Tuesday, February 11, 2014

Gut Check

Remember that University of Jamestown (North Dakota) assistant professor in biology who objected to a transmission line in the Killdeer Mountains because of concerns about golden eagles? Don wonders how she will feel about a $350 million wind farm in her back yard, right in the middle of one of America's greatest flyways?

The Dickinson Press is reporting:
The first wind farm project planned for Stutsman County will seek approval under the county’s zoning ordinance Wednesday, according to Casey Bradley, county auditor and chief operating officer for Stutsman County.
Plans for the Courtenay wind farm include erecting 100 turbines, each with a 2-megawatt capacity. The project’s estimated cost is $350 million, and the wind farm would be in northeast Stutsman County (north of Jamestown).
The plan the zoning board will consider includes 127 possible locations for wind turbines, of which 100 will ultimately be selected. Geronimo Wind has paid the application fee of $500 per possible turbine location to Stutsman County, Bradley said.
My hunch: we won't hear a word from her. Her specialty is the golden eagle in the Killdeer Mountains along a very narrow swath of land where a transmission line is proposed. Like this blog, she is probably very, very narrowly focused. 

KOG Posts 2013 Proved Reserves, Production; Does Not Post Net Acreage

Quick: for newbies -- how does one evaluate a year-end operational report or a quarterly/annual financial statement that has just been released? Easy: look at what the market is doing. [And how did the market respond? Investors must have liked the annual operational report -- KOG is trading at new highs, and is up 3.5%. It's quite incredible. I always felt $8.00 was a nice entry point (starting back in early 2013; prior to that, the entry point was $6.00)]

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

KOG just released their year-end operational report.

KOG was up 1.41% at 4:30 p.m. yesterday, after market close. [Pre-market, 9:07 a.m. ET: up one penny.]

In another hour or so, we will see how the market responds to KOG's year-end 2013 proved reserves. In the press release, KOG also provides quarterly and annual sales volumes (for newbies, a quick snapshot of KOG will bring you up to speed):
  • 2013 proved reserves: 167 million boe
  • 77% growth y/y
  • PV-10 value: $3.5 billion (KOG's market cap: $2.9 billion)
  • annual sales volumes averaged 29K boepd, a 103% increase
Now, some comments. From the snapshot linked above:
  • Mid-2012: 24,000 (est Nov 11; after North Plains acquisition); exit 2012, 30,000 boepd
Note: in mid-2012, KOG planned to exit 2012 with 30,000 boepd; and here, one year later, the company is reporting an average slightly less than 30,000 boepd. It will be interesting to see how the market reacts to the "red queen."

On the other hand, KOG averaged 36,000 boepd in 4Q13. I think investors will be pleasantly surprised with market action later today. 

Operations update:
  • seven operated rigs, which the company plans to maintain through 2014
  • one full-time 24-hour frack crew
  • a second frack crew as required by activity level
Interestingly, unless I missed it, one of the most important metrics, the number of net acres owned/controlled by KOG was not in the report.

For Investors Only

The most noteworthy data point this morning: the price of oil continues to melt up without a good explanation. I posted this two days ago, and the sentiment remains:
The major factors affecting the price of oil:
  • Mideast politics and hostilities (Syria, Iran, Israel); sabre-rattling
  • strength of the dollar
  • US economy six months out
  • Chinese manufacturing index
  • global economy six months out
Of the five, I think the US economy six months out as telegraphed by the Fed's actions is the most important. On a day-to-day basis, all things being equal (e.g., no report of a war breaking out in the Mideast, it is the strength of the dollar).
Some additional thoughts: this is still the middle of winter and the number of active rigs in North Dakota continues to increase. BNSF is putting "throttle to the metal" based on CAPEX for 2014. Something is simmering; I can't put my finger on it. But something is simmering. It's an election year.

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CVS sees "atypical" jump in fourth-quarter profit. That's the headline. Doesn't surprise me. CVX has been doing all the right things, at some based on what I've seen.

Reynolds American 4Q13 profit more than doubles. 

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

All that hand-wringing over McDonald's sales yesterday? Sales actually rose 1.2%, though guidance is flat. Considering the December weather, not a bad report.

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From Yahoo!In-Play (compare this with comments on UNP, BNSF yesterday):
Genesee & Wyoming misses by $0.09, misses on revs: Reports Q4 (Dec) earnings of $1.07 per share, excluding non-recurring items, $0.09 worse than the Capital IQ Consensus Estimate of $1.16; revenues rose 72.3% year/year to $391.7 mln vs the $398.33 mln consensus.
  • "We expect our positive momentum to continue in 2014, although the year is starting slowly due to extreme winter weather in North America. Our Australian business continues to perform well, we have completed necessary management changes following the RailAmerica acquisition and we have enhanced our North American commercial capabilities. With the expiration of the short line tax credit on December 31, 2013, the easiest way to visualize our business outlook for 2014 is growth in pre-tax income of approximately 20%, compared with our 2013 adjusted pre-tax income."
Genesee & Wyoming reports traffic in Jan 2014 was 156,584 carloads, an increase of 557 carloads, or 0.4%, compared with Jan 2013.

Tuesday: And We Are All Waiting For Ms Yellen

Abraxas and Samson Oil and Gas provide operational update.

Active rigs:


2/11/201402/11/201302/11/201202/11/201102/11/2010
Active Rigs19618320316591

RBN Energy: Challenges for New England, a continuation of the series on the natural gas shortage in New England. It's a very long, complicated post. This is not going to be easy.
This year’s polar vortex winter has once again demonstrated how New England power generators suffer from the region’s shortage of natural gas pipeline capacity during peak demand periods. The Catch-22 to-date has been that new pipelines won’t get built without firm, long-term commitments for pipeline capacity, which the New England power market doesn’t compensate generators for. Faced with rising demand and few alternatives to gas fired generation, the six state governments in the region are now proposing a novel fix: an electric-rate surcharge that would help guarantee pipeline developers the steady revenue they need to justify new projects.  Today we examine the states’ plan and its prospects.
As we said in the first part of our recent series, Please Come to Boston—New England Needs More Natural Gas Pipelines, the region needs more gas for power generation, space heating and other uses, but it can’t benefit fully from ample and cheap Marcellus gas until sufficient pipeline capacity is in place to deliver gas when it’s needed—especially on the coldest winter days. The rub is that, as a rule, the Federal Energy Regulatory Commission (FERC) will not allow new pipeline projects to be built unless they demonstrate “market need” by securing binding commitments of 10 or 15 years or more for the capacity the new or expanded pipelines would provide —and of course, project sponsors themselves require similar economic commitments before they will invest. And, as we’ve said, the electricity market structure in New England does not provide sufficient incentives for generators to ante up the higher costs associated with firm contracts for gas delivery. The market does not give enhanced payments to power plants that virtually guarantee power when it’s needed, nor does the market sufficiently penalize generators for promising capacity and then failing to provide it. ISO New England is working on improving things, but it’s a complicated matter, largely because compensating gas-fired power plants for locking in firm pipeline capacity they may only need a few hundred hours a year would raise power prices for everyone. What it comes down to is this: unless New England can find a way to power through FERC’s pipeline-approval process, the region may face gas-delivery shortfalls for years to come.
Reminder: RBN links are good for 30 days at most. After 30 days, the link breaks; actually the link works but RBN Energy archives the article; it requires a $75/month subscription to access articles older than 30 days. 

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Minority shareholders in CLR sue Harold Hamm over conflict of interest. (that's a link)

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The Wall Street Journal

The lead story, of course, is the president making executive decisions to delay his health care program. It's kind of ironic: he's doing exactly what he said he would do -- use his pen to go around Congress. He said he needed to do that to move things along. Well, his first major executive decision was to slow things down. As noted from the beginning, this is a president in over his head. A ship without a rudder. A kite without a tail. A trucker without a GPS.  A fruit bat without echolocation. An oil company without a CEO. And so it goes. There's not much else to delay, is there? The medical device tax, and that's about it, and that will be simply scaled back.

It gets worse. Remember the Obama plans to withdraw troops from Afghanistan? On hold. New plans give the White House the option of waiting until Karzai leaves office. Hellooooo! Karzai won't leave office. He's simply moving to a new McMansion behind the Afghani statehouse.

Atlanta, Georgia, is bracing for the big one. Another big one.

Now, this is important: to compensate for the introduction of a lower-end version of its big-selling Tide detergent, Procgter & Gamble is raising prices on same fancier Tide varieties by as much as 25%. Wow.

I still get a kick out of taxpayers paying the new Government Motors (GM) CEO 60% more than her predecessor. She's bullet-proof, as we used to say in the military. She's bullet-proof because she's a minority. Not only is she white, she's a female.

 The Los Angeles Times

President Obama want to top 'school-to-prison' pipeline for minorities. He could start by showing he's serious about providing jobs, and not job training.

Seeking Alpha

What it means: XOM moving into the Permian. 

Minority Shareholders In CLR Sue Harold Hamm Over Conflict Of Interest Business Transactions

Rigzone has a four-page Reuters internet story that begins:
A group of minority shareholders in oil driller Continental Resources is suing chief executive Harold Hamm, alleging that Continental's nearly $100 million investment in a pipeline being built by another firm he controls will benefit him at their expense.
Continental is providing partial funding for Hiland Partners, a Hamm-owned pipeline and gas plant operator, to build the $300 million Double H crude oil pipeline.
The 450-mile (724-km) line from North Dakota to Wyoming is expected to start up later this year and to eventually ship up to 100,000 barrels of oil per day. A pension fund has filed suit in Oklahoma state court seeking damages and the return of profits and other benefits derived from the pipeline transaction to the company.
Deep in the article:
Eissenstat told Reuters the firm's payments to other Hamm-affiliated firms since 2007 constituted less than 2 percent of the company's total expenses during that period. There is no question that Continental shareholders have been richly rewarded.
The company's shares have risen more than sevenfold since its 2007 initial public offering, as Hamm transformed Continental into a leading driller in North Dakota, where a boom in Bakken production has helped push U.S. oil output to near 25-year highs.
The lawsuit questions why the driller would need access to a pipeline it may not use. Hamm has said railroads are the firm's preferred mode of shipping Bakken crude to market.