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Nawar Alsaadi

 
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  • Canexus Corporation Positioned For A 30% Rebound [View article]
    Thank you del. I don't believe they detailed that, but from my experience with major projects in Alberta the cost overruns are often related to labour, material and harsh weather conditions. They have opted to shut down the unit train operation for 60-90 days starting in June, and use that time to finish the project, I believe that was the right call.

    By the way, the company just put a new presentation out this morning in case you haven't seen it:

    http://bit.ly/1gQpzIX

    Regards,
    Nawar
    Apr 10 01:39 PM | 1 Like Like |Link to Comment
  • Canexus Corporation Positioned For A 30% Rebound [View article]
    John,

    Yes, hyrdochloric acid is being used in the unconventional plays (some plays more than others, Swan Hills the formation most adjacent to Canexues facility requires a lot of acid).

    Here is a summery of what goes into the fracking process, from Frac Focus:

    1. An acid stage, consisting of several thousand gallons of water mixed with a dilute acid such as hydrochloric or muriatic acid: This serves to clear cement debris in the wellbore and provide an open conduit for other frac fluids by dissolving carbonate minerals and opening fractures near the wellbore.

    2. A pad stage, consisting of approximately 100,000 gallons of slickwater without proppant material: The slickwater pad stage fills the wellbore with the slickwater solution (described below), opens the formation and helps to facilitate the flow and placement of proppant material.

    3. A prop sequence stage, which may consist of several substages of water combined with proppant material (consisting of a fine mesh sand or ceramic material, intended to keep open, or “prop” the fractures created and/or enhanced during the fracturing operation after the pressure is reduced): This stage may collectively use several hundred thousand gallons of water. Proppant material may vary from a finer particle size to a coarser particle size throughout this sequence.

    4. A flushing stage, consisting of a volume of fresh water sufficient to flush the excess proppant from the wellbore.

    • A dilute acid solution, as described in the first stage, used during the initial fracturing sequence. This cleans out cement and debris around the perforations to facilitate the subsequent slickwater solutions employed in fracturing the formation.

    • A biocide or disinfectant, used to prevent the growth of bacteria in the well that may interfere with the fracturingoperation: Biocides typically consist of bromine-based solutions or glutaraldehyde.

    • A scale inhibitor, such as ethylene glycol, used to control the precipitation of certain carbonate and sulfate minerals

    • Iron control/stabilizing agents such as citric acid or hydrochloric acid, used to inhibit precipitation of iron compounds by keeping them in a soluble form

    • Friction reducing agents, also described above, such as potassium chloride or polyacrylamide-based compounds, used to reduce tubular friction and subsequently reduce the pressure needed to pump fluid into the wellbore: The additives may reduce tubular friction by 50 to 60%. These friction-reducing compounds represent the “slickwater” component of the fracing solution.

    • Corrosion inhibitors, such as N,n-dimethyl formamide, and oxygen scavengers, such as ammonium bisulfite, are used to prevent degradation of the steel well casing.

    • Gelling agents, such as guar gum, may be used in small amounts to thicken the water-based solution to help transport the proppant material.

    • Occasionally, a cross-linking agent will be used to enhance the characteristics and ability of the gelling agent to transport the proppant material. These compounds may contain boric acid or ethylene glycol. When cross-linking additives are added, a breaker solution is commonly added later in the frac stage to cause the enhanced gelling agent to break down into a simpler fluid so it can be readily removed from the wellbore without carrying back the sand/ proppant material.

    http://bit.ly/HcLOhS

    Regards,
    Nawar
    Apr 10 10:45 AM | 1 Like Like |Link to Comment
  • Canexus Corporation Positioned For A 30% Rebound [View article]
    Galicianova. I appreciate your interest in my thoughts, but your question is quite wide ranging and beyond the scope of this article. Generally speaking, I am quite bullish on the Canadian energy space (and I have been for some time). For Canexus specifically, I believe the company offers two ways to play the sector, the first is obviously through their NATO facility, but the second is through their hydrochloric acid business; with their ability to convert 60% of their chlorine into HCI any pick up in fracking in Western Canada will translate into substantial demand for their hyrdochloric acid, which has much higher margins than chlorine. Canexus would be a great way to get exposure to the quite volatile Canadian energy sector, while retaining the relative stability of the chemical operation.

    Regards,
    Nawar
    Apr 9 02:51 PM | 1 Like Like |Link to Comment
  • Canexus Corporation Positioned For A 30% Rebound [View article]
    River, thank you for your comment. I am glad to see you at Canexus. I am certainly very excited about the opportunity at current levels and looking forward for a substantial rise over the next few months.

    Regards,
    Nawar
    Apr 8 09:06 PM | 1 Like Like |Link to Comment
  • Canexus Corporation Positioned For A 30% Rebound [View article]
    Galicianova, the dividend is 55c a share or a yield of 11.5% at current levels.

    Regards,
    Nawar
    Apr 8 05:38 PM | 1 Like Like |Link to Comment
  • Peyto Exploration: A Winning Stock For Growing Oil Sands Diluent Demand [View article]
    Peyto is certainly as good as it comes in Canada in regards to management quality and performance. In regards to the growth in diluent demand, I believe the growth of bitumen by rail could slow condensate demand to some extent, since rail does not require as much diluent, not to mention a growing trend to transport raw bitumen by rail which doesn't require any diluent (I discuss the matter in my article on Canexus: http://seekingalpha.co...). I would welcome your thoughts on the matter and on how this may impact Peyto?

    Regards,
    Nawar
    Apr 8 03:49 PM | 1 Like Like |Link to Comment
  • Canexus Corporation Positioned For A 30% Rebound [View article]
    Thank you John. As for more cost overruns, as I have indicated in the article, the new team has affirmed the latest estimates, and I have no reason to doubt them. It is also worth noting the project is already far advanced and I doubt there is scope for an additional fourth surprise; after all they are just building a train terminal, not a base on the moon! :).

    Regards,
    Nawar
    Apr 8 12:58 AM | 3 Likes Like |Link to Comment
  • Longview Oil +10.2% on takeover offer but few details released [View news story]
    I expect a deal to take place in the $6s range. (LNV traded as high as $6.75 in September). Longview's oil weighted slow declining conventional assets are very attractive for the likes of Whitecap Resources, Cardinal Energy, Surge Energy, Twin Butte Energy, Torc Energy ..etc, too many buyers to list.

    Advantage which held 45% of LNV's shares in the past refused to do a share deal (they wanted cash to develop their Glacier NG asset), now that AAV is out of the stock as of last week, the buyer stepped in. I currently own 3.4% of the outstanding shares and I would commit to a deal in the $6s if the buyer is credible. Longview is extremely undervalued and it is constrained for growth capital, a combination with a peer makes tremendous sense, and a share deal would still give shareholders the chance to capture any future upside.

    Regards,
    Nawar
    Feb 10 11:41 AM | Likes Like |Link to Comment
  • Epsilon Energy: Shareholders In Charge [View article]
    Thanks for the comments Rockefeller. To best answer your question, I will paste the mid-stream excerpt of the report prepared in collaboration with Adam on Epsilon and posted on VIC:

    Midstream Valuation

    Epsilon owns a 35% working interest in the Auburn Gas Gathering System (GGS), along with partners Statoil (21.125%) and Access Midstream Partners (43.875%). This GGS connects the local gas wells to Kinder Morgan's TPG 300 pipeline. The "anchor shippers" are Epsilon, Chesapeake, and Statoil, who have collectively dedicated 18,000 acres to the Auburn GGS. The system can currently handle up to 300 mmcf/day with current dehydration and compression systems, but it's scalable to 500 mmcf/day if Epsilon spends another $15M-$20M for its share of the upgrade cost.

    This GGS business appears to be very desirable. Epsilon-Midstream earns a very high 79% EBITDA margin on the gathering fee revenue according to the Q3 2013 financial statements. Furthermore, almost no maintenance capital is required to keep the operation functioning since there are very few moving parts other than the compressors, which are rented. The gathering fee revenue is a per-mcf tolling charge that is theoretically independent of fluctuations in commodity prices, so this is indeed a very high quality cash flow generator. One does need to keep in mind, however, that a GGS has a limited geographical scope and that eventually the NG volume produced from a specific region will decline due to depletion.

    The Auburn GGS is currently running at around 200 (gross) mmcf/day with intermittent spikes up to 300 mmcf/day depending on pipeline pressure variations. Using slide 12 from Epsilon's August investor presentation (Projected Annual EBITDA Sensitivity), 200 mmcf/day corresponds to around $8.9M of annualized EBITDA net to Epsilon-Midstream.

    Potential Sources of Near Term Growth

    Currently only the Epsilon/Chesapeake/Sta... JV is utilizing the Auburn GGS to reach the TPG 300 pipeline, but there is good reason to think that will change in the not-too-distant future.
    Chesapeake is currently producing 825 mmcf/day of NG net to its interest (around 1 Bcf gross) in the Northern Marcellus area (Slide 15 December presentation). On November 1 of this year Kinder Morgan added an additional ~600 mmcf/day of capacity on the TPG 300 line serving the Northern Marcellus area. All of this new capacity has been allocated to Chesapeake and its partner Statoil. As a result of that expanded takeaway capacity, Chesapeake is expected to ramp up drilling in its "core of the core" acreage in Northwest Wyoming county, Southwest Susquehanna county and Southeast Bradford country. There are 3 key gathering systems serving this geography: Rome, Overfield and Auburn.

    Based on my research both Rome and Overfield are maxed out in their connection to the TPG 300 line, thus Chesapeake is considering connecting its Overfield system to Auburn in order to move more gas through the TPG line. If Chesapeake opts not to connect to the Auburn system and to build a new gathering system instead, it would take around 18 months and would certainly be less cost effective than connecting to the existing Auburn system.

    Additional sources of NG volume for the Auburn gathering system is increased drilling by the Epsilon/Chesapeake/Sta... JV jointly or separately in the gathering area acreage, or additional volume from smaller independent E&P operators in the area who have already expressed an interest in connecting to the Auburn GGS. Epsilon management seems confident that additional volume will flow through the system in 2014 and beyond, and they've said it's reasonable to expect they'll spend the $15M-$20M in 2014 for the capacity upgrade. Considering the prolific nature of production in the area and the steady increase in takeaway capacity, it seems highly unlikely that any gathering system with significant gathering capacity will remain unused for an extended period of time.

    My midpoint estimate for Midstream volume and EBITDA ramp is as follows: 300 mmcf/day and $13.5M EBITDA in 2014, 400 mmcf/day and $18.0M EBITDA in 2015, 500 mmcf/day and $23.0M EBITDA in 2016. The low case would be a 4 year ramp rather than a 3 year ramp: 225 mmcf/day and $10M EBITDA in 2014, and the next 3 years as above. The high case would be a 2 year ramp: 300 mmcf/day and $13.5M of EBITDA in 2014, 500 mmcf/day and $23.0M EBITDA in 2015.

    Midstream Comparables

    The best recent comp for the Auburn GGS is the February 27, 2013 announcement by Western Gas Partners (WES) that they were acquiring: (a) the Liberty and Rome gathering systems from parent Anadarko Petroleum (APC) for $490M, and (b) a 33.75% interest in the Larry's Creek, Seely, and Warrensville gathering systems from an affiliate of Chesapeake for $133.5M. The acquisition from the parent was priced at 7.6x forward EBITDA and the third-party acquisition was priced at 9.7x forward EBITDA. A blend of the two yields an 8.7x multiple, which I think is a reasonable midpoint for valuing Epsilon-Midstream, with 8x on the low end of the range and 10x on the high end.

    There are also many publicly traded MLPs with assets similar to the Auburn GGS. According to a very informative research piece from Morgan Stanley dated April 17th, 2013 (page 60), the "Processing and Gathering" peer group trades at an EV / 2016E Adj. EBITDA of 13.1x (after accounting for the 34% average rise in EV since the report was written). So I think it's clear my range of 8x-10x is not at all unreasonable.

    If we assume a sale at YE 2015 at an 8.7x forward EBITDA multiple, with estimated 2016 EBITDA of $23.0M, the implied valuation is $200.1M. I discount that by 1/1.1^2 to account for the 2 year delay, add in the PV10 of 2 years of expected after-tax cash flows generated during the ramp, and deduct the $17.5M of capital spending required to expand capacity. The net result is a Midstream present value of $166.3M. Using the low-case assumptions of a 4 year ramp and a 8.0x multiple gives a present value of $143.8M. The high-case assumptions of a 2 year ramp and a 10.0x multiple gives a present value of $193.5M.

    Regards,
    Nawar
    Dec 28 11:49 AM | 1 Like Like |Link to Comment
  • Epsilon Energy: Shareholders In Charge [View article]
    Thanks for the comment Joshua. Indeed CHK is transitioning to 80% PAD drilling in 2013 in the northern Marcellus (Slide 15 - http://bit.ly/wLG6V3), this transition is in line with CHK increased focus on capital efficiency. In my conversation with Epsilon's management, they expressed great satisfaction with CHK current approach to cost effectively develop our Marcellus reserves and maximize recovery. I expect Epsilon's results in 2014 to reflect many of those improvements and thus translate into strong stock price performance.

    Regards,
    Nawar
    Dec 17 12:11 PM | Likes Like |Link to Comment
  • ECA Marcellus Trust I: A Forecast Of Future Distributions [View article]
    Thanks for your input. I do believe that Epsilon is considering such conversion for its upstream assets to shield its upstream assets from future tax liability.

    Regards,
    Nawar
    Dec 14 03:12 PM | Likes Like |Link to Comment
  • ECA Marcellus Trust I: A Forecast Of Future Distributions [View article]
    Thank you for the write up. I am currently researching Trust structures for the Marcellus. One of my investments (Epsilon Energy) holds a passive position in the Marcellus sweet spot (Susquehanna County) its wells are operated by Chesapeake.
    In a recent conversion with management, they have indicated an interest in possibly converting into a Trust. However, the company is also a part owner in a gathering system, thus I am not sure if a gathering system could also be included in such a trust? or do they have to liquidate that part of the business first?.

    Here is my write up on the company, I would appreciate any input you may have on their suitability for an eventual trust conversion:

    http://seekingalpha.co...

    Regards,
    Nawar
    Dec 12 06:24 PM | Likes Like |Link to Comment
  • Platts Bentek Highlights The USA / Canada Big Picture  [View instapost]
    Very useful presentation, thanks for sharing.

    Regards,
    Nawar
    Dec 11 11:38 PM | Likes Like |Link to Comment
  • Cabot Oil And Gas: Marcellus The Unstoppable [View article]
    Thanks Richard, your work on COG and the Marcellus sweet spot has been of great help in my due diligence on companies in the area.

    Dec 10 12:00 PM | 1 Like Like |Link to Comment
  • Epsilon Energy: Shareholders In Charge [View article]
    Key upper Marcellus update from Cabot Oil & Gas this morning:

    "Two Upper Marcellus wells were completed on the pad with a total of 37 frac stages with an initial production (IP) rate of 32 Mmcf per day and a 30-day production rate of 24 Mmcf per day. These wells were spaced 1,000' apart in the Upper Marcellus and were offset 500' by a Lower Marcellus well. "We continue to monitor these wells to evaluate the productivity of the Upper Marcellus; however, based on the results to date, we continue to believe that the Upper Marcellus across our acreage position will provide rates of return that rival or exceed most unconventional resource plays," explained Dinges."

    http://yhoo.it/1bxgKVP

    Cabot also lowered drilling and completion costs to $5.8m, both the update on the upper Marcellus and the continued lowering of drilling and completion costs in the lower Marcellus provide an excellent read through to Epsilon, it is worth noting that Epsilon is sitting on a potential 240 Bcf of upper Marcellus contingent resource net to its interest on its acreage.

    Regards,
    Nawar
    Dec 9 02:56 PM | 1 Like Like |Link to Comment
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