Tuesday Morning – FANG



Market Sentiment Watch:  Futures are nervously eyeing bond yields, especially the techy Nasdaq. Meanwhile, it's another day in glad-we're-not-short natural gas land.

Housekeeping Watch: 

  • Ask em if you got em.  
  • The request line is open. 

In today's post please find:

  • the very early read on natural gas inventories,
  • a requested update on FANG,
  • more VWDRY orders and 2 new turbines variants,
  • and some other odds and ends.

Ecodata Watch:

  • We get Case-Shiller home prices at 9 am EST (no forecast, last read was 18.6%),
  • We get consumer confidence at 10 am EST (no forecast, last read was 113.8),
  • We get API Oil Inventories at 4:30 pm EST. 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stuff We Care About Today – FANG, VWDRY
  4. Odds & Ends


Holdings Watch:

ZLT (Zman Long Term portfolio)

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

Commodity Watch

Crude oil rallied $1.47 to close at $75.45 yesterday, moving up on "tightening supply" commentary based on OPEC's view of even stronger oil demand (up another 0.37 mm bopd next year) if natural gas prices remain high, an upward revision to Goldman's Brent year end forecast (up $10 to $90), and a report of strong imports from India. This morning crude is trading just over $76. 

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

Natural gas jumped $0.566 (11%) to close at $5.706 yesterday on strong international pricing concerns.

  • According to Bloomberg, "at least 20 Chinese provinces" that together make up > 66% of China GDP are experiencing power outages now (this appears to be higher than yesterday's comment level,
  • LNG exports were at 10.5 Bcfgpd at the end of last week and maintenance we had expected to materialize by now  ... has not.
  • We repeat that the Nymex non commercial (speculative) net short position remains at it's highest level of the year.
  • This morning gas is trading up 45 cents.


  • Early Read on Storage:
    • Consensus: +82 Bcf,
    • Last Week: +76 Bcf, 
    • Last Year: +74 Bcf, 
    • 5 Year Average: +72 Bcf
  • Price Chart Watch:  This is ahead of itself.

  • But we've also seen this kind of price action before beginning in 2006 and that took a couple of years to really exhaust itself.

  • And the supply response that met those first decade price surges was not Appalachia. The Marcellus and Utica and to a lessor extent Devonian wouldn't go into over drive until the second decade. This cycle it will be hard to really boost this area given pipeline issues so we see it as only grudgingly moving higher.

  • It was the Haynesville that met the call for more gas to tame prices. Production there rallied on high IP's and despite high costs due to more than adequate infrastructure and gas hungry nearby markets.  It's ready to meet the call again and it's part of why we see SWN as having made the right move with the 1.3 Bcfgpd Indigo purchase and none too soon.

Stuff We Care About Today

FANG (Unowned) Requested Cheat Sheet Update - Lightly hedged, big free cash flow, growing dividend, falling debt load. 

Basic Story:  FANG remains a "go to" large cap domestic acquire and exploit E&P with a massive Permian inventory, now generating significant free cash flow, paying a decent yield and repurchasing shares. While the name has grown rapidly over the years largely via a string of acquisitions they are currently not in pro forma mode having closed QEP and Guidon earlier this year.
Production Plan and Mix:
  • Plan is to maintain Permian oil volumes.
  • Oil: 65%, NGLs: 20%
  • Even as prices rise the plan to hold flat is expected to carry into 2022.
  • They think they need to spend between and 10 and 15% more than the 2021 budget to hold flat.
    • Current decline rate is in the low 30%s.
    • This spending takes into account:
      • A small measure of inflation.
      • The fact that this year's two acquisitions were not included in 1Q21 capex (so not full year apples to apples)
      • and the fact that they were able to burn DUCs this year and have a 10 (ish) rig program.  Next year as those will need replenishment they are likely to be at 11 to 12 rigs.
  • Lightly hedged for oil in 2022 at about 20% of expected volumes hedged.
  • They prefer to be closer to half hedged within a quarter or so of current time but given the backwardated curve have been taking their time.
  • As the debt falls (in total and to net debt to EBITDA) look for lighter than historic hedging.
  • See hedge section in the cheat sheet below.
Plan - Generate Big Free Cash Flow:
  • Significant free cash flow generator:  Consensus this year of about $2.0 B and $2.5 B next.
  • Plans to return 50% of free cash flow to shareholders via:
    • Dividend:
      • Current $0.45/quarter dividend providing an implied yield of 1.9%
      • Variable dividend: To be invoked when return on share repurchases is expected to be less than mid cycle commodity price cost of capital.
    • Share repurchase program:  $2 B program announced 9/15/21.
    • Debt reduction from free cash flow and asset sales.

Balance Sheet:  Solid 

  • Net debt to annualize EBITDA of 1.7x
  • Liquidity - more than ample.
  • Cash on balance sheet to retire over $600 mm of debt in 2H21.

Other Items 

  • Short interest: Not a factor at 2.2% of outstanding.
  • 2 year performance (these are not comps necessarily but they are what we own, three of them in size for some time now and where we've placed much of our upstream focus):


  • We don't own it but it's a high quality Permian name with strong management.
  • Our names are generally stronger balance sheet and / or higher yield and lower forward TEV/EBITDA metric ones (in upstream oily with NGL wedges we still like our MGY and BCEI better - better return, better performance in the 2 year and cheaper).
  • As the debt retreats and the hedge level ebbs look for them to be an even better proxy trade after oil price swoons.
  • We're likely to own it again in the future but would, in our case, need to sell it for something we see as lower value in the upstream space and in particular on the oilier side in that space.  But again, very high quality, they'll pay down more debt and grow the dividend faster over time than many and they are being valued now like that's already reality (which is normal, they always trade premium to group).

Other Stuff

  • VWDRY - 207 MW order in the U.S. for Duke Energy in Iowa (46 turbines utilizing two new 4.5 MW variants of the 4 MW platform, bigger than the 4.2 MW variants that have become routine with increasing blade length which will have broad application potential in Europe, NAM, and Asia). The order itself is set for delivery and commissioning in 2022 with a 10 year service contract.

Other Other Stuff

  • Look for another requested Permian player update this week,
  • Look for a Gassy Players update this week.
  • Look for a couple of fuel cell name updates this week.  

Odds & Ends

Analyst Watch:

  • TBA in comments

68 Responses to “Tuesday Morning – FANG”

  1. 1
    zman Says:

    Expecting new cycles high from BCEI very soon. Near $50 name remains one of cheapest in oily upstream group.

  2. 2
    zman Says:

    PTRA – Capital Metro (Austin) to buy 26 ZX5 Max buses with option on another 126.

    “The procurement plan approved by Capital Metro marks one of the largest acquisitions of battery-electric transit buses in North America.”

    • this is Cap Metro’s 3rd buy from Proterra
    • delivery in 2022
    • Cap Metro ultimately plans to transition its 400 bus fleet to zero emission.


  3. 3
    zman Says:

    We will have a bunch of gassy cheat sheet updates in tomorrow’s post.

  4. 4
    Skipton Says:

    Z thanks for FANG update

  5. 5
    zman Says:

    re 4 – you bet, quality team there, oil prices here next year (flat at front) likely drive pretty decent upside from here.

  6. 6
    zman Says:

    BP announcing expansion at Thunder Horse II (US GOM) – initial adds 25,000 bopd, ultimately adds 50,000 bopd.

  7. 7
    zman Says:

    At equity open

    WTI up 80 cents.

    NG up 15 to 20 cents depending on when you look, backed off highs well over $6 earlier.

  8. 8
    zman Says:


    How to create higher prices.

  9. 9
    zman Says:

    Keep Calm and Carry On Watch:


  10. 10
    zman Says:

    OIH names hanging in there nicely. Group activity levels rising, group should speak to actual price traction with the 3Q21 reports.

    Leadership names like SLB continue to look constructive technically but are trading below pre pandemic levels. They are building back from a smaller but higher margin revenue base and they are getting higher inbounds both from short cycle and longer cycle projects. Revenues are growing again and last quarter they surprised to the upside on NAM. Given rigs counts and the spread count this may very well be the case again but more on pricing vs activity (not speaking to 3Q as much as the go forward but 3Q margins are set to be up too). In SLB’s case margin expansion is at hand and should top prior cycle readings in 2022/23 without revenue ever fully recovering. Higher margin plus digital driving that.

  11. 11
    zman Says:

    Trades soon.

  12. 12
    gringo Says:

    Z, looking at the NG historical analogy to 05-08, in the earlier period spot in 06-08 didn’t exceed the 05 spike, yet stocks like SWN doubled or tripled into 08.

    Based on that I’m assuming that strip changed considerably from 05 to 08. Any chance you have old charts of strip laying around?


  13. 13
    Zorgnak Says:

    S&P Futs Watching 4340…minor support if/when 4302 minor support..no major support until 4231

  14. 14
    Zorgnak Says:

    OIH Buyers on the dip this morning…consolidation now..

  15. 15
    zman Says:

    re 12 – no, didn’t keep that. I can tell you it was more a function of rising cash flow relative to prior periods.

    • Front month is near $6
    • Upstream analysts are loath to push up their price decks until they see a retrace (this is general comment having been one)
    • Right now the Street is at $3.17 consensus for 2022.
    • and 2022 average of monthlies (the 22 strip) is $4.34.
    • A lot of analysts move their out quarters and out year price decks in the wake of each quarter. Guys on TV do it more often, like the chap at Goldman, but in general, the non commodity analysts, the ones that get paid to forecast upstream company EBITDA move it once or maybe twice a quarter (any more and you’re just being cute).
    • Anyway, 3Q is done Thursday.
    • Next week should see them mark 3Q to market average and then mark up 2022 to something they can sell the Street on, likely around $3.50 ish. Go too high and you get to pull estimates and targets down which is a bummer when you are Buy rated. Better to under promised on price and take mid point guidance on volumes and keep your seat at the table. Or you can quit and go follow geothermal or fuel cells or some such.
      Anyway, right now, our names are by no means discounting that $4.34 type gas price. There is some fast money in the names to be sure but guys like me are playing about in the $3.25 to $3.50 price range and our names are if not as cheap still fairly inexpensive. At $4 they are silly cheap, especially the less hedged kids.
  16. 16
    Zorgnak Says:

    SLB Working against VAL/Resistance from July,,my next upside target at 32.65..Short term support at 30.50

  17. 17
    zman Says:

    re 16 – being patient but highly likely we own more before 3Q in 2h October.

  18. 18
    zman Says:

    BCEI just dropped the first Civitas branded pro forma presentation. Reading. We expect close any day now of XOG and then Crestone

  19. 19
    zman Says:

    BCEI – costs look same, production same, noting use of 1H21 annualized pro forma as they now have Crestone data in hand = annualized EBITDA of $1.4 B vs prior 2022 comment of $1.3 B which was based on dated pricing. Look for a number well north of $1.4 B EBITDA at $65 oil, 40% NGL/WTI, and say $3.50 gas. Have a little new hedge data to play with so will circle back in a bit but looks quite strong (as expected) on the mash up.

  20. 20
    Skeptcl Says:


  21. 21
    Zorgnak Says:

    S&P Got the bounce at 4340…see if it lasts past 1:30

  22. 22
    Zorgnak Says:

    SHLS Got the break of monthly value…looking R 27.43 for potential add back..


  23. 23
    zman Says:

    So at $65, $26 NGL, and $3.50 gas and incorporating their hedges and costs, and 160 MBOEpd at about 41% oil (they come down with the add of XOG) and 35% NGLs and the balance natural gas we get EBITDA of about $1.6 B.

    At the pro forma TEV (that’s BCEI+HPR+XOG+Crestone) it’s trading at just under 2.8x 2022 Z4 $65 based EBITDA.

    And that is cheap.

    Also they gave really great detail on DUCs and permits with this update.

  24. 24
    zman Says:

    re 22 – moving with the solar group which is moving with tech today which is moving on bonds. Good time to add my view as they will outgrow the solar space and their back log for the next 12 months is well in hand.

    We’ve got a bid under market on ENPH but just missed getting hit there.

  25. 25
    nrgyman Says:

    F: Plans to invest, with battery manufacturing partner SK Innovation (South Korea), $11B in the US to build batteries and EV production. Some solid state battery competition for QS.


  26. 26
    Zorgnak Says:

    ENPH…Looking at 138-39 as an area of interest..


  27. 27
    zman Says:

    re 26 – thanks.

  28. 28
    zman Says:

    re 25 – don’t see solid state mentioned in the article. Presumably Ford will make batteries for its own line and not for others but I suppose they could. QS has VW and one other top 10 OEM in test now. Plenty of room if you ask me.

  29. 29
    Zorgnak Says:

    #27 ENPH..or it can get back into value above 151.37.. I don’t have any at the moment

  30. 30
    zman Says:

    re 29 – we’re sitting a touch under $148 for the 4th adds, minor support to my layman’s TA eye. I’d like a drop to $140 or your range, trust me, I’d double it up instead of adding by 1/4’s.

  31. 31
    zman Says:

    The COP chart is fun. So ignored for so long … then … go time!

  32. 32
    Zorgnak Says:

    #30..LOL yes..
    I bought a little here as it returned to value on last chart..short leash though

  33. 33
    Zorgnak Says:

    COP I like it when you make me go to weekly charts! Nothing in the way of this one but gravity…

  34. 34
    zman Says:

    re 33 – another weekly for you then: MGY.

  35. 35
    Zorgnak Says:

    SHLS Watching…
    Areas of interest on the 65 minute chart…28.26
    On the daily at 27.43

  36. 36
    Zorgnak Says:

    #34…chart porn..shame on you..
    MGY Weekly

  37. 37
    zman Says:

    Nrgy – did you note #8? PennEast is dead.

    Here’s a good summary of the fallen.


    Note MVP still expected to open next summer but that just allows Appalachia to edge higher. No point in growing what you can’t get to far away markets or find local demand for.

  38. 38
    Zorgnak Says:

    #24 bonds at potential bounce level…if not…then more pressure tech..


  39. 39
    zman Says:

    Commerce Department expected to make decision on solar tariffs this week.

  40. 40
    Zorgnak Says:


  41. 41
    Zorgnak Says:

    “They will like it higher..”
    The XOP Oil & Gas fund took in more than $180 million in assets on Monday. Over the past week, it has averaged an inflow of more than $70 million per day, only the 3rd time in the past decade it has seen that level of interest among traders.

  42. 42
    zman Says:

    re 41 – interesting.

  43. 43
    Skeptcl Says:

    How much of that money leaves if the XOP revisits last week’s low of 83?

  44. 44
    zman Says:

    Probably a good bit. People I haven’t talked to in a long time calling me last several months.

  45. 45
    zman Says:

    Getting on a call, back in a bit.

  46. 46
    nrgyman Says:

    RE 37: I did see it. Another takeaway project lost for Appa, which reduces availability of natgas to the east coast, among other areas. How will they make up for the lost relatively clean natgas energy? Dirty heating oil, extend coal life, LNG imports (just non-sensical), and wind/solar. Electricity imports from other regions, including Canada? Winter heating is the biggest concern, where solar/wind just doesn’t measure up with the demand need.

    This also explains why COG and SWN are investing outside of Appa for natgas production growth and why most Appa producers are not growing there. Haynesville is where the natgas growth action is due to takeaway availability and lower export costs. Permian and EFS natgas production should benefit as well. How good was that MGY ultra-deep conventional natgas investment that the market disliked?

  47. 47
    zman Says:

    Call delayed, here, reading, shout if you need something. Watching names walk off the lows.

  48. 48
    Zorgnak Says:

    S&P bounce off 4340 so far…Need to hold that level on any retest… 4380 VAL/Resistance key level to get back into value…

  49. 49
    zman Says:

    Call done actually, good.

    re 46 – in order.

    I don’t know. I find it more than ironic that NY threatens the local utility with potentially losing its license when they say they have no gas to hook up new construction to.

    Re LNG imports – well they do take in a tiny tiny bubble of gas, about 0.1 Bcfgpd pretty consistently. So that’s about 500,000 homes. Big whoop, agreed.

    Re COG (unowned) and SWN – yes it does. Whether or not they want to grow, non trapped gas is always better margin than trapped gas.

    Haynesville is growing, New Mexico is growing rapidly (gotta drill those federal lands while ya can).

    I know of a certain Austin Chalk / EFS player that would agree with you on growth there.

    MGY – that’s still chugging along, 40 to 50 MM/d and now unhedged again. It’s not something they’d add a well too. It’s cash flow plain and simple.

  50. 50
    zman Says:

    We will have a bunch of gassy cheat sheets in tomorrow’s post.

    Thursday’s post bumps the previously planned Permian unowned name update for a new BCEI piece.

  51. 51
    zman Says:

    Guessing some congress person said something the markets didn’t care for.

  52. 52
    Skeptcl Says:

    I think it was this. CHPT fell off a cliff


  53. 53
    zman Says:

    re 52 – ah, thanks.

  54. 54
    zman Says:

    Beerthirty, back in about 1 hour.

  55. 55
    Zorgnak Says:

    S&P…Weak bounce sold…Need to hold today’s lows…
    Note large volume gap below with next major level of support at 4227….Possible to move quickly through that area…

  56. 56
    Zorgnak Says:

    $USD..Strong looking weekly chart…

  57. 57
    Zorgnak Says:

    RE 56 $USD…Correct chart.

  58. 58
    zman Says:

    API Watch

    Crude:  Up 4.1 mm barrels
    Cushing: Up 0.4 mm barrels
    Gasoline: Up 3.6 mm barrels 
    Distillates: Up 2.5 mm barrels

    May take a little heat out of crude.

  59. 59
    zman Says:

    BCEI to vote Extraction and Crestone on October 29th, a little later than expected but not big deal, it’s all about the 2022 #s at this point.

  60. 60
    Zorgnak Says:

    WTI Futs…Demand started rolling over right at the previous value July value highs 75.50…Daily chart. Major support now at around 70…

    Near support on 65 minute chart at last weeks value highs at 73

  61. 61
    zman Says:

    re 60 – right at the top of the long held short term expected range. Heh.

  62. 62
    nrgyman Says:

    Natgas analyst sees lower prices coming due to shale drilling growth:


  63. 63
    zman Says:

    re 62 – saw that, didn’t think much of it.

    He’s noting 2023 strip prices are lower than 2022 strip prices and surmising that supply will respond to that. One could have said that for a long time now.

    He says “shale explorers” at some point should take advantage of of the rally to boost output even as they focus on financial discipline.

    He’s right and wrong at the same time.

    Some will. Some of the really big ones simply cannot do so as they are Appalachian based. If you are transportation constrained then growth only widens basis. Its a dumb play to up it unless you have the FT to get it somewhere with better prices. AR has this and they’re not planning to grow. My sense has been that conference calls pointing to growth of more than a tiny bit in 2022 will be met with selling.

    I’d rather have lower decline rate meets lower capex meets higher prices meets streamlined opex yields higher FCF and higher FCF yield any day than a move to boost production into an uncertain basis environment.

    Some privates are obviously growing again in an effort to get big to get sold.

    The second section of the piece I got speaks to a bit of naivete on his part or the reporter got it wrong, can be difficult to tell. But the comment about privates vs publics speaks to a lack of basic understanding. Makes me wonder how many gassy name calls he’s on.

    The comment from Tellurian near the end the of the piece regarding pricing in 2022 not staying as high as it is now is kind of obvious to me and it’s what I’ve been saying for a long time now regarding gas being ahead of itself.

    But the backwardated nature of the market and it’s reflection upon capital plans / decisions to grow is less than he makes it out to be. It’s lower later so there must be more later? Sure, there will be more from Haynesville, and there will be more from associated natural gas production but if he thinks we’re going to leg in places like Appa he’s just really not getting things.

    Production will rise. It’s been rising for months now. But it’s a gentle increase. Demand is quite solid. It’s possible that they hump continues to move to right.

    I have a chart on the widow maker record in tomorrow’s post.

  64. 64
    Zorgnak Says:

    NEX Found sellers at previous supply at 5.36..near support 4.75..more major support at 4.50…levels to watch
    65 Minute
    65 Minute

  65. 65
    Zorgnak Says:

    PTRA Interesting day ….Going sideways since 8/24…Popped to supply at 11 yesterday…down with the market today and then higher lows all day today..watching 11 as key short term level
    65 Minute

  66. 66
    zman Says:

    Thanks for the levels.

  67. 67
    zman Says:

    Oil inventories in 10 minutes.

    Oil down 24 cents at $75.05, largely shrugging of API (as they really should).

  68. 68
    zman Says:

    Crude Stocks Change (000 barrels)
    2015 102,384
    2016 32,144
    2017 (59,500)
    2018 16,918
    2019 (11,518)
    2020 55,600
    2020 YTD 61,800
    2021 YTD (64,600)

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