Market Sentiment Watch: We got better than expected numbers out of the EIA yesterday on products demand and inventories and crude initially popped, then sagged then closed higher. In my book, crude has had a pretty good run and with OPEC next week we could see the front month trade sideways in the low $80s or high $70s until the 17th. I think OPEC is likely to keep production levels the same at this meeting and may not stress compliance much if at all. Ultimately, and maybe just after the OPEC meeting, I expect crude to tap on $85. As to the broad markets, I am again receiving at least one email a day written by various talking heads with "Double Top" in the subject line, either with a "?" or an "!". I think these guys are the same ones who were largely in the bear camp the last time we put a week’s worth of down days together and are now fearful that the market could advance through it’s old high at the 1,150 level and if that happens they’ll have less of a clear summit from which to prognosticate further doom. While I’m not as bullish as I was a month ago (on the broad market) when all of the newsletters had gone into mega bear territory, the number of "double top" calls gives me heart in further positive moves, since the majority is usually wrong. Just letting you know where I’m coming from during this slow time. See the Stuff section for a requested recap of the very highest of highlights from recent conference calls.

Ecodata Watch:

• Jobless claims came in at 462K vs 460K expected.
  
• We get retail sales and consumer sentiment tomorrow.
  

BIG DEAL Watch: BP To Pay $7 B to DVN for assets in the Gulf of Mexico and Exploration Rights Off Brazil.

• This is a larger figure than had been recently bandied about ($5B) for BP’s role.
• This is a critical step in getting DVN to its goal of being a North American focused large cap E&P player. 
• DVN has already sold Gulf of Mexico deepwater assets for $1.3 B
• So with this $7, DVN’s take for streamlining itself will far exceed it’s original asset sale target ragne of $4.5 to $7.5 B.
  
• This should be universally accepted by the Street as a "good deal" and should be catalytic to the stock since it largely represents the completion of DVN’s asset sale goal. These goals, once announced, often loom over stocks until they are fulfilled. 
• Debt to total cap for DVN pre deal is a low 27% with $5.8 B in debt so post, you can see how their balance sheet will become one of the strongest in the group.
• $500 mm goes the other direction as well as DVN buys BP’s stake in the Kirby oil sands project in Canada.
  
• This is one the ZIM will very likely take a shot at this morning.
• DVN will hold a conference call today at 11 am EST. We should get updated guidance on this call and I think the stock, given it’s relative valuation as sort of middling in the large cap (see here especially on reserves) group is likely to rally strongly.
• This is also confirmation of recent comments that deal flow in the energy space in alive and increasing.

In Today’s Post:

1. Holdings Watch
2. Commodity Watch
3. Natural Gas Preview
4. EIA Oil Inventory Review
5. Stuff We Care About Today – Conference Call wrap to date, NFX update
   
6. Odds & Ends

Holdings Watch:

ZCAT (Zman Catalyst portfolio, formerly the $10KP II):

• $17,200
  
• 33% Cash
  
• Positions are updated on the ZCAT, ZIM, ZLT page.
• Yesterday’s Trades:
  • None

ZIM (Zman Inefficient Markets portfolio)

• $12,900
  
• 100% Cash (No positions)
  
• Positions are updated on the ZCAT, ZIM, ZLT page.
• Yesterday’s Trades:
  • None

Commodity Watch:

Crude oil rose 0.60 to close at $82.09 yesterday, after the EIA released positive looking numbers (see below). Demand for gasoline remains resilient and refining stocks appear to have the wind at their backs for the moment. This morning crude is trading flat.

Natural gas rose 4 cents to close at $4.56 yesterday. Gas may be trying to put in a near term bottom but it’s early and difficult to tell. This morning gas is trading flat.

Natural Gas Preview

• My number: 100 to 120 Bcf. If we come in at 100 Bcf today, that puts storage at 1,637, within fairly easy reach of the 1.5 Tcf mark I consider to be supportive of gas into Spring. 
  • History:
    • Last Week: 116 Bcf Withdrawal
      
    • Last Year: 111 Bcf Withdrawal
    • 5 Year Average: 79 Bcf Withdrawal
    • 10 year Hi: 141 Bcf Withdrawal
    • 10 year Low: 11 Bcf Withdrawal
• Street Consensus: 109 Bcf Withdrawal
  

EIA Oil Inventory Review

ZComment: Good report from a products standpoint. Not surprised to see imports fall back after two strong weeks and so I think the smaller than expected build for crude means little. But the high gasoline demand and continued shrinking of bloat distillate inventories argue for the continued sideways trading in oil. I do think that Spring Break will see increased consumption of gasoline relative to kerosene (jet fuel) which should help crude remain aloft as well during spring. We should also see a slight build in over the road transportation demand as inventories are restocked from lower than expected levels.

CRUDE OIL:

GASOLINE:

DISTILLATES: Production discipline is good to see.

Stuff We Care About Today

Conference Call Wrap: Some thoughts on 4Q calls I listened to as prompted by

The Good:

• ROSE: Best call of the season:
  • Montana Bakken looks good on cores, logs, on 3 wells spread over a wide range of their acreage. Should get more lab data on 1Q call and production tests on the 2Q call. Tone was very well handled here.
  • Eagle Ford Shale – next 6 wells will be released on the 1Q call, 5 of them will be in the condensate window.
  • Looking for a big bad set of red days in the group to trip the stock up so I can get long calls. I continue to own the common and as I see the play in Montana, I don’t think the stock has fully discounted close to the potential here.
• BEXP:
  
  • Good quarter, growth for the whole company on the liquids side of 100%+ makes it one of the faster transition to liquids stories out there.
    
  • Catalyst after catalyst here: 2 weeks from now we should get results on 3 more Rough Rider Wells, before the end of the half and maybe by 1Q10 results we’ll have data from their first Three Forks Well in Rough Rider and before that we should have results from a Three Forks well of CLR that lies on thee eastern edge of their territory.
    
  • Staying within cash flow with a four rig program.
    
• MMR - good technical detail on the Davy Jones in the Ultradeep shelf, stock started rising again after EXXI reiterated many of the same things during their analyst day.

OK or "As Expected":

• NFX – fine, nothing really stood out, stock reacted poorly to the press release and I said it was misunderstood at the time. Stock is in the progress of attempting to break out of its range (see more comments on NFX below)
  
• HK – good results, saw the first of four asset sales within days of the call which is really what people want to see.
  
• NOG – as expected, working interest continues to rise.
  
• HAL – results in line, outlook improving, stock has not yet really noticed this.
  
• FST – in line results but increasingly interested in the name, more thoughts soon here.
• WLL – Continues to keep on keeping on. Good to hear they have upped their acreage at Lewis and Clarke and that the rig for this year’s program arrived ahead of schedule.
  
• PXD, RRC, UPL – interesting, more in the next week.
  

Bad or Left Doubts:

• SWN - Operations OK, but still low degree of hedges for 2010, reserve bookings appeared aggressive to the Street for a normally conservative management. This is due to low gas prices and I think perfectly reasonable given the five year time frame to get the PUDs developed.
• SD – muddled reserve picture, lack of near term catalysts.
• ARD - problems with the electrical and gathering system leads analysts to worry about their numbers and the stock got pounded for it. Long term they are taking the steps to rectify the problems and this will lead to better margins but this will take time (12 to 18 months) to fix. Stock being watched by me for a dead cat bounce.
• EOG – good quarter but the call left much to be desired, very few details, nothing on the Eagle Ford yet and little new on the Bakken. Very much "wait for the analyst meeting".

NFX Presentation Highlights: The presentation was at Raymond James on Tuesday and I’d bet they will be speaking at Howard Weil in 2 more weeks.  Note that the stock is trying to break out of its current trading range.

• 500,000 acres in resource plays added since late 2009
  
• Their 8 to 12% growth expected this year has nothing in it for Eagle Ford Shale acres acquired or for the Alberta Bakken.
  
• 70 hedged on gas for 2010; 50% hedged for gas for 2011. 40% of 2010 expected oil production hedged.
  
• Slide 7 is very telling regarding the higher multiples enjoyed. See presentation here
  
• Big plays are held by production, shifting capex to oily projects, 70% of budget in resources plays
  
• Granite Wash play:
  
  • 1/2 locations are oily
    
  • 8 Bcfe EURs for $7 to $9 mm per horizontal
    
  • Have 200 locations ready to go, drilling 20 to 25 wells for each of the next 8 years.
• Uinta Basin oil wells (Monument Butte)
  
  • 350 wells this year
    
  • early wells were 60 to 80 bopd IP
    
  • now seeing upwards of 100 bopd
    
  • wells only take 3 days to drill so 1 rig drills 60 to 65 per year, they are running 5 rigs
    
  • Most profitable oil play they have.
    
• Williston Basin
  
  • 3 rig program – 25 wells this year
    
  • planning 40% ramp this from current 2,700 bopd.
    
• Southern Alberta Basin
  
  • 221,000 net acres
    
  • Looks a lot like the Williston Basin
    
  • Rig comes in in April, drill 10 wells this year.
  • Maybe results on the 2Q call.

Valuation: Still cheap at 4.9x 2010 estimate CFPS of $10.98 and 4.8x 2011 estimate of $11.38.  I expect both estimates to drift higher as the year progresses and I see no equity deals this year here. 

Other Items:

• I’ll have the mid cap Orange Charts out tomorrow; the small caps are not quite done reporting yet. 
  
• Look for KOG to report tonight for tomorrow

Odds & Ends

Analyst Watch:

• CLNE – upped to Outperform with target going from $17.50 to $25 at Northland Securities
  

Market Sentiment Watch: We got better than expected numbers out of the EIA yesterday on products demand and inventories and crude initially popped, then sagged then closed higher. In my book, crude has had a pretty good run and with OPEC next week we could see the front month trade sideways in the low $80s or high $70s until the 17th. I think OPEC is likely to keep production levels the same at this meeting and may not stress compliance much if at all. Ultimately, and maybe just after the OPEC meeting, I expect crude to tap on $85. As to the broad markets, I am again receiving at least one email a day written by various talking heads with "Double Top" in the subject line, either with a "?" or an "!". I think these guys are the same ones who were largely in the bear camp the last time we put a week’s worth of down days together and are now fearful that the market could advance through it’s old high at the 1,150 level and if that happens they’ll have less of a clear summit from which to prognosticate further doom. While I’m not as bullish as I was a month ago (on the broad market) when all of the newsletters had gone into mega bear territory, the number of "double top" calls gives me heart in further positive moves, since the majority is usually wrong. Just letting you know where I’m coming from during this slow time. See the Stuff section for a requested recap of the very highest of highlights from recent conference calls.

Ecodata Watch:

• Jobless claims came in at 462K vs 460K expected.
  
• We get retail sales and consumer sentiment tomorrow.
  

BIG DEAL Watch: BP To Pay $7 B to DVN for assets in the Gulf of Mexico and Exploration Rights Off Brazil.

• This is a larger figure than had been recently bandied about ($5B) for BP’s role.
• This is a critical step in getting DVN to its goal of being a North American focused large cap E&P player. 
• DVN has already sold Gulf of Mexico deepwater assets for $1.3 B
• So with this $7, DVN’s take for streamlining itself will far exceed it’s original asset sale target ragne of $4.5 to $7.5 B.
  
• This should be universally accepted by the Street as a "good deal" and should be catalytic to the stock since it largely represents the completion of DVN’s asset sale goal. These goals, once announced, often loom over stocks until they are fulfilled. 
• Debt to total cap for DVN pre deal is a low 27% with $5.8 B in debt so post, you can see how their balance sheet will become one of the strongest in the group.
• $500 mm goes the other direction as well as DVN buys BP’s stake in the Kirby oil sands project in Canada.
  
• This is one the ZIM will very likely take a shot at this morning.
• DVN will hold a conference call today at 11 am EST. We should get updated guidance on this call and I think the stock, given it’s relative valuation as sort of middling in the large cap (see here especially on reserves) group is likely to rally strongly.
• This is also confirmation of recent comments that deal flow in the energy space in alive and increasing.

In Today’s Post:

1. Holdings Watch
2. Commodity Watch
3. Natural Gas Preview
4. EIA Oil Inventory Review
5. Stuff We Care About Today – Conference Call wrap to date, NFX update
   
6. Odds & Ends

Holdings Watch:

ZCAT (Zman Catalyst portfolio, formerly the $10KP II):

• $17,200
  
• 33% Cash
  
• Positions are updated on the ZCAT, ZIM, ZLT page.
• Yesterday’s Trades:
  • None

ZIM (Zman Inefficient Markets portfolio)

• $12,900
  
• 100% Cash (No positions)
  
• Positions are updated on the ZCAT, ZIM, ZLT page.
• Yesterday’s Trades:
  • None

Commodity Watch:

Crude oil rose 0.60 to close at $82.09 yesterday, after the EIA released positive looking numbers (see below). Demand for gasoline remains resilient and refining stocks appear to have the wind at their backs for the moment. This morning crude is trading flat.

Natural gas rose 4 cents to close at $4.56 yesterday. Gas may be trying to put in a near term bottom but it’s early and difficult to tell. This morning gas is trading flat.

Natural Gas Preview

• My number: 100 to 120 Bcf. If we come in at 100 Bcf today, that puts storage at 1,637, within fairly easy reach of the 1.5 Tcf mark I consider to be supportive of gas into Spring. 
  • History:
    • Last Week: 116 Bcf Withdrawal
      
    • Last Year: 111 Bcf Withdrawal
    • 5 Year Average: 79 Bcf Withdrawal
    • 10 year Hi: 141 Bcf Withdrawal
    • 10 year Low: 11 Bcf Withdrawal
• Street Consensus: 109 Bcf Withdrawal
  

EIA Oil Inventory Review

ZComment: Good report from a products standpoint. Not surprised to see imports fall back after two strong weeks and so I think the smaller than expected build for crude means little. But the high gasoline demand and continued shrinking of bloat distillate inventories argue for the continued sideways trading in oil. I do think that Spring Break will see increased consumption of gasoline relative to kerosene (jet fuel) which should help crude remain aloft as well during spring. We should also see a slight build in over the road transportation demand as inventories are restocked from lower than expected levels.

CRUDE OIL:

GASOLINE:

DISTILLATES: Production discipline is good to see.

Stuff We Care About Today

Conference Call Wrap: Some thoughts on 4Q calls I listened to as prompted by

The Good:

• ROSE: Best call of the season:
  • Montana Bakken looks good on cores, logs, on 3 wells spread over a wide range of their acreage. Should get more lab data on 1Q call and production tests on the 2Q call. Tone was very well handled here.
  • Eagle Ford Shale – next 6 wells will be released on the 1Q call, 5 of them will be in the condensate window.
  • Looking for a big bad set of red days in the group to trip the stock up so I can get long calls. I continue to own the common and as I see the play in Montana, I don’t think the stock has fully discounted close to the potential here.
• BEXP:
  
  • Good quarter, growth for the whole company on the liquids side of 100%+ makes it one of the faster transition to liquids stories out there.
    
  • Catalyst after catalyst here: 2 weeks from now we should get results on 3 more Rough Rider Wells, before the end of the half and maybe by 1Q10 results we’ll have data from their first Three Forks Well in Rough Rider and before that we should have results from a Three Forks well of CLR that lies on thee eastern edge of their territory.
    
  • Staying within cash flow with a four rig program.
    
• MMR - good technical detail on the Davy Jones in the Ultradeep shelf, stock started rising again after EXXI reiterated many of the same things during their analyst day.

OK or "As Expected":

• NFX – fine, nothing really stood out, stock reacted poorly to the press release and I said it was misunderstood at the time. Stock is in the progress of attempting to break out of its range (see more comments on NFX below)
  
• HK – good results, saw the first of four asset sales within days of the call which is really what people want to see.
  
• NOG – as expected, working interest continues to rise.
  
• HAL – results in line, outlook improving, stock has not yet really noticed this.
  
• FST – in line results but increasingly interested in the name, more thoughts soon here.
• WLL – Continues to keep on keeping on. Good to hear they have upped their acreage at Lewis and Clarke and that the rig for this year’s program arrived ahead of schedule.
  
• PXD, RRC, UPL – interesting, more in the next week.
  

Bad or Left Doubts:

• SWN - Operations OK, but still low degree of hedges for 2010, reserve bookings appeared aggressive to the Street for a normally conservative management. This is due to low gas prices and I think perfectly reasonable given the five year time frame to get the PUDs developed.
• SD – muddled reserve picture, lack of near term catalysts.
• ARD - problems with the electrical and gathering system leads analysts to worry about their numbers and the stock got pounded for it. Long term they are taking the steps to rectify the problems and this will lead to better margins but this will take time (12 to 18 months) to fix. Stock being watched by me for a dead cat bounce.
• EOG – good quarter but the call left much to be desired, very few details, nothing on the Eagle Ford yet and little new on the Bakken. Very much "wait for the analyst meeting".

NFX Presentation Highlights: The presentation was at Raymond James on Tuesday and I’d bet they will be speaking at Howard Weil in 2 more weeks.  Note that the stock is trying to break out of its current trading range.

• 500,000 acres in resource plays added since late 2009
  
• Their 8 to 12% growth expected this year has nothing in it for Eagle Ford Shale acres acquired or for the Alberta Bakken.
  
• 70 hedged on gas for 2010; 50% hedged for gas for 2011. 40% of 2010 expected oil production hedged.
  
• Slide 7 is very telling regarding the higher multiples enjoyed. See presentation here
  
• Big plays are held by production, shifting capex to oily projects, 70% of budget in resources plays
  
• Granite Wash play:
  
  • 1/2 locations are oily
    
  • 8 Bcfe EURs for $7 to $9 mm per horizontal
    
  • Have 200 locations ready to go, drilling 20 to 25 wells for each of the next 8 years.
• Uinta Basin oil wells (Monument Butte)
  
  • 350 wells this year
    
  • early wells were 60 to 80 bopd IP
    
  • now seeing upwards of 100 bopd
    
  • wells only take 3 days to drill so 1 rig drills 60 to 65 per year, they are running 5 rigs
    
  • Most profitable oil play they have.
    
• Williston Basin
  
  • 3 rig program – 25 wells this year
    
  • planning 40% ramp this from current 2,700 bopd.
    
• Southern Alberta Basin
  
  • 221,000 net acres
    
  • Looks a lot like the Williston Basin
    
  • Rig comes in in April, drill 10 wells this year.
  • Maybe results on the 2Q call.

Valuation: Still cheap at 4.9x 2010 estimate CFPS of $10.98 and 4.8x 2011 estimate of $11.38.  I expect both estimates to drift higher as the year progresses and I see no equity deals this year here. 

Other Items:

• I’ll have the mid cap Orange Charts out tomorrow; the small caps are not quite done reporting yet. 
  
• Look for KOG to report tonight for tomorrow

Odds & Ends

Analyst Watch:

• CLNE – upped to Outperform with target going from $17.50 to $25 at Northland Securities
  

Market Sentiment Watch: A market without economic data releases tends to drift either aimlessly or lower. Today is day two without data. I see a number of stories touting this as the 1 year anniversary of the turn higher in the markets and included a link to one at the bottom of the post. I also see, as expected,  a number of technicians worrying that the recent run is done AND that turning here puts in a double top (lower high for the market). We shall see but I have my doubts as these same guys were looking for a big fall in the last two months and missed the turn higher that brought the S&P back to 1,138. Earnings for the little names in the group continue to trikle out as the season winds to a close. Lastly, don’t forget about the ZIM as it waits in the weeds (to borrow an expression); it will be active again soon.

In Today’s Post:

1. Holdings Watch
   
2. Commodity Watch
   
3. Crack Spread Update
   
4. Stuff We Care About Today – CPE
   
5. Odds & Ends
   

Holdings Watch:

• ZCAT (Zman Catalyst portfolio, formerly the $10KP II):
  
  • $19,200
    
  • 40% Cash
    
  • The Holdings Tab Is Updated for the Quick View portion.
    
  • Yesterday’s Trades:
    
    • WLL – Added (20) March $80 calls (higher risk given the timing) for just under $0.95 with the stock at $77.75. My sense is that oilier names will outpace the gassier E&Ps during this post earnings season lull until natural gas finds a trading range during the Spring shoulder season. WLL is one of the cheapest names amongst the Bakken players despite the recent run there.

• ZIM (Zman Inefficient Markets portfolio)
  • $12,900
    
  • 100% Cash
    
  • The Holdings Tab Is Updated.
  • Yesterday’s Trades:
    • None

Commodity Watch

Crude oil rose $0.37 to close at $81.87 yesterday, in thin, listless trading. This morning crude is trading off $1+ on a strong dollar, weak equity futures and profit taking in front of this week’s inventory reports which isn’t too surprising after the run we’ve had.

• Early Read On Oil Inventories:
  • Crude:  UP 2.0 mm barrels
    
  • Gasoline: UP 0.15 mm barrels – further firming in demand here will probably set the independent refining group to moving. See Cracks section below.
    
  • Distillates: DOWN 0.940 mm barrels
    

Natural gas eased another $0.07 to close at $4.53 yesterday. Gas is acting like it wants to find a short term home in the $4.50 range. This morning gas is trading up a penny.

• Imports Watch: 8.9 Bcfgdp, down 0.3 Bcfgpd from last week.
  
  • Canada: 7.3 Bcfgpd, down 0.4 Bcfgpd from last week and 0.7 Bcfgpd from last year.
    
  • LNG: 1.6 Bcfgpd, up slightly from last week, up 0.5 Bcfgpd from last year, but still no evidence of a big build in volumes.
    

Crack Spread Update

Key Takeaways:

Last week I wrote: For the last couple of weeks I have been looking for the beginning of a seasonal increase in spreads. It looks like it may be starting but the action is still hesitant and I’d like to see gasoline demand remain elevated this Wednesday (though it’s not likely to mount a significant rally from here just yet). 

So far so good on all of the above.  It may be hard to tell in the first graph above but cracks spreads across the country are recovering at a fairly swift pace.

The stocks have started to take the slightest of notice as well, coming off their recent lows since the beginning of the month. VLO even looks like a break out on a chart.

Stuff We Care About Today

CPE Reports 4Q Results and Issues Guidance

The 4Q Numbers:

• Production of 35.4 MMcfepd (53% oil) vs 20.7 MMcfepd in 4Q08
  • 27.4 MMCfepd in 3Q09
  • 33.1 MMCfepd in 2Q09
  • 33.6 MMCfepd in 1Q09
• Revenue of $30.1 mm vs $24 mm expected
• EPS of $2.45 including a $2.32 gain on recoupment of royalties and interest from the Minerals Management Service vs $0.03 expected.
• CFPS of $0.39 vs $0.50 expected

The Basics: I don’t write about CPE often. They plan to spend $61.7 mm this year as they transition from a deepwater and shelf player to a long lived onshore E&P company. They currently operate two divisions:

• Offshore in the Gulf of Mexico Deepwater and Shelf. Over half of CEP’s 2009 production came from their two deepwater assets, Habernero and Medusa.  CPE is looking to sell its Shelf assets, currently producing close to 14 MMcfepd and my hunch is that they will be looking at opportunities in ultradeep to farmout if they can’t pull off a near term sale. 
  
• Onshore:
  • Haynesville Shale - CPE has a whopping 577 acres in Bossier Parish.  Plan for 2010 is to drill 2 horizontal Hayneville wells (they are in the core and see reserves in the area as 6.4 Bcfe / well for $9 mm. Look for acquisitions here this year to bolster this toenail hold.
  • Permian Basin of west Texas (Wolfberry). Plan is to drill up to 16 Wolfberry oil wells this year.   Company plans to accelerate drilling after 2010 and will examine downspacing from current 40 acre to 20 acre spacing.
• Essentially the idea is to take cash flow from the deepwater and reinvest it in the longer lived onshore plays it has recently entered. 

2010 Production:  (down from 4Q levels but again, it’s a transition year)

• 1Q10:  27-29 MMcfepd
• 2010:  27-31 MMcfepd

Nutshell: CPE has run sharply in the last 6 weeks, story worth a listen today and potentially worth a trade.

Conference Call: Today, 11 am EST

BEXP speaks at Raymond James tomorrow. Could be time for another operational update to coincide with the speech as they have a number of wells listed as completing.

Look for the Big Cap E&P Orange Charts in Tomorrow’s Post

Odds & Ends

Analyst Watch:

• HK – upped to Outperform at Wells Fargo on valuation.
  
• SM – upped to Outperform at Wells Fargo.
• LINE – initiated at Neutral at Wells Fargo.
• FSLR – cut to Underweight from Neutral at JPM

Housekeeping Watch:  I will be traveling March 22 through 26th, light posting only.

Interesting Reading Watch:

• Bull Turns One … making it statistically more likely it suddenly doesn’t falter.

Market Sentiment Watch: A market without economic data releases tends to drift either aimlessly or lower. Today is day two without data. I see a number of stories touting this as the 1 year anniversary of the turn higher in the markets and included a link to one at the bottom of the post. I also see, as expected,  a number of technicians worrying that the recent run is done AND that turning here puts in a double top (lower high for the market). We shall see but I have my doubts as these same guys were looking for a big fall in the last two months and missed the turn higher that brought the S&P back to 1,138. Earnings for the little names in the group continue to trikle out as the season winds to a close. Lastly, don’t forget about the ZIM as it waits in the weeds (to borrow an expression); it will be active again soon.

In Today’s Post:

1. Holdings Watch
   
2. Commodity Watch
   
3. Crack Spread Update
   
4. Stuff We Care About Today – CPE
   
5. Odds & Ends
   

Holdings Watch:

• ZCAT (Zman Catalyst portfolio, formerly the $10KP II):
  
  • $19,200
    
  • 40% Cash
    
  • The Holdings Tab Is Updated for the Quick View portion.
    
  • Yesterday’s Trades:
    
    • WLL – Added (20) March $80 calls (higher risk given the timing) for just under $0.95 with the stock at $77.75. My sense is that oilier names will outpace the gassier E&Ps during this post earnings season lull until natural gas finds a trading range during the Spring shoulder season. WLL is one of the cheapest names amongst the Bakken players despite the recent run there.

• ZIM (Zman Inefficient Markets portfolio)
  • $12,900
    
  • 100% Cash
    
  • The Holdings Tab Is Updated.
  • Yesterday’s Trades:
    • None

Commodity Watch

Crude oil rose $0.37 to close at $81.87 yesterday, in thin, listless trading. This morning crude is trading off $1+ on a strong dollar, weak equity futures and profit taking in front of this week’s inventory reports which isn’t too surprising after the run we’ve had.

• Early Read On Oil Inventories:
  • Crude:  UP 2.0 mm barrels
    
  • Gasoline: UP 0.15 mm barrels – further firming in demand here will probably set the independent refining group to moving. See Cracks section below.
    
  • Distillates: DOWN 0.940 mm barrels
    

Natural gas eased another $0.07 to close at $4.53 yesterday. Gas is acting like it wants to find a short term home in the $4.50 range. This morning gas is trading up a penny.

• Imports Watch: 8.9 Bcfgdp, down 0.3 Bcfgpd from last week.
  
  • Canada: 7.3 Bcfgpd, down 0.4 Bcfgpd from last week and 0.7 Bcfgpd from last year.
    
  • LNG: 1.6 Bcfgpd, up slightly from last week, up 0.5 Bcfgpd from last year, but still no evidence of a big build in volumes.
    

Crack Spread Update

Key Takeaways:

Last week I wrote: For the last couple of weeks I have been looking for the beginning of a seasonal increase in spreads. It looks like it may be starting but the action is still hesitant and I’d like to see gasoline demand remain elevated this Wednesday (though it’s not likely to mount a significant rally from here just yet). 

So far so good on all of the above.  It may be hard to tell in the first graph above but cracks spreads across the country are recovering at a fairly swift pace.

The stocks have started to take the slightest of notice as well, coming off their recent lows since the beginning of the month. VLO even looks like a break out on a chart.

Stuff We Care About Today

CPE Reports 4Q Results and Issues Guidance

The 4Q Numbers:

• Production of 35.4 MMcfepd (53% oil) vs 20.7 MMcfepd in 4Q08
  • 27.4 MMCfepd in 3Q09
  • 33.1 MMCfepd in 2Q09
  • 33.6 MMCfepd in 1Q09
• Revenue of $30.1 mm vs $24 mm expected
• EPS of $2.45 including a $2.32 gain on recoupment of royalties and interest from the Minerals Management Service vs $0.03 expected.
• CFPS of $0.39 vs $0.50 expected

The Basics: I don’t write about CPE often. They plan to spend $61.7 mm this year as they transition from a deepwater and shelf player to a long lived onshore E&P company. They currently operate two divisions:

• Offshore in the Gulf of Mexico Deepwater and Shelf. Over half of CEP’s 2009 production came from their two deepwater assets, Habernero and Medusa.  CPE is looking to sell its Shelf assets, currently producing close to 14 MMcfepd and my hunch is that they will be looking at opportunities in ultradeep to farmout if they can’t pull off a near term sale. 
  
• Onshore:
  • Haynesville Shale - CPE has a whopping 577 acres in Bossier Parish.  Plan for 2010 is to drill 2 horizontal Hayneville wells (they are in the core and see reserves in the area as 6.4 Bcfe / well for $9 mm. Look for acquisitions here this year to bolster this toenail hold.
  • Permian Basin of west Texas (Wolfberry). Plan is to drill up to 16 Wolfberry oil wells this year.   Company plans to accelerate drilling after 2010 and will examine downspacing from current 40 acre to 20 acre spacing.
• Essentially the idea is to take cash flow from the deepwater and reinvest it in the longer lived onshore plays it has recently entered. 

2010 Production:  (down from 4Q levels but again, it’s a transition year)

• 1Q10:  27-29 MMcfepd
• 2010:  27-31 MMcfepd

Nutshell: CPE has run sharply in the last 6 weeks, story worth a listen today and potentially worth a trade.

Conference Call: Today, 11 am EST

BEXP speaks at Raymond James tomorrow. Could be time for another operational update to coincide with the speech as they have a number of wells listed as completing.

Look for the Big Cap E&P Orange Charts in Tomorrow’s Post

Odds & Ends

Analyst Watch:

• HK – upped to Outperform at Wells Fargo on valuation.
  
• SM – upped to Outperform at Wells Fargo.
• LINE – initiated at Neutral at Wells Fargo.
• FSLR – cut to Underweight from Neutral at JPM

Housekeeping Watch:  I will be traveling March 22 through 26th, light posting only.

Interesting Reading Watch:

• Bull Turns One … making it statistically more likely it suddenly doesn’t falter.

Market Sentiment Watch: A market without economic data releases tends to drift either aimlessly or lower. Today is day two without data. I see a number of stories touting this as the 1 year anniversary of the turn higher in the markets and included a link to one at the bottom of the post. I also see, as expected,  a number of technicians worrying that the recent run is done AND that turning here puts in a double top (lower high for the market). We shall see but I have my doubts as these same guys were looking for a big fall in the last two months and missed the turn higher that brought the S&P back to 1,138. Earnings for the little names in the group continue to trikle out as the season winds to a close. Lastly, don’t forget about the ZIM as it waits in the weeds (to borrow an expression); it will be active again soon.

In Today’s Post:

1. Holdings Watch
   
2. Commodity Watch
   
3. Crack Spread Update
   
4. Stuff We Care About Today – CPE
   
5. Odds & Ends
   

Holdings Watch:

• ZCAT (Zman Catalyst portfolio, formerly the $10KP II):
  
  • $19,200
    
  • 40% Cash
    
  • The Holdings Tab Is Updated for the Quick View portion.
    
  • Yesterday’s Trades:
    
    • WLL – Added (20) March $80 calls (higher risk given the timing) for just under $0.95 with the stock at $77.75. My sense is that oilier names will outpace the gassier E&Ps during this post earnings season lull until natural gas finds a trading range during the Spring shoulder season. WLL is one of the cheapest names amongst the Bakken players despite the recent run there.

• ZIM (Zman Inefficient Markets portfolio)
  • $12,900
    
  • 100% Cash
    
  • The Holdings Tab Is Updated.
  • Yesterday’s Trades:
    • None

Commodity Watch

Crude oil rose $0.37 to close at $81.87 yesterday, in thin, listless trading. This morning crude is trading off $1+ on a strong dollar, weak equity futures and profit taking in front of this week’s inventory reports which isn’t too surprising after the run we’ve had.

• Early Read On Oil Inventories:
  • Crude:  UP 2.0 mm barrels
    
  • Gasoline: UP 0.15 mm barrels – further firming in demand here will probably set the independent refining group to moving. See Cracks section below.
    
  • Distillates: DOWN 0.940 mm barrels
    

Natural gas eased another $0.07 to close at $4.53 yesterday. Gas is acting like it wants to find a short term home in the $4.50 range. This morning gas is trading up a penny.

• Imports Watch: 8.9 Bcfgdp, down 0.3 Bcfgpd from last week.
  
  • Canada: 7.3 Bcfgpd, down 0.4 Bcfgpd from last week and 0.7 Bcfgpd from last year.
    
  • LNG: 1.6 Bcfgpd, up slightly from last week, up 0.5 Bcfgpd from last year, but still no evidence of a big build in volumes.
    

Crack Spread Update

Key Takeaways:

Last week I wrote: For the last couple of weeks I have been looking for the beginning of a seasonal increase in spreads. It looks like it may be starting but the action is still hesitant and I’d like to see gasoline demand remain elevated this Wednesday (though it’s not likely to mount a significant rally from here just yet). 

So far so good on all of the above.  It may be hard to tell in the first graph above but cracks spreads across the country are recovering at a fairly swift pace.

The stocks have started to take the slightest of notice as well, coming off their recent lows since the beginning of the month. VLO even looks like a break out on a chart.

Stuff We Care About Today

CPE Reports 4Q Results and Issues Guidance

The 4Q Numbers:

• Production of 35.4 MMcfepd (53% oil) vs 20.7 MMcfepd in 4Q08
  • 27.4 MMCfepd in 3Q09
  • 33.1 MMCfepd in 2Q09
  • 33.6 MMCfepd in 1Q09
• Revenue of $30.1 mm vs $24 mm expected
• EPS of $2.45 including a $2.32 gain on recoupment of royalties and interest from the Minerals Management Service vs $0.03 expected.
• CFPS of $0.39 vs $0.50 expected

The Basics: I don’t write about CPE often. They plan to spend $61.7 mm this year as they transition from a deepwater and shelf player to a long lived onshore E&P company. They currently operate two divisions:

• Offshore in the Gulf of Mexico Deepwater and Shelf. Over half of CEP’s 2009 production came from their two deepwater assets, Habernero and Medusa.  CPE is looking to sell its Shelf assets, currently producing close to 14 MMcfepd and my hunch is that they will be looking at opportunities in ultradeep to farmout if they can’t pull off a near term sale. 
  
• Onshore:
  • Haynesville Shale - CPE has a whopping 577 acres in Bossier Parish.  Plan for 2010 is to drill 2 horizontal Hayneville wells (they are in the core and see reserves in the area as 6.4 Bcfe / well for $9 mm. Look for acquisitions here this year to bolster this toenail hold.
  • Permian Basin of west Texas (Wolfberry). Plan is to drill up to 16 Wolfberry oil wells this year.   Company plans to accelerate drilling after 2010 and will examine downspacing from current 40 acre to 20 acre spacing.
• Essentially the idea is to take cash flow from the deepwater and reinvest it in the longer lived onshore plays it has recently entered. 

2010 Production:  (down from 4Q levels but again, it’s a transition year)

• 1Q10:  27-29 MMcfepd
• 2010:  27-31 MMcfepd

Nutshell: CPE has run sharply in the last 6 weeks, story worth a listen today and potentially worth a trade.

Conference Call: Today, 11 am EST

BEXP speaks at Raymond James tomorrow. Could be time for another operational update to coincide with the speech as they have a number of wells listed as completing.

Look for the Big Cap E&P Orange Charts in Tomorrow’s Post

Odds & Ends

Analyst Watch:

• HK – upped to Outperform at Wells Fargo on valuation.
  
• SM – upped to Outperform at Wells Fargo.
• LINE – initiated at Neutral at Wells Fargo.
• FSLR – cut to Underweight from Neutral at JPM

Housekeeping Watch:  I will be traveling March 22 through 26th, light posting only.

Interesting Reading Watch:

• Bull Turns One … making it statistically more likely it suddenly doesn’t falter.