23
Nov

Monday Morning

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Market Sentiment Watch:

  • Last week market's moved sideways on mixed to poor economic data and rising Covid numbers with more good vaccine news serving to ward off any serious thoughts of profit taking. This morning reports indicate the Oxford vaccine may be up to 90% effective. 
  • On Friday the White House said 40 mm vaccine doses would be available by year end and some said 50 mm are possible. Fingers crossed on that and a steady rise in availability of 2 to 3 different vaccines into 1Q21.
  • We get a raft of new data on Wednesday including both the oil and natural gas inventory reports out of EIA.

 

Housekeeping Watch: 

  • Site improvements ~ send us your thoughts with "Site Improvements" in the subject line to zman@zmansenergybrain.com.  
  • If you are not getting ZBLAST trade notices at the correct email address please email us on that as well. 
  • This is generally a pretty quiet week and we are likely to take Friday off. If you have questions please feel free to ask them. There are no dumb ones here. 

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.

 

Ecodata Watch:

  • We get Chicago Fed at 8:30 am EST (no forecast, last read was 0.3). 

The Week Ahead: 

  • Tuesday - Case-Shiller, consumer confidence, 
  • Wednesday - Jobless claims, 3Q GDP, durable goods, advance trade in goods, new home sales, consumer sentiment, personal income, consumer spending, core inflation, EIA Oil Inventories, EIA Natural Gas Storage,  
  • Thursday - Market closed for Thanksgiving, 
  • Friday - No economic data release scheduled.  

In Today’s Post:

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

 

Holdings Watch:

ZLT (Zman Long Term portfolio)

  • Last Week’s Trades: We took 1/4 of our PLUG position off the table for a 414% gain. We added to our SWN position twice. 
  • The Blotter is updated.
  • We remain VERY long.

Commodity Watch:

Crude oil rose 5% to close at $42.15 last week, moving up on more good vaccine news, thoughts of stronger travel (relative to recent), and another big draw on distillates (heating oil was up 7%) and distillate stocks are almost back to middle of range for time of year. OPEC is also now more than likely to hold quotas at subdued levels through march when they meet at month's end. This morning crude is trading up about 1%. 

  • Iran Watch:  The U.S. moved B52's into the region over the weekend.
  • Interesting Chart of The Week Watch:  Much less troubling levels reached.   We now expect a move to low end of range for distillate stocks without a bigger than expected rebound in throughput near term, lifting prices and cracks over the winter. 

Natural gas slumped 11.5% to close at $2.65 on poor weather and the resulting bigger than expected larger than expected late season storage build that weather brought:

  • This week we expect a modest withdrawal (EIA reports storage a day early this week),
  • This morning gas is trading up > 2%. 

Weather Watch:  Still mild

  • Last week:  Gas weighted Heating  Degree Days (HDDs) came in at 118 vs 143 normal and 95 in the prior week.
  • This week's forecast:  This week, CPC predicts HDDs will hold at 117 vs 160 normal.

The Week That Was

Stuff We Care About Today

The Five Things (Changes in Red)

  1. Election 2020:
    1. Biden won (not yet official);
    2. Senate may stay R (but more difficult to read now, given mail in ballot request count). 
    3. Expected impacts:
      1. We see Green/Renewable space names doing well either way.
      2. We see oil moving sideways with Biden victory (so far (first few days) so good),
      3. Executive Orders
        1. US to re-enter Paris climate accord,
        2. We do not see a federal lease frac or permit ban day one. Many are suggesting this. We say unlikely.
        3. We do see a study of 6 to 12 months in duration on health impacts relative to setbacks.
        4. We expect year 1 to contain some form of reserve liability component if the Senate does not maintain R control.
        5. We expect near term air and water quality regulations.  Note that this should have little impact on US upstream names who were already in compliance with Obama era tighter regulations.
        6. We expect moves via executive order and legislation for renewable supportive policies.
      4. Natural gas is likely boosted on completions fear, and potential permitting delays or suspensions in the next year (NM, WY, GOM).
  2. Coronavirus:
    1. New cases - Rising, especially in the U.S. and Europe.
      1. Re-lockdowns across Europe and increasingly in the U.S.
    2. Asia not showing signs of second wave.
    3. Vaccine said to be available on a limited basis in December; widely available as per Trump in April.

      1. Expect uptick in end of year travel season but poor levels on a historical basis
      2. Expect strong spring travel season.
      3. More vaccine data is set to arrive almost weekly this fall.
    4. Re-openings of schools are generally not being tied to Covid increases. Sports doing pretty well so far.  Small gatherings in homes noted as the new spreading events. Worry from this over the coming holiday's and a tie to higher cases.
  3. Oil Production / Sentiment:
    1. U.S. Production - Headed gradually lower.  Prices are not high enough to warrant activity that can more than slow declines or maintenance levels depending on the operator.
    2. Rigs - Rising were rising into Thanksgiving. This is year end positioning for 2021 and we expect it to slow very soon.
    3. Frac Spreads:  Back down to 127 last week.    This is not close to enough to hold U.S. production flat at the 4Q20 level in 2021. Not. Close.  Expect sloppy action between Thanksgiving and Christmas. Then ramp. 
      1. LBRT thinks:
        1. frac spreads will be at 100 by YE2020 (so we're way above that now and the LBRT call should reflect that w  but we may see some slippage around Thanksgiving).
        2. 165 spreads needed to hold U.S. oil flat in 2021.
        3. additional 80 spreads to grow U.S. oil production by 1 mm bopd in 2021.
        4. and we need 25 to 30 spreads to maintain natural gas production.
      2. Therefore, to maintain oil and gas production in 2021 at the then current end of 2020 levels we need 190 to 200 spreads.
    4. Storage levels in the U.S. are elevated but normalizing.
    5. Sentiment - improving since the election.
    6. M&A expectations are likely still increasing. Next deals likely Permian, Eagle Ford.
    7. Libya - production/exports rising rapidly as peace breaks out.
  4. Natural Gas Sentiment: Weather driven.
    1. The 2021 Strip is weaker than it should be now. 
    2. Exports are strong. 
      1. LNG exports have rebounded to record high levels.
      2. Net supply is down significantly YoY. 
    3. Non heating demand remains solid to near record,
    4. On colder weeks we have not been able to discern weakness from the Commercial segment.   
    5. Dry Gas Production
      1. Production is down from year ago levels and is ebbing.
      2. Production has fallen almost weekly over the last several months.
      3. Production should fall further in 4Q20/1Q21 as less ethane rejection occurs due to higher prices and demand for ethane.
    6. The large net short position we started the year with has evaporated.
    7. We expect better sentiment from gassy upstream names than we have seen so far in 2020.  Gas sentiment needs colder weather. 
    8. Thoughts of consolidation within the gassy space have increased. 
  5. Renewables: 
    1. Sentiment remains strong.
    2. We are just under 60% of assets in the portfolio via 8 names (PLUG, TPIC, VWDRY, BWEN, JKS, KCAC, BLDP, and HCAC).
    3. Concerns in the space for some names due to "buy American" them  (for us really just JKS). We think this concern is a bit overblown and/or misunderstood.  

 

Other Stuff

  • Look for additional post quarter cheat sheet updates this week.
  • JKS - we are waiting on the company to announced their 3Q20 report date (it is now late by historical standards).
  • HCAC - presents at the Jefferies Virtual Truck Summit today at 10 am EST. This appears to be closed to Jefferies clients only but here is the most recent presentation.  New items of note are comments regarding a coming new vehicle reveal and 5,000+ subscription vehicle waitlist sign ups. 
  • KCAC - shareholder vote to approve the merger with Quantumscape on Wednesday. We expect approval. We look forward to more data from the company allowing us to do another update there (it's been since early September since we've had much material to say). 
  • BWEN - approval with Seeking Alpha for a new piece has been granted. Look for a free to the public piece from us on SA in the next couple of weeks. This is basically a different version of our recent writings on the name following our post quarter chat with management. Likely this gets timed for the next dip in the shares.
  • OII - we plan to add a new Seeking Alpha piece there soon.

Odds & Ends

Analyst Watch:

  • OII - Zephirin Group ups target from $6 to $8. 

75 Responses to “Monday Morning”

  1. 1
    crysball Says:

    This will make Iran very nervous:
    https://www.cnn.com/2020/11/23/middleeast/israel-netanyahu-saudi-arabia-crown-prince-intl/index.html

  2. 2
    zman Says:

    At equity open

    WTI up 50 cents
    NG up 2 cents

  3. 3
    zman Says:

    re 1 – noted.

    KCAC – Z4 will vote for all proposals this week.

  4. 4
    zman Says:

    Quiet week, the request line is open.

  5. 5
    zman Says:

    If you were briefly unable to reach the site last night, that is because we had a certificate expire on Sunday. We had a spare but had to activate it. Thanks to Scott for the rapid turnaround there.

  6. 6
    zman Says:

    New 52 week and therefore 12 year high on PLUG. Remains out #1 position despite the 1/4 sale last week.

  7. 7
    zman Says:

    LBRT – cusp of cup and handle breakout. Our last free piece there:

    https://seekingalpha.com/article/4382028-liberty-oilfield-services-reports-solid-q3-2020-results-and-outlook-improves-ahead-of

  8. 8
    zman Says:

    MGY – pressing the move through the 200 day.

    Low debt, should be at just under $200 mm in cash and $400 mm in the 2026 senior at year end unless they find some PDP to buy before then.

    Nothing drawn on the revolver.

    Maintenance mode engage with a slight upward bent.

    Started completions in October after a hiatus that began in February.

    For now all Giddings, they do have Karnes DUCs and will start completing them in the new year.

    Good to see the move as we have been adding into the weakness.

    Please see our recent update after speaking with IR here:

    https://zmansenergybrain.com/2020/11/11/wednesday-morning-120/

  9. 9
    zman Says:

    If you missed our comments on what we think is up with HPR (unowned, but getting bought by our BCEI) please see this comment from last week:

    https://zmansenergybrain.com/2020/11/20/t-g-i-f-192/#comment-866283

  10. 10
    zman Says:

    PLUG – quite the positive reaction to a > $900 mm spot secondary.

  11. 11
    zman Says:

    BLDP – chart constructive, call activity flagged for upside move, high volume for time of day.

  12. 12
    nrgyman Says:

    Refiners moving well. Any interest in this sector for a rebound into a post-Covid world?

  13. 13
    zman Says:

    re 12 – if I did it would be VLO (unowned). I’m on that call each quarter out of long habit and it’s the best run in my view. They are looking at easier comps on demand next year for sure. Not sure how cracks will turn out but surely higher than the current generic crack. Interesting how fast distillates have fallen on low production and seasonal bounce in demand. This can allow a longer period of greater distillate yields to help gasoline prior to driving season. So I’d be relatively positive on at least that name in the group.

  14. 14
    zman Says:

    Here, plugging data today on a model update, shout if you need something.

  15. 15
    zman Says:

    HCAC (soon to be CNOO) presenting at Jefferies now. Closed to public.

    Website has gotten a bit of an update:

    https://www.canoo.com/

    Volume is almost 3x the full day 20 day average with the name up 4% to best levels in a month.

    Our basic free piece can be found here:

    https://seekingalpha.com/article/4370150-canoo-long-growth-runway-for-this-electric-vehicle-company-going-public-through-spac

  16. 16
    zman Says:

    We should have two cheat sheet updates in tomorrow’s post, both fuel cell names.

  17. 17
    zman Says:

    Zorg on HCAC

    “Waking up….break above 11.25 clears the majority of supply…..”

  18. 18
    zman Says:

    Nrgy – very close to an AR (unowned) add. Was a little cute with a recent limit going for lower $3s. Watching to see if it breaks on out.

    SWN has a very similar daily look to the AR chart, from about 2 weeks back.

  19. 19
    zman Says:

    Interesting out of everything we write on from oil to gas to wind to solar to the occasional fuel cell name, the most highly trafficked name basically of all time, was a September article on battery maker KCAC (soon to be QS) – gets more hits by far than anything, more popular today (11/23) that anything written before or after. Usually interest falls off in a week or two from publication (this is over on Seeking Alpha) but not this one.

  20. 20
    zman Says:

    https://seekingalpha.com/article/4372618-quantumscape-next-generation-battery-developer-for-rapidly-growing-ev-market-goes-public-via

  21. 21
    zman Says:

    Zorg on OAS

    “Z4 Oil and Wind Power service stock setting up…trading above support 6.31….room to run”

  22. 22
    zman Says:

    Zorg putting resistance for LBRT at $10.13.

  23. 23
    nrgyman Says:

    RE 18: I’m long both atm. Natgas rebound will help sentiment but due to hedges the NGL rebound should have a bigger impact on both names. Low valuations, FCF outlook improvement, each has been acting well within the group. IMO they (SWN/MR and AR/AM) should merge, even if AR merges with AM.

  24. 24
    zman Says:

    re 23 – roger that. NGLs should pick up into year end on propane and in 1Q21 on ethane.

  25. 25
    zman Says:

    Zorg on SWN

    “Z4 natural gas stock traded up to range high/key resistance at 3.30…tested and rejected previous acceptance at 2.91 as too low….expect another test of 3.30 next.”

  26. 26
    zman Says:

    If you don’t follow us on twitter you might consider it.

    @ZmansEnrgyBrain

  27. 27
    Natus Says:

    re 21 – on OAS?

  28. 28
    zman Says:

    re 27 – my bad, OII (oh eye eye)

  29. 29
    zman Says:

    OAS (unowned) isn’t smart enough to get into wind.

  30. 30
    zman Says:

    We still own PE. Moving better with PXD run. Liked it better as a standalone. This one gets punted on a decent run.

    https://seekingalpha.com/article/4379929-parsley-rumored-to-be-next-big-upstream-takeout-candidate-like-regardless

  31. 31
    zman Says:

    Zorg says next supply on PE is $15.

  32. 32
    zman Says:

    OPEC meets November 3oth.

  33. 33
    BirdsofpreyRcool Says:

    z – could you add a link to your CPE report in your coverage list above? Thank you.

  34. 34
    zman Says:

    re 33 – you mean like this?

    https://zmansenergybrain.com/category/cpe/

  35. 35
    ebanta Says:

    Any more thoughts on why NG production hasn’t dropped more? Doesn’t make sense with rigs so low?

  36. 36
    BirdsofpreyRcool Says:

    #34 – I was looking for it under “1a. Coverage.” Thanks for the reminder on how to use the “category” drop-down menu. Perfect!! Thank you.

  37. 37
    zman Says:

    re 35 – thoughts

    1) we are down 7% from peak and a little over 5% YoY.

    2) rigs don’t really matter vs completions and managed IPs.

    3) gas is a lot easier to maintain relative to oil production as almost all wells completed now are on pads and restricted flow for 6 to 12 or more months. If they open flowed IP they would have to size up the topsides in an uneconomic manner.

    4) so it takes longer than you would suspect to really draw down gassy play production as the wells do not behave in a shale like manner, in many cases for at least the first 6 months of their lives. Gradually opening the choke as pressure is drawn down leads to greater EURs as well so it makes economic sense not to blast them in their early lives.

    5) completions are down and that is slowly leading to lower volumes. Rigs really don’t tell you much other than helping to predict what EIA, who doesn’t look at actual completions for their forecast, will say in the STEO.

  38. 38
    zman Says:

    re 36 – Oh ok, understood.

  39. 39
    zman Says:

    re 38 – wow it’s popping along with all of the levered oily names at the moment.

  40. 40
    BirdsofpreyRcool Says:

    PDS – did it do a reverse split or something? Never seen a chart like that….

  41. 41
    BirdsofpreyRcool Says:

    #40 PDS – phew…. they did a 20:1 reverse stock split. Thought charts were adjusted for that. Apparently, not always.

  42. 42
    zman Says:

    re 40 – 1 for 20 on the 12th.

  43. 43
    zman Says:

    OIH names in general moving higher on YTD massive underperformance and the fact that there activity levels are not yet nearly high enough to maintain volumes in 2021.

  44. 44
    BirdsofpreyRcool Says:

    The silliness in CPE today is only exceeded by the extreme silliness in GEVO. Dr. Gruber’s (CEO) lifestyle gets funded for another year.

  45. 45
    BirdsofpreyRcool Says:

    #43 – that is why I bought LBRT a while back (when you added). I agree with your statement.

  46. 46
    zman Says:

    re 45 – there are some select pockets of Oil Service I like but for the most part, it’s not rig related. Not expecting real price traction there next year (maybe second half but doubt it).

    OPEC+ is likely to extend curbs for 3 months at month end, probably not 6 months. Demand will be coming back with good YoY comps then. They are likely to add volumes to meet that demand, keeping prices in check at $50 or below on WTI.

    Lot of other moving pieces but suspect that currently envisaged low maintenance budgets will be hard pressed to move without a > $50 type sustainable looking move.

    This speaks to DUCs and spreads and not rigs.

  47. 47
    zman Says:

    MGY

  48. 48
    zman Says:

    is pressing the breakout. Not a levered name. A high margin name. A unhedged for oil name.

  49. 49
    zman Says:

    Getting on a 3Q replay call, back in 1 hour.

  50. 50
    zman Says:

    Getting on another call, shout if you need something.

  51. 51
    Anonymous Says:

    need O2 if plug goes any higher

  52. 52
    zman Says:

    re 51 – ha.

  53. 53
    zman Says:

    Biden said to pick Yellen for Treasury

  54. 54
    zman Says:

    Zorg on HCAC

    “Approaching level of interest at 11.27….potential breakout area….”

  55. 55
    zman Says:

    SPOKESMAN OF SAUDI-LED COALITION FIGHTING IN YEMEN SAYS HOUTHIS HAVE BEEN IMPLICATED IN FIRE AT THE PETROLEUM PRODUCTS DISTRIBUTION STATION IN JEDDAH -STATE NEWS AGENCY SPA

    Saw this earlier.
    Yes they are Iranian backed.
    This time a cruise missile used; not exactly your rag tag rebel type ordinance.

  56. 56
    BirdsofpreyRcool Says:

    Finally…. the CPE 8.25s of ’25 are starting to move in the same direction as the stock. Not saying those bonds will mature or will be taken out at par. But with the death of the current CPE capital structure pushed off in time, the bonds should be trading higher. And – who knows – just maybe they WILL see par again someday.

  57. 57
    zman Says:

    The move in our COP position has been notable given the size of that firm.

  58. 58
    zman Says:

    re 56 – are you winning?

  59. 59
    zman Says:

    MGY and COP – charts are nearly identical.

  60. 60
    zman Says:

    We wrote up MGY long and PVAC (unowned) short awhile back and that’s now working pretty well.

    https://seekingalpha.com/article/4375432-magnolia-oil-gas-building-cash-in-40-oil-environment-and-undervalued-especially-relative-to

  61. 61
    zman Says:

    “I frankly don’t think it’s necessary at this point … but longer term it wouldn’t be a bad thing for Congress to reconsider the powers that the Fed has with respect to assets it can own,” Yellen told CNBC’s Sara Eisen.

    She’s speaking to the Fed being able to buy stocks. That’s one way to win Wall Street’s favor.

  62. 62
    zman Says:

    Early Read on Oil Inventories:

    Crude: Up 0.1 mm barrels
    Gasoline: Up 0.5 mm barrels
    Distillates: Down 2.5 mm barrels

  63. 63
    BirdsofpreyRcool Says:

    z, you had the GPOR 6.625s due ’23 picked at 58.
    I had the CRZO (CPE) 8.25s due ’25 at 32.

    GPORs now at 56.25. CPE at 34.1.

    Until they BK’d though, you were winning!! 🙂

  64. 64
    zman Says:

    re 63 – OK. I called no joy when I sold the common so in my view … 😎

  65. 65
    zman Says:

    BLDP, BE (unowned), PLUG tomorrow’s post.

  66. 66
    zman Says:

    Beerthirty, back in a bit.

  67. 67
    zman Says:

    This does not appear to be onerous

    https://www.naturalgasintel.com/colorados-updated-oversight-of-oil-gas-development-called-watershed-moment/?utm_source=dlvr.it&utm_medium=twitter&utm_campaign=colorados-updated-oversight-of-oil-gas-development-called-watershed-moment

  68. 68
    zman Says:

    BLDP on the tape with a $250 mm bought deal at $19.25 (12.988 mm shares).

  69. 69
    zman Says:

    There it is:

    MGY CEO bought 40,000 shares @ $5.77 on 11/19/20.

    Was surprised we didn’t see a form 4 more closely in the wake of the quarter.

  70. 70
    zman Says:

    Back in a bit.

  71. 71
    zman Says:

    API SAYS IT WOULD USE ‘EVERY TOOL AT ITS DISPOSAL’ TO OPPOSE A BIDEN ADMINISTRATION FEDERAL FRACKING BAN, INCLUDING LITIGATION

    Most federal leases that would be impacted would be in NM and WY.

    GOM federal is not the same kind of frac a potential frac ban would impact (almost certainly).

    Federal lands map

    https://www.google.com/search?q=map+of+federal+lands&rlz=1C1CHBF_enUS920US920&sxsrf=ALeKk02tYJEhlE86WNtWDo6shCEsQtbiGw:1606170887305&tbm=isch&source=iu&ictx=1&fir=MjZcRtUtKZyTwM%252CH2spF_T7alup3M%252C_&vet=1&usg=AI4_-kQJsfG82yL1I-j2Lmho3jn6cMbRlw&sa=X&ved=2ahUKEwirur7p3JntAhVPKKwKHfhoAlUQ9QF6BAgOEDU&biw=1404&bih=815#imgrc=MjZcRtUtKZyTwM

  72. 72
    zman Says:

    API might as well say they don’t want higher prices. Kind of silly. It’s going to hit a few of their guys, note that CO is east of the majority of the federal area but it would boost prices and benefit most of their membership.

  73. 73
    Anonymous Says:

    seeing reports that NG production is still spiking higher…approaching 92Bcf/d? Platts guy on TWTR saying its due to higher oil prices but seems too quick to see an associated gas spike? perhaps DUCs or NE producers letting existing wells produce at higher rates with colder weather (chilly in NYC tonight)? disappointing to see it bounce back so quickly

  74. 74
    zman Says:

    re 73 – thoughts

    Spike is not a word I’d use for it.

    There was a bit of decurtailment late last week that resulted in a 2 Bcfgpd pop week to week. See table in The Week That Was.

    Normal to be volatile this time of year as producers face some local glut issues and take volumes down and up pretty quickly with weather.

  75. 75
    zman Says:

    Re HPR – re 9 – ended down 16%, as noted, have seen some nutty moves in equity prior to filing.

    Note officer and director sales after the close today; not big but they don’t own much anymore either.

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