Long only, value
Long only, value
Contributor since: 2012
Wow! Rig count drops another 48. Gas rigs down 17 to only 104. One year ago 310 rigs were drilling for gas. The crisis is a comin:
Weather-adjusted fundamentals. The decline in demand you site is all due to weather.
You make a good point. However, in a true bull market the front month contract should move into backwardation and be higher in price than outer months. In that case the fund would grow with each monthly rollover rather than shrink as it does now.
It will take some weather to spark the market. But the fundamentals are wildly bullish.
You need to check your calculator. Current assets are over 40% of current liabilities. And current assets are almost 40% of total liabilities. Plus, the company has $3.9 million in cash on its balance sheet at the end of the third quarter.
Plus, they do have stable production of approximately 875 Boepd. That does have value. Someone already mentioned the corporate headquarters is worth at least a couple of million dollars. No doubt they need a rally in oil prices. But they have a lot more time than you portray.
Here is a good look at their best Eagle Ford assets with many drilling locations if and when oil prices improve:
Whiting quickly writes the goodwill on the books for the Kodiak acquisition down to ZERO!
I rest my case!
Whiting writes the goodwill on the books for the Kodiak acquisition down to ZERO!
I rest my case!
The next re-determination comes in 2020. You can find all this info in the USEG 10-K.
If you are approaching this from the standpoint of an environmental activist, then you raise some good points.
But if you are looking at this from an investment perspective, then people's feelings and opposition carry little weight, unless they can change the law. There are legal standards in place, and if U.S. Energy can fulfill them they get the permits. Furthermore, you may or may not be aware, but U.S. Energy already has water rights to mine for molybdenum on Mt. Emmons. It is too late to block them from acquiring water rights.
The molybdenum deposit in Mount Emmons is a world-class resource. The price of moly is in the tank, along with most other commodities. The water-treatment plant is an on-going liability to treat polluted water from the keystone mine on Mt Emmons.
How does this get resolved? Depends on what the parties want. The only way for the community to guarantee mining never occurs is to acquire the mine, which means acquiring the water-treatment liability. Is this trade possible? Yes! Will it happen? Don't know!
What the environmentalists need to understand is let's say USEG goes bankrupt. The mining rights don't go away, they just go to a new owner. Maybe that owner will walk away, but maybe not. If they want a deal,now is their time. Because if moly prices rise in a couple of years there is no deal for the environmentalists, just a mine.
USEG is sitting on a lot of oil in south Texas:
Also, I'm pretty sure the $421K you mention per quarter in net oil and gas revenue is actually per month, not per quarter.
I think it is better to play any rebound with Contango (MCF). Much safer play with low debt and trading well below current PV-10 valuation.
They have plenty of room on their line of credit. In this market the best prices are for things that are developed and cash flowing.
Once they drill a couple of Eagle Ford wells the value of the property will increase. They say their part is worth over $300 million at $75 oil.
A lot of these smaller companies carry data over from a previous slide show and their not always updated with the latest information. I'd go with the 151 drilling locations.
FYI, EXCO Resources is claiming their Eagle Ford wells are averaging over 500 mboe.
I agree with most of your points. I too see a significant near-term rise in natural gas prices. Here is an additional perspective:
EIA Drilling Productivity Report predicts natural gas production will drop another .26 Bcf/d in September vs August. The report doesn't cover 43% of U.S. production:
Are the curtailments in the Marcellus and Utica voluntary? My understanding is gas in the region remains takeaway capacity restrained.
Seems like they may have drilled more than they can sell.
I make the El Nino point in my article. It depends on whether or not the much warmer than normal sea surface temperatures persist in the Gulf of Alaska, or cool down.
Click on Full Global:
EIA weekly natural gas storage report came in at + 32 Bcf for the week ending July 31. Producing Region had a draw of 6 Bcf.
I thought I was clear in the article that there was a dramatic change in the market between when the deal was struck and when the deal closed. The reason for the $140 million walkaway penalty was that if circumstances changed dramatically Whiting had an exit. It is the decision not to exercise the clause in the contract that I am critical of, not the original decision to acquire Kodiak.
Quality of properties, and maturity of production, certainly matter. Whiting sold non-core acreage with high costs. Most likely there are few attractive drilling locations on the acreage sold at current strip prices. This is not comparable to the valuable acreage held by MTDR, MCF, USEG, and CPE with internal rates of return in the 40% plus range at mid-$50 oil prices.
"During the second quarter 2015, Whiting sold two packages of older, conventional, operated and non-operated properties to private buyers for a total of $185 million. The effective date for both sales is June 1, 2015 and both sales closed in June 2015. Reserves totaled an estimated 18.0 MMBOE (59% oil) with estimated remaining 2015 production of 6,100 BOE/d. The sales were consistent with Whiting’s continuing 2015 plans to sell mature properties with higher LOE per BOE than its core Bakken and Niobrara assets. LOE for the properties averaged approximately $18.00 per BOE versus $6.50 per BOE in the Bakken and $7.50 per BOE in the Niobrara.
Including $108 million of non-core property sales announced in Whiting’s first quarter 2015 financial and operating results press release, year-to-date Whiting has completed a total of $293 million of non-core asset sales with associated reserves of 26.2 MMBOE (67% oil) and estimated remaining 2015 production of 8,300 BOE/d as of the effective dates of each sale."
The whole point of buying five low debt oil stocks is none of them are near term bankruptcy candidates, including USEG. U.S. Energy can easily sell a quarter of their production at current market prices and pay off 100% of their liabilities without the $4 million in cash they have in the bank. That doesn't even count the Eagle Ford well drilling locations near EXCO Resources which contain several million barrels of oil reserves. Not many E&P companies can do that.
The only exposure MCF has to their non-operating partners is a partner may decide to pass on a well proposed by MCF. They can pick up the working interest themselves, or find another partner. It is a non-issue.
The latest EIA Drilling Productivity Report predicts 6 of the 7 regions followed will have declining natural gas production in August:
Nice article. For those interested in the mine here is an article from 2013:
There is a link to another article that is also recommended reading.
P.S. Contango believes it now has the right completion techniques to the Eagle Ford. Here is a recent article referencing the potential for the Eagle Ford:
An additional point on USEG. Most of their acreage is held by production, they don't have to drill. If an operator proposes a new well they can pass, and they still retain their working interest in future drilling locations. They simply don't have any large financial commitments that they are on the hook for.
You may have missed my article on the K.M. Ranch Eagle Ford play because it was published under Contango (MCF). Here it is:
Thanks for linking my article to yours.
There is no doubt the trading action in U.S. Energy's stock has been horrendous. But the company is simply not a near or mid-term bankruptcy candidate. They have stable production of 900 Boepd without any additional new drilling in 2015.
Unless oil prices drop $15 to $20 per barrel from here you can simply throw out the Q1 income statement. Most of their production is in the Bakken, and prices there traded into the low $30's for part of the first quarter. Prices in the Bakken have since recovered, and in June traded close to West Texas Intermediate prices near $60 per barrel. This will be reflected in second quarter 10Q, which will show positive cash flow.
USEG's best asset is the Eagle Ford on the K.M. Ranch. EXCO Resources has drilled very successful Eagle Ford wells nearby. USEG's partner Contango plans to spud their own Eagle Ford well later this year. If that well is successful, then USEG can book an additional 2 to 3 million barrels of proven reserves just from the K.M. Ranch. That alone would be worth much more than all of their debt.
Without those Eagle Ford wells management stated the current PV-10 value at current strip prices is in excess of $40 million. That doesn't include their potential recent success in the Eagle Ford/Austin Chalk with $1.5 million vertical wells.
Additionally, they own all sorts of things that can raise cash. First, they own their headquarters free and clear. The building is two floors and they occupy one floor and lease out the other. The building can be sold, or mortgaged to raise cash.
USEG doesn't have any outstanding bonds beyond their bank debt. There is an active market for second lien bonds and they could tap that for liquidity if necessary.
Your article does a nice job of highlighting the first quarter 10Q. Fortunately for USEG shareholders, that is not the whole story!
Down two more rigs...seems to have stabilized for the time being:
Down another 7 rigs:
Thanks for posting this. I just became aware of it.
That doesn't change the thesis that the rig count has dropped so precipitously that production is rolling over. Like the unemployment report And GDP, I guess this data set is now subject to multiple revisions.
I agree and appreciate your comments. I do think weather has been very mild so far in April and May and has slowed natural gas consumption. Not just in Texas, but also in Oklahoma and Louisiana. What I am focused on is not where we have been, but where we are going.
We are at the five year average for storage. The price in the market is determined to minimize storage based on the belief we are over-supplied relative to demand. I expect demand to continue to grow throughout the rest of this year and next year. I also am of the opinion supply has topped out and is already declining. It's not just drilling that is down, it is also completions. Some operators let the rigs drill for a coupe of months until the contracts ran out rather than pay a penalty. But they have delayed completing those wells. So I think we have fewer wells coming online than the rig count implies. Also, I think some of the lower than expected production is real and not just maintenance.
Let's just assume the current EIA numbers are close enough to being in the ballpark to accept them as a reference for discussion. And lets for argument sake assume that production is not declining, but is flat. Last year in April the EIA reported gross production was 76 Bcf/f. By August, the EIA reported gross production had risen to 80 Bcf/d. March 2015 production is in the 80 Bcf/d range. So, relative to last year supply will tighten 4 Bcf/d between April and August.
Area Wyoming Other States3 Lower 48 States Alaska
State Data4 U.S. Total
Report Month Gross Withdrawals (Bcf/day) % Change from Last Month Gross Withdrawals (Bcf/day) % Change from Last Month Gross Withdrawals (Bcf/day) % Change from Last Month Gross Withdrawals (Bcf/day) % Change from Last Month Gross Withdrawals (Bcf/day) % Change from Last Month
Mar-14 5.54 0.7 29.35 1.4 76.06 1.4 9.65 0.0 85.71 1.3
Apr-14 5.39 -2.7 29.21 -0.5 76.64 0.8 9.24 -4.2 85.88 0.2
May-14 5.41 0.4 29.97 2.6 77.59 1.2 8.46 -8.4 86.05 0.2
Jun-14 5.43 0.4 30.37 1.3 78.15 0.7 8.41 -0.6 86.56 0.6
Jul-14 5.42 -0.2 31.06 2.3 79.19 1.3 6.27 -25.4 85.46 -1.3
Aug-14 5.30 -2.2 31.81 2.4 80.23 1.3 6.11 -2.6 86.34 1.0
Sep-14 5.52 4.2 31.95 0.4 80.29 0.1 8.64 41.4 88.93 3.0
Oct-14 5.50 -0.4 32.33 1.2 80.78 0.6 8.74 1.2 89.52 0.7
Nov-14 5.52 0.4 33.25 2.8 81.61 1.0 9.41 7.7 91.02 1.7
Dec-14 5.44 -1.4 34.66 4.2 83.43 2.2 9.73 3.4 93.16 2.4
Jan-15 R 5.38 -1.1 R 32.56 -6.1 R 80.27 -3.8 9.41 -3.3 R 89.68 -3.7
Feb-15 R 5.43 0.9 R 32.68 0.4 R 81.02 0.9 9.09 -3.4 R 90.11 0.5
Mar-15 5.55 2.2 32.65 -0.1 80.78 -0.3 9.68 6.5 90.46 0.4
Source: EIA-914 and EIA Natural Gas Annual
Sorry for the format. Here is the link:
My viewpoint is the market should adjust to this now. If I understand your viewpoint, the market will adjust when it shows up in the storage numbers. I think 3 out of the last 4 storage numbers were below consensus after running mainly above consensus throughout April. Let's throw the Memorial Day week out and see what the next couple of reports look like. If I'm right the market will detect noticeable tightening in the next few weeks.