Member Info for epiphany121

Squif - you're right. Enquest didn't downgrade reserves and hence nothing to write back. Any element of positivity from this news has been washed out by the Saudi/Russia drama..

Saudi Sabre rattling...

https://twitter.com/LiveSquawk/status/1237297234959577088

Firstly, some commentary on CNBC by the sell-side about oil, vis-a-vis the focus for overproduction globally - the shale idiots.

1. Interest rates too low for too long, resulting in marginal/weaker shale players to survive for longer than they should
2. We know this - Wall Street was willing to fund Shale for the past 7 years, without due 'consideration', primarily because returns were there, and they had no real losses on loans till last year ($1 bill and that was the highest in 30 years). That's now unwinding
3. As a result of 2 above, the sector is over-capitalised and is over-producing with the hope that SA will continue to cut and they'd continue to that market share. In the past 4 years, that's Shale taking 4 mmbbls/day market share from OPEC+. Obviously, Russia has now said no more.

There's a good chance that the shake-out hits the sector this year and shale needs to give up the 3 mmbbls/day overproduction that the world now doesn't need. Even though numpty said today lower oil is great for the consumer and the Dow is down because of fear-mongering, the reality now is that Texas will start losing jobs quickly as E&Ps react with large capex cuts. Many big names I track fell massively today and that will tip them over the capex cut game. It's now about survival for them and they can't produce their way out of this mess.

Modestus - you know many of these names and how battered they were. Large companies, with high debt and production, and they're now hurting.

Company Move Market Cap today
Apache Down 54% $3.6 billion
Continental Down 53% $2.62 billion
Occidental Down 53% $11.2 billion
Devon Down 38% $3.2 billion (cash $2.5 billion and gross debt $4.3 billion)
Murphy Down 43% $1.4 billion (10% dividend yield)
Diamondback Down 45% $3.55 billion (Cut capex today)
Parsley Down 40% $ 2.4 billion (Cut capex today)

Most of the above are Permian players. At $44 cash FCF levels, they're dead in the water and they've just had a lesson in reality. The smaller players are in a bad spot and I expect many of them should get washed out in 2020. About 10 of them I track were down between 65% and 75% today.

If Enq buckles up and spends as little as possible this year, and wait for higher prices next year (and they will arrive), that'll be the best outcome for us.

GL..

R - "their form of zero hour contracts" ;-). Not quite, almost all of their rig and frac crew contracts are with service providers - Halliburton/Schlumberger, etc. But yes, quite flexible, because no doubt these companies can fire at will in the US. I've no doubt that if this low Brent trend continues for a few more weeks, we'll see more rigs come off quickly. You've summarised the on-demand nature of the shale players - take on hedges for the next year and drill away. The fall in OP this year has come at the right time (early in the year) for them not to have taken on much hedges for 2021.

I don't think that OPEC can completely 'crush' Shale. Yes, enough of the weak players can be taken out to curb production and PE had already said that production in 2020 (for them) will be lower than projected because of Capex cuts. We'll see more of that. The larger shale players have seen what overproduction can do and I'm convinced that they can be part of the solution to address the overproduction issue, after the current crop of shale failures in 2020 come to bear.

Yes, perfect. Cheers, Mod. I was just reading up on FANG too. THeir barely cut capex 2 weeks ago with their FY 19 results announcement, and are seeing the writing on the wall. That cut is just not enough though, IMO. $125 stock back in May last year is now worth $25 today (down 50% today) to a $4 bill market cap company from a circa $20 bill comp. FANG is one of the bigger Permian players.

https://seekingalpha.com/news/3549662-diamondback-energy-slashes-full-year-production-plans

If you read through the article and note their hedging, they've done a lot of hedging and hence why they can generate FCF even with WTI between $30 and $35 in 2020. They've hedged something like an average of 75 kbopd at a $55 WTI floor till Q4 2020 (We'd have loved ENQ to have done something like that, not to be unfortunately) and that's helping for this year. Obviously, they're now looking ahead to 2021 and they'd only get negative FCF then, and hence the capex cuts.

All,

Here's the first one I've noted today. PE has dropped 3 rigs last Friday and will drop more (after today's bloodbath, no doubt). First of many, no doubt.

https://finance.yahoo.com/news/parsley-energy-provides-2020-development-134300727.html

Didn't think I'd see them anytime soon, but MBS did the trick.

Shale oil is off anywhere in the 60% to 30% range, and this after a huge fall on Friday. I sure hope they cut..;-)

Pre-market US Shalers. OXY is down 32%, DVN down 32%, MRO down 40% APA down 32%. And these have debt, but large production too and generate FCF with WTI around $47. Now none would, and they're getting creamed. The oil analyst on CNBC confirmed the obvious that they can't drop production right away, but capex cuts will come in big and that should leave shale down 1 to 2 mmbbls/day down in 2021. Enquest can and should shut shop for 2020 and focus on investing later on in the year, once there's better visibility on how the price is trending.

GL..I'm not worries about Enquest not making it through (unlike TLW and now possibly PMO), but there is probably ST pain.

Hello Romaron,

The carnage in oil shares has been brutal, but I'm pleasantly surprised as to how well ENQ has held up today. However, global economic signals aren't looking too good, and unless the CV panic settles down soon, we could be staring at a short recession in Q2/Q3 in the US. A bear market there is looking like a reality at this time, and that'll be the first in more than 10 years. I've stopped making predictions about prices and shareholders should do what's good for them, TBH.

Bloomberg has a good/balanced article on shale and how WTI is now more than 10 bucks below their 'Breakeven'. Permian's at $44, whilst Bakken/Eagle Ford is $55+ - none are economical at these prices. That's one epic washout and I can't see shale investing at these prices. If we see capex cuts of an average of 50%, that'll be most welcome in the medium term for when the upturn happens.

https://www.bloomberg.com/news/articles/2020-03-09/shale-drillers-are-staring-down-the-barrel-of-worst-oil-bust-yet

Until rigs really start falling on the back of capex cuts, expecting US production to fall is not realistic. In the first 2 months thus far, rigs had actually moved up as the producers were ramping up for a Q3 timeline, but we'll see how they react to this massive WTI fall. This week's number will be the tell-tale sign.

TLW was off over 50%, and PMO was indicated down 65% (this, I'm not sure why). PMO should fare better than TLW, IMO. We're holding better. What a slaughter, nonetheless...

Far from it, Beerbull. Oil patch in Texas will lose more jobs and if oil'd stuck in a deflationary patch for more than a quarter, it won't just be oil that's in it - the broader economy will be in too. And that means an outright recession and even the orange man can't pull off a houdini from there.

I don't believe this will happen for the gas producers - it was just a one-day short covering rally on Friday, based on hope rather than reality. If we're going to see meaningful reduction in oil production, assuming WTI is in the 40s/30s, that'll be in Q3/Q4 2020.

With the price war started by the Saudis yesterday and until someone blinks, we're now looking at least at a quarter or two of low oil prices and that should tip quite a few weak shale oilers over - WLL/OAS/LPI/QEP/SM/CPE - they'll all be in trouble. Say nothing of the capex cuts that'll be forthcoming in the next couple of months.

ST, who knows how much worse it'll get for both Brent/Enquest SP - substantial I'd imagine, but we'll be OK for when Brent recovers.

GL...

I don't believe that the proposed PMO acquisition and the RI will even move ahead. Should Brent go to the 30s or even stay in the 40s, that's just not economical enough for PMO to do that gas fields acquisition - their survival is highly questionable should they move forward with it. Henry Hub Nat Gas are near multi-year lows and European/Asian gas prices are falling too..

OK - so, the oil rigs go up by 4 this week, with 4 in the Permian. Is it any wonder that Russia doesn't want to cut production? They do deserve what they're getting though...

If the Numpty ends up losing the November elections, the Black Swan would've brought about something that was seemingly impossible, even as recently as 3 weeks ago. Well prepared, my backside. No availability of testing kits , disaster preparedness agencies gutted since the repubs came to power and no clear devolution of powers down to hospitals to test - it's no wonder the counts are low in the USA. They're probably counting only a low % of actual cases, with all these problems.

Hi Romaron - "That indicates that once we're past the worst and things start to return to normal EnQuest will be well positioned.". Precisely indeed. I, for one, can't say if oil's going down or if Enquest will fall more, and equally if the panic will blow over in a month's time and the giant wheels of the global economy start turning again. Either scenario is possible. A fall into the low 12 mmbbls/day range towards the end of 2020 is possible in the US, if the rigs start dropping off. At $50 WTI, they'll keep drilling no doubt. At sub $45, drilling just doesn't cut it. The longer oil stays around here, the more the rigs should follow.

AT an average of $48 Brent for 2020 (with $5 Malaysia and Kraken Premium assumption), and assuming $225 mill capex, we still generate circa $100 mill FCF. If Brent is lower in a few months' time, we'll probably cut capex. It's not an easy call, but lower for longer - we can survive unlike TLW. PMO is also a 50-50 call.

Link below. Hopefully, you can read this.

@Modestus - We talked DVN and CDEV the other day. Talking DVN, even though they're well capitalised with a net debt of $2.5 bill ($4.3 bill debt and $1.8 bill cash), and FCF breakeven is $46.5 WTI, it's tanked from $23 2 weeks to under $13 now. CDEV - kiss that goodbye - down 21% today and all-time lows at $1.5 ($10 book value, but book-values are useless when oil falls like this). And it's the same across the board - OAS -26%, SM -23% QEP/CPE -19%. The sector isn't investible until there's clarity on CV though - even though they may look bargains on the face of it.

https://www.bloomberg.com/news/articles/2020-03-06/coronavirus-is-making-bleak-year-for-shale-country-even-worse

You haven't seen what's happening in Shale land today. My screen's showing anywhere from 22% to 8% down for those numpties across the board. Will the rigs drop today? These idiots won't die easy though...