26
Nov

Turkey Day Natural Gas Storage Review

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EIA reported a bigger than expected withdrawal Wednesday. If weather were the only factor I would have been looking for a number just under 100 Bcf. However, the recent string of resilient late season injections (despite cooler weather) and anecdotal and statistical evidence that gas-intensive segments of U.S. manufacturing are grinding closer to a halt led me and to a greater extent the Street to look for a smaller withdrawal. I'll have more thoughts on the next move in gas prices and how I'm playing it in the Friday post.

More Industrial Gas Demand Thoughts. Industrial gas demand is a somewhat elusive number. It is both seasonal and tied to the economy.

In winter, industrial gas demand soars (can't have cold line workers) as much as 5 Bcfgpd compared to the summer months for space heating. Note the recent downturn in capacity utilization is manifesting itself in the September gas number.

 

The biggest chunks of industrial gas demand come from the chemical makers (including fertilizers), followed by steel and other materials, food, and paper products.  The following are just direction thoughts.

  • Chemicals can account for baseline demand of 5 Bcfgpd and are also below capacity. I'd bet up to 2 Bcfgpd is currently offline due to fertilizer capacity curtailments (weak crop prices and an inability to get credit) and due to reduced operating chemicals capacity at the Majors and large chemical makers like DuPont and Dow Chemical.
  • Steel taking a dive: MT and X have announced layoffs in the U.S. in the last 2 weeks as global demand for steel falls. On Monday, ArcelorMittal, the world's largest steel maker said it was laying about 16% of its workforce and said that it thought global production needs to fall 29 to 33% from peak levels reached this past May to balance the market.

11 Responses to “Turkey Day Natural Gas Storage Review”

  1. 1
    PackMan Says:

    Z – CHK offering / comments ?

  2. 2
    Wyoming Says:

    Packman,

    1st message in SPAM from link to yahoo I copied. IMO

    1. Dilutive to shareholders.
    2. They have raised a bunch of coin since PXP in the Haynesville Shale (BP I, BP II, cleaned their revolver, Statoil) and still not enough from cash flow?
    “Changes in market prices for natural gas and oil directly impact the level of our cash flow from operations,” the company said in a filing.
    3. Said they needed it for Cap Ex. “But the company said cash flow, borrowings and cash on hand have not been enough to pay for capital expenditures.”

    WTF, they should be cutting back on CapEx.
    4. Disclosed on Thanksgiving Day, WTF?

    One of my take aways from the HS Expo was a comment that the public in the Basin hate CHK to the point of spray painting graffiti of hate on their building.

    “Chesapeake said it’s negotiating with several “significant” leaseholders to acquire leaseholds at reduced prices. In the filing, it said some leaseholders may agree to accept common stock for all or part of the deal.”

  3. 3
    ram Says:

    How many shares? No info on CHK site.

  4. 4
    Wyoming Says:

    Go to Yahoo finance. SPAM blocker hit my link before:
    Chesapeake Energy Corp., the nation’s largest producer of natural gas, seeks to raise up to $1.8 billion through common stock sales in an effort to fund its drilling and exploration activities and mitigate the impact of lower natural gas prices on cash flow.

    In two filings with the Securities and Exchange Commission late Wednesday, the company said it will issue shares worth as much as $1 billion before fees and also registered 50 million shares worth at most $791 million for potential sale.

    Oklahoma City, Okla.-based Chesapeake said it will use proceeds from the $1 billion offering for general corporate purposes, including fund exploration, development and other capital expenditures.

  5. 5
    zman Says:

    Looks like $1B in common stock is offered,

    and another 50 mm shares are part of a shelf filing. Gives them the ability to sell shares quickly. They usually keep a shelf ready to deploy for equity, preferred equity and debt.

    Both were filed after the close on Wednesday. They may or may not offer 50 mm shares.

    Market probably hits the stock pretty good on the open, maybe down to $16.

    At that price the $1B part of the deal is about 10% dilutive.

    They have never lived within cashflow but they have recently provided targets to the Street for year end net debt to total cap via deals and not all of those deals may close by 12/31.

    This gives them the flexibility to raise cash and its better to do it now than after year end as they, along with a lot of other people, may take reserve impairments due to low gas prices.

  6. 6
    zman Says:

    Not sure if you guys noticed it by Baker Hughes published the rig count early, gas rigs fell 68, and horizontals came off 16. Its starting to happen.

  7. 7
    Wyoming Says:

    Just the beginning.

  8. 8
    zman Says:

    Wyoming – agreed. YoY gas rig count delta went negative for first time since May. Going to be hard to support the OIH unless we have been in sell the rumor buy the painful reality mode. Can’t see that last too long before people punt service hard once again.

  9. 9
    Wyoming Says:

    No other choice. The rig drop will start showing up immediately, T-Giving to Mid Jan, E&P’s do nothing. Drillers still work 24/7 but the orders have already been given as to which rigs have no home. Done and easy.

    W/ commodities at the wellhead, supplier prices need to drop at least 50%. Of course, CHK still doing the stupid because they are leveraged to the teeth is not helping because they are stuffing (get it) the pipelines full. This gives the vendors the Alfred E. Newmans. They all think that they will keep hiring in 2009, seriously, WFT, HAL and a few others said it to my face. Once again, CHK still keeping the frac crews busy.

    BTW, I think OPEC greed will still flood the market because they are leveraged off their reserves @$100+/bbl. How do you think you build islands shaped as plam trees. How does Chavex line his personal accunt and still let them eat cake in Venezuela? Just like CJK and a few others who went too far. Remember, XTO bought my lease for $24k/acre. Simponson was pissed in the conf call and started the CHK backlash.

    Here is another question. Why does CHK do it now? Market is in an upswing, I mean terrorists hit the Taj Mahal and the SnP goes up? Must be bullish? But will gas not get hire after the shoulder season? Why not wait? Timing was perfect in July’s offering….. Now you done, going to fill my empty glass @ 1AM with everyone asleep.

  10. 10
    PackMan Says:

    CHK out w/ PR today saying they don’t plan to issue shares right now and shelf is intended to replace existing shelf due to expire next week.

    Feel a little better, although not sure people won’t sell first and ask questions later.

  11. 11
    Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Short Session Friday Says:

    […] Turkey Day Natural Gas Storage Review […]

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