Monday August 12th. I am at Enercom, a well attended conference for the Oil and Gas Industry. There are about 600 attendees spanning the gamut of the sell side, the buy side, and vendors supplying the industry. The entire conference is webcast at http://enercominc.com/the-oil-and-gas-conference/webcasts/. You won’t get the giant luncheon presentations by Royal Dutch Shell and Anadarko, nor the club party at the Colorado Rockies vs. San Diego baseball game, but you will get a feel for what the CEO’s and CFOs of the nearly 120 companies presenting there are saying.
So far not much has changed since I attended Enercom last year. Companies are still touting their oily plays. You can’t blame them. The cost of getting natural gas out of the ground is still uneconomical in many of the shale plays. It feels like business is good but not getting any better. The industry really seems to have learnt a lesson from 2008. Many companies are still deleveraging. I got a feeling that actual drilling activity will possibly decline in the 4th quarter. I find this hard to believe or rationalize considering where WTI is. I haven’t heard many CEOs talking about their hedges either.
Whiting Petroleum, WLL, has been a very good stock and mostly a play on the Bakken. The CEO, James Volker was very enthusiastic about their 2,420 drillable locations in the Niobrara shale play. I’ve been hearing more and more about the Niobrara in Colorado. It’s a vast area that I-25 cuts through going north of Denver up through Oklahoma and Wyoming. Weld County is the center of the Niobrara boom, with roughly 18,000 oil and gas wells. Those wells support approximately 4,000 jobs and generate more than $50 million of tax revenue for the county annually. A little reported fact at this conference is that Weld County is Colorado’s leading producer of cattle, grain and sugar beets, and is the richest agricultural county in the United States east of the Rocky Mountains. I wonder how well that cohabitates with fracking?
While Noble Energy and Anadarko are the most active players in the region, plenty of others such as Carizzo Oil and Gas, Chesapeake, EnCana, MDU Resources Group, Marathon Oil, Lario and more are profiting from the Niobrara Play. The success of these companies has spawned a huge uptick in the business of oilfield service companies, commercial real estate, transportation and logistics, retail businesses and more. Not to mention the hundreds of millions of dollars being spent on midstream gathering and processing plants, as well as rail improvements, to move all that bounty to markets.
Judging from the levels of investment pouring into the area from the big boys, future prospects look equally promising, if not greater. Noble has estimated its Niobrara reserves at the equivalent of 2.1 billion barrels of oil, and has said it plans to spend nearly $2 billion in Colorado this year alone. Anadarko estimates its Niobrara reserves at the equivalent of 1.5 billion barrels and is set to spend $1 billion. I expect to hear more about Anadarko’s investment there tomorrow. They are sponsoring an intimate lunch tomorrow for about 600 people.
If you want a small cap pure play investment on the phenomenal growth of the Bakken, there is Oasis Petroleum, OAS.
KWK Quicksilver resources is mostly a dry gas deleverage story. The Horn river joint venture is big catalyst and several international players are interested. They led the audience to believe there is a deal announcement forthcoming in a couple of week. There better be as they have a lot of debt maturing in 2016
XEC Cimarex energy Tom Jordan talked about their clean balance sheet, high proved reserves, 55% gas land 32% oil, Growing by the drill bit led by development in Permian Wolfcamp
Wells Fargo analyst said he doesn’t believe housing boom is sustainable when the number of new home purchasers is not growing. Not sure what that has to do with oil and gas but I was interested in his opinion as Wells Fargo is the largest mortgage originator in the country. I figure he knew a thing or two about housing. Also said new home inventory was at historic lows. I can see where an improving economy and decades low inventory could prove to be a combustible mix for the stock price and profits of Pulte. He did say the amount of crude shipped out of the Bakken by rail has dropped significantly. He didn’t say why but I understand this to be due to spread between Brent and WTI collapsing. There isn’t the incentive for the refiners to game the system. He also said we were one disaster away from rethinking how crude was shipped on rail. This is good news for our underwater position in Nustar Energy, LP.
CSLA analyst says that the thing off shore drillers value the most is reliability and redundancy. Schlumberger spends almost as much on reliability improvement R&D as their two biggest competitors, Halliburton and Baker Hughes combined. Not really sure about the point of his presentation, though. Buy SLB as they had a lot of room to grow offshore services?