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Elliott Gue  

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  • Oil Field Services Companies: Key Takeaways From Q3 Results And Investment Implications [View article]
    Thanks for the comment. The North American side of the business is in a pretty steep downturn with pressure pumping margins still sliding and the weakness spreading to other product lines. I do think were nearing (or scraping along) the bottom there.

    The international business is finally beginning to recover from the last downturn...I think we could see some pretty solid spending growth into 2014 as the supply/demand balance for oil and gas remains tight outside North America. Saudi Arabia for one is spending billions to develop more spare capacity.
    Nov 1, 2013. 10:13 AM | Likes Like |Link to Comment
  • Oil Field Services Companies: Key Takeaways From Q3 Results And Investment Implications [View article]
    Thank you.

    No, the fundamental issue is that Carbo Ceramics (CRR) is still too focused on ceramic proppant, which is disadvantaged in the current environment.

    Producers in the US are moving away from ceramics in favor of raw sand (such as what HCLP mines). Raw sand is much cheaper than ceramic and the latter's main advantage is crush resistance, which is more of an issue in deep gas wells, not typically shallower oilfields.

    I covered these issues at more depth in this SA article from June:
    Nov 1, 2013. 10:08 AM | Likes Like |Link to Comment
  • Refiners Fall Through The Cracks [View article]
    I'd avoid all of the refiners right now. In particular, I think some of the high-yield names like ALDW, NTI, etc will be vulnerable to the decline in spreads. When these names start to pay out lower quarterly distributions, there's risk that income-oriented investors attracted to their sky-high yields will be spooked.
    Aug 22, 2013. 09:56 AM | Likes Like |Link to Comment
  • Refiners Fall Through The Cracks [View article]
    That's certainly one valid takeaway. US producers will benefit from higher realizations this year due to the closing WTI-Brent spread.

    While I think the spread will open up a bit heading into 2014, average spreads will be much less going forward than the extreme levels of late 2012.
    Aug 22, 2013. 09:35 AM | 1 Like Like |Link to Comment
  • Refiners Fall Through The Cracks [View article]
    That may well be true but the refiners are reluctant to blend above 10% due to fear of lawsuits. Certainly, refiners like Valero wouldn't be paying up for RINs if they could simply blend a bit more ethanol into gasoline and meet their mandates. It would be cheaper for them to blend more ethanol than to buy the RINs.
    Aug 22, 2013. 09:33 AM | 2 Likes Like |Link to Comment
  • Refiners Fall Through The Cracks [View article]
    1. The refiners are also unwilling to blend ethanol above 10% because if they were to do so and it did cause damage to a car, they're worried about liability. This is why the costs of RINs have been rising so quickly this year from $0.07/gallon to nearly $1.50/gallon at one point. At any rate, I covered this issue at some length in the article "Food for Fuel" referenced in the article above.

    2. I would say that Valero (VLO) is advantaged due to the fact their core of refineries are located on the Gulf Coast and a lot of the inland crude oils where production is booming will be finding its way to the Gulf Coast in coming years. In the near-term though I wouldn't buy even VLO due to the headwind of shrinking differentials.
    Aug 22, 2013. 09:30 AM | 3 Likes Like |Link to Comment
  • Near-Term And Intermediate-Term Outlook For U.S. Natural Gas Prices [View article]
    I don't want to belabor the point and I am not sure how we got on the subject of Louisiana specifically (my article applies to the US as a whole.) But, here's a link to gas production data from the State:

    By the way for purposes of the State's classification system, the Haynesville Shale is located in the North.

    Here's my take on this data. Basically, LA gas production is now at the highest level since 1977, even though it will probably be down around 15 percent this year as compared to its recent annual high in 2011. I do not find that to be particularly remarkable as gas prices are currently ultra-low and drilling in the Haynesville (which the attached data show was the source of most of the State's production growth a few years ago) would target dry gas. Prices need to be higher to make this worthwhile.

    To me the more remarkable aspect of this data is the fact that production of gas in LA DOUBLED between 2009 and 2011.

    My point is that there is no need for the big producers to drill the Haynesville and lose money right now; instead they can (and have) switched over to drilling in wet gas plays like parts of the EagleFord in neighboring Texas. This is why Louisiana gas production is falling while total US production is basically holding steady at record levels. And, I do mean record because total US gas production IS higher than the 70's.

    Right now the US has a glut of gas. But, if the market tightened somewhat and prices were to rise back to around $5/MMBTU or so you would likely see a surge of drilling activity in dry gas basins that would quickly result in a resurgence of production just as it did a few years ago.

    It's not like there's a shortage of drilling rigs to handle the work -- just ask Nabor's. Nor is there a shortage of fracturing capacity (ask Baker Hughes).

    In my view, this will keep a lid on gas prices over the next few years. I don't buy the argument that the shale revolution is temporary or that high decline rates mean that gas prices are destined to head significantly higher in the near term. This just isn't supported by the empirical data.

    I greatly appreciate all of the well thought out comments to my article as it's an interesting and complex topic. Quality comments make SeekingAlpha a truly valuable website.
    Jul 20, 2013. 11:43 AM | 3 Likes Like |Link to Comment
  • Near-Term And Intermediate-Term Outlook For U.S. Natural Gas Prices [View article]
    Louisiana gas production WAS is decline prior to late 2008 and early 2009. Consider that in August 2008 the State's gas production was about 120,788 million cubic feet. When it hit its highs in late 2011 production was over 275,000 million cubic feet. So, that's more than a double in just three years.

    The EIA changed the way it reports Louisiana gas production in 1997 (started breaking our production from the Gulf of Mexico). But, late 2011 Louisiana gas production was likely at least a two decade high, hardly a characteristic of a State with production in "terminal decline."

    Since late 2011 Louisiana gas production has backed off to around 200,000 to 220,000 million cf per month. But, that's not really because producers can't increase production it's because they don't want to at current low gas prices -- the rig count in the State has dropped from a high of about 220 to a recent low of just over 100 (a two decade low).

    The largest shale field in Louisiana is the Haynesville, which is a dry gas field meaning that it doesn't have much natural gas liquids (NGLs) content. That means that producers with major acreage in the Haynesville just aren't drilling there and are deciding to target liquids-rich plays like the EagleFord in southern Texas or the Marcellus instead.

    If natural gas prices ever do rise over $5/MMBTU, I suspect you'd see drilling activity pick up again quickly in the Louisiana Haynesville and, given how prolific that play proved to be back in the 2008-2011 period natgas production would rise quickly to new highs.

    At any rate, the idea that Lousiana or US natgas production are in a state of terminal decline is just plain incorrect and has no support in the data.
    Jul 18, 2013. 08:48 AM | 7 Likes Like |Link to Comment
  • Near-Term And Intermediate-Term Outlook For U.S. Natural Gas Prices [View article]
    I am not passing a death sentence on natural gas. Not do I lack enthusiasm for the benefits of rising American energy production; on the contrary, cheap energy prices are enabling a real renaissance in US manufacturing and represent a major advantage over virtually any other country around the world.

    Rather, I'm just saying that it will take a lot longer for gas prices to rise significantly again because the US faces a glut of gas. It will be years before a significant capacity of LNG export terminals will be constructed to move the needle on US gas. It will be even longer before the US makes a major switch to gas (or electricity for that matter) as a transport fuel.
    Jul 18, 2013. 08:34 AM | 7 Likes Like |Link to Comment
  • Why Linn Energy Is Not A Ponzi-Like Scheme [View article]
    Yes, both Linn (LINE) and Linn Co (LNCO) are switching from quarterly to monthly distributions and the payouts are identical. Both went ex-dividend on the 8th for their first monthly distribution.
    Jul 10, 2013. 12:51 PM | 6 Likes Like |Link to Comment
  • Why Linn Energy Is Not A Ponzi-Like Scheme [View article]
    Linn Energy (LINE) has NOT cut its distributions. The partnership has simple switched from a quarterly distribution to a monthly distribution but pays the exact same $2.90 per year.

    As I have argued in several posts on SA and elsewhere in recent months, the author is quite right in indicating that the arguments from the short sellers concerning Linn are deeply flawed.
    Jul 9, 2013. 05:06 PM | 36 Likes Like |Link to Comment
  • Linn Energy: Don't Believe The (Negative) Hype [View article]
    I recommend caution with stops on MLPs like Linn (actually it's an LLC). I think a lot of investors put stops on these names and then get flushed out of the stock in volatile markets.

    One example: on May 5, 2010 Linn closed at $25.23 and on the 6th it closed at $23.69. BUT, intra-day on the of May 6, 2010 it traded to as low as $12.60. A lot of people watched their stops get hit and ended up selling at the worst possible time on that day.
    May 9, 2013. 05:25 PM | 2 Likes Like |Link to Comment
  • Linn Energy: Don't Believe The (Negative) Hype [View article]
    I have been covering Linn since 2006. Back then it was pretty cutting edge to have an MLP involved upstream as most MLPs were midstream energy firms. So, for a time I considered it an aggressive recommendation.

    Since the inception of my current publication late in 2012, however, I've had it as a "medium" risk recommendation.
    May 9, 2013. 05:20 PM | 2 Likes Like |Link to Comment
  • Linn Energy: Don't Believe The (Negative) Hype [View article]
    A look at Note 7 in the 10-K reveals that Linn paid $583 million for put option positions in the year ended December 31, 2012. But it also states that these puts cover the period from 2012 through 2017.

    In 2012, spot natural gas hit a low of under $2/MMBTU in mid-April. But, even with spot and front-month gas prices under $2/MMBTU at the lowest levels in more than a decade, futures expiring in 2015, 2016 and 2017 were trading at much higher prices.

    Using April 19, 2012, an extreme low for spot gas prices, I see that NYMEX gas futures expiring in April 2015 were trading at $4.15, futures expiring in January 2017 more like $4.75/MMBTU. And this was the case if one had tried to hedge on the very day that natural gas prices hit extreme lows.

    Those claiming that Linn is purchasing "in the money" put options fail to recognize that there is a big difference between the spot or prompt price of natural gas and the price of natural gas to be delivered 2, 3 or even 4 years in the future. A look at the five year average futures prices is a far better guide of what's in the money for a company looking to hedge production over a multi-year period.

    So, let's take a closer look at these numbers. According to their 10-K covering the year ended 12/31/2011, Linn had puts covering total volumes of 30,660 due to expire in the year 2014. The average hedge price on those puts was $5.50. By the end of 2012, they had put hedges covering 79,628 MMMBTU due to mature in 2014. The average price on that entire position was $5/MMBTU.

    So, just doing the maths suggests they hedged around 48,968 MMMBTU of 2014 gas production volumes over the course of 2012 at a price of roughly $4.69. This certainly doesn't suggest they're buying deep in the money puts to manufacture earnings; there were several occasions in 2012 when 2014 NYMEX futures prices were trading well above $4.50/MMBTU.
    May 9, 2013. 04:16 PM | 6 Likes Like |Link to Comment
  • America To The Rescue: Saving The World From $200 Oil [View article]
    Yes, I still like PER. While there are some real and legitimate concerns about well results in SandRidge's Mississippian play I see no real evidence that the Permian wells are coming in below expectations. The production shortfall n Q4 appears to be related to the reduction in the number of rigs drilling in the region and a spike in the number of wells that have been drilled but have not yet been placed into production.
    Feb 7, 2013. 03:08 PM | 1 Like Like |Link to Comment