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  • U.S. Oil Shales: Breakeven Oil Price Is A Tricky Concept [View article]
    June1234,

    Do you really believe that earth quakes are a serious concern?
    May 10, 2015. 07:49 PM | 4 Likes Like |Link to Comment
  • U.S. Oil Shales: Breakeven Oil Price Is A Tricky Concept [View article]
    BobJanjou,

    I would not judge to harshly - price realizations were very low ($38 for oil) and CLR is not hedged on the oil side at all. Also, it takes time to reduced the pace of spending.

    So the quarter is not an easy one, no doubt. A more important question, however, is how the financial results will look like going forward.
    May 10, 2015. 07:23 PM | 8 Likes Like |Link to Comment
  • U.S. Oil Shales: Breakeven Oil Price Is A Tricky Concept [View article]
    BobJanjou,

    Service companies will see some margin improvements as their own supply chain adjusts to the reality. Labor costs may contract a little bit as well (which is two thirds of the total cost).

    At the end of the day, an increase in E&P spending is the answer to the margin problem.

    Let's not forget also that it entire value chain is hurting, so no one is exempt (E&Ps including).
    May 10, 2015. 07:21 PM | 6 Likes Like |Link to Comment
  • SandRidge Energy: The Cash Pile Is Gone And Options Are Few [View article]
    Rawenergy,

    Thank you for the very helpful explanation of how the Trusts are consolidated and for very keen comments, as always.

    I think the biggest question really relates to the fully-loaded economic break-even point in the Miss Lime. Using SD as a proxy, the breakeven appears high on a fully loaded basis. The next few quarters are really important as they are likely to reveal the portfolio decline trajectory.

    After 1,500 wells drilled by SD alone (and probably a similar number by everyone else), it's probably time to see if there is enough proof of the pudding.

    P.S. Speaking of breakevens, I just posted a note:

    http://seekingalpha.co...
    May 10, 2015. 03:18 PM | 1 Like Like |Link to Comment
  • SandRidge Energy: The Cash Pile Is Gone And Options Are Few [View article]
    Scooter-Pop,

    I believe management commented on the conference call that the company has ample liquidity and no near-term bond maturities. I don't think there was any discussion of any specific leverage management strategy on the call.
    May 9, 2015. 08:25 AM | 2 Likes Like |Link to Comment
  • SandRidge Mississippian Trust II: Risk/Reward Appears Well Balanced [View article]
    ThomasForgt,

    Great questions.

    1) Terminal declines assumed in my model are substantially more conservative than what SandRidge showed for its own PUDs in its corporate presentation. I do not know how long are the production tails that are assumed in the Trust's reserve report, but assuming a 25-30 year life, the above model would equate to a one-quarter haircut to the 10K reserves. I should note, however, that the NPV impact should be less significant as the effective haircut impacts distant years more strongly than the front years.

    2) You are correct, all the wells have been drilled. I will re-post the models with the adjustment over the weekend.

    3) My understanding is that the trust will be in charge of the liquidation (not the unitholders). A case can certainly be made that if the wells hold their production well at that point, the theoretical value of the remaining production may be a bit higher than what I assumed in the model. However, the reality is that the market for stripper wells is very cruel. There are consolidators who purchase those type of assets for 2x-3x multiple of LTM cash flow (if that is the liquidation price, $0.25 per unit may be generous). Also, there may be some expenses at liquidation. Finally, the distribution is discounted over a 15-year period. So even if the liquidation distribution is $.50, we are talking about a difference of $0.08 per unit relative to the model assumption, using an 8% rate.
    May 8, 2015. 04:40 PM | Likes Like |Link to Comment
  • SandRidge Permian Trust: Bracing Up For Distribution Declines [View article]
    themeyergroup,

    I have assumed that the settlement is received in the same quarter, but what you are saying may be correct and I need to look deeper into details. Thank you for bringing it up. If an adjustment to the model if necessary, I will make the change and repost.

    In the meantime, here is a paragraph from the Trust's 10K that might help understand the time lag dynamics (there is no user-friendly explanation of the mechanics for the following quarters, so I guess one would need to extrapolate):

    "Net cash settlements received related to the Trust’s derivative contracts during the year ended December 31, 2014 were approximately $3.3 million, and included (i) approximately $1.2 million received related to the conveyed contracts for production attributable to the Royalty Interests from September 1, 2013 to August 31, 2014, (ii) approximately $1.6 million received from the counterparty to the novated contracts for production attributable to the Royalty Interests from October 1, 2013 to August 31, 2014 and (iii) approximately $0.5 million received from the counterparty related to the novated contracts for September 2014 production. Total net derivative settlements received by the Trust for production from September 1, 2013 to August 31, 2014 were $2.6 million, including the impact of $0.2 million paid in 2013 to the counterparty related to the novated contracts, which effectively increased the average price received for oil production for the related period by $1.98 per Bbl to $96.98 per Bbl. The effects of net settlements received during 2014 relating to September 2014 production were included in the Trust’s February 2015 distribution."
    May 8, 2015. 11:02 AM | 1 Like Like |Link to Comment
  • U.S. Shales - 'Fraclog' And 'Refracs' Are The Overused Terms Of This Earnings Season [View article]
    Aricool,

    I don't want to repeat my article or the above comments, so there is really little that I can add.

    Let me just say this: in the context of the massive rig decline that the industry has experienced, the new well supply is shrinking, not swelling. The "discretionary" inventory - that can be activated by operators quickly in response to prices - is a fraction of the total inventory. Whether it is 10% or 20% of the total, I don't know. But it is definitely not 50%.

    Moreover, operators have no need to react to price volatility via rushing to physically complete a big chunk of their backlog. First, it takes time to complete a well - one would need to line up frac crews and supply chain, etc. It is cheaper to mobilize a crew for a sequence of well, so completions certainly do not happen on one day or even one month. Second, operators will simply layer in additional hedges and then blend their completion backlogs into their integrated operating schedules.

    Again, smooth and steady - this is how I think the backlog will be brought online, certainly not as a spike in production of some sort. It's just not how operations work.
    May 8, 2015. 08:38 AM | 3 Likes Like |Link to Comment
  • SandRidge Permian Trust: Bracing Up For Distribution Declines [View article]
    Pablomike - good catch, thanks, should say slightly below.
    May 7, 2015. 12:39 PM | Likes Like |Link to Comment
  • Clayton Williams Energy: Resource-Rich, Capital-Constrained [View article]
    Pablomike,

    Personally, I don't see the hedges as a huge factor. They only hedged 1.7 million barrels. So even if they left $20 per barrel on the table (which for the time being looks improbably high), this is just $34 million. In the grand scheme of things, only a tactical loss. I am of a view that an asset play right now lives and dies by the sword of the oil macros (and geology, to some degree).
    May 5, 2015. 12:56 PM | 1 Like Like |Link to Comment
  • Linn Energy: Should One Bet The Farm On Commodity Prices? [View article]
    Rawenergy,

    Thank you for taking the time to share your observations. Very interesting.

    I increasingly sense that a series of acquisitions may be the route that the company may try to undertake. If you recall SandRidge's survival strategy in a somewhat similar situation, the company effectively issued a tremendous amount of equity via acquisitions (I would argue that issuing a similar amount in the market would not be possible). The Dynamic acquisition was clearly vastly overpriced, but the asset had a strong LTM cash flow, helping the optics.

    Obviously, the price that has to be paid in "survival" acquisitions is likely be high and asset quality is likely to be low (as sellers would have to be motivated to take the paper instead of cash or LINE would have to do a concurrent funding offering at a discount).
    May 5, 2015. 11:09 AM | 2 Likes Like |Link to Comment
  • Whiting USA Trust II Grossly Overvalued - Distribution To Be Slashed, Wells Are Unprofitable [View article]
    The Forensic Accountant,

    Thank you for the response. I have just looked up their financials.

    I think you were really referring to the Trust's "lease operating costs" (leasing costs is something else; also, the cost of leases is typically capitalized and flows through DD&A).

    "Lease operating costs" and "production costs" are two terms with almost similar meaning. Lease operating costs is more precise (when one says: "production costs," it is not always clear what line items are included).

    Other cash costs are typically transportation and processing (unless production is sold at the wellhead), severance taxes, G&A, etc.

    I would not call production or lease operating costs "fixed." A portion of those costs probably are fixed, but some are not.
    May 5, 2015. 09:49 AM | Likes Like |Link to Comment
  • Whiting USA Trust II Grossly Overvalued - Distribution To Be Slashed, Wells Are Unprofitable [View article]
    The Forensic Accountant:

    You wrote: "Last quarter, leasing costs accounted for nearly 85% of WHZ's operational costs. These costs are insensitive to changes in production, sales price, or revenues. So as revenues decline, leasing costs stay high and the distributable income is squeezed into nothingness."

    Further you wrote: "Understanding costs is the key to understanding and being confident in the forecast, so let's dig deeper. After leases, the remaining 15% of WHZ's operating costs are almost entirely production and development. For this quarter, the model assumes that production will be slashed by 40% and development by 50%."

    I am really confused. First, I thought the Trust was not allowed to lease anything, with all the production coming from the already existing and well defined leases. Are you sure they are paying that much for "leasing?"

    Then, you are suggesting that "the remaining 15% of WHZ's operating costs are almost entirely production and development." Are you sure that their production costs are less than 15% of their total operating costs? Can that be right? For a Trust?
    May 5, 2015. 07:32 AM | 2 Likes Like |Link to Comment
  • SandRidge Mississippian Trust II: Risk/Reward Appears Well Balanced [View article]
    Hi blackberryman,

    I am waiting to hear their report in two days. My primary focus right now is on oil macros with the newsletter - that's where the primary driving factor is at the moment, it appears (what's the point in splitting hair if there is a risk of missing the big picture) -- so I slowed down a bit on company-specific coverage.
    May 5, 2015. 07:05 AM | Likes Like |Link to Comment
  • U.S. Shales - 'Fraclog' And 'Refracs' Are The Overused Terms Of This Earnings Season [View article]
    Aricool,

    Thank you for sharing the link, you always provide terrific references.

    On DUCs, I am not sure I have a lot to add. I am certainly not denying the existence of inventory, but you saw my math and my interpretation. DUCS are a factor but a very minor one, in my opinion. Most importantly, I see it as part and parcel of the rig count (think of it as an extra 100 rigs still working - would it change the overall picture?).
    May 5, 2015. 05:53 AM | Likes Like |Link to Comment
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