14
Oct

Monday Morning

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Market Sentiment Watch: China says hold the champagne. October 15th tariff hike cancelled, tariffs already in place remain in place.  Both U.S. and China looking to sign a deal in two weeks at meeting in Chile but this morning China said it wants more talks before it signs the Phase 1 deal, and this sent equity and oil futures lower. In energyland expect news flow to continue to creep up in advance of earnings season. In today's post please find The Week That Was, our week ahead, and some other odds and ends. In case you missed The Wrap please click here.  

Ecodata Watch:

  • Columbus Day - bank and federal holiday, no economic data releases. 

The Week Ahead: 

  • Tuesday - Empire state index, EIA DPR,
  • Wednesday - Retail sales, business inventories, home builders' index, Beige Book, API oil inventories,
  • Thursday - Jobless claims, housing starts, building permits, Philly Fed, industrial production, capacity utilization, oil inventories, natural gas inventories,
  • Friday - Leading economic indicators. 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. The Week That Was
  4. Stuff We Care About Today –  Our week ahead
  5. Odds & Ends

 

Holdings Watch:

ZLT (Zman Long Term portfolio)

Commodity Watch:

Crude oil rose 4% to close at $54.70 last week with the strip up 4% as well ending the week at $53.89. The EIA weekly was neutral in our view, the OPEC monthly and the IEA monthly, both released late last week were less negative than many probably expected. Please see The Week That Was below for more details. This morning crude is trading off a buck with weak equity futures. 

  • Ecuador Watch: Last week civil unrest resulted in the curtailment of some 50% of the country's production of 540,000 bopd with exports late in the week shutter. Over the weekend Ecuador repealed the law to end fuel subsidies and reached a deal to end protests. Presumably Ecuador will end the force majeure on exports over over 360,000 bopd soon. 
  • Russia Watch:  Russia said after meetings with Saudi that it remains fully committed to OPEC+.
  • Saudi Watch: Saudi energy minister says his job is to ensure 2020 oil market oversupply does not occur.  

Oil Price Deck Watch:

  • 3Q18 A: $69.44
  • 4Q18 A: $59.27
  • 1Q19 A: $54.74
  • 2Q19 A: $59.99
  • 3Q19 A: $56.43

Oil Rig Count Watch: Up 2 last week but expect counts to saw lower. 

Natural gas fell 6% to end the week at $2.21 (down from a recent $2.50 a few weeks ago) on mild weather during the week and despite a shift to much cooler temps at week's end and in the forecast with a broad swath of the country seeing highs fall 20 to 30 degrees in a day. The storage figure was essentially in line and storage remains barely in deficit territory to the five year average.  Please see The Week That Was below for further details.  This morning gas is trading up 3% on improving temps.

Natural Gas Price Deck Watch:

  • 3Q18 A: $2.92
  • 4Q18 A: $3.25
  • 1Q19 A: $2.88
  • 2Q19 A: $2.56
  • 3Q19 A: $2.38

Natural Gas Rig Count Watch: Down 1 last week, also Marcellus at a new cycle low, but still not down enough to improve price sentiment. 

Weather Watch:

Last week:  Much closer to normal

  • Gas Weighted Heating Degree Days (HDDs) came in at 48 vs 55 normal and 33 in the prior week. .
  • Cooling Degree Days (CDDs) came in at 18 vs 16 normal and 46 in the prior week.

This week's forecast: Heating load rising across all regions, still relatively mild for time of year but getting better.   

  • This week, CPC predicts HDDs will rise to 59 vs 70 normal.
  • This week, CPC predicts CDDs will ebb to 13 vs 11 normal.

The Week That Was

Stuff We Care About Today

Our Week Ahead

  • Look for Permian Players and Gassy Players updates this week with brief comments including potential catalysts for 3Q19 for each company,
  • Look for a conventional name update this week.

Seeking Alpha Stuff: 

  • FLMN
  • HPR - Should be released this morning.

Odds & Ends

Analyst Watch:

  • TBA in comments

124 Responses to “Monday Morning”

  1. 1
    zman Says:

    PE to acquire JAG.

    All stock transaction

    0.447 share of PE for each JAG share

    ($7.59 based on Friday’s close) – will come off some with PE price this morning.

    CC at 9 am EST.

    Call notes in a bit.

  2. 2
    zman Says:

    Press release:

    http://www.parsleyenergy.com/investors/news-releases/news-release-details/2019/Parsley-Energy-Announces-Acquisition-Of-Jagged-Peak-Energy-In-All-Stock-Transaction-Modest-Premium-Acquisition-Enhances-2020-Free-Cash-Flow/default.aspx

  3. 3
    zman Says:

    PE is the 4th largest ZLT position

    JAG was one of the few names that was not immediately moving into free cash territory. It is our 7th largest position.

  4. 4
    zman Says:

    PE / JAG presentation here:

    http://www.parsleyenergy.com/investors/events-and-presentations/default.aspx

    Glad to see them do all stock.

  5. 5
    zman Says:

    Pro forma cheat sheet in tomorrow’s post.

  6. 6
    zman Says:

    PE 3Q pre announced oil is high to prior guidance,

    91.2 to 91.7 mbopd vs guidance of 87 to 90

    Call about to start, notes in a bit.

  7. 7
    zman Says:

    PE Buys JAG – Call Notes

    PE down 9.5% at start of call.

    This is a simple deal, buttressing our model, extreme cash flow growth.

    Will immediately flip JAG assets into free cash flow mode in 2020.

    Accretive on all metrics.

    Multiple synergies,

    Strong Balance sheet.

    Capital allocation will focus on free cash flow at $50 oil.

    Goes from combined 16 to combined 15 rigs next year.

    Good sized cut to simple combined capex, new range for next year is $1.6 to $1.9 B.

    This deal makes PE oilier

    1Q20 close

    Noting for PE they will be free cash flowing as of 3Q19 as expected.

    Speaking directly to API quality on slide 9

    Noting LOE is and will be peer leading.

    G&A savings of $40 to $50

    Notes PE debt upgraded last week.

    PE – Delaware efficiency gains, even with use of northern white sand, see oppy to shift to regional sand ($500K+ per well savings),

    PE sees $100 / ft to take out of JAG wells (no doubt).

    Slide 12 shows the strong geographic footprint in the Delaware, noting potential for extension of lease lines, some comments on water infrastructure.

    Very low debt, no near term maturities,

    Note they hedged into the Saudi attacks, both had strong hedges for 2020.

    Going to Q&A 12 minutes in …

  8. 8
    Michael Says:

    Every time I think a company is an acquisition candidate, they wind up being the acquirer (CPE and now PE).

  9. 9
    Viper1 Says:

    re 8 exactly

  10. 10
    nrgyman Says:

    PE is down -12.5% and JAG is down -5.5%. With an 11% premium, JAG should be down 1.5%. So a roughly 4% arb discount on JAG shares exists.

  11. 11
    zman Says:

    PE for JAG Q&A

    Q) Allocation of activity – more or less on which acreage.

    A) pro forma more will be on JAG in the Delaware – 10 to 15% productivity improvement vs ours. We will apply those techniques to our acreage but for now more on JAG.

    – That comment pertains to Whiskey River
    – Big Tex – no new activity beyond the new wells they are laying down. We do not plan to hold the expiring acreage. Big Tex was a weight for a long time on JAG.

    Q) free cash flow confidence.
    A) good coverage with hedges but set to fcf at $50,

    Q) water business
    A) excited about the extra water infrastructure, helps with operational redundancy, may allow to cut capex in 2020 given that, under review.

    Q) inventory depth of JAG
    A) well north of 2,000 locations > 25% return combined.

    Notes the production growth for 3Q, upside on oil production vs guidance, notes it was another strong quarter.

    Q) On 3Q volumes above guidance, what drove?

    A) performance improvements from completion design and improved cycle times. Seeing decreases in costs, expects more to come.

    Q) 2020 combined capex – rather significant reduction
    A) expecting 3Q19 type well costs which are lower. Hope to see Service guys jump on board with PE to drive some scale deals (not sure about that one guys, maybe a little but things are pretty slim now).

    Q) pad size go forward.
    A) think we are at kind of max – this was Whiskey River – they were doing some 2×3’s saying it’s nice to have that as a max test – in other words we’re not looking at some Dominator type skews to development.

    Q) rigs at 15, is frac crews is 3 to 4
    A) PE is 3 to 4, with JAG we are probably 4 to 5.

    Really like slide 9 (API by area – shows no super light discount at play).

    Q) Brian Singer ?
    A) JAG is running 43% decline, 39% decline for PE – that’s oil only, maybe 1% lower each by YE19. Seeing 1 to 2% outperformance on PDP (improved uptime, better reservoir performance).

    Q) free cash flow – #’s at $50.
    A) Not giving specific number. Goal is to grow FCF per share, probably 6 months ahead of schedule. More comments on Nov. call.

    Q) What drives the capex range for 2020 PF of $1.6 to $1.9 B and how quick to get JAG wells down the $100/ft.
    A) not board approved range. Hope to refine the range (so worst case on that upper end).
    Notes we are already there on the per well and not the $1,200 / ft range – sees it happening quick (see our last 2Q note on this for JAG, were making good progress already).

    Q) Joe A? – why do a Delaware deal, also your Delaware wells are better, so do we see a dilution of your results with JAG
    A) it’s about returns, buying best returns out there we could. We don’t see what you see in the Delaware vs our wells, about 10% higher. Speaking to advantage of infrastructure already in place.

    Q) Joe A – so why do this deal at all.
    A) we were excellent standalone. The combined company is better together, scale is better, excited about combined.

    – watch Baird downgrade it.

    Expect to be investment grade in 24 months

    Q) FCF – dividend or what else to do with free cash.
    A) want to commit to increasing returns over time. Wanted to make sure increase share count could support a growing dividend.

    Q) private vs public valuations.
    A) focused on the model, not solely about where the acreage, would not buy undeveloped acreage in either basin. Noting the privates either are mostly acreage or if they do have production they are higher up on the decline rate scale.

    Q) well costs at $1,250/ft and
    A) we can get it cheaper via our scale, and notes that while PE costs are lower PE is using more sand and more white sand, so really see being able to get JAG well DC&E costs down.

    Q) Big Tex – a monetization candidate
    A) Yes.

    Q) royalty acreage – how many rigs, and does this event change any timing.

    A) minerals growing nicely, will take a look in 2020 and see what’s best for those minerals.

    Q) 2020 spending, $50 budget, anything above goes to balance sheet?
    A) yes

    Q) free cash flow question – would JAG have been fcf positive by down rigs
    A) consensus was outspend of $79, rig would have been $120 mm ish, then synergies.

    Call ending 51 minutes in.
    PE at $14.70, down 13.3%
    JAG at $6.40, down 6%.

  12. 12
    zman Says:

    re 10 – oil at < $53 this morning on China deal fears not helping. I think a couple of guys on the call will downgrade. Baird almost for sure but not sure his rating before. He clearly didn't buy the idea of adding Delaware locations now. JAG we saw as something more likely to get taken out than PE and PE sub $20 likely to go to a bigger player. This deal doesn't change PE as a target. FYI - I am not selling, will run numbers and circle back. Grabbing coffee.

  13. 13
    zman Says:

    Iran spinning up 2 more centrifuges today.

    Iran says Saudi with help of others attacked their tanker.

    Iran says content to address via dialogue.

  14. 14
    zman Says:

    TPIC and JKS sole green on screen at the moment, grabbing coffee.

  15. 15
    tomdavis12 Says:

    Looks like the Warren effect stronger than the Mideast effect. I see $0 Joe still not much of an energy fan.

  16. 16
    zman Says:

    re 15 – yeah, last few calls I’ve heard him on you wonder why he covers the name if not to just poke them in the eye.

  17. 17
    nrgyman Says:

    re 11: Noting that the likes of Joe A hates it, but consolidation is necessary and this deal makes sense. He probably wants a 0% premium deal or no deal, but the combined entity will be stronger than stand-alone on key metrics.

  18. 18
    zman Says:

    re 17 – they are addressing a number of desired shareholder issues here (especially for JAG holders on the surface but also PE when you think to scale).

    – cost reduction – both opex and capex (per foot)

    – free cash flow (of JAG) – the move to cut the rig and sacrifice a little growth in 2021 mostly is key

    – with that, moving rigs off their acreage in Delaware and onto JAG acreage in Delaware speaks to them going after best leasehold.

    – putting Big Tex down is best, not needed, more variable.

    – one less management team speaks to opex.

    – scale speaks to capex costs. Maybe less capex for needed water system build out too.

    Sidebar – someone should and likely will do this for MTDR (unowned).

  19. 19
    zman Says:

    Here, working on the numbers, now will be quiet for a bit and check in every 15 minutes or so.

  20. 20
    nrgyman Says:

    RE 18: CPE is still sitting there, with a sizable acreage spread next to PE/JAG in the SE Delaware, and some attractive Midland leasehold. CPE has the debt ‘problem’ but nothing a larger player could not work out. FANG or PE/JAG are natural fits. Some CPE Midland acreage could be monetized to reduce debt. All assuming the CRZO deal gets dropped.

  21. 21
    tomdavis12 Says:

    JAG The 15M shares short can get out if they wish.

  22. 22
    nrgyman Says:

    RE 21: Wasn’t short, but I bought JAG this morning on the 6% pullback. Roughly 4% arb spread discount to owning PE, assuming the deal is completed. Should encourage shorts to cover JAG.

  23. 23
    tomdavis12 Says:

    22 Good Luck. All you need is a little WTI strength.

  24. 24
    Baylor Says:

    Selling some $12.50 Nov 15th puts in PE. Getting .20

    Seeems an easy scalp

  25. 25
    nrgyman Says:

    RE 23: Yep. Not expecting it this week, but I’m anticipating counter-seasonal draws later this month and going forward to support oil prices. Trade sentiment weighing this week as well, but I expect Trump to ‘negotiate’ something mildly positive on the trade front this year which is also oil supportive. Could be wrong on both, but energy shares are at the lows so the risk/reward potential has improved along with the import/export prospects for oil and Trump’s need to get a deal, however miniscule.

  26. 26
    LWI Says:

    re 2: do you have calculation for price/acre paid? what are assumptions for $/flowing bll now? tia

  27. 27
    nrgyman Says:

    DJ Basin names getting trounced today, much more than XOP. News?

  28. 28
    zman Says:

    re 26 –

    Acquisition 2,270,000,000
    Production value 1,182,000,000 ($30K / flowing BOE)
    Net of Production 1,088,000,000
    Acres 78,100
    Price per acre $13,931

    You could argue it’s a little higher than that given they are not planning to pursue but Big Tex (they maybe they sell it). But even if you took it all out you’re still around $20K/acre

  29. 29
    zman Says:

    re 27 – All I see is a story about flow line restrictions to get increased regs (this was expected). HPR is rural but getting hit most, likely just lower price per share of stock makes it easy to move.

    https://www.naturalgasintel.com/articles/119870-colorado-proposes-more-stringent-flowline-regulations

    I think HPR is just silly over done now.

  30. 30
    nrgyman Says:

    RE 28: Z, do you have the price per acre (net of production) for CPE at the current market price? Excluding CRZO.

  31. 31
    Boutros Noujaim Says:

    re 22: The transaction, which is expected to close during the first quarter of 2020, is subject to customary closing conditions and regulatory approvals, including the approval of Parsley and Jagged Peak shareholders. Jagged Peak’s controlling shareholder, Quantum Energy Partners, which owns approximately 68 percent of the outstanding voting shares of Jagged Peak, has committed to vote its shares in favor of the transaction.

    >>> guess could easily get voted down — wonder if this puts PE at play now – could tstill be even after that… sounds like good opportunity on PE

  32. 32
    zman Says:

    re 31 – quantum gets a board seat and no lock up.

  33. 33
    nrgyman Says:

    FLMN with a low-volume pullback to its 50 dma, almost (within 2 cents) filling Friday’s opening gap.

  34. 34
    zman Says:

    re 30 – about $11.5 K/ acre, adjusted at the same $30K/flowing BOE

  35. 35
    nrgyman Says:

    RE 31: Z, is there a breakup fee for JAG if PE backs out?

  36. 36
    zman Says:

    re 35 – no filing yet, normally I’d say I’m sure there is one, but either way, pretty unlikely given Quantum owning 68% of JAG and having committed their share’s votes that this doesn’t happen.

  37. 37
    zman Says:

    re 33 – we added 2x on Friday, once closer to $7 and once near current levels. No hedges and oil down on a Monday, not surprised to some take some quick pt given the long term trapped long looking chart there. Let’s see how the next two quarterly reports go there.

  38. 38
    zman Says:

    re 35 – I think you guys will be pleased with JAG post deal. Shorts really out to walk.

  39. 39
    nrgyman Says:

    RE 34: Interesting, thanks. CPE acreage is arguably better than JAG’s, taken as a whole (no Big Tex). Yet CPE is selling cheaper due to debt and the CRZO deal (which can be dropped with a break up fee). Some prominent CPE shareholders don’t like the CRZO deal so they would likely support selling CPE to a stronger player in a low premium stock deal. CPE could well be next up in the M&A sweepstakes.

  40. 40
    LWI Says:

    re 28: thanks for the calc. just to clarify, JAG was producing 29,100 bbls at end of 2Q19. 29,100 x $30,000= $873MM. How did you arrive at $1,182,000,000 for production value? Just trying to understand. thx

  41. 41
    zman Says:

    re 40 – the $30K is for the BOEpd, not just the BOpd. It’s ballpark math and while gas was worth next to nothing the 30K already takes that into account.

  42. 42
    zman Says:

    re 40 – also, just to try to bring it a little more current, I used JAG’s 3Q guide.

  43. 43
    zman Says:

    Russian Jawbone:

    RUSSIAN ENERGY MINISTER NOVAK SAYS RUSSIA WILL COMPLY WITH GLOBAL OUTPUT CUT DEAL IN OCTOBER

    RUSSIAN ENERGY MINISTER NOVAK SAYS RUSSIA’S CURRENT OIL OUTPUT IS DOWN BY MORE THAN 200,000 BPD COMPARED WITH OCTOBER 2018

  44. 44
    nrgyman Says:

    RE 39: Note that PE said they would not be buying acreage without production, which eliminates many privates in M&A. Other independents likely to act the same. Enter CPE…even with a 15% premium that translates to $13.2k/ acre after backing out production–relatively cheap for attractive, blocked-up Permian acreage. Guessing nobody wanted to acquire CPE before the CRZO deal, so CPE bought CRZO to buy time to turn things around. Now that CPE has plunged in value since the CRZO announcement, there could be more interest in CPE (without CRZO).

  45. 45
    reefguy Says:

    39: add, CPE corporate decline is about 35%.
    Jag decline is 43%.

  46. 46
    Boutros Noujaim Says:

    Wonder though if PE not the best long. only way you loose is if somebody bids for JAG and fears of price wars start – which seems odd. otherwise maybe a bid for PE or a PE shareholders rejecting the deal?

  47. 47
    zman Says:

    re 46 – right, and my thought is a competing bid is unlikely (they’re pretty rare most of the time anyway and right now probably less likely).

  48. 48
    Viper1 Says:

    Good recovery in PE maybe the washout ?

  49. 49
    nrgyman Says:

    RE 46: If the deal goes through, as anticipated, JAG is the way to buy PE atm. Arb discount has dropped to 2.5% from 4% earlier, but still a discounted way to own PE.

  50. 50
    zman Says:

    FANG green – one might wonders if people thought they were on the hunt.

  51. 51
    zman Says:

    re 48 – it was down 14%, now down the obligatory deal day 10%. Still walking through cheat sheet, about to get to the pro forma model.

    Balance sheet strong, spending a lot lower than the Street expected (if you simply added the two).

    re 49 – I own them both, sitting tight.

  52. 52
    Michael Says:

    All the talking heads on CNBC expecting terrible earnings for the oil patch. My question is why with range-bound oil prices?

  53. 53
    nrgyman Says:

    COP continuing the trend of selling int’l assets to deploy in the US:

    https://seekingalpha.com/news/3505547-conocophillips-australia-deal-fits-recent-strategies-analysts-say?app=1#email_link

  54. 54
    nrgyman Says:

    RE 53: COP has the AK conventional assets to develop, but shale is a major allocation of capital as well. Majors don’t seem too concerned about a frac ban.

  55. 55
    zman Says:

    BCEI – super bargain territory.

    https://zmansenergybrain.com/2019/08/23/friday-morning-powell-g7-china/

  56. 56
    zman Says:

    re 52 – not watching them but I’ve been asked about YoY comps. See oil prices by quarter in today’s post in the commodity watch section. I’ve also seen a couple of stories pointing it out. Well discounted by names and irrelevant. Service is going to have a rough reporting period. Prices for the upstream names are completely transparent so not sure other than weak to year ago and a bit weak to seq comps. May see some surprises on gas diffs or NLGs but again, pretty well discounted given where that part of the patch currently sits.

  57. 57
    brodway Says:

    Morgan Stanley maintains Continental Resources (NYSE:CLR) with a Overweight and lowers the price target from $44 to $43

    Susquehanna maintained Continental Resources (CLR) coverage with Neutral and target $32
    Past Target Price: $34

    Wells Fargo maintained Continental Resources (CLR) coverage with Outperform and target $46
    Past Target Price: $53

  58. 58
    zman Says:

    re 57 – thanks.

  59. 59
    Michael Says:

    What are these analysts who are lowering ests citing as the reason? (We all know the real reason — they’re just chasing price)

  60. 60
    brodway Says:

    LBRT surprisingly breaking to new 52 week lows

  61. 61
    zman Says:

    re 59 – I have not seen the reasons on those but normally this time of the quarter it would be mark to market for commodity prices, especially when you see the inch downs like those first two in $57. Usually done in conjunction with out year oil/ng price estimate movement. Given recent pullback to sub $55 it’s likely they took a bit out of their 2020 price deck.

  62. 62
    brodway Says:

    Susquehanna maintained EOG Resources (EOG) coverage with Positive and target $105
    Past Target Price: $110

    Wells Fargo maintained EOG Resources (EOG) coverage with Outperform and target $95
    Past Target Price: $103

  63. 63
    brodway Says:

    Morgan Stanley maintains Diamondback Energy (NASDAQ:FANG) with a Overweight and lowers the price target from $131 to $129

    Susquehanna maintained Diamondback Energy (FANG) coverage with Positive and target $123
    Past Target Price: $125

    Wells Fargo maintained Diamondback Energy (FANG) coverage with Outperform and target $148
    Past Target Price: $168

  64. 64
    zman Says:

    re 60 – broke down last week just before spreads reported their first uptick in 14 weeks.

    Anyone see news on MR, up 7%. Only gassy name up today.

  65. 65
    brodway Says:

    Wells Fargo maintained Matador Resources Company (MTDR) coverage with Market Perform and target $29
    Past Target Price: $33

  66. 66
    Michael Says:

    What are everyone’s thoughts on what this consolidation means for oil prices going forward? On the one hand, we’ll get more scale economies which would be bearish; on the other hand, we’ll get more rationalization of supply which would be bullish. Thoughts?

  67. 67
    zman Says:

    re 66 – are you talking about the impact of PE merging with JAG on oil prices?

  68. 68
    nrgyman Says:

    RE 66: Scale economies are only bearish if higher production is the result vs what would be the case otherwise. Scale economies reduces costs and improves margins. If mgt allocates the resulting FCF improvement into growth capex then your bearish scenario could play out. If FCF is allocated to shareholder returns (or debt reduction), then that would be bullish for the stock. Pressure is on the producers now to allocate FCF to generate greater shareholder returns vs higher production. My take is that consolidation will be good for shareholders, despite the (imo) temporary pain the consolidators may go through when acquiring synergistic assets without significantly increasing their debt metrics.

  69. 69
    zman Says:

    re 67 – if that’s what you meant I would say it’s way too small to matter to oil prices.

  70. 70
    Michael Says:

    Re 67: right. PE/JAG, CPE/CRZO, a couple BK’s. I guess nothing big yet.

  71. 71
    Michael Says:

    Re 68: right. I tend to agree that scale benefits these days aren’t going to drill bit. So it appears that the service guys are in a no-win dynamic. Bearish fundamentals with increasing consolidation. Bearish fundamentals without consolidation.

  72. 72
    elduque Says:

    I can’t remember a day when we have bounced upwards during the day. FANG which has been under pressure for weeks has been leading the rebound.

    Good sign.

  73. 73
    zman Says:

    re 70 – yeah, those are small in the overall picture.

    So looking at PE, mostly through model.

    End of day,
    – pro forma is slightly oilier,
    – balance sheet is the same on a net debt to pf ebitda basis
    – free cash for 2020 was neutralish at $50 for PE before and at $60 would have been fairly strong (we had $160 mm).
    – now at $50 and $60 oil we are looking at significant free cash on this plan. Having to back into a few things as they only guided to a couple of items but cut is not getting worse and they did guide oil volumes of the combined.
    – so … scale. Scale of free cash is the answer.
    – multiples are low, near 4x
    – multiple of pf reserves at about $15 / BOE is low and that’s really stale now, they will both be up.
    – it’s better with JAG the way they’ve done this and as low premium as they have done this than without it.
    – pro forma cheat sheet and comments in tomorrow’s post.

  74. 74
    zman Says:

    OT – grabbing lunch, back in a bit.

  75. 75
    nrgyman Says:

    RE 66: The market is skeptical of premium deals. “Why pay an up-front premium to give us questionable synergies down the road?” It is harder to criticize a zero-premium deal if the metrics are immediately accretive in a tangible way because you didn’t “pay up” to get them. Investors are impatient and want returns now, not future promises that could easily vanish via many possible scenarios, especially in the volatile and uncertain energy patch.

    That said, when an 11% premium paid with paper (shares) for JAG, which is less than a majority of PE in size, results in a 10% drop in the entirety of PE–this could be an opportunity to own PE. After factoring in the 11% premium, JAG is down almost 3% more than PE atm–offering an even better return on PE shares if the deal closes.

  76. 76
    Michael Says:

    Anyone have color on why Midland basis went from +$1 to 0 last 2 days?

  77. 77
    zman Says:

    re 70 re BK’s – I’ve only see a very few little ones.

  78. 78
    zman Says:

    re 76 – Argus has it positive, off slightly. Any deterioration is likely linked to all the tanker rate noise of the moment.

  79. 79
    zman Says:

    re 75 – agreed, see comments on FCF scale in 73 above.

  80. 80
    zman Says:

    re 78 – there is a story out saying 1 in 5 tankers are now subject to sanctions.

  81. 81
    zman Says:

    Gas to LNG facilities reported at record today, at 7.0 Bcfgpd.

  82. 82
    brodway Says:

    Morgan Stanley maintains Oasis Petroleum (NYSE:OAS) with a Equal-Weight and raises the price target from $3.75 to $4

  83. 83
    zman Says:

    re 82 – thanks had not seen.

    Someone sent me a note that North Dakota just found a large deposit of play appropriate sand, implying big cuts to costs from in basin or near basin sand for the Bakken.

  84. 84
    nrgyman Says:

    RE 66: Consolidation thoughts:

    Market doesn’t want to see a debt/ebitda increase to acquire assets (see the OXY/APC deal). Even when the debt/ebitda metric stays flat (PE/JAG or ET/SEMG) the market is taking a jaundiced view.

    Market doesn’t want to see share count dilution if it doesn’t result in improved per-share FCF metrics after dilution. Not easy to do unless acquiring a higher FCF per share asset. Note that the PDCE/SRCI merger improved per-share metrics and the market liked it–until the market decided all energy shares should go lower and the recent DJ Basin issues surfaced.

    One reason CPE has not been acquired is because the CPE debt metrics are poorer than that of any reasonable acquirer, which would make the acquirers metrics worse, and likely would not be approved by the market. Even a no-premium deal for CPE would still require a break-up fee, which is essentially a premium to acquire a poorer debt metric. And CPE is not generating FCF atm to offset FCF/share dilution in an acquisition.

  85. 85
    zman Says:

    Reason for the Wattenbergs dropping confirmed, flow line rules to be discussed by COGCC tomorrow on this agenda.

    https://cogcc.state.co.us/documents/reg/opguidance/Operator%20Meetings/2019/10_October_15_2019/Operator_Meeting_Agenda_20191015_Rev.pdf

    Names off 10% today, rural names, unlikely any flow line rules they could propose are worth anywhere close to that kind of ding.

  86. 86
    zman Says:

    re 84 – thoughts as that pertains to PE/JAG
    1) red day in group, oil
    2) perception JAG Delaware not as good as what PE had – this was voiced on the call and countered by management
    3) impatience for synergies, even if they point to a 9% drop in per foot DC&E within a few months.
    4) balancing act on the premium – too low and you get resistance even if it’s good medium and long term for the combined per share.
    5) takes a bit of time to smash their models together. The stock is literally hanging out at the 10% buyers drop mark.
    6) the ability to increase the dividend (on the new increased share count) just increased massively. At a much lower price they can easily cover the dividend and increase which seems to be their preferred method of return of capital.

  87. 87
    zman Says:

    We included a per share free cash comment in tomorrow’s post for PE vs PE/JAG pro forma. Substantial increase in per share which speaks to #6 in comment 86.

  88. 88
    nrgyman Says:

    RE 84: Consolidation formula: If shareholders want their mutual share prices to lift in a consolidation (all other factors equal) then they should engage in a no-premium deal that (pro-forma) improves scale efficiencies, generates synergies, improves (or keeps flat) debt/ebitda metrics and improves FCF/share metrics immediately or in the near term.

  89. 89
    zman Says:

    re 88 – understood but it also has to be bounded by metrics that you can get someone to author a legitimate fairness opinion. In other words, some no premium deals might make sense while others could be so unbounded from a valuation perspective that they would violate the fiduciary obligations of the acquired board.

  90. 90
    nrgyman Says:

    EPD decides to build ATEX pipeline expansion. Good for Appa ethane producers.

    https://seekingalpha.com/news/3505606-enterprise-products-move-ahead-atex-pipeline-expansion?app=1#email_link

  91. 91
    nrgyman Says:

    RE 86: Good points. For #2, the Big Tex asset likely plays a role in that perception. Hard to argue the rest of JAG is worse than what PE has.

  92. 92
    zman Says:

    re 90 – thanks

  93. 93
    nrgyman Says:

    RE 89: Agree. One example might be an acquired entity priced so cheaply by the market, say due to relatively high debt metrics and low/negative FCF, that an acquirer could sell some pieces of the acquired assets and pay down/off debt–removing the main reason for the depressed valuation–and justifying the acquired entity’s BOD demand for a premium in a deal.

  94. 94
    zman Says:

    Hey Brod – you see anything on MR? Up 7%, Moving above 20 day average volume.

  95. 95
    reefguy Says:

    BK’s: two larger ones.
    AMR- $2.4B dumpster fire
    Sheridan (private) $1B

  96. 96
    zman Says:

    re 95 – thanks. Not huge amounts oil. AMR (unowned) – avoided.

  97. 97
    zman Says:

    JAG had been making good progress on getting to their 2019 goal (they got their during 2Q) for $/ft … would trust PE when they say they can get that down. JAG has always had higher costs per foot and was really just getting them to come down this year.

    Otherwise, not a huge amount of synergies listed.

    On the operating expense side they are only looking for about $25 mm in the first year cut on G&A. We went slightly less and didn’t give them a big drop in LOE/BOE either on scale to get to our pro forma EBITDA.

  98. 98
    zman Says:

    Pressure pumper ProPetro (PUMP – unowned) – cuts nearly 150 workers.

  99. 99
    zman Says:

    Beerthirty, back shortly.

  100. 100
    nrgyman Says:

    PE/JAG: some color on the market perceptions of the deal.

    https://seekingalpha.com/news/3505613-parsley-energy-jagged-peak-slammed-low-premium-merger-deal?app=1#email_link

  101. 101
    bill Says:

    I remember the good old days, when you got bought out , the stock went up!

    The lawyers are lining up.

    Seems like the only winners are PE mgmt.

  102. 102
    zman Says:

    re 100 – that was a sarcastically written little piece.

    re 101 – thoughts:

    – the lawyers are always lining up from the minute each deal is announced.

    – JAG was off a dime. It’s an all stock deal so that’s actually pretty common to see under there is a 20 or 30% premium. Given that the acquiring company’s currency is at depressed levels that kind of premium would be harder on the stock.

    – they own stock too.

    – combined name has modest leverage, high margins, much more significant free cash. It’s exactly what shareholders want. The name fell the typical deal day 10% on a day when oil came off as did the group.

  103. 103
    zman Says:

    Michael – Story out at 4:31 saying one month lows for Mid-Cush is the result of high tanker rates.

  104. 104
    zman Says:

    We have a range based upon pro forma EBITDA for PE/JAG of $20 to $28 which is 5.0x 2020 PF EBITDA at $50 to 6.0x EBITDA on a $60 deck.

  105. 105
    brodway Says:

    no news in MR…at least nothing that would move the stock

  106. 106
    brodway Says:

    Susquehanna maintained Concho Resources (CXO) coverage with Positive and target $100

    Wells Fargo maintained Concho Resources (CXO) coverage with Outperform and target $101

  107. 107
    brodway Says:

    Wells Fargo maintained Extraction Oil & Gas (XOG) coverage with Market Perform and target $6

  108. 108
    zman Says:

    re 105 – thanks for double checking for me.

    Analyst Watch:

    COG – Susquehanna cuts from $23 to $21.

  109. 109
    zman Says:

    WLL (unowned) said to be in talks with AXAS (unowned) ~ Reuters

  110. 110
    zman Says:

    Silly action HPR and others. Company in increasingly good shape, well positioned for permits, balance sheet in good shape, wells improving in both plays. Someone in the DJ should merge with them.

    https://seekingalpha.com/article/4296357-highpoint-resources-mid-quarter-update

  111. 111
    Baylor Says:

    I’m still waiting for the turn when eventually any of these upside price targets are met. So far it’s just been cut cut cut and then cut
    Some more. Maybe this is standard in an oil
    Collapse but this is the first one I’ve gotten to live through (since 2014)

  112. 112
    zman Says:

    re 111 – price decks go up and down. 1H19 saw a series of upward price deck revisions. Then down, then flat, now down again post 3Q.

    Most price targets are either P/CF (TEV/EBITDA) or NAV or some combo of the two.

    So P falls, PXV = R so R falls,

    R – Opex = EBITDA.

    So same multiple of EBITDA X less EBITDA = lower PT. Had deck stayed same PT would have stayed same or close to it depending on underlying strength of group which doesn’t entirely relate to oil prices given some background items in the group from Norway to Warren.

  113. 113
    brodway Says:

    Wolfe Research maintained Diamondback Energy (FANG) coverage with Outperform and target $120
    Past Target Price: $141

    KeyBanc maintains Diamondback Energy (NASDAQ:FANG) with a Overweight and lowers the price target from $133 to $125

  114. 114
    brodway Says:

    Wolfe Research maintained Liberty Oilfield Services (LBRT) coverage with Outperform and target $14
    Past Target Price: $16

  115. 115
    brodway Says:

    Wolfe Research downgraded Oasis Petroleum (OAS) to Underperform and target $3
    Past Rating: Peerperform
    Past Target Price: $6

  116. 116
    brodway Says:

    Wolfe Research maintained Parsley Energy (PE) coverage with Outperform and target $23
    Past Target Price: $25

  117. 117
    brodway Says:

    Wolfe Research maintained Continental Resources (CLR) coverage with Outperform and target $40
    Past Target Price: $44

  118. 118
    brodway Says:

    Wells Fargo maintains Carrizo Oil & Gas (NASDAQ:CRZO) with a Market Perform and lowers the price target from $11 to $9

  119. 119
    brodway Says:

    Wolfe Research maintained Concho Resources (CXO) coverage with Outperform and target $90
    Past Target Price: $100

    Citigroup maintains Concho Resources (NYSE:CXO) with a Neutral and lowers the price target from $81 to $74

    KeyBanc maintained Concho Resources (CXO) coverage with Overweight and target $95
    Past Target Price: $106

  120. 120
    zman Says:

    Hey Brod thanks, fyi, you’re under the Monday post. I can transfer all of the ones so far if you like.

  121. 121
    brodway Says:

    ok please do…didn’t realize i’m still posting yesterday

  122. 122
    zman Says:

    re 121 – all taken care of, thanks much.

  123. 123
    buy hcg in Kewanee Says:

    buy hcg in Kewanee

    Monday Morning | Zman's Energy Brain ~ oil, gas, stocks, etc…

  124. 124
    www.rehabcenterorangecounty.com/2018/11/21/preparation-of-alcohol-and-drug-detox Says:

    http://www.rehabcenterorangecounty.com/2018/11/21/preparation-of-alcohol-and-drug-detox

    Monday Morning | Zman’s Energy Brain ~ oil, gas, stocks, etc…

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