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Richard Zeits

 
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  • 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.
  • Crude Oil: What Happened To The Backwardation?
    Tue, Oct. 14 BNO, CRUD, DBO 6 Comments

    Summary

    • Seasonality of the driving demand and refinery turnarounds drive the decline in the oil price.
    • The disappearance of backwardation in the WTI curve provides an important insight into the nature of the current oil price correction.
    • The market's fixation on the price of the front month contract results in exaggerated concerns.
    • The Oil & Gas sector's fundamentals may have not changed in any significant way.
  • Oil & Gas Correction Scorecard: Have We Seen The 'Capitulation' Yet?
    Editors' Pick • Mon, Oct. 13 CVX, CWEI, ECR 80 Comments

    Summary

    • The lack of obvious current imbalance between global oil supply and demand puts in question the thesis that lower oil prices are economically required.
    • Having said that, shale oil has grown to become a significant supply factor and its impact on oil price needs to be anticipated.
    • The recent rapid decline in crude oil and, particularly, Oil & Gas stock prices appear exaggerated at this point.
    • However, forced position liquidations make individual price moves wide and erratic.
    • The article provides detailed correction scorecards by stock and by group versus commodities.
  • EXCO Resources: Interpreting A Cryptic Press Release
       • Mon, Oct. 13 XCO 5 Comments

    Summary

    • Is a material acquisition or potential merger under discussion?
    • Does EXCO need to diversify its asset base?
    • Would an asset footprint expansion benefit or hurt the stock?
  • WPX Energy: Re-Focusing On Bakken And San Juan Oil
       • Mon, Oct. 13 WPX 2 Comments

    Summary

    • WPX may divest its Marcellus assets - discussions appear to be underway already.
    • San Juan Gallup is emerging as WPX’s highest-return play and promises to become the company’s third major asset.
    • Progress in the Piceance Niobrara/Mancos play has been somewhat disappointing, reflecting technical challenges and high costs.
    • A more focused portfolio combined with return-based capital allocation makes strategic sense.
    • With the asset base offering ample running room, execution is the defining factor of success and stock price growth.
  • Natural Gas: Marcellus Pipeline Boom Sets Stage For A 30 Bcf A Day Tsunami
    Editors' Pick • Fri, Oct. 10 AR, BOIL, CHK 88 Comments

    Summary

    • Despite the very strong current imbalance between takeaway capacity and production potential in the Marcellus/Utica, takeaway capacity is not a limitation on production growth from the region.
    • Midstream infrastructure that is already in place provides a foundation for essentially unlimited - up to 30 Bcf/d and possibly even higher - production growth from the Northeast.
    • Such growth may materialize already by 2020 and will have no material impact on Henry Hub pricing.
  • Crude Oil: Has The Price Paradigm Changed?
    Fri, Oct. 10 USO, OIL 31 Comments

    Summary

    • Current correction in crude oil price may have run its course at this point.
    • A further major price decline would represent a fundamental shift in pricing of crude oil which, in my opinion, would not have apparent justification.
    • The current correction in fact falls within the “norm” of frequent recent corrections and may prove to be another stochastic aberration.
  • Patterson-UTI Energy: Navigating The Cycle
       • Thu, Oct. 9 PTEN Comment!

    Summary

    • At a 5.1x multiple of 2014E EBITDA, Patterson-UTI shares may appear attractively priced, given the significant unsatisfied demand for new-generation equipment.
    • However, the current pace of newbuilding may signal the approach of the next cyclical trough.
    • The market has tended to under-price Land Drilling stocks in the past going into cyclical downturns.
  • Encana: More Divestitures On The Horizon?
    Wed, Oct. 8 ECA 2 Comments

    Summary

    • The sale of 1.2 million coalbed methane acres and 180 MMcf/d of production in Alberta is unlikely to be the last in the series of divestitures by Encana.
    • The Athlon acquisition creates a need for significant amount of capital for development.
    • Additional gas assets are likely to be monetized.
    • Select oil and liquids-rich plays, such as Tuscaloosa Marine Shale, may also end up rationalized, in my opinion.
  • Oil & Gas Stocks: How Far Are We In This Correction?
    Editors' Pick • Wed, Oct. 8 BP, CHK, CLR 220 Comments

    Summary

    • The article provides peak-to-current declines comparison across various stock groups in the Oil & Gas Sector.
    • Equity-versus-commodity correlation is discussed.
    • Small-capitalization E&P groups, both oil- and gas- focused, appear to have the highest occurrence of “irrational” valuation swings.
  • SandRidge Mississippian Trust I: Valuation Compelling After The Correction
       • Tue, Oct. 7 SDT 34 Comments

    Summary

    • The risk/reward offered by the Trust’s units has shifted from unfavorable just several months ago to quite favorable currently.
    • Under Pessimistic Scenario discussed in the article, the units offer a ~9%-10% IRR to maturity, which, arguably, is a good return for this type of risk.
    • More optimistic scenarios suggest a substantially higher upside.
    • “Flatter than feared” production volumes in the next two quarters should not be ruled out and could become a powerful catalyst for the units.
    • I estimate the next quarterly distribution to be ~$0.23 per unit.
  • EXCO Resources: Compass Divestiture Simplifies Corporate Structure, Improves Credit Profile
    Mon, Oct. 6 XCO 39 Comments

    Summary

    • The divestiture is incrementally accretive to EXCO’s credit metrics and trading multiples.
    • The transaction simplifies EXCO’s corporate structure and monetizes a non-core, conventional portfolio with limited operating and strategic control.
    • EXCO’s stock has been among the most impacted by the recent Energy sector correction.
    • For the stock to recover, EXCO must demonstrate strong well performance in the Eagle Ford and viable economics in the Haynesville in sub-$4 natural gas price environment.
  • Halcón Resources: Is Testing The Upper Eagle Ford On The Agenda?
       • Mon, Oct. 6 HK 15 Comments

    Summary

    • Halcón’s latest (through August) well performance data in the Eagle Ford is analyzed.
    • El Halcón production has remained approximately flat since June; Q3 volumes may show a slight decline from Q2.
    • Evaluating Upper Eagle Ford potential, versus the Lower Eagle Ford results, may be the next step for Halcón.
  • WPX Energy: Argentina Challenges Explain Low Apco Valuation
    Editors' Pick • Fri, Oct. 3 WPX 1 Comment

    Summary

    • WPX is selling its 69% interest in Apco Oil & Gas and other international properties for $294 million.
    • The announcement delivers certainty with regard to the five month-long divestiture process in a challenging macro environment.
    • In a week from now, WPX will discuss its multi-year business strategy going forward.
  • Linn Energy: Divestitures Do Not Disappoint, But Look Dilutive On Cash Flow Metrics
    Fri, Oct. 3 LINE 42 Comments

    Summary

    • With the Granite Wash sale, LINN delivers on its promise to monetize high-value undeveloped acreage in its portfolio.
    • The price received in the divestitures announced today appears adequate.
    • However, the divestitures - including Exxon swaps - bridge only a small portion of the wide gap between the partnership’s PV-10 value of proved reserves and its current enterprise value.
  • Helmerich & Payne: How Long Will The Rig Replacement Cycle Last?
       • Fri, Oct. 3 HP 3 Comments

    Summary

    • Understanding the sector’s position in the cycle is critical to anticipating stock price direction of the U.S. Land Drilling stocks.
    • Newbuilding is a critical element of the sector’s business model and a significant factor impacting valuations.
    • H&P is expected to grow its FlexRig fleet by ~10% in 2015 year-over-year, in line with the company’s growth rate in the previous years.
    • The company is well positioned to sustain a high fleet growth rate and capture additional market share for a number of years.
  • Natural Gas: The 'Goldilocks' Storage Picture Is Masking Deep Containment In The Marcellus
    Editors' Pick • Thu, Oct. 2 AR, BOIL, CHK 53 Comments

    Summary

    • Natural gas supply and demand appear well-balanced, lending support to the Henry Hub stability thesis at ~$4/MMBtu.
    • New takeaway capacity schedule in the Northeast Region defines the trajectory of natural gas supply, and is the key driver to monitor.
    • Chesapeake sees no relief to the Marcellus North constrained situation in 2015, with gradual relief in 2016-2017.
  • EXCO Resources: What Just Happened?
    Thu, Oct. 2 XCO 45 Comments

    Summary

    • Today’s EXCO stock price collapse is likely explained by forced position liquidations.
    • Given the company’s predominant exposure to natural gas, oil prices do not represent the primary driver.
    • While risk and reward are now more balanced, it still difficult to think of the valuation as attractive.
    • The company must demonstrate operating success in the Eagle Ford and reverse production declines.
  • Goodrich Petroleum: A Positive TMS Update
       • Wed, Oct. 1 GDP 18 Comments

    Summary

    • Goodrich reported two new solid well results in the Tuscaloosa Marine Shale play.
    • The reported 24-hour IP rates underscore the growing consistency of well performance and operating execution in the play.
    • Goodrich introduced a new type curve based on the performance of "optimized" wells.
    • A plethora of new well results from Halcon, Encana and Goodrich is expected within a month.
  • Synergy Resources: Progress Report Indicates Execution Is Solidly On Track
    Tue, Sep. 30 SYRG Comment!

    Summary

    • New pad tie-ins are on schedule and suggest strong production ramp up in the first quarter of calendar 2015.
    • New well performance data points suggest continued strong performance and high returns.
    • Synergy has scheduled its fiscal Q4 2014 conference call for October 28.
  • What Does Encana's Acquisition Say About The Return Potential Of Its Existing Asset Base?
       • Tue, Sep. 30 ECA 11 Comments

    Summary

    • Encana is offering to acquire all of Athlon’s shares at a 25% premium over last Friday’s close.
    • While the quality of Athlon’s asset base is high, so is the acquisition price.
    • The transaction wipes out Encana’s cash resource that could have been directed at an accelerated development of the company’s existing vast asset base.
    • Generating an attractive return on the acquisition may be a challenge due to the high upfront price.
  • Devon Energy And Cimarex Energy Drive Cana's Strong Comeback
       • Tue, Sep. 30 XEC, DVN 2 Comments

    Summary

    • The new completion formula is redefining drilling returns and expanding economic boundaries in the Cana-Woodford play.
    • The article highlights value potential of this asset in Devon and Cimarex’s portfolios.
    • The Meramec and Springer Shales may open an important new development dimension, adding multi-year drilling inventories.
  • Synergy Resources: Exceptional Drilling Returns In The Niobrara
       • Tue, Sep. 30 SYRG 6 Comments

    Summary

    • Synergy impresses with its rapid operational ramp up and very strong well results in the Niobrara/Codell play.
    • The stock is trading at a moderate multiple of EBITDA and a strong discount to the potential full drill-out value of its inventory.
    • The company is in a strong position to keep its growth momentum for another several quarters and may continue to surprise with strong production increases.
    • The company will evaluate Greenhorn Limestone potential on its acreage based on the “encouraging” core analysis results.
    • Declining oil price and local overproduction are potential risks.
  • Magnum Hunter: Divesting The Bakken Is A Critical Path Item
       • Sat, Sep. 27 MHR 16 Comments

    Summary

    • Magnum Hunter is facing a formidable challenge of sourcing liquidity to fund its drilling program and acreage capture initiatives in the Utica and Marcellus.
    • The company may announce the first $100+ million batch of Bakken divestitures imminently.
    • Given significant funding needs, divestiture of the remaining Bakken assets in the near term will be needed.
    • The outcome and timing of the divestiture initiatives will be significant factors for the stock price in the near term.
  • 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.