C&J Energy Services and the Eagle Ford
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Posted 10 July 2012 - 02:31 PM
As I go through these plays keep in mind that throughout history one million wells have been drilled in the US versus only 2000 in the entire Persian Gulf. 65% of all global activity is in the US and Canada. Harvard put out an excellent review of the trends in oil production, and starting on page 40 the North American shale/tight oil and gas is discussed.CJES is the leading independent oil services firm focused on the Eagle Ford and has had solid results with only some small impacts from the nat gas bust. Earnings estimates are still set at 4.00 for 2012, and 4.20 for 2013, putting the stock at less than 4.5 times earnings. The shorts have piled in to the tune of an absurd 28.6% of float, in effect creating a short corner, or a trap, depending on one’s perspective.CJES provides the “horsepower pumping machines” used in fracking operations. Back in September, the company had just started utilizing hydraulic fracturing Fleet 5. Now the company is expecting delivery of Fleet 8 this quarter which would double the fleet in less than a year. Also, C&J went ahead with ordering fleet 9 for the end of 2012. All while most in the industry have cut back on capital expenses. CJES has been able to grow without incurring any debt and has a clean balance sheet. All of the new fleets were built on either IPO money (from a $31 offering) or operating cash flow. The fleet is largely contracted for well into 2013.Harrison James Capital has a very good write up on CJES’ Casedhole Solutions acquisition.The majority of the fleets are now working in the Eagle Ford with some work in the Permian basin. The company is also looking into expansion into the Bakken Shale and the Middle East. It purchased Casedhole for cash to gain entry into other shale regions.Production in the Eagle Ford could reach 1 million barrels a day by 2016, said Trevor Sloan, director of energy research at ITG Investment Research in Calgary, Alberta. But before production can reach that level, some problems have to be solved. About 1,400 Eagle Ford wells are waiting to be completed or to be tied into pipelines, ITG research shows. There are also shortages of crews and water and too few pipelines. After 2013 though, the takeaway challenges from Eagle Ford will be eliminated. Large horsepower pumping and silica are key supplies for this drilling.The most prospective part of the Eagle Ford is in the west, which is close to refineries, has 78% oil, and 11% NGL. Costs in this area are estimated at $55 a barrel. The middle section, which is referred to as the volatile oil/condensate window has: 45% Oil, 25% Natural Gas Liquids, 30% Dry Gas. There are 248 active rigs at Eagle Ford compared to 200 in Bakken.
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