30
Jun

Tuesday – End of 2Q Plus Natural Gas Slide Show

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In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Supply Slide Show - April 2009 Data
  4. Crack Spread Update
  5. Stuff We Care About - Another, bigger XCO deal
  6. Odds & Ends

Holdings Watch:

  • $10KP:
    • $19,100
    • 56% Cash
    • No trades yesterday in this directionless pre-holiday, light volume market.


Commodity Watch

Crude oil rallied $2.33 to close at $71.49, a 10 day high, on the back of:

  • Nigerian attacks,
  • word that China planned to boost its version of a strategic petroleum reserves by 160% over the next five years
  • and a rare, upward revision to EIA's monthly figures for oil demand in the U.S. (April rose 1.18% which may sound small but amounts to 215,000 bopd).

This morning crude is trading up slightly.

  • Nicky's Comments Watch (from yesterday's comments section):
    • Indices I am looking for the 930 - 935 area to stop this rally if its going to. That said its tricky here and a move above 843 has us going to new highs which is not exactly helpful as a comment I know as we will nearly be back at the highs!
    • Commodities may be giving us the heads up that in fact we are heading for new highs which oil powering away today. I do think oil is going to make new highs and I believe we are in v up which started at 66.36. We are now in iii of v.

Natural gas fell $0.16 to close at $3.94 after the tropical disturbance in the Gulf of Mexico fizzled and this week's forecast for the U.S. turned much more mild than last week's weather. This morning gas is trading down a couple of cents following yet another lackluster natural gas supply report from the EIA (see below).

  • Imports Watch

    • Canada: 6.5 Bcfgpd, down 0.9 Bcfgpd from year ago levels
    • LNG: 1.3 Bcfgpd, up 0.2 Bcfgpd from year ago levels. Run away from the dock, you'll be crushed by all the ships coming ashore. Ugh. Where is the gas tsunami? We are at mid year now and still no tsunami.
  • Electricity Watch: Up 6.3% from the prior week, generation at the highest level of the year to date. 

 

Natural Gas Supply Slide Show - April 2009 Data - Ho Hum

Key Takeaway Watch:

  • Overall U.S. Lower 48 production:
    • fell 0.08 Bcfgpd from March to April to 59.15 Bcfgpd. This is insignificant, meaning production is still in its "rounding top phase". The gas market wants to a less glacially paced move lower here.
    • On a year over year basis, production in April was still up 1.7 Bcfgpd.
  • #1 Producing Region Texas: inched lower from last month and is now down 1.03 Bcfgpd from its peak reached in November.  Most math would have had this lower by now, in light of the rig counts but as drilled but not yet completed wells are completed to help now rigless producers maintain or even grow production, the effect is to mute the declines we would expect to see.
  • Wyoming - easing but still near its highs.
  • Louisiana - if production here were a stock chart, I'd say we are about to see a breakout to the upside. Haynesville volumes are becoming more self evident which makes sense as many players are focusing only here now, in this play which offers arguable the best returns in the U.S. 
  • This summary will be archived on the Natural Gas tab along with previous reviews.

 

Crack Spread Update

ZComment: Nothing new here. Ok, except for a deterioration in cracks across the country as the quarter draws to a close. Not only were cracks flat for the second quarter relative to the first but they were down by 37% from 2Q08 which its selft was down 36% from the prior year. A disturbing trend if you run a refinery. Each week I ask that we see 2 or even 3 consecutive weeks of rising demand. So far, we have instead seen very lumpy demand like this:

 

The story on distillate demand is worse, and keeps getting worse every time you think it might be bottoming. There is just no signs of a U.S. demand recovery for diesel.

 

And What Have We Missed By Staying Away From The Refining Trade This Year?

Stuff We Care About

Deal Watch:

XCO Signs JV To Accelerate Haynesville Development; Receives $904 mm Cash + Drilling Capital

  • Yesterday XCO sold low upside properties to raise cash to help develop the Haynesville (see Monday post)
  • Today XCO announces a joint development deal in the Haynesville Shale with BG Group:

    • deal covers 120,000 acres of XCO's East Texas / Northwest Louisiana properties
    • sells down XCO's interest to 50%
    • 84,000 acres are prospective for Haynesville.
    • XCO puts drilling locations on the play at > 1,600 with reserves ballparked at 4 to 6 Tcfe in the Haynesville Shale with additional reserve upside in the Bossier shale
    • "aggressive development program" planned beginning 2009
    • XCO says to date it has drilled 8 wells in the play with average gross initial production > 23 MMcfepd.
    • They see drilling another 26 wells by year end.
  • XCO receives:

    • $655 mm at closing
    • BG will pay $400 mm of drillilng / development costs, carrying XCO on a 3/4 for a half basis. This is expected to take until 2011 to exhaust the $400 mm at which point each company will pay for half the drilling costs.
  • Midstream Deal Also Penned:

    • XCO receives $249 mm in cash
    • Takeaway capacity for the partners is 440 MMcfepd, expect this to grow soon.
  • Nutshell: Exceptional Deal For (XCO)

    • Forgetting about the development cash and the midstream deal for a moment, the Haynesville JV works out to $10,900 per acre, a heft sum given the current environment. On a proved reserves basis, the acquisition values proved only reserves at a hefty $3.16 per acre  - BG wanted in.
    • The drilling capital gives XCO the ability to target its acreage instead of loose it as leases expire.
    • Significant debt paydown. Yesterday I commented that XCO had adequate EBITDA to interest coverage but that the net debt to cap ratio "improved" to a very ugly 90% following their asset sale on Monday. This deal brings in another $904 mm cash, so they have essentially cut their debt load in half in the last 2 days.
    • They expect to have $500 to $600 mm of borrowing capacity post deal and will host an analyst meeting in the near future to update guidance (production numbers will be coming down as these are producing assets) but bringing in a parter of BG's capacity is a big win for them.
    • The stock is likely to make a significant move today and this kind of news can give it legs, perhaps back to its recent highs and a bit beyond (see daily chart).

Odds & Ends

Analyst Watch:

  • Deutsche Bank out, raising price targets on E&P slightly, maintaining holds. Nothing really notable, looks like upgrade targets are the result of a higher oil prices.
  • PQ target cut from $5 to $4 at Jefferies. This takes into account dilution from recent secondary.

Interesting Article Watch:

158 Responses to “Tuesday – End of 2Q Plus Natural Gas Slide Show”

  1. 1
    Sambone Says:

    By Nick Heath
    Of DOW JONES NEWSWIRES

    LONDON (Dow Jones)–Crude prices jumped to new eight-month highs above $73 a
    barrel Tuesday, before the gains were reversed on doubts over the underlying
    justification for recent moves.
    ICE Brent crude leapt to $73.50 a barrel, Nymex crude to $78.38 a barrel
    during Asian trade, a move that was largely seen to have come on the back of
    speculative activity, possibly linked to end-of-quarter position adjustments.
    Supply concerns stemming from Nigerian militant activity helped prices push
    back above $71 a barrel Monday, and continued to offer crude some support
    Tuesday. A weaker dollar and higher equity markets helped limit crude’s losses,
    but concerns over weak global demand remained an obstacle to higher prices,
    analysts said.
    “If there’s a crude out there that’s in demand it probably is Nigerian. (The
    attacks) should therefore have some impact but they shouldn’t have a huge
    impact,” said Simon Wardell, analyst at Global Insight in London. “We’re in a
    situation where these things have an amplified reaction in the market,
    especially when you look at the weak demand data. We’re not going to hit demand
    highs in the next three or four years according to the (International Energy
    Agency).”
    At 1137 GMT, the front-month August Brent contract on London’s ICE futures
    exchange was down 23 cents at $70.76 a barrel.
    The front-month August light, sweet, crude contract on the New York Mercantile
    Exchange was trading 12 cents lower at $71.37 a barrel.
    The ICE’s gasoil contract for July delivery was up $2.00 at $571.75 a metric
    ton, while Nymex gasoline for July delivery was up 34 points at 193.92 cents a
    gallon ahead of expiry later Tuesday.
    Many market participants were trying to piece together what had caused
    Tuesday’s sharp moves higher. The ICE Brent contract spiked more than $1.30 to
    its new high in the space of a minute – with no apparent fresh news trigger –
    amid trading volumes far in excess of usual levels.
    “You get a move like that, you can wheel out the fundamental stories, but that
    had nothing to do with fundamentals,” said Jim Rintoul, analyst at London-based
    trade advisory TheOilTrader.com. “Someone, somewhere had to do something,
    whether on purpose or by accident.”
    Royal Dutch Shell PLC confirmed Monday it was halting some Nigerian output
    after militant attacks on wells at the company’s Estuary field. Attacks by
    militants have shut in nearly one-quarter of Nigeria’s oil production since
    2006. According to the International Energy Agency, Nigerian exports are likely
    to amount to about 1.4 million barrels a day in August, down from a peak of
    about 2.4 million barrels a day.
    While current global oil demand remains constrained due to the global economic
    downturn, the combination of lost Nigerian output alongside Organization of
    Petroleum Exporting Countries production cuts suggests the supply issue
    shouldn’t be ignored, some said.
    “While it is true that there is enough spare capacity in OPEC to replace the
    lost Nigerian barrels, it is also true that spare capacity is not of an
    immediate use if those countries that have spare capacity limit their exports
    in an effort to squeeze stocks lower,” said Olivier Jakob, managing director of
    Swiss consultancy Petromatrix.
    The first of two U.S. weekly oil and products inventory reports is due later
    Tuesday, with the American Petroleum Institute releasing its data at 2030 GMT.
    The Energy Information Administration is set to follow Wednesday. According to
    a preliminary Dow Jones Newswires poll of eight analysts, the EIA will reveal
    crude oil inventories fell by 1.5 million barrels last week, while gasoline
    stocks are seen climbing 2 million barrels, and distillates rising 1.6 million
    barrels.
    -By Nick Heath; Dow Jones Newswires

    Dow Jones Newswires
    06-30-09 0751ET

  2. 2
    zman Says:

    Sam – what would you say the vacancy rate is for the brokerage / buyside community today?

    XCO deal having positive impact on Haynesville focused names in the pre market markups. HK looking at 22.60 bid in a down NG, flattish futures. Clearly $10K plus per acre or $3 + per Mcfe has very positive ramifications for valuations for the leading players in the play. Plus, having new outside interest in the play coming with large dollars never hurts.

  3. 3
    Sambone Says:

    Scotch – neither half full glass, or half empty glass, just be sure it has scotch.

  4. 4
    zman Says:

    Ahhh, thanks.

    Dollar weakening a touch, looking like we get a retest soon. I’ve read articles in the past 48 hours from what are considered to be two of the best currency analysts out there. One says dive, dive! The other says the dollar rallies into year end.

  5. 5
    zman Says:

    U.S. Case-Shiller home price index fell 0.6% in April. Weaker than expected, bringing oil off now.

    Consumer confidence is the bigger swing on the day, expected to rise to 55.5 from 54.9 last month at 10 EST.

  6. 6
    zman Says:

    Thanks West for this reply last night:

    Z, Sorry for late response on EOG question,all I have is that it is in Karnes Co.,TX, tight hole, with a lot of leasing activity in the county. Another interesting bit on EOG’s Wyoming Upper Creataceous stacked horizontal play in Converse and Campbell counties; they plan to drill 3 horizontals targeting the Niobrara,Turner and Mowry formations from the same pad. Then they are going to drill a 11,500′ offset monitor well to detect and record microseisms and use these to create a real time image of the frac.According to recent article in RMOJ , June 12,2009 issue, “This data can be used for optimizing individual frac treatments, optimizing length, verfing effective pay-zone coverage, or optimizing an entire field development in terms of well spacing and layout. The company plans on using similiar techniques in ND for the horizontal Bakken..” Once again EOG on the leading edge of technology in action… I will try to update KOG infor from offset operators soon. One thing that probably needs to be added to financial consideration is that SWD is running $ 6.00/bbl from Peak ND filing. I will try to get some fiqures but there are not many available yet, most wells are still on confidential status. Hopefully KOG has small SW production volumes.

  7. 7
    zman Says:

    HK, CRK, GDP all jumping on the XCO JV news. If you put the $10,900/ acre figure on the HK acreage, you get $3.3 B which is half the value of the company at present. That’s pretty strong.

    XCO – watching for a pullback, up 19% just after open.

  8. 8
    zman Says:

    ZTRADE:

    (XCO) – Added (15) July $15 Calls (XCOGC), with the stock at 13.15 based on yesterday’s asset monetization and today’s joint venture in the Haynesville and monetization of regional midstream assets. XCO has been over leveraged and capital constrained but $ influx and expansion of their capital budget by bring in a larger partner will allow them to more quickly drill up the play. See post for details. The valuation XCO received is higher than I would have expected and is lifting other Haynesville players. This is a bit of a risky trade with the stock well below the strike and 2+ weeks to go until expiry but looking at the chart, we’ve seen a recent, quick downward move that these changes may recoup.

  9. 9
    zman Says:

    This news should inspire some XCO upgrades.

  10. 10
    zman Says:

    Deutsche put a $19 target and a buy rating on XCO this am…not clear if they had seen the news yet as the price target upgrade was part of the marking to market process. I doubt it as the $1 increase was too small to account for this deal.

  11. 11
    zman Says:

    Consumer confidence lousy at 49.3 vs 55.5 expected.

  12. 12
    mnt Says:

    Hi Z, what price did you pay for the xco calls ?

  13. 13
    Sambone Says:

    CNBC spin:

    Home-Price Decline Eases, Suggesting Stability in Areas

    !!!Case Shiller Index went from -18.7 last month to -18.1% this month.

    “Down is the new up!”

    “Less bad is the new good.”

    All is well!

  14. 14
    zman Says:

    MNT – $0.45.

  15. 15
    elduque Says:

    Good morning Z.

    I have been lazy. Just day trading EOG and HK.

    Thank you for the continuous insight. I think we are range bound and expect that we are near the highs.

    Haven’t had this much cash since last Aug. Man last fall was ugly.

  16. 16
    zman Says:

    and adding to 14 since it was overly verbose, I would have paid $0.50 but not a lot higher, maybe up to $0.60 on those. If I couldn’t get the leverage I would have opted for the August’s. I do think this is “game changer” news for them. Don’t know how long the halo effect of it lasts but I suspect it moves higher near term and then digests. A lot of course depends on the markets. If tomorrow turns out to be a “so now what?” beginning to the 3Q then it could be caught in the selling. But partnering here is smart, taking down the debt is smart, expanding the flexibility is smart. Their hedge position as a percent of total expected production may have decreased (as the sold assets were productive) or they may have sold the hedges with the reserves.

  17. 17
    zman Says:

    Sam – not watching CNBS but thanks. Let me know if they find a way to spin that craptastic confidence number into bull land.

  18. 18
    zman Says:

    Hear ya Eld – I think I’ll get motivated to have less cash when I see the gas supply numbers start to fall in a more meaningful way. Even a half Bcfgpd per month would be something to seize on at these prices. This dribbling decline is just not going to do it.

  19. 19
    zman Says:

    Anyone see a XCO comment from GS this morning. They advised XCO on the BG JV but I’d still like to see their comments.

    Here is the XCO presentation covering the last two days of deals:

    http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzQyNDM1fENoaWxkSUQ9MzI4ODExfFR5cGU9MQ==&t=1

  20. 20
    zman Says:

    Confidence number really sapping the end of quarter rally, and oil, and the group. Probably time for Stimulus II, lol.

  21. 21
    zman Says:

    ZTRADE:

    XCO – Adding another (15) of the XCO $15 Calls (XCOGC) for $0.35 with the stock at 12.80 as market weakness on consumer confidence brings the group and the name off its highs. Riskier than usual trade.

  22. 22
    zman Says:

    Jat or Denise – if you guys are around this week, any chance you have access to GS on the XCO? Just want to see their morning, post deal first call note.

  23. 23
    mnt Says:

    Thanks for the thoughts.

  24. 24
    zman Says:

    Reef made a fantastic map of all the discoveries in the Eagle Ford, hope to have it shrunk down enough to fit on the E.F.S. Notes tab in the near future. Maybe Wyoming can help with Jing on that.

  25. 25
    tater Says:

    HK is kind of a jumbled mess as far as TA. The drastic movements are messing up the indicators that I use. That said, it gapped up above resistance (on the 60 min chart) and has now come back to fill the gap. Daytrade would buy the gap close right now and look for a pop. Problem is too much overhead resistance at the present, too difficult to have a price target. Price topped out this morning around the 20 EMA so it seems to be sitting there as resistance, as is the 50 EMA.
    A very lame analysis, sorry. It’s just not at a great level for a TA trade, it’s between levels so it’s anybody’s game.

    Gun to head I think it sees 20 before it sees 26 TA-wise. Hurricanes and takeovers are the monkey wrench.

  26. 26
    zman Says:

    Tater – thanks, one my simple rules is “never force a trade”. Saw Johnson Rice say HK will have a mid July ops update. The rally this morning was justified based on the XCO JV valuation but was sabotaged by the broad market. Can’t fight the broad market. Just got sent a piece saying sellside is telling buyside to abandon ship on the 3Q.

  27. 27
    tater Says:

    More HK. Couple of days ago I responded to Ram’s question about HK after hours, I don’t know if anybody saw that. What I said was something about a bigger player having entered the picture due to the volume display. Apparently one explanation could be that a trader(s) with knowledge of XCO could have played it using HK as the sector might get action. Who knows. Just seems like something is not in sync with the name for me at present.

  28. 28
    ram Says:

    Thanks Tater. I appreciated that info.

  29. 29
    zman Says:

    Tater – it is likely. There have been lots of rumors for the last 2 months about a foreign entrant looking for shale. Most assumed the XOM rumors were false and that it was simply BP or STO looking to add more U.S. shale. Now I see the gas exporting countries are thinking about ways to get gas prices up (think “new OPEC” for gas here). It makes sense that BG, one of the biggest gas traders in the U.S. beefed up its gas exposure in the U.S. Also seeing more talk of delayed LNG projects. Right now if you have an LNG project, you have to be thinking Asia is your market, maybe Europe, but not the U.S. The U.S. will be full dependent on price for years. The price isn’t $4 and that will lead to supply declines but the gas shales are easily ratcheted back up so its not $10 either.

    I’m also told oil service companies continue to swing the axe, lots of jobs going away at this activity level and nothing in the price to inspire more activity. One last thing and I’ll shut up: Slick on CNBC fast money last night saying demand for rigs has turned the corner and is rising, just couldn’t be more wrong.

  30. 30
    jat Says:

    I’m not going to disagree on the direction of the gas count, but I’ve spoken to a lot of E&Ps and if these oil prices hold for a bit, we’ll see some recovery in the count there. 2010 will also look better internationally.

  31. 31
    jat Says:

    Of course, I typically love to say these things when oil is off by $2.00 per barrel.

  32. 32
    zman Says:

    Jat – I hear ya but he was talking U.S. and we are talking about high 200s or low 300s on oil vs gas where we are sub 700 from 1,500. He just made it sound like the “all clear” had sounded. I have seen some international JU demand picking up as some are stacked, its pretty region specific though, utilization still well off highs. Agree that if oil prices stay in $60 to $70 range we see some more oil rigs come back in U.S. onshore, maybe that adds a little casinghead gas to the mix. I don’t see a real recovery in gas rigs though until next year.

  33. 33
    Dman Says:

    Yesterday a link was posted here to a WSJ article on climate change, featuring Australian newspaper columnists, politicians and opinion polls

    http://online.wsj.com/article/SB124597505076157449.html

    The article makes some sweeping claims (paragraph 6) without any references or evidence, but then mentions a book “Heaven and Earth” by Australian geologist Ian Plimer. As mentioned, the article is long on politicians and journalists, but doesn’t bother to bring you the views of any climate scientists. This is particularly curious because

    (a) Australia has a substantial climate science effort
    (b) Australian scientists have responded comprehensively to Ian Plimer’s book and the material is all conveniently online where you can see it. I found it by employing a super-secret technology known as the “wikipedia”, so I guess it was beyond the ken of the fearless WSJ scribe.

    More likely, the WSJ simply didn’t want you to see any real science. Without further ado, here are (some of) the available links:

    Professor Kurt Lambeck, president of the Australian Academy of Science, discusses Professor Ian Plimer’s book Heaven and Earth:

    http://mpegmedia.abc.net.au/rn/podcast/2009/06/orr_20090607.mp3

    Geologist and planetary scientist Malcolm Walter reviews Ian Plimer’s book, Heaven + Earth.

    http://mpegmedia.abc.net.au/rn/podcast/2009/06/ssw_20090606_1205.mp3
    (item starts about 45 seconds in)

    Australian Science Media Centre RAPID ROUNDUP: New book by Ian Plimer doubts human-induced climate change – experts respond:

    http://www.aussmc.org.au/IanPlimerclimatebook.php

    “Ian Plimer’s ‘Heaven + Earth’ — Checking the Claims”
    Comprehensive point by point review of the book, identifying a vast array of falsehoods, fabrications and misrepresentations:
    Interestingly, this document (pdf) also suggests that instead of taking their word for it, you can track down most of the points yourself and gives a detailed guide for how to do so.

    http://www.complex.org.au/tiki-download_file.php?fileId=91

    A general summary of the last link would be that Plimer relies on fabricated or misrepresented data and frequent misrepresentation of the work of others. In particular, he frequently quotes studies, claiming they support his views, but examining the original studies (or consulting the authors) reveals the opposite (the first audio link above contains an example).

    If a paper containing fabricated, distorted and misrepresented data and misleading literature citations were published in a scientific journal, the result would be a scientific misconduct investigation. Scientists found to have committed fraud usually find their career options rather dramatically reduced, but I guess they could always blog for the WSJ.

    Finally, I note that Plimer’s accuses his critics of being “urban environmental atheists attempting to impose a new fundamentalist religion”. I invite you to listen to either of the two audio segments above and tell me if you can identify religious fundamentalism at work.

  34. 34
    zman Says:

    Jat – I hear ya on 31 as well. I’m seeing more bargains though as the stocks were higher at $60 oil and we are off $2 but still at $69+. Stocks took a breather post 1Q results and other than a strong week here and there, haven’t kept up with the things that they sell. Hedges, no hedges, hasn’t really been much of a factor either. Last time I’ll ask but any color from the sell side on the XCO deal today. Like to know if they think it is as much of a “get out of jail free” pass as I think it is.

  35. 35
    Dman Says:

    Z – I’ve tried to post some links but it looks like the filter didn’t like them…

  36. 36
    zman Says:

    Dman – will check, one second.

  37. 37
    zman Says:

    Dman – that was despammed and is 33 above. The filter will always stop more than 3 links in a comment.

  38. 38
    bill Says:

    maybe you should have a link despaming global warming bullchit. SOme people think their life is on the line

    anyways, did you see the eagleford results from sm

    http://finance.yahoo.com/news/St-Mary-Announces-Successful-bw-4243967229.html?x=0&.v=1

  39. 39
    zman Says:

    Bill – do mean the E.F.S. results from SM last week? I see nothing newer. I wrote this when they released those results: (now shows up on the E.F.S. reports link)

    6/25 – SM and Eagle Ford Update ~ Z

    * (SM) Announces Webb County Well. See map of Texas counties here.
    o Briscoe G 1-H:
    + 7 day test of 5.6 MMcfepd, 79% gas; working interest on this one and the next, 100%. They commented the test was constrained by facility limitations but did not elaborate.
    + 7,500 deep (much shallower than the PXD well way over in Dewitt county) with a 3,200 foot horizontal, 10 stage frac
    + Cost of $5.2 mm with extra science on the well; (SM) sees future wells in the $3.5 to $4.5 mm range. They comment that their EFS acreage is shallower than others in the play which is true and say this leads to reduced drilling times and therefore costs which really isn’t that much of a savings as the vertical part of the well is the easiest, least complex part of the task.
    o Acreage Increasing. SM announced that they had bumped up their E.F.S. acreage from 210,000 to 225,000 acres
    o Second Successful Well. A second well has been drilled and cased in Dimmitt County but not yet tested
    o Two Rig Program Through Year End
    + They are running a 2 rig program (1 rig in Webb and 1 rig in Dimmitt in JV with APC/TXCO)
    + They plan to drill 2 more horizontals (beyond the second well mentioned above) on their 100% working interest acreage (195,000 acres) and 2 more on their JV acreage with APC prior to year end.
    o SM had reserves of 866 Bcfe as of YE2008 so this program won’t be a big addition this year, assuming the wells ar 4 Bcfe apiece, but with higher prices, they offer a low finding cost solution for reserve additions when gas prices recover in 2010 and beyond.
    o Just a little background on these guys;
    + Haynesville, Eagleford, Woodford, Marcellus focus
    + fairly gassy (65% of 1Q production),
    + well hedged (50% of Mcfe’s hedged north of $8 this year; but also over 50% in good hedges in 2010 and 2011.
    + balance sheet: 34% debt to equity (so not high, a little over half of that is revolver debt which they may have a desire to eliminate given gas prices) ; EBITDA to Interest of 17x (so debt is well in hand, their hedges are helping them a lot with cash flow generation at present)
    + they beat guidance for 1Q and upped full year guidance to a decline of 7 to 10% for 2009 YoY as try to spend within cashflow.

  40. 40
    zman Says:

    Thanks Dman – that’s what I was looking for.

  41. 41
    bill Says:

    39.. great write up

  42. 42
    Nicky Says:

    Morning all. 930 provided reistance and they appear to be tanking it. That saidI can’t get too bearish here. It looks to me as if this could be a C wave and from this area of a bit lower we stage another bounce. If the count is bearish we just tank but I am not feeeling it!

    Oil wow what movement in the last few hours. Z what are you expectinf ror inventories.

  43. 43
    zman Says:

    Thanks Bill. Reef put together a great map of all discoveries to date in the play with locations, IP’s etc. Because I am a tech neophyte and my IT guy is MIA, it is not on the Reports tab yet but it will be soon. Next data point almost assuredly comes from HK. They’ve punched some 9 MM/d size wells and have said bigger wells have been drilled since the last report. Now they are saying this play is at least as good as the Haynesville.

  44. 44
    zman Says:

    Nicky – Another medium sized drop for crude stocks due to higher refiner throughput. Nothing really to write home about, we’re still more than adequately supplied on oil. I am expecting bigger gasoline demand number but as you can see from the post, demand has been 1 step forward, 1.5 back, etc etc etc. Crude was $73 overnight, and didn’t sell off until we saw the housing number and then confidence, so I don’t think inventories is going to be the problem for it (unless we get some way off numbers) as much as the market and the dollar. Why is the dollar up today I wonder.

  45. 45
    RMD Says:

    my take on XCO conf. call:
    HS: pipeline capacity big issue in HS, no constraint for XCO; will invest another $100mm in AMI in acreage, even at $5-50m/ac; decline curve following Barnett as expected; there weree lots of intn’l bidders after CHK/STO deal.
    BEARISH cast on nat gas market generally:
    want $0-500mm debt by 12/09; will JV more acres in several areas, Marcellus deal coming; won’t necessarily uhhedge as debt is paid down even as % production hedged increases to 75% proforma the deal; keep hedged given “economic and legislative threat”; industry getting increasing leery of 2010 gas pricing; gas supply should start “crashing”; HS works at $4.00, Cotton valley, Vernon, Appalachia (?) needs $6.00, though strip is over $7.00 in 2011.

  46. 46
    Nicky Says:

    The $ is right on the edge of a precipe hence the reason for the bounce I think! Just as everyone thought we were going to tank they bounced it!

    Dennis Gartman said earlier that if contango is any indication then oil goes higher.

  47. 47
    zman Says:

    Thanks much Nicky and RMD.

  48. 48
    zman Says:

    So now we are about to get the Consumer Finance Protection Agency? I can’t wait to get the option to have a Fed buckle me into my car and tuck me in at night. Oh yes, and I need to take less tylenol to boot! Ugh.

  49. 49
    Nicky Says:

    Just looking at euro and sterling against the dollar. Both have made 3 waves down off this mornings high. If euro can get back above 140.80 and sterling above 166.10 then likely we are going to see dollar break down again, indices bounce.

  50. 50
    zman Says:

    Thanks again Nicky, that is very helpful.

    Group starting to green back up a bit.

  51. 51
    Dman Says:

    Z – you asked yesterday about a ranking of CO2 sources. I haven’t found one yet, but no doubt it is hiding in plain sight somewhere. I’m guessing the biggest “source” will be from animals, but this isn’t really a source because all the animal CO2 was originally removed from the atmosphere by the plants the animals eat (or the plants their prey species ate, if they are carnivores).

    In other words, animal emissions are part of the “carbon cycle”, whereas fossil-fuel emissions are a one way trip and thus add progressively to CO2 levels. But there are other sources of “one-way” CO2 (or other greenhouse gases, for that matter), such as volcanic eruptions, and there are probably other “sink” mechanisms too, eg ocean absorption. I have no idea of the relative scale of these & it would be nice to see a table somewhere.

  52. 52
    Nicky Says:

    I am also noting that whilst silver took a tumble this morning, gold has held up relatively well.

  53. 53
    Dman Says:

    Crude is working off its overbought readings without much technical damage, i.e. correcting in time instead of price. Simplistic “trend=friend” view says it goes higher. I find it hard to believe it can get thru hurricane season without at least a spike into high $70s. The “persistent bid” under crude (Dan Dicker’s phrase) would surely be related to the dismal dollar chart.

  54. 54
    elduque Says:

    OK it is a quiet day. Question for you. I have a substantial position in CHK and a secondary position in SD. Also, large position in CDN Trusts.

    What area of our market do you think has the most potential. Baaken, Eagle Ford or other shale plays. What co. or cos. do you think given their price relative to the plays do you think are the best value right now.

    I realize that you have done this before, but in some respects it is like reading a 30 day old research report. It is 30 days old.

    Thank you for all that you do.

  55. 55
    elduque Says:

    Or if you don’t want to do any writing, just point me in the direction of what TAB’s to use.

  56. 56
    Dman Says:

    Another review of the Plimer book, this time by an astrophysicist:

    http://www.theaustralian.news.com.au/story/0,,25433059-5003900,00.html

    “Plimer probably didn’t expect an astronomer to review his book. I couldn’t help noticing on page120 an almost word-for-word reproduction of the abstract from a well-known loony paper entitled “The Sun is a plasma diffuser that sorts atoms by mass”. This paper argues that the sun isn’t composed of 98 per cent hydrogen and helium, as astronomers have confirmed through a century of observation and theory, but is instead similar in composition to a meteorite.

    It is hard to understate the depth of scientific ignorance that the inclusion of this information demonstrates. It is comparable to a biologist claiming that plants obtain energy from magnetism rather than photosynthesis. ”

    Dman comment: leaving aside the looney-bin solar theories, the depressing thing about most of the bunk in Plimer’s book is that it is just the same old nonsense that has been circulating endlessly on the internet for years. It doesn’t matter how many times it gets knocked on the head, it always rises again, zombie fashion.

    In fact, that is a good way to characterize the climate “noise” (I won’t call it a “debate”): an endless zombie movie that just won’t stop.

  57. 57
    zman Says:

    El-d – Do want to write, had stepped across hall, just one minute.

  58. 58
    zman Says:

    Eld – Ok. Will make some assumptions and get back to you in the morning post, broken down by safe to risky, with an eye on upside vs current level.

  59. 59
    Nicky Says:

    Joe the idiot Terranova said we made a new high in oil last night at 73.35. We did not! The previous high on 11th June was around 73.80.

  60. 60
    zman Says:

    Nicky, obviously he meant for the type of oil he uses in his hair. The guy is worthless re his oil opinion which shifts with the color of the tick.

  61. 61
    Nicky Says:

    LOL Z – actually if you could see him he obviously does spend a lot of time on his hair! He is now flat oil.

  62. 62
    zman Says:

    I notice his calls on oil as him being long on oil on green days and flat on it the second it trades down. Said yesterday he spent the whole day trading HES. HES traded pretty flat all day long, his buy thoughts mean nothing to me.

    And don’t get me started on Epperson, that has to be the easiest job on the planet, regurgitating headlines and trader comments 30 seconds at a time, 10 times a day.

  63. 63
    elijahwc Says:

    Financing still comes at a dear price and managements will still take any and all:

    13:11 BBG Bill Barrett announces upsizing and pricing of offering of $250 mln of senior notes (27.19 -1.14)

    Co announces that it has priced its $250 million aggregate principal amount of 9.875% Senior Notes due 2016. The notes were sold to the public at 95.172% of the face value to yield 10.875% to maturity. The offering size was increased from $200 million (as previously announced) to $250 million. The notes will be unsecured, unsubordinated obligations of the Company. Initially, all of the Company’s subsidiaries will guarantee the notes.

  64. 64
    zman Says:

    Estimates for tomorrow on the EIA from Bloomberg

    Crude down 2.0 mm barrels
    Gaso up 2.0
    Distillate up 1.5

    hmmm, people working hard this week.

    Last year’s actuals:

    crude down 2.0 mm barrels
    Gaso up 2.1
    Dist up 1.3

  65. 65
    Dman Says:

    Nicky – on my continuous contract chart there was a new high last night. But on the august futures (CLQ9) I see the 73.80 high on June 11.

  66. 66
    Sambone Says:

    HOUSTON, June 30 (Reuters) – California gasoline demand fell
    5.6 percent in the first quarter of 2009, compared to the same
    period of the previous year, the California State Board of
    Equalization said on Tuesday.
    Diesel consumption was down 11.6 percent in the first
    quarter, the Board of Equalization said.
    (Reporting by Erwin Seba)

    Tue Jun 30 17:18:02 2009

  67. 67
    Wyoming Says:

    In meetings all day, had to split in two

    http://screencast.com/t/fTAZ54cni7

    http://screencast.com/t/g3jt0BSZ3Dz

    have a good day.

  68. 68
    ram Says:

    Wow – thanks Wyoming.

  69. 69
    zman Says:

    Thanks Wyoming and thanks to Reef for making the maps.

  70. 70
    zman Says:

    Jat or anyone who sees it, please post the API numbers if you get a chance post close. Thanks.

  71. 71
    zman Says:

    Those maps have been added as Map 1 and Map 2 on the EFS Report Page.

    http://zmansenergybrain.com/2009/06/24/eagle-ford-shale-notes/

  72. 72
    zman Says:

    Simon Cowell to get $144 mm per year to stay on Idol. I wonder if the government will come in and say that’s unreasonable and cap his salary.

  73. 73
    elijahwc Says:

    Re: #72

    He’s a Brit. They already get 70%+. Smart way for the Queen to pay the mortgage and leave little for team Obama.

  74. 74
    zman Says:

    Going back and listening to this morning’s CC with XCO.

    Took over a minute to get the first question in the Q&A. Nobody is around, those who are are asleep.

    Good call, didn’t hear much new other they are really getting after it in the Haynesville, very happy to have gotten BG into the play.

    How many wells on $400 mm? They thought wells were $10mm, getting to $8.5 mm apiece now, be there by year end.

    No min or max on the commitment per year. BG wants to go faster, they think they have 3 more rigs coming, 4 or 5 more next year.

  75. 75
    Wyoming Says:

    ram,

    Thanks for the cudos but I only made the copy. I think the source was Reef. Back to the meeting.

  76. 76
    zman Says:

    EUR Talk In The Hayensville:

    XCO comfortable at 8 Bcfe per well EUR, that is bigger than HK has said yet. They said they thought the 5 to 10 IP were 6 Bcfe wells, they think these 20+ MM/d IP wells, could be 10 to 12 Bcfe. But for now, they just aren’t comfortable calling them the bigger number yet. They said the wells 6 months in are just holding up better than they thought. Good for Haynesville players, probably bad for gas prices. I’ll have some number ranges in tomorrow’s post on the meaningfulness of this.

  77. 77
    zman Says:

    XCO – production growth from the ramped activity in the JV sounds like it is going to be quite a bit bigger than analysts were looking for. Look for some upgrades here.

  78. 78
    zman Says:

    Coronathirty.

  79. 79
    edstile Says:

    Z – Can you please update your 10KP holdings list? I’ve been away for a couple of weeks and need to get updated. Thanks!

  80. 80
    zman Says:

    Ed – Will do for the morrow. The Wiki tab is updated for everything but today’s trades in XCO.

  81. 81
    zman Says:

    Oil rallying post close, post API. Anyone have API access yet?

  82. 82
    zman Says:

    Analyst Watch: a little late but it furthers my point on the refiners. GS cut the group from Neutral to Sell this morning. Really not much of an impact on the day as everyone has already abandoned ship who isn’t a long term believer here. They do like FTO (which I own a little of in the common) and HOC.

  83. 83
    zman Says:

    API Watch:

    Crude stocks down 6.8 mm barrels
    Gasoline up 209,000 barrels
    Distillates up 723,000 barrels

    See expectations #64.

    If anyone sees API imports (which had to be very low) and utilization please let me know.

  84. 84
    zman Says:

    Thanks Jat, got the email. Bullish looking numbers indeed, at least as far as 1 week making a trend and all goes. Crude looking to move back to $71 after hours.

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