I got a long report on the energy sector to day from Deutsche Bank (not high on my list of firms that know the energy sector). For what its worth, their Top Picks include DVN, EOG and PXD.
Like most Wall Street firms, they go for the large-caps.
Best part of the report for me is that they seem to be warming up to the idea that higher oil prices are just ahead.
Deutsche Bank Top Picks
Deutsche Bank Top Picks
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Deutsche Bank Top Picks
From the report:
The good resources continue to get better
While asset-based improvements have largely taken a back seat to balance
sheet/funding dynamics over the past 12+ months, operators provided plenty
of evidence that good resource continues to get better, particularly in “rate of
change” basins like the Permian and SCOOP/STACK, but also across all major
operating basins, with further upside likely on the horizon.
> Results from DVN’s over-pressured oil window in the STACK
demonstrated consistently high oil cuts (~60%) and 30 day IP rates
(1,600-1,700 boe/d), while a staggered development test
demonstrated potential for 3 development zones across the play, as
well as significant downspacing potential within the horizons.
> In the Permian, PXD’s Wolfcamp A and B wells are outperforming the
1 MMboe type curve by 20%/35% respectively, and LS wells are
38%/10% above type curve/Wolfcamp type curve. For its part, DVN
raised its Leonard Shale type curve 25%, with tighter spacing
potentially adding 4,500 locations in existing horizons.
> Not to be outdone, EOG is further maximizing its Eagle Ford
operations through EOR operations ($3.50/$7/sh risked/unrisked NAV
potential), and development of the Austin Chalk, with early results
nearly on par with Eagle Ford wells (though we note the company has
spoken to a stale type curve).
The good resources continue to get better
While asset-based improvements have largely taken a back seat to balance
sheet/funding dynamics over the past 12+ months, operators provided plenty
of evidence that good resource continues to get better, particularly in “rate of
change” basins like the Permian and SCOOP/STACK, but also across all major
operating basins, with further upside likely on the horizon.
> Results from DVN’s over-pressured oil window in the STACK
demonstrated consistently high oil cuts (~60%) and 30 day IP rates
(1,600-1,700 boe/d), while a staggered development test
demonstrated potential for 3 development zones across the play, as
well as significant downspacing potential within the horizons.
> In the Permian, PXD’s Wolfcamp A and B wells are outperforming the
1 MMboe type curve by 20%/35% respectively, and LS wells are
38%/10% above type curve/Wolfcamp type curve. For its part, DVN
raised its Leonard Shale type curve 25%, with tighter spacing
potentially adding 4,500 locations in existing horizons.
> Not to be outdone, EOG is further maximizing its Eagle Ford
operations through EOR operations ($3.50/$7/sh risked/unrisked NAV
potential), and development of the Austin Chalk, with early results
nearly on par with Eagle Ford wells (though we note the company has
spoken to a stale type curve).
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Deutsche Bank Top Picks
The Deutsche Bank report has a chart that shows U.S. oil production falling each quarter in 2016 (largest percentage drop in Q2) and then a big increase in U.S. oil production in Q1 of 2017. IMO that is impossible with the devastation this cycle has done to the oilfield service companies. Also, the rate of decline is going to accelerate as we move through the year.
If oil ramps up to $60/bbl by the end of June, I think it will take at least a year for oil production to ramp back up. I think it will take $80 oil before we see a significant increase in capital expenditures. There will be a bit of an increase in well completions at $60, but not enough to cause a big increase in production. In the Eagle Ford alone there are now 15,000 horizontal wells on steady decline and less than 100 rigs working in the play.
I've talked to a lot of Wall Street types and they have no concept of what goes on in the field. They think you just round up a bunch of cowboys at the local bar and send them out on a drilling rig. Today's drilling programs are a hell of a lot more expensive and heck of a lot more complex. The logistics take a lot of work.
If oil ramps up to $60/bbl by the end of June, I think it will take at least a year for oil production to ramp back up. I think it will take $80 oil before we see a significant increase in capital expenditures. There will be a bit of an increase in well completions at $60, but not enough to cause a big increase in production. In the Eagle Ford alone there are now 15,000 horizontal wells on steady decline and less than 100 rigs working in the play.
I've talked to a lot of Wall Street types and they have no concept of what goes on in the field. They think you just round up a bunch of cowboys at the local bar and send them out on a drilling rig. Today's drilling programs are a hell of a lot more expensive and heck of a lot more complex. The logistics take a lot of work.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group