot at a ship?  If so, again, I don't know.  I passed it along to Italyinvestor to address. 

  24. 24
    zman Says:

    re 23 –

    If Torp from say, an Iranian sub, that will be a short lived campaign.  Hunt, isolate, force to surface, etc. 

    If it's a zodiak with a dude with a rocket launcher hell bent on pinging VLCC's that may be tougher to combat as the fleet can't escort that much tanker traffic. 

  25. 25
    james T Says:

    Funny how no one in this day and age has a picture of a zodiak or something in the area.  

  26. 26
    zman Says:

    re 25 – conflicting reports on whether or not one sank.  Very hard to sink a VLCC.  Also supposedly hard to light on fire but that's naphtha, not oil so there is that. 

  27. 27
    james T Says:

    Some said frogmen could have planted mines on hull in port ?  Sounds possible.   First tanker sinks, towing other back to port.

  28. 28
    zman Says:

    re 27 – limpet mines, magnetic, suspected in the attacks a month ago.  Witness today said one looked like a shell impacted the hull above water line. 

    Confirmed it sank?  That's very tough. 

    Reported that both were carrying product to Japan and Japan was in Iran for meetings. 

  29. 29
    Viper1 Says:

    11:50 

    Second day of 20c call buying in Cabot Oil & Gas

    Second day of 20c call buying in Cabot Oil & Gas. Shares down a nickel to $23.67 this morning calls leading puts 24:1 and most of the flow in the June 28th 25 calls, where an opening customer buyer has been paying 20c. Similar action yesterday opened 2700 contracts at the same price.

  30. 30
    tomdavis12 Says:

    Blackstone – BX  Comments from Jon Grey at a MS conference yesterday. BX went public in 2007 and stock is up 6 fold since. Today new all time high. Alternative asset money manager ($500B). They have also recently announced a switch from MLP-K1 to a CCorp. Big need for returns considering how low yields are. "In the US, on the energy front what we're seeing is the impact of the shale revolution, which may not necessarily be great for energy prices, but good for energy volumes. So in our energy equity business, try to develop pipelines in our infrastructure business by existing pipeline systems; in our energy debt business, lend against them." 

    EPD performing better than most E&P names. Also could follow the same course. BX made the switch because of overwhelming feedback that mangers do not want to deal with K1's. 

  31. 31
    zman Says:

    re 29 – $24.50 and $25 strikes, I see it and it's not me. Not a huge pile of money, 9 days to be sort of right, likely a bet taken for the spread on a near term expected pop that won't make that strike. 

  32. 32
    zman Says:

    re 30 – thanks.   Generally what happens is you have volume growth and eventual infrastructure tightness, G&T expenses move up, then more pipes, compression, processing gets built and eventually moves to oversupply at which point G&T falls.  

    Saudi-Led Coalition Spokesman Says Thursday'S Tanker Attack In Gulf Of Oman Is "Major Escalation" || Says Thinks Can Connect Thursday Attack To Last Year'S Houthi Strike On Oil Tanker In Red Sea

  33. 33
    Viper1 Says:

    Patterson-UTI Energy (PTEN +7.9%) pops higher following a Reuters report that the company is looking at divesting its pressure pumping unit.

  34. 34
    zman Says:

    re 33 – thanks, had not seen. 

  35. 35
    nrgyman Says:

    CRC:  Was reading their crude has an API gravity of 30, much heavier than shale oil.  This heavy crude also gets Brent+ pricing ($3 premium to Brent last I read).  CRC also has a low decline rate due to their non-shale, conventional production.  Their margins on legacy production have not been great due to higher costs, but new projects look promising with higher margins due to lower costs with the Brent+ pricing.  Debt and the CA politics have dropped the stock considerably, but the CA issue does not look like a problem.  Debt is, but they have support from their bankers with covenants and have been gradually reducing their debt.  They also have entered JVs to grow production with prudent capex use.  If Brent moves back into the $70s (which OPEC wants and GS' Currie forecasts) CRC will get a big boost.  The avg analyst TP for CRC is $31.86, nearly a double from here.

    BRY:  Also looks intriguing as a CA conventional producer, but without the massive asset base (or debt) that CRC possesses.  Yesterday was big volume red day (>10x the avg vol), but the technicals are inching closer to a turn higher.

  36. 36
    zman Says:

    re 35 – True, we covered CRC awhile back, own a small piece personally, it's a local product for a local market (super rare to see an export, that market is overwhelmingly import oriented as Cali likes to drive, not drill). The debt is massive. Please see our last cheat sheet update on it. Gradual indeed.

     

    BRY (unowned) I actually like a bit more but see monster LOE there (low prices hurt quick, higher prices act like leverage; their LOE alone almost 2x the total per unit cash costs of many of our Permians; yes you get higher realized but then you take out $19 / BOE LOE and another $12 /BOE or so for the rest (from electricity to G&A). 

    BRY (unowned):

    Basic

    https://zmansenergybrain.com/2019/03/26/tuesday-morning-berry/

    Quick 1Q update

    https://zmansenergybrain.com/2019/05/09/thursday-morning-56/

  37. 37
    zman Says:

    For instance, the average 1Q19 cash costs including interest for the Permian Players Group 1 is $11.27 / BOE; 

    BRY (unowned) averaged $31.33 last year. 

    Given that cost structure, on a pop in oil it definitely benefits. 

  38. 38
    Viper1 Says:

    Construction delays at Freeport LNG are pushing back the startup of Train 2 and Train 3 liquefaction facilities by 4-5 months, according to a field inspection report released by the Federal Energy Regulatory CommissionThe regulator says it now anticipates an in-service date for Train 2 in spring of 2020 and for Train 3 in late fall of 2020.

    As recently as May 23, lead construction contractor McDermott (NYSE:MDR) said initial production from Train 1 was expected by Q3 2019 followed by a startup at Train 2 in Q4 and Train 3 in next year's Q1.

  39. 39
    zman Says:

    re 38 – thanks, we have Train 1 commissioning now which was already a bit delayed from end of 2018 thinking.  

    This was part of the May 31 post:

    • LNG Watch 2: Freeport confirmed Train 1 will start up in 3Q19 (previously delayed to September 1) and they received permission to build Train 4 and to sell volumes from it globally starting in 2023. Each train has 0.7 Bcfgpd of capacity with trains 2 and 3 expected to begin operations mid next year. 
  40. 40
    nrgyman Says:

    TPIC +6% atm

  41. 41
    bill Says:

    Roan down to a buck

    Negative story on the Scoop & Stack EP going to better basins (like the Permian)

     

     

  42. 42
    zman Says:

    Italy Investors' comment on Stinger from above:

    Z,

      The stinger missile in the US force is a heat seeking/IR guided anti-aircraft missile with a relatively small warhead.  It would not be used against a ship target – there wouldn't be a sufficient heat signature to attract it.  An RPG-7 (most common Russian rocket propelled grenade) with a conventional HEAT (High Explosive Anti-Tank) warhead can penetrate several inches of rolled homogeneous steel armor. I'm tracking oil tanker hulls to be around 1 inch thick. The RPG-7 had a limited range – about 400-500m effective, 900-ishm max.  In general, the closer to the target you are the the more effective the weapon will be because it is carrying kinetic energy.  While the blast could penetrate the hull, it may not have enough effect (blast or spall) to penetrate another internal layer of tanks or walls.  I'm not sure how the tankers are sub divided inside.  If the enemy has the more advanced tandem warhead RPG-7 warhead, it would easily cut through a couple layers of steel.  If the enemy is shooting a recoiless rifle like the SPG-9 (this is what blew me up) it has a much greater range and retains penetrating power at range.  I've seen much more sever effects on armored vehicles from recoiless rifles than RPGs.

     Hope this helps. 

  43. 43
    zman Says:

    re 40 – don't see a headline/story for that pop, volumes are not high for time of day, hmm. Could be a broker note from some one I don't get. 

    re 41 – ROAN (unowned) and avoided around here. 

  44. 44
    bill Says:

    https://www.reuters.com/article/us-oklahoma-energy/interest-dims-in-oklahoma-shale-play-as-drilling-results-disappoint-idUSKCN1TE1CE

  45. 45
    nrgyman Says:

    TELL:  CNBC halftime Dr J reported heavy call buying volume. +10.5% atm.

  46. 46
    zman Says:

    re 44 – thanks, will take a look in a bit. 

  47. 47
    nrgyman Says:

    STACK/SCOOP color on growing disinterest in the basin:

    https://seekingalpha.com/news/3471191-interest-dims-oklahomas-promising-shale-play-reuters?app=1#email_link

  48. 48
    nrgyman Says:

    RE 47:  Oops–didn't see post 44.  Apologies.

  49. 49
    zman Says:

    OT – grabbing lunch, back in 30 minutes. 

  50. 50
    zman Says:

    re 48 – thanks, rather have it twice than not at all. 

    Here, working, shout if you need something. 

     

  51. 51
    zman Says:

    Pompeo blames Iran for blatant assault in Gulf of Oman – CNN

  52. 52
    zman Says:

    NG nothing but lower since the report. 

    Gassy names advancing like they sell oil. 

  53. 53
    zman Says:

    Trump quotes Pompeo

    "It is the assessment of the U.S. government that Iran is responsible for today's attacks in the Gulf of Oman…."

    ZComment:  That was fast. 

  54. 54
    Viper1 Says:

    Patterson-UTI exploring divestment of pressure pumping unit, Reuters reports

    Patterson-UTI Energy is looking into the potential divestment of its pressure pumping operations, a deal that could be worth roughly $1B and break up the oilfield services company, Reuters' David French reports, citing people familiar with the matter. The company has been seeking to streamline its business after coming under pressure from clients, oil and gas companies that are scaling back on new projects to keep more cash to return to investors, French says. Patterson-UTI will work with an investment bank on selling off the pressure pumping unit, which is most likely to be structured as a merger with another publicly listed or privately owned services company, the author notes. Shares of Patterson-UTI rose nearly 7% after the news

  55. 55
    zman Says:

  56. 56
    zman Says:

    re 54 – PES should look to same for service side.  Problem on that is no buyers.  The drill side is a good deal more predictable. 

  57. 57
    zman Says:

    Beerthirty, back in a bit. 

  58. 58
    zman Says:

    Didn't see this one coming:

    https://seekingalpha.com/article/4270167-alberta-will-likely-extend-production-curtailment-2020-bullish-canadian-energy-stocks

  59. 59
    nrgyman Says:

    RE 58:  WCS doubling over the next year or so?  That is hard to see coming.  There are certain assumptions with that, like WTI in the $70s, the Transmountain and Keystone XL pipelines passing, and Canadian conservatives winning their elections.  US refiners want that Canadian heavy crude with IMO 2020 and global shortages of mid/heavy grades.  Extending the curtailments would make that crude more scarce and reduce the discounts, so it would raise the price to US refiners.  Perhaps that doesn't matter much though due to shortages from VZ, OPEC cuts and Iran.   Canadian prices could climb significantly and still be a better deal to US refiners than global mid/heavy grades, even with the rail costs included.  The pipeline projects approval would give a big sentiment boost.  ENB's Line 3 coming online would also help.  

  60. 60
    zman Says:

    Looking for a smaller injection and smaller than last year injection as well next Thursday. 

    Note the still slowing supply figure

    Note the gas fired figure (and it's not hot everywhere)

  61. 61
    zman Says:

    US Officials: Attack Shows Iran Uninterested In Dialogue With US US Military Response Is Not Rule Out

  62. 62
    nrgyman Says:

    RE 58/59:  More color on Canadian capex and oil growth slowdowns:

    https://seekingalpha.com/news/3471290-pipeline-bottlenecks-regulations-prompt-cut-canadian-oil-growth-outlook?app=1#email_link

  63. 63
    Baylor Says:

    wow so an oil tanker is bombed by Iran and oil ends down on the day?  Am i reading this wrong?  thats a yahoo quote so who knows.

    what do we make of this?

  64. 64
    zman Says:

    re 63 – 

    U.S. CRUDE OIL FUTURES SETTLE AT $52.28/BBL, UP $1.14, 2.23%

    BRENT CRUDE FUTURES SETTLE AT $61.31/BBL, UP $1.34, 2.23%

  65. 65
    zman Says:

    and from #5 above:

    WTI hanging out above and below $53 depending on when you look as we approach equity open.  

    Thoughts:

    1) not a lot of reaction there or Brent on a tanker attack day.  This is likely due to demand fears (see below) and IEA tomorrow (also demand fears and the first French view on 2020 demand).  Oil really not discounting Hormuz potential yet tit for tat responses likely. 

    2) OPEC report speaks to high probability of curb roll.  2H to face uncertain demand due to trade issues and global GDP impact.  Cuts to demand were for already impacted volumes in 1Q.   Russia really ought to pay attention.   Iran and Saudi at OPEC meeting will be interesting. 

    3) no one U.S. will be upping capex with the 2Q19 reporting period. Plenty upstream US will be addressing cash flow on a $50 to $55 deck.  Capex was largely front end loaded so free cash flow becomes a touch easier as the year progresses near current strip price. 

  66. 66
    Baylor Says:

    Yeah yahoo showed down 1.2% half an hour ago.  and down .54% now fwiw

  67. 67
    zman Says:

    re 66 – this source shows recent days, current day and tomorrow price (starts trading tomorrow shortly after the nymex close)

    https://www.barchart.com/futures/quotes/CLN19/performance

     

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