Montney, British Columbia Location (Photo credit: Wikipedia)
CR : TSX : C$6.45
Crew Energy is an intermediate oil and gas company with a large portfolio of exploration and development opportunities in western Canada. The company has a two-pronged approach to corporate development, supplementing organic growth with strategic acquisitions.
All amounts in C$ unless otherwise noted.
IT’S ALL ABOUT THE MONTNEY
Crew released first quarter results which met our estimates but fell slightly shy of consensus on both production and cash flow. We believe the market will look beyond the quarter given the resumption in production levels which in our view clearly positions Crew to meet its average and annual guidance targets. Most importantly, it released an independent resource assessment on its 292 net sections of Montney rights in NEBC which in our view clearly validates management’s strategic shift towards resource capture in the play. We are maintaining our BUY rating and C$10.00 target price based on an unchanged 1.0x multiple to NAV and reflecting a 2013 EV/DACF multiple of 8.5 times.
Q1 in line with CG, a bit light versus consensus. Q1 production averaged 25,961 boe/d, generally in line with our 26,267 boe/d estimate but modestly below consensus of 26,765 boe/d. Operating CFPS was $0.28, also in line with our $0.28 but below consensus of $0.30. More importantly, Crew has resumed production levels with an average of 28,000 boe/d in April and is on track to meet its annual average and exit
rate guidance targets.
All about the Montney, tremendous value upside potential in both oil and gas windows of the play. Sproule Associates estimated 33.7 Tcf of gas in place and 7 billion barrels of oil in place (over four times larger than ARC Resource’s recent TPIIP estimate). Precedent strategic gas transactions suggest its 2.3 Tcf of contingent resources could be valued between $0.15 to $0.35/Mcf, implying $2.80 to $6.60 per share to Crew.
Crew currently trades at a 0.6x multiple to CNAV, 6.2x EV/DACF multiple, and $42,400/BOEPD based on our 2013 estimates, versus peer group averages of 0.7x CNAV, 7.8x EV/DACF, and $64,100/BOEPD.
Posted by jackbassteam on May 15, 2013
NYC – TriBeCa: New York Mercantile Exchange Building (Photo credit: wallyg)
Natural gas continued its strong weekly performance as unseasonably cold weather in the east and a bullish Energy Information Administration (EIA) storage report fueled the trade.
The EIA reported a 14 Bcf storage draw, 1 Bcf above the 13 Bcf draw consensus. The East region showed a 16 Bcf draw, the Producing region a 5 Bcf draw, and the West region showed a 7 Bcf build. Storage stands at 1,673 Bcf, ~32.5% below last year and ~3.8% below the five-year
average. The data suggests the market is ~2.3 Bcfpd oversupplied on a weather normalized quarterly moving average basis.
In the wake of extremely weak gas prices, the E&P industry cut gas-directed activity by almost 60% to less than 400 rigs recently, which is solidly below the ~575 gas rigs Canaccord Analyst John Gerdes believes is necessary to maintain long-term market equilibrium.
Reversion to colder-than-normal late winter weather and the potential onset of sustained U.S. onshore supply erosion appear to firmly support Gerdes’ ~$4 average gas price this year. Gerdes’ average 2013 gas price forecast reflects an unchanged outlook for $4.25 in 3Q/13 and $4.50 in 4Q/13. In 2014, given the need to increase gas-directed drilling activity ~40% (~575 gas rigs) to maintain market equilibrium, a ~$5.25 NYMEX gas price signal seems necessary assuming the E&P industry is comfortable remaining ~20% free cash flow negative.
Separately, Jeremy Grantham, Chief Investment Strategist at GMO, spoke at a value investing conference in Toronto on Wednesday and was quoted by the Globe and Mail in saying within five years natural gas price will triple and market conditions will switch to a long-term shortage.
Posted by jackbassteam on April 15, 2013
energy (Photo credit: Sean MacEntee)
Canaccord Energy Team published a bullish note on natural gas calling the current price above $4.00 as fundamentally supported and seeing future gas prices potentially being above $5.00 by 2014.
Reasons for the bullish stance include recent data which shows increasing evidence of notable U.S. gas supply erosion, partly attributable to winter operating challenges, though it is also reflective of organic production declines. The energy team noted that the supply/demand gap has closed. Per the U.S. Energy Information Administration, natural gas demand over the past year (25.6 Tcf) has now surpassed total supply (25.5 Tcf). Therefore, if growth in natural gas demand continues to surpass growth in natural gas supply, a supply deficit will open up and push prices higher.
Drilling Activity Reduced
Also supportive of the price is drilling activity which in the wake of extremely weak gas prices, cut natural gas-directed drilling by almost 60% to less than 400 rigs recently, which is solidly below the ~575 gas rigs necessary to maintain long-term market equilibrium. But what is very noteworthy is that when supplydiscipline cycles kick in, they last about two years if the 2007-08 and 2010-11 episodes are any guide. Therefore, the energy team believes a “discipline-induced” supply deficit should build this year.
Energy companies that are poised to profit from a better gas price include big cap Encana (ECA) and Talisman (TLM), intermediate’s such as Peyto Exploration (PEY), Bellatrix Energy (BXE) and Birchcliff Energy (BIR) and juniors such as Cequence Energy (CQE), Santonia Energy (STE)
and Donnycreek Energy (DCK).
Posted by jackbassteam on April 12, 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
A horizontal drilling machine (Photo credit: Wikipedia)
AREX : NASDAQ : US$24.78
Approach Resources is an independent energy company engaged in the exploration, development, production and acquisition of unconventional natural gas and oil properties onshore in the US. The company focuses on finding and developing high-quality, long-lived resource
The company is a pure play on the oily Permian Basin, with 148K net acres in the southern Midland Basin. The acreage, which is 100% operated and mostly contiguous, is a very meaningful position for a company of AREX’s size. Organic production growth is solid and costs are coming down. As the company accelerates its development in the horizontal Wolfcamp and continues to execute, we expect the significant gap between the current stock price and our NAV to narrow.
AREX greatly increased its potential horizontal drilling inventory to 2,096 locations, up from 500, primarily due to the addition of the Wolfcamp A bench and more C bench wells.
Well results continue to improve (7 most recent wells averaged 900 Boe/d, ~17% above its 2012 Hz Wolfcamp average). Recent wells, including 2 A bench tests, are tracking above the company’s 450 MBoe type curve.
Horizontal Wolfcamp well costs, which averaged ~$6.4M in H2/12and are currently in the $6.0-$6.2M range, are expected to reach the company’s $5.5M target in Q2/13 after infrastructure projects are completed in Pangea Block 45, which is anticipated by the end of Q1/13. The company recently AFE’d a well for $5.6M. We are estimating an 8% reduction in LOE/Boe from Q2/13 to Q4/13.
Posted by jackbassteam on March 6, 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
List of highways in Lavaca County, Texas (Photo credit: Wikipedia)
PVA : NYSE : US$4.05
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.
Liquidity has been enhanced to carry out the company’s Eagle Fordfocused drilling plan. We believe the stock offers solid value for patient investors at these levels.
The Eagle Ford (EF) remains the focus area for PVA, commanding ~88% of 2013 capex. The Technik #1H well in Lavaca County, which tested at 1,445 Boe/d (79% oil), was the company’s best well in Lavaca to date. Beginning this year, PVA plans to initiate the use of pad drilling in the EF, which should decrease costs 8-10%. Costs are also coming down on the completion side.
PVA in our view has adequate liquidity to fund its 2013 capex program. Cash plus revolver availability at YE12 of $316M is ~2x the outspend we are modeling for 2013.
Following Q4/12 results and 2013 guidance, we are adjusting estimates for the year. Production goes to 16 MBoe/d (63% oil/NGLs) from 15.9 MBoe/d (60% oil/NGLs), EPS goes down to ($0.72) from ($0.66), but CFPS goes up to $3.58 from $3.33 on higher DD&A.
Using a NAV-based methodology, our $6.50 price target, down from $8, represents a ~20% discount to our $8.25 NAV, which is down from $10.
Posted by jackbassteam on February 25, 2013