Tag Archives: green

EQT Corporation: Deep Utica Update

Summary EQT released early production results for its Deep Utica test. Early-time performance looks encouraging. On the other hand, the performance by Range Resources’ deep Utica well may be sub-economic. In its latest presentation, EQT Corporation (NYSE: EQT ) provided an update with regard to its deep Utica test in Southwestern Pennsylvania. As a reminder, in July, EQT reported results of its highly anticipated Scotts Run well in the dry gas window of the Utica/Point Pleasant play in Green County in Southwestern Pennsylvania. The well is one of the deepest exploratory wells in the Utica drilled to date and is located almost 2,000 feet downdip from the previous frontier well. Due to the considerable depth and very high reservoir pressure, the well was challenging to drill and took more than half a year from spud to completion. However, EQT’s effort was ultimately rewarded. The entire ~3,200-foot lateral length was successfully completed. The well tested with a 24-hour rate of 72.9 MMcf/d with ~8,600 psi flowing casing pressure. This represents the highest initial flow rate for any shale well brought on production in the U.S. to date. Performance Update Based on the slide presentation posted by EQT yesterday, the well has produced at a pressure-managed rate of ~30 MMcf/d. Judging by the plot, pressure drawdown appears to have stabilized at ~40-50 Psi/day rate. If this rate is sustained, the initial production plateau may last for approximately six months from the beginning of production, resulting in cumulative production during the plateau period of ~5-6 Bcf. (click to enlarge) (Source: EQT Corporation, September 2015) I must emphasize that the well is a short lateral, which results in even more impressive cumulative production metrics per foot. (click to enlarge) (Source: EQT Corporation, September 2015) Normalizing production to a 5,400-foot lateral length, cumulative production during the initial six-month plateau for a medium-length lateral could be as high as 8.5-10.3 Bcf. It is obviously premature to guess about the play’s type curve and EUR at this point, as the shape of tail production in this deep and highly overpressured formation is an uncharted territory. However, it is clear already now that the test is a success and demonstrates the deep Utica’s potential for “big” wells. Whether “big” means 15 Bcf or 30 Bcf is too early to tell, in my opinion. Of note, Range Resources’ (NYSE: RRC ) Claysville Sportsman Club #11H well, another high profile deep Utica test that came online in November 2014 and had 5,420′ of completed lateral (32 stages with 400,000 pounds of sand per stage) produced “only” 1.4 Bcf in the first 88 days. Given that Range did not include an update slide with the Sportsman production profile in its most recent presentation, the well is likely producing substantially below expectation. I would not rush to interpret the Sportsman well result as an indication of Deep Utica’s poor productivity (the Sportsman’s initial rate was 59 MMcf/d), as several other data points, including Rice Energy (NYSE: RICE ) wells in Belmont County, Ohio, which are located updip, and EQT’s Scotts Run well, which is located downdip, all appear to be holding up well, at least so far. Well Cost And Well Economics EQT encountered significant challenges when drilling the well. Due to the extreme reservoir pressures encountered, the company had to replace its drilling rig with a higher-specification unit, which resulted in a delay. As a result, the well’s cost came out at ~$30 million. However, the fact that the very first well could be completed, with the planned proppant volume loaded successfully, gives hope that technical challenges are not unsurmountable. Going forward, EQT believes it can reduce its well cost in the Deep Utica to as little as $12.5 million for 5,400-foot laterals. The high cost sets the bar for well performance quite high. Assuming a $12.5 completed well cost, the Deep Utica play would need to yield EURs in the 25-30 Bcf per well range to be economically competitive versus the existing “core of the core” sweet spots in the Marcellus, where operators currently drill wells with EURs in the ~15+ Bcf range for ~$6-$7 million per well. In the immediate term, the well’s success is unlikely to materially change operational outlook for EQT (or any of its peers, for that matter). EQT is hoping to have a total of two-three wells on production by early next year and will plan further steps based on the performance results. EQT believes that it has ~400,000 net acres prospective for dry gas Utica, including ~50,000 net acres that look geologically “identical” to the Scotts Run well. Disclaimer: Opinions expressed herein by the author are not an investment recommendation and are not meant to be relied upon in investment decisions. The author is not acting in an investment, tax, legal or any other advisory capacity. This is not an investment research report. The author’s opinions expressed herein address only select aspects of potential investment in securities of the companies mentioned and cannot be a substitute for comprehensive investment analysis. Any analysis presented herein is illustrative in nature, limited in scope, based on an incomplete set of information, and has limitations to its accuracy. The author recommends that potential and existing investors conduct thorough investment research of their own, including detailed review of the companies’ SEC filings, and consult a qualified investment advisor. The information upon which this material is based was obtained from sources believed to be reliable, but has not been independently verified. Therefore, the author cannot guarantee its accuracy. Any opinions or estimates constitute the author’s best judgment as of the date of publication, and are subject to change without notice. The author explicitly disclaims any liability that may arise from the use of this material. Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

NRG Energy – Leading The Green Transition

Summary While NRG Energy’s conventional fossil fuel business continues to underperform, the company’s renewable business is more promising than ever. NRG Energy’s distributed solar business is growing at a rapid pace and should be a huge growth engine for the company moving forward. NRG Energy’s diversified energy portfolio should provide the company with unique advantages. The turbulent energy commodities market will likely continue to pose challenges for NRG Energy in the near-term. NRG Energy (NYSE: NRG ) clearly believes in the potential of clean energy as it has put a large emphasis on solar PV. Despite this, the majority of the company’s business is still based on conventional generation(i.e. fossil fuels), which commands ~70% of the company’s capital allocation. NRG Energy largely disappointed during its Q2 due to the underperformance in its conventional generation business, which is not so surprising given the turmoil in the energy markets. Despite the fact that the company missed on both EPS and revenue, which came in at $0.06 and $3.4B respectively, the company still has much to look forward to. Renewables currently receives ~30% of NRG Energy’s capital allocation, which is a figure that is bound to skyrocket moving forward. Although conventional generation still makes up for most of NRG Energy’s business, the company is making a rapid and smart transition to solar PV. During the Q2 earnings call, the company gave much more insight into how important it thinks solar will become. In fact, CEO David Crane even stated that “The future is going to be increasingly solar-powered and increasingly distributed.” This optimism surrounding solar PV will likely propel NRG Energy past its competitors moving forward. Ramping Up Distributed Solar PV Operations NRG Energy has put a heavy emphasis on developing its distributed solar PV business. As this is perhaps the most promising solar PV segment in the U.S., NRG Energy is definitely on the right path. During Q2, the company’s bookings nearly doubled on a YOY basis, recording 90% higher bookings. This translates into 19,410 NRG Home Solar customers as of Q2, which shows that the company is clearly building a respectable distributed solar infrastructure. Even more impressive, the company has maintained ~20% QOQ since the end of 2014. Such a promising distributed solar business places NRG Energy among the top distributed solar providers. NRG Energy still has enormous growth ahead of it as the company has barely scratched the surface of the home solar market. As the company is one of the first conventional energy companies to make a large-scale transition to solar, it has a meaningful first mover’s advantage. Not surprisingly, NRG Energy is rapidly climbing the ranks of top rooftop solar providers, even challenging the likes of Vivint Solar (NYSE: VSLR ) and Sunrun (NASDAQ: RUN ). Given that NRG Energy also has the advantage of maintaining a conventional energy business that could provide base-load generation for intermittent renewable energy sources, the company has an advantage over pure-play rooftop solar companies. Diversified Business While NRG Energy is putting a clear focus on distributed solar PV, the company is nonetheless diversified across the energy sector. This means that no matter how the future turns out, NRG Energy should be well-prepared. The company has assets ranging from wind and solar all the way to oil and gas, making it one of the most diversified energy companies in existence. As was previously stated, having both renewables and fossil fuels assets is advantageous in that fossil fuels can provide renewables with base-load generation. As renewables like wind and solar still do not have a cost-effective means of storing energy, fossil fuel assets certainly come in handy. NRG Energy is an extremely diversified energy company, with assets in nearly all the major energy markets. (click to enlarge) Source: NRG Energy Obstacles NRG Energy has all the tools to become a powerhouse in the renewable arena. While NRG Energy’s renewable prospects are looking bright, the company’s conventional business will likely continue to face some volatility and difficulties in the near-term. Given the instability in the energy markets, NRG Energy will likely continue to face difficulties moving forward. The company has seen its valuation decrease by approximately 50% over the past year alone. In the long-run however, NRG Energy is well-positioned to outperform the market. The company will also face increasingly stiff competition from the distributed solar pure plays, mainly from standout SolarCity (NASDAQ: SCTY ). While NRG Energy is indeed has an early mover’s advantage in the distributed solar industry, SolarCity is already building an unparalleled brand presence. Given that brand presence in this arena is much more important than many had expected, NRG Energy will have to make its own imprint on the market soon or risk losing market share. Given NRG Energy’s vast resources and growing infrastructure, the company is more than capable of doing this. Conclusion NRG Energy has much more room to grow at a valuation of $5.9B . While the challenging commodity market will likely continue to plague NRG Energy in the near-term, the company is making all the right moves to secure a dominant role in the long-term future. NRG Energy’s home solar business will likely push the company to greater heights, especially given how fast the distributed solar industry is growing. As the company is at the forefront of the current energy transition, it will likely reap enormous rewards as a result. Despite NRG Energy’s underperformance over the last year, the company should outperform expectations in the years to come. Disclosure: I am/we are long SCTY. (More…) I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

There Are No Holy Grails

When the markets get volatile, many strategies start performing poorly. Even your most basic diversified low fee indexing strategy will start to look weak, even though it likely beats most professional fund managers. And when these strategies start to weaken, many investors will start getting impatient. You probably know that nothing works 100% of the time, but that still doesn’t stop the allure of the green grass elsewhere. I know, the gold strategy looks so good in the short run. That fancy hedge fund strategy has outperformed since the S&P 500 (NYSEARCA: SPY ) peaked. That short-only fund looks really smart now. But the problem is that most of these fancy-sounding strategies are charging you high fees to underperform 80% of the time. And unfortunately, they lure in most of their assets during that 20% of the time when the markets look weak. But here’s the thing – there are no holy grails. Nothing works all the time. If you don’t hate something in your portfolio most of the time, then it probably means you’re not diversified. But be careful about the difference between being diversified and being diworsified. Diversification is best done when it’s simple, low-fee and tax-efficient. Diworsification occurs when you’re just layering on expensive and tax-inefficient strategies that provide far less benefit over the course of an entire market cycle than you think. And most importantly, find a good strategy and stick with it. You’ll be better off in the long run if you find a diversified, inexpensive, tax-efficient and systematic investing process, as opposed to constantly flipping in and out of strategies and searching for that holy grail that doesn’t exist. Share this article with a colleague