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Richard Zeits

 
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  • Cabot Oil & Gas: Beyond The Marcellus
       • Thu, Sep. 25 COG 26 Comments

    Summary

    • In the Eagle Ford, Cabot "bolts on" ~30,000 net acres and 1,600 boe/d of production (mostly oil) for $210 million, and accelerates the drilling program with a fourth rig.
    • Expansion in the Eagle Ford is a logical solution to the limitations on capital deployment in the infrastructure-constrained Marcellus.
    • In the Marcellus, Cabot set a new production record of 1.678 Bcf/d gross.
    • Marcellus production ramp-up is slightly behind schedule due to midstream delays. Q3 volumes will be lighter than expected.
    • Cabot’s $925 million bond financing with coupons ranging from 3.24%-3.77% for 7-12 years reflects the company's superb credit quality.
  • Magnum Hunter Posts A 'Monster' Well In Dry Gas Utica Play
    Thu, Sep. 25 MHR 30 Comments

    Summary

    • Magnum Hunter’s Stewart Winland 1300U “monster” well in the Utica’s dry gas window tested with 46.5 MMcf/d and very high flowing pressure on a wide choke.
    • The well proves up the play further south.
    • Implications for Magnum Hunter’s stock are strongly positive as the well highlights value potential of the company’s southeastern acreage.
  • Newfield Exploration: Adding Springer Shale Oil To The Backlog
       • Thu, Sep. 25 NFX 6 Comments

    Summary

    • Newfield’s 85,000 net acre position in the SCOOP provides the company with significant exposure to the Springer Shale oil play.
    • Continental’s early appraisal results are nothing short of spectacular and hint in the direction of very strong drilling returns.
    • The play’s delineation is moving ahead at a very rapid pace.
    • The Springer may emerge as an important theme and catalyst for Newfield’s stock.
  • CARBO Ceramics: Difficult Outlook For Ceramic Proppant Margins
       • Wed, Sep. 24 CRR 13 Comments

    Summary

    • CARBO’s revised outlook for the third quarter is a reflection of adverse fundamental trends in the market for “traditional” ceramic proppants.
    • Competitive pressures may persist and are unlikely to be resolved unless a significant price drop produces a structural change in the segment.
    • CARBO remains a technological leader in the advanced proppants segment and is differentiated by product quality, customer recognition and a pipeline of innovative products.
    • The company has no debt and is generating free cash flow.
    • After the stock’s re-pricing, the share price more reasonably reflects the fundamental outlook, although additional downside risk remains.
  • Continental Resources: Why Is The Stock Down After An Impressive Analyst Day?
       • Tue, Sep. 23 CLR 27 Comments

    Summary

    • Continental’s Analyst Day vividly demonstrated that the company’s opportunity set is vast and growing, even in the context of the stock’s large market capitalization.
    • Results of the company’s density pilots and lower Three Forks evaluation bring a sense of reality with regard to what is technically possible.
    • Continued density and completion optimization may redefine drilling returns in the Bakken.
  • The Bakken: How Long Will The Resource Last?
    Mon, Sep. 22 CLR, EOG, HES 34 Comments

    Summary

    • Continental Resources made a bold prediction that recovery factors in the best areas of the Bakken may ultimately exceed 20%.
    • Using a more conservative assumption of ~15% recovery, Continental estimates the Bakken’s recoverable reserves in the 62-96 billion barrels range.
    • Even after applying some risking to these estimates, the Bakken should sustain production at 2-3 million barrels per day for multiple decades.
  • Linn Energy: The Asset Swap Is A Positive, But The Value Gap Remains Wide
    Sun, Sep. 21 LINE 73 Comments

    Summary

    • LINN announced another asset swap that involves the company’s opportunity-rich Permian acreage.
    • California heavy oil assets that LINN will be receiving in the exchange represent a good fit with the partnership’s existing assets.
    • However, the transaction is “tactical” in the context of the much larger enterprise value.
    • The gap between LINN's enterprise value and PV-10 value of its proved reserves remains very wide and represents a valuation concern for the units.
  • Continental Resources: The Big Promise Of The Anadarko Basin
    Editors' Pick • Thu, Sep. 18 CLR 47 Comments

    Summary

    • Continental substantially increased resource estimates for its Anadarko Basin asset.
    • The announcement of the Springer Shale discovery is important, given that the play will add to the “core of the core” drilling inventory.
    • The positive read-across is to Newfield, Cimarex, Marathon and Devon.
  • Marcellus Differentials: Do Not Count On A Quick Recovery
    Editors' Pick • Thu, Sep. 18 AR, CHK, CNX 20 Comments

    Summary

    • The Northeast is quickly transitioning from being a natural gas consuming region to becoming an important gas exporting region in the U.S.
    • While takeaway projects resolve the problem of the local basis, they come at a price of high transportation costs being locked in for decades.
    • Marcellus differentials are likely to remain wide for several more years.
  • The New Bill Barrett: Smaller, More Focused, Asset-Rich, Well Capitalized - Waiting On Strong Execution
       • Thu, Sep. 18 BBG 3 Comments

    Summary

    • The divestitures announced by Bill Barrett today complete the company’s strategic repositioning and highlight intrinsic value.
    • The company’s pro forma trading multiples are moderate given the growth potential and high-return core assets.
    • Operating execution will be key for the stock to realize its potentially significant upside.
  • Goodrich Petroleum: Interpreting Variability In TMS Well Results
       • Tue, Sep. 16 GDP 9 Comments

    Summary

    • Indiscriminate focus on well IP rates and neglect of other performance metrics may result in misleading interpretations of drilling results.
    • Two in a row weak IP rates in the TMS reported by Goodrich in June and July, the Nunnery and Beach Grove, contributed to the stock’s subsequent steep decline.
    • However, a more careful analysis of these two wells’ performance and its likely drivers does not seem to provide grounds for any major concerns.
    • According to Goodrich, high IP rates in the TMS may be driven by the presence of intense natural fracturing or areas with increased matrix permeability.
    • However, longer-term well performance may not depend on high IP rates and may prove a lot more consistent across large areas of the play.
  • Update: Bill Barrett - $757 Million Divestitures Highlight Value, Expand Core Niobrara Footprint
    Tue, Sep. 16 BBG 4 Comments

    Summary

    • Bill Barrett receives excellent price, $525 million, for its Piceance Basin assets. The company also divests PRB prospects and bolts on acreage in the Niobrara.
    • The transactions are a logical completion of the company’s re-focusing strategy and highlight the stock’s intrinsic value.
    • In my earlier notes, I argued that the stock’s upside potential was superb and its intrinsic value was waiting to be unlocked.
    • The announcement fully validates that thesis.
  • Eclipse Resources: Will A Disappointing IPO Turn Into A Success Story?
       • Tue, Sep. 16 ECR 1 Comment

    Summary

    • The 35% decline in Eclipse’s share price since the IPO has lead to a more realistic, albeit still “aspirational,” valuation for the stock.
    • Eclipse’s most recent well results appear in line or above the company’s model assumptions and execution is progressing on schedule.
    • While the wide basis differential in the Marcellus South will create a strong headwind in the current quarter, the company’s production should be in line or above guidance midpoint.
    • Eclipse will need to beat its model assumptions for well performance and drilling returns for the stock to “grow into” its premium valuation and move higher.
  • Bonanza Creek: Premium Valuation Reflects Strong Operating Momentum In The Niobrara
       • Mon, Sep. 15 BCEI 5 Comments

    Summary

    • The Niobrara is still in its infancy as a play, both in terms of its delineation and extraction techniques optimization.
    • As a result, many positive surprises may be on the way.
    • While Bonanza’s trading multiples may appear high, additional upside should not be ruled out just based on the stock’s recent strong performance.
    • Results from leading operators in the play, such as Noble Energy, will be an important leading indicator of what Bonanza’s operating performance may ultimately look like.
  • Encana: Is Another Major Acquisition On The Horizon?
       • Mon, Sep. 15 ECA 18 Comments

    Summary

    • Following the expected closing this month of pending divestitures, Encana’s cash balance will likely exceed $6 billion.
    • Barring a special dividend announcement, a major acquisition or a series of acquisitions appear almost inevitable.
    • Using the cash to accelerate the development of the company's already vast asset base appears to be a more compelling approach.
  • SandRidge Energy: How Is The Current Quarter Shaping Up?
       • Sat, Sep. 13 SD 29 Comments

    Summary

    • After three months in a row (March, April and May) or exceptionally strong well results, SandRidge’s more recent well data shows a “reversion to the mean”.
    • In the current quarter, SandRidge will be challenged to replicate sequential production growth it achieved in Q2.
    • Two recent successful Woodford wells may indicate a turn-around in SandRidge's initially disappointing Woodford evaluation program.
  • Triangle Petroleum: Delivering On The Ambitious Growth Strategy
       • Fri, Sep. 12 TPLM 8 Comments

    Summary

    • Triangle delivered much stronger than expected fiscal Q2 2015 results in its pressure pumping business.
    • Given the favorable current environment in the pressure pumping sector, Triangle’s growth initiatives in Oil Services are very well timed.
    • Using an updated valuation range for the company’s Oil Service and Midstream segments, the implied valuation for the core E&P business is attractive.
    • However, the company needs to clearly demonstrate its ability to achieve competitive drilling returns in its operated upstream business.
  • Southwestern Energy: To Explore Or To Exploit?
       • Thu, Sep. 11 SWN 6 Comments

    Summary

    • Shale exploration is a challenging, high risk/high reward undertaking that requires patience and commitment from both the operators and investors.
    • The article provides an overview of Southwestern’s key New Ventures and discusses the company’s exploration strategy.
    • The company’s vast exploration portfolio lends support to the thesis that shale exploration in North America is still only in the second inning.
  • 'Dry Gas' Utica: Another Impressive Result Announced
    Editors' Pick • Mon, Sep. 8 GST 15 Comments

    Summary

    • Gastar’s first operated well in deep dry gas window of the Utica/Point Pleasant play is a strong success.
    • While the well’s IP rate of ~29 MMcf/d from 25 frac stages is very impressive, the well’s longer-term performance will define the economics.
    • Gastar estimates drilling cost at $12 million per well.
    • The well extends the string of exceptionally strong well results in dry gas Utica play.
  • Chesapeake Energy: A Spin-Off For Southern Marcellus?
    Mon, Sep. 8 CHK 9 Comments

    Summary

    • Chesapeake may pursue a sale or spin-off of the Southern Marcellus.
    • A separation transaction would highlight the value of this large, high-quality but underfunded asset.
    • A successful spin-off could set a precedent for other assets in Chesapeake’s portfolio that could command high multiples as stand-alone companies.
  • Dominion Resources: A New 2 Bcf/D Pipeline For Marcellus And Utica Gas
       • Sat, Sep. 6 D 34 Comments

    Summary

    • Dominion, Duke, Piedmont and AGL Resources are joining forces to build a 1.5 Bcf/d (expandable to 2+ Bcf/d) Atlantic Coast Pipeline from Marcellus South.
    • The pipeline will cost $4.5-$5.0 billion and should reward Dominion and its partners with a profitable and strategically important growth opportunity.
    • The project enables additional investment opportunities for Dominion in attractive Virginia and North Carolina markets.
    • Dominion will continue to benefit from its position as a major natural gas midstream and downstream player in the Marcellus and Utica region for years to come.
  • Halcón Resources: Eagle Ford Update
       • Sat, Sep. 6 HK 18 Comments

    Summary

    • The article presents Halcón’s latest (through July, 2014) well performance data in the Eagle Ford play.
    • El Halcón production decline in July relative to the Q2 2014 average was expected and is driven by a trough in the completions schedule.
    • Halcon’s Eagle Ford drilling program will remain HBP-driven for at least another year. Significant well cost savings are expected thereafter.
    • El Halcón may prove to be a two-bench play.
  • SandRidge Energy: Does The Announced Stock Repurchase Contradict The 'Grow Into Debt' Plan?
    Fri, Sep. 5 SD 41 Comments

    Summary

    • SandRidge’s board of directors authorized a $200 million share repurchase program.
    • Given the company’s course to “grow into its balance sheet” in three years, the decision appears to be a step in a wrong direction.
    • The repurchase, if implemented, would translate into higher net debt and lower EBITDA.
  • Shell's Deep Utica Discovery Opens A New Chapter For Northeast Gas
    Editors' Pick • Thu, Sep. 4 RDS.A 34 Comments

    Summary

    • Shell made an important announcement of its exploration success in the deep dry Utica play in Pennsylvania.
    • Most notable is the tests' location in Tioga County, 100 miles northeast of the nearest horizontal Utica producer.
    • The discovery will likely open a new chapter in deep Utica exploration in Pennsylvania.
    • If successful, the play may add very substantially to the natural gas resource base in the Northeast.
  • EQT Corporation: Moving Ahead With A 2 Bcf/D Pipeline Project
    Wed, Sep. 3 EQT 1 Comment

    Summary

    • EQT and partner NextEra announced the decision to move ahead with a binding open season for their 2 Bcf/d Mountain Valley Pipeline project.
    • The development reinforces my initial thesis with regard to EQT's differentiated ability to support its upstream growth by direct participation in strategic midstream projects.
    • The project status was discussed in detail in my earlier article.
  • Royal Dutch Shell: A U-Turn In The Shale Business
       • Tue, Sep. 2 RDS.A 40 Comments

    Summary

    • In a series of rapid-fire divestitures, Shell substantially reduced its footprint in North American resource plays.
    • The exit from the dry gas business is particularly notable recent development that raises questions with regard to Shell's integrated gas concept for North America.
    • While Shell still retains select liquids-rich assets, the divestitures highlight the magnitude of the challenges that the oil major faced in executing its shale strategy.
  • Update: Goodrich Petroleum - Another Strong TMS Result
    Tue, Sep. 2 GDP 5 Comments

    Summary

    • Goodrich added another strong well result in the TMS.
    • Over a dozen new well announcements are expected in the next two months.
    • Demonstrating consistent execution is the most important element that can advance the play towards commerciality.
  • Natural Gas: Will The Haynesville Resurrect?
       • Sat, Aug. 30 APC, BHP, BX 33 Comments

    Summary

    • After two years of rapid declines, the Haynesville may again show production growth by the end of this year.
    • Ample takeaway capacity and access to premium natural gas pricing points define the Haynesville’s drilling economics.
    • Chesapeake Energy sees 100%+ effective drilling returns in the field, assuming $3.50/MMBtu NYMEX price.
    • However, expected returns vary strongly by operator, depending on acreage quality and midstream contract portfolio.
  • EQT Corporation: The Midstream Advantage
       • Thu, Aug. 28 EQT 7 Comments

    Summary

    • Based on a sum-of-the-parts analysis, EQT’s upstream business is one of the best values in the Marcellus/Utica E&P peer group.
    • The company is developing takeaway solutions in the Marcellus that may support production growth to over 3 Bcf/d by 2018.
    • The stock has a catalyst in the form of a potential monetization of the General Partner interest in the MLP.
    • The recently acquired Midland acreage has the potential to evolve into a second core operating area.
    • Despite the natural gas pricing headwinds in the Marcellus/Utica area, the stock's risk/reward profile appears skewed very favorably to the upside.
  • Update: Penn Virginia - Revises Production Guidance
    Mon, Aug. 25 PVA 4 Comments

    Summary

    • Penn Virginia provided updated production, capex and EBITDAX guidance for 2014. Preliminary 2015 guidance was also updated.
    • While the downward revision to 2014 guidance is material, the stocks compelling investment thesis remains intact.
    • This note provides comparison of the new guidance versus old and discusses implications for the stock.
  • Natural Gas: Is Henry Hub Obsolete As The National Price Benchmark?
    Mon, Aug. 25 AR, COG, ECR 13 Comments

    Summary

    • The changing structure of the market for natural gas makes price realizations by producers in the Marcellus/Utica region disconnect from traditional benchmarks.
    • The Henry Hub pricing no longer adequately describes producer economics or producer behavior in the increasingly important Northeast region.
    • While Henry Hub will preserve its prominence as the key national benchmark, a rival price benchmark in the Northeast may emerge with time.
  • Cabot Oil & Gas: Constitution Pipeline Schedule Slips Again; Stock Thesis Remains Intact
       • Sat, Aug. 23 COG 16 Comments

    Summary

    • The final Environmental Impact Statement for Constitution Pipeline is now expected by October 24, 2014, a two-month delay.
    • The lack of certainty with regard to the pipeline’s in-service date has been a significant headwind for Cabot’s stock.
    • Despite the Constitution delays, Cabot’s investment thesis remains intact.