Friday Morning


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In today's post please find:

  • the natural gas review (in line with our estimate; next week look for a modestly larger build followed by a smaller build when EIA reports the following week),
  • comments on the ENPH call,
  • comments on the SOI quarter,
  • notable comments from Major,
  • and some other odds and ends.

Ecodata Watch:

  • We get personal income at 8:30 am EST (F = 0.4%, flat with last read),
  • We get personal spending at 8:30 am EST (F = 0.5%, last read was 0.4%),
  • We get the PCE index at 8:30 am EST (key Fed watch item):
    • Headline PCE was 0.4% last month, no forecast; headline YoY was 3.5% as of last month, no forecast. 
    • Core PCE was 0.1% last month, 0.3% forecast; Core YoY was 3.9% last month, forecast is 3.7%
  • We get consumer sentiment at 10 am EST (F = 63, flat with last read). 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watc​h - ST natural gas supply demand balance sheet, NGL prices,
  3. Natural Gas Inventory Review
  4. Stuff We Care About Today - ENPH, SOI, Notable comments from Majors
  5. Odds & Ends

Click the link directly below this to ... .

Holdings Watch:


  • Yesterday's Trades
    • ENPH – We added to ENPH at average $84.49 after hours after the company announced 3Q results that were essentially in line and with record margins but with soft 4Q22 revenue guidance as they experience high inventory levels in the US (shipping less to take that back down) due to high interest rates and California specific issues and newly softening demand in Europe. These are viewed as temporary issues with improvement expected during 1H24. Our view is that stock has already reacted to current weakness and is not discounting improving conditions and the higher margin trend. Our average cost falls to $133.26. Note that this could open lower by double digits in the morning and if it does we will probably add a bit more.
  • The Blotter is updated.

Commodity Watch:

Crude oil closed down $2.18 yesterday at $83.21 on a stronger dollar and a delay in operations in Gaza.

  • Overnight the US hit two Iranian backed militia sites in Syria in the wake of more than a dozen attacks by Iranian backed outfits on US positions in Syria and Iraq over the last several days. Unlikely this will be the last US response to these attacks. 
  • This morning crude is trading up $2. 

NGL Price Watch: Improvement here helps our SWN and RRC holdings and helps unowned AR more. 

Natural gas closed up $0.20 at $3.21 as: 

  • The storage build of +74 Bcf was in line with our 75 Bcf forecast leaving storage at an even 3.7 Tcf.   
  • Next week we are looking for a 83 Bcf build.
    • Look for a much smaller build in the first week of November.  
  • Our EOS since the start of the year has ben modeled on a 10/27/23 date. We don't expect to be at our 3.8 Tcf target next Thursday but we do expect to slightly exceed 3.8 Tcf prior to the flip over to withdrawals. 
  • Given:
    • 1) flattening to declining supply (production + net exports), 
    • 2) and Non-Blowout storage levels. 
    • 3) we are moderating our stance on concerns about winter 2023/2024.
  • Don't get me wrong, still cautious, just less so. 
  • This morning gas is trading up a dime. 

Supply Watch: 

Short Term Supply / Demand Balance Sheet:

Natural Gas Storage Review 


Stuff We Care About Today

ENPH Reported 3Q23 Results; 4Q23 Revenue Guidance Is Well Below Street As They Under Ship to Heal The Inventory Channel; Outlook improves in 1Q24 and 2Q24. 


Other numbers not in the table:  

  • US was 65% of revenue. 
  • US sell through down 12%. 
  • Europe down 34% sequentially with sell through down 35%.
    • Netherlands is their biggest market and demand has been dropping on an export charge scare. 
  • Panel prices (and they don't sell panels) have collapsed. 

4Q23 Guidance:

  • Revenue of $300 to $350 mm  (they are under-shipping to end market by $150 mm (relative to demand) in 4Q to help with the stuffed inventory channel get unstuffed). They expect this to occur again in 1Q24 (a little less than $150 mm off but not a lot) with normalization now seen by 2Q. They have previously expected normalization to occur. 
    • Street is at $601 mm.
      • Management stated:  "Due to macroeconomic conditions, our revenue in the United States for the third quarter of 2023 decreased
        approximately 16%, compared to the second quarter of 2023. Our revenue in Europe decreased approximately 34%,
        compared to the second quarter of 2023 due to high inventory at our distribution partners along with a softening in
        demand in our key markets – the Netherlands, France, and Germany."
  • Non GAAP gross margin of 48 to 51%. 

Market Trends

  • Non California states - These states are starting to stabilize despite high interest rates. Sell through was down 4%. 
  • California - "CA is definitely a wildcard" - NEM 3.0 issues still impacting sales.
    • Utility rates continue to move higher and they note one CA utility asking for a 22% hike. 
    • Speaking to 5 to 7 year paybacks and continuing their education effort for installers and end customers. 
  • Europe - Much weaker demand but they remain very bullish on Europe as they expect Europe to rise in 1Q as they are already under shipping to stabilize inventory levels there.  
  • Pricing strategy is value based and stable. 

Microinverter Capacity:

  • 8.75 mm micros per quarter (added 3 US sites). 
  • Plan to exit 2023 with 10 mm micro per quarter capacity.

IQ8 Update:

  • IQ8 - (latest generation 384 MW micro for NAM, Europe, Australia, Africa, and India (the last two are new along with several more European countries). IQ8's were 86% of all micro sales into 15 countries. 
  • IQ8 P (480 MW AC Power version - small commercial product in NAM and Europe and residential in Mexico, Brazil, India, and Spain). 
    • The small commercial product is now shipping in the US
      • The US small commercial product market is about 1 GW,
      • Europe is next and that's a 10 GW market .     

Battery Storage: "we are at an inflection point in our battery business"

  • Shipments were up sequentially as noted in the table above.
  • Until recently battery sales have been from their 1st and 2nd generation batteries,
  • IQ Batter 5P (3rd generation update) - Australia, U.S., Puerto Rico, and recently the UK. The 5P is two times the Continuous and three times the Peak power vs 2nd generation.
  • Currently they have two cell pack suppliers (both in China). They plan to add US capacity by mid 2024.
  • Sees themselves as well positioned to grow in 2024 and they will also introduce 4th generation battery in 2024 with a smaller form factor and higher margin.   

EV Chargers:

  • First they bought a charger brand. 
  • Then they replace it with Enphase branded units,
  • Next evolution is the Smart IQ EV Charger - launched in the US in the last few days and plan to add for EU countries in mid 2024,
  • Bi-directional Charger (vehicle to home and vehicle to grid). 

Other Items:

  • Share Repurchase Program: $110 mm on repurchases under their $1.0 B authorization.
  • FCF of $122 mm in 3Q23 (FCF margin of 22%),
  • Balance Sheet: $1.78 B cash.
  • On the call they offered a strong defense of their platform vs what they see as problematic, less reliable offering from Tesla. 


  • In line quarter.
  • Poor revenue guidance (The early downdraft in the shares hinged on the revenue guidance),
  • Exceptionally good gross margin guidance.
  • The shares medium term outlook.
  • We hold ENPH in the #13 slot in the portfolio with a $133.26 (up from #14 prior to yesterday's adds). We can add more near term. 


Other Stuff

SOI (unowned sand handler) Reports Soft 3Q23 Results; Shifting Revenue Mix 

  • Revenue of $69.7 mm vs $77.25 mm expected,
    • Down 10% sequentially (lower ancillary trucking services while system revenues were flat) and 25% YoY,
      • 108 systems (sand systems, top fill systems, AutoBlend systems) in place during the quarter, flat vs 2Q, up 2% YoY,
      • "The Company followed an average of 67 industry frac crews on a fully utilized basis in the third quarter of 2023, which was down 8% from 73 frac crews followed in the second quarter of 2023."
  • EBITDA of $23.4 mm vs $25.5 mm expected,
    • Down 13% sequentially and 2% YoY,
  • EPS of $0.19 vs $0.25 expected,
  • Favorite Quote Watch:
    • "The Solaris team executed strongly and safely as industry activity bottomed during the third quarter. Despite this, we continued to see adoption of our new technology offerings. As a result, nearly 55% of industry frac crews we followed in the quarter deployed either a top fill or AutoBlend™ system, up from over 40% in the prior quarter,"
    • "We generated another quarter of positive free cash flow (+$6 mm) and used excess cash to reduce our revolver borrowings. We expect free cash flow to grow in the fourth quarter and into 2024 as we generate returns from the growth capital we have invested in the business over the last couple of years. We will use this additional cash flow to continue to return capital to shareholders and strengthen the balance sheet."
  • Balance Sheet:  Non current liabilities (borrowings, leases, other LT payables) to annualized 3Q EBITDA of 1.8x. 
  • Dividend increased a penny to $0.12 per quarter (about a 5% implied yield).
  • Conference Call: Today, 9 am EST.
    • This is a pretty interesting story, though fairly tiny and under-follow. For now we are just keeping tabs on the story but expect to see more from us here. 

Notable Comments from Majors Reporting Today

XOM (unowned):

  • "Delivered the best-ever third-quarter global refinery throughput at 4.2 million barrels per day"
  • "Announced agreement to merge with Pioneer Natural Resources"
  • "Third-quarter shareholder distributions of $8.1 billion included $3.7 billion of dividends and $4.4 billion of share repurchases."
  • Dividend increased from $0.91 to $0.95 per quarter.

CVX (unowned):  

  • “The acquisition of PDC Energy strengthened our position in important U.S. production basins." (DJ Basin and Delaware).
    • "The DJ Basin now ranks among Chevron’s top-five producing assets."
      • Z4: This move left CIVI as one of the last large scale ways to play the DJ Basin via a public company (and to be sure CIVI is no longer pure as they've taken on the Permian via 2 acquisitions).
        • One wonders if CIVI is now not a target for CVX or others. Given the low multiple they just about have to be. 
  • "Record year-to-date cash returned to shareholders of $20.0 billion".


3Q23 Energy Earnings Calendar Update 

Please see the Calendar Page for an update today.

Odds & Ends

Analyst Watch:

  • TBA in comments

36 Responses to “Friday Morning”

  1. 1
    zman Says:

    I’ll be out of pocket much of today to help with mom.

  2. 2
    zman Says:

    U.S. LNG export were 13.8 Bcfgpd yesterday ~ BNEF

    U.S. production was 101.8 Bcfgpd yesterday ~ BNEF

  3. 3
    Viper1 Says:

    Thoughts with you Z

  4. 4
    Anonymous Says:

    My deepest condolences to you and the greater family, Z. My prayers are with you and your family at this time.

  5. 5
    zman Says:

    re 3/4 – thanks very much.

  6. 6
    zman Says:



  7. 7
    zman Says:


    September Headline PCE
    +0.4% on month; +3.4% YoY.

    September PCE Core
    +0.3% on month vs forecast 0.3% and 0.1% last month.

    Up 3.7% YoY vs 3.7% forecast and 3.9% last month.

  8. 8
    zman Says:


  9. 9
    zman Says:

    November Fed Meeting Odds Now

    97.4% no change.

    2.6% for 25 bip cut.

    December Fed Meeting Odds

    78.6% still at current level.

    19.3% up 25 bips.

  10. 10
    zman Says:

    here’s the CME fed tool link


  11. 11
    snuhart Says:

    Dear Z,
    My condolences and wishing you good luck helping you mother.

  12. 12
    zman Says:

    re 11 – thanks much.

  13. 13
    zman Says:

    At equity open:

    WTI up a buck plus.

    NG up a dime.

  14. 14
    zman Says:

    ENPH openings down ~ $15 (15%) at $80.

  15. 15
    zman Says:

    SOI (unowned) opening down 8% with a daily that looks to test $8 near term. No action by us today but look for some additional color soonish.

  16. 16
    Zorgnak Says:

    Good Morning
    ZLT-Related ranked by % change since the open.
    Relative volume for the time of day in the far right column.

  17. 17
    fj d Says:

    OIS – Oil states- +8%
    oil services name. Gm. Mentioned it some time ago, out w/earnings. Positiv readbthru by martketsso far .very 8nvested for some time

  18. 18
    Zorgnak Says:

    Broad Market S&P
    Extreme oversold at major acceptance/support 4139.

  19. 19
    Zorgnak Says:

    ZLT-Related ranked by relative volume so far today.

  20. 20
    zman Says:


    CIVI – We added to CIVI at average $74.45. At this level CIVI trades at 2.9x our modified 2024 Base Case ($80 oil; $3.50 natural gas), while offering a 14% implied dividend yield (Base + Variable dividend of $10.45 next year). This keeps the variable portion at 50% of post base dividend FCF using the current TTM FCF methodology. We put net debt to EBITDA at 0.9x by YE 2024, down modestly from expected early 2024 level of 1.1x. The name will have an oil cut just under 50% pro forma the recent Midland bolt on.
    Our upside targets for Sub ($70 oil), Base, and Stretch ($90 oil) remain $75, $120, and $153 respectively with the Base and Stretch cases showing multiple expansion over the course of next year to 4.0x and 4.25x respectively. While we don’t generally own names as takeout candidates we do see increased potential for that as well here.
    CIVI remains our largest holding and this add brings our average cost up to $31.75

  21. 21
    zman Says:

    The blotter is updated


  22. 22
    zman Says:

    I am out of pocket for the next couple of hours.

  23. 23
    Myles Says:

    I know out of our league, but CVX at $146 looks quite interesting. Just sharing thoughts.

  24. 24
    Anonymous Says:

    RE 23: Similar thoughts here. CVX is in the market dog house due to the HES acquisition and the earnings today missed expectations (same with XOM). I think the HES deal was a good one for CVX and it will accelerate FCF growth nicely for them. The Q3 report and the HES deal negativity during institutional tax selling season (which ends Tuesday) is creating an opportunity imo.

  25. 25
    fj d Says:

    Re 17 NOV +2.3% – another oil field services co, reporting w/ positive follow thru by markets, confirming previous
    OIS oil states + 10% oil services co

  26. 26
    zman Says:

    Rig Counts Watch

    Oil up 2 to 504 vs 610 year ago
    NG down 1 to 118 vs 156 year ago

    HZ rigs up 1 to 558 vs 703 year ago, down 148 rigs (21% YTD)

  27. 27
    zman Says:


  28. 28
    Anonymous Says:

    RE 26: With rig efficiencies showing real progress and the decline rates among producers dropping due to annual maintenance level production, does this not make the correlation between rig counts and production even weaker?

    That thought become clearer with AR’s Q3 report where rigs and capex will drop yet production will be maintained.

    The implication here is that the charts showing the notable decline in rig counts but just a flattening of the production levels (exluding EIA’s reset) might not result in the lagging production declines expected from the rig declines.

  29. 29
    Anonymous Says:

    Finding high volume buyers this afternoon at October’s value range lows around 83.
    Daily Wide volatile value range 83-88.
    65 Minute

  30. 30
    Anonymous Says:

    Oil (+3%) extending gains. Producers are weak but starting to drift higher from the lows. The CVX and XOM quarterly reports where they missed expectations have cast shade on the upstream and downstream sectors. Likely just short term, end of Oct tax selling, noise. Service names Unch.

    That said, Ed Morse (who is a regular oil ‘expert’ on CNBC) cast a bearish tone on the oil market (like a broken record) saying demand has peaked in China and Europe, with gasoline demand in the US lower on a YOY basis. He also said risk premiums on oil supply are overblown since none of the agitators (Iran, Russia and China) have any interest in disrupting oil flows.

  31. 31
    Anonymous Says:

    O&G Equities are trading at a level that has been an inflection point since August.
    65 Minute
    Large Cap energy sector looks really stretched here.

  32. 32
    Anonymous Says:

    #31 Correction
    Proper XLE chart.

  33. 33
    Zorgnak Says:

    Russell Small Caps
    Just took out the 2022 lows…

  34. 34
    Zorgnak Says:

    ZLT-related ranked by relative volume going into the last hour of trading.

    The broad market (S&P) continues to struggle at previous acceptance/support at 4139. Extreme oversold setup today. No juice in sight at the moment
    Sentiment Traders “Smart Money Confidence Index” at all-time lows after a correction of this magnitude.

  35. 35
    Zorgnak Says:

    BofA Sentiment flashing extremes before today’s open.

    CNN Fear and Greed into extremes

  36. 36
    zman Says:

    The Wrap will be out on Sunday.


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