07
Aug

Tuesday – Another Pick Beats The Street But The FOMC Is Front And Center

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September Crude Fell $3.42! to $72.06! Wow. Question: What is mightier than the EIA, IEA, Iran, Chavez, Nigerian Rebels, perma bull talking heads and OPEC combined? Answer: Interest only loans. Today Fed meeting will hold sway and everything that happens before the meeting is just noise. Will the Fed ease? No. Will the Fed acknowledge a disturbance in the credit markets? Likely. Does this matter to my gassy stocks which don't even sell oil and have little need to borrow? You bet. Do I care to talk anymore about the fed today? NO.

We've been calling for oil to beat the old high: CHECK. And then fall back into the upper 60s / lower 70s: CHECK.
RBOB got a gut check too as it finally failed $2 closing down a whopping dime at $1.92. Cancel that Vespa order! Bet ya consumer confidence continues to run up as well.

The final straw for the Energy Group was Oppenheimer downgrading a wide spread of energy names at the open. Only the meteoric (and therefore highly suspect) Dow rally into the close lifted all the energy sectors from their lows (which makes sense as I had just bought protective puts on the XLE earlier in the day). I did however manage to sell my longshot (TSO) puts at pretty close to the stock's worst levels (see Holdings Watch below).

Early Read On The Oil Inventory Report: Note that for the last few weeks these numbers have changed radically from Monday night to Wednesday morning so you might as well not memorize them. I think there's a concerted effort on the part of a few players to throw out numbers so far off the consensus as to: 1) skew it for their purposes and 2) stand out in case they happen to be that blind squirrel that finds the nut. Reuters survey expectations:

* Crude: down 2.3 million barrels
* Gasoline: up 900,000 barrels (note that this would put us back into the bottom end of the range of historic storage levels and that usually this is the time of year gasoline stocks are declining)
* Distillates: up 1.6 million barrels
* Refinery utilization: up 0.1%

Earnings Watch: (aka Shoulda Woulda Coulda Watch or Another One Beats The Numbers Watch)

* (CRK) reports a big beat. $0.41A vs $0.36E

* Do I own it? NO, because I'm more worried about the sub prime snafu.
* Revenues: $174A vs $155 million expected.

* Production: 236 mmcfepd was up 6% sequentially, 32% YoY. 2007 production guidance at 25% to 30%.

* LOE/Mcfe: up a touch due to some offshore expenses but still well within hand at $1.54 ($1.35 last quarter and without the benefit of having listened to the quarterly call yet I bet large that there was some extra workover or repair expense in the offshore LOE which jumped from $1.31 per Mcfe last quarter to $1.62 this quarter.

* Only negative I see is their offshore division came up 0 for 3 on exploration and missed a development well.

* Operations update: Onshore 82 of 86 success rate
o E. Tx / N. La rates continue to hold up at 1.3 mmcfepd IPs. 100% success rate on 66 wells 1H07. They plan to drill their first Cotton Horizontal test next month (after having watched others wade in to the concept first). The golden nugget would be coming close to a (DVN) operated horizontal Cotton Valley test that IP'd at 10 mm/d last winter. CRK has a
o S. Tx still drilling some quality wells with IP's in the 6 to 7 mmcfepd range and running a 3 rig program now, up from 2 at the end of 1Q.
o Mississippi - couple of exploratory dusters in 2Q
o Offshore 3 duster and two tests underway, one of which has encountered five pays to date. Overall offshore (and this may spook some younger analysts who like to put in fat production wedges): 3 for 11 YTD.
* Conference Call: 11:30 est.
* Bottom Line: Solid from a numbers perspective, little light with the exploratory drill bit but that happens. Cash flow here is off the hook with the production growth and the company now trades at a paltry trailing twelve month CF multiple of 2.8x or 3.68x TTM EBITDAX to TEV. That's just too cheap for this kind of growth.

* (BBG) reported a top line beat. Earnings number beats on a reported basis but it's gain driven.
o Production up 6% sequentially to 166 MMcfepd in 2Q
o Production guidance established for 2007 at 167 to 175 MMcfepd which equates to 17 to 23% YoY growth.
o LOE jumped to $0.95 from $0.61 in 2q06 but the company is looking for $0.70 to $0.75 for full year.

* (TSO) Reports $3.17A v s $3.14E. Details in comments


Holdings Watch

CALLS:

* (CHK): added more August $35s at $0.85 doubling the position I bought last week prior to earnings and little under $0.80. Last bid $1.15.

PUTS:

* (TSO) Sold $42.50s bought last week at $0.55 for $1.45 (+164%).

* (BBG) Took the $35 Augusts for earnings this morning. Paid $2.15. Last bid $1.70.

* (XLE) Bought $65 Augusts at $2.10 just in case things got really ugly. They did for the puts which closed bid $0.95 with the rally in the DJIA. I'll hold them until things quiet down (if they quiet down) after the FOMC today.

Natural Gas: Remained aloft up $0.12 to close at $6.21 on a decidedly down energy (oil, RBOB, HO) day. Why? Summer finally showed up and the promise (I hate to put it that way but someone else will if I don't) of tropical activity looms on the not too distant horizon.

It's Hot...Damn Hot! Degree days are expected to rise to the highest levels of the year so far this week and the forecast just keeps getting hotter. Click on the following map to see it in it's entirety.

weather-080607.jpg

Natural Gas Imports Dipped Smartly Week to Week. Gross imports from LNG shipments and pipelines fell 1.25 Bcfgpd from the prior week to 10.9 Bcfgpd, down 0.7 Bcfgpd from the year ago week. This is the second week in a row that LNG has tumbled and it could just be a timing thing or it could be a signal that LNG shipments are being diverted to higher margin locales now that the bloom has come off the North American natural gas rose this summer.
imports-080607.jpg

Hugo Watch:
PDVSA and Enarsa (the Argentinian state oil company) have agreed to jointly develop an LNG regassification plant in Argentina that would receive gas from Venezuela. Comment: smart of the Argentinians not to go in on the liquifaction plant being build on Venezuelan soil. I guess they're wise to Hugo's "Now you own it...now you don't" game.


Odds & Ends

Analyst Watch: Calyon raises (HAL), (RIG) and a handful of other oil service companies and drillers from Add to Buy.

Non-Opec Production Watch:
Kazakhstan production up 5.5% year to date.

Subscription Watch:
4 days until the discount window closes. You can reserve your spot by clicking here. If you’ve already signed to save your spot you have my thanks! To ensure no interruption in service on September 1 please visit paypal.com and click the Start Now button under the “For Online Shoppers” section to get your PayPal account. I’ll be sending around an email to the addresses listed in my reservation database in the middle August with further instructions for obtaining your user name and password. If you have any questions you can contact me at zmanalpha@gmail.com.

Important Note:
Please add my email address to your email address book or to your safe list so my reply is not blocked by your spam filter. Thanks!

75 Responses to “Tuesday – Another Pick Beats The Street But The FOMC Is Front And Center”

  1. 1
    codydog Says:

    looks like hightower is stunned by yesterdays action – esp in HO

  2. 2
    zman Says:

    Nicky’s View up.

    TSO reacting poorly to numbers but other refiners acting poorly as well.

    OII another strong morning.

  3. 3
    zman Says:

    CRK moving on up on #s …awfully quiet in here this morning…

  4. 4
    Stephen Says:

    I thought CRK did really well, good growth in production, amazing cash flow, I hadn’t noticed the dry offshore wells though.

    Still, it is now just above where I bought it, will probably sell half, and hold half for a little longer.

    Looking at the drillers, GSF and RIG have both dropped 10% and they are getting back to post-merger bargain territory, at $90 a new RIG share. I think the merger is very good for shareholder value.

    I’ll be looking buy some GSF in the next few weeks.

  5. 5
    zman Says:

    Go CRK

  6. 6
    zman Says:

    Stephen – re CRK it was a good operational quarter and the stock is starting to reflect that now. I’ll have updates form the CC later.

    I’ll be looking at RIG soon but am patient with the way this market is so schizo.

  7. 7
    Stephen Says:

    At last night’s close, GSF was trading at a $3 discount per new RIG share to RIG, I don’t know if that is appropriate considering I can’t think why the deal wouldn’t go through, despite anti-trust and $15B of debt.

    Also I saw GSF followed by RIG near the top of WSJ’s “buying on weakness” list last night.

  8. 8
    zman Says:

    Thanks Stephen, didn’t realize the arb had gotten that wide. Makes little sense unless the oil lobby is planning to push the feds to block it which I doubt. They may not like the deal but I don’t recall them running to Uncle Sam for help on that kind of issue.

    CRK running nicely now.

    Nice move in natural gas, again despite the lower oil.

  9. 9
    zman Says:

    Re #9: Man, that’s deep. supply and demand is more than just the barrels we can touch with our hands. lol.

    Nicky, bigger draw on the oil side or smaller build on gasoline? tia

  10. 10
    zman Says:

    Hey Nicky, is that your text or that guy you often quote?

  11. 11
    optiondragon Says:

    Nice what did you guys think about the Caylon Securities upgrades of the OIH sector? Good timing with technicals.

    Oil States OIS Calyon Securities Add » Buy $52
    Transocean RIG Calyon Securities Add » Buy $121
    Ensco ESV Calyon Securities Add » Buy $74
    Weatherford WFT Calyon Securities Add » Buy $66 » $65
    Halliburton HAL Calyon Securities Add » Buy $44
    Baker Hughes BHI Calyon Securities Neutral » Add $90

  12. 12
    optiondragon Says:

    RIG looks so prime to buy.

  13. 13
    zman Says:

    I think the guys at Calyon love sticking it to the boys at Op Co who got scared of the broad market and downgraded a ton of things yesterday. B of A was busy downgrading the sector last week as well.

    I’d say for 2/3rds of the Oil Service names, they’re having the their all time dream date of year. Especially guys like RIB/ GSF who have long lead contracts which aren’t impacted by the day to day, w to w, or m to m moves in oil and gas prices. These are deep offshore operators who are seeing contracts move in only one direction due to global tightness: UP!

    The only pocket of weakness in the group would be the onshore guys and you’ll note that the most exposed to drilling on land is is BHI which they only labeled ADD while everyone else including my slug of a position in HAL rated Buy.

  14. 14
    zman Says:

    Nicky – lately he’s gotten it a lot less wrong than the flynster!

    CRK up 6%. Nice call if I say so myself. Too bad I’m on the sidelines. Doooohhhh.

  15. 15
    optiondragon Says:

    Thanks zman great analysis.

  16. 16
    zman Says:

    They will disappoint me. As usual.

  17. 17
    zman Says:

    Optiondragon re RIG: I agree, prime to buy.

    Energy in general looks to be holding and ready to spring up if the market is agreeable. If the fed is “sensitive to credit concerns” today I think oil goes green and the XOI which is holding support gets a nice dead cat bounce. XOM, HAL, APC, CHK, RIG all will bounce nicely on that scenario. But the fed has to play ball.

  18. 18
    zman Says:

    Nicky – oh no, not me.

    It’s just that the double speak and half talk out of a civil servant is maddening. Thought it was better with Ben than Allan but it just turns out that he has a different way of not telling you what he thinks completely while appearing more academic by the day (borrowed that from Cramer but if the shoe fits?). These guys could never run a public company b/c you can’t ever pin them down on what they’ll do if certain things happen. It’s more difficult of course as there are a hundred variables but still, tell me what you mean man!

  19. 19
    zman Says:

    Nicky – I have my canned rants all prepared!

    CRK CC – so far reading the press release. I wish companies would just assume that people who can dial a phone or hook up on the web can also read.

  20. 20
    zman Says:

    CRK CC

    DVN relationship: joint acreage in the Cotton Valley reef – signed an agreement to drill in combination on this tract for a horizontal, opens up more ops on adjacent tracts if this is successful. This a 1.5 miles away from DVN’s recent success with the 10 mm/d IP well in the CV formation.

    HAL launching higher !!!

  21. 21
    optiondragon Says:

    XOM is flying and leading.
    I love my RIG AUG calls at 2.00, wish i bought more. RIG LEAPs are a really good idea or a bull spread would be even better.

  22. 22
    zman Says:

    OD,

    I’m sure HAL told their broker to lay off over the last week with the market. I’d bet they’ve given them the green light this morning and they’ll be playing catchup on the repurchase schedule.

  23. 23
    zman Says:

    BBG: Disaster. Holding my puts through the Fed meeting but for now I’m getting my butt kicked.

  24. 24
    zman Says:

    I’d feel better if I’d actually taken the CRK which is up 7%. Nice call…wish I’d listened to myself.

  25. 25
    zman Says:

    Crack Spread page updated through last Friday. Ugly and they’d be a bit worse now.

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

  26. 26
    zman Says:

    EIA says gasoline prices will be lower for the rest of the year. Yeah, thanks for cluing us in.

  27. 27
    codydog Says:

    z– from briefing-

    watch SUN and TSO here for afternoon rally as products finally move higher and Sep gas cracks just make 40 cent advance to $9.40; ALJ reports after the bell (I like TLM here a laggard nat gas play

  28. 28
    Stephen Says:

    CRK spent almost 3 months in a $29 – $31 trading range, before gapping down to $26 in 3 days.

    I’m just hoping this good news can push it back up into that trading range, right now at $28 it’s in limbo, we’ll see whether the broader market drags it back down, as has happened with SWN and EOG, but not with CHK, as yet.

  29. 29
    el_vogel Says:

    What’s HK going to do tomorrow? Any guesstimates

  30. 30
    DrT Says:

    ditto on tlm, cody. Best forward prod growth for a company it’s size, single digit PE

  31. 31
    codydog Says:

    nobody cares about tlm, their chart sucks, although it has a buy pivot point

  32. 32
    DrT Says:

    previous ceo spent money like drunken sailor but he created a lot of great assets

  33. 33
    zman Says:

    Dr T,

    Jim Buckey is a great oil man. Sudan was brilliant if unpopular. North sea was incredible. Love that company and think long term it goes away.

  34. 34
    zman Says:

    HK – I’ve been long and right and lately long and wrong. They should have good numbers again, they have a habit of beating and upping guidance but I wouldn’t expect them to up guidance this quarter as they did last. Very interesting assets/potential locations.

  35. 35
    DrT Says:

    Z, i agree ont both counts but he was a real bull so he wasn’t afraid to spend money. That and the fact he left the company unhedged the street doesn’t like.

  36. 36
    zman Says:

    What’s more, TLM served up some of the best scotch and Haggis when they had me out to Aberdeen earlier this decade. If you haven’t haggis, you have no idea what you’re missing!

  37. 37
    Stephen Says:

    I say down, most of the risk is on the downside, given the rally, the only thing that could add fuel the fire is a cut, and that is not going to happen.

    I’m currently tempted to sell some stuff before 2:15.

  38. 38
    zman Says:

    Dr T, yeah on the hedges he would say they that wasn’t the business they were in. Who’s the new guy? I need to get back up to date on that one.

    Also, are you familiar with Addax. Canadian list out of Switzerland operating off African, mostly Nigeria? Man that’s a grower and cheap!

  39. 39
    zman Says:

    CRK up 9%

    OII screaming again.

    HAL poised to rock.

    CHK will run from negative to well positive if market likes Ben.

  40. 40
    DrT Says:

    New guy is a pal from BP. One who wanted to get out because he had some dirt on his hands from refinery blowup. Don’t follpw addax

  41. 41
    zman Says:

    Dr T,

    Take a look. Reminds me of TLM in the early days except faster growing. Their version of Sudan is in, of all places, Kurdistan. Several monster rate wells. Look on the reports tab at upper left for a book report write up I did on them early this year. I’ll do some work on TLM in coming weeks.

  42. 42
    zman Says:

    Forecast in the south is skyrocketing. Temps well over 100 in the ArkLaTex expected through the weekend.

  43. 43
    Stephen Says:

    Nicky, are you higher or lower?

    One thing I’ve never understood about markets and charts is how much they trend. If you look at a 3 day chart of the S&P, it has just been one trend up and one trend down.

  44. 44
    Stephen Says:

    Sorry, I meant one trend down, followed by one trend up.

  45. 45
    rammastr Says:

    Nuts! Nothing new from Fed is bad!

  46. 46
    zman Says:

    Ivory Tower Watch: No change and I’d say they retained the bias on inflation watching while doing little to address the credit crunch other than to say they’ve noticed it’s happening.

  47. 47
    zman Says:

    This is a message from the Emergency Fed Broadcasting System: If we felt this had been a true emergency we may or may not have done anything.

  48. 48
    Brian08 Says:

    Glad to see they’re on top of things…

  49. 49
    zman Says:

    XLE puts don’t look so bad now that you know Ben is truly asleep at the wheel.

  50. 50
    zman Says:

    Brian – once again, your tax dollars not at work.

  51. 51
    Stephen Says:

    Look at CRK plummet.

  52. 52
    zman Says:

    Stephen,

    I’d say buying opportunity but I won’t trust any money to this bounce until it lasts more than five consecutive minutes.

  53. 53
    zman Says:

    BBG went from up 8% to up 3%

  54. 54
    Brian08 Says:

    With this market, it looks like selling into the bounces is the prudent thing to do…

  55. 55
    zman Says:

    Anyway…. as I was saying the forecasts for this heat are well above levels seen just 2 days ago. Forecasts are up since Joe Soebel wrote this yesterday.

    http://www.accuweather.com/news-blogs.asp?partner=accuweather&blog=sobel

  56. 56
    codydog Says:

    afternoon rally in RBOB and heating oil due to problems at COP’s Bayway, NJ refinery

  57. 57
    zman Says:

    Now people like the report. Figures. NFX got undully spike compared to its peers.

  58. 58
    DrT Says:

    Whew! Anybody make any money there?

  59. 59
    codydog Says:

    z–these #s tend to trade in 3 spikes – 1st is the wrong position, then reverses as correct position guys swoop in and finally the initial direction picks up speed as the less leveraged come in to trade the news, i’ve been trading spy options and qqqq’s,,,

  60. 60
    codydog Says:

    drt–its bad luck to talk about p&l, for me anyways, i’ll say it wasnt a bad experience

  61. 61
    zman Says:

    HAL buy program kicking in again

  62. 62
    zman Says:

    If you guys haven’t notice Nicky has here own tab up top with market thoughts for the day ahead there.

  63. 63
    zman Says:

    HK – like the August 15 calls before earnings tomorrow.

  64. 64
    DrT Says:

    You can tell how volatile the market is by how quiet it is here.

  65. 65
    zman Says:

    HK breaking out.

    CRK up 9%

    HAL near HOD

    …and as DrT points out correctly…no one cares. 🙁

  66. 66
    DrT Says:

    wow, look at xle. Does anyone have a technical call on it?

  67. 67
    zman Says:

    TRADE: HK $15 added at $0.50 and $0.55. These add to my flailing position here.

  68. 68
    codydog Says:

    fed basically leaves it alone and says open to new data, which means they have no preconceived notion on how to react…the fed didnt cut, but they threw out a bone, which is better than nada………plus mer said this am, they see fed cutting down to 3.75 and gross echoed a cutting sentiment as well when he said pimco is beginning to buy debt again

  69. 69
    DrT Says:

    Delusion of the masses. They want the fed to maintain a stable currency, economic growth, and low inflation, all while the government runs massive deficits. Any clarity would pop the bubble:>

  70. 70
    zman Says:

    OII up another 6% at all time high.

  71. 71
    codydog Says:

    deficits are truly poorly understood – when the gov’t runs a deficit the moeny is flowing through the economy and creating employment, and keeps the econ running. If they didnt do it, you’d have a no growth economy or some deflation. I think each 1 billion in public construction projects creates about 25,000 jobs Inflation is a good tool for wiping out debts and deficits quickly.

  72. 72
    codydog Says:

    leaving scaled up sell orders in my HK from 15.50 up to 17.50, hopefully they get hit

  73. 73
    zman Says:

    out for a swim, back in a while

  74. 74
    DrT Says:

    cody,it also helps wipe out legacy political program costs but can you imagine what would happen if they were to admit that was a goal.

  75. 75
    codydog Says:

    its clearly a goal, only the naive think it isnt. Most gov’t programs are to reward the loyal, or to dissuade the unemployed from marching on a capital. this country is all about social engineering, from johnson on up when the great society was created.

    if bush spends 10 billion a month in iraq fighting alq, who does it serve? wouldnt it be cheaper to offer 5 billion for obl, and a billion each for his henchman? then give the crazies each a million bucks each and a cadillac and send them to sudan’s ocean front.

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