Monday Morning



Market Sentiment Watch: Happy Hanukkah. Holiday light week this week in terms of economic data and both inventory reports are delayed until Friday. Markets are focused on a potential "breakthrough" on the China deal front. In today's post please find The Week That Was and some other odds and ends. In case you missed The Wrap please click here.


Ecodata Watch:

  • We get Chicago Fed at 8:30 am EST (no forecast, last read was -0.71),
  • We get new home sales at 10 am EST (no forecast, last rewas 733,000).

The Week Ahead: 

  • Tuesday - Durable goods, core capex orders, market closes at 1 pm EST.
  • Wednesday - Christmas
  • Thursday - Jobless claims,
  • Friday - No economic release scheduled however we get both weekly EIA reports Friday.

In Today’s Post:

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


Holdings Watch:

ZLT (Zman Long Term portfolio)

  • Last Week’s Trades: We added to WPX at $11.23 and added a new position in BWEN (see last Friday's post for details on this one)
  • ​The Blotter is updated.

Commodity Watch:

Crude oil edged up 1% to close at $60.44 last week on a fairly benign weekly out of EIA. Brent closed up 1% as well leaving the premium to WTI just under $6. News from OPEC+ members was fairly limited last week.

  • This week from EIA: 
    • Expect a significant bounce in throughput,
    • Benign net imports,
    • Flat to up 0.1 mm bopd week week to L48 production.
  • Frac Spreads Watch: According to frac tracker Primary Vision, active US spreads hit a new low of 320 last ween, down 13 from the prior week and well off the 475 high reached in April 2019.  The active frac spread count has not been this low since mid 2017.  For a graph of this from Primary Vision, over on the twitter, click here.
  • Oil Directed Rig Count Watch:   Up 18 vs the prior week. Bargain hunting with day rates near what some smart guys we know expecting to be their low in advance of 2020 capital programs. Rigs are still down by 200 or 23% YTD.

  • This morning crude is trading FLAT.

Natural gas rose 3 cents (1%) to close at $2.33 last week with the strip up a penny and in line at $2.32, despite a much bigger than expected withdrawal.

  • We expect a bigger withdrawal this week, on the order of double or more the year ago withdrawal.
  • LNG saw another new high for exports last week.
  • At 176 last week, gas weighted HDDs were
  • Rigs fell 4 last week and are now down 37% YTD and at a new cycle low.

  • This morning gas is trading down nearly 5% on this week's forecast.

Weather Watch:

  • Last week: (rare colder than normal week)  Gas Weighted Heating Degree Days (HDDs) came in at 210 vs 204 normal and 176 in the prior week.
  • This week's forecast: (tropical)  This week, CPC predicts HDDs will plummet to 137 vs 215 normal.

The Week That Was

Stuff We Care About Today

The Five Things - red is new this week.

  1. 2020 Guidance: With OPEC out of the way look for upstream names to watch oil prices and slowly begin releasing their 2020 outlooks (between now and February). Capex is likely to be down modestly across the board (see next bullet). Service names are likely to guide one quarter at a time with 1Q set to see a modest bounce relative to 3Q and 4Q19 levels.
  2. Free Cash Flow Vs Growth:  A majority of our names will look to generate free cash flow at $50+ in 2020 (some lower) and some gassy names will look to be cash neutral to slightly cash flow positive at a roughly $2.50 or $2.60 strip.  Expect upstream growth to take a backseat again in 2020 with FCF optimization (mix of volumes, price, cost vs capex) at forefront. While 2020 isn't official yet for most names the determination to be better than cash neutral to be free cash flowing in a sustainable measure is majority view and deemed critical by many.
  3. U.S. Production Directionality:  Pace of Lower 48 production growth is retreating - rigs falling, frac spreads falling (frac spread count down 33% since April, down hard again last two weeks), spending for 2019 was front end loaded, spending in 2020 likely down for most names (10 to 20%).  We see EIA as missing the turn in production now, although, the latest EIA Drilling Productivity Report clearly anticipates rapid unconventional growth deceleration even as the DUC count starts to really drop.
  4. Natural Gas sentiment - remains in mostly poor territory, production and weather driven. While exports hit almost weekly new highs (LNG set another record last week) and demand remains solid the market is more focused on record production levels (also at new highs) and the expected warmer than normal U.S. winter.  Notably, the net short position is just above record high territory and we expect a move away from the lower $2's soon as natural gas storage levels fail blow out well above the five year average.
  5. 2020 Presidential Candidates:  Iowa closing in, moderates leading (and we see some far left candidates shifting more central now on energy issues). Watching the rhetoric and plans which range from the extreme (frac bans, revamp of SEC reporting to reflect climate change liability) to measured (a push for further improvement of ESG).  Frac bans are generally thought to be only applicable on federal lands which are generally western U.S.  Also, the political climate in CA appears to be worsening (more on that tonight from CRC) while CO appears the same to us for now at least. Two late entrants - one moderate, one definitely anti oil and gas (we don't see Bloomberg as likely nominee, the other, the former governor of MA is not anti frac that we are aware of but does not seem to be catching much attention).  On the California front - steam assist and permits for normal fracture stimulation are on hold for review. We see CA as increasingly anti oil and gas and suspect the heat is only turned up on names like CRC (personal holding) and BRY (unowned) in 2020.  We see some of this same anti O&G as weighing more on sentiment than reality in Colorado names like BCEI and HPR.  We currently hold ~ 28% of the portfolio in Wind (3 names now), Solar, and fuel cells.

Questions on the 5?  These are our top of mind thoughts at present. We keep it short for the post but please feel free to ask in comments.

Our Week Ahead:

  • Monday - in office all day
  • Tuesday - will post a Tuesday post and be in the office half the day,
  • Wednesday - Merry Christmas
  • Thursday - napping
  • Friday - regular post, will be office all day. Requested name update likely this day (ECA - unowned).

Other Stuff

  • TPIC - we have submitted a fresh piece to Seeking Alpha and will post a link when available,
  • BWEN - we received company feedback on Friday's post over the weekend. Mostly small tweaks, comments soon.

Odds & Ends

Analyst Watch:

  • TBA in comments if we see any.

55 Responses to “Monday Morning”

  1. 1
    zman Says:

    Advice from Peter Lynch ”Oil is interesting. Look, longer term, solar, windmills really work. But you need natural gas and oil to bridge to this… I’m buying companies that I don’t think will go bankrupt. They’ve got to be around the next 18 to 24 months” – from Barron’s this weekend.

    First book they told me to read when I walked in the door in the early 90’s was his “One Up on Wall Street”

    Agree with all of that. By the way, risk of BK in the upstream has lessened for the solid names over the last 3 years, pretty easy to spot the balance sheets that are poor in the space, staying away from >3x type net debt/EBITDA ratios, overly drawn revolvers, gassy names with near term debt maturity issues, etc.

  2. 2
    Denise Says:

    Along with Peter Lynch.. Energy sentiment change…know I have read more but neglected to save. My favorite comment was “Oil is the new tobacco”

    11/25/19 https://www.palmvalleycapital.com/post/opportunities-in-energy

    12/2/19 Apple worth more than Energy…all of it https://twitter.com/pineconemacro/status/1201563685321359361

    12/6/19 Buffet and Sam Zell betting oil and gas stocks oversold

    12/6/2019 Tommy Thornton OIH setting up for long trade https://twitter.com/TommyThornton/status/1202973167716896769/photo/1

    12/10 “ Energy is the new Tobacco” prepare for 20 years of outperformance- Jared Dillian
    12/11 Jesse Felder -It’s time to get greedy in the energy sector points out -Ten years ago, energy accounted for about 15 percent of the S&P 500 index. Today, it makes up just 5 percent, having been mostly displaced by technology giants such as Facebook Inc. and Apple Inc.

    12/16/19- Doug Kass-More Oil Vey! Could There Be an Energy Trade?
    * A trading opportunity might arise in energy stocks

    12/17/19-Jared Dillian- If Greta Thunberg is Time’s Person of the Year, then it probably means that climate change has peaked in terms of social mood—and that it’s a good time to buy fossil fuels.

  3. 3
    zman Says:

    Nice! Thanks Denise.

  4. 4
    zman Says:

    Re Lynch

    When I walked into my first IA job in the early 90s they gave me two books. “One Up On Wall Street” and “The Firm”. The first was the office bible. The second was our client.

  5. 5
    brodway Says:

    Certainly seems energy has reached bottom. Exactly 6 years from initial crash. Maybe 7 good years coming out way. Good time to position for next 18 months as I do think there will be huge % gainers among them. BE already has had a big run. Missed that one but backed up the truck on TPIC at 16 as I saw a technical washout there. Good to see Zorg breaking radio silence. His technical input is unparalleled. Excited about board coming alive again and much better spirits

  6. 6
    brodway Says:

    I read that Peter Lynch book too. Still think many of the business principles he expressed over 30 years ago remain same. There are 2 specific variables that I believe may lead to energy rally this time. Just about everyone hates them and there’s a tremendous underinvestment in the space. Charts are starting to break long term charts to the upside. Still cautious but optimistic

  7. 7
    zman Says:

    re 6 – yep.

    I am here all day but will be pretty quiet (maybe, we’ll see), working on a macro update.

    Shout if you need something and the request line is open.

    Likely an update on ECA (unowned) in Friday’s post.

  8. 8
    Denise Says:

    Z would appreciate it if you or anyone would weigh in with any comments/preferences about the majors. Wanted to buy and “tuck away” in my retirement accounts. Mainly for dividend yield. Know there not your thing …but if anyone has any opinions.


  9. 9
    zman Says:

    re 8 – I’ve been looking at COP (unowned) – low debt, oily, growthy, big free cash generator, can put out a decent ESG statement, yield. It’s what bigger investors want in upstream. Not a major per se but I don’t cover refining closely enough to comment. Listening to them more actively, like they way they present.

  10. 10
    zman Says:

    TPIC – in with editing at SA since 10 pm Saturday, can’t tell that they have started it yet, anyway, should pop out sometime today.

  11. 11
    brodway Says:

    I’m still liking mid stream names for income. Recently ET presented a buying opportunity with a compelling yield. Have a basket of names that I partly collected from valuable input from Nrgyman and others.

  12. 12
    zman Says:

    MR – up 5%, leading in a mixed group.

    Our free piece from last Monday with price target sensitivities:


  13. 13
    zman Says:

    BCEI with a $23 handle.

  14. 14
    tomdavis12 Says:

    AM Second week of double digit gains. The positive last week was their buyback of shares from AR @ $5.16. Caution is their mgmt. has not returned many phone calls.

  15. 15
    brodway Says:

    AM could be restricted from discussing based on recent activities but avoiding continuing investor concerns are unacceptable

  16. 16
    zman Says:

    Pleased to see LBRT still attempting work the bounce higher.

    Free cash flow story here in 2019 and again in 2020 as they bide their time in adding spread #24. Good to see investors have started, in December, to look through the toss away quarter that is 4Q19.


  17. 17
    zman Says:

    re 14 – not a fan of companies that don’t pick up the phone/call back.

  18. 18
    tomdavis12 Says:

    17 Neither am I. Last Q dividend, stock had gotten up over $8/sh two days before exdiv. Then rapidly declined mostly because of the final sale of Warburg Pincus and Yorktown Partners. I will probably lighten up above $8/sh. as it stands now.

  19. 19
    zman Says:

    VWDRY – on the tape with a repowering project,

    38 MW in Norway

    repowering basically replacing turbines in an exiting park.

    – this is another harsh weather order (cold and very high wind) – this is the most northerly wind park on the plant.

    – they’re replacing 15 old Nordex turbines that have been there for 20 years, with 9 Vesta 4.2 MW units.

    – comes with a 30 year service contract.

  20. 20
    zman Says:

    re 18 – on that matter, BWEN CFO sent over a second round of clarifications and helpful thoughts.

  21. 21
    zman Says:

    TPIC in editing now.

  22. 22
    zman Says:

    Latest thoughts on TPIC:


    This contains commentary on the PTC extension.

  23. 23
    zman Says:

    From Zorg

    Re LBRT

    “Quick retest of previous acceptance at 10.68….rejecting that level as too low this morning…Next upside target and defined resistance at 12.29….Thanks for the ride.”

  24. 24
    zman Says:

    From Zorg

    Re MR

    “Little supply until high 9s.”

  25. 25
    zman Says:

    From Zorg

    re FLMN (our primary yield play, we own others but this should be the high yield name in the portfolio)

    “Continues to build acceptance at defined resistance…Break here works to 7.39.”

  26. 26
    zman Says:

    From Zorg

    re HPR

    “Short pause at previous acceptance…rejecting that level as too low this morning….already a big move but room to move into the low 2s to my eye. Another thanks for a very nice ride.”

  27. 27
    Viper1 Says:

    re 11 great input from NRGYMAN

  28. 28
    zman Says:

    re 27 – yes.

  29. 29
    zman Says:

    From Zorg

    Re TPIC

    “Thanks for the context…..$TPIC is working that near/importance resistance level at 18.68….next upside target is a quick move to recent acceptance at 19.24. Supply then begins to thin out above that level.”

  30. 30
    zman Says:

    From Zorg

    Re COG

    “Shrugging off the down day in $NG….Looking for a retest of precious acceptance at 17.91….”

  31. 31
    zman Says:

    Over a two week period more than half of our names have spiked above their 200 day moving averages. Interesting.

    Back to my macro stuff now, shout if you need something.

  32. 32
    zman Says:

    From Zorg

    Re LPI

    “Balanced trading at major acceptance (2.84) after breaking down trend, near resistance and being quite extended.”

  33. 33
    zman Says:

    Our last free pieces for:








  34. 34
    zman Says:

    From Zorg:

    Re WPX

    “The chart was very extended on 12/16 to my eye…the news made that obviously irrelevant. Wasn’t tuned into Z4 and missed it. Guessing it could run a few more days until we get another another extreme extension on a daily basis.”

  35. 35
    zman Says:

    Analyst Watch

    WPX – BMO raises from $11 to $15.

    Nothing like a little vertical chart action to give spin to your target price. Or maybe they were on vacation.

  36. 36
    zman Says:

    Good to see:


  37. 37
    zman Says:

    JKS- pressing recent gains.

    Updated cheat sheet on 11/20 at $16.35:


    Was followed by larger orders for their latest modules and the judge smacking down the bifacial import tariffs.

    9 days later:
    “11/29/19 – JKS – Added 50% to position at $18.40 as it backed off the morning’s opening move on news. Please see our 3Q19 comments from last week and today’s comments as we bolster the position. Average cost here now $18.58.”

    Good to see it pressing levels seen in August at the time of the 2Q19 report.

    Solar, name looking ahead to strong close to the year, stronger 2020.

    Setting up for a cup and handle breakout now.

  38. 38
    zman Says:

    Bond page update request via email – will do.

  39. 39
    zman Says:

    $7 handle on FLMN for the first time since owning.

    Positions taken to date:
    “10/11/19 – FLMN – We took an opening position at average $6.95 (it kind of got away from us after posting this morning), planning to add more in time. Follow on trade, added a little more at $6.35.”

    “12/11/19 – FLMN – Added to our position at ~ $6.38, average now $6.68. Tiny Eagle Ford minerals player, low debt, upcoming key wells from Conoco. Implied yield slight over 8% on last quarter’s annualized dividend. As high as 13% on our upper end 2020 model which uses $60 oil and volumes more conservative than Street consensus. They get a premium to WTI like MGY, small diffs on natural gas, fairly low costs, and solid margins. New cheat sheet with upside targets in tomorrow’s post or check site comments today. We hold an > 4% position in the name.”

    Please see our most recent write up here:


  40. 40
    zman Says:

    Tune in to tomorrow’s post for our 2020 oil macro annual comments.

  41. 41
    zman Says:

    MR with an $8 handle.

  42. 42
    zman Says:

    Early Read on Oil Inventories: (we get the weekly report on Friday)

    Crude: Down 1.8 mm barrels,
    Gasoline: Up 2.0 mm barrels,
    Distillates: Up 0.9 mm barrels.

  43. 43
    zman Says:

    Santa Clause energy rally continues.


  44. 44
    elduque Says:

    GDP- hasn’t moved since you did the gassy writeup.

    All the rest up sharply.

  45. 45
    Baylor Says:

    What do you see as risks to MTDR? I have an overly large position there in a stock they said “we are comfortable with our grandma owning this stock” and then it plunged 65% 🙂

  46. 46
    zman Says:

    re 44 – we don’t own it.

    re 45 – we don’t that either. We used to but we repositioned. I like management. But they are slow to get to free cash flow, and basically displayed absolutely no rush to get there. Further, they have NM acreage which may have subject to “frac ban” fears more than some others. I would not be concerned about execution as they have strong experience and some really solid well results. Stock is putting on a bit of a recovery now with the group. No plans by me to go back at this time.

  47. 47
    zman Says:

    re 44 – I have not yet had a chance to look at their 2020 guidance which came out after my last piece there. Maybe there’s an oppy to get back in, have not looked. We own COG and MR in the gassy space. All our holdings are on the positions page here:


  48. 48
    zman Says:

    GDP – guidance was light to Street on volumes and spending.

    This is what we wrote in that write up you referenced:

    Production Profile: Extremely gassy, just short of COG, nearly pure play on gas.
    This, like CRK (unowned) above, is a Haynesville Player, though not as large.
    Margins are high (not quite as high as CRK but strong) within the “gassy group” due to differentials that are tight to Nymex and falling costs.
    Further, while capex has been trimmed this year production volumes have been far less impacted due to strong well results.
    Debt – lower leverage and making the write moves to reduce high cost debt over the course of 2019,
    Activity has been slowed twice this year by management due to weak prices so as not to effect a wider gap between cash flow and capex.
    Hedge: About 1/3 hedged for natural gas next year at $2.67 (modestly favorable to current strip),
    2020 Growth: Street at 20% over 2019, potentially higher than in reality will turn out. We want to watch for the normal next year guidance (2020) which should arrive in 3 to 4 weeks or just before year end 2019 (last year it was December 20th).
    2020 View of Free Cash Flow: Slight outspend expected and while 2020 output may be light to current Street thinking we expect them to manage activity as they have done in 2019 to attempt to minimize outspend.
    Nutshell: Our sense is the name is too thin (they only have 14 mm shares out) for large players to even dip a toe in. At the same time, the name is not highly shorted with just 0.144 mm shares short at present (1.6% of the float is low in our space right now … so it’s ignored by longs and shorts alike). We like that they have slowed down. We are holding the name on the main screen for a potential add around 2020 guidance.

    So it looks like guidance was light on volumes and the initial reaction was to continue to ignore it. They were viewed as an outspend name so it should gain traction. Balance sheet remains in good shape and better than previously expected on the under spend. If I come out of something else I might dip that toe but not until I re run the model and probably not before year end.

  49. 49
    zman Says:

    OK, well, going to run, if any of that wasn’t clear let me know. Back later.

  50. 50
    Michael Says:

    Z do you have a writeup on CPE?

  51. 51
    zman Says:

    re 50 – yes, you can see all of them on the pulldown menu at upper left.

    This is probably the most relevant to the pro forma


  52. 52
    zman Says:

    Still here, buttoning up Tuesday post items. RMD I am around now if you need to chat.

  53. 53
    elduque Says:

    Thanks for the work on GDP.

  54. 54
    ??????? – Deception Wrinkle Cream – Moisturizer Wrinkle Cream Thats Functions ! 37186 Says:

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

  55. 55
    ??????? – Knowing When To Consult A Lawyer 42969 Says:

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

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