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Cabot Oil & Gas: Beyond The Marcellus
- 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
- 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
- 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
- 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?
- 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?
- 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
- 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
- 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
- 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
- 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
- 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
- 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?
- 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
- 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?
- 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?
- 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
- 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?
- 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
- 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?
- 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
- 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
- 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?
- 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
- 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
- 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
- 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
- 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?
- 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
- 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
- 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?
- 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
- 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.