Richard Zeits's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.com/user/3775371/comments http://seekingalpha.com/article/1428281/comments?source=feed#comment-18814171 18814171
The depth and cost are essentially the same - vertical thickness of the entire "sandwich" is 300 feet or less. So it is really a matter of what are the best intervals to target. If the productivity of deeper benches turns out low relative to the Middle Bakken and TF1, than the answer is trivial - deeper benches will be put on the back burner. If, on the other hand, we seem more results like EOG's, the play may see major shifts in development plans, at least in those areas where lower benches show strong results.]]> Tue, 14 May 2013 12:30:47 -0400
The depth and cost are essentially the same - vertical thickness of the entire "sandwich" is 300 feet or less. So it is really a matter of what are the best intervals to target. If the productivity of deeper benches turns out low relative to the Middle Bakken and TF1, than the answer is trivial - deeper benches will be put on the back burner. If, on the other hand, we seem more results like EOG's, the play may see major shifts in development plans, at least in those areas where lower benches show strong results.]]> http://seekingalpha.com/article/1428281/comments?source=feed#comment-18795191 18795191
There are several separate issues here though. One is vertical communication. Are TF1 and TF2 parts of the same reservoir or are they separate reservoirs? In other words, if a lateral is landed in TF1 and fracs are "local," does it still drain, at least to some extent, the TF2? CLR's null hypothesis seems to be that the TF1 and TF2 are separate reservoirs.

Second issue is how to produce most efficiently and what wellbore pattern would yield the highest return on capital. I would think this is as much a petrophysical question as it is a technological question. Frac designs and process will probably evolve to accommodate the new requirements.]]> Mon, 13 May 2013 23:48:24 -0400
There are several separate issues here though. One is vertical communication. Are TF1 and TF2 parts of the same reservoir or are they separate reservoirs? In other words, if a lateral is landed in TF1 and fracs are "local," does it still drain, at least to some extent, the TF2? CLR's null hypothesis seems to be that the TF1 and TF2 are separate reservoirs.

Second issue is how to produce most efficiently and what wellbore pattern would yield the highest return on capital. I would think this is as much a petrophysical question as it is a technological question. Frac designs and process will probably evolve to accommodate the new requirements.]]> http://seekingalpha.com/article/1428281/comments?source=feed#comment-18783731 18783731
I think both KOG and CLR are trying to figure out the degree of communication and the optimal development pattern. CLR just seems to be doing it most comprehensively (and is spending serious exploration capital doing such science).

Vertical distance between lateral positions in TF1 and in TF2 is less than 50 feet - clearly, there can be a lot of communication if two powerful frac jobs are positioned exactly on top of each other. In reality, completions will be staggered and likely "simul-fracked" to avoid pressure sinks and minimize the overlap of fracture networks.

It seems it would take some serious testing and "array" optimization before one can conclude at what spacing the loss of production to communication becomes uneconomic. It is also a 3D problem that the industry has not faced before.

From CLR's commentary it does indeed sound that they are optimistic about the outlook. Their 160-acre pattern looks very aggressive.

With regard to COP's sale, they still have a formidable position in the central part of the basin.]]> Mon, 13 May 2013 17:32:58 -0400
I think both KOG and CLR are trying to figure out the degree of communication and the optimal development pattern. CLR just seems to be doing it most comprehensively (and is spending serious exploration capital doing such science).

Vertical distance between lateral positions in TF1 and in TF2 is less than 50 feet - clearly, there can be a lot of communication if two powerful frac jobs are positioned exactly on top of each other. In reality, completions will be staggered and likely "simul-fracked" to avoid pressure sinks and minimize the overlap of fracture networks.

It seems it would take some serious testing and "array" optimization before one can conclude at what spacing the loss of production to communication becomes uneconomic. It is also a 3D problem that the industry has not faced before.

From CLR's commentary it does indeed sound that they are optimistic about the outlook. Their 160-acre pattern looks very aggressive.

With regard to COP's sale, they still have a formidable position in the central part of the basin.]]> http://seekingalpha.com/article/1428281/comments?source=feed#comment-18770001 18770001
Thank you for your expert insight, much appreciated.]]> Mon, 13 May 2013 13:13:21 -0400
Thank you for your expert insight, much appreciated.]]> http://seekingalpha.com/article/1428281/comments?source=feed#comment-18757671 18757671
Sorry, it is just a formatting glitch. Those companies on the list at the end of the article that do not have tickers next to them have been mentioned in the article, with tickers serving as "links" to the company-related materials. I guess the electronic editing software simply eliminated duplicative links and the tickers got lost.]]> Mon, 13 May 2013 09:06:07 -0400
Sorry, it is just a formatting glitch. Those companies on the list at the end of the article that do not have tickers next to them have been mentioned in the article, with tickers serving as "links" to the company-related materials. I guess the electronic editing software simply eliminated duplicative links and the tickers got lost.]]> http://seekingalpha.com/article/1428281/comments?source=feed#comment-18756841 18756841
I think this discussion is very specific to the Bakken. But you are absolutely right - the development of oil resource plays in North America is its very first inning. As I wrote in several of my erlier notes here on SA, the opportunity set is tremendous, there is no shortage of land available for explorationm, and many plays are multi-stack. We are just getting started.]]> Mon, 13 May 2013 08:49:34 -0400
I think this discussion is very specific to the Bakken. But you are absolutely right - the development of oil resource plays in North America is its very first inning. As I wrote in several of my erlier notes here on SA, the opportunity set is tremendous, there is no shortage of land available for explorationm, and many plays are multi-stack. We are just getting started.]]> http://seekingalpha.com/article/1428281/comments?source=feed#comment-18756691 18756691
I think it's a bit premature to think of an estimate, with just a dozen wells down. It will probably strongly depend on location. However, in certain areas - as EOG's comment indicates - TF2 may add another "leg" to the reserves and be as big as TF1 or even bigger.

The important question remains, can one extract oil without cannibalizing production from the near-by horizon. Continental is running exceptionally aggressive high-density tests. The tenor of their commentary has been very optimistic. We should know some preliminary results by the end of this year and will have some confidence by the end of 2014.

Most optimistically, TF2 may have the same impact on the play that TF1 had five yeas ago.]]> Mon, 13 May 2013 08:46:16 -0400
I think it's a bit premature to think of an estimate, with just a dozen wells down. It will probably strongly depend on location. However, in certain areas - as EOG's comment indicates - TF2 may add another "leg" to the reserves and be as big as TF1 or even bigger.

The important question remains, can one extract oil without cannibalizing production from the near-by horizon. Continental is running exceptionally aggressive high-density tests. The tenor of their commentary has been very optimistic. We should know some preliminary results by the end of this year and will have some confidence by the end of 2014.

Most optimistically, TF2 may have the same impact on the play that TF1 had five yeas ago.]]> http://seekingalpha.com/article/1428281/comments?source=feed#comment-18756561 18756561
I have no knowledge if Statoil or Hess have the tested lower benches. Clearly, a lot of wells would not be released from confidential status for quite some time.

The spacing does not matter too much at this point, IMO - productivity needs to be proven first. Once there is confidence that TF2 works just as well as TF1, at least in certain areas, the entire productive "sandwich" would need to be optimized for density, the way CLR, KOG, WLL and other are doing in their pilots.

If TF2 productivity is not competitive, it may not even be drilled at this time.]]> Mon, 13 May 2013 08:41:00 -0400
I have no knowledge if Statoil or Hess have the tested lower benches. Clearly, a lot of wells would not be released from confidential status for quite some time.

The spacing does not matter too much at this point, IMO - productivity needs to be proven first. Once there is confidence that TF2 works just as well as TF1, at least in certain areas, the entire productive "sandwich" would need to be optimized for density, the way CLR, KOG, WLL and other are doing in their pilots.

If TF2 productivity is not competitive, it may not even be drilled at this time.]]> http://seekingalpha.com/article/1428281/comments?source=feed#comment-18749551 18749551 Mon, 13 May 2013 00:44:10 -0400 http://seekingalpha.com/article/1421471/comments?source=feed#comment-18655541 18655541
That is great color. I have not thought about RTC value, this is really interesting.]]> Thu, 09 May 2013 21:14:27 -0400
That is great color. I have not thought about RTC value, this is really interesting.]]> http://seekingalpha.com/article/1421471/comments?source=feed#comment-18649981 18649981
I am perhaps more optimistic. A garage sale is a healthy process, in most cases. It cleans the house and helps focus attention on the core operation.

There is one important aspect to CHK: its market cap is not that large (in fact, smaller than COG's or RRC's). At the same time, the producing asset base is very significant.

CHK is certainly not a simple asset portfolio to get one's hands around (and a partial short sale may in fact be not unexpected to simplify the story). But I am not prepared to think of it as an implosion of some sort. ]]> Thu, 09 May 2013 18:23:18 -0400
I am perhaps more optimistic. A garage sale is a healthy process, in most cases. It cleans the house and helps focus attention on the core operation.

There is one important aspect to CHK: its market cap is not that large (in fact, smaller than COG's or RRC's). At the same time, the producing asset base is very significant.

CHK is certainly not a simple asset portfolio to get one's hands around (and a partial short sale may in fact be not unexpected to simplify the story). But I am not prepared to think of it as an implosion of some sort. ]]> http://seekingalpha.com/article/1417741/comments?source=feed#comment-18638531 18638531
Very interesting, insightful research report.

Just one question on earnings numbers. Your article states:

"Net income amounted to $15 million or 30 cents per share which were above investors' expectations."

Newsline I googled said the per share number is 2 cents. How many shares are there?

You also state:

"Production expenses for the current quarter declined by 18% and is to follow a similar trend in the near future."

This sounds really terrific, particularly the trend. How do you calculate the cost? Could you please provide some back up data/references/links to the source?

You further stated:

"Capital expenditure is expected to be in line with the budget."

Did you mean to compare capital expenditure to discretionary cash flow?

I was particularly intrigued by the Ohio Shale Project:

"Chesapeake announced 9% increase in production mainly attributed to the Ohio Shale Project and its strategic investment decisions."

Could you please provide some detail on the Ohio Shale Project and on the "strategic investment decisions." I really would like to understand the 9% number you are quoting. A link to the source would be very helpful too.

Many thanks indeed in advance for clarifications and thank you for an interesting read.]]> Thu, 09 May 2013 14:51:46 -0400
Very interesting, insightful research report.

Just one question on earnings numbers. Your article states:

"Net income amounted to $15 million or 30 cents per share which were above investors' expectations."

Newsline I googled said the per share number is 2 cents. How many shares are there?

You also state:

"Production expenses for the current quarter declined by 18% and is to follow a similar trend in the near future."

This sounds really terrific, particularly the trend. How do you calculate the cost? Could you please provide some back up data/references/links to the source?

You further stated:

"Capital expenditure is expected to be in line with the budget."

Did you mean to compare capital expenditure to discretionary cash flow?

I was particularly intrigued by the Ohio Shale Project:

"Chesapeake announced 9% increase in production mainly attributed to the Ohio Shale Project and its strategic investment decisions."

Could you please provide some detail on the Ohio Shale Project and on the "strategic investment decisions." I really would like to understand the 9% number you are quoting. A link to the source would be very helpful too.

Many thanks indeed in advance for clarifications and thank you for an interesting read.]]> http://seekingalpha.com/article/1411841/comments?source=feed#comment-18579971 18579971
Thank you for taking the time to read, delighted you found the notes helpful.]]> Wed, 08 May 2013 11:30:24 -0400
Thank you for taking the time to read, delighted you found the notes helpful.]]> http://seekingalpha.com/article/1411841/comments?source=feed#comment-18577351 18577351
EURs are clearly very relevant. However, it is often difficult to conclude if acreage is "core" before drilling wells. ]]> Wed, 08 May 2013 10:42:06 -0400
EURs are clearly very relevant. However, it is often difficult to conclude if acreage is "core" before drilling wells. ]]> http://seekingalpha.com/article/1411841/comments?source=feed#comment-18565191 18565191
Thank you for taking the time to read, delighted you found this note useful. CHK is clearly still "a company in transition," with a lot of challenges, but I think it has a lot of valuable assets. Existing production is obviously the most significant one. Drilling inventory that is already HBP (or will be soon) is also vast. I don't want to opine on their stock valuation in a comment (would take a detailed article to substantiate arguments), but I sense they may be worth evaluating even at these price levels (I guess, one would need to take a view on the gas price, among other things...)]]> Wed, 08 May 2013 00:52:02 -0400
Thank you for taking the time to read, delighted you found this note useful. CHK is clearly still "a company in transition," with a lot of challenges, but I think it has a lot of valuable assets. Existing production is obviously the most significant one. Drilling inventory that is already HBP (or will be soon) is also vast. I don't want to opine on their stock valuation in a comment (would take a detailed article to substantiate arguments), but I sense they may be worth evaluating even at these price levels (I guess, one would need to take a view on the gas price, among other things...)]]> http://seekingalpha.com/article/1411841/comments?source=feed#comment-18564531 18564531
Sorry if I have caused any confusion. Let me try again. I think of the "shortfall" as capital needs in excess of internally generated cash flow; for the entire year it can be as high as ~$3.5 bn (that was my read from the call based on updated cash flow guidance). The $135 million in net proceeds from the divestiture of Marcellus properties is ~2.5% of the midpoint of CHK's total target for the year ($5.5 bn). Hence, the amount is "hardly enough to move the needle" in the context of this much larger asset sales target. Am I wrong?

You are absolutely right, the company has made progress in generating proceeds from property sales and I am sure will report more transactions. I really don't think the sentence you are referring to contains anything to contradict that (certainly was not meant to).]]> Wed, 08 May 2013 00:06:24 -0400
Sorry if I have caused any confusion. Let me try again. I think of the "shortfall" as capital needs in excess of internally generated cash flow; for the entire year it can be as high as ~$3.5 bn (that was my read from the call based on updated cash flow guidance). The $135 million in net proceeds from the divestiture of Marcellus properties is ~2.5% of the midpoint of CHK's total target for the year ($5.5 bn). Hence, the amount is "hardly enough to move the needle" in the context of this much larger asset sales target. Am I wrong?

You are absolutely right, the company has made progress in generating proceeds from property sales and I am sure will report more transactions. I really don't think the sentence you are referring to contains anything to contradict that (certainly was not meant to).]]> http://seekingalpha.com/article/1399251/comments?source=feed#comment-18461701 18461701
Thank you for the kind word.

Just one comment. I would not call it a firesale - that would imply that assets CHK is selling have substantially higher value than the company has been able to realize. In reality - and that is, in my impression, the greatest misperception - some of the acreage, even in the more exciting plays, has very little value. The simple explanation - it physically cannot be drilled before expiration deadline, by CHK or by a potential buyer. I will provide explanation in my next note. ]]> Sun, 05 May 2013 11:35:00 -0400
Thank you for the kind word.

Just one comment. I would not call it a firesale - that would imply that assets CHK is selling have substantially higher value than the company has been able to realize. In reality - and that is, in my impression, the greatest misperception - some of the acreage, even in the more exciting plays, has very little value. The simple explanation - it physically cannot be drilled before expiration deadline, by CHK or by a potential buyer. I will provide explanation in my next note. ]]> http://seekingalpha.com/article/1388441/comments?source=feed#comment-18343331 18343331
I am not familiar with them, looks like they are a small company.]]> Thu, 02 May 2013 02:39:05 -0400
I am not familiar with them, looks like they are a small company.]]> http://seekingalpha.com/article/1388441/comments?source=feed#comment-18335131 18335131
I cannot give you specific numbers, but I have little doubt that there is enough potential drilling inventory in the U.S. and Canada to substitute all the oil imports in a relatively short period of time (perhaps several years if an economic incentive is there). Clearly, it takes time to optimize drilling techniques and understand each play's geology and petrophysics. But please keep in mind that the industry has only started attacking oil shales with new technology.

My bigger point, the industry does not depend just on one or two unique plays - it is increasingly obvious that many more plays are on their way. Even if some will have only limited scale, it all adds up.]]> Wed, 01 May 2013 18:19:23 -0400
I cannot give you specific numbers, but I have little doubt that there is enough potential drilling inventory in the U.S. and Canada to substitute all the oil imports in a relatively short period of time (perhaps several years if an economic incentive is there). Clearly, it takes time to optimize drilling techniques and understand each play's geology and petrophysics. But please keep in mind that the industry has only started attacking oil shales with new technology.

My bigger point, the industry does not depend just on one or two unique plays - it is increasingly obvious that many more plays are on their way. Even if some will have only limited scale, it all adds up.]]> http://seekingalpha.com/article/1388441/comments?source=feed#comment-18333141 18333141
I believe investors learn fairly fast and are savvy enough nowadays to distinguish between a million acres on paper and a substantiated drilling plan in the "core of the core" of a delineated economic play. CHK is a case in point: the company commented today that the size of their "core of the core" positions is often a fraction of total acreage in some plays (in the Marcellus, 100,000 acres out of a total of 1,500,000, for example). Yet, the stock did not budge. I guess, investors had known all the way along and already priced this into the stock.]]> Wed, 01 May 2013 17:15:53 -0400
I believe investors learn fairly fast and are savvy enough nowadays to distinguish between a million acres on paper and a substantiated drilling plan in the "core of the core" of a delineated economic play. CHK is a case in point: the company commented today that the size of their "core of the core" positions is often a fraction of total acreage in some plays (in the Marcellus, 100,000 acres out of a total of 1,500,000, for example). Yet, the stock did not budge. I guess, investors had known all the way along and already priced this into the stock.]]> http://seekingalpha.com/article/1388441/comments?source=feed#comment-18332691 18332691
The stratigraphic stack is full of potential plays in that area but I would guess you are referring to the Cline. I've heard they do not have enough housing in the area to accommodate the oil patch personnel. If that is any indication, I guess the Cline's gotta be pretty big. :)]]> Wed, 01 May 2013 17:06:39 -0400
The stratigraphic stack is full of potential plays in that area but I would guess you are referring to the Cline. I've heard they do not have enough housing in the area to accommodate the oil patch personnel. If that is any indication, I guess the Cline's gotta be pretty big. :)]]> http://seekingalpha.com/article/1388441/comments?source=feed#comment-18323771 18323771
Thank you for taking the time to read and for the kind word. I have no positions one way or another in the sector I cover. It's just the way I do it. Since I provide a lot of research and analysis, I prefer to completely eliminate bias and perception of possible conflict of interest (even if it just optics). I know it's a trade-off, but I like staying conservative on this.

Also, while I hope that my notes are helpful to investors, I often have to leave it to readers to manage their investment thought process (unless the note is specifically focused on valuation or any other of the many aspects of investment analysis).]]> Wed, 01 May 2013 14:05:33 -0400
Thank you for taking the time to read and for the kind word. I have no positions one way or another in the sector I cover. It's just the way I do it. Since I provide a lot of research and analysis, I prefer to completely eliminate bias and perception of possible conflict of interest (even if it just optics). I know it's a trade-off, but I like staying conservative on this.

Also, while I hope that my notes are helpful to investors, I often have to leave it to readers to manage their investment thought process (unless the note is specifically focused on valuation or any other of the many aspects of investment analysis).]]> http://seekingalpha.com/article/1382751/comments?source=feed#comment-18267631 18267631
Great points and great color, thank you. Most helpful. ]]> Tue, 30 Apr 2013 10:08:08 -0400
Great points and great color, thank you. Most helpful. ]]> http://seekingalpha.com/article/1382751/comments?source=feed#comment-18262231 18262231
Sorry for not providing greater detail on the calculations. I welcome you to have a look at my yesterday's note on Cabot for some additional discussion (and more to come in my next note on Cabot).
As I said, per acre math can be misleading. So when you take CHK's total leasehold and try to attach a blanket dollar multiple to it, your conclusions will be just as accurate as this type of analysis you are suggesting to use.]]> Tue, 30 Apr 2013 08:18:25 -0400
Sorry for not providing greater detail on the calculations. I welcome you to have a look at my yesterday's note on Cabot for some additional discussion (and more to come in my next note on Cabot).
As I said, per acre math can be misleading. So when you take CHK's total leasehold and try to attach a blanket dollar multiple to it, your conclusions will be just as accurate as this type of analysis you are suggesting to use.]]> http://seekingalpha.com/article/1382751/comments?source=feed#comment-18253441 18253441
The JV between CHK and STO dates back several years and, if I recall correctly, covers a broad AMI in the Marcellus. Details of agreements are probably private, but it appears that CHK and STO were both sellers.]]> Mon, 29 Apr 2013 22:59:32 -0400
The JV between CHK and STO dates back several years and, if I recall correctly, covers a broad AMI in the Marcellus. Details of agreements are probably private, but it appears that CHK and STO were both sellers.]]> http://seekingalpha.com/article/1382751/comments?source=feed#comment-18248251 18248251
Good question. I would ask a broader one along the same lines, what does this say about the value of millions acres under lease in Utica and other "young" plays? EVEP's package is certainly a test, so is CHK's and Devon's - those have also been on the market. ]]> Mon, 29 Apr 2013 20:06:41 -0400
Good question. I would ask a broader one along the same lines, what does this say about the value of millions acres under lease in Utica and other "young" plays? EVEP's package is certainly a test, so is CHK's and Devon's - those have also been on the market. ]]> http://seekingalpha.com/article/1382751/comments?source=feed#comment-18248091 18248091
I am not sure the "firesale" argument alone convinces me: i.e., I don't think if CHK had another six months to market the package the price would increase to $5,000 per acre. I am in a more pessimistic camp.

The driver is perhaps the combination of both factors: a "must sell" situation plus the amazing abundance of very productive but still not quite "core" (as in 3-4 Bcf per 1,000 foot of lateral length) acreage. Given the severe takeaway and gathering infrastructure constraints, operators are struggling to develop even their "best of the best" acreage. In that context, the paradox is really not a paradox: fringe acreage does not have much value. Goes for Utica, Eagle Ford, Bakken, end essentially every other play. ]]> Mon, 29 Apr 2013 20:03:04 -0400
I am not sure the "firesale" argument alone convinces me: i.e., I don't think if CHK had another six months to market the package the price would increase to $5,000 per acre. I am in a more pessimistic camp.

The driver is perhaps the combination of both factors: a "must sell" situation plus the amazing abundance of very productive but still not quite "core" (as in 3-4 Bcf per 1,000 foot of lateral length) acreage. Given the severe takeaway and gathering infrastructure constraints, operators are struggling to develop even their "best of the best" acreage. In that context, the paradox is really not a paradox: fringe acreage does not have much value. Goes for Utica, Eagle Ford, Bakken, end essentially every other play. ]]> http://seekingalpha.com/article/1382141/comments?source=feed#comment-18239951 18239951
They have not sponsored any, their midstream is provided by third parties (Williams in the Marcellus) on an arm's length basis. Cabot's story is very simple in that regard.]]> Mon, 29 Apr 2013 16:11:47 -0400
They have not sponsored any, their midstream is provided by third parties (Williams in the Marcellus) on an arm's length basis. Cabot's story is very simple in that regard.]]> http://seekingalpha.com/article/1354821/comments?source=feed#comment-18182311 18182311
20 days may be very true for some areas. However, very often operators would need to make a decision to re-initiate a drilling program, i.e., take on significant fixed costs. They would do it if those costs are "covered" (i.e., hedges guarantee enough margin so that economics are at least at the threshold level, even in the event price declines). Drilling is often done off pads. Using your 20 day assumption for a four-well pad, spud to first production may be closer to three months. Some pads have year-long lead times.]]> Sun, 28 Apr 2013 01:16:15 -0400
20 days may be very true for some areas. However, very often operators would need to make a decision to re-initiate a drilling program, i.e., take on significant fixed costs. They would do it if those costs are "covered" (i.e., hedges guarantee enough margin so that economics are at least at the threshold level, even in the event price declines). Drilling is often done off pads. Using your 20 day assumption for a four-well pad, spud to first production may be closer to three months. Some pads have year-long lead times.]]> http://seekingalpha.com/article/1354821/comments?source=feed#comment-18175081 18175081 That's a great point. To that I would add only that $5 can be observed, IMO, but is unlikely to last. Price has very little "inertia" while physical activity has high "inertia" (hiring rigs, ramping up the entire supply chain, expanding infrastructure in new shales - all means lead time and fixed cost). Price can fluctuate fairly widely in a short period of time - similar to how sub-$2/MMBtu were registered at the time when a "stop drilling" signal was needed to be sent to the industry. ]]> Sat, 27 Apr 2013 15:07:03 -0400 That's a great point. To that I would add only that $5 can be observed, IMO, but is unlikely to last. Price has very little "inertia" while physical activity has high "inertia" (hiring rigs, ramping up the entire supply chain, expanding infrastructure in new shales - all means lead time and fixed cost). Price can fluctuate fairly widely in a short period of time - similar to how sub-$2/MMBtu were registered at the time when a "stop drilling" signal was needed to be sent to the industry. ]]>