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Wednesday, October 20, 2010

Daily Energy & Resources Digest 10/20/2010

Encana (ECA) - This morning Encana reported its Q3/10 results. Encana reported production of 554 MBOE/d (3.3 Bcfe/d) for Q3/10, slightly behind our expectation of 565 MBOE/d or 3.4 Bcfe/d. Cash flow of $1.1 billion or $1.54 per diluted share was above our estimate of $973 million or $1.32 per share, and ahead of the consensus estimate of $1.39, mainly on the back of lower than expected operating costs and an income tax recovery. Citing completion delays in the U.S., Encana has reduced its capex budget for the year to $4.8 billion from $5.0 billion, resulting in a 50 MMcfe/d decrease to 2010 production guidance to 3.315 Bcfe/d. The revised CFPS guidance range has been narrowed to $5.95 - $6.20 from $5.95 - $6.50 previously.

Kodiak (KOG) expands Bakken footprint with $110 million asset grab. The company purchased ~14,500 net acres and four producing wells (~500 net boe/d plus existing infrastructure) for $99 million in cash and $11 million of stock (2.75 million shares at $4 per share). Excluding the acquired production, this implies about $7,600/acre; if assuming $100,000 per flowing boe, the acquisition price comes out to ~$4,100/acre. Where's the cash coming from? With Kodiak's drilling success to date, it was able to expand its credit facility from $20 million to $50 million and it also received commitments for a second facility with $40 million of availability. With the extra capacity plus the $74 million of proceeds from the recent equity offering, our model has Kodiak exiting 4Q with $65 million of the $90 million drawn. Looking at the newly acquired acreage, 11,700 acres are located in McKenzie County (core) with the remaining 2,800 acres located in Williams County, just north of Brigham's (BEXP/$19.61/Strong Buy) Rough Rider position. The Three Forks has yet to be de-risked around this land, and therefore we estimate it only adds 34 Bakken locations to inventory (Kodiak estimates 60). Bottom line: While the new land gives Kodiak some additional running room in the Bakken, the transaction is neutral to NAV analysis and the stock is still one of the more expensive names in the group, particularly as smaller companies continue to get squeezed on margin by service costs.

Comstock (CRK) - Yesterday Comstock gave an update on operations in the Haynesville and Bossier, announcing that the number of drilled wells awaiting completion has now jumped to 26. The news comes as no surprise as the company already had 17 wells awaiting completion and that the backlog is likely continue to grow throughout the end of the year due to a tight pressure pumping services market. Comstock plans to drill another 10 wells in the Haynesville during 4Q, but has secured additional pumping services that will allow it to reduce its uncompleted inventory to an estimated 22 wells by year-end (in addition to securing a dedicated frac crew for 2011). To further alleviate its uncompleted backlog, Comstock will be releasing one of its six Haynesville rigs and may move one of the remaining five to the Eagle Ford in 2011.

Crosstex Energy LP (XTEX) and Crosstex Energy Inc. (XTXI) announce reinstatement of distribution/dividend payout. The quarterly distribution on Crosstex Energy LP's common units will be $0.25 per unit beginning with the 3Q10 distribution (payable 11/12/10). The quarterly dividend on Crosstex Energy Inc.'s common stock will be $0.07 per share beginning with the 3Q10 distribution (payable 11/12/10). The announcement is in line with our forecast, but the reinstatement arrived one quarter ahead of the partnership's original expectations to reinstate the distribution and dividend in 4Q10 (payable January 2011). Given that roughly 75% of the partnership's cash flow is now fee-based, it appears that these new distribution/dividend levels are sustainable.

Eagle Rock Energy Partners (EROC) announces startup of Phoenix processing plant. Eagle Rock Partners announced that its Texas Panhandle, Phoenix gas processing plant is operational. The cryogenic plant will initially add 50 MMcfe/d of processing capacity to the Texas Panhandle area. Additionally, the partnership announced that it closed its previously announced acquisition of gas gathering facilities in Wheeler and Hemphill counties. Lastly, the partnership's upstream borrowing base has been increased by $10 million to $140 million.

Complete (CPX) - For the third consecutive quarter, Complete had no problem topping the Street's estimate for earnings. Complete put up "clean" earnings of $0.42 per share, well above both our assumption and the Street at $0.29 and $0.31, respectively. Reported revenue saw a sequential uptick of 16%, which topped our forecast by 5%. Most of this strength came from the completion and production segment as the company reported successfully completing its first frac job in the Eagle Ford during the quarter. The same segment rallied big as adjusted EBITDA surged 28% sequentially from an increase in horizontal and oily related activity to add an additional $0.06 per share above our forecast. Additionally, drilling services hit its stride from an uptick in utilization and accounted for two cents of the beat. During the quarter, the company added an additional ~40,000 hydraulic hp to its fleet. Expect to see more of this in 4Q10; recall that last quarter Complete expected to add an additional 100,000 horsepower to its fleet by year's end.

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