Pakistan Fails in Its First Attempt in a Year to Buy Gas in Hit to Economy
(Bloomberg) — Pakistan failed in its first attempt in about a year to buy liquefied natural gas from the spot market, with no suppliers of the power-station fuel offering cargoes. No companies responded to Pakistan […]
Highlights of the Podcast
00:00 – Intro
02:06 – Pakistan Fails in its first attempt this year to buy gas in a hit to the economy
04:51 – Market Updates
05:04 – Dollar fell off the back of some Fed chair Jerome Powell comments
08:35 – Civitas diving in here and taking out Hibernia Energy and Tap Rock
14:32 – Outro
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Video Transcription edited for grammar. We disavow any errors unless they make us look better or smarter.
Michael Tanner: [00:00:14] What is going on Everybody, Welcome into another edition of the Daily Energy News Beat Stand up here on this gorgeous Thursday, June 22nd, 2023. As always, I’m your humble correspondent, Michael Tanner, coming to you from an undisclosed location here in Dallas Texas, rocking a solo show today as Stu is out on assignment so I will make sure to hold down the fort does it mean we don’t have a great show. [00:00:37][22.9]
Michael Tanner: [00:00:38] Couple stories I’m going to keep it light it, let you get let you get out of here but we will cover in our news segment Pakistan fails in its first attempt in a year to buy gas it is a big hit to its economy so Pakistan is attempting to buy some LNG well, I’ll quickly cover that in our news segment. [00:00:55][17.3]
Michael Tanner: [00:00:56] Then I’ll quickly shift over and the finances will quickly cover oil prices they actually rose today off the back of a Fed Jerome Powell, some comments what kind of dive into those comments and what that does mean for oil and the rest of the commodities market. [00:01:09][13.0]
Michael Tanner: [00:01:09] I want to revisit a little bit of the Civitas buying Hibernia and Taprock Resources for about five ish billion and that actually happened yesterday while I was off. I want to revisit it because I found the press release a little interesting and then there’s some great buzzwords that we can dive into and dissect and then we’ll let you get out of here and on your way, guys. [00:01:27][17.7]
Michael Tanner: [00:01:27] But as always, the stories you are about to hear are courtesy the world’s greatest website. www.EnergyNewsBeat.com the best place for all of your energy news. Check us out Dashboard.EnergyNewsBeat.com the best place for all of your energy news. [00:01:40][12.7]
Michael Tanner: [00:01:41] Our subscription is getting close to being rolled out so we appreciate everybody you can check out the description below if you want to sign up early for that subscription and to get access to the Dashboard, go ahead and do that hit the description below. You can also see all of the timestamps on this Episode on the description below. The team does a great job of curating that but let’s just dive into it. [00:02:01][20.0]
Michael Tanner: [00:02:01] Let’s go into that first headline Pakistan Fails in its first attempt this year to buy gas in a hit to the economy. So Pakistan is attempting to buy liquefied natural gas. They’re attempting to tender six shipments from October, December delivery. That market hot spot market, which closed Tuesday. This is according to traders with knowledge of the source. It sounds like the reason is several overseas banks weren’t accepting letters of credit, which is basically a pledge by the lender to repay funds if the buyer can’t from all these different Pakistani counterparties, purchase LNG ship first, making all these suppliers fairly reluctant to offer cargoes this is all courtesy of Bloomberg. [00:02:38][36.3]
Michael Tanner: [00:02:38] This is the issue when you have a super weak currency and you then want to go buy physical commodities, you have to have somebody be the intermediary of exchange a.k.a accept the letter of credit hey will give the supplier dollars and we will then transact in whatever your currency. But if you can’t get a letter of credit from a specific counterparty that the supplier doesn’t trust, well then you’re up the creek without a battle. They’ve got their counterparty the suppliers just don’t trust that nor should they I wouldn’t want to take necessarily Pakistani currency. [00:03:08][29.5]
Michael Tanner: [00:03:08] The issue is they’re already in an insane energy shortage they’re rolling blackouts and an industry is going to get hit next. So it’s really sad what’s going on because they need to be able to purchase and get there, get access to gas. The problem is more when you can’t trust a currency, that’s what happens. [00:03:26][17.3]
Michael Tanner: [00:03:27] And this is a long shot forewarning for what if the dollar becomes too destabilized and we move other to move over to other currencies to transact oil in the US is going to mean a situation where it’s going to find itself paying a lot more for energy and having a lot less security, if only because the dollar isn’t being used as the medium of exchange. [00:03:45][18.3]
Michael Tanner: [00:03:46] So I think this is unfortunate for the Pakistani people hopefully they can get this figured out and continue and hopefully get their hands on low-cost energy, this sort of forewarning for the United States and how would we continue to mess with the dollar this is ultimately what may happen. [00:04:01][15.6]
Michael Tanner: [00:04:02] If you make things so bad that now we move over to the one and we have to start quoting the oil price in one oh, it’s 79 one today. I don’t want to do that. I’m going to keep saying it in dollars because if that doesn’t happen, then we become at the mercy of whoever is running it. I’d rather be at the mercy of us that scary enough than the mercy of somebody else on that front. [00:04:25][22.9]
Michael Tanner: [00:04:26] Shifting now, I think, into into the finance realm. We did see oil rise 70 to 53 that was mainly due to a drop in dollar strength. And again, that Dollar fell off the back of some Fed chair Jerome Powell comments. Mainly what he mentioned was that two things we’ve got rates coming we’ve got more rate increases coming I’m going to pull up the quote here, pull it up right here. [00:04:50][24.1]
Michael Tanner: [00:04:50] Quote, Nearly all FOMC participants expect that it will be appropriate to raise interest rates somewhat further by the end of the year. So that obviously is going to tank, prices are going to tank the dollar. He also mentioned that inflation has moderated somewhat since the middle of last year. Nonetheless, inflation pressures continue to run high with the process of getting inflation back down to 2% has a long way to go. [00:05:12][22.0]
Michael Tanner: [00:05:13] He did mention that they tend to look at that, quote unquote, core inflation, which excludes energy prices, which is insane to me, core CPI I could do a whole segment on why core CPI is a scam. You’re going to give me inflation and not take into account food and energy things that the entire every consumer deals with. [00:05:32][18.6]
Michael Tanner: [00:05:32] This is when Stu and I talk about the consumer takes it in the drive-thru this is what I’m talking about. We’re all dabbling about inflation sucks and really inflation is hit what is inflation hitting? Food and energy. But when they go and sit down to debate what they’re going to do about inflation, they look at numbers that don’t include food and energy. I mean, these are the geniuses running it right now. I could get really, really more worked up over this. [00:05:54][22.1]
Michael Tanner: [00:05:54] And so that’s why they’re only showing a 4.7 year-over-year rate through April, which is absolutely unbelievable. So any time you see core consumer price index puke you’re taking it in the drive-through. And of course, CNBC is going to remember CNBC is not looking out for you, the average consumer they’re looking out for the Wall Street guy sitting on Sixth Avenue in his little Soho apartment, you know, trading it up that’s who they’re actually they’re looking out for, not looking out for you. [00:06:20][26.4]
Michael Tanner: [00:06:21] So that guy. Yeah, sure that guy cares about the inflation of boat. It’s unfortunate. You know, It’s unfortunate. Boats are costing more. I’m sorry, but, like, the average person doesn’t care about the average person cares about food and energy so, as always, you’re taking it in the drive-through regardless. [00:06:35][14.6]
Michael Tanner: [00:06:36] Going back to the oil markets when the sentiment comes out and it nonetheless terms kind of the overarching scent. Another overarching sentiment that Jerome Powell talked about specifically was the fact that they’re coming to you know, his quote was this “We are nearing our policy destination”. What does that mean? Okay. We’re nearing the point is we’re going to continue to raise and then there going to be at some point when we’re going to stop. [00:06:58][21.5]
Michael Tanner: [00:06:58] And again, the cheaper dollar makes oil more attractive to investors holding other currencies, hence raising demand Reuters finally actually tells us something interesting we got to love that. We did see crude oil stocks come in about 1.2 million barrels draw, which is good to see so that’s going to always help with some upward pressure. [00:07:16][17.6]
Michael Tanner: [00:07:16] So lots of things on the lots of stuff on the or excuse me from the API, lots of stuff. Good there. We’ll see the API or we’ll see the EIA numbers tomorrow specifically because Monday was a federal holiday with Juneteenth, we did see inflation slowdowns in Britain. So all in all, lots of bullish sentiment pushing oil prices up and fairly timely because we also saw yesterday I’m reporting this in the 21st so for you guys two days ago. [00:07:44][28.1]
Michael Tanner: [00:07:45] Civitas diving in here and taking out Hibernia Energy and Tap Rock. Those are both funds managed by MGP Capital. As you guys know, Civitas is ran by Kimmeridge and is is the combination of crest on peak bonanza and extraction up there in Denver. They go ahead and now grab some Permian Basin entrants really over there in some of that New Mexico Eddy County stuff on Tap Rock has some ginormous wells out there specifically in that Eddy County area. [00:08:10][25.8]
Michael Tanner: [00:08:11] But let’s go ahead and go over the highlights here. $4.7 billion this adds 68,000 net acres, which over 90% of that being held by production both in the Midland and Delaware basins. It’s going to go increase Civitas is existing production base by over 60%, adding about 54% oil up around 100,000 BOE per day and 105,000 probably through the end of 2023. [00:08:37][26.2]
Michael Tanner: [00:08:39] And my favorite quote, that’ve they’re going to add 800 gross locations with approximately two thirds of them having IRR of more than 40% at $70 bbl Ok Ok that you know what? I like that that seems to be chiller then ultra-premium 3000 location. I like that. I mean it does say premium low breakeven inventory that it also does say that, but that seems more reasonable. [00:09:04][25.8]
Michael Tanner: [00:09:05] So you’re saying you’re saying 600, 500 of these have an IRR of 40% I’m still taking the under on, but it just sounds more reasonable IR Guy of the week right there. This is where I last though attractively priced immediately accreted to financial metrics, this acquisition is attractively priced at three times 2024 estimated adjusted EBITDA after taking into account the consummation of the transaction, the consummation of the marriage, and it says it’s in line with recent Permian transactions. [00:09:33][28.3]
Michael Tanner: [00:09:34] I saw it three x number and I squeezed a little bit because that’s we’ve been seeing 2 to 2.5 as of recently. So I would have pulled the last two Permian transactions, remember, we ran them on the show Earth Stone anyway, announces a $1 billion Delaware acquisition. What’s their purchase price? 02.7. Okay. So close. So close well, then we had the last one remember we had Chevron buying PDC. [00:10:00][26.4]
Michael Tanner: [00:10:01] Well, in the press release, they don’t necessarily tell us what the euro or what the EBITDA multiplier is, but we do you know that it’s a 6.3 all-stock valuation? They do they do acquire some debt, but we’re going to leave the debt out there. 2022 EBITDA was 2.9 billion. So if we do the math there, you’re looking at 2.1. So you had an average of like 2.4, 2.5 on your metric multipliers. And we now get in the press release attractively priced at three x equal to scratch. [00:10:34][32.2]
Michael Tanner: [00:10:34] But we do expect to generate 1.1 billion of free cash flow in 2024 and good for them at $70 and $3 Henry Hub I love how people are saying it’s 350 Henry Hub like it’s not 350 Henry Hub Gas is $2.55, but whatever, we’ll still run a dollar higher because it looks better in these and apparently they’ll have a more balanced portfolio. [00:10:56][21.7]
Michael Tanner: [00:10:57] It’s true Civitas is all in Colorado this gets them into the Permian why not? You know, if you’re KimRidge, this gives you an opportunity to maybe look better, to get acquired by somebody like Diamondback, to get acquired by somebody like Chevron, one of the or maybe not Chevron or ConocoPhillips, you know, one of these larger Permian players, maybe Pioneer wants to make an acquisition on some degree so I think this definitely gets that. [00:11:20][23.7]
Michael Tanner: [00:11:21] Its will be interesting they they’re funding this mostly by debt so you’ve got to point out, this is 4.7 billion. You got 2.7 billion of unsecured senior debt, some stock valued at 950 million, 600 million of borrowings under the undrawn credit facility and 400 million of cash on hand. This is a leveraged deal unsecured senior debt? Good luck on this one, Good luck on this one it could play out. [00:11:52][30.9]
Michael Tanner: [00:11:52] I’ve heard great things about Tap Rock’s inventory rumor has it that Eddy County stuff drills like butter, but the takeaway capacity sucks. So in this day and age, you want oil anyway who cares about gas? But still, there’s some big wells down. I’ve looked hard at them at one point in it that Eddy County said we’d be nice to be down there the problem is, you’re in New Mexico it’s federal land it gets interesting. [00:12:16][23.8]
Michael Tanner: [00:12:16] You know, we were a little bit too far west in those canyons point is, it could turn out great. What do you leverage, though? Things have to go. Be good to see. So overall, prices don’t tank at 72 bucks. Again, things look bullish, moving this gets them into both the Delaware and the Civitas, which is pretty interesting and yeah it’ll be it’ll be good. [00:12:38][21.8]
Michael Tanner: [00:12:38] So with that, guys, I’m going to go and let you get out of here. I appreciate you checking us out. Emails, Questions at Questions@EnergyNewsBeat.com for Stuart Turley and Michael Tanner we’ll see you guys tomorrow, folks. [00:12:38][0.0]
