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SandRidge Permian Trust: Oil Volumes, Price Realizations Disappoint
- The Trust's Q4 2014 oil production declined 7% sequentially, despite ~49 new development wells brought on production during the period.
- The $0.66 per unit distribution was supported by a strong (above-production) oil hedge and the subordination mechanism.
- The distribution may decline to as low as $0.25 per unit already in Q2 2015, assuming $50 per barrel WTI.
- As SandRidge's drilling obligation has been met, the subordination mechanism will expire at the end of 2015.
SandRidge Mississippian Trust I: A Production Beat Driven By Workovers
- The units’ risk/reward profile improved, in my opinion, driven by gains on hedges and the positive operating quarter reported.
- Some performance “upside” may exist from well maintenance activity.
- The hedge portfolio is a powerful asset that provides stability to the Trust’s intrinsic value in the depressed commodity price environment.
- Production decline trajectory remains difficult to predict.
Oil & Gas Stocks: Is The Sell-Off A Reaction To Old News?
- The latest U.S. petroleum inventory data shows “mustard seeds” of improvement (even though a trend confirmation from the next few reports is needed).
- The current crude oil price can be interpreted as a “pain shock” signal needed to cause a supply response.
- The period of extremely low prices is likely short-lived.
- The article provides inventory data analysis on a normalized basis.
Are Exxon, Chevron And Shell Low Cost Oil Producers?
- The article compares the Oil Super-Majors’ operating and reserve development costs to those of U.S. shale oil Independents.
- Several common misconceptions are addressed.
- The article discusses key strategic factors that drive Oil Majors’ deteriorating cost position.
- While U.S. Shale Oil is a significant, largely untapped opportunity for Oil Majors, it is neither the solution nor the primary cause of the strategic challenge the Majors have faced.
Crude Oil: Is The Widening Contango A Precursor To Even Lower Prices?
- Spare storage capacity in the U.S. is quickly shrinking and the short-term contango is widening.
- The 12-month contango in WTI now stands at over $9 per barrel.
- The current seasonally strong demand is masking the true magnitude of inventory build.
- In the absence of significant supply cuts, the 2009 scenario - when the 12-month contango exceeded $20 per barrel - cannot be ruled out.
Oil Supply Accelerating - Saudi Arabia Delivering On Its Promise?
- The supply/demand imbalance in the oil market deteriorated in the past seven weeks.
- In the U.S. alone, the total oversupply increased by over 1.1 million barrels per day, judging by inventory data.
- Spare storage capacity in the U.S. is quickly shrinking, and the short-term contango is widening.
- Such dynamics would hardly be possible without proactive supply increases by key global exporters.
- At the current pace, a true "oil glut" may arrive in just a few months.
Bonanza Creek Energy: How Does 2015 Look?
- Bonanza Creek operating outlook highlights the severity of the current commodity price environment for shale oil producers.
- Despite the ~37% capex cut, strong hedges and productive assets, Bonanza Creek will need to borrow to keep its production flat throughout 2015, assuming current strip prices.
- The Wattenberg asset appears to require ~$70 WTI/$4 Henry Hub to be truly competitive, using current operating metrics.
- Drilling economics may show some improvement as well as costs decline: $65 WTI/$3.50 Henry Hub may work towards the end of the year, in my estimate.
- Overall, Bonanza Creek is well positioned to weather commodity price weakness throughout 2015.
Southwestern Energy: The Benefit Of Preserving A Strong Balance Sheet
- Southwestern receives excellent pricing in its $2.2 billion bond offerings.
- Apparently, the bond market can be highly receptive to issuers in the oil and gas sector, for the right credits.
- The outcome of the announced asset sales, the final component of the acquisition funding, is uncertain but not critical.
Exxon Mobil: Slow But Steady, Value Erosion Is Underway
- Despite $100 oil and much higher capital spending, Exxon's oil production has continued to decline at a high rate.
- When measured on a free cash flow basis, after adjusting for production declines, financial returns over the past five years were poor and the outlook remains bleak.
- Even assuming the company will stabilize its liquids volumes, the stock appears dependent on $100+ oil to yield minimally acceptable free cash flow returns.
- In a weaker price environment, Exxon may have to borrow to sustain dividends and share buybacks at the current level.
- Exxon needs a radical Upstream strategy re-evaluation and deep cost reductions to restore competitiveness.
Southwestern Energy: Acquisition Financing Successful, But The Price Is High
- Raises $2.3 billion in net proceeds from the equity and mandatorily convertible offerings, assuming green shoes are exercised.
- Investment grade rating preserved, with a one-notch downgrade from Standard & Poor’s.
- The stage is set for a successful bond offering that will likely follow. The company should have ample liquidity to fund its 2015 operating plan.
- The current share price appears to discount an expectation of a substantial improvement in the natural gas price environment.
U.S. Shale Oil: What Doesn't Kill Me Makes Me Stronger
- 2014 economic metrics for shale oil are a "rear view mirror": the industry’s cost structure and average well productivity will look very different a year from now.
- An oil price of $60 per barrel may prove sufficient for the aggregate U.S. shale oil production to be sustained at current levels or even grow.
- The shale oil industry will likely emerge from the current turmoil somewhat smaller and slower, but leaner and more competitive.
- Due to its flexibility, shale oil has greater resiliency to oil price swings in terms of returns than conventional oil mega-projects.
- Lack of sufficient correction in the “Super-Majors” stock prices, particularly for Exxon, raises a concern regarding ultimate under-performance.
Richard Zeits Positions For 2015: A Bull Case For North American Natural Gas
- The supply acceleration in December leaves little room for optimism with regard to natural gas pricing in 2015.
- With production still running 7 Bcf/d higher year-on-year, one cannot rule out further price decline to levels consistent with production curtailments.
- In the medium term, however, strong demand growth may require supply contribution from sources that are currently sub-economic.
- In which case, a step change in the price of natural gas is likely to occur.
- The time frame for demand acceleration is beyond 2016.
U.S. Oil Shales: Still Growing Fast
- How long would it take for the U.S. oil production to go in decline?
- Why have shale operators waited for six months since the beginning of the oil price correction to reduce drilling?
- What are breakeven oil prices for U.S. shale plays?
- What are the implications for the price of oil?
Sanchez Energy: Improving Well Results Imperative For Success
- Sanchez’s revised its 2015 capex sharply down, targeting ~$400-$450 million run rate, compared to $1.15 billion planned initially.
- Mandatory drilling in Catarina and high-return development program in Palmetto survive as the primary spending categories.
- Sanchez expects that its reduced capex, combined with lower costs, should be enough to keep production flat.
- While well cost reduction targets are impressive, the new guidance highlights the need for stronger well results to stay competitive in a low commodity price environment.
Oil & Gas Stocks: Have You Noticed A Performance Improvement? May Be Worth Paying Attention
- The majority of oil-focused stock groups (excluding the MLPs and international Oil Majors) posted gains since my last update in mid-December.
- During the same period, the price of oil declined by ~18%.
- The “on sale” menu continues to be extensive, with a vast number of stocks priced at less than one-third of their peak prices achieved last summer.
- The deterioration of the natural gas fundamentals appears to have caught the market by surprise, which may explain the under-performance by the gas-focused groups.
- The article provides "correction scorecards" by stock and by group versus commodities.
Halcón Resources: November Eagle Ford Production Inches Higher
- Based on the aggregation analysis, Halcón’s Eagle Ford production held steady in November at ~24% above the Q3 2014 average.
- Latest well results are in line with the company’s average well performance in the area.
- Even though at $50 per WTI barrel El Halcón cannot compete for capital, a 2-rig drilling program is likely to be sustained due to lease retention requirements.
U.S., Russia, Saudi Arabia: Who Is Going To Win In The Oil Price Stand-Off?
- Among the largest producers, the U.S., Canada, Saudi Arabia and Iraq were among the largest market share gainers in the past five years.
- North American unconventionals have proven their top competitiveness against other supply sources.
- While the market share trend is likely to continue, potential return of supply from Iran, Iraq and Libya may completely re-define oil market environment and depress oil prices.
Crude Oil: 3 Graphs That May Hold The Key To The Price Collapse
- Can the negative supply/demand fundamentals be detected in worldwide industry statistics?
- Why is the current decline so much deeper than several previous ones?
- Where is the bottom?
Southwestern Energy: Big Opportunity Brings Along Big Challenges
- Southwestern expects to raise $2.5-$3.0 billion via new equity issuance and asset sales in the first half of 2015, a tall order in the current market environment.
- In South Marcellus, finding takeaway solutions and demonstrating strong well performance on the acquired acreage are high on the agenda.
- 2015 promises to be difficult for natural gas producers and may challenge the economics of Southwestern’s drilling programs.
Linn Energy: A Half-Step In The Right Direction
- Linn Energy’s 2015 budget balances expected cash flow, capex and distributions.
- However, no room seems to be left for debt reductions.
- Linn Energy remains vulnerable to a prolonged commodity price slump.
- Cost reduction (particularly G&A) appears to be an untapped reserve.
Breitburn Energy Partners: One Cut Would Be Better Than Two Half-Cuts
- Breitburn’s 2015 budget leaves little room for debt reductions, using the company’s $60 per barrel and $3.50 per MMBtu price assumptions.
- The partnership continues to prioritize distribution maximization over balance sheet health.
- This effectively “cut once there is a problem” approach may not be the best strategy in light of the daunting macro uncertainties.
- With leverage unaddressed, capex and distributions remain vulnerable to additional cuts in the near future.
U.S. Natural Gas Economics: $4 Works; $3 Is Too Low
- With Nymex natural gas averaging $2.93 per MMBtu for the next six months, the commodity’s economics need to be re-assessed.
- While the current negative price signal can be rationalized, sub-$3 gas price is not sustainable in the longer term.
- However, the re-balancing of supply and demand may take several months.
A Giant Gas Well Confirms Deep Utica Potential
- Range Resources reported a record IP in deep dry gas Utica test.
- The well extends the play's proven frontier almost 2,000 feet downdip and far to the east from the majority of existing wells.
- However, the high well cost sets well performance bar high.
- The note summarizes the play's evaluation results to-date.
At What Oil Price Do U.S. Shales No Longer 'Work?'
- Notwithstanding the decline in oil prices, U.S. oil production from shales will likely post solid sequential growth in the first half of 2015.
- In the second half, significant volume contraction is unlikely, unless oil price stays below $50 for at least several months.
- Beyond 2015, the North American shale oil industry is likely to see sustainable expansion, as long as average oil price remains above $60 per barrel.
- Many shale operators have significant drilling inventories that will yield returns above 20% even at $60 per barrel WTI.
- Oil shales are not the highest-cost sources of supply and should not be counted on to provide quick relief for the oversupplied market.
Is The Oil Super Cycle Over?
- For almost a decade, oil has traded in disconnect from the underlying cost to produce it. What has made it possible?
- Was the recent move in oil price driven by speculation or by economics?
- Is the Super Cycle over?
Is Saudi Arabia Targeting U.S. Shales?
- Strategically, North American shale oil will be one of the biggest beneficiaries of the current industry downcycle.
- The most damaging impact will be on long lead-time mega-projects, particularly in high political risk areas.
- It may sound counter-intuitive, but U.S. shale operators' economic interest at the moment effectively coincides with Saudi Arabia's.
- Consumers are the ultimate winners, as supply is becoming more competitive and its marginal cost - which supports the long-term price - is effectively being reduced.
Continental Resources: Budget Cut In Half, Production Still Growing
- At $2.7 billion, Continental’s budget appears to be fully funded under a $60 per barrel WTI and $3.50 per MMBtu Henry Hub scenario.
- Under the new operating plan, I anticipate the company’s production to grow at a significant rate during the first half of 2015, flattening thereafter.
- In the event commodity prices decline further, Continental would face difficult decisions, as drilling economics would be severely challenged.
Encana: Unhedged But Undeterred
- Assuming average Nymex prices of $70 per barrel for oil and $4 per MMBtu for gas next year, Encana’s shares are trading at ~3.3x 2015 estimated pre-hedge cash flow.
- The company has sufficient resources to execute its 2015 business plans without major curtailments even under a $55 oil/$3.50 gas scenario.
- However, Encana still has a lot to prove with regard to the economic viability of its asset base in a low-price commodity environment.
- At its current price, the stock represents an intriguing bet on a cyclical recovery in oil.
- It would be natural to expect that Encana eventually streamlines its portfolio to the four most strategic assets, with divestitures providing funds for accelerated development.
First Crude Oil, Now Natural Gas... How Low Can It Go?
- Is natural gas headed for a 2012 scenario?
- What is the level of structural support for the price?
- Is the Marcellus still economic?
Linn Energy: Something's Got To Give
- Bloomberg’s report that Linn Energy is putting its capital spending on hold requires confirmation.
- The probability of a major capex reduction is indeed very high and may be announced in January or February.
- The probability of a distribution cut is also high.
- The units’ current price appears to discount a strong cyclical recovery scenario in oil.
Is The 'Oil Glut' A Myth?
- The severity of the oil price drop appears to be in disconnect from some “supply glut” indicators that remain at moderate levels.
- The price decline does not appear to be caused by an inventory pile up throughout the delivery and storage chain but rather by the lack of supply or demand elasticity.
- The current imbalance between supply and demand appears to be much “softer” than in the 2008-2009 correction and may be easier to address.
How Long Does A 'Typical' Oil Downcycle Last?
- Oil price patterns observed during some of the previous “mega-corrections” imply that this time a decline to a $45-$55 per barrel range cannot be ruled out.
- It is difficult to expect a rapid recovery. At least three previous mega-corrections took almost two years to run their full course.
- The current correction’s structural logic does not imply that there is a fundamental change to the industry’s capacity or cost base, which are the key drivers of the long-term price.