| To: Bearcatbob who wrote (61) | 5/11/2003 5:22:20 PM | | From: Ed Ajootian | | | | BCBob, Not really following PQUE much at this point. I didn't even get a chance to listen to the CC. I still have it on the radar screen but I probably won't even start to really look at it again until the stock price shows some stability for a solid 2 weeks or so, or they hit the monster well you keep mentioning. Any idea what that is supposed to hit TD?
The stock I like the most right now is not even an E&P company, Giant Industries (GI). They own a coupla oil refineries and are way undervalued due to a massive amount of debt. |
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| To: Ed Ajootian who wrote (47) | 5/12/2003 8:08:52 AM | | From: Ed Ajootian | | | | From SMH report on KCS dated 5/9/03, raising target to $6.
KEY POINTS
• The involuntary “belt-tightening” in 2002 left KCS with a high-grade drilling prospect inventory for 2003. While most of
the wells will be targeting traps in the 1 bcfe to 3 bcfe range, KCS has 5 to 7 wells in South Texas looking for big targets in
the 20 bcfe to 50 bcfe range. If KCS is reasonably successful with the drill bit, 2003 could be significant in terms of reserve
additions and value creation.
• We have revised our forecast and estimates to reflect guidance, plus an expected $4.7 million gain in the second quarter
related to the sale of emission credits. We are raising our 12-month price target to $6.00, which is based on 3.6 times our
2003 CFPS estimate of $1.65. We think KCS could generate cash flow of $67 million, assuming $28.75/bbl oil and
$5.00/mmbtu gas, and thereby finance its $55-million capital-spending program, in addition to further reducing debt. We
reiterate our Buy recommendation
Sanders Morris Harris: KCS 2
Company Profile
KCS’s primary focus areas are the Mid-Continent region and onshore Gulf Coast. The company has key operations in the
Anadarko and Arkoma basins, North Louisiana, West Texas and Michigan. Along the Gulf Coast, the focus properties are in
South Texas, Coastal Louisiana and the Mississippi Salt Basin. KCS Energy devoted most of 2002 toward the redemption of
the $61.274 million Senior Notes that were due January 15, 2003. The company sold assets and slashed its budget to conserve
cash in order to meet this obligation. KCS was able to negotiate the financing to pay off the notes. With the financing behind
it, KCS is finally able to devote 100% of its attention on drilling, with some encouraging early results.
First Quarter Performance
KCS reported first-quarter 2003 EPS/CFPS of $0.36/$0.47, netting out the effect of an accounting change (SFAS 143), beating
our estimate of $0.30/$0.42. The variance was largely driven by better-than-expected commodity prices after adjusting for
hedges. The company paid down more debt and ended the quarter with long-term debt of $185.5 million, and a debt-to-cap
ratio of 109%. KCS will likely continue to pay down debt even with an expanded capital budget of $55 million. If commodity
prices hold up, KCS could have positive equity by year-end.
Table 1: First Quarter Results
KCS Energy Inc. 1Q02 1Q03 03-02 % Change
Production (bcfe) 10.35 7.55 -2.80 -27%
Gas Production (Bcf) 8.31 5.98 -2.34 -28%
Oil Production (mmbbl) 0.27 0.22 -0.05 -20%
NGL Production (mmbbl) 0.07 0.05 -0.02 -32%
Oil/Gas Revenue ($ million) 28.82 40.44 11.62 40%
EPS ($/diluted share) -0.15 0.36 0.51 NM
CFPS ($/diluted share) 0.07 0.47 0.41 616%
Gas Realization ($/mcf) 2.88 5.51 2.63 91%
Oil Realization ($/boe) 17.70 27.48 9.78 55%
NGL Realization ($/boe) 9.03 17.27 8.24 91%
Cash Cost ($/mcfe) 1.46 2.01 0.55 38%
DD&A ($/mcfe) 1.26 1.45 0.18 14%
All-in Cost ($/mcfe) 2.72 3.45 0.74 27%
Debt-to-Book Cap 113% 109% -0.04 -4%
EBIT -0.72 18.94 19.66 NM
Operational Summary
KCS will be drilling aggressively in 2003. The focus will be on development wells during the first half of the year, in order to
generate more cash in this high commodity price environment. Toward the second half of the year, KCS will drill more
exploration wells to grow its reserves. The involuntary “belt-tightening” in 2002 left KCS with a high-grade drilling prospect
inventory for 2003. During the first quarter, KCS drilled fourteen wells, with a 93% success rate, and drilling during the
second quarter thus far has yielded a 100% success rate. Currently, KCS has six rigs drilling: one in Sutton County Texas, two
in south Texas and three in Louisiana and East Texas.
The company plans to drill a total of 60 to 80 wells in 2003:
• Louisiana and East Texas: 16 to 24
• Oklahoma: 5 to 10
• West Texas: 13 to 22
• South Texas: 14 to 20
• Other areas: 2 to 4.
Although most of the wells will be targeting traps in the 1 bcfe to 3 bcfe range, KCS has 5 to 7 wells looking for big targets in
the 20 bcfe to 50 bcfe range in South Texas. Most of these wells will be drilled during the second half. We like this portfolio—
KCS has an average 48% working interest, and a tally of the top six prospects could result in an unrisked net exposure of 131
bcfe to KCS, which is significant relative to KCS Energy’s year-end reserves of 196 bcfe.
Sanders Morris Harris: KCS 3
Table 2: South Texas Exploration Exposure
Prospects Gross-bcfe Working Int. Net Unrisked-Bcfe
Delhi 50 50% 25
5 Mile Creek 25 50% 13
E. Marshall 25 25% 6
Ray George 50 50% 25
Austin Deep 75 50% 38
Coquat Deep 50 50% 25
275 48% 131
Revising Estimates
The company is raising full-year production guidance to 32 bcfe to 36 bcfe versus the prior forecast of 31 bcfe to 35 bcfe.
KCS Energy is contemplating a mid-year reserve update—our interpretation is that KCS is confident. We revised our forecast
and estimates to reflect guidance, plus an expected $4.7 million gain in the second quarter related to the sale of emission
credits. We are increasing our 12-month price target to $6.00, which is based on 3.5 times our 2003 CFPS estimate of $1.65.
Our previous target was $5.00. We estimate that KCS could generate cash flow of $67 million, assuming $28.75/bbl oil and
$5.00/mmbtu gas, and thereby finance its $55 million capital spending program, in addition to further reducing debt. We
reiterate our Buy recommendation.
Table 3: Revised Estimates
Current Previous
2003E EPS $1.05 $0.85
2003E CFPS $1.65 $1.41
2004E EPS $0.89 $0.91
2004E EPS $1.72 $1.70
2003E Basic Share Base (million) 38.97 38.95
2003E WTI ($/bbl) $28.75 $28.75
2003E Henry Hub ($/mcf) $5.00 $5.00
2004E WTI ($/bbl) $26.00 $26.00
2004E Henry Hub ($/mcf) $4.50 $4.50
2003E Production (bcfe) 33.27 33.01
2004E Production (bcfe) 35.35 35.19
2003E Production Growth (11%) (12%)
2004E Production Growth 6% 7%
2003E All-in Cost ($/mcfe) $3.19 $3.15
2003E Cash Cost ($/mcfe) $1.77 $1.77
SMH estimates
Valuation and Price Target
In valuing our E&P companies, we use a price-to-cash flow multiple. We establish a reasonable range based on historic
averages of a group of broad-based E&P companies, which includes twelve E&P companies with market capitalizations
ranging from $900 million to over $11 billion. Our 12-month price target of $6.00 is based on 3.6 times our 2003 cash flow
per share estimate of $1.65. We used a low multiple to reflect KCS’s high leverage, which is currently about 109%. We also
revised our net asset value (NAV) analysis for KCS. Using our 2003 price forecast of $28.75/bbl for oil and $5.00/mmbtu for
gas, we arrived at $8.52 per share, net of debt. Under a more modest assumption of $26.00/bbl oil and $4.50/mmbtu for gas,
KCS’s NAV is $7.28.
Investment Risks
• KCS has a small market capitalization, a relatively thin float and light trading volume, which, under certain circumstances,
could make the stock more volatile.
• The company’s production mix is roughly 79% natural gas: with each $0.10/mmbtu change in Henry Hub natural gas prices,
both 2003E EPS and CFPS could be impacted by $0.04 each. Also, with each $1.00/bbl change in WTI oil price, the 2003E
EPS and CFPS could both be impacted by $0.02.
• In addition, the high debt level makes KCS more sensitive to positive or negative moves in U.S. natural gas prices. |
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| To: DELT1970 who wrote (64) | 5/18/2003 7:53:22 PM | | From: Ed Ajootian | | | | Yes, I have even bought a little of it, right after the 1Q press release. They are getting a very low multiple of Enterprise Value/ EBITDA. Their EV is actually a bit _lower than their market cap because they not only have no net debt but actually have net excess cash!
Been meaning to look at them more, and listen to the 1Q CC, but right now I'm having too much fun buying the over-levered burn-outs that are being saved by these high commodity prices, where the market has been a bit slow in realizing the turnaround: KCS, ATPG, TMR, MSSN, etc.
Would be interested to hear what you think about XEC if you look at them more.
BTW, I need to retract my previous comment about EPL, it looks like their earn-out payment was only about $1 M for 1Q, obviously not large enough to warrant special disclosure. Still a bit befuddled as to how their debt got so high in the 3 months ended 3/31/03, but it looks like they are in good shape now that they raised the equity capital. |
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| To: Ed Ajootian who wrote (65) | 5/19/2003 11:29:59 AM | | From: DELT1970 | | | | Merrill Lynch is pounding the table today for Pogo, Stone, Newfield and Energy Partners. On EPL they say:
Energy Partners (EPL, $10.74, C-1-9)
• A value, offshore Gulf of Mexico oriented E&P that
focuses on balanced operations (exporation,
exploitation and acquisitions), 60% of its production is
natural gas, roughly 30% of its 2003 production is
hedged. Our current 2003 fully diluted operating
EPS/DCFPS estimates of $0.97/$3.92 assume 22%
volume growth, and our 2004 estimates of $0.37/$3.64
forecast 5% volume growth, and assume no
exploration success. EPL could generate $50 MM in
free cash flow this year. Our $14 price objective is
based on 3.6x 2003E DCFPS, which is in line with its
offshore oriented peer group average. The risks to
achieving this price objective is a sustained decline in
commodity prices, unfavorable drilling results, oilfield
services cost inflation and project timing delays. |
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| To: sam_n_cctx who wrote (67) | 6/2/2003 10:22:53 PM | | From: Ed Ajootian | | | | | Thanks guys re: EPL. I still own some of it and follow it. Great to see it get up to $12! I saw today where Apache is getting rid of some deadwood in their GOM inventory, maybe EPL will bid on some of that and add to their holdings. |
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| To: Ed Ajootian who started this subject | 6/2/2003 10:23:39 PM | | From: Ed Ajootian | | | | Small US LNG Player Cheniere Thinks Big
(Copyright © 2003 Energy Intelligence Group, Inc.)
World Gas Intelligence Wednesday, May 21, 2003
Tiny Cheniere Energy's award this week of a front-end engineering design (Feed) contract to Kansas City-based Black & Veatch (B&V) could one day yield the two largest LNG terminals ever built in the US -- each a merchant facility able to handle around 2 billion cubic feet per day of gas (15 million tons per year of LNG), twice the size of any existing US terminal.
Cheniere yesterday announced that B&V would do engineering for both a Corpus Christi, Texas, and a Sabine Pass, Louisiana, site in preparation for a January filing with the Federal Energy Regulatory Commission (FERC).
Each site fits Cheniere's ideal profile for new terminals: industrial areas close to major pipeline hubs, where landowner concerns are expected to be minimal (WGI Jun.20'01,p2). Like CMS' Lake Charles terminal, these sites are close enough to big enough pipelines that -- thanks to blending -- the high Btu content of gas coming from LNG supply sources other than Trinidad poses no real problem.
The Corpus Christi facility is to be developed through a partnership with a limited liability affiliate of Sherwin Alumina, a neighboring bauxite refinery. Cheniere would be operator and 70% owner. The site is next to the deepwater La Quinta Channel, where LNG tankers could dock easily. The terminal would also house three 3 Bcf storage tanks.
The Sabine Pass project is currently 100% owned by Cheniere, a Houston-based upstream independent that ventured into the LNG business just three years ago.
Cheniere also has a 30% stake in Freeport LNG, a project 60% owned by tightly held Freeport Investment and 10% by Contango Oil & Gas, that aims to bring 1 Bcf/d of LNG into Freeport, Texas -- and for which an application was filed with FERC last month.
Contributing to the proliferation of LNG sites on the US Gulf Coast -- including Sempra's Hackberry, Louisiana, and ChevronTexaco's offshore Port Pelican sites -- Cheniere has an option on a fourth site in Brownsville, Texas. However, this is expected to take a back seat.
Cheniere Chief Executive Sharif Souki foresees a 10 Bcf/d LNG import market developing in the US in short order, and he recently hired Keith Meyer, former head of LNG project development at CMS, to help his company grab a big piece of that action (WGI Mar.19,p.2).
Souki expressed confidence that Cheniere could have at least one terminal authorized and built by 2007, citing more flexible licensing procedures (WGI Jan.22,p1). "We have no intention of getting into the LNG chain as other than a terminal operator," he told WGI, adding: "We are currently talking to half a dozen potential customers and expect to have one lined up for Freeport soon." |
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| To: Ed Ajootian who wrote (69) | 6/2/2003 10:37:28 PM | | From: Ed Ajootian | | | | Cheniere Hires CMS' LNG Guru To Implement Gulf-Based Strategy
(Copyright © 2003 Energy Intelligence Group, Inc.)
Natural Gas Week Monday, May 12, 2003
Determine d to capitalize on what it sees as a 10 Bcf/d liquefied natural gas (LNG) import market in the near future, Cheniere Energy has hired on one of the industry's big guns to head up its LNG division.
The Houston-based company said late last week that Keith Meyer, who formerly headed up LNG operations for CMS Energy, the owner and operator of the Lake Charles, Louisiana, LNG import terminal, will join Cheniere as president of its Cheniere LNG subsidiary. The personnel change will take place as soon as the sale of the CMS Panhandle pipeline unit to Southern Union is complete, Cheniere said.
"Cheniere is an attractive company to me because they are very focused in the development of LNG terminals and have secured some of the highest quality sites I have seen. A properly executed plan, and one which I intend to see to fruition, will see Cheniere becoming North America's premier LNG gateway," Meyer told Natural Gas Week.
Cheniere, once a typical and little-known small producer in the Gulf region, has muscled into the LNG business to compete with the better-financed majors and integrated companies (NGW Jun.18, '01,p1).
Cheniere and other independents face increasingly high production costs on the shallow water shelf Gulf of Mexico and fewer prospects. At a recent New York conference, Charif Souki, Chenier's chairman, cited a $4/Mcf gas price as necessary to justify further exploration there.
Souki sees a need for up to six new receiving terminals in the US. After searching for potential import terminal sites, Cheniere has set its sights on four potential locations all catering to the Gulf Coast market.
"It's the home of numerous industrial and gas consuming facilities, it's close to any number of major pipeline systems…[and] the atmosphere is just more friendly to industry. You will never see a receiving terminal in New York Harbor," Souki said.
Souki does not view as particularly promising for a company of Cheniere's size the Florida gas market, which companies such as Tractebel and AES are considering as targets for a Bahamas-based LNG facility. "Unless you have a contract with Florida Power and Light, it's difficult to bring gas into that market," he said.
As a LNG terminal operator, Cheniere is aiming for maximum flexibility for potential users of any proposed facilities. The Freeport, Texas, LNG terminal -- 30% owned by Cheniere, 60% owned by privately held Freeport Investment, and 10% owned by Contango Oil & Gas -- met all of Souki's specifications and was the first to be announced (NGW Jun. 25, '01,p8). Within a 60-mile radius of Freeport's numerous industrial parks, Souki is eyeing a 6 Bcf/d market.
The other sites for which Cheniere has secured options for LNG receiving terminals are Corpus Christi and Brownsville, Texas, and Sabine Pass, Louisiana. Like CMS's Lake Charles terminal, these sites are located either in primarily industrial areas or close enough to major pipeline hubs where high Btu content gas coming from LNG supply sources other than Trinidad is not an issue as it is with the Elba Island, Georgia, Cove Point, Maryland, and Everett, Massachusetts, LNG terminals.
There have been several key LNG developments for Cheniere in the past few months. Most recently the company filed for the Freeport terminal with the Federal Energy Regulatory Commission (FERC) and could make its next filing with FERC to build a second LNG facility early next year.
Given the number of developments on the regulatory front in the past six months, Souki expressed confidence that at the very least one of the four terminals could be authorized and built by 2007, citing a streamlined permitting process for offshore LNG receiving terminals by the Coast Guard, which gained jurisdiction from FERC in November, and FERC's decision in December to allow the construction of proprietary receiving terminals (NGW Dec. 23, '02,p1).
However, the Cheniere terminals would not be proprietary. "We have no intention of getting into the LNG chain as other than a terminal operator," said Souki, leaving the production, liquefaction, shipping, and marketing side to its future customers. "We are currently talking to half a dozen potential customers and expect to have one lined up for Freeport soon," said Souki. He declined to name specific contenders.
A further indication of how seriously Cheniere is taking its commitment to LNG can be seen in its recent decision to change its American Stock Exchange listing to LNG, from CXY.
--Madeline Jowdy |
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