Cline Shale News

Shales Cline Shale
141

That all makes perfect sense save for the part about the larger companies. It seems as if they would greatly benefit by forming special teams to avoid paying multiples to middlemen.

Rock Man said:

Larger oil companies have some issues that prevent them from being as flexible and adaptive as smaller companies. Massive overhead - much of it tied up in non technical functions (e.g. HR, accounting, HP&E, etc.). Plus larger companies have different types of financial goals and may be more designed to look for “giants” or chase international targets.

As for your last comment in the post (“why sell?”) - tons of value but a LOT of capital has to be spent to access that value. And then there is the discounted ROR as a company produces these wells over time.

Many of these companies have private equity money as their source of funds with “x” % yearly interest that needs to be paid to the investment group. Plus the PE concept is to cash out and make multiples on their investment as early as possible (this benefits the investors in the PE groups).

Last but not least is the individual company management focus - getting a big pay day for themselves and their staff via a sell off is highly desirable for a lot of reasons. An example is the Tall City management team - average of 30+ years of experience means you have individuals who are looking to get to a position where they can go to cruise control on the rest of their lives as well as set up their families for the future due to mega sell off results.

All you have to do is look at the EnCana / Athlon deal - tons of value in the ground and EnCana is willing to pay a premium in 2014 dollars to get it. Exactly why Athlon put this together.

142

“Special teams” for larger companies to facilitate entry into unconventional plays makes sense, but it still comes down to execution, adaptability and flexibility. Plus you need to have an acreage position to play with - unconventional plays are not everywhere.

BP has created a “shale / unconventional” group but is still not a major “shale” player yet as I see it. Possibly too slow due to “analysis by paralysis”. But ExxonMobil has used their XTO affiliate to handle unconventionals (EF, Permian). Chevron and OXY have huge legacy Permian position while Shell has big position in Delaware Basin.

One thing to keep in mind is that most of majors bailed out of the Permian years ago - this allowed the Conchos, Three Rivers, EOG’s, Pioneers of the world to get a major position prior to the whole unconventional play concept developing.

So in many cases, the majors have no other option other than to buy into the plays and pay big money doing so.

In some ways, the days of the majors are somewhat done. And “What is a major?”. Companies like Apache, Anadarko, EOG, Pioneer, Whiting, Continental, etc. have rose to positions that rival the “old majors”.

Changing times made more complex by the rise of private equity and companies that are designed find/prove/sell assets.

AJ said:

That all makes perfect sense save for the part about the larger companies. It seems as if they would greatly benefit by forming special teams to avoid paying multiples to middlemen.

Rock Man said:

Larger oil companies have some issues that prevent them from being as flexible and adaptive as smaller companies. Massive overhead - much of it tied up in non technical functions (e.g. HR, accounting, HP&E, etc.). Plus larger companies have different types of financial goals and may be more designed to look for “giants” or chase international targe

As for you last comment in the post (“why sell?”) - tons of value but a LOT Of capital has to be spent to access that value. And then there is the discounted ROR as a company produces these wells over time.

Many of these companies have private equity money as their source of funds with “x” % yearly interest that needs to be paid to the investment group. Plus the PE concept is to cash out and make multiples on their investment as early as possible (this benefits the investors in the PE groups).

Last but not least is the individual company management focus - getting a big pay day for themselves and their staff via a sell off is highly desirable for a lot of reasons. An example is the Tall City management team - average of 30+ years of experience means you have individuals who are looking to get to a position where they can go to cruise control on the rest of their lives as well as set up their families for the future due to mega sell off results.

All you have to do is look at the EnCana / Athlon deal - tons of value in the ground and EnCana is willing to pay a premium in 2014 dollars to get it. Exactly why Athlon put this together.

143

Bad News For U.S. Drillers As Saudis Signal No Cuts To Oil Output

Christopher Helman Forbes Staff

"Despite a nearly 25% slide in oil prices in recent months, Saudi Arabia has no intention of cutting oil production. On the contrary, according to a Reuters report Sunday, the kingdom “is quietly telling oil market participants that Riyadh is comfortable with markedly lower oil prices for an extended period.” How much lower? Perhaps down to $80 per barrel, for a year or two.

http://www.forbes.com/sites/christopherhelman/2014/10/13/bad-news-for-u-s-drillers-as-saudis-signal-no-cuts-to-oil-output/

144

If that is the case, we should probably expect a flurry of M & A activity in the not too distant future?

145

Interesting times - appears that Saudi is trying test the system to see how economic the US “shale” plays really are.

Some tough stock news out there from some companies - Goodrich (major TMS player) is down to under $8 after topping out in the mid 30’s a few months ago. Halcon and others off double digit percentage points today. Permian players also dropping.

146

Earnest, what’s M&A activity?

147

Mergers & Acquisitions. A change in the market invites companies to re-evaluate their options/plans/strategy.

148

Not a great time for a group like Element and Tall City to be marketing their Howard County properties.

Of course, they can always just keep the property and wait for better pricing / offers. Time will tell.

149

Major U.S. shale basins are economic at $75 per barrel: Baird

http://www.oilandgas360.com/major-u-s-shale-basins-economic-75-per-barrel-baird/

“Our view is you’re not going to see reductions in activity, capital budgets or drilling programs [at today’s levels]; it’s fairly well hedged for the next few months. All the basins make sense at $80 oil. If it fell to low to mid $70s for a prolonged period, that’s when you’re likely to see producers reconsidering their longer term drilling programs—that’s when people will start rethinking their plans. Breakeven points for the major basins are still below that. Major oil basins like the Permian, Bakken and Eagle Ford are economic at $75,” according to Baird energy research team members in Denver.

Brent traded Friday at $88.11 a barrel in London, the lowest level since December 2010, Bloomberg reported. “The price slump is adding to pressure on Russ

150

http://www.zerohedge.com/news/2014-10-14/crude-crashing-brent-most-oversold-ever Argh !!!

151

We are at the mercy of the traders, remember when oil hit $140 plus? Well, they were trying to stick someone with contracts. Now, they are covering their bets. I could also propose by the time WE hear about the price changes, then the dynamic has already changed. As far as cheap gas, winter blends are cheaper than summer blends.

Back to your regularly scheduled TULIP trading.

152

Regardless of current trends we all know that the majority of OPEC countries have obligations and budget concerns that require a certain amount per barrel. Tensions are reportedly already high, with some members demanding production cuts. The question is not if they will cut but when.

The real concern, imho, is the state of the global economy. A bull market for oil cannot long exist in a bearish global economy. Slowed growth among the EU, BRICS and a vastly unreported US downturn are a threat no conglomerate can evade.

153

The Laredo conference call was today. The telephone replay is 1-888-286-8010 and the password is 50262757. Laredo is selling their northern Glasscock acreage. They speak of quality of barrels, but even so have 50 years of drilling on the northern acreage. The southern acreage speaks for itself. The Q&A is well worth a listen.

154

This was an interesting listen. I feel the tone of the LPI officers is much more subdued, even somber, in this call. 30 avg production is “dangerous” to use in making long term projections, and, as Rock Man has repeatedly said, the intervals are “not homogeneous” in production. I wonder why no one asked about 2015 production given 2014 CAPEX? How much acreage does LPI have in south and north Glasscock County? The Dec conference promises lots of good info.

richard said:

The Laredo conference call was today. The telephone replay is 1-888-286-8010 and the password is 50262757.

Laredo is selling their northern Glasscock acreage. They speak of quality of barrels, but even so have 50 years of drilling on the northern acreage. The southern acreage speaks for itself. The Q&A is well worth a listen.

155

Here is our take from LPI presentation showing their leasehold. Question is where do they draw the line north vs south?

I am thinking the acreage north of word “Glasscock” is for sure in their planned divestment plans (didn’t take a rocket scientist to make that observation!) And using eyeball math, I would estimate that section to be about 15 to 20% of their position - or 120 to 150,000 net acres.

2617-Laredoacreageposition.pdf (204 KB)

156

http://www.laredopetro.com/news-and-events/events-and-presentations/corporate-presentations/corporate-presentation-septemberoctober-2014.aspx See 3 pages down where Laredo refers to “Concentrated Multi Zone Development” the cut off appears to be Garden City to the south.

Broke down and bought Glasscock map (not cheap!) because a production corridor borders me diagonally. They said production corridor with stacked laterals equals 468 wells per 5 Sections (I say five because that is their largest) which if my math is correct equals 6.9 acres of drainage. I have seen internal Spraberry engineering report from another company and oil in place is even larger than told to Wall Street. Downside is only 5% can be recovered at present time.

Rock Man said:

Here is out take from LPI presentation showing their leasehold. Question is where do they draw the line north vs south?

I am thinking the acreage north of word" Glasscock" is for sure in their planned divestment plans (didn’t take a rocket scientist to make that observation!) And using eyeball math, I would estimate that section to be about 15 to 20% of their position - or 120 to 150,000 net acres.

157

Just guessing they said they were hedged in 2015 and some in 2016. I gathered weak oil is not a problem yet. The article Earnest posted about Cline has rail cars. I saw a bunch of brand new ones near Sweetwater. I will remember my camera and get you guys some pictures.

AJ said:

This was an interesting listen. I feel the tone of the LPI officers is much more subdued, even somber, in this call. 30 avg production is “dangerous” to use in making long term projections, and, as Rock Man has repeatedly said, the intervals are “not homogeneous” in production. I wonder why no one asked about 2015 production given 2014 CAPEX? How much acreage does LPI have in south and north Glasscock County? The Dec conference promises lots of good info.

richard said:

The Laredo conference call was today. The telephone replay is 1-888-286-8010 and the password is 50262757.

Laredo is selling their northern Glasscock acreage. They speak of quality of barrels, but even so have 50 years of drilling on the northern acreage. The southern acreage speaks for itself. The Q&A is well worth a listen.

158

I saw an article about the tanker cars today. Apparently, the orders for them are still rolling in, regardless of the current slump in oil prices. http://www.bloomberg.com/news/2014-11-06/icahn-tank-car-maker-joins-industry-defying-oil-s-decline.html

j richard said:

Just guessing they said they were hedged in 2015 and some in 2016. I gathered weak oil is not a problem yet. The article Earnest posted about Cline has rail cars. I saw a bunch of brand new ones near Sweetwater. I will remember my camera and get you guys some pictures.

AJ said:

This was an interesting listen. I feel the tone of the LPI officers is much more subdued, even somber, in this call. 30 avg production is “dangerous” to use in making long term projections, and, as Rock Man has repeatedly said, the intervals are “not homogeneous” in production. I wonder why no one asked about 2015 production given 2014 CAPEX? How much acreage does LPI have in south and north Glasscock County? The Dec conference promises lots of good info.

richard said:

The Laredo conference call was today. The telephone replay is 1-888-286-8010 and the password is 50262757.

Laredo is selling their northern Glasscock acreage. They speak of quality of barrels, but even so have 50 years of drilling on the northern acreage. The southern acreage speaks for itself. The Q&A is well worth a listen.

159

Seeing that Diamondback is slowing acquiring acreage does that suggest that we should expect production to drop? Thus a bounce back in WTI price?

160

Not acquiring acreage is not the issue to be looking at - rig count drop is a more important factor IMO as tied to overall production.

Issues that will impact WTI are much larger than just Permian Basin production. Complex integration of multiple issues in US as well as internationally will impact this one price metric.

I should also add that operators have a large inventory of undrilled / undeveloped “benches” in their existing acreage. And that there is only so much “good” acreage to acquire and drill. The speed at which these benches are drilled up and infilled will be the ultimate control on production in Permian. And this speed is controlled by the internal economics that these operators have (and each operator has a different set of economic guidelines based on their cost of their capital and overall financial plan).