NGL prices should be much higher in Q1 than what I've been using in my models.
Cimarex Energy (XEC) recently filed an 8K say their realized NGL price in Q1 was $22.43 per bbl. This compares to $14.02/bbl in Q4 and my Q1 forecast of $16.00/bbl. This is a big deal because Cimarex produced over 63,000 bpd of NGLs in Q1. An additional $6.43/bbl adds $37.2 million to top line revenues.
Diamondback Energy (FANG) also announced much higher NGL prices than I modeled.
Most companies don't hedge their NGLs.
NGL Prices - April 23
NGL Prices - April 23
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: NGL Prices - April 23
"Earlier in April, Continental pegged the impact of the February coldfront to its production at ~6 Mboe/d (~60% oil), but conspicuously left out any mention of the effect the freeze had on natural gas pricing. However,a few indicators have us expecting extremely strong 1Q natural gas realizations.
First, alongside its production update, CLR specified that total debt had fallen $560M in the quarter to end 1Q at $4.97B, while at the same time its cash balance increased $49M to $96M. Keep in mind, CLR also paid ~$194M in cash to close on its recent Powder River Basin (PRB) acquisition, so this would imply FCF of ~$800M in the first quarter! Even being ultra-conservative and assuming half the PRB deal was paid for by drawing down working capital ($100M source of cash) and 1Q capex was a low ~$245M (18% below Street and well below the $350M implied by dividing the $1.4B 2021 budget evenly through the year), the operator would require $950M of organic CFFO ($450M increase from 4Q) for this to be possible. We believe a natural gas price in the ballpark of $6/MMbtu in 1Q is the only way the operator could have accomplished this with production already known.
Secondly, fellow Oklahoma operator XEC saw average realizations of $4.14/Mmbtu, and we believe the nature of CLR's activity in the basin points to theirs being considerably stronger. This is because CLR's strategic shift to drilling gas-weighted wells (XEC oil-weighted drilling) in Oklahoma at the end of 2020 resulted in several high-volume gas wells coming online in the months before the storm.
Due to their nature, gas wells are easier to return to production or even keep online during extreme weather events than oil wells are, while regardless of commodity, newer wells produce much more than older wells (typical decline of 60% to 80% in first 12 months). As such, a larger percentage of CLR's Oklahoma gas production could have been brought back online with greater ease than its competitors by simply focusing on the most recently completed gas-weighted wells, allowing it to capitalize more on the two weeks of incredibly strong daily natural gas pricing.
Lastly, if there is any management team known to like exposure to spot pricing it is Continental (a strategy serving it well in 2021), and we suspect its contracts have been executed accordingly.
For all these reasons, we are forecasting EBITDA of ~$975M (~30% above the Street) and organic FCF of ~$700M in the first quarter alone." - Raymond James Equity Research 4-26-2021
If RJ's Team is right about this, CLR's earnings per share for the first quarter could be 3X higher than the current First Call EPS estimate of $0.37.
PS: CLR reports natural gas and NGLs on a combined basis. There 2021 drilling program is focused on areas that produce a lot of NGLs. Hence their realized combined gas price per mcfe should be much higher than what I modeled.
First, alongside its production update, CLR specified that total debt had fallen $560M in the quarter to end 1Q at $4.97B, while at the same time its cash balance increased $49M to $96M. Keep in mind, CLR also paid ~$194M in cash to close on its recent Powder River Basin (PRB) acquisition, so this would imply FCF of ~$800M in the first quarter! Even being ultra-conservative and assuming half the PRB deal was paid for by drawing down working capital ($100M source of cash) and 1Q capex was a low ~$245M (18% below Street and well below the $350M implied by dividing the $1.4B 2021 budget evenly through the year), the operator would require $950M of organic CFFO ($450M increase from 4Q) for this to be possible. We believe a natural gas price in the ballpark of $6/MMbtu in 1Q is the only way the operator could have accomplished this with production already known.
Secondly, fellow Oklahoma operator XEC saw average realizations of $4.14/Mmbtu, and we believe the nature of CLR's activity in the basin points to theirs being considerably stronger. This is because CLR's strategic shift to drilling gas-weighted wells (XEC oil-weighted drilling) in Oklahoma at the end of 2020 resulted in several high-volume gas wells coming online in the months before the storm.
Due to their nature, gas wells are easier to return to production or even keep online during extreme weather events than oil wells are, while regardless of commodity, newer wells produce much more than older wells (typical decline of 60% to 80% in first 12 months). As such, a larger percentage of CLR's Oklahoma gas production could have been brought back online with greater ease than its competitors by simply focusing on the most recently completed gas-weighted wells, allowing it to capitalize more on the two weeks of incredibly strong daily natural gas pricing.
Lastly, if there is any management team known to like exposure to spot pricing it is Continental (a strategy serving it well in 2021), and we suspect its contracts have been executed accordingly.
For all these reasons, we are forecasting EBITDA of ~$975M (~30% above the Street) and organic FCF of ~$700M in the first quarter alone." - Raymond James Equity Research 4-26-2021
If RJ's Team is right about this, CLR's earnings per share for the first quarter could be 3X higher than the current First Call EPS estimate of $0.37.
PS: CLR reports natural gas and NGLs on a combined basis. There 2021 drilling program is focused on areas that produce a lot of NGLs. Hence their realized combined gas price per mcfe should be much higher than what I modeled.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group