Market Sentiment Watch: YoYo Market Continues – China Edition. China’s central bank reduced reserve requirements in an effort to boost its own economy … and the crowd goes wild, with WTI shooting over $101 within 10 minutes of the news (both coal and oil should rally on the China news. Europe for its part, decided to delay action for another 10 days. Europe probably cuts rates next week though. We’ll see if the market will continue to dodge/ignore relative positive data and now the thought of “global easing” in favor of European fears. In the U.S. we’ve had a string of not too bad data, from retail sales to the slowly falling claims numbers and positive reads on the consumer as recently as last Friday’s door busting numbers to yesterday’s jumping confidence figures. My sense is the market is still caught between floundering over Europe and the L-shaped recovery and that the bias will be to the upside with regard to the E&Ps and Service in the near and medium term. In energy land today we’ll be listening to a number of presentations at the Jefferies Global Energy Conference. In today’s post please find the last of the WIOWIO names and the Natural Gas Supply Slide Show.
- ADP Employment – 207,000 jobs added (better than expected),
- Productivity for 3Q11 revised lower from 3.1% to 2.3%,
- We get Chicago PMI at 9:45 am EST (F = 58.4%),
- We get pending home sales at 10 am EST
- We get the Beige Book at 2 pm EST.
In Today’s Post:
- Holdings Watch
- Commodity Watch
- Oil Inventory Preview
- Stuff We Care About Today – The Natural Gas Supply Slide Show, WIOWIO Part III
- Odds & Ends
ZLT – C
- SSN – Sold the second half of the SSN position out of the ESA accounts for $1.90,
- TPLM Replaced it by doubling up the TPLM position for $5.25. Not selling SSN out of the ZLT at this time but wanted to core up the ZLT C a bit and with SSN in a riskier stage of its plan at the moment it seemed prudent to make the switch.
Crude oil closed up $1.58 at $99.79 yesterday, after temporarily breaching the century mark for the second time this month. The front month contract now looks like this. After the close, the API released a bearish looking (on the surface) report (see below). This morning crude is trading just over $101 on the news that China has decided to be proactive about their growth rate and the resulting dip in the dollar.
Natural gas gained $0.11 to close the day at $3.63 yesterday in weather-of-the-moment driven trading. This is noise given the supply picture. This morning gas is trading off five cents and I would expect further directionless to flat trading in coming weeks even as the weather cools.
- Natural Gas Supply Vs Demand Watch: There is plenty more detail in the Supply Show (see below in the Stuff section) but for a interesting quick graphic take a look at the follow charts.
Early Read On Natural Gas Storage:
Street is looking for a 10 BCF INJECTION for tomorrow’s report.
- Last Week: +9 Bcf
- Last Year: -23 Bcf
- 5 Year Average: -32 Bcf
- 10 year Hi: +13 Bcf
- 10 year Low: -100 Bcf
Oil Inventory Preview
API Watch: Somewhat bearish
- Crude: UP 3.4 mm barrels
- Cushing stocks fell 0.426 mm barrels
- Gasoline: DOWN 0.2 mm barrels
- Distillates: UP 1.5 mm barrels
Stuff We Care About Today
Natural Gas Supply Slide Show with data through the month of September 2011. Nothing here for gas bulls to get excited about as marketed production scores a new high.
A few brief and sad for bulls comments:
- Louisiana – new high instead of the dip that I expected, still expecting a production rollover in the not too distant future, but for now this could be a focus on completing previously drilled wells that translates into more production for a time even as the rig falls in the post held by production world.
- Texas – back to old highs (this actually is as expected as the EFS wells bring gas with them and the north and east plays (Wash and Combo) do too.
- Gulf of Mexico production fell hard to a new recent low but that’s the impact of storm related production shut ins.
- But “Other States” is the big problem, just vaulting higher now. All those “great” Marcellus wells are piling up … and we’ve got the Utica and the Upper Devonian after that.
Why I Own, What I Own – Part III
RRC – Gassy Mid Cap E&P With Utica Upside And Possibly A Bigger Liquids Wedge Down The Road
- Management = consistency
- Story remains focused on the Marcellus (and soon Utica) where they have a large position for a mid cap, but they have somewhat less talked about plays in the Mid-Continent (Woodford, Miss. Lime and St Louis Lime, and Wash plays), and West Texas (sounded excited on the 3Q conference call and are adding acreage to their Wolfcamp/Penn Shale play)
- Low Cost Leader – second only to SWN in the ZLT on opex while still having 22% of volume come from liquids.
- High production growth story – general grows in the teens to twenty percents sequentially.
- Balance Sheet: Balanced with 43% debt to cap but a very large available line of credit.
- Valuation is nearly always at a premium on this one as it is on most energy trader’s top five next to be acquired lists.
WLL – Cheap Oily Mid Cap E&P With Williston Focus, And Other Up and Coming Plays
- Management – Highly experienced, fairly conservative
- Strong position in the Williston with core in the Sanish area (one of the best of the cores within the Williston Basin), with several areas in what used to be called Rough Rider, and moving west into Three Forks Sanish country. They also have a couple of enhanced oil recovery (EOR) plays which churn out reliable cash flow and then some new emerging plays including the Niobrara (so far not so good) and the Wolfcamp down in the Permian in Pecos county where early results look like, well, early results but they do have a good sized position and have plenty of horizontal experience so I give them better than your average small cap players chance of getting it to work.
- Street lost interest in the name earlier this year as some results in their new emerging core area in the Williston, Lewis and Clark, appeared to be mixed and they cut their production guidance after the poor weather of the first half.
- Costs: not bad, especially considering the added expense of the EOR plays.
- The name is very cheap trading at 4x 2012 CFPS (vs an admittedly faster growing Bakken peer group that trades close to 7x 2012 numbers), and despite production volumes that are on the mend and despite being 83% oil by volume, something that should serve them well in the coming years. Furthermore, the name trades at only $22 per proved BOE, far below the other Bakken names, even the non-pure plays like CLR which trades above $31.
- Management came from Burlington and Conoco, lots of depth in Limbacher,
- Story is Eagle Ford front burner development and Southern Alberta Basin backburned exploration
- Eagle Ford position
- is 65,000 net acres in Webb, La Salle, Dimmit, and Gonzales counties Texas, mostly in the oil window and condensate window of the play.
- Seeing strong results outside of the core area, likely to see more with passing quarters as they accelerate the program.
- SAB – no well results to date worth speaking of … it’s still a science project though and the company was very pleased with the initial read on the vertical cores taken in the play. The verticals however barely flowed. Time will tell if this is the next big thing for them or not and I would to know in 2012.
- The revenue mix has completed shifted from majority gas to majority over the last year. In 3Q10 revenues were 33% liquids; by 3Q 11 that had changed to 67% liquids.
- They liquids are not purely oil but are condensate rich with their average price per BOE coming in the $42 to $46 range over the last three quarters.
- Growth in 2012 set at 44% preliminary and they have a habit of walking guidance higher as the year progresses so look for them to increase the liquids profile as 2012 unfolds at a quicker pace than current guidance would suggest.
- The balance sheet is fine with net debt to cap at just under 20%
- Management appears to be technically competent and deal savvy,
- Small company with no debt and a good sized but slowly shrinking cash hoard focused on the Bakken in North Dakota as a non-operator and in eastern Montana but on the western edge of the known play with 20,000 acres to start, possibly growing to 90,000 acres should they see positive results in the early wells (now drilling)
- The stock has traded on Bakken news in ND but the acreage is small with limited remaining running room. They are applying for four infill wells to be drilled in 2012 and their final well in the original 6 well short lateral program will be completed in December 2011.
- Last year they sold some Niobrara acreage to CHK to remake the balance sheet
- Now they are in the “put up or shut up” phase on three projects:
- Wyoming (Goshen County) – Conventional targets – first well had mechanical issues but will be completed in an uphole bailout zone. Not sure when well #2 spuds, guessing early next year.
- Wyoming – (Goshen County) – Niobrara – first well just fracced and has not yet flowed hydrocarbons, they are going to put it on pump and we should know more before year end. This well was 100% carried by HAL and SSN will want to study the well intensely before deciding to go ahead with well #2 on their own dime.
- Montana – (Roosevelt County) – Two Bakken wells in progress on the western fringe of recent drilling activity.
- I’ll be updating the back of the envelope NAV as more news emerges regarding their Goshen wells in the next couple of weeks.
Odds & Ends
- RIG – upgraded to Hold at Tudor
- SWN cut to Equal Weight at Barclays
- RRC price target upped $4 to $52 at Barclays
- GDP – Rodman starts at Outperform
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