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Richard Zeits  

PRO Top Ideas
Top Ideas are high-conviction long or short ideas focused on market mispricings with asymmetric risk/reward profiles.
  • Linn Energy: In Need Of A $100 Oil And $4.50 Natural Gas
     • Tue, Feb. 24 LINE, LNCO 101 Comments

    Summary

    • Linn's capital spending and distributions will be effectively funded by derivative settlements in 2015, assuming the current strip pricing.
    • In the longer term, I estimate that a maintenance capital spending of $1.3-1.4 billion per year would be required to sustain production.
    • The reported year-end PV-10 value disappoints, raising renewed valuation concerns.
    • A long-term commodity price assumption of ~$100+ per barrel for WTI and ~$4.50+ per MMBtu Henry Hub appear to be required to justify the current price.
    • The units' risk/reward profile appears skewed to the downside.
  • Chesapeake Granite Wash Trust: Oil Volumes Disappoint; Recent Rally Creates Downside Risk
     • Thu, Feb. 19 CHKR 7 Comments

    Summary

    • Q4 2014 oil volumes came in substantially below my estimate, indicating continued weakness in well performance. There is a risk of a downward reserve revision in the year-end 2014 report.
    • Oil over-hedging enhances distributions through Q3 2015. The subordination mechanism may remain in place through Q2 2017. Once protections expire, distributions will contract sharply.
    • I estimate the distribution to decline 60-70% within 2 years (depending on commodity prices).
    • The Trust's current $8.19 per unit price reflects ~$110 per barrel WTI and $4.50/MMBtu Henry Hub (based on the illustrative scenarios outlined in this note).
    • At the current price, the risk-reward profile is skewed to the downside, in my opinion.
  • Exxon Mobil: Slow But Steady, Value Erosion Is Underway
       • Wed, Jan. 21 XOM 111 Comments

    Summary

    • Despite $100 oil and much higher capital spending, Exxon's oil production has continued to decline at a high rate.
    • When measured on a free cash flow basis, after adjusting for production declines, financial returns over the past five years were poor and the outlook remains bleak.
    • Even assuming the company will stabilize its liquids volumes, the stock appears dependent on $100+ oil to yield minimally acceptable free cash flow returns.
    • In a weaker price environment, Exxon may have to borrow to sustain dividends and share buybacks at the current level.
    • Exxon needs a radical Upstream strategy re-evaluation and deep cost reductions to restore competitiveness.
  • SandRidge Mississippian Trust I: Valuation Compelling After The Correction
       • Oct. 7, 2014 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.
  • Synergy Resources: Exceptional Drilling Returns In The Niobrara
       • Sep. 30, 2014 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.
  • EQT Corporation: The Midstream Advantage
       • Aug. 28, 2014 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.
  • Antero Resources: Rich Valuation Represents A Risk
       • Jul. 26, 2014 AR 10 Comments

    Summary

    • Antero’s strong stock performance has resulted in trading multiples that are among the highest among large-capitalization E&P stocks and among its Marcellus and Utica peers.
    • While the company's production growth guidance is impressive, it is to some degree a result of significant outspending of internal cash flow and does not represent an organic growth rate.
    • The risk to natural gas price realizations is elevated and may contribute to the stock's price correction.
  • Halcón Resources: Success In The TMS Redefines Upside Potential
       • Jun. 26, 2014 HK 29 Comments

    Summary

    • Recent drilling results in the Tuscaloosa Marine Shale, both by Halcón and other operators, indicate that the play’s ultimate success is increasingly probable.
    • A week ago, Halcón received an important endorsement of its TMS asset from Apollo Global Management in the form of the first tranche of a $400 million mezzanine financing.
    • Given the scale and quality of Halcón’s position in the TMS, the asset may prove defining for the stock’s valuation.
    • Factoring in the potential impact from the TMS, the stock’s risk/reward profile appears favorable.
  • Sanchez Energy: From 'Asset-Poor' To 'Asset-Rich'
       • Jun. 10, 2014 SN 7 Comments

    Summary

    • Sanchez emerged as the winning bidder on Shell's Eagle Ford assets. The purchase price is highly favorable to Sanchez.
    • In an optimistic scenario, the transaction could add over $1 billion to the stock’s intrinsic value.
    • From a strategic perspective, the acquisition fully resolves the company’s drilling inventory challenge.
    • Only a small portion of the potential upside is reflected in the post-announcement price move.
  • Kodiak Oil & Gas: A New Paradigm - A Moderate-Risk Development 'Story'
       • Apr. 15, 2014 KOG 26 Comments

    Summary

    • The article provides illustrative valuation analysis of Kodiak’s drilling inventory, including risks and upsides.
    • The stock is priced very reasonably relative to its value potential.
    • The transition into full development mode and substantially reduced operating risk should help to close the gap between the stock price and the underlying NAV.
  • SandRidge Energy: Disappointing Asset Sale Reinforces Valuation Concerns
       • Jan. 10, 2014 SD 84 Comments
  • Bill Barrett: The Niobrara And Uinta Upside
       • Jan. 7, 2014 BBG 13 Comments
  • Cabot Oil And Gas: 50% Growth And Free Cash Flow Shows The Stock's High Multiple Is Warranted
       • Dec. 24, 2013 COG 36 Comments
  • Comstock Resources: In Search Of New Growth
       • Dec. 18, 2013 CRK 4 Comments
  • Penn Virginia: Outlook Remains Strong Despite Recent Outperformance
       • Dec. 3, 2013 PVA 4 Comments
  • EXCO Resources: Fundamentals Remain Weak, Despite Leadership Change
       • Nov. 26, 2013 XCO 18 Comments
  • Carrizo Oil & Gas: Oil-Focused Portfolio With Assets In All The Right Places
       • Nov. 22, 2013 CRZO 13 Comments
  • SM Energy: Just Getting Started
       • Nov. 5, 2013 SM 11 Comments
  • Goodrich Petroleum: Transformation Underway
       • Oct. 22, 2013 GDP 6 Comments
  • Clayton Williams: Leveraged To Momentum In 2 Top Oil Plays
       • Oct. 22, 2013 CWEI 31 Comments
  • Forest Oil: Disappointing Asset Sale Raises Valuation Concerns
       • Oct. 8, 2013 FST 11 Comments
  • SandRidge Mississippian Trust I: Risk Of Downward Re-Pricing
       • Jul. 6, 2013 SDT 5 Comments
  • Penn Virginia: Strong Value Upside Driven By Quality Of Eagle Ford Assets
       • Jun. 19, 2013 PVA 18 Comments
  • QEP Resources: Bakken 'Monster' Wells Validate Strong Upside Potential
       • Jun. 6, 2013 QEP 19 Comments