The market, the Dow: after being up overnight, Dow futures are now slightly negative.
NOG: we'll get to the earnings report later, but NOG is up almost 10% pre-market trading; up 21 cents; up 9.46%; and, trading at $2.43. In early trading, NOG up 4.5%; up ten cents; trading at $2.32. Conversations of traders:
- price target, $4 (well below the current earnings of $2.00 or thereabouts)
- great EPS
- huge earnings beat
- "this should be trading much higher"
- beat earnings estimate by 80%
Shell: Bloomberg is reporting that Royal Dutch Shell is "hunting" for deals to bulk up its position in the Permian Basin, where it rivals ExxonMobil and Chevron. So much for all those stories suggesting problems in the Permian.
Shell is considering a bid for Endeavor Energy Resources LP, one of the Permian’s largest-private operators, people familiar with knowledge of the matter said earlier this year. Sawan declined to comment on that or any specific targets but said any purchase would have “to afford our shareholders a very strong return on investment.”
Exxon and Chevron last week announced audacious plans to produce nearly 2 million barrels of oil between them from the Permian by the mid 2020s, more than OPEC member Nigeria. While the two U.S. explorers emphasized organic growth, Shell is looking for takeovers to take advantage of smaller drillers squeezed by cost pressures and investors hungry for returns.
Shell currently produces 145,000 barrels of oil equivalent a day from its existing Permian operations and plans to increase production by 30 percent a year for the forseeable future, the company’s U.S. President Gretchen Watkins said in an interview. Shell’s overall shale production, which includes Argentina and Canada, will reach half a million barrels a day by 2020.
QEP: transcript here.
First, regarding the termination of the QEP-Helis Grail-Advantage Energy deal:
I'll now spend a few minutes discussing the status of the Williston Basin transaction. As you're aware, QEP and Advantage Energy signed a purchase and sale agreement for the Williston assets on November 6, 2018. At that time oil was trading at $62 per barrel. The near-term price subsequently dropped to $40 a barrel before recovering to approximately $57 a barrel today. Given the deterioration in product price and that it became unlikely that the conditions to closing would be satisfied, Advantage and QEP agreed to terminate the purchase and sale agreement. We now intend to move forward with a pace development of the remaining high return Williston inventory to maximize the value of the asset. The Williston assets are well understood, remain cash flow positive at current oil price for the foreseeable future and are aligned with QEP's strategic focus on oil versus natural gas.
Q: My question on the Bakken. How do you anticipate maximizing the value and minimizing decline through this year and into 2020?
A: Yes. So we've got two opportunities.
We have a drilling package that looks very attractive. We also, I think worked through the refracs last year, worked through some mechanical issues and we're confident we have quite a large inventory of refracs.
With the asset coming back into the fold, we didn't want to go too hard too fast, and we also want to live with an overall cash flow for company.
The Williston Basin delivers free cash flow both on an asset level and with the corporate overhead included.
..... picking up the rig this year, drilling 7 wells will basically halt the decline.
We're also coming lower on the hyperbolic curve on individual wells.
So it's going to be, the decline's going to slow naturally by itself. And as we go forward, we have the opportunity if we want to see some growth [with] increasing price, we'll turn into the refracs.
And then ultimately, we have enough inventory to pick up probably -- we're going out probably 1 year, 1 1/2 years, pick up a second rig. So we've got our hands on the throttle. We can move that pretty quickly; our confidence aside on the results of the refracs, especially now we've gotten through a few mechanical issues. So again, pretty simple outcome. It dropped pretty hard.
Q; And I'm just wondering, will that focus be in any one area? I mean is it in Bakken, the Permian or just sort of broad-based?
A: The D&A cuts are the hardest thing we have to do; they impact people. I know we have a lot of our employees listening. And it's across the board. We were a company that were in multiple basins, and in a fairly short period of time it reduced down. So the G&A in the past had been fairly competitive.
If we do nothing, our G&A going forward into '19, '20, gets up into the $5 to $6 range. It's unacceptable. And so we need to pull back pretty hard. So we've taken a hard look at that. That was underway before I got here. And we've accelerated to certain things. And now we're looking at, we believe, when I look at the benchmark data, something at $3 or below is going to be very competitive. As we increase volumes in the Permian, you'll see that $3 per barrel come down with time.
I really don't think we're going to need to add a whole lot of G&A as we go forward. So we're trying to do a fundamental reset to what do we need? And we're going to remove everything that's kind of a nice to have and we're going to keep everything that's a need to have. And the most important thing is, through all the things that are going on and all the outside influences we've had and now the announcement on the strategic initiative, the most important thing we need to do is maintain good trust and communication with our employees; we've got some of the best in the industry.
We're doing some of our most interesting and best things in our Permian and now back into the Williston assets. And so that's going to be kind of our core challenge and our core focus. But it's something that has to happen. Talked to our employees about this and we're going to communicate more fully as we go forward over the next several days. But I hope that helps.
Q: The comment earlier that you can hold Bakken production flat with one rig, is that off of 4Q levels or is that off the low 20s levels implied by the guidance you gave earlier?
A: I'm saying once we hit kind of the level we've given guidance on for '19, by running one rig and doing the 7 wells and continuing on into the following year, we'd be able to keep the production flat.
If we want to see an increase in that or we want to offset that if we see some decline, we also have the refracs we can mobilize on pretty quickly.
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