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Richard Zeits

 
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PRO Articles
PRO articles cover stocks that fly under most investors' radar screens.
  • Southwestern Energy: The Acquired Assets Are Top Quality, But Not Inexpensive
     • Fri, Oct. 17 SWN 26 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.
  • 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.
  • 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 1 Comment

    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.
  • 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.
  • 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.
  • 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.
  • 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.
  • 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.
  • 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 5 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.
  • 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 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.
  • 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 28 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.
  • 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.
  • 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.
  • 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.
  • 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.
  • Halcón Resources: The Second TMS Well Comes In Strong
       • Fri, Aug. 22 HK 23 Comments

    Summary

    • Halcón made public test results for its second TMS East well, the Black Stone 4H-2.
    • On a per lateral foot basis, the result is in line with the play's cutting-edge IP rate.
    • Two additional wells, the Fassman 9H-1 and SD Smith 1H, have been successfully drilled and are now in the completion stage.
    • Halcón made a strong case for the TMS' potential to evolve into a highly successful play.