Posted by: zmanbackup | February 4, 2022

Friday – 2/4/2022

Housekeeping Watch: We are experiencing technical difficulties with the primary site. An email will be sent when the main site is back on line.

In today’s post please find:

  • the natural gas review (slightly smaller than expected withdrawal; look for a 200+ Bcf type withdrawal next week),
  • comments on the NOV 4Q21 results,
  • the Gassy Players Update (liquids rich version),
  • and some other odds and ends.

Ecodata Watch:

  • We get Nonfarm Payrolls at 8:30 am EST (F = 150,000; last read was 199,000),
  • We get the unemployment rate at 8:30 am EST (F = 3.9%, flat),
  • We get average hourly earnings at 8:30 am EST (F = 0.5%, last read was 0.6%).

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watc​h
  3. Natural Gas Inventory Review
  4. Stuff We Care About Today – NOV,  Gassy Player Update (Liquids Rich),
  5. Odds & Ends

Click the link directly below this to … .

Holdings Watch:


Commodity Watch:

Crude oil closed up $2.01 yesterday at $90.27 as cold U.S. weather prompted more shut ins (reports of trucking issues in the Permian and frozen wells in a number of basins).  Reports of a large scale weather related shut in of 6 Libyan ports also buoyed crude. This morning crude is trading up nearly $2.

Natural gas closed down $0.61 (11%), a day after rising 17%, to close at $4.888 yesterday: 

  • The storage build was slightly below consensus,
  • And weather forecasts for next week moderated after two weeks of normal and colder than normal weather
  • Next week look for > -200 Bcf storage withdrawal (some of the demand components in the quick math below look light to me),
  • This morning gas is trading off about 3%.

Short Term Supply / Demand Watch:

NGL Price Watch: Nice recovery here. Nice to see ethane getting priced. Higher priced ethane could reduce the “dry” gas supply. Note the composite price is essentially back to peak fall 2021 levels while natural gasolines and ethane are at new highs.  Note that 17% of AR’s non ethane (C3+) NGL barrel is natural gasolines while RRC’s C3+ barrel is 19% natural gasolines. 

Natural Gas Storage Review 


Stuff We Care About Today

NOV Reports 4Q21 Top Line Beat but Margin Miss; Growth in the Right Segments Is Present But Costs Weigh on Margins

  • Revenue of $1.52 B mm vs $1.465 B expected.
  • EBITDA of $69 mm (4.5% margin) vs $88 mm (6.0%) expected.
    • vs $56 mm in 3Q21 (4.2% margin).
  • Unadjusted EPS of ($0.10) vs ($0.03) expected
  • Revenue and EBITDA margin by Segment:
    • Favorite Quote Watch 1: “Improving oil, gas and offshore wind power activity helped fuel double-digit sequential revenue growth in all three of NOV’s operating segments during the fourth quarter”
      • Wellbore Tech: $576 mm revenue (up 14% seq, up 54% yoy) and margin of 15.3% (vs 15.2% last quarter)
      • Completion and Production Solutions: $549 mm revenue (up 15% seq, 1% yoy) and margin of +0.4% (vs -1% last quarter)
      • Rig Tech: $431 mm revenue (up 11% seq, down 1% yoy) and margin of 2.9% (vs 6.4% last quarter)
      • Covid costs, supply chain issues and costs, and logistics costs continue to impact margins in all three segments
    • Favorite Quote Watch 2:we are focused on improving margins through a combination of higher product pricing, growing revenue from NOV’s proprietary technologies, and better execution against ongoing supply chain challenges. The Company’s strong financial position, global reach, large installed base of oilfield and wind installation equipment, and growing portfolio of energy transition technologies position it well as we advance further into the emerging up-cycle.”
  • Backlog by Segment:
    • Completion and Production Solutions: Book to bill of 159% (vs 144% last quarter) and backlog of $1.29 B.
    • Rig Tech: Book to bill of 102% (vs 190% last quarter) and backlog of $2.77 B.
      • Likely a little concern on the slower orders here.
    • They note wind install vessel deliveries, FPSO topsides orders, rig automation system orders, downhole tools orders
  • Macro Comment Watch: “As the world emerges from the pandemic and greater economic activity resumes, it is becoming increasingly evident that supply of petroleum is uncomfortably tight. Global activity needs to increase to meet growing demand while energy transition efforts accelerate”
  • Balance Sheet: Remains in good shape
    • Net debt to current quarter annualize EBITDA of 0.3x vs 0.2x as of 3Q21 ($1.6 B in cash, $1.7 B in LT debt.
  • 2022 Guidance:
    • Last year they did not guide.
    • And they don’t guide quarterly.
    • This year they didn’t guide either but pointed to growth in demand for their solutions as noted above.
  • Other Stuff:
    • They recently reinstated their dividend at $0.05 per quarter (1.1% implied forward yield).
    • Short Interest: 3.4% of float.
    • Technically Speak – that’s a nice cup and handle.
  • Nutshell: Not a name we currently closely track though we’ve had more than one subscriber enquire of late. No opinion, just listening to get a little more acquainted. This is not my usual cup of visibility though.
  • Conference Call: Today, 11 am EST

Gassy Player Update (Liquids Rich) 

  • This post has been archived under Gassy for ease of access under the pull down menu “Select Categories” at upper left.

Other Stuff:

  • Look for the next iteration of So Far This Quarter in Monday’s post.

Odds & Ends

Analyst Watch:

  • TBA in comments


  1. test

  2. NFP at 467,000, much better than expected.

  3. WTI holding over $92 early.

  4. Puting and Xi making big oil and natural gas deals today at the Olympics.


  6. Just before equity open:
    Oil up $1.70 @ $92
    NG down a dime @ $4.80


    Seems pretty unlikely we get that many. Over reaction to the NFP data to my eye.

  8. Equities not really buying this oil price extension or oil in the $80s in general, certainly not adequately discounting $80+ WTI.

  9. By the way, the OPEC+ ministerial part of the meeting was 16 minutes long this week. One of the shortest on record as they rolled the 0.4 mm bopd increment.

    Next week we get the next OPEC MOMR which will have second source OPEC production. It’s like that January level volumes plus the non OPEC’s in OPEC plus will be > 1 mm bopd light to stated output limit.

    Everyone is calling $100 a magnet.

    And OPEC+ may not be able to really get to their limit, let alone accelerate the decurtailment by going above 0.4 mm bopd add at the next meeting as Russia continues to under perform and several other nations have problems meeting their levels.

    And it should be noted that the OPEC+ agreement does not allow for one country to make up for another’s shortfall by going over their own limit. Unless they change that which they could. It would just take longer than a 16 minute meeting.

  10. MGY built for far lower prices.
    Stock just under the all time high but cheap below Strip.
    Fortress balance sheet,
    Buying back >1% of shares per quarter
    Base dividend just upped and set for more increase
    Special increasingly likely

    At $23 share price
    At $82.50 (current Call 22 strip) and $4.62 for NG it trades at Z4 2022 E EBITDA of 4.5x

    If we go to current front month price for the 2022 price deck ($92.64 and $4.85) then that multiple falls to 4.0x.

    On our BASE CASE, $23 ($65 oil and $3.50 gas) they are at 6.4x.

    I know, oil is a good bit higher now (about $82.50 as noted above) – it’s also February and a lot can happen. Our sense is the names is trade on something close to $70 oil and in the case of MGY that’s about 6x. (Street consensus is $71.28 now).

    Upward bias to estimates now and post 4Q call as analysts take both new guidance and the rising strip into account.

    A 6.0x of that strip case = MGY upside target of $35.

  11. Solar Watch:

  12. NOV (unowned) – down 4%.

  13. Early Read on Next Week’s Storage Change
    Consensus: -226 Bcf
    This Week: -268 Bcf
    Year Ago: -174 Bcf
    5 Year Average: -150 Bcf

    Z4 is > – 200 Bcf as per today’s post.

  14. NOV (unowned) call in 5 minutes, notes to follow. Stock off 5% pre call.

  15. Lower 48 natural gas production:
    1/31/22: 96.7 Bcfgpd
    2/4/22: 88.4 Bcfgpd
    Bloomberg #’s

  16. NOV (unowned) 4Q21 (down 4% at start of quarter)

    Pleased with revenue and backlog growth. Not please with pricing/margins.

    Now expect supply chain issues to persist through the first half of 2022.

    Labor shortages globally affecting costs and timelines.

    Vendors facing same issues.

    Having to substitute higher material costs and to install boosted labor cost.

    Lots of manufacturing headaches.

    Seeing freight steel and some other items stabilizing.

    Seeing other components like polymers, touch screens rising cost.

    Says they need to do a better job on pricing.

    Labor and materials are tight.

    We have tried to push prices higher but have been less successful than we need to be. Need to redouble our efforts.

    Believe the margins in our backlog are solid but indexing efforts never perfect.

    Pricing remains challenging.

    For what we sell to E&Ps there is more room to go up. But what we sell to oil field services is harder to push up in price as they have not seen bounce backs. (so if you think frac is slow to recover, this is behind that).

    Customers report that things are going the right way but oilfield services need more price recovery before pricing improves for NOV and our competition is “desperate” for business.

    Said rig companies are buying old stacked rigs for spare parts.

    Interest is very high in ESG friendly products.

    Says offshore is improving – E&P and wind.

    This is a litany of bad news with a hint of light at end of tunnel.

  17. NOV (unowned) off 7% 15 minutes into the call.

  18. NOV (Unowned) – 4Q21 call notes 2

    – smart iron (what they have) in increasing demand
    – confident pricing will improve
    – confident in long term here given under investment and energy demand

    – That opening monologue was one of the bleakest I’ve listened to in awhile aside from the last little bit. I was not planning on owning this soon but want to get to know the name better.

    2022 Capex: $255 GUIDANCE (not in the pr)

    Speaking to shortage of green pipe for making wider diameter drill pipe. Strong demand for premium pipe.

    Middle East – continued growth
    Far East – acceleration

    1Q margins in line with 4Q GUIDANCE (not in the pr)

    EBITDA margins high teens by year end in wellbore tech. GUIDANCE (not in the pr)

    2 projects in 4Q affected by Covid. Disappointed still struggling with materials and freight charges.

    Completion – rapidly improving – all subsegments in Completion have > 1.0 book to bill.

    Struggling with labor challenges in fiber glass.

    – super tough to model this (glad I don’t have to) – guidance is here and there, again, not my cuppa when companies drop it in the call but are not willing to put any outlook in print in the release. This call goes back and forth between bright spots and negative items.

    Light notes from here …

  19. Seeing growing interest for wind install and rig equipment. Rig equipment orders now > 2x what they were in 2H20.

    Big disparity in average US rig vs avg Int’l rig. Seeing more demand for higher end capability rigs internationally.

    Customers finally seeing improvement in dayrates (eventually gets to NOV)

    RigtechOutlook for rigtech is improving (albeit with supply chain)
    – Rigtech flat with 4q in 1Q22.
    – see EBITDA margins to move into the 10% range late 2022.

    Going to Q&A 38 minutes in …

  20. NOV (unowned) 4Q21 Q&A

    Q) Cannibalization of rigs.
    A) very hard for us to tell. Equipment being purchased at auction for parts. Feels like we are late in the cycle.

    Lots of comments on labor, pivots to higher cost components, Covid issues, new labor, reworked items on the new labor, etc … prompted 4Q charges. May see more challenges.

    It’s very difficult to forecast what the heck is going to have with Covid and its impact on the supply chain.

    broad wage inflation is here to stay – we need to do better on pricing that in.

    Oil up here at $92 helps as it gives us better backdrop to push pricing into our oilfield service customers.

    First 5 weeks of 2022 – Omicron has remained an issue, supply chain remains an issue.
    Says continued inflation is offset by increase pricing early in the year and then expected to over take later in the year.

    Q) capex guidance and revenue
    A) gave one quarter out (TRANSCRIPT) only on revenue.

    Tone is neutral positive from sellside.

    I have to jump on another call.

  21. Main site still offline. Will update later today.

  22. Scott is out of internet coverage at the moment. We will be on backup for awhile longer today.

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