Tuesday, May 13, 2014

Oil Back Over $101; For Investors Only; Baker Hughes Increases Dividend -- First Increase Since 2008; Zeits On Halcon's 1Q14's Earnings

Here we go again. Reuters is reporting that the government regulator is going to make it easier for folks to get mortgages:
Federal Housing Finance Agency Director Mel Watt, in his first public speech since taking office in early January, also said the two government-controlled firms would ease standards that govern when banks must buy back faulty loans from the two mortgage finance giants, which could also help loosen the credit taps.
"FHFA will not use its authority as conservator to reduce current loan limits," Watt told the Brookings Institution. "This decision is motivated by concerns about how such a reduction could adversely impact the health of the current housing finance market."
In easing standards for so-called mortgage put-backs - when banks are required to repurchase faulty mortgage they sold to the two companies - Watt took aim at a risk lenders cite for the still-tight credit that has hindered the housing recovery.
Tight lending standards have made it especially hard for first-time buyers and those with weaker credit to get mortgages.

Six companies increase dividends or distributions, including BHI. This is the first time since July 31, 2008, that BHI has increased its dividend.  Since 2008 when it was 13 cents. It's been 15 cents all this time. Now the increase will take it to 17 cents. Whoohoo!

Disclaimer: this is not an investment site. Do not make any investment decisions based on what you read here or what you think you may have read here.

Before the year is out, look for CVX to announce that it will split its shares. Just a hunch. XOM, too, is way overdue for a 2-1 split. 

At its annual shareholders meeting, ConocoPhillips reaffirmed its goal of delivering 3%-5% growth in both volumes and margins with a "compelling" dividend, and says it expects to spend an average of ~$16B/year over the next several years.


After the 1Q14 shareholders meeting, CEO Ryan Lance explains that COP is investing in the barrels of oil where it can get the greatest amount of profit for every capital dollar it spends, and the best margins are
  • in North America, where it can make $40/bbl; and,
  • in the oil sands in Canada, those margins hover ~$30/bbl
Lance also says geopolitical turbulence in the Middle East would have created a spike in global oil prices if not for the rise of light crude in the U.S. and oil sands in Canada. [I've blogged about that many times: predictability and minimal volatility is preferable to spikes, even for oil companies.]  

How coincidental. Just minutes after posting highlights from Halcon's 1Q14 conference call (see below), Richard Zeits weighs in with his thoughts on same thing over at SeekingAlpha:

During earnings season it's hard to keep up with reports. Here are some high points from the transcript for Halcon's 1Q14 earnings (posted elsewhere, also):
  • Halcón finished drilling its inaugural TMS well, the Horseshoe Hill 11-22H-1 in Wilkinson County, without mechanical problems and in a near-record time (39 days for a 7,751-foot lateral); the $13 million cost guidance is impressive given the large amount of "science" work involved.
The TMS remains the most important factor currently driving the company's stock price. A home-run result from the Horseshoe Hill well has the ability to galvanize the stock for further recovery. On the other hand, a weak result bears a risk of a pullback.
While the TMS opportunity is without doubt significant, Halcón is in a great need of "hitting the ground running" in this technically challenging play. The company continues to outspend its operating cash flow by a wide margin and may have difficulty growing into its current debt and valuation solely via organic production increases. The stock, therefore, remains an "asset play" and the company's ability to demonstrate potential future asset value in the TMS is paramount for the stock price.
Motley Fool also weighed in:
Despite rough winter weather Halcon Resources was able to deliver production that was actually 3% above what analysts' were expecting. That's pretty surprising as peers like Kodiak Oil & Gas actually blamed the weather as the reason why it missed production guidance in the first quarter.

In fact, first quarter production for Kodiak Oil & Gas actually dropped 6% sequentially. That drop in production was so significant that Kodiak Oil & Gas doesn't think it will be able to meet its previous production guidance for the full year. Meanwhile, Halcon Resources actually saw its Bakken production surge 73% over last year's first quarter achieving a rate that was 7% above its own guidance for the quarter.

Strong well results really led the way for Halcon Resources. Instead of being forced to drill weaker wells in the dead of winter just to hold on to leases like Kodiak Oil & Gas, we saw Halcon Resources drill some of its best wells last quarter. The company's wells in its Fort Berthold area saw a 32% surge in the average 30-day initial production rates compared to wells drilled just last quarter.

May 13, 2014: 1Q14 Halcon transcript -- 
  • almost 75% production growth qoq -- despite very harsh winter
  • 25,000 bopd
  • IPs improving, 10% better qoq
  • in the Fort Berthold area, slickwater fracks continue to outperform the 801K EUR that the company released just a few months ago
  • will test slickwater in Three Forks/Fort Berthold, but company thinks "hybrid" fracks will work better
  • currently drilling 6 new wells from a single pad; 660 feet apart; IP from one of these wells set a company record of 4,225 boe
  • Williams County slickwater completions outperforming the 477K EUR previously set
  • El Halcon in East Texas, almost exponential; growing over 800% qoq; 10,000 boepd
  • added some TMS acreage; now 316,000 TMS acres
  • this is surprising: water is a cost that Halcon struggles with (as do all operators, I assume); it depends on where one is in the basin
  • lessons learned in the Bakken will be taken to the TMS
  • going from 4 rigs in the Bakken to "three to four rigs" but will complete just as many wells
  • will concentrate on Fort Berthold this year; Williams County yet to have its day in the sun
  • near the end, mentioned "coil fracking" in passing; so slickwater, coiled, and hybrid all mentioned in this conference call; no major change for Halcon how they complete their wells




    1. Thank you. I just posted the highlights:


      Based on the numbers, I bet North Dakota oil production went over 1 million bopd this past month, April, 2014.