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Richard Zeits

 
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PRO Articles
PRO articles cover stocks that fly under most investors' radar screens.
  • Encana: Unhedged But Undeterred
     • Mon, Dec. 22 ECA 9 Comments

    Summary

    • Assuming average Nymex prices of $70 per barrel for oil and $4 per MMBtu for gas next year, Encana’s shares are trading at ~3.3x 2015 estimated pre-hedge cash flow.
    • The company has sufficient resources to execute its 2015 business plans without major curtailments even under a $55 oil/$3.50 gas scenario.
    • However, Encana still has a lot to prove with regard to the economic viability of its asset base in a low-price commodity environment.
    • At its current price, the stock represents an intriguing bet on a cyclical recovery in oil.
    • It would be natural to expect that Encana eventually streamlines its portfolio to the four most strategic assets, with divestitures providing funds for accelerated development.
  • Chesapeake Granite Wash Trust: Stress-Testing At $50 Per Barrel
     • Mon, Dec. 15 CHKR 13 Comments

    Summary

    • Oil over-hedging enhances distributions through Q3 2015. Subordination mechanism may remain in place through Q2 2017.
    • The Trust’s current $5.75 per unit price reflects ~$70 per barrel WTI and $4/MMBtu Henry Hub (based on Illustrative Scenario outlined in this note).
    • Uncertainty with regard to production decline in Granite Wash is significant.
    • At the current price, units offer a neutral risk-reward trade-off, in my opinion.
  • Triangle Petroleum: What Are The Assets Worth?
     • Thu, Dec. 11 TPLM 24 Comments

    Summary

    • This article attempts to estimate the long-term oil price effectively discounted in Triangle’s current stock price.
    • Illustrative value sensitivities are presented for a wide range of oil price assumptions.
    • The oil price cycle needs to be taken into account when valuing the shares.
  • Can EOG Resources Grow At 25% With Oil At $65?
     • Wed, Dec. 10 EOG 42 Comments

    Summary

    • EOG is very strongly positioned to weather a most severe oil price trough.
    • If oil price remained at $65 per barrel level, EOG would still be able to post oil production growth in 2015, without increasing debt level.
    • Given weak hedge protection in 2015, the company’s financial results will be volatile quarter to quarter.
  • Can Continental Grow At 25% With Oil At $65?
     • Mon, Dec. 8 CLR 38 Comments

    Summary

    • Continental’s current 2015 budget implies 23%-29% year-on-year production growth.
    • The company has sufficient drilling inventory that remains economic even at $65 per barrel.
    • Assuming no change in the price of oil, credit considerations will likely cause spending reductions throughout the year.
    • However, even assuming significant budget cuts, the company’s production will still likely grow in 2015.
  • SandRidge Permian Trust: Stress-Testing At $50 Per Barrel
     • Sat, Dec. 6 PER 33 Comments

    Summary

    • Subordination mechanism provides distribution protection through the end of 2015. Hedge protection is adequate in the near term but runs out after Q1 2015.
    • The Trust’s current $7.56 per unit price appears to discount ~$75 per barrel WTI (based on Illustrative Scenario outlined in this note).
    • Uncertainty related to production decline is significant.
    • At the current price, units offer a neutral risk-reward trade-off in my opinion.
  • Halcón Resources: Eagle Ford Production Regains Production Momentum
     • Sat, Dec. 6 HK 31 Comments

    Summary

    • Halcón’s latest (through October 2014) well performance data in the Eagle Ford is analyzed.
    • El Halcón gross production increased ~21% in October month-on-month.
    • Latest well results show continued improvement in the average IP-30 rate.
    • In the event of a protracted oil price decline, El Halcón may be able to compete for capital above $60 per barrel of WTI, based on current well results.
  • SandRidge Mississippian Trust II: Stress-Testing At $50 Per Barrel
     • Fri, Dec. 5 SDR 1 Comment

    Summary

    • Strong hedge position on the oil side provides distribution protection through the end of 2015.
    • The Trust’s current $4.96 per unit price appears to discount ~$85 per barrel WTI and $4/MMBtu Henry Hub (based on Illustrative Scenario outlined in this note).
    • At the current price, units offer a neutral risk-reward trade-off, in my opinion.
    • I estimate the next distribution at $0.37 per unit, driven by hedges.
    • Distributions per unit will likely decline strongly (to ~$0.15 per unit, assuming $85 oil) by mid-2016.
  • SandRidge Mississippian Trust I: Stress-Testing At $50 Per Barrel
     • Tue, Dec. 2 SDT 9 Comments

    Summary

    • Over-hedging on the oil side provides effective value protection against further oil price decline.
    • In the event oil price recovers quickly, the units should benefit from a positive investor sentiment for Oil & Gas equities.
    • At the current price, units offer a favorable risk-reward trade-off.
  • Southwestern Energy: A Major Financing On The Horizon?
     • Mon, Dec. 1 SWN 7 Comments

    Summary

    • A concurrent debt and equity offering to permanently finance the Chesapeake Acquisition may be imminent.
    • Southwestern is on the path to become a predominantly Marcellus Shale company, as measured by capital spending.
    • Active pursuit of New Ventures initiatives is questionable in the context of the company’s expanded development inventory.
  • Helmerich & Payne: The Downcycle Can Be An Opportunity
       • Mon, Nov. 24 HP 11 Comments

    Summary

    • H&P is well positioned to continue to increase its market share, despite the likely onset of downcycle market conditions.
    • The company’s "design, build and operate" business model is a distinct advantage in the equipment replacement cycle.
    • The stock is currently trading at close to rig replacement cost.
    • The stock price reflects demand levels that would be consistent with shale oil production growth.
  • EQT Corp: A Monetization Of GP Interest In EQT Midstream Partners May Be On The Way
       • Mon, Nov. 17 EQT 2 Comments

    Summary

    • EQT’s updated valuation suggests that the company’s Midstream assets may be worth over $10 billion.
    • The stock's current price is unlikely to recognize this valuation. Structural complexity may stand in the way.
    • EQT may soon announce a major strategic initiative aimed at highlighting the value of its GP interest in EQM.
    • The GP interest may be worth $4.6 billion, according to EQT.
  • Encana To Divest TMS Assets?
       • Sat, Nov. 15 ECA 12 Comments

    Summary

    • Athlon acquisition effectively pushed the TMS to a marginal position in Encana’s portfolio.
    • A divestiture of the TMS in 2015 is likely, in my opinion.
    • Strong recent well results and consistent execution make the asset potentially attractive to acquirers, assuming a meaningful oil price recovery.
  • Rice Energy: Dry Gas Utica Success Confirmed
       • Thu, Nov. 13 RICE 5 Comments

    Summary

    • Rice reported continued drilling success in the dry gas Utica play.
    • Two new wells are performing in line with the first well, the Bigfoot 9H. The Bigfoot is outperforming initial expectations.
    • The company provided a type curve for the play.
    • Firm transportation remains a critical component of the growth plan, with FT costs making a big dent in drilling returns.
  • Hess Corporation: Taking An Alternative Path In The Bakken
       • Thu, Nov. 13 HES 14 Comments

    Summary

    • Hess makes a compelling case for its low-cost completion design approach in the Bakken.
    • The company’s progress in well cost reductions and design optimization is impressive and presents an interesting case study of a resource play’s evolution.
    • The Bakken is by far the most important asset in the company’s portfolio with a multi-year growth trajectory.
  • Rosetta Resources: Hybrid Completions Show Strong Improvement In Well Performance
       • Tue, Nov. 11 ROSE 3 Comments

    Summary

    • Rosetta’s latest well results confirm the success of the modified frac that includes hybrid fluid design and increased proppant loadings.
    • The company expects Reeves County Wolfcamp A economics to be comparable to the Eagle Ford.
    • Preliminary 2015 budget reduced by ~20% relative to the earlier indication. Production still expected to grow by 20% year-on-year.
    • The company’s Q3 operating report provides a strong positive read-across to Clayton Williams.
  • Goodrich Petroleum: The TMS Is Making Steady Progress
       • Tue, Nov. 11 GDP 19 Comments

    Summary

    • Goodrich posted two strong TMS well results.
    • The company expects its typical well to yield 700 Mboe, with well-level returns in the 46% range, assuming $85 oil price and two-well pads.
    • Several additional wells are likely to be reported by Halcon and Encana next week.
  • Sanchez Energy: Excellent Early Results From Catarina
       • Tue, Nov. 11 SN 7 Comments

    Summary

    • Sanchez’s first 11 operated completions on the Catarina block beat previous operator’s results by 70% on average.
    • All the 11 wells are completed in the Upper Eagle Ford, which initially was viewed as the secondary target.
    • While additional production history and more wells will be needed to anchor a type curve, the early data is very encouraging.
    • The Catarina asset has the scale and quality to become the defining asset for Sanchez.
    • The company had ~$600 million of cash at the end of the third quarter.
  • SandRidge Energy: A Major Spending Cut On The Horizon
       • Mon, Nov. 10 SD 15 Comments

    Summary

    • SandRidge delivered a solid operating quarter, driven by strong NGL and natural gas volumes.
    • I estimate SandRidge’s cash balance at the end of 2014 to decline to ~$240 million.
    • This compares to $1.35 billion as of the end of February 2014.
    • The company’s 2015 capital budget will have to be reduced substantially below the initial ~$1.5 billion continued spending plan.
  • Halcón Resources: East Texas Eagle Ford Update - November 2014
       • Thu, Nov. 6 HK 13 Comments

    Summary

    • Halcón’s latest (through September) well performance data in the Eagle Ford is analyzed.
    • El Halcón production has remained approximately flat June through September; Q3 volumes may show ~10% decline from Q2.
    • Based on completion activity in September, I expect October volumes to increase ~6%-10% month-on-month, even if no new wells are turned to sales in October.
    • Given Halcón's acreage retention objectives and strong oil hedge portfolio in 2015, I do not expect significant slow-down of the company's drilling activity in El Halcón.
  • SandRidge Mississippian Trust II: Oil Volumes Drop Sharply
       • Wed, Nov. 5 SDR 4 Comments

    Summary

    • The Trust’s oil production reported for Q3 represents a major negative surprise, requiring another re-assessment of the units’ intrinsic value.
    • The transition to the new gathering contract leads to an uplift in natural gas sales price.
    • An illustrative financial model is included.
  • EXCO Resources: Still Waiting For An Operational Inflection Point
       • Tue, Nov. 4 XCO 7 Comments

    Summary

    • EXCO’s guidance midpoint for Q4 suggests very weak production and EBITDA growth, despite continued outspending.
    • Operational success in the Eagle Ford, which is yet to be demonstrated, is critical to the share price.
    • Leverage remains a challenge and a risk factor and may require additional balance sheet-enhancing initiatives.
  • SandRidge Mississippian Trust I: Oil Volumes Disappoint Again, But NGLs Provide An Uplift
       • Mon, Nov. 3 SDT 4 Comments

    Summary

    • The transition to the new gathering contract leads to an uplift in natural gas sales price.
    • The Trust’s hedges may make a significant contribution to the Trust’s distributions in the next several quarters.
    • An illustrative financial model is included.
  • Synergy Resources: Strong Production Growth Visible Through Fiscal Q2
       • Thu, Oct. 30 SYRG 6 Comments

    Summary

    • 27%-44% sequential production growth guidance for fiscal Q1 2015 confirmed with "upward confidence."
    • Production ramp-up will accelerate in fiscal Q2, with three large pads scheduled for tie-ins.
    • Strong well productivity and downspacing potential in the Wattenberg Core drive valuation.
    • Noble Energy's press release and conference call provide a positive read-across with regard to potential well density.
  • Carrizo Oil & Gas: Increasing Footprint In The Eagle Ford
       • Wed, Oct. 29 CRZO 10 Comments

    Summary

    • Carrizo acquires core-quality Eagle Ford acreage in a consolidating transaction.
    • The company continues to impress with solid execution and the ability to grow its asset footprint in its core areas.
    • The oil production beat in Q3 is significant, and highlights strong drilling results in the Eagle Ford.
    • Despite a slight miss on operating costs, Q3 will be a strong quarter from an operating perspective.
  • Cabot Oil & Gas: A 2016 'Story'
       • Tue, Oct. 28 COG 14 Comments

    Summary

    • Pricing outlook for 2015 in the Marcellus North remains challenging.
    • In the longer term, relief will come mostly from transporting gas out of the basin (Constitution, Atlantic Sunrise), not necessarily from local basis contracting, in my opinion.
    • While 2015 will be a slow-growth year, Cabot’s longer-term growth trajectory in the Marcellus remains intact.
    • The company’s Marcellus production will likely more than double by 2018, from ~1.5 Bcf/d (gross) during the latest quarter.
    • Q4 2014 is shaping up as a strong production quarter, with 2014 exit rate in the Marcellus expected in 1.8-2.0 Bcf/d range (gross).
  • Clayton Williams Energy: Valuation Compelling Again
       • Mon, Oct. 27 CWEI 4 Comments

    Summary

    • The note provides well performance data for Clayton Williams’ Eagle Ford and horizontal Wolfcamp wells.
    • Management believes both the Permian and Eagle Ford assets work in $80 per barrel oil price environment, with ~30% well-level returns.
    • After the correction, the shares again look compelling on value, assuming the oil price weakness is transitory.
    • The company’s two major resource play positions have strategic value and should help support the share price in a downcycle.
  • SandRidge Energy: A Challenging Quarter Report Ahead?
       • Fri, Oct. 24 SD 42 Comments

    Summary

    • Weak 24-hour test rates in Oklahoma in Q3 to date may indicate a slow-growth quarter.
    • Q3 2014 results may resemble the sequentially weak Q3 2013, when SD’s production in the Mississippian grew only 1% from the prior strong quarter.
    • Expect additional headwinds from sequentially weaker oil and natural gas price realizations and the drilling carries being fully utilized.
    • SandRidge will report Q3 results on November 5. Discretionary cash flow will likely decline sequentially and the Leverage Ratio show an uptick.
  • QEP Resources: Intrinsic Value Highlighted
       • Tue, Oct. 21 QEP 3 Comments

    Summary

    • The $2.5 billion price received in the Field Services divestiture is adequate.
    • The sale achieves the purpose of highlighting the stock’s intrinsic value.
    • QEP has ample liquidity to weather oil price decline and accelerate the delineation of its Permian asset.
    • Further divestitures are likely, although asset valuations may face headwinds.
  • Marcellus Differentials: What To Expect From The Earnings Season?
       • Tue, Oct. 21 UNG 18 Comments

    Summary

    • Investors should brace for a challenging reporting season as it relates to Marcellus- and Utica-focused stocks.
    • Price realization uncertainties going into Q4 and in 2015 will likely dominate conference call discussions.
    • While such uncertainties are transitory, very little assurance can be given with regard to the timing of the price relief.
    • So far, operators have shown little discipline curtailing production in the face of weak local demand and insufficient takeaway capacity.
  • Southwestern Energy: The Acquired Assets Are Top Quality, But Not Inexpensive
       • Fri, Oct. 17 SWN 30 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.