19
May

Monday Morning – Driller Update

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For much of 2008, I've been heavily focused on the E&P (exploration and production) companies, the guys who go and find oil and gas and get it out of the ground. This has been a good time to be long these names due to a perfect storm of strong demand, rising prices, and new play potential from the "shale of the week" phenomenon. Despite good performance in 2007 (and 2006 and 2005...) this group began 2008 on the cheap side and remain fairly but not as cheaply valued. Staying cheap is hard to do when the benchmark names in the group make all time highs several times each month as they have this year. As the good times have rolled for E&P and capital budgets have climbed I've begun increasing my exposure to the land drillers and oil service names.  Today's post includes a look at the land drillers where demand is accelerating. Tomorrow's post will include a look at providers of bits, mud, pressure pumping and all the stuff that you'll more of as drilling activity picks up.

 

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stocks We Care About Today
  4. Odds & Ends

Holdings Watch: The Wiki Tab is updated.

Commodity Watch:

Crude Oil: Believe it or not, last week oil was nearly unched closing the week at $126.29.  June contract expires tomorrow. This morning crude is trading over $1 higher back towards record territory. Crude looks like it wants to go to $130 now.

  • OPEC Watch: Friday morning Saudi Arabia said their was no need for OPEC to produce more oil at this time. Friday afternoon Saudi said they would add 300,000 bopd to the market to offset shortfalls in production by other Cartel members.
  • About Face Watch: On Friday, the Bush Administration halted further shipments of crude to the SPR AND the Bureau of Land Management issued a 10 year moratorium on drilling "would apply to 430,000 acres of wetlands north and east of vast Teshekpuk Lake on the North Slope" according to Reuters. ZComment: This will sound jaded but only because it is but these two events are quid pro quo for Saudi's reversal in the previous bullet and further cooperation down the road as we head towards the November election.
  • China Watch: Chinese demand for imported diesel is expected to rise even further in June after last week's deadly earthquake disrupted gas supplies to major cities and as companies built stockpiles ahead of the summer Olympics ~ Upstream

Natural Gas: fell nearly 5% last week to $11.06 due to the for once flattish move in crude and another in line storage injection. This morning gas is trading up with oil.

  • Climate Prediction Center Watch: This was on their web site this morning. Note: The degree days computed for Jan 12 to April 26 (2008) were erroneous due to corrupted temperature grids. The data was re-run and the correct values are now in the archives. ZComment: Those of you who have been around for some time have noted the constant underestimation by the CPC of this winter's cold weather. Week after week they posted substantially increases over their estimates to heating degree days when the actual readings came out. Your tax dollars not at work.

Stocks We Care About Today:

Deep Thoughts. Well, deep underground that is. Several trends continue to emerge:

1) The number of gas rigs working remains high but as of yet has not broken into new territory in 2008.  The aggregated count will almost certainly rally as the second half gets underway as 9 out of 10 gassy E&P firms bumped their capital budgets in response to sustained, high natural gas prices just months into the drilling year. In some plays leaders are increasing their rig counts by 50% while the little guys begin to inch up their counts as well. I'm estimates of a 2H08 rise in gas rigs of 100 to 200 from current levels which would push rig counts into 20+ year record territory. 

rig-count-gas-051608.jpg

U.S. Oil Rig Count On A Roll. Funny how triple digit oil will do this.

rig-count-oil-051608.jpg

North Dakota Bakken Driving The Previous Oil Rig Count Chart Higher. Though the play isn't alone it is the driving force behind the recent upturn in oil-directed drilling, much like the Barnett has been the cornerstone of teh gas-directed rig count for the last several years. Count has tripled to 63 in the last 25 months.

rig-count-n-dakota-051608.jpg

Horizontal Drilling, Once The Domain of the Elite, Now In The Hands of the Little Guy. Way, way back in the early 2000s, names like EOG and CHK were leaders among a handful of operators playing in the field of horizontal drilling. But having cracked the science code now you'll see everyone from small cap E&P to private firms drilling horizontally, in some cases drilling down nearly 2 miles before drilling laterals approaching a mile. This is driven purely by economics through better technology and as the total measured depth increases so to does the need for greater horsepower at the rig, more bits, mud, a greater number of and potentially size of fracs etc. There also is a greater need for data evaluation as the wells become more technically complex. The final chart below shows that combined activity onshore in the U.S. continues to rise and I don't expect a reversal in the pattern through the end of this year (see aforementioned expectation of gas rig rally and add in half dozen horizontally exploited oil shale plays that are just taking their first Bakken like steps and it seems clear the direction is up, even if oil prices were to sink back into double digit territory in the second half, an event Goldman will tell you is less than likely (they raised their 2H08 oil target to $141 on Friday).  

rig-count-horizontal-and-total-land-051608.jpg

 

Land Driller Multiples... Still Cheap

land-drillers-051608aaa.jpg

  • (NBR): We've had a good with this largest of North American land drillers (they have some offshore rigs too but it pales in comparison to their 535 land and 700+ workover rigs. They have a large inventory of high horsepower rigs available for return to the field within short order. I like how the options trade here and as estimates continue to rally for the second half of the year the stock remains very cheap. The potential for a rebound in Canadian drilling is icing on the 2010 cake.
  • (UNT): 129 land rigs mostly in the Mid-Content region, plus an E&P company, plus a midstream company so it is less of a pure play than NBR and it has a much less fluid options market. The stock has outperformed its peers and  doing a little more due diligence on their E&P sub and would likely wait for a "red energy day" before taking on some exposure.  
  • (PTEN): This is the combination of Patterson and UTI and also includes an E&P division. The stock has had an excellent run and I'm going to do a little more work on it before chasing although I might take a long position on a red energy day.
  • (BRNC): Smaller driller with a proxy battle between shareholders and potential acquiror (ALY). Stock continues to drift up as market improves. I don't see it as a good options play although in the event the deal were canceled I might want to buy shares on the ensuing deal collapse based dip as analysts have not been diligent in marking their estimates up here.
  • (GW): I've seldom traded this one successfully and there are a lot of investors who have held the stock here for years waiting for it to rally. Just not interested.
  • (UDRL):  Small driller (71) rigs, focused on  unconventional gas reserves in all of our favorite places from Appalachia to the Woodford and from the Fayetteville over to the Barnett. Majority of the rigs are configured for horizontal drilling and the brochure says they have "a significant number of carrier and trailer mounted rigs to access drilling locations in challenging terrain" ...that would be the Fayetteville and Marcellus shales. The stock reacted poorly to both 4Q and 1Q results which were impacted by poor drilling weather but has since mounted a modest recovery. The company is transitioning to larger, purpose built rigs for these plays which earn high day rates. There are no options here but I'm still looking at them as a potential long term small position hold.
  • (PDS) - Canada and U.S. land focused contract driller and completion firm focused on lower cost drilling primarily in western Canada. The play here is a potential resurgence in Canadian drilling after years of lackluster activity. They have also started to add rigs in the U.S. but so far the impact is pretty small. Somewhat thinly traded on the options side. I'm still looking at how to play this but have become much more interested over the last couple of months.

Odds & Ends

Analyst Watch: (NAT) started at hold at Cantor, (TOO) upgraded to buy at Wachovia.

(PINN) deal with (QRCP) terminated. When PINN came to market last Summer I wrote that the deal was overpriced. I still don't see a reason to get excited about them but will be taking another look to be sure.

108 Responses to “Monday Morning – Driller Update”

  1. 1
    Sambone Says:

    7:40 am EST

    ICE Brent Drops $1 To Below $124/Bbl

    By Nick Heath
    Of DOW JONES NEWSWIRES

    LONDON — Nymex light, sweet crude futures reversed earlier falls to climb by more than $1 in London Monday as investors, spurred by a supportive technical outlook, continued to leap on any pullback in prices.

    The crude market appeared to shrug off Friday’s news of a 300,000 barrel-a-day increase in Saudi Arabian oil production, prices instead reacting more to reported comments from the Organization of Petroleum Exporting Countries’ President that the organization is unlikely to boost production when it meets in September.

    “We continue to see record highs posted on a daily basis as the bull run continues. It feels as though we’re likely to see more of the same as both technicals and fundamentals work in harmony,” said Robert Laughlin, senior energy broker at MF Global in London.

    At 1125 GMT, the front-month July Brent contract on London’s ICE futures exchange was up 71 cents at $125.70 a barrel.

    The front-month June light, sweet, crude contract on the New York Mercantile Exchange was trading $1.12 higher at $127.41 a barrel.

    The ICE’s gasoil contract for June delivery was up $5.50 at $1,207 a metric ton, while Nymex gasoline for June delivery was up 181 points at 324.16 cents a gallon.

    —By Nick Heath; Dow Jones Newswires

  2. 2
    Brian Smith Says:

    Zman – do you look at uranium stocks? Lately that sector has been beaten up badly and may offer some value.

  3. 3
    zman Says:

    Brian – I have looked at them a little, CCJ , USEG but am not well versed. Occam has been sending me some pointers and I plan to work on a piece in the lull between 1Q and 2Q. Any names you’d suggest would be appreciated.

  4. 4
    zman Says:

    EXM beat top and bottom lines. DRYS reports after the close. Those trades from Friday probably would have worked out ok and I may look at DRYS and EXM later today.

  5. 5
    zman Says:

    Oil has given up nearly all of its gains in the pre market, contract expires tomorrow. Look for a wild couple of days. The July contract is doing a little better, up $0.30 early at 126.30.

  6. 6
    zman Says:

    Groups on fire this morning.

    X at all time new high. I may sell this and reposition as I’ve round-tripped nice gains here 3 times and don’t want to do that again.

    Service opened weak but is going green

    CHK going for $60, NFX and MMR going for all time highs as well

  7. 7
    Sambone Says:

    9:41 am EST

    Nymex Crude Flat As Weak Products Futures Weigh

    By BRIAN BASKIN
    Of DOW JONES NEWSWIRES

    HOUSTON — Crude oil futures are trading flat, pulled in opposite directions by perceptions of tight crude and products markets.

    Light, sweet crude for June delivery recently traded 1 cent higher at $126.30 a barrel on the New York Mercantile Exchange. July Brent crude on the ICE futures exchange traded 6 cents lower at $124.93 a barrel.

    Futures have so far failed to match Friday’s record high of $127.82 a barrel. Although heating oil futures led the market higher and lower last week, oil prices are resisting going negative due to a perceived tightness in world oil supplies following statements by OPEC members that no major increase in output is forthcoming. Continued global demand growth in the face of record oil prices helps support the view that supplies will remain tight, wrote Adam Sieminski, chief economist at Deutsche Bank.

    “We see increasing risk to the upside until demand shows more response to either price or income elasticities,” he wrote.

    Chakib Khelil, president of the Organization of Petroleum Exporting Countries, told Reuters on Monday, “I don’t think there will be an increase” in production from the group, helping to end rumors of an emergency summer meeting.

    The statement comes after Saudi Arabian Oil Minister Ali Naimi said Friday that his country had earlier in May increased production by 300,000 barrels a day, an amount he said was sufficient to satisfy world demand.

    Analysts see oil prices struggling to rise much further until the expiration of the June futures contract on Tuesday, though a resumption of last week’s rally is likely after that.

    “We could see prices stall a bit both today and tomorrow, before open interest starts to build again,” wrote Ed Meir, with MF Global. “There is little indication that we are on the verge of a major price breakdown.”

    Heating oil futures weighed on oil prices Monday, trading slightly lower after gaining 15% over the last two weeks. The Nymex contract is acting as a stand-in for all distillates, with strong diesel demand from Europe and Asia sending heating oil futures to new records. The tight products market was a major factor in oil’s rise last week, with little relief seen through the summer.

    U.S. distillate inventories rose in the most recent data release from the Energy Information Administration, but “strengthening price premiums for ultra low sulfur diesel product and talk of export activity capable of reducing U.S. distillate supply levels should keep the complex supported,” wrote Jim Ritterbusch, president of trading advisory firm Ritterbusch & Associates in Galena, Ill.

    Front-month June reformulated gasoline blendstock, or RBOB, recently traded unchanged at $3.2235 a gallon. June heating oil traded 88 points, or 0.2%, lower at $3.6940 a gallon.

    —By Brian Baskin, Dow Jones Newswires;

  8. 8
    zman Says:

    UBS Global Oil & Gas Conference Schedule:

    http://www.ibb.ubs.com/Conferences/pdfs/2008%20Global%20Oil%20and%20Gas%20Final%20Agenda.pdf

    Many of our favorite names give presentations starting to tomorrow with HAL, RIG, NFX etc.

  9. 9
    ram Says:

    DRYS is running hard early. The belief is that it should weaken before the close?

  10. 10
    zman Says:

    Here’s the initial list of conf presentation I plan on listening to:

    Tuesday
    HAL
    RIG
    UPL
    DNR
    NFX
    Wednesday
    CHK
    PXD
    PBR
    HK
    Thursday
    KWK
    VLO
    SD
    PQ
    CLR

  11. 11
    zman Says:

    Ram – I think so but no enough to put any money on it. Still concerned about the broad market and though I’d like to be long the dry bulks over improving fundamentals they had this same kind of run into earnings last quarter and sold down hard when DRYS reported.

  12. 12
    ram Says:

    Thanks. That’s what I recall. It wasn’t pretty. How important is this conference?

  13. 13
    misalot Says:

    Z-as a new subscriber and I want to use the WIKI to get into a portfolio which ones would you reccomend first, second, third, etc?

  14. 14
    zman Says:

    Ram – its one of the bigger ones so from time to time, E&P companies will couple a little bit of new information or even guidance changes with their presentations. Usually its the smaller names that do this but you could something out of NFX on the Mancos as the guy speaking is their Rockies division and you may see CHK drop a rate on us from the Haynesville, which if the rumors are close to true will take HK to $30 and is why I’m getting ready to add a piece in bit.

    Misalot. First off I don’t “recommend” anything. For the most part I like what I hold on that list (plus the bigger names on the stocks list) but we have had a pretty good run of late and I may take things like X off the table which have done better than expected faster than expected (plus I don’t like how the options are trading). If I could offer a tiny bit of advice it would be to not swing for the fences in any name at any point but to work your way in DCA-like fashion.

  15. 15
    zman Says:

    Q’s VMC just keeps rocking. Perhaps rebuilding those 3 mm + homes in China is playing a part.

  16. 16
    zman Says:

    ZTRADE: Added to the HAL June $50 calls for $1.45 on a little weakness in the big cap service names.

  17. 17
    ram Says:

    DCA?

  18. 18
    zman Says:

    dollar cost average. I think in terms of dollars as a percent of the total options portfolio. If I think a position is worth say 10% of my total holdings(just to use a round number) I ‘ll take a quarter to a third of the total ultimate position with the first trade and then wade in (or not) to the rest of the position over time. The HAL trade I just did is in addition to the trade I did on the 5/14. Keeps me out of trouble for the most part.

  19. 19
    ram Says:

    ZMAN – On HK, near term, deep in the money?

  20. 20
    zman Says:

    Ram – I was actually thinking of going out a couple of months to the $30s. I hold the Junes now but those need to go away soon as they are getting into long shot territory now. In the in the money camp the September $22.50s look ok.

  21. 21
    ellwodo Says:

    HK – what about the Dec 25s?

  22. 22
    zman Says:

    Elwo – I kind of like the leverage of playing the short game here but it probably goes out closer to $40 when it goes which may happen by then so that would probably be ok.

  23. 23
    zman Says:

    That MMR just keeps inching higher. Could have news there in the next 2 to 4 weeks on the Blackbeard test -deep, Miocene test drilled from shallow water.

  24. 24
    ellwodo Says:

    HK – I just got into the July 30s. With a little updraft I’m hoping to roll out of the June 30s.For the moment I’m in both.

  25. 25
    reefguy Says:

    23-MMR up, EXXI flat?

  26. 26
    zman Says:

    Morning Reef – that is odd. I’m right on my statement though regarding potential timing am I not? I took August’s and way out of the money just in case.

  27. 27
    benbobby Says:

    Zman,has TSO been beaten up enough?

  28. 28
    reefguy Says:

    z- timing is correct, Exxi may be a great play on it. Looking for current data…

  29. 29
    zman Says:

    FTO trying to turn the corner on the daily chart, weekly starting to improves as well. I’m not a chart guy but that pattern on the monthly is one of my favs.

    TSO beaten up enough maybe, I like my FTO and then VLO a little better but all of them will rally if the Street says enough is enough.

    Thanks Reef.

  30. 30
    zman Says:

    DO taking a shot at 6 month to all time highs. Will send the $150s over the side soon and maybe the $140s and buy back lower.

  31. 31
    zman Says:

    ZTRADE: Out X June $180 Calls for $12.50, up 56%. Will reposition my exposure to oil country tubulars either through this or another play but I did not care for how these options were trading.

  32. 32
    Dman Says:

    Random observation on land drillers: ALY has almost doubled since early February

  33. 33
    Dman Says:

    Hi Z,

    Cramer has been pushing EP. What do you make of ’em?

  34. 34
    zman Says:

    Dman – ALY I completely missed from around that time when they made a push into Brazil. Just fell off my radar.

    EP – Not a pure play as they have non-E&P midstream and pipeline assets. He’s been pushing them forever…I just can’t get that excited about it although the asset value is there. I never covered them and don’t think I will start now.

  35. 35
    ram Says:

    I did not think those DO 150’s had any chance of breaking even!

  36. 36
    zman Says:

    Gotta step out for 20 minutes.

    Go HAL, Go Go FTO.

    CHK closing on $60.

    NFX at all time high.

  37. 37
    zman Says:

    Ram – yep and now they are flat to slightly green. The add of the $140s was the right move though as those are now up 150%+.

    Ok now I really gotta step out, be back in 20.

  38. 38
    zman Says:

    Wow – good 20 minutes to step out. I don’t think we’re into “too far, too fast” land yet given the move in the broad market but this is getting to be rather indiscriminate in the moves I’m seeing.

  39. 39
    zman Says:

    WH back into the green. They speak at a conference this week but its not UBS or at least they are not on the schedule I have. If anybody sees where they are speaking and when please let me know.

  40. 40
    zman Says:

    ZTRADE: HK July $30 (HKGF) entered for $1.20. I continue to hold the June $30.

  41. 41
    zman Says:

    had to bite on more HK with the potential for CHK and/or them to say interesting things at the UBS conference this week. Took the July’s in case they don’t.

  42. 42
    zman Says:

    Its awful quiet, even for a Monday.

    Anybody have a technical opinion on the FTO?

  43. 43
    scoop006 Says:

    Z Re FTO June $22.50 Why is the ask premium only $.25

  44. 44
    zman Says:

    dunno, odd that it would be a better deal than the $20s. Looks like a bad quote on the bid side as I have two different systems showing 2 different bids.

  45. 45
    zman Says:

    CLR now playing catchup.

  46. 46
    Popeye Says:

    DRYS selling off.

  47. 47
    zman Says:

    Popeye – yep, EXM had great results, now flat to red.

  48. 48
    Nicky Says:

    Good afternoon.

    Broader market – 5 waves up look to be close to completion. SPX has resistance at 1442. This move looks pretty extended to me so we could see a fast drop at any time.

    Oil – we still need to see a move above 127.82 to give 5 waves up even though shortly thereafter we may see a pullback. A move below 124.04 before moving above 127.82 will argue for a move below 120.75 before we go higher again. Again cycles are very extended and a top could be seen at any time. A possible target is the 130 – 131 area.

  49. 49
    Sambone Says:

    Uncle Phil

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

  50. 50
    Sambone Says:

    Onward and upward!

    http://www.mcdep.com/mr80506.pdf

  51. 51
    antrimshale74 Says:

    TDW and GEOI moving real hard and fast today. The movement in some of these smaller names like GEOI, FPP, MXC, PDO etc. is quite huge over the last two weeks.

  52. 52
    zman Says:

    Everytime Nicky visits of late I feel like selling. Hmmm. Thanks Sam.

  53. 53
    zman Says:

    Antrim – FPP? I know that guy. Where’d you find that ticker?

  54. 54
    kyleandy Says:

    z – investor relations guy for WH is crocker counsel at 646-213-1915.

  55. 55
    zman Says:

    re 51 – that’s the kind of action, rising tide that lifts all boats action, that concerns me about a potentially large profit taking session.

  56. 56
    Dman Says:

    Nice sale on the X trade 🙂

  57. 57
    zman Says:

    Lots of profit taking going on. Not just energy… the X was up $2.50 when I took those options off the table, went on to be up $3.50 and is now flat. All in the space of 3 hours with nothing but this slight pull back in the broader market to account for it.

    Thanks kyleandy

  58. 58
    zman Says:

    thanks, got tire of round tripping X

  59. 59
    Sambone Says:

    ALGIERS (AFP)–President Chakib Khelil of the Organization of Petroleum
    Exporting Countries said Monday that OPEC will take no decision on output
    levels before a meeting in September, despite calls by the United States for a
    production hike to hold back soaring prices.
    “There will be no change in OPEC output before the meeting in September (in
    Vienna),” said Khelil, who is also Algeria’s energy minster.
    “All decisions regarding maintaining or increasing current OPEC production
    will be taken at that meeting,” he said.
    Khelil said that he did not expect output to be increased, stressing that
    “current prices are not based on (traditional) supply and demand.”
    Many OPEC officials have said, in response to Western calls for more output,
    that record prices for oil are being driven by speculative investors rather
    than underlying demand, and that the market remains well-supplied.

    (END) Dow Jones Newswires
    05-19-08 1416ET

  60. 60
    zman Says:

    ug VMC

    oil getting shelled into the close, down a buck now at 125.40.

    NG down 21 cents to 10.89.

  61. 61
    zman Says:

    Re 59- lot of mixed signals coming out of OPEC, I don’t expect major additional supply as they: 1) have no ability to add huge amounts of new barrels, especially light sweet barrels and 2) have no inclination to do so, especially if the picture for the U.S. economy is thought to strong enough to hand current prices. I personally don’t think it is and that these prices will delay/retard a U.S. recovery but there you have it; that’s what makes markets.

    Amazing last ditch effort to rally crude off the lows, now down a dime. Up 90 cent in 3 minutes.

  62. 62
    zman Says:

    Note DRYS and EXM falling off. I’m not touching either one.

  63. 63
    ram Says:

    Falling off …. how about a stampede at the small exit door!

  64. 64
    Dman Says:

    Nicky, better not read below, not good for your sanity.

    Plotting USO & UNG against $INDU today it seems to me that oil/gas led the market down by a few hours. Suggests the market is adopting Cramer’s thesis that high energy is now good for the market.

  65. 65
    zman Says:

    MT just on CNBC saying they will be increasing their exposure to tubulars, this may be where I reposition for pipe exposure. More likely however I will pick a red market day and simply re-enter X.

    Ram – yep, everything pulling in a bit but wait …

    … crude now up $0.90 to 127.20, a new closing high.

  66. 66
    Nicky Says:

    Well i was right about a correction off the top – to the second! Support in the 1425 area on the SPX – if this area holds we could still make another move higher.
    Charts will lead the way Dman… no matter what Cramer says.

  67. 67
    Dman Says:

    Z – do you think the potential for news from CHK this week could also help other players aside from HK, eg. XCO?

  68. 68
    Nicky Says:

    Broader market – this short term bounce needs careful watching. We could be off a cliff here…

  69. 69
    BossmanG Says:

    Z, what do you think of CLR June 50 or 55s? Good time to add?

  70. 70
    zman Says:

    XCO maybe a little but they are likely get a bigger boost from any positive mention of the Marcellus (CHK has the largest acreage position there too and I have a feeling that their comments regarding the tough terrain and slowness to develop of that play is what has helped to cool the run in XCO).

    GDP, HK, PQ, CRK all would likely surge on any kind of rate announcement. I really don’t think CHK will do it yet but you never know. Tiny QBIK announced a couple of new wells in the play will spud soon so that single digit midget could run as well.

  71. 71
    zman Says:

    Boss,

    I waiting to add more. I say that b/c I already hold a good sized chunk, especially in the 55s. They speak on Thursday at UBS and I’ll through then despite how its trading in between.

  72. 72
    Sambone Says:

    Good article on The “Oil shortage”. Maybe so, may no.

    http://www.rightsideadvisors.com/public/commentary.go/rsa/commentary/comm-energy/20080519_024835_msg.html/Is-There-Really-An-Oil-Shortage.html

  73. 73
    antrimshale74 Says:

    Regarding FPP (Fieldpoint Petroleum), they always seem to be showing up on the biggest % movers list. I haven’t done much research on them, but they have really run hard the last week or so. So last week they reported some decent numbers and headed from the moon from there. Wish I was in it so I could claim victory, but it was apparently not meant to be!

  74. 74
    zman Says:

    FPP – its run by an old friend who used to drive to each well head daily. Don’t know if he’s gotten beyond that but I doubt it.

    Here comes the sector bounce.

  75. 75
    Sambone Says:

    3:12 pm EST

    Crude Settles At Record On Supply Concerns

    By BRIAN BASKIN
    Of DOW JONES NEWSWIRES

    HOUSTON — Crude oil futures settled higher Monday, as OPEC signaled that there would be no output boost this summer.

    Light, sweet crude for June delivery settled 76 cents, or 0.6%, higher at $127.05 a barrel on the New York Mercantile Exchange. July Brent crude on the ICE futures exchange closed up 7 cents at $125.06 a barrel.

    Futures ended higher after Organization of Petroleum Exporting Countries President Chakib Khelil said the group will not change production levels before its September meeting. Saudi Arabia increased production by 300,000 barrels a day earlier this month, but energy markets ignored the bump, and Western leaders continue to call for greater exports.

    Volume for July futures outstripped the front-month June contract, which expires at the end of trading on Tuesday. But it was contracts even further out that saw the greatest gains, with certain contracts ranging from December 2008 to December 2016 rising by $1 or more in light volume.

    When outer-month contracts gain on the front month, it often signals that traders are not concerned with the near-term supply, and that oil prices are poised to drop. That doesn’t appear to be the case this time — quite the opposite, market participants said.

    “The whole curve is narrowing,” said Tom Bentz, a broker and analyst with BNP Paribas in New York. “Traders believe high prices are here to stay for a while.

    Energy markets have shifted recently, from a focus on the strength of the dollar to giving greater weight to the balance between world oil supplies and demand. Oil prices rose over the last two weeks as diesel demand in Europe and Asia pressured global supplies, sending Nymex heating oil futures soaring. Heating oil weighed on oil prices for much of Monday’s session, settling down 2.77 cents, or 0.8%, at $3.6751 a gallon.

    “At this point, a lot of commodities’ strength has to do with investor flows, and performance-chasing,” with more and more trading firms convinced that trouble in the U.S. economy will not cause global demand for oil to slacken, said John Hardy, an analyst at Saxo Bank in London.

    Front-month June reformulated gasoline blendstock, or RBOB, settled 1.31 cents, or 0.4%, higher at $3.2366 a gallon.

    —By Brian Baskin, Dow Jones Newswires

  76. 76
    Fred Says:

    I am new to the board! Hi everyone!

    Anyone think WNR is worth a dice roll at this level? Maybe too risky as BK is looming for them with these high crude prices? Could be a buy out candidate.

  77. 77
    zman Says:

    Welcome Fred! I remember from pre private site days.

    Re WNR. It may be a good bottom fish on an assets basis but I’m staying away. The group is getting a bounce today but I’d rather steer dollars towards a name like FTO which has remained profitable through the low crack spread environment of late. I ‘ll probably do a back of the envelope break up value on WNR when it gets to $5.

  78. 78
    ram Says:

    Speaking of PPS days, I was wondering if ElDiablo would reappear. Wasn’t he saying NG was headed to $4-$5? Quite the spirited person.

  79. 79
    zman Says:

    S&P is at Nicky’s support level and is still falling, taking the wind out of the energy names.

  80. 80
    xweto Says:

    Z: knowing how you (& I) suffered with the ugly UNG, FWIW my NG daily chart has confirmed its uptrend line, that started in March, has busted down along with the MACD also crossing down following a 3 week divergence … UNG’s put day may well have come

  81. 81
    zman Says:

    Xweto – I’m not convinced but continue to watch closely.

  82. 82
    Nicky Says:

    More meangingful support on spx at 1402 area.

  83. 83
    Fred Says:

    I remember ElDiablo, he had some different ideas and liked to argue about them.

    I’ve got one more question has anyone thought about buying DUG or is it just DIG to $141, GS new number?

  84. 84
    Sambone Says:

    Welcome Fred

  85. 85
    Sambone Says:

    173 point swing today on the DOW

  86. 86
    zman Says:

    Fred,

    Every time there is a red day or two in energy land we banter back and forth about the DUG but it has been a losing trade each time so far and is a lousy hedge against long positions held in E&P, service, refiners etc as individual issues will outpace the ETF on percentage basis. I’ve looked more at SU which pretty much only goes up in this oil price environment so while it is correlated on the upside, it fails that correlation when oil moves lower and less it falls hard. My best safety value has been to buy stocks and/or raise cash during strength and to ride out the dips.

  87. 87
    zman Says:

    ZTRADE: CHK $60 June Calls for $2.20. Continuing to hold the July $60s as well.

  88. 88
    zman Says:

    WSP – speaking at BMC today and Oppenheimer tomorrow.

  89. 89
    Sambone Says:

    Tini time!

  90. 90
    Dman Says:

    CHK offering $800 million of senior notes due 2018.

  91. 91
    kyleandy Says:

    z anything u find out about WH i/m interested. still have some. what about seismic companies? u mentioned more data was needed in your notes this morn.

  92. 92
    Hoss Says:

    Re: #83
    I am also new to the board and would like to say hello to everyone.
    The DUG theme seems to get some traction from time to time, so I thought I post a little info.
    DUG – “The investment seeks daily investment results, before fees and expenses, which correspond to twice the inverse of the daily performance of the Dow Jones U.S. Oil & Gas index.”
    Component Weightings
    http://www.djindexes.com/mdsidx/index.cfm?event=showexchgTradableProd&rptsymbol=DJUSEN&sitemapid=520
    Top Ten Components by Weight
    XOM 25.8% CVX 10.8% COP 6.9% SLB 6.5% OXY 4.0% DVN 2.6% RIG 2.6% APA HAL MRO

  93. 93
    aaatest Says:

    I’m in transit and will be back in on on coupla hours. Nice to see the guys chiming in a slow monday

  94. 94
    texana Says:

    tristone conf synp: lse cost in haynesville shale (hs) now $7,500 to 10k, with chk recently paying 15k for shreveport airport lse. hk has 40k acres hbp with a total of about 170k.3yr,1/4roy & no renewal clause. ea well will int hold 640 ac. there elm grove wl had 220′ of gas through out section, according to floyd ” full of gas, the best shows in shale they have ever seen”. 6 to 7 mil ip per well with 5 bcf pw res , 8 stage frac. in q&a floyd ip of wl is indictative of ult rec per wl ie ip 5 mil /5bcf eur. shortage of landmen & rigs w/ top drive. ea wl about 60 days to drill with hope that will drop to 45 as time goes by. so about 6 wls /year per rig maybe 9. will go from 10 rigs now to a 100 next yr. even at this level ops will be hard pressed to protect lses. cos that have hbp ac have a huge advantage here. hk has no prod fiqures for the hs included in any of there est for yrly production. ka ching! u get the distinct feeling that the cos will not be releasing any infor until they have as it is driving leasing cost & roy thru the roof & making it harder to lse. ie floyd’s comments on qtrly conf, “call us if u have acreage to lse”. this also echos xco 1/4 comments about hbp cos . wll was also @ conf & they r sitting in the sweet spot in the bakken and have 20% wi in all of eog’s parshall field & 80% wi in sanish field in the next unit over. they have 7 rigs running now & plan to inc that # there. huge co2 fields in tx & ok r starting to kick . they have 250mil proved & 250 mil prob & poss. eog wants to incr there oil to gas ratio & will be looking hard @ this co. i think they get taken out before hk or clr. a lot of cos might not want harold controlling 10% of there co. maybe floyd gives more infor in q&a tomorrow. even without a take out the potentional is huge in the hs. there land position alone is worth over a b. long hk sep 30 @ 1.40 & looking to add. thx t

  95. 95
    zman Says:

    Thanks Hoss and Welcome! – people might have better luck with a hedge on the group like the XLE or just USO, and not have such a skewed weighting, especially in a name like XOM which has not performed due to the refining side.

    Texana – hk has two rigs there now, were you saying how Hayneville is 10 going to 100 rigs? Thanks for the headsup on that am, fast forwarding to HK’s part now.

    Kyleandy – will have more on the non-rig beneficiaries of increased N. American activity in the Tuesday post.

  96. 96
    zman Says:

    Texana – HK’s Floyd said he has seen tests of 15 to 17 MMcfepd initial production from the Haynesville. Those are almost certainly CHK wells. Saying they are modeling 5 mm/d and 5 Bcfe EUR. In these kind of wells, they the IP is often indicative of the EUR on a 1 to 1 ratio so these bigger IPs could yield reserves of 10+ Bcfe, maybe 15 Bcfe as well.

    Noted on Sonris that GDP has several tests ongoing now. Thanks again for the headsup on the Tristone calls.

  97. 97
    texana Says:

    in gdp’s presentation @tri conf he said that prior to chk announcement they were leasing for 350 to 500 /ac & now 10 to 15k. the most eye catching slide was there map of longstreet field were they have 28k gross/18.8k net ac , to the north and east just on this map chk has at least 100k ac on the map and acc to gdp this is area of drilling for chk. points of interest from gdp avg porosity for hs 10 to 15% (best barnett 8%) very uniform thruout 220′ with no impermable breaks which allows horiz frac to to reach the entire 200′ interval. this to me is the secret of the hs because most produing formation r actually many small intervals stacked on top of each other & need to be stimulated sep. gdp sitting in sweet spot but they did not give any production for there vert cook 1 hs well. these field lies along the tx/la line & gdp believes hs runs into tx side where they have a larger ac position. there ceo is a smart guy & said if u take chk metrics for hs & apply them to gdp’s la ac that there 1 tcf pot. in la alone. earlier, that was industry total of 10 drilling hs now ramping to 100 next yr.

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