EnerCom’s The Oil & Services Conference™ 13 on February 18 -19, 2015, provided hundreds of investment professionals the opportunity to listen to the world’s key oil and gas E&P/OilService management teams present their 2015 growth plans, and address important energy topics affecting the global oil and gas industry.. EnerCom’s management took notes during the companies’ presentations, highlighting individual points of interest. Each of the companies’ presentations can be found by clicking on the company’s name.
- Oil prices could be negatively impacted like the Asian Contagion back in 1998. Back then it was a 600,000 b/d demand fall.
- Drilling efficiencies are real. It takes fewer rigs to drill an annual rate of wells on a year-over-year basis.
- The strength of the dollar is a black swan. Is it a chick or is it starting to squawk and poop on the rally?
- Offshore rig rates are declining quickly.
- The daily Permian production curve is the next basin to see a significant uptick.
- Believes producers are not purposefully drilling for natural gas, but the long-length laterals and drilling efficiencies are real and gas storage will have a downward pressure on natural gas prices in 2015.
- Crude oil prices could see one more downdraft between now and May, but will start to move above $60 barrel in Q2’14.
- The decline curve always wins and it never sleeps
- Fracing efficiencies are real for customers with new Kodiak perforating gun and Flowprofiler™
- The world needs net additions of 2.3 MM/D annually to keep global supply flat at around 89 MM/D.
- NAM decline rates of 70%, 40% and 20% in years 1, 2 and 3, respectively, will have an impact on the crude oil price recovery.
- The 1.0 to 1.5 MM/D of slack supply is two-thirds due to supply and one-third due to slack demand in Asia Pacific and China.
- 1,300 employees are senior scientists out of total employee count of 5,000.
- Maintain cash flow, maintain production. A well-planned manufacturing process. Catarina size positions the company with 10 years of drilling at current pace. PUDs only booked on about 25% of Catarina acreage.
- Very significant hedging through 2015. Steadily adding to the hedge book
- The growth of the HZ bench definition in the EF is the transformational key in 2014.
- Cost containment is well in hand. Wellbore efficiencies are real. Optimizing all mission critical components of the supply chain – it was an unbundling, not a bundling. Pressure pumping, mud, fluids, proppant, chemicals. Were at $5MM per/well costs, now going to $4MM and below
- Quite convinced that the Upper EF is delivering 30% IRR with $60/oil. Staggered UEF with LEF in pad drilling mode.
- TMS – finish the 3 well carry provision to earn ownership position. Majority of the acreage is held long-term from shallow production. The company can outwait the present commodity/service cost market and evaluate the opportunity.
- No debt maturations until 2019; Net-debt to EBITDA of 1.8 times. With strong reserve additions and cost management, improving drillbit results positions the company to see no change in its borrowing base. Forecasting to exit 2015 with ample cash and no draws on credit facility. $139MM mark-to-market valuation of hedge positions.
- Fortis Energy Services is a private well service company operating a fleet of 15 premium service rigs and an inventory of ancillary equipment, such as power swivels, power catwalks and more.
- Years of fast-paced development drilling in the Williston and Appalachian basins has resulted in thousands of new producing wells.
- The current commodity price environment is stressing well economics, and operators are laying down rigs and turning their attention to production operations.
- Today, maintaining production is more important than drilling new wells. As a result, Fortis is experiencing an increase in demand for repair and maintenance work. Workovers to fix parted rods, install downhole pumps, clean out wellbores and casing repairs are among the oilfield problems driving demand for Fortis’ services.
- The company’s service rig fleet and equipment inventory is relatively new, which translates into greater reliability, better performance in the field and safer operations.
- Fortis’s professional, trained crews are a key part of the company’s “three pillars of differentiation,” which include their Designed Solutions offering, Six Sigma process control and FortiSafe safety training program.
- Designed Solutions is a customer-centric approach for increasing value by providing more equipment and assets on the job site and cutting third-party costs. In one example with a significant Bakken operator, Fortis’ Designed Solution saved the customer 56% from what they were paying before Designed Solutions. This approach not only results in greater efficiencies and cost savings for the customer, it also increases profitability for Fortis.
- Created growth oriented company with significant upside. Combination of public company Earthstone Energy and private Oak Valley Resources
- Significant amount of running room with large drilling inventory base
- Significant cash balance; $80MM borrowing base with $11MM drawn
- Management team from Oak Valley has a track record of buying and building a sizeable independent E&P company; former senior members from GeoResources. Sold to Halcon for $1 billion in April 2012.
- Combined Q3’14 production was 3,704 BOEPD, 71% liquids, 60% operated
- Oak Valley started with $268MM from private investors – management, EnCap, Vlasic Group, Wells Fargo Energy Capital, and friends and family.
- Completed 25 wells in 2014; 15 wells now waiting to be frac’ed and completed.
- Q4’14 price per frac stage was $125,000, now at $90,000 per stage today.
- Will start to complete wells in Q1’15 as costs have been reduced to meet the company’s needs.
- Well redesign efforts have increased drilling and completion efficiencies, reducing spud to total depth times.
- Ramped up proppant per foot. Was at 800 pounds of proppant per linear foot; now 1,000 to 1,500 pounds per linear foot.
- Modest pickup in global demand in 2015-2016
- Industry investment drop will push supply down over the same period
- US Macro Summary
- More than 1MM jobs were created in last three months, with an unemployment rate of 5.7%
- The sharp decline in gasoline prices is expected to push the top-line CPI into deflation in the spring and early summer of 2015.
- Gasoline prices – near-term disinflation and higher real disposable income; household spending will be $750 less per year
- .05% to 1% US GDP increase just from the drop in crude oil prices
- Lower energy prices adds profits to other industries
- US net exports suffer from soft foreign demand and strong dollar
- Tight access to mortgage credit
- Increased political instability
- Fed hikes interest rates as early as Q3’15.
- A 30% cut in U.S. energy CapEx would have a direct trim of about .02% from GDP in 2015
- S. energy industry job multiplier is 2.4, meaning 2.4 jobs are created to support each 1 job add in the industry.
- A 16% decline in oil and gas employment count occurred in 1986; a similar number (roughly 100,000) could happen again in the current cycle.
- Near-term core CPI will likely be dampened by some pass through of lower energy prices; by Q3’15 the Fed will be looking out and believes the Fed will see a strengthened economy in 2015/2016
- Energy sector accounts for 11% of S&P 500; 15% of high-yield bond market
- Russia: 5% contraction in GDP and 12% inflation; ruble further weakens
- Eurozone – 1% to 1.5% GDP growth in 2015 and 1.5% to 2% in 2016
- Estimating EUD/USD at 1.05 by year’s end
- Emerging markets: Big energy importers and/or oil-intensive economies should benefit from lower oil prices.
- Asian EMs better positioned given stronger balance of payment positions compared with fragile-5 (Turkey, South Africa, India, Indonesia and Brazil).
- The deceleration of China’s economic growth is a compounding negative factor for EMs
- De-risked large acreage positions in Cotton Valley and Woodford
- Carthage HZ Cotton Valley wells have a 11 times EUR uplift over vertical wells
- Carthage acreage is 100% HBP
- 7 Bcfe net risked potential on Cotton Valley acreage
- 3P reserves 180 Bcfe on La Cantera; 3P 130 Bcfe on Thunder Bayou; only four producing wells on project
- Thunder Bayou set to come on production in Q2’15 at 30 MMcfe/d, with 22 barrels of oil and 35 barrels of natural gas liquids, per MMcf of gas production
- Woodford shale is the largest asset. Drilled 150 wells. 100,000 gross acres
- Rich stream of gas in West Relay
- IP rate for West Relay (6.5 Bcfe) up 41% over North Relay (4.6 Bcfe)
- Dry gas from Woodford acreage is something that FP&L want in their daily gas flows for customers
- Grown PV-10; seen borrowing base increases; $75MM drawn on $220MM borrowing base
- No PV-10 value from Thunder Bayou in year-end 2014 borrowing base
- PV-10 at YE2014 is $600MM, up from $239 at YE2013
- No long term rig commitments
- Non-operated model
- 85% oil, 15% natural gas and liquids
- Good quality assets and capital liquidity
- Returns-based business; in more than 300 wells
- Capital investment discipline with 30% IRR internal IRR; 300 MBOE EUR or less does not work in the Bakken
- Need to drill and complete at a CWC cost that is 15% than last year, with 800 MBOE EUR or more to work in the Bakken at the moment
- Mandaree project IPs in McKenzie County, ND is exceeding expectations
- Teton project in McKenzie County, ND will dominate 2015 CapEx
- $12.4MM undrawn availability under Cadence facility
- Spent $32MM in 2014; will be less than $20MM spend in 2015
- Multi-zone opportunities on more than 200,000 net acres
- 13 Arikaree wells have produced more than 1MMB in two years
- Vertical wells on acreage cost $1.7MM
- High NRI: 80% to 85%
- 25% breakeven IRR at WTI price of $40 to $50/barrel
- Arikaree Field
- Estimated PV-10 of future cash flows is ~$50 million at $50 per barrel
- Up to $80 million at $75 per barrel.
- Analysis based on PDP only with no further drilling assumed. Implies potential return of ~4x-5x on invested capital
- Louis formation found just above the Spergen, a highly fractured cherty limestone seen in the Big Sky 5-11; Big Sky 6-11 will be drilled directionally towards the Big Sky 5-11 to test the St. Louis opportunity
- Northern Lincoln County Joint Ventures
- Nighthawk operated Monarch JV: 4 wells and 2D seismic in 2015
- 2 well commitment in 2016
- 50/50 after completion of initial commitment
- El Dorado
- 85%/15% Cascade – HAWK basis
- Company’s 2015 plans and budget
- Established five Corporate Targets; Measure results in 2015
- Production, 2P Reserves, Liquidity, LOE/G&G/G&A Costs per barrel of production, ROR on Invested Capital
- Drill within cash flows in H2 2015 if mid-year pricing improves; exit at peak levels of production and cash flow positioning for possible ramp in 2016
- Drill seven new Nighthawk wells; drill 4 Monarch JV wells-$19 Million/$1.75 Million per well
- Complete 25 behind pipe projects
- Identified approximately $2.5 million in margin enhancements over 2014 levels.
- Nighthawk operated Monarch JV: 4 wells and 2D seismic in 2015
- Looking for uptick in production as 10 wells are returned to PDP category.
- Will see a decline as drilling will be delayed in North Stockyard. Primary infill development has been concluded in North Stockyard.
- Two new projects are under intense analysis; both can work in a $50 per barrel price deck
- Built the company with cash flow and bank debt
- 100% operated, 31,358 net acres in Eagle Ford oil window
- 86% of PDP hedged for 2015 and 2016. Regardless of contango or backwardation. 2,500 BOEPD hedged in 2015 at $88/barrel WTI.
- Mark-to-market value of hedges US$52MM at YE2014
- Quarterly EBITDAX growth more than tripled between Q1’13 and Q4’14
- Looking for growth between Q4’14 to Q4’15; 27% to 36% Y-O-Y
- 2015 drilling budget US$74MM to US$83MM
- West Poplar, Greater Williston Basin in Montana; 65% WI; 57,500 net acres; The company believes has 80 conventional vertical targets to the Nisku and Chalres formations. With one vertical producer can hold entire acreage. Clark Farms 29-1 tested 40 API degree oil from a vertical well
- Company is drilling on its Marlowe project; 350,000 acres. Acreage position has infrastructure that is worth about $1B; 100% owned. Rail and trucking terminal for two facilities
- More than 400 economic locations to drill
- 30 MMB per section across 350,000 net acres at Marlowe
- Muskeg is the first zone to be exploited
- Proved and probable reserves up 56% CAGR between January 2011 and June 2014
- Drilling days and completion costs are both coming down
- Netback of C$35 even in C$50 price environment
- Target to organically grow Marlowe to more than 30,000 BOEPD
- Very focused team, have put intense analytics, engineering and geologic models into acreage to extract value from world-class acreage
- Offshore drill times were increasing and $100 Brent was not supporting economics.
- FPSO cost overruns were impacting dayrates, and operator economics
- IOCs started to focus on cash flows rather than reserve growth, causing still more pressures on OFS companies
- Offshore will have a longer time returning back to appropriate demand levels. Very inelastic economics
- Onshore cost structures for onshore rigs can right size faster
- Looking for 800 rig count decline in 2015
- Operators are high-grading rig fleets; AC rigs are more efficient (drilling and mobilization) while SCRs and mechanicals are being dropped quicker
- Estimating 800 AC rigs in the market, with another 100 to 120 new AC rigs being delivered in 2015
- Estimating $60 is a breakeven price for most drilling programs.
- Pressure pumpers are less likely to work at a loss as they did in the past; many uncompleted wells are thought to soften any price decline as prices increase the pressure pumping companies will have an inventory of work to market to
- Looking at a traditional $7 MM shale well ~50% of costs are incurred during the drilling phase and ~50% in the completion
- There will be operators in the market who need the cash flow from the new wells brought online
- Bakken wells are coming up on big maintenance cycle
- Equities tend to proceed rig count tops / bottoms by ~4-6 months
- Recoveries tend to be exceptionally fast as they are driven by sentiment
- Poplar is a CO2 EOR asset; potential 50 MMB reserve potential
- Analogous to Midale and Weyburn in southern Saskatchewan
- First oil and CO2 produced in pilot in January 2015; targeting to start full field development in 2015
- 10 stacked pays on acreage; 100% owned by MPET to the Bakken Three Forks and 50/50 with VAALCO from Nisku and deeper formations
- Farnham Dome optionality for CO2 source; thorough March 31 either acquire outright or CO2 needs at a fixed price; no reserve size has been provided into the market
- Within 100 miles there are nearly 100 projects that could use CO2.
- UK Weald Basin (Central Weald) asset is non-operated position for MPET; unsure about the pace of future development if deemed commercial. Will drill to hold two licenses then evaluate the appropriate next steps
- UK Weald Basin (Horse Hill) – first well reached TD in November 2014; had oil shows from Portland Sandstone and Kimmeridge Clay; application for completion permit in progress.
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.
