08
Apr

Tuesday Morning

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In Today's Post:

  1. Commodity watch
  2. Holdings watch - yesterday was pretty busy
  3. Stocks we care about today - HK and APA with news
  4. E&P sector watch - hedge update, a little talk about valuations
  5. Crack Spread update - I may actually be warming to the group

 

Housekeeping Watch #1: Sometimes the internet, or at least remote corner of it, breaks. Yesterday the site went down for about 20 minutes.

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Commodity Watch:

  • Crude Oil shot up $2.86 to close at $109.09 yesterday as a colder than normal weather forecast through mid month and OPEC watchers said the Cartel's output fell slightly last month. Heating oil and gasoline hit new records. This morning oil is trading off $0.70 - $1.00 despite a slightly weaker dollar. 
  • Early Read On Oil Inventories (from the Reuters survey)
  • Crude: expected up 2.2 million barrels,
  • Gasoline: expected down 2.6 mm barrels,
  • Distillate: expected down 1.4 mm barrels
  • Fog Temporarily Shuttered Houston Ship Channel Monday. The closure reportedly lasted just three hours which is not long enough to have any impact but it was cited as part of the reason for yesterday's move up in crude.
  • Natural Gas shot back up $0.47 (a whopping 5%) to close at $9.79. This sent UNG, the natural gas ETF, up just under 4% to close the day at $46.75. I remain long the (UNG) $44 and $45 April puts. This morning gas is keying off oil prices.

Despite yesterday's rebound, the May contract (and subsequent months as well) look to be forming a double top here. We may see one more test of $10 but then I would expect to a see a series of low highs and lower lows back into the mid $8s as great supply begins to make its present felt in the shoulder season injections. 

 ng040708a.jpg

  • Imports: running nearly 2 Bcfgpd below year ago levels at about 9.1 Bcfgpd with LNG continuing to be MIA. Asia / Japan and Europe continue to take more than their usual allotment and the weak dollar is exacerbating this. To put that in perspective, the U.S. is producing about 55.8 Bcfgpd (January numbers), up 4.1 Bcfgpd from year ago levels.
  • LNG: still stuck at 0.6 Bcfgpd, down 2.2 Bcfgpd from year ago levels. You've got to wonder how management teams with massive regas expansions underway like (LNG) are sleeping at night. That stock has been involuntarily split split 2 for 1 since October. Who knows, maybe they rebound when the first LNG volumes scheduled for commissioning of the first new regas facility hit U.S. shores next week (cool down volumes for their soon to be commissioned Sabine Pass, Louisiana LNG facility are schedule to arrive April 12th from Nigeria). More importantly, the first uptick in LNG import volumes should show up in the numbers Monday after next.

lng-imports-040708.jpg

  • Canadian Pipes: running at 8.5 Bcfgpd, slightly higher than year ago levels.

Holdings Watch: Busier than usual day for trading yesterday.

CALLS:

  • SU - Exited the SU $100 April calls (SUDT) for $6.10, up 160% since entry on 3/24.
  • PQ - Entered the PQ May $20 calls (PQED) for $1.05.
  • NBR - Entered the NBR May $35 calls (NBREG) for $2.05. Plan to sell the second half of my April $35 calls soon.
  • NFX - Entered the NFX June $60 calls (NFXFL) for 2.85.
  • HK - Added the May HK $22.50 calls (HKEX) for $1.20 as the stock finish flat on the day.  

PUTS: No trades

Stocks We Care About Today:

HK Ups Ante At Haynesville: More than doubles position since 3/12. This morning HK announced they had boosted their position in the Haynesville shale from 30,000 acres as of the date of their analyst meeting to 70,000 acres this morning as they prepare to speak at the IPAA conference. The new 40,000 acres is from areas outside of Elm Grove and hopefully they will give us a little on just where it lies relative to (CHK's) wells. This could "re-inspire" speculation that CHK (or I think someone else) will scoop them up.

  • IPAA webcast at 11:45 EST.

APA Horizontal Gas Shale Play. Apache drilled 3 successful horizontal tests of the Ootla shale in NE British Columbia with very respectable flow rates (8.8, 6.1, and 5.3 MMcfgpd). (APA) and (ECA) have formed an AMI (area of mutual interest) controlling more than 400,000 acres (APA's net is 207,000). 

Bold Statements Watch: "although we are still in the early stages of understanding the full scope of this play, these three wells help validate our view that Ootla has the potential to be one of the larger shale gas accumulations in North America" ~ CEO Farris

Farris went on to estimate resource potential of 9 to 16 Tcf net to APA. Apache had gas reserves as of YE07 of 14.7 Tcfe.  

This seems to be a recurring theme; find a shale and claim its the big one. Apache presents at Howard Weil at 9 Est but it is unlikely to be webcast

 

E&P Sector Watch: 

Hedge Watch: Here's a quick update on the several of the E&P names we talk about on a fairly frequent basis and their hedge positions at present.

  • Gassier names seem to be locking in prices while the strip remains high and have managed to swap or collar their expected gas production at prices approaching $8 per Mcf. With the exception of (EOG) who noted at their analyst meeting a cessation of gas hedging for the time being, the large E&Ps have locked in north of 70% of 2008 gas production.
  • Oil names seem more sure oil is going to stay high. Some of these names, like (CLR) have only recently taken on their first hedges

hedges-040708.jpg

Note: If a chart, graph, table, map or other graphic is ever too wide for your screen you can click on it to open in a new window. If this makes it illegible let me know and we'll fix it. I compose on a fairly widescreen and everyones resolution is different so what works for my screen may only show half the goods on yours.  

E&P Valuations.  Key takeaways:

1) despite recent strength the group is not overpriced relative to historical trading levels. Despite moves higher in most names, partially offsetting (and continuing) upward earnings revisions have kept forward multiples in check.  

2) some names are getting cheaper due to lack of stock price appreciation relative to rising cash flow per share estimates: (APC), (EOG), (NFX), (SD). I'm long (APC) and (NFX) options and (SD) shares.  

3) growth gets all the attention. Just passing an eye over the 2008 to 2009 CFPS numbers, the ones with the biggest expected YoY change are not surprisingly the ones with the continued outperformance of the group. A couple of things I think the Street is missing are the continued growth at SD which is not in those flat 08 to 09 numbers yet, as well as likely increases to both 08 and 09 numbers for CHK, HK, NFX, EOG, and SWN, not just based on price but better than currently expected production performance that will become more evident in a couple of quarters.  

 

ep-pcf-040708aaa.jpg

  

Crack Spread Update:

1) Expected Seasonal Move Up Started. Crack spreads are moving up as they are apt to do this time of year. Analysts and more importantly, fund managers may start to take notice and the group's recent efforts to bottom may provide the basis for a small bounce into earnings. Barring a major outage I don't see a return to 2Q07 's fat margins but given where the stocks are, such a large move would not be necessary to re-ignite the independent refining group. I may in fact dip a toe in long positions in VLO, TSO (where West Coast RBOB stocks are pretty low at present), and / or (FTO).

 

crack-spread-040408.jpg

2) Refiners Continue To Voluntarily Curtail Throughput But It Has Not Worked Perfectly. As you can see in the following chart utilization remains at record lows for this time of year. The idea is to drive gasoline prices up to the point that margins become at least respectable...not an easy feat with oil that will not give up its venture into triple digit territory. Valero has said voluntary curtailments will last as long as necessary to boost margins. If they and others can keep production offline for another few week's AND oil prices at least soften to $100 the group may have a good shot at posting a not so terrible 2Q.

util-040708.jpg

Look for more on refiners in coming days as I may be warming up to this beaten down group.

Odds & Ends

Analyst Watch: FBR ups (PXD) price target from $65 to $70. We're in "mark to market" season when E&P analysts update their models for the price realities of the first quarter. In almost all most cases they'll be taking numbers higher. 

IPAA - OGIS Z-Schedule:

ipaa-ogis-040708.jpg

 

131 Responses to “Tuesday Morning”

  1. 1
    isleworth Says:

    Petrohawk Energy initiated with a Buy at Merrill

  2. 2
    zman Says:

    Isle – where did you see that?

  3. 3
    reefguy Says:

    z- Another great overnight summary and analysis! Do you have help or are you gonna do a blogger burnout?

  4. 4
    zman Says:

    Thanks Reef – one armed paper hanger on the writing + a little admin help. I love this stuff too much to burnout.

    Anybody have access to Merrill?

  5. 5
    reefguy Says:

    Bloomberg wire had Merrill rating HK a buy

  6. 6
    reefguy Says:

    HK target $27

  7. 7
    zman Says:

    Any deets?

  8. 8
    reefguy Says:

    Waiting for details…

  9. 9
    scoop006 Says:

    Z- Did you see today’s The New York Times article re Marcellus Shale?

  10. 10
    zman Says:

    30% upside for PT, didn’t leave themselves a lot of room. Love to see the EBITDA or CFPS estimates.

    Scoop – yes thanks, its in my night reading bin for tonight, do I need to look at this am?

  11. 11
    scoop006 Says:

    No

  12. 12
    isleworth Says:

    Will try to get you ML report Z

  13. 13
    zman Says:

    Isle – zmanalpha@gmail.com if you please. Thanks.

    Scoop – will read this am anyway

  14. 14
    reefguy Says:

    NYT- Estimated $700MM spent to date. That is low by 1/2. Chief has spent over $200. Just land grab by CHK, RRC, COG, XCO exceeds 2,000,000 acres at $300/ac exceeds $600MM.

  15. 15
    zman Says:

    Haynesville: JPM said acreage was going for $10,000 an acre….that sounds really high compared to what I thought a week ago.

  16. 16
    reefguy Says:

    Hz- Between $3000 and $10,000. closer to lower number…

  17. 17
    reefguy Says:

    HK- 70,000 acres@$10,000/acre = a number
    that means they need to be bought out

  18. 18
    zman Says:

    JP Morgan’s quote:

    we have talked to several operators and they have confirmed that CHK is leasing just the deeper rights for 7 to 12,000 and … outright buying mineral rights for 7 to 10,000 per acre.

  19. 19
    zman Says:

    agreed, if the 10K was correct. JPM trips overthemselves to say what a great play this is, that the acreage is worth 40 or $50K per but then slams CHK for buying it at $10K. Sour grapes.

  20. 20
    reefguy Says:

    Buy minerals for 3x of lease prices makes sense and is a general historical multiple throughout the patch

  21. 21
    Sambone Says:

    8:36 am EST

    Nymex Crude Eases Below $109/Bbl; Dlr Impact

    By Nick Heath
    Of DOW JONES NEWSWIRES

    From MARKET TALK:

    [Dow Jones] Nymex crude eases below $109/bbl as the dollar strengthens overnight, while heating oil drops less amid a strong gasoil market in Europe. Nymex May crude -$1.08 at $108.01/bbl. (greg.meyer@dowjones.com)

    LONDON — Crude oil prices strayed little from their previous closes in London Tuesday, supported by continued strength in distillate markets and geopolitical developments.

    Having scrambled back to near-record highs Monday, crude prices could now be on course to test uncharted territory, analysts suggested.

    “The highs are like a magnet, and we are not very far away. Naturally it attracts the money,” said Eugen Weinberg, analyst at Commerzbank in Frankfurt.

    At 1134 GMT, the front-month May Brent contract on London’s ICE futures exchange was down 42 cents at $106.72 a barrel.

    The front-month May light, sweet, crude contract on the New York Mercantile Exchange was trading 33 cents lower at $108.76 a barrel.

    The ICE’s gasoil contract for April delivery was up $5 at $1,009 a metric ton, while Nymex gasoline for May delivery was down 230 points at 276.05 cents a gallon.

    Oil prices jumped briefly higher after Iran’s President Ahmadinejad announced Tuesday that Tehran is starting work to install 6,000 new uranium-enriching centrifuges at one of its nuclear plants, feeding oil market concerns that already-strained tensions between Iran and the West, particularly the U.S., could deteriorate further.

    While doubts over any imminent confrontation allowed oil prices to subsequently relax, the oil market’s sensitivity to developments in the region remains heightened.

    “There is always a risk, but given the current market conditions, the state of the U.S. election and everything else, anything happening this year is unlikely,” said Simon Wardell, analyst at Global Insight in London. “But, obviously, it will still have some sort of impact on the oil market.”

    Higher distillate prices continued to channel support into crude oil prices. Monday’s news of a fire keeping Neste’s 200,000 barrel a day Porvoo, Finland refinery off-line into May propelled ICE gasoil futures to more record highs, the April contract peaking at $1,017 a ton Tuesday. The strength spilt over into crude, even though the refinery’s outage also spells less demand for oil.

    “Most of the support to the oil complex is still coming from the middle distillate part,” said Olivier Jakob of Swiss consultancy Petromatrix, noting strength across gasoil, diesel and jet prices Tuesday.

    While Monday’s sharp climb leaves crude prices within striking distance of their record heights, analysts warned that signals of weakening demand amid soaring prices may pose an obstacle to further advances.

    “It is still very important to watch out for any further signs of declining demand for energy from the U.S. and slower global growth rates, which could still undermine crude futures,” said Andrey Kryuchenkov of Sucden Research in London.

    U.S. Energy Information Administration chief Guy Caruso said Monday that he expects upcoming summer U.S. gasoline demand will fall by 85,000 barrels a day compared with last year the first decline since 1991. He said the EIA expects national average retail gasoline prices to climb above $3.60 a gallon during the peak of the summer driving season.

    While a declining U.S. dollar has been a catalyst for higher crude prices in recent months, fresh weakening of the greenback appeared to assume secondary importance Tuesday, much as it had Monday. But currency moves would remain a focus for the oil markets as crude prices advance on record level, some said.

    “Although ignored yesterday, dollar weakness may still play a strong part as there are potential longs looking for reasons to buy,” said Andy Riddell, energy broker at ODL Securities in London.

    -By Nick Heath; Dow Jones Newswires

  22. 22
    reefguy Says:

    Hk- doing the right thing, May calls looking smart(zman yesterday)

  23. 23
    zman Says:

    I put the IPAA schedule at the bottom of the post again as today is really the big day for me at least in terms of names I want to hear from.

    HK trying to run on the Merrill upgrade. Those reports take a bit of time to write / model and you know the analyst has been working on it since the mid teens and kicking himself for missing the move into the $20s. My point is, he’s going right in front of earnings and despite the run so I’d like to see why he didn’t wait on a pullback. I suspect its a combination of horizontal outlook and the new Shale.

  24. 24
    zman Says:

    reef- lucky to have that many brokers making phone calls and sending emails and IM’s re the new coverage.

    CHK should be done with their Weil presentation now, stock up a smidgeon.

    NG looking to test $10, up $0.13 at $9.92 as crude comes flat on the day.

  25. 25
    Dman Says:

    Reef – can you expand on #17 ?

  26. 26
    zman Says:

    I’m a little surprised that oil isn’t testing $110 on the Iran centrifuge news.

  27. 27
    zman Says:

    Natanz = place of next generation U.S. cruise missile test. I’d bet Bush hits the site (or the Israelis do) before he leaves office.

  28. 28
    reefguy Says:

    17- That seems to be near $700,000,000 add to Market Value, about $3.5/sh

  29. 29
    zman Says:

    Re 17: The nice thing is they got the first 30,000 acres on the cheap (as no one was onto the play but CHK and those acres underly HK’s Elm Grove field), and the next 20,000 quietly also pretty cheap (withing a week of their analyst meeting)… so if they don’t get bought it was well worth purchase price…but they’ll get bought.

  30. 30
    Jay Reynolds Says:

    Sitting here with my landman now.

    Relatively ill-informed small prospective lessors in the Haynesville turning up there noses at opening $800/ac lease bonus, “you’re bottom fishing”.

    Highest I can confirm to date is $3,000/ac.

  31. 31
    reefguy Says:

    XCO- how many acres in the Haynesville?

  32. 32
    reefguy Says:

    JR- That is what we hear, $3000/ac for leases and $10,000 for mineral rights

  33. 33
    zman Says:

    NFX stretching towards an all time high today…current 56.93 would be a closing high. $57.75 would put us in record territory.

    Re XCO Haynesville: I show 154,000 acres

  34. 34
    zman Says:

    Guys if you acreage there I think JPM would give you 40 or 50,000 for it so you might want to give them a call, lol. What are they smoking?

  35. 35
    isleworth Says:

    Tristone raises Newfield Tgt to $78 and raises it to Top Pick

  36. 36
    zman Says:

    Nice greening of the group taken place, especially nice relative to the market.

    CHK through $48
    HK resting 22
    PQ still not moving much and I’d point out that they had 24,000 acres in the area we’ve been chatting about as well.

  37. 37
    reefguy Says:

    JPM- smoking HK/XCO/PQ/GDP buyout work

  38. 38
    reefguy Says:

    xco up .38 all time high at $21.71

  39. 39
    Sambone Says:

    9:43 am EST

    Nymex Crude Steadies As Distillate Rally Eases

    By Gregory Meyer
    Of DOW JONES NEWSWIRES

    NEW YORK — Crude oil futures steadied Tuesday amid easing prices for distillate fuels, among the main products refined from crude.

    Light, sweet crude for May delivery was recently down 22 cents, or 0.2%, at $108.87 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange was off 22 cents at $106.92 a barrel.

    Nymex crude rose nearly $3 a barrel Monday, aided in part from an announcement that a major Finnish producer of gasoil had delayed its restart after a fire. After climbing 4.2% to settle at $1,004 a metric ton Monday, gasoil had recently dropped 75 cents to $1,033.25 a metric ton.

    “It seems to be losing speed,” Tradition Energy analyst Gene McGillian said of the distillate rally.

    Over the last several months, dollar-denominated crude oil has closely tracked moves of the greenback, as a weaker dollar softens the impact of higher prices for oil buyers using other currencies. The euro was recently $1.5701 Tuesday, from $1.5707 late Monday.

    “Although a detachment from the U.S. dollar has developed this week, we still view the dollar as a key pricing ingredient to the oil and we would expect a reconnection as this week proceeds,” said Jim Ritterbusch, president of Galena, Ill., energy trading advisory firm Ritterbusch and Associates, in a note.

    Meantime, traders are facing the prospect of weaker demand in the U.S. The U.S. Energy Information Administration now sees domestic gasoline demand averaging 9.405 million barrels a day this summer, a drop of around 35,000 barrels a day from a year ago, according to its latest short-term energy outlook issued Tuesday. It would be the first drop in U.S. summer gasoline demand since 1991.

    The outlook also said the agency expects crude oil output from the Organization of Petroleum Exporting Countries will rise by about 1%, or 310,000 barrels a day in the second quarter from the first quarter, to 32.59 million barrels a day.

    Separately, OPEC’s president told reporters the producer group has no plans to formally raise its output quotas amid prices now daily trading above $100 a barrel.

    “The supply is there. We are (now) entering a period of lower demand…demand this year is going to be lower than expected,” Chakib Khelil told reporters in London.

    Khelil, who is also Algeria’s oil minister, placed the blame for the current $100 a barrel oil prices on a weak U.S. economy that was undermining the dollar, giving financial speculators room to bid oil prices higher.

    Early in the session, Nymex crude jumped to $109.64 a barrel after Iran, OPEC’s second-largest exporter, announced plans to install thousands of new centrifuges to enrich uranium at its main nuclear plant, in defiance of U.N. Security Council calls to freeze the sensitive process.

    Front-month May reformulated gasoline blendstock, or RBOB, fell 2.38 cents, or 0.9% to $2.7597 a gallon after settling at a record on Monday. May heating oil was up 1.40 cents, or 0.5%, to $3.0983 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  40. 40
    zman Says:

    Thanks Isle …. I like it when people upgrade stocks after I buy them. That’s the way it is supposed to work. That scrub at JPM needs to get with the program.

    XCO – yeah, I missed that one. Glad you were on top of it. That’s by far the best performer since CHK highlighted the play. I should have been on GDP too as I used to cover/know those guys but I was asleep at the wheel. Will not chase GDP, may have to take a look at XCO as you know T Boone will be on CNBC running it more soon. And it’s still cheap.

  41. 41
    zman Says:

    About 20 public companies have exposure to the Haynesville.

    Biggest holder is CHK but in terms of exposure vs total company valuation the biggest exposure goes to

    1) QBIK (which I highlighted way back but did not and will not touch), then
    2) GDP,
    3) XCO,
    4) GMXR,
    5) CRK (one of my favorite names but I don’t often traffic the options)
    6) PVA,
    7) HK,
    8 SM,
    9) PQ,
    10) CWEI

  42. 42
    zman Says:

    DRYS tapping on $70 … been awhile. Rates continuing to tighten their trading range:

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

  43. 43
    Dman Says:

    Re #26-27

    As I understand it, the Irananian centrifuges are well within Iran’s rights under the NPT (remember that? Quaint old thing: the “T” in NPT stands for “Treaty” ).

    But I don’t suppose it’s the NPT that is restraining Mr Market here: what it cares about is “is Bush going to hit them and double the price of oil overnight”. So it is curious that the market doesn’t respond at all to the 6000 centrifuges. You would think that even a 5% chance of doubling the oil price would be worth something….like maybe a 5% jump.

    Instead there was a 0.5% jump, so in very crude terms (pun intended) the market seems to rate the chances of Bush doubling down in the Middle East at 0.5%.

    That seems a bit paltry. I’d give it better odds than that. What does Mr Market know that we don’t about W’s plans?

    Maybe a decent chance of the Iran-hit is already factored in and Iranian actions are mostly irrelevant.

    BTW, I don’t think any generation of cruise missile will make much of a dent in Natanz unless it’s a decent sized nuke & then, depending on the prevailing winds, there could be fallout issues in the Green Zone & Tel Aviv (just to give some examples).

    What happens to WTI if Western oil-service workers evacuate the Gulf to escape the nuclear fallout?

    Given how crazy the scenarios very quickly become, maybe the market just shrugs and says “who cares, its too hard, we can’t figure it out”.

  44. 44
    zman Says:

    Ok, maybe 100 of them. Or a B2 full of next-gen JDAM. I think what is likely is that Rice goes back to the UN for more sanctions and “what next” talk and that that inspires Ahmed to rattle his Straits of Hormuz Saber.

  45. 45
    uop Says:

    Z:
    is APA still attractive now ?

  46. 46
    jy Says:

    Contango (MCF) this morning issued PR that says they are buying more interest in their “Dutch” and “Mary Rose” projects immediately offshore Louisiana AND they have asked Merrill to solicit buy offers for these 2 projects. Stock reacting in positive fashion, up ~$5.00 today.

  47. 47
    zman Says:

    uop – APA …I think so. Its had a pretty good run but the news there is very strong.

    Jy- I wrote about these guys quite awhile back but never bought the shares and at the time no options. So feel like I missed it but I will revisit.

    Just added a E&P tab at upper left as a repository for valuation metrics, hedges etc on the group.

  48. 48
    Sambone Says:

    Late winter/early spring last year, the US had three carrier battle groups in the “Pond”. They were preparing a strike, but the military level heads finally went and told the Hawks that the US couldn’t handle a three front war.

    I don’t believe the US will do anything, but I would not count out a strike by Israel.

  49. 49
    zman Says:

    Group caught a little selling pressure, hard to fathom HK stays this low with Merrill and IPAA on tap. Interesting release of the acreage news on the same day as IPAA and Merrill. It could makes one a little nervous about the rate on the upcoming Hz wells. Gotta go with your gut on that and mine is saying hold but I will be exiting my remaining April calls soon.

  50. 50
    zman Says:

    Gas running out of steam?

  51. 51
    Dman Says:

    Is it just me or is the action lately in the gassy & service stocks becoming whippy, trippy, zany & zippy? How can a stock go in so many directions at once? Maybe I’ll forget about learning how to day-trade.

    But seriously, is anyone else seeing this or do I need to back off on the caffeine?

  52. 52
    zman Says:

    Dman – you are not alone. I’ve adjusted my hold times (shorter) accordingly. This seems to happen, some would say, near a top, but I think in this case it is more along the lines of a group that is torn between obviously improving fundamentals and disbelief in the economy and continued improvement in said fundamentals. Also there is the constant thought that you need to sell your winners to cover your losers.

    My point has been that prices don’t need to keep going up (oil and gas prices) for the stock prices to continue to rise (at least in the names I’m in). It helps if they don’t tank but I don’t really see them doing that.

  53. 53
    zman Says:

    HK IPAA presentation about to begin.

    They’ve bumped their reserve potential from 4.7 as of 3/12 to 6.4 Tcfe as of today.

    That would be the additional acreage.

  54. 54
    uop Says:

    Z:

    with the high oil prices, should one not invest in some of the best drillers, equipment for drilling etc??

  55. 55
    zman Says:

    It gets a little more complex as capacity in the different service components determines pricing and some have become bloated. We are in NBR which is a cheap driller.

    HK call started…available on their website.

  56. 56
    zman Says:

    More HK: Estimated EUR now up from 3 to 4 Bcfe in their presentation. That’s probably still conservative.

  57. 57
    zman Says:

    HK presentation over: biggest takeaways I saw were:

    1) the increase to reserves per well estimate.
    2) The map of the Taylor sand shows two of the Hz wells completing and one listed as flowing back. Hard to tell if they will have more to say before 1Q report.
    3) guidance was unchanged at 25% YoY growth

  58. 58
    zman Says:

    Tristone took up their price target on NBR from $32 to $40.

    They also took HAL from $46 to $55.

  59. 59
    cattleman Says:

    Critical Iranian nuclear infrastructure is probably dispersed. Israel wouldn’t attack without U.S. approval, probably would require U.S. assistance and would be preceived as a U.S. proxy. Iran has been at war with us since the embassy takeover and we have yet to respond. We don’t have the ground forces needed to ensure the job gets done or to influence events post attack.

  60. 60
    scoop006 Says:

    z check out NBR June P&C

  61. 61
    zman Says:

    Scoop – long straddle…betting it moves big but don’t know/care which way.

  62. 62
    Sambone Says:

    C – Your probably right.

  63. 63
    cattleman Says:

    Sam – Are you still holding on to the SKF trade? Do you think the financials have been save from themselves?

  64. 64
    Dman Says:

    From the Department of Random Observations:

    The tone in NBR seems to be a tell for the gassy & service complex… it’s as though NBR is an indicator of the level of conviction in the move. Since it disappointed repeatedly in the last few years, it’ll be a while before everyone gets on board that particular train.

  65. 65
    zman Says:

    CNBC was all in a panic over “negative” ACI comments yesterday …and look at them and the rest of the coals now.

  66. 66
    Sambone Says:

    C – Yep, looking to buy more SKF. Waiting on a rally in the banks short term and then buy more under 100. In regards to Financials, you havn’t seen nothin yet. IMF expecting 1 Trillion write off around the world and we’ve only seen about 232 billion so far. What I don’t get is that S&P and Moody’s can downgrade Sigma Finance’s paper(Father of the SIV investing), but they don’t downgrade MBI or ABK. Did you see the downgades of paper at BAC yesterday? Owners of WB better watch out. They bought Golden West at the height and most of their lending was in California. Folks in CA who have home equity loans aren’t paying them because they know that if the bank forecloses on them, the first lender will get the house and the bank gets nothing. I could go on for hours.

  67. 67
    cattleman Says:

    Sam – Understand. I hold some SKF also. I’m guessing that the preception is that the Feds are guaranteeing the system, have set the floor so traders feel the bottom is in. Yor’re saying that the problem is too big for Treasury and the Fed right?

  68. 68
    Alhambra Says:

    DVN selling $2.2B in assets – http://www.reuters.com/article/marketsNews/idINN0836442320080408?rpc=44

  69. 69
    zman Says:

    A – I guess things change: Here’s what DVN said yesterday:

    Devon is actively looking for more shale resources but is not looking to increase this year’s capital budget, nor is it selling any assets as some peers have recently done, company boss Larry Nichols told Reuters.

  70. 70
    zman Says:

    So you put #68 and $69 together and you get an acquisition of a “shaley” company in the U.S. They could pick up PQ with the proceeds from this deal as a tax free swap. Enterprise value is $1 billion and they are in the Fayetteville, Woodford, Haynesville (via Carthage field) and Hartshorn.

  71. 71
    scoop006 Says:

    RE #68&69. Can management be that disingenuous and get away with it?

  72. 72
    Nicky Says:

    John Kildfuff has turned bearish energy – says he expects to see a 20% drop.

    Anyone know what the CFTC have said this morning? Its been aimed at the energy sector…

  73. 73
    scoop006 Says:

    Z why don’t you broker the sale of PQ to DVN .Would be nice commission

  74. 74
    zman Says:

    Scoop – I think I took DVN wrong on the quote, they said they weren’t selling assets right after they mentioned shale. I’ll bet they meant they were not highgrading or selling shale they didn’t want to buy acreage they do want. Probably had nothing to do with international ops which, as they story says, they have been trimming. The others they are referring to would be CHK in the Woodford, if I had to guess.

  75. 75
    zman Says:

    Sam or anyone: what is Merrill’s market maker symbol and do they have more than one?

  76. 76
    zman Says:

    Re 73: Cut my energy teeth doing that. No thankyou.

  77. 77
    T-Tupp Says:

    z- what was the idea behind al the NBR trades last week and this week?

  78. 78
    Sambone Says:

    C – Hmmm, let’s see, B52 Ben can print all the money he wants. Hank can bend the rules (BSC bailout). So yes the US government can take all the bad toxic paper off the US banks. But then what happens? The US$ goes down by 1/2, nobody buys our bonds (Credit worthiness), inflation goes to 20%, etc. etc and so on. This reminds me of the 30’s and of Japan. Who loses? The banks and the US taxpayer. The line goes; “Man goes to see his banker and saids that we’re in a depression. Banker replies when the man loses his job, it’s a recession, but when the banker loses his job, it’s a depression”. We all are at a historic time. It’s called “Deleveraging”. This is a lifetime event, and it will not be painless.

  79. 79
    zman Says:

    NBR is a trade on increased N. American natural gas drilling activity.

  80. 80
    Sambone Says:

    #75, no clue

  81. 81
    Sambone Says:

    C – one more thing, we’re increasing our debt by 1 Trillion $’s every 15 months.

  82. 82
    zman Says:

    Ok, thanks, was just looking for them on Level II and didn’t see an obvious choice.

  83. 83
    cattleman Says:

    Sam – Roger that and therefore an historic opportunity. By the way, cost inflation for ag production inputs are without precident. Real inflation seems baked into the current cake (not to mention loaf of bread). Phosphorus is double this year over last as an example.

  84. 84
    Sambone Says:

    Uncle Phil

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

  85. 85
    Jay Reynolds Says:

    Would like to sell some covered calls against UNG, near term expy? Any suggestions?

    TX, JR

  86. 86
    Sambone Says:

    C – Beer = Hops up 300% in one year.

  87. 87
    Bob Says:

    Z-MLCO Merrill Lynch

  88. 88
    zman Says:

    EOG April $140s are a little fat, .45 x .65

  89. 89
    zman Says:

    Thanks Bob!

  90. 90
    Jay Reynolds Says:

    CHK wins sealed bid in Haynesville shale at approx 1,000 acs, 4,000-4,500/ac lease bonus.

  91. 91
    Nicky Says:

    Z – what are you seeing across the board for inventories tomorrow? I presume we are not going to see the massive build we saw in crude inventories last week. So as they have run the market up $10 since that I shudder to think what they will do with a lesser number…

  92. 92
    sane Says:

    BP, ConocoPhillips team on Alaska natural gas pipeline

  93. 93
    zman Says:

    Nicky – last weekly was easy to see coming from the build standpoint. This week I would expect it to be smaller as you and the market say. I think the danger lies in a second big gasoline draw that may materialize and send gasoline and then oil higher. But like I said, it’s pretty hard to say except that imports will very likely back away from last week’s bloated levels yielding a smaller crude build. Refiners appear to holding the line on utilization so that could send gas up two and from what I can tell about Spring break demand it generally spikes for 2 weeks and last week was the first. So again, I’d think higher gasoline prices but I’m not exposed to refiners so I have not given it a whole lot of thought today.

  94. 94
    zman Says:

    Thanks Sane … I’ll believe it when I see it and then only maybe.

  95. 95
    sane Says:

    I agree Z.

  96. 96
    Dman Says:

    C. re #59

    I think you are right in all points except 2nd last sentence. Here is a timeline of the US-Iran relationship/conflict:

    1953: US backs overthrow of democratic Iranian government because it nationalized the oil industry.

    U.S. installs the Shah (remember that guy?) and sells F14 Tomcats to Iran, amongst other things. Iranians under brutal dictator for decades.

    1978: Iranians kicked out Shah but replaced with theocratic regime that did a fair imitation of crazy for quite some time, including all the students piecing together shredded CIA documents (who could forget that?) in the 1979 embassy crisis.

    1983: Donald Rumsfeld “was the most senior conduit for crucial American military intelligence, hardware and strategic advice to Saddam Hussein” in his war against Iran.
    http://en.wikipedia.org/wiki/Rumsfeld

    Infamous footage of Rumsfeld meeting Saddam in 1983.

    1984-1986: Reagan administration sells anti-tank & anti-air missiles to Iran (no that isn’t a spelling error).

    1988: USS Vincennes shoots down Iran Air Flight 655

    2000: US apologizes (sorta) for the 1953 coup.

    http://transcripts.cnn.com/TRANSCRIPTS/0004/19/i_ins.00.html

    2003: US invades Iraq & … etc etc.

    2008: Iran still tries to operate the F14s & the US tries to keep their mitts off the spare parts.

    So its’ a bit of a tangled web, it seems to me.

    The Iran thing is the elephant in the room when it comes to oil prices. Few other factors could double the price overnight.

    Sam sez nothing will happen & my gut feeling agrees.

    And yet… I find it hard to see W leaving office without taking a shot. The history above suggests *anything* is possible. Just another reason I won’t be short energy anytime soon.

  97. 97
    Sambone Says:

    Hmmm, just read this. I’m trying to fiqure out how to make $ off it. Any ideas?

    http://www.latimes.com/business/la-fi-railcars7apr07,0,1052030.story

  98. 98
    cattleman Says:

    DMAN- Great review. A point often made is that U.S. presidents have looked at action against Iran with distaste since the aborted Tehran embassy rescue.
    Don’t forget the bombing of the U.S. Embassy in Beirut in ’83 followed closely by the bombing of the Marine Expeditionary Unit compound at the airport, with the loss of 241 Marines. Those bombings were the work of Hesbolla. In response we pulled out. Hezbollah and Hamas are Iranian proxies and active effective opponents of our policies and goals. My boots were on the ground – USMC Intelligence Officer,Retired.

  99. 99
    zman Says:

    NG giving back a little now, down 12 cents (1%)…UNG flat.

  100. 100
    reefguy Says:

    xco- cannot log on Presentation site for H W

  101. 101
    ram Says:

    The FED minutes are out: I am sort of embarrased for them. They should get out more; especially buy gas and groceries.

  102. 102
    zman Says:

    No need in an ivory tower

  103. 103
    zman Says:

    NFX call at IPAA starting now:

    http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=63798&eventID=1819118

  104. 104
    reefguy Says:

    xco slides-Hy. page 11 and 18 Looks like an east texas play

  105. 105
    ram Says:

    ZMAN – Did you ever check on the SEC’s decission on changing how E&P stocks list proven reserve’s?

  106. 106
    zman Says:

    yes, I found nada new about it. no time line for implementation even though everybody seeems to think its a good idea

  107. 107
    Nicky Says:

    Z thanks for #93. Its probably stating the obvious to say right now that the whole complex looks bullish! We look like we need a thrust higher…..

  108. 108
    uop Says:

    Zman:

    is UNG finally getting cold feet ?
    all my HK options are in the green except May 25.

  109. 109
    zman Says:

    NFX showing off its extended lateral program in the woodford. Showing them to bit to a 4.5 Bcfe per well type curve which means that for $6.7 or $6.8mm they are costing you’re under the $2 / Mcf threshold. This presentation looks like they are moving closer and closer to making a decision to go with 40 acre spacing…I hear these are yielding IPs of 6 mm/d + which is very nice.

  110. 110
    zman Says:

    listening to NFX, back shortly

  111. 111
    isleworth Says:

    Just sent you Merrill report on HK πŸ™‚

  112. 112
    zman Says:

    NFX sees costs continuing to fall in the woodford.

    if they go to 40 acre spacing, it equals 7 Tcfe vs ye of 2.5 Tcfe. Amazing they don’t get more credit for this play.

  113. 113
    zman Says:

    isle – saw it, thank you very much!!!

  114. 114
    zman Says:

    NFX – 250 wells in monument butte. This is the one I was saying the other day that could provide upside to their oil volumes. They just added another rig here and 250 sounds high to old forecast but will check.

    They think they have 200 mm barrels of oil here which is 1.2 Tcfe on an equivalents basis, again that up again 2.5 in the whole company at ye 2007.

    Plus …

    Mancos shale: 2 to 3 wells will be tested by HAL using logs NFX says they have never even heard of in these tests. They hold 110,000 acres here already by production. This could be very big…no date on a test but I’d bet they talk about it more in the breakout session…next year we will be there broadcasting from the conference…and they will be talking about on the 1Q conference call.

  115. 115
    zman Says:

    UNG / NG – I don’t think today’s action meant much, it tried for $10 and failed which is good volume appeared light and it could try again on any cooling of a weather forecast. Next week’s report goes up again a draw and everybody will be thinking about that as they decide weather or not to hold gas through the transition from withdrawals to injections. I’ll have something on tomorrow’s posts about this in the morning.

  116. 116
    jiveyjr Says:

    thx for that history on Iran…

  117. 117
    zman Says:

    Re Iran history: for those of you who like historical fiction James Clavell wrote a hefty tome called Whirlwind about the time up to and during the overthrow of the Shah written from the perspective of a bunch of Brits flying helicopters for oil companies there before everything got nationalized.

  118. 118
    Dman Says:

    Cattle, re #98. I think it is indisputable that Hezbollah and Hamas are clients/proxies of Iran. I wouldn’t claim to know how much freedom of action they have (i.e. how long the leash is) but I would assume that Iran approved or at least permitted Hezbollah to proceed with the Beirut bombings.

    Let me run another one past you, in view of your background: the Pan Am Flight 103 bombing over Lockerbie. It always seemed much more credible to me that it was Iranian revenge for the Iran Air Flight 655 shootdown than some Libyan operation. Relatives of the victims have long maintained a lack of belief in the investigation.

  119. 119
    T-Tupp Says:

    only rbc has upped nbr to outperform eh? may have room to attack old highs on more outperforms. i see your reasoning here z. you think it’s too late for the pos. you initiated yesterday? i took some may 35’s today anyway. the co has an est. CAGR of 40%- best of any bigger oil service co, and too boot it trades at like 6 times FWD earnings!

    also i was reading the Forbes’ annual 2000 best and biggest companies issue on my 3 hr layover in the beautiful city of Newark last night. they had NBR as one of their top 5 energy plays– not that it holds tons of stock- but it does looks prety nice to moi…

  120. 120
    T-Tupp Says:

    also z- if you had to add to any of your open positions right now what ones would they be? i was away last week as you know and would like to hit the ground running as they say

  121. 121
    zman Says:

    T:

    Re NBR – If I didn’t hold it I would add after anytime and I may add more.

    On the oil and gas companies I like most of what I’m in. Easier to say what I would not specifically add to:

    Anything April especially the TLM and the APC 70s.

    We have oil numbers tomorrow and its a hard one for me to judge so I’m a bit quiet today and thinking more about taking profits than about buying right this second.

    NFX is top of my list for adds but when I say that realize I mean over the next week and for longer dated calls. Doing some more work on the Mancos shale and they keep mentioning it and no one is listening. They just said a couple of tests but that may be months out.

    Mostly I’m waiting on a pull back for adds or at least some consolidation.

    Oh yes, and PQ, that being down puzzles me. They are evenly more likely to get taken out than HK.

  122. 122
    Dman Says:

    Z – re #52

    I have to admit the weird volatility does “feel” toppy but like you I concluded that it wasn’t – how convenient, given my positions πŸ™‚

    It just does bother me that good news is receiving tepid responses. Polite applause rather than the roar of the crowd. Still, just now HK seems to be making another run at $22 …

  123. 123
    reefguy Says:

    IOC up %5.5 on nada

  124. 124
    Sambone Says:

    Tini time!

  125. 125
    zman Says:

    Beer thirty … that was a very good day.

  126. 126
    Dman Says:

    HK daily chart looking good at the close.

  127. 127
    kyleandy Says:

    re 117 great read!!

  128. 128
    Jay Reynolds Says:

    Yemen Rocket Attack On U.S. Oil Workers Launched By Al-Quaida

    http://www.rigzone.com/news/article.asp?a_id=59682

  129. 129
    Dman Says:

    Z – I just looked up “Whirlwind” at Amazon.

    It comes up with “631 Used & new from $.01 “. Wow, someone is selling books for one cent?! It’s gotta be better than that πŸ™‚

    OK, I think I get it: they figure that if you’re paying $4 postage and 1cent for a book you might order something else along with it. I guess that’s the deal…

  130. 130
    T-Tupp Says:

    z how does cop look to you here could be a good entry eh? i know your pretty loaded down with positions now though…

  131. 131
    zman Says:

    T – I just bought more but am waiting for EIA report tomorrow. Stock remains cheap to peers, could see some upside based on price, little risk in the 1Q report as they’ve already announced the interim results.

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