11
May

Friday – Natural Gas Review + Some Other Drill Cuttings

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Despite firm to rising commodity prices the energy stocks were down with the broader market yesterday, the result of lower than expected retail sales. What, you thought $3 gasoline had no impact?

  • XOI - down 1.9%
  • XNG - down 1.5% - notice the gassy stocks outperformed. Hmmm...
  • OIH  - down 2.1%

Nigeria + Early Tropical Storm + Hurricane To Hit Gulf Prediction = Gasoline Rally. June RBOB attempted to close at new high for the year, but ended up just short of a dime at $2.326. Between more dire predictions of a "greater than even chance of a named storm hitting the Gulf of Mexico" and people asking whether or not having an early Tropical Storm brew up translated into a busy hurricane season (which by the way it doesn't) and finally having the folks at MEND take a few more hostages and make more threats gasoline surged to new highs. I still think it won't reclaim the the $2.45 level seen at the end of April and will begin to soften with more data in coming weeks. But I've been wrong so far.

Gas Storage Summary: 96 Bcf and all is well. June gas rose on the data ending the day flat at $7.72.

Here's a Review of the Natural Gas Numbers:

Gas Inventories Are 21% Above The Five Year Average, But 12% Below Year Ago Levels.

  • Storage as of May 4, 2007: 1,747 Bcf (updated May 10, 2007).
  • Max storage for this week in history: 1,989 Bcf (2006). At present gas is at it’s 2nd highest level in history for this date.
  • We are now down 12% (242 Bcf) relative to year ago storage levels. Due to the larger injection this past week relative to the year ago comparable week we eroded the YoY deficit by 1% (see second chart below).
  • We are now 21% (306 Bcf) above the 5 year average which includes 2006’s record levels (see third chart below).

Looking Ahead:

Here’s some quick stats for the period running from the end of first week in May through the end of October (the traditional end of the injection season):

gas-storage-comp-051007.JPG

  • 5 Year Average Injections: 1,830 Bcf. Taken with current storage that scenario would put us at a pretty bearish / very comfortable 3,577 Bcf in storage, or 127 Bcf over record storage.
  • Minimum Injections: 1,452 Bcf in 2002. This would yield storage of 3,199 Bcf. 
  • Maximum Injections: 2,351 Bcf in 2003. That year saw storage trough at a very low 642 Bcf. This won’t happen with this year’s much higher storage levels going into the injection season.
  • Last year we injected 1,461 Bcf into storage during this period which would yield storage of 3.2 Tcf.

Previously, I had thought natural gas would suffer “a little bout of seasonal weakness, potentially falling as low as $6.50.”

I’m setting aside thoughts of hurricane induced spikes and/or several consecutive weeks of excessive heat for now. Taking into account that while current Lower 48 production is up only slightly relative to 2006’s storm impacted volumes but that Canadian volumes are more than likely to decline more than LNG imports will increase I don’t see natural gas trading on average much above or below current levels of $7.00 to $8.50 this summer.

The well run E&P mint’s money at those levels.

gas-storage-051007-bbb.JPG

As you can see from the following rather ugly chart, year to date injections are ontrend. If compare the chart above with the chart below you can see just how much of an impact that bit of cold starting in mid January had in terms of revesing the YoY surplus into the current YoY deficit.

gas-sto-with-inj-051007.JPG

Odds & Ends 

Analyst Watch: (CNQ) cut to neutral at RBC, (IMO) to outperform also at RBC. The other brokes must have slept in.

LNG Imports Watch: According to Apache, LNG is now running about 2.9 Bcfgpd, or 0.9 Bcfgpd higher than this time last year. I thought the guest on CNBC was out of his tree yesterday when I heard him say 3 Bcfgpd because in February we were only running 1.6. That's quite an acceleration and in line with the EIA's statements earlier in the year. Apache says summer time regassification could reach 3.6 Bcfgpd which would be a new record. Liquifaction, the front end of the process, capacity remains far behind the current and certainly the planned regassification capacity in the U.S.

Canadian Imports Watch: While the above paragraph would seem bearish for prices don't forget about that expected drop in Canada. Courtesy of APA's excellent weekly newsletter, comes news that imports from the North have fallen to 7.9 Bcfgpd, that's down a whopping 1.2 Bcfgpd versus the year ago week. Blame oil sands needs, flat production, what have you, the drop is there.

Putin Watch: Those petro dollars have gone to his head. Describing the foreign policy of his "allies" as reminicent of the third reich. He didn't say the U.S. or U.K. but we all know what he meant. The next cold war will be fought by withholding energy.

IEA Watch: The IEA urged OPEC to increase oil production now or face sharp draws on oil inventories this summer.  IEA sees non-Opec growth slowing and the demand on Opec increasing (both by about 100,000 barrels).

Wind Watch: The American Wind Power Association says 3,000 megawatts (the equivalent of three good nukes) will come online this year. That's a just over a 25% bump from the 11,600 megawatts in service during 2006.  Of course, Texas leads the way in that too with over 2,700 Mw in place in 2006 and with one-third of 2007's additions to be added there.  California is a distant second in clean power, down around 2,400. No matter where it's placed it's more good news for (GE). Man I wish they would spin out some of their divisions. Talk about unlocking value. Maybe these guys will go public.

Finally, I appreciated all the feedback from last night's post. Please keep it up today. Suggestions so far have given me lots to think about.

Best of luck today and have a great weekend!

33 Responses to “Friday – Natural Gas Review + Some Other Drill Cuttings”

  1. 1
    zman Says:

    more managements I like continued from last night’s post: CHK and EOG – long tried and tested.

    up and coming: SWN and KWK

  2. 2
    Attacking Mid Says:

    z – Boots and Coots (WEL) has been beaten down pretty far. Their PE is very low. Thinking it might be a fairly safe bet right now. Thoughts?

    AM.

  3. 3
    zman Says:

    Morning Nicky

    I’d think so but another bombing or kidnapping courtesy of the lovely blokes at MEND and it’s off to the raises. Barring that, it looks to me like it’s a speculative blowout putting in a lower high. FWTW.

  4. 4
    zman Says:

    Morning AM –

    Funny thing. I spoke with a buyside guy about them the other day briefly. He’s smart and doesn’t excite easily. He seemed sort of excited about a recent acquisition they made. The stock is beat down, as I understand it, over a dearth of well control issue business of late but the utilization of their other business continues to rise. I’m a little out of my depth here as I don’t know the model well but as I understand it it’s worth a look. This guy has an adjusted cost of $2 in CHK and he hasn’t gotten any dumbed since. LOL.

  5. 5
    bigh Says:

    Hi Zman, I had trouble posting for a few days, I throught I may have been kick off, was feeling real bad, but I fixed the issue, I been buying FWLT calls, and in and out of tso puts and calls, all winning plus some oih in and outs, I daded yesterdays open etc…I suspected a blow off….well we see today, and next monday~

  6. 6
    zman Says:

    Big H – I have never kicked anyone off. If you have more trouble let me know and I’ll try to help but if you’re winning at the long/short game in the refiners you obviously don’t need help from me!!!

    Out of curiousity, do you have to register to post or can you just type it and go?

    Don’t know FWLT – anything interesting there.

  7. 7
    zman Says:

    PQ –

    Think nothing of the the senior VP of exploration excercising options to buy stock before their well at Atchafalaya is down. It wouldn’t matter either way as his cost remains the same at just over $3

  8. 8
    James Leaderer Says:

    Z – thanks for your reply over on Phils – this is JPL, and NE is flying – is there a spot to get out – or is the stars aligned proper for a run – and BTW – this is a great site. Thanks

  9. 9
    schober Says:

    re wind watch
    those figs are, i suspect, the maximum possible if the wind were the optimum speed all the time; in reality the anualized yield will be 30% of those figs at best and could be as low as 15% – the wind is either too stron or too weak for the turbines!

    i suggest you look at these llinks to gat more realistic view on windiness
    http://www.powermanagementdesignline.com/news/191901915
    http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A254879
    http://commentisfree.guardian.co.uk/mark_seddon/2007/03/cashing_in_on_the_environmentm.html
    oh, and dont forget the massive transmissiion infrastructure needed to distribut this “free” power

  10. 10
    bigh Says:

    No…I just fill in the 3 fields under your “leave reply”, but I will , its only proper….and yea I need ya thats why I read ya every day for a long time now, I read you on Phils, and as soon as I found your site came here..

    I signed up at CBOE for the Vitural trade, and its a big help , plus gonna start a jurnal, !! this Is most important. I ‘m getting to correct my bad points….

    My last trade today, I brought OIH Calls May yesterday. at 1.60— NICE I took the plung, small enough, and lucky today was not a follow through- so I am sellin now—2.70 Enough!

  11. 11
    Stephen Says:

    Drillers, GSF and NE, are having a really good day, on very heavy volume. You must be happier with those NE calls. Seems a bit odd to me.

  12. 12
    zman Says:

    JPL – I try not to clog up the works over there too much and while it’s a great crowd I think they get tired of too much oil chatter at times.

    I think we see $90 short term on NE.

    Natural gas tried to correct but it’s up again now. I suspect more short covering.

  13. 13
    bigh Says:

    OT: CHINA STOCK/ETF QUESTION…

    Anyone, know some china etf’s or the like, I would like a list of them, to be ready to short,….If anyone has anyways to short china stk complex, I would appricate knowing, I want to be ready for whatever may happen ~ Thanks All-

    PS I went long on TSL and LFC when the china trade / shangi thing blew up. I waited and brought some did fine , but its getting questionable soon!

  14. 14
    bigh Says:

    I was pissed that I didn’t buy GSF calls, the other day- looked like to much intrest and the beating looked to much on it.

  15. 15
    Stephen Says:

    bigh,

    I know that the life insurers, LFC are long the Shanghai stock market, they have gone on record saying they bought in between 3000 and 4000 on the way up, now at 4000 they have stopped buying.

    If you look at their earnings from the previous quarter or half year, a lot of their earnings were from the stock market, I think they are a good candidate to short, you just have to get the timing right.

  16. 16
    zman Says:

    Stephen – if OIH can take out highs NE is going to $90 near term. Fundamentals are very strong.

  17. 17
    zman Says:

    NE up $3 that seems like a lot for one day.

    HAL is breaking out.

  18. 18
    zman Says:

    HAL: Out $32.50 May Calls at $1.10, bought for $0.60 Apr 26.

    Rolling to June

  19. 19
    zman Says:

    Punted all TSO puts $100 to $110 for cents on the dollar. 🙁

  20. 20
    zman Says:

    Closed second half of EOG May 75s for $1.50. Up a dime to cost.

  21. 21
    Stephen Says:

    I got badly burnt on PGS down 6% after earnings, but I remain bullish and there has been some very strong volume today with 6 times the average volume in big orders. I might double up.

    My real question is, what type of multiple should these guys trade at?

    If you look at the deepwater, semi-sub, drillers, DO and RIG, they trade at 10 times forward earnings. The mixture of jackup and semi-sub drillers, GSF and NE, trade at 7 times forward earnings.

    Does that mean the expectation is that these offshore seismic companies should trade at 10 times forward earnings at most?

  22. 22
    AnotherPhil Says:

    Z, any thoughts on SU?

  23. 23
    zman Says:

    SU – I think takeout rumors keep it up here. High gas and somewhat lower crude along with lower guidance have had no negative impact.

  24. 24
    zman Says:

    Nicky – odd isn’t it?

    TK taking a hit late while the other tankers are playing catchup.

    The IEA news today should bode well for 2H07 traffic and rates!

  25. 25
    zman Says:

    Cramer dumping refiners? No I know I’m on the wrong side of that trade!

  26. 26
    bill fraser Says:

    I took a hit on PGS

    i think they are overpriced and will exit soon

    I like vlo as a covered call play

    buy the stock and sell the june 75’s

    i think the tanker stocks are over priced here but tnp is my favorite but im out of it at the moment due to price.

    Speaking of shippers, the dry buler market has been going crazy, exm and drys are my favorites and NM at prices below 9

  27. 27
    zman Says:

    Nicky – thanks. I see it.

    Bill F – hear ya tankers. Big run. Still in TK, you like FRO at all?

    Dry bulk I’ve been watching.

    PGS – that stinks. Saw the ? earlier on where multiples should be. Don’t know. I’ll look at some third party research and get back on it.

  28. 28
    Stephen Says:

    Thanks as always.

  29. 29
    zman Says:

    NE up 4% , GSF up 5%

  30. 30
    zman Says:

    CFTC shows nat gas shorts covered a very little bit last week.

    Still near record high net short position

  31. 31
    zman Says:

    OIH closing at all time high.

    Bought back a 2x position in HAL for June calls at $0.55

  32. 32
    zman Says:

    Thanks for a great week everybody! Look for the weekly wrap sometime tomorrow. I’ll be around from time to time this weekend if you have any questons or comments (still looking for feedback) but if I don’t hear from you, have a great one!

  33. 33
    sondaj Says:

    sondaj…

    […]Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Friday – Natural Gas Review + Some Other Drill Cuttings[…]…

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