Trying To Get A Handle On $3.1 Billion for 45,500 Net Acres -- Even If It Is The Eagle Ford; EOG 1Q14 Earnings Conference Call

Updates

May 8, 2014: a reader points out something critical that I missed when trying to sort out the valuation for Halcon:

Regarding your post about HK being valued at $2.2billion, remember to keep in mind that's just the equity valuation. They have another ~$3.2b in net debt (very little cash) giving it an enterprise value of roughly $5.4b. 

That's an excellent point; a huge oversight on my part. A "huge thank you" to the reader. I used to "know" that about enterprise value and then forgot. Use it or lose it, I guess; that's why I post -- to help me learn; to help put the Bakken in perspective. 
 

Original Post

 
Reported earlier, Encana paid $3.1 billion for this in Eagle Ford --

The deal will give Encana 45,500 net acres in Karnes, Wilson and Atascosa counties in south Texas. The properties produced the equivalent of about 53,000 barrels of oil per day in the first quarter.

For comparison purposes, Halcon produces an average of 36,622 barrels of oil equivalent per day, in the Bakken (more overall, see below). Halcon has 142,000 net acres in the Bakken, and much more elsewhere, see below. Halcon's market capitalization is $2.2 billion.

One can argue that the difference between 37,000 boepd and 53,000 boepd is significant or not significant (I tend to argue the latter), but the difference between 45,000 net acres of prime real estate is vastly different than 142,000 net acres. 

When I see something that seems very strange or unusual, I can only assume I made an error somewhere but that's the data I'm working with. Some say the Eagle Ford is better than the Bakken on a "per acre" valuation but $3.1 billion for 45,500 net acres vs $2.2 billion for 142,000 net acres seems to jump out at me.

Oh, by the way, the $2.2 billion market cap that Halcon has also includes 307,000 acres in the Tuscaloosa Marine Shale (Louisiana) and another 100,000 net acres in El Halcon, in the Eagle Ford. Yes, this all does not make sense. I must be missing something. Encana buys 45,500 net acres for $3 billion and Halcon with over 500,000 acres in some pretty good shale including the Bakken, the Eagle Ford, and the Tuscaloosa Marine and is valued at $2.2 billion. Again, I can only assume I'm missing something.

Oh, back to that 53,000 boepd for the new Encana acreage vs 37,000 boepd for Halcon -- overall, Halcon has over 40,000 boepd. The delta between 53 and 40 narrows.

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EOG's 1Q14 Earnings Call -- Transcript
SeekingAlpha

Operations In The DJ Basin (Colorado), Powder River Basin (Wyoming)

• adding 735 high-rate-of-return net drilling locations in the sweet spots of four plays
• estimated reserve potential of 400 net million boe
• ten solid years of drilling inventories in these four plays
• two of these four plays in the DJ Basin
• two plays in the Powder River Basin
• EURs of 850,000

Eagle Ford

• on track to drill 520 net wells this year
• 26 rigs
• a number of Eagle Ford wells have IP rates in excess of 4,000 bopd
• largest growth asset with the high after-tax rates of return
• 564,000 net acres; most leases held by production
• will generate a free cash flow this year and every year through 2024
• ten years of growth before EOG even begins to see production level out

The Bakken

• this past year, increased drilling density from two to four wells/spacing unit
• the majority of wells in Core and Antelope Extension were based on 1,300 feet between wells
• now testing tighter spacing, down to 700 feet
• six rigs; plan to add a seventh this summer (2014)
• EOG has not determined years of inventory; still sorting out spacing

Leonard Shale

• testing 32-acre spacing across different zones

Oil

• worldwide analysis: bullish on oil

Natural gas

• pricing to remain between $4.50 and $5.00
• caveat: operators remain disciplined; don't ramp up drilling activity

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Politics

Was this the 2014 "malaise speech"?

Acknowledging that despite a list of accomplishments that there is still a “disquiet around the country” as well as “an anxiety, and a sense a frustration,” Obama said that “the challenges out there remain daunting and we have a Washington that’s not working.” [Comment: as far as I can tell, only one "accomplishment: ObamaCare.]

“Those who don’t believe government can do anything are empowered, gridlock reigns, and we got this downward spiral of even more cynicism and more dysfunction, and we have to break out of that cycle and that’s what this election is all about,” Obama said, according to a pool report, in remarks that lasted about 15 minutes. [Comment: exactly who are empowered?]

He added, “Because I’m optimistic about America’s prospects…don’t buy this notion purported here that that somehow America is on a downward trajectory. [Comment: Carteresque?]

By every indicator we are better positioned than any country on earth to succeed in this knowledge economy in the 21st century. [Comment: in addition, there's an energy revolution in the US that the president has never acknowledged.]

But what is absolutely true is that if we don’t make good choices we could decline, and we’re not going to make good choices unless we break out of this cycle in which dysfunction breeds cynicism, and we have to break out of it.” [Any specifics? Which good choices?]

A 2014 "malaise speech" or an emperor with no clothes?

I wonder what radio talk shows the president has been listening to because I don't think I've read any polls on "dysfunction breeding cynicism" in the US. The only place I hear that kind of talk is on conservative talk radio. I assume he is getting some internal polling numbers.

Tioga Gets State's First LNG Production Facility; Encana Buys Into The Eagle Ford, Price Suggests Bakken Way Undervalued; Encana Will Double Oil Output With Purchase; To Stop Global Warming, A War On Allah?

Updates

May 17, 2014: this was from a discussion board elsewhere, minimally re-edited, provides some update on the project:

The CEO of both Prairie and NDLNG in Tioga named Pat Hughes. I was pleased to see the company is local to ND, headquartered in Watford City and began as a housing company. 

Pat's presentation (references a video, no linked) is clear and well organized. It lasts about 15 minutes followed by a question and answer session. 

Of significance to me is that the equipment for the first 10,000 gals per day is already being installed for cooling gas to minus 260 degrees Fahrenheit (I assume). Another unit is being manufactured (I think they said by Hess) to be delivered this summer and to produce another 66,000 gals per day.  

Compared to the 20,000 barrel per day capacity (input I think) of the MDU refinery producing diesel, it is pretty minor. I don't really know how many gals per day of diesel will come out of the refinery--but could be as much as 800,000 gals per day (assuming almost all the input were converted to diesel--I don't think that is possible or anywhere near possible--but it gives me some idea of the relative scale of the two projects.
Then too, Hughes says that the planned 76,000 gals per day of LNG would be able to replace up to 44,000 gals of diesel per day. 

I am impressed by how "turnkey" this project sounded. Prairie has about 150 employees now and will employ about 30 more in Tioga with the plant as I recall the interview. Prairie is largely a trucking company as I understood him, so transport, storage, and delivery of product will also be a goodly part of the whole project.

Original Post

Rigzone is reporting:

North Dakota LNG, LLC, the newest member of Prairie Companies, LLC’s, portfolio of oil and gas service businesses, joined North Dakota Governor Jack Dalrymple and other state officials at an event Wednesday in the State Capitol Building to announce the arrival of a liquefied natural gas (LNG) production facility. Located in Tioga, North Dakota, the plant will be the first-to-market in the state to produce 10,000 gallons per day starting this summer (2014). 

A phase two facility is scheduled to be operational in the fourth quarter of 2014 and capable of producing 66,000 GPD.

NDLNG targets the drilling, fracking and transportation sectors of the unconventional oil and gas industry and will help meet the need for a cost-effective power source by converting natural gas feedstock into value-added liquid fuels.

Also:

Currently, operators producing oil and gas from unconventional reservoirs in the Bakken face high fuel costs and environmental scrutiny from their use of diesel-powered equipment and flaring of natural gas generated by their drilling activities.

Therefore, significant demand exists for locally produced LNG derived from North Dakota’s abundant natural gas reserves that will help operators not only reduce energy costs but also lower carbon emissions.

NDLNG will also offer North Dakota’s agricultural industry an alternative fuel choice to propane. Leveraging LNG will garner farmers and ranchers lower operating costs, reduced emissions, and the ability to use a 100 percent locally produced fuel.

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In a sense, this is a wash for those following the Eagle Ford, one company simply selling assets in the Eagle Ford to another company, but it's important for the archives. Reuters is reporting:

Canada's largest natural gas company Encana Corp said on Wednesday it is buying producing assets in the Eagle Ford shale field in Texas from Freeport-McMoRan Copper & Gold for $3.1 billion, nearly doubling its oil output.

Encana has been concentrating on five shale fields that are rich in oil and natural-gas liquids to lessen its dependence on lower-value gas. This transaction will add a sixth focus area and is aligned with Encana's growth strategy, the company said.

Calgary-based Encana has been focusing on five shale fields - Montney in British Columbia, Duvernay in Alberta, the DJ Basin in Colorado, the San Juan Basin in the U.S. Southwest and the Tuscaloosa Marine Shale in the U.S. South. It has sold natural gas properties in Wyoming's Jonah field and other acreage in East Texas to reduce its dependence on pure gas assets.

The deal will give Encana 45,500 net acres in Karnes, Wilson and Atascosa counties in south Texas. The properties produced the equivalent of about 53,000 barrels of oil per day in the first quarter.

I did a lot of back-of-the-envelope calculations on this one; the numbers were such that I felt uncomfortable posting them here. But every way I did the calculations suggest that the Bakken is really, really undervalued.

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It looks like the war on coal won't be enough if we're gonna beat global warming. President Obama also needs to declare a war on God, or Allah, or at least on nature, or more specifically, El Niño. Yahoo!News is reporting:

About half of the surface warming that's helping shrink Greenland's glaciers is due to temperatures in the tropical Pacific Ocean, not greenhouse gases, a new study reports.

Sea-surface temperatures in the Pacific are already known to influence global weather patterns at lower latitudes. For example, the El Niño cycle shifts rainfall around the world, delivering precipitation to western North America and causing drought in Australia and Central America.

The new findings could explain why Greenland and the Canadian Arctic are getting hotter more quickly than other regions of the planet. The feverish temperature rise has puzzled scientists: The most up-to-date climate models, such as those in the fifth assessment report of the Intergovernmental Panel on Climate Change, fail to reproduce the rapid warming seen in the Arctic.

"We know that global warming due to human impacts can't explain why it got warm so fast," said lead study author Qinghua Ding, a climate scientist at the University of Washington.

 As noted, the next community organizer that runs for President needs to call for a war on Allah.

To Whom?

Previously reported, but a reminder to me to come back to this.

Oasis sells non-core Sanish assets.

QEP sells non-core Fat Cat acreage in west-central Williams County.

Halcon looking to sell all non-core assets. 

Halcon Earnings, 1Q14

Updates

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

Later, 11:40 p.m. central time: is the Bakken grossly undervalued compared to the Eagle Ford?

Later, 11:18 p.m. central time: production surges as earnings beat street -- Motley Fool.

Halcon Resources produced an average of 36,622 barrels of oil equivalent per day. That was above the high end of the company's guidance, which helped it top earnings estimates. Production was also 41% higher than last year's first quarter, as the company's focus on technological innovation yielded strong well results.

The company also was able to push its total operating costs lower by 8% year over year. On top of that, Halcon Resources was able to realize a higher average prices per BOE than in last year's first quarter. The combination of higher production and energy prices along with lower costs had a noticeable impact on the company's bottom line. This was evidenced as net cash provided by operating activities surged from $45.7 million in last year's first quarter to $159.5 million this quarter.

I guess the bad weather in North Dakota was fickle, hitting other operators in the Bakken but sparing Halcon. 

Later, 11:17 p.m. central time: Halcon looking to sell all non-core assets.  As previously announced, the company agreed to divest non-core assets in East Texas for $450M, subject to closing and post-closing adjustments. The transaction is expected to close in May, with an effective date of April 1. The company continues to evaluate all remaining non-core properties for additional divestiture opportunities during 2014.  

Original Post

I will have to wait to see how analysts see this report.

Reconciliation table for additional information), net income was $11.9 million, or $0.03 per diluted share, for the three months ended March 31, 2014. Halcón reported a net loss available to common stockholders of $77.9 million, or $0.19 per diluted share for the quarter. The reported net loss available to common stockholders for the quarter includes a non-cash pre-tax impairment charge of $61.2 million, primarily related to non-core asset sales.

Opening paragraph:

Halcón generated total revenues of $275.1 million for the three months ended March 31, 2014, an increase of 44% compared to the three months ended March 31, 2013. Production for the quarter was above the high-end of guidance and increased to 36,622 barrels of oil equivalent per day (Boe/d), 41% higher than the same period of 2013. First quarter 2014 production was 85% oil, 6% natural gas liquids (NGLs) and 9% natural gas.

Briefing.com confirms that this was a beat by 1 cent.

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.

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A Note to the Granddaughters

Casablanca has always been my favorite movie. When I get into a Casablanca phase, I find myself watching it several times a week for several weeks. The movie may not be as good, and the movie may not have the star power that Casablanca had, but the Great Gatsby story, in some ways, might be better than the Casablanca story. For one thing, the latter is autobiographical and an autobiographical story is (should) always be better than a concocted story, no matter how good the fictional story.

I guess one way to find out whether the Great Gatsby is as good as Casablanca is to see how often I find myself watching it during my GG phase. 

Young and Beautiful, The Great Gatsby, Lana Del Rey

US Oil Tank Car Rules: Same As Canadian Annoucement Earlier, BUT Voluntary In US

U.S. takes voluntary approach on crude oil tank car rules

• The U.S. Department of Transportation announces steps to improve the safety of shipping crude oil by rail, but unlike its Canadian counterpart, is taking a voluntary approach to the phase-out of older tank cars known to be vulnerable in derailments.
• The agency recommends energy producers that ship by rail discontinue the use of older DOT-111 model tank cars; in contrast, Transport Canada two weeks ago required a three-year phase-out of older tank cars.
• DOT is matching Canada’s requirement that railroads disclose to state and county emergency management officials the routing, volume and frequency of crude oil shipments.