All posts in category Bakken

Shale Production Depressing Oil – (as well as nat gas) ( Bloomberg)

 

August 2

The shale boom that sent natural-gas prices to a 10-year low is being felt for the first time in the oil markets.

Williams Partners LP (WPZ) joined Marathon Oil Corp. (MRO) and Devon Energy Corp. (DVN) yesterday in blaming a glut of propane and related products for lower profits in the second quarter. Spectra Energy Corp. (SE) and Apache Corp. (APA) followed suit today. Next week more companies are expected to show the effects of falling prices for so-called natural-gas liquids used in backyard barbecues and motor fuels as producer Chesapeake Energy Corp. (CHK) and Targa Resources Partners LP (NGLS), a pipeline and storage company whose trading symbol is NGLS, release earnings.

Enlarge image Gas Liquids ‘Bloodbath’ Brings Shale Pain to Oil Market: Energy

Gas Liquids ‘Bloodbath’ Brings Shale Pain to Oil Market: Energy

Gas Liquids ‘Bloodbath’ Brings Shale Pain to Oil Market: Energy

George Frey/Bloomberg

Gas liquids supply from the Rocky Mountain region of the U.S. has increased at a 47 percent compound annual growth rate since 2006, when explorers first started seeking to add more liquids to production, Tudor Pickering said in a July 12 report.

Gas liquids supply from the Rocky Mountain region of the U.S. has increased at a 47 percent compound annual growth rate since 2006, when explorers first started seeking to add more liquids to production, Tudor Pickering said in a July 12 report. Photographer: George Frey/Bloomberg

The “NGL bloodbath,” as it was dubbed by Tudor, Pickering, Holt & Co. last month, is rippling across the oil and gas industry as explorers cut production and reduce cash flow projections, service companies forecast lower demand for drilling rigs, and pipeline partnerships suffer falling revenue for their gas liquids processing plants. The price of an ethane- propane NGL mix was down 58 percent yesterday from a high in January, outpacing the 19 percent drop in crude from a February peak.

“The same thing is now happening to liquids that happened to natural gas itself,” said James Williams, an energy economist at WTRG Economics in London, Arkansas. “We now have too much. We have an oversupply, so it’s depressing the price.”

NGL Disappointment

U.S. energy producers had counted on more lucrative oil and gas liquids to lift profits as the price of gas in New York tumbled earlier this year to an intraday low of $1.902 in April. As companies drilled for more liquids, the same oversupplies that gutted gas prices began to deflate NGLs.

Gas liquids are a heavier, or “wetter” component produced along with natural gas, and can include ethane, propane, butane, isobutane and natural gasoline. Gas liquids supply from the Rocky Mountain region of the U.S. has increased at a 47 percent compound annual growth rate since 2006, when explorers first started seeking to add more liquids to production, Tudor Pickering said in a July 12 report.

With demand staying flat while supplies rose, the average price of a mixture of ethane and propane plunged 53 percent in the second quarter from a year earlier, data compiled by Bloomberg show.

Williams, which gathers and processes gas from the Gulf of Mexico to Wyoming, said its net income fell to 29 cents per unit from 91 cents in the same quarter of 2011.

Negative Effects

“Our earnings were negatively affected by a rapid, significant decline in NGL prices,” Alan Armstrong, chief executive officer of parent Williams Cos. (WMB) said in a statement. The warm winter and downtime at chemical plants that consume NGLs were the main drivers of the decrease, he said.

Pipeline companies Targa and Enbridge Energy Partners LP (EEP), both based in Houston, which process gas to separate NGLs, warned of lower earnings in part because of the collapse of liquids prices. Both companies get revenue by keeping and selling a portion of the liquids they produce at their gas- processing plants, according to T.J. Schultz, an analyst with RBC Capital Markets.

Enterprise Products Partners LP (EPD), the second biggest U.S. pipeline operator, is moving away from that practice in favor of charging a flat fee for processing, Chief Executive Officer Mike Creel said in a conference call yesterday. The company claimed 96,000 barrels a day of NGLs in the second quarter compared to 120,000 a year earlier.

Devon Shift

Rapidly falling gas liquids prices and NGL plant shutdowns contributed to earnings declines at Devon, which sold NGLs for an average of $31.42 a barrel in the second quarter, 26 percent less than a year earlier. Oklahoma City-based Devon now is moving some of its drilling rigs away from gas and gas liquids fields to look for oil, Chief Executive Officer John Richels said on a conference call.

Marathon, based in Houston, cut its rig count in Oklahoma’s Anadarko Woodford formation to two from six because of lower NGL prices, which were to blame in part for a 5.8 percent decline in second-quarter net income from the first quarter, the company said yesterday.

Apache’s net income dropped 72 percent from a year earlier after realizing less than $34 per barrel for NGLs in the second quarter, the company said in a statement. That was less than the $38 that Eliot Javanmardi, an analyst at Capital One Southcoast in New Orleans, estimated.

Spectra’s profit fell 25% to 33 cents per share, and low NGL prices will affect its earnings for the rest of 2012, according to the company’s statement today.

Chesapeake Energy

Because NGLs comprise about 60 percent of Chesapeake’s overall liquids production, lower prices will have a significant impact on the Oklahoma City-based company when it reports earnings Aug. 6, said Mark Hanson, an analyst at Morningstar Investor Service in Chicago.

“There’s lots of moving pieces with Chesapeake but we’ll probably see a downward revision for operating cash flow this year” as a result of falling NGL prices, Hanson said in a telephone interview. The negative effects will extend into the rest of 2012 if the NGL market continues to deteriorate and Chesapeake accelerates production of those commodities, he said.

Service Companies

Service companies also felt the effect as cutbacks trickled down to drilling operations. Nabors Industries Ltd. (NBR), the world’s largest provider of land drilling rigs, said the market deteriorated sharply toward the end of the second quarter.

“Operators are even more reluctant to sign contract extensions of meaningful length since both cash flow and drilling budgets are declining,” Tony Petrello, chief executive officer, said on a conference call.

In some areas, Houston-based Baker Hughes Inc. (BHI), an energy service provider, is seeing its own pricing pressured by the declines.

“I characterize it as a knife fight right now in terms of pricing,” Martin Craighead, chief executive officer at Baker Hughes, said July 20 on a conference call.

There may be some rebound in pricing in the second half of the year as winter temperatures trigger more demand for the heating fuel propane and a ramp-up in exports provides a bigger market for ethane, according to Tudor Pickering analyst Bradley Olsen.

Ethane supply will likely outpace incremental demand increases until new chemical plants that use the liquids as raw materials for their products come on line around the middle of the decade, Devon’s Richels said.

“As long as natural gas prices remain low, we’d expect ethane prices also to be weak in this period,” he said.

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by jackbassteam on August 2, 2012  •  Permalink
Posted in Bakken, Bakken Shale, Barnet Shale, Barnett Shale, Chesapeake, Drilling Companies, Eagle Ford, Energy, Fracking, Haynesville Shale, Natural Gas, Oil
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Posted by jackbassteam on August 2, 2012

http://amp2012.com/2012/08/02/shale-production-depressing-oil-as-well-as-nat-gas-bloomberg/

Cenovus Energy Inc. Target $44 for Bakken and Oil Sands Values

English: This map shows the extent of the oil ...

English: This map shows the extent of the oil sands in Alberta, Canada. The three oil sand deposits are known as the Athabasca Oil Sands, the Cold Lake Oil Sands, and the Peace River Oil Sands. (Photo credit: Wikipedia)

Cenovus Energy Inc. 
CVE : TSX : C$31.15  Buy , Target C$44.00

July 26
CVE’s Q2 operating results confirmed our view that the risk/reward on betting on
a large beat, particularly on the downstream side, vs. guidance

The company concluded its Telephone Lake strategic process without a transaction rather than just reiterating that things are going slow. These two events are what caused the selloff in the stock, in our view; and as a result we see a good buying opportunity due to the following:
1) Oil sands development continues to gain momentum; but ignored by the market. Both Christina Lake and Foster Creek have demonstrated the ability to produce beyond stated capacity. Construction on Christina Lake Phase D is moving faster than scheduled, with first production now expected in Q3/12 vs. the previously guided Q4/12 date.

Additionally, future optimizations at Christina Lake and Foster creek continue to help further push the limits of these projects. We
estimate that these optimizations/accelerations add ~2 % to CVE’s NAV (on a 10% NPV basis). However, this was ignored by the market.
2) There appears to be another one-time item in the EPS number, which when excluded puts Q2 results in line with the Street’s: Q1/12 EPS (clean) at first glance appeared to be roughly $0.43/share (before a tax-adjusted one-time exploration expense of $68M), missing the Bloomberg consensus average of $0.53/share (as of 7/24/12). There was also a one time adjustment to U.S. tax estimates, which impacted earnings by roughly another $0.07/share. Excluding this, Q1/12 EPS of $0.50 was essentially in line with the Street.

 Our target price is based on 6x our 2013 ex oil sands and downstream DACF estimate, 5.5x 2013E downstream cash flows, plus almost $28/share of combined estimated risked net present oil sands and Bakken/Lower Shaunavon value.

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by jackbassteam on July 26, 2012  •  Permalink
Posted in Bakken, Bakken Shale, Energy, Oil, Oil Sands, Oilsands
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Posted by jackbassteam on July 26, 2012

http://amp2012.com/2012/07/26/cenovus-energy-inc-target-44-for-bakken-and-oil-sands-values/

Continental Resources Bakken BUY Target $89

July 17

Continental Resources |

CLR : NYSE : US$67.34, Target US$89.00

 

Upgrading to BUY on expected production outperformance, better macro/basin backdrop

Investment thesis

We are upgrading CLR to BUY and raising our target $6 to $89 per share due to greater capital spending. Specifically, our annual capital spending estimate increased $0.2 billion. We now anticipate $2.5 billion in organic capital spending this year, above guidance of $2.3 billion.

We believe production should grow 54% this year, above the company target of 47-50%.

Our upgrade should be viewed in a larger macroeconomic context.

With NYMEX crude off from a peak of ~$110 near $87.50, we no longer see oil prices as a headwind to oil-weighted shares. Further, we believe E&P shares only reflect ~$72.50 long-term WTI oil prices, significantly below our $90 +  long-term expectation.

Additionally, we expect infrastructure constraints to ease over the next few months, boosting Continental netbacks. Specifically, unhedged price discounts to NYMEX should improve from $12+ in Q1 to ~$9 going forward. The 190 Mbpd of nominal Bakken rail capacity that commenced in Q2 should ramp to full capacity over the next few months. Another 250 Mbpd of nominal capacity should commence over the next three quarters. Incremental Bakken output should not reach a comparable ~450 Mbpd level until early ’14.

Investment highlights

Bakken: In Q1/12, North Dakota wells commenced at ~950 Boepd, below the ’11 average of ~1,100 Boepd and suggesting a recovery of 400+ Mboe. Yet the first wells drilled on 320-acre spacing were encouraging as they commenced at an average of ~1,300 Boepd.

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by jackbassteam on July 17, 2012  •  Permalink
Posted in Bakken, Bakken Shale, Energy, Fracking, Natural Gas, Oil, Shale
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Posted by jackbassteam on July 17, 2012

http://amp2012.com/2012/07/17/continental-resources-buy-target-89/

Flour Corporation BUY Target $ 66

Deutsch: Logo von FLUOR

Deutsch: Logo von FLUOR (Photo credit: Wikipedia)

Fluor Corporation |

FLR : NYSE : US$46.20 Buy , Target US$66.00

Strength in diversity – as I told  a Rotary Club yesterday ” Don’t Bet Agasinst America “

Attribution-Non-Commercial-No Derives 3.0 Unreported License. Please feel free to repost with proper attribution and all links included.

Investment recommendation

We believe Fluor’s ability to profitably execute on large, complex capital plans on a global basis positions it well in this era where multi-billion dollar mega-projects are increasingly the norm. With a rush to build billions of dollars worth of petrochemical and gas-to-liquids projects underway in its own backyard, we believe the company has potentially years of growth ahead of it.

Add to this an already record $42.5 billion backlog (visibility), a deep prospect list, a 12 million share buyback (downside support), and a solid balance sheet, and we continue to recommend the shares. Our US$66.00 one-year target is based on 14x cashadjusted 2013E EPS + $9.00/share in forecast freehold cash one-year from now. We rate the stock a BUY noting the 44% total potential return implied by our target price.

Investment highlights

Fluor’s multiple end markets rarely move in tandem, reducing cyclicality. Adjusted EPS declined only 16% in 2010 following the global recession. The top of ‘12 guidance would exceed last cycle’s peak EPS.

Exciting new opportunities are emerging in the domestic market due to new shale gas discoveries. Several longstanding clients, such as Dow, have multi-billion dollar plans to add ethylene capacity in the US using shale gas as cheap feedstock.

Fluor believes $14 billion worth of gas-related projects are currently in FEED stage.

NOTE: Fluor reports Q2/12 results on  August. 2 We sit at $6.9 billion in revenue and EPS of $0.92. We expect weak new awards (lumpy), but unchanged guidance.

Valuation

Fluor shares trade at 11x 2013E EPS, well below the mid-cycle multiple of 19x. Current levels suggest investors have priced in $73.00 Brent, more

than 27% below yesterday’s close. Again, we believe Fluor affords investors an excellent reward-to-risk proposition at current

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by jackbassteam on July 12, 2012  •  Permalink
Posted in Bakken, Bakken Shale, Economic Recovery, Infrastructure, Natural Gas
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Posted by jackbassteam on July 12, 2012

http://amp2012.com/2012/07/12/flour-corporation-buy-target-66/

Rosetta Resources : Target Price Raised $ 64

My Weakness Is None of Your Business

My Weakness Is None of Your Business (Photo credit: Wikipedia)

Rosetta Resources  

Attribution-Non-Commercial-No Derives 3.0 Unreported License. Please feel free to repost with proper attribution and all links included.

ROSE : NASDAQ : US$37.49 Buy , Target US$64.00

NGL weakness is priced in; greater oil emphasis is not

 

Investment thesis

We are raising our target price $2 to $64 per share due to increasing capital allocation toward oil and reiterating our BUY rating. ROSE has underperformed the E&P sector by more than 10% the past three months largely due to falling NGL prices, which we believe are stabilizing. Looking forward, investors appear to underappreciate Rosetta’s greater emphasis on higher value oil. Accordingly, we now see 10-20% incremental upside in ROSE.

NGLs weak: Since the beginning of the year, NGL prices have declined from 55% to 37% of WTI. In our view, the market embeds the current NGL price weakness and assumes no price recovery. We believe NGLs should trade at ~40% of WTI long-term.

ROSE punished: Investors were quick to punish ROSE as NGLs comprised 27% of Q1 output. In Gates Ranch, which has seen the preponderance of historical activity, Eagle Ford wells recover ~1,700 Mboe (~20% oil, ~35% NGLs, ~45% gas).

Increasing emphasis on oil: Given NGL weakness, Rosetta shifted to areas with a higher oil cut. Gates Ranch now comprises only ~40% of Eagle Ford activity. In Karnes Trough, initial tests should recover an average of ~900 Mboe (~75% oil). In Central Dimmit, initial tests should recover an average of ~350 Mboe (~60% oil). In Briscoe Ranch, the initial test should recover 1,500+ Mboe (~45% oil).

Don’t forget about Brent price improvement, Bakken tests: We believe Rosetta should obtain Brent prices for 60% of its Eagle Ford oil output the second half of the year, up from nil previously. Additionally, the company plans to complete four remaining Alberta Basin Bakken tests, three of which will apply a new completion design

 

 

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by jackbassteam on July 12, 2012  •  Permalink
Posted in Alberta, Bakken, Bakken Shale, Eagle Ford, Energy, Fracking, Natural Gas, Oil
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Posted by jackbassteam on July 12, 2012

http://amp2012.com/2012/07/12/rosetta-resources-target-price-raised-64/

Oil and Gas – Energy Forecast – What Is Really Ahead : Harvard Study

Peak Oil | September 2005

Peak Oil | September 2005 (Photo credit: Idiolector)

This is from an 80 page paper – links at the end of this small excerpt

 ( From the Conclusion of the paper): 

Whatever the belief, the most important messages of this paper are as follows:

• Oil is not in short supply. From a purely physical point of view, there are huge volumes of conventional and unconventional oils still to be developed, with no “peak-oil” in sight. The full deployment of the world’s oil potential depends only on price, technology, and political factors. More than 80 percent of the additional production under development globally appears to be profitable with a price of oil higher than $70 per barrel.

• Other things being equal, any significant setback to additional production in Iraq, the United States, and Canada would have a negative impact on the global oil market, given their potential for new production by the year 2020. However, also a significant setback of traditional big producers such as Saudi Arabia or Russia could have the same effect.

 The shale/tight oil boom in the United States is not a temporary bubble, but the most important revolution in the oil sector in decades. It will probably trigger worldwide emulation, although the U.S. boom is difficult to be replicated given the unique features of the U.S. oil (and gas) arena. Whatever the timing, emulation over the next decades might bear surprising results, given the fact that most shale/tight oil resources in the world are still unknown and untapped. China appears to be the first country to follow the U.S. example. Moreover, the extension of horizontal drilling and hydraulic fracturing combined to conventional oil fields might dramatically increase world’s oil production and revive mature, declining oilfields.

• In the aggregate, conventional oil production is also growing throughout the world, although some areas (the North Sea, face an apparently irreversible decline of the production capacity. In most traditional producing countries, old oilfields go through a production revival thanks to better techniques and knowledge, or advanced exploration and production technologies, so far used only in the U.S. and in the North Sea. Huge parts of the world are still relatively unexplored for conventional oil (for example, the Arctic Sea or most of sub-Saharan Africa).

• The age of “cheap oil” is probably behind us, but it is still uncertain what the future level of oil prices might be. Technology may turn today’s expensive oil into tomorrow’s cheap oil.

• The oil market will remain highly volatile until 2015 and prone to extreme movements in opposite directions, thus representing a major challenge for investors, in spite of its short and long term opportunities. After 2015, however, most of the projects considered in this paper will advance significantly and contribute to a strong build-up of the world’s production capacity. This could provoke a major phenomenon of overproduction and lead to a significant, stable dip of oil prices, unless oil demand were to grow at a sustained yearly rate of at least 1.6 percent for the entire decade.

• A revolution in environmental and curb-emissions technologies is required to sustain the development of most unconventional oils, along with a strong enforcement of already existing standards, rather than massive over-regulation. Without such a revolution, a continuous dispute between the industry and environmental groups will force government to delay the development of new projects.

from my alma matter ( old mother )

 Belfer Center for Science and International Affairs

Harvard Kennedy School

79 JFK Street

Cambridge, MA 02138

Fax: (617) 495-8963

Email: belfer_center@harvard.edu

Website: http://belfercenter.org

Copyright 2012 President and Fellows of Harvard College

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by jackbassteam on July 10, 2012  •  Permalink
Posted in Bakken, Bakken Shale, Economic Recovery, Energy, Europe, forecasts, Fracking, Natural Gas, Oil, Oil Sands, Oilsands, Shale
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Posted by jackbassteam on July 10, 2012

http://amp2012.com/2012/07/10/energy-what-is-really-ahead-harvard-study/

Triangle Petroleum – Rising Bakken Star Target $11

NYSE

NYSE (Photo credit: Wikipedia)

Triangle Petroleum Corp.

TPLM : NYSE MKT : US$5.85 Buy , Target US$11.00

 July 6

Bakken accelerating, pressure pumping unit unappreciated; raising target $2 to $11/share

Investment thesis

We are raising our target price $2 to $11 per share and reiterating our BUY rating on TPLM. We have transitioned our valuation from a NAV-based approach to a five-year discounted cash flow analysis. Our target includes $2/share related to the pressure pumping unit and is penalized in our analysis by the inclusion of additional equity to properly capitalize the business.

Triangle recently commenced Bakken operations with encouraging results. The latest well averaged ~1,250 Boepd over the initial seven days and should recover 600+ Mboe for ~$10 million. This month, the pressure pumping subsidiary is commencing operations. We view this unit as a creative solution to ensure availability of reasonably priced stimulation services for the E&P business while generating a strong return on capital.

Investment highlights

Initial results: Triangle’s initial Bakken well averaged 800+ Boepd over seven days and should recover 400+ Mboe for ~$9 million (25% ceramic/75% sand). The second Bakken well averaged ~1,250 Boepd over seven days and should recover 600+ Mboe for ~$10 million (100% ceramic).

Upcoming catalysts:

Triangle recently completed two wells within a mile of its initial tests. The completion time declined from nine days with the initial test to less than four days with the recent wells. Comparable production rates would reinforce the viability of the asset base.

 Further, we expect extended production history from the initial two tests, which could increase our company-wide outlook.

Pressure pumping: RockPile (83% interest) operates one pressure pumping spread (18,000 horsepower). Assuming three jobs/month, $3+ million in revenue/job and a ~30% gross margin, we value Triangle’s RockPile interest at ~$100 million, or ~$2/share.

 

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by jackbassteam on July 6, 2012  •  Permalink
Posted in Bakken, Bakken Shale, Energy, Fracking, Natural Gas, Shale
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Posted by jackbassteam on July 6, 2012

http://amp2012.com/2012/07/06/triangle-petroleum-rising-bakken-star-target-11/

Reuters : Chesapeake and Encana Plotted Bid Fixing

Chesapeake Energy

Chesapeake Energy (Photo credit: Wikipedia)

June 25

(Reuters) – Under the direction of CEO Aubrey McClendon, Chesapeake Energy Corp. plotted with its top competitor to suppress land prices in one of America’s most promising oil and gas plays, a Reuters investigation has found.

In emails between Chesapeake and Encana Corp, Canada’s largest natural gas company, the rivals repeatedly discussed how to avoid bidding against each other in a public land auction in Michigan two years ago and in at least nine prospective deals with private land owners here.

In one email, dated June 16, 2010, McClendon told a Chesapeake deputy that it was time “to smoke a peace pipe” with Encana “if we are bidding each other up.”

The Chesapeake vice president responded that he had contacted Encana “to discuss how they want to handle the entities we are both working to avoid us bidding each other up in the interim.”

McClendon replied: “Thanks.”

That exchange – and a dozen other emails reviewed by Reuters – could provide evidence that the two companies violated federal and state laws by seeking to keep land prices down, antitrust lawyers said.

“The famous phrase is a ‘smoking gun.’ That’s a smoking H-bomb,” said Harry First, a former antitrust lawyer for the Department of Justice. “When the talk is explicitly about getting together to avoid bidding each other up, it’s a red flag for collusion, bid-rigging, market allocation.”

COMPANIES RESPOND

Chesapeake and Encana say they discussed forming a joint venture in Michigan but opted against it. Partnerships can defray the steep costs of shale development, which include amassing thousands of acres of land and drilling dozens of wells.

In response to questions from Reuters, Encana said it was undertaking an internal investigation, saying it “is committed to conducting its business in an ethical and legal way.”

It acknowledged that its U.S. branch “discussed, but did not go forward with, a joint venture with Chesapeake Energy,” but added that it “cannot specifically address the questions posed at this time.”

Chesapeake spokesman Jim Gipson also said there had been discussions with Encana about “forming an ‘area of mutual interest’ joint venture” in Michigan. But he said “no such agreement was reached between the parties…. Nor did Encana and Chesapeake make any joint bids.”

The revelation of the discussions between Encana and Chesapeake, the second-largest natural gas producer in the United States, comes at a time when McClendon is under fire.

The company’s board stripped him of his chairmanship after Reuters reported that he took out more than $1.3 billion in personal loans from a firm that also finances Chesapeake. The IRS and the Securities and Exchange Commission have launched inquiries.

Private industry cartels are forbidden in the United States, where price-fixing between competitors is illegal under the Sherman Antitrust Act. Companies can be fined up to $100 million and individuals up to $1 million for each offense. Victims can also seek triple the amount of damages.

Antitrust lawyers said the fact that the companies discussed a formal joint venture wouldn’t dispel legal concerns.

“Nothing in the documents suggests any benefit to the joint venture other than making the price fall,” said Darren Bush, a former attorney in the Antitrust Division of the Department of Justice and a law professor at the University of Houston. “If it has no other purpose, then it’s just a shell and doesn’t change the liability for illegal conduct.”

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by jackbassteam on June 25, 2012  •  Permalink
Posted in Bakken, Chesapeake, Eagle Ford, Europe, Fracking, Natural Gas, Shale
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Posted by jackbassteam on June 25, 2012

http://amp2012.com/2012/06/25/reuters-chesapeake-and-encana-plotted-bid-fixing/

SM Energy Eagle Ford Play Double Target $ 110

New York Stock Exchange on Wall Street in New ...

New York Stock Exchange on Wall Street in New York, New York, United States. Español: Bolsa de Nueva York en Wall Street en Nueva York, Nueva York, en los Estados Unidos. (Photo credit: Wikipedia)

SM Energy

SM : NYSE : US$46.65  Buy , Target US$110.00  

June 20,2012  

Catalysts  – Investment thesis

 NGL prices, which have weighed heavily on the stock, may be stabilizing. Further, the actual cost/recovery relationship suggests capital productivity is superior rather than inferior to industry. Accordingly, we expect production growth to accelerate in the second half of the year with the alleviation of Eagle Ford infrastructure constraints.

 

NGLs: from a bane to a non-issue?  

SM has declined ~35% year-to-date, underperforming the group by ~20%, largely due to NGL weakness. NGLs comprise ~15% of output and ~40% of SM’s operated Eagle Ford production (~50% of ‘12E capex). Since the beginning of the year, NGL prices have declined from ~55% to ~35% of WTI. In our view, the market has fully embedded the current NGL price weakness and is conservatively assuming no price recovery.

 Capital productivity better than you think  

Investors seem to view SM’s capital productivity as inferior. The stock trades at a ~35% discount (’12E EBITDA), and investors appear to see the Bakken as sub-par and the Eagle Ford as productive though gassy. Yet our proprietary reconciliation of capital costs and output shows SM productivity to be modestly superior to industry. The simplest illustration of SM’s greater capital efficiency is our expectation for the company to generate 20% greater CFPS growth (’12-’14E CAGR) while outspending cash flow less than the industry.

 The stock should outperform.  

Quarter-on-quarter production growth should accelerate from nil in Q1 to 4% in Q2 to 6% the second half of the year. Given investor skepticism, we believe the stock should outperf orm with the Q2 report if SM sets reasonable Q3 guidance (600-650 Mmcfepd) and reaffirms full-year guidance. 

VALUATION

 Five-year discounted cash flow analysis Our target price is based on the net present value of free cash flow over the life of a company using a reasonable discount rate. SM’s valuation applies a 13.75% discount rate to determine the net present value of its free cash flow. Our reasoning for using a 13.75% equity return includes the long-term nominal performance of the broader equity market (10-12%), the greater volatility of cyclical energy investments and the company’s mid-cap market capitalization

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by jackbassteam on June 20, 2012  •  Permalink
Posted in Bakken, Bakken Shale, Eagle Ford, Energy, Fracking, Natural Gas
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Posted by jackbassteam on June 20, 2012

http://amp2012.com/2012/06/20/sm-energy-bakken-play-double-target-110/

Chesapeake – Cheap Enough For A Takeover – Bloomberg

Chesapeake Energy

Chesapeake Energy (Photo credit: Wikipedia)

May 30 2012

The second-largest U.S. natural-gas producer said it may face a cash shortfall as early as next year after prices for natural gas, which accounts for 83 percent of its reserves, reached a 10-year low last month. While a buyer would have to cope with seven joint ventures and $13.1 billion of debt, Exxon Mobil Corp. and Chevron Corp. (CVX) may see a chance to scoop up the largest holder of onshore drilling leases before gas prices rebound, said SunTrust Robinson Humphrey Inc. Royal Dutch Shell Plc (RDSA) may also be interested, said Huntington Asset Advisors Inc.

“For any of the major integrated oil companies that want to pick up reserves on the cheap, this would be a good one,” saidPeter Sorrentino, who helps oversee $14.7 billion at Huntington in Cincinnati. Chesapeake and other gas producers will be “worth a whole lot more than they are today. We’ll look back on this and say, ‘Wow, this was really an opportunity.’ There may be some people that end up kicking themselves.”

Chesapeake “had a bit of a drama around it,” he said. “But that doesn’t change the fact that these are very desirable assets.”

Exxon, Shell

Michael Kehs, a spokesman for Oklahoma City-based Chesapeake, declined to comment on whether the company is for sale, may be for sale or has been in talks with potential buyers of the whole company.

Kimberly Brasington, a spokeswoman for Irving, Texas-based Exxon (XOM), and Russell Johnson, a spokesman for San Ramon, California-based Chevron, declined to comment on potential acquisitions. Jonathan French, a spokesman for Shell in London, declined to comment 

on whether The Hague-based company has considered an acquisition of Chesapeake.

“We are happy with the portfolio we have acquired and built organically in North America over the past years, but we are always looking at opportunities worldwide,” French said, when asked if Shell is looking to add resources on the continent.

Personal Loans

McClendon, 52, co-founded Chesapeake in 1989 and built it into the second-largest U.S. natural-gas producer behind Exxon by embracing techniques such as horizontal drilling and hydraulic fracturing that revived U.S. oil and natural-gas production. The company has outspentcash flow in 19 of the past 21 years as it amassed a portfolio of gas and oil fields.

McClendon, who was allowed to take a 2.5 percent stake in almost every well the company drilled and was required to pay development costs proportionate to his stake, had amassed $846 million in loans as of Dec. 31 to cover his share of the costs. The board announced May 1 that it will strip McClendon of his chairmanship as it reviews his personal loans. The Internal Revenue Service and Securities and Exchange Commission are also investigating.

The decline in gas prices, coupled with McClendon’s personal-loan entanglements, led to a 47 percent drop in Chesapeake’s shares in the last 12 months through yesterday. Natural gas, the fuel for heating and power plants, fell to a 10-year low of $1.902 per million British thermal units on April 19 because of a glut of production from new wells in shale formations from Texas to Pennsylvania.

Cash Shortfall

On May 1, the company posted an unexpected $71 million first-quarter loss and warned it may run short of cash next year without enough divestitures. Chesapeake increased planned asset 

sales through the end of 2013 by 17 percent to $20.5 billion.

“The knee jerk reaction is the stock is down so much, it’s a real opportunity, but unless they’re able to sell these assets and get good prices for these assets, the debt burden is choking them,” Tim Ghriskey, who oversees about $2 billion as chief investment officer of Solaris Group in Bedford Hills, New York, said in a phone interview. “This has always been a bit of a higher risk name.”

Shares of Chesapeake fell 2.5 percent to $15.94 at 10:03 a.m. after Reuters, citing people familiar with the matter, reported that the company will meet with many of its lenders later this week as it tries to raise cash to close a $9 billion to $10 billion funding shortfall.

‘Cheap Enough’

Chesapeake’s depressed valuation may still be enough to entice a buyer, said Neal Dingmann, a Houston-based analyst at SunTrust.

Chesapeake’s enterprise value, which is the sum of its equity, net debt, minority interest and preferred equity, was almost $29 billion yesterday, 9.2 times the value of its proved reserves. That’s the cheapest among U.S. oil explorers and producers and integrated oil companies with market values higher than $5 billion, data compiled by Bloomberg show. The industry is valued at a median of about 15.5 times. Chesapeake held proved reserves equivalent to 3.13 billionbarrels of oil at the end of 2011.

“There are a lot of people that talk about Chesapeake and say it’s too convoluted and too complicated to have somebody buy it out,” Dingmann said in a phone interview. “But if assets are cheap enough, buyers are going to find a way to get through all these issues.”

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by jackbassteam on May 30, 2012  •  Permalink
Posted in Bakken, Bakken Shale, Chesapeake, Eagle Ford, Fracking, Haynesville Shale, Natural Gas, Shale, Takeovers
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Posted by jackbassteam on May 30, 2012

http://amp2012.com/2012/05/30/chesapeake-cheap-enough-for-a-takeover-bloomberg/

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