I can't afford to buy the report but the introduction and the companies mentioned is intriguing nonetheless.
Disclaimer: this is not an investment site. Don't make any investment decisions based on what you read at this site.
This week's issue of The Wall Street Transcript:
Williston, Permian and Eagle Ford Basins Move to Next Resource Phase: an Exclusive Interview with Eli Kantor, Senior E&P Equity Research Analyst with IBERIA Capital Partners.
Bakken-centric companies covered: CLR, KOG, Whiting, COP, SM Energy, others.
Note the opening:
Mr. Kantor: I currently cover nine publicly traded E&P companies, with a focus on independent E&Ps with meaningful exposure to the Williston and Permian basins. My plan is to ramp up to between 15 and 20 names over the next few months.
TWST: Why those two basins?
Mr. Kantor: I chose the Williston and Permian because there is going to be a tremendous amount of capital investment in each area over the next few years. They represent two of the three largest onshore oil shale discoveries in the U.S.
Then this:
As far as trends go in 2013 and beyond, the E&P industry is at the beginning of a new and unfortunately less-exciting stage in its life cycle. The previous stage lasted from 2005 through 2012, and was characterized by a renaissance in resource capture.
The advent of horizontal drilling activity and the improvement in completion design resulted in the discovery of dozens of highly prolific unconventional resource plays. It started with the Barnett shale in Texas and may potentially conclude with the Utica shale in eastern Ohio and western Pennsylvania.
This next in the E&P industry's life cycle is going to be focused on the development of these new plays, commodity price volatility and the ability for midstream companies to facilitate producer's needs in getting newly discovered resources to market in an efficient and low-cost manner.
TWST: What kind of companies, broadly speaking, do you see doing well in that new environment?
Mr. Kantor: Stocks that should perform best are those that won the resource capture phase. Those are companies that have meaningful exposure to oil-centric basins like the Williston, Permian, Eagle Ford and potentially the Utica, depending upon how the exploration of that play pans out.
A couple of things jump out:
- Mr Kantor seems to be focused on natural gas early in the interview, saying the advent of horizontal drilling activity....began with the Barnett. But the interview will accentuate the oily Permian and the Bakken (interestingly, not the Eagle Ford, so much)
- Mr Kantor says the next phase will be on the ability for midstream companies to facilitate getting product to the market; it is interesting that Enbridge and Oneok were not mentioned in the lead-in
- the companies that will do best in the next phase: those that "won the resource capture phase"; based on the lead-in, it looks like he favors KOG, CLR, WLL, SM, COP in the Bakken. I would add Oasis.
But this is what jumps out at me the most. I already thought a lot of money had poured into the Bakken. But Mr Kantor says this: "I chose
the Williston and Permian because there is going to be a tremendous amount of capital investment in each area over the next few years."
Parsing that statement: a) "a tremendous amount of capital investment"; and, b) "over the next few years."
To me, "few" is more than a "couple."
My two cents worth: the tea leaves suggest that CAPEX for drilling has been telegraphed; the number of rigs in the Bakken seems to have stabilized. I don't see rigs/drilling as the area where one will see a "tremendous amount of NEW capital investment."
There is now enough data for analysts to project how much oil is going to be produced in the Bakken. The snippet suggests that the "tremendous amount of capital investment" is going to go into midstream infrastructure. But yet Enbridge and Oneok were not mentioned as the companies covered, whereas the Bakken-centric operators were (CLR, WLL, KOG, COP, SM).
So, I think Mr Kantor was going to talk not about the midstream companies per se but rather about the operators that would benefit from the infrastructure the midstream companies would add going forward. Remember: there is a lot of pressure on operators to resolve the natural gas flaring issue.
If a "tremendous amount of capital investment" is put into midstream (pipeline and rail), these Bakken-centric operators will benefit because their takeaway capacity will not be constrained.
And, I think that's the nut of Mr Kantor's interview: those who "won the resource capture phase" (CLR, WLL, KOG, SM Energy, COP) are going to be the winners in the next phase.
How did they win?
- CLR: most acreage - 1.1 million acres in the Bakken
- WLL: northern and southern ops; Sanish (perhaps the best sweet spot; the Pronghorn Prospect)
- KOG: the best of the best sweet spots; a fair amount of acreage (155K net acres)
- COP: although it has dropped down the list recently, COP is the #1 ND producer; lots of leverage; evidence of partnering with CLR in some areas of the Bakken
- SM: I don't know much about SM; but when you go to its current presentation, the first play: Eagle Ford; the second, the Bakken, the third, the Mississippi Lime; SM does not have much acreage in the Bakken but 87K of its net acreage is in the sweet spot of the Bakken
It would be interesting to know what Mr Kantor says about SM; that company seems to be the outlier in the group mentioned.
Again, one could add a few others, notably Oasis, but that's what I see in that most minimal of information.
