• Cale
    February 23, 2021
    Morgan Stanley's turn to get more bullish.

    Raised their Brent forecast for Q2 to $65 (from $55), bumped up their Q3 target to $70 (from $60) and bumped up Q4 estimates to $65 from prior $60.

    Their analyst also sees the oil market in 1Q in deficit by ~2.8M bopd.

    My favorite line:

    If sustained, 1Q could turn out to be the most undersupplied quarter since at least 2000.

    You rip off that mask off right now, buddy, and and breathe as carelessly as you want.

    Posted that full Morgan report "How Undersupplied is the Oil Market Really?" last night at this link.

    And Goldman's "Solving for a Tight Market" report from yesterday is now on the private boards here, too.

    Masks on for you, though, Goldman.

    Assorted Tuesday Links:

    1. Barron's on that Goldman report:

    Oil at $75 a Barrel by Summer? Goldman Analyst’s Forecast Is Bullish for Energy Stocks.

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    2. 'Supercycle' sighting number one this morning - from El-Erian's tweet here...

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    3. And Supercycle sighting two, from Eric Nuttall on Twitter:

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    Is this how a meme works??

    4. BBG: Trafigura Sees ‘Strong’ Oil Market Heading Into the Summer

    Plus, about 1 million barrels a day of crude production may never come back due to the damage some oil wells incurred from the weather.

    5. Co-head of oil trading at Trafigura in this BBG video, too.

    Short version: at the peak of the Texas freeze, believes U.S. crude output fell by ~5m bopd. Lotta that has re-started, but still means ~40M barrels less in February than expected.

    Company News:

    Two upgrades so far this morning - but first, two Q4 calls.

    Notes on the way, more soon.

    Disclaimer: This post nor any of the material linked to herein in any way constitutes investment advice. Investing may cause capital loss. The publication of this note is in no way a solicitation or offer to sell securities or investment advisory services.
  • Cale
    February 22, 2021
    Broader market futures down Monday morning. Perhaps the bump in bond yields is making tech stocks look more expensive. And if so...yeah, rotate on outta there, big fellas.

    WTI up 1% to $59.86, nat gas down to just under $3. U.S. energy supply in the middle of the country now starting to returning to normal.

    Goldman now expects a tighter oil market on their demand forecast (higher than consensus), which should result in a stronger-than-expected rally. Now forecasting Brent at $70 in 2Q21 and $75 in 3Q21...both up $10 from prior forecast. Also noting oil should benefit from the stimulus-driven recovery, as a hedge against inflation...and that a recovery in Iran exports in unlikely in the short term.

    Righty-o, my work here is done.

    Assorted Monday Links:

    1. Reuters: OPEC, U.S. oil firms expect subdued shale rebound even as crude prices rise

    2. BBG: U.S. Says ‘Ball in Iran’s Court’ to Revive Nuclear Deal.

    So both sides still passing notes during gym class. This little signal from the U.S. was likely due to Iran threatening to limit U.N. nuclear site monitoring over the weekend.

    3. WSJ op-ed (from Dr. Makary at Johns Hopkins): We’ll Have Herd Immunity by April

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    Covid data out of Israel over the weekend also very encouraging.

    4. Podcast here with Raymond James' oil axe Marshall Atkins. Short version:

    He thinks that after corona, the world may need every drop of OPEC+ oil online to keep WTI from hitting $100.

    What's the emoji for "I Like The Cut Of That Guy's Jib"?

    5. TSE: The myth of 'electrify everything'?

    Even if renewables reach 50% of the grid, there would be no net CO2 savings, while end products' costs would likely increase by 10-100%.

    6. FP: Everything You Think About the Geopolitics of Climate Change Is Wrong

    In reality, the geopolitical fallout of a clean energy transition will be far more subtle, complex, and counterintuitive. Many of today’s predictions are likely to turn out wrong, or will take decades to unfold in unpredictable ways. If policymakers don’t get a clear-eyed understanding of how global power relations will change—not only in a future era of zero-carbon energy, but during the long and messy transition to get there—they won’t be able to manage the coming era of foreign-policy risks, and their efforts to combat climate change will be stymied.

    This Week's Sign We're Heading Towards an Energy Crisis:

    Yet another reminder that emotions, not rationality, are driving the debate...

    From the New Yorker: The Activists Who Embrace Nuclear Power

    The hopeful way to go into that is, ‘Oh, wow, we actually have technology that can do this. And that’s nuclear. And so I’d rather stay hopeful.

    Today's Sign That EVs and Renewables Are A Bubble:

    Three SPAC mergers already announced this morning...and looks like at least two more on the way.

    Company News:

    [More company-specific commentary this morning for IIM investors can be found on the boards here at this link.]


    Disclaimer: This post nor any of the material linked to herein in any way constitutes investment advice. Investing may cause capital loss. The publication of this note is in no way a solicitation or offer to sell securities or investment advisory services.
  • Cale
    February 21, 2021
    Most posts on this site are private, for the investors of Islamorada Investment Management.

    This blog contains public posts - viewable by all site visitors.

    For compliance reasons, we still have to restrict certain kinds of content even in these public posts - but we're excited to soon be announcing more public features, accessible by investors everywhere.

    In the meantime...

    For access to comments and downloads on these public posts:

    Please click the "Create Account" button in the top corner of this page.


    Other public areas of this site:


    Other links:

  • Cale
    February 18, 2021
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    Notes from $AR Q4 Call

    Release here, my initial thoughts were here, full preso is here.

    Shares down 10.5% at start of call, though likely more on the dividend cut at $AM then about $AR results, specifically.

    Call Notes...

    CEO - kicking off with comments about drilling partnership. Same deets as on release. Starting with wells spud 7 weeks ago. Slide 3...

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    Slide 4: over 2,000 premium undeveloped locations, contiguous, more efficient development. Since more than 1400 are liquids rich, well-positioned to take adv of strong NGL prices. Recent study of undeveloped locations in Appa, 1400 represent 38% of remaining core.

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    Have underutilized FT, can deliver where others can't. They have basis blow-outs, have to shut-in.

    Can capture add'l fee rebates thru partnership, too.

    All of that will drive big increase in FCF as per Slide 5. Red box can fill un-utilized FT. Bennie really kicks in 2022.

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    Walking thru waterfall.

    Most of $400M in FCF not very sensitive to commodity prices.

    Slide 6 - highlighting gross volume forecast. FT filled by 2023.

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    Slide 7 summarizing rebates thru AM. Earn outs possibly more than that $76M. Also is an IRR-target kicker.

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    Slide 8 - partnership will boost FCF by $400M incremental. FCF based on backwardated strip, though. If flat, would expect to gen $3.5B in FCF...35$ NGL and $2.90 gas.

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    Slide 9 - recent testing, bifurcating the cores. 5200 premium undeveloped in SW Marcellus in red. Of that, we hold 1865 locations, 36% total. Ohio Utica, we hold 19%. Then 1600 Tier 2 in blue lines. Existing production covers a lot (red lines) but partnership highly accretive. Inventory fatigue and inventory will be a critical point.

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    Marketing guy now, talking LPG...see slide 10.

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    Record setting rate of withdrawal for LPG. Big swing in inventories and days of supply (as per my note yesterday).

    Slide 11 - U.S. exported record levels, winter not yet over. Mt B prices low 50 cents in Nov to 98 in January, now at 90 cents, stay tuned for recent impact due to Arctic blast. $39 barrel today.

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    Slide 12 - steady increase in C3+. Upside remains in curve, lack of contango for next winter. LPG adoption should be embraced, numerous petro-chem coming online. China 350k barrels of demand per day thru 2022.

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    Slide 13 - improving realizations, LNG carrier changes in Panama means shipping advantage to Europe and Asia. De-bottlenecking real positive.

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    COO now - bullish LPG good for us. Speaking to slide 14...$2 per barrel change in NGL price = $97M in unhedged revenue per year.

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    Slide 15 - have raised over $1.1B, three great counterparties. Strong endorsement of our assets.

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    Slide 16 - walking thru new maturity schedule, dramatic improvement.

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    Slide 17 (new one for them) - that "below 2x" will be critical for them.

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    Now shifting to financial highlights for quarter...deets as per release here, FCF, wells, ten set new record...perfunctory ESG slide...still targeting methane loss and GHG intensity. Believe NG will be key for energy transition, well-positioned there. Uniform reporting standards for ESG are on the way.

    Slide 19 - summary...making good point about FCF versus current market cap...walking thru bullets here.

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    Going to Q&A at minute 24.

    Q1. JP Morgan. Color on 2021 liquids guide relative to 2020? Mix 33% to 31%? Royalty barrels impact on volume guide?

    A. We elect not to pay royalty owners in uneconomic NGLs, like 2020, so do not pass that along. With increase in '21, won't do that. So last year paid in NG volumes, now will pay in share of liquids. Huge benefit to AR. Neg $50M for us last year, reverses this year so higher realizations and lower processing costs at lower net production.

    Q2. Color on marketing uplift in Q1 here (re: this weather)?

    A. Guidance does reflect that now, would have been flat, now $75M in new rev...$50M in realizations, rest in lower marketing expense. So flat to ten cents and now ten to 20 cents in Q1. Just so far...

    Q3. Northland. Capex $635 per foot, looks like will be here second half of this year. How conservative are ya being next four years?

    A. Yeah, probably conservative, can probably take it lower (attn: sandbagging alert). Still downward pressure on service costs.

    Q4. NGL volumes this quarter? Exports same as Q4...?

    A. Gross wellhead vols flat YOY, maintenance capex volumes, so NGL vols Q1 will be down as per guide due to lack of completions in Q4. So, no changes to export mix.

    Q5. Truist. How think about FT commitments and new drilling on slide 6...changes versus previous expectations? Fees/expenses?

    A. All still does roll off...no expense by YE '25, can also see that in the guide.

    Q6. Capex and production guidance - drivers of delta?

    A. Nothing really changed, just $10M in capital, but avg for 2020 high enough given specs of deals last year.

    Q7. TPH. Capital allocation across portfolio - Marcellus/Utica mix, and premium/Tier 2 in Marc?

    A. All in premium bucket over next 5 years, 98% Marcellus, more deets in preso coming out later today.

    Q8. Confirming maintenance on net basis for capex for whole drilling partnership for 5 years...?

    A. Yes, holding maint capex there for 5 years, spending little less pre-carry, actually. To generate max FCF and paydown debt.

    Q9. RR Advisors. If do $500M EIBTDA in Q1 and all RCF paid off by June, how will allocate FCF later? FCF yield in excess of 25% at this point, eh?

    A. Yeah - and that's holding gas flat at $2.90 and NGLs at $35...first use of proceeds to paydown debt and credit facility til get below 2x. Then return of capital to shareholders. May be some A&D along way, will see, but potentially buybacks and divvies. Will look at every quarter.

    Q10. Looks like you could almost take yourself private with that FCF over next 2 to 3 years, right...?

    A. Thank you.

    Q11. Howard Weil. On Slide 9 - impact on overall view on M&A?

    A. Not driven to do M&A for inventory reasons, 80 locations per year with partnership, so many many years of running room and inventory. Other reasons for M&A, of course. Basin doesn't have that many years of inventory...so should see higher prices...but if run 30 rigs (today 26/27) in Utica and SW Marcellus can drill 30 wells per year. So doing the math...only six years of supply in premium area of SW, which is pretty sobering.

    Q12. Points to more consolidation...?

    A. You're probably right.

    Q13. On prior commentary on NG prices - what will take to flip the switch like Q1 '18 on net marketing expense?

    A. Similar, still ongoing today. Gonna be interesting six weeks.

    Q14. Do you have a % to share on how much can sell in spot?

    A. Yeah, in the 450 to 500MM/day range depending on pipe capacity...to Chicago, midwest or Gulf Coast, so pretty significant.

    Q15. Wow. (You got that right, sister.)

    That's it, call over minute 43. Stock off earlier lows, now down 7% on the day. Sell-off is shortsighted here, though. Shouldn't last.

    Keep you posted on Street ratings/target changes.

    Shifting gears for $AM call, back after that

    Disclaimer: This post nor any of the material linked to herein in any way constitutes investment advice. Investing may cause capital loss. The publication of this note is in no way a solicitation or offer to sell securities or investment advisory services.
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