28
Jun

Monday Morning

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Market Sentiment Watch: Tropical Storm Alex is veering towards Mexico instead of the central Gulf which is not supportive for commodity prices (see comments in the Stuff section for the weekend mailbag for more). We also have a slight moderation in the early summer heat wave which could pressure natural gas this week in spite of the fact that we should get a very below normal injection report this Thursday. But with Alex's move towards Mexico, the Gulf Coast gets a short break in their luck as does BP. Speaking of BP, the relief wells are now ahead of schedule with the first forecast to intersect the original wellbore by mid July (about 2 to 3 weeks ahead of plan). This could be setting up the dead cat bounce of the decade in those shares. I currently don't hold any after having caught the falling knife there too early in May and early June. I continue to hold HAL which I believe is still overly beaten down and due for a run as we approach 2Q numbers and which also  should catch a wave with better sentiment for the whole BP spill group.

This week on the economic front all eyes are focused on jobs. Spending data of late has been OK but jobs data have failed to gain much traction and are set to contract in this week's report for June's jobs. Not good. If the private sector number fails to impress look for an ugly week. Also, I'd expect state budget deficit stories to make bigger than usual headlines this week as many major cities are due for July 1 budget proposals. 46 of 50 states are now projecting major budget shortfalls. Mid week will be the end of 2Q window dressing so expect some Wednesday volatility but as the week comes to a close, look for the time after payrolls on Friday morning to be dead in the markets as many traders eye a 3, 4 or longer day weekend combined with next Monday's 4th of July market holiday.

Ecodata Watch:

  • personal income came in up 0.4%, (f=0.5%)
  • consumer spending came in up 0.2%, (f=0.1%)

The Week Ahead:

  • Tuesday 6/29: consumer confidence (f=62.8, last read 63.3)
  • Wednesday 6/30:  EIA Oil Inventory Report, ADP employment (f=63K), Chicago PMI (f=58.8%)
  • Thursday 7/1: EIA Natural Storage Report, jobless claims (f=455K), ISM (f=59%), construction spending (f=-1%), car sales (f=11.3 mm)
  • Friday 7/2: Nonfarm payrolls (f=-115,000, last month 431,000 (largely Census based)), private sector payrolls (f=123,000, last month 41,000), unemployment rate (f=9.7%), factory orders (f=-1.1%)

In Today's Post:

  • Holdings Watch
  • Commodity  Watch
  • Stuff We Care About Today
  • Catalyst Watch Update
  • Odds & Ends

Holdings Watch: ZCAT (Zman Catalyst portfolio):

  • $6,000
  • 99% Cash
  • Positions are updated on the ZCAT, ZIM, ZLT.

ZIM (Zman Inefficient Markets portfolio)

  • $6,400
  • 45% Cash

Commodity  Watch:

Crude oil rose 2% last week to close at $78.86, with all of the rally occurring on Friday as the cloud pile that is now Alex threatened. The 12 month crude strip is now trading at $81.18. This morning crude trading off slightly.

  • Mexico Watch 1: Output Bottoming? Late Friday, PEMEX released production figures for May showing production of 2.593 mm bopd, in line with April's volumes but off 1.9% YoY. Officials also said exports to the U.S. hit their highest level of the year in May, which explains the recent recovery we have seen in crude imports. Imports are still tracking to low to recent history.

  • Mexico Watch 2: Export terminals closed. 2 out of the big 3 Mexico Gulf terminals shut down Sunday due to Alex, curtailing about 1.1 mm bopd of oil that would normally be headed to the States. This should put a dent in imports for the next several days and should show up in next week's EIA report.

Natural gas eased 3% last week to close at $4.86. The 12 month strip is now trading at $5.30. This morning gas is trading down a few pennies.

  • Weather Watch: Still warmer than normal, temps moderate a bit this week.

Tropics Watch:

  • 93L became Tropical Storm Alex which is now tracking towards Mexico and may became a Cat 1 Hurricane before it hits the coast again, somewhere south of Brownsville. This is early for a named storm to develop in the season.
  • Invest 94L appears to have lost cohesion over the eastern Atlantic.

Stuff We Care About Today Weekend EMailbag Watch - in response to JD's query: Q: Why would HK, for example, go up in a storm while others could get hammered? A: HK's production is all onshore. Losing some production temporarily in the Gulf  usually sends onshore players with gas price exposure higher. Q: Is it just the ones located in the storm path that get hurt? A: The moves are typically pretty fleeting unless there is actually damage to offshore infrastructure. Often the move down after a storm fails to impact production is bigger than the move up. Q: While others such as HK benefit from a spike in gas prices? A: Yes Q: Any way to play this on and off moratorium bythe president? A: I'm playing it via HAL. Other potential ways are ATPG who is not likely to go out of business during the moratorium but whose stock has been hit hard. I'm also playing it by having increased Bakken exposure onshore. Other Stuff:

  • NE acquires private offshore drilling outfit for $2.16 billion
  • CLNE on the tape with a deal with LA Metro Transit for upgrade, operation and maintenance of CNG bus fueling facilities.

Catalyst Watch Update Odds & Ends Analyst Watch:

  • HAL and SWSI - upped by Macquarie to Outperform
  • VQ - target upped from $20 to $25 at Wunderlich, rating stays Buy

Interesting Reading Watch:

100 Responses to “Monday Morning”

  1. 1
    zman Says:

    Comment sent from Raymond James:

    In the long run (5+ years), the lucrative economics of natural gas fuel indicate that the U.S. has the potential to become a respectable market for natural gas vehicles. This is already true of such gas-rich countries as Brazil and Iran. For this to happen, however, fuel distribution infrastructure must become much more widespread, allowing NGVs to enter the consumer market rather than just the commercial arena. Secondly, increased availability and diversity of factory-made automobiles and trucks need to become more mainstream. Public policy is already supportive of NGVs, but a stronger commitment from Washington, along the lines of the Pickens Plan, would certainly help. If all that materializes, there is no reason why NGVs can't eventually contribute 1 Bcf/d of gas demand (up roughly 10x from current levels), and perhaps even more. Just don't hold your breath. The U.S. is at least five years away from NGVs making a meaningful dent in U.S. natural gas demand.

  2. 2
    zman Says:

    TSLA coming public this week.

  3. 3
    scoop006 Says:

    IS IT POSSIBLE IN INCREASE THE SIZE OF THE FONT.

  4. 4
    zman Says:

    Scoop – do you mean of the post itself? I can bump that up if you like.

  5. 5
    zman Says:

    BEXP on the tape with well news and production …

  6. 6
    scoop006 Says:

    #4 The post itself perhaps 2 sizes up

  7. 7
    scoop006 Says:

    JUST NOTICED THE SIZE BOX.    14 OR 16 WOULD WORK FOR ME

  8. 8
    zman Says:

    BEXP Operations Update

    3 new wells (I was saying 2 to 4 wells would be available any day now), rates of 3,070, 2302, 1847 boepd

    2Q production target upgraded to a range of 7,000 to 7,500 boepd.  Past mid point was 6,500 boepd

    Oil is the biggest piece of the growth, 2Q volumes set to be about 5,150 bopd, guidance was 4,420 bopd

    Upcoming well will have 38 frac stages, another new record

    See adding wells faster in the second half (adding additional access to another frac crew in August)

    Will add a 6th rig in September (this was as planned, adding another rig every four months until they get to 8)

    The Pale Rider well is a July event – Montana Bakken, pretty important to the name.

    The Three Forks well in Rough Rider has not yet spud (USEG spilled beans on this Friday), now called a 3Q event.

    Good report all in all, you can bet estimates for this year and next will track higher with the production beat.

     

     

     

     

  9. 9
    elduque Says:

    running very slow. Baltic down just a little. Ted spread narrowing.

    If you need a reason to be nervous, re John Hussman's latest comments.

    Have a great week.
     

  10. 10
    zman Says:

    Re 6,7 – done

    ELD – yep, should pass soon, will call in if it persists, working on getting a new host this summer.

  11. 11
    zman Says:

    BEXP should rock today, market willing. ZIM to examine an opening position at the open.

  12. 12
    elduque Says:

    I like 14 better than 12. But at my age, I am lucky I can see.

  13. 13
    zman Says:

    I used 16

  14. 14
    scoop006 Says:

    Z -THANK YOU PERFECT FOR ME, BUT IF OTHER MEMBERS COMPLAIN ABOUT PRINT BEING TOO LARGE YOU COULD TAKE IT DOWN A NOTCH BTW, WHAT SIZE IS IT NOW

  15. 15
    zman Says:

    That's 16, I'm sure no one will mind.

  16. 16
    zman Says:

    ZTRADE – ZIM – BEXP

    BEXP – Added (10) BEXP $17.50 Calls for $0.90 with the stock at $17.30 on the open after a good looking operations update.

  17. 17
    zman Says:

    ZTRADE – ZIM – BEXP

    BEXP – Added (50) July $20 Calls fro $0.15.

  18. 18
    zman Says:

    BEXP cha cha in progress, reacting to group action, not yet to the news. Expecting them to do one on ones at Jefferies today which has a pretty energy savvy institutional client list.

  19. 19
    AAA Says:

    This must be the written version of the HBO documentary.  http://www.vanityfair.com/business/features/2010/06/fracking-in-pennsylvania-201006
    Short version:  People in bucolic village leased gas rights to big, bad company that cut down trees and generally made a big mess.  Fraccing is bad.  After all, it was invented by HAL, where Dick Cheney was CEO. 

  20. 20
    zman Says:

    AAA – thanks, your summary is a pretty good one of what I saw on TV.

  21. 21
    zman Says:

    TAT Operations Updatedrilled Turkish gas well, came in at "clearly commercial" rates

  22. 22
    ram Says:

     
    I like the optional text attributes.  Dynamic emoticons?  You know, you have to do a double take at the sentence above the submit comment button.

  23. 23
    zman Says:

    BP costs now estimated at $100 mm per day. That's starting to look like real money even to them. Those relief wells can't get down fast enough for the Gulf Coast. Saw Gulf Shores on the news last night, where I was on Spring Break. Was beautiful, now a real mess.

  24. 24
    VTZ Says:

    The site is very slow for me… anyone else?

  25. 25
    zman Says:

    VTZ – yes, my host is having difficulties today, same as late last week, they tell me they are working on it.

  26. 26
    VTZ Says:

    Just letting you know. Wanted to make sure it wasn't just me.

  27. 27
    zman Says:

    Thanks V, not just you. I've started the process of getting a new host but it's much easier said than done.

  28. 28
    ram Says:

    Very slow.

  29. 29
    zman Says:

    Actually it is refreshing quickly for me now. Or do you mean the market? Because that is indeed slow.

    Does anyone here view the site on Safari, any difficulties with viewing that way?

     

     

  30. 30
    cargocult Says:

    Is the BEXP chart for the past year a wonder to behold?

  31. 31
    zman Says:

    re 30. Yes. But the beat down there due to falling oil was undeserved. It really should never have gotten that low, as we were getting good oil rates from the Bakken then. The group was just overly hated.

  32. 32
    isleworth Says:

    I use Safari and have no problems Z.

  33. 33
    zman Says:

    Thanks Isle.

     

    This week's market looks like last week's market.

  34. 34
    VTZ Says:

    Halftime… maybe you'll get a solid 15 minutes of trading.

  35. 35
    zman Says:

    re 34. Me guilty as well, sadly Slovakia looks outclassed.

  36. 36
    VTZ Says:

    The gold pits are taking the opportunity at halftime to beatdown gold from approaching new highs…
    Netherlands is quite a strong team and looks even better with even a half healthy Robben.

  37. 37
    AAA Says:

    Gold getting slapped around.

  38. 38
    ratberto Says:

    Works fine on Safari for me as well.  

  39. 39
    reefguy Says:

    Bird of Prey-  AShe is blind, as internet, hardline and TV are all on Comcast and that is down.  Call her on her cell to communicate….Reef

  40. 40
    zman Says:

    Simmons pointing out that the 30 day waiting period for ARD to be shopped to another buyer ends July 1. They're putting an $11 number on combined entity should the deal happen and they see the deal happening in July.

    OAS acting better today but on nothing volume. Could mean the flippers are done flipping.

  41. 41
    choices Says:

    Gold:  falling off fairly rapidly after testing previous high @1266

  42. 42
    zman Says:

    Thank Rat

    Thanks Reef – tell her to read good book, that GST hasn't said anything new and that BEXP upped guidance and the stock didn't notice.

  43. 43
    choices Says:

    #41-sorry-repetitive-did not see previous posts.

  44. 44
    zman Says:

    Market trying to rally, again, volumes pathetic.

  45. 45
    zman Says:

    Mid morning Tropics update. Alex now set to be a Cat 1 overnight and to swell to a Cat 2 by Wednesday, track continues to shift slightly north of original looks. Now centered on Brownsville.

    http://tropics.hamweather.com/2010/atlantic/alex/trackmap_zoom1.html

  46. 46
    tomdavis12 Says:

    Z: Notes from NE CC. Two primary moving parts: 1. Purchase of FDR – Frontier and 2. Commitment to Shell and newbuilds going forward. Cash accretive right away. Earnings accretive starting "11. Adding 6B revenue to backlog. These are YE '10 figures. Will end up with net debt  3B. Gross debt to market cap = 28%. Cash flow will pay off in 3 years if they go that route. Deals with Globetrotter are lower day rates with bonus metrics built in. Will not have any newbuilds unspoken for with these 2 ships for Shell. Book Value per share = $27.3. Positives: 1. There are still operators looking to make long term drilling commitments. 2. NE now #2 in total rigs behind RIG and #3 in floaters. 3. Analysts were generally pleased and will be slightly positive on their reports. 4. Will be a name to be long if the drilling moratorium gets lifted. No guidance from company re their time frame guess. Negatives: Since stock is lower from CC price, energy space does not feel like area for risk on. Some earnings/sh #'s may come down ( were too high since 4/20). Slides are on their website. Stock is cheap. Market saying "So What".     

  47. 47
    jiveyjr Says:

    HK…one tough hold.  everytime I think I've got patience this position reminds me what a schizophrenic, whiney baby I am

  48. 48
    zman Says:

    Tom – thanks for the update.  ?s.

    1) did you come away with a price / ship on the FDR deal? Wondering how the deal was priced.

    2) any mention of floaters in the Gulf running down to Brazil to take advantage of PBR's large tender?

    3) any comments aside from the Shell deal on the moratorium?

  49. 49
    zman Says:

    OAS move continues, tripled in price change and volume since last mention, still very low.

    BEXP back to even on day. Hmmmph

    BP one of best performing energy stocks on day, due to relief over direction of Alex.

  50. 50
    elijahwc Says:

    Oil & Gas Investor's Discovery of the Year
    http://www.mcmoran.com/pdf/2010/moffett_best_discovery_reprint.pdf

  51. 51
    zman Says:

    Jivey – hear ya, should turn soonish.

  52. 52
    VTZ Says:

    I'm looking for 1233-1234 and 1224-1228 for support in gold.

  53. 53
    tomdavis12 Says:

    Z: 48 1. The deal was done @ approx 6x EBITDA. 2. They will talk more about that on the Q call 7/22. They only have 3 significant rigs in GOM Romano, Atkins and one from FDR. They are dealing with each operator differently. Shell far less contensious than APC. I think APC very worried about their liability, want very few commitments if they can. Romano has been released from current contract and most likely to end up somewhere else. I think lower price per day with bonus is the compromise between operator and rig owner going forward to spread risk. 3. They like us do NOT want to speculate on anything the gov't may or may not do. 

  54. 54
    tomdavis12 Says:

    Z: CC# 2 Although operators now have hammer over rig owners. Rig owners have hammer over shipyards. NE only has one newbuild now. Prior to today they had commitments for two. 

  55. 55
    zman Says:

    Tom – thanks much. Looking for a way to play the changing tides in the rig space.

  56. 56
    zman Says:

    Market still for the birds.

  57. 57
    zman Says:

    SSN trading up a penny, volume lighter today but still high. Should see a move higher by Thursday (Wednesday drop dead date on the rights offering). Here's to a highly oversubscribed deal. If it's not then people are well and truly hibernating.

  58. 58
    zman Says:

    UK sees record interest in North Sea licensing round. Go figure.

  59. 59
    zman Says:

    JB – can I get your latest, greatest thoughts on HAL? Thanks.

  60. 60
    Popeye Says:

    SSN – I don't doubt it gets oversubscribed but I want all my 22k discounted shares LOL. BTW what are they going to do with all
     this cash?

  61. 61
    tomdavis12 Says:

    Z: 55 As you and everyone else have pointed out, putting risk on for me will only come with a better bond market. 

  62. 62
    zman Says:

    Popeye – cash from rights and cash from acreage sale should go to developing the rest of their land, primarily towards a Niobrara program.

  63. 63
    elijahwc Says:

    MHR: Sorry for using up all this bandwidth, but for those of us with interests in MHR, the company conducted a field trip and luv-fest last Friday.  Notes/excerpts follow. Lots of data bits:  Most important it appears everyone is moving the NAV up a buck or so probally in front of a financing.  Wonder what the timing will say about what they see along the way?  Gotta love Gary Evans. 
    Pritchard:  Analyst Field Trip Highlights – MHR held a Sell-Side analyst field trip on Friday to visit its first operated well drilling in the Eagle Ford (EF) Shale, the Gonzo Hunter #1H that spud on June 10 in the oil window in Gonzales County Texas. In addition to MHR senior management, also in attendance were representatives from HAL ($26.34-B-$36); the HAL team gave an EF technical presentation. The HAL team said the EF has had the fastest learning curve of any of the shale plays they have been involved with.. The Gonzo Hunter has reached total vertical depth of 10,200 ft., the turn has been made to drill the 4000 ft. lateral, and the well is scheduled to be completed in late July. The Patterson #135 rig is contracted to drill 3 EF wells back-to-back, with the second in Atascosa County, and the third likely in Fayette. The Gonzo Hunter is near 3 Marshall wells drilled by EOG ($109.78-NR) that are among the best wells drilled in the EF oil window to date. We took a helicopter tour of the area and saw some of the EOG activity. MHR is expecting Gonzales County oil window EF wells to cost $5.25 to $6.0 MM to drill and complete, with EURs of 350-520 MBOE. IRRs are over 100% at $80 oil/$4 gas. MHR’s overall EF position is ~21,500 net acres.
    In the Marcellus Shale, where the company is highly levered to the play with 42K net acres, all in West Virginia, the first two operated wells are expected to spud back-to-back in Tyler County in late July or early August. MHR plans to complete the initial wells in mid October and be selling Marcellus gas in November; an initial 6 mile pipeline hookup for the first wells is part of a bigger plan for the Eureka Hunter Pipeline to move 200 MMcf/d of gas. The company is seeing a lot of partnering interest in the Marcellus, and we could see a JV at any time. (Maybe Reliance again??) .Since closing on the Triad acquisition in February 2010, MHR has increased conventional Appalachia production from ~1000 Boe/d to ~1150 Boe/d mostly through simple blocking and tackling. We continue to like MHR for its leverage to both the EF and Marcellus; reiterate ‘Buy’ rating and $6 price target. (Berman)
     
    Rodman: Bullish on Eagle Ford oil. Last Friday, MHR hosted an analyst field trip to the drillsite of its 1st operated horizontal well in the Eagle Ford Shale, the Gonzo Hunter #1H, located in Gonzales County within MHR’s AMI with Hunt Oil. The well was spud on June 10 and is currently making the turn on its horizontal leg; a ~4,500’ lateral is planned. While this is MHR’s initial horizontal well in the play, the company is moving up the learning curve with the expertise of crews from Patterson-UTI Energy Inc. (PTEN, Not Rated) and Halliburton Co. (HAL, Not Rated), who have been in the play from the beginning. Also, the Gonzo Hunter #1H is located only 15-20 miles northeast of some big oil wells operated by EOG Resources (EOG, Not Rated) and Petrohawk (HK, Not Rated). The former’s Marshall wells had IP rates of ~700-1,650 Bo/d with associated EURs of 350-520 MBoe and were frac’d by HAL. We expect positive results from the Gonzo Hunter #1H and think this should provide a nice catalyst for the stock.

    Room for our NAV to move higher over time. To date, MHR has focused its leasing activity on the prospective oil window of the Eagle Ford Shale (although it has slowed its efforts as costs increased to the $1,500-$2,500+ range). Of its ~21,500 net acres in the play, ~70% are in Gonzales County. Our NAV currently risks the company’s acreage by ~65%. This yields net upside potential of ~20 MMBoe which we value at ~$215 million, or ~$10,000/acre (for reference, the Reliance/PXD transaction announced last week equated to a value of ~$12,000/acre). If we were to reduce our risk factor to 50% (based on drilling success), this would add another ~$1/share to our NAV.

    Marcellus Shale update. The company continues to proceed with construction of the Eureka Hunter pipeline to service its 42,000-net-acre position in the Marcellus Shale in northern West Virginia. The line has planned gross capacity of 200 MMcf/d and Phase 1 should have 15-20 MMcf/d of capacity ready in Q4. MHR plans to spud its initial Marcellus wells in Q3 and has already set a frac date for October, so it expects to have Marcellus production ready to go when the pipeline is completed. The company has received numerous offers to partner on the Eureka Hunter pipeline. And while MHR does not need to take a partner, the most likely scenario is that it brings in a financial partner (if the price is right) to free up capital for its drilling program.

    Capital update. MHR mentioned that it has not done any at-the-market issuances of its common shares since the stock dipped below $5 and does not intend to until it’s back above $5/share. However it has continued to issue shares of its 10.25% Series C Preferred Stock.
     
    CapOne Southcoast: spent Friday with the MHR team on their well-attended Eagle
    Ford field trip in S Texas. The aerial view provided by helicopter allowed us to see the significant level of industry activity in the Gonzales and Dewitt Counties area. MHR is drilling its initial EF well, the 50% WI Gonzo Hunter #1H, in Gonzales County. We saw several EOG and COP locations in various stages of activity with in a short helicopter ride from the MHR well.

    We estimate that investors are assigning only $4K/acre of value to MHR's EF acreage: If we assume that MHR's 11.3 MMboe of pro-forma YE09 proved reserves (70% oil) are worth ~$237MM (based on $21/boe) + $15MM for the midstream assets (including Eureka pipeline) less $53MM in debt we get total value of $200MM or ~$3.10/share. With the shares currently trading at $4.52, we estimate the market is valuing MHR's 21.5K net Eagle Ford acres (about 70% in Gonzales County) at ~$90MM or $4K/acre (with zero value given for the company's 42K net Marcellus acres in NW West Virginia). Giving the Eagle Ford acreage $7.5k/acre would push the share value up ~$1 (+22%). At $10K/acre (still below the $12K/acre for the recent PXD/Reliance JV), we estimate the shares would be valued ~$2 higher (+44%). No well results yet directly offsetting the MHR well in Gonzales, but about 1/2 county away there have been a couple of
    1,500 boe/d IP rate wells drilled by EOG & GeoSouthern In Gonzales & DeWitt).
    Cash flow analysis: We expect the company will fund its 2Q-4Q $45MM CAPEX budget with the $12MM that we estimate for cash flow, $4MM in cash on hand, $22MM available on their credit facility, plus the net $18MM in financing activity in 2Q.
    What to watch: Completion work on the initial MHR Eagle Ford well should begin by early August with well results expected by October. The company plans to spud 2 additional Eagle Ford wells by YE10 (both in Atascosa County), plus 2 Marcellus wells in West Virginia. We would also not be surprised by an additional acquisition, as MHR is actively looking in the Eagle Ford, Bakken, and Marcellus.

    Our take: We maintain our ADD rating and $6 target price offering 33% upside vs 18% for our average onshore oily name. We continue to recommend MHR for small-cap investors looking for oil exposure based on the upcoming Eagle Ford well catalysts, plus the potentia for the company to make another acquisition. We should begin getting MHR Eagle Ford well results early this Fall, and if they meet or exceed the company expectations (~300-400 Mboe EUR) the stock should respond as investors likely assign a higher value for the Eagle Ford acreage above the current $4K/acre. Further, we believe that onshore oil-levered assets will be in even higher demand going forward as investment in the GOM will likely become more expensive and difficult due to the oil spill impact. Our $6 NAV is based on $3for the Eagle Ford, $2.5 for the base production, $1 for the Marcellus, $0.5 for the midstream and other assets, less $1 in debt.
    Wunderlich: Last Friday, we toured the Eagle Ford play of Magnum Hunter Resources (MHR) and came away impressed with both the company's operations and the prospectivity of the play. Magnum Hunter is currently drilling its first well targeting the Eagle Ford shale in Gonzales County and expects to drill two additional wells immediately following the first well. We believe these wells should be strong given the strong results in proximity to Magnum Hunter and look for this play to continually ramp going forward. We maintain our Buy rating and $6.00 target though as the initial results from the Eagle Ford and Marcellus regions for Magnum Hunter become known, we believe the upside could be even greater.

    Key Points

    Activity continues to be robust. Magnum Hunter continues to increase activity on its core Texas and West Virginia assets as the company looks to increase production through drilling into the Eagle Ford and Marcellus shale plays, which continue to look better and better given nearby results. The initial Eagle Ford well (Gonzo Hunter #1H) and the two wells following should provide nice data as to the value of Magnum Hunter's position while also boosting production. Further, activity in the Marcellus should pick up as the company's pipeline is completed later this year.

    Look for even greater activity going forward. We expect activity to continually increase for Magnum Hunter and believe that the company could nearly double its CAPEX budget in 2011 to over $100 million to boost production and reserves for the company going forward. The company has shown it has creative financing techniques ( quite the understatement, this one )so we do not believe the outspending of cash flow is a big issue for the company in its first few years and should ultimately boost cash flows nicely to finance future growth.

    Nearby results and activity give us confidence. Our tour last week took us near multiple large operators that showed us the activity in the region should continue to ramp significantly due to continued positive results. In fact, we saw one operator's play that had multiple locations being built in advance in order to fuel the growth (EOG??). We see this as a positive sign for Magnum Hunter's play and we expect future results to be robust.

    Results (and catalysts) from the Eagle Ford should come shortly. The company has been drilling the Gonzo Hunter #1H for a few weeks now and expects to frac the well next month. We believe this is a very big data point for the company as it could prove up Magnum Hunter's play and also boost production by 10%-20% once online. The following two wells could further boost production this year to nearly 3,000 boe/d.

    The Marcellus should provide nice growth later in 2010. While the near-term catalysts are all down in South Texas, later on in 2010, we look for multiple data points to come from West Virginia. We expect two wells to be drilled into the Marcellus this year that could boost production and prove up acreage for the company. Further, we would point out West Virginia operations have not yet been affected by the issues in the Marcellus so we do not expect too many issues as the company ramps its operations in the region.
     

  64. 64
    zman Says:

    Several tracks for Alex, which is now almost a hurricane bending more towards Corpus.

  65. 65
    crysball Says:

    elijahwc
    BURN UP THAT BANDWIDTH……..Excellent report on MHR. with  lots  of  superb  detail………….also make  me  feel warm  about LEI  whenever they get around to   issuing  more   ambiguous  news  releases  on their JV with Hilcorp and KKR  in Gonzalez  County  'Oily Window'
    will be increasing  my  MHR   toehold  dips.

  66. 66
    zman Says:

    Agreed, thanks Eli.

  67. 67
    zman Says:

    Very odd day in energy land. Commodities not getting whacked but there just aren't any buyers around. Volumes remain very light.

  68. 68
    zman Says:

    Bastardi looking for tropical development over Florida 140 hours out, tracking up east coast. Says patterns are the same to history.

  69. 69
    ram Says:

    That's like 4th of July!

  70. 70
    zman Says:

    Hey, I'm just the messenger, it probably just means a pile of clouds and rain but trouble for east coasters. He also sees Alex going to Texas coast now, not Brownsville.

  71. 71
    elijahwc Says:

    MHR Forgot to mention that they got added to the Russell 2000 today. Not bad for a company that this time last had no market cap and no position in either the EF or MS shales.

  72. 72
    zman Says:

    Grabbing lunch.

  73. 73
    BirdsofpreyRcool Says:

    What a way to start the week… woke up to ZERO outside communication links.  (And discovered how useful HeadTrader really is!)
    Back now.   Thanks, Reef, for posting my non-whereabouts.
    Weird start to week.  Weird market.  Strange move down in GST (but still buying some, so works for me).  Will probably end the week with a weird Jobs Report (no one knows WHAT to think, with all the census workers).  Then we get to take a TimeOut for a long 4th of July weekend.  I have a feeling we will need it.
    TED looking better… sub-40 bps on the way I read the TED Spread.  Credit is off, but no surprise in this very strange market.
    IG +1 3/8 bps wider
    HY -5/16 pts lower (but no volume to speak of)
    TED +39.3 bps

  74. 74
    elduque Says:

    Will someone please remind me to not add to my HK position.

  75. 75
    zman Says:

    BOP – welcome back, you just gotta love this market, it's Comcastic.

  76. 76
    Popeye Says:

    Elduque I would be adding HK  here if I had any money left.

  77. 77
    ram Says:

    Why does it seem like HK can't get out of it's own way?  Is it still a dislike of Floyd issue?

  78. 78
    zman Says:

    re 77. Don't know. Fundamentally the story is much improved since year end. Credibility should be markedly higher as well. They have good hedges in place so that small swings in natural gas should not matter to them. They have the potential for two more big asset monetizations in the next 12 months. And the Street has showed increased warmth towards the name in terms of price targets.

  79. 79
    zman Says:

    Volumes in all of our most trafficked names still very light.

    Watching SSN tick higher.

    Can't figure out what anyone didn't like with raised guidance out of BEXP.  Numbers just about have to be going up there.

    So at CFPS of $2 for 2011, the name is pretty cheap for it.

    AEZ also drifting back towards $7, two weeks from their next Bakken test, their second long lateral.

    OAS above the deal price, trying to hold onto gains after last week's flipping action.

    Still watching TGA

    TSLA prices tomorrow, should be interesting to watch.

     

  80. 80
    jiveyjr Says:

    re: 77…I keep thinking if HK keeps getting cheaper some vulcher name, with no oil/gas background,  will buy a slub and start trying to tell them how to run the company.

  81. 81
    zman Says:

    EOG off $4 on no news. Weird.

  82. 82
    zman Says:

    Shell shutting in production from Western and Central Gulf assets. I guess they think it is going to Texas too.

  83. 83
    zman Says:

    Alex looks to be blooming up north of the eye

    http://tropics.hamweather.com/2010/atlantic/alex/clir/loop.html

    and moving very slowly to the NNW.

  84. 84
    ram Says:

    Re 80 – Ahhh, Kerkorian!

  85. 85
    jiveyjr Says:

    LINE very strong…good volume relatively

  86. 86
    crysball Says:

    Z,
    As a point of feedback, ,  pulled up  your  site  on  my   3G iPad (this is my backup system  in the event:
    ~1)of loss of High Speed  Internet  Link, or  wirelesss  LAN,
    ~2)  am  traveling   outside  the range  of  wireless  LAN,
     and  would like to report   no problems [3G  is actually faster  than the High Speed  Wireless   Internet LAN ]..……..another   Bene  of the iPad  is   you can instantly scale  up  the  FONT SIZE to whatever  works  best  with the flick of a finger (for those  wanting  larger Font's). 

  87. 87
    zman Says:

    Thanks Crys. Just upgraded to 4.0 OS on my 3GS iphone and the site is very fast that way as well.

  88. 88
    zman Says:

    Beerthirty

  89. 89
    Pati Says:

    Only got 3K SSN.  Put in for 7K.  Must be oversubscribed.

  90. 90
    PackMan Says:

    HK down $3 or so in last 6 trading days … wassup w/ that Z ?
     
    XOM down about $5 … same Question

  91. 91
    zman Says:

    Thanks for the feedback Pati

    Pack – thoughts on that in tomorrow's post.

  92. 92
    elijahwc Says:

    #89 Pati, who is your broker/custodian?  Citi smith Barney is still accepting instructions and after that the "best efforts'" period entends to 6/30 @5pm ET. 
     

  93. 93
    zman Says:

    Just checked, got my full allocation, put in for it on Friday.

  94. 94
    Jerome Blank Says:

    Re: #59,  HAL, pulled back off major resistance at $27 which was tested again today. HAL is on currently on a P&F sell signal, but is holding in X's and is trading above long term P&F trendline support.  Based on the current technical structure, resistance is now at about $27.50, which also corresponds with the 50 day SMA.  Daily support now at $24 and major trendline support at $22 …  

  95. 95
    jy Says:

    test 🙂  this

  96. 96
    jy Says:

    ignore last – testing smiley

  97. 97
    zman Says:

    JB thanks much.

  98. 98
    PackMan Says:

    HAL has a very high PCR right now (so does EOG for that matter, and BP and probably others).
    FWIW.
     
    PCR = Put Call Ratio.   High is bearish.  Hal is over 2.0.

  99. 99
    elduque Says:

    I think that HK seems to trade more like a proxy for UNG. As we go down volume is getting larger. Maybe Fido is still dumping position before the end of the month.
    Who knows. It is cheap compared to its peer group. Both fundamentally and statisticaly.

  100. 100
    elijahwc Says:

    test 🙂

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