23
Sep

Tuesday Morning – Chesapeake Takes Action, Congress Doesn’t

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Chesapeake acted last night to adjust its future plans to the realities of current gas prices (see below). Congress continues to wrangle over the bailout (not reacting to current financial market realities). In a nutshell I expect CHK to react favorably to the less aggressive posture they are taking and the market to react negatively to the lack of posture Congress is taking. The sentiment meter reads red and I'm happy to have my DUG calls in place and only a light grouping of E&P and other energy names at present. 


In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stuff We Care About Today - CHK Backs Off The Pedal
  4. Odds & Ends

Holdings Watch -  The Wiki tab is updated. Notice the list of holdings is quite compact at present.

  • CLR $45 October calls (CLRJI) for average price of $4.15.

Commodity Watch:

Crude Oil flew up yesterday on a expiration related short squeeze and dollar weakness. Never mind the expired October contract as the headline grabbing rally there is of no consequence. November crude (the new front month contract as of today) rose $6.62, to close at $109.37 and the 12 month strip which has more to do with the near term planning cycle for producers closed up $6.64 at $109.77. This morning crude is trading off $1 to $2 per barrel.

  • Nigeria Watch: The Nigerian military has vowed to continue pursuing MEND after MEND declared a ceasefire yesterday. You can see where this is going.
  • Tropics Watch: Still little in the way of Atlantic activity. 
  • MMS Watch: as of yesterday afternoon the MMS reports 77.6% of Gomex crude and 65.5% of Gomex natural gas remain shuttered.  There are still some large pipelines like the Auger line (100,000 bopd) which need to be re-routed after platform damage and which slow the process of turning the Gulf back on significantly.

Natural Gas: after a weaker opening, gas closed up 13 cents at $7.66 yesterday. This morning gas is trading up a dime and it is likely because CHK is taking the action necessary to calm fears of a looming gas glut (read on).

Stuff We Care About Today:

Chesapeake Responds To Low Natural Gas Prices

Capital Budget Coming Down... Between now and year end 2010, CHK see's cutting its previously announced capital budget by $3 billion. This is simply a response to lower gas prices. In Septembers past, CHK has curtailed uneconomic production and they are doing that as well but rarely have they taken this kind of budget cutting action and my sense is that it is the right step right now as further efforts to grow production are not being rewarded by the Street.

...Which Will Yield Excess Cash Flow. Chesapeake for years has routinely outspent cash flow as it grew its portfolio of potential reserves and drillling locations while rapidly developing its plays. They now see $2 billion in excess cash flow generation for the 2009 - 2010 period which will be largely funneled to debt reduction. I'd note also that CHK's assumptions are based on its current largely hedged position and an assumption of $8 gas in 2009/10 with some operating cost creep built into their budget despite the lack of top line inflation.

Production Guidance Coming Down:

  • 2008 goes from 21 to 18% YoY growth
  • 2009 and 2010 go from 19% to16%

Operations Update:

Rig Count Coming Down. As you would expect, spend less money, use less rigs.

  • Rig count of 157 company wide expected to fall to 140 by YE08 and to remain there through 2010. That's a pretty big change from the usual "add rigs each and every quarter until the end of time" juggernaut that Chesapeake has become known (notorious?) for. 
  • For (CHK) that does not mean they will be drilling the same number of wells each year as they continue to optimize wells in their high impact plays. In this way, look for them to beat those new production numbers.

Haynesville Shale: 3 more completions north of 10 MMcfepd.

  • No well names so we can't track what part of the play they were in.
  • We know they were not  JV wells with (PXP) as that was mentioned as an October event
  • Note the (e) on the production...need to get a better feel for the liquids content here although we know it to be drier than the Barnett.
  • At 10 MMcfepd, these are monster wells in any other shale...for the Haynesville they are more run of the mill. My questions would be:
    • "are they run of the mill and is this what we can expect and not the high teens we've seen out of names like (HK) and rumored rates in the 20+ MMcfgpd range" and
    • "what does it say about deliverability out of this gas price killing play of all plays?" Hmmmm.

Midcontinent Volume Curtailment. For weeks we have been talking about the wide differentials producers are seeing relative to Henry Hub gas prices and the potential for sub-economic returns this creates. CHK is curtailing 100 MMcfgpd of net production (4% of total company produciton) that is unhedged and below break even now. Expect others to follow suit as price takes care of price.

Other CHK  Odds & Ends:

  • The Midstream Business Minority Stake Sale Concept Is Back on the Table: Price tag: $1 billion. This sale is included in the $2 billion free cash flow number mentioned above.
  • Marcellus Shale Sale: CHK continues to plan to sell a 25% stake in this nacent play by year end.
  • Conference call: today, 9 EST

GMXR - Moving More Slowly

  • 2008 Production Guidance To Hit Low End of Range. Now thinking 13 Bcfe (which is still 49% YoY growth) but at the low end of a range of 13 to 13.8 Bcfe. Not a big issue, looks to be attributable to safety precautions they took over Gus and Ike.
  • Haynesville Drilling Schedule Slips. Problems getting materials...more of a big issue. They now only see spudding 1 Haynesville horizontal before YE08 with the other 2 planned for 1Q09. This may set up a nice entry point as there will be those who chose to exit and go with more a sure thing in the hot play. Probably good news for HK stock and others but to a much lessor extent as investors concentrate their H.S. weighted holdings. 

 

Odds & Ends

Analyst Watch: Nada, zip, nothing.

Housekeeping Watch: - Herald's Pacesetter Conference --September 23 to 25 . See Agenda here.

 

 

108 Responses to “Tuesday Morning – Chesapeake Takes Action, Congress Doesn’t”

  1. 1
    zman Says:

    Chesapeake budget conference call about to start.

  2. 2
    zman Says:

    CHK call note #1:

    Hedging – 62% hedged at weighted average price of $9.64 out of 2.5 Tcfe over next 10 quarters.

  3. 3
    zman Says:

    $3.2 billion capex cut over next 10 quarters

    $2 billion excess cash 09/10 – debt reduction

    Hedging – 62% hedged at weighted average price of $9.64 out of 2.5 Tcfe over next 10 quarters.

    125-150 MMcfgpd shut in in Oklahoma

    Solid progress made in Marcellus partner search, plan 4Q08

    Midstream discussions reopened.

    Haynesville Shale:

    12 rigs now, 14 ye 2008 and 30 rigs by ye09

    PXP JV 1st well sales begin tomorrow

  4. 4
    Petra – ZEBAdmin Says:

    test test test

  5. 5
    zman Says:

    sse ya, on CHK call.

  6. 6
    zman Says:

    The CHK curtailment and Capex reduction could very well be the watershed event necessary to get gas not only stabilized but also moving slightly into positive territory 4Q relative to 3Q and probably provides a floor in the $7.50 to $8 range over the winter.

    Analysts are sounding happy with the concept.

  7. 7
    zman Says:

    NG up 20+ cents now…that’s CHK.

    Oil actually only off 50 cents to a buck now. Not the big sell down yet from yesterday’s crude squeeze.

    CHK Note #3:
    Aubrey saying he would not be surprised 200 to 400 rigs to come out of the rig count!!! Hello drillers!

  8. 8
    zman Says:

    That’s a disastrous statement for NBR, PTEN, PKD, GW, UDRL.

  9. 9
    zman Says:

    add UNT to #8.

  10. 10
    zman Says:

    CHK on LNG thoughts:

    they are learning that US gas is very compelling on the international market. They think they can get the regulatory approval for exports. Pointed to a Canadian site that got approval for exports yesterday.

    on rigs – the rigs being laid down will be third party rigs, not CHK rigs, won’t characterize what kind of rigs they are but it sounds like lower horsepower rigs.

  11. 11
    zman Says:

    knock, knock, this thing on?

  12. 12
    Sambone Says:

    By Lananh Nguyen
    Of DOW JONES NEWSWIRES

    LONDON (Dow Jones)–Crude oil futures fell around $2 Tuesday in London, beset
    by a bout of profit-taking and a darkening macroeconomic outlook.
    Participants snapped up profits from Monday’s spectacular late rally, which
    saw Nymex crude oil futures post their largest-ever intraday gain.
    “Oil was lower…correcting after yesterday’s meteoric and historic rise, with
    concerns about the U.S.’ toxic debt bailout plan growing,” said Michael Davies,
    head of research at Sucden in London.
    At 1133 GMT, the front-month November Brent contract on London’s ICE futures
    exchange was down $2.35 at $103.69 a barrel.
    The front-month November contract on the New York Mercantile Exchange was
    trading $2.12 lower at $107.25 a barrel. Late Monday, the front-month price
    shot to a high of $130 a barrel before the expiry of the October contract.
    The ICE’s gasoil contract for October delivery was up $2.00 at $963.75 a
    metric ton, while Nymex gasoline for October delivery was down 502 points at
    265.36 cents a gallon.
    Market sentiment was bedraggled Tuesday over concerns of worsening
    macroeconomic conditions amid fallout from ongoing U.S. banking turmoil.
    “Prices over the coming months look vulnerable to…further weakness, as
    sentiment continues to plummet on a weakening demand backdrop,” said Mark
    Pervan, head of commodity research at ANZ Bank in Melbourne.
    The market continues to worry about a weak U.S. economic outlook and
    participants are “determining that the (U.S. government’s) bailout package is
    unlikely to make much difference,” Pervan added.
    Trading volumes have been hit by widespread risk aversion, a trend which could
    have long-term repercussions for oil markets, analysts said.
    “The financial storm that permanently wrecked Wall Street as we used to know
    it will likely have an even larger and more durable impact on energy markets,”
    said Antoine Halff, deputy head of research for the Americas region at Newedge
    Group.
    “The result will likely be for some time a considerably choppier market than
    before, though not necessarily a more bullish one.”
    Traders also mulled the future of the U.S. dollar and its relationship with
    crude – oil prices tend to rise when the dollar weakens, and vice versa.
    “Along with a weaker dollar, lower inflation expectations, and the possibility
    of U.S. legislation restricting financial investor involvement in the commodity
    markets, there are many possibly bearish factors that could discourage
    financial investor flows into oil,” said Mike Wittner, global head of oil
    research at Societe Generale in London.
    Earlier Tuesday, a U.S. dollar rally against most major currencies also put
    pressure on crude oil, but the greenback has since reversed its gains, helping
    to moderate oil’s losses.
    “The global economic situation is still the major focus of oil traders but
    time will tell whether the weak dollar alone can reverse the downtrend of the
    last two months,” said Glen Ward, a broker at ODL Securities in London.
    The current session lacked liquidity as traders took stock of the wider
    economic picture, said a crude oil trader in London.
    “It’s a catch-22 for the (U.S.) Fed, they need to cut rates to help the
    financial section gain liquidity, however this will cause commodities to rally
    and create inflation…(which) has long-term impacts on growth.”
    “I expect we don’t have a lot of (oil price) downside from here,” he added.
    Oil market participants said Monday’s ascent was the result of a combination
    of factors: strong prompt physical demand, a sharp decline in the dollar and
    panic buying by participants who had been caught short on expiry day.
    -By Lananh Nguyen, Dow Jones Newswires

    Dow Jones Newswires
    09-23-08 0735ET

  13. 13
    Pete Says:

    Yes

  14. 14
    Sambone Says:

    Nothing like meetings. Talking heads, drink the Koolaid, like to hear themselves talk.

  15. 15
    zman Says:

    Thanks Sam and Pete. Had some tech last night and thought we broke something.

    Gassy E&P liking the CHK moves.

  16. 16
    Nicky Says:

    Morning all. Crude may need more pop to the upside before a correction begins.
    Broader market – support at 1200 and 1185. Resistance at 1231.

  17. 17
    ram Says:

    Always here.

  18. 18
    zman Says:

    ZTRADE: CHK October $42.50 calls taken for $2.60. See today’s post for reasoning as they cut budget and guidance.

  19. 19
    zman Says:

    Ram – thanks. I don’t see that last one as too risky by the way.

  20. 20
    zman Says:

    Aubrey saying he “would be stunned if they didn’t have 20 Tcfe on the books by year end 2010” due to the revision of the way SEC lets companies look at reserves.

  21. 21
    reefguy Says:

    At Dallas Wildcatters last night- DVN- Nichols said they have 70 TCF net to them in Hy. Company wide, 25,000 undrilled locations

  22. 22
    zman Says:

    Thanks Reef – did they give any acreage numbers on the Haynesville. These guys have been pretty quiet about this.

    Natural gas up $0.38. Go Aubrey.

  23. 23
    zman Says:

    Does anyone see any broker comments out on the refiner patch? Surprising strength there this morning.

  24. 24
    BirdsofpreyRcool Says:

    renewed “takeover chatter” on FTO.

    happens about once every 3 weeks.

  25. 25
    BirdsofpreyRcool Says:

    not that that fully explains the group, i know.

  26. 26
    reefguy Says:

    dvn- 485,000 acres- Stated as largest holding in play

  27. 27
    zman Says:

    Thanks and thanks

  28. 28
    zman Says:

    Congress has on their agenda a discussion of why diesel prices are higher than gasoline and what to do about it. How about taking the $0.40 to $1.00 of federal and regional taxes above and beyond what’s on gasoline off?

  29. 29
    Wyoming Says:

    Tater had a good looking chart on FTO last night.

  30. 30
    tomdavis12 Says:

    Z: Are the onshore drillers such as NBR now the orphans of the energy patch. Has this cut back in rigs already been relected in pricing. NBR has $4.00 in earnings expected for ’09. Too optimistic?

  31. 31
    BeWater Says:

    z,
    time to go long UNG and whoever is least hedged?

    NBR already been poleaxed back to where it was 4 years ago, but it does kind of look like a bear flag that could keep heading down from here.

  32. 32
    zman Says:

    Tom – re NBR and the other drillers. They have taken a beating but that is a big number of rigs to drop. Not sure its in there yet. NBR off 5% today would seem to concur and I’d bet that EPS # is in jeopardy although people suspected as much already. This will compound as more E&P’s cut budget.

    Re – UNG – I honestly don’t see a big rally, more of a stabilization. Maybe winter spikes will be more playable now (extreme and extended colder weather spikes) but the underlying issue of production growth exceeding demand will remain more of a lid than a burden for the medium term.

  33. 33
    zman Says:

    Watching the CHK test the early morning rally point. I’ll add more if it goes red. They are still the fastest growing big cap out there and the idea of debt reduction at CHK will be welcomed. I bet they beat their production growth targets…no way are those a stretch for them. Also, given the deceleration in rigs and activity they see, the inflation they show on the cost line does not compute meaning they are likely bagging the Street on cost guidance and therefore likely to beat on bottom line.

  34. 34
    zman Says:

    Interesting reaction to GMXR slow down news. The fact that the smaller players can’t get materials is pretty telling about the difficulties involved with drilling this much. And if drilling does slow look for the high declines of the shale wells to more than offset new production leading to a much tighter market.

  35. 35
    zman Says:

    BeWater – lightly hedged names for gas are EOG and SWN, both heavily weighted towards gas production.

  36. 36
    zman Says:

    ZTRADE: Averaged down on the CHK October $42.50 calls for $2.25.

  37. 37
    Sambone Says:

    10 20 AM EDT 09-23-08
    WASHINGTON (Dow Jones)–Winter crude product stock build may be delayed by
    recent hurricanes and will add price pressure for gasoline, diesel and heating
    oil, the acting head of the Energy Information Administration said Tuesday.
    While many of the 14 refiners on the U.S. Gulf Coast have restarted after
    strikes on the energy-infrastructure region by hurricanes Gustav and Ike,
    several remain shut, limiting product inventory build.
    “The recent hurricanes have changed the market substantially,” Acting
    Administrator Howard Gruenspecht told a Senate panel probing the factors behind
    high diesel prices.
    Although structural damage to refineries, pipelines and platforms was less
    than had been feared, the lost production and the time required for system
    restart has put gasoline in short supply,” Gruenspecht said.
    It also “may somewhat delay the typical winter inventory build of distillate
    products, adding to gasoline, diesel and heating oil prices,” he added.

    -By Ian Talley, Dow Jones Newswires
    Dow Jones Newswires
    09-23-08 1046ET

  38. 38
    Dman Says:

    Z – NOV down 6%. Make sense to you?

  39. 39
    zman Says:

    NOV = rig builder. If 200 to 400 rigs get stacked then chances are the market for new build rigs will ease. Seems like a bit of an over-reaction but this is a take no prisoners market.

  40. 40
    xweto Says:

    Z: what’s your thinking re: CLR Oct calls

  41. 41
    zman Says:

    X – I still like them, the stock is giving back 4 of the 10% it gained yesterday on down $2 oil. and we are still very near the money with 30 days to go. Not filled with panic or anything like it. Not adding as I’m playing things very carefully with Congress all over the markets right now.

  42. 42
    xweto Says:

    Z: Thx for reply (#41)

  43. 43
    Dman Says:

    Z – the thing I find a bit hard to understand about the reaction in NOV & NBR is that surely this news (or rather, this bit of well-informed estimation of future news) is entirely what the huge declines have been all about. After all, what else could hurt NBR other than softening in the drilling market?! NOV is obviously also linked to oil as well as NG, although again ultimately it is only an actual softening in drilling that would hurt them. I think the wide range (400 hurts a lot more than 200!) isn’t helping.

  44. 44
    Fred Says:

    Z – More information on Pemex decline:

    http://www.upstreamonline.com/live/article163654.ece

  45. 45
    zman Says:

    Dman – I agree. This market is not rational but the 400 number may be scaring the group lower. SLB and HAL also getting hit.

  46. 46
    zman Says:

    Thanks Fred. Good thing our leaders think $35 is enough to inspire drilling…we’re going to need it, lol.

  47. 47
    zman Says:

    Wow – just noticed SEA, the shipper ETF is getting crushed, and then looked at the drybulks. Ouch (8 to 10%).

  48. 48
    Alhambra Says:

    they’re getting popped along with iron ore, coal, and the like…

  49. 49
    zman Says:

    Wow….market just marking time, waiting for the government to do something. Like watching paint dry.

    Thanks A – I see it. Solars down too and those guys are up for a big (8 year) tax credit extension.

  50. 50
    Sambone Says:

    HOUSTON, Sept 23 (Reuters)- Crude oil production cuts,
    refinery outages and panic buying due to hurricanes Gustav and
    Ike have led to gasoline shortages in parts of the United
    States, officials said Tuesday.
    “A lot of this is due to some of the pipelines, refineries
    were shut down because of disruptions in the Gulf,” said
    Brandon Wright, spokesman for the Petroleum Marketers
    Association of America. ”
    Florida, Georgia, Tennessee, dependent on Gulf Coast
    refineries, were among states hit, with retailers running out of
    supplies and prices spiking. Even Ohio, far from the coast, saw
    shortages as storm damage marched inland, Wright said.
    Panic buying has worsened the situation, said Pat Moricca,
    president of the Gasoline Retailers Association of Florida.
    “People are filling up when they don’t have to,” he said.
    “What we are seeing — rising prices and constrained supply
    — is normal following events causing supply disruptions,” the
    U.S. Department of Energy said. “As refineries get back to full
    production and restoration efforts progress in the Gulf region,
    the market will balance.”
    Concern about shortages led the U.S. Environmental
    Protection Agency to grant temporary waivers of clean fuel
    requirements in some areas. That allows fuel that does not meet
    local rules to be imported from other regions to meet needs.
    Pipeline companies said they are up and running but need
    more production from refineries still recovering from the storms
    in order to send more fuel to wholesalers and retailers.
    “Our Plantation pipeline has 100 percent capacity available
    but is about 80 percent full at this time because of the lack
    of product from refineries,” said Joe Hollier of Kinder Morgan
    KMP, which owns Plantation.
    Hollier said he could not say when the situation will
    return to normal. “We have been seeing higher receipts and
    volumes have been gradually increasing and that trend is
    expected to continue,” Hollier said.
    The Tennessee Oil Marketers Association reported the
    situation improved Monday and predicted better conditions next
    week. “But you have to put product in one end to get it out the
    other,” executive director Marylee Booth said.
    Seven refineries, about 9 percent of U.S. capacity but
    concentrated along the Gulf Coast, remained shut down on
    Tuesday, but many were moving to resume operations as quickly as
    possible, officials said.
    Adding to the problems, more than three-quarters of crude
    oil production in the Gulf — which helps feed refinery output
    — remained shut as of Tuesday.
    (Reporting by Bruce Nichols and Janet McGurty, editing by
    Matthew Lewis)

    Tue Sep 23 16:50:09 2008 -GMT

  51. 51
    rlogan1301 Says:

    z – what are you thinking in regards to the oct54.50 calls on chk? seems it is at an even better price now.

  52. 52
    rlogan1301 Says:

    sorry, should be oct42.5 calls

  53. 53
    zman Says:

    RL – knew what you meant. I doubled down a little early but have few qualms about going with those now if I wasn’t already in. The stock sold down with the sharper move lower in oil and with the market, no because this is not welcome news. Again, I’m trading lightly as I don’t like betting on those people on the Hill. Also, I took DUG calls last week which gives me some solace on days like today.

  54. 54
    rlogan1301 Says:

    i got in at 2.37 and 1.97, but also not likely how it is going…the same for fcx and aci…just seems like its a toss up on the direction this thing will go…from all indications it doesn’t look good

  55. 55
    zman Says:

    RL – just watching the market and crude moving together as the dollar rallies. It looks like the market thinks the Plan $700B not going to happen. I think it does. I think Congress will want to go home soon and they don’t want to be seen holding this up and crashing the market. Of course, who’s to say the bailout saves the market?

  56. 56
    zman Says:

    Helicopter Ben:

    http://news.yahoo.com/s/ap/20080923/ap_on_bi_ge/financial_meltdown

  57. 57
    VTZ Says:

    Hey Z, do you follow niko resources at all?

  58. 58
    zman Says:

    Sorry, me no know niko.

  59. 59
    VTZ Says:

    No prob, I dunno if you saw my post at the end of monday but I’m on vacation right now so I will probably only be around for a bit in the mid-mornings.

    Post that whenever you want though.

  60. 60
    zman Says:

    Thanks V – nice spot to vacation. Will do. Working on some site issues tonight so probably a bit later in the week and will archive where people can always find it as it is an excellent white paper on the oil sands biz.

  61. 61
    zman Says:

    FTO going negative now. That rumor will need more teeth next time. VLO and TSO still up on the down oil but gasoline is worse off than oil. HO doing ok though so cracks probably only off a little today.

    I think energy runs up if the market recovers…watching the banking committee talk to Paulson. Paulson saying do it now. Democrats saying hold on just a minute.

  62. 62
    VTZ Says:

    Just re: niko, the reason I’m interested is that their production is largely off of India, they have a partnership with Reliance (huge in India), and they intend to grow from 80mmcfe/day 2008 to 320mmcfe/day in 2010.

    Their cash flows multiples are expensive now because I think they are trading at 6-8 times the 2010 estimates.

  63. 63
    zman Says:

    Will look at it.

  64. 64
    zman Says:

    If we were in a normal market environment…

    I would point out that the energy markets rolled over at the beginning of July, when CHK greenlighted the Haynesville Shale as the mother of all shales by disclosing official well results. That tipped the scales towards gluttish sentiment. Now, they have basically said, “we have what we want, and we are going to act in a financially disciplined manner to develop it”. That’s a big difference. So in a non-Banking Committee clouded market, this would be up $2 and would have a couple of days of follow through. The less hedged, pure play gassy names like SWN would also be running. Names like HK will also see capex cuts which probably will not be viewed as either a surprise or a bad thing as their growth rate is already out of the normal realm of mid cap E&P names. Just thinking out loud on a Paulson/Bernanke/Congress cluttered day.

  65. 65
    zman Says:

    Good call to Tater and Nicky in last night’s late comments on the dollar. I think the move is part tech but also the delay of game on the bailout. When the bailout goes through…and I really think it will… the dollar should roll back over.

  66. 66
    Sambone Says:

    The following is a press release from Fitch Ratings:

    Fitch Ratings-Chicago-23 September 2008: Fitch Ratings says the refined
    product markets have been a tale of two fuels this year as prices for middle
    distillates, including diesel, jet fuel, and heating oil have sharply outpaced
    gasoline prices. According to Fitch’s special report ‘What’s Behind
    Distillates Recent Outperformance?’, gasoline’s linkage to a weak U.S. economy
    and strong global export opportunities for diesel have caused an added price
    burden on users of distillate fuel in the U.S.
    Fitch says in North America, distillates have historically enjoyed a price
    premium over gasoline during the fall and winter months which is reversed in
    the spring as gasoline moves to center stage for the U.S. driving season.
    However, this relationship came unhinged this year with the summer premium for
    gasoline turning into a steep discount.
    Demand destruction brought on by high end-user prices in the U.S. remains a
    major driver behind this year’s price movements. As the dominant transport
    fuel in the U.S., gasoline accounts for approximately 45% of the total 20.45
    million bpd of oil products supplied to the U.S., according to the Energy
    Information Agency (EIA). Year-to-date demand destruction for finished
    gasoline has averaged
    -1.4%, or 137,000 bpd lower than last year.
    ‘While higher fuel prices have had a negative effect across a range of
    sectors, the impact of higher distillate prices has had an especially
    pronounced impact on the trucking and airline sectors,’ said Mark Sadeghian,
    Director at Fitch. ‘High distillate prices have also enhanced the competitive
    advantages of rail and barge markets, as both these forms of transport have a
    significant fuel efficiency advantage over trucks. Fitch would expect this
    advantage to continue under a scenario of sustained higher distillate prices.’
    ‘Higher jet fuel prices have caused more cutbacks in North American carrier
    schedules as well as weakened credit and cash flow metrics,’ said William
    Warlick, Senior Director at Fitch. ‘The weakening economy will continue to
    take a toll on discretionary air travel as jet fuel experienced more than twice
    the demand destruction of gasoline or distillates.’
    The full report, ‘What’s Behind Distillates Recent Outperformance?’ surveys
    the impact that high gasoline and distillate prices have had on a range of
    sectors to date. It is available on Fitch’s web site http://www.fitchratings.com.
    Contact: Mark Sadeghian, CFA +1-312-368-2090 or William Warlick +1 312 368
    3141, Chicago
    Media Relations: Cindy Stoller, New York, Tel: +1 212 908 0526.
    Fitch’s rating definitions and the terms of use of such ratings are available
    on the agency’s public site, ‘www.fitchratings.com’. Published ratings,
    criteria and methodologies are available from this site, at all times. Fitch’s
    code of conduct, confidentiality, conflicts of interest, affiliate firewall,
    compliance and other relevant policies and procedures are also available from
    the ‘Code of Conduct’ section of this site.

    Dow Jones Newswires
    09-23-08 1348ET- – 01 48 PM EDT 09-23-08

  67. 67
    hermanmar1e Says:

    Zman, couple of things on previous posts.

    You are going to see the small companies that haven’t had large drilling programs in the past struggle to obtain steel and sand for large scale drilling development programs. Mills are also cutting the less exotic tubulars that are associated with shallow, low pressure wells, which will actually help plays like the Haynesville (HPHT).

    Although you will see companies such as CHK announce that they are not picking up additional rigs in the near future, pay attention to what they are doing with their current rig fleet. What they are doing is taking rigs from low ROR, high risk areas and putting them into an area where they can make better/efficient use of capital and high ROR’s.

  68. 68
    zman Says:

    H – absolutely agree your last…tried to communicate that in the post with the comment about higher impact plays and beating production. They said as much on the call as well.

  69. 69
    rlogan1301 Says:

    looks like market is bouncing a little..

  70. 70
    zman Says:

    Note crude bouncing hand in hand with the broad market. Traders everywhere hinging on testimony in front of banking committee.

    SWN interesting movements here.

  71. 71
    1520sbroad Says:

    z- agree with your 64 totally. I couldn’t listen to the CHK call earlier but i like the seemingly new and improved “financially disciplined” methodology.

    Also think SWN stands to benefit – not as hedged and i think they tend to run a lean operation to start with.

  72. 72
    zman Says:

    1520 – they do. EOG gets same benefit.

  73. 73
    1520sbroad Says:

    any further comment from CHK on the haynesville wells on the call?

  74. 74
    zman Says:

    No, very thin on data. Stayed with no names or locations. No test data > 10 mmcfepd, so could be 20 mm/d but my sense is that they are trying to soothe the hype machine here.

  75. 75
    1520sbroad Says:

    gotcha – at least they learned from the June/July haynesville hype-a-thon.

  76. 76
    zman Says:

    I would like to the Street cull the drilling programs of the players here and see who is really going to drill as many wells as initially thought. My sense is that 20 to 25% of original 2009 projections will not spud until 2010, either due to restricted capex or a lack of experience crews for the rigs (although that looks to be less of a problem now) or materials.

  77. 77
    Sambone Says:

    HOUSTON (Dow Jones)–Production of crude and natural gas in the U.S. Gulf
    of Mexico continued coming back online Tuesday following Hurricane Ike, the
    U.S. Minerals Management Service said.
    Output of about 868,654 barrels of oil a day, or 66.8% of prestorm production
    remains shut in, compared with 76.6% Monday, the MMS’ regular afternoon update
    said. About 4.560 billion cubic feet of natural-gas output, or 61.6%, remained
    shut in Tuesday, compared with 65.5% Monday, MMS said.
    Workers were still evacuated from 203 production platforms, or about 29.3% of
    the staffed platforms, in the in the Gulf, the MMS said, citing numbers it
    gathered by 11:30 CDT Tuesday.
    Four of the Gulf’s 116 rigs remained evacuated, the agency said.
    Hurricane Ike made landfall on the Texas Gulf coast on Sept. 13 as a Category
    2 hurricane.
    The storm destroyed 23 production platforms, the MMS said.
    -By Jason Womack, Dow Jones Newswires

    Dow Jones Newswires
    09-23-08 1432ET
    Inc.

  78. 78
    zman Says:

    Pelosi on the tape saying good progress being made, while Dodd saying the bailout as it stands now is not acceptable.

    Nice come back in the group and the broad market. Dollar softened too.

    CHK trying to go back up over $42 again. Should have positive days in the next few ahead, especially if they get closer on the bailout.

  79. 79
    rlogan1301 Says:

    z – planning on hold you chk oct42.50 throughout the week? or looking to get in and out as you see fit?

  80. 80
    zman Says:

    RL – normally the former…currently the latter. Crazy market and don’t like being so short term but sheeeesh.

  81. 81
    rlogan1301 Says:

    i know..just when you think its going to get some steam is just fizzes away…i really like those oct42.50, but also like being green in a crazy market

  82. 82
    zman Says:

    TSO singularly ripping higher in the refining space. Hmmm.

  83. 83
    zman Says:

    NOV and NBR ending down 8%. I would suspect they continue to slip lower for only a short spell before trading flattish. Could get a recovery bounce in NOV later this month or early next as the funds return to the sector looking for bargains.

  84. 84
    Nicky Says:

    Crude seemingly move hand in hand with the indices which I am struggling to understand from a fundamental point of view.

    As far as the $ goes we may need another pop to the downside which could coincide with a short term top in metals and also oil but then I expect to see a decent move to the upside if indeed it has not already started.

    Difficult again to know what is going to fundamentally support the $ but say the bailout is for a lot less money – would that do it?

  85. 85
    Sambone Says:

    By Gregory Meyer
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Crude oil futures pulled back Tuesday in tame trading a
    day after making the biggest one-session gain ever.
    Light, sweet crude for November delivery settled $2.76, or 2.5%, lower at
    $106.61 a barrel on the New York Mercantile Exchange. The October contract
    expired Monday at $120.92 a barrel, after a record one-day gain of more than
    $16.
    Brent crude on the ICE futures exchange settled down $2.96 at $103.08 a
    barrel.
    Following Monday’s price surge, traders watched the dollar’s gains against the
    euro and dumped crude, which like other dollar-denominated commodities attracts
    money seeking a currency hedge. The euro was at $1.4708 recently, from $1.4807
    Monday.
    Gasoline futures fell more severely, with front-month October reformulated
    gasoline blendstock, or RBOB, settling down 10.88 cents, or 4%, to $2.5950 a
    gallon as refinery activity picks up after weeks of shutdowns due to hurricanes
    Gustav and Ike earlier this month.
    U.S. gasoline demand measured by sales at the pump also fell 5.7% in the week
    ended Sept. 19, according to a report by a unit of MasterCard Inc. (MA),
    reflecting a big slowdown in Gulf Coast consumption following Ike. The report
    put demand at the lowest level since Jan. 19, 2007.
    Still, U.S. gasoline stockpiles are at their lowest level on record dating to
    January 1990, the Energy Information Administration said last week.
    Kyle Cooper, director of research at IAF Advisors in Houston, said gasoline’s
    relative decline defied easy explanation. “Fundamentally, it’s perplexing,
    other than the fact that refineries are in the process of coming back up,” he
    said.
    The latest government data on U.S. oil stockpiles is due at 10:35 a.m. EDT
    Wednesday. Analysts polled by Dow Jones Newswires see crude inventories falling
    by 1.6 million barrels, gasoline falling by 3.5 million barrels and distillates
    falling by 1 million barrels in the week ended Sept. 19. Refinery use is seen
    rising by 1.1 percentage point to 78.5% of capacity.
    The market fell as Congress debated a $700 billion plan to buy up troubled
    mortgage-linked assets in an effort to head off further economic weakness.
    “Overshadowing everything is these problems in the financial markets,” said
    Mike Fitzpatrick, a broker with MF Global Ltd. in New York. “The divide now
    falls between perceptions the bailout is not going to work and enthusiasm that
    maybe it will.”
    October heating oil fell 4.67 cents, or 1.5%, to $2.9963 a gallon.

    -By Gregory Meyer, Dow Jones Newswires; 201-938-4377

    Dow Jones Newswires
    09-23-08 1523ET

  86. 86
    Nicky Says:

    Broader market – 1185 support held (again we were on the edge of the abyss!) and that may or may not mark the low – chance of one more shot to the downside or else its up into the end of the month.

  87. 87
    zman Says:

    Both index and crude trading on “will they or won’t they get the bailout out the door”. Good point on what supports the dollar. Could the bailout be for a smaller amount? Usually these things grow.

  88. 88
    Nicky Says:

    Z – what I heard was that Paulson is unlikely to be given a blank check for 700 billion. More like it gets drawn down in much smaller increments as needed. If the market were to perceive it that a larger amount may not be needed (and I take your point totally and no doubt it will end up being larger in the end) maybe that would be $ supportive short term

  89. 89
    doc Says:

    Do you thunk some of the drillers are haveing trouble getting loans with the credit crucnch and want to get bought out?

  90. 90
    Fred Says:

    Z – No TSO refinery outages and they’ve just received a $197m defense contract.

  91. 91
    zman Says:

    Nicky – that’s what happened with AIG. 85 authorized but much smaller draw so far.

    Doc – yes, especially private firms.

    Fred – that’s in part why I owned them, no gulf impact but also beat down, and below asset value. Large inventory of finished product there not reflected in the stock. Don’t see the defense contract though, can you send?

  92. 92
    tater Says:

    Low volume again on TSO and FTO. Everybody still watching TV, like there is going to be some revelation. It’s Congress. They spend more than they have. That’s what they do. (Sounds like a line from the Terminator)

  93. 93
    zman Says:

    yep, and unfortunately they’ll be back.

  94. 94
    zman Says:

    man, market suddenly tanking into the close. Market sell program designed to scare congress?

  95. 95
    Fred Says:

    Z – Make that a $198.9M TSO contract.

    http://sanantonio.bizjournals.com/sanantonio/stories/2008/09/22/daily14.html?ana=yfcpc

  96. 96
    zman Says:

    Thanks much Fred, had not seen. Not sure of the impact of those. Can’t simply be additive.

  97. 97
    Sambone Says:

    309 point swing on the dow today.

  98. 98
    Sambone Says:

    “Buffett once told me there are three ‘I’s in every cycle. The ‘innovator,’ that’s the first ‘I.’ After the innovator comes the ‘imitator.’ And after the imitator in the cycle comes the idiot.”

    -Theodore Forstmann, quoting Warren Buffett

    Credit?

  99. 99
    Nicky Says:

    Broader market still in a very dangerous place here it goes without saying!

  100. 100
    doc Says:

    Here in lancaster,pa we have only 2 citgo gas stations that sell gasoline without ethanol. They are busy all the time but expect to use ethanol in the future

  101. 101
    Sambone Says:

    Tini time

  102. 102
    zman Says:

    Doc – hmmm, wonder how they get around not using ethanol.

    Well that was an ugly close. Bad rest of week if these cats don’t get something done soon.

  103. 103
    zman Says:

    Amadinenejad speaking on MSNBC

  104. 104
    zman Says:

    MEND – says Nigeria carried out airstrike against to rival militant groups. MEND says to maintain ceasefire.

  105. 105
    tater Says:

    Joe Taranova on Fast Money quickly attaining status as my new anti-barometer. Hoping to get more tidbits from him tonight, loved his “buy PBR” advice yesterday (sitting right at 3 levels of cross-confirmed resistance with a bearish candle formation to boot). Keep it up Joe, and I can retire soon!

  106. 106
    Nicky Says:

    Warren Buffet investing $5 in GS – GS shares soar as do futures.

  107. 107
    Bleemus Says:

    Apache could join oil majors in the hunt for acquisitions

    http://www.thedeal.com/dealscape/2008/09/apache_could_join_oil_majors_i.php

  108. 108
    apbd Says:

    Warren Buffet must have heard the ” fat lady ” sing. Can’t wait for tomorrow.
    apbd

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