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Richard Zeits  

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  • Whiting Petroleum: With Oil At $50, Is It The Right Time To Pursue A Sale? [View article]
    User 28129073,

    Several considerations. I am paying attention to (and put in the spotlight) the assumption used by WLL. Second, the current Brent/WTI spread is very wide, which makes the Brent/Bakken differential very wide and, arguably, unsustainable in an environment where growth is slowing down (and a decline is possible).

    But at the end of the day every reader should use the assumptions to his or her own liking. That's why I provided a sensitivity table.
    Mar 10, 2015. 03:42 PM | 2 Likes Like |Link to Comment
  • Whiting Petroleum: With Oil At $50, Is It The Right Time To Pursue A Sale? [View article]
    Jnnick,

    I think your observation is very keen. The majors carry very heavy political risk that many investors may have gotten used to be comfortable with. But political risk is in the "black swan" category. Look at what happened to Youkos, for example. Or Exxon's assets in Venezuela.

    The biggest issue that I see is that the majors a yet to provide the answer to the new challenge that North American independents have presented them with in terms of the business model and operating efficiency benchmarks.
    Mar 10, 2015. 01:32 PM | 1 Like Like |Link to Comment
  • Rosetta Resources: Playing Defense [View article]
    Beabaggage,

    You are making a great observation - a ton of equity and bond issuance that has occurred in the past month is an indication that oil and gas operators are not counting on a quick recovery and are effectively hedging about even more painful downside.

    I would just add that the US oil production, while flexible and quick to respond to the price signal, is just a tiny portion of the global supply. US producers are not the price setters.
    Mar 10, 2015. 01:07 PM | 1 Like Like |Link to Comment
  • Rosetta Resources: Playing Defense [View article]
    Since this note was published, Rosetta completed an equity offering. The proceeds will be used in part to repay balances outstanding under the company's credit facility.

    The financing is a prudent, liquidity-enhancing move, with the equity dilution offset by the benefit of greater financial flexibility and safety.

    While Rosetta will preserve the availability under its credit facility, it will be able to avoid the constraints and risks associated with the maintenance covenants by having nothing drawn under it.

    The move has its price, but is logical and prudent, in my opinion. Given the stock's relatively high trading multiple, based on the discussion in the note, a case can be made that the offering was sold at a reasonable price.
    Mar 10, 2015. 12:32 PM | 1 Like Like |Link to Comment
  • Whiting Petroleum: With Oil At $50, Is It The Right Time To Pursue A Sale? [View article]
    Profit Propositions,

    I don't think that $75 is the industry's problem. $50 is, however.
    Mar 10, 2015. 08:46 AM | 2 Likes Like |Link to Comment
  • Whiting Petroleum: With Oil At $50, Is It The Right Time To Pursue A Sale? [View article]
    Profit Propositions,

    Two points here:

    First, capex needs to stabilize (for a few years, perhaps) so that we can use the run rate EBITDA as representative of their sustained cash flow.

    Second, costs need to stabilize so that we know what capex is really needed to generate, let's say, 10% sustained growth.

    In reality, I have to admit, the price of oil looks cyclical and we may not have the luxury of a stable picture.
    Mar 10, 2015. 08:22 AM | 1 Like Like |Link to Comment
  • Whiting Petroleum: With Oil At $50, Is It The Right Time To Pursue A Sale? [View article]
    Scooter-Pop,

    Safety and quality are important. But each time when I take a massive slide deck by a major oil company, I see a massive amount of futuristic pictures, while having difficult time digging out metrics that would be relevant to the actual economic performance and competitiveness.
    Mar 10, 2015. 08:17 AM | 3 Likes Like |Link to Comment
  • Whiting Petroleum: With Oil At $50, Is It The Right Time To Pursue A Sale? [View article]
    Scooter-Pop,

    The concept was certainly brilliant, but the reality raises some questions. Since the acquisition of XTO, XOM's US liquids production has been stagnant (despite some additional acquisitions, such as Denbury's Bakken assets for $1.6 billon). Natural gas production has been in decline.

    XOM shows a hockey-stick future growth in the U.S. liquids, but I have difficult time understanding, why could not it grow production (and value) during the time when oil was at $110? Maybe because everything that XOM touches becomes XOM?
    Mar 10, 2015. 07:59 AM | 1 Like Like |Link to Comment
  • Whiting Petroleum: With Oil At $50, Is It The Right Time To Pursue A Sale? [View article]
    Profit Propositions,

    EBITDA can be quite useful - if we know how to use it. :)

    Of course, I understand your point. I generally agree - what matters is EBITDA less what they call "maintenance capital." But as you point out, maintenance capital can be difficult to nail down as it is a function of where one is on the decline curve.

    I would argue, therefore, that it is difficult to avoid the type curve as a measure of the cash burn and the oil price threshold that you are referring to. And then if comes down to whether you trust the type curve or prefer to use a different one.

    Based on the typecurves that Whiting is showing, I don't think I can agree with your $75 figure.
    Mar 10, 2015. 07:54 AM | 3 Likes Like |Link to Comment
  • Whiting Petroleum: With Oil At $50, Is It The Right Time To Pursue A Sale? [View article]
    Sparky58701,

    The only issue is that the "big boys" would need to adapt their institutional cultures, modus operandi and costs structure to be able to succeed in the same business where companies like WLL have demonstrated very impressive results. The "big boys," for a variety of reasons, have a very mixed track record in this area.
    Mar 9, 2015. 10:08 PM | 2 Likes Like |Link to Comment
  • BreitBurn Energy Partners: What Are The Possible Alternatives For Resolving The Leverage Challenge? [View article]
    Hhmcdon,

    I would argue they have already remained "calm" since November and, in my opinion, have survived the most difficult trough where funds were flowing out of the sector (and any financing would have been difficult to complete).

    At some point, however, waiting may become a bet on a strong recovery in the price of oil. What if the trough lasts for another 18 months? Let's not forget that the company is continuously taking cash out of the system. There may be only $80 million available to repay debt this year.
    Mar 7, 2015. 12:36 PM | 4 Likes Like |Link to Comment
  • BreitBurn Energy Partners: What Are The Possible Alternatives For Resolving The Leverage Challenge? [View article]
    Pablomike,

    A bond financing may be expensive, given where the existing bonds are trading. Moreover, if I were a bond investor, I would ask the question: what happens if oil prices stay at $70 for good?

    The risk of a negative borrowing base redetermination is obviously not the only issue. Leverage is high, relative to the value of assets. In an ideal world, the financing strategy should be designed to address all the issues rather than provide a temporary band-aid.
    Mar 7, 2015. 10:45 AM | Likes Like |Link to Comment
  • BreitBurn Energy Partners: What Are The Possible Alternatives For Resolving The Leverage Challenge? [View article]
    Hhmcdon,

    Thank you for taking the time to read. The parallel with Seadrill is to highlight a precedent where a respectable company (with a highly regarded major shareholder on board) fully suspended the distribution in the face of the macro uncertainty. One can debate if they had alternatives, but they did choose to suspend distributions.
    Mar 7, 2015. 10:25 AM | 3 Likes Like |Link to Comment
  • BreitBurn Energy Partners: What Are The Possible Alternatives For Resolving The Leverage Challenge? [View article]
    fliper2058,

    I believe that the company is expecting a reduction of the borrowing base but perhaps not below the level of the current borrowing (that, in the absence of some exception by banks, would trigger a need for prompt refinancing).

    It is logical to expect that senior lenders will be supportive (but I can imagine an informal expectation that the company would do its part).
    Mar 7, 2015. 10:20 AM | 3 Likes Like |Link to Comment
  • Crude Oil: EIA Petroleum Stocks - From Full To Fuller [View article]
    Long Oil,

    I agree in general, with one reservation. Refineries, obviously, cannot process more oil than the market needs in terms of end products. So refinery utilization is to a great degree a function of demand, not a reflection of the lack of willingness to increase volumes and collect more profit. The 3-2-1 spread narrows as one moves further out on the curve.

    As a side note, the 3-2-1 spread is a very rough proxy for the refining margin. Please keep in mind that the majority of refineries are complex and often have to use waterborne crude (which the US is still importing 7 million barrels). So I would be careful using the WTI as the sole input. It distorts the picture.
    Mar 6, 2015. 09:24 AM | Likes Like |Link to Comment
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