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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.

Emerging Market Currency Bond ETFs: Safe Haven/Risky Bet?

The global market rout is nearing its peak and the U.S. treasury bonds are drawing attention with investors seeking refuge to safe havens. However, this strategy earns investors safety in their portfolio but deprives them of high yields. Previously, emerging market currency bonds and the related ETFs were shelters for investors seeking juicy yields as well as relatively higher protection to capital gains. But they seem to have lost their appeal now. There are a plenty of reasons that are pushing this investing arena out of favor. Below we highlight what’s spoiling the fervor in emerging market currency bond ETF investing and marring its safe haven appeal. Why A Risky Bet Now? Stronger Dollar : First of all, several emerging market currencies have been facing tough times in recent months and stacking up losses due to a still strong U.S. dollar. WisdomTree Emerging Currency Strategy ETF (NYSEARCA: CEW ), which measures changes in the value of emerging market currencies relative to the U.S. dollar, is down over 10% this year and lost 8.8% in the last three months (as of September 9, 2015). The speculation for the Fed lift-off has never been as strong as it is this time around. Though U.S. job numbers in August grew at the most sluggish pace in 5 months and fell short of analysts’ expectation, this might not deter the Fed from finally hiking the rate. This has made the greenback a king of currency that has weighed heavily on a basket of emerging market currencies, be it across Asia, or Latin America. Slumping Commodities : Many emerging market nations are commodity-rich. As a result, a broader commodity market swoon on supply glut, lower demand on global growth worries and a strong greenback wreaked havoc on currencies of commodity-focused economies including Russia, Brazil and Columbia. This was truer given the oil price crash over more than the last one-year period which has wreaked havoc on oil-oriented emerging economies like Russia and Columbia. This also dealt a blow to the emerging market currencies. China-Induced Global Market Rout : Upheaval in the Chinese economy and the stock market crushed the global market in August and it is still not out of woods. This episode sent shockwaves to other emerging markets, making the economic health of the entire EM bloc questionable. Impact on Emerging Market Currencies As a result, global emerging market bonds were hit hard at the last week of August and saw the highest exodus in assets (worth about $4.2 billion ) since the taper threat in 2013. Several analysts like Societe Generale ( OTCPK:SCGLF ) are against the emerging market currency bonds and believe that even if the Fed holds up the lift-off at the current level keeping the global market turmoil in mind, sheer ambiguity in policy decision will likely keep the outlook of the emerging market currencies downbeat. In short, underperformance in currency has marred the appeal for higher yields in emerging market bond ETFs. The recent price performance also bore testimony to this fact. Fundamental Emerging Markets Local Debt Portfolio (NYSEARCA: PFEM ) was the weakest performer in the emerging market debt ETF pack while the U.S.-dollar denominated ETFs like Emerging Markets Sovereign Debt Portfolio (NYSEARCA: PCY ) performed relatively better. U.S. dollar-denominated bond ETFs invest in sovereign debt from various emerging nations, but do so via U.S. dollar-denominated securities and are thus not hurt by currency translation troubles. Some of the worst-performing emerging market currency bond ETFs in recent times are Market Vectors Emerging Markets Local Currency Bond ETF (NYSEARCA: EMLC ), WisdomTree Emerging Markets Local Debt Fund (NYSEARCA: ELD ), iShares Emerging Markets Local Currency Bond ETF (NYSEARCA: LEMB ) and SPDR Barclays Capital Emerging Market Local Bond ETF (NYSEARCA: EBND ). These ETFs shed the most in the last one-month frame, having lost in 5% to 7% range while retreated about 2% in the last five trading sessions (as of September 9, 2015). So, we can conclude from the recent trend that emerging market currency bond ETFs are hardly safe with attractive yields. Instead, these are rather unsafe with melting gains. Original Post

Global Infrastructure Investments

By Todd Rosenbluth Once every four years, America’s civil engineers provide a comprehensive assessment of the nation’s major infrastructure categories. The latest report card has a poor cumulative GPA for infrastructure of D+, with rail and bridges each earning a C+. While Congress continues to debate whether, and how, to fund the projects to improve the quality of the nation’s backbone, there has been some encouraging news at the state level. Nearly one-third of U.S. states, including Georgia, Idaho and Iowa, are addressing infrastructure investment through gasoline tax increases to support improvement of local roads and bridges. Indeed, nearly two-thirds of the assets inside the S&P Global Infrastructure index are domiciled outside of the U.S., with China (5%), Japan (4%), Italy (8%), Spain (5%), and the United Kingdom (7%) among the ten largest countries. The S&P Global Infrastructure index seeks to provide broad-based exposure to infrastructure through energy, transportation, and utility companies in both developed and emerging markets. S&P Capital IQ Equity Analyst Jim Corridore thinks that companies that construct infrastructure are likely to see increased demand over the next several years due to the need for upgrade and expansion of infrastructure both within the U.S. and around the world. Within the U.S., aging and outdated roads, electric transmission grids, and energy transmission facilities are in dire need of repair and replacement, according to Corridore. Meanwhile pipelines, water treatment, and rail are seeing increased demand and need for expansion. From an industry perspective, transportation infrastructure (40% of assets) are well represented in the global infrastructure index, but this is partially offset by stakes in electric utilities (22%) and oil, gas & consumable fuels (20%) companies. Holdings include Kinder Morgan (NYSE: KMI ), National Grid (NYSE: NGG ) and Transurban Group ( OTCPK:TRAUF ). The S&P Global Infrastructure index generated a 9.6% annualized return in the three-year period ended July 2015. However, given the strength in the US dollar relative to most currencies in the last three years, many currency hedged international approaches have outperformed those that hold just the local shares. This is one of those examples, where the currency neutralized infrastructure index was even stronger with a 13.0% three-year return. On a calendar year basis, the hedged index outperformed in 2013 and 2014, after underperforming in 2012. Meanwhile, from a risk perspective the three-year standard deviation for the hedged S&P Global Infrastructure index was 20% lower. S&P Capital IQ thinks that global infrastructure needs has created some investment opportunities. However, we think investors need to be mindful of the impact currencies can play. There are four ETFs that offer global infrastructure exposure and 39 non-institutional mutual fund share classes. Disclosure: ©S&P Dow Jones Indices LLC 2015. Indexology® is a trademark of S&P Dow Jones Indices LLC (SPDJI). S&P® is a trademark of Standard & Poor’s Financial Services LLC and Dow Jones® is a trademark of Dow Jones Trademark Holdings LLC, and those marks have been licensed to S&P DJI. This material is reproduced with the prior written consent of S&P DJI. For more information on S&P DJI and to see our full disclaimer, visit www.spdji.com/terms-of-use .