Today, I think I would buy DNR, I like the 6.5% yield which I think may survive, would be hard for the CEO to change course at this point. And I would buy OXY. I like CRC, massive potential but it is in California, as Birdog said, it might as well be Nigeria, or Russia. Or you buy all three. DNR and CRC could triple with an $80 stock price. OXY would double. The OXY div is safe, they have very little debt and could sell PAGP and the CRC stake and almost eliminate all of debt. With OXY you get EOR, Permian shale and some global, ME and Columbia. DNR mgt is questionable but the value seems compelling if you believe in higher oil, I do. Today, I'm really neg on nat gas, I don't think it could get out of $3 range for years. DNR is 95% oil.
Looked at OXY pres, they call their EOR business their most profitable, looks like costs are comp to DNR low to mid $20s operating costs. And they seem bent on maintaining their div, you can make 6.5% while you wait for oil to recover. $68k/flowing barrel. Debt is high but maturities are few years away. DNR at $3.80 seems a good bet. OXY at 4% yield, probably not the upside but the largest producer in the Permian, shales and EOR. ME exposure. Chemicals exposure as well as export opportunities. Owns part 12% of PAGP and 20% of CRC, which has to be divested. Seems both for different reasons would be good bets for oil recovery. Seems DNR should be on somone's radar, unique asset.
Looked at 10q, looks like 280mm warrants still out, most recently bought back at around $3 avg, reauthorized $100mm buy back. I don't do options but have owned these warrants in past. If Williams deal is finalized and price is still in same range, might buy some. I would bet the company will be buying a bunch at these levels.
The $40 Jan 17 options are selling in the $1.40s and the warrants are May and lots of liquidity, don't know how many they have bought back, would think they will now, Kinder thinks the stock is cheap, he bought $3mm of it, but that's pocket change for him. But would guess there are a bunch of cos with the same leverage with a higher oil price. KMI rightfully so says it is not so dependent on commodity prices. KMI could be paying maybe paying $2.30 end of next year, 6.5% yield, seems too high in a 2% 10 T note environment. $2.30 at 5%, $46 stock. It is risky with the 20 mo expiration.
Read through an interview of CRC CEO with Paul Stankey. Not sure the risk of California coupled with the debt is worth it. But a quote was memorable, CEO said he had higher up in the military, who said something like "a lot of precision but little accuracy", feels like what we have in the oil markets right now. But those are the time when big profits are made if you can get the trend approximately right. DNR with the warts could be a good bet longer term.
And you still have Eddie trying to fund his next big deal at ATLS, he will pay the ARP dist as long as possible for the cash to invest in his "growth" story. If nothing, he is consistent. Investors with him at this point get what they deserve, he and Lee deserve each other.
Your position is what we need in the market for oil to recover. The Saudis if you believe analysts are close to full out production and Iran's up to 500kb/d shouldn't be an issue next year if we have 1.5mm/d of demand growth next year. All of those producers need the cash flow. We are going to test to see how productive the US shales really are, can they do multiple mmb/s at $50 oil, don't think so. Going to take $70s price cue before cos increase activity.
Do think nat gas is mired at $3 for a long time, more I think about it DNR feels like a good bet on oil recovery, where can you find a 95% oil producer. Most of the Permian players, great potential, produce 30% gas with their oil production. DNR for a couple of years out, seems an easy double or maybe quadruple.
if you tried to sell the ARP today, couldn't come close to covering the debt. No wonder chemical cos want to be here, the cheapest feedstocks in the world, and probably stay cheap for years. Only value is the hedges and when they are gone. Cut the dist and hope for survival is probably the best course. Oil will recover but it won't be enough, soon enough.
Spending a lot of time on oil recovery is academic for ARP, 3% of proved reserves are oil. Just looked at an analysis of App gas, cos there can produce at a dollar per mcf, and their correlation suggested gas is could continue to sink, not sure it will exceed $3 for a long time. EQT just had a 73mmcf/d Utica well. ARP can't compete with App gas. And the scenarios for oil, that cos can supply the world at $60, not in that camp, then there will be lots of more associated gas with the increased oil production, 2 or 3 mm bs/d more per year, or price gets back to $70s next year, still a million bs/d of add'l volumes. Either way, coupled with the endless supply of nat gas from App, nat gas cos outside of App won't see profit for years, and the App producers will make less every year. The e and p MLPs are doomed. Gas exports seem the only way to higher gas prices and that's too far off. Do think oil gets back to $70s next year but won't be enough.
Core Labs seems to do a good job of trying to project vols, see 9.2mmb/d end of year, falling further into 16. Still think if $60 persists, could see 8.5mmb/d by mid year. I suspect it's going to take the strip showing $70s before cos crank up again. On demand side, still could surprise on up side, Boone sees 2mmb/d. Core comments below.
The Core team believes United States production could fall by more than 500 MBOPD from April 2015’s peak rate of 9,701 MBOPD (according to information from the Energy Information Administration). The dip is expected to continue into 2016 and flatten out the supply/demand imbalance that currently weighs on the market.
Demshur explained, “With respective decline curve rates of 70%, 40% and 20% for the first three years of production in these tight oil plays, significant year-over-year declines will manifest themselves as 2015 progresses, and then into sharp declines if activity levels remain at constant levels in the 2016.”
Looking at the other side of the coin, the affordability of oil has led to the International Energy Agency projecting a demand increase of 1,400 MBOPD. But CLB management believes United States onshore activity will be the last to recover due to generally consistent volumes from international markets and the timing of numerous offshore projects. Refracturing opportunities in the onshore U.S. have been a common topic, and Core estimates the discussions it has held with customers are divided 60/40 in favor of gas projects.
Birdog, an options, actually warrant, bet. KMI warrants expire 5/17, right to buy KMI at $40. Selling for $1.50 now, KMI says it will pay $2.20 div next year, 4% yield, $55 stock, $15 warrant value, 5% yield, $44 stock, $4 warrant value. Problem is little less than two years. 4.5% yield, $49 stock, $9 warrant value, 500% return. Oil recovery and KMI should be pushing $50 in a couple of years.
Forgot my favorite co after Williams, PAGP, if the shales supply the world, doubtful, but even if it continues at a million bs more a year, PAGP will have years of growth. Also just read a piece on moving downstream, the US export opps, that's why ETE wants WMB and a PSX/WMB would be a good one also. Would be nice to get another offer, drive up the price some. Will be disappointed it they let ETE get away, should be booted if they do.
Park, sounds like all eyes are on China, just read the Bridgewater comments. The whole world is dealing with the same issue, govl manipulation of economies, not much different from the Fed here or Europe. This is what Peter used to bang the table on, the new normal, but so far we haven't collapsed. The longer it goes, the better off we will be. I am fully invested, don't want to margin more with rates going up but I can't see how oil stays at $50 for long. We had four years of $100 oil and the rest of the world outside of the shales found no oil. So why would it be there now outside of Iran, the middle east. And the shales prod is level now, should begin to drop. As long as the world keep needing 1.5mm bs/d more plus decline replacement, prices need to be higher. What the new price is and when we get to equilibrium is still up in the air, 3% global growth will work. I'm betting that year end we are starting to see strength, Boone says $70, seems a little high high but who knows. DNR at $70s is a $10 stock, $90, $20. But could say the same for most e and p s. I'm sticking with the infras cos, if you had to pick, PSX/WMB or ETE/WMB, KMI, EPD. OKE and TRGP end up with one of the others. On the e and p side, anything Permian, PXD, FANG, Concho, XEC, OXY..... They have a 100,000 wells to drill and decades of activity.
Thanks for commments on China, probably the market driver for a while, positive side is no commodity inflation for a few years. No Fed concerns, they just need to work off the balance sheet.
Feels like great buys everywhere in energy if you believe in a recovery in oil. At some point, the sellers are going to get exhausted. This is over done but it's going to take awhile to turn around.
ATLS in $2s, what a travesty. Will venture to say that the ATLS/ARP won't survive. And he'll come back talking about his great value creation with the sale to Chevron. A Utica well ipd at 73mmcf/d, gas won't get out of the $3s for years, in fact if oil comes back strong, the associated gas coupled with Appalachian gas could overrun the market. Not sure it's a good value until the dist is eliminated and it's selling for $2. Not sure I'd buy it then. Even if oil comes back, still won't be enough.
Birdog, know how you feel about CA but CRC looks like a cheap oil buy. 800mmbs of proved reserves for $8 billion EV, makes DNR look expensive. PV10 last year was $16billion. 2.4mm acres and decades of potential. It's back in the $4s too. 160kbd prod, 70%+ oil. Not spending much to maintain vols, does have high debt. If the reserves were in TX, would be a $20 billion co.