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Inergy, L.P. Message Board

rrb1981 139 posts  |  Last Activity: 2 hours 23 minutes ago Member since: Apr 18, 2001
  • Reply to

    Rig Count

    by rrb1981 9 hours ago
    rrb1981 rrb1981 2 hours 23 minutes ago Flag

    Drilling permits do provide another data point, but also remember that they can fluctuate. I think compiling the 2 data points will provide a better picture especially when trended over several months.

    As for shale production and oil sands, yes, economics are greatly hindered at current prices but drilling will not come to a complete halt. Each respective company will seek to high grade their portfolio and focus on their highest returning assets. Additionally, you will see many operators now choosing to spend within cash flow as credit will be difficult to access. With the reduction in rig activity, service companies will be squeezed for pricing discounts as producers seek to lower their D&C costs. The reduction in rigs and reduction in credit will help bend the growth curve of supply in the US...that is, unless OPEC's step children (e.g. Venezuela, Algeria, Libya, Iran) don't cry uncle first.

  • Reply to

    Rig Count

    by rrb1981 9 hours ago
    rrb1981 rrb1981 2 hours 53 minutes ago Flag

    bluedreamdreamer2,

    Your rig count number is total (both oil and gas). If you look at the reduction relative to just the oil rig count, it is clearly more substantial and of course, my numbers were simply estimates. The actual reduction could end up being more.

    Yes, this could indeed last into 2016. The Saudi's have additional idle capacity that they can easily activate to "flood" the market as well.

    The silver lining for producers is that for the first time in many years, they will have negotiating leverage with service companies.

  • Reply to

    Oil up 6%

    by crk00 6 hours ago

    goskiing99,

    Yes, that is the rather aloof Mark Ellis. He really never understood the beauty and simplicity of the MLP format. He came from a growth c-corp background, where growth was everything. The MLP/LLC format is premised on low decline, low risk mature production, high PDP percentage, stable cash flow profiles, strong capital efficiency, a strong balance sheet with appropriate leverage and of course, aggressive hedging to lock in margins. Unfortunately, Linn abandoned that strategy to become a hybrid. The fact that their efforts to morph Linn into a medusa, combining both growth, income and yield into one vehicle failed is one short-coming, but their near complete abandoning of hedging out crude 5 years has brought the company to its knees is nearly unfathomable.

    Wall Street as has been pointed out, could care less what Linn did in the past, they are looking to what Linn will do in the future. While the 1031 swaps/exchanges were executed quite well, it was, I am afraid, not enough to undue the damage.

  • Reply to

    Rig Count

    by rrb1981 9 hours ago

    Exactly gpd8252, which is why I commented the other day that the E&P sector got extremely fortunate that this drop happened at YE, while companies where formulating their 2015 Capital Budgets. This allows many of them to be proactive regarding rig utilization and commitments. The next 2-3 months will be very telling, with the consensus being that we should expect a generally sharp downward trend. Would not be surprised at all to see 200-300 rigs get idled in 1H15.

  • Looks like US oil rig count dropped by 10, as compared to 29 last week. Canadian oil rig count dropped by 25.

    Certainly not tremendous declines but clearly a step in the right direction to balancing supply and demand.

  • Reply to

    Any Chance for LINE in the Future?

    by jtsaathoff Dec 18, 2014 2:07 PM

    crk00,

    Correct on not reflecting drilling efficiencies, it is reflected in the many budget reduction announcements that exceed efficiencies.

    D&C budgets are falling and overall, rig utilization is dropping but as you alluded to, drilling and completion efficiency has improved markedly, a testament to American exceptionalism and the ingenuity of hard working Americans. Of course, this will allow producers to continue to generate excellent returns at lower prices, even drilling within cash flow. So, while lower rig counts will indeed result in "bending" the growth curve, it is still highly probably that 2015 US crude oil production will rise over 2014 numbers! Now, one must remember that the overall average decline rate of the US is rising quite dizzyingly meaning a real reduction in drilling can be meaningful over time.

    Linn really goofed in not locking in crude oil hedges more aggressively..even though futures were declining, Linn would have been far better served to lock in margins rather than play games hoping for an increase.

  • Reply to

    For all those that bought in the $16s

    by shorting_amazon Dec 10, 2014 2:56 PM
    rrb1981 rrb1981 Dec 18, 2014 10:14 PM Flag

    Volume was indeed heavy. Ought to have total distributions of around $1.10 over the next 12 months.

  • Reply to

    Any Chance for LINE in the Future?

    by jtsaathoff Dec 18, 2014 2:07 PM
    rrb1981 rrb1981 Dec 18, 2014 8:56 PM Flag

    crk00,

    If you are interested in production cuts, look no further than the Baker Hughes rig count report, released every Friday around 12:00 CST. Last week was the first meaningful decline in oil directed rigs, falling by 29. While the rig count does not reflect productivity increases (i.e. spud to spud time), nor does it reflect the ever increasing lateral lengths and EUR increases, it does give a general sense of what producers are thinking directionally and lower rig utilization means producers are going to focus on their core, high IRR properties.

    I'd expect January and February to show significant cuts. Really, the US E&P sector got quite lucky that this "collapse" in prices happened near year end when capital plans for 2015 were being finalized (typically as late as January or February). This allows producers to better plan rig utilization and reduce commitments. As was seen with the gas collapse a few years ago, many producers kept rigs running simply because they were under contract or because they were trying to lock up acreage.

    I'd look for 20-25% of US oil directed rigs to be idled depending on how low and how long crude stays low. In fact, it could drop much more. I would point out that at this point, lower crude prices from here mean virtually nothing to producers in terms of planning which is meaningful in terms of firming up decision making.

    It is actually quite promising to see the sector responding so rapidly in terms of budget reductions. Typically the industry is slow to react, or has been in the past often resulting in long, drawn out recoveries.

    On the bright side, associated gas production may finally start declining, meaning perhaps a slight uptick in gas pricing.

    While Linn management really goofed up with the Hogshooter and Granite Wash (fiascos brought on by the hubris of Mark Ellis wanting Linn to be a hybrid), it should be highlighted that management did an expert job of "pawning" off their Wolfcamp/GW just in time!

  • rrb1981 by rrb1981 Dec 15, 2014 5:20 PM Flag

    Looks like '08 panic again. No doubt, the collapse in oil is a triggering event. This looks like margin/leveraged fund selling and pure panic. Volumes were up across most issues. The midstream sector fared better, but overall, the purge is continuing and will likely continue until oil bottoms. It's just ugly across the whole sector. Linn, even assuming a complete distribution cut, on an enterprise value/ebitda is getting pretty cheap especially with the hedge book. Linn may be better served simply conserving cash and delevering for a year or two while the market heals. The market is clearly not giving any value for income generation.

  • Reply to

    North Dakota

    by jake_stuckey Dec 13, 2014 7:50 PM
    rrb1981 rrb1981 Dec 13, 2014 9:01 PM Flag

    Baker Hughes rig count report from Friday showed a net drop of 29 oil rigs (and a modest rise of 2 gas rigs). Given we are at year end and annual capital plans are being formulated for most companies, it would not surprise me to see a material reduction in oil rigs over the next 2 months. The Permian Basin saw a reduction of around 20 rigs. How long it will take to correct the supply imbalance remains to be seen...

  • Reply to

    Interesting idea for ARP

    by jbcguy Dec 11, 2014 5:36 PM
    rrb1981 rrb1981 Dec 12, 2014 6:16 PM Flag

    $40 oil will result in 300-400 rigs being idled, perhaps more. The best cure for low oil is low oil.

    It might not go back to $100, but I expect $70 within 12-18 months.

  • Reply to

    Fellow Longs,

    by bigbear.2010 Dec 12, 2014 2:27 PM
    rrb1981 rrb1981 Dec 12, 2014 5:15 PM Flag

    Also worth noting that EVEP trades now at the lowest yield in the sector!

    While many things have gone wrong for EVEP, primarily the divestiture of the Utica acreage, they have positioned the company well enough it appears to survive this malaise, perhaps without having to cut the distribution.

    It might work out quite well for EVEP to monetize their midstream assets and deploy those proceeds into oily assets while oil is out of favor.

    While I am not optimistic on crude oil recovering to $100, I believe strongly that within a year that pricing will be back near $70-$75.

  • Reply to

    Baker Hughes Rig Count

    by rrb1981 Dec 12, 2014 9:22 AM
    rrb1981 rrb1981 Dec 12, 2014 3:21 PM Flag

    I didn't look at Canada or International.

    My whole point is that it appears producers may be responding to lower prices. Of course, many are contracted, so they must wait till those contracts expire...so it will be quite an interesting item to watch over the coming months. I think we will see material reductions, perhaps 300+ over the next 3 or 4 months. If crude oil continues to drop, it might drop to 1,000 or lower.

    A very interesting point that Legacy Reserves made during the Wells Fargo conference call was that 30% of the Permian production is something like 3 yrs old or less. The point being that the new production has high decline rates as it has not had a chance to move down the decline curve. And with that, a reduction in rigs likely means a reduction in the growth trajectory.

  • Reply to

    Baker Hughes Rig Count

    by rrb1981 Dec 12, 2014 9:22 AM
    rrb1981 rrb1981 Dec 12, 2014 2:22 PM Flag

    spirallocks,

    You're wrong. Baker updates at 12:00 on Friday. I was looking as 12/12/14 data, which clearly shows oil rig count down 29, gas rig count up by 2 for a net reduction.

    They also break it down by onshore, offshore, miscellaneous etc.

    Oil rig count is down to 1546, gas up to 346, miscellaneous at 1 for a total of 1893, which is...drum roll...27 below the 1920 you posted.

    Use up to date data.

  • Looks like oil directed rig count dropped by 29 rigs since last week (after a rise of 3 rigs last week). I'd expect to see meaningful decreases over the coming months.

  • Reply to

    Baker Hughes Rig Count

    by rrb1981 Dec 12, 2014 9:22 AM
    rrb1981 rrb1981 Dec 12, 2014 1:40 PM Flag

    Baker Hughes rig count shows oil rig count for the week down by 29, gas was up by 2. This compares with an increase in rig counts of 3 last week.

    It will be interesting to see if the decline continues over the coming weeks and months. It seems likely that marginal production will decline and rig count utilization will respond in a similar manner was seen when gas pricing dropped. I believe '15 production is still projected to climb, a function of the momentum of high rig count and wells waiting on completion, but no doubt, a drop, albeit modest, is a sign that producers are responding.

  • Reply to

    For all those that bought in the $16s

    by shorting_amazon Dec 10, 2014 2:56 PM
    rrb1981 rrb1981 Dec 12, 2014 1:07 PM Flag

    Not as thrilled with HGT. They still have some lingering litigation issues.

    I like SBR, especially at current prices, as they have top line royalties rather than bottom-line.

    Also like DMLP. Of course, all of these are down with crude oil dropping. What is nice is that none of these royalty trusts (nor DMLP, which is an MLP) have any debt.

    They are really nice long term plays, especially if you can buy them cheaply.

  • Reply to

    For all those that bought in the $16s

    by shorting_amazon Dec 10, 2014 2:56 PM
    rrb1981 rrb1981 Dec 12, 2014 11:40 AM Flag

    SJT isn't immune from panic selling. With the bulk of their production being natural gas, in the San Juan basin, they are mostly insulated from the drop in oil prices.

    As has been mentioned before, as long as COP ("Burlington Northern") does not ramp up drilling in the Mancos.....SJT should continue to pay out distributions of $.08/month. A decent yield of 6%, no debt on the balance sheet and long lived production make it a nice play, especially if we see a $.40-$.50 pop in gas.

  • Reply to

    Interesting idea for ARP

    by jbcguy Dec 11, 2014 5:36 PM
    rrb1981 rrb1981 Dec 12, 2014 11:09 AM Flag

    I think it is highly unlikely that ARP can achieve a 1.0x coverage. So, a distribution cut seems like the sensible thing to do. The gas side of the business still has a lot of value. The oily assets will be the primary source of pain.

  • Numbers typically released around mid-day on Friday. Will be interesting to see if oil rig count drops, and if so, by how much.

    Last week it rose by 3. Unfortunately, due to commitments, it is not easy for producers to simply release the rigs, but no doubt, I expect the coming months will show a steady downward trend in rig utilization ad E&P's throttle back and drill only in the highest returning basins or to lock up acreage. I also expect many to drill within cash flow. This oversupply will take time to work off, but no doubt the Saudi's are committed to slowing growth and it appears that will happen given time.

    That being said, US oil production is expected to climb in'15 in large part due to the high number of rigs and yet to be completed wells in the US. This is essentially a repeat of the US gas business, that went thru a correction after supply rose (and brought down high prices).

    I don't think midstream players are immune from the sell-off, but I think the US energy sector will stabilize in time and I don't believe oil and gas production will cease in the US!! So, the question becomes, where does oil stabilize?

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