12
Feb

Tuesday Morning – Thank You Sir, May I Have Another?!

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Days like yesterday are fairly rare of late. I used the day to take some last minute profits on February calls and will continue to accelerate that process today. NFX reported an "in line" quarter and the lack of news in the release may blunt yesterday's gains (see more below).   

Commodity Watch:

  • Crude Oil rallied on Chavez' threat, a (VLO) refinery outage in Delaware which turned out to be a non-event (and how that rallies prices anyway I don't know as it is a large facility and would imply less demand for crude). In the end, crude closed up $1.82 to $93.59. This morning crude is giving back about a quarter of yesterday's gains in early trading. Here's a Business Week story that also calls Chavez' threat to cut oil supplies to the U.S. a toothless threat.

  • Natural Gas closed up $0.23 to $8.53 yesterday on what appeared to be short covering. This week's storage withdrawal will be one of the small ones this season but traders are apparently looking forward to next week's report which should reflect the resurgent cold weather. Gas is trading slightly higher this morning.
  • Imports: fell 2.3 Bcfgpd week to week.
    • LNG fell back to 0.6 Bcfgpd after a brief ramp to 1.1 Bcfgdp. This is a full B below last year's levels.
    • Canadian imports fell back to 9.2 Bcfgpd after spiking to 11 Bcfgpd last week.

Cracks Still Stuck in the Mud. As you can see from the regional cracks below, margins remain slim and compare unfavorably with year ago levels. While many are calling a turn in refiners I'm standing pat for now.

crack-spread-020808.jpg

Stocks We Care About Today Watch

NFX 4Q - Little New Here. They have released most of the operational highlights in recent releases.  Guidance is unchanged although first quarter guidance may not wow the Street. 

  • Reported EPS of $0.64 vs expectations of $0.64. CFPS for the fourth quarter works out to $1.97 with the Street looking $2.00. So we're not going to be blown away by the bottom line.
  • Production came in at 50.3 Bcfe for the 4Q, near the upper end of the guidance band of 45 to 51 Bcfe.  Gas was on the low side, oil blew out top end of its range, due to a quicker ramp from the company's Malaysian development projects.
  • Costs during 4Q came in for the most part near the upper end of estimates.
  • 1Q08 Production guidance looks safe at 48.6 to 53.8 Bcfe. 
  • 1Q08 LOE are running considerably higher again. We just got these down by punting the high cost GOMEX shelf properties so hopefully management will associated some percentage of these costs as special or otherwise one time. 
  • Only thing in the Woodford Shale section is that the current rate is 175 MMcfepd, up from a year end exit of 165 MMcfepd.  Expected exit rate of 250 MMcfepd remains unchanged from a prior press release. 
  • Newfield's second big play, Monument Butte, did have some new noteworthy items: The field is on 40s (40 acre spacing) and the drilling infill 20s (20 acre wells). They've drilled 50 of the 20 acre infills now and NFX say they are coming in 160 bopd IP, 3x plan when modeled back in 2004. They now think they have 1,000-2,500 additional locations for infills based on the initial success. With that IP and reserves of 70,000 barrels per well this is not insignificant.
  • Reserves increased 10% (net of divestitures). Reserve life (R/P) increased to 13 years. Getting that R/P up is one of the keys to cash flow multiple expansion.
  • Conference Call at 9:30 ET

(XTO) Beats with 4Q numbers, boosts guidance, targets 15 Tcfe of reserves and will undoubtedly be more interesting today.  Conference call at 4 pm ET.

(IOC) Watch - Still waiting.  

(DSX) takes delivery of a previously announced Capesize vessel, the Norfolk, giving them a fleet of 19 drybuils (13 Panamax, 6 Capesize).

 

Holdings Watch:

CALLS

  • Exited (APA) Feb $100 Calls for $3 and 22% gain since Feb 1. Just ran out of time and am being cautious in this market.
  • Exited (EOG) March Calls for $3.50. 94% gain Friday to Monday and this pop in crude that’s driving it looks a little flimsy.
  • Entered NFX March $55 Calls for $1.70.

Odds & Ends

Analyst Watch: (CRZO) upgraded to Buy at Sun Trust, (SLB) upped to outperf at BS, (WFT) upped to buy at UBS, (BHI) and (SII) cut to hold UBS,

 

80 Responses to “Tuesday Morning – Thank You Sir, May I Have Another?!”

  1. 1
    zman Says:

    Nice green open, NFX call starts in a minute or two.

  2. 2
    Nicky Says:

    All dips being bought in crude? Take a move below yesterdays lows for any sign of the to be in which is 90.89.

  3. 3
    zman Says:

    NFX Monument Butte – multi-Tcf potential in the deep gas section- more on this in a bit.

    says high F&D was do to frenetic pace in Woodford…coming down now.

    US $2.75 F&D; Global just over $3.00. Malaysia reserves were either already PUDs or cannot yet be books so this $3 is a little inflated.

    Malaysia on track

  4. 4
    zman Says:

    ZTRADE:

    NFX March $55 Calls for $1.05. Doubling down during the conf call.

  5. 5
    zman Says:

    More NFX Notes:

    There is some (unquantified) amount of one time expense in that 1Q LOE

    Exploration – new tight gas sand play in the midcon.

    deep water well offshore Sarawac

  6. 6
    zman Says:

    NFX notes:

    Woodford: those last 10 long lateral wells are running > 4.5 bcfe

    thinking 80 acre spacing will ultimately fit.

    reiterate that the Cattle Pilot is on 80 acres spacing and they matchup against a set of wells drilled on 640 acres in the surrounding area.

    $7 million for 4.5 3,000 foot for half the wells there now.

  7. 7
    apbd Says:

    Z:
    Are you ready to pull the plug on BTU?
    apbd

  8. 8
    zman Says:

    A – letting it run, will think about it after the NFX call.

    NFX is now flat from down $1.70 at the open.

  9. 9
    Dman Says:

    Technician Helene Meisner at TSCM sez we’ll soon be seeing $100 oil again. Calling for a short-term backing off from $95 and then more upside.

  10. 10
    zman Says:

    NFX Q&A session

    Acquisitions? No. See 8-10% annual growth, before upside from exploration.

    service cost compression a factor in cutting costs in the Woodford? Not really, comes from efficiency, expect to see more cost reductions and they are seeing some softer pricing in the Woodford on the service side.

    going to test 3 horizons above the Woodford this year with horizontal wells…may end up doing stacked laterals …Caney well tests (uphole from the Woodford) are producing flat from very short laterals…could be very big as all three uphold zone are gas charged.

  11. 11
    zman Says:

    Dman – I don’t give purely TA people a lot of credence in oil or gas. Do you know if she has any fundamental inputs or is that purely charts?

  12. 12
    zman Says:

    NFX – up 3% now.

    conference call going very well.

  13. 13
    Dman Says:

    Z – I wouldn’t call it fundamental work, but Helene does a lot of non-chart work on market sentiment. She is saying, “when did you last hear anyone talk about $100 oil” and thinks that the “oil’s going down because of a recession” chatter has gotten too pervasive.

    She tends to be pretty astute about such things and makes a lot of good calls. But obviously not 100% …she called for a breakout in NG about a year or so ago (which was mostly chart-based) and, well, you know what happened.

  14. 14
    GCcfa Says:

    In Sunday’s Arkansas Democrat-Gazette they printed an article from the NY Times about the problems electric utilities are having building new coal plants. Apparently plans for 5 coal plants in Florida were canceled last year. The article stated that supplies of natural gas will be flat or declining in coming years but demand for electricity is growing by about 2% per year. Pace Global Energy Svcs. has cut its projections for new coal fired capacity while doubling its estimates for gas-fired. Black & Veatch which does engineering and consulting for electrical projects stated their clients have tripled the number of nat gas projects under discussion. Apparently nat gas plants use less steel and concrete and require less labor. Furthermore, the EPA was unable to pass new legislation that would have allowed some plants to forego more stringent pollution controls. Also, the gas futures indicate subtantially higher prices into Feb 2009. Do you think that this has contributed to the recent run up in gas? Would like to hear your thoughts. Thanks

  15. 15
    zman Says:

    D – Thanks

    G – I think the very recent run has been a function of weather, then depressed LNG, then weather. The longer term flattening of the seasonality provided by electricity generation is definitely underway however. But I think this last rally of several weeks is more tied to the erosion of the 5 year surplus of storage (the “storage overhang”). Read some interesting sell-side stuff over the weekend that I plan on expounding upon relating to both the electrical side and the masking of the residential demand growth due to successive mild winters. Some of that can be seen in the basic HDD math relative to withdrawals relative to known domestic supply growth. This winter, a more normal weather has showed that there is more underlying demand than most people supposed looking at the last 3 to 5 year ratios of weather to withdrawals.

    Another factor that may be boosting prices is that the sell-side is becoming increasingly bearish on the prospects for another increase in LNG imports. That and falling Canadian production which I’ve been expecting for years but which never materializes (this year it should, really). Anyway, if that line of thinking is sinking into the trading mentality it could be supportive for quite some time.

  16. 16
    Dman Says:

    Broad market going crazy. I was going to ask “any particular reason” but this market don’t need no reasons fer nuttin’. The Buffet thing is an excuse more than a reason.

    CHK trying to decide what’s on its to-do list after crossing off “new 52 week high”. Z – are you still holding the FEBs or did I miss something?

  17. 17
    zman Says:

    Also it doesn’t hurt to have oil up $6 in 2 days.

    Nicky – got any product levels you care to share – still mulling the refiners; still out of them for now?

    D – Re CHKs – still holding the Feb 37.50s, now bid 4.20, still holding the March sames.

  18. 18
    zman Says:

    Seriously considering adding a third tranche of NFX here with the stock up $0.60 on the day. Call was great, massive potential to be unlocked, yada, yada, yada.

  19. 19
    Nicky Says:

    WTI – above 83.70 it looks bullish again.

    Broader market – into some key resistance here at 1360 spx. If we can get above here there is a gap to be filled at 1375. Dow has resistance at 14464 and then a gap fill at 12600. Above 12600 and 1375 would start to look pretty bullish.

  20. 20
    Dman Says:

    Z – is it too early in the week to worry about pinning of CHK? I could see it ending up jammed at either 42.50 or back down at 40, but when does that start to kick in?

  21. 21
    Nicky Says:

    WTI feels absolutely insane to me – 8 bucks in 48 hours!

  22. 22
    zman Says:

    D – I’ve seen it start as early as Wednesday and as last as noon ET on Friday (or not at all of course if there is news). There seems to be less pinning in a highly volatile market until later in the week which is kind of a “well duh” comment but there it is.

    N – have you seen any of the list flip flop yet, lol?

  23. 23
    Nicky Says:

    I did see a lot of length had come out of the market a week ago so I presume they are now all piling back in.

  24. 24
    Nicky Says:

    Z – well we know PF has been bearish for a while! Even Kilduff was somewhat quiet on CNBC yesterday although he was ramping up the Chavez news although be yelled down by Dennis Neal who was basically saying tell Venezuela to stick their oil!

  25. 25
    zman Says:

    CHK chart does look pretty compelling when you take a look at the monthly. I’m not a chart guy as you all know but I did get my start reading them many moons ago and that looks pretty sweet.

  26. 26
    Dman Says:

    Z- at current levels, how would you compare valuations of CHK and NFX relative to where you think they “should” be?

  27. 27
    zman Says:

    IOC – Filing just out shows T Boone’s BP Capital kept holdings basically flat from 9/30 to 12/31. Stock apparently reacting favorably.

    D – that can be an indepth answer but I’m not going to make it one. NFX is more fairly valued with what I know now. I’m not talking about price to CF, where its definitely fully valued but in terms of reserves and prospects they could be 30 to 40% upside here.

    CHK is much larger so you get a bit of discount for that but it’s growing like a weed and if you look at some of the reserve comps to other gassy players in comments yesterday, the stock probably has NAV to support upside closer to 50 to 75% from current levels. You only get NAV when you get bought but they trade at a pretty good discount to it nonetheless. On P/CF they are just too cheap.

    RS – you still holding the CHK Febs?

  28. 28
    zman Says:

    ZTRADES:

    Out Feb APC $55 Calls for $4.40, up 57% since entry back on 1/24.

    Out Feb HAL $32.50 Calls for $2.75, up 41% since entry on 1/25.

    Just doing some end of expiration house cleaning on another strong day in the group.

  29. 29
    Denise Says:

    Good morning-lovely day! (for a change)
    funny I was reading the coal article in the journal thinking it might be the trumpet sound-came home and read Mr K back to shorting BTU and FCL. Taking my profit will revisit. His timing has been good

  30. 30
    Denise Says:

    Was wondering what airfare from Dallas to Papau New Guinea was? Z-how long could it possibly take? worst case scenario-surely by March put time?

  31. 31
    zman Says:

    Thanks Nicky for those levels on the broad market, got any for RBOB and HO you care to share?

    Denise – no guarantees in exploration. May ultimately have to reposition….I’m giving it another week before I look at Aprils. If they have a stuck tool a mile down … it could take several weeks/a month over there. But there a lots of possible reasons for the lack of news, many of which would not have to impact the potential for a positive results here – just delays. Or it could be bad…we just won’t know until we know. 🙁

  32. 32
    zman Says:

    Oil going red, NG down a nickel. Prices starting to look to this week’s inventory reports.

  33. 33
    doc Says:

    Z—CHK 02/37.5 just sold 1/2 @$4.20

    HAL 02-37.50 Are you still in? I have been off line for a few days.

  34. 34
    zman Says:

    Doc – just sold my HAL’s, those were $32.50 calls.

  35. 35
    zman Says:

    Doc,

    Also, I took March CHK calls, same strike on Friday, I take it you got the blast.

  36. 36
    zman Says:

    My Exxon calls are back to life now. Thought those were scuds.

  37. 37
    zman Says:

    Expected for tomorrow’s inventory report

    crude: up 2.5 mm bbs
    gasoline: up 1.5
    distillate: down 1.4
    refiners at 84.3% (equal with last week)

  38. 38
    doc Says:

    z Thanks have 32.50s will sell

  39. 39
    zman Says:

    Doc,

    Thanks for pushing me to stick with the fundamentals on CHK and not abandon over that (at the time) week chart. Much appreciated.

  40. 40
    zman Says:

    Thinking more and more about buying those DUG calls or puts on UNG for a quick trade.

  41. 41
    zman Says:

    Drybulk rates had yet another good day, up another $3000 for Capes, up another $2000 for Panamax.

    http://www.dryships.com/index.cfm?get=report

  42. 42
    zman Says:

    bidding some March 40 UNG puts.

  43. 43
    zman Says:

    SWN getting tagged after a nice run the last week….traders here are often betting on the direction of gas.

    ZTRADE: March $40 UNG puts for $1.25.

  44. 44
    bill Says:

    drys reports on thursday

    buy some calls to play it, imho

  45. 45
    zman Says:

    Bill,

    I’m there and DSX (Friday report) and QMAR. Weird to see softness developing in many sectors today (including Drybulk) with the market still up so much.

  46. 46
    zman Says:

    Natural gas looking a little toppy here. Volatility is picking up but it may just be the linkage with oil prices which are now down a buck.

  47. 47
    zman Says:

    Probably should have punted the BTU calls when APBC brought it this morning…nothing but lower since then.

  48. 48
    zman Says:

    Oil starting to rollover now, down $1.15.

    On my UNG short I got a question in the email about why I’d be shorting gas while long CHK and NFX:

    My response:
    Just a little insurance …gas has had a big run in the last couple of weeks. This is for a quick move down in gas. The stocks should remain relatively unscathed through a 50 cent drop in gas as investors don’t worry so much about that as about the stock market as a whole, especially as the Strip remains elevated. Also, the stocks are highly hedged at much better prices so fundamentally they should not fall in lock step with gas prices.

  49. 49
    gaamblor Says:

    what changed from last week that crude will be up that little? is there a # on imports?

  50. 50
    zman Says:

    Gaamblor – no detail generally provided, most of the participants just throw out a seasonal number, in this case 2.5, last week saw a big drop week to week in utilization and strong imports, they may figure imports can’t stay this high. Anyway, we normally build this time of year and last week they were expecting up 2.2 and we got up 7. So this week they nudge it up a bit.

  51. 51
    ram Says:

    Along similar lines with BTU – What about XOM about now?

  52. 52
    scoop006 Says:

    Any thoughts on FSLR and how it traded today. Up in AM down in PM.Muucho calls and earnings tomorrow

  53. 53
    zman Says:

    Ram – another day like today for it would make a world of difference to those $85s as they right on top of the money. Flipside is if you get a big draw tomorrow and oil gives back $3 they are probably toast. I’m still thinking about it.

  54. 54
    ram Says:

    Thank you.

  55. 55
    zman Says:

    Scoop – Re FSLR, Yes, my thought is to stay away and listen to the call and learn some more about the group. Maybe enter after. Feels a lot like Blackjack though if you know what I mean. Option activity is way up on it and those like it coming into earnings. Maybe try to play another smaller player with similar characteristics once the numbers come out in the same direction (as in FSLR falls 20 bucks(and its a warranted drop), short XXX).

    With that said, the Dry Bulks can be just as volatile as the Solars. I may take the DRYS I have off the table prior to their call put a smaller bit of capital to work in a further out of the money strike.

    OK, so I got out of my APA a little early. Wow.

  56. 56
    scoop006 Says:

    But you stayed the course with CHK

  57. 57
    zman Says:

    so far, 52 week high today. gotta lose the CHK 37.50 Feb calls obviously pretty soon. Would like to beat doc’s price but $3.80 looks pretty good too. Could just pop the March’s for 130% gain right now and go to the pool for a bit. hmmmm.

    Natural gas refuses to rollover but I think its time is coming.

  58. 58
    xweto Says:

    Re:#57 … gas rollover time: is UNG trade vulnerable to big inventory draw or does it matter?

  59. 59
    zman Says:

    X – yes, if the draw were abnormally large but I think gas has had enough of a run to absorb it. We should get a smallish draw Thursday, a hefty one next week (both smaller than year ago draws however) and then its up to weather but heating related demand will start to noticeably slacken in March and traders will often telegraph that forward a few weeks. I’m not looking for a trouncing to $6 or anything like that. Just a quick dash back to an $8 test.

  60. 60
    ram Says:

    ZMAN – You had a meeting with someone regarding the dry bulk shippers. Was there any info. that came out that the 9.5 EPS is good or possibly a higher number? Also, DRYS is one of the lower eps guys right now. Could there be a double pop (higher earnings and higher multiple) on earings day?

  61. 61
    Nicky Says:

    Nat gas. Technically the break out looks bullish on an intermediate term basis. Short term we may see some backing and consolidation. Support is at 8430, 8330 (monday’s opening gap which may well be filled before we work higher), 8276 and 8059. Resistance is at 8549, 8627, 8712, 8840 and 9050. Only a move back below 7580 would turn the count bearish.

    All that said I sure as hell don’t know how that lines up with fundamentals which feel much more bearish to me plus we are going into what is seasonally a weaker time of year for nat gas prices.

  62. 62
    zman Says:

    IOC – hearing they are setting casing now around 6,100 feet.

  63. 63
    Dman Says:

    For what it’s worth: CLB has joined the party and is now above its 2008 declining trend, after a 6% swing today (so far)

  64. 64
    Dman Says:

    Z – about the casing situation. Um, is that a good thing?

    🙂

  65. 65
    zman Says:

    Ram – he was more focused on 2008 for numbers and was say $25, not $18. He’s a smart fellow, sellside transport analyst, then hedge fund transpo analyst.

    I’m doing a drybulk piece for tomorrow’s post so will try to answer that multiple question there by examining some current drivers. I don’t think it happens in a day but really, if they beat, who knows, could get people excited again.

  66. 66
    zman Says:

    Dman – well, it means they are close to saying something. Means a production test is around the corner. If it were a duster they wouldn’t be setting casing. Does that mean commercial quantities of gas? No. Just have to wait and see. I’m holding.

  67. 67
    zman Says:

    Re #61 . Thank you very much Nicky.

  68. 68
    ram Says:

    Thanks again.

  69. 69
    zman Says:

    Part of this CHK move, or maybe all of it is being credited to their acreage position in the Marcellus Shale, (the one in the PA, NY, OH, W Va region) I wrote about over the weekend in the RRC piece. People are looking for stocks with holdings there that have not yet run … CHK has holdings there that I mused about after their last quarter:

    http://seekingalpha.com/article/53146-chesapeake-3q-easily-beats-numbers-guides-up-again

  70. 70
    zman Says:

    glad to see you around Ram.

  71. 71
    zman Says:

    Ok, so this morning I thought I was pretty smart bottom fishing that NFX…not that I’m now wondering about my intelligence but I probably should have spaced it a day. Ouch.

  72. 72
    zman Says:

    Done for trades, have to step out for a bit, hopefully back by close.

  73. 73
    Popeye Says:

    (“Petrohawk” or “the Company”) has scheduled a conference call for Wednesday, February 27, 2008 at 10:00 a.m. CST (11:00 a.m. EST) to discuss fourth quarter and year end 2007 financial and operating results.

  74. 74
    zman Says:

    Both the Hawk (HK) and the Quest (PQ) have been trying to drift higher as we approach earnings later in the month.

    Ugly close. Glad I’ve been mostly a seller.

  75. 75
    md Says:

    1. Do you compare your data to EIA NG imports to guage accuracy of Canada and LNG . The Nov. data was released as you know in end of Jan. Canada seems to be holding up till then.
    2. LNG imports are online with EIA 2007 forecast of 770 BCF. p.a. The US has capacity of 1.7 TCF p.a. which reflects underutilisaion of 55%. Why is more capacity going to effect the suuply picture when current supply is no where near capacity. What incentive is there for Eurasia to ship it to US when their markets are paying better prices and transportation costs are lower.

  76. 76
    zman Says:

    md –

    1) I spot check monthly versus the weekly from time to time. They seem to balance out over time. My weekly data comes from APA who I’m sure gets it from Platts. Canada is holding up much better than expected but few people expect that to continue given the continual down YoY drilling activity and the natural declines of their reservoirs and the increased domestic demand. I understand storage there is “low” but I don’t have good data on that right now.

    2) More global liquefaction capacity is coming on commensurate with the increase in domestic regas capacity. And we were seeing record LNG imports until late last summer when Japan and a little problem with a nuclear reactor and demand shifted that direction. EIA thinks we’ll be up again in 2008. Maybe so. Many Street analysts are starting to cast doubt on even modest growth this year citing the increased competition for gas that you talk of.

    Let me know if you have more questions, back in a bit.

  77. 77
    Nicky Says:

    Chavez stops oil exports to Exxon.

  78. 78
    zman Says:

    Nicky – what do you have for a last trade on March crude and NG? My system’s giving me some bad quotes here.

  79. 79
    Nicky Says:

    during pit or access hours Z?

  80. 80
    zman Says:

    Nicky – thanks, saw the email. Crude up slightly now, $0.35

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