I guess I don't see drill and frac as much and as quickly as possible as true growth. This strategy maximizes revenue, not profit margin, during booms but doesn't protect profit margins during slow downs. Hedging is not growth either.

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What Einhorn is learning is that the oil and gas business is fundamentally different than other industries. We have decline rates, we need to develop reserves. In his world, forward projections are taking the last quarter's cash flow and multiplying it by 4 to forecast next years.

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it is a very different business, but should it be? is that cultural?

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I guess I don't see drill and frac as much and as quickly as possible as true growth. This strategy maximizes revenue, not profit margin, during booms but doesn't protect profit margins during slow downs. Hedging is not growth either.

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That's my point though, and maybe where I just don't understand what Einhorn is saying - what's true growth for an oil and gas company? Specifically an independent?

We don't produce products where we can demand a certain price to increase profit margins. We produce a commodity. We can negotiate service costs to try and maximize profits at a certain commodity price. And/or do something like EOG and dabble in some 3rd party operations like sand and midstream to lower costs. But really, growth, to me, is determined by reserves, production, and profits.

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EOG set to resume frac ops if prices stabilize at $65

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I'm curious how many of them targeting $65 define "stabilize"?

That seems like it will be a bit self defeating to me as opening the floodgates on the frac inventory at a stabilized 65 will likely cause downward pressure on the oil price. Then we will get to do this all over again....

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That seems like it will be a bit self defeating to me as opening the floodgates on the frac inventory at a stabilized 65 will likely cause downward pressure on the oil price. Then we will get to do this all over again....

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I see what you mean, but what's the point of having oil at $65 if not to utilize the resources we have? If oil goes to $150 after every drill rig in the nation is idled, it ain't a good thing.

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That seems like it will be a bit self defeating to me as opening the floodgates on the frac inventory at a stabilized 65 will likely cause downward pressure on the oil price. Then we will get to do this all over again....

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Because companies want to maximize the money they make on their resources. And it won't earn them anything by sitting there, especially for companies that have deferred completions.

Same reason OPEC kept production steady/increased it slightly - you have to bring in something at some point. And as they showed, it should be no one's responsibility to keep oil at a certain level. Get yours while you can. If that means prices drop some, well then at least you got something while you could.

I believe the surplus inventory and non-completed well inventory is already built into the price.

I get all that but I guess I would just prefer to see us le the supply demand situation work the prices up back into the 80+ range before we all start going ape **** again. At 60-65 dollars per bbl, the margins are pretty tight for most of the acreage I work in the Eagle Ford.

How else could you produce a depleting resource? The industry is that of extraction, not creation. The only way to make more money is to produce more product or produce product for cheaper. Wall Street seemed keen on production growth the past few years, so operators drilled as fast as possible.

Einhorn's Presentation...

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What Einhorn is learning is that the oil and gas business is fundamentally different than other industries. We have decline rates, we need to develop reserves. In his world, forward projections are taking the last quarter's cash flow and multiplying it by 4 to forecast next years.

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it is a very different business, but should it be? is that cultural?

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Based on his presentation, the O&G business is good for the employees of the company in good times but bad for investors. Some of those cash burn rates make software companies look frugal.

I think for that culture to change companies need to be more stable in bad times. If it wasn't so good for them during the good times, how many employees would stick around the industry for the roller coaster ride. So many people do it because of the money that can be made.

But how is a commodity based business supposed to be stable without spending money? Obviously there is a difference between wasting money and investing money into development, but how else does an O&G company make money unless it's by producing?

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But how is a commodity based business supposed to be stable without spending money? Obviously there is a difference between wasting money and investing money into development, but how else does an O&G company make money unless it's by producing?

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You can destroy value while growing revenue and accounting profit. The fact that producers didn't generate positive FCF at $100/bbl should be cause for concern. It appears that PXD is as much in the business of raising capital as they are drilling for oil.

To some extent I agree but not across the board.

If you have high quality assets that pay out in 1-3 years and your budget is growing substantially every year, why would you expect positive FCF to have happened over the last couple of years.

The catch is, most companies probably had 5 year payouts on average and thought they had 3 due to aggressive projections of future production and future oil prices. Wells drilled in the last year were high capex and low oil price. Pretty crazy how quick 100% ROR can shrink to <20% with commodity price drop and an overly optimistic projection. Based on PXD's 1 MMBOE+ type curve, I'd say they have no qualms about leaning forward. If memory serves me right, they never showed a large number of wells against those high type curves.

Noble acquiring Rosetta?

yep

http://www.upstreamonline.com/live/1399585/noble-to-buy-us-shale-player


Noble Energy is set to acquire fellow US player Rosetta Resources in a total $3.9 billion deal that will give it an entry ticket into the Eagle Ford and Permian basin shale plays.
Houston-based Noble said it would carry out an all-stock transaction worth $2.1 billion as well as assume Rosetta's net debt of $1.8 billion under the definitive merger agreement unveiled on Monday.

Through the transaction, Noble will gain access to Rosetta's liquids-rich asset base that comprises a total of 106,000 net acres, or about 429 square kilometres, in the two US onshore plays 50,000 net acres in Eagle Ford and 56,000 in the Permian.

"The Eagle Ford and the Permian are premier unconventional resource plays, two of the most economic in the US, which will expand our resource base and development inventory and further diversify our portfolio," Noble chief executive Dave Stover said in a statement.

Noble said it has identified 1800 horizontal drilling locations for development across the acreage to be acquired with net unrisked resource potential of 1 billion barrels of oil equivalent.

Rosetta produced 66,000 barrels of oil equivalent per day in the first quarter and had proven reserves of 282 million boe at the end of 2014, of which more than 60% was liquids.

Noble is targeting annual production growth from the assets of about 15% over the next several years.
The company already has core US onshore assets in the Denver-Julesburg basin and Marcellus shale, as well as acreage in the Gulf of Mexico, off Israel and Cyprus, and off West Africa.

Rosetta shareholders will receive 0.542 of a Noble share per each unit of common stock, valuing their shares at $26.62 apiece, which represents a 28% premium to the average trading price over the past month.

The transaction, which has been approved by the boards of both companies, remains subject to approval to shareholders and customary conditions, with completion expected in the third quarter.

I bought a couple hundred shares of Rosetta in March. Who is next? CHK? EGY?

Such an odd time to sell in my opinion. Rosetta is/was well positioned to be an acquirer.

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Rosetta is/was well positioned to be an acquirer.

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Really? I had heard the opposite. I thought Rosetta had great assets but a lousy balance sheet making them a prime target to be acquired. I've been waiting for this type of news since January. Now I'm not a finance guy, so maybe this is shocking.

They were not in any kind of position to be acquiring. They didn't have the money to complete all of their wells much less buy something.

they need to hire Tesla's accountants.

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Noble acquiring Rosetta?

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Surprise to those of us that work for NBL as well.

Zemira, you work for NBL?

They certainly didn't have the best balance sheet out there but they were in a better position than a lot of other E&P's that should/could be sellers now. They have a strong management team too, one that seemed ready to weather the cycle and capitalize on opportunities.

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They certainly didn't have the best balance sheet out there but they were in a better position than a lot of other E&P's that should/could be sellers now. They have a strong management team too, one that seemed ready to weather the cycle and capitalize on opportunities.

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Rosetta probably looked at the situation and decided there was a significant chance they couldn't weather the storm. so, they do a deal now before the real rush of acquisitions and valuations drop farther.

How do you figure? Have you compared their debt/cash/market cap to other companies? You think they could have amassed more debt and survived? Appears to me they couldn't survive as is much less pick something up. What makes you think they were situated to weather the storm? I'll bet anything they were letting some acreage go considering they were having to sit on completions.

Yes I work for NBL

We could talk shop if you're up for it...

thedayman1985 at yahoo dot com

It would be good to get an insiders perspective on NBL.

"Rosetta has capitulated, weighed down by rising leverage. Overstretched E&P companies are supposed to throw in the towel amid low oil prices. Besides companies just slipping into bankruptcyas American Eagle Energy did last weekthe pressure on cash flows leads struggling companies to sell out to bigger ones."

WSJ sees it the way I do. Why would you buy an asset at the top and sell at the bottom unless you knew things were going to get ugly.

...Because the banks will only hold the rope for so long before they have to fess up to their boards.

Just read an Iranian boat fired at an oil tanker on oil pro.