Diamondback is one of the best operators in maybe the best long term shale play. They did almost 26k/d in q4, 15 guidance is 26 to 28k, going from 8 rigs to 3 rigs, spends $400mm, says they will be cash flow positive at $50 in the last half 15. 2 of the rigs are drilling the area where VNOM has the royalty interests. VNOM would be a good bet on oil price recovery. Today, I'm guessing that we pop back to $60 in a few months and it takes a year or more to get to equilibrium of $80 or whatever that new number turns out to be. At $50, we won't see growth in the US this year.
Good SA article on nat gas. I have seen that same conclusion that by 20, the Gulf Coast would be short nat gas. LNG exports will help as well as the power business.
08 was an extraordinary time. We probably won't see that again, the next black swan will be different. Already, the prospect of the US being the leader in oil prod growth while not the high cost marginal producer is being tested. You don't hear much about China's demand for commodities. Freeport is getting killed on with copper and oil down.
Spreads on junk bonds have narrowed from more than 18 percentage points at the end of 2008 to as low as 3.35 in June, according to a Bank of America Merrill Lynch bond index. As oil prices plunged the gap between Treasuries widened to 5.28 percentage points.
Don, don't know, but I do remember back in the late 90s, the 30 yr was at 7% and I was guessing that it would go to what I thought was a really low 4%. I heard deflation discussions yesterday, question of what would be a good deflation hedge play, one commentator didn't really have a good answer. If the 10 yr gets to 1% or whatever and prices drop 2% a year, still a real return of 2%. Gasoline at my station was $1.75 yesterday, heard prices in OK were in the $1.50s. A neighbor was flying to Denver from DFW for $115 round trip. Interesting times. How is deflation going to change buying and investing behavior.
Agree, the ratings don't make much sense most of the time, I try to focus on the target price and how they got there. Haven't seem the report so don't know their assumptions or methodology. Did see an analysis of discretionary cash flow for a group of e and ps and PDCE was actually forecast to be up this year, guess it was the strong prod growth. I am guessing that BCEI can do the same, still don't see how their is a $39/$21 differential in the stock price, should be some but not that much. IMO, markets aren't always rational but it does take some time to play out and sometimes they are. In BCEI's case, I bet it's not rational. Will find out in the near future.
DB initiated with Hold, target $30. Wonder if they did this in anticipation of good guidance, where is that release?
Analyst Josh Silverstein said, "Focusing in the oily Northeast Extension area, BCEI has consistently delivered
strong results and top-tier margins while adding resource via the drill bit and accretive acquisitions, providing visibility to the forward outlook. Possessing a catalyst rich calendar, we see the NAV well supported against a lower commodity backdrop from BCEI s upcoming drilling program, providing inventory and efficiency gains to spur future growth."
"In our view, BCEI stands out amongst smid cap E&P peers as a high-quality pure play DJ Basin oil growth company, although anticipated balance sheet leverage (2.2x YE14 moving to 2.7x at YE15 at $65/bbl oil) and fighting a strong decline rate (little base volume compared to other producers), keeps up cautious near term," he added.
Looked at a JPM report on their coverage group, about 20 cos, most of the big e and p s, EOG, PXD.... They see flat growth if the group assumes $50 price for 15. If you assume $60 for the next couple of years, prod increases around 400kb/d each year, they increased 800k last year. Their conclusion is the marginal high cost barrel is not the US shales, makes sense. With cost coming down, prices might not get back to $90 in the medium term, and we still get vol growth from the top tier shales. And that fits my bias for midstream, growth won't be maybe as robust, but maybe 500kb/d will need more infrastructure. Who knows, lots of forecasts being made in the changed environment without OPEC influence, maybe, still not convinced that they won't come back. Oil price has become the destabilizing factor for the market short term. Rates for 10 yr
Heard a comment today, that oil in the past 30 years has fallen 50% in 6 months, and in the next 6 months, on average, rises 50%, that would get us to $75. Seems we are going to have to lay down rigs in the marginal plays, should happen. And the comment that volatility will be less in the future with the short cycle shales being the marginal supply, they can ramp up or down in months vs years. But who knows, seems new territory. We'll find out in the next year. Seems there was a lot of capital chasing the new plays, MPO, HK... Would guess they don't come back, you then have cash flow to support growth and that's going to be less. And the conventional plays still need $80 to $100, I think, at least haven't seen anyone claiming otherwise. Just like everything else, technology will continue to change things.
Birdog, that's a good question, seems should bounce back quicker but would ramp up faster, and we have to see hedges roll off. The analyst indicated he thought after we stabilize, we would see less volatility, with short cycle marginal barrels. I'm not sure anyone knows for sure, kind of uncharted territory. And is OPEC really gone, the Saudis could decide to stabilize at some price in the future, does make sense that now that projects don't take years, oil sands, deep water to come on line, that the volatility would be less, is that good for traders, seems good for investors. I'm still bullish on the midstream, but it could be less growth for next few years, same thing, the smaller players will be merged. Hi to Teresa.
Interesting comment, oil down 50% 5 times in last 30 years in six month period, on average, rebounds 50% within 6 months. But the difference is the shales are more short cycle than the reserves in the past.
Bought some OKE today, at $41, div could be $3.20 in 17, that's a 7.8% yield. Commodity exposure but betting prices recover later this year. My first choice was WMB but I already own to much, they have less commodity exposure, the div should be $3.25 in 17, around the same yield. Upside for OKE is they could be an attractive target for someone else. Had to remind myself, buy low and never sell.
Listened to the Goldman head of commodities, see $70 Brent in 12 mos. Thinks new paradigm with the shale quick ramp up and down vs conventional projects that take years. Shale is only 5% of global volumes, shows the magnitude of the new supplies at the margin. Did say that capital flows are the key to keeping prod growth going, I'm not sure that private equity and others will be as quick to dump more money into shales as quickly, and hedges will only help cash flow for a while. Would bet individuals will be more reluctant to supply capital. i do think we are in a new world for oil with OPEC seemingly gone, if they really are. A surprise would be a reversal by the Saudis to help the market, psychologically that would boost prices rapidly. Conventional oil was not the marginal supply at $100 oil, has that changed, don't think so. The shales are the marginal supplies, at what price? It's not $50.
PAGP is up again today, seems the lesson there is if most of the midstream growth for the next couple of years is locked in, fixed revenues and de bottlenecking, should rebound. Even at $70 Brent, the core shales will do well and will need plants and pipe.
They see $70 Brent in 12 mos. They think new paradigm, lower volatility in future because of shorter cycle of shales, months to adjust vs years with conventional reserves. Shales are only 5% of global production. Interesting that they can always see it clearly after the fact, and then you get some disagreement. Venture a guess that this doesn't take as long as it could have in the past, although the 09 rebound was fast but a lot of that was macro global, more demand. More China would help. Does seem we are going to get negative headlines in the the next few months, bankruptcies, layoffs, but also mergers which should help some.
Goldman, If I read correctly, lowered q1 price to $40 vs $80. See year in $50s. They don't know much more about what's going to happen than we do. Going to take a while for the flow to drop. Seems a perfect storm, OPEC gone, ME relatively quiet, global growth weak, 15 hedged. Probably the time to buy long term and forget about it for a year.
Wow, these are the gurus most look to. So they think oil will be in the $40s vs $80 this quarter.
Analysts at Goldman Sachs cut their three-month forecasts for Brent to $42 a barrel from $80 and for the U.S. West Texas Intermediate contract to $41 from $70 a barrel. The bank cut its 2015 Brent forecast to $50.40 a barrel from $83.75 and U.S. crude to $47.15 a barrel from $73.75.
Some of the down moves make no sense, at least the magnitude, CNNX IPOd few months ago $22, never saw that, $30s, now below the IPO price and the revs are fee based from Noble and Consol, lots of drop downs to come. Also ENLC, Devon midstream, all fee based, again lots of drop downs coming. CNNX has no debt. Growth will be less in e and p, but the CNNX assets are in the middle of the Marcellus/Utica, the lowest cost play in the sector.
Seems the reach for yield has pushed the REITs to over valued. They really look over done compared to the MLPs which are at 400 b pts spread to the 10 yr. A bunch of the MLPs don't make sense, CNNX, Noble, Consol's midstream came out in high $20s, went to low $$30s and is now is $22. And all of their revenue is fee based from the two sponsors with billions of drop down opps. Have to believe there is going to be a dramatic reduction in Appalachian drilling but looks overdone.
The REIT dividend yield is 2.8%, or 80bp above the 10Yr Treasury (vs. 120bp LT average)