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A New Source Of Power For Tesla?
- 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
- 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?
- 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?
- 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
- 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
- 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
- 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?
- 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
- 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?
- 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?
- 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
- 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
- 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?
- 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
- 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
- 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?
- 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
- 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?
- 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
- 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
- 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?
- 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
- 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
- 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
- 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
- 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.