16
Jun

Monday Morning – One Eye On Saudi Arabia, One On The Haynesville Shale.

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In Today's Post:

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

Commodity Watch

  • Crude Oil fell 3% last week to close at $134.40. This morning crude is trading up over $2 after initially selling off on the following:
  • Saudi Arabia To Bump Production To 9.7 MM Bopd. Saudi Arabia said it will boost output to 9.7 million barrels of oil per day from current levels of 9.425 mm bopd to meet increasing demand.  9.7 mm bopd equates to a 6% rise in production relative to May levels and is the highest production level in decades for the Kingdom.
  • Increase Comes Up Short. Rumor had been that they would hike production to 10 mm bopd so the smaller increase immediately calls into question whether or not the Saudi's can indeed easily boost output more at this time. They say yes but an increasing chorus of analysts are calling their spare capacity into question.
  • Gross or Net? The note from the Kingdom only mentions Saudi production. OPEC production declines may be partially offsetting this hike as they did a few weeks ago when they raised production by 300,000 bopd only to later that same day disclose that that increase replaced falling production from other OPEC members.
  • ...To Meet Increasing Demand. Hmmm, asl recently as last week OPEC and Saudi Arabia had both been saying the global market was adequately supplied. Increasing demand, at these prices? Wow.
  • The Impact. Temporary swoon, then new highs. That's a guess and I may be wrong but I think downside will be rather limited. I think we got the swoon of about a buck and a quarter last night. 
  • China Turns Gasoline Importer. China became a net importer of gasoline for the first time on record in May.
  • Natural Gas traded off less than 1% last week to close at $12.615 as a smaller than expected storage injection buoyed gas prices in an extremely volatile crude trading environment. This morning gas is trading up over $0.20.
  • Weather Watch: CDDs increased to 74 last week which is much warmer than normal and last year's reading. This week is forecast to provide some relief, slipping back to 52 CDDs which is in line with last week's number which still produced that low injection. 
  • Tropics Watch: Nothing on the near term radar worth talking about.
  • Independence Hub Reported At Full Readiness. (APC) says volumes back up to 900 MMcfgpd, near the hub's 1 Bcfgpd capacity.

 

Stocks We Care About Today:

ECA Events This Week: Back in early May, Encana said its teams had seen promising results from the Haynesville...look for them to elaborate on this statement this week. ECA says this morning their position in the Haynesville Shale has grown to 325,000 net acres in the fairway and says they have drilled a number of wells with strong results.

  • Presentation At CAAP Today. Presentation at 1 EST.
  • Analyst Day On Thursday. Presentation at 11 Est.  

CHK / GDP Joint Venture In The Haynesville Shale: CHK will pay GDP to enter and jointly develop their Haynesville acreage in the Bethany-Longstreet and Longwood fields in Cado and DeSoto Parishes (this is in the heart of the area where CHK has been active).

  • CHK pays GDP $178mm for 10,250 net acres ($16,950 per acre)
  • CHK also paying for 7,500 acres of deep rights at Bethany-Longstreet for an undisclosed sum to a third party which gives them roughly 50/50% interest with GDP in the two fields.
  • CHK will operate with 1 rig schedule to start in 3Q and a second to be added 4Q for the JV
  • The partners see drilling up to 440 horizontal HS wells here.

(APC) Reaffirms Prior Guidance After Getting Independence Back On Line. Guidance still in the range of 207 to 212 MMBOE for 2008 despite the 2 month outage at their biggest gas platform.

Odds & Ends:

Analyst Watch: Lehman has a busy Monday upping (DNR) to overweight, raises (HK) target from $35 to $42, (CHK) target from $60 to $71; FBR takes (PQ) price target from $27.50 to $35.   

Bio Tab Watch: I get a lot of emails inquiring as to who does what on the site. I also respect subscribers' privacy and will not "out" anyone. If you wish to let people know in general or specific firms what you do and what kind of firm or organization you do it for that's great and I will post what you send us to a soon to be created (if anyone sends anything at all) Bio tab for the subscribers only part of the site. If interested please send in your specs to zmanadmin@gmail.com. Thanks.    

Housekeeping Watch:  I'll be in Honduras for the trading week June 23-27. I sell down a majority of the option positions before I go and I find that taking a week off to do something completely different is good way to get re-focused. The site will be up for subscriber access during this time but I will not post, comment, or trade.

82 Responses to “Monday Morning – One Eye On Saudi Arabia, One On The Haynesville Shale.”

  1. 1
    zman Says:

    HK offering another $250 mm in senior notes, on top of the $500 mm they issued last month. This funds drilling and the acreage grab and is not unexpected.

  2. 2
    Pete Says:

    Z, In Barron’s CHK rated a strong buy with a NAV above $100/share by Raymond James

  3. 3
    zman Says:

    Thanks Pete – That NAV isn’t at all out of this world depending on what price deck you use. Their potential resource is a couple of multiples of what they have booked and even that is conservative in places like the Haynesville where they have not yet released a lot of well data.

  4. 4
    zman Says:

    Dollar not happy after G8 meeting. Gold soaring too.

    Oil up $4, ng up $0.25. We could see a bit of “flight to what works” as the broad market retreats.

    Sambone – you still on vacation?

    QBIK – bid up $0.09 and perhaps getting a little ahead of itself for a takeout but the GDP/CHK JV is right around their acreage.

  5. 5
    Dman Says:

    Am I seeing straight? PQ up 7-8 %. OK now only 6.5% or so…

  6. 6
    zman Says:

    Morning Dman – PQ was in IBD today.

  7. 7
    reefguy Says:

    hy girls all up on GDP/CHK news

  8. 8
    zman Says:

    Reef – ECA may have something to say today at CAAP at noon CST as well.

  9. 9
    zman Says:

    QBIK – up $0.31 at 3.98. Wow.

  10. 10
    reefguy Says:

    Eca- Maybe talks about Olympia 26

  11. 11
    zman Says:

    Reef – if not today than surely for Thursday at their analyst meeting.

  12. 12
    zman Says:

    HK now appears poised to break out after its little rest last week. I’ll be quick to punt the Junes (maybe today) and will continue to hold the Septembers and the stock for now.

  13. 13
    zman Says:

    CNBC confirming STO shut in 150,000 bopd due to N. Sea oil platform fire.

  14. 14
    zman Says:

    CHK and HK going for all time highs soon.

  15. 15
    Fred Says:

    Asian refiners are turning down additional Saudi crude. Could be why we’re offered more:

    http://www.reuters.com/article/idUSSP19375720080616?sp=true

  16. 16
    zman Says:

    Thanks Fred, Saudi would do better to stand pat and continue to build out their refining infrastructure as there is plenty of demand for that.

    QBIK ticking $4

    NFX, PQ having banner days.

  17. 17
    crysball Says:

    Z,
    An unknown in the Saudi offer is the API……… If they are offering 200,000b/d of Arbaian Sour it’s like selling the sleeves out of the vest, as the Iranians can’t unload their sour [i.e. all the VLCC’s sitting and currently storing Iranian sour offshore Iran].

  18. 18
    Pete Says:

    Z- Are you still holding the June WFT?

  19. 19
    zman Says:

    Irish – its summer and lots of people are on break. Plus it’s Monday.

    Pete – yes, down by half at present.

  20. 20
    zman Says:

    Crys – agreed, that and whether or not these barrels are incremental to OPEC or are just absorbing some soft production at other members remain unknown.

  21. 21
    md Says:

    Any toe dipping on refiners

  22. 22
    irished Says:

    Coming over to the dark side. Sold GE and will exercise some CHK soon.
    Zman: was on weekend review site. Like to say it is just Monday but brain dead is an easy trait to pick up.

  23. 23
    zman Says:

    Md – I’d still like to see one more week worth of data out of the EIA to make sure that jump in demand wasn’t just a headfake brought about by the big jump in crude on Thursday and Friday of that week which made big headlines and sent drivers to the pump to fill up in advance of obvious price increases that would hit over the weekend.

    Irish – hear ya brain dead. This is part of why I go swing a hammer in the jungle for a week. Good to not think about stocks for one full week a year.

  24. 24
    Dman Says:

    RIG/DO struggling. Any clues?

  25. 25
    zman Says:

    Dman – no idea, if you look at all of the service names this morning, the drillers on and offshore (except for ATW offshore and NBR onshore) are putting in pretty tepid performances.

    Oil only up $2 now, NG up $0.28 at new high of $12.91

  26. 26
    zman Says:

    Nice resilience in the HK with dip buyers at every turn so far today. Ideally will punt the June calls above the Cramer induced high from last week ($37+) during or after the ECA presentation at 1 EST. Short, medium and long term I think this goes higher and will hold the Septembers through my trip and may add more common.

  27. 27
    MMarkkk Says:

    Word out that ECA signed a JV with Shell on their Haynesville. 325,000 net acres and expect it to add 1 BCF/day net to ECA. Also said they drilled 3 vert’s and 2 horizontals and the first horizontal came on at 8 MMCF/day. Expect to have 5 rigs running by year end.

  28. 28
    MMarkkk Says:

    Z – hope the Honduras trip is vacation. I was down in Roatan over spring break but only for an afternoon off the cruise ship. Would have liked to stay longer. Very laid back! My vacation? I’m still looking at stocks and company press releases and street noise!

  29. 29
    zman Says:

    Thanks Mark, plan to listen to that CAAP call in a bit. 8 mm/d, any idea what parish/field those HZ’s are in?

    I may be offline in a second as I have electricians in my office. The site will be unaffected.

  30. 30
    reefguy Says:

    27- The #1 26 Olympia is a shell/eca JV. It is a vetical amking a sustained rate of 3.6MMCFPD

  31. 31
    zman Says:

    A smart guy would take the 2.20 for the HKFG and call it a day, especially holding the longer dated calls and common. I’m going to milk it.

  32. 32
    zman Says:

    Mark – not vacation but I am across the water Roatan at Trujillo, staying in an old hotel built by Oliver North during Iran Contra.

    Reef – wonder if QBIK is popping on that vertical potential as that’s what they are drilling.

  33. 33
    reefguy Says:

    QBIK- yes and it is the only little fish we can find in the play.

  34. 34
    zman Says:

    Re QBIK – based on what people are paying for acreage the math does not work given then current total enterprise value. Maybe on a reserves basis but acreage would need to be going for > $40K/acre to justify this price. Not that I’m knocking it up here but I’m not adding another toe and will sell on the day of or the day after CHK announces bigger wells than what has been press release so far.

  35. 35
    zman Says:

    Crack spreads eased in all regions last week…still can’t get excited about the group. The latest crack graphs are located on the refiners and cracks page.

    HK toying with $37.

  36. 36
    ram Says:

    The Bakken players also getting the equivalent of WTI? Will the media/players now get used to quoting the price of good oil and bad oil?

  37. 37
    zman Says:

    PQ cresting $25 and although it is cheap I will take some July exposure of the table soon and happily buy it back on a red day.

    CLR = wow. Tempted to take a little BEXP here as more good news is going to be coming out of the Bakken in coming weeks and my main exposure there is NFX.

  38. 38
    zman Says:

    Ram – that’s a great point and the answer is that they will eventually have to. Some people are quoting Mars oil more often and you occasionally see mention of Hardesty Heavy but not often. I probably should add it myself.

  39. 39
    tater Says:

    CRR
    Thinking about joining the party if it breaks through the 58ish from a couple of days ago, looks good to 65 or so. Kind of familiar with the propant bead story, just wondering how much a driller needs their product versus a cheaper product in relation to keeping costs down. (Does the play have legs?)

  40. 40
    tater Says:

    Going to run out for a bit, wondering if you could comment on what you would possibly think of to trade a breakout on close over 70 for XTO. Aug 75 calls seem reasonable, just wondering what your thoughts are here as well.

  41. 41
    zman Says:

    ECA slides available now:

    shows Adcock 3H well IP 8 mm/d
    says they have another well over 5 mm/d
    plan to exit year with 8 rigs in the play

  42. 42
    zman Says:

    I’m liking the XTO as the buy one company and get all the hot plays name right now. Not too expensive, not overly leverage and I want to get in prior to their 2Q conference call. Hard to poke much of a hole in their story right now and that’s before you mention the less hedge nature of their forward production curve relative to say CHK.

    By the way, NG testing $13, 2.8% today.

  43. 43
    zman Says:

    OII making a nice move here, continuing to hold.

  44. 44
    Dman Says:

    Z – anything in particular pushing NG today?

  45. 45
    zman Says:

    ECA said > 8 MMcfgpd IP on that first HZ well.

    The increase drilling from these guys and their peers is more good news for NBR.

    NG up on last week’s weather and up oil (which is now sliding a bit, only up a buck.

  46. 46
    zman Says:

    ZTRADE: Out HKFG – HK $35 June calls, for $2.15, up 4%.
    I continue to hold the September $20 and the common.

  47. 47
    zman Says:

    ZTRADE: Out NBR July $42.50 calls for $3.90, up 111%. Will likely roll longer here soon.

  48. 48
    zman Says:

    ZTRADE: Out PQ $22.50 calls for $3.10, up 210%

  49. 49
    zman Says:

    Oil down $1.60 now, just like it fell off a cliff.

  50. 50
    zman Says:

    Talk about a slow day around here. Going to get some lunch. Group looks like it needs a breather. Am contemplating rolls into more long dated HK options, also NBR and more CHK calls and stock.

  51. 51
    xweto Says:

    Z: Are CHK Jul 60s still a hold … also am holding NFX Jul 60’s, perhaps I missed your exit?

  52. 52
    reefguy Says:

    Tater- look at PVA investor presentation, a big one, but fish through it and see the frac procedures for the horizontal HY. Using specialty props such as sintered bauxite. These deeper over-pressured shales will require strong proppants to keep from being squashed.

  53. 53
    zman Says:

    Xweto – I’m still holding those with a nice double and may take half off the table soon, especially if gas starts to link as hinky as oil does at present. I will add longer and more stock here soon though.

    In NFX I have the July $70s (down by half) and Sept $65s at present. I will likely hold both through my vacation but if I were to sell one it would be those $70s.

    Thanks for that Reef.

  54. 54
    MMarkkk Says:

    Z – slow day. go to http://www.usopen.com and hit the “Watch Now” button. That will tell you why its so slow.

  55. 55
    reefguy Says:

    ECA presentation map is very rough, but I think that southern star is the Shell 26 Olympian. 5.6 MMCFPD from the vertical

  56. 56
    zman Says:

    Mark, LOL, I was just about to post the scores.

    Reef – I bet they give more detail on the Thursday call. Today was pretty weak from a deets standpoint. I had assumed that both of the red stars on the map listed as >5 mm/d were their horizontals.

  57. 57
    xweto Says:

    Thx Z

  58. 58
    ram Says:

    Does PBR have the good oil or the bad oil off its shore?

  59. 59
    zman Says:

    ram – light sweet in the most recent discoveries in the sub salt, not sure the mix of the shallower, older production.

    also for you, roughly:

    cash = 60%
    stocks = 14%
    options = 26%

  60. 60
    ram Says:

    gracias

  61. 61
    ram Says:

    Is Kodiak Energy on the Canadian side of the Bakken?

  62. 62
    zman Says:

    ZTRADE: Added CHK shares at $60.94.

  63. 63
    zman Says:

    Ram – I think they are in ND, but will check.

  64. 64
    Bleemus Says:

    Kodiak Oil & Gas Corp. and its subsidiaries engage in the exploration, exploitation, development, acquisition, and production of natural gas and crude oil in the western United States. Its oil and natural gas reserves and operations are located in two Rocky Mountain Basins. The company explores for natural gas in the Vermillion Basin of the Green River Basin in Wyoming and Colorado; and in the Williston Basin in Montana and North Dakota.

  65. 65
    Bleemus Says:

    Kodiak Energy, Inc. is a Calgary based publicly traded oil and gas development company focused on creating a portfolio of North American assets that offer production opportunities and asset growth through exploration. Kodiak has lease holdings in Montana, southeastern Alberta, northeastern Alberta and high impact prospects located in the central Mackenzie River Valley of the Northwest Territories, Canada and in northeastern New Mexico.

  66. 66
    zman Says:

    Some may say why is an option guy buying shares?

    First, I was a stock guy long before I knew what an option was.

    Second, I’m going out of town for a week and would rather own shares than options when I can’t see a screen.

    Third, I’ve had some good gains lately and buying common is a way of disciplining myself from stepping into larger trades than I normal want because I have hoards of cash sitting about.

    For instance, in the HK Junes earlier I was sitting on 150 contracts and being a fairly risk averse guy $33K that can vanish in the wink of a red day in energy land seemed a bit silly. It all depends on your size but I’d rather keep cash and stock and not just cash on hand to keep from being tempted to swing for the fences.

  67. 67
    zman Says:

    Thanks Bleemus, not one of my names.

  68. 68
    zman Says:

    much more weakness out of HK and there will be another wildz this week.

  69. 69
    tater Says:

    re: 52 Thanks reefguy. Seems like a good play to a layman like myself, at least until somebody shows up with a new mousetrap and I’m left holding yesterday’s proppant. I will read what you pointed out.

  70. 70
    Jay Reynolds Says:

    Not much else new in NW LA. CHK field ops guy saying that they will shortly have 9,000 employees within 50 mile radius of Shreveport.

    Perf’ing currently at 13 guns/run w/ 8 stages per HZ section.

  71. 71
    ram Says:

    Thanks Bleemus.

  72. 72
    ram Says:

    I sense a shifting of wealth from the N.E. and the WEST to the SOUTH.

  73. 73
    tater Says:

    Been out, was there a news event that triggered oil sell-off mid-day?

  74. 74
    zman Says:

    Tater – not that I saw, just got through 135 and started falling.

    GMXR breaking to new highs again (HS player)

    Going to add more HK tomorrow or Wed.

  75. 75
    ram Says:

    CLR doesn’t currently care about oil prices.

  76. 76
    tater Says:

    Thanks, going to play it as profit-taking, USO still hugging 5 EMA.

  77. 77
    doc Says:

    My dads portfolio has hp calls. Hitting 52 week hi

  78. 78
    ram Says:

    A shifting of monies to Tech. Thanks Doc.

  79. 79
    zman Says:

    HP is a good company, Jay Reynolds has a deal with them

  80. 80
    zman Says:

    I was thinking he mean HP = helmerich and Payne, the oil service company.

  81. 81
    ram Says:

    Oh, HELMERICH PAYNE.

  82. 82
    Jay Reynolds Says:

    I have my deal with PH (Parker Hannifin Corp). Looks like our system is going to go worldwide shortly. Thus far we have simulated more than 120 years of mechanical wear in field use (in and out of 60+ wellbores) with no visible wear or degradation.

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