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1/13/2020

Good morning,

I hope everyone had a good weekend. The #buckets blog returns after its lazy author took a two week hiatus to enjoy the holidays and eat all of the desserts in sight. I was hugely successful on the second part of that sentence and am not sad about it. The biggest thing that happened during the hiatus was not the conflict that occurred between Iran and the U.S. It was instead the return of the Brodie. The Thunder have never before provided a tribute video to a former player and has at times blatantly ignored the fact that a player was returning. See: snake, rat aka the judas who used to where number 35 for OKC. I fully plan on teaching my kids that the number 35 does not actually exist. They will go straight from 34 to 36 when they count and I firmly believe all of their teachers will fully understand why they do that. In contrast, the Brodie was the embodiment of OKC. He fully deserved the rich welcome he received from the organization and the crowd. OKC will never have that type of connection with another player. RUSS, Harden, snake, Ibaka, and Collison were the founding players. I would also throw DION in there but that's a story for another day. Things happen in the NBA and players leave, but RUSS never seemed to care who decided to stay in OKC and who left. He chose to stay loyal to OKC in the wake of snake ruining everyone's fourth of July weekend in 2016. I'm not ignorant, mostly, though and realize that signing a contract for eleventy billion dollars also goes a long ways in making a player appear to be "loyal," but in my mind, RUSS chose to stay because he was one of the few guys who would rather do all he could and lose on his team rather than go join a more talented team somewhere else in order to "earn" a cheap ring. What made him connect to OKC so much, in my opinion, is that he always walked around with massive swagger and a chip on his shoulder that was the size of the solar system. The city of Oklahoma City and the state overall has always kind of had an inferiority complex. RUSS provided the city and the state with the swagger that it always knew it had, but never quite knew how to express it. The entire state seemed to connect with RUSS's soul when he would stare down a team from LA or NY or wherever and go toe-to-toe with them while playing with the type of vengeance that would make you think that city stole his parking spot and locker room at the Thunder's practice facility. He gave the city irrational confidence. He gave the city swagger; a roar on an international stage. Sometimes it felt like OKC was roaring like a lion along with him whenever he let the entire world know that he just dunked on someone. His sheer desire to be something great went hand-in-hand with OKC's desire to prove that we belong with the best because #whynot? No other player will be quite like him and no other player will mean as much to OKC as he does. PG requesting a trade kinda sorta worked out really well for RUSS and OKC though. Once PG left, then it quickly became a Harry and the Hendersons type thing with the organization and RUSS. It became time for OKC to rebuild and for RUSS to go saddle up with his old partner in Houston. The breakup went as well as any NBA breakup has ever gone. RUSS will forever be remembered fondly in OKC and hopefully that goes both ways. RUSS is a lot of things; spontaneous, streaky, perhaps over-competitive at times, but he always played with his heart and for that he will always be loved in OKC. Might as well rename this the #RUSSblog now amiright? On to #buckets blog things. CHK officially finished up a round of debt swaps, Iran and the U.S. square off, U.S. rig counts provide some bullish fundamentals, Goldman Sachs actually issues a positive note on the E&P sector, Range has no interest in growing production, and nat gas apparently is a life saver.


January 13, 2020:


CHK posts its final results of its Brazos Valley debt swaps


Iran vs the U.S.

  • Definitely a fight that no one wants to see but tensions keep escalating between the two countries. President Trump ordered an airstrike just outside of Baghdad’s International Airport early in the morning on January 3rd that killed Iran’s second most powerful person: General Qassem Soleimani. This is the equivalent of Iran assassinating U.S. Vice President Mike Pence. Soleimani was the leader of Iran’s foreign wing of its Islamic Revolutionary Guard Corps and is believed to be responsible for the deaths of ~700 American troops in the Middle East over the past couple of decades. The U.S. Department of Defense believed Soleimani was planning an imminent attack on U.S. interests and believed it was the right time to strike down the general. It seems like everyone in the U.S. is onboard with Soleimani being brought to justice, but the timing of it is being disagreed with. Members of the Democratic party are mostly making the argument that the U.S. conducted the strike without fully game planning what the fallout would be while members of the Republican party believed this was long overdue. Seems highly unlikely that the DOD did not run through a billion scenarios on what would happen if the U.S. were to take out Soleimani. Still, the timing seems odd since the reason he was taken out last week could have been applied about two decades ago. My own personal theory is that Iran’s supreme leader, Ayatollah Ali Khamenei, and some other top leaders were in on this. Soleimani was on the military side of power in Iran and that side of the power structure will never be supreme leader as that is reserved for a cleric like Khamanei. What if Soleimani was planning a coup since he controlled the military and knew he could never take power through traditional means and Khamanei found out about it? Wouldn’t it then make sense for Khamanei to reach out to the U.S. and work something out? 1000% chance I’m wrong on this. Just a thought. Iran has of course postured significantly since Soleimani’s death because what else are they going to do? They have vowed revenge and that came in the form of a couple dozen missiles “striking” two bases where U.S. troops are stationed in Iraq last Tuesday night / Wednesday morning. Reports have indicated that there were no casualties. Iran has since stated that attack concluded its revenge against the U.S. Per Iran’s Foreign Minister Javad Zarif on Twitter after the attacks: “Iran took & concluded proportionate measures in self-defense under Article 51 of U.N. Charter targeting base from which cowardly armed attack against our citizens & senior officials were launched. We do not seek escalation or war, but will defend ourselves against any aggression.” Mr. Trump responded on Twitter himself (surprise!) by saying “All is well! Assessment of casualties & damages taking place now. So far, so good!” Iran’s parliament also passed a bill that designated all of America’s military to be a terrorist organization. Ha. The U.S. did the same a few months ago in regards to Iran’s military so, tit for tat I guess. Iraq’s parliament, which has members that lean towards siding with Iran, voted in favor of expelling all American troops out of Iraq in response to Soleimani’s killing as well. According to the Wall Street Journal, “The nonbinding resolution—passed Sunday with the backing of Shiite politicians—urges Prime Minister Adel Abdul-Mahdi to rescind Iraq’s invitation to U.S. forces that helped rescue the country after Islamic State overran about one third of its territory in 2014.” Apparently some Iraqi lawmakers started chanting “out, out, occupier! No, no to America! No, no to Israel!” I guess Middle Eastern parliaments like to chant things? Iran seems to chant "Death to America" in its parliament every couple of months. I can’t wait for the U.S. House to start chanting together. Maybe something along the lines of singing R. Kelly’s Ignition Remix. Everyone knows that song. Below are the two air bases that Iran sent missiles at:


US rig counts continue to decline quicker than the winning percentage of whatever team Melo is playing on

  • Melo is a natural born #bucket getter but not necessarily a natural born win getter. He has only made it past the first round of the playoffs twice in his 17 seasons but is currently ranked 18th on the all-time NBA scoring list. Pretty impressive career scoring wise. To his credit, Portland’s win percentage has actually increased this year since signing him. It went from 35% pre-Melo to 43% post-Melo. His first game played for Portland was on November 19th. This is as of January 6, 2020. Not a +50% win percentage but hey, baby steps. The more desperate Portland gets, the more likely they are to make a dumb trade for a guy like Danilo Gallinari and give up way too much for him like a lightly protected first rounder plus Kent Bazemore and Anfernee Simons. My apologies for dragging you down into my fantasy NBA GM world. It’s a nerdy place but I found it to be highly entertaining. Back to rigs I guess. Total rig count in the U.S. dropped to 796 rigs for the week ending January 3rd. This represented a nine rig drop from the previous week. Total rig count is down by 279 rigs (>25%) from the same week in 2019. Oil rigs decreased by 7 from the prior reporting week and 207 from the same week in 2019. Gas rigs dropped by 2 from the previous reporting week and 75 rigs from the same week in 2019. Even the mighty Permian is dropping rigs as it dropped two rigs from the prior reporting week to come in at 403. Arkoma Woodford, Cana Woodford, and Marcellus rounded out the basins dropping rigs as they all realized one rig drops. All positive news for bullish sentiment on future pricing. Charts:


Goldman Sachs breaks out their cool t-shirt that has a bull and barrel of oil on it, decides to wear it around for a couple days

  • For the first time in a long time, there is some bullish sentiment for oil and gas stocks. Goldman Sachs said this in its January 2nd research note: “Investor sentiment toward energy stocks will improve through 2020 as capital discipline exercised by U.S. producers is set to drive improved performance by sector companies.” We all know that energy companies are like a recovering drug addict though and anything above $65/bbl oil will be like putting some of Walter White’s “blue sky” in front of one its former customers, leaving them alone, and telling them to be “disciplined” and not revert back to using. Or it would be like giving RUSS a two for one opportunity at the end of a quarter that would make him jack a 35 footer off the dribble with 30 seconds left on the game clock. I can’t recall a single time in his career that he didn’t try to make that play when it was there and it worked maybe once. If U.S. producers can truly hold onto discipline after prices recover, then the last five years will have actually taught E&Ps something and we can all be proud. Goldman believes that Brent prices will be $63/bbl and WTI $58.50/bbl in 2020 which will lead to producers generating an extra $13B of free cash flow. Energy stocks represented 13% of S&P earnings in 2013 but only 5% in 2019. Goldman believes energy earnings could improve by 25% in 2020 when compared to 2019. Perhaps the most shocking aspect of Goldman's note was its view of shale production. Goldman believes that U.S. shale production might be at its peak. The firm sees DUCs falling already and that degradation in productivity gains out of shale plays are starting to appear. Now, if only E&Ps would start announcing plans to hold production flat.... Oh, hey there Range.


Range says no thanks to growing production in 2020

  • Good for them. Every other E&P needs to be onboard with that as well, or close to it at least, if the industry wants higher prices in 2020 to stick around. Most need higher prices in order to survive and achieving that through controlled U.S. production growth is far more desirable than waiting to see if the Middle East erupts into a war or not. Range announced it will be reducing its CAPEX in 2020 to $520mm while aiming to just maintain production at 2.3Bcfe/d. Range’s 2019 CAPEX came in around $728mm which was $28mm less than the company's projected $756mm CAPEX budget. 4Q-19 production is expected to be near the company’s high end of its range of 2.33 Bcfe/d to 2.35 Bcfe/d. Hopefully Permian producers slow down growth or at least keep it as flat as RUSS’s jumpshot. If both nat gas producers and Permian producers relax a bit in 2020, then nat gas prices might actually quit hovering around the Mendoza Line and be closer to the Knicks current win percentage. That would make everyone happy right?


“Today, smoking is going to save lives.” -Dwight Shrute

  • Replace smoking with switching from coal-to-gas for power generation and that is what a journal called Nature Sustainability (NS) included in its published report that was released on January 6th. According to NS, “the closure of coal-fired plants and the addition of new natural gas units in the U.S. from 2005 to 2016 saved an estimated 26,610 lives in the immediate vicinities of the shuttered coal plants.” Coal-fired plants produce short-lived particulate matter, ozone, and oxides of sulfur and nitrogen that end up adversely effecting the local environment far more than nat gas plants do. Short-lived pollutants usually stay closer to the source of its emission point and effects local human health and crop yields. Fancy scientists studied the impacts of 334 coal-fired units closing at 138 plants in addition to 612 new gas-fired units beginning operations at 243 facilities across the U.S. from 2005 to 2016. The study found that the mortality rate fell by 0.9% and crop yields increased by 7.2% for corn, 6.3% for soybeans, and 4% for wheat. Nat gas is not only saving lives, but it is producing more food. Win-win eh? Score a big win for natty gas.


How did CHK do this week?

  • CHK stock price declined by ~20% last week (-$0.18/share). CHK stock price still could not manage to break $1.00/share despite the recent conflict in the Middle East causing WTI prices to spike to +$63/bbl during the first part of last week. Winter just isn't showing up and natty gas prices are responding accordingly.



Thoughts of the week

  • Giving Christmas season scented candles as presents for Christmas doesn’t make a lot of sense. You really won’t be able to enjoy the scent of that candle for a year.

  • One minute I am young and fun and the next I am turning down the stereo in my car so I can see better.

  • Toy company executives should be forced to listen to every toy they make for an hour straight on full blast before they decide to take that toy to market.

 
 
 

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