Michael Filloon

Hedge fund analyst, oil & gas, energy
Michael Filloon
Hedge fund analyst, oil & gas, energy
Contributor since: 2008
murjames,
It will be interesting to see who can and cant hold on.
DEFINITION of 'PV10'
Present value of estimated future oil and gas revenues, net of estimated direct expenses, discounted at an annual discount rate of 10%. This nomenclature is most commonly used in the energy industry, and is used to estimate the present value of a company's proved oil and gas reserves.
In order to calculate PV10, an energy company's reservoir engineers develop a reserve report for every existing well and proved undeveloped well location. The reserve report takes into account each well's current production rate and forecast decline rate, and also its unique production costs and expenses to develop reserves. Future gross revenues are estimated by either using prevailing energy prices or applying an appropriate escalation rate. Non-property related and indirect expenses such as general and administrative overhead, debt service, and depletion and amortization are not considered in the computation of PV10.
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All excellent points, (I would love to see someone do what you are proposing) but I think we would say to possibly stay away from the Bakken until there is a better view as to where oil prices will stabilize and when. Most would say a better move would be to look to the Midland and Delaware core operators, along with the Stack and SCOOP as more of a spec play. I think we have a good idea of operating costs and dwindling hedges (watch out for 3way collars) per operator and play, plus differentials so one may want to go conservative if trying to find a good entry point into any specific name.
Mike Stayley,
It would be a number I don't believe they can attain. Even though they are well hedged, much of the numbers they use are an average where they are getting the low end of the collar. I would guess, they would have to find a buyer for all non-op production and FBIR as a start, but if they did they would have a heckuva a time making it through the low oil price environment ahead.
Mike Stayley,
Yes they should. But oil price has something to do with that as well. When the overall price goes down, so do the differentials, but an operator that is pretty much sending all oil via pipe should expect differentials at around 10% of WTI. That's an estimate, but also an issue. If differentials are very wide, then it pays to rail Bakken crude to the NE and California (that's a whole other issue with how California complains about how high their gasoline prices are but they throw a fit everytime a train with a million bbls on it runs to their refineries.)
BJA-2
You are correct, but I was referring to which names can hold on until prices improve. $30 WTI doesn't make much sense even with some operators that have much lower differentials. Hedges help some, but the going is tough for everyone.
21793061,
Thanks for commenting, and glad you feel that way, but it doesn't change how we do things. Good luck to you.
lol wut,
I like you too. Thanks for being so nice.
lol wut,
Thanks for commenting. I was short EOX, HK, and OAS at times since the drop in oil prices. Honestly, I mostly trade oil itself and not the operators as much of late. I started shorting oil August of 2014.
Not sure if you trade much, but in oil you have to be ready to change gears quickly.
Harry,
Great to hear from you! So glad you took the time to comment, as I always look forward to your insight. Some say the Stack play rivals that of the Midland core. I agree, the initial results are quite positive. I just wonder how much better these results get.
jshupe,
Thanks! Hopefully we can get the washout we need so oil prices can improve. Would be nice to see more rigs outside core plays.
Pablomike,
I agree, that it has not been as much as we thought, but world oil demand was up 1.7 Million bbls last year and estimates have another 1.2 million this year. Not sure if that will happen though. Thanks for commenting as always, would have thought the numbers would have been better this year but things seem to be slowing down.
Its definitely not looking good. The better question isn't whether EOX is terminally ill, but who else might be. Could be some larger Bakken names in trouble.
21793061,
I get that you are running data for the whole play, but you may be on the wrong site for that. The data "we" run has to do with specific companies and the results specific to those names. We don't necessarily care what production does in the play as a whole unless that affects oil prices which will boost the individual names we follow.
Thanks Aricool,
Heres a list of Mexican refineries:
•Cadereyta Refinery 292,000 bpd
•Ciudad Madero Refinery 190,000 bpd
•Minatitlan Refinery 170,000 bpd
•Salamanca Refinery 236,000 bpd
•Salina Cruz Refinery 320,000 bp
•Miguel Hidalgo Tula Refinery 320,000 bpd
Also, the Freedom pipeline proposed by Kinder Morgan is still planned (although it was scrapped for a short time) to convert an exhisting nat gas pipeline to crude from the Permian to California. I think they plan to add 222 miles of oil pipelines to it, but looks like a go from here, so far.
Im not sure about Bakken crude to California. As far as I know it is still being railed but at decreased volumes due to lower prices making Brent more attractive. I think RR companies do have to notify if over 1 million bbls is shipped on one train (or something like that) but I would agree there are big issues going forward.
Thanks for all the great info!
21793061,
I don't think anyone would have argued that Denver's defense had to come up big. Was a great game. Was glad to see Peyton get another ring, and drink a lot of Budweiser.
21793061,
When we do a comparison we try to stay away from looking at the overall number of wells in play and focus on the sections around the well focusing on the same interval than looking at the play as a whole. Too many different areas and operators producing to properly compare in our view. We aren't as concerned about the play as a whole than the specific operators working there.
Thanks Aricool,
I do remember your call on GC crude taking EC throughput from Bakken Light. It looks like you may be right as it seems to be where we are headed. I think the Bakken still has much of the west coast, but it is also possible that Permian Bbbls could end up in California. There are also refineries closer to the Bakken, but the East Coast is already leaning toward Brent and other light blends now that Bakken differentials have decreased. Many report differentials at about 10% of WTI so right now its just $3 and since the rails cost $10/bbl or more its cheaper to pay the penalty than use Bakken light. It will be interesting to see what way the Jones Act goes, as it has had support all these years.
murjames,
Either that or he thinks raising the price of gasoline by 25 cents per gallon will work wonders for the economy lol.
BJA-2
Thanks for posting. Appreciate it.
murjames,
Its possible we could break through $35 but I think we pullback from here. If we can break through we may see $40, but I don't think we go any higher than that.
Thanks Petro
murjames,
I would say your intuition is correct. These stories get leaked in hopes to cause a short squeeze (which did occur) but only short term moves to the upside are expected. $35 seems to be resisitance and I would guess would be tough to break. Even if oil continues higher, $40 may be the top. It is possible oil touches $60 by year end, but right now we will continue to push the sub$40 level. I would guess that the shorts will continue the push in the short term. Hard to get long oil right now.
21793061,
Now we have a conversation that can get somewhere. Do you think the Denver (John Fox) defense can hold Car in check. Car -6 is an interesting bet. Its hard not to want Peyton to go out with a win, but I would guess that wont happen.
Enno,
Sounds like we both married someone that helps to keep us grounded. Sometimes disagreements bring the best out of a person. Always good to hear a dissenting opinion, or at least another way to look at something. I would guess you married well.
James,
your welcome. let me know if you need anything. I am always available. If you would like, feel free to message me. Have a great night.
21793061,
Thanks for the reply and have a great day!
21793061,
Thanks again for commenting. I am sure you aren't the only one with issues as to how the US oil producers run their businesses. Any time oil prices fall like they have there will always be problems. The problem with selling their hedge books is in general there is not enough money in it to save a company or I am sure an operator would think about it. Oil execs that I have spoken to about this specific subject, will tell you they aren't in the business of trading oil but in the business of producing it. So if you would like to argue whether or not this is the route to go, you may want to contact them. When I do a write up, as I did here, it is just to inform who ever is interested in the economics of that specific oil producer's wells. If anyone else is interested in arguing the morality of oil production today I welcome it, but I prefer to stick to well economics. Have a great day.
Thanks Petro!
Looks like they have reports pending in the Bakken and Eagle Ford. Would be interesting to also analyze well cost and other economic factors in determining what the uplift means on a payback basis.
21793061,
Thanks for taking the time to go through the article thoroughly. I do appreciate it whenever someone does actually read through the whole thing. Looking at 2017, you will see a large number of estimates from a large number of individuals. By no means is the EIA the go to when it comes to oil prices (not saying it has not value, only that you could read many opinions and come up with a large number of differences), as Goldman, Citi, RBC, etc all have estimates for oil prices next year. Those estimates are drawn from a large number of variables that can change significantly depending on analyst numbers. Could demand spike next year? Could production fall off a cliff? Maybe things are more moderate. Oil prices are an interesting subject as it is speculation especially when you go out to 2017. One thing to watch going into 2017 is cap ex spending plans and how that will affect production here in the US. Another are the volumes of current over production. Also increased demand last year. Cap ex cuts have been significant over the past few years. We haven't seen cuts like this since the 80s. The increase in demand last year was 1.7 million bbls/d. Lower refined product prices should translate to improved demand as well. Because of this, it is possible that we see oil prices spike due to an over correction in cap ex spending. No one knows for sure what will happen, but an average oil price of $50/bbl in 2017 isn't a crazy number. Im glad you asked the question, but not sure of the reasoning. I provided a number much higher than yours (which you could plug into what I have provided here to figure out the economics) to show that EOX's acreage isn't viable and you went with a lower number that if true only asserts my point better. I guess I am wondering why ask the question if it only shows that EOX would be in an even more difficult situation. As for the Vegas line, I do hope Denver covers the spread, but their defense will have to come up big for it to happen.