Does #Exxon Know The Value of Its Assets?

by Matthew Johnson

In recent months, ExxonMobil has been under fire after investigative reporters claimed the oil and gas giant knew about risks associated with climate change since at least the 1970s and hid that knowledge from the public.  Leading environmental groups called for the company to be prosecuted the way tobacco companies were prosecuted for hiding Smoking risks.  Mainstream politicians like Hillary Clinton joined in and New York Attorney General Eric T. Schneiderman launched an investigation.  In March 2016, attorneys general from 18 jurisdictions announced they are now part of his effort. In September 2016, the Wall Street Journal reported that AG Schneiderman had changed his aim and is now looking more closely at how Exxon values its assets.  The federal government has also launched a similar effort.

In addition to climate questions, the government wants to know if Exxon is hiding the damage it has suffered from low oil prices.  As our proprietary data shows, frac jobs decreased 50% from Q42015 to Q12015, and that foretold a corresponding drop in production and cash flow.  ONE THING TO NOTE IS THAT PRIMARY VISION’S DATA FOCUSES ON NORTH AMERICAN FRAC’ING AND THE MAJORITY OF EXXON’S BUSINESS IS INTERNATIONAL/OFFSHORE.

The Good:

First off, ExxonMobil is a pillar of American industry that traces its lineage back to the Standard Oil Trust that dominated world oil markets in the late 1800s.  The company has survived a lot of legal issues in its past, and when crude markets rebalance (or if OPEC is able to boost oil prices) then Exxon’s troubles may disappear.
This particular controversy has to do with the process executives use to sign off on calling reserves “proven” after reviewing data from engineers, geophysicists, and geologists.  Dropping oil prices and costly regulations reduce the value of these “proven” resources.  Most companies will write down that lost value, but write-downs reduce profits.  Exxon is notorious for refusing write-downs.  Exxon CEO Rex Tillerson sees this aversion as a good part of the company’s culture.  He says it avoids write-downs by placing a high burden on executives to ensure that projects can work at low prices.  Those executives will not be “bailed out” by having their projects written down in a bad market.

One thing that helps make this strategy viable for Exxon is that its operations are heavily centered in areas that continue to be economic at current prices.  In particular, this means the Permian Basin in Texas, and through it subsidiary XTO Energy the company also reaches the Williston Basin in North Dakota.  Our data shows these to be the most popular locations for frac jobs in recent years.

The Bad:

The flip side here is that Exxon could be seen as lying about the cost of climate or its losses associated with low oil prices.  The company has outperformed many of its rivals since oil prices began to drop in 2014, but it has lost money in its U.S. drilling business for the past six quarters.  By failing to admit that their reserves had lost value, Exxon was able to report higher earnings than rivals that made significant write-downs.  Some may say the company inflated its earnings to boost its stock price.

The Ugly:

Exxon is now facing two different investigations with overlapping aims.  First, New York AG Schneiderman and his coalition are pursuing allegations of fraud related to climate change.  AG Schneiderman also appears to be independently reviewing Exxon’s practices related to writing down assets and accounting for the cost of climate change.  Second, the U.S. Securities and Exchange Commission has now opened up an inquiry into the same issues of write-downs and climate accounting.

Conclusion:

Exxon has been on the attack against AG Schneiderman and what the company views as a politically-motivated attack, but Exxon has said the SEC is the “appropriate entity” to look into these matters.  Exxon is proud of its practices and it will likely hold up against government scrutiny as it has for decades.  History suggests commodity prices will rise again, and when they do Exxon’s troubles will seem minor.  Moreover, these investigations were just a chink in Exxon’s armor.  Stock prices took only a small dip after the SEC investigation was announced, and analysts like The Street Ratings still consider the stock a “hold” as the company is in a solid financial position despite weak cash flow and poor profit margins.

sources:

Disclaimer
The data presented above has a margin of error of 5-8% as a result of E&P and/or service company errors or incorrect data filings. Neither the information, nor any opinion contained in this site constitutes a solicitation or offer by Primary Vision or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.

Pioneer’s A+ game might match OPEC

PXD-PVby Matthew Johnson

Recently, we reviewed some pressure pumpers and even took a stab at Eog Resources (EOG: $91), often called the Apple ($108.27) of U.S. shale.  If Eog Resources is the Apple of U.S. Shale then is Pioneer (PXD: $224) the Uber-equivalent?  Their CEO, Scott Sheffield, stated last week that their operating costs in the Permian Basin were close to $2 per BOE. Some have disputed this by looking deeper into their financials.  Let’s take a look at what we’re good at which is frac jobs and frac spreads.

We’ve reported 440 frac jobs since the beginning of 2015 running through Q1 2016.  PXD has shown a steady flow of work.

FSC Charts for PXD - comparisonFSC Charts for PXD - month by month

Pioneer is vertically integrated, so they do a lot of their own pressure pumping. However, we are tracking some activity with Halliburton (HAL: $43.84), Baker Hughes (BHI: $49.76) and Schlumberger (SLB: $81.20) in the last 18 months.

Here’s their top ten frac jobs by county since January of 2015:

FSC Charts for PXD - top 10 countiesThe majority of their activity takes place in Midland (Permian), Upton (Permian) and Karnes (Eagle Ford) counties.

Pioneer has been a technological leader in many aspects of frac’ing including well selection, pressure pumping  and refrac’ing.  The inclusion of their own pressure pumping team gives them a logistical and financial advantage over 90% of E&Ps in the United States.  Even if their CEO is exaggerating, it appears as their operational costs have shined a light on investors (their stock is up 40% since January of this year) and other shale companies that the impossible is, in fact, possible.  If OPEC’s goal was to knock U.S. shale offline they may have won some battles, but companies like pxd are tenacious.  The war is far from over.

sources:
Arthur Berman at oilprice.comPioneers $2 Operating Costs: Fact or Fiction?
Rachel Aldrich at The StreetPioneer Natural Resources Stock is the ‘Chart of the Day‘”
Nicholas Chapman at Market RealistAnalyzing Pioneer Natural Resources Q216 Earnings

Disclaimer
The data presented above has a margin of error of 5-8% as a result of E&P and/or service company errors or incorrect data filings. Neither the information, nor any opinion contained in this site constitutes a solicitation or offer by Primary Vision or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.

The End is the Beginning for Baker Hughes

The-End-Is-the-Beginning-Baker-Hughes-Primary-Vision-Blog-7-29-2016by Matt Johnson

Over the last week or so we’ve covered the Q2 results for Halliburton (HAL: $42.77), Schlumberger (SLB: $79.05) focusing on the good, the bad, the ugly and accompanying activity measurements. Today we will center in on Baker Hughes (BHI: $46.05) which reported its Q2 results on July 28th, 2016.

Just a reminder that, Primary Vision focuses on frac data and therefore will highlight (and probably lowlight) BHIs pressure pumping activity.

The Good: As a result of the $3.5b breakup fee paid by HAL, BHI has already earmarked a 1.5b share buyback program and $1b in debt repayments. Due to recent job cuts and other internal restructuring they’re expecting their margins to improve throughout the rest of 2016.

Water Volume – BHI was #3 in water usage in 2013 and 2014.  They slipped to #4 in 2015 and round out 5th place, so far, in 2016. Just an fyi: The running order of water usage from 2013 to current (from 1st to 5th place): HAL, SLB, FTS International, Pioneer Natural Resources (PXD: $157.54) & BHI (this water usage list only has Pressure pumpers, and while PXD is known as an operator they’re also vertically integrated with their own frac spreads which enables them to control costs on a whole other level.  Read here to learn more).

Proppant Volume – BHI had the 2nd highest proppant mass from 2013 to 2015.  2016 numbers are still a bit murky.

Total Number of Frac Jobs: In 2015, BHI held second place with 1,643 frac jobs.  Through one quarter of data they’ve slipped to 3rd place.  In 2016, HAL holds on to first place, one can only wonder if BHI will ever re-gain enough market share to move back to #2. See the charts below that highlights BHIs frac jobs over the last 5 quarters.

BHI comparison chart

The Bad: While the merger breakup resulted in a $3.5b payout from HAL, BHI lost crucial market share in the oilfield services space.  Revenue fell 39% to $2.3b and BHI failed to cut costs in line with their competitors.

The Ugly: BHI has laid off ~23,000 people since the beginning of 2015.  One might wonder who really suffered as a result of the failed merger.

We took a deeper look into our database of frac jobs (~120k jobs in the U.S. over the last 6 years) to Show both the Frac jobs and Frac Spreads for Baker Hughes.

BHI frac jobs month by month

Note: The Q2 2016 data is incomplete as there is a lag in the data of ~100 days

BHI forecasting chart

Note: There is a lag in the data of about ~100 days. We continue to capture new data every single day (Running Frac Spreads = blue) and compliment the data lag with our custom forecasting algorithm (Forecast = orange). If you click on the chart you will better be able to see the chart labels.

Parting Thoughts:

BHI thinks sustainable crude pricing in the $60 range is needed for operators to increase pumping activities in North America. When speaking about near-term opportunity, BHI is looking to take advantage of the 5,000 uncompleted wells nationwide. Even with the negative outlook in 2016, CEO Martin Craighead said “We are well positioned for opportunities today and when (the) market begins to recover.

Their CEO isn’t being passive either as they plan to release a host of new products focused on technology and uplift to bolser their bottom line in the second half of 2016.

It will be really interesting to follow their next few quarters as they streamline and try to re-grab the market share they lost.

sources

Amrutha Gayathri of ReutersBaker Hughes says North America recovery unlikely this year
Tess Stynes of The Wall Street Journal via Market WatchBaker Hughes Loss Widens on pricing pressure
Claire Pool of The StreetBaker Hughes Reports Loss, Paints Rosier Picture for Second Half of 2016

Disclaimer
The data presented above has a margin of error of 5-8% as a result of E&P and/or service company errors or incorrect data filings. Neither the information, nor any opinion contained in this site constitutes a solicitation or offer by Primary Vision or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service.

Frac Spread Count 2.0 – June 2016

PVFSC-6-6-2016

click on the image above to see it in full size

by Jake Stevens

Have you prepared for the inevitable?

While a lot of focus is on permits and even the rig count over the last 30 or 40 years, we’ve been distributing a new metric that propelled Primary Vision into the mainstream in the summer of 2015, one we believe is the most important metric of frac activity.  We call it the Primary Vision Frac Spread Count (I might refer to it as the PVFSC or the FSC for the rest of this blog).

A quick summary of what the PVFSC is.  Simply put its a metric for the highest daily value of active frac spreads for a given week.

Ok great, but what exactly is a frac spread.  Well, lets start telling you what it isn’t.  It has nothing directly to do with natural gas prices (the crack spread), natural gas refiners (the fractionation spread) or the value gained from the sale of any natural gas liquid.

Primary Vision knows the who (pressure pumper), where, when, how many, and in most cases what the service providers are pumping, but it doesn’t stop there. We also know for what operators they are pumping for.

To summarize for every frac spread we know the following:

1) Days Active
2) Location
3) Pressure Pumper
4) Operator
5) Volumes of water, proppant, chemicals pumped

This allows us to know the number of active fleets on a given day and allows for the creation of the Primary Vision Frac Spread Count.

We give away for free, updated every week ,the Primary Vision Frac Spread Count National number.  This you can find here. Its updated by 10am every Friday.  Sign up for the free national report and you’ll get an email sent out weekly that includes the historical frac spread data plus the frac spread data for the previous week.  Use the chart and the data as you wish, all we’re asking is that you source us when using the data/image in a commercial capacity.

Its free, and yes you can get started today.

In a few days we’ll highlight what you get with the paid subscription for the Primary Vision Granular Frac Spread Count or you can reach out to us at info@pvmic.com to learn more.

 

July ReFrac Report – Permian Basin Style

July Update

Primary Vision has been working hard to improve our ReFrac report offering.  We’ve added some additional charts for you focused on the Permian Basin, changed some charts that were hard to read, added a printable version, upgraded our delivery method from an attachment to a link, etc. etc.  A lot of changes that required a lot of testing and we’re not gonna stop there.  Look for us to add in additional analytics, chemicals and production before the end of the year.

Screen Shot 2015-07-27 at 6.32.07 PM

Refrac’ed Wells from 2011-2015 Year To Date

side note: We’re also looking to add an account based system as well as additional reports (hint: Frac Fleet report)

In addition to our reports, we’re going to soon be adding production data, additional completions data and making our trek to the great white north (yes, Canada)!  All a part of the continued evolution of our comprehensive U.S. frac data products.

Survey Forthcoming

Some time this week we’re going to release a survey on our refrac report and a bit about what’s important to you frac data-wise.  Should be super easy, ten questions or less.  Thanks in advance!

Shameless Plugging

Still thinking about ordering our Granular ReFrac Report?  Get July’s instantly and be setup for August where we’ll focus on the Barnett and maybe one additional surprise. You’ll have to subscribe to find out!

How to Subscribe:

You can order here for just $99 (or jump on our soon to change yearly pricing of $899) that is packed with 30+ pages of information including…
Number of ReFrac’ed Wells by Quarter, Region, Orientation and Trajectory
– 
Updated from June!
ReFrac’ed Wells by Year by Top 10 Operator (ALL and HZ wells separately)
– Updated from June!

ReFrac’ed Wells by Year by Service Company (ALL and HZ wells separately)
– Updated from June!

Average Proppant Mass by Proppant Type (ALL and HZ wells separately)
– Updated from June!

ReFrac’ed Wells by Year by Proppant Type (ALL and HZ wells separately)
– Updated from June!

Proppant Mass Comparison Between Original and Second Frac (ALL and HZ wells separately)
- Updated from June!
Heat maps for Re’Frac wells for each year
- Updated from June!
Additionally we drilled down into the Permian Basin in July, so additional slides focused on that region are included.

Screen Shot 2015-07-27 at 6.28.58 PM

2011-2015 Permian Basin Heat Map of refracs

Summer is half way over, get outside!

Primary Vision Team