11
Nov

Tuesday Morning – Big Deal For CHK But Another Bad Open For Oil And The Market

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Sentiment Watch:  Ugh. The bond market takes Veteran's Day off so credit won't be any sort of a guide for equities today. Asia sold off overnignt and we have another weak open on tap. CHK got their Marcellus deal done (see below) and should get marked higher because of it but the energy sector and the market will act like a lead weight at least in the early going.

 

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crack Spread Update
  4. Stuff We Care About Today - CHK, EVEP
  5. Odds & Ends

 

Holdings Watch: The Wiki tab is updated. The $10KP ended the day at $16,600 with 45% cash (no trades for it yesterday)

  • WLT- Added the December $40 WLT Calls (WLTLH) for $1.75 to the regular account with the stock up just under $2 on the day at $32. This is a met coal supplier play on the China stimulus package.

Commodity Watch:

Crude oil closed up $1.37 at $62.41 yesterday. Crude traded in a broad range during the day first running with China then running from the U.S. and at the end of the day closed higher with the thought that if we go much lower OPEC will slam on the production breaks much harder than it has to date and that No-PEC (principally Russia) will do the same. This morning oil is down another $2 and has been below $60 several times over night as "demand concerns" push prices lower.

  • Nigeria Watch: MEND once again threatened to launch fresh attacks if attacked.

Natural Gas jumped $0.49 to end up at $7.25. Snow in the mid-west, a cold forecast, and an early morning surge in oil prices on the China stimulus package brought higher prices.  This morning gas is giving back $0.15 to $0.20 with weak oil

 

  • Imports Watch: Last week saw imports rise slightly to 9.4 Bcfgpd from 9.2 Bcfgpd in the prior week. This is still 0.8 Bcfgpd lower than year ago levels with all of the divergence coming from piped volumes from Canada. LNG is essentially flat with year ago levels.
  • Potential Negative For Near Term Natural Gas Prices - LNG - According to the head of Sempre yesterday, "The United States, at the end of the day, has sort of become the buyer of last resort ... it looks like (the United States) is going to get a lot more gas than we originally had anticipated just because worldwide demand is slacking," he said. Sources indicate Asia is backing off purchases due to full storage after recent cargos were sold for $20 into South Korea and $16 per MMBtu into Japan.
    • If Europe has the same  "full storage" that could mean volumes could easily double or triple current levels this winter. So far, we're flatline at the 0.7 to 0.8 Bcfgpd level but if I start to see volumes tick back up quickly I'll drop my UNG bet and possibly reverse it.
    • If a falling rig count and expected colder than normal weather the near term bullish argument than the possibility of LNG suddenly arriving in the U.S. is that argument's achilles heal. 

 

Crack Spread Update: So, 2008 will go down, as far as refining is concerned, as the year that:

  • retail gasoline hit record high prices but only because of high oil prices, 
  • and when oil prices fell gasoline fell as much and in many regions more than oil did,
  • while diesel saved the day due to high export demand...
  • ...until the world economy crapped out...
  • and then cracks fell to the low point of the year (and past several years if you look at that last graph) ...
  • ...leaving refiners with rock bottom valuations as the "P" in "PE" chased the "E" lower.
  • I'm probably leaving something out like the fact that low utilization was met with higher end-product production due to increased use of ethanol.

Stuff We Care About Today

(CHK) Inks Marcellus Deal With (STO)

  • The Money: $3.375 billion: $1.25 billion cash upfront; $2.125 billion in drilling costs over 2009-2012.
  • The Position: CHK gives up 32.5% of their Marcellus position (or 600,000 acres of their 1.8 million acre position). The company had been looking to farm out 25% of their leading position in the play but at the present time I think bigger will be viewed as better.
  • This is a 1/3 (just under) for 3/4s Carry. The future drilling costs are a 3/4 carry for Chesapeake which will significantly reduce CHK's need for capital in the play during the play's initial, most costly phase of development.
  • Closing by year end. CHK has been promising that some form of Marcellus deal gets done this year.
  • Valuation Implication: This values the entire Marcellus play at $10.4 B ($3.375 B/32.5% interest). CHK's Enterprise value (Mkt cap + debt) was $26.1 B as of yesterday's close. So for $16 billion you get the #2 producer in the Barnett and Fayetteville Shales, and the #1 player in the Haynesville Shale not to mention the rest CHK's holdings. When you consider they have not booked any reserves in the Marcellus yet the market is valuing them at substantial discount to on a $/ Mcfe basis.
  • STO Put Reserve Numbers On The Deal Providing A Little Outside Confirmation.
    • STO said they are acquiring future recoverable reserves of 2.5 to 3.0 billion barrels of oil equivalent. That's equal to 15 to 18 Tcfe to their interest.
    • For CHK's 62.5% interest that comes to 28 to 34 Tcfe. Put that up against CHK's 3Q booked reserves for the entire company of 12.1 Tcfe.
  • STO Even Provided Some Long Range Snap Shots on Production Growth. One of the benefits of dealing with resource (manufacturing) plays is their predictability.
    • STO made the comment they see production to their interest of "at least" 50,000 Boepd by 2012 and "at least" 200,000 Boepd by 2020.
    • Putting that into gas language and adjusting to the higher working interest percentage for CHK that comes to production net to CHK of just under 0.6 Bcfepd in 2012 and 2.3 Bcfepd by 2020.
    • Compare that to CHK's 3Q08 produciton of 2.3 Bcfepd.
  • CHK To Keep Growing Marcellus Acreage. CHK will keep adding and STO will have the right to participate in the new leases at the same 32.5% working interest.
  • Cause For Pause. There's always a catch and though this may be a harmless one analysts will probably be dubious (it's in their nature) of the statement that "CHK and STO have agreed to enter in an international strategic allicae to jointly explore unconventional natura gas opportunities worldwide". The CHK story is an onshore, U.S. only natural gas story and the last thing people want to see them do is go on safari looking for more gas.
  • In A Nutshell... I think its a good deal for the above reasons and because they needed to do it, because they didn't do it with BP (always good to diversify your deal basket), and because it provides another opportunity for them to yell, "look at the implied valuations man, we're not crazy, another company sees it, why don't you???!!!"
  • Likely Positive Implications for:  (XCO), (ATN), (PVA), and (RRC).

EVEP Releases 3Q Results

  • Revenues of $57.4 vs $55 mm expected
  • EPS of $10.14 (but this number includes a hedge gain) vs $1.09 expected
  • Production
    • 4.71 Bcfe, down 2% from 2Q08
    • Production was impaired by hurricane related curtailments. Production would have been 5.27 Bcfe (12%) higher were it not for storms and a temporary field specific curtailment. Production was 70% natural gas in the quarter. The 4Q is also going to have a smaller storm effect on volumes.
  • Distributable Cash Flow of $14 mm or $1.15 per share. Distributable cash flow is essentially cash flow less their cash interest expense and the capital needed to maintain production.  This fell 24% from 2Q08, partially due to lower commodity prices but also due to the hiccup in production.
  • Dividend was upped last week to $0.75 per share so they still have plenty of coverage.
  • Current yield: 18.75%
  • Hedging: they have over 50% of 2009 expected volumes hedged at over $8/mmbtu
  • Deal Flow: Acquired over $200 million of properties during the quarter, no mention of $/Mcfe but it should have been favorable considering the current pricing and deal environment.
  • Conference Call: Today, 9 EST.

Odds & Ends

Analyst Watch: To be added.

118 Responses to “Tuesday Morning – Big Deal For CHK But Another Bad Open For Oil And The Market”

  1. 1
    bill Says:

    do you know what chk promised in its outlook for q 4?

  2. 2
    bill Says:

    initial pre-market reaction is ho hum but its going to be a down day in energy stocks

  3. 3
    bill Says:

    the outlook said 2 deals between 2 and 2.5b

    so another deal to go in texas

  4. 4
    Wyoming Says:

    Z,

    Your LNG potential negative is understood. It will be interesting how the Sources will feel getting the spread rate. Which will be decreasing with every shipment delivered. As we joked about the government not canceling naked shorting of the energy sector. It would be interesting to see what the policy when the local E&P’s totally shut down. Energy will not be protected like the auto industry or the crawfish farms (cheap China ..).

  5. 5
    BirdsofpreyRcool Says:

    The Bond Market is closed today, in observance of Veteran’s Day.

    The stock market is free to move in whatever direction will inflict the most pain on the most participants. Good Luck to all.

  6. 6
    zman Says:

    Hear ya Wyoming…no saving the “wicked”

    Bird – there’s more bad stuff out there again but would not be surprised to see the market go green during the day.

    This is probably an opportunity to get a little CHK as they would be up $2 in a normal market day, not down.

    Note RRC green, XCO probably later.

  7. 7
    BirdsofpreyRcool Says:

    z – actually, i was going to say that myself. if the market goes red enough (whatever that might mean) then the direction of max pain will be green. The point is, to be ready to buy or sell on major market moves.

    Basically, take profits when you get them.

  8. 8
    BirdsofpreyRcool Says:

    I didn’t think we would see crude sub-$60 again, given the global replacement costs. Guess the questions is: how long does it stay here? And do you think Congress will consider a “Windfall Tax Break”??

  9. 9
    zman Says:

    BOP – hear ya on taking profits and I’d add take losses to that. No sense trying to “get back to even”. Plus, I always keep a cash balance. “All in” is for card games.

  10. 10
    zman Says:

    I think market participants are way too focused on the minute and daily charts at this time. Way too focused on charts in general.

  11. 11
    BirdsofpreyRcool Says:

    z – great point, about taking losses. That is the toughest thing to do… but allows you to stay in the game.

  12. 12
    BirdsofpreyRcool Says:

    z – I guess when fundamentals don’t matter, charts rule. In order for fundamentals to drive, you have to have both Fear and Greed running through the marketplace. Lately, we have only had Fear and Less-Fear.

    That said, a Bear Market Rally is one of the largest moves in any market. It happens quickly and can make you a nice return.

  13. 13
    zman Says:

    Here’s a chart for ya then: GS. Just went green.

  14. 14
    zman Says:

    Saw a comment that Iran’s economy crumbles sub $60 oil (the OPEC basket is below $55 now). I think another emergency meeting gets called before the December 18 meeting to make further cuts.

  15. 15
    BirdsofpreyRcool Says:

    z – GS…. yikes! what is it about that chart that says “BUY ME HERE”??

    Maybe, “Time for Shorts to Cover”??

  16. 16
    BirdsofpreyRcool Says:

    I think Hugo Chavez is a little worried, sub $60, too.

  17. 17
    zman Says:

    I would not buy it but that’s not what I do. Buffett “bought it” much higher but he got a sweet deal so when he says people should be buying stocks its a bit of a crock since the rest of the planet can’t arrange for 10% preferred script.

    I think the negativity out there is warranted given the all the pain you see in the consumer …I wonder if consumer confidence rebounds at all from the election feel good or not. But it also seems that the market is discounting no return to uptick in growth next year…seems far fetched.

    Hugo just fired his consul in Houston to make nice with the U.S. Somethings up with that.

  18. 18
    zman Says:

    If we do close green, RRC will be soar, only thing green on my screen and definitely catching a wave from the CHK deal.

  19. 19
    Coug1984 Says:

    Z- Did you hear anything anything on the EVEP call that was concerning? It’s yielding almost 20% right now.

  20. 20
    zman Says:

    Coug – have not listened to it yet as I don’t own it. Will listen to replay in a bit but the move is most likely just market. They should be good for current distribution well into next year given their hedges unless gas gets cut in half again which I don’t expect.

  21. 21
    Coug1984 Says:

    Thanks. I caught the tail end and thought it sounded fairly positive. Think I’ll try pick a little up here.

  22. 22
    zman Says:

    Coug – if you are buying for the long term I think EVEP is one of the better run E&P MLPs out there. If you are looking for the quick move, then I think they could visit $13 or so on the chart, yield be ignored.

  23. 23
    zman Says:

    Another way to boost natural gas prices:

    http://www.upstreamonline.com/live/article166259.ece

  24. 24
    Coug1984 Says:

    I’m looking relatively long term and will probably scale in. I see what you mean about the chart, however.

  25. 25
    Wyoming Says:

    Z,

    Re #23. Any way to play dry holes and produced salt water? Got to be an option somewhere?

  26. 26
    zman Says:

    Wyoming, good question. There seems to be a willingness to break legal contracts (leases on federal lands) on the part of the new admin with all this talk of “drill it or lose it”. Just don’t think they understand how price will rank and sort a drilling inventory.

  27. 27
    Wyoming Says:

    Sorry, was trying to be funny, I’m married with children you know. Good excuse, never thought I would have to resort to it.

  28. 28
    zman Says:

    Wyoming – I chuckled, really I did. I just think the new guy is going to ultimately going to make it harder on the average E&P company to grow, thereby lifting prices.

  29. 29
    Wyoming Says:

    I was in California, land of fruit n nuts back in the late ’90’s. You know; the last big down turn. Things got so cheap that a lot of Co-gen plants got really sweet gas contracts (comes out of Opal – Rockies). When things started growing real fast, there were brown outs. The co-gen plants shut down and sold their contracts on the open market. This in turn reduced some of the electric supply to a maxed out system. Get ready for ’98…maybe

  30. 30
    zman Says:

    I hear ya Wyo, funny how its all connected.

    Just watched video you sent of the Marlin stuck in the BOP at Pluto by the way. Now that is how you fish in the deepwater!

  31. 31
    rlogan1301 Says:

    z- are the dec17.5 calls for HK looking good at this point?

  32. 32
    zman Says:

    RL – I’m not adding to positions just yet. We’re down big on light volume so the moves could get even nuttier. Like the stock, no reason not too and it is is gassier than not but I don’t see a rush to get in just yet. Still have a feeling we close green but its nothing more than that.

  33. 33
    zman Says:

    Oil solidly below $60 is going to force OPEC’s hand.

  34. 34
    bill Says:

    no to nuclear

    http://www.monstersandcritics.com/news/energywatch/nuclear/news/article_1209661.php/Merkel_stands_by_deal_to_close_German_nuclear_plants

  35. 35
    bill Says:

    no to drilling # 23

    and i like tellling gm to make 60 mph golf carts

    that will get us all in the dealership

    i just had a thought

    enjoy the low gas prices while you can

    the dems cant staand 2 dollar gas– so i expect minimum 1 dollar gallon tax on gasoline

  36. 36
    bill Says:

    coal stocks off their lod

    i dont know the catylst but i welcome it 🙂

  37. 37
    cargocult Says:

    $1 per gallon gas tax long overdue! Why not get the next $1 to pay down the national debt. Better this than give it to the Saudis. Clinton wanted a $.35 gas tax and Republicans said it would bankrupt the country.

  38. 38
    zman Says:

    Nuclear is a red herring. I like the idea of adding new plants. We have just under 104 in the U.S. down from 112 in 1990 after going through a period where we lost 1 every other year or so due to retirement. Those 104 sites provide 20% of power for the U.S. Oil provides less than 3%. Coal is half, natural gas is another 20%. Many of the nuke sites were designed to have more reactors added on the site. Some have the foundations in place. Its a shame we can’t take safer, more efficient designs and put them to work but its just not going to happen until things become acute and then it’ll take 10 years after that to get them built.

    Coal I think just getting a dead cat bounce, price action not very meaningful today.

  39. 39
    mahout Says:

    Z,

    I read the CHK deal with STO as favorable from the standpoints of financial liquidity, stock market asset valuation, and operational cost lowering, as you do, and already rated CHK as an exceptional buy if willing to exercise patience. I’m trying to figure out whether to start buying now or wait out the heavy stream of negative news on the economy we are being bathed in and the financial semi-paralysis. At least for a little longer. I recognize the risk of possible expanded imports of LNG and am willing to take it.

    In your #6 today, you said, “This is probably an opportunity to get a little CHK”. Just so i understand this, did you mean the stock or options? And if options which one or ones, short or long were you thinking of?

    Just sort of thinking out loud here. Maybe buying some shares once a month south of $40 a share might be what i should think about doing considering the high systemic risk and other risks one must accept to buy in these times.

  40. 40
    zman Says:

    Mahout – I think now is a good time to think out loud. Regarding CHK, I was not thinking specifically of a certain call option and like the stock down here in general. I own it as do some of my now growling relatives, for the long term. I own it higher than here.

    The LNG thing I don’t see as a huge risk but something to be aware of and monitor. Analysts have gone into super-bear mode as a means of survival and some of them are actively playing up this angle (I’m thinking Raymond James specifically) and calling for a crash in 2009 natural gas prices. These are the kind of guys who live in the now and the immediate past and were likely uber bullish on gas at $13 (not the RJ guys but others who now only see the glass 9/10ths empty and the economy never recovering).

    But, getting back to CHK, they are likely to get another VPP done before year end and maybe another asset deal. I doubt they can float the proposed midstream MLP but I think the expectation was that that was a long shot. Marcellus was the big “gotta get it done” deal and we have that for a fair price. Analysts are looking at the upfront dollars and shrugging in a down market. I think that is very short sited as CHK has cash and no debt due until 2013. I expect the economy to be better by then.

  41. 41
    sane Says:

    Re 38

    As for nuclear one of the biggest problems with it is this countries idle hands when it comes to reactor waste. Almost every nuke plant in the nation stores there reactor waste on site. The US also has a moratorium on the recycling of reactor fuel due to a non proliferation treaty we signed during the cold war.

  42. 42
    Jay Reynolds Says:

    Give it to the Frogs on Nukes.

    We have one kind of cheese and scores of varieties on nuke plant design. Just about every designer wanted to one-up the next guy so plenty of cross-platform design/training and maintenance issues.

    The Frogs have one nuke design and scores of cheeses.

  43. 43
    zman Says:

    Sane:

    Handful of questions for you on that:

    1) what’s the useful life of a U.S. reactor, ballpark?
    2) when they are uprated, can you also meaningfully extend the life of the reactor, I used to see lots of license extensions.
    3) what do they do with the waste in Europe?
    4) are the U.S. sites largely out of storage capacity
    5) is the waste safer at the facilities than it would be to move it?
    6) what’s the latest on Yucca ?

  44. 44
    mahout Says:

    Z,

    Thanks. That helps with my ruminating process on CHK.

    Wyoming #29,

    I remember those days. Crazy things go on don’t they and no assurance they won’t repeat. With apologies to Nicky, your opening descriptive of California, cracked me up. But then i thot, in my beloved Arizona we could be described as “the land of fruit and nuts”, also. So what am i laughing at?

  45. 45
    ellwodo Says:

    CHK: it seems as if there has been an increase recently in the way out of the money Jan ’10 leaps, i.e. $55s, 60s and 65s. I find this encouraging since I still have some of the 60s (and I’ve added some 30s and 35s). Is there a site that gives the historical outstanding volumes for options so I can verify my general impression?

  46. 46
    zman Says:

    Elwo – thanks for the color on the far options, I generally don’t look at option levels themselves as they are often rumor driven and the rumors (like last week’s) are generally false 19 out of 20 times. But for that, it looks like deep value options guys (there is such a thing) buying into a move for 2009.

    As far as historical volume and open interest you might try optionsexpress. Most trading platforms, including the 2 I use are lame when it comes to volumes for options…let me check one source and get back to you.

  47. 47
    Wyoming Says:

    Mahout,

    Thanks. It was a slight dig on my 3 years of slow blood letting (they are NOT environmentalists – just capitalists), leaches would have been more merciful. Also, for their failure of the past Gay Marriage deal. My opinion is that gays should be just as miserable as heterosexuals and have to joint taxes too. I digress.

  48. 48
    BirdsofpreyRcool Says:

    z – some back-of-the-envelope work on (poor old) KOG… forgetting about anything they have, other than their Bakken acreage (as they had to write off their entire history last quarter), how would you arrange the following input:

    102mm FD shares
    no debt
    18.1mm of cash and pre-paid capex
    2.2mm/q of G&A
    36,000 net Bakken acres in Dunn Co.

    last public transaction of Bakken acreage was XTO at $3,000-4,000 per acre.

    care to pin a value range on KOG’s shares?

  49. 49
    sane Says:

    1) roughly 30 – 45 years. Some types fare better, some types fare worse.

    2) The file of the reactor ultimately depends on the integrity of the reactor vessel. Everything else in the plant can pretty much be replaced.

    3) France, UK, Russia reprocess fuel, but not all. some is stored off site, some on site. Japan and India also reprocess some fuel.

    4) Not really, but is does add to the cost of the plant due to capex and opex on glow pools for storage of the spent rods.

    5) Not at this time, but at some point relativity soon. It all boils down to long term safety which then yes, off site like Yucca Mountain would be much better.

    6) The Nevada Governor has been stomping around with his arms crossed screaming NIMBY about a hole in the desert. So the future of it is still up in the air.

  50. 50
    tater Says:

    FSLR –
    That failure in the last hour at 128.80 does not bode well for the price technically. If it cannot rally back above 129, next stopping point looks like 116, below that there isn’t much support until it hits 100. Not saying it has to go lower as volume on the pullback from 180 is lower than on the run-up to 180, it’s just that the Fib lines that I have drawn on the last two charts are working almost exactly, and if they continue to hold as accurate…
    Last 2 charts on page 4 at link

    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2933882

  51. 51
    BirdsofpreyRcool Says:

    z – (anticipating your caveat) agreed, XTO bought those acres when oil prices were a lot higher. Still….

  52. 52
    zman Says:

    Thanks Tater, looking for a point to double down on FSLR.

  53. 53
    kyleandy Says:

    z – u still have gut feeling about possible green afternoon. i think RRC will lead the pack, but just can’t fight this mkt.

  54. 54
    zman Says:

    Bird – Do they have an outstanding obligation for pipe or rigs not counted on the balance sheet?

  55. 55
    BirdsofpreyRcool Says:

    z – don’t think so. also, not counting the $28mm (or so) that DVN would have to pay them to walk away from their Vermillion JV. Just looking at Bakken acreage, cash + prepaid capex, and some carrying costs (using G&A).

    back-of-the-envelope stuff.

  56. 56
    zman Says:

    Kyle – Yep but its just a feeling, could be a day early too, not adding to positions on that alone as this is a very tough, all or none kind of market.

    Elwo – I checked with quote.com which used to allow you to chart options but that function seems to be offline now. Optionsexpress.com may have historical volume on options though.

  57. 57
    BirdsofpreyRcool Says:

    z – not sure how KOG accounted for the 2nd Unit rig, due to arrive 2Q09… but, by then we will know if their FBIR Bakken acreage is prospective. so, willing to overlook that, for now.

  58. 58
    zman Says:

    BOP – ok, gimme 20 minutes.

  59. 59
    BirdsofpreyRcool Says:

    z – no hurry. just wondered how you would arrange the data to come up with a valuation (i’ve got my own opinion, but want to know how you would approach it). i really appreciate it!

  60. 60
    zman Says:

    Bird re KOG

    Given where they are in the Basin (south of Neeson Anticline in sort of undrilled area) and to the northwest in red river, I’d be tempted to bang them pretty hard if I were looking at acquiring them. No way they get that $ figure XTO paid (and XTO is now probably regretting that day). So maybe take the whole the acreage position in the Bakken, 67,000 net acres and call it $1000 per acre (probably generous). Go ahead and give them $100 per acre for their until proven otherwise moose pasture in the Green River and that comes to $3mm for acreage. Lop off a half year’s G&A to get well results from five or six wells (they say they can get 16 drilled with 2 rigs) so call it $14 on the cash and that gets you to $84 mm or $0.87 per share.

    They list their assets at under $70 which kind of handicaps the stock at present. They don’t go into how they get that number so I’m guessing book value on their acreage plus desks, phones, water coolers etc… since they have no PV10.

    I think the I want to be long the for the run up to the first pr after TD and then play with house money and buy back in if they do well with it. Dead money until they get closer to TD. Which is when? Are they drilling on the tribal land first and is that the stuff south of the Neeson?

  61. 61
    zman Says:

    Sane = thanks much. So, is there any way to lengthen the life of a reactor vessel with or without extended maintenance. Is that the concrete and steel itself?

  62. 62
    zman Says:

    DUG is pretty much where it opened after worsening mid morning.

  63. 63
    ellwodo Says:

    Z- thanks. I’ve decided that if CHK doesn’t turn around over the next year I’m not smart enough to pick any other winners in the meantime, so I’m concentrating on the Jan ’10 30s and 35s. Rather than sell my 60s for 10 cents on the dollar I’m hanging on to them also. I realize that at this point they resemble a very expensive lottery ticket, but hope springs eternal.

  64. 64
    VTZ Says:

    Happy Veteran’s day and Remembrance day to everyone.

  65. 65
    BirdsofpreyRcool Says:

    z – thanks! came at it a bit different (still used 2 Qs of G&A) and decided it was cheap at 55 cents. But, it is a waiting game…

    They are drilling the tribal land first (the FBIR land), two wells from the same pad. The new rig should get there around Nov 20th and then take at least 45 days to drill to TD. Then they will drill the 2nd well (from the same pad), estimating 42 days or so to TD. Then they will move a completion rig on and case and perf the first well. Another 2 weeks to get initial flow tests from the first well.

    So, here are the relevant dates (my estimates, with input from mngmt):
    Nov 20th = Unit rig arrives
    Jan 5th = PR on having TD’d the 1st well (and any indication of hydrocarbons encountered while drilling)
    Feb 16th = PR on 2nd well TD and moving completion rig on site
    March 9th = results from 1st completed well reported.
    March 25 = results from 2nd well reported

  66. 66
    VTZ Says:

    Z-have you ever looked at Addax Petroleum?

  67. 67
    BirdsofpreyRcool Says:

    KOG – their first 2 planned wells are located about 5 miles to the SE and 6 miles to the SW of 3 Bakken producers drilled by Peak Energy (private company). IPs from those 3 wells have ranged from 1,000 to 1,350 boepd. Also, Marathon has several producing wells about 7 miles to the south (no IP info on those wells). So, the acreage is effectively triangulated between 3 Bakken production sites.

  68. 68
    zman Says:

    Re 64: I was remiss in not making that the first sentence of the post. I’d also add its good to hear Italyinvestor is back safe from Afghanistan.

    Re 66. Like them lots. There is a somewhat dated piece of mine on the reports tab. Have not yet listened to the Q from yesterday but these guys have a solid plan and know how to find oil and more importantly get it loaded and shipped from Nigeria.

  69. 69
    zman Says:

    Thanks for those dates BOP. I just figured out where those first wells are. Will be interesting because the story then shifts to number of acres/spacing X BOE per well and you can get a lot bigger number that way.

  70. 70
    Pete Says:

    Z,
    What is the reason that the market seems not to like the CHK /STO deal? Percentage wise CHK is down more that other NG E&P’s.

  71. 71
    BirdsofpreyRcool Says:

    z – yep. Figure, 40 cents of downside and $3.00 of upside. Wouldn’t expect to see the $3.00/share until (and unless) the first well comes in north of 800 bopd or so.

    It’s a waiting game, to early March. Think the stock does start to move up, once they ACTUALLY get their hands on the ACTUAL rig, tho. So, keep an eye on the company… would expect to see the rig in a week+.

  72. 72
    BirdsofpreyRcool Says:

    (well watching is a LOT more fun than market watching, these days…)

  73. 73
    rlogan1301 Says:

    UNG dec calls is falling like a rock…

  74. 74
    rlogan1301 Says:

    its freakin freezing in indy…and will be for the next week or so.

  75. 75
    zman Says:

    Pete – Some analysts wanted to see more $ up front. I saw one headline saying this was huge good news for the company. If today was a neutral to green day the stock would be up bigger than the rest. Instead we sold off everything and now some holders are giving up thinking, “is this all, there must be something wrong with this deal”. Honestly, the only problem I see with the pr is that bit about international. I think the Street starts throwing boulders at Aubrey if he announces one well spud in Tunisia or some other BFE place.

  76. 76
    zman Says:

    RL – I know, they are giving back yesterday’s move on cold today with the move in oil. Not a lot of reasoning there as the heating season approaches as the economy is going to be much less of a driver for natural gas demand than for oil.

  77. 77
    BirdsofpreyRcool Says:

    z – here ya go… GS is back to green!

  78. 78
    antrimshale74 Says:

    This buying of the anticipation of the 2pm Fannie/Freddie powwow is an excellent selling/shorting/put opportunity. They will certainly sell on the news, I would think.

  79. 79
    Pete Says:

    Z, thanks

  80. 80
    zman Says:

    BOP – don’t jinx it, lol.

  81. 81
    BirdsofpreyRcool Says:

    z – ha! you’re right…. sadly.

  82. 82
    VTZ Says:

    Is anyone going to call me crazy for looking at playing ung nov 30s?

  83. 83
    BirdsofpreyRcool Says:

    VTZ – can we just call you crazy, anyway?? 😉

  84. 84
    VTZ Says:

    Wouldn’t bother me and it’s probably a fair assessment.

  85. 85
    zman Says:

    Let me know when I should dust off that oil sands piece V.

  86. 86
    zman Says:

    Bird or anyone. Can you get me a schedule of events for the BofA energy conference later this week. That is a big one and we have not a good reception to a conference since Spring.

  87. 87
    VTZ Says:

    I have more time these days to address questions than I’ve had in a while. Some time next week works.

  88. 88
    zman Says:

    Roger that, will do.

    APC green, CVX green. How odd.

  89. 89
    kyleandy Says:

    z – great gut feeling bot RRC but it immediately lost 1/2 point , so got out when it was very slightly profitable. if i’d waited 10 minutes would have been good trade.

  90. 90
    zman Says:

    Kyle, on a better day it would have been a much easier trade and xco, pva,and co as well.

  91. 91
    sane Says:

    Re 61

    Not much they can do to the vessel itself over the lifespan. There are some components on the vessel that can be replaced / modified, but for the most part ways of refurbishing a vessel are pretty much non existent (without a tear down). A buddy of mine was researching ways of electroplating / coating the inside of the vessel to increase the lifespan and minimize downtime but I haven’t heard much about it in the last few years.

    On the upside they are built to last, but steel does have a tendency to become brittle from extended exposure to neutron radiation.

  92. 92
    zman Says:

    what was the name of the reactor with the hole in its head a few years back?

  93. 93
    zman Says:

    Davis Besse, is that kind of thing you see occurring more with age?

  94. 94
    sane Says:

    Davis-Besse in Ohio

  95. 95
    sane Says:

    Yes, since most reactors in the US are pressurized water reactors, as the steel becomes more brittle the pressure of the water mixed with neutron bombardment cause the steel to crack, especially on a restart.

  96. 96
    zman Says:

    And the last reactor built was completed around 1990, Grand Gulf I think. So we have 20% of the electricity generating capacity of the U.S. that is well over 20 years old with a life span of 30 to 45 years. Hmmm. You’d think the EIA or the NRC would be yelling at the new Dept of Energy head about this.

  97. 97
    sane Says:

    At a plant I was working at years back, I was in the reactor hall during a restart and remember hearing that fatiguing sound like you hear on a submarine that has gone too deep. Scared the crap out of me the first time.

  98. 98
    zman Says:

    Sane – you don’t look like Jack Lemon by any chance, lol?

  99. 99
    zman Says:

    I remember reading several years ago that the long term contracts for uranium at very cheap prices rolled off in 2010 and that everything entered into since then (around 2001) has been more expensive, meaning that nuclear power will be less of a cheap deal on fuel than it has been in the past soon. What’s the big argument against reprocessing?

  100. 100
    sane Says:

    😛

    In reality most of the reactors in the US are in good shape spare a few. I was working on a reactor a few years back that was almost 40 years old and the thing looked like new in the x-ray scans on the vessel.

  101. 101
    sane Says:

    BTW I love that movie.

    The reason we don’t reprocess is due to 2 main reasons.

    1) We signed a non-plorification treaty that forbade us to reprocess due to some of the output of reprocessing being weapons grade.

    2) One of the main ways to reprocess is to use breeder reactors which produce weapons grade and if you think the term nuclear reactor is taboo to activists, say the word breeder reactor to them and they start shrieking like banshees.

    The sad thing is is that if we were to switch all (coal, gas, traditional nuke) power generation around the world to use breeder reactors we would have enough nuclear fuel to last ~12000 years.

  102. 102
    zman Says:

    Is that the type of reactor Iran wants to build? And are we kept from using breeder reactors by SALT or something like it from the cold war? If that’s the case you’d think it might be time for a rethink there. Also, thought the new reactor designs are safer, more efficient. Seems like the press sees all nukes as equal.

  103. 103
    zman Says:

    So much for my bounce.

  104. 104
    zman Says:

    Would all of you who send in Street research to me (you know who you are) please do so regarding the CHK/Marcellus deal. The stuff I’ve seen so far was very positive on the deal as was I so I’d like to see what as much of the rest of the sellside is saying.

  105. 105
    sane Says:

    No Iran is building a light/heavy water reactor. I saw light water reactor, but then heard references to deuterium which is used in heavy water, but neither is a breeder.

    I don’t remember which treaty it was, probably one of the SALTS, yeah it is time to rethink. Some of the new reactor designs are amazing. Much much much safer, more efficient, and can use a much more diverse mix of fuels.

    These are new and neat.
    Mini reacotrs

  106. 106
    ram Says:

    Does anybody know of the person that calls market turns on specific dates? I remember an email from newsmax or moneynews about this specific person and how he has called timely turns prior to events that justified the turn. Recently, this person called the spike down to the day in FEB of 2007 that backed into the Chinese stock collapse. I recalled an important date in early 2009 that should be a changing event. Hey, it’s a slow day.

  107. 107
    zman Says:

    Thanks Sane.

    Ram – sounds familiar but I don’t know the name.

  108. 108
    zman Says:

    Beer thirty

  109. 109
    bill Says:

    drys broke into single digits today–a few weeks ago it was north of 23

  110. 110
    zman Says:

    Bill – you’ve been very good with your avoid the sector like the plague call.

    DSX reports tomorrow. I figure they can’t all go bankrupt and that eventually shipping will restart. I’m going to listen to the call but it seems that when credit restarts there will be rampant consolidation in the shippers.

  111. 111
    zman Says:

    GS closed strong, saying lots of rah, rah things post close.

  112. 112
    PackMan Says:

    106 … the name escapes me as well. As I recall, Oct 9 or 18 was a major turn date as well, and looks like the market hit a bottom then.

    bill / Drys … man, you nailed it. Was in 23-24 just a few days, not weeks ago.

  113. 113
    bill Says:

    http://www.environmentalleader.com/2007/10/19/kansas-rejects-proposed-coal-plant-because-of-co2-emissions/

  114. 114
    bill Says:

    I dont think i stick with coal too long

    another one

    http://biz.yahoo.com/prnews/081111/aqtu533.html?.v=29

    i guess this will be good for ng as coal is not acceptable and neither is nuclear

  115. 115
    bill Says:

    from staoil pr release

    Mr Lund added:
    “This deal adds a major building block to the gas value chain position we have established in the US, the world’s largest and most liquid gas market. This is a significant step in strengthening our US gas position, building on our existing capacity rights for the Cove Point LNG terminal, our gas trading and marketing organisation and the gas producing assets in the US Gulf of Mexico.”

    they also had a conf call

    see press release

    http://www.statoilhydro.com/en/NewsAndMedia/News/2008/Pages/Chesapeake.aspx

    could this open up exports of us ng thru stat oil terminal at cove point?

  116. 116
    zman Says:

    Bill, its conceivable but Cove Point is regas only at this point, not set up to liquify so that would take some capital.

  117. 117
    bill Says:

    statoil says they enter us gas play as “first step”

    HMM

  118. 118
    bill Says:

    116 ty z

    I dont know whats involved in liquify but ng prices in japan and china ar about 18 to 20.

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