Monday Morning

Posted on by zman

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Market Sentiment Watch:

  • Protests - appear likely to be a slowing effect on the reopening.  Our view is that this also sends the chances of an early second wave for Covid-19 zooming.
  • OPEC + - potentially meeting this week instead of next,
  • China data show unexpected May manufacturing expansion (Markit PMI at 50.7 vs 49.6 expected).
  • China / U.S. tensions continue to rise.

Housekeeping Watch:

  • It's that doldrums time of year. Even though so far the market has failed to "go way in May" things are generally quiet this time of year in energy land. Please use the site. Participate. Ask questions. If I'm left to my own lack of creative devices the site becomes mechanical, I get bored, and a bored Z is a lazy Z. Thanks.

In today's post please find:

  • The Week That Was,
  • The Five Things,
  • and some other odds and ends.

In case you missed The Wrap please click here.  The ZLT was up 6% last week and has been up 8 of the last 9 weeks, in large part driven by stability and rebound in oil and oil service, improved traction in natural gas weighted names and our large position in renewables.

 

Ecodata Watch:

  • We get ISM manufacturing at 10 am EST (no forecast, last read was 41.%),
  • We get construction spending at 10 am EST (no forecast, last read was 0.9%)

The Week Ahead: 

  • Tuesday - Car sales, ISM nonmanufacturing, factory orders,
  • Thursday - Jobless claims, trade deficit, productivity, unit labor costs,
  • Friday - Nonfarm payrolls, unemployment, average hourly earnings, consumer credit.

In Today’s Post:

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

 

Holdings Watch:

ZLT (Zman Long Term portfolio)

  • Last Week’s Trades: None
  • ​The Blotter is updated.
  • Up for 8 of the last 9 weeks and up substantially better than the energy group ETFs which ranged from -1.8% for the XOP to plus 6.6% for the OIH.  Strength in the portfolio has been broad based and led renewables and strength in natural gas.
  • Eyes on unowned name GPOR for a potential re-entry on a move towards $1.  Eyes on ENPH for a potential entry.

Commodity Watch:

Crude oil closed up 4.6% to close at $35.49 last week lifted by "re-openings", word that Russia was in compliance, fairly good compliance by OPEC+ (though not Iraq) and balanced by a not so great weekly out of EIA.  The weekly was what we term a low quality miss on a jump in imports from Saudi which won't last.    At week's end rigs fell yet again while spreads bounced (good for LBRT). Brent rose 4% as well and the spread to WTI remains at export suppressing levels. Please see The Week That Was for details. This morning crude is trading flat.

  • OPEC+ Watch:   Meeting this week instead of next? It was supposed to be held virtually on June 10th but there is talk of moving it to this week (June 4th).  Also a two month extension of cuts is apparently on the table.
  • Near Term Expected Range Watch:  REVISED UP TO NEW RANGE OF $32 TO $42 (prompt month), from prior $28 to $35. We are approaching a gap fill from the time of the OPEC+ meeting failure in March (the bottom of the gap is at $42). Saudi imports have arrived. We saw fear the imports, buy their actual arrival last week. Rising gasoline demand in the States should help to modestly boost pricing of the strip near term. 
  • The front month now looks like this.
  • Pemex Watch:  PEMEX says 89 of its workers have died from Covid-19 now. We have heard reports that Brazil's Petrobras is suffering Covid casualties as well. We have seen no such reports from our firms (we've seen some reports of employees contracting Covid in the renewables space but no fatalities or long term impacts on their operations to date.
  • Rigs Counts Watch:

Natural gas was flat for the prompt month last week closing at $1.85 but the 12 month managed a 2.5% gain to end at $2.44 after EIA reported a . Our near term outlook remains one of reattaining prompt $2.10+ natural gas and a strip well above $2.50. Look for our 2020 peak range on storage later this week.  Please see The Week That Was for details.  This morning gas is trading off 5% on ongoing demand worries (primarily LNG shipments).

Weather Watch:

  • Last week:  Gas Weighted Cooling Degree Days (CDDs) came in at 46 vs 31 normal and 24 in the prior week.
  • This week's forecast:  This week, CPC predicts CDDs will rise to 52 vs 37 normal.

​The Week That Was

Stuff We Care About Today

The Five Things (changes in red)

  1. Civil Unrest + Coronavirus: All eyes watching for spikes as all states are in some stage of re-opening. Watch for clusters in 7 days from some really poor behavior on display in Middle America after the holiday weekend and on a lot of failure to socially distance over the last several days of protests/riots.
  2. Production Curtailments, Guidance, Rig & Spread Counts, and Tank Tops:  
    1. Curtailments are now showing up in the weekly EIA reports - we've moved to consistently falling at least 0.1 mm bopd per week and are down 0.8 mm bopd from year ago levels and down 1.7 mm bopd from the peak reported by EIA's count 10 weeks ago,
    2. Guidance - 1Q20 saw the second and in some cases third round of guidance drops. We expect little to no further change for most names with the 2Q20 reports in July/August.  We see names sticking to 1Q guidance or guidance suspensions with the 2Q20 reports.
    3. Rigs and spreads have fallen sharply over the last 10 weeks.  As expected the pace of reductions has slowed drastically near term. Rigs are likely to ebb into 4Q unless prices move over $40.  Spreads are seeing a modest rebound now.
    4. Oil in storage is at 62% of U.S. working capacity last week.
  3. Natural Gas Sentiment:  is improving but as a reminder, expect this to be a slow, sawing type of improvement.
    1. Exports are temporarily ebbing. We see June and July as the slight dip in an otherwise increased export trajectory for 2020.
      1. At least 25 LNG cargo cancellations have been reported for June and we note LNG exports are starting to weaken (but only slightly so far). At least a dozen cargoes have been cancelled for July.
      2. We note that China announced in April it will be taking shipments from the U.S.
      3. Lower LNG prices are prompting some Asian countries to switch from coal to LNG faster than expected.
    2. Non heating demand remains solid to near record.
    3. Summer temps are finally showing up and we expect this to drive strong gains in gas-fired generation in the very near term.
    4. Production is down:
      1. 7.6 Bcfgpd from the highs set in November 2019,
      2. Production is down 0.6 Bcfgpd from year ago levels (it's been years since we could say that),
      3. Production is falling almost weekly. There is the potential for another ~1 Bcfgpd further drop due solely to oil related shut ins. 
      4. Supply (production plus net imports) is ranging from up 1 to down nearly 5 Bcfgpd vs the year ago level due to exports and easing production.
    5. The net short position is still elevated but has begun to reverse.
    6. The drop in oil prices and the expected further reduction in the oil production forecast for the U.S. is leading to some natural gas group sentiment improvement.
  4. Election 2020: We await Biden's VP pick. Biden has made some more anti frac noises of late. In Colorado we view it as a positive that Hickenlooper who is a fan of frac is in the lead now.
  5. Alternative Energy:  Sentiment remains largely in good territory.  We are seeing some delays due to installation and manufacturing related Covid impacts and some supply chain issues but all appears minor at this time.

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.

 Other Stuff

  • Look for additional cheat sheet updates for LBRT, PE, and WPX this week,
  • Look for a new name piece in the renewables space late this week.

Odds & Ends

Analyst Watch:

  • TBA in comments

44 thoughts on “Monday Morning”

  4. Call option flag on JKS.

    Also on JKS, heard some comments from one WH advisor suggesting the delisting of all Chinese stocks in the U.S. So far this is not being taken seriously in the markets.

  9. OPEC CUT OUTPUT 5.84M B/D TO 24.6M B/D IN MAY: BLOOMBERG SURVEY

    Still waiting on OPEC decision on meeting date.

  10. FYI – BWEN at $2.75 now. That’s Roth’s very long held and our sense is stale price target. Decision time for them. We wrote on this last week saying:

    “BWEN tapped a 2 year high today, and their only sellside coverage’s price target of $2.75 before pulling back. A close there may prompt a couple of actions within a week or so by Roth.

    Option A) downgrade the name as it’s hit your target.
    Thoughts:
    1) you generally take a bit of time to see if the name has staying power at/above your target before you do this.
    2) positives are it makes your research director and trading desk happy as you ring the register on a win in a little name, rack up some commissions and pat self on back.
    3) negatives:
    a) you just got a bunch of guys in to see them virtually in one v one type meetings last week. Buyers may feel whipsawed a bit by the analyst pulling the plug within a couple of weeks of what would have been a low $2’s buy in.
    b) you want the firm to choose you for future banking (this is not an issue now given they are the only coverage in time but consider that they might have other followers by the time it’s time to finance a new facility.

    Option B – Upgrade the target.
    Thoughts:
    a) this is done than said (not a typo). Literally remark on the name gaining traction with investors for green space, customer diversification, product diversification, etc, mark the multiple up a half turn to a full turn of EBITDA and you have a higher target.
    b) reasons not to do this would be lack of clarity on 2Q #s (I see EBITDA as a bit lower sequentially but I’m a longer term guy than that so it’s not much of a concern to me. Given that Roth is the consensus of one he can dip his 2Q and 3Q estimates in advance of adjusting the target multiple and target.”

  11. BWEN at 2 year high. Best levels since we’ve been involved. Much best volumes of late since we’ve been involved.

  15. Z- Have you looked at Sunrun ? It might be worthwhile to review ,
    Although the p/e is way out there.

  16. re 15 – yes, residential installer, my sense has been it’s better to go with panels, inverters, and storage names. I started digging into RUN and VSLR when I picked up some solar coverage in early 2019 and the level of customer satisfaction was not great for either. Margins were also problematic and I didn’t see a path to leveraging fixed costs. I see they are both up solidly today, wonder if CA let them go back to work.

  17. VTIQ +10% near all-time high. Not owned by me this time as I did not re-enter on the dip near $20. NKLA ‘IPO’ set to happen this month.

  19. *DJ Saudis, Russians Close to Compromise on Brief Oil Cut Extension — Sources

    *DJ Saudis Want Oil Production Cuts to Continue Until Year End — Sources

    *DJ Russia Favors Relaxing Curbs Starting in July — Sources

  20. RE 18: VTIQ is the publicly traded SPAC. It is ‘acquiring’ the private company Nikola Motors. When this deal closes (this month) the symbol will change from VTIQ to NKLA. Essentially, Nikola Motors is doing an ‘IPO’ via the spac VTIQ.

  22. re 20 – yeah, what I meant, it’s not an IPO, its going into a shell. When are first real revenues slated for? Wonder if there is a retail roadshow for it.

    re 21 – our way to play EV components is TPIC.

  23. From Zorg re BCEI

    “BCEI Nice run back to major acceptance at 18.30….a move on volume above this level would be interesting….”

    Our post quarter update with full cheat sheet update on BCEI will be in Wednesday’s post.

  24. Whoa

    VWDRY – just announced a 1.14 GW contract, offshore UK.

    It’s a conditional agreement.

    That’s a massive deal for their offshore segment, should it occur.

  27. re 26 – you bet, doesn’t mean it can’t rise in time, just felt the bits were better for me to pay attention to.

    Zorg saying BE (currently unowned) looking more constructive again.

    That VWDRY conditional contract is the biggest one I’ve seen for them yet. We’re used to seeing decent contracts at the 0.14 GW level with many smaller contracts. 1.14 GW is like the size of 2+ good sized nukes.

  28. BWEN attempting to extend. From our piece last week, our 12 month upside target based upon a mid point 4 to 5x 2020 EBITDA is $3.50. Management is not guiding at this time as noted and they’re reluctant to come close to blessing a model at this time but I do have a 2020 and 2021 model worked up that I’m pretty comfortable with and 2021, unlike the one sellside guy on the Street, is above my 2020 number without going to a corporate gross margin that is where the president on the last call suggested he sees it going.

  30. Here, working on PE and BCEI updates. Shout if you need something otherwise I will be quiet.

    Oil over $35.

  34. re 33 – noted the last part of the story noting NY state and natural gas. Governor has put gas utility in a huge bind there.

    Would be positive for COG and others in the Marcellus but mostly COG were Constitution pipeline plans be revitalized. Would not count on this really changing things.

  35. **WHITE HOUSE SAYS THERE WILL BE ADDITIONAL ‘FEDERAL ASSETS’ DEPLOYED ACROSS NATION IN RESPONSE TO VIOLENT PROTESTS

  37. Early Read on Oil Inventories:

    Crude: Up 3.3 mm barrels

    Gasoline: Up 1.4 mm barrels

    Distillates: Up 3.0 mm barrels

    Note that these builds would actually be smaller than year ago builds for each.

  39. Nice way to start the week with a 3% up move, new recent highs in a couple of renewable names. Elsewhere, good strength in several names, most particularly BCEI

    Back in 30 minutes.

    Beerthirty.

  43. Here is another SPAC to watch; it has not separated the Warrants from the underlying company yet. It is still traded as the UNIT IPOC/U Social Capital Hedosophia Holdings Corp III, a new blank check company of Virgin Galactic Holdings (SPCE) Chairman Chamath Palihapitiya. I have traded many of these SPAC’s using the warrants, and it’s been very profitable. I did the same with VITQ purchased warrants when they split the units from the company my buys were from 1,75 to 2,20 sold at 12 BUT never re-entered on the last VTIQ pull back. Chamath has cult type following. Patients will be needed until an acquisition is announced, the SPCE deal took 18 months. However, the waiting was well worth it.

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