Thursday Morning – WPX



Market Sentiment Watch: Expect volatility today and tomorrow as OPEC and OPEC+ whipsaw markets. In today's post please find the oil inventory review (bigger than expected crude draw, bigger than expected product build, pretty neutral, no increase to reported L48 oil production (expect one next week), nothing meaningful on product demand (both a bit light), nice to see refiner throughput ramping (better late than not at all, expect another 0.6 mm bopd plus next few weeks), the natural gas preview (upper 20 Bcf's, no edge by us since consensus lifted after we called it too low at 21 Bcf on Monday), comments and a cheat sheet update on WPX, and some other odds and ends.

Ecodata Watch:

  • We get jobless claims at 8:30 am EST (F = 215,000, last read was 213,000),
  • We get trade deficit at 8:30 am EST (F = -$48.5 B, last read was -$52.5 B),
  • We get factory orders at 10 am EST (F = 0.2%, last read was - 0.6%).

In Today’s Post:

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


Holdings Watch: 


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

Commodity Watch:

Crude oil jumped $2.33 yesterday to close at $58.43 on OPEC hopes and what we saw as an OK/inoffensive EIA weekly report (bigger headline figures in both directions).   This morning crude is trading above $58.50.

  • Libya Watch:  El Feel said to be temporarily shuttered by "unlawful valve closure".

OPEC Week: (minor modifications since Monday; will run this section 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. Iraq early this week said 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),
  4. Saudi wants deeper cuts according to sources (this one emerged Tuesday, gained momentum by Thursday morning); note that in November OPEC was nearly 0.37 mm bopd below quota and the cut everyone is talking about is still the one noted above (a further 0.4 mm bopd).  All of the under quota production in November was Saudi and Angola, partially offset primarily by Iraq and Nigeria.   Nigeria has already said further cuts would be difficult for it (sure, given they're not living up to the current ones now).
  5. Thursday morning rumor of a bigger Saudi cut or Saudi led cut as well of 0.8 mm bopd.
  6. Iran says a deeper cut would be better.  Iran will remain exempt in all this.
  7. Russia wants it's condensate (that won't be exported it says) to be excluded from deal,
  8. Russia wants no deeper curbs,
  9. Change to OPEC output policy unlikely this week - IEA (emerged yesterday)
  10. OPEC is mulling meeting again in March (not April or June 2020),
  11. Compliance will be the key focus of the meeting (a rumor that's very likely true and we say good luck with that),
  12. Saudi wants $60 + Brent ahead of the Aramco offering.
  13. Saudi threatened to open the pipes yesterday if some habitual non compliance countries (Iraq) don't agree to get in line. Probably as empty a threat as they come.
  14. Venezuela backs an extension of production curbs through year end.  Few are likely to care but there you have it.
  15. Ecuador may stay in the group now.
  16. Brazil still mulling joining and is a guest this time.

OPEC Watch 3: Our sense of the expectations bar (transitioned from low to high over the week):  We had seen 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). This has changed with leaks/rumors about cuts now filtering into prices.  To reiterate, 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) (and generally then firming). This is especially true with rollovers but also true if cuts are expected and then less than or equal to expectations (or deemed as late).

Natural gas closed off 4 cents at $2.40 yesterday, giving back part of the prior day's weather forecast for the end of December based gain as traders eye today's smaller than average expected withdrawal. Yawn.  This morning gas is trading up 3 cents.


Natural Gas Storage Preview

Street is at - 27 Bcf for today's report. Note we have seen some looking for pulls closer to the 10 to 15 Bcf range.

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

Oil Inventory Review


Stuff We Care About Today

WPX Cheat Sheet Update

The 3Q19 results were covered here.

3Q19 in a nutshell:

  • Production at new high,
  • EBITDA and EPS missed on prices,
  • They had originally guided 4Q to moderate following a surge in 3Q oil volumes; with the 3Q19 report they forecast further edge up in 4Q,
  • Estimates for 2019 and 2020 went from 160 to 165 MBOEpd and from 176 to 182 MBOEpd respectively in the wake of the 3Q report.

5 year vision:

  • Modest growth, focused on oil,
  • Opportunistic buybacks to continue,
  • Leverage to ebb towards 1.0x,
  • Plan based on $50 to $55 WTI.

Balance Sheet & Other:

  • Net debt metrics are fine (1.6x net debt to 3Q19 annualized EBITDA or 1.7x net debt to TTM EBITDA),
  • Liquidity of ~ $1.5 B with nothing drawn on the revolver.
  • They've been reducing financing costs via lower coupon senior note offerings and early redemptions (see cheat sheet). Next maturity is < $100 mm due in 2022 followed by $400 mm in 2023 and we would expect them to redeem both in the next 12 to 18 months for lower than current rates (note the 2023's are 8.25% with the rest of their debt < 6% and a September 2019 offering priced at 5.25%).
  • They have been buying back shares at current levels.
  • Hedges - nearly 70% of expected 2020 oil hedged > $55.

E.S.G. - see 2019 report here.  Outlines reducing flaring, increasing water recycling, increased leak detection, spill reduction efforts, work with and payments ($836 mm from 2011 to 2018) to local tribes and more.

Sidebar:  Not all of our names have published Environmental, Social, Governance reports yet but they should strongly consider doing so in the coming year. We have gotten shoulder shrugs from some smaller names on this and I get that it's more difficult to pull together for small shops but to me this is failing they will need to correct with haste.

Valuation & Other:

  • We've adopted a two pronged valuation here as we are with a number of names when looking at 2020 multiples and target potentials.
  • We are in line with Street which is top of preliminary guidance range for 2020 and are in line on mix,
  • We employ $50 and $60 oil price decks, $2.50 flat natural and 20% expected realizations for NGL relative to WTI. We see our basis assumptions as conservative.
  • We utilized conservative operating cost guidance.
  • We show two potential targets, with a lower TEV/EBTIDA metric at $50 than at $60. Our official deck for 2020 is $60 and our modest upside target on that level is $13.
  • They have a habit of conservatively guiding. We expect them to guide for close to 10% growth for 2020 supported by a strong completion count in 3Q and near record foot completed along with it that is driving 4Q growth and a stronger than prior to 3Q expected 2019 exist rate. Last year they guided for the next year with the 3Q report but not this year.  We expect them to guide between just before the holidays and the end of January.
  • WPX is just under 4% of the portfolio and we plan to add to our position soon.

Odds and Ends

Analyst Watch:

  • TBA in comments

56 Responses to “Thursday Morning – WPX”

  1. 1
    zman Says:

    0.5 mm bopd cut now on the table, oil volatile around word of that.

    OPEC TV back up in a few hours with 6 pm Vienna time press conference.

  2. 2
    zman Says:

    re 1 – Saudi has denied it. Games.


  3. 3
    zman Says:

    VWDRY – another 1.6 mm shares bought back this week.

  4. 4
    zman Says:

    re 1 – that’s 12 pm EST.

  5. 5
    zman Says:

    JKS – September gap down (with the rest of solar) recovered now, pushing new post quarter highs and post large high efficiency module order highs. See our post 3Q write up here.


  6. 6
    zman Says:



  7. 7
    zman Says:

    OPEC+ JMMC recommended the 0.5 mm bopd cut but sources say they didn’t discuss allocation.

    Regular OPEC meeting about to begin, set for 2 hours, then press conf.

  8. 8
    zman Says:

    NG up 1% this morning, $2.42, noise.

  9. 9
    zman Says:

    Latest is deeper cut is for 1Q20 (down 1.7 mm bopd), then back to 1.2 mm bopd cut level through end of year) – this is the monitoring meeting recommendation, minsters should begin meeting shortly.

    NG inventories in 8 minutes.

  10. 10
    zman Says:

    Natural Gas Inventory Quick Look

    NG $2.41 pre report, up a penny.

    -19 Bcf (lighter than we or consensus expected by about 10 Bcf)

    We now have 3,591 Bcf in storage

    19.7% above year ago
    0.3% below 5 year average

  11. 11
    zman Says:

    NG up 3 cents post report (the could have been worse reaction).

  12. 12
    nrgyman Says:

    Jeff Currie (from GS) was just on CNBC saying oil markets needs to whether the production growth increases expected through Q2 next year (2020). Supply from long cycle investments made in 2014 prior to the capex falloff will be coming online by then, but afterwards the non-OPEC supply falloff due to a dearth of long-cycle projects and shale capex restraint will create a bullish environment for oil. This is consistent with post 9.

  13. 13
    zman Says:


  14. 14
    zman Says:

    re 12 – right, also weaker demand portion of the year from a global perspective. 2H20 set to be highest levels ever seen for demand (as is generally always the case, year after year).

  15. 15
    zman Says:

    Here, working on a few things, shout if you need something.

    The request line for company updates is open.

  16. 16
    zman Says:

    OPEC regular meeting starting now, would expect them to have opening statements, then go closed door for 1 to 2 hours, then have press conference.

  17. 17
    zman Says:

    Listening to OPEC opening address.

    Do note the contribution paid to Indian tribes by WPX since 2011 (> $800 mm) and then think unintended consequences of a frac ban.

  18. 18
    zman Says:

    OPEC opening comments – rotating head of OPEC is from VZ

    Cooperation between OPEC and OPEC+ has been exceptional.

    Decries US embargo on VZ crude.

    Climate Change comment – reiterates strong support for Paris Agreement, particularly through tech for reduced emissions.

    – Sees 2020 GDP at 3.0%
    – Sees 2020 as first year to avg over 100 mm bpd demand.
    – Said this could be larger if trade disagreements are resolved.

  19. 19
    zman Says:

    Media leaving the room now, guessing 2 hours.

  20. 20
    zman Says:

    NG in storage remains 3rd lowest level for this week of the year in the last 10 years.

  21. 21
    SLNCO1 Says:

    z and nrgyman — thanks for the gas companies discussion on the comments board yesterday. I got pulled away for the rest of the day and wasn’t able to get back it until now. I appreciate it very much.

  22. 22
    zman Says:

    re 21 – happy to continue at your convenience. Doing a long, boring, overdue update on some portfolio metrics so please fire away.

  23. 23
    zman Says:

    and I take it you saw Tuesday’s gassy players update post?

  24. 24
    zman Says:

    Net debt to EBITDA – most improved from 2Q to 3Q


  25. 25
    zman Says:

    Oil at $58.50, coming off energy press calling the 500 not enough given it’s only 100,000 bopd below actual low level commitment. So common. OPEC generally speaking almost always out complies in total. Also, the lower call on OPEC is based on low growth and high expectations for non OPEC output.

  26. 26
    zman Says:

    VNOM (unowned) cheat sheet and mini model update in tomorrow’s post.

  27. 27
    nrgyman Says:

    Trade Court ruling helps Chinese Solar names vs Domestic solar names:


  28. 28
    zman Says:

    re 27 – thanks, that’s helping JKS today.

    2Q call FSLR (unowned) was disappointed the bifacial panels were exempted.

    3Q call FSLR was pleased they’d been added.

  29. 29
    zman Says:

    Oil also slipping with the slower moving pace of today’s meeting.

    Press conference now tentatively set for 2 pm EST.

  30. 30
    zman Says:

    Novak says condensate removed from equation.

    Says reduction of 0.5 mm bopd from the 2018 October baseline (so was down 1.2 mm bopd, now down 1.7 mm bopd).

    Will Russia start reporting condensate for non export vs barrels of oil production? Russia saying condensate was 0.76 mm bopd.

  31. 31
    zman Says:

    OPEC meeting still in progress.

    Now the press conference is listed as “this evening”

  32. 32
    zman Says:

    VNOM (unowned) – update tomorrow.

    Briefly, still no buy by us.

    Yield too low given drop down and acquisition related dilution.

    4Q Street looks light on volumes so we could play as a trade up to earnings and sell on the event but 2020 is lower yield at current levels than would get me involved.

  33. 33
    zman Says:


  34. 34
    zman Says:

    Oil closing near $58.50 but space sentiment under a bit of pressure as this meeting goes long.

  35. 35
    james T Says:

    re32 drop down ? Price, Distribution ?

  36. 36
    zman Says:

    re 32 – two distributions closed Oct 1 – unit count up on both of those, volume guidance for near term looks like, Street may be light for 2020 but hard to tell as they’ve pointed out, hard to guide at this point. Funnelling Street 2020 current volumes through, and keeping to conservative diffs, higher debt costs and higher unit count yields a lower than I like implied forward yield. At $45 oil, about 4.5%, at $65 oil, about 7%. If the 4Q is heavy to Street then estimates will likely come up then. At 28.5 MBOEpd for 2020, if that goes to 30, then we get a forward implied of about 5 to 7.5% ($45 low end, $65 high end).

  37. 37
    zman Says:

    Street is well above me in terms of distribution for next year. I don’t get there, and wonder if there isn’t some bad math in the consensus.

  38. 38
    zman Says:

    OPEC continues to meet …

  39. 39
    Sean J Says:

    Z, are we expecting an official announcement out of OPEC and OPEC+ today, or will that come tomorrow? (the time difference between there and US has me a little confused). Thanks!

  40. 40
    SLNCO1 Says:

    Back to our gas discussion — I’ve got to believe that the combination of declining gas rig counts and the incredibly steep decline curves will put serious pressure on supply at some point (though I have thought that for awhile now, wrongly!). The bearish case on gas is, “who cares about that… associated gas makes up for any slowing drilling in the big gas basins.”

    On what might be a related note — was talking with some service guys working in the SCOOP/STACK and they claim that the basin is a major bust (based on their expectations of returns on the capital invested there). Indeed, I’m told that at some recent equipment auctions down there, high quality gear is selling for 15 cents on the dollar. There is obviously no demand for service gear in that geography.

    I bring that up because a possible glimmer of hope is that associated gas doesn’t come as fast as conventional wisdom believes.

    No need to comment, z… just throwing this line of reasoning out there if anyone cares.

  41. 41
    zman Says:

    WPX – slide 7 here.


    Nearly 100,000 BOE’s first month per well.

    Yesterday’s EIA, 2019 average well here:

    770 bopd and 1.6 mmcf/d first 6 months.

    That’s 186,600 BOE in 6 months.

    Going back to WPX slides, they show their 2 well 3rd Bone pad with cumulative of 365,000 BOE in 2 months. Split that by 2 for simplicity and you are about 182,000 BOE in 2 months. Pretty stout vs that EIA 6 month performance.

    EIA could include a bunch of shorter laterals that drag it down but likely not many in the 2019 vintage wells.

  42. 42
    zman Says:

    re 9 – we had expected a press conf at 12 pm CST. That’s been bumped a couple of times now.

    We don’t know if they give full #s tonight and let tomorrow’s meeting (see for the very hours tomorrow here) be a rubber stamp or not.

  43. 43
    zman Says:

    re 40 – I’d only add that managed flow in places like the Marcellus mean those wells with 40 to 60 MM/d potential are not IP’ing at that rate. They’re coming on in the lower 20 MM/ds (frequently) and have a flat spot for 6 months or so as they manage pressure. Sometimes longer but it can create a lag between last drilled and completed and first notable decline. Then they fall off but they’ve gotten good at managing the pressure drop, leads to better EURs and less chance of sucking the sand back up the wellbore. This however is already underway so it’s a rolling thing and not some cliffs that starts now and we wait 6 months. Lower activity, less completions now and in 2020 to replace the vintage production.

    re SCOOP/STACK – clearly activity on the wane, big names like CLR are harvesting by the long row now, smaller names have been broken. I take it you saw the consolidation of field offices by HAL and the reasoning being a lack of demand/activity?

    As to the associated volumes, I hear ya and that’s not going to be as managed as say, a dry gas well might be. With the liquids wells, they start more liquids rich (in general) and get a bit gassier over time. This is not more gas, it’s just less overall hydrocarbons with more of a gas oil ratio later. Managed flow I’ve seen rare has 6 month type flat spots, maybe just a shallower initial decline (on average) that you’d otherwise have. Also, a lot of people who’ve gone from singles and doubles to 3 or 4 well pads are managing so as not to spend too much on infrastructure that captures a flush period of high production and then becomes under utilized for much longer than is necessary.

    My primary silver lining on this has more to do with frac spreads, down almost 30% since spring. Cut rigs and a reasonable person might speak to DUCs. DUCs don’t fly if there is not a spread working to make it happen. So rigs down… OK, sort of so what but spreads matter.

    Oh boy, press conference just got cancelled.

  44. 44
    zman Says:

    Hold up appears to be something to do with Iraq.

    Press conference cancelled.

  45. 45
    zman Says:

    Beerthirty, be right back.

  46. 46
    zman Says:


  47. 47
    Wyoming Says:

    SCOOP/STACK can be very profitable. We had some wells come in at IRR ~ 200% at the high end, a lot ~ 100% and some breakeven. On average, we were about 30% ish.

  48. 48
    zman Says:

    Saudi minister says OPEC to release decision tomorrow.

  49. 49
    zman Says:

    re 47 – yep, thanks, it’s the little guys who were in gassy portions that didn’t make it. Don’t know how active ECA (unowned) is now, CLR (personal only) is quite active and showing strong results.

  50. 50
    zman Says:

    Other Saudi minister comments:

    You will hear beautiful news tomorrow

    Cannot Say We Have Agreement Until We Meet Non-OPEC – RTRS

    Everything will become clear tomorrow

  51. 51
    zman Says:

    Much bigger draw next week. My prelim read is about 3x bigger.

  52. 52
    james T Says:

    re51 EIA Oil draw or Nat gas ?

  53. 53
    zman Says:

    re 52 – apologies, natural gas.

  54. 54
    Baylor Says:

    Isntuere a way on Thursday’s to lake the comments link easier to get toV. You have such a wealth of amazing info that it’s rather hard on a phone to scroll to the comments link

    Or is there a better way for me to do that?

  55. 55
    zman Says:

    re 54 – If you are near the top of the site you can click on the most recent comments at upper right. That will take you to the most recent comment.

  56. 56
    RMD Says:

    Is there going to be a gray market for Aramco’s stock in the USA. Seems to me the offering was a huge failure priced at ‘the high’ to F&F, so no where near ‘market price.’

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