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  • Here's Why Natural Gas Prices In The U.S. Are Poised For A Fall [View article]
    I think it is more throwing money at the lowest cost producers knowing that they will be making a lot of money in the future. Say 2 years from now COG is producing 2 BCF/d of natty from their Marcellus assets at $2 per MMBTU (they say their current break even costs on a 10% return, before taxes, is $1.79) and realizing prices of $4.50 per MMBTU. Those are reasonably realistic numbers--I don't think natty will be that high personally, but most people probably would. But, even if it is only $3.50 (COG's realized prices), they are going to be doing quite well. They just don't have that much debt. As soon as they can get their gas to other markets, they are going to be doing quite well. I think I recall that they have firm transport and sales commitments for the majority of their production outside of the area where they are currently marketing by 2018.

    The Midwest and Northeast are some of the biggest markets and they are going to be located closer than most producers to those markets. Their transport costs are going to be less in addition to their production costs. When the Atlantic Sunrise project is online in 2017, they are going to be some happy campers, I think. I'm expecting some of the better basis in the markets that Transco is going to serve.

    It's the transport that is the problem now, not the production costs for the Marcellus.
    May 23, 2015. 03:07 PM | Likes Like |Link to Comment
  • Here's Why Natural Gas Prices In The U.S. Are Poised For A Fall [View article]
    The reason they are not profitable to this point is that their market is limited. Their production is takeaway constrained. They are the lowest cost producers. They will be very profitable as soon as they aren't having to sell into markets where the basis is sometimes well over $1.00 discount to Henry Hub.

    The gas used to flow to the Northeast. That is where the high prices were.

    Then: Boom. In 2012, they suddenly realized that was going to change. But, no one realized how quickly it was going to change. The Marcellus well improvements were incredible. By the end of 2012, they were producing at levels not anticipated until the end of 2015. Then they really cranked up the production in 2013.

    There is a lag because the entire natty interstate infrastructure is having to get redone. That involves Environmental Impact Statements and FERC approval.

    But, before too much longer, when the Marcellus and Utica can get to other markets, they will be making plenty of money: They are the low-cost producers.
    May 23, 2015. 02:15 PM | Likes Like |Link to Comment
  • NAVigating Through The B.S. At SandRidge Energy [View article]
    @Raw Energy --

    I think I read an article where S&P just downgraded SD's rating to "Dying." Or maybe it was "Code Blue."

    I would have never had expected the out sized impact those trusts would have had on the their bottom line financials. Very instructive and gave me something to look for in the future.

    These guys really were a study in . . . . . I lack for appropriate words that that won't be vetoed by the very active SA Politically Correct and Let's Not Offend Anybody Police (except everybody that they censor for stupid, ridiculous stuff, which seems to me to be most everybody they censor if I am in any way representative-- Oh now, now I've done it-- I've criticized the SA politically correct police -- this will get censored for sure . . . . ).

    I never remotely considered investing in SD. But, after reading some of Richard Zeits' early articles on them, I developed a prurient interest in the company. As good as Richard's articles were (supremely good, in my opinion), your comments brought another whole level of understanding to the situation -- both technically and overall, just exactly what was going on.

    I am delighted you wrote an article -- and very delighted that SA immediately recognized the worth of it. (Poor Zeits wrote a ton of great articles over years before SA even remotely started to realize how good he was. The seem to be making up for that now--I think if he breaks wind these days they give it a "must smell" or something like that.)

    You know, maybe the one thing that I noticed that you guys didn't was the related to the quality of their presentations. Did you notice what when things were starting to pile up on the negative side, all of a sudden they brought in some guy as like head of IR, or something equivalent, who seemed to be able to make the turd they were offering seem very alluring in their presentations.

    I don't remember his name or where he was from, but I was following their presentations, noted a dramatic change in quality ("my, that poop does look tasty . . . . ") and actually was intrigued enough to look him up. I forget the details now, think his first name started with a D -- maybe Dwight?-- but he struck me as the talent that was able to buy them time. You would see articles here on SA where authors were cutting and pasting his stuff and saying "man, this looks great! You gotta buy some of this . . . ." Pretty darn impressive.

    I can't wait to see how the derivative lawsuits turn out. This would be an outstanding case study, or book, or something to educate people how to be a little more skeptical and discerning about lapping up any dog pee they see on the street.
    May 23, 2015. 01:31 AM | 1 Like Like |Link to Comment
  • Lower For Longer: Why You Should Stand Aside On U.S. Oil Producers [View article]
    Linn, eh? Have you thought about injecting ammonia in your arteries instead?
    May 23, 2015. 12:53 AM | 1 Like Like |Link to Comment
  • Lower For Longer: Why You Should Stand Aside On U.S. Oil Producers [View article]
    @rajprasad--

    I can't make heads or tails out of what you are saying. I don't think it is me: I used to work in the industry.

    What I look at exactly varies with the particular circumstances of the company. Grossly simplified calculations like you appear to be doing don't tell me squat. My preferred metrics are going to be things like netbacks, recycle ratios, free cash flow, and various debt metrics. The extent to which you use what is highly dependent on the maturity of the company, the size of the company, the maturity of particular plays, etc., the percentage of the development, the reliability of the play, etc.

    I haven't looked at EOG in detail in quite a while. When I did, perhaps two years ago, I was very impressed with their recycle ratio in the Eagle Ford. Very, Very, Very impressed. And they have totally kicked butt since then. It was and is still in the early stages of development. Notwithstanding that, they were fast on their way to making one hell of a lot of money in the EF.

    You want to do something that means something? How about calculating EOG's recycle ratio in the eastern Eagle Ford, their percentage of development of those assets, their recycle ratio in the western Eagle Ford, their percentage of development of those assets, their recycle ratio for the Bakken and the their percentage of development of those assets and split each of those up with wells prior to 2012 and after 2012 (when EOG started showing major outperformance with vastly improved completion techniques that have essentially been adopted by the industry as a whole now). You see, those are all at very different stages of development, so their importance and potential importance going forward are quite different.

    Then, you should compare those to their other major assets, evaluate the percentage of revenues, the percentage of reserves, etc. Then figure out how they plan to spend their money and why. Look at their capex, figure out what they are doing and why and see if it jibes with what you see on recycle ratios for assets, percentages of development, etc.

    When I looked at EOG a couple of years ago, I spent probably 2 plus days doing so. What I also spent a great deal of time on was examining a lot of detail about the Eagle Ford play generally, so I could evaluate objectively the quality of all their assets in the Eagle Ford. Hell, I probably spent at least two weeks on that, although it applied to a lot more than EOG. For example, despite them also having assets in Gonzalez county like EOG did, I never felt the slightest inclination to invest in FST.

    I have absolutely no intention of spending two days again going over EOG's assets, development, capex plans, etc. to respond to your asserted prowess with long division. Nothing personal, but if it was as mind-numbingly easy as you make it out to be, a punch-drunk boxer with dementia could make a killing investing in the energy sector.

    Also, Elliott Gue is right. Crude is going down from here, not up. Now that I have spent a bit of time on lately. Not a whole lot, but I expect a bit more than you did with all your analysis of all those companies in total. Just on worldwide and U.S. gross macro supply and demand. Now in another few months, after global and domestic crude prices have tanked again, I might. Stock prices will be quite a bit lower then. COP in 2008 worked quite nicely for me.

    Why don't you read some of more articles by Elliott Gue, Richard Zeits, Michael Filloon, Value Digger, etc. and learn from them about how you go about evaluating a company's assets and its operational skill. Because to me it looks like you are doing essentially meaningless long division.
    May 23, 2015. 12:40 AM | 2 Likes Like |Link to Comment
  • Here's Why Natural Gas Prices In The U.S. Are Poised For A Fall [View article]
    @Pedro de Almeida--

    This was a really excellent article. Thank you.

    I think your observations about the storage were quite fresh and very valuable. I would note that if you look at the West and the Producing Region storage levels, they are already quite high. Similarly, salt dome storage is quite high--significant because those facilities are much more versatile in terms of how they can be operated and how quickly they can get product on its way.

    The area where the storage numbers are lagging in the Northeast. That is interesting to me because I can't help but think if I am a natty producer, or an LDC, do I want to pay for transportation from afar to bring natty to the NE, where the basis is horrible?? The Marcellus and Utica are takeaway constrained. They are producing more than the local market can handle and the prices reflect that.

    I have also been struck (at my far more Neanderthal level) by the phenomenon you describe concerning equity investments and the possible sources for some of those investments. Anyway, the extent of my analysis on it was to grunt and mutter that there is now a lot of dumb money in the natty trading market that didn't use to be there. Do reserve banks do ETFs --is that part of their equity portfolio?

    It used to be a singularly demanding marketplace where slight errors had huge consequences. Of course, supply was a very, very different thing then. Now there is not only a bloody ton of supply, it appears it can be readily scaled, if not necessarily readily delivered yet.

    I would note that I am in general agreement with the underlying thrust of your article. I've been waiting for bigger tank in prices for quite a while. Let me toss out a couple of points to perhaps build on what you have done.

    First, you have to look at the natural gas story since 2012 with your focus squarely on the Marcellus. It has driven some huge fundamental changes and will continue to do so. So, I would make sure I put any historical analysis in a framework that fully considers the role the Marcellus is playing.

    I have actually been waiting for this point since the summer of 2012 when it became apparent what a true monster the Marcellus was. And, that was before they started using tighter stages, more proppant, and choking the wells back. Many of the Marcellus wells now have unbelievable production curves. A lot of them basically flatline out to 6 months. The dry Utica wells appear to have similar characteristics, except they are looking even bigger.

    Technically speaking, what you have is Godzilla and he is munching all the other little North American natty plays. Or at least the ones he can reach. And that is key. What is occurring is Godzilla's range is improving. The Marcellus companies haven't made much yet, but they will. They are basically displacing higher cost producers step, by step, by step. As the others back out, they are looking where to go that Godzilla can't get to. Anyway, enough technical jargon. I would hate to be a producer relying on the Midwest market as my future.

    You also have to look at the overall picture in terms of not only the Marcellus, but also the weather weirdness. They were radically oversupplied in 2012, but not only did everyone completely recognize that and prices cratered, power burn went through the roof, and it was a really hot summer. Texas and the Middle Atlantic in particular were hot, two of the most important area for power burn.

    Meantime, back at the Marcellus, the transport is really lagging. Then you have in the fall of 2012 a significant disruption with Hurricane Sandy, then you have a winter that although not hugely cold does extend way further into spring than normal, curtailing injections. And the Marcellus is still badly takeaway constrained. So you have two seasons that could have been badly oversupplied that a combination of things happened that kept that from happening. Then, you have the Winter of 2013-2014.

    Then, just when it appeared that it was on the cusp of massive oversupply, you had those phenomenally cold there weeks - Feb. 13- March 6, 2015 or something like that. I'm thinking that the HDDs were something like 220 more than normal over the course of those three weeks, which aren't particularly warm weeks to begin with.

    But, that was pretty huge. It gave a window for it to be obvious that there was an oversupply situation looming without having fully stepped in it yet. And, a little bit later I'll add a couple of more details about some things that I think make the demand side of the picture a little bit more robust than you might think if you didn't really get into the weeds.

    The main thing there is power burn--electricity generation. There are two things at play: Structural changes because of retirement of coal and new natty plants getting built and switching for economic reasons. In 2014, there wasn't much switching at all in the spring and early summer because natty prices were so high. Production did pick up a bit in that period in 2014. Those things add a level of tightness (both generally in supply/demand and in terms of year over year comparisons of injection amounts) that might not be immediately apparent.

    On the other hand, later in the summer, like by the end of June, July, and August 2014, power burn picked up, so, if production doesn't decline, the currently existing power burn difference between this year and last year should diminish somewhat. But, I wouldn't get too excited: There are still the structural differences. I have some numbers somewhere, but not handy now.

    Don't get me wrong, I think we are oversupplied, but perhaps not quite to the extent you do. I think your analysis, however, is very much on the right track.
    May 22, 2015. 08:59 PM | Likes Like |Link to Comment
  • Here's Why Natural Gas Prices In The U.S. Are Poised For A Fall [View article]
    The drilling productivity report is basically EIA looking at how much drilling activity there is in a given month and projecting that drilling activity out to production two months later. It is useful; it is interesting; it should be used with caution. In other words, I think the May 2015 report takes the April 2015 drilling activity and uses that to project the production trends for June 2015.

    As useful as that information is, it misses two things that are currently probably nearly as important as drilling activity: Completions and takeaway capacity. There is a huge backlog of wells that have been drilled, but that haven't been completed: They are waiting until they have the takeaway capacity to tie into. Production will be cranked almost instantly when that capacity hits. Not much is going to happen until it does in terms of production increases. The Marcellus is the driver in terms of production. By the way, 2016 is supposed to be a really big year for takeaway capacity.

    If you look at the production numbers for 2014, what you will find is that they increased slightly throughout the year, then in November and December they took off wildly. That was because there were four big Marcellus/Utica takeaway capacity projects that came online.

    This year looks similar. Almost everything big in terms of Marcellus/Utica takeaway capacity is going to hit in the latter part of the year. EIA is projecting a YoY increase of 4 something BCF/d. That essentially says that they see production staying flat at current levels and then increasing at the end of the year. That year over year increase is effectively from the increase that occurred late last year.
    May 22, 2015. 08:04 PM | Likes Like |Link to Comment
  • Here's Why Natural Gas Prices In The U.S. Are Poised For A Fall [View article]
    @Analyst_314--

    I just to pick up one point here, note that the May STEO EOS number jumped 100 + BCF (going from memory--somewhere around that) from the month before. If you look at their STEO in more detail, or as much as it allows, it appears that they are contemplating a far bigger power burn than most prognosticators. To this point, the larger power burn is definitely a good call on their part. I do, however, think they are still low.

    Plus, you have to bear in mind that EIA does great work, but if you are walking into the market based solely on EIA forecasts, you are going to be severely outgunned. That's not their strength. You also have to bear in mind that they have made 2012 a case study. In other words, I think they are over extrapolating what occurred in 2012 onto the present situation. There are important differences.
    May 22, 2015. 07:48 PM | Likes Like |Link to Comment
  • NAVigating Through The B.S. At SandRidge Energy [View article]
    @Raw Energy --

    Great stuff. Thank you. I learned quite a bit.

    My own valuation method is likelihood of sufficient free cash flow to pay back debt; otherwise I see it as drowning slowly. Or not so slowly in this case.
    In any event, none of any of it for me, thanks.

    But, a fascinating example of how not to do business. I have learned a lot from you and Richard on this one.
    May 22, 2015. 11:59 AM | 1 Like Like |Link to Comment
  • SandRidge Energy: The Cash Pile Is Gone And Options Are Few [View article]
    @Pablomike --

    Yeah, I know. I just couldn't resist piling on more.
    May 22, 2015. 11:44 AM | Likes Like |Link to Comment
  • Thoughts On The Unexpected Resignation Of Lumber Liquidators' CEO [View article]
    @FarFromGuru--

    Agreed! Whenever I can, I always walk away from where I have just pooped. It just seems like the smart thing to do.

    Not only is there less risk of stepping in it, you don't have to smell it constantly. And, if you hang out near it, who knows, someone might tackle you and rub your face in it.
    May 22, 2015. 03:28 AM | 4 Likes Like |Link to Comment
  • Lower For Longer: Why You Should Stand Aside On U.S. Oil Producers [View article]
    Nice analysis on DVN too. You are really all over the ins and outs of SEC reporting, aren't you? Yep, you really have quite an eye.

    Speaking of eyes, there is a band here in my town called Flounders Without Eyes. I wanted to tell you that name was kind of a joke: Not words to live by.

    In my experience, it is the people who not only don't know anything, but don't even know enough to suspect anything that tend to be so opinionated on issues that involve complex facts. It is a phenomenon called the Dunning-Kruger effect.

    You heard it from me.
    May 22, 2015. 03:17 AM | 1 Like Like |Link to Comment
  • Lower For Longer: Why You Should Stand Aside On U.S. Oil Producers [View article]
    @rajprasad --

    The fact that you could type that number out for EOG speaks volumes about how little you know about what you are doing.

    Oh. Perhaps it is rude and insensitive of me to say that. You might be a victim of dementia.

    Well, in either case, I think reading and quietly learning would be a better course of action for you than reading and writing.
    May 22, 2015. 03:12 AM | 1 Like Like |Link to Comment
  • SandRidge Energy: The Cash Pile Is Gone And Options Are Few [View article]
    @Pablomike--

    Sure. Nobody is worthless: They can always serve as a bad example.

    And as bad examples go, these guys have got to be the at the absolute pinnacle of the bottom of the cesspool. Lacking any business, technical, or industry acumen, they proceeded to act in a way that defied even basic common sense, while all the time relentlessly disregarding even the most fundamental concepts of ethical behavior.

    And, as I think is quite clear, if you wave a few dollars in front of these guys, they will do absolutely anything . . . .
    May 22, 2015. 03:02 AM | Likes Like |Link to Comment
  • Alpha Natural Resources - A Stock Of Choice For Risk-Taking, Long-Term Investors [View article]
    Oh, not perfectly. But from well over two years ago it has been really, really, really, really, really obvious to me the general direction that the vast majority of coal stock were going to be going. It's not reading the future: It is understanding the energy markets, legal developments, regulatory developments, and a certain level of understanding about the technical challenges that various energy sources face.

    Don't get me wrong. I don't feel qualified to write an article on it; but on my worst day I would have certainly never written multiple articles strongly suggesting that people invest in coal stocks through this time period. Hell, not when I was 14 years old even. This stuff was freaking obvious. It is just amazing what a bunch of oversupply will do for prices. NOT! That is something that everyone should know.

    Don't get me wrong-- nothing against risky investments. In fact, who knows, if I didn't hate the mercury pollution so much I might even consider investing in coal stocks myself at some point in the not too, too distant future. But, I do hate all those fish advisories. Hell, there is a really nice lake near some property I own that has an advisory on it--makes me sick. But, natty is going to be quite cheap for quite a while yet and that means that generally coal stocks have got quite a bit more pain coming.

    What I took umbrage at was this author being repeatedly and badly wrong and not taking the trouble to figure out his mistakes: Instead he kept repeating the same bad recommendations over and over again. I think anyone that read his stuff should ask for Seeking Alpha to NOT pay him the penny he would have otherwise gotten for their view.

    Look at the research-- or lack thereof. Really, really perfunctory and then just a bunch of unsubstantiated and wrong assumptions. But the big thing is that the essence of the research and analysis didn't change a whit over 2 years and, what, 80% price declines? You know, even someone who is getting the hell beat out of them eventually will make the effort to put their hands in front of their face. This author didn't even do that: It was like he decided to see how many articles he could publish using the same, tired, facially erroneous analysis.

    I merely want to make in completely plain to everyone that this author either lacks the willingness do the work necessary to analyze energy stocks with even a modest level of proficiency or lacks the ability to do so. It isn't the bad results that cause me to say that: It is the striking similarity in the analysis in each of his coal stock articles and the fact that he apparently didn't even feel any obligation to figure out and explain why he had been so, so badly wrong for so, so long. Instead he just keeps trotting out the same rehashed stuff -- it is like he uses a template.
    May 22, 2015. 02:23 AM | 1 Like Like |Link to Comment
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