Comments on HK, this applies to MPO as well, the debt with a weakness in oil. $100 WTI would help a bunch.
Another factor hurting Halcón: some forecasters say crude oil prices, which have dropped recently, have further to fall. Stephen Davis, chief executive of Signal Investment Research, believes crude is entering a weak period, driven by worries about China's economy and rising crude inventory levels. Crude oil futures fell 81 cents on Monday to $93.03 a barrel, the lowest level since May.
Halcón "may not be the stock you want to own in the environment we're heading into," says Mr. Davis. Investors are selling off stocks of higher-risk companies with large debt loads, such as Halcón, he said, and
buying defensive energy stocks, such as Exxon Mobil Corp. XOM +0.37%
WTI $95.20. Global price $109, diff should be $10 max. 10 yr T note up 75% in past few months, everyone is concerned about a spike in int rates, we just got one and we are hitting new highs. Everyone expecting a correction, seems the path is upward. Can't hurt to have the macro going well for MPO. Nat gas may even be firming some.
Nice snap back in the market, only have a timber reit red today, everything else green. Thinking about taking a speculative bet on HK, betting on the jockey. Nat gas inventory number was a good one. The taper talk yesterday was silly, we are going to have low rates for a lot longer than we think, Yellen is more of a dove than Ben, whether it ends badly years from now, still up in the air, but the next couple could be very healthy, read Grantham's Barron's piece, a smart guy who usually gets it right. WTI over $95. A 20x market multiple gets you a 40% gain on today's value. A rising tide.
Looked at HK, makes MPO look conservative. $1.4 billion capex this year, 35kboe/d q3 prod vs $550mm, 28.5kboe/d. Debt 65% of EV. MPO 70%. Guess everything is relative, MPO looks safer. I did own Ram Energy, the predecessor to HK, before Wilson put the #$%$ steroids. He will probably pull it off if oil stays at $100, reserves are 90% liquids.
WTI seems to be stabilizing. imo, more important than the MPO stock price move. Looked at Devon, selling for 3.8x cash flow '15, with a gas kicker. E and p s don't feel over valued if we get $100+ global oil, to the contrary, they seem cheap. And Waren's buy, while not 100%, maybe confirms the bullish long term view for oil. We don't need $150 oil, $100 will do, even $90s. The US oil "glut" seems to be the sentiment of the day, won't last. Seems guidance could be the next catalyst. LA at a good price would be a bigger one. Anyone want to take a guess at guidance, 40k would be a good number. Less than that, not sure investors are
Thought I posted about DVN vs DNR, CS sees the EF deal accretive, selling for 3.8x cash flow '15, vs DNR 5x. DNR seems cheap and DNR seems cheaper, plus you get a play on nat gas with DVN. CS has a $77 target on DVN and was $24 for DNR. Seems both are good bets.
DNR does seem cheap, not a technician, a lot of fast money was looking for a couple of dollar move up. And WTI seems to be stabilizing, most are concerned about the bottom falling out.
ECA Barrron's article, bullish, at some point, taking a bet on gas will be a good one, saw that 8bcf/d is approved for LNG export at the moment, that's 10% of supply. $6 to $9 gas someday may be a reality. Would have to have a bunch of patience.
Randy Ollenberger, an analyst at BMO Capital Markets, estimates that Encana's stock trades for nearly a 50% discount to his 2014 net asset value of $39 a share. Over the next year, the strategic actions could help narrow the discount somewhat, driving the shares higher by 25% or more.
Interesting that about a third of the e and p s on my watch list are up, the rest down. Seems the larger cos are faring better. Oil price is stable, WTI down a penny. Noticed that Aristeia Capital end of q owned 2.6 mm shs, that's 10% of the public float. We need a catalyst but not sure what it will be, oil decline is still a concern. Seems to me this co has done everything they said they would, after the initial IPO fiasco.
Hugh, I tend to agree. Seems all of these new horizontal plays need $80+ oil just to make profit. Maybe higher for the oil sands. And these 3000b/d ips need $10 million or whatever to drill, they do get your attention, but after a year they are down to the 500sb/d. If you take a 500boe/d well, and the first year and the first year averages 300, then you have to drill 17,000 wells just to stay level. And 6000 more wells with a 2% increase in global demand. Not like opening the valve in the middle east. We are on a tread mill, but a high oil price does find more oil, the Permian is a good example. At $200 per barrel, we would probably be surprised at how reserves we could add. I continue to be surprised at how we have adapted to $3 gasoline, $3 nat gas has helped. May not be the case in the future.
A good article Barron's, a piece by Jeremy Grantham, GMO, smart guy. Google it to read it. He sees a couple of years more of this rising market. Bubble time again, maybe. Article is kind of hard to read, should have been more concise. The gist, efficient market theory is a fraud. Markets get over/unded prices by extrapolating current assumptions forever, teens US bond back in the 80s, maybe the current use of 3% 10 yr T note forever. At a 20 pe, the market could be up 40% again and not be "expensive" compared to risk free return. The internet bubble, believe we got to 30+.
Same goes for e and p s, assuming nat gas at $4 forever or oil is $90 or whatever. Saw a study recently, that said their e and p universe had 20% upside at $90 oil and 100% upside at $110. As critical for e and p s as assessing operating risk and debt risk, the assumed long term commodity price can make or bread an e and p bet. Seems now the market sees WTI at current price in the $90s sinking to the $80s. I wonder if cos trying to hedge to protect capex is not a factor in lower futures. Seems a bearish view is in the sector, may be right, or not. If we get $100+ WTI with expectation of strength, with NGLs strengthening with infrastructure, exports, and if nat gas goes to $6+ with LNG exports, saw that approved projects are now up to 8bcf/d input, that's a significant level. And for a fast growing co that has 40% gas and 20% liquids, that could be significant, same effect on others too. MPO could have 100% prod increase by 15 over this year. Might be somewhat hyperbole, but the shale, horizontal drill revolution, we may look back on it some day and compare it to the industrial revolution or the digital revolution. Now, to make a profit on it. Saw comment that the Eagle Ford is now in the second inning of development, decades of growth, apparently Devon thinks so.
A comment on the Eagle Ford below. These plays keep getting bigger. I'm not sure we begin to recognize the impact this could have for global oil supply and the US. The Bakken keeps expanding, the Permian will be the biggest horizontal play, who knows where the next one is. I even think the Miss Lime will be a big deal with its size. Midstream, imho, is the best way to invest in the revolution, remember the "industrial", the "shale revolution" might make it look small.
Overall, the play is now 6% developed and the first class acreage now 13% drilled. This does not change any of our conclusions or production forecast. The play is still gigantic, with an inventory that will last for decades. However, it now appears that we are at the beginning of the second inning.
Probably referring to Seeking Alpha, I have never found one of their pieces to be useful for taking action. Also, couldn't resist buying more today. Would probably buy more at $5 if the landscape hasn't changed. WTI is at least green today. I don't think we will see a collapse. Also, rumor that Devon is buying GeoSouthern, private, for $6 billion. The beat goes on for shale, it's Eagle Ford. IMO, the best way to play any of these is midstream, they will make good money with less volatility. E and P investing is much more work.
A rumor out that Devon is buying GeoSouthern, private, for $6 billion, they have 125k acres or so in the Eagle Ford. Still think your call on Devon is a good one. But I would rather buy Crosstex, they are going to do well just following Devon around.
At 52kboe/d end of '14, assume pref converts, 90mm shares. $1050mm rev, less $285 cash op exp, less $170 int exp, ebitda $595 x 6, $3570mm/90mm shs, $18. Debt to EV somewhat over 50%. Not a level investors will be concerned about. Again, a good LA sale would accelerate the value a bunch imo but doable even without it. Execution and commodity price. Already have 70% of oil volumes hedged in $89 range and if $90 oil gets you to $56 boe/d. If oil falls to $80 avg next year, you lose $4 /boe, at 45kb/d next year, that's around $70mm less cash flow, $550mm capex, 13%. Not sure that a plunge would be devastating, don't see 10 rigs going to 5 rigs, drop two rigs. If oil goes to $80, the whole industry will have to re assess their spending. Costs will go down. $100 WTI gets you the reverse effect, $70 mm more cash flow. My volumes are probably very best case, but not unreasonable.
Seems your number is fairly close, $58 per boe less $15/boe for cash op exp, $43/b x 17.2 mm bs, $740mm less $200 int and pref div, results in $540 in capex. At 47boe/d they would be close to cash flow neutral. $58 might be some high, $90 oill, $50 ngl and $4 ng, avg $56/boe. Every dollar is $35 mm. I came up with 52kboe/d end of '14, that would get you to $1.05 rev, less cash operating expenses $15/ boe and $200 mm of int/pref div, leaves $565mm for capex. That seems a best case scenario. But they could be close going into '15.
A decent sale of LA would definitely get MPO to cash flow neutral in 15, imo. Seems it's all about execution and the oil market not collapsing. Brent is $107 and WTI should be maybe $5 less if they can get the logistics solved. The preferred goes away in 15 and reduces that outflow by $325mm at 8% believe it was, that's $26 mm more cash. Does increase the out shs by 24mm, around 90 mm. 52kboe/d at $70k less $2.2 b debt/pref, 90mm shs, $16 after the pref conv. Looked at a group of e and p MLPs, selling for around $100k/b/d production, debt is in the 40% range, so should be more. $70k seems a conservative value.
Crum may give us a holiday gift of LA sale and good guidance and a double digit stock. Or we have to wait out '14. My biggest concern is WTI price at the moment.
Birdog, seems cheap considering .rumors. CS had a bigger target.
Under the deal, Cepsa will pay C$19 per Coastal Energy share in cash, a premium of 28 percent to the closing price of the stock on Monday on the Toronto Stock Exchange.
An analyst comment which seems reasonable, Brent seems to be hanging in. The good news of good operating results is the bad news for WTI. This will be resolved, seems an opportunity longer term, but who does that anymore.
We believe E&P under performance over that time was a reflection of incipient investor worries concerning
domestic oil prices. These concerns were amplified by robust well results from producers which highlighted the enormity of the US oil resource base.
Hugh, nice to hear from you, was wondering how you are doing, have you completed the relocation? i have liked the midsteam MLPs for a long time. It's all about cash flow and they can do projects at 6x cash flow and the market values them at 10x+. And most of the revenues are fixed fees and they don't have to dump all of their cash back into the business to keep the same level of profit. Different story for e and p mlps, they have to invest a bunch of cash flow back into the ground to maintain payouts. I do own ARP and it's is expected to yield 13% based on next year's distribution. If I don't get appreciation, the 13% is fine with me. The midstream one, can yield 5% and grow 10%, so you get both, and most of the yield is tax deferred. They are a tax reporting headache and not for everyone. I really like XTXI now which is a c corp, so no k1. Also, SEMG, also not a c corp. MWE is maybe the best at the moment for their Appalachia franchise. I do think more e and p mlps will be set up with mature assets. A way for cos to fund new development.
What's your call on oil, looked at the five year futures, dropping down to $90 in five years, that doesn't seem realistic to me, maybe I've listen to you too much. I was thinking that oil could stay where it is for a few years, and gas in the US could rise to $6+, seems the nat gas players would be a good bet. ARP is 80% gas. Range can make money at $3, they would make a bundle at $6. Let us hear from you. Harold
I'll leave the short term to others, I'm a lousy trader. Looked at oil futures for five years, Brent goes from $104 next year to $90 in '18, WTI is around $10 less. Seems that differential won't last for five years. And hard for me to see global oil weakening over five years, the only real growth outside of OPEC is here. But if the diff goes back to normal, $90 oil even in a weakening scenario. What happens in the near term as we produce a bunch of oil here, could be a shock. But shouldn't last too long. That's a negative. All of these plays need $90+ oil.
A catalyst to the upside could be a sale of the LA asset. Looked back at the IPO and around 9kboe/d prod vs 5.5k now, reserves 26mmb then, 37mmb now. At the IPO price the value was around $850mm, $85k/b prod, and $33 /b. If you got $18/b, around $660. Or $100k/b for $550 mm plus $50 mm for the acreage. Seems something in the $600mm to $700mm range would be a great catalyst for the stock. If you fire sale it, probably knocks it down, but probably ok long term. It does sound as if they have some potential there but it's not as good as the mid cont. Don't think we have to worry about a stock sale soon, sounds like they think the revolver will take care of the capex into next year. Execution is critical, still early in the game. The guidance for next year could be neg or pos. And then it's wait to Feb for results.
Saw today where Riverstone/Carlyle owns 10% of SD, said it was new. Don't think SD will be a drag on the Miss, they seem to be on an upward trend. And Devon is maybe helping the cause with their programs. Probably won't hear much until Feb.
It feels to me that the stock will maybe move up with less uncertainty, more promise, an LA sale, great. Good guidance, great. WTI moving down, a negative. If I didn't have all I want at the moment, I think I would wait for a catalyst and evaluate at that time. Best event would be combined LA sale and great guidance, 40k's. Stock explodes