Tuesday Morning – A few more fuel cell name updates

Posted on by zman

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Market Sentiment Watch:

  • The presidential transition is moving ahead.
  • Headline from the 3rd vaccine is "200 mm doses this year, 3 billion next".  Very good news.  But some bad case numbers between now and then end of winter will likely prompt some pauses in what's been a heady vaccine bounce along the way.
  • Market appears pleased with Biden cabinet intentions so far with Janet Yellen for Treasury the key one so far.
  • The move to appoint John Kerry as U.S. climate envoy could be more nuanced for the U.S. energy complex (first blush obviously good green/renewables and wary/increased risk for U.S. oil and gas concerns but how much of an increase is as of yet uncertain ... listen for chatter in coming days ... our sense is that Kerry is likely to push for aggressive emissions targets early in his tenure).
  • We understand a czar for domestic climate issues will be appointed soon to work in conjunction with Kerry. 

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. 
  • If you don't follow us on twitter you might consider it.  See that little blue bird follow button above. 

In today's post please find:

  • the early read on oil inventories (very benign report expected again accompanied by a larger drawdown of distillates),
  • the very early read on natural gas inventories (Street consensus ranges from small build to small withdrawal; we're looking for a modest pull),
  • the drilling and completion graphs,
  • comments and a cheat sheet update BLDP,
  • comments and a cheat sheet update BE,
  • cheat sheet for comparison for PLUG,
  • and some other odds and ends.

Ecodata Watch:

  • We get Case-Shiller at 9 am EST (no forecast, last read was 5.7%),
  • We get consumer confidence at 10 am EST (F= 97.3, last read was 100.9), 
  • We get API inventories at 4:30 pm EST. 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch - Drilling and completion YTD
  3. Stuff We Care About Today –  BLDP, BE, PLUG, MGY
  4. Odds & Ends

 

Holdings Watch:

ZLT (Zman Long Term portfolio)

  • Yesterday’s Trades: None
  • ​The Blotter is updated.

Commodity Watch

Crude oil rallied $0.64 to close at $43.06 yesterday, moving up on news of a third successful vaccine, a bounce in equity and commodity markets in general, and a sudden rise in Middle East tensions. 

  • Iranian backed (likely) Houthis struck a site in Saudi from Yemen with a cruise missile (confirmed mid day yesterday and Saudi took more actions in terms of mine removal in the Red Sea while calling the strike on its facility a move against critical infrastructure),
  • Libya's NOC HQ repelled an attack yesterday,
  • Look for a holiday uptick in air traffic soon but note the recent data has been less than constructive save the last few days,
  • While prices are in the upper end of our near term range we don't see a move over $44 as sustainable at this time (yes it can break it on vaccine thoughts and a couple more good weeklies out of EIA but let's set how OPEC/OPEC+ acts at the end of this month - we don't see a 6 month extension but 3 months is probable).
  • This morning crude is trading up 50 cents. 

Early Read on Oil Inventories:

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

This Week in History:   Year Ago and 5 Year Average Inventory Levels.

Maintenance Mode Watch:  This is what it looks like (except for the Haynesville which has solid economic vs the several of the others here; we own GDP to capture that).

Natural gas rallied $0.06 to close at $2.71 yesterday on a colder than previously expected forecast for the November 28 to December 7th period for the South and for the 28th through the 2nd for the Midwest by the The Commodity Weather Group.   

  • The early read on storage is a draw on stocks of -5 Bcf (Reuters survey) to a 7 Bcf build for the Bloomberg survey participants.
  • We expect a 10 to 25 Bcf withdrawal.  Note that due to the holiday we get this number tomorrow.   
  • This morning gas is trading up 2 cents. 

Stuff We Care About Today

BLDP Cheat Sheet Update

  • The quarter was covered here on November 6th.
  • In a nutshell we were underwhelmed with the results which were light on the top and with commentary that confirmed that the scope of work with Audi has taken a downturn (they'd previously gotten a release to sell the tech to others which is not exactly a raving review of joint done development).
  • Estimates have fallen for 2020 and 2021 in fairly dramatic fashion since the call.
  • The company is moving along a number of promising avenues however this is not yet translating into the kind of revenue growth we are seeing at PLUG.
  • Nevertheless, the shares, after a brief post quarter pause, have run in the last few weeks and are testing levels not seen since the summer Hydrogen rally. Note that BLDP has far under performed PLUG and we expect that some are simply piling in and do not really understand what they own.
  • We had planned during the summer and up through their end of September analyst day to add to our holdings here (we have a 2% position but we are now looking to wait ~ our version of a Hold rating).  If the name breaks on out we may liquidate the position and watch it for a time.
  • After the close they conducted a bought secondary at $19.25 to raise $250 mm (gross) which is incorporated to the cheat sheet below (general balance sheet bolstering purposes and not surprising given the move in the shares and the ease with which PLUG conducted a much larger secondary last week).

BE (Unowned) Cheat Sheet Update
  • The quarter was covered here. It was an OK with a revenues miss and EBITDA beat on one time deferred revenue item but it was more upbeat and continues to be more upbeat in our view than BLDP.
  • Due to Covid they previously suspended guidance. Estimates have eased modestly since the call.  They did indicated they see "slightly better" revenue in 4Q20 relative to year ago levels.

What's different since our last update? 

  • Balance sheet is in much better shape.  Pro forma a recent green bond update their interest expense is largely close to 2% coupon type maturities and they are flush with cash.  They now have no net recourse debt.  They've also pushed the nearest debt maturity out to 2025, cut interest expense by nearly 3/4's and cut absolute debt by > $140 mm since early this year.
  • They have seen an increase in interest from more geographic regions than just California due to wider spread natural disasters including along the Gulf Coast. They now have 103 micro grids installed.  They are increasing ties with utilities due to natural disasters.   More catalyst type news here to come.
  • Innovation continues:
    • Hydrogen - Solid Oxide Electrolyzer (SOEC)
      • Management notes, and we concur based on multiple sources, that solid oxide electrolyzers are more efficient relative to low temperature PEM and Alkaline electrolyzers.
        • Solid oxide 13 to 31% more efficient (electricity per KG of H2) by 2030.
        • 19 hydrogen patents and produced hydrogen 15 years ago but held off on commercializing the technology then due to economics.
        • Their electrolyzer is the same core tech as their fuel cell. As with all fuel cells, you basically run it in reverse with electricity the input instead of hydrogen and hydrogen the output instead of electricity.
          • It also utilizes the same existing supply chain as fuel cells.
          • Same manufacturing process.
          • Same partners.
          • Same monitoring equipment.

        • They expect to be the low cost solution at scale (9 to 24% cost advantage over other electrolyzers).
          • Costs down from $5,886 per kW in 2015 to $2,715 in 2019 and $2,420 in 3Q20 with eyes on ~ 900 in the future with the near term release of Bloom Version 7.5.
          • They expect to be below the cost of CMI's (unowned) electrolyzers.

H2 Markets:

  •  They see a total addressable market of $50 B by 2025 (Green H2 for Industrial, Pink for US and EU nukes, Blue and Gold in the US, Green in transport in the EU, Japan, South Korea, and green for blending into the NG pipelines in the EU).n
  • Note the Gold H2 is carbon negative.
  • Building partnerships (so far SK where they have the utility scale fuel cell install doing well - see below and Samsung for ships).  Upcoming is electrolyzers with SK for H2 based transporation (generation and fueling stations) in South Korea with first deliveries set for December.
  • They also have a number of projects in the works to bring both pink and gold to commercialiality.

Other items of note: 

    • Skid product - pre assembled product allowing them to drop in a system more easily vs concrete poor and tie in. This thing basically sits in a parking lot and is good to go. Also allows them to do temporary installs.
    • Utility Scale - In South Korea 167 power modules now 2 years old and none of have required replacement; has maintained 100% availability in the 2 year period. For reference, traditional power sources are generally in a range of 70 to 90% availability with wind at about 30% and solar at about 20%.  They see increasing opportunities on the international side.
    • Management continues to speak to reduced product costs (variety of means including helping their suppliers with their process) and longer life of new fuel cells.
    • We may still add the name back when we see a good spot of weakness in the group.
  • Investor day in December -  (we don't have the date yet). 
PLUG Cheat Sheet 

Other Stuff

  • MGY CEO bought 40,000 shares @ $5.77 on 11/19/20, as expected and we were a bit surprised we had not seen a form 4 more closely in the wake of the quarter.
  • The KCAC merger vote is tomorrow. We are voting yes. We look forward to new data shortly after the merger closes.
  • VWDRY had a turbine collapse in Sweden (likely heavy winter weather related but not sure - news was out yesterday).
  • Colorado Watch:  COGCC adopting new rules including 2,000' setbacks. This was expected. We walked through these issues previously with BCEI and expect little if any notable impact on their operations from the new regulations.  Story here. 
  • Look for additional owned name cheat sheet updates soon.
  • GM and potentially Toyota looking to re-align with California on air standards. Not at all surprising. Story here. Note the part about GM getting BEV prices down to ICE prices in 5 years. 

Odds & Ends

Analyst Watch:

  • TBA in comments. 

64 thoughts on “Tuesday Morning – A few more fuel cell name updates”

  2. PLUG noting the closing of their secondary, our cheat sheet is pro forma this deal ($1.7 B in cash includes just < $300 mm in restricted).

    Note that deal was done last week at $22.25 and the stock is knocking on $28 this morning.

    There are a few plan highlights in the release but none of this is new.

    Look for the Giga factory location to be announced in the next 5 weeks (odds are somewhere in NY).

    https://www.ir.plugpower.com/Press-Releases/Press-Release-Details/2020/Plug-Power-Raises-Approximately-1B-to-Accelerate-the-First-Nation-Wide-Green-Hydrogen-Network/default.aspx

  4. Natural Gas Storage Preview

    Street is at -30 Bcf (Reuters updated #) for tomorrow’s report. 

    Last Week: +31 Bcf
    Last Year: -47 Bcf
    5 Year Average: -37 Bcf

    We are looking for a modest draw, a bit smaller than the Reuters figure.

  7. BLDP increased the size of the deal from $250 mm gross to $350 mm gross. They’ve also added a $52 mm shoe. Will update cheat sheet and repost shortly.

  11. LBRT – breakout in progress.

    Clearly not enough activity (scroll up) to support maintenance type production levels.

    In our chats with more than 1 producer we do expect activity to be strong Jan 1 and not see as much typical cold season lull. Yes it can be more expensive to complete in really cold weather but service prices are also quite low.

  15. 2nd day in a row to see down 17% on HPR. As we speculated last Friday.

    “Sense is HPR (unowned) is a head fake rally. As someone I respect said when chatting about it with me last night, “I’ve seen a lot of crazy stock moves when someone is about to go”

    Go = go BK

    1) There is likely White Knight thinking here. Good luck with that.
    a) We’ve seen more than one firm say no DJ
    b) other players already in the play don’t have the balance sheet.
    c) this deal was in the works for a long time from what we understand.

    2) the bonds are not moving further up after the BCEI deal pop.

    3) there may be 7% note holders who are holding out for the deal. That group had a lower % of agreement and needs to be higher for the deal to stay out of the court system.

    So my sense is some bond holder is thinking they can do better. This is inspiring the crazy action in the shares of HPR. HPR shareholders will get burned if they BK or if they get bought by BCEI and there is very likely no additional suitor.”

  20. RE 17: AR scored a Bullish Triangle Breakout today on its P&F chart. AM is also breaking out but has yet to score it on the P&F chart (needs a $7.50 print).

  22. LBRT with $11 handle.

    Last adds:
    7/29/20 – LBRT – We added to LBRT at $6.20 in the wake of the 2Q20 conference call.

    10/27/20 – LBRT – Added to our position in LBRT at $7.58. Earnings are tomorrow …

    10/28/20 – LBRT – Small addition to the name at $6.96 average in the wake of the earnings call. The name is off 12%. Earnings are covered in the post but in a nutshell, they beat on revenues, EBITDA, and EPS.

  24. Oil names have had an amazing rally since the Oct 29 lows. OXY and FANG each have doubled (up +100%). CPE +128%. XOP is up +55%. All in less than one month’s time.

    Cramer is touting Biden as the “savior of the oil industry”, marking the end of unbridled pro-fossil fuel gov’t–which is good news for O&G companies.

    The move in the oil names this past month is at least in part due to this.

  25. BE: thanks for the write-up on BE today. They appear to be setting up to be a significant player in the H2 economy. Solid Oxide has advantages and BE looks to be in a strong position.

  26. re 24 – OK.

    I think it is mostly vaccine related.

    I have said in the past that drill baby drill is bad for the oil and gas business and I’d guess that’s basically what cramer would be yelling about.

    Names that were off more rallied more on leverage. Depends on when you pick your time frame.

    PE and BCEI are triples off the year’s lows and MGY is close to a double.

  28. Tomorrow’s post will be a placeholder in front of the holiday, a Wednesday to Friday post. We will add the oil and natural gas slide shows as we have them ready. I will be in and out on Friday.

  32. Fear and Greed Index at 88: Extreme Greed. Only the VIX component (neutral) is not in Extreme Greed territory. Index is still climbing. Had a reading in the mid-high 90s in early Jan (pre-covid) before plunging to the Feb-Mar lows just above zero. Now coming full circle.

  33. re 30 – thoughts

    • physically – gradual move to more constrained production and higher prices.
    • financially – watch for news on the SEC and reserve statements and watch for moves on the tax code.

    re 31 – I will leave that to Zorg but to my layman’s TA eye I’d say with greenish gas it is capable of at least $3.90 near term. Valuation gives it no trouble there. Issue at hand is you have trapped longs selling each time weather shifts and people who are willing to take 10% quick moves which is not really my thing.

  35. BIDEN’S CLIMATE ENVOY KERRY SAYS BIDEN IS RIGHT TO JOIN PARIS CLIMATE ACCORD ON DAY ONE BUT PARIS IS NOT ENOUGH

    BIDEN’S CLIMATE ENVOY KERRY SAYS TO END CLIMATE CRISIS THE WHOLE WORLD MUST COME TOGETHER

    BIDEN’S CLIMATE ENVOY KERRY SAYS NO COUNTRY ALONE CAN SOLVE CLIMATE ISSUE

  37. re 33 – and should have added carbon credits … lot of unknowns as to how fast/hard the new Administration runs. I do think the early stuff will be in the form of studies being announced on fraccing and setbacks.

  40. Re: Kerry& Carbon Credits
    Wouldn’t Carbon Credits require congressional action?
    Wouldn’t Carbon Credits be difficult to get through a Republican controlled Senate?

  42. re 40 – I think something gets done, not sure the form it takes will ultimately be that scare (or it won’t be workable and won’t pass as some D will oppose too). There are SOx and NOx credits now. Carbon system could be added. But yeah, would most likely go through congress eventually, can’t see an EO or action via EPA really doing it without legislation. But I could be wrong, I used to do some work on those 2 credits above but it’s been 20 years.

  49. Zorg on BWEN

    “profit taking down to long term acceptance…4.92….Bulls still in control here”

    Zorg on FLMN

    “Rejecting acceptance at 2.38 as too low…heavy relative volume….”

  50. re 47 – had a good bit of supply at $2.40, they finally worked through in the last hour or so.

    We have a BWEN article in the works for SA.

  54. Headline: “For the first time in history, Kuwait’s oil revenues will not cover salaries and subsidies, which could spell financial trouble.”

    ~ Al Jazeera

  56. FLMN took at the post quarter high, after we bought at $2.00 and it ran to $2.55 on 11/6. Volume today is coming up on 4x normal. And it’s hard to borrow. Heh.

  57. API could/should look less bearish today, doesn’t mean a thing about EIA tomorrow. Consensus still looking for benign report.

  61. I know you’ve written on EQT a bit already but any thoughts on whether it’s worth a closer look? Thinking about dipping in.

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