Wrap – Week Ended 02/11/22

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Modestly up week for the ZLT in a noisy market.

• Earnings from the energy space this week were decidedly more mixed bag in terms of 4Q numbers meets/beats/misses relative to the opening weeks of the year but outlooks were largely as expected.
• Notably another large cap gassy upstream player (EQT with > 5.5 Bcfepd) maintained the maintenance mode mantra for 2022 (smaller large cap peer CNX did the same in the preceding week).
• Oily and gassy segments outperformed the broad market as oil hit fresh 7 year highs.
• Our frac focused Oil Service wedge of the ZLT portfolio continues to shine as capacity tightened (see our call notes from our chat with RES last week).
• Renewables were mixed with our first reporting name of the season, ENPH, reporting strong results and offering another positive view on the year (see Thursday's -----post here for details) while benchmark wind player Vesta's results lagged (as expected) and the company reiterated the recent lower margin outlook for on slightly strong (record) revenues as the supply chain continues to present extreme challenges.
• We had a brief update call with a Permian holding this week and there will be a fresh public report out next week.
• Earnings season is about to shift into a higher gear. Please see our 4Q21 energy earnings calendar in the links at left.

Free Stuff Last Week: None but look for a couple of free posts next week.

Holdings Watch: 

• We opportunistically added to one core oily name and one solar tied last week.
• The trading blotter is updated.

Numbers of Note From The Wrap Table Below

1.  Oil
   1. Prices surged on a combination of a benign OPEC Monthly, continued sharp lag to quota for OPEC+ production, a positive EIA weekly, simply bullish macro comments from IEA, lack of apparent progress on the Iran JCPOA front despite much chatter, and fears of Russian v Ukraine action prompting impediments to oil supply thoughts from future U.S. sanctions. Market being very shoot first and sort out the impacts later on this last one.
   2. To be clear, we are not fans of these kinds of price spikes.
   3. Note the 3-2-1 generic crack.  That's near the upper end of the range in a very long term sense. This bodes well for our expectation of a short and shallow U.S. refiner maintenance turn and we note that throughput was actually up this week, contrary to a lot of press reports, and there is little doubt that super strong margins are helping to prop up throughput through the normally low utilization season.
   4. Note also that distillate stocks are extremely low.
   5. Oil directed rig counts jumped last week. While the U.S. has been back in growth mode for months now completions have continued to well outstrip new well spuds.
   6. Frac spreads at 275 (thanks PrimaryVision) set a new pandemic high period eclipsing the 271 level reached in early December before the holidays sent the count briefly lower.
      1. At the end of 2019, just before we new what Covid was, rigs to spreads were running at 2.5x
      2. They're just at 1.9x now.
      3. We expect modest growth in oil directed rigs and frac spreads through mid year which plays into our heavily NAM frac weighted oil service wedge as the capacity attrition and net pricing scenarios play out.  Note production is rising and while the Permian may be at new basin highs the rest of the U.S. continues to far lag early pandemic period production levels.
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2. Natural Gas
   1. The storage withdrawal was spot on with consensus.
   2. The coming week's withdrawal should be over 200 Bcf.
   3. The forecast has moderated and prices pulled back as usual.
   4. Storage needs to fall only 601 Bcf from here to reach our projected mid point end of season target, a level we see as supportive of our $3.50 deck for 2022.
   5. CFTC data continues to show a very gradual erosion of the aging Nymex non commercial (speculator) net short position.

Questions and comments under The Wrap will be addressed in the Subscriber Mailbag section of the Monday post.

Questions about the site may be addressed to zman@zmansenergybrain.com

Have a great weekend,

Z

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