29
Feb

T.G.I.F. + SWN Results Rock

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What a week! $102+ oil and $9+ natural gas! Thank you Ben Bernanke for peso-izing the dollar. I'm especially glad you don't see a recession on the horizon since the inflation you've helped to create can only be reigned through a V-shaped recovery in rates. 

Commodity Watch:

  • Natural Gas: Shot the moon yesterday after again reporting an "in-line" with consensus gas storage withdrawal. The April contract closed up a whopping $0.38 to $9.44 on the day. I remain short natural gas and while that's been painful I'm also long a plethora of gassy E&P and service names which has made waiting for the fall in natural gas more bearable. Check the wiki and/or the holdings tabs for the current roster. This morning gas is trading off with oil, falling a dime.
  • XNG - All time new highs for the gassy stocks. Yes, much of this move is attributable to suddenly soaring natural gas prices but also consider that it's year end reporting season the E&P stocks are putting up big numbers on the volume growth side while pointing to flattening service cost inflation.
  • First Call Notes from the EOG Conference: Citigroup said that "while these announcements [by EOG] are positive, we continue to think that the near-term macro picture for natural gas has more risk than reward at this point"

gas-table-022808.jpg

gas-graphs-022208.jpg

  • Crude Oil: Also shot into orbit as the dollar plummeted and was at least partially responsible for the "jamming of the short" rally in natural gas. Oil closed at a record $102.59, up 2.95! At these levels, OPEC may jabber about speculators and a well supplied market and they may even take "official" quotas down by 500,000 bopd but their members will be pulling out the stops to pump all they can. This morning crude is trading off $0.80 to a $1. 

Holdings Watch: Holdings are updated on the performance and wiki tabs.

CALLS

  • (EOG) Day trade on their annual analyst meeting: 
  • Bought the April $125 calls for $5.30 as the meat of the call was getting underway.
  • Sold same for $10.50 (up 98%) 2 hours later as the moved on to the potatoes (their existing plays and financials)
  • Gordon Gecko Was Wrong Watch: Greed is not good unless you count taking a 2 hour double as good and then I guess he was right but those April calls last trade was $8.20 and with the thought some big name analyst could downgrade the stock in the morning after a $25 rally without batting an eye.
    • I didn't realize at the time but the Sterne Agee analyst cut his rating to hold after lunch.
    • RBC cut EOG to underperform from sector preform this morning
  • (HAL) Sold the remaining March $37.50 calls for $1.30, up 189% since entry on 2/13.

PUTS: No action

Stocks Of Interest Today Watch:

(EOG) Analyst Meeting Notes: click here to see last night's post; see also my 4Q07 pre call notes on the report page for a little more depth on the company as a whole.

(VLO) - $3 Billion Buyback + Port Arthur Expansion.

  • The buyback is in addition to $1 billion leftover from their previous authorization giving them $4 billion dollars worth of share repurchase firepower. At current prices (around $60 per share) they could take in 12%  of the 550 mm shares outstanding.
  • At a cost of $2.4 billion, the Port Arthur refinery expansion will be bring plant throughput capacity to 415,000 bopd up from 295,000 at present and increases total company throughput by 4%.
  • See the holdings tab for my position here.

SWN Reports A Beat, Guides 1Q Higher, And Gives Positive Fayetteville Shale Update

  • 4Q EPS of $0.41 vs Street Consensus of $0.36
  • 4Q CFPS of $1.17 vs Street of $1.06 (range of $0.97 to $1.16 so they beat all 18 analysts putting out quarterly #'s)
  • 4Q production was 34.9 Bcfe; 8% higher than guidance from 12/19.
  • 1Q08 guidance by 1 Bcfe to a range of 35 to 36 Bcfe (385 to 395 MMcfgpd - (million cubic feet of gas per day - new subscribers please see the definitions tab for this and other oil and gas terms)).
  • 2008 production guidance remains the same at 148 to 152 Bcfe, equating to 32% YoY growth.
  • Per unit LOE was well contained at $0.79 / Mcfe

Reserves Rocket:

  • Reserve replace of 474% (almost entirely organic)
  • Finding costs of $2.55 / Mcfe  - below industry average again.
  • Reserves up 41% to 1.45 Tcfe (about half in the Fayetteville shale; 96% natural gas).
  • Implies a reserve life of 13 years

Fayetteville Shale Update: Efficiency Improvements Continue As Does The Skyrocketing Growth

  • Net production increased from 32 Mmcfgpd in 2006 to 147 Mmcfgpd in 2007 (or nearly half of total company production)
    • 15 Mmcfgpd comes from convention Arkoma production within the confines of the Fayetteville play, the rest is shale gas.
  • Gross production tripled from 100 Mmcfgpd at the beginning of the year to 325 Mmcfgpd at 12/31/07. As of mid February gross production was at 350 Mmcfgpd.
  • They left their 2008 exit rate projection unchanged from prior guidance of 450 MMcfgpd with 2008 net production of 246 to 260 MMcfgpd - on the mid point that's 72% YoY growth.
  • Focus over the last half of 2007 shifted to what has been identified as the better acreage in the play covered by newly acquired 3D seismic.
  • SWN estimates completed horizontal well costs at $3.0 mm in 2008, pretty flat with $2.9 mm in 2007 and perhaps a bargain when you consider the lateral lengths (the horizontal part of the well) are getting longer (more frac stages, higher production).
  • Reserves per well: 2.0 to 2.5 Bcfe. Not bad finding costs there.
  • Drilling efficiency continues to improve: 15 days per well in 4Q down from 16 in 3Q and again that's with the longer laterals,
  • Completions are almost all slickwater fracs now which are showing better results than the cross linked gel fluid fracs.

swn-completion-methods-022908.jpg

Other Notable Items: New Ventures division:

  • They hold 98,000 net acres in the Marcellus shale - plans to spud a vertical well this quarter.
  • 49,500 acres in the Barnett Shale Permian play out in W. Texas
  • Drilling in a CBM play in Louisiana - Riverton in Caldwell Parish

In A Nutshell: These are very good results both for the quarter and the year and guidance is good. Costs remain in check and the potential for upsizing reserves and production from the Fayetteville Shale certain exist as the play transitions from science project to major resource play development.

Lastly, they announced a 2 for 1 split which may inspire a lemming rally. 

Conference Call: 10 am EST. 

Odds & Ends

Analyst Watch: (CRZO) cut to neutral at Southcoast, (CNQ) upped to outperform at BMO, EOG cut to underperform at RBC, (EOG) price target boosted from $90 to $140 at Jefferies, (AGU) price target increased at Citi, (SWN) price target increased from $64 to $75 at FBR, 

Housekeeping Item: I will be out of the office beginning at 10 CST today so if I don't talk to you in comments before then have a great weekend!  

 

 

44 Responses to “T.G.I.F. + SWN Results Rock”

  1. 1
    Sambone Says:

    6:20 am EST

    ICE Brent Crude Falls $1 On Profit Taking

    By Nick Heath
    Of DOW JONES NEWSWIRES

    LONDON — Crude futures fell more than $1 in early London trade Friday as investors opted to book profits from crude’s record breaking rally ahead of the weekend.

    ICE April Brent matched record highs of $101.27 a barrel overnight, while Nymex light, sweet crude futures prices broke above $103 a barrel for the first time earlier Friday, setting a new record at $103.05 a barrel.

    Despite the pull back, analysts said strong fund investment flows into crude and other commodities are likely to maintain crude’s upwards trend in the near term.

    “After yesterday’s gains, (profit taking) doesn’t surprise me — but it could go back down to $100 a barrel and still be strong,” said Jim Rintoul of TheOilTrader. “Until the funds decide enough is enough, it is difficult to know where it will top.”

    At 1108 GMT, the front-month April Brent contract on London’s ICE futures exchange was down $1.10 at $99.80 a barrel.

    The front-month April light, sweet, crude contract on the New York Mercantile Exchange was trading $1.03 lower at $101.56 a barrel.

    The ICE’s gasoil contract for March delivery was up $1 at $908.50 a metric ton, while Nymex gasoline for March delivery was down 117 points at 248.40 cents a gallon.

    —By Nick Heath, Dow Jones Newswires

  2. 2
    Nicky Says:

    Extraordinary volatility in nat gas.

  3. 3
    zman Says:

    DRY bulk rates were up large today to new highs for the year.

    capesize up 7000 to nearly $123,000 per day
    panamax up 2000 to 60,000 per day

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

  4. 4
    zman Says:

    Agreed Nicky – quite the salvage job from the early lows this morning…trading with crude.

  5. 5
    Nicky Says:

    Broader markets – ouch! spx through the 61.8% retracement level at 1350.

  6. 6
    Nicky Says:

    There is support at 1340 and key support at 1325.

  7. 7
    zman Says:

    Nicky – yep, if it walks like a duck and talks like a duck it probably is a recession. Comforting to know Ben B doesn’t see it.

  8. 8
    zman Says:

    VLO being down is pretty mystifying even with the broad market given their news.

  9. 9
    Sambone Says:

    I loved “W” not knowing what Gasoline prices are doing ($4.00?). Kinda like his Daddy with grocery store scanners. LOL

  10. 10
    Nicky Says:

    Is there going to come a moment when energy decides to take notice of a slowing economy rather than a falling dollar?

  11. 11
    zman Says:

    tempted to take a little SWN here

  12. 12
    Sambone Says:

    N – I believe that the “Crowd” is in the commodity market in a very big way. Look at the trader in TN that loss 141m. It used to be that speculators would not go into commodities because they couldn’t get good quotes in the pits. Sometimes 4 hours before you could get an execution. Now with electronic execution, the Hedgies are in and out in a big way. I believe the overall trend is up, BUT in the last few days, the crowd has come in. If Oil (Commodity) continues up, I will soon box in my portfolios.

  13. 13
    Sambone Says:

    10:14 am EST

    Crude Down Off Record $103 High On Profit-Taking

    DOW JONES NEWSWIRES
    From Market Talk:
    [Dow Jones] Nymex crude falls from a new record at $103.05/bbl seen in Asian trading as investors book profits, but the continuing weakness of the US dollar and uncertainty over next week’s OPEC meeting limit losses. Several OPEC ministers have called for output to stay unchanged or even cut on fear’s over a slowing US economy. Nymex Apr crude -47c at $102.12/bbl. (hyunyoung.lee@dowjones.com)

  14. 14
    Sambone Says:

    Z – Didn’t you say you were leaving at 10 am CST?

  15. 15
    zman Says:

    10:30 CST

  16. 16
    zman Says:

    S&P looks like its right at or just above support to me at 1340.

    SD on fire! One of the very few bits of green on my screen.

  17. 17
    zman Says:

    IOC is going to be at a Raymond James conference. Big deal. Investors could care less and want the overdue update on ELK 4. Happy to be away from the name for now.

  18. 18
    zman Says:

    Turkey exits Iraq.

    http://news.yahoo.com/s/ap/20080229/ap_on_re_mi_ea/turkey_iraq

  19. 19
    Popeye Says:

    I stopped out on IOC this am. It was a fun spec play but I won’t take a loss.

  20. 20
    zman Says:

    Popeye – hear ya IOC, I sold mine on the 26th.

  21. 21
    Sambone Says:

    10:25 am EST

    Crude Down Off Record $103 High, Market Eyes Further Gains

    By HYUN YOUNG LEE
    Of DOW JONES NEWSWIRES

    OTTAWA — Crude oil futures were down Friday after hitting a new record above $103 a barrel overnight, as traders sought profits from this week’s impressive rally, but the losses were tempered by ongoing concerns over the weak dollar.

    The front-month April light, sweet crude contract on the New York Mercantile Exchange was down 73 cents, or 0.7%, at $101.86 a barrel. Brent crude on the ICE futures exchange fell 85c to $100.05 a barrel.

    Front-month March reformulated gasoline blendstock, or RBOB, fell 1.75c, or 0.7%, to $2.4782 a gallon. March heating oil was down 1.66c to $2.8290 a gallon. Both contracts expire Friday.

    In Asian trade, the Nymex contract hit $103.05 a barrel, and while prices have pulled back since, this is likely a brief pause before they launch higher again.

    “I don’t think it’s anything more than just a correction — the market’s still in a bull trend,” Tom Bentz, a broker at BNP Paribas, said. “The weak dollar continues to support and technically the market is still very solid.”

    Crude futures have risen as investors look to commodities as a safe haven against the U.S. dollar’s slide. The currency fell to a record low Thursday, driving a 3% jump in crude prices, but has recovered somewhat this morning.

    “I think today’s profit-taking may be reflective of the dollar showing some stabilization,” said Eric Wittenauer, energy analyst at A.G. Edwards. “It’s given (crude) a reason to pause.”

    But fund money continues to flow into crude oil, along with other commodities such as gold and corn, and the trend up is firmly in place for now.

    Widely held expectations for a further rate cut at next week’s Federal Reserve meeting is playing into dollar weakness. Meanwhile, market participants reckon the Organization of Petroleum Exporting Countries will hold output steady when members meet on March 5, despite calls from various countries to raise levels.

    Supply concerns are also bolstering prices. In Nigeria, Eni SPA (E) confirmed it had cut 50,000 barrels a day from its Brass River terminal. While loading appears to be unaffected, traders are keeping an eye out for delays or even a force majeure, noted Addison Armstrong, a broker at TFS Energy Futures. The terminal has a nominal capacity of 200,000 barrels a day but continued civil unrest has cut this to between 130,000 and 160,000 barrels a day.

    Late Thursday, Ecuador declared force majeure on oil exports following damage to a 350,000 barrel-a-day oil pipeline. Early Friday, oil and mining minister Galo Chiriboga confirmed the decision, saying “I have revised carefully the situation and approved the force majeure as a preventative measure.” Ecuador is the second-largest South American supplier of crude oil to the U.S., according to the U.S. Department of Energy’s Energy Information Administration.

    And while it’s “anyone’s guess” where crude’s march higher will end, the former resistance levels of $98 to $100 a barrel have changed into “a newfound support area from where prices are pushing even higher,” said Edward Meir, an analyst at MF Global.

    —By Hyun Young Lee, Dow Jones Newswires

  22. 22
    zman Says:

    Traders and the press are lame on crude expectations. When its gone from 100 to 90 they see it falling apart and going to 70, 60, 50. When its at 100 suddenly 120, even 150 are touted. What a bunch of lemmings.

  23. 23
    Sambone Says:

    Uncle Phil

    http://www.321energy.com/reports/flynn/current.html

  24. 24
    Sambone Says:

    Z – Phil is now bullish on Oil. Guess we should short, eh?

  25. 25
    zman Says:

    Sam – Probably, Alaron stopped taking my calls.

  26. 26
    Nicky Says:

    Turkey exits Iraq and still oil goes up!

  27. 27
    Nicky Says:

    FWIW products expire today. April RBOB is trading at a premium of 17 cents to March!

  28. 28
    zman Says:

    Sam – just read his piece. Long crude from $100, stop $98. His justification seems like if you can’t beat em, join em and that its Ben’s fault for tanking the dollar. That’s part of it but there is more geo-pol in the commodity of late than there has been for months and I would expect it to deflate soon. There’s also of course, “the crowd” who love the geo-pol. When it settles, they’ll find something else to pump.

    He’s also long natural gas – he’s been right on that move and I’ve been wrong so far. Part of yesterday’s bump was a fire at a North Sea receiving terminal that impaired natural gas flows into Britain. Thought is that if its long term and bad and given their cold weather it will mean higher prices there, and less LNG tankers heading to US shores. Shell is still accessing the damage but flows from the European interconnector were increased to compensate so the reaction in NYMEX prices yesterday seems like a big over reaction.

  29. 29
    bill Says:

    WHEN DO WE GET BACK IN ON EOG

  30. 30
    zman Says:

    Re: EOG getting back in.

    I don’t know which analyst at RBC cut them and their may have been others to cut as well.

    I worked with the Jefferies analyst who took his price to $140 and that speaks to me as he’s a good egg.

    I’d say today but I’m headed out the door as I type this. I’ll look again on Monday…if it drops another couple points I might go in small late this afternoon in the hopes of getting one of the bulge bracket firms to come with an upgrade and more in depth comments on Monday. If you are nimble it would probably make a nice DT today on a market rally.

    In the infamous words of Phil Flynn, have a great day and weekend!

  31. 31
    Sambone Says:

    11:33 am EST

    Nymex Briefly On Positive Ground As US$ Sinks

    DOW JONES NEWSWIRES

    [Dow Jones] Nymex crude reverses earlier losses and pops briefly into positive territory as the US dollar sinks further. Nymex April crude was up 6c at $102.65/bbl after spending most of the morning trading session just below the $102/bbl level. “It’s once again the same story as yesterday — the poor little dollar,” says Phil Flynn at Alaron Trading Corp. An expected Federal Reserve rate cut next week is feeding into dollar weakness but Flynn adds: “The problem is when the Fed runs out of rate cuts — what does oil do then?” Nymex Apr -19c at $102.40/bbl. (hyunyoung.lee@dowjones.com)

  32. 32
    Sambone Says:

    The best way to destroy the capitalist system is to debauch the currency — Vladimir Lenin

  33. 33
    rseidman Says:

    I just came on. What happened to Z?

  34. 34
    Popeye Says:

    Dental surgery.

  35. 35
    Sambone Says:

    Tini time!

  36. 36
    zman Says:

    What a bloodbath. Most stocks in the group flat to only slightly down from when I checked out this morning.

    Obviously exception being OII which got drilled along with FTI and CAM which I don’t hold.

    and DRYS which got hammered. EOG looks chisselled lower into the close.

    Was happy to see HK held above $18 and NFX above $55

    Look for the wrap sometime in the morning.

    I see that makes 4 straight losing months for the DJIA. Berkshire news after the bell could spell doom for Monday’s opening…Buffet saying “parties over for insurance” . Should see Asia get creamed on Sunday/ their Monday.

  37. 37
    Nicky Says:

    Hope the surgery went okay Z.

    Yes you are right re Asia and Europe so expect more of the same for the US on Monday – could be a repeat of 22nd January….

  38. 38
    zman Says:

    Thanks Nicky – wisdom teeth yanked, piece of cake. well, actually I can only have liquids this weekend so shot of Patron and a milkshake chaser. woo – hoo. Think Monday could be very ugly.

  39. 39
    Nicky Says:

    Technically watch the range. There are a lot of people setting up to buy any big dip so I am watching for that. The range for the Dow is 12600 – 12150. I can see a scenario where we dip to 12100 and everyone jumps in citing the restest they are looking for. We may then see a bounce towards 12500 before it rolls over again….so I guess what I am saying is there is a possibility we get a fake out first. We have cycle lows due mid week. Could all the downside be done by then – possibly but unlikely I think as the cycles actually look weak into April with a retest due in June.

  40. 40
    T-Tupp Says:

    the nasdaq report short interest on the 15th and last day of the month. does anyone know when they are posted to the nasdaq website?

    the reason is because drys’s short interest as of the 15th was the highest it’s ever been (about 25% of the available float), and am real curious as to whether or not it has increased higher than the 5m held short as of the 15th. could be a great short squeeze. the recent fall in prices could be new people shorting, and making a nice set-up for a huge short squeeze when the BDI index keeps rising.

  41. 41
    zman Says:

    T – will snoop around on the when posted short interest ?

    speaking of short interest, natural gas short interest exploded last week, with shorts adding to their positions at a rate of nearly 8 to 1. It was the single biggest jump in short data I’ve going back into the 1990s. So I’m losing money on the UNG puts with a lot of company. Think that has to reverse soon… will have more in the wrap later this weekend.

  42. 42
    bill Says:

    tupp re 40

    i agree with you.

    the drys down move makes no sense and id like to see a short squeeze

  43. 43
    T-Tupp Says:

    than z , keep me posted, i bed it increased….

  44. 44
    T-Tupp Says:

    i think it’ll be on the nasdaq site probably mon morn. frikin part-timers….

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