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Richard Zeits

 
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  • Clayton Williams: Farming Out 15,000 Acres In Reeves County
    Editors' Pick • Thu, Nov. 13 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
       • Thu, Nov. 13 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
    Thu, Nov. 13 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
       • Thu, Nov. 13 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
    Wed, Nov. 12 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
       • Tue, Nov. 11 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
       • Tue, Nov. 11 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
       • Tue, Nov. 11 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
       • Mon, Nov. 10 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 • Thu, Nov. 6 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.
  • Halcón Resources: East Texas Eagle Ford Update - November 2014
       • Thu, Nov. 6 HK 13 Comments

    Summary

    • Halcón’s latest (through September) well performance data in the Eagle Ford is analyzed.
    • El Halcón production has remained approximately flat June through September; Q3 volumes may show ~10% decline from Q2.
    • Based on completion activity in September, I expect October volumes to increase ~6%-10% month-on-month, even if no new wells are turned to sales in October.
    • Given Halcón's acreage retention objectives and strong oil hedge portfolio in 2015, I do not expect significant slow-down of the company's drilling activity in El Halcón.
  • Oil & Gas Stocks: Does This Correction Have Logic To It?
    Editors' Pick • Wed, Nov. 5 AREX, BHI, CLR 102 Comments

    Summary

    • The article provides "correction scorecards" by stock and by group versus commodities.
    • In the past two weeks, natural gas-focused stocks outperformed, as natural gas prices firmed up.
    • The Oil Super-majors (Exxon, Chevron and Shell) appear to follow the S&P 500 more than they follow the oil price.
    • Small- and mid-capitalization oil-focused E&Ps have slid further, alongside oil, with size and leverage amplifying the underperformance.
    • Oil service stocks have been the worst performing group in the Oil & Gas Sector.
  • SandRidge Mississippian Trust II: Oil Volumes Drop Sharply
       • Wed, Nov. 5 SDR 4 Comments

    Summary

    • The Trust’s oil production reported for Q3 represents a major negative surprise, requiring another re-assessment of the units’ intrinsic value.
    • The transition to the new gathering contract leads to an uplift in natural gas sales price.
    • An illustrative financial model is included.
  • EXCO Resources: Still Waiting For An Operational Inflection Point
       • Tue, Nov. 4 XCO 7 Comments

    Summary

    • EXCO’s guidance midpoint for Q4 suggests very weak production and EBITDA growth, despite continued outspending.
    • Operational success in the Eagle Ford, which is yet to be demonstrated, is critical to the share price.
    • Leverage remains a challenge and a risk factor and may require additional balance sheet-enhancing initiatives.
  • SandRidge Mississippian Trust I: Oil Volumes Disappoint Again, But NGLs Provide An Uplift
       • Mon, Nov. 3 SDT 4 Comments

    Summary

    • The transition to the new gathering contract leads to an uplift in natural gas sales price.
    • The Trust’s hedges may make a significant contribution to the Trust’s distributions in the next several quarters.
    • An illustrative financial model is included.
  • Synergy Resources: Strong Production Growth Visible Through Fiscal Q2
       • Thu, Oct. 30 SYRG 6 Comments

    Summary

    • 27%-44% sequential production growth guidance for fiscal Q1 2015 confirmed with "upward confidence."
    • Production ramp-up will accelerate in fiscal Q2, with three large pads scheduled for tie-ins.
    • Strong well productivity and downspacing potential in the Wattenberg Core drive valuation.
    • Noble Energy's press release and conference call provide a positive read-across with regard to potential well density.
  • Carrizo Oil & Gas: Increasing Footprint In The Eagle Ford
       • Wed, Oct. 29 CRZO 10 Comments

    Summary

    • Carrizo acquires core-quality Eagle Ford acreage in a consolidating transaction.
    • The company continues to impress with solid execution and the ability to grow its asset footprint in its core areas.
    • The oil production beat in Q3 is significant, and highlights strong drilling results in the Eagle Ford.
    • Despite a slight miss on operating costs, Q3 will be a strong quarter from an operating perspective.
  • Cabot Oil & Gas: A 2016 'Story'
       • Tue, Oct. 28 COG 14 Comments

    Summary

    • Pricing outlook for 2015 in the Marcellus North remains challenging.
    • In the longer term, relief will come mostly from transporting gas out of the basin (Constitution, Atlantic Sunrise), not necessarily from local basis contracting, in my opinion.
    • While 2015 will be a slow-growth year, Cabot’s longer-term growth trajectory in the Marcellus remains intact.
    • The company’s Marcellus production will likely more than double by 2018, from ~1.5 Bcf/d (gross) during the latest quarter.
    • Q4 2014 is shaping up as a strong production quarter, with 2014 exit rate in the Marcellus expected in 1.8-2.0 Bcf/d range (gross).
  • Clayton Williams Energy: Valuation Compelling Again
       • Mon, Oct. 27 CWEI 4 Comments

    Summary

    • The note provides well performance data for Clayton Williams’ Eagle Ford and horizontal Wolfcamp wells.
    • Management believes both the Permian and Eagle Ford assets work in $80 per barrel oil price environment, with ~30% well-level returns.
    • After the correction, the shares again look compelling on value, assuming the oil price weakness is transitory.
    • The company’s two major resource play positions have strategic value and should help support the share price in a downcycle.
  • SandRidge Energy: A Challenging Quarter Report Ahead?
       • Fri, Oct. 24 SD 42 Comments

    Summary

    • Weak 24-hour test rates in Oklahoma in Q3 to date may indicate a slow-growth quarter.
    • Q3 2014 results may resemble the sequentially weak Q3 2013, when SD’s production in the Mississippian grew only 1% from the prior strong quarter.
    • Expect additional headwinds from sequentially weaker oil and natural gas price realizations and the drilling carries being fully utilized.
    • SandRidge will report Q3 results on November 5. Discretionary cash flow will likely decline sequentially and the Leverage Ratio show an uptick.
  • Oil & Gas Correction Scorecard: The Dawn Of A Recovery?
    Thu, Oct. 23 APA, BHI, CLR 22 Comments

    Summary

    • The article provides detailed "correction scorecards" by stock and by group versus commodities.
    • Small- and mid-capitalization E&P stocks continue to underperform by very wide margin. Exxon stands out as the least impacted stock.
    • The correction has created a wide menu of opportunities for investors who believe that the sector’s fundamentals remain in tact.
  • Continental Resources: More Big Wells And 9 Rigs Running In The Springer Shale
    Thu, Oct. 23 CLR 10 Comments

    Summary

    • Continental emphasizes shallow declines observed in its Springer early production data.
    • Given high oil yields (70% of current production) and prolific wells, the Springer may beat other formations in the stack in terms of drilling economics.
    • Expect quick delineation as the Springer is mapped out and held by production by existing Woodford wells.
  • Oil & Gas Stocks: Is This Correction Over?
    Editors' Pick • Thu, Oct. 23 CLR, PXD, WLL 41 Comments

    Summary

    • Is the oil market indeed oversupplied?
    • Do North American shale oil producers have to curtail production?
    • Where will oil production curtailments come from?
    • How does the Oil & Gas sector’s risk/reward balance look like currently?
  • Is EOG Resources Reaching Success In The Eaglebine?
    Tue, Oct. 21 EOG 9 Comments

    Summary

    • ZaZa Energy reported strong well performance for its EOG-operated joint venture in the Eaglebine play area.
    • ZaZa indicates that drilling returns may exceed 50%, assuming $80 per barrel WTI and $3.70/MMBtu Henry Hub.
    • The read-across may be relevant to SM Energy and Contango Oil & Gas.
  • Will OPEC Save The Oil Price?
    Tue, Oct. 21 USO 35 Comments

    Summary

    • U.S. shale oil production has grown to become a significant factor in the global oil supply/demand balance.
    • However, it does not seem to explain the recent sharp move in the price of oil.
    • The thesis that global oil supply would outpace demand, unless prices declined substantially below $100 per barrel, is not supported by market dynamics seen in the past four years.
    • There is no evidence that OPEC has a “policy” in place aimed at achieving oil price stability or willingness to act.
  • QEP Resources: Intrinsic Value Highlighted
       • Tue, Oct. 21 QEP 3 Comments

    Summary

    • The $2.5 billion price received in the Field Services divestiture is adequate.
    • The sale achieves the purpose of highlighting the stock’s intrinsic value.
    • QEP has ample liquidity to weather oil price decline and accelerate the delineation of its Permian asset.
    • Further divestitures are likely, although asset valuations may face headwinds.
  • Marcellus Differentials: What To Expect From The Earnings Season?
       • Tue, Oct. 21 UNG 18 Comments

    Summary

    • Investors should brace for a challenging reporting season as it relates to Marcellus- and Utica-focused stocks.
    • Price realization uncertainties going into Q4 and in 2015 will likely dominate conference call discussions.
    • While such uncertainties are transitory, very little assurance can be given with regard to the timing of the price relief.
    • So far, operators have shown little discipline curtailing production in the face of weak local demand and insufficient takeaway capacity.
  • Southwestern Energy: The Acquired Assets Are Top Quality, But Not Inexpensive
       • Fri, Oct. 17 SWN 30 Comments

    Summary

    • The CHK acquisition adds a high quality, multi-decade development backlog to Southwestern’s portfolio.
    • An equity issuance transaction may be announced within a month.
    • A divestiture of the midstream assets and the New Venture portfolio may be potential sources of funding to accelerate the development of the acquired assets.
    • Impact of legacy gathering contracts on drilling economics is a potential concern.
  • Chesapeake Energy: Marcellus South Sale Highlights Sum-Of-The-Parts Value
    Editors' Pick • Thu, Oct. 16 CHK 8 Comments

    Summary

    • The $5.4 billion divestiture of the Marcellus South addresses leverage concerns and delivers an adequate value for a major asset in the portfolio.
    • The transaction is logical in the context of Chesapeake’s asset-rich but capital-poor situation.
    • The divestiture may not be the last strategic step that the company may decide to pursue.
  • Antero Resources: It's All About The Midstream
       • Thu, Oct. 16 AR 2 Comments

    Summary

    • The correction brings Antero’s shares 33% below their 52-week high, substantially reducing the stock’s overvaluation relative to fundamentals.
    • While Antero continues to trade at a premium to many peer stocks, the valuation can be rationalized, particularly under a bullish scenario for natural gas.
    • The company continues to execute very well on its business plan, although leverage will likely increase, as spending remains above internally generated cash flow.
  • A New Source Of Power For Tesla?
    Wed, Oct. 15 LMT 35 Comments

    Summary

    • Lockheed Martin stated that it achieved a breakthrough in developing a compact nuclear fusion reactor technology.
    • The reactor can be “developed and deployed” in as little as ten years.
    • A test version of the reactor may be ready already in a year.
  • LINN Energy: Recent Correction Closes Valuation Gap
    Tue, Oct. 14 LINE, LNCO 43 Comments

    Summary

    • LINN lost over $3 billion in market capitalization since early July.
    • The units’ re-pricing largely addressed the wide gap that existed earlier between the enterprise value and the PV-10 of proved reserves.
    • While the recent price move is way exaggerated at this point, the correction highlights the units' vulnerability due to high debt, high G&A and dispersed, high-cost asset base.