21
Jul

Monday Morning – Hello Dolly

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If you missed the weekend wrap post click here

In Today's Post:

  1. Commodity Watch
  2. Earnings Calendar - Week 2
  3. Earnings Watch
  4. Stocks We Care About Today Watch
  5. Odds & Ends

 

Commodity Watch:

Crude Oil fell 11% last week turning in its single worst one week dollar drop since trading in crude started on the NYMEX. This morning crude is trading up $2 to $3 as the tropics heat up and Iran shockingly appear to be unwilling to give up its nuclear enrichment program.

  • Iran Is Stalling For Time Watch: Iran must be thinking the price band for oil must be $130 to $150. In the high $140s they are willing to talk about giving up their centrifuge program. Oil takes a little numbers and its "we'll call you in two weeks". Talks in Geneva stalled before they really got started with the U.S. envoy never obtaining a one on one meeting with his Iranian counterpart. At least a phone call would have saved the U.S. their gas money. 

Natural Gas also fell 11% last week, in part due to technical trading but also due to an anomalously large gas storage injection. This week's number will be crucial for gas...another big injection in the face of the hottest weather of the week and people have got to start thinking that increased shale production is finally showing up in the weekly numbers despite a dearth of imports. This morning gas is trading up with the thought of the first storm of the season for the Gulf and hot weather next week.

  • Weather Watch: Cooling degree days for last week eased by 1 to 79. The early read by the CPC for this week is that CDD's increase to 90, the hottest level of 2008 to date and far warmer than year ago levels.

Earnings Calendar Week 2. The full calendar is updated on the calendar tab, here is Week 2 which is as you can see contains the first reports from E&P, the Majors, Coal and lots more oil service names. This is not a comprehensive list but these are the calls I plan to be on or in case of schedule conflict listen to later. Several of the names below can also be found on the Holdings Wiki tab which is updated through Friday. 

2q08-week-2.jpg

Stocks We Care About Today

(WFT) Reports A Miss Due To Rough Canadian 2Q; Look For 2H08 Pickup

  • EPS: Reported $0.43 vs $0.45 Consensus (range of $0.43 to $0.48); the miss is entirely due to a bigger than expected drop in Canadian business with the protracted Spring breakup seen this year. 
  • Revenue: Reported $2.229 vs $2.213 B Consensus
  • Aside from Canada, Western Hemisphere growth accelerated in the U.S. and Latin America
  • Other international (Eastern Hemisphere) saw revenue advance 30%, in line with the prior quarter's 33% increase
  • No forward guidance was provided in the PR as is usually the case.
  • In a nutshell, direction for the stock is going to depend a lot on the conference call. Canadian activity picked up late in the 2Q after a tough quarter and Eastern Hemisphere margins remain robust and if they maintain their 40% growth in income there the stock won't get drilled by the bottom line miss. Look for them to reiterate the 40% number and to talk about the gain in revenues during the quarter (+23%) vs the growth in rig counts (+7%, or about 3 to 1) in light of a now faster pace of increase in rig counts.
  • Conference Call: Today, 9 EST 

(HAL) before the market opens tomorrow. Stock remains cheap to group, international potential may provide opportunity for small upside to 2Q estimates, focus remains on a 2H08 acceleration in U.S. / Canada and in continued growth in the Middle East they spoke of during the last quarter.

 

E&P Stocks

1) Estimates continue to rise rapidly, partially due to analysts marking their estimates of oil and gas prices to market before the quarter is announced and in many cases, due to them bumping up their models for higher production growth.  

enp-chg-est-071808.jpg

2) So the stocks have gotten all the more cheap as they have fallen into rising estimates month to date. Note that many of the big cap E&P names are trading at the historic low end of their forward multiple of estimated cash flow per share. So despite the run the stocks have had year to date, many of them are cheaper, on the basis by which they are most popularly judged by the investors and analysts (price / forward cash flow) than where the began the year. Despite improved outlooks for the commodities that they sell and despite higher expected production.  

ep-multiple-071808.jpg

3) Increasing Reserve Life Augers for Higher Multiples. Multiples are now very low compared to reserve life and expected growth in reserves.

ep-bubble-chart-071808.jpg

 

Odds & Ends

Analyst Watch: Changes for (SLB this morning: JP Morgan ups (SLB) target from $140 to $150, Lehman trims theirs from $142 to $138, and Jefferies takes theirs from $120 to $125. The stock closed Friday at $100.55. 

 

115 Responses to “Monday Morning – Hello Dolly”

  1. 1
    Bleemus Says:

    NOG Northern Oil & Gas announces “significant” Bakken Discoveries, Three Forks/Sanish Plans (11.11 )

    Co announces it has recently participated in the successful completion of three wells in the emerging North Dakota Bakken play, bringing to eleven the total number of producing wells in which Northern holds an interest. In addition, Northern holds a working interest in an additional fourteen wells that are in the drilling or completion stages and is included in nearly 70 permitted or docketed-for-permit drilling locations that are expected to drill between now and early 2009. Northern Oil controls approximately 60,000 net acres in the North Dakota Bakken play, yielding over 90 net well locations based on 640 acre drilling units. In addition, Northern controls approximately 22,000 net acres in Sheridan County, Montana and has successfully completed two wells to the Red River formation. Northern is currently participating in Continental Resources’ Skachenko 1-31H well in Dunn County, ND. The well is a direct offset to the Bice 1-29H, also drilled by Continental. The Bice well — announced in late May — is among the first Three Forks/Sanish discoveries in the region.

  2. 2
    BirdsofpreyRcool Says:

    NOG reported another nice well in the Bakken. Spent the last couple of days looking through the company’s presentations. It’s an attractive non-operated, acreage play.

    z – You asked what I thought of the Three Forks/Sanish in the area. The key here is that the upper and lower Bakken shales are so very nicely stuffed with organic material. They make for really prolific source rocks. The middle Bakken serves as one sponge to soak up the oil from the shale members. The presence of the Three Forks/Sandish is just another sponge to tap. If the TF/S is present in a well, it must increase the economics pretty substantially. I don’t know yet if the pressure is the same (so you can produce the TF/S at the same time you produce the Middle Bakken). Do you know? I was guess they could, but don’t know.

    The Bakken is a wonderful geologic sequence, designed to give happy results for years to come.

    Other than NOG, any other companies you are focusing on here? thanks.

  3. 3
    zman Says:

    Bird – Have not heard on the pressure from TFS to Bakken comp. Hope to learn more this call. Have looked pretty hard at CLR (holding common), EOG (holding calls), and BEXP (which I don’t have on at present). SM and CXO have pretty interesting recent presentations. I’d say HES and MRO as they are active but the mini-majors don’t give you a lot of leverage on any particular play and their refining sides are depressing earnings estimates. KOG is interesting as they have unitized just recently and will get busy….those little names can be a nice way to play the play….almost like owning LEAPS without expiration date.

  4. 4
    BirdsofpreyRcool Says:

    Met with the KOG guys recently… they are quoting some pretty large anticipated IPs from wells they have yet to drill. That said, nice (but uproved) acreage position. Given the geology of the Bakken, tho, I would be shocked if the wells were non-economic. They expect to get their own rig on site by “late August.”

  5. 5
    BirdsofpreyRcool Says:

    z – thanks for your Bakken list.

  6. 6
    T. J. Says:

    Just a rumor and I know rumors seldom to amount to anything…however, I heard for the third time yesterday that one of the big time players in the Haynesville Shale was looking to buy out a slightly smaller player. Anyone else heard about anything like this?

  7. 7
    zman Says:

    Bird – Forgot to add NFX, going from 0 to busy there which they are pretty good at.

    TJ – I saw something recently about Shell or Devon taking out a smaller player.

  8. 8
    Dman Says:

    Hi Z,

    with the E&P names getting cheaper, wonder if any analysts will pipe up? Guess they’ll wait for the stocks to move up and *then* they’ll pipe up.

    Iran watch:

    1.
    I heard some interesting comments by Scott Ritter (former Marine intelligence officer & UN weapons inspector). By interesting I mean “I never would have looked at it that way, but then I’ve never been privy to the war-planning machinations of the Pentagon”.

    He asserted that the recent missile tests by Iran and their associated threats to US forces in Iraq, the Gulf nations and (of course) Israel have materially reduced the chances of war. The reasoning: in a nutshell, by committing themeselves to employing their full retaliatory ensemble in the event of *any* attack, the Iranians have taken a “limited strike” off the table. Ritter asserts that the Pentagon planners can no longer present a plausible scenario where they conduct limited strikes on Iranian facilities and the Iranians are forced to “suck it up” because they know that any retaliation will lead to further escalation. Instead, the Iranians have “pre-escalated” and Ritter asserts that, in response, the Pentagon planners will have drastically expanded the target list and also (more importantly) will have added the necessity for a ground component to secure the Gulf shipping channel. So planning for a limited strike will now have evolved into planning for a full-scale air and ground war, and Ritter asserts that the Bush administration is not positioned for that and probably cannot get positioned in the time remaining.

    2. The quotes I recall seeing from administration figures on Mr Burns’ mission were to the effect that he would be an observer, not a negotiator. If that was his brief, a one-on-one meeting with the Iranian negotiator would have been somewhat surreal, with the Iranian having to play both parts (you gotta find comedy where you can with this topic). So I’m guessing it wasn’t on the agenda.

    3. Israeli historian Benny Morris has an apocalyptic op-ed in today’s NYT, asserting basically that Israel will attack, so the US should get on board. I would just point out that if the US says “no” firmly enough, then Israel actually won’t attack, so the premise is false.

    4. Adm. Mullen on Sunday: “Right now I’m fighting two wars and I don’t need a third one.”

  9. 9
    reefguy Says:

    MMR/EXXI- Blackbeard story WSL B1- page 1

  10. 10
    zman Says:

    WFT CC –

    Forward Views:

    Canada – expect strong recovery starting now

    US – cont strength oil and gas

    Intl’ – growth, strong and sustained

    2008: E. Hemisphere 40% per annum growth, L. America 30%, combined this is intl gro of 307% 2008 vs 2007. (that’s in line with prior guidance)

    2009: they see 40% int’l growth next year.

  11. 11
    antrimshale74 Says:

    Nice recovery on WFT.

  12. 12
    VTZ Says:

    WFT green now

  13. 13
    zman Says:

    WFT Call still going on, in Q&A now, Mexico Chinctepic (the someday augmentation of Chantarel) will be good to them. Not ready to add yet.

  14. 14
    VTZ Says:

    well that green was shortlived… i jinxed it.

  15. 15
    zman Says:

    V – I think oil falling back and ng rolling another 1%+ lower did it. Still a lot of fear in the commodities.

  16. 16
    VTZ Says:

    Does anything you heard on the conference call change your outlook on WFT or the other service/drillers?

  17. 17
    jsaun14 Says:

    Ugh…This has become disheartening. Must be strong…

  18. 18
    zman Says:

    V – As far as WFT goes, not a lot of change, the quarter was hit over Canada, everything else is fine, if not slightly improved. The Street may not buy the rate of growth in the international segment which is key to the growth story and backend loaded (so the analysts have to believe them that it is coming).

    For service, everything looks pretty solid, price good and improving in most areas.

  19. 19
    zman Says:

    NG falling off again with the flat weather vs last week. Now down 2% as oil goes to flat. Current storm track splits the most populated parts of the US Gomex and Mexico Gomex and shows a Cat 1 so the rally this morning may now be being seen as much ado about a little wind.

  20. 20
    antrimshale74 Says:

    OIH just went ballistic.

  21. 21
    zman Says:

    WFT CC over, there are probably a few analysts who will recommend bottom fishing here but for the most part the tone was rather subdued. Mexico will end up being bigger than Canada for them which is saying something but for the most part I would expect analysts to be a little stand offish and only the upward drag of SLB is going to help in the very short term (this week) here.

  22. 22
    zman Says:

    Antrim, I see it and am plenty long. Not going to add until we see oil get comfortable and ng stabilize. Below $130 has everyone in the energy space looking over their shoulder for the next big drop.

    Saw a guy on CNBC early this am talking about demand destruction (oil) from China, saying exports are way off and lots of their exports use oil (plastic). Checking on that.

  23. 23
    zman Says:

    22 must have been siting these numbers:

    http://www.marketwatch.com/news/story/chinas-gdp-growth-slows-101/story.aspx?guid=%7BB32BDDB1-D231-46E5-A1C9-F486E2195741%7D&dist=msr_1

  24. 24
    reefguy Says:

    ng- gas down and evacuating rigs in gulf

  25. 25
    zman Says:

    Reef- Have not seen an evac pr yet, have you? Looks to me like it threads the needle on the current track. Of course, things wobble a bit as they strengthen.

  26. 26
    jazzkool Says:

    Z, have the Aug WFT 47.50s. What is good exit point? The mark is .20 right now. I can wait for a rally but the time premium will start weighing on the price here shortly.

    Jazz

  27. 27
    reefguy Says:

    Shell evacuating 60 people today

  28. 28
    reefguy Says:

    shell evac 120 from western gulf sunday

  29. 29
    jazzkool Says:

    Z, speaking of China, I thought the Olympics might pick up oil demand in China, but they are now restricing car use in Beijing to cut down on pollution.
    Reaction?

    Jazz

  30. 30
    zman Says:

    Jazz – I’ll be exiting those on the first bit of strength in the oil service group (hopefully this week) but I will hold on to my $40s. It was not a bad quarter and the outlook is strong. But obviously a beat would have been welcome. Listening to the call and having reads some broker notes before it, no one expected a beat here and everyone expected Canada to weigh on all of the service names with exposure there.

  31. 31
    zman Says:

    Re Cars in China, same with Coal burning, its a blip and in the case of coal, probably a buying opportunity in the stocks at some point soon. They had a big run, a big fall and China will need to play catchup post games to keep the air gray.

  32. 32
    jazzkool Says:

    Z, thanks.

    Jazz

  33. 33
    Dman Says:

    Z – I love this line from #23:

    “This is a golden opportunity to narrow the trade surplus,” Lai said.

    A golden opportunity to make a smaller torrent of money?

  34. 34
    zman Says:

    Thanks Reef, had not seen it. If the storm takes the current tack I don’t see damage or big shut ins to evacs. If it bends east that’s pretty obviously a short boost to prices but still not much damage potential unless it spins up. If it bends more westerly Mexico may have a little trouble and you are very likely to see a low imports number next week out of the EIA which would likely give us another big draw on crude stocks.

  35. 35
    T. J. Says:

    reefguy…source?

  36. 36
    zman Says:

    Dman – Nice Iran watch above. I thought Lai’s comment was rich too.

    Don’t look now but most energy green. Even the refiners.

    SLB through 104. Could have used one more day on those Julys. August 100 and 110 working though and I’d bet it makes a run on 110 here in the next week if oil will behave itself.

    NG back to only down a nickel from off 24 cents earlier. Must be a new storm track I have not yet found.

  37. 37
    zman Says:

    TJ – I see it at 10:27 under ticker RDSA

  38. 38
    zman Says:

    ZTRADE: NFX Agust $60 Calls (NFXHL) for average $1.95. They report 2Q on Thursday.

  39. 39
    zman Says:

    Crude is all over the map today. Not just the front month which closes out tomorrow but the whole strip.

  40. 40
    Fred Says:

    Dolly watch:

    http://www.wunderground.com/blog/JeffMasters/comment.html?entrynum=992&tstamp=200807

  41. 41
    kyleandy Says:

    z – crown weather has the storm more towards texas than mexico and high winds of 110-120 http://www.crownweather.com/tropical.html

  42. 42
    PackMan Says:

    Ritter … no credibilty from anything he says. I believe he ended up on Saddam’s payroll before the Iraq war. Probably on Iran’s now.

  43. 43
    zman Says:

    Thanks guys, those look like the 5 am est reads I saw this morning. I’d be they either have something new at the turn of the hour or in one hour.

  44. 44
    Nicky Says:

    Morning all. Dolly from Intellicast –

    http://www.intellicast.com/Storm/Hurricane/Active.aspx?storm=3&type=track

  45. 45
    zman Says:

    Morning Nicky, crown weather just updated, little change to prior other than hurrican warnings for the tx gulf coast and mexico western gulf coast just issued.

  46. 46
    Nicky Says:

    Oil – looking for a near term low. Either its in or we chop about for a bit longer in what looks like an ending diagonal for v and goes a touch lower. Major support is at 122 area. A move above 132.04 would offer us a good clue that ii up was in progress.

  47. 47
    Nicky Says:

    Nat gas. Can clearly count five down. Now need to see a move above 10.799.

  48. 48
    Nicky Says:

    Broader market – rally running out of steam? Top for this wave could be in or we need one more pop to 1270 area on spx and then a move down to at least 1230 – 40 spx.

  49. 49
    Nicky Says:

    FWIW volume is very light today and as we made a higher high on spx this can be considered as bearish.

  50. 50
    john11 Says:

    Nicky ..really appreciate you sharing your TA stuff, really excellent. Question…if and when 2up what would typical length in time be for that move, any thoughts appreciated. TIA.

  51. 51
    zman Says:

    HAL touching $48. I have a full position in the $50s and while that one has a little better chance to beat numbers tomorrow than it was felt that WFT had today, outlook will again be key and I see no reason why their’s should be anything but glowing. US and now Canada should look good with improving fundamentals but the real show will be the payoff on their middle east move from a couple of quarters back.

    NFX by the way seems to be getting some fund interest today pre earnings. Several quick spikes on volume point to accumulation before their call.

  52. 52
    Bleemus Says:

    local radio just saying shell is evacuating gulf platforms now, hmmmmm

  53. 53
    Bleemus Says:

    Shell evacuates some US Gulf workers before Dolly

    http://www.guardian.co.uk/business/feedarticle/7667016

  54. 54
    zman Says:

    Thanks Bleemus, Shell press release says no impact to production, sounds like just non-essentials going ashore.

  55. 55
    zman Says:

    APC, DVN, and EOG breaking through 200 sma’s from below. CHK one of the few stocks that did not crash through it.

  56. 56
    zman Says:

    SLB more PT upgrades: Howard Weil (arguable the best energy house on the Street) ups pt from 125 to 128, Goldman ups from 125 to 130, UBS ups from 115 to 118.

  57. 57
    davidmac40 Says:

    Z, I’m new to your service. Great dialogue among participants. I haven’t see your response to Wyoming’s comments last night. Apparently, he’s not sold on SLB – “service sucks”, “ran them off”, etc. If SLB’s reputation in the field is suffering, might impact their long term growth.

  58. 58
    Nicky Says:

    John11 – timing is not the strongest point of EW! That said I can tell you that history says that 60% of the time wave 2 takes between 35% and 70% of wave 1 with the average being nearer the lower end of this range.

    Wave 2’s are often very vicious and personally I think often end up looking like a fake out move as very often they retrace 61.% of wave 1’s move down.

    Most commonly they take the form of a zig zag or a double zig zag.

  59. 59
    zman Says:

    David – glad to have you around. Service level is debatable from operator to operator. Wyoming is a great source and you should check his bio on the bio tab at upper left. They are not the only game in town but they have capacity and huge name recognition and are not going away any time soon. Their offshore business is growing and accelerating. The onshore stuff which Wyo referred to it not the driver of their story as much as it is for someone like HAL (although HAL is showing off its mideast exposure now). Anyway, looking at the quarter and having listened to the analysts questions, I didn’t see anything in his comment that you could say, ah, there it is in the numbers. I’m not at all disbelieving Wyo regarding their service as I’ve heard that many times before and HE would know better than I (I’ve never hired them). But they are continuing to win bids (not based on price) in the N. American land market and you can see growing demand in their numbers, especially for higher tech applications that are also higher margin.

  60. 60
    davidmac40 Says:

    Z, I appreciate your response. I’m long SLB 105 Aug. Very new to Options trading. What’s a good exit point for 105’s, assuming SLB makes a run to 110 in the next week? Thanks again.

  61. 61
    zman Says:

    David – You’ve touched on the one thing I can’t answer…investment advice. I’m happily no longer licensed to do that and don’t want to be compelled to be again. I just tell subscribers of the site what I’m thinking and what I’m doing. I would say that I plan to be a little quicker to take profits as the 2Q progress as we are still in a very shaky energy environment from a sentiment standpoint. I have the 100s and 110s and I plan to hold them for a move towards $110. If it fails to pierce $110 resoundingly and close above $110 on the day it breaches it I’ll be likely to punt and re evaluate.

  62. 62
    jsaun14 Says:

    Do we think we’ll have any MMR catalysts before the August expiry or we hope ng sentiment improves and we benefit?

  63. 63
    zman Says:

    JS – I am not expecting anything there in the next month to lift it. Mine are so far out of the money as to be worthless and I won’t sell for a nickel as I just don’t have enough to matter. If they were to hit Black Beard out of the park I’d also feel like a schmuck for punting however I don’t think that in this time frame we are very likely to get any news there.

  64. 64
    zman Says:

    Here’s your reason for NG weakness this am.

    LNG imports finally picked up, rising to 1.1 Bcfgpd vs the flatline of 0.7 Bcfgpd for most of the Spring and Summer so far. This is still 2.1 Bcfgpd low to last year and could be attributable to LNG facility commissioning. Need to see another week or two of this “rally” in volumes to tell.

  65. 65
    zman Says:

    more Dolly news

    http://www.upstreamonline.com/live/article159573.ece

  66. 66
    zman Says:

    ZTRADE: Entered starter position in XTO $60 August Calls (XTOHL) for $2.35. They report before the open tomorrow, are on the low end of their fwd valuation trading range (see table in post) and should have new commentary on their Haynesville and Bakken plays, and they have taken what seems like an inordinate beating this month despite their leverage to the two aforementioned production and reserve metric enhancing plays.

  67. 67
    reefguy Says:

    z- confirmed that MMR does not have to wait on wellhead or BOP to test Blackbeard- stock up 5%

  68. 68
    zman Says:

    Reef – you adding closer to the money exposure?

  69. 69
    tomdavis12 Says:

    Z Finding a bottom? If I take a look at your cash flow numbers today. CHK had a high of 8 and low of 3 over the last three years. I assume the 8 was the aftermath of Katrina when we would not have enough nat gas. When was the 3 and what was the psychology that caused that low valuation? I have followed earnings and NAV numbers over the last 4 years. I know the NAV has increased 40% over the last two years but the stock was up 35% in ’07 and 38% YTD. My guess is that CHK could go to $50 but I would not expect much lower. Would you ever do naked puts @ 50 or that is clearly not your style? Just feels that the future looks too good to have this low valuation.

  70. 70
    reefguy Says:

    added to exxi this morning and mmr on friday afternoon

  71. 71
    zman Says:

    Re CHK

    The p/CF slumped in early 2007 and you are correct in your assessment of peak time being Sept 2005. The 2007 low was due to a long period in which the stock just rested in a two year long base as the underlying numbers swelled. They did not have the 20% growth rate for the next 3 years in their plans at that time that they do now.

    Does it go to $50? I’m not a TA guy so maybe so but it is very cheap for the growth rate and the fact that their net debt is more than manageable given prices and given deal flow on the asset monetization front. I would not be surprised to see them explain the fact that the last 2008 guidance (last week) didn’t change and that oh by the way they sold 50 mmcfgpd from the Woodford so yeah, something else is performing better. That something probably the Barnett and maybe a little bit owing to better results in the Fayetteville. The Haynesville I doubt is in there #s for much in the second half.

    Other things they can do on the call. Probably get more than 50% of the way to making their 2008 reserve adds. This will take the NAV calc up another notch, just a little bit more than the analysts expect.

    What else could Aubrey do? Talk about the oil plays. He has them, said before there’s a billion barrels under 5 plays in 4 states. Time for some details. At least on one of them.

    Naked puts probably not for me. Just don’t like giving up control of people sending me stuff. Even CHK. I don’t mind writing covered calls here but not probably not those puts.

    Agreed your last sentence.

  72. 72
    zman Says:

    Reef – Ok, gotcha. Just a bit confused as to what he’s after here. To me it sounds like a pure gamble now, below 32,500 feet.

  73. 73
    tomdavis12 Says:

    Z Thanks. They say professionals spend as much time with downside analysis as upside. You are our professional. Always enjoy your thoughts.

  74. 74
    Fred Says:

    Z – Good Barron’s article on XTO.
    THURSDAY, JULY 17, 2008

    Buying a Hot Energy Stock on a Dip
    By NAUREEN S. MALIK |
    XTO Energy is aggressively expanding its natural-gas reserves, and the recent high-flyer currently looks cheap.

  75. 75
    zman Says:

    Last on Dolly from the NWS

    THERE IS LITTLE DOUBT NOW THAT DOLLY HAS A CLOSED SURFACE
    CIRCULATION…WHICH HAS BECOME EVIDENT IN VISIBLE SATELLITE IMAGERY
    OVER THE GULF OF MEXICO JUST OFF THE NORTHERN COAST OF THE YUCATAN
    PENINSULA. A NOAA RECONNAISSANCE AIRCRAFT RECENTLY CONFIRMED THE
    EXISTENCE OF THE CLOSED CIRCULATION IN THE LOW-LEVEL WIND
    FIELD…AND FOUND THAT MAXIMUM WINDS REMAIN ABOUT 45 KT. THE DEEP
    CONVECTION IS NOW STARTING TO WRAP AROUND THE WESTERN SIDE OF THE
    CIRCULATION…AND OUTFLOW CONTINUES TO EXPAND IN ALL QUADRANTS. A
    LARGE UPPER-LEVEL ANTICYCLONE COVERS MOST OF THE GULF OF
    MEXICO…SO THE ATMOSPHERIC ENVIRONMENT APPEARS QUITE CONDUCIVE FOR
    STRENGTHENING…AND THE SEA-SURFACE TEMPERATURES ALONG THE
    ENTIRE OVER-WATER FORECAST TRACK ARE QUITE WARM. IN ABOUT 18-24
    HOURS…DOLLY IS EXPECTED TO PASS OVER SSTS GREATER THAN 29
    CELSIUS…AND A RELATIVE MAXIMUM IN OCEAN HEAT CONTENT…AN AREA
    WITH A SOMEWHAT DEEPER RESERVOIR OF WARM WATER BENEATH THE SURFACE.
    AS A RESULT OF THESE CONDITIONS…STRENGTHENING APPEARS
    LIKELY…BUT GIVEN THE CURRENT SPRAWLING NATURE OF THE
    CIRCULATION…THE RATE OF INTENSIFICATION IS DIFFICULT TO
    FORECAST…SINCE IT IS UNCERTAIN HOW LONG IT WILL TAKE FOR A TRUE
    INNER CORE TO DEVELOP. THE NEW OFFICIAL FORECAST LEANS TOWARD THE
    HIGHER END OF THE INTENSITY GUIDANCE…CLOSE TO THE GFDL
    SOLUTION…IN CALLING FOR A SLIGHTLY HIGHER PEAK INTENSITY THAN THE
    PREVIOUS ADVISORY. SINCE THE EXACT TIMING AND LOCATION OF LANDFALL
    ARE UNCERTAIN…THE FORECAST WEAKENING BETWEEN 48 AND 72 HOURS ONLY
    RESULTS FROM THE 72-HOUR POINT BEING INLAND…AND A STRENGTHENING
    TREND IS FORECAST UP TO THE TIME OF FINAL LANDFALL.

  76. 76
    zman Says:

    Thanks Fred, can’t see the whole thing as apparently my WSJ online does not give me Barron’s online, will fix that.

    Tom – too kind.

    Oil up $2+ to the much talked about 131 level. I see nothing new on the storm front, but maybe fear is driving some covering.

    Stocks are acting pretty well.

  77. 77
    antrimshale74 Says:

    Refiners moving quite nicely today, especially VLO.

  78. 78
    zman Says:

    Antrim – yeah, I see it. No real reason behind it except nobody expects anything out of them and lots of people want to bottom fish the group. VLO reports first and aside from TSO, the rest are lumped together on Augsut 7, maybe hoping nobody notices them in the swarm of earnings. Gasoline is exactly pacing oil so their little to no benefit to cracks. Maybe the hope in the group is that Dolly whacks some Gulf Coast supply.

  79. 79
    zman Says:

    TA guys must be out today. SLB having bounced off its 200 d sma 4 days ago is not well above its 50 day. TA opinions welcome.

  80. 80
    md Says:

    Did you see the piece about JPM deal with LNG. What’s JPM’s thinking

  81. 81
    zman Says:

    LNG, the company or LNG, the commodity. Point the way to that piece please, love to see it.

  82. 82
    Nicky Says:

    Oil – If Friday’s low did mark the end of the first wave down, then fib retracements are as follows:

    23.6% 132.79
    38.2% 135.54
    50% 137.76
    61.88% 139.99

    Note the 61.8% retracement which is the most common target for a wave 2 would come at a very nice round number!

  83. 83
    BirdsofpreyRcool Says:

    z – re: #66… newbie question. where is the “table in post”?

    thanks!

    ZTRADE: Entered starter position in XTO $60 August Calls (XTOHL) for $2.35. They report before the open tomorrow, are on the low end of their fwd valuation trading range (see table in post)

  84. 84
    zman Says:

    WFT toying with $40 albeit on very light volume. It could benefit from HAL comments tomorrow if it can just avoid breaking down.

    Hear ya Nicky, good point! Probably take a turn to the north for Dolly and bombs dropping on Iran to get much above $140 right now as every story I see points to indicators that point to a cooling of Chinese demand and I do see more countries, like Vietnam today, raising their peg prices for gasoline which will crimp demand.

  85. 85
    zman Says:

    Bird – I just meant the third table on E&Ps above under point #2 where it shows the historic range of p/CF at 5 to 8x with the stock trading just under 5.

  86. 86
    md Says:

    LNG the stock.
    gOOGLE IT FOR MORE RESULTS. You were away that week, I think.
    http://www.lloydslist.com/ll/news/cheniere-ties-up-with-jpmorgan-for-lng-sale/20017547526.htm;jsessionid=7581039BC7605ADDF34F28E8031C6A59

  87. 87
    zman Says:

    S&P Equity Research takes WFT from hold to Buy about one ago. Just saw the headline, don’t see a story but I don’t put a lot of stock in the ratings agencies on the debt and especially the debt side. Too much quant, not enough feel.

  88. 88
    zman Says:

    Thanks md, will have a look.

  89. 89
    BirdsofpreyRcool Says:

    z – cool. thx. (i just knew the answer would be obvious!)

  90. 90
    zman Says:

    LNG – no deal terms so you know it was brutal for Chenierre. Without looking I’d say JPM is securitizing debt the company has. This thing will likely go to re-org but stay operational and this would give them a contractual right to payment above an equity holder. Just a guess. Never liked the concept or method (tons of debt) used by LNG. We simply don’t need the capacity. I could understand building it if we were short of regas but we almost never breach 50% of installed capacity so using a few billion to ask the question “if I build it, will they send?” seems kind of expensive. Could have paid the brain trust at one of the big cap E&Ps in gas supply and demand (Anadarko’s model team is about the best in the business) much less to figure this out before dredging canals and pouring cement. Just a thought.

    Bird, not at all. Smack me if something isn’t clear around here. Sometimes I use shorthand, especially if the screen is very green or very red, so just ask me, and re ask if the answer doesn’t suit. Did KOG mention when their first well will be spud/down (I don’t follow closely) and did they mention why they thought the wells would be higher IPs (are they direct offsets or just in the right county)?

  91. 91
    md Says:

    Are the refineries in a Catch 22 in a high CL price and drop in demand scenario
    Buy too much raw material (CL) at arguably high prices and risk inventory value drops. Don’t buy it and risk market drives up prices on the Wed EIA report.
    How much hedging do the refineries employ.

  92. 92
    Fred Says:

    Read a refiner recommendation on alpha today. Maybe what’s moving them?

    http://seekingalpha.com/article/85932-benefiting-from-the-oil-correction?

  93. 93
    zman Says:

    MD – Yes to the Catch 22, in my opinion.

    Hedging varies from some to I think in some of the smaller cases none. They often hedge the crack itself.

    Some of the refiners have been pretty public about the large stores of crude they hold, which if you net out that value at current prices, would mean you buy the stock for the price of the inventory and get the refineries themselves for little to nothing. I’m mostly an E&P guy but I do play the refiners from time to time. They manage their business on a longer time from than the EIA data that comes out each would help them with.

    Fred – The premise of the article is buy refiners for a drop in crude. That’s not what’s going on today with crude at least…this looks like a play on a flooding of facilities in the Corpus area which could happen with the storm. Take out refining capacity, significant capacity, and refined products could spike jumpstarting crack spreads. As longs as its not your refinery that gets creamed then everything is good for the stock prices. Even if it is yours, the group action has resulted in higher prices for the afflicted name as well., at least in the short term.

  94. 94
    zman Says:

    WFT Green

  95. 95
    davidjeso Says:

    Z – I saw the Aug. NFX $60 add this morning…do you have any concerns that another NG inventory build on Thursday will torpedo what look to be good earnings & guidance out of NFX and others? I already hold the Aug. NFX $60s and considered adding more, but am a little worried about what Thursday might bring…

  96. 96
    zman Says:

    David – in a nutshell, yet and no. Yes, it could definitely surprise to the upside on the injection however, NFX’s conf call begins at the open, 65 minutes prior to the EIA number release. I’ll take profits, assuming Bakken news on at least 3 of there first wells, word on the first dual lateral in the woodford and increased production from the woodford which likely won’t yield another boost to this year’s guidance but will nonetheless be welcome, a Mancos Shale test (or two) and perhaps more news from the Gulf of Mexico and Malaysia, propels the stock higher before the storage number comes out. Estimates have been flying up in recent months and I wanted to be in, close to the money for the I told you so round from some of the analysts and upgrades by the laggards. But I will very likely take half off the table just in case and hold the Septembers for awhile.

  97. 97
    Fred Says:

    Z – Thank you, that’s priceless commentary on refiners. LMAO

  98. 98
    zman Says:

    Crude closed up $2.50 plus, just short of 132, up over $3 now on the September contract. Refined products falling to keep up with the latest crude surge.

    …and still NG is off 3 cents

    Fred … I just want to make people laugh…

  99. 99
    zman Says:

    WFT at HOD, green and toying with 41.

  100. 100
    Fred Says:

    z – mosty the opposite with refiners for a long while now.

  101. 101
    Garyinhou Says:

    Happy Monday Z/Everybody..

    Z.. Energy and ag both green today with very few exceptions and all at pretty healthy 1 day % moves. Could this signal the end of the current correction and rotation effecting the equities?? (I throw in ag, cause they seem to get rotated out of and corrected simultaneously with energy last year I’ve been watching)

  102. 102
    zman Says:

    Fred – yes, been happy to be away from the group and not even bottom fishing for awhile now.

    Gary – Possible downside. Today is a special case: hurricane trading. If the storm track stays where it is, if the storm weakens (not likely) or bends further south, crude backs off tomorrow and the stocks probably do too except for ones with news. If it moves further north-east towards Tx/LA border (appears unlikely), strengthens a lot (very possible given lack of sheer and hot water, and convection and current structure) then you probably get higher prices. If it moves really southwest then you get Mex in trouble and again higher prices. In two days, you may get a downdraft either way if no curtailments are seen and no damage is done.

  103. 103
    zman Says:

    Group continuing to green into the close.

    DUG down 5.4% today.

    Interesting to take a look at the DJIA components today. Energy and industrials like CAT up, retail down, defensive stuff like health care down. I wonder if this gets Cramer into buy energy now time, lol as we did have a reversal and a dip buy this morning? Once the storm clears I bet we give some of this back unless there is damage.

  104. 104
    Garyinhou Says:

    wow.. big day for coal. Been watching wlt cause of Z.. up $7+ today

  105. 105
    Pete Says:

    Z,
    Question:
    You show a drop in crude prices last week of 11% and also a 11% drop in Nat.gas for the same period.Do they normally run in lockstep with each other?

  106. 106
    zman Says:

    Pete – they do, generally not spot on but over time and in the short run NG often takes its lead on pricing from crude. the 11.2% drop was a bit odd its exactness and unexpected by me as the two traded pretty separately at times throughout the week.

    Generally we thinkk “oil is global and gas is local” meaning most oil comes from abroad and things abroad influence its price and most gas is sourced locally. This year, the “excess supply” factor of imports and specifically LNG have increased the global side of the equation for gas. Gas prices in many parts away from the U.S. are trading closer to oil on a heat value or BTU basis than they are in the U.S. While I don’t think gas in the US will significantly bridge this gap, the failure of foreign gas to show on U.S. shores has allowed crude to exhibit a somewhat higher influence on the directionality of natural gas prices.

  107. 107
    Pete Says:

    Thanks

  108. 108
    zman Says:

    SBL up $5, oil service up a healthy 3.5% going into the close.

  109. 109
    zman Says:

    Beer Thirty!

  110. 110
    Garyinhou Says:

    Cheers.. CHK release date 7/31 after close…

  111. 111
    Hoss Says:

    For those with a political bent…

    I am trying to follow some of the energy related legislation being discussed in the House, Senate and various Committees – which I’m filing under “Things from Left Field”. The House and Senate discussions are largely noise, but the Committee Hearings are fun because of the variety of the Witnesses(i.e. Soros, Yergin, Gheit)and their testimony. Anyhow…

    Currently on C-SPAN2, Senate discussing S.3268 – Stop Excessive Energy Speculation Act of 2008 – A bill to amend the Commodity Exchange Act, to prevent excessive price speculation with respect to energy commodities, and for other purposes.

    http://thomas.loc.gov/cgi-bin/query/D?c110:1:./temp/~c110kZAPHh::

    July 21 – Convenes: 3:00pm Resume motion to proceed to S.3268, Energy Speculation

    July 22 – Cloture vote on the motion to proceed to S.3268, Energy Speculation, is expected to begin around 11:00am.

    Not sure what happens during the “Cloture” vote, but tomorrwo will tell…

    I think S.3268 is similar to and being considered concurrently with H.R. 6377. While Z was on vacation, Nicky mentioned H.R. 6377 – Energy Markets Emergency Act of 2008 – To direct the Commodity Futures Trading Commission to utilize all its authority, including its emergency powers, to curb immediately the role of excessive speculation in any contract market within the jurisdiction and control of the Commodity Futures Trading Commission, on or through which energy futures or swaps are traded, and to eliminate excessive speculation, price distortion, sudden or unreasonable fluctuations or unwarranted changes in prices, or other unlawful activity that is causing major market disturbances that prevent the market from accurately reflecting the forces of supply and demand for energy commodities. It has been read twice and placed on the Senate Calender.

    http://thomas.loc.gov/cgi-bin/query/D?c110:3:./temp/~c110oNeEMa::

    One idea that seems to be getting traction is tapping the SPR and the U.S. Senate Committee on Energy and Natural Resources will have a Full Committee Hearing to discuss current policy related to the Strategic Petroleum Reserve (SD-366) on Thursday, July 24, 2008 10:00 AM. There will be a live Webcast at the following link.

    http://energy.senate.gov/public/index.cfm?FuseAction=Hearings.ByMonth

  112. 112
    Fred Says:

    Z – You were right on again with your Corpus Christi call:

    http://www.marketwatch.com/news/story/dolly-moving-toward-corpus-christi/story.aspx?guid=%7B05E5988A%2D6067%2D4269%2D84B3%2D30E02C2A0A93%7D&siteid=yhoof

  113. 113
    kyleandy Says:

    WFT tracript of call now avail at seeking alpha http://seekingalpha.com/article/86054-weatherford-international-ltd-q2-2008-earnings-call-transcript?source=more_author_recent_similar_articles

  114. 114
    Bleemus Says:

    HAL Halliburton reports EPS in-line, beats on revs (48.91 )

    Reports Q2 (Jun) earnings of $0.68 per share, excludes discontinued operations and includes patent settlement and acquisition-related expense offset by investment gains, in-line with the First Call consensus of $0.68; revenues rose 20.1% year/year to $4.49 bln vs the $4.25 bln consensus.

  115. 115
    Bleemus Says:

    Broadpoint initiates Berry Petroleum (BRY 50.57) with a Buy and sets a $66 tgt, based on the co’s East Texas acquisition that brings visibility and balance to its portfolio and consequently expect sustainable organic production growth of 15% per year, up from 10%, driven by gas production in TX and the Piceance Basin and oil volumes from the Diatomite and Poso Creek

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