Market Sentiment Watch: Lazy Friday in front of a busy E&P earnings week next week. In today's post please find the gas storage wrap and comments on HGT, KOG (grr arrgg), SSN and more. The group and market have a little better tone to them now as we approach the heart of energy earnings season and I have been adding to positions at a slightly quicker pace (see Holdings watch below).
- 1Q12 GDP revision came in at 2.2% vs 2.7% expected and an earlier edition of 3.0%,
- We get Consumer Sentiment at 9:55 am EST (F = 75.7%).
In Today’s Post:
- Holdings Watch
- Commodity Watch
- Natural Gas Inventory Preview
- Oil Inventory Review
- Stuff We Care About Today –- KOG, SSN
- Odds & Ends
Please click the link right below this to
ZMT (Zman Medium Term portfolio):
- Yesterday’s Trades: None
ZLT (Zman Long Term portfolio)
- Yesterday’s Trades:
- REXX – Sold one of the trading positions taken earlier this year at $10.25, essentially flat to cost. I'm shifting some gas exposure but remain quite long in the name.
- MPO – Added to the core (call it 3/4 full now) at just under $15,70. Same thoughts as yesterday, no new impetus for the trade, just rounding out the position before coverage comes (probably 4 weeks out) and 1Q12 earnings (they will get a little longer to report since they just came public so probably very late in the 1Q12 pack of earnings). Expecting the name to get positive sellside ratings when coverage does arrive unless the name has advanced well above the previously expected IPO range. By mid year people should start looking to 2013 numbers and I expect the name to start to look very inexpensive on those vs just inexpensive on 2012 estimates if they can push towards another year of high double digit growth which should be doable based on their project inventory.
The Blotter is updated.
Crude oil edged up $0.43 to close at $104.55 yesterday with the help of a strong looking/feeling equity market. Geopolitical rhetoric remains fairly low despite the approaching deadline to stop trade with Iran. I would expect that to change in coming weeks. This morning crude is trading off slightly.
Natural gas eased 4 cents on the June contract which took over front month duty for natural gas this morning, closing the day at $2.13 yesterday after EIA reported an inline inject that was well under the 5 year average for this week of the year and also a minor downward revisions to storage estimates of 11 Bcf, spread out of the last four weeks. The slope of the injection line continues to look flatter than what a casual observer of rampant natural gas supply growth would like expect especially during the shoulder season but electricity consumption has been running high to last year in recent weeks and natural gas has been capturing increasing share from coal as has been oft talked of of late. This morning gas is trading flat.
Natural Gas Storage Review
ZComment: Steady as the injection line goes.
Stuff We Care About Today
KOG Operations Update – Lower Than Expected 1Q12 Volumes
The following is essentially an augmented version of what I wrote in comments yesterday evening.
- KOG reports 1Q12 volumes of 10,578 BOEpd. This was up 47% sequentially which sounds nice but the growth should be coming from their two acquisitions and I had modeled a bigger numbers. I'm probably not alone in that …
- …KOG Probably Well Below Consensus Model On The Quarter. KOG likely led people to a higher number by giving the near year end 2011 exit rate of 13,700 BOEpd (original company and acquired volumes combined) followed by a late February 2012 then current rate of 15,000 BOEpd … few analysts are going to model you close to 10,000 BOEpd with this kind of exit rate and mid quarter comment. Not without more guidance. Do that often enough (and this is not the first time I've felt Lynn was light) and people won't trust you. They point to a "previously disclosed shortage of workover rigs" as the culprit for getting new wells on artificial lift. When you put a well on pump, the well goes down entirely so they apparently had several wells off line prior to February … still I think they could have handled this better.
- Other Items:
- They list 3 completions but give only 1 rate at Grizzly. Could be not yet flowing back, not sure, but the singel rate of 900 boepd is encouraging for that area,
- The lack of progress in remediating the six wells is not welcome news but as of IPAA in mid April they had only repaired one well. Two done out of 6 and only one completed and that at a rate that tells you probably very little. Moreover, the other 4 wells likely won't be on until 3Q, shoved back from early comments targeting the end of 1Q12.
- I'd say the problems that analysts belabored on the 1Q call are not exactly "behind them" unless you count not using those liners again in the future.
- No current rate given in this press release … maybe they are thinking putting a current rate in print isn't such a good idea at this point.
- They Are Not Lowering Guidance: My thought is that not lowering the rate again given the first quarter's performance puts more onus on the back half of the year's individual well performance. So less breathing room there and unless the production increments just became more lumpy it is hard to keep the fully year guidance the same AND the exit rate the same unless you knew that the 15,000 BOEpd rate you quoted in prior press release was, again, beyond worthless as an indicator or quarterly production, suggesting that they had big IP flush production in the number and didn't care that it made them look like they were stepping up on the acquired volumes when in fact that was not completely the case.
- Nutshell: I can see some lowered PT's in the morning. I don't so much care about the well thing, that's more a function of workover rigs most so they say and that problem is known in the Basin, but the point int time flow rates given during the quarter were, it turns out, beyond useless, as taking wells down to put them on pump took a lot of barrels out of the quarter.
SSN Operations Update
- Montana Bakken – not a huge amount of data but positive
- Gretel II – drilling out the plugs after removing the fish from the vertical (perf gun and one plug). Next step flow back, next step, build production facilities. I'd expect an IP in a few days to two weeks on the outside. They don't build production facilities for dry holes.
- Australia II – said 600 barrels of oil flowed during the time it took to drill out the plugs and flowback the frac water before they shut it in. Doesn't really tell me much other than there is oil there since we don't know how long all this took but it doesn't sound like a boomer of a well.
- Abercrombie – CLR operated long lateral in the same area, 0.75% interest for SSN, no IP given, said 18 bo flowed prior to shut in. That tells me just about nothing. Its a 29 stage frac and it possible we will get to hear about the well from CLR next week on their call as they have been particularly active in Montana and in this area of late.
- Goshen County, WY
- Defender well getting its jet pump this week. Too much gas has made the rod pump malfunction. No comment from the company on HAL making a decision on well #2 yet but that deadline is the 30th. I'll lob a call in for comments there.
- Spirit of America #2 – this is a redrill of the conventional deeper targets in the Goshen seen on seismic. The rig arrives May 1.
- Apologies, have not done HGT justice yet, will have a little piece out next week
- Names that we care about reporting next week:
- CHK (well this should be fun),
- XCO (gassy, hugely leveraged, want to hear game plan),
- OAS (pre announced volumes, could be a boost to guidance either now or most likely with 2Q call),
- CLR (big quarter),
- VLO (time to listen to a refiner again),
- EXXI (big quarter),
- PVA (can handle the debt and should have EFS well results to show off),
- DSX (time to listen to a dry bulk carrier speak),
- EPL (looking for best in show on EBITDA / BOE this quarter here),
- FSLR (time to listen to see if they are going to die or not),
- KOG (bump call),
- SD (not for me but I know some are interested),
- SWN (2 Brown Dense well results),
- Also next week we;ll have another look at new energy IPO coming next week.
Odds & Ends
- TBA in comment.