Roth Capital Weekly Update - June 20

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John White at Roth Capital has BUY ratings on CPE, EPM, LNREF, REI and RSPP

Crude Oil: Reflecting the crash in the rig count and activity levels, on 6/15/2016, Reuters reported
North Dakota's oil production fell the most in history in April, according to state regulators.
Production was 1.04 million b/d in April, 70,414 b/d less than March, according to the North Dakota
Department of Mineral Resources (DMR). The slide is expected to accelerate throughout the
summer.
On 6/14/2016 the International Energy Agency (IEA) released its monthly oil market report which
advised that due to outages in OPEC and non-OPEC countries global oil production was down by
nearly 800,000 b/d in May. At 95.4 million b/d, output stood 590,000 b/d below a year earlier. The
report noted this was the first significant drop since early 2013. Non-OPEC production growth is
expected to return in 2017 at a modest 200,000 b/d, after declining by 900,000 b/d in 2016, the
June IEA report informed.
OPEC crude production declined by 110,000 b/d in May to 32.61 million b/d as big losses in Nigeria
due to oil sector sabotage more than offset higher Middle East output. Iran has clearly emerged
as OPEC’s fastest source of supply growth this year, with an anticipated gain of 700,000 b/d.
Global oil demand growth in 1Q 2016 has been revised upwards to 1.6 million b/d and for 2016
growth will now be 1.3 million b/d. The IEA's latest demand estimate for the first three months of
this year shows global oil demand rising by 1.6 million b/d to 95.2 million b/d, with nine out of every
10 extra barrels of demand attributed to a non-OECD economy. In 2017 the IEA advised it sees
further demand growth and consumption should reach 97.4 million b/d.
"At halfway in 2016, the oil market looks to be balancing; but we must not forget that there are
large volumes of shut-in production, mainly in Nigeria and Libya that could return to the market
and the strong start for oil demand growth seen this year might not be maintained," the Parisbased
agency said.
Natural Gas: On 6/13/2016 Reuters reported TransCanada Corp (TRP-NC) would build and
operate a $2.1 billion, 497 mile natural gas pipeline in Mexico, the Sur de Texas-Tuxpan pipeline
project, which would be built through a joint venture with Sempra Energy (SRE-NC) and be backed
by a 25-year transportation service contract with Mexico's state-owned power company. The 1.0
BCF per day pipeline will originate in Nueces County, Texas and will extend to Brownsville, Texas.
Natural gas in storage was 3,041 Bcf as of 6/10/2016, according to EIA estimates, a net increase
of 69 Bcf from the previous week. Storage is 633 Bcf higher than last year and 704 Bcf above the
five-year average of 2,337 Bcf.
U.S. Rig Count: The U.S. rotary rig count from Baker Hughes (BHI-NC) was up 10 at 424 for the
week of 6/17/2016. The number of rotary rigs drilling for oil was up 9 at 337. Rigs drilling for oil
represent 79.5% of all drilling activity. Rigs directed toward natural gas were up 1 at 86.
E&P Equities: As WTI crude oil faded from $50/bbl E&P stocks also decided to take a rest, with
the XOP down 0.6% for the week. In our opinion, this correction may likely continue. The Canadian
oil sand volumes will return soon and it is likely some of the Nigerian production that is offline due
to sabotage will come back on the market, although Nigeria remains a wild card as the Niger Delta
Avengers could strike again at any time. Also influencing our negative outlook for the short term
is the likelihood of incremental volume from Iran during the coming months.