04
Jun

Merger Monday?

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Newfield Merger Watch: So for nothing. The Houston Chronicle ran a story over the weekend indicating some investors were speculating that (NBL) would be the acquirer. Time will tell but a one for one trade of shares would yield a neat, if not low, 20% premium based on Friday's prices. That's probably a bit convenient and doesn't fully reflect the value of (NFX)'s Rockies and Midcontinent growth potential. Comment: we took $50 and $55 calls as the situation heated up on Friday and I'll be setting tight stops this morning. Note positions and performance are updated through Friday on my primary site.

Anadarko Keeps Paring Back. This time it is midstream assets on the block in the form of 6,000 miles of gas gathering lines and processing plants located in Oklahoma and southern Kansas. Price tag: $1.85 billion. Comment: They'll be at their goal of $12 billion in debt well before the end of 2007 at this rate (down from $26B at 3Q06). Pre market trading has them nudging over $50 and I may punt my August $50 call position today as I'm not that greedy.

Alaron commenting on the move higher in crude on Friday:

"The pipeline and refinery news today was definitely supportive. We can't afford to lose a drop of fuel," said Phil Flynn at Alaron Trading in Chicago. Comment: But Phil we just found 3.3 million barrels of gasoline by virtue of the 1.3 mm barrel build in gasoline stocks relative to your 2 million barrel draw expectation. Can't you just be happy about that?!

Nigeria Watch: MEND asked for a 1 month ceasefire on Saturday and then went on to kidnap half a dozen Russians and kill there driver plus four (SLB) workers. I wouldn't put a lot of faith in MEND's idea of a truce.

CNBC's Hurricane 2007 Watch Watch: Nothing to report. No storms crashed across Mexico from the Pacific and tropical storm Barry may go down in the record books as the shortest lived "storm". Unless the reporters can find a way to turn a HIGH pressure system dominating the Gulf of Mexico into a hurricane they should have nothing to talk about today.

CFTC Natural Gas Watch: The non-commercial net position took a dip towards the short side last week. Shorts remained virtually unchaged but longs took profits increasing the net position.

cftc-052907.jpg

Natural Gas Update: see tomorrow's piece.

Odds & EndsAnalyst Watch: nada

New Entrant To E&P Land. Loews Corp (LTR) buys 2.5 Tcfe of reserves from (D) for $4.025 billion in cash. The assets are in the Permian Basin and Black Warrior Basin and the acquisition price would appear very reasonable. Until now, Loews had been known as insurance company and cigarette maker. They did have 44 drilling rigs but this is the first step towards becoming an energy player. This is a pretty good step in that direction and shouldn't do anything bad for the stock which has done nothing but go up.

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76 Responses to “Merger Monday?”

  1. 1
    zman Says:

    Bastardi’s latest summer forecast: HOT except for Texas.

    http://www.accuweather.com/news-story.asp?partner=accuweather&traveler=0&article=8

    This forecast is based on parallels to weather seen in the 30’s, 40’s, and 50’s.

  2. 2
    zman Says:

    XTO buys assets from D also.

    Also mulls over forming MLP with older assets. This trend towards “MLPing” your older assets is going to accelerate and help many companies unlock a lot of hidden value while serving to highlight their new growth.

    Back in late April I wrote this:
    I’m not touching E&P big cap shorts right now given the (PXD) Master Limited Parnership news yesterday. It may become commonplace to take a resources play, like a basin that has long reserve life but is pretty drilled up, and be able to package it and sell it to the market place with a 5 to 7% yield on it as an MLP. In that case then (APC), (CHK), (DVN), (EOG), (KWK) and even (COP) can/will do just that, thereby unlocking a pretty heft chunk of value and people are going to start bidding these stocks up in anticipation . Some of the MLPs are already in the works and even announced, others are many months away.

    I still won’t touch an E&P short

  3. 3
    zman Says:

    Crack spread page updated. I’ve got to find something a little more up to date but you’ll note that the 4 week trend is down on the west coast and pac-nw regions.

    http://zmansenergybrain.com/?page_id=60

  4. 4
    zman Says:

    Good morning Nicki, thanks. I think one group of union workers over there already got a 12.5% pay hike. Of course, now every body will want one…weekly.

  5. 5
    zman Says:

    BP – Citigroup cuts rating

  6. 6
    p.wilmington Says:

    From Barrons online:

    Independent Refiners May Be Decliners
    Bear Stearns & Co.

    TODAY’S CRUDE AND REFINED-PRODUCT inventory report from the Department of Energy showed a 1.4 million-barrel build in gasoline inventories, compared to the expected 1.5 million-barrel build. Imports were near record highs, and domestic gasoline production continues to rise. Strong apparent demand, typical for the week before a long holiday weekend, subdued the gasoline inventory build for this week.

    Imports rose by 315,000 barrels per day from a week ago, to 1.61 million barrels per day. The highest import level on record occurred in May 2006, at 1.65 million barrels per day. With the Atlantic basin arb [price spread] still open, we expect imports to continue to remain high.

    We continue to believe refining fundamentals are not particularly strong. While gasoline inventories remain 6% below normal, tight gasoline supplies in the U.S. have been brought on by “non-fundamental” factors. Absent unplanned outages in the past two months, we believe gasoline supplies would be at surplus levels today. Distillate inventories remain 7% above normal seasonal levels.

    We believe gasoline production capacity in the U.S. is underestimated. We estimate gasoline-production capacity, even assuming the current utilization rate of 91%, to be 110,000 barrels per day above current production levels.

    We estimate actual production capacity ay at least 9.6 million barrels per day. We have grown accustomed to major outages, such as the one at Texas City, Texas, where at least 200,000 barrels per day of capacity have been offline for the past two years. This capacity will be restarted in the second half of this year.

    We maintain our Underweight sector rating on the independent refiners. We recommend that investors avoid refining stocks in the near term.

    We project a decline in refining margins from current unsustainably high levels, and believe that stock prices could also pull back.

    We maintain our Underperform ratings on Valero Energy, Frontier Oil, and Western Refining; and our Peer Perform ratings on Tesoro and Sunoco.

    — Nicole Decker
    — Raymond Sulentic

  7. 7
    zman Says:

    Persian gulf…you’re not serious.

  8. 8
    zman Says:

    Thanks PW – sounds like sour grapes but I happen to agree with most of that.

  9. 9
    zman Says:

    Persian Gulf – I guess they’re either: 1) being flip or 2) see some threat to LNG liftings in the region.

    Nat gas is looking like it’ll make another run on $8 pronto.

  10. 10
    zman Says:

    Check out the strength in CHK. They’re really hoping the MLP thing catches on.

    APC up almost another buck. I was only looking for a move to $50 two weeks ago when I took those August Calls so I’ll probably jump with my 50% profit this morning.

  11. 11
    zman Says:

    Congrats to BillBigD on the PSW site for a great XTO call last week.

  12. 12
    Dave Says:

    http://www.wunderground.com/tropical/tracking/na200702.html

    Tropical Cyclone Gonu – 150 mph winds

  13. 13
    zman Says:

    Dave – It’s a concern for oil prices/tanker interruptions

  14. 14
    zman Says:

    Natural gas through $8

  15. 15
    zman Says:

    Nicky – sssshhhhhhh!!!! lol.

    N Gas – I show a high of $8.10 so far today?!

    CHK – up $1.10 – the MLP thing is something they mentioned on the 1Q cc. I’m back in black on average cost there b/c of today’s move!

    CRK – looking for a break out

    PQ incredible! Hit $15.09 earlier. Still no well news.

    NFX holding down ~ 1.5% as the lack of news is a disappointment but hope is held out.

  16. 16
    bill fraser Says:

    the cyclone winds will be down to a tropical storm on weds

    this is as a great opportunity to short NG, imho

  17. 17
    zman Says:

    Why would ng be up on a cyclone in the PERSIAN Gulf? LNG?

  18. 18
    zman Says:

    END – No one cares. The analysts on the case are either afraid of upping their numbers in front of a possible miss at Balgownie or they’re asleep at the wheel. Listening to the lame questions asked on the last conference call I know the latter is at least true.

    If the well the hits it’ll be all their favorite small cap stocks.

    If it misses, they’ll continue to forget that they cover it.

    They might ask a question like what’s production like, are you seeing that expected decline at Goldeneye yet? That wasn’t difficult was it? Numbers will be coming here.

  19. 19
    zman Says:

    Tupp – when does that VLO differential page update?

    I see they break out the data a little more than TSO that actually calculates a 3-2-1 or 2-1-1 depending on the region.

    You can definitely see the rollover better in gasoline cracks (not overall cracks) in say, the mid-continent. If they update tonight I may add a second chart showing VLO’s take on cracks in addition to TSO’s

  20. 20
    T-Tupp Says:

    i think on tuesday or wednesday’s

  21. 21
    bill fraser Says:

    >Whilst this storm is forecast to dissipate quickly over land,

    Thats the key phrase, I cant wait for weds at 1030 am

  22. 22
    zman Says:

    Nicky – thanks for the checkup. It’s a rare day that a storm impacts shipping or production over there. Indonesia, Australia, GOM, even N. Sea yes but P.G., no.

    I’d really doubt if anything comes of it.
    Algeria and Egypt are the only countries even close to the region who ship LNG to the U.S. and if you have a globe handy you can see that they don’t use the Persian Gulf. Geographically impossible. They use the Med instead.

  23. 23
    zman Says:

    Thanks Tupp – I’m definitely going to graph out some of their data for gasoline differentials.

    Also, they have a good chart of demand that I might adopt the format of.

  24. 24
    T-Tupp Says:

    its crazy how low TSO’s P/CF and P/E (for 2007) are trading compared to industry ave over the past few years of ~ 8-10

    tso; p/cf, p/e: 2.8, 4.1!!!!!
    vlo; pcf, p/e: 5.2, 6.4!!

    –COMPARED TO–

    hoc: 9.8, 12.2 (talk about overvalued!)
    wnr: 9.2, 10.6 (see above)

    and this isn’t because of yoy growth prospects; vlo has a higher yoy eps growth…..

    that being sad VLO seems to be forming a double top– that is if it dosen’t bust through 77$ with some decent volume…..

  25. 25
    T-Tupp Says:

    *that being said, i meant to say above//

  26. 26
    T-Tupp Says:

    i made a decent chart myself, but i want to tag on the most recent data in weekly format onto the monthly format. when i try to graph it in excel it allocates the same spacing for the monthly time frames as it does for the last 5 bits of data (the weekly crack spreads). does anyone know how to adjust this to make the spacing on the x-axis 1/4 of the monthly spaces???

  27. 27
    T-Tupp Says:

    any one know how delayed the quotes on barchart.com are?

  28. 28
    zman Says:

    Thanks Nicki – It’s been added to the weather tab above left folks!

    Tupp – I just put a few rows in between the monthly and weekly data. That’s the break in the chart you see on my cracks page. I’m sure your as good or better with excel as I am and I don’t know how to do what you’re saying. Good idea and probably doable and if I get bored late at night some time I’ll spend the 15 minutes it’ll take to figure it out. Excel can do anything.

  29. 29
    zman Says:

    Tupp – 15 to 30.

  30. 30
    T-Tupp Says:

    a beginer friend was asking, thanks z

  31. 31
    zman Says:

    CRK – small south Tx acquisition / decent F&D on a 3P basis. 1P looks a little pricey at ~ $3 / Mcfe.

    Also upping the budget. I still like this one and it looks like people still like the stock on this news.

  32. 32
    T-Tupp Says:

    im in the middle of lake st. clair here and it looks like a hurricane is coming towards me speaking of tropical storms…… but we arent fortunate enough to be in the tropics up here in the canadia, we get tornadoes!!!

    lol– i should make my way back to the marina b4 i get clobered!!! be back on in an r or 2…

  33. 33
    zman Says:

    Tupp- now why would you want to ruin a perfectly good opportunity to fish, ski (is it too cold for that?), sun yourself with worrying about the market? See ya this afternoon.

  34. 34
    zman Says:

    N – agree completely with that.

  35. 35
    zman Says:

    BTW, natural gas appears to be breaking out.

  36. 36
    zman Says:

    CHK highest level since Oct 2005 (Katrina run)

  37. 37
    zman Says:

    Airlines: poor H!

  38. 38
    zman Says:

    He has no shame!

    Have you seen his numbers for the week?

  39. 39
    zman Says:

    sounds plausible. he’s bullish on distillate on those expectations? I see, so fundamentals REEAAALLYYY don’t matter now.

  40. 40
    H Says:

    Zman thanks for caring, but on friday I’m pretty sure I metioned I was selling all all airline postions…and I did!

  41. 41
    zman Says:

    H – glad I missed that!

  42. 42
    zman Says:

    Tanker stocks continue to like this action. Or is the fact that OPEC keeps adding volumes on a monthly basis?

  43. 43
    zman Says:

    RBOB really not participating here. Funny the refiners are strong with oil and weak with oil. They don’t really seem to move with gasoline yet. I think it’s only a matter of time.

  44. 44
    H Says:

    OU WEE- I was just moving some stuff on my desk and hitting up some tickers, then I knock over my Large coffe cup- its at the end of my desk, and my surge protector is under the desk at the same end , wowo- the whole thing gose spilling right on the wall falling and rushing right to the surge with my power coard and stuff, damm I pulled the pluge–this happened only once or twice before, well I got it in time , cleaned up , got another surge hooked it all back up and I’m running fine, the other is now gonna dry for a few days…I think I’m gonna move it away from the desk!

  45. 45
    zman Says:

    H – Nice work!

    HK and PQ are both at ATH today.

  46. 46
    zman Says:

    END – 27,000 shares. I think I know the sources for all of them!

  47. 47
    Jared Says:

    Z,

    My emails to you keep bouncing for some reason. Would you get in touch? Cheers-

  48. 48
    Kevin Says:

    I agree with the Barrons article. Of the refiners, I think VLO would be the most resilient due to valuation relative to TSO and others in the group, but,..when margins do contract, they will all come down to some degree. If refinery rates move above 92% and gasoline is still showing a 1-1.5 million build, This could be the top for awhile until the wretched CNBC hurricane Terror alerts. LOL!!!

  49. 49
    zman Says:

    J – just sent you an email.

    K – exactly my thoughts. A falling tide will sink all boats…just some less than others.

  50. 50
    Kevin Says:

    Z, Do you agree with my bearish sentiment on those inventory numbers if they are 92% and 1-1.5 build in Gasoline?

  51. 51
    zman Says:

    keybanc cuts NFX to hold. Obviiously they don’t have a lot of faith in any buyout.

  52. 52
    zman Says:

    K – yep on gasoline. I think crude can hold up for a little longer…which is bad for margins in the refining business.

    Although margins are still very high, so are the stock prices.

  53. 53
    zman Says:

    Jared – P has my cell if you ever need me.

  54. 54
    Kevin Says:

    Z, I agree. I think tomorrows move in the refiners will be lower in anticipation of bearish numbers (like last week). Then CNBC will find a way to prop up prices again. They are so good at distorting the facts. LOL!

  55. 55
    H Says:

    what…tommorow OIH hits 175? I see over 175 easy soon!!

  56. 56
    H Says:

    I brought some OIH 180 Calls-JUN @.75

  57. 57
    H Says:

    This rally wants to contiune, its cutting all highs in all the leading areas..it needs to be respected, but looking for signs that a turn is waiting at the exits”

  58. 58
    H Says:

    see…..

  59. 59
    zman Says:

    NEB says Canadian gas volumes to fall 0.5 Bcfgpd in 2007 and expect the drop to continue into 2008.

  60. 60
    zman Says:

    I said I’d sell my PQ based on the fact that it’s up so far so fast (and I’m headed out of town soon). That was at 2:34 pm est with the stock up 8%. That was the peak and it is selling off hard now, may not close positive. And no, I hadn’t got my calls off yet.

  61. 61
    H Says:

    Glad I brought some of them OIH 80 calls….

  62. 62
    zman Says:

    No doubt H. It’s just beginning a breakout. If the commodities hold tomorrow you could see a run on 180.

  63. 63
    zman Says:

    In fact, you’ve got all time highs in XOI, XNG, OIH today. Nice looking breakouts in all.

    APC up over $52 now but I’ll probably sell into further strength tomorrow as I’m 100%+ there in 2 weeks.

    EOG – also getting a little lift

  64. 64
    H Says:

    sold my calls for .35 gain….

  65. 65
    zman Says:

    Thanks for the vote whoever that was!

    Just one more vote and we’re onto the front page! Vote at upper right if you like this site! If you vote AND we get to 100 votes (38 now) you’ll each get a little more free ZEB! I’ll send the 100th voter a Rebel T with MEND’s call on the front in an unmistakable message about the future direction of oil prices.

  66. 66
    bill fraser Says:

    i voted

  67. 67
    zman Says:

    Bill – you knocked me onto the front page, ranked number 9 (in the universe?) for Best Blogs. My sincerest thanks.

    You’re not short gas at present are you? I’d wait for those import numbers plus I’ll look at last week’s weather tonight.

  68. 68
    T-Tupp Says:

    z- how come vlo divides their regions into 4 categories and on your crarts into 5?

  69. 69
    zman Says:

    dunno – there are five PADDs. Maybe they just show the four they operate in. I plan on working on some charts show from their perspective tonight.

  70. 70
    scoop006 Says:

    Z can you share with this board GAS stocks that you believe are headed north.
    Thank you

  71. 71
    Denver Says:

    Z Just wanted to give kudos, sold PQ calls today up 148%. Yep I’d pay if you go that way.

  72. 72
    zman Says:

    Scoop – I’m on it for the morning’s post

    Denver – glad it worked for you. thanks.

  73. 73
    scoop006 Says:

    A-OK

  74. 74
    karmcon Says:

    Hiya Z, tis karmcon from PSW. Found this opinion and thought I would pass along. Any validity you think?

    When Things Can’t Get Any Better…
    The basic idea behind an oil refinery’s business is simple. A refinery converts crude oil into usable products like diesel and gasoline.

    A refinery’s profits come from the “crack spread,” which is the difference between the cost of oil and the price of gas or diesel. When the crack spread is large, these companies can sell their product for a large amount relative to the fixed costs of refining, or “cracking” in industry terms, the crude oil.

    To get a rough gauge for the economic situation for oil refiners, I created my own crack spread using the ratio of diesel prices to crude oil prices. I like looking at a ratio between diesel and oil rather then a spread, since it’s the clearest way to track the performance of diesel relative to the performance of crude oil. Specifically, the indicator I’m using is the price of diesel (in ¢/Gal) divided by the cost of crude oil (in $/Bbl).

    Last month, this ratio reached 3.23, a level that is 1.64 standard deviations above the average ratio (2.84). To give you a sense of how rare this level is, the ratio has exceeded 1.64 standard deviations only 4.7% of the time since 1994.

    Since a high ratio is good for refiners (higher earnings relative to costs), you’d expect refiners’ stocks to perform well when these situations arise. But, surprisingly, this turns out to be false.

    A Contrarian Indicator for Oil Refiners

    When the diesel-to-crude-oil ratio is high – when the ratio hits 3.2, or 1.5 standard deviations greater than the average – Valero Energy (VLO), the largest independent oil refining company in the U.S., performs poorly over the following six months.

    Look at the numbers.

    The following table shows the performance of Valero six months after it reaches a high diesel/crude oil ratio extreme and the company’s average six-month performance for comparison.

    Valero Six-Month
    Statistics:
    After a Ratio Extreme:
    All Six-Month
    Periods:

    Average 6 mth Return:
    -4.9%
    14.5%

    Median 6 mth Return:
    -8.4%
    11.7%

    Winning %:
    39.3%
    69.6%

    Largest Gain:
    39.1%
    123.1%

    Largest Loss:
    -43.2%
    -51.1%

    The next chart shows the stock price of Valero Energy compared with the diesel-to-crude oil ratio. (In the table, the ratio in this chart has been normalized, which means that 0 represents the historic mean. A value of +1 or -1 means the ratio is one standard deviation above or below its mean level.)

    As you can see, peaks in the ratio often correspond to peaks in the company’s share price.

    Valero Tends to Peak When Conditions Are Most Favorable

    Conclusion

    Conditions for oil-refining companies became unusually favorable last month. As the outlook surrounding these oil refiners becomes less rosy, their share prices will likely suffer. Refiner stocks have soared in the last three months. So if your thinking about investing here, you may be late to the party. Tread carefully around these refiners over the next six months.

  75. 75
    bill fraser Says:

    Norwegian seismic surveyor Petroleum Geo-Services (PGS) said today that it is seeking to establish an $800 million credit facility to repay existing facilities and fund a special $300 million dividend.

    The dividend plan was announced earlier. PGS said the senior secured credit facility would consist of an eight-year, $500 million loan and a five-year, $300 million revolving credit facility.

    It said it aimed to complete the process before summer. PGS did not identify the arrangers.

  76. 76
    bill fraser Says:

    Im short NG going into todays action. i think yesterday’s action was way overdone not backed by the fundamentals

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