Deal of The Day –update as needed

Jun 9th, 2017:
natural gas price are now $2.61, above the cost of 2.5$. no longer a sure bet. thus remove UGAZ from Deal of the day. ugaz 37, more than tripled from bottom.

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Feb 22, 2015

 
8 reasons to buy UNG, UGAZ:

 
1. historically, price of NG has reach below $2 twice and neither case below $2 more than 2 weeks. (price at currently $1.87, has never been more than a week). USD has depreciated currently than it was before.
2. the number of rig has reduced to about 1/3 and many shale gas/oil firms near bankrupt.
3. US LNG export at Sabine Pass is 1.2 Bcf/day with 1&2 trains, 7months later will be 2.4Bcf/day total about 400~500Bcf/year. this alone will pull current EIA NG storage to multi-year-average level at year’s end.
4. US export to Mexico grow 50% last year to about 1100~1200Bcf/year and expect continue strong growth this year for power generation. this will reduce storaged NG to below average and potential at low-end at year’s end. storage company will soon discover right now is a better time to fill their 1.5Tcf storage space than waiting.
5. CHK NG cost of production(break even) at $2.5 in all 4 major oil field include Marcellus, PA. its stock drop to 1.5 and recover to 2.4, stress will force it cut output to boost price. and large number of smaller NG producers are either bankrupt or near bankrupt. which will boost price.
6. Oil has rebounded, but still lower enough to weaken the income of oil/gas firm and reduce new well drilling(CHK break even at $38~$48/crude at various fields). 2012 oil price was high when NG below $2, but this time, both NG and oil below shale cost. double squeeze oil/NG firms.
7. US Natural Gas is relatively isolated in USA. No EM exposure while expose to most growing region: USA
8. Bonds rates are negative, bonds price don’t have much space to go up. they are looking for place to park. NG at this price is attractive for them.
As many as 74 North American producers face significant difficulties in sustaining debt, according to credit rating firm Moody’s Investors Service. Shale explorers from Texas to North Dakota will be “decimated” in coming months amid a wave of restructurings and bankruptcies, said Mark Papa, the former EOG Resources Inc.

 
Let’s take a careful look at the details of second largest NG producer CHK’s recent quarter announcement and focus from 2014 to 2016 (instead of commonly adjacent years): its rig count decrease from 64 to 4~7 or 1/10th!, well completed and cap for drilling all down to 1/4~1/5!  When we consider the rising export of 1200Bcf~1800Bcf to Mexico and 400Bcf LNG export. current above average storage of 500Bcf is nothing to worry about. The 1.5Tcf of empty storage is similar to “short”: once price rise, owner will scramble to buy to fill the storage. NG storage will below average before the end of this year as most shale players won’t be able to survive.

 

  2014 2015 2016
Activity Comparison Q4 FY Q4 FY Outlook
Average operated rig count 67 64 14 28 4~7
Gross wells completed 341 1,169 85 547 280 – 350
Gross wells spud 308 1,173 66 499 85 – 125
Gross wells connected 311 1,148 100 650 330 – 370
           
Type of Cost ($ in millions)          
Drilling and completion costs $ 1,370 $ 4,470 $ 405 $ 2,959 $800 – 1,300
Other exploration and dev costs and PP&E 252 669 55 231 200
Subtotal capital expenditures $ 1,622 $ 5,139 $ 460 $ 3,190 $1,000 – 1,500
Capitalized interest 134 637 88 424 300
PRB property exchange 450
Sale leasebacks 25 499
Total capital expenditures $ 1,781 $ 6,725 $ 548 $ 3,614 $1,300 – 1,800

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Feb 15, 2015

$CHK great buy between 1.6~2.0:
45.03% float shorted;
CEO bought at $5 recently;
it can raise $2~8 billion by sell a 2 prime oil fields;
volatility=220%,
CHK has $4 billions in tax credit, net-debt at $6 Billion after this.
Shorts lies, Kirkland & Ellis had been one the company’s law firms since 2010
Carl Icaln still has big stake and George Soros was an investor.
CHK has fix assets at about $20 Billion at this market price.

ideal short squeeze target

 

Topcools Editor
editor@topcools.com

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