TITLE: Sod house. McKenzie County, North Dakota (Photo credit: Wikipedia)
EOG : NYSE : US$135.69
EAGLE FORD DRIVES FURTHER GAINS IN CAPITAL PRODUCTIVITY
We increased our target price $18 to $194 per share due to ~10% increase in capital productivity (underpinned by the Eagle Ford) and a
higher oil price realization. The Eagle Ford comprises almost 50% of EOG’s capital outlays this year. Simply put, EOG’s Eagle Ford leasehold
generates the highest returns of any large-scale NAM resource play.
Our liquids growth outlook of ~28% is toward the high end of guidance (16%-30%). The calibration of capital and production imply EOG’s
capital productivity is ~15% superior to industry (liquids-normalized).
Further improvement in Eagle Ford well performance: In the latest quarter, ~20 select wells in Gonzales/Karnes Counties (“east area”)
commenced production at over 4,000 Boepd (~90% liquids) suggesting recoveries of 2,000+ Mboe. Year-to-date, Eagle Ford wells have commenced production at ~1,200 Bopd the first 30 days, suggesting a recovery of ~850 Mbo for a cost of ~$6 million per well.
This represents a ~30% improvement in well performance versus last year. Wells in the “east area” average ~1,600 Boepd the first 30 days, suggesting recoveries of 1,000-1,100 Mboe and wells in the “west area” average ~800 Boepd the first 30 days, suggesting recoveries of 500-600 Mboe.
Strong initial Three Forks Second Bench test, continued robust 160- acre down spaced results in core Parshall field: Recent infill Bakken
tests in the Parshall field on 160-acre spacing have commenced production at an average 30-day rate of ~2,000 Bopd, suggesting recoveries of ~1,000 Mbo per well. In the Antelope area, southwest of the Parshall field in McKenzie County, a Three Forks Second Bench test commenced at 3,150 Bopd.
Posted by jackbassteam on May 9, 2013
Schematic E-W section showing the Eagle Ford Shale among the geological strata beneath the DFW Metroplex (Photo credit: Wikipedia)
CRK : NYSE : US$15.66
Comstock Resources is an exploration and production company focused on development of the Eagle Ford Shale, the Permian Basin and the Haynesville Shale.
DEEP VALUE; IMPROVING EAGLE FORD RESULTS
We are increasing our target price $1 to $30 per share following model refinements. To clearly illustrate Comstock’s deep value opportunity, CRK trades at ~30% discount to the group (’13E EBITDA) though should generate ~50% stronger CFPS growth (‘13-‘15E) via Eagle Ford execution. Accordingly, we feel CRK has 80%+ upside vs. the group’s 30%+ upside.
Permian divestiture eliminates capital structure concern
Pro forma the sale, Comstock’s net debt-to-EBITDA at year-end ’13 declines from ~3.5x to ~1.9x, which is in line with the industry median, and net debt-to-EBITDA should modestly decline thereafter assuming ~$500 million per annum capital plan.
Accelerating Eagle Ford development/volume ramp
As a consequence of the liquidity provided by the Permian sale, the company is increasing Eagle Ford activity from three to six rigs in 2H13 and plans to drill 72 gross wells (~65% WI) this year. McMullen County comprises ~90% of this year’s activity (four- to five-year drilling inventory). We believe acceleration in Eagle Ford activity should drive almost 20% quarterly oil production growth the balance of the year and oil production should exit the year at ~8.5 Mbopd vs. 4.8 Mbopd in 1Q/13.
Improving Eagle Ford results
In 1Q/13, Comstock Eagle Ford wells averaged ~670 Boepd the first 30 days, suggesting recoveries of almost 500 Mboe, which was a ~10% improvement in well performance q/q normalized for lateral length.
Overall capital productivity enhanced by ~10% with Eagle Ford JV
The company’s Eagle Ford JV assigns a one-third interest for the equivalent of $25k per acre. Assuming 80-acre spacing, the partner pays $0.67 million and receives a one-third interest in each well. In essence, the JV is funding ~10% ($30+ million) of the company’s ’13 capital plan
Posted by jackbassteam on May 6, 2013
RRC : NYSE : US$74.00
2H13 ETHANE PRODUCTION RAMP – A MINOR VALUE DEDUCT
Range Resources is an exploration and production company with assets in the Anadarko, Appalachian, Permian and Williston Basins.
We our lowering our target price $5 to $72 per share due to a ~5% higher capital allocation toward gas (~$3/share) and the second half ‘13 commencement of Marcellus ethane production (~$2/share).
Specifically, the company anticipates producing ~5 Mbpd of ethane via transport to Sarnia, Ontario in the 2H13 and ~15 Mbpd of ethane in early ’14 via transport to Sarnia, Ontario and Mont Belvieu, Texas. As the ethane price net back is ~50% of natural gas, selling Marcellus ethane in North America has a negative impact of ~$2 per share.
Our target price is anchored on a $5.25 long-term NYMEX gas price, which is only modestly above the gas price reflected in E&P equities. RRC offers twice the CFPS growth prospects of the sector (’13-’15E) though trades at twice the expensiveness (’13E EBITDA).
Marcellus, New York (Photo credit: Dougtone)
Liquids-dominant Marcellus footprint: In SW PA, about 110,000 net acres of the company’s Marcellus leasehold is “super-rich” (1,350+ Btu/Scf), ~220,000 net acres is “wet gas” (1,050-1,350 Btu/Scf) and ~210,000 net acres is “dry gas” (<1,050 Btu/Scf). In NE PA, Range has ~145,000 net dry gas acres. Super-rich wells (~3,900’ laterals, ~18 frac stages) recover ~1.4 Mmboe (~60% liquids) and wet gas wells (~3,200’ laterals, ~13 frac stages) recover ~1.5 Mboe (~50% liquids) for a cost of $5-$6 million.
Superior Mississippian well performance: Mississippian wells (~3,600’ laterals, ~19 frac stages) along the Nemaha Ridge have commenced production at ~500 Boepd and averaged ~400 Boepd the first 30 days and recover ~400 Mboe (33% oil, 33% NGLs, 33% gas) for a cost of ~$3.5 million
Posted by jackbassteam on April 30, 2013
Management at TAG noted that the Waipawa Black Shale and Whangai formations are high-quality source rock formations present throughout most of TAG’s million- acre East Coast Basin land holdings, and highlighted that these oil-and gas-rich source rocks are comparable in
total organic carbon content and oil and gas maturity levels to successful tight oil and gas plays such as North Dakota’s Bakken shale in the prolific Williston Basin.
A previous independent report estimated potential undiscovered oil initially-in-place amounting to 14 billion barrels, calculated on just 20% of TAG’s East Coast Basin acreage that is believed to be prospective for unconventional discovery. Management stated that TAG was the first company to identify the unconventional play in the East Coast Basin, and therefore selected the acreage where the company believed it to be the most prospective for unconventional exploration.”Clive reminds us that shale plays aren’t understood on
the first well. Expect volatility!
Keith Schaefer of the Oil and Gas Investment Bulletin, wrote on Tuesday:
• TAG has spud their first east coast shale well in New Zealand, that will be targeting the long rumoured Whangai shale.
• Be aware that if this well DOES hit, the stock could have a monster move up.
• On the positive side, you would have to think that management is going to drill where they think they have the best chance–they talk about free flowing oil in their press release.
• At the same time, companies rarely get the optimum fracking technique and recovery on the first well. But I think the market will move even if they confirm oil saturation over a long interval.
• Also remember this shale play is likely NOT like the typical North American shale plays, where they lie like blankets or sheets in a very simple flat formation. It’s a lot more folded and churned around; more geologically complex.
•The stock is not a breakout until it’s over $6.”
To us and many others, this is one of the exploration plays of the day…Finally, now the stress and worry for a few weeks might this be another Ultra… or Not
Posted by jackbassteam on April 25, 2013
Map of Texas highlighting McMullen County (Photo credit: Wikipedia)
AXAS : NASDAQ : US$2.24
Abraxas Petroleum Corporation, an independent energy company, engages in the acquisition, development, exploration, and production of oil and gas principally in the Rocky Mountain, Mid-Continent, Permian Basin, and Gulf Coast regions of the United States. The company was founded in 1977 and is based in San Antonio, Texas.
ADDED FINANCIAL FLEXIBILTY; REITERATE BUY AND $3 TARGET
AXAS has solid positions in two of the leading unconventional resource plays in the US in the Williston Basin (WB) and Eagle Ford (EF). We
believe strong production and cash flow growth, along with deleveraging the balance sheet, will be catalysts to drive a higher stock price.
Continued success in the EF: In McMullen County, the Gran Torino A 1H averaged 790 Boe/d (89% oil) on a restricted choke over its initial
30 days and is currently flowing to sales at a rate of 720 Boe/d (88% oil). The Mustang 3H, which was brought online for ~$6.2M in mid/late March, continues to outperform AXAS’ 575 MBoe EUR type curve while the Mustang 2H is currently being completed with a 19- stage frac. AXAS owns an 18.75% working interest (WI) in all mentioned EF wells.
producing ~150 Boe/d before being shut in during the 2H and 3H completions. AXAS owns a 49% WI in the Ravin wells.
Posted by jackbassteam on April 11, 2013
PVA : NYSE : US$3.84
Penn Virginia Corporation is an exploration and production company with operations in Texas, the Mid-Continent, Appalachia and Mississippi
PVA has been successfully transitioning to a liquids-focused company while retaining its leverage to an improvement in natural gas prices. While the Eagle Ford (EF) acquisition discussed below will increase leverage beyond our normal comfort levels, we believe the long term cash flow generation potential outweighs near term leverage issues and PVA has sufficient liquidity to fund its newly increased EF program. Trading at only 4x 2013E EV/EBITDA and 1x P/CF, we believe the stock offers solid value for patient investors at these levels.
In our view, PVA’s acquisition of ~19K net EF acres from Magnum Hunter Resources is a very good strategic fit, and provides the company with a deep inventory of drilling locations in one of the leading oil plays in the US. Having already enjoyed great success in the area, we believe this is truly a case of one plus one equals three.
We are modeling the acquisition as being 10% accretive to 2013 CFPS. Our new 2013E EPS/CFPS goes to ($0.76)/$3.95 from ($0.72)/$3.58 and increases production to 18.8 MBoe/d from 16.0 MBoe/d. 2014E increases to ($0.12)/$5.46 from ($0.34)/$4.57.
Using a NAV-based methodology, our $6.50 price target represents a 35% discount to our new $10 NAV.
Posted by jackbassteam on April 5, 2013
Tower for drilling horizontally into the Marcellus Shale Formation for natural gas, from Pennsylvania Route 118 in eastern Moreland Township, Lycoming County, Pennsylvania, USA (Photo credit: Wikipedia)
UPL : NYSE : US$19.27
Ultra Petroleum is an exploration and production company with core operating areas in the Green River Basin Pinedale Field and the Appalachian Basin Marcellus Shale.
The recent strength in natural gas to ~$4 we believe has fundamental underpinnings, and we do not expect an appreciable retracement of these
gains. Recent data shows increasing evidence of notable US gas supply erosion, partly attributable to winter operating challenges, though is also
reflective of organic production declines.
Our current outlook suggests gas in storage struggles to exceed 3 Tcf (~3.1 Tcf) by November and optimistically anticipates stable onshore US gas
production during the year. More interestingly, gas market fundamentals are setting up such that November ’14 gas in storage, assuming normal winter weather, could fall solidly below 3 Tcf (~2.7 Tcf) even with a recovery in the gas rig count to ~575 rigs by H2/14.
A gas rig count of ~575 rigs appears sufficient to stabilize gas market fundamentals long term. Yet, a 575 gas rig count, which is ~40% above
recent levels, requires a ~$5 NYMEX gas price signal assuming the industry is comfortable remaining 20%-30% free cash flow negative.
Our target price for UPL reflects ~20% equity upside relative to the market value. Other gas-dominant E&P’s offer no upside as they reflect a ~$5
NYMEX gas price, which is in line with our long-term outlook.
Capex/production guidance suggests improving capital productivity Assuming a ~$420 million capital plan this year, our ’13 production
expectation of 233.6 Bcfe is slightly above the midpoint of guidance (228-338 Bcfe). This capital spending/production relationship implies capital
productivity improves another ~10% y/y.
Pinedale field development has clearly shifted to higher productivity areas Recent Pinedale wells commence production at ~11 Mmcfepd, implying a recovery of ~5 Bcfe for a cost of ~$4.5 million. Ultra plans to drill in the higher-productivity Boulder area the next few years.
Posted by jackbassteam on April 4, 2013
Rectangular joints in siltstone and black shale within the Utica Shale (Ordovician) near Fort Plain, New York. (Photo credit: Wikipedia)
CRZO : NASDAQ : US$22.58
Carrizo is an E&P company with operating areas in the Barnett Shale, Marcellus Shale, Eagle Ford Shale, Niobrara Shale and U.K. North Sea.
We lowered our target price $1 to $34 per share due to a slightly higherNGL composition. Notably, our target price includes a value of $20K per
acre for the company’s Utica Shale leasehold in Guernsey County. Early this year, Carrizo exercised its option to increase its leasehold in the Utica play to 17,000 net acres; approximately 50% of the acreage is in highly prospective Guernsey County. The company plans to drill its first Utica test in Guernsey County this summer.
Eagle Ford/Niobrara drive expected oil production outperformance In ’13, our oil/liquids growth outlook is ~38%, which is ~10% above
guidance (28%) underpinned by ongoing development in the Eagle Ford and Niobrara plays. Carrizo is conducting a three-rig program in the
Eagle Ford and two-rig program in the Niobrara. The company has generated competitive/consistent results across both plays.
Sale of North Sea lowers net debt-to-EBITDA to critical 3x threshold The recent sale of the Huntington field along with a series of minor liquidity events in the fourth quarter lowered the company’s net debt-to- EBITDA from 3.7x to 3x. Importantly, Carrizo is on a path to further lower net debt-to-EBITDA below 3x in future years. Additionally, the company has revolver financing visibility into late ’14 conservatively assuming the current bank borrowing base.
Almost $600 million in financial liquidity generated since September Last September, the company issued $300 million of term debt. After
accounting for the term debt, Carrizo’s bank line actually increased by $40 million due to the company’s oil production growth. Additionally,
the company generated ~$130 million in cash proceeds through two JVs in the Niobrara Shale and the sale of non-core Gulf Coast and Utica
Shale assets. Combined with the North Sea sale, these transactions increased the company’s financial liquidity by ~$590 million.
Posted by jackbassteam on February 28, 2013
English: Outcrop of the Eagle Ford and Austin Chalk Contact off Kiest Blvd 1/5 of a mile east of Patriot Pky in Dallas County. (Photo credit: Wikipedia)
ROSE : NASDAQ : US$47.38
CONTINUED OUTSTANDING EAGLE FORD EXECUTION
We are lowering our target price $1 to $69 per share due to slightly lower near-term production. Rosetta plans to conduct a five- to six-rig
program in the Eagle Ford this year with two to three rigs in Gates Ranch and two to three rigs collectively in Karnes Trough, Central Dimmit and Briscoe Ranch. In ’13, Rosetta expects to drill 75-80 wells and complete 60-65 Eagle Ford wells.
Given this disposition of drilling activity, we believe liquids should constitute ~62.5% of production, which is in line with guidance, and oil should comprise ~44.5% of production on average this year. Assuming ~$670 million in ’13 capital spending, we anticipate Rosetta exits ‘13 in the upper half of company guidance (52-56 Mboepd).Rosetta’s a natural consolidator in the Eagle Ford with a capital structure that has significant debt capacity
Considering Rosetta’s exceptional execution in the Eagle Ford, the company should be a natural consolidator in the trend. Moreover, Rosetta’s net debt-to-EBITDA is less than ~1x versus the industry’s net debt-to-EBITDA financial leverage of ~2x. This implies the company has ~$500 million of incremental debt capacity even before accounting for the debt capacity of an acquired asset.
Even assuming recent extremely weak NGL prices, equity downside limited In January, the NGL complex retreated to ~34% of NYMEX oil, which is
the lowest relative valuation evidenced thus far in this cycle. We believe long-term NGLs should comprise ~38% of Rosetta’s production
(currently ~34% of production). Assuming the NGL complex remained at this recent exceedingly weak level, the downside to our target price is
Posted by jackbassteam on February 28, 2013
Chesapeake Energy Capital Classic (Photo credit: Wikipedia)
CHK : NYSE : US$20.19
Chesapeake Energy is one of the largest U.S. natural gas producers with an operating focus on the Barnett Shale, Haynesville Shale, Marcellus Shale, Granite/Colony Washes, Eagle Ford Shale and unconventional oil plays in the Anadarko/Permian Basins and Rockies.
We lowered our price target $2 to $26 per share due to the base effect of ~5% lower Q4/12 production (~3% lower liquids output). Our liquids
outlook this year is in line with guidance though our ’15 liquids expectation of ~217 Mbpd is ~13% below the company’s 250 Mbpd goal.
Divestiture process increasingly opaque
In ‘12, Chesapeake generated ~$10.1 billion in proceeds from asset sales with ~$0.9 billion of sales scheduled to close early this year. In ’13, the
company plans to sell an incremental $3-6 billion of properties that may include a Mississippian JV or outright land sale and an Eagle Ford
property package producing 10+ Mbopd. We believe these divestitures should yield ~$2 billion in proceeds. Further, Chesapeake could materially sell down their 1.785 million net acres in the Marcellus, divest their 30% stake in FTS International, IPO up to 50% of their oilfield service company and/or execute another JV in the Utica.
Chances better than 50/50 that CHK can achieve a more appropriate 2x net debt-to-EBITDA leverage ratio At year-end, Chesapeake’s net debt-to-EBITDA was ~3.6x. Assuming the company can generate ~$4 billion of additional monetization proceeds with minimal production give up, CHK would lower net debt-to-EBITDA to the industry median of ~2x.
In subsequent years, assuming a steady state capital plan, the company remains $1.5-2 billion free cash flow negative though net debt-to-EBITDA only gradually rises.
Eagle Ford/Utica results solid
Eagle Ford wells have generally commenced at 500-1,000+ Boepd and recover ~500 Mboe (~80% liquids). Utica wells have commenced at an
average of ~1,000 Boepd (0%-30% oil) implying a ~800 Mboe recovery.
Posted by jackbassteam on February 25, 2013