Key Takeaways from BAML Energy Conference

Today I attended the Bank of America Merrill Lynch energy conference in Miami, Florida. Below are some of my key takeaways from this conference:

  • There is a clear shift away from natural gas to NGLs (natural gas liquids) and oil exploration & production. Most of the companies made a point to emphasize the liquids composition of their future production.
  • Everyone is bullish on the Eagle Ford Shale (EFS), BAML analysts have buy ratings and high price targets on many companies with large EFS exposure ($APC, $DVN, $FST, $RRC, etc.). I recall 2007-2008 at this exact same conference everyone was super hot on the Barnett Shale and XTO Energy (later bought out by $XOM) was the rock star company at the conference.
  • The Eagle Ford Shale is a special play because it has exceptionally high liquids yields across much of the play
  • Several companies mentioned Iraqi Kurdistan as offering huge upside potential, the $MUR CEO in particular stated that Iraqi Kurdistan could be a “billion barrel play”. Expect this to be an interesting story for years to come, Iraqi Kurdistan is sandwiched between Iraq and Turkey – billions of barrels of oil adds tension to an already tense region.
  • $HES CEO said that Libyan oil is many months away from coming back online as the security situation is still chaotic.
  • $OXY CEO:  More interested in a downward fluctuation in the stock (so we can repurchase shares) than in a wild fluctuation that makes it harder to own the stock. He is very conservative in his estimates and how he assesses projects. Says he “doesn’t know how to sell stock” meaning that he isn’t interested in pumping up the share price short term.
  • Of the presentations I saw, the OXY presentation was the best. CEO Steve Chazen was entertaining and demonstrated the company’s shareholder value focused approach. He also didn’t sound like he was trying to sell the audience something, I can’t say the same for some of the other CEOs. Two of my favorite quotes from Chazen: “it is easy to grow production when you don’t care about returns”   “We generally try to buy property where the buyer is more knowledgeable than the seller, in the Permian this is generally the case” 
  • Kosmos Energy ($KOS) is a smaller E&P company that is focused on Africa, as the KOS CEO stated they take “a contrarian approach to finding attractive projects”. KOS is focused mainly on Ghana although they have a 37.5% interesting in an intriguing play in the Agadir Basin, Morocco. The KOS chart doesn’t look great (to say the least) and they were recently taken public by their private equity owners (it’s usually a bad idea to buy what PE firms are selling) – KOS doesn’t interest me but it could have huge upside if they hit something big in Morocco or Ghana.
  • My favorite oil & gas E&P names both fundamentally and technically are $FST, $OXY,  $RRC
  • This conference confirmed the recent record bearish sentiment readings on natural gas ($NG_F, $UNG), everyone including the producers are bearish on natural gas. Is all the bearishness priced in yet?

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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