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  • GT Advanced Technologies: Are We Closer To A Bottom? [View article]
    Honestly, there's zero chance of GTAT winning any I-phone business. It really is zero chance. Sapphire isn't even a contender because it failed not just one but multiple tests; too heavy, too big, crack/break, bad battery life, expensive, and it's got nothing to do with production yield or GTAT's business ramp-up.
    Sep 30 04:33 AM | 1 Like Like |Link to Comment
  • GT Advanced Technologies: Are We Closer To A Bottom? [View article]
    My concern is that there is still considerable i-phone hope premium in the stock price, it trades on a 2015 p/e of over 20 and, as you point out, the earnings estimates are still coming down. Stocks with hope premiums tend to disappoint on business update days.

    When I look at the reviews, it appears increasingly unlikely that GTAT will win any I-phone contracts in the foreseeable future; screens too heavy, too expensive, too thick, too brittle, use too much lighting energy etc. Yes i-watches, i-phones no.

    I have GTAT on my watch list for consideration only if we get a sizable market pullback, perhaps around the end of QE or later. Meantime, no reason to rush in.
    Sep 30 02:00 AM | 2 Likes Like |Link to Comment
  • Why Is The Price Of Gold Falling? [View article]
    Gold wasn't just an inflation hedge following 2008/2009. It's also a go-to place in times of intense market fear, like, for example, when the market feared that the Euro would break up in mid 2011 with major negative consequences. Now, that intense fear factor is all-but gone.
    Sep 19 04:33 AM | 1 Like Like |Link to Comment
  • Callon Petroleum Expands Permian Footprint With Core Midland Basin Acquisition; Stock Will Expand Too [View article]
    Mike, thanks for all the good work here, it is appreciated.

    One metric that I like to look at is EV/EBITDA on a forward basis. If I understand your figures the total market cap, inclusive of the current offering, is about $520 million, and total debt net of the offering and inclusive of the acquisition comes to about $270 million, giving total EV of $790 million. In 2015 EBITDA should come in at about $175 million. This puts CPE on a 2015 EV/EBITDA of 4.5. That's certainly attractive.

    On the downside, I note that the acquired land highlighted is "chessboard" and, until more deals are worked out, this would limit the horizontals to about 4,500 feet. This is shorter than those used in their IRR models and would normally lead to lower IRRs. Also, those IRR's in their presentations are based off $90 oil and drillers in the Midland Basin have pretty wide differentials from WTI. Some diffs are running at over $10/bbl although there is an expectation that these will narrow - but not disappear - when more pipeline comes online. Anyway, the combination of shorter laterals plus the real oil pricing being well below $90 would normally lead to IRR's that would be quite a bit lower than the IRRs used in the company presentations when some/most of the short-term hedges are burned off.

    Net-net, I find CPE fairly attractive at current levels. But with forecasters calling for somewhat lower WTI oil in 2015, and taking account of Midland differentials, I'd like to see some stability or visibility in the oil shale sector before getting in deeper. Meantime, I'm adding CPE to the watch list. Thanks for the heads up.
    Sep 10 07:16 AM | 1 Like Like |Link to Comment
  • Fed Positioning To Normalize Policy [View article]
    I didn't think the Fed were planning on normalizing policy anytime soon because of the massive consumer debt overhang, but that they were proceeding towards neutral rates (Pimco's New Neutral), not normalized rates.

    Also, I though that a 25bp hike in March was largely in the bag at this point.
    Sep 2 04:48 AM | Likes Like |Link to Comment
  • An Important Indicator Says Crude Oil Is Going Lower [View article]
    The oil price debate demands serious comment and, whilst it has merit, I think your article isn't sufficiently balanced or complete.

    "Lower growth equals lower demand for energies such as crude."
    This statement is materially incorrect. It might read "Lower growth equals lower demand growth...." The point being that, contrary to what is stated in the article, demand is not lower, demand is in fact higher, and growing.

    Trend is you friend? Doesn't it go "the trend is your friend until the bend at the end"? In which case you will be aware that the recent declining trend turned around noticeably in the past 10 days. According to some respected commodity strategists, the summer pullback is overdone because of the rush by commodity investors to exit positions in tandem with an increase in physical oil volumes hitting the market on top of a full 10 million barrels a day production by Saudi Arabia. They advise that the combination caused the overshoot. They also think the down move is done with the bottom at WTI $92-$93 / Brent $100 and they recommend clients now take new positions ahead of WTI and Brent moving to near $100 and $110 before year end.

    The Ukraine situation is a geopolitical event but it's got little to justify higher global oil prices. Indeed, rather than using it as rationale for higher oil prices, it probably was negative for oil because of the generally negative economic consequences associated with the sanctions on Russia.

    You may have noted that longer dated WTI is $10 higher today than where it was in 2013.

    Significantly lower oil prices, especially WTI, are unlikely because - aside from the fact that WTI futures are saying that the oil price outlook in coming years has improved by $10 versus a year ago - any significantly lower oil price would lead to a reduction in new shale oil wells being drilled and, given the steep production fall-off, the laws of supply and demand would quickly lead to higher WTI once the production fall off kicks in. Remember that shale oil production will soon hit 4 million barrels a day, a production cut back would be highly significant.

    "With the bulls washed out of the market and open interest at the lowest levels of the year perhaps it is time to wait for the shorts to come back in". The time to short is when prices are high after the bulls load up, not after the bulls have all rushed to the exit and have already driven the price down in the process.

    Btw, WTI is in backwardation but, more importantly, Brent is in contango into 2015.

    Frankly, I don't see any rationale to justify significantly lower oil prices ahead. On the other hand, nor do I see rationale to justify significantly stronger oil prices. If oil prices do spike down further, I'd overweight shale oil stocks. If oil prices do spike up I'd sell some into strength.
    Sep 2 02:24 AM | 4 Likes Like |Link to Comment
  • Approach Resources Is Significantly Undervalued [View article]
    As a group I like the Permian players, they have tremendous potential.

    One concern I have about Approach is that, when you look at forward estimates, the growth in Sales and EPS and EBITDA for 2015 is less than what I'd like to see. For example, if you compare to ATHL you see that in 2015 ATHL is forecast to grow Sales by 63% and EPS by 80%, whereas AREX is forecast to grow Sales by 21% and EPS by 19.5%. The difference is quite stark.

    Given that investment is all about looking through the front window and not through the rear view mirror, this begs the question; why is AREX projected growth so low? I'd expect a small Permian company to be growing faster.
    Aug 29 03:31 AM | 1 Like Like |Link to Comment
  • Parsley Energy ---- Addressing Inventory Concerns [View article]
    Very succinct.

    At this time of year, I like to project forward into the coming new year i.e. early 2015 (not long to wait now), to get a first look at what analysts "next year" (2016) estimates might be like.

    You estimate that, inclusive of this acquisition, the street will have EBITDA for 2015 of $465 million and this equates to a TEV/EBITDA of about 6.4 which is indeed cheap. The 2015 production numbers represent growth of nearly 80%.

    Adopting a much reduced and admittedly very provisional growth rate for 2016 of about 40% or 35% this takes that TEV/EBITDA number towards 4.6 or 4.7, although further Capex minus Cash fm Ops would need to be factored in. Still, an early 2015 "next year" (for 2016) TEV/EBITDA number of anything in this region is compellingly cheap and the shares won't stay at this low valuation range for long.

    Further, any lingering concerns about horizontal drilling inventory must surely disappear. Inclusive of this acquisition, they've got 1,664 horizontal locations. They're drilling 20 horizontals in 2014. Let's say they double that count in 2015 to 40. That implies they've got over 40 years horizontal drilling inventory at the 2015 drilling pace. And that's before taking account of downspacing and exploration of additional zones all of which is likely in the Midland with it being a young and underdeveloped play.

    I really like what I see here at PE, very solid mixture of value, good liquidity, and potentially years of strong growth.
    Aug 27 12:59 PM | Likes Like |Link to Comment
  • Bakken Update: Diamondback Has 28% Upside [View article]
    Another top notch article Michael, thanks for all the background work and for sharing.

    Personally I've become a little more relaxed about the possibility of WTI going lower. I used to be bearish towards US future oil prices but the continuing export trade data and loosening of export controls have made me more bullish.

    It appears that a good part of the recent WTI pullback was related to investors piling out of positions in recent weeks because they were disappointed with WTI's failure to hold onto its $105-$107 highs after the geopolitical events earlier this summer in Ukraine and Iraq, so recently they scrambled to get to the exit. This on top of additional oil shipments from Libya and Nigeria. Some forecasters think we've already seen the lows at $92-$93 and that investors are now likely to build positions ahead of any possible new, more critical, geopolitical events flaring up towards year-end.

    I hear you about a possible build-up at Cushing, there's an awful lot of new production coming in from the Permian ...victims of their own success and all that whilst pipelines are being built. However, I believe this is likely to be a short-term issue, if it does occur at all, and I'd use any further associated weakness on WTI as a buying opportunity or, in my own case, as a further buying opportunity.

    The recent enabling of US distillates exports is a significant positive and it adds to total US exports of oil related products which is now running at 4.5 million Boed equivalent, up from almost nothing 10 years ago. Impressive. There was a neat slide, page 29, on a Pioneer presentation from May 21, 2014 showing this export breakdown; gasoline, kerosene & distillates, LPG, residual fuel, coke etc. The point being that these product exports should continue to increase and thereby continue to consume some/a lot of the hydrocarbon production increase we're seeing in the US, esp at Cushing etc. US exports of oil related products are making a big difference to the monthly trade data. I believe this growth trend should continue and thereby take the heat off volumetric build-ups at Cushing and other gathering locations inside the US. It's a major factor behind the big drawdowns we periodically see in US oil/gasoline inventories despite the fact that average driver miles are reducing and that miles per gallon are increasing.

    As evidence of the benefits of this growth in exports, note the difference between the WTI futures curve today versus a year ago. Today long dated oil is trading at just under $90 a barrel. A year ago the picture was completely different - long dated oil was in the high $70s i.e. a good $10 dollars lower all along the curve compared to now. What this means is that today a driller can effectively hedge a full 10-years production equivalent at about $90 a barrel - that's approx the same $90/barrel rate they use for planning and assessing project viability. This is not to dismiss any short-term downside risk to WTI, as you say it certainly always exist, I'd just be inclined to use it to buy more stocks because IMO the long-term picture has improved.

    All that said, I absolutely agree that this is a good time to acquire the Permian drillers (as I also outlined in an article yesterday), including Diamondback, it has indeed great operating metrics and a flexible balance sheet.
    Aug 27 08:50 AM | 4 Likes Like |Link to Comment
  • Midland Basin: Buy The Dip [View article]
    At face value, the acquisition of 5.5k net acres for $252 million appears high.

    However, backing out the 1,800 Boed production at $60k per barrel, the net acquisition price becomes $144 million or $26k per net acre.

    Adjacent to acquisition acreage, Parsley announced initial results for the Char Hughes 1-HB well. This 5,785 lateral well had a 30-day IP of 891 Boed, 92% liquids and it is tracking ahead of the company's 690 Mboe curve for 7,000 foot laterals. This suggests an implied Mboe curve for this well, assuming the full 7,000 lateral length, of about 850 Mboe.

    The acquisition acreage facilitates 157 net long laterals and also enables Parsley to convert 30 existing short laterals into long laterals. Bearing in mind the Char Hughes 1-HB well results, the economic benefits to Parsley of converting these 30 existing short laterals into long laterals would be substantial.

    As to Debt/Equity and provisional 2016 TEV/EBITDA numbers these will change. The Debt/Equity becomes about 32% - still very comfortable. The EBITDA number improves in three ways - higher immediate production, plus production from additional wells, plus better economics from the longer laterals but by how much is not yet clear. With the higher TEV figure and improved production I would hazard that the provisional 2016 TEV/EBITDA may now be closer to 5 rather than the 4.6 figure used above in the SA article.

    The acquisition is scheduled to be completed on or before September 30. Analyst assumptions for production, sales and, because this is a cash deal, especially for EPS for Q4'14 and for 2015 will be increased accordingly.

    All in all, this is a good deal and Parsley is enhanced by this acquisition. Whilst, on the one hand, the TEV/EBITDA number may be slightly less attractive, on the other hand, Parsley's production growth is noticeably more assured. Accordingly, instead of looking for a stock gain of up to 50% over the next few months investors can now expect a more solid 40% gain.

    Separately, the takeaway capacity deal is positive. It enables the company to bypass the Midland pricing market for a substantial part of Parsley's' total production. Given the scope for Midland-WTI differentials to spike this is clearly a good risk-avoidance measure for Parsley.
    Aug 26 05:33 AM | 2 Likes Like |Link to Comment
  • Bellatrix Exploration Is A Strong Buy At Current Price [View article]
    A $750 million shelf - that's quite an elephant for a company with a market cap of $1.3bn.

    By the end of October, when the massive QE punch bowel is taken away, and considering the IEA's intimation yesterday of lower oil prices ahead because of an emerging global oil glut, we'll see a lot of deeply undervalued oil plays come onto the table. BXE may already be a reasonable value play, I suspect it is. However, considering the severe headwinds we're about to face, that markets are richly valued and haven't reflected the big risk associated with ending QE, and considering the value that is likely to be on offer at that time especially with lower global oil prices, against all this the current risk-reward picture suggests a strong dose of caution be adopted. October should then represent a real buying opportunity with a much improved risk-reward profile and lots of excellent value to chose from.
    Aug 13 06:34 AM | 5 Likes Like |Link to Comment
  • Penn Virginia: The Correction Creates An Entry Point [View article]
    Great article. Thanks for sharing.
    Aug 5 06:46 AM | Likes Like |Link to Comment
  • PDC Energy - Is Selling Overdone? [View article]
    Yes, agree, high beta to WTI, I simply forgot to note it. Unfortunately, it's being widely reported that the global oil market is not just fully supplied, but over supplied, at the moment. Therefore, aside from short-term spikes from saber rattling in the Middle East, there is likely to be on going downward pressures for a while until supply is taken off the table. I don't see it as calamitous - surely the Saudis would reduce output if Brent falls below $100 - and the situation may bottom out within a couple of months, which again brings us back to October. Overall, October is shaping up to having a confluence of negatives - lower oil prices, inflation talk, the 10-yr moving higher, end of QE, worrying vocal dissent within the Fed, wall to wall scare talk in the media - and I see the recent market wobble as a prelude to a bigger shake up in October (not a crash). Let's see.
    Aug 5 01:57 AM | 1 Like Like |Link to Comment
  • PDC Energy - Is Selling Overdone? [View article]
    Once in a while it's good to get a lucky bounce. Usually, according to the ever-reliable Murphy's Law, they seem to go the other way.

    I've lightened up today because the gains have been better and quicker than expected, there's no point in being a hero on this market and I suspect we'll get more volatility - perhaps a more serious bout - in October when the taper ends, only two months to go now.
    Aug 4 04:54 PM | Likes Like |Link to Comment
  • Lynden Energy - Unknown Permian Basin Pure Play Could Triple [View article]
    Without doubt LVL has upside potential, no argument there.

    However, considering the companies used as a comparison are invariably large companies that are investible in the eyes of a broad spectrum to investors, and that LVL is a penny stock that can only attract an incomparably smaller investing audience, it is inevitable that it should carry a valuation discount.

    Second, LVL's average number of shares traded is very low, even miniscule on the US exchange. As such it's impossible to buy into a significant position, or to exit it, without trading against oneself. Further, in times of market volatility the volumes typically all-but dry up completely thus preventing a shareholder to exit a position in order to take advantage of some other great opportunity elsewhere. Being locked-into a position whilst great opportunities pass by isn't fun.

    Third, companies used as a comparison such as ATLH, FANG etc are growing production at a tremendous clip. They have the size, negotiating power and technical know-how to continue this, they have the financial wherewithal to do so and their 2015 financial estimates incorporate very strong growth. These forward estimates are very important because, ultimately, investment is about the future, not the past. LVL, on the other hand, seems set to continue growing at a much lower pace based on past performance. Given the significant disparity in growth rates it would be useful to have included valuation metrics for 2015. No doubt the valuation gap as presented would be much reduced on this basis.

    For sure LVL has a valuation gap. However, I think the true valuation gap is much smaller than that shown. And, if we get a volatile summer, as many are predicting as we head towards the end of QE and a period of rising interest rates, then many investors will have a general reluctance to get caught in illiquid micro stocks such as LVL. In volatile times daily share traded liquidity typically decreases rather than improves as the article suggests.

    Still, I do think that stocks such as LVL can offer small investors some good upside potential so long as they know the restrictions and risks and so long as they know how to play upcoming market volatility to their advantage rather than being on the wrong side of it.

    I wish you well with your investment.
    Aug 2 07:54 AM | 8 Likes Like |Link to Comment
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