04
Dec

Wednesday Morning – PE

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Market Sentiment Watch: OPEC tomorrow and the next day.  In today's post please find the oil inventory preview, the natural gas inventory preview, comments and a cheat sheet update on PE, and some other odds and ends.  Please see yesterday's post for the most recent Gassy Players update or select Gassy from the pulldown menu at upper left.

Ecodata Watch:

  • We get ADP employment at 8:15 am EST (no forecast, last month was 125,000),
  • We get ISM nonmanufacturing 10 am EST (F = 54.7%, last read was 54.7%).

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watc​h - with oil and natural gas inventory previews
  3. Stuff We Care About Today - PE, HAL, VWDRY
  4. Odds & Ends

Holdings Watch:   

ZLT

  • Yesterday's Trades: None
  • The Blotter is updated.
  • The positions page will be updated later this week.

Commodity Watch:

Crude oil closed up $0.14 yesterday at $56.10, recovering from a trade threat tweet inspired sell off early in the session. After the close, API reported a better-looking-than-their-recent-string weekly set of number. Today we expect to see better throughput figures and higher imports and exports as well as strong gasoline demand.  This morning crude is trading over $57 as OPEC ministers begin arriving in Vienna.

OPEC Week: (minor modifications from yesterday; will run this all week as the rumor mill evolves)

OPEC Watch 1: This week's schedule:  OPEC meets December 5th; OPEC+ meets December 6th. The tentative agenda can be viewed here.

OPEC Watch 2: Rumors and OPEC+ member comments

  1. Russia wants to roll production curbs to March but not through full year (Goldman thinks this is most likely outcome, we don't),
  2. Saudi wants an extension of current curbs through mid 2020,
  3. Saudi wants deeper cuts according to sources (this one emerged yesterday),
  4. Russia wants it's condensate (that won't be exported it says) to be excluded from deal,
  5. Russia wants no deeper curbs,
  6. Change to OPEC output policy unlikely this week - IEA (emerged yesterday)
  7. Iraq says deeper curbs are going to be considered at the meeting (they see 0.4 mm bopd more in cuts to an aggregate 1.6 mm bopd),
  8. OPEC is mulling meeting again in March (not April or June 2020),
  9. Compliance will be the key focus of the meeting (a rumor that's very likely true and we say good luck with that),
  10. Saudi wants $60 + Brent ahead of the Aramco offering.

OPEC Watch 3: Our sense of the expectations bar:  We see the "expectations bar" as having been set sufficiently low going into the meetings such that any positive news should buoy prices (in the $55+ WTI and $60+ Brent).  Most of the time prices fizzle slightly in the wake of OPEC meetings if things turn out to be in line with the expectations bar generally for a period of days to weeks before focusing on compliance and other non OPEC items (data, geopolitical items).

This Week In History

Oil Inventory Preview

API Watch:

  • Crude:  Down 3.7 mm barrels,
  • Cushing: Down 0.25 mm barrels,
  • Gasoline: Up 2.9 mm barrels.
  • Distillates: Down 0.8 mm barrels.

Natural gas closed up $0.112 (4.8%) at $2.441 on short covering and a BAMWX forecast calling for colder temps moving into the Lower 48 next week and more consistent cold for the eastern U.S. in the final 10 days of the year.  This week's withdrawal estimate is inching higher. This morning gas is trading off 5 cents.

 

Natural Gas Storage Preview

Street is at - 29 Bcf (Reuters survey) and -26 Bcf (Bloom) for tomorrow's report. 

  • Last Week: - 28 Bcf
  • Last Year: - 62 Bcf
  • 5 Year Average: - 41 Bcf

Stuff We Care About Today

PE - Pro Forma Cheat Sheet Update

  • PE  - the quarter was covered here.
  •    In a nutshell PE saw record volumes, record EBITDAX,
  •        and they raised 2019 volume guidance, tightened 2019 capex range, and lowered 2019 operating cost guidance.
  •       PE on a standalone basis achieved free cash ahead of schedule with the 3Q19 report.
  • Meanwhile, target JAG saw record quarterly volumes, though revenues and EBITDA fell short of all time records as softer pricing impacted the numbers,
  • We've included 3Q19 combined figures where important (production, EBITDA) but note that in the case of EBITDA there are combined figures and not pure pro formas as there are no synergy savings involved.
  • Long term growth - in the latest prospectus their is pro forma production, spending and capex data and that's included in the cheat sheet below. They see continued pro forma mid teens %s growth ahead as they push JAG capex costs lower.
  • PE has said they are looking to generate free cash at $50 and that syncs with our model. Note their long term estimates are based on $45 oil and generate modest outspend.
  • Balance Sheet:
    • The TEV and balance sheet are as if combined as well and this makes the net debt to EBITDA figures slightly higher than in an actual combination (simply due to higher G&A costs).
    • As is typical JAG's one tranche of bonds will be taken onto PE's balance sheet and PE will pay off JAG's revolver balance (JAG outspend and PE underspend may cancel each other out in the 4Q so the revolver balance is likely to look something close to the cheat sheet below upon deal completion in 1Q20.
    • Net debt to annualized EBITDA is 1.5x (what we call modestly levered these days and not a source of much concern)
    • Their bonds are all trading in premium territory.
  • Valuation is discounted at this time. This is one of two Permians (FANG) we plan to hold long term at this point. We also hold LPI for a trade.

 

Other Stuff

  • Look for a WPX update in tomorrow's post.
  • HAL - consolidating two OK field camps into one and laying off 800 (they a majority were offered positions elsewhere within HAL) as cost cutting / right sizing effort continues and in this case  due to "reduced activity levels in Oklahoma and the greater Mid-Continent area".  This is on top of an 8% force reduction in 2Q and a 650 person layoff in October.
  • VWDRY - 101 MW order from Finland developer Puhuri Oy of the 5.6 MW EnVentus turbines (latest tech turbines) with 25 year service agreements with delivery set for 3Q21.

Odds & Ends

Analyst Watch:

  • TBA

65 Responses to “Wednesday Morning – PE”

  1. 1
    zman Says:

    VWDRY piece in with SA for last 18 hours. Should pop out this morning soon.

  2. 2
    zman Says:

    Oil tapping $57.50

    https://www.dailyfx.com/crude-oil

  3. 3
    zman Says:

    OPEC ministers said to be pretty quiet and no pre gaggle this time.

    Despite the Russia reiterations, WTI at $57.75 10 minutes before US equity open with Brent just under a $5 premium.

    https://www.dailyfx.com/crude-oil

  4. 4
    zman Says:

    A little open ended:

    “Senior Pentagon Official: There Are Indications That Potential Iranian Aggression Could Occur”

  5. 5
    elduque Says:

    Dollar trading below 200 dma at 97.58 and crude trading above at 57.46

    Robry 1 and -15

  6. 6
    zman Says:

    re 5 – good morning, thanks,

    Strong open for a number of names on tiny opening volumes.

    Working on a model (WPX), shout if you need something, otherwise will be quiet for 30 minutes or so.

  7. 7
    zman Says:

    Trump cans closing press conference at NATO meeting. Wonder if tariffs on Canadian oil are coming.

  8. 8
    zman Says:

    Bloomberg article last night on REP (unowned) referred to investing in upstream as unethical.

    I think it’s unethical to not invest, let transportation, heating, and electricity costs skyrocket. Maybe an organization run by a billionaire doesn’t care but much of the world would be stuck, in non climate controlled dark.

  9. 9
    zman Says:

    Apologies, back to the model at hand.

  10. 10
    zman Says:

    Today looking for
    – throughput bounce (and expect it to be up an aggregate of 1 mm bopd over the next 4 or so reports)
    – higher imports
    – higher exports
    – higher product production, skewed to distillates.
    – flat L48 oil production, though to get to the STEO they really need to keep bumping it by 0.1 mm bopd another week and then skip the bump for a week.
    – strong implied gasoline demand.

  11. 11
    zman Says:

    WTI > $58

  12. 12
    elduque Says:

    RRC- surprised not moving better with WTI improvement. One would think that NGL pricing would improve?

  13. 13
    zman Says:

    re 12 – propane not moving well yet, MB price down month to date after a fairly strong November.

    Oil inventories in 3 minutes

  14. 14
    zman Says:

    Oil Inventory Quick Look

    WTI at $58.15 just prior to report.

    Crude DOWN 4.9 mm barrels (vs down 1.5 exp)
    – throughput – up almost 0.4 mm bopd week to week, good to see, best post maintenance season level
    – imports – down 0.2 mm bopd week to week.
    – exports – down as well, down 0.34 mm bopd week to week.
    – L48 oil production – flat week to week.

    Gasoline UP 3.4 mm barrels (vs up 1.5 exp)
    – demand – down week to week (somewhat surprisingly)

    Distillates UP 3.1 mm barrels (vs up 0.3 exp)
    – demand – down 0.8 mm bpd week to week, not uncommon swing, no cause for concern there though it’s a low for time of year.
    Nutshell: Decent report. Imports data vs expectations likely paper work related. Primary positive is the increase in throughput.

  15. 15
    zman Says:

    Gasoline Demand (000 bpd)
    2016 9,327
    2017 9,264
    2018 9,312
    YTD 2018 9,333
    YTD 2019 9,356

  16. 16
    zman Says:

    Distillate Demand (000 bpd)

    2016 3,770
    2017 4,033
    2018 4,070
    2018 YTD 4,060
    2019 YTD 4,026

  17. 17
    zman Says:

    Highest distillate skew on refiner production since early September.

  18. 18
    zman Says:

    From tomorrow’s post:

    Headline numbers: Mixed Headline Numbers, Mixed Internals
    A) Crude Stocks = Much bigger than expected drawdown on bounce in refiner throughput. Throughput is low YoY and remains our biggest concern.

    1) Throughput, as shown in chart A2, rallied ~ 0.46 mm bopd to a new post maintenance season high. We expect it to saw higher this time of year and we expect further increase over the next several week’s adding another 0.6 to 1.0 mm bopd to demand.

  19. 19
    zman Says:

    From tomorrow’s post:

    2) Net import levels eased as imports fell less than exports. See charts C1-C3 below). On a net basis net imports have been at record lows for their week of the year all 48 weeks to date of 2019.

  20. 20
    zman Says:

    30 minutes after the report, $58.40

    https://www.dailyfx.com/crude-oil

  21. 21
    zman Says:

    From tomorrow’s post:

    3) Lower 48 production reported as flat week to week at 12.4 mm bopd. In the last two months, EIA raised its forecast for 4Q production expectations significantly. We continue to see that move as odd, running counter to rigs and more importantly to frac spreads and industry commentary and we think it increasingly assumes volumes for new Permian pipe capacity as overwhelmingly incremental rather than a move by some to capture Gulf Coast pricing by re-routing volumes away from Cushing. Furthermore, it runs counter to EIA’s own Drilling Productivity Report which shows much shallower unconventional growth in 4Q19. Conventional production is falling and Gulf production cannot logically bridge this gap.

    4) Crude stocks improved vs the 5 year average and was up slightly on a year over year basis as we had a “monster draw” in the year ago week.

  22. 22
    james T Says:

    Re21 Rigs dropping fracking business in the dumps, seems there has got to be a point when production peaks soon. Rarely hear about unsuccessful wells anymore.

  23. 23
    elduque Says:

    re 21- How much a factor is DUC’s? I assume that there are a lot of wells drilled and could be used for supply?

  24. 24
    zman Says:

    FANG approaching bottom end of post earnings gap.

  25. 25
    zman Says:

    DUCs are not part of the EIA STEO math according to the EIA. They’re a mitigating factor and they are coming off the shelf but a high % of DUCs are thought to be uneconomic at current prices (many are non core locations drilled and held like an unbroken (unperforated) test tube held for years. Wyoming probably has a ball park percent on this. So while we’re seeing DUC draw downs in all regions now that will only go so far as investors scrutinize capital efficiency. So best DUCs first. With rigs down they’ll chew through that pretty quick. We’ve been through why this is difficult to pin point a few times now but it’s obvious the STEO is over zealous given rig counts along and our sense has been they are reflecting the debottlenecking of the Permian that took place and in 3Q and 4Q in their thinking (having previously noted pipeline constraints).

  26. 26
    zman Says:

    adding to 25 – and I expect EIA to up the L48 production reported by 0.1 mm bopd to 0.2 mm bopd again prior to year end. This should greatly slow very early in 2020.

  27. 27
    zman Says:

    WSJ – “Tired of OPEC Laggards, Saudis Threaten Oil Output Surge”

    You can see this in the minute chart earlier, rapid drop, rapid recovery, then the realization that this is pretty empty but maybe it gets some player’s attention.

  28. 28
    james T Says:

    re25 thanks
    Nat Gas Ducs chart dropping for years, is that why we have too much nat gas at the moment (completions of Ducs) in a nutshell ?

    https://www.eia.gov/petroleum/drilling/pdf/duc_supplement.pdf

  29. 29
    zman Says:

    re 28

    – the Haynesville DUCs are what I’d call operational, they’re actually kind of low actually given the rig count (the more rigs you have running the more DUCs you want to keep on hand).

    Operational DUCs are needed for smooth, lower cost operations.

    In Appalachia you have a bigger operational DUC component in part due to the terrain, in part due to the size of the pads involved (they’ve gotten bigger and wells have gotten longer).

    Faster completion times have helped that count fall.

    Appalachia is part but not most of the problem with gas production. Gas production is up on the oil plays, specifically plays like the Delaware where gas is associated production, a result of going after the oil there. Eagle Ford too. And Wattenberg. Much less from a play like the Bakken. So you have those plays growing without regard (or with little regard) for the price of natural gas (generally they are more concerned with just transporting it or processing it).

    A lot is made of gas production but as those plays slow down so to does gas production.

    And despite record dry gas production (which was bolstered by ethane rejection this year) we DID NOT see blowout injections this summer just past. Some point to a low starting point for the non record peak we just saw. That’s fine but the in between time, the injections of summer didn’t blow out (they were high, sure) but they were largely handled by record LNG exports, record (barely) Mexico exports, and strong gas-fired generation and upper end of range industrial demand.

    So while gas production gets a lot of press the ultimate impact is that gas is still, for this time of year, at the 3rd lowest level of the last 10 years. With much higher structural demand in place.

  30. 30
    zman Says:

    Requested look at WPX will be in tomorrow’s post.

  31. 31
    zman Says:

    Anyone have any name requests?

  32. 32
    james T Says:

    re29 Very good, thanks, How does a chart of drilling efficiencies look ? Are we flattening out at all in improvements in the field ?

  33. 33
    Michael Says:

    Thx for cheat sheet on PE. Your PV10 doesn’t include JAG’s reserves, which I believe were $1832 at YE18

  34. 34
    zman Says:

    re 32

    – from a drilling standpoint, efficiency gains are slowing.

    – EIA data showing almost no further efficiency gains for new wells (whole population) on a first month’s oil basis. Meaning a well drilled this month, they say, might see 10 barrels extra vs a prior month’s vintage well. This moves in swings and is not really a great number to look at it but it does guide their hand on the STEO. At times it jumps 30 or 40 or 50 barrels per month. It’s a reverse engineered number so you can’t tell if it’s gains from better lateral landings, gains from more intense fracs or a function of more core and less tier 1 or 2 drilling. Anyway, with that said, it’s showing very small gains of late. Given drilling has been largely core in most plays this year and that sand per foot and fluid per foot have pretty much stabilized and well spacing has if anything widened that’s kind of interesting. Operators can make physically better wells (hit them harder and at least initially you generally get more coming back at you) but not economically. Anyway, long winded answer but a lot of the per foot gains are efficiency. A big piece is lower service pricing as well. We see some new “record spud to TD times” in the random press release but fewer these days.

  35. 35
    james T Says:

    re Well spacing widened because they pushed the envelope until they didn’t see a payoff I assume. So the walking rigs gotta walk a bit further.

    Sounds like a lot of positives out there, although does not feel like it at the moment. Hoping to see the light at the end of the tunnel someday.

  36. 36
    zman Says:

    re 33 – right, thanks, I left the PF PV10 blank on purpose. Physical reserves are stale now, and the propsectus just mashed the YE18 volumes together. Financial resources would be worse to do that for, given the change in prices and costs since the last 10K’s the PV10 would not be a simple mash up. What they did was provide the Standardized Measure at mid year which would be lower by the impact of future taxes (PV10 excludes). My thought was prices are different, costs are different, from mid year, and I’d be adjusting for that to get to now, on stale physically reserves, and then grossing the standardized number. Lot of estimate for a number I don’t generally put a lot effort into vs stock price. The per BOE figure is low enough for me to call it a bargain under my current outlook now though, at about $15 per BOE, and so I left it at that.

  37. 37
    SLNCO1 Says:

    z — what’s the “end game” in gas? It seems that the lesson of the past few years is the best decision for individual firms (usually to grow production) served to collectively destroy the economics of the industry. Given debt levels (or say FT commits in the case of something like AR), there has been little choice but to grow. Obviously, this left us with a supply glut that conventional wisdom seems to believe is permanent. We can’t go a week without reading about the permanent gas glut in the business press.

    Now, we have several companies that have equity or debt (or both) that trade like bankruptcy is around the corner. Obvious examples are CHK, AR, etc. We know that capex budgets are falling in the gas space, which will eventually lower production growth. However, bankruptcies don’t necessarily “consolidate” the industry like you might see in other oversupplied industries. The gas is still in the ground, and in the hands of a better financed operator, might be drilled… leading to more supply.

    Is the end game just a slow grind lower in terms of production growth? Will that take several more years of <$2.50 gas? I'm curious how people are thinking about this.

    Thanks.

  38. 38
    zman Says:

    re 35 – generally correct.

    re 35 – better balance sheets, names with free cash, names with size inventory positions, name with scale such that opex costs are low (relates back to free cash), helps to be in those. In the risk names with debt in 2.5+x territory (and that used to be consider modest) you get pops on commodity prices and then lower lows on the next dip, such that you are moving towards $0, sawing to get there, even if no real near term risk of BK. See this in many of the big cap higher debt gassy names with no free cash generation but new found cash neutrality. This is why names like AR (unowned) can’t get out of their own way. They need to grow for 2 to 4 more years to get to FCF. Same for a name like CDEV (unowned).

    That weighs on sentiment for the whole space so you a name like MGY which has very little debt, is underspending and buying itself in (despite a low float) and getting 105% of Nymex just kind of treads in place. As commodities hang out in a region like this you will have more guys like a PE or a WPX go firmly in free cash mode while still sporting modest growth and good balance sheets and that should/has given those names traction.

  39. 39
    zman Says:

    re 37

    first – see 29

    second – right now 2020 is set to grow a lot less than 2019, even EIA sees this with their STEO forecast.

    Slowing growth meets a 50% increase in takeaway capacity growth for LNG next year and improved central Mexico pipes that allow a much higher than current exports cross border capacity to become more fully utilized (it’s more than double the current ~ 5 Bcfgpd heading south). If Canada stays tame then net exports continue to grow and can, on their own, outpace 2020 US Lower 48 gas production growth. Again, reference above, the press does indeed talk minute by minute about gas supply … and yet, storage is where it is, in line with the five year average and 3rd lowest level for this week of the year for the last decade. Storage matters less than directionality of supply and demand, I know, but we’re not glutted in terms of overall storage. We do have more at hand at ready supply such that prices are more than volatile when we get warmer than normal weather in the winter or cooler than normal temps in the summer. End game is therefore a balancing and one brought about by guys like a COG (very much owned) growing at 5% instead of 20%. Of guys like that working on local demand projects such that basis is squashed. We see guys like that as end game long lasting and as such I own them. I don’t know what gas price to tell you. Sub $2.50 causes Appalachia to slow. Hayensville? Not so much. Eagle Ford appears to have rolled over and again, we can send more of that gas south if they will get unclustered so to speak along with Permian volumes. As to better prices, cold in Chicago used to matter. Now it’s cold in Memphis or Atlanta that really serves to spark prices for those of you interested in shorter term trades. When you see sharply lower temps in the big South Atlantic storage region is when you see the big jumps in Nymex.

    So, we own COG. And MR which is a different but interesting little story with a bigger oil wedge (big for a gassy name) to the story. And nothing else in the gassy space. Nothing, zip, nada, no other “gas” names.

    Feel free to redirect, I may have rambled a bit.

    I don’t own CHK. Or AR, or SWN, or RRC.

  40. 40
    zman Says:

    Crude Stocks Change (000 barrels)
    2015 102,384
    2016 32,144
    2017 (59,500)
    2018 16,918
    YTD Change ’18 18,700
    YTD Change ’19 5,682

    YTD 18 and YTD 19 SPR releases roughly the same.

    So YTD crude build < 1.3x that of the same period crude build last year.

  41. 41
    SLNCO1 Says:

    re 39 — thanks, I guess I’m trying to figure out exactly what makes the industry behave in a more economic manner. Agree that the likes of COG are doing that, but they are still very tied to the overall industry. I’d like to have a plausible scenario where industry economics are good, and it’s not easy to come up with one. Higher oil prices lead to higher associated gas (as drilling picks up in the Permian, etc). There seems to be no shortage of reasons to drill the next well even when there is limited capital and limited demand.

    I think it is interesting that the larger integrated players haven’t bought US nat gas reserves at current prices. My only explanation is that they don’t believe they are really that cheap. The financing and operational advantages that could be brought to Appalachia by a big player are enormous. Yet, even with those synergies, they don’t bite.

    I’m just trying to play devil’s advocate here. I’m an owner of COG too. Honestly, it’s not very cheap if we are permanently in a world of $2-something gas. Obviously, it’s very cheap if we find ourselves in a world of $3-something gas.

    Now I’m rambling… appreciate your thoughts. Thanks.

  42. 42
    zman Says:

    re 41 – hang, on a call, be right back.

  43. 43
    Baylor Says:

    Re #7 – market says who gives a #2.

    No doubt eventually things matter but media has cost a ton of people a lot Of Money with “tarries will kill the stock market”, “trade wars will kill your 401k”, “recession by late 2017…no 2018…no 2019…no just before the election”

    And yet we may have one of the best years in the S&P this year in a generation

    Confirmation bias is a B

  44. 44
    zman Says:

    re 41 – apologies for the delay.

    Completely agree and have wondered the same off and on for a decade plus when listening to management’s speak to discipline.

    Risking using the phrase “what’s different this time”

    But what is different is that investors have greatly pushed for return of capital and not just return of capital. 2% and more dividends are desired. For the non cash flowing names that can’t do that and need to still grow to get there (economies drive costs down) I gotta pass. For those with solid B/S and only modest outspend I take a stronger look.

    I think they all have gotten the message at this point. Live within cash flow or die. Return on capital is something buyside doesn’t care nearly as much as about as a self funding program.

    But how you get there is key. I’ve typed this many times before but anyone can go free cash flow positive at any price (near here) but not spending. Good luck with your decline curve. Good luck with that free cash being an actual sustaintable thing (not to mention issues like acreage retention).

    Now, for the good side. We’ve been growing slower for awhile now. Decline curves are retreating continuously for our names, slowly but going down. So keeping production at a maintenance plus level has become less costly and all the more so due to gained efficiencies and then service pricing.

    As to associated gas addressed above, I don’t see a big swing up by the LC or MC independent group in 2020 for oily growth on current prices. They are in the boat of needing to get to free cash before getting to production growth targets (max for cash, not for gro). I disagree with the comment re no reason not to drill the next well … see rigs, see spreads vs spring.

    I see no need for the big guys to buy a gas bank. For awhile now you could just wait and buy them lower. I agree that many names are not cheap. They are low priced in terms of stock price but they are not cheap on cash flow metrics. When I call COG cheap I’m speak to $/Bcfe in the ground but also more to a P/CF or TEV/EBITDA in the 5 to 6 range vs their normal 10x premium. It’s a relative comment. Given their much lower opex and strong margins I’d rather pay 5x or 6x for them and wait getting a yield vs paying 3x for a SWN (unowned) but that’s just me.

    I appreciate your line of questions. I have them in my sleep. Again, I own two names that I designate as “gassy”.

    – I’m not a gas bull.
    – I just did WPX and gave them a $2.50 on 2020 gas, below my current $2.75 official decks (gas isn’t where they make their cash but I’d rather be low than high and I’m hitting their basis more than I should to be even more conservative. Hit them on NGLs too because while everyone expects a rally, I have not seen it yet and it went a lot lower than any company guys spoke to at the beginning of 2019.

    Please redirect.

  45. 45
    zman Says:

    This just popped out:

    https://seekingalpha.com/article/4310542-vestas-3q19-beat-and-reiterate-strong-tailwind-2020

  46. 46
    zman Says:

    re 43 – I was kidding, Justin insulted Trump.

  47. 47
    zman Says:

    Nymex closing over $58.30. All moot really in front of meetings. We will have live coverage overnight.

  48. 48
    nrgyman Says:

    RE 39,41: Good discussion re natgas industry. Consolidation is desperately needed, particularly in SE Appa. The Haynesville is being consolidated by JJ at CRK. For SE Appa, there could be a great advantage for shareholders if AR, RRC and SWN all merged together via zero-premium all-stock deals. The combined entity would still have the elevated debt metrics, but would have plenty of assets to sell to reduce debt without hampering future production efficiencies. The synergies and scale offered could drive down costs. Production would be better managed vs separate entities. Unused FT would get filled more rapidly. Drop down midstream assets to AM would raise cash. Several ways for shareholders of each entity to win.

    Biggest impediment imo is excess management influence on BODs. At least 2 out of the three mgt teams would be terminated (synergized), the sacrifice that must be made to merge and generate improved returns. Self-termination is not in management’s financial interest so the BODs must stand up for the shareholders and do it against management wishes.

  49. 49
    zman Says:

    re 48 – no argument from me other than I’d add that for the buyers they’ll get a lot of questions as to what’s in for them. COG for instance, simply doesn’t need to bolt on one of their peers, at current market prices (or so they’ve said), no reason to do that to their balance sheet after watching others do that (SWN comes to mind prior to punting the Fayetteville).

  50. 50
    nrgyman Says:

    RE 49: True. Assets sales may need to be delayed for better pricing, but they could still sell some assets at firesale prices to bring debt into moderate levels. Bite the bullet and move on after the mergers–something the market could really like. Lower costs via synergies would help with CF before assets are sold. Stand-alone entities cannot generate the cost synergies a combo can and they are not as likely to sell assets at depressed prices vs where they were acquired by that mgt team.

  51. 51
    tomdavis12 Says:

    Z: Was rereading the M. Gordon piece and looking to confirm some of his positive numbers. US production for next year I see: IHS Markit 440K, Wood Mackenzie 450K, GS 600K and RS Energy group 100K. I know some of the CEO’s like Scott S. @ PXD have been backing off their numbers. You have probably posted your number, but where is your guesstimate? If global demand is in the 1.2mm bpd range and we are producing 1.0mm, it would seem as though pricing would be highly range bound. Mark I believe stated we are only up 200K in the last 8 months.

  52. 52
    zman Says:

    re 51 – Thoughts

    – I pretty sure I have not posted it yet anywhere. Generally we post the out year more specific thoughts near the end of the current year on a point estimate or range basis.

    I’ve argued all year long that the STEO was too high and they’ve pared it back a good bit but it still shows +1 mm bopd over 2019. Much of this is modest growth from 1Q20 forward but when you rise into year end 2019 as they have us doing (and we are though unlikely this sharp), just maintaining that crescendo provides strong growth on a full year basis. We are seeing a lot of that from our names who are going into something a bit above maintenance mode (4Q19 flat to 4Q20 flat) … most are in the 5 to 10% growth range but we have not seen many 2020 firm guidance ranges yet.

    – If you press me over drinks I’d say +0.6 to +0.8 mm bopd given how I see things now over 2019. Some of the numbers you show may not be YoY numbers but perhaps growth within the year. Otherwise the RS Energy number, for instance, implies sharply lower 2H20 volumes.

    Again, I see the STEO as still too high and set for a fall given how that model works vs where rigs counts are now and where they are headed. Much of the rest of the world keys in the STEO to their non-OPEC supply figure including the OPEC MOMR. My 2020 price deck was set long ago on the idea that we’re not getting out of balance (so far so good), and I generally get pretty close on the annual figure (see Monday’s post in The Week That Was section and I think you can see 2013 forward). It’s an art, not pure science as previously noted. By the way, I don’t have any qualms with oil prices being range bound as long as that range is over $50 and averages close to my $60 ($55 to $60 is fine).

  53. 53
    zman Says:

    OPEC eve remains super quiet.

  54. 54
    tomdavis12 Says:

    BAML has XOM as a 50% higher energy name for next year. Due to their growth in Permian & Guyana.

  55. 55
    Viper1 Says:

    some large RTLR blocks in the last 5 min.

  56. 56
    zman Says:

    Beerthirty, back shortly.

  57. 57
    Viper1 Says:

    SEMG common shares ceasing to be publicly traded, subject to the approval of the holders of at least a majority of the SEMG common and preferred shares. A special meeting of SEMG stockholders will be held on December 4, 2019 , for the purpose of voting on the Merger Agreement. Per the Index’s methodology guide, this event will result in a constituent replacement. Accordingly, after the market closes on December 4, 2019, and effective on December 5, 2019 , Rattler Midstream LP (NASDAQ: RTLR) will replace SEMG as a constituent of the Index at SEMG’s then-current weight.

  58. 58
    Viper1 Says:

    Can assume the late day action in RTLR has something to do with this Index closing. Any comments apreciated

  59. 59
    tomdavis12 Says:

    Guyana: Some fun facts. Was originally a Dutch colony. British rule from 1815 to 1966. 50 years of independence. English spoken. XOM – HES and Tullow are the drilling partners. All offshore. Tullow reports a problem for them of 2% sulfur in their production. Ghawar is also 2% so I think just a problem for small guys. API is 30-35 just like Ghawar. No mention from XOM & HES. I believe the latest from XOM is 750K bpd in 2014. Z let me know if you think it is a different number. In the past VZ has claimed the area offshore Guyana. Another potential negative. Maybe China takes over some offshore assets from VZ and becomes an issue. Large amount of money will be going to Guyana. Other than some Scandinavian countries doing right by their citizens most South American countries has been more like VZ. Don’t know anything about political climate. Also do not know if any offshore drillers will benefit here. Will check.

  60. 60
    tomdavis12 Says:

    59 XOM production in 2024 not 2014.

  61. 61
    zman Says:

    re 57/58 – thanks

    re 59 – 2014? which number are you referring to? XOM (unowned) site shows 2020 production of 120,000 bopd in 2020. 750,000 bopd I think is 2025.

  62. 62
    zman Says:

    re 60 – OK got it, thanks

  63. 63
    RMD Says:

    51 & 52 the M. Gordon piece:
    what intrigued me was his time frame: “…a pricing regime change over the next six months.”
    Maybe reflexivity can work far more quickly than the market currently expects. Heck, if he’s correct, OPEC can sit back, open a beer and relax.

  64. 64
    zman Says:

    re 63 – somewhat related, rumor mill has for a couple of weeks now indicated, that the ministers don’t think the Call on OPEC is correct, they think it’s too low. They think this because they think forecasts for US growth are too high. This could all be an excuse not to cut or they might be onto trying to engineer a soft landing (and not supporting some players in the U.S. who might grow more at $65 than $55.

  65. 65
    zman Says:

    Interesting reading watch

    EIA updates Bone Spring maps, good little production growth video in here.

    https://www.eia.gov/todayinenergy/detail.php?id=42175#tab1

    WPX 3rd BS wells have been doing very well.

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