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Steve Zachritz
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Steve Zachritz, "Zman", is an investor/trader who specializes in the energy sector. He has managed small cap growth portfolios, been an energy banker, and a sell side exploration and production analyst (Prudential and Jefferies) in his 20 years in the financial markets. His daily... More
My company:
Zman's Energy Brain, LLC
My blog:
Zman's Energy Brain
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  • NOG 3Q Follow Up - Free Post

    NOG Wrap Thoughts

    Record quarter for Production, Revenue, EBITDA. But all three were short of the Street. Why?

    Production came in at the low end of the company’s guidance range due to timing of higher working interest wells that fell later in the quarter and into October. Production was still up 30% sequentially and was up 111% on a year over year basis but the net number of wells brought on line during the quarter was lower than I (or apparently the sell side crowd) would have expected. Since NOG is a non-operator, they don’t have control of the drilling or completion schedules … that’s the operator’s decision. The operators, having just come off two weather weakened quarters and wanting to make their 3Q rates shine, would naturally choose to take their swollen list of drilled but not yet completed wells and frac their higher working interest wells first. Note that KOG, WLL, CLR, and OAS saw larger than usual sequential bumps in production …

    … they don’t do this by completing their lower interest wells first in the waiting on completion lists.

    Analysts will typically split any range you give them so most will be looking at a minor short fall vs their models on production and it filters down from their to yield a minor miss on EBITDA ($0.51 vs $0.53 consensus) and EPS ($0.19 vs $0.22 consensus).  In my view this is if anything little more than a timing hiccup. On the call, NOG did comment on coming higher LOE on a per unit basis, something they have mentioned on the last couple of calls attributed to the aging of wells in the play and we in fact seeing some inching up of LOE per BOE by the other Bakken Players. Estimates will come in slightly (should be no more than 10%) on this reiteration of LOE guidance.

    Was all this worth a 16% drop in the stock yesterday? Probably not but it had had a good run up into earnings and a miss, even a slight miss after a strong run and coincidentally timed with a 3.7% down market day is likely to lead to such events. Did I hear anything that made me want to quit my core position here? No, I went into the quarter with some written calls on some of my trading position and covered those for pennies. I haven’t bought yet because honestly the situation in Italy has a lot more to do with the next level for the stock price than does the story itself. The market sees a loss and it is unlikely to sort out the particulars until sometime in the next week or two. I may add today or next week or may just sit for a bit. The name is cheapish on an acreage basis and the game plan is on schedule.

    Nov 10 8:50 AM | Link | Comment!
  • Free Friday Post - NG Supply Slide Show Plus Catalyst Update Part II

    Market Sentiment Watch: Quarter end today, anything goes in this YoYo market but the open is negative on flat Chinese PMI. Please find in today’s post the Catalyst List Update, Part II, as well as the Natural Gas Supply Slide Show. Yesterday saw a record gas storage injection for this week of the year and data from the latest supply report indicate that a rollover in supply due to a falling gas rig count is not occurring just yet although their are two bright points that bulls can point too now (see the Natural Gas Slide show). For natural gas centric E&P names the news is at least a little better as higher production and falling unit costs work in their favor.  

    Ecodata Watch:

    • Personal Income (F = 0%),
    • Consumer Spending (F = +0.1%),
    • We get Chicago PMI at 9:45 am EST
    • We get Consumer Sentiment at 9:55 am EST (F = 57.6, last read was 57.3)

    In today’s post:

    1. Holdings Watch – See Positions tab
    2. Commodity Watch
    3. Natural Gas Inventory Preview
    4. Natural Gas Supply Slide Show – Data Through July 2011
    5. Stuff  We Care About Today – Catalyst List Update Part II
    6. Odds & Ends

    Commodity Watch

    Crude oil inched up $0.93 to close at $82.14 yesterday in a fairly directionless trading session. This morning crude is trading off about the same as it was up yesterday with weak equity market futures.

    • OPEC Watch: Cartel members espoused confidence that prices are falling due to speculators and that the weakness will be short lived. The OPEC basket of crudes is at $104, down with Brent from recent highs and I would expect Saudi to join Kuwait in quietly trimming production levels soon. If OPEC crude falls below $100 look for the confident talk to transition to a clamor of calls for an emergency session and production curtailments.

    Natural gas closed off 5 cents at $3.75 after the EIA reported a record high injection for this week of the year. Gas remains range bound. This morning gas is trading flat.

    • NG Supply Watch: See the charts below but in a nutshell:
      • “Other States” production set another record. It now accounts for 18% of total US Lower 48 onshore and offshore production combined and I think my tax dollars should be going to breaking out at least PA production.
      • Louisiana actually looks to be rolling over. It’s still at peak levels but with:
        • 1) the push for more liquids rich plays like the Eagle Ford coinciding
        • 2) with the end of the HBP acreage rush and
        • 3) a move to more conservative early well production with an eye towards EUR maximization and
        • 4) the exit by some of the players who have been big volume growth contributors
        • it appears that the state is set to begin declining this Fall (we’ll know in a couple more months) and into next year.
      • Gulf of Mexico production continues to slide:
        • The push on the Deepwater is not yet back
        • The push on the Shelf is transitioning from gas to oil targets
        • Government based delays continue to plague efforts in both
      • In aggregate gas production falling in LA and the Gulf of Mexico was offset largely by the growth in the “Other States” volumes. Growth there is not likely to recede soon especially as much of that growth is from wet Marcellus areas where the economics are considerably better than dry gas plays that are just getting Henry Hub prices.

    Natural Gas Review


    Natural Gas Supply Slide Show


    Stuff  We Care About Today

    Catalyst List Update – Part II

    Other Stuff:

    CRZO Signs Utica JV

    • Very small deal, numbers look odd at $1,500 per acre for the acquisition of 15,000.
    • CRZO very much the junior partner here with a 10% interest while its partner in the Marcellus, Avista, contributes the lion’s share of the capital.
    • Liquids rich part of the play.
    • CRZO becomes a Utica player (barely)

    Odds & Ends

    Analyst Watch:

    • SFY – Wunderlich starts at Buy
    Oct 01 11:40 AM | Link | Comment!
  • Wrap - Week Ended 7/29/11

    7  Months Down …

    1. Thanks D.C. For So Much Fun In The Markets This Past Week. While it was a trying week in the broader markets due to the ongoing political soap opera we noted several times in the last few weeks that the energy sector continues to behave as if an underlying bid is in place.  After three months of under-performance that shouldn’t be too surprising as fundamentals in almost all names in the growth oriented ZLT continue to improve (production is growing, prices are fairly stable and cost creep seems to have slowed). Note that this bid was in place prior to the  BHP for HK deal with buyers stepping in to rapidly reverse market inspired selling and some unfortunate shorts left standing when their music stopped (NOG, KOG). Note that the E&P and Oil Service sectors, our two primary areas of focus, outperformed on a relative basis vs the “Big Oil” of the XOI and the broad markets, a pattern that you’ll notice from the table below has been in place all year. The XOI has difficulty growing organically and refining cracks will come off their historically high levels and the Majors and independent refiners are already discounting this contraction.
    2. No Help From The Latest Supply Figures. See Monday’s post which will contain the monthly supply slide show for details.  Not surprisingly the non-commercials (speculators) remain quite short.
    3. Inventories Remain Price Supportive But Not Overly So:
      1. Natural Gas:  Inventories remain below year ago and five year average due to cold weather last year. More important for prices at present will be the aforementioned but elusive rollover in supply. We should get evidence of some slippage in key areas later this year as the impact of a liquids rich shift in the rig count takes firmer hold.
      2. U.S. crude and products: Down from last years levels due to:
        1. lower imports of crude partially offset by lower refinery throughput. Cushing remains elevated due to increased supply into OK with bottlenecks between the tanks and would be buyers, helping to depress WTI prices.
        2. lower production of light products but partially offset by lower demand, especially on the distillate side.
    4. How Are We Doing? July was an improvement over the second quarter but that’s not much of a hurdle to leap over.
      • YTD Results from the stock only portfolios
        • S&P500: + 2.8%
        • XLE :  +11.9%
        • ZLT A (taxable portfolio)   +43%, (+109% since inception 7/1/2008)
        • ZLT B (tax deferred portfolio)   +34%, (+705% since inception 9/1/2008)
        • ZLT C (the ESA accounts)   +19%

    Jul 30 11:19 AM | Link | Comment!
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