Oil is down before Iranian nuclear talks finish due tomorrow night. But large cap oil traders are buying, perhaps using ETFs as all large cap oil stocks went up.
Traders may anticipate better oil inventory report due on Wednesday that will be very interesting. We may see the start of production decline and substantially less inventory build. If not on Wednesday-in 2-3 weeks.
This article is for a special interest traders. EIA revises its predictions several times a year. Its current prediction mentioned in the article is obsolete, based on Dec 2014 information and does not include recent drop in rig count and demand increase.
Storage crisis is not an issue, It was exaggerated by the special interest groups. In fact the current storage level is at ~60-65% of its capacity.
Based on historical completion of annual refinery maintenance for summer blend and the start of driving season, demand in Q2 and Q3 historically increases by 200K bpd and 600 bpd respectively on average, some analysts think even 1mm bpd is more likely this year.
From the other side production will start falling in a few weeks resulting in supply/demand equilibrium. Production rose just 3K bpd last week, down from 40-50K bpd on average this year. I think after reporting falling supply for a few weeks EIA will revise US production prediction for 2015 and 2016 downward.
Oil prices are more likely to rise than to fall starting in a few weeks. The only wild card is US-Iran nuclear negotiations. If no agreement achieved, oil prices wills tart rising, if achieved-this trend may delay for a few months until demand rises by 1mm bpd and world production drops by 0.5-1mm bpd.
PWE recorded goodwill impairment charges of 1.1b mainly due to lower forecasted commodity prices, plus 78mm for disposition.
The remaining goodwill balance of 734mm only relates to core properties- the Cardium,
Viking and Slave Point.
PWE also recorded huge PP&E impairment of ~633mm.
So future next year impairments will be very small if any, and only if oil prices remain in these depressed levels that is very unlikely.
So the current book value looks stable unless they sell assets at huge discount. Roberts is known for keeping value.
I would not buy straight based on proven or p+p reserves. In the low oil price environment the main question is the reserve quality, or the cost of oil extraction. High quality assets are profitable at current oil prices, but lower quality-are not.
PWE has different asset quality. Roberts did a great job of disposing some low quality assets at decent prices in 2013 and 2014 for paying down debts. But the job is not completed. 500mm-1b more asset sales are still in his goal to completely eliminate future covenant issues.
Roberts made huge mistake by not hedging at least 40-50% production until the asset job is completed, and stock holders pay the price. The current below curb share price reflects the fact that PWE average asset quality is not economical at current oil prices. So if you consider buying PWE shares at current almost 5 times below book levels, you need to understand oil price movement first, and have a thesis for oil to return to asset profitable levels, or ~$60-65 WTI. Then reserves would make sense.
The Roberts's mistake created the basement level stock prices with tremendous opportunity for those who believe in oil to return to asset profitable levels. But it's not easy. Potential for sale assets are not salable for decent prices at current oil prices. GLTAL.
True, 90% down from last year at this time. Canada has essentially stopped drilling. But Canada drills mostly conventional wells so the drop in rigs would effect ~5-6% of production in the next 12 months.
US oil rig count dropped just 21, but 17 of them are horizontal for a total of 812 down from 1211 last year. We'd likely need 600 for significant drop in production.
If oil prices do not rise in the next 3 weeks, producers will start the 2nd wave of rig reduction in Q2.
A lot will depend on US-Iran negotiation until Tuesday. if not Obama sanctions would never be lifted until Iran stops its nuclear programs. But Obama continues playing his dangerous game.
There are some evidences to believe it is.
Today's inventory report was bearish for oil prices...from the surface. Storage was increased by add'l 8.2mm barrels consistent with prior weeks.
But WTI prices after initial drop have rebounded strongly and closed at highs with visibility of $50 again. There's a great chance prices to break out $50 on Friday after the rig count report.
So why prices were rising instead of falling? Media says -because USD fell. But my belief is traders think we are awfully close to equilibrium. I was posting about the end of March back in early February, but being precise is impossible, and I currently think we should get there in 2-3 weekly reports covering end of March-beginning of April.
Two requirements to be met: production decline and demand growth. Production was growing each week in Q1 at ~40-50K bpd on average. Here's data from the last 4 reports:
Date production increase Crude-Gasoline-distillate=Total
2/27 9,324 +39K 10.3 - 0.0 -1.7 =8.6 mm barrels
3/6 9,366 +42K 4.5 - 0.2 +2.5 =6.8
3/13 9,419 +53K 9.6 - 4.5 +0.4 =5.5
3/20 9,422 +3K 8.2 - 2.0 -0 =6.2
As seen production has increased by only 3K bpd last week, or was essentially flat. We should see production to start declining in the next 2-3 weeks based on depletion of peak fracked wells completed in January. We may see the start as soon as next week. This would be the 1st prerequisite of equilibrium.
The 2nd is demand increase. We are exactly at the seasonal turning point when demand starts picking up due to summer driving. In 2-3 weeks refineries should finish annual maintenance to switch to summer blend gas and utilization rates should rise from 87% to 92-93% taking 1 mm bpd more crude. That would result in 7 mm barrels per week. Take a look at total current imbalance from the last column of the table. We should see the equilibrium in the next several weeks.
Oil prices should continue rising at least to $60 IMHO. GLTAL
Sentiment: Strong Buy
Correct, this is not stock option transaction, he really bought shares in open market at the average price of 2.3034 according to SEC filing. I'm not in the stock yet, but am considering purchasing a little as a speculative play. Would be nice to see more insider buying from top executives.
Don't get me wrong, the article is nice and detailed and importantly oil price direction is correct.
However comparison with previous cycles and using previous charts are not quite relevant as different depletion rates are for older traditional wells (5-6% a year) and new fracked wells (50-75% a year). For that reason production decline from the peak starting in 2-3 weeks. will occur much faster than previous charts indicate due to substantial reduction in horizontal rig count. Vertical rig count drop will impact much slower-similar to previous cycles.
3 weeks more is for safety. Oil is likely has already bottomed.
Historical comparisons to previous cycles are very inaccurate because different types of wells and depletion rates. In the past almost 100% wells were traditional with depletion rates of 5-6% a year. Since 2011 75% of new incremental wells were horizontal fracked wells with depletion up to 75% a year and 25% in just 2-3 first months.
So 75% of recent US production increase since 2011 (~4 mm bpd - verify) is from fracked wells that will deplete 25% or ~4.0 x 0.75 x 0.25 = 0.75 mm bpd in 2-3 months after a peak in January. Horizontal rig count dropped by 40% resulted in ~0.3 mm bpd production decrease.
So why production was still rising? The reasons are different than indicated in the article. There are 2 of them: first - horizontal rig count started declining in the last week of January so there wasn't sufficient time for recent new wells to deplete, but they will in 2-3 weeks. Second and more important - a lot of large projects were completed in the deep sea drilling in the Gulf of Mexico in Q1 adding substantial production increase. But that incremental increase is finished. We are leveling off now and should see production decline very soon.
However oil prices is likely have already seen the bottom. GLTAL.
Sentiment: Strong Buy
Yahoo is not reliable for sure. But at times it is close to reality. Book value based on asset values is never counted with current commodity prices. It is based on historical normalized prices that are substantially higher than current oil and gas prices. Companies tend to reduce book values by recording goodwill losses at times of business bottoms to maximize paper losses that will be applied to offset future gains for tax purposes. PWE did huge write offs last quarter with expectations of Q1 bottom in business. Even if they will likely record operational loss in Q1, it is very unlikely they will record more goodwill loss. Book value in Q1 will be reduced very insignificantly-by amount of operational loss, or ~100MM. However in Q2 operational gains due to zero capex for drilling will likely offset Q1 loss. GLTAL.
Sentiment: Strong Buy
Plenty of emotions, but Q4 report wasn't bad, was it? It blew away all bear arguments about insolvency. PWE has proactively fixed future potential covenant's issue.
New ratio was raised to 5:1 for 2015 to stop thinking about insolvency. Extra fees may be incurred in exchange for higher ratios. Details will be provided by April 15
ER confirmed everything Roberts provided in his recent interviews and presentations.
$175 capex in Q1 with no drilling in Q2 due to break up period. Short fall in Q1 should be ~100-120 that could be almost compensated by Q2 surplus IMHO.
H2 capex will be provided in 2 months based on oil prices.
Roberts made huge mistake by not hedging 40% of production almost everyone did. But it wasn't intentional, people make mistakes. The questions is what's the harm to the company he did?
Resulted in issue new notes? NO
Resulted in more shelf registration and dilution current shareholders? NO
Increasing current debt? Yes, likely a little, perhaps $100mm max total in H1 after downsized capex.
Bottom line-no damage to the company. Roberts actually saved PWE by selling assets at high prices in 2013 and 14. As a compensation we got rare opportunity to purchase at $1.51 for several fold investment. The only risk remained is if oil prices stay at these levels for more than 2 years, but I see less than 1% chance for it. It is no brainer buying at current prices. I bought more today.
Non-producing assets sales will be postponed at current oil prices. Instead PWE will sell royalty interests and the Waskada play in Manitoba in Q2. PWE could get 350-550 mm for both IMHO. That would help in 20% debt reduction while additional 650mm in non-producing asset sales will be moved further until oil prices recover. At such scenario the total debt will be cut to just 1 bln or so, when entire program is completed, likely in 2016
Don't be surprised in increase of buying activity by insiders since tomorrow when black period is lifted. GLTAL
Sentiment: Strong Buy
It's everyone's choice, but I don't listen to anyone. I have my own spread sheets and do my own calcs. Of course I compare my expectations with others. I suggest to ignore extremists. $20 and $30 predictors are extremists. There are so many variables that change every week that it is stupid to predict extremes.
EOG, Continental, Cimarex and Pioneer CEOs are close to reality IMHO. They know from inside. All CEOs act like monkeys in my view. Once the best of breed (EOG) who was increasing oil production by 50% annually on average since 2009 announced dramatic reduction in fracked rigs, cut completion of wells by 45%, cut capex (40-45%) and guided flat production, others big companies will follow exactly same way and adjsut their plans accordingly.
I change all info in my spread sheets weekly. I admit I was disappointed with today's rig counts and made appropriate changes. Hope it was anomaly.
EOG plans flat y-o-y production in 2015. However it increased US production by 33% in 2014, plus ~8% in Q1 2015. In other words the current Q1 production is ~25% higher than the midpoint in 2014. That means production will decline sequentially from Q1 by a total 20-25% to achieve flat with 2014 midpoint.
EOG has outstanding balance sheet with lowest production costs and can afford much more production, but said they were not interesting to sell more oil at current prices.
Others will follow to keep same market share IMHO. GL
Sentiment: Strong Buy
US total: dropped by 48 to 1310, down by 461 from year ago, or 26% (23%)
Canada total: dropped by 22 to 360, down by 272 from year ago, or 43% (38.8%)
US OIL: dropped by 37 to 1019, down by 406 from year ago, or 28.5% (25.8%)
US NG dropped by 11 to 289, down by 53 from year ago, or 15.5% (11%)
Directional: up by 5 to 128, down by 69 from year ago, or 35% (38.8%)
Horizontal: dropped by 46 to 979, down by 203 from year ago, or 17% (13.4%)
Vertical: dropped by 7 to 203, down by 189 from year ago, or 48.2% (44.7%)
Last week percentage is shown in brackets for comparison.
The total rig count drop has slowed down considerably last week, just 48 compared to 80-90 in previous few weeks. it may be temporary deviation or something else. We'll see next week. Regardless we are going in the right direction with sequential reduction in each category. Even NG rigs have joined the club and dropped by for the 2nd week in the row.
Vertical dropped just 7 with the total drop by 48.2% from last year (not from high) reaching historical level of 50% for a cycle.
Directional was actually up by 5, but the total count is very small with little impact on the market. They show a singn of bottoming.
The most important horizontal rig count was down by 46, the largest drop among all categories by far, but still less than previous 2 weeks of 63 and 80.
We have finally achieved less than1000 horizontals. The next important milestone-800 by the end of March to get 33% reduction.
Williston (5), Permian (6), Mississippian (6), Eagle Ford (4),-see the biggest drop in rig count, mostly concentrated with horizontal rigs. But Permian drop has slowed dramatically from 49 to 6.
This is the largest fracking area with more work for reduction. GLTAL
Todays' drop was too small and traders pushed oil prices slightly lower. Additional pressure is from weak euro (stronger USD) during Greece bailout extension negotiations ending today.
NG looks a little bit more optimistic.
Sentiment: Strong Buy
John Adams: "Facts are stubborn things, but they are the facts." (with little interpretation).
BTE has twice as less reserves than PWE, but trades at $3.02 bln market cap vs PWE at $1.17 bln.
In other words PWE is almost 6 times cheaper in terms of reserves.
PWE production is 95K bpd at the midpoint for 2015 vs. 86K midpoint for BTE. In other words PWE is 3 times cheaper in terms of production.
PWE produces 67% light sweet crude, but BTE - 40% heavy crude, 33% only light crude and 9% NGL.
Both PWE and BTE have some hedges on NG
PWE has no oil hedges.
BTE oil hedges:
Q1: 18K bpd or 21% only - at ~$96 on average
Q2: 10K bpd or 11.6% only - at $96 on average
Q3 and 4: 4K bpd or 4.6% only at $96.
In addition: until Aug 15: 5,608 bpd, or 6.5% only for only $10.63 above market prices. This is very tiny hedge.
Overall: most hedges (21% only) will expire in Q1. After that BTE will be exposed to market prices almost same way as PWE. And they got new favorable terms for covenants from lenders. Facts. GLTAL
Sentiment: Strong Buy
This is good news for PWE also as PWE will likely announce similar changes at the ER on March 12 or earlier.
"The unsecured revolving credit facilities had established financial covenants of senior debt to EBITDA (twelve month trailing) at or below 3.0:1, senior debt to book capitalization at or below 0.5:1 and total debt to EBITDA (twelve month trailing) at or below 4.0:1. In response to the precipitous drop in crude oil prices, our banking syndicate has agreed to revise the financial covenants. Effective for the quarter ending December 31, 2014, our revised financial covenants will be:
• Senior Debt(1) to EBITDA(2) ratio of 4.75:1 for a period up to and including the quarter ending June 30, 2016; stepping down to 4.5:1 for the quarters ending September 30, 2016 and December 31, 2016 and stepping down to 3.5:1 thereafter;
• Senior Debt to Book Capitalization(3) ratio of 0.65:1 for a period up to and including the quarter ending December 31, 2016; stepping down to 0.55:1 thereafter; and
• Total Debt(4) to EBITDA ratio of 4.75:1 for a period up to and including the quarter ending December 31, 2016; stepping down to 4.0:1 thereafter."
PWE, staying the course
Sentiment: Strong Buy
~$1 down from yesterday, but well up from today's low of 49.15.
Tomorrow will be weekly rig count and March futures expiration. Will get some movements.
Every week works for bulls. Oil stocks are bought on any weakness. GLTAL
I agree. The only I would correct - I would not use "Efficiency" applied to rigs. This term is wildly used, but for wrong reason. Efficiency is applied to equipment (energy efficiency).
In the case of rigs producers move drilling activity to most productive and valuable fields (who have them). EOG new wells in Eagle Ford produce up to 3000-4000 bpd in the 1st month vs. ~1000 bpd from other fields. During low prices environment they reduce rigs dramatically, but still maintaining production.
However not so many sweet fields and this strategy will end soon with "efficiency" to drop.
PWE will likely move more capex to Viking where drilling time is jsut 2 days and cost of $800K per well or 3-4 times less than Cardium. As a trade off production will drop 3-4 times faster due to low pressure in Viking. GL
Agreements and disagreements are right things in discussions.
Last Jan/Feb many wells were shut down due to extremely cold weather resulting in artificially and temporary low production. This year it is n't the case. January and the 1st half of February reflect the highest drilling activity in November 2014.