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Richard Zeits

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  • The Debate Over Shale Oil Reserve Estimates Suggests EOG Resources Might Be A Good Short [View article]
    EOG "a rapidly expanding NG player"? Does NG stand for "natural gas"?
    Apr 6 04:27 PM | Likes Like |Link to Comment
  • The Debate Over Shale Oil Reserve Estimates Suggests EOG Resources Might Be A Good Short [View article]
    Dear Michael,

    I read your note with interest. While I do not agree or disagree with you main point that EOG is a good short, I am a bit surprised by the rationales that you are using to support this and other recommendations.

    "Most oil and gas investors have never heard of Jan Arps or seen his commonly-used formula for calculating Estimated Ultimate Recovery..."

    First, even if your assertion were true on its surface, I don't think it is valid in its substance. Well performance, production declines and EURs are typically analyzed and estimated by reserve engineers. It is a large and well established discipline. Suggesting that all estimates are overstated needs some substantiation. Investors do benefit from the knowledge and established practices and analytic standards developed and enforced by the industry. So, in substance, investors not only have "heard" of Arps math, but are routinely using a vastly more elaborate set of methods and practices (even if they do not know about it) when they listen to investor presentations or read 10-Ks.

    It is true, some investors would not be able to perform this type of analysis like professional reserve engineers can (equally, few investors are good forensic accountants). Many investors do not have same access to raw well performance data. However, based on my experience, the majority of energy-focused institutional investors and analysts can understand what stands behind the estimates and can think of these estimates critically. Reading your note, I almost get an impression that steep initial declines from fracked wells is a recent news and that the concept of a decline curve was first discovered in the article in Businessweek from last week that you refer to.

    "My personal view is that the Arps formula produces unreliable results for fracking, and investors should approach the area with caution."

    I wholeheartedly agree that investors should approach any area in investments with caution and avoid judgement based on superficial understanding. However, I do not agree with how you depict the process of estimating reserves (and drilling economics). In practice, this process is not (or, at least, should not be) a simple mechanical application of some mathematical formula - this would be a very simplistic and inadequate view of how the estimation is done by the industry.

    "My approach is buy oil & gas companies with diversified resource bases at prices of 5 to 7 times cash flows and reasonable balance sheets."

    I am surprised you are advocating to pay that high of a multiple. Every situation is different of course, but aren't there many well-established energy companies with diversified resource bases that are trading well below 5 to 7 times cash flows? 7x multiple, in my experience, is a sign of a high growth expectation.

    Just my to cents.

    Regards,

    Richard
    Apr 6 02:28 PM | 13 Likes Like |Link to Comment
  • Penn Virginia: Divestiture Announcement May Come As Early As This Month [View article]
    The transparent barrel,

    I would not be able to know. As I wrote, the data room is still open and it is a widely marketed divestiture. The asset is of good quality though, I can see high level of interest.
    Apr 5 04:24 PM | Likes Like |Link to Comment
  • Penn Virginia: Divestiture Announcement May Come As Early As This Month [View article]
    Pablomike,

    In fact future midstream rights have been an integral component of the majority midstream monetization transactions by E&P companies, from Chesapeake to the anticipated Antero deal. The structure and terms vary but the concept is almost universal. i should post a separate not on the subject - this is an interesting discussion theme.
    Apr 5 02:30 AM | 1 Like Like |Link to Comment
  • Apache Emerges As The Most Active Driller In East Texas Eagle Ford - Read-Across To Halcon, Clayton Williams And Comstock [View article]
    Bankstocks,

    You are making an important point - it would be incorrect to think of the East Texas Eagle Ford as a significant factor for APA's stock price. It may become more meaningful if the larger portion of APA's acreage position is proven productive. Not there yet.
    Apr 4 06:19 PM | Likes Like |Link to Comment
  • Penn Virginia: Divestiture Announcement May Come As Early As This Month [View article]
    Just a few additional thoughts on the timing of the anticipated divestiture announcement.

    Originally, the bids are due on April 10. Once all bids are in, it typically takes some time for the bids to be evaluated and, in select cases, negotiated before the PSA is signed. It is also fairly common for the seller's agent to extend bid deadlines to accommodate buyers in their process (due diligence, internal evaluation, approvals, financing, etc.) or to let more parties into the data room should interest prove strong.

    I should have stated more clearly in the article that the end of this month is the earliest when the results can be announced. More realistically, the announcement is a May event.
    Apr 4 12:44 PM | Likes Like |Link to Comment
  • SandRidge Energy: Sweet Spots And Duds Of The Mississippian Lime [View article]
    Pablomike - the article is on this site indeed. Here's an easy way to find it.

    You need to click on the my orange "zeits energy analytics" icon at the top of this article. It brings you to the author profile page. There, in the left-hand-side bar, click on "Articles." That will give you a list of articles. The one you are looking for is the number eight from the top.

    You can also use tickers at the top of that list to look up everything that an author wrote on a specific stock. Please note, many of my notes are not stock-specific. So you may wish to use the article list.
    Apr 4 12:12 PM | Likes Like |Link to Comment
  • Apache Emerges As The Most Active Driller In East Texas Eagle Ford - Read-Across To Halcon, Clayton Williams And Comstock [View article]
    Sailthesound, I certainly did take it as a well worded compliment - which I much appreciate. Thank you for taking the time to read and for the kind word. Glad it adds a cent to the bigger picture.
    Apr 3 06:24 PM | Likes Like |Link to Comment
  • SandRidge Energy: Sweet Spots And Duds Of The Mississippian Lime [View article]
    22023171,

    Thank you for the patience reading this lengthy note and for the kind word. Great observation on the Tapstone's purchase (by the way, I posted a lengthy discussion piece with well data on that transaction under "Mississippian Lime/Tom Ward" title last week - to the extent you have not seen it yet).
    Apr 3 06:21 PM | Likes Like |Link to Comment
  • Midstates Petroleum: CEO's Departure And Curious Math Of The Mississippian Lime [View article]
    220232171,

    Thank you for very thoughtful points. This is a very interesting discussion but I am afraid it has become more focused on SD.

    May I refer you to my another post that just came out on SandRidge (this morning). You may even repost your comments, they are terrific, even though I take a somewhat different angle - I am sure there will be a more lively exchange of opinions there.

    Again, thank you very much for commenting.
    Apr 3 06:02 PM | Likes Like |Link to Comment
  • SandRidge Energy: Sweet Spots And Duds Of The Mississippian Lime [View article]
    Bikerron1,

    I think it is a bit early to draw the final conclusion before finishing the analysis. Frankly, we should review all the wells for their performance - do the analysis from bottom up. There are many wells, but it can be done.

    Going from top down, I am very concerned by the fact that the company has to outspend its internal cash flow by $1 billion to generate a 26% production growth this year.

    When I look at companies like Kodiak and Cabot, I see that they grow fast. But they do so by spending essentially within their cash flow this year. That tells me that their assets are economic and generate strong returns that I can verify just by looking at corporate financial metrics. I have difficulty doing the same for SD.

    As to what this play has got going for it, there has been one big thing - terrific capital inflow. SD alone raised $2.3 billion re-selling undeveloped acreage via JVs and Trusts to Repsol, Atinum and many individual investors. Chesapeake raised $1 billion from Sinopec. Devon raised $2.2 billion from Sinopec, most of which went into the Miss and the underlying Woodford. Midstates raised money from bond markets... I can continue the list. Just adding across, it's $6-$7 billion in these transactions alone. Assuming average cost per well of $4.5 million (D&C + infrastructure), this is ~1,500 wells. Passive investors from outside paid for the vast majority of horizontal wells drilled in the play. From this perspective, the play has worked remarkably well.

    Now we need to see - by analyzing drilling returns - if it can stand on its own. IMO, the jury is still out.
    Apr 3 05:47 PM | 3 Likes Like |Link to Comment
  • SandRidge Energy: Sweet Spots And Duds Of The Mississippian Lime [View article]
    Craps2007,

    The Trust I (SDT) has all its leases in Oklahoma, none in Kansas (which is discussed above).

    The Trust II (SDR) has leases predominantly on the Oklahoma side as well, although there are select locations in Kansas. In Comanche, I can see two sections that may or may not be in the "gassy" area (I frankly doubt they are). Other Comanche locations are in the north-west corner that I discussed in the article and will profile in full detail in my next post.

    Unfortunately, neither SDT nor SDR provide a list of their wells which makes the analysis and verification difficult. In fact, I have found their disclosure very shallow.
    Apr 3 04:46 PM | 2 Likes Like |Link to Comment
  • SandRidge Energy: Sweet Spots And Duds Of The Mississippian Lime [View article]
    Mary,

    I do understand your point and I agree, Alfalfa and Grant (and every other area for that matter) should also be reviewed with similar attention and detail if we really want to learn something. I just cannot provide everything in one note. (It is a lot of meticulous work, may I mention. I would welcome you help.)

    I am not so sure if Alfalfa is a "sweet spot" as you suggest. I would like to review the facts first before reaching a conclusion. Alfalfa is the area of the most active drilling, but the economics of it is a totally different issue. Also, I disagree that Comanche "is mainly gas." What do you mean by that?
    Apr 3 03:25 PM | 2 Likes Like |Link to Comment
  • Midstates Petroleum: CEO's Departure And Curious Math Of The Mississippian Lime [View article]
    22023171,

    Good points. On SD I disagree though - SD did depend on Repsol, Atinum and two Royalty Trusts for $2.3 Bn in net proceeds from what was essentially a super-profitable acreage quick-flip (compared to the company's $3.2 market cap). And SD will depend on some sort of mechanisms that would allow activists to exit (Omega, TPG-Axon, Prem Watsa - just to name a few).
    Apr 3 02:48 PM | Likes Like |Link to Comment
  • Apache Emerges As The Most Active Driller In East Texas Eagle Ford - Read-Across To Halcon, Clayton Williams And Comstock [View article]
    TOT,

    Thank you for taking the time (and patience!) to read. And thank you for great comments.

    Regards,

    Richard
    Apr 3 02:39 PM | 1 Like Like |Link to Comment
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