Member Info for epiphany121

December actuals at 12.77 mmbbls down from 12.83 mmbbls in November. EIA weekly estimates for the 4 week average to 27/12 was at 12.85 mmbbls and that's close enough I suppose to actual levels. Texas (Permian) is up 32kbbls/day, but most of the other shale states are down over November.

January 4-week average was forecast at 12.975 mmbbls - we'll see where it really lands in next month's report. We'll need more capex costs though and we'll good for H2 2020 and certainly in 2021.

GLA...

Modestus - yes, I was following CLR closely yesterday and the bounce back from the lows (continuing today). But, CLR is down from a high of 52 last April to $18 now and that's still a massive loss of market cap for Bakken's largest producer. The market marked them down initially because they didn't announce capex cuts from their circa $2.6 bill capex in 2019. Ditto for companies like MTDR, DVN, BCEI (small company marked down 20% when it opened today and is now up 6% from yesterday's close).

Street's now hammering shares that aren't announcing capex cuts. Logic is simple IMO, unless you cut capex, production will keep growing and WTI will be lower for longer, and you won't generate enough FCF to reward shareholders and we'll knock you down. The shale id**ts still don't get it though.

Riskingit - there is a major difference between what happened in 2016 and what's happening now/late 2019 - Wall Street has pulled the plug on funding drilling either via Equity or Debt for nearly all companies, unless they have tangible cash flow from ops that exceeds capex (both drilling/property acquisitions). Shale has a mountain load of debt coming due in 2021 and upwards, and many shalers' debt is trading in distressed territory with no hope of refinancing. Unless they cut capex (and oil goes up as a result eventually), they'll have no hope in hell. And this 'segment' of shale is pretty substantial.

Oil rig count was just 1. Permian's up 2 - not exactly a ringing endorsements of spending cuts (just yet). With the large fall in WTI this week, it may be the next week or 2 before rigs get cut.

Shalers stocks are finally catching a bid today after being brutalised this week. The largest Permian player, Occidental (OXY) is down 25% this week and we certainly fared better than a $36 billion market cap company.

Hitman - unfortunately, many of the shalers have hedged large volumes of their 2020 production at a low to mid 50s floor price. Some I track have hedged up to 70% of their annual production in 2020. They certainly won't be looking at next month's cash flow and make the call, but knowing that the price has dipped below $45 should force their hand. 95% of shale production is non-FCF generating at these price levels.

We'll know soon...

Squif - yes, there's that reality with the shale idi*ts. At $45, they're screwed - I can easily see large scale capex cuts in play. If WTI doesn't move back up into the 50s quickly enough, that is the reality. We'll see the rigs count in 2 hours - that should give us a sign.

GL

Holding up well in midst of the carnage on Wall Street. Another 900 off as I write and Shale's in the dumps again. I wonder what Trump's upto?

Problem isn't Chinese numbers - the market doesn't really trust them in whole anyway. It's the fear around what Covid will look like if it takes hold in the US, after what we've seen in Italy and around the globe now - that's the biggest worry for the market. The biggest driver for growth in the western world has been the US consumer and should they pull back and resulting real economic hit, that's the worry.

I can't believe the selling in the US this week - haven't seen it since the dire days just after Lehman collapsed in October 2008. It was too frothy leading up to last week and hence this washout is probably not the worst thing to happen. The one hope for us is that this sell-off doesn't hit the real economy in the US. Maybe we'll have better news flow over the weekend.

I won't be surprised if the US market finishes higher today - it's currently pointing to a 600 point lower open on the Dow. That's my base case for today.. ;-)

GLA

As I indicated last night, shalers that are not cutting Capex and compromising on FCF are getting hammered. Continental is no off 25% opre-market. Ditto for QEP resources. Was a $500 mill market cap with $2 bill debt, and instead of cutting capex, they're holding it at $570 mill in 2020, with an FCF of $100 mill. Share price is down 25% pre-market. Listen to the market you id**ts. The world doesn't need the oil you're producing and you're only hurting yourself by keeping oil lower for longer with this craziness!!! The market isn't marking down companies that are cutting capex, that badly. That's a clue!! Frustrating that these numpties can't see what's obvious to the rest of the world...

See link below.

https://www.oilandgas360.com/coronavirus-warning-the-oil-and-gas-market-makes-no-excuses/

To put the recent jabber into context - It's the usual nonsense from posters when there's been some, OK a fair bit, downside due to any number of factors. Tuning out their nonsense or putting them on filter if you can't tune them out is the way to go.

Let's not forget longs get euphoric too when the SP is running up and all sorts of dividend numbers and targets then come out. ;-) The reality is what goes around comes around. Till gross debt is firmly down below the $1 bill number, we'll still be deemed risky and left to the vagaries of Brent spot prices. With shale in the US overproducing and expected to continue doing so, until shareholder returns are prioritised, after getting debt down more, we'll be range bound. Enquest (and other indebted oil companies) needs higher Brent prices to get debt down quickly and that hasn't fundamentally changed.

This scare will go away eventually, and till then, there will be ups and downs. We'll have to live with the volatility in the short term.

GLA...

Modestus - yes, noted CHK's price today. They're reverse-splitting and of course, the market doesn;t like that. At least they're cutting their capex by 30% and most of that just focused on just about maintaining their oil production. I know CDEV quite well and I do have a small holding there and that's been pummeled by more than 50% in just a few weeks. All that these nincompoops need to realise is if they cut capex enough to reduce US oil production in 2020 by 1 million bbls/day, WTI would go to the mid to high 60s and they can generate plenty of FCF to pay down their debts. And that'll help our cause too.

On reflection, the Russian strategy of not cutting production is a great move. Unlike in 2016, banks aren't throwing easy money at the shalers, and they're mostly frozen out of the equity as well as debt markets, and coming back from the dead isn't really a viable option as it was then. I know it's been a painful few weeks for us, but I'm convinced that the loonies across the pond will actually see the writing on the wall with this sharp fall and cut back. Short term pain, but longer term gain it is...

More boring and mundane news. Continental Resources, the largest private Bakken shale driller with approx 200 kbopd production in 2019 (plus a sh**te load of useless gas) now needs to spend $3 billion capex just to sustain production at 200 kbopd in 2020.

http://investors.clr.com/2020-02-26-Continental-Resources-Announces-Full-Year-2019-And-4Q19-Results-2020-Capital-Budget-And-Guidance

And at $55 WTI/2.50 NatGas, they will have an amazing FCF in 2020 of a grand $300 million. That's less FCF than we generated in 2019 with less than a tenth of their capex and as much as we can generate in 2020 at between $55 - $60 Brent. Is it a wonder that shale SPs are getting hammered when production is only just about sustainable even after throwing Sh**te load of capex at the treadmill problem? CLR is down 20% after market today to a new all-time low of $17. A $20 billion market cap company in April last year will be worth about $6 billion tomorrow. Mind-boggling. Why do they even bother? Complete numpties, just like their president...

HItman - I've been buying today as well. The shale SP drops in the past 3 to 4 weeks have been horrendous. Even strong companies like DVN that are FCF generating are off circa 40% and that tells a tale - FCF is suspect with WTI at these levels. Shale's cutting budgets, but just not enough, IMO. The reality is that at the current pace of Capex, many shalers I track are forecasting low to high single digit growth. Pioneer is actually increasing Capex to $3.5 bill from circa $3 bill last year and calling a 15% increase in production. I know all of us wish for peak shale in 2020, and praying for it, but IMO this is not going to happen. WTI below $50 for a few weeks may turn the tide and force real capex cuts, but that's not what is happening. That's sheer idiocy for you.

Below is a good read on why management comp should be tied to SP performance and that's never the case, either in shale land or anywhere really. At least AB is buying a hell of lot shares and putting his money where his mouth is.

https://www.bloomberg.com/news/articles/2020-02-26/shale-activist-hunts-for-new-target-in-uninvestable-sector

There's too much fear right now and the tide will eventually turn and oil will come back. I hope it's done enough damage to the shalers to convince them to focus on FCF over production increase - I can dream of course...

GL

IMO, Russia has come to the conclusion that it's not worth cutting production and feeding the shalers with more market share. There will still be growth in shale and large Permian players like Pioneer are actually still increasing capex for 2020 - sheer madness when their flipping CEO goes around saying that production will taper off this year and high spending isn't sustainable. Classic F**ing lip service being paid to capital discipline by these idiots. Sub $50 WTI won't cut it and maybe, just maybe will force their hand to actually cut capex substantially, and we're nearly there.

Cheers, Steelwatch...

L7 - "In 2019 $100m of Magnus cashflow, before the profit share, was used to reduce the contingent liability for the acquisition of the 75% interest in Magnus. This did not contribute to FCF or reduction in net debt.". THis isn't correct. Excluding the circa $20 mill vendor loan repayment for 2019, the first $100 mill of net cash flow (post Capex/Opex) from 75% Magnus went straight to Enquest and then remainder of the net cash flow was split 50-50% between BP and Enquest.

This year, all of the net cash flow from 75% Magnus (after the $20 mill Vendor loan repayment) is split 50-50 between BP and Enquest. Say there was a net cash flow of $150 mill from 75% Magnus for each of 2019 and 2020, In 2019, Enquest would've received $125 mill and in 2020, Enquest would receive $75 mill. To state the obvious, where we would end up in 2020 in terms of FCF is riding a lot on how the Coronavirus spread pans out in the coming weeks. I continue to believe that we'll see the peak in the coming weeks and the economic activity trough in China will be Q1. Fingers crossed.

Exactly, although we're in a unloved sector and the moves won't be as dramatic, I'd suspect. Slow and steady works well ..

Poor HUR holders - down another 20% today on operational issues. Not quite the funding problems for future development, but apparently OGA requiring on of their key wells to be abandoned? We're sitting pretty though with no such issues at this time.

GL...

Morning Hitman - I believe the slide in oil prices in the past 3 weeks has forced shale to start cutting down on Capex for 2020. The first small one I've noted, Ring Energy (REI), has cut prelim capex from $150 mill in 2019 to $85-90 mill in 2020 - that's a hefty cut. FCF is the name of the game and shale can't live with $50 WTI.

It'll take time for this and other (hopefully) forthcoming capex cuts from the shale universe to manifest in production numbers, but we should really start to see rigs and frac spreads drop back again. Frac spreads in particular, have been on an upswing in the past 4 weeks and that's indicative of increased fracking activity, either on DUCs or alongside rigs. Let's see what the other shalers get upto..

GL

A more than solid 2019 with gross debt down to $1.7 billion (lower interest costs - great). Decent hedge for Q1 and hopefully Brent will turn around soon after the virus scare dies down.

Hitman was spot on with his 2020 production prediction - the mid-point of the guidance is somewhere around his predicted 65 kboepd. Whilst a bit disappointing, that sets up ENQ to beat the mid-point easily.

GLA...

Sachs' head of oil research was on CNBC last night and he was the one that called the $3 oil decline. Oil fell 20% when the SARS scare came out in 2003, and in end analysis, oil demand didnt fall much, but concerns about demand took oil down 20% back then. Unless, this outbreak becomes much larger than its currently assumed to be, there shouldn't be big falls either in demand or in Brent pricing.

Its demand concerns that are currently overriding supply outages if there's a bit of calm over the weekend, Brent may rebound next week.

GLA