A Natural Gas Disconnect

[SharperDingaan]

Look at the Q4-2011 for PD.

 

- Running flat out. Signing all kinds of new multi-year contracts for oil &/or wet gas drilling

- Clean BS. 200M write-off taken in Q4, & STILL showing rapid & ACCELERATING growth

- THE Cdn land based directional driller.Tech, staff, networks to match

- Day rates & rig volumes increasing - spot & long term

- New super rigs going to ME

 

Pretty tight with the old Cdn Fracmaster, & were fracking ME fields long before 'shale' gas technology became 'mainstream'. Formula-1 rigs going back to wells that were drilled with the equivalent of a VW - and going where flag neutrality is a consideration.

 

Re disclosure. We hold a long position at a very low cost base.

 

 

 

[VAL9000]

Look at the Q4-2011 for PD.

 

- Running flat out. Signing all kinds of new multi-year contracts for oil &/or wet gas drilling

- Clean BS. 200M write-off taken in Q4, & STILL showing rapid & ACCELERATING growth

- THE Cdn land based directional driller.Tech, staff, networks to match

- Day rates & rig volumes increasing - spot & long term

- New super rigs going to ME

 

Pretty tight with the old Cdn Fracmaster, & were fracking ME fields long before 'shale' gas technology became 'mainstream'. Formula-1 rigs going back to wells that were drilled with the equivalent of a VW - and going where flag neutrality is a consideration.

 

Re disclosure. We hold a long position at a very low cost base.

 

SD,

 

I'm on board with looking closer at this.  The upside theory I'm working with is based on my knowledge of PetroBakken (PBN).  Their business model depends on constantly opening new wells all over the formation so that they can produce a long-tail cash-flow annuity across many wells.  Last I read in their annual report, securing services to open these wells has been a challenge.  I'll have to check, but I would guess this need is common among all operators in the Bakken and similar formations.  If the new normal has oil > $80, lease holders are going to want to move as quickly as possible to bring wells online.

 

Plus the P/Es of many of these operators are pretty attractive.  Not sure if I'll land on PD as well, but I'll be sure to let you know if I come up with anything compelling.

 

If there are any resources you can share with me to accelerate my learning this business, it would be greatly appreciated.  Thanks!

 

 

[mranski]

I'm not convinced that wet gas pursuit is much of a solution. Propane and butane have limited markets and have to be subject to supply glut also. Alot of the extra revenue here has to be handling costs.

Volume demand for NG , not the liquids is what is going to be needed to drive market price.

[SharperDingaan]

To truly appreciate just how out of sync the market currently is with the O&G servicing market, you need to do your own DD. We would suggest you start with PD's Q4 2011 MD&A + outlook, google rig activity, O&G Week, etc. You would swear that you're looking at another planet.

 

PBN et al can't get service because they trying for PD rigs & they're all going on LT contract into oil &/or wet gas. Where they can get a rig its spot rate & cash up front - and that well only gets drilled because its a forced lease hold farm-in by a bigger operator, & PD is doing them a favour. It's an old boys club, & ya dance with the one that brung ya.

 

If you cant drill you buy, & a shut-in well is worth squat. The further you are from a collection point, the dryer your gas, & the more constrained the pipeline capacity - the less you get. Very bad news for a junior unless you have a big friend.

 

Obviously there are other drillers, & pluses, but we are not going to disclose them.

 

[Liberty]

I wonder how long it would take for a significant portion of the transportation sector in north america to convert to CNG. There are already some CNG buses, some people have talked about creating corridors for CNG semi-trucks, and GM and Chrysler have announced some CNG pickup trucks. Honda has had the Civic GX for a while... All marginal for now, but if gasoline prices keep going up and NG prices stay low, there could be a tipping point.

 

I'm starting to think that in 5-10 years, many more cars and trucks will run on CNG (and there will also be a lot more plug-in hybrids and BEVs). It would be cheaper, cleaner, and in places where there are natural gas lines, people can even refuel at home (still requires to buy a special compressor, but these could go down in price with volume production).

[racemize]

I wonder how long it would take for a significant portion of the transportation sector in north america to convert to CNG. There are already some CNG buses, some people have talked about creating corridors for CNG semi-trucks, and GM and Chrysler have announced some CNG pickup trucks. Honda has had the Civic GX for a while... All marginal for now, but if gasoline prices keep going up and NG prices stay low, there could be a tipping point.

 

I'm starting to think that in 5-10 years, many more cars and trucks will run on CNG (and there will also be a lot more plug-in hybrids and BEVs). It would be cheaper, cleaner, and in places where there are natural gas lines, people can even refuel at home (still requires to buy a special compressor, but these could go down in price with volume production).

 

While CNG is a possibility, I tend to think the long term solution is grid-powered cars and good batteries.  Then we don't have to worry about the energy source (which should probably be a lot more NG at this point).  The question then is, how long does it take to get good battery vs. the cost of the CNG installations.  I do really like the idea of powering at home, but I'd rather it be electricity than CNG, if technology will allow it.

[tyska]

I wonder how long it would take for a significant portion of the transportation sector in north america to convert to CNG. There are already some CNG buses, some people have talked about creating corridors for CNG semi-trucks, and GM and Chrysler have announced some CNG pickup trucks. Honda has had the Civic GX for a while... All marginal for now, but if gasoline prices keep going up and NG prices stay low, there could be a tipping point.

 

I'm starting to think that in 5-10 years, many more cars and trucks will run on CNG (and there will also be a lot more plug-in hybrids and BEVs). It would be cheaper, cleaner, and in places where there are natural gas lines, people can even refuel at home (still requires to buy a special compressor, but these could go down in price with volume production).

 

I'm wondering if enough safety features could be incorporated into home filling. Seems like a disaster waiting to happen with the connecting and disconnecting. Can't tell you how many times I've seen cars driving with the extension cords dragging behind in winter also.

[Liberty]

While CNG is a possibility, I tend to think the long term solution is grid-powered cars and good batteries.  Then we don't have to worry about the energy source (which should probably be a lot more NG at this point).  The question then is, how long does it take to get good battery vs. the cost of the CNG installations.  I do really like the idea of powering at home, but I'd rather it be electricity than CNG, if technology will allow it.

 

I'm the same in what I want, but what I actually think will happen has more to do with the fact that for a while longer it'll cost less to run on CNG than to have a battery in a vehicle. But the CNG should just be a step along the way to 100% electric (and thus energy-source agnostic) vehicles.

[Liberty]

I'm wondering if enough safety features could be incorporated into home filling. Seems like a disaster waiting to happen with the connecting and disconnecting. Can't tell you how many times I've seen cars driving with the extension cords dragging behind in winter also.

 

Indeed, but it's not an insurmountable problem (can be as simple as making it so that cars can't be put in drive as long as something is plugged into refuelling port). I bet when houses were first electrified it seemed like quite and exotic and dangerous thing too.

 

afaik, CNG home refuelling stations already exist, so we'd have to look at how they do it.

[Guest valueInv]

How difficult is it to convert a oil or coal powered plant generating electricity to a natural gas powered plant? Shouldn't we see big savings here? 

[vinod1]

EIA report on impact of export of LNG on NG prices in US.

 

http://www.eia.gov/analysis/requests/fe/pdf/fe_lng.pdf

 

Vinod

 

 

[rogermunibond]

In the past, you never heard of base load coal generation being scrapped in favor of installing CC gas turbines. Although, this is just starting to happen. Calpine is planning to close a coal generator in Delaware and to build new CC gas generation capacity at the same site. Coal plants can't use gas; however, heating oil generation can switch fuels. More frequently the coal or oil generation is idled in favor of running peaked NG plants as base load.

[rogermunibond]

Liberty -  Phill station home CNG refuelin, iirc Pickens has one for his CNG Honda.

 

http://greenmyfleet.com/shop.html?page=shop.product_details&flypage=flypage.tpl&product_id=59&category_id=37&vmcchk=1

[SharperDingaan]

New power stations are designed to switch between fuels. The more modern are designed to run on primarily fluidized & pulverized coal fed by specialized conveyor - with 5-15% garbage. When gas is cheap they switch to gas.

 

Changing to gas alters the business model from steady base load to intermittent peak load at spot rates. To shut down the conveyors, the gas has to very cheap, large quantities have to locked in for a long time, & you have to be reasonably certain of seeing peak loads for extended periods. Much higher margins while you're selling, but the down time introduces a lot of additional operational risk for a utility - as the break-even now also has to include the depreciation & carry cost on idled equipment & coal inventory.

 

Pulverizing & fluidizing allows the Utility to use poorer quality & cheaper coal, or run at higher temps when using anthracite or coking coal. Higher temps allows the inceneration of more medical waste & the use of more plastic as fuel - the hospital/minicipality pays the Utility for disposal, & the revenue offsets the cost of the better quality coal.

 

No one is going to be in a hurry to convert, & where it occurrs it will be on a case by case basis.

 

     

[Myth465]

Thats the flip side. I would only convert a plant if I could hedge gas out several years. I doubt anyone is hedging significant volumes of gas for anything less than $4. I doubt anyone is doing it for $2.50 or so. Lots of variables, and these arent overnight decisions or processes. Gas will rise, but I dont think it will be for another few years.

[Uccmal]

In regards to natural gas vehicles, I think you will see other disruptive technology before you will see widespread use of natural gas vehicles.  It amazes me that my IPAD can go 10 hours on a charge, and doesn't develop charging memory anymore.  It is easier and many times safer, as discussed, to go with all electric, or electricity augmented with ultraefficient gasoline engines. 

[rogermunibond]

http://www.coalpowermag.com/plant_design/Natural-Gas-Conversions-of-Existing-Coal-Fired-Boilers_338.html

 

Interesting article on conversion of coal-fired boilers

 

SharperD - do the newer pulverized/fluidized bed coal plants have lower SO2/NOX, fly ash, and mercury emissions?  In other words, are the newer coal plants advantaged over NG generation as well as older base load coal that cannot meet the higher EPA emission rules in 2013-14?

 

Which of the merchant and regulated utes have the newet coal fleets?  FE, AYE, MIR

[Kiltacular]

http://www.plattsenergyweektv.com/news/article/197403/293/031812-LNG-Exports

 

7 minute interview on Liquid Nat. Gas.

 

WASHINGTON, D.C. (March 19, 2012) -- "Platts Energy Week," a weekly television news program focused on energy issues, hosted Center for Liquefied Natural Gas (CLNG) president Bill Cooper and former Federal Energy Regulatory Commission member Marc Spitzer for a roundtable discussion on LNG exports developments. The episode aired Sunday, March 18 in Washington, D.C. on CBS affiliate WUSA and on PBS stations in Houston, Dallas and Denver.

[Evolveus]

Here is T. Boone Pickens recent TED talk on nat gas as a bridge fuel and viable alternative for American energy:

 

[tnp20]

After he got the aircraft carrier question wrong, I stopped listening to the rest of his message.....

 

UK , French, Russians and Indians have aircraft carriers which he did not count.

[VAL9000]

The US and Canada are a captured market as we can not get the gas out.  In Japan, natural gas prices are near $18.  LNG tankers??

 

http://www.lloydslist.com/ll/sector/tankers/article394168.ece

 

GasLog looking to go public.  This is a pure-play on LNG tankers.

 

Here is the current F1:

http://www.sec.gov/Archives/edgar/data/1534126/000093041312001612/c67840_f1a.htm

 

They've got about $1.2bn in revenues chartered for 8 vessels (2 delivered, 6 to be delivered chartered, plus 2 more unchartered).  This seems like a very high rate for an average 6 year charter life.  Looks like LNG tankers is good business.

 

Looking to pay a ~2.5% yield @ $17.

 

I'll keep an eye on this.  Total order book for LNG tankers is only 17% of a pretty small fleet of vessels and the demand picture is strong.  JEast's observation of the pricing differences of NG by geography is educational in this context.  For those who are interested, the F1 above contains some really nice market research.

 

Here's the quoted article as LL tends to hide this stuff after a while:

 

PETER Livanos-led GasLog has begun its roadshow for an expanded initial public offering in the US.

The Monaco-based owner and manager of liquefied natural gas carriers is seeking to sell about $400m worth of shares to investors, assuming a price of $17 per share, the midpoint of the $16-$18 range indicated by the company.

At that price, GasLog would command a $1bn market capitalisation, with net proceeds estimated at $373m before any over-allotment coverage. Each $1 fluctuation in the price would boost or cut net proceeds by more than $22m.

The IPO could price as early as next week with March 29 the earliest date pencilled in on investor calendars.

Funds from the offering, together with a small, concurrent private placement, will supplement $1.1bn worth of committed loans to finance the company’s orderbook for eight LNG newbuildings booked with Samsung Heavy Industries.

Amended prospectus files with US regulators show the company offering 23.5m shares with a possible additional 3.5m for underwriters to cover over-allotments.

The maximum to be raised has been hiked to $486m, up from $300m when the company made its first filing in January this year.

Clarifying its dividend policy, GasLog said it plans to pay shareholders a quarterly dividend of $0.11 per share from the fourth quarter of this year and, as the fleet expands, will consider further increases.

If the offering is successful, chairman and chief executive Mr Livanos is expected to decrease his stake from 81.8% to 51% before any additional shares are sold to cover over-allotments.

Minority shareholder the Onassis Foundation, which took an 11.5% stake in the business in December, expects its holding to drop to 7% after the IPO.

The company plans to list on the New York Stock Exchange under the ticker symbol GLOG.

Goldman Sachs, Citigroup Global Markets, JP Morgan and UBS Investment Bank are joint bookrunners on the deal. Dahlman Rose, DNB Markets, Evercore Partners, Pareto Securities and SEB Enskilda are among the underwriters.

GasLog is full owner of two modern LNG carriers in service for BG and, in addition to the eight firm orders, has options for two more newbuildings at Samsung. It also manages 12 BG-controlled ships through subsidiary GasLog LNG Services.

 

[VAL9000]

To truly appreciate just how out of sync the market currently is with the O&G servicing market, you need to do your own DD. We would suggest you start with PD's Q4 2011 MD&A + outlook, google rig activity, O&G Week, etc. You would swear that you're looking at another planet.

 

PBN et al can't get service because they trying for PD rigs & they're all going on LT contract into oil &/or wet gas. Where they can get a rig its spot rate & cash up front - and that well only gets drilled because its a forced lease hold farm-in by a bigger operator, & PD is doing them a favour. It's an old boys club, & ya dance with the one that brung ya.

 

If you cant drill you buy, & a shut-in well is worth squat. The further you are from a collection point, the dryer your gas, & the more constrained the pipeline capacity - the less you get. Very bad news for a junior unless you have a big friend.

 

Obviously there are other drillers, & pluses, but we are not going to disclose them.

 

Thanks SD.  I went through a number of financial statements this weekend.  The PD report was certainly interesting.  I dug a little deeper to find a pureplay horizontal/directional driller and came across Phoenix Energy Services (PHX).  They have been growing very quickly and have an impressive operating history.  For a while they played up the R&D angle but that has taken a back-seat in the past couple annual reports.  The one thing I can't figure out, though, is the day rate.  Their average day rate was about $11k at the end of the year.  This is about half the price of every other day rate I came across.  And they are still profitable.

 

Any ideas on why this is?

 

I can't tell if they've got a technological advantage and are using it to grow market share as quickly as possible, or if they can only win business because they're charging such low rates and therefore will always have to charge low rates because they are actually poor performers.

 

Also they don't seem to have much investor support, which concerns me.

 

 

[SharperDingaan]

VAL9000: Be cautious when a coy doesn't tell you its day-rate. You may want to look a little closer at where they are drilling (field is mostly dry gas?), how many rigs, what needs to happen for them to go further, etc. A dividend paying O&G with limited connections & institutional ownership is a flag.

 

Assuming it is sutainable, were PHX not paying their increased dividend they would not be a todays price. Then if a junior is doing this, what would happen if a major - in the same sector & with better prospects - partially reinstated a previously rescinded dividend? Out of sync market.

 

Rogermunihound: Fluidized coal feeds produce more fly-ash. The rest of the emissions are a function of temperature - the hotter the burn the less emission. Coal can easily reach the temps required but operations are optimized if the higher temp is used to burn garbage instead.

 

[VAL9000]

VAL9000: Be cautious when a coy doesn't tell you its day-rate. You may want to look a little closer at where they are drilling (field is mostly dry gas?), how many rigs, what needs to happen for them to go further, etc. A dividend paying O&G with limited connections & institutional ownership is a flag.

 

Assuming it is sutainable, were PHX not paying their increased dividend they would not be a todays price. Then if a junior is doing this, what would happen if a major - in the same sector & with better prospects - partially reinstated a previously rescinded dividend? Out of sync market.

They provide the day rate ($11k), but the part I can't figure out is why that day rate is so low.  I will take a look into those attributes and see if I can learn more about what's going on.

[VAL9000]

They provide the day rate ($11k), but the part I can't figure out is why that day rate is so low.  I will take a look into those attributes and see if I can learn more about what's going on.

 

I spoke with investor relations.  The reason for much cheaper day rate is because they only provide the personnel and  down-hole equipment.  They don't supply the drilling rig itself.