19
Feb

T.G.I.F.

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Our thoughts are with Texas and the Gulf Coast.

Housekeeping Watch:  Are we using the correct email for you?  If you're not getting ZBLAST's or are getting them at the wrong address contact zman@zmansenergybrain.com

In today's post please find:

  • the natural gas review (slightly smaller than expected though that was due to last minute raised expectations; next week look for the 2nd highest (maybe the highest) storage withdrawal on record),
  • the oil inventory review (better than expected and positive as weeklies go, next week will be an oddball report),
  • and some other odds and ends.

Ecodata Watch:

  • We get existing home sales at 10 am EST (F = 6.66 mm, last read was 6.76 mm).

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watc​h - short term supply / demand table and graphs
  3. Natural Gas Inventory Review
  4. Oil Inventory Review
  5. Stuff We Care About Today - a few thoughts on the week, Calendar revision
  6. Odds & Ends

 

Holdings Watch:

ZLT

Yesterday's Trades:

  • AR - We increased our position in AR at average $8.88, bolstering our position by 50%. The conference call is ongoing, please see our comments on the quarter in today's post and see our notes in the comments section.

The Blotter is updated.

Commodity Watch:

Crude oil closed down $0.08 yesterday at $61.06 after EIA reported an across the board better than expected weekly inventory report. As always, we take away less from the individual weeklies and more from the trending of the parts. Please see Oil Inventory Review section below. This morning crude is trading off a little over a buck early.

Natural gas closed down $0.14 at $3.08 after EIA reported a natural gas withdrawal that was modestly below expectations that had been raised as this week progressed. In our view that's rounding error and it combined nicely with profit taking that was already underway.

  • Next week's number should be massive, well over 300 Bcf and potentially record setting (record was -359 Bcf).
  • That puts us well into deficit territory for the 5 year average.
  • Over the next couple of weeks industry watchers will note the recovery in natural gas production. We would also note there were offsets in coming up with next week's report with both LNG and exports to Mexico taking a hit from supply and logistical issues. Those too will recover.
  • This morning gas is trading up 2 cents.

Short Term Supply / Demand Watch:

Key Demand and Production Graphs - demand never higher in this period last 3 years and supply never lower last 3 years than this week. Even with the slump in net exports this key drivers should prompt a near record withdrawal next Thursday. 

NGL Price Watch - annual highs for the composite, propane and most components. 

Natural Gas Storage Review 

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Oil Inventory Review 

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Stuff We Care About Today

Key Items This Week - Today we had planned to cover COG but as noted below they postponed the quarter call until next week due to Texas weather (Marcellus operations but the HQ is in Houston). Unowned names LPI and PXD also postponed their 4Q reports.

  • VCVC - new development center announced in front of expected demand. Speculation regarding which OEM's will run with REE has been running high since the SPAC was announced while the share price has retreated from deal announcement levels. We see Toyota, Honda, Mitsubishi, Mahindra as kind of the obvious potential partners.   A number of what appear to be EV laggards like Subaru could make some sense while a name like Mazda makes a bit less.   Several larger names including Ford appear to be leaning in more in the EV space with increased focus in recent days.
  • GOEV - commentary out there they may be leaning more towards sales and less towards subscription.
  • QS - 4 layer cells, representing an important step stone on the way towards commercialization. Management's teach in of a 4Q call on batteries and their solution prompted a 30% ish rally in the shares this week.
  • QELL - nothing new but the SPAC patch is seeing almost daily announcements.
  • BCEI - strong quarter on pre announced volumes and confirmation of prior plan. We had a piece ready to go pre quarter and this week they set a date of March 12th for a shareholder vote. We see this deal as happening.  They will be in maintenance mode pro forma HPR (unowned and set to fall with the deal) and yesterday they went from flat to slightly down to more of a flattish outlook. Please our article here. 
  • Wind ... got blamed by some with anti wind agendas for the troubles in Texas power. Happy to discuss but know that those pushing this angle have been anti wind, like to ignore facts, and uninformed or disingenuous.  Simply put, this was a very rare colder weather event that took down a lot more natural gas fired generation. For wind, cold weather packages solve this.
    • VWDRY - two items. Layoffs in Colorado may have taken some by surprise but align with prior comments on US demand levels. Also they invested in a wood tower startup with the idea of making light but strong wood (we'd assume onshore only) wind towers that greatly reduce (80%) emissions of tower making and transport.  This may be a small quiet weight on BWEN shares.
    • BWEN by the way added itself to the list of names reporting next week.  Note that BWEN warned for 4Q last month.  We expect a go/no go decision on offshore wind between next week and mid year.
    • TPIC - came off with the rest of the wind space, we think likely on some of the "wind noise" coming out of Texas.
  • Super rare weather - refining in going to take likely more time to come back up than production. We have heard at peak roughly 4 mm bopd were offline. Wells are coming back in the Rockies and Texas now.   Gas was hit hard as noted above and that two will be coming back on line. We note that in the Rockies BCEI noted that hits to production so far this year actually saw less impact on oil than natural gas but again, are coming back up now.
  • AR - good quarter for free cash generation. People look to EPS and EBITDA first which were modest misses. The bigger news of the quarter was over looked on a rough day in energy which was a JV to add wells without raising baseline maintenance capex that increased cash flow by more rapidly filling their firm transport capacity reducing charges there.  NGL pricing increases (see that chart earlier in the post) are helping as well (note the sensitivity of $2 per barrel or $0.05 per gallon = $97 mm in incremental cash flow). When you view the 2021 to 2025 free cash generation here it becomes apparent that this once over leveraged player is getting its balance sheet in order more rapidly than expected which means buy backs (substantial ones) and a maybe a dividend as early as next year.
  • PLUG - saw heavy profit taking this week on a bit of break in the chart after announcing another big JV in Europe. This to us is healthy.
  • STPK - strong run on grid resiliency followed by profit taking yesterday with everything else. We have a starter taken below $40 and we'd not be averse to adding a little but are not rushing in.
  • ACTC - Proterra announced a deal for urban delivery truck maker Volta to use their batteries this week which was met with yawns. That's fine. We are here for the long term.
  • MGY - nothing new this week but looking forward to this call next week.  Please see our recent comments on this name using the pulldown menu at upper left.
  • Drilling dayrates remain soft.  Some are seeing completion cost traction.

4Q20 Calendar Revision

Odds & Ends

Analyst Watch:

  • TBA in comments

52 Responses to “T.G.I.F.”

  1. 1
    zman Says:

    Analyst Watch

    AR – CFRA ups target to $11.

  2. 2
    zman Says:

    Analyst Watch

    BCEI – Truist ups target from $25 to $30.

    See our new targets here:
    https://seekingalpha.com/article/4406959-bonanza-creek-is-inexpensive-and-should-not-remain-for-long

  3. 3
    zman Says:

    Anyone here in Clubhouse? If so we could use an invite.

    contact zman@zmansenergybrain.com

  4. 4
    zman Says:

    Analyst Watch

    AR – Truist ups from $4 to $10.

    Not A Typo. 150% increase. Thoughts:
    1) analyst change
    2) your firm was restricted
    3) you spend too much time on the beach.

  5. 5
    zman Says:

    At equity open:

    WTI down ~60 cents, trading just under $60.

    NG up 4 cents, almost 3.12.

  6. 6
    Roger Says:

    I really like seeing your thoughts summarized in the “Key Items This Week” section today.

  7. 7
    kennyb Says:

    Agree with Roger.

  8. 8
    zman Says:

    re 6/7 – good to know, will make a point of random sections of thoughts more often.

  9. 9
    zman Says:

    Permian Activity Watch
    – Drilling 2020 down 54%, Jan 21 down 58%
    – Completions 2020 down 48%, Jan 21 down 49%
    – DUCs off just 2% as of Jan 21.

    Wattenberg Activity Watch
    – Drilling 2020 down 63%, Jan 21 down 70%
    – Completions 2020 down 50%, Jan 21 down 49% (operators started to crank up completions in 4Q and Jan 21 as expected).
    DUCs down a whopping 30% Jan 21 YoY.

  10. 10
    zman Says:

    All DPR Regions (this is the shales)
    – Drilling 2020 down 56%, Janu 21 down 61%
    – Completions 2020 down 47%, Jan 21 down 47%
    – Total DUC count down 12% to 7,177 (many of these test tubes will never get popped).

  11. 11
    zman Says:

    Good to see

    ERCOT WILL END EMERGENCY CONDITIONS TODAY

  12. 12
    crysball Says:

    Z re TEXAS & WINTERIZING wind turbines already fielded (without being winterized)

    Is it technically and/ or economically feasible….and if so does this represent a business opportunity …….as Vestas. service margins are much higher than their New Build margins.

  13. 13
    zman Says:

    re 12 – Thoughts

    • they can be retrofitted.
    • it’s both blades and gearboxes that need to be addressed.
    • the blades are the bigger issue. In some cases they need to be or it is simply easier to (however more costly), dismounted, field dressed and re mounted.
    • yes, it would be in addition to normal service revenues and would be a high margin item.
    • will be watching for news on southern U.S. installs.
    • very likely the issue comes up on the TPIC call next week.
  14. 14
    zman Says:

    COG up 2+%, leading a tepid gassy group today. They should postpone reporting more often.

  15. 15
    zman Says:

    2 minute read

    Extreme winter weather is disrupting energy supply and demand, particularly in Texas

    https://www.eia.gov/todayinenergy/detail.php?id=46836

    and the grid monitor on ERCOT:
    https://www.eia.gov/beta/electricity/gridmonitor/dashboard/electric_overview/balancing_authority/ERCO

    If you scroll down to the generation by source that ties to my comments on wind last few days and above in the post.

  16. 16
    zman Says:

    Not a lot of movement on NG or WTI today. About where they were at equity open.

    Oil a little better despite the DC chatter on Iran is interesting.

  17. 17
    zman Says:

    Here, reading, shout if you need something.

  18. 18
    ram Says:

    Re 12/13 I know there’s a company that would love to sell deicing trucks. I think there reach from the ground only goes up to 47 feet.

  19. 19
    zman Says:

    re 18 – thanks … not going to cut it.

    Zorg on PLUG

    “Hydrogen stock….big bounce. Resistance/supply starts in the low 59s”

  20. 20
    ram Says:

    Wow copper is over 4 bucks a pound. Electrification is going to be a little more expensive.

  21. 21
    Skipton Says:

    Ore 18 they could use helicopters as electric utilities do for removing salt from insulators

  22. 22
    zman Says:

    re 20 -truth

    re 21 – they do, it’s just kind of the hard way.

  23. 23
    nrgyman Says:

    RE 20: GS’ Currie said the electrification transition is not going to happen with copper at current prices. Copper is at the core of electrification, but copper supply capacity is lacking. Price must go higher according to him. Copper names are on fire.

  24. 24
    zman Says:

    re 23 – thanks

  25. 25
    ram Says:

    You will probably see the pre 1982 pennies go away from circulation.

  26. 26
    zman Says:

    re 25 – Robinhood should run a exchange program, 😉

  27. 27
    zman Says:

    Stepping out for a 30 minute lunch.

  28. 28
    nrgyman Says:

    RE 23: COPX, the copper miners ETF, is up +14.3% this week–a red week for the major indices. FCX is up +17.7% this week.

  29. 29
    nrgyman Says:

    Natgas: some traders expecting a natgas storage crisis next winter. Higher natgas prices could destroy demand or increase supply, but due to tight global LNG markets and producers lack of growth capex these regulators on natgas prices may not be effective.

  30. 30
    R F Says:

    re 29 – I’m a little skeptical myself. The world abounds in NG and with oil prices on the rise, oil rig associated natural gas will rise also, and then there are imports. LNG – may remain high? but dry gas?

  31. 31
    zman Says:

    re 29 – I don’t see a big price spike. Production that matters is short cycle in natural. I’d prefer $3 ish to $4 ish as $4 ish will result in a lot of extra rigs and then $2 ish happens. Granted for them to accelerate they need to make the spud decision in 2Q to really have volumes hit in time for 4Q.

  32. 32
    zman Says:

    Gasoline rationing here and premium only.

  33. 33
    zman Says:

    Anyone have any SOFC or otherwise NG consuming FC for residential. Have looked at Watt (private) but have not seen others. ENPH (unowned) will likely integrate resi FC not too far from now, question of who pursues that market and at what price, then price vs a GNRC (unowned).

  34. 34
    zman Says:

    Adds likely here soon.

    https://ir.arraytechinc.com/static-files/28356019-d44b-492e-8a4a-240368c56500

  35. 35
    nrgyman Says:

    RE 30: There is also natgas-to-coal switching. Not what it used to be but there is still coal capacity to reduce natgas demand. Alternative energy is already producing at max capacity but some incremental supply will reduce natgas demand. However, these supply factors are not large in relation to the total demand.

    Economic recovery will also increase demand and a warm summer could be impactful. These traders are not convinced the rise in associated natgas is going to be significant either. The capex budgets of both oil and natgas producers have been dramatically cut to maintenance levels or just above. There is a legit question about whether those maintenance capex budgets will be kept vs expanding growth capex but atm they are holding. The OPEC+ oil producers will increase supply, potentially significantly, which should keep non-OPEC producers capex spending restrained. OPEC+ oil production growth is not impactful on natgas supply. Shareholder demands will also keep growth capex tame.

    The fear of undisciplined capex spending and associated natgas growth is a hold-over from the previous cycle. Painful memories die slowly. The reality today is far different. Those fears and the big storage surplus from the previous cycle, Covid, and a warm early winter have each contributed to depressing the natgas curve. If reduced natgas storage does become a concern there should be a price reset. Producers will receive a FCF benefit and shareholders will be reluctant to allow that to flow into growth capex–they will want debt reduction and shareholder returns. This is the trader’s bull case.

  36. 36
    R F Says:

    all good points! and duly noted

  37. 37
    R F Says:

    re 36 – was referring to 35 btw

  38. 38
    zman Says:

    re 34 – turns out that axis trackers are more effective at shedding/melting snow vs fixed systems. We own a starter position here taken weeks ago and are likely to add more soon. Tracker market continues to grow rapidly and they are > 25% of share, and it’s approaching time for more large scale orders to be announced. We’d like to see it break down and test $35 for that add but may act soon. Please see our write up here which was more muted vs our current thinking as they’ve released more color.

    https://zmansenergybrain.com/2020/12/09/wednesday-morning-arry/

  39. 39
    nrgyman Says:

    AR strategy of keeping a maintenance capex budget but increasing production via a drilling JV is interesting. Due to unique AR factors like excess unused FT and a close relationship with midstreamer AM, replication of this strategy to increase production by other names is unlikely. The initial reception by the market to this AR move was also not encouraging, even if this strategy will be beneficial to AR and its shareholders.

  40. 40
    zman Says:

    re 39 – roger that.

    The sellside likes simple. They’ll sort out the estimates over the next few days and have higher targets post vs pre.

  41. 41
    zman Says:

    Rig Count Watch

    Oil down 1 to 305 vs 679 year ago
    NG up 1 to 91 vs 110
    HZ rigs up 1 to 357 vs 714

    Permian up 1 to 204 vs 409

  42. 42
    Kyle Graffagnini Says:

    U.S. Frack Crews Fell 74% This Week to Lowest on Record
    By David Wethe
    (Bloomberg) — The number of frack crews active in the U.S. shale patch plunged this week to a record low as frigid weather brought most of the Texas oil industry to a halt.
    The frack crew count dropped 74% to 41, according to Primary Vision Inc., which has tracked the data since 2013.

  43. 43
    crysball Says:

    Lessons to be leaned from Texas:

    In addition to WINTERIZING, was amazed at the apparent lack of underground storage that can be used to buffer changes between supply and demand, and also question the stability of the ERCOT grid (besides lack of interconnect) it seemed unable to effectively respond when simultaneous load shedding (gas, wind, solar, coal) occurred.

  44. 44
    Skeptcl Says:

    Z-Any thoughts on RMO? Stock is about half of where it was in December when they completed their SPAC deal. Tiny EV battery company working with Republic Services to electrify their garbage trucks. Stock is looking interesting for a trade.

  45. 45
    zman Says:

    re 44 – Nothing from me at present but will take a look.

  46. 46
    Skeptcl Says:

    Thx

  47. 47
    zman Says:

    Recent requested looks, all unowned, SLB, CF, RMO.

  48. 48
    zman Says:

    Geno and Reef and the rest of the Texas people we hope you have power and water.

    The Wrap will be out on Saturday.

    We’re headed to end the week down about 4% and up 29% YTD.

    Have a good one.

    Beerthirty.

  49. 49
    zman Says:

    test

  50. 50
    ram Says:

    Test

  51. 51
    zman Says:

    Thanks

  52. 52
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