Just looking at a pres, they are close to 70% fee based. That is what is interesting about some of the declines, SEMG has almost 90% fee based and they are off the $80s to $60s, doesn't make sense to me. Williams is 80% fee based and nat gas, but then again NGLs. This is not going to turn around over night but I would be the worst is behind us.
Just looking at FANG in the No Midland Basin, they have operating costs of $17 per barrel and finding costs could get down to $8 per barrel this year, that's $25 per barrel all in cost. Double edged sword, they will keep drilling even at $60 oil or $80 oil. Still think the midstream cos will do well at either price if you consider that most revenue is fixed, could be some pressure. Still think TRGP will be a big win over the next two years, the Permian provides most of the oil growth in not only the US but the world, interesting times.
And it the 10 yr T note stays at 2% or less, the MLP yields will come down, unit prices escalate. Almost feels like the midstream sector is a better buy than before the decline. And if KMI heats things up with a major acquisition, which imo is coming, the whole group will re rate. Very interesting times.
PAGP is low yield but can increase the div 20% plus per year for the next few years, 20% plus 3% yield is 23% total return. And the div is tax deferred. Just heard that Apache says the Permian is viable for them at $50 oil, the infrastructure cos should do well. Still think TRGP will be a big winner even in a somewhat lower oil price scenario. Atlas was going to have trouble keeping up with PXD's growth the Midland Basin.
Jerry, PAGP raised dist 6.4% from last quarter, they probably can keep up that rate of increases for the next couple of years. 81 cents at 40x multiple gets you a $32 unit price. The MLP that looks awfully cheap now is MWE, the best franchise in Appalachia, CS thinks they will have dist cash flow of $7 per unit in 17, if they pay out $6, at 4% yield, that's $150 unit value, current price is $60.
cbd, this is from an energy invest bank this a m. I tend to agree, the prod nos look big but big debt and the mix is too much ngls/gas plus the TMS is a dud current oil. Thinking about the e and p, best geologies now are core Bakken, EF oil, Delaware, No Midland and Wattenberg. EOG is the best in the Bakken, EF and Delaware, they claim that returns will be 100% after tax at $80 oil, their other plays can breakeven down in the high $40s. For the No Midland, PXD is the obvious choice, massive asset. The Wattenberg, I would pick NBL but BCEI is concentrated along with PDCE. Throw in RRC to cover Appalachia, and you have a four cos port, EOG, PXD, NBL and RRC. If you had to buy only one, EOG is the obvious choice. At $80 oil, they will be making 100% AT returns. And it seems the marginal barrel might take $80 in the oil sands and deep water. BCEI is a good choice but not sure they can compete with EOG that might have all in costs in the mid $20s, BCEI in the mid $30s. Times like these make you look at the reality of commodity investing, the low cost operator over time will win. And I'm not sure about RRC, they show breakeven at $2.64 and it's going to take some time to get back to $4 plus. Although they might get costs down to $2 and a $4 price would be very profitable. EOG cost of $30 and oil price at $80, $50 per barrel margin.
The stock is trading at a large EV/EBITDA discount to the group, but current leverage and SNs opportunity set warrant a discount. We are maintaining our Neutral rating and currently have an NAV of $8/sh (0% upside).
Look at EOG most recent pres, they show breakevens for various plays. Their Bakken, EF, Delaware, Powder River, DJ and Midland Basin wells can make a 10% AT return at $50 oil, the Bakken, EF and Delaware at $40. At $80 oil, the returns are 100% for the top three, and that's after tax. i'm not sure you can find another operator that has a cost structure this low. EOG, PXD, NBL and RRC should cover the best of the sector, and you buy them and forget about them for a couple of years. Buying the best of breed in the infrastructure sector has worked well for me over the past decade, EPD, ETE, MWE, PAGP, WMB, KMI, MMP.... Kind of come to the conclusion that it should be the best result for e and p cos longer term.
I think you are right, the data points to EOG, they have been the best operator in the industry, don't see why that can't continue. PXD seems intriguing just because of their massive position in the Sprayberry field, they have decades of wells to drill. But still think EOG is better, well managed, seem to always be ahead of the pack on new plays. They are the largest oil producer in the lower 48, ahead of OXY and Chevron.
CLR has op costs of $18 per barrel plus finding of $10 in a reduced cost scenario, $30 per barrel all in to add reserves, BCEI is maybe $35 per b. There do seem to be companies that can breakeven at the $40 level and if the marginal barrel comes fromt the deep water or oil sands, maybe it's $60 to $80, would guess it's closer to $80. In that scenario, the top tier shale plays will continue to do well, core Bakken, Delaware Basin, North Midland Basin, EF oil window, Wattenberg, Seems the strategy should be to find the best, low cost operators in those plays, Bakken, EOG. Delaware, EOG, No Midland Basin, PXD, EF, EOG, Wattenberg, NBL, but more concentrated PDCE or BCEI. If you had to choose 4 co, EOG, PXD, NBL and throw in RRC to cover nat gas Appalachia, they have a $2.64 breakeven currently and costs are still going down. Seems if you have only one to buy for longer term, EOG still seems the choice.
Headline is "renowned" oil trader, I guess it must be true then. He does say that the oil sands and deep water will suffer more than the shales. Said cos can't cover cash op costs at $40, some of the better shales can keep on drilling at that price but they won't have the cash flow and balance sheets may be maxed for some. This guy was head of Phibro so he is probably one of the few that should be listened to.
Oil prices have almost bottomed out and “some recovery” is likely by the second half of the year as demand picks up, commodity hedge fund manager Andrew J. Hall told investors.
Crude could trade in the $40-a-barrel range in 2015, close to “an absolute price floor,” the head of Astenbeck Capital Management wrote in a Jan. 2 letter obtained by Bloomberg News. A significant amount of U.S. and Canadian production can’t cover the cash costs of operating at that price, he said.
“Oil prices will stay under pressure in 2015,” he wrote. “However, current prices are not sustainable in the longer term. The interplay between extreme weakness in the short term and the potential for supply shortfalls in the medium term should create attractive trading opportunities over the course of the coming 12 months.”
Looked at it, they will keep prod flat at arouns 42kboe/d, market value is $8 x 58mms, $460mm plus $270mm convert, $730mm market cap plus $1.2 billion net debt, $1.9 billion EV, prod of 42m boe/d, spend $600mm, EV of $2.3 B end of year, 45k boe/d end of year, $50k/b flowing. BCEI EV $2.1 B end of year, 42kboe/d, $50k/b flowing. The difference is BCEI is 65% oil and SN is maybe 45% oil. The cash margin should be better with BCEI. SN's EF assets include a big chunk in the condensate window. SN isn't a bad bet but still seems BCEI is a better one. SN's revenue per b dropped from $80s in 13 q3 to $50s in 14 q3 because of the lower oil cut. The production numbers, as I'm finding more and more, don't tell the whole story. The higher the oil cut, the larger the margin, the higher the IRRs. This doesn't give any credit to the TMS but not sure it's going to get much attention until oil gets back to $90 range, it could still be a good play but won't know with little drilling this year. Probably the reason Shell sold the Catarina asset because of the oil cut, not in the top tier. The geology makes the play. EOF is making great returns in the EF oil window. SN does have some of it .
I owned it in the $30s, I think it is a good co. The TMS, at the time, I thought might be a viable play and thye play is probably toast. Will take a look again, they do have a good EF asset, their last acquisition there was a steal. Think it was a Shell sale.
2% interest rate and you can get a 5% yield from a pipeline co. I think this will end with a spectacular blowoff of equity prices, the market at 30x earnings or whatever. And then we have another 08 event. In energy sector, feels like one now but this has been in the making for a decade or more. Will be interesting to watch the next couple of years.
Jerry, have given that a lot of thought and not sure I can answer it except that interest rates are the tool of central bankers to control inflation and we don't have much. The German 10 yr was around .4% today. My thesis is that we are on the verge of maybe long term deflation. The factor that seems to be different from the past is technology, it is driving down the cost of almost everything. The technology of horizontal drilling and seismic has made dry holes a thing of the past. The TV I bought for a $1000 5 years ago can be purchased for $400 now. And who really needs a TV anymore, my kids don't have one. I suspect that rates get lower before something blows up. Probably the market rising to 25x plus earnings or something like that. In the meantime, we don't have wage inflation or commodity inflation. I think it's the Swiss that have negative interest rates, try to get your head around that and how it would affect behavior. If prices don't rise, you have no incentive to buy right away except that you have to pay for the privilege of holding cash. Think about a margin rate now, can get
I don't follow the majors closely, but my impression is they will cut capex before they cut the dividend, most are sitting on held by production acreage, and most don't have much debt load, think OXY is now debt free, don't think CVX has much, and they have have chemicals, refining. XOM is the largest chemical producer in the world. The majors also bet heavily on LNG, which is somewhat correlated but not completely. CVX and OXY both seem good bets for the long term. They both have massive Permian assets, think CVX has 1.5mm acres, and OXY, a million. This is a blip for them. I do think we see other MLPs reducing the distribution and probably a few bankruptcies of c corps, lots of layoffs coming. The headlines won't be good for a while. The over leveraged cos will be in survival mode. Should also see a few acquisitions of core players. Did see that LINE is considering acquisitions, hard to believe they are still in the market. Financing could be an issue. Interesting times.
Jerry, I increased my PAGP position. Kind of a chicken bet on oil recovery. Considered TRGP and SEMG. Not ready to buy e and p yet, seems this is going to play out slowly. BCEI might be a good trade, they will report guidance any day now. Think it will look fairly good, although these increases are not what the market needs now. Will take some time for vol increases to drop further.
Jerry, your guess is as good as mine, probably better. There is an observation that at some point the equities firm up even if the commodity price tanks further. The first downdraft probably pushed prices lower as some were forced to sell. If we go to the $30s, I don't see how we don't reach new lows, may not last but for a day or two, but that's a scary price for investors in e and p to consider. Kilduff did say that he is surprised that it has fallen into the $40s but forecasts now are probably a waste of time. There seem to be enough people throwing out the $30s retest, and at some point becomes a self fulfilling prophecy. I even heard a couple of $20 predictions. I'm still trying to figure out what the long term equilibrium price should be, about the same exercise as trying to forecast when nat gas would get back to $6 again a few years ago, and it never has, not sure gas is a good analog but it seems the price that will continue to expand the shales by a million b/d a year is probably a good estimation. $80??? I almost pulled the trigger on TRGP or SEMG, can't decide which I like better but probably no reason to get in a hurry. Used to think $90 was a good price, but that feels too high at the moment. Not too many are focusing on the demand side and at $1.60 gasoline, the world will use a bunch more.
Just saw an analysis that assumes the surplus is a million bs / day for the first half of this year, and running out of storage. This is kind of like nat gas storage. A million bs is not much when normal increase could be close to 2 mm/d annually. Supply will correct, a matter of how long it takes, and demand will step up, $1.60 gasoline will motivate more use. $50 can't last forever but it's reeking havoc on e and p values. The harder part is trying to pick an equilibrium price going forward. Seems most conventional reserves take $80 or more, oil sands and deep water, and years of development.
Boudreaux, read an analysis on this this a m, kind of. They were estimating the surplus is 1 mmb/d, over six mos, 180mm bs. They said 50mm of capacity on the Gulf, 30mm at Cushing, OECD Europe maybe 50mm, floating could be 100mm. Also China, but they probably have been storing for a while. You can see that we may be running out of storage, if the surplus is 1.5mm, a bigger issue. Even mentioned that global oil could move to the US where WTI would surpass Brent price. Shows that supply has overwhelmed demand, even though a million a day doesn't seem a big deal, but when you don't have anywhere to store it, the price plummets. This will take care of itself but it won't last more than a year or two. And we get back to some equilibrium price. The Saudis could take care of this but they say they won't, doesn't seem rational to me but we are where we are. If they cut, we would see a $20 pop or whatever quickly. Seems the shales are the marginal barrels but at what price. We will need several million barrels a year to replace prod and for increased demand. $100 feels like too much and $60 not enough. Oil sands and deep water used to take $80 plus. At $50, not many wells will make the economics hurdle. A guess, maybe $80, but would be nice also if China and India increased their use. This will be a memory in a couple of years, and won't seem as severe, I hope.
Jerry, Kilduff just on CNBC, thinks the next support is low $40s, and then retest of the lows in the $30s. Interesting though, he said the analog is the nat gas market, low prices and the production keeps on increasing, however some of the nat gas came from associated gas in liquids plays.
The German 10 yr at .45%. Interest rates this low kind of feel like oil at $100 plus, something doesn't seem right but you get used to it. The longer it goes, the more it skews asset values and the more risk there is of another black swan event. Technology has changed the e and p business and it probably will continue to change.