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Richard Zeits

 
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  • Can EOG Resources Grow At 25% With Oil At $65?
       • Dec. 10, 2014 EOG 42 Comments

    Summary

    • EOG is very strongly positioned to weather a most severe oil price trough.
    • If oil price remained at $65 per barrel level, EOG would still be able to post oil production growth in 2015, without increasing debt level.
    • Given weak hedge protection in 2015, the company’s financial results will be volatile quarter to quarter.
  • Can Continental Grow At 25% With Oil At $65?
       • Dec. 8, 2014 CLR 38 Comments

    Summary

    • Continental’s current 2015 budget implies 23%-29% year-on-year production growth.
    • The company has sufficient drilling inventory that remains economic even at $65 per barrel.
    • Assuming no change in the price of oil, credit considerations will likely cause spending reductions throughout the year.
    • However, even assuming significant budget cuts, the company’s production will still likely grow in 2015.
  • SandRidge Permian Trust: Stress-Testing At $50 Per Barrel
       • Dec. 6, 2014 PER 33 Comments

    Summary

    • Subordination mechanism provides distribution protection through the end of 2015. Hedge protection is adequate in the near term but runs out after Q1 2015.
    • The Trust’s current $7.56 per unit price appears to discount ~$75 per barrel WTI (based on Illustrative Scenario outlined in this note).
    • Uncertainty related to production decline is significant.
    • At the current price, units offer a neutral risk-reward trade-off in my opinion.
  • Halcón Resources: Eagle Ford Production Regains Production Momentum
       • Dec. 6, 2014 HK 31 Comments

    Summary

    • Halcón’s latest (through October 2014) well performance data in the Eagle Ford is analyzed.
    • El Halcón gross production increased ~21% in October month-on-month.
    • Latest well results show continued improvement in the average IP-30 rate.
    • In the event of a protracted oil price decline, El Halcón may be able to compete for capital above $60 per barrel of WTI, based on current well results.
  • SandRidge Mississippian Trust II: Stress-Testing At $50 Per Barrel
       • Dec. 5, 2014 SDR 1 Comment

    Summary

    • Strong hedge position on the oil side provides distribution protection through the end of 2015.
    • The Trust’s current $4.96 per unit price appears to discount ~$85 per barrel WTI and $4/MMBtu Henry Hub (based on Illustrative Scenario outlined in this note).
    • At the current price, units offer a neutral risk-reward trade-off, in my opinion.
    • I estimate the next distribution at $0.37 per unit, driven by hedges.
    • Distributions per unit will likely decline strongly (to ~$0.15 per unit, assuming $85 oil) by mid-2016.
  • Southwestern Energy: Robust Firm Transportation Portfolio For Marcellus North
    Dec. 5, 2014 SWN 6 Comments

    Summary

    • The $300 million WPX acquisition is notable for firm transportation on the Millennium Pipeline that it brings along.
    • The earlier than expected in-service date estimate for the Constitution Pipeline is another positive for Southwestern.
    • Results of two Northern Susquehanna test wells revealed. The results can be interpreted as encouraging.
  • Cabot Oil & Gas: Good News On The Constitution Pipeline
    Dec. 4, 2014 COG 8 Comments

    Summary

    • The Constitution Pipeline may see an earlier than currently expected in-service date.
    • Will add 0.5 Bcf/d to Cabot’s production.
    • Will provide access to strategically attractive markets.
  • I Wouldn't Get Used To $65 Oil
    Editors' Pick • Dec. 2, 2014 OIH, OIL, XLE 323 Comments

    Summary

    • A prominent oil company chairman suggests that crude oil can “spike down” to $30 per barrel.
    • A Bloomberg article mentions $40 per barrel as a possibility.
    • This note draws historical parallels that illustrate the market psychology.
  • SandRidge Mississippian Trust I: Stress-Testing At $50 Per Barrel
       • Dec. 2, 2014 SDT 9 Comments

    Summary

    • Over-hedging on the oil side provides effective value protection against further oil price decline.
    • In the event oil price recovers quickly, the units should benefit from a positive investor sentiment for Oil & Gas equities.
    • At the current price, units offer a favorable risk-reward trade-off.
  • Linn Energy: Cutting Distributions And Capex May Be A Wise Strategy
    Dec. 1, 2014 LINE, LNCO 122 Comments

    Summary

    • OPEC's decision to maintain production volumes unchanged may mean a deeper and longer cyclical trough for oil.
    • E&P operators with high leverage and strong exposure to oil prices need to adjust their financing and capital decisions in order to weather the storm.
    • Given the very high debt level, Linn Energy may need to accept declining production and reduced or suspended distributions as a prudent necessity.
  • Southwestern Energy: A Major Financing On The Horizon?
       • Dec. 1, 2014 SWN 7 Comments

    Summary

    • A concurrent debt and equity offering to permanently finance the Chesapeake Acquisition may be imminent.
    • Southwestern is on the path to become a predominantly Marcellus Shale company, as measured by capital spending.
    • Active pursuit of New Ventures initiatives is questionable in the context of the company’s expanded development inventory.
  • Crude Oil: Where Do We Go From Here?
    Editors' Pick • Dec. 1, 2014 USO 110 Comments

    Summary

    • The article reflects on possible structural drivers behind OPEC’s decisions last Thursday.
    • The decision may reflect OPEC’s possible concern that capacity overbuilding is excessive and with time may bring the industry into a deep and protracted downcycle.
    • Given oil projects’ capital intensity and very long lead times, an adjustment in the pace of capital investment – if indeed required – may take some time.
  • Oil & Gas Stocks: 'Black Friday' And Updated Correction Scorecards
    Dec. 1, 2014 BCEI, CLR, CRZO 11 Comments

    Summary

    • The article provides "correction scorecards" by stock and by group versus commodities.
    • Following “Black Friday,” many stocks are effectively pricing in a protracted oil price trough and uncertain long-term recovery.
    • Small- and mid-capitalization stocks, both E&P and Oil Service, remain the strongest decliners.
    • The Oil Super-Majors are now underperforming the S&P-500 by over 20% relative to recent peaks.
  • Linn Energy: Curious Financial Metrics And What They Tell
    Editors' Pick • Nov. 25, 2014 LINE 104 Comments

    Summary

    • Excluding the effect of derivatives, LINN’s very high distribution rate leaves insufficient cash flow for reserve replenishment.
    • The oil price decline exacerbates the issue.
    • Given the partnership’s very high financial leverage, a prolonged commodity price decline would make distributions vulnerable.
    • The partnership’s legacy hedges provide a strong uplift to cash flow in the short term, but are non-recurring and non-operating in their nature.
  • Helmerich & Payne: The Downcycle Can Be An Opportunity
       • Nov. 24, 2014 HP 11 Comments

    Summary

    • H&P is well positioned to continue to increase its market share, despite the likely onset of downcycle market conditions.
    • The company’s "design, build and operate" business model is a distinct advantage in the equipment replacement cycle.
    • The stock is currently trading at close to rig replacement cost.
    • The stock price reflects demand levels that would be consistent with shale oil production growth.
  • Natural Gas: A 'Soft Landing' Scenario
    Nov. 22, 2014 UNG 36 Comments

    Summary

    • Natural gas fundamentals look healthy going into the winter season.
    • Current production in excess of demand is essentially “spoken for.”.
    • The structure of the futures strip appears logical.
  • Four 'Cures' On Their Way To Help The Oil Price
    Editors' Pick • Nov. 19, 2014 USO 112 Comments

    Summary

    • The correction in waterborne crude grades has been the strongest, sending a powerful economic signal to international exporters.
    • North American oil resource plays are unlikely to provide a self-correction mechanism to oil prices.
    • While OPEC is often viewed as the source of oil price stability, demand seasonality, contango and gamma-hedging reversal may be more effective “natural” stabilization mechanisms.
    • The oil price decline may end just as spontaneously as it started.
  • Oil & Gas Stocks: 'Stability At The Bottom' May Be A Positive Sign
    Nov. 19, 2014 AREX, CRK, CVX 33 Comments

    Summary

    • The article provides "correction scorecards" by stock and by group versus commodities.
    • In the past two weeks, oil & gas stocks firmed up, despite the continued slide in the price of oil.
    • Small- and mid-capitalization oil-focused E&Ps were the strongest winners.
    • Emerging markets Oil Majors and Upstream MLPs were the worst performers.
  • What Is Great For Baker Hughes And Schlumberger May Be Just Ok For Halliburton
    Editors' Pick • Nov. 18, 2014 HAL 7 Comments

    Summary

    • The high premium and consolidation benefits are a win for Baker Hughes shareholders.
    • However, for Halliburton, the acquisition is burdened with multiple value and execution risks.
    • Schlumberger may be a major beneficiary of the transaction, due to the elimination of a major, weaker competitor, particularly as it relates to large international tenders.
  • EQT Corp: A Monetization Of GP Interest In EQT Midstream Partners May Be On The Way
       • Nov. 17, 2014 EQT 2 Comments

    Summary

    • EQT’s updated valuation suggests that the company’s Midstream assets may be worth over $10 billion.
    • The stock's current price is unlikely to recognize this valuation. Structural complexity may stand in the way.
    • EQT may soon announce a major strategic initiative aimed at highlighting the value of its GP interest in EQM.
    • The GP interest may be worth $4.6 billion, according to EQT.
  • Encana To Divest TMS Assets?
       • Nov. 15, 2014 ECA 12 Comments

    Summary

    • Athlon acquisition effectively pushed the TMS to a marginal position in Encana’s portfolio.
    • A divestiture of the TMS in 2015 is likely, in my opinion.
    • Strong recent well results and consistent execution make the asset potentially attractive to acquirers, assuming a meaningful oil price recovery.
  • To Understand The Oil Price Drop, One May Wish To Look At The Term Structure
    Editors' Pick • Nov. 14, 2014 USO 65 Comments

    Summary

    • WTI futures moved back into the contango territory, for the first time in several years.
    • The long/prompt futures price spread moved by a staggering $37 per barrel since July 2013.
    • Arguably, the current shape of the futures curve is "normal" and does not suggest severe oversupply.
  • Clayton Williams: Farming Out 15,000 Acres In Reeves County
    Editors' Pick • Nov. 13, 2014 CWEI 1 Comment

    Summary

    • The farmout covers the western fringe portion of CWEI's Bone Spring/Wolfcamp position in Reeves County, Texas.
    • Following the recent sale of eastern non-core acreage, the company will retain 56,000 core acres in the heart of the Wolfcamp fairway.
    • The move is logical and prudent, given oil price uncertainties, CWEI's capital constraints and the vast opportunity set the company has.
  • Rice Energy: Dry Gas Utica Success Confirmed
       • Nov. 13, 2014 RICE 5 Comments

    Summary

    • Rice reported continued drilling success in the dry gas Utica play.
    • Two new wells are performing in line with the first well, the Bigfoot 9H. The Bigfoot is outperforming initial expectations.
    • The company provided a type curve for the play.
    • Firm transportation remains a critical component of the growth plan, with FT costs making a big dent in drilling returns.
  • Halcón Resources: 'We Are A Two Core Play Company,' For Now
    Nov. 13, 2014 HK 11 Comments

    Summary

    • The note discusses Halcón’s recent operating results in the TMS play.
    • The company plans to focus its effort on its two de-risked plays, the Bakken and El Halcón.
    • These two core plays are expected to drive 15%-20% year-on-year production growth in 2015.
  • Hess Corporation: Taking An Alternative Path In The Bakken
       • Nov. 13, 2014 HES 14 Comments

    Summary

    • Hess makes a compelling case for its low-cost completion design approach in the Bakken.
    • The company’s progress in well cost reductions and design optimization is impressive and presents an interesting case study of a resource play’s evolution.
    • The Bakken is by far the most important asset in the company’s portfolio with a multi-year growth trajectory.
  • Halcón Resources: 3Q Earnings Review
    Nov. 12, 2014 HK 9 Comments

    Summary

    • Halcón reported an in-line Q3 and indicated that production volumes for the full year will be at the high end of the guidance range.
    • Positive commentary in the press release regarding Bakken and El Halcón wells performance.
    • The reduction capital budget for 2015 is a logical development given commodity price uncertainties, but still implies outspending.
    • 15%-20% production growth guidance for 2015.
  • Rosetta Resources: Hybrid Completions Show Strong Improvement In Well Performance
       • Nov. 11, 2014 ROSE 3 Comments

    Summary

    • Rosetta’s latest well results confirm the success of the modified frac that includes hybrid fluid design and increased proppant loadings.
    • The company expects Reeves County Wolfcamp A economics to be comparable to the Eagle Ford.
    • Preliminary 2015 budget reduced by ~20% relative to the earlier indication. Production still expected to grow by 20% year-on-year.
    • The company’s Q3 operating report provides a strong positive read-across to Clayton Williams.
  • Goodrich Petroleum: The TMS Is Making Steady Progress
       • Nov. 11, 2014 GDP 19 Comments

    Summary

    • Goodrich posted two strong TMS well results.
    • The company expects its typical well to yield 700 Mboe, with well-level returns in the 46% range, assuming $85 oil price and two-well pads.
    • Several additional wells are likely to be reported by Halcon and Encana next week.
  • Sanchez Energy: Excellent Early Results From Catarina
       • Nov. 11, 2014 SN 7 Comments

    Summary

    • Sanchez’s first 11 operated completions on the Catarina block beat previous operator’s results by 70% on average.
    • All the 11 wells are completed in the Upper Eagle Ford, which initially was viewed as the secondary target.
    • While additional production history and more wells will be needed to anchor a type curve, the early data is very encouraging.
    • The Catarina asset has the scale and quality to become the defining asset for Sanchez.
    • The company had ~$600 million of cash at the end of the third quarter.
  • SandRidge Energy: A Major Spending Cut On The Horizon
       • Nov. 10, 2014 SD 15 Comments

    Summary

    • SandRidge delivered a solid operating quarter, driven by strong NGL and natural gas volumes.
    • I estimate SandRidge’s cash balance at the end of 2014 to decline to ~$240 million.
    • This compares to $1.35 billion as of the end of February 2014.
    • The company’s 2015 capital budget will have to be reduced substantially below the initial ~$1.5 billion continued spending plan.
  • Shale Oil Stocks: Do Not Count On A Major Slowdown In The U.S. Oil Production Growth
    Editors' Pick • Nov. 6, 2014 APC, CLR, DVN 109 Comments

    Summary

    • The presumption that North American shale oil production is the “swing” component of global supply may be incorrect.
    • Supply cutbacks from other sources may come first.
    • Growth momentum in North American unconventional oil production will likely carry on into 2015, with little impact from lower oil prices on the next two quarters’ volumes.
    • The current oil price does not represent a structural “economic floor” for North American unconventional oil production.