Monday Means More Earnings

If you missed the weekly wrap check it out. It was rich with data, closed position performance last week, and a look at what the current ginormous short natural gas position could do to gas prices if we see some weather soon (either heat or tropical in nature).

I plan on treading pretty lightly through earnings season. So far this strategy of waiting for the leaders to report and playing the laggards has worked pretty well in oil service. We'll see how the market reacts to (VLO) leading off the refiners this week. E&P, as always, is a more case by case sector and I'll be discussing stocks of interest to me as the week and month progress. See the "earnings I care about section below" for names I'm looking forward to hearing from. I do have a toehold in some names that have not yet reported but they at the cheap end of the spectrum and/or have stories and management teams that can turn a conference call into more than just a "yada, yada, yada we did x" event.

Tropics Watch: Four tropical waves are marching across the Atlantic but none of them appear ripe for development at present. A low pressure system northeast of the Bahamas is tracking towards the northeast, cold water, and its quick demise.doom.

Oil - Off a little this morning after beating the trail to record highs for little apparent reason last week except that traders wanted, well, record highs.

Canada Watch: Here's a fly in the ointment... The National Energy Board (NEB), Canada's version of the EIA reports a Canadian oil pipeline bottleneck is looming. NEB says spare oil pipeline capacity will be exhausted in the fourth quarter and no new capacity will be ready for at least 18 months (that's 2009 kids).

....And It's Probably Not Good For (SU). T Boone is hardly back from China and what does he have to hear but that his favorite stock (at least if his money talks) is facing constrained capacity.

  • They're scheduled to add about 85,000 bopd, or 32% to their production capacity in mid 2008 but NEB indicates that shippers will be forced to share capacity which translates into curtailment.
  • Their last presentation doesn't really address capacity other than showing a map of pipelines coming down from the Fort McHenry area I assume to demonstrate just how much access they have to the the oil thirsty U.S. market. Unless they plan on trucking it about a million miles which I really doubt or figure out a way to stick it in all those half empty natural gas pipelines I don't see away around them missing the capacity bump that all analysts must have in their numbers right now. No doubt this will impact all Canadian crude producers but I can think of now one more dependent on growing oil volumes that Suncor.
  • To be fair (SU) is a complex company with reaches in wind and ethanol and natural gas. But the market isn't always fair and a pinch on pipeline capacity could very like put a pinch on profits.

CATS Scratch Watch: (BP) confirms this morning that the Central Area Transmission System (CATS) which carries gas from North Sea will remain off line for repairs until at least September (it's been down since July 1). Somewhat bullish for Brent prices and crude in general since you can't just flare all that associated gas and continue to produce oil. Silver lining is the boost to UK natural gas prices which have been ailing. As long as you produce gas that somehow gets onshore without going via CATS that is.

Gasoline - Still trending away from oil which rallied last week on the Cushing "news" last week and the EIA's trepidation with regard to future shortages caused by OPEC inaction (in the same week that OPEC signaled that they in fact would act) drove oil higher. RBOB continues to languish due to the fact that days supply is flat, with production is rising and imports hitting record levels last week. Combine that with the fact that we're at peak driving demand now and apparently the only thing about to run out of gas is gas prices.


A Word On Cushing, OK Stocks And Their Impact On Oil Prices. Ok, Four Words. Give Me A Break. Here's one explanation from Upstream regarding last week's big crude rally (it was a popular refrain along with "the EIA is panicking" last week):

oil traders zeroed in on data showing that supplies at the Cushing, Oklahoma, delivery point for Nymex-traded crude fell 1.4 million barrels.

How About Some Pictures (please take note of the scales on the following graphs): I would have gone further back on Cushing but the government didn't break it out of PADD II until April 2004.


Earnings We Care About This Week: I have positions CALL option positions in (SWN), (VLO), (OII) and long GSX shares as of the time of this posting. Be advised that the (GSX) is a long term hold and has nothing to do with this earnings report.


Monday Watch: APC should have a pretty good call Tuesday morning. They've exceeded asset divestiture/debt pay down schedules without sabotaging future potential and here's my suggested list of bragging topics for the call:

  • the startup of the Independence Hub (on time, on budget) which will add 1 Bcfgpd gross (61% wi) to their production profile by year end,
  • the new JV with (CHK) in West Texas,
  • another quarter of record production in multiple onshore U.S. basins,
  • the fact that with U.S. gas prices at somewhat depressed levels all onshore programs are economic down to high $4/mcf  Henry Hub.

I'll be taking a look at the August $50 calls today but will be pretty careful with my dollars given the market's new found infatuation with gravity and its ability to swamp even the most well built of boats.
Odds & Ends

Analyst Watch: (HK) upped to overweight at JPMorgan - interesting move with earnings next week. (XOM) from hold to buy at AG Edwards. (MEE) cut to under-perform at FBR. FBR also upped its target on (BHI) from $90 to $96 (seems odd) and on (DO) from $117 to $139 (seems like a good idea).

Just When You Thought They Were Coming Around Watch: from Upstream~ "I do not imagine that, at its next regular annual meeting, OPEC would put the issue of changing its output level on the agenda," Oil Minister Kazem Vaziri-Hamaneh was quoted as saying on the Iranian oil ministry website.

79 Responses to “Monday Means More Earnings”

  1. 1
    codydog Says:

    hightower saying part of fridays oil spike was prompted by exxon buying products for euopean del’y for spot del’y, indicating less product may be available for US consumption….dont shoot the mesenger!

  2. 2
    zman Says:

    XOM has it’s rally hat on with an AG Edwards upgrade in hand and 1.5 million shares traded before the bell.

    Unless RBOB tanks I’d expect VLO to perform better today as it heads towards earnings tomorrow morning. I’m pretty cautious and / or short the rest of the smaller guys but VLO should have a great quarter and an ok call.

    I’m the August 70 CALLS there but reserve the right (as always) to reduce and wait for the call should we get a nice move before the close today.

    Recall that we were at $79 on July 12th, all time high, when I wrote that piece on refiner multiples being too high. Now at $67 with earnings in less than 24 hours I’m thinking it’s small bounce time today. But it all depends on the market as it has for the last 2 days.

  3. 3
    zman Says:

    Thanks Cody – hadn’t heard that one. You’d think it would have rallied products more than crude then.

  4. 4
    Sambone Says:

    This one could get interesting. Looks like it wants to spin. heading west. We’ll see.

  5. 5
    zman Says:


    looks like the southwest corner wants to tuck under and head east to me too. That, along with a reading of 92 cooling degree days expected for this week have got nat gas up $0.16 this morning. Last week’s degree days came in at a dismal 70 so we should rocket much further into record territory for gas storage this week.

  6. 6
    Brian08 Says:

    Z did you take the SWN 40 CALLS on Friday going into earnings tomorrow?

  7. 7
    Larry H Says:

    you mentioned GSX this morning. What are your thoughts on their potential? thanks.

  8. 8
    zman Says:

    Brian – I took the September $45 for $1.55. There’s a type on the Perf page that shows it as August. Will change momentarily

  9. 9
    zman Says:

    XOM getting hit (along with HAL) over Kazahk prime ministers ominous comments on the Kashagan development. Saying things like “breach of contract”, “appropriate measures”…

  10. 10
    Sambone Says:

    Here’s the plot. Very low shear. It is now 99L. Water temp above 80 degrees. We’ll see this afterenoon when the new loop comes in.

  11. 11
    zman Says:

    XOM has an 18.5% interest in the Kashagan development in the Caspian Sea. Kazahkstan says due to cost over runs and delays it wants to boost it’s share of the production sharing agreement from 10 to 40%! This Putin, Chavez, Morales things is catching on.

  12. 12
    zman Says:

    HAL a gift here.

  13. 13
    zman Says:

    Eni (E) the operator is shrugging off the Kazahk thing, looks like XOM and HAL will too.

    Larry – GSX – lots of nice wells of late. I’d bet future division of CHK.

  14. 14
    codydog Says:

    nice hk rally

  15. 15
    codydog Says:

    is phils site updating?

  16. 16
    zman Says:

    HK – yep, thank you JP Morgan.

    EOG moving nicely again. SWN, VLO, NFX as well.

    HAL thinking about going positive. XOM now green.

    PSW Site – looks like his style sheet blew up.

  17. 17
    bill fraser Says:

    with cracks falling, wouldnt it be better to buy refined products than produce gasoline

  18. 18
    zman Says:

    they augment with purchases but the cracks are still high and they’ll produce all the can. depends on how far they fall.

    N Gas getting a nice boost. That heat forecast was big today. Plus Sambone’s potential spinner. Plus 113,000 net short! Not just a record, a super spike of a record. Talk about a bunch of traders looking over their shoulder.

    EOG and SWN ripping higher, NFX trying to retake $50 which is a bargain,
    HAL positive now.

  19. 19
    zman Says:

    Notice SU is not participating. See today’s comments.

  20. 20
    codydog Says:

    keep in mind that NG can open limit up on just a headline

  21. 21
    zman Says:

    Trying to pick off some SU 85 puts. Very risky but I think they have a real take-away capacity problem if pipe capacity is to be apportioned among producers as the NEB states. Safer to go longer but I’m thinking quick trade and very small as this beast can burn a short in a minute.

  22. 22
    p.k. Says:

    Hello Z. RE: the COT data. At sentimentrader.com (an equity site) the host is starting to ask some questions about the reliability of the data: ”

    I mentioned last week that I was starting to become somewhat disillusioned with the report since traders were acting so much differently than they had been during the past seven years. This is an ongoing concern, and we should keep watching the CFTC (the regulator of the futures markets) to see if they make any statements regarding the reliability of the data in regards to complicated swap transactions that already forced them to change the reporting for some agriculture and energy contracts.”

    Since he mentions energy, are you hearing anything about this?

  23. 23
    p.k. Says:

    That middle paragraph is supposed to be his quote. Sorry.

  24. 24
    zman Says:

    p.k. – there have been questions for some time about the data. especially when it doesn’t seem to fit with peoples preconceived notions of the way things work. I think it’s a lot better than nothing but probably imperfect. The differences in past and current movements come from the differences in the environment of the time in question…see my weekend post for that. In short, they may be missing some of the puzzle, off nymex trades, but I don’t think the data is directionally wrong .

  25. 25
    codydog Says:

    i see cot as a general indicator, but more worthwhile when there is a limited and well-defined terminal mkt, such as NG. others like gold, or some financial commodities where there is no real terminal the numbers become less useful.

  26. 26
    codydog Says:

    any views on DO?

  27. 27
    zman Says:

    DO – getting shelled with the OIH.

    VLO hitting me pretty good now with earnings now.

    Missed the SU puts.

    NFX – taking a look at the $50 strike august calls again. I’m in the September 50s now. Haven’t seen a single upgrade or price target revision since the conf call. If anyone has please let me know. That’s just confounding.

    WNR at new recent lows.

  28. 28
    p.k. Says:

    Thanks folks. Just thought that maybe some non-traditional players (e.g. hedge funds, or whoever) were now getting more involved and skewing the data. Obviously, the NG rally, once “everyone” has gotten short, shows these #’s are still viable–at extremes.

  29. 29
    bill fraser Says:

    have you heard of this ipo

    Issuer: Quicksilver Gas Services L.P.
    Offering: Quicksilver Gas Services L.P. Common Stock IPO
    For offering tombstone information, please visit http://personal.fidelity.com/news/calendars. Fidelity Brokerage Services LLC Member NYSE SIPC.

  30. 30
    zman Says:

    Bill F – yeah, that’s KWK’s midstream ops being monetized. I’ve got no real opinion on it once it’s out the door b/c that’s more like a utility than my normal comfort zone. Should be good for kwk though.

  31. 31
    zman Says:

    Morning Nicky – my site popping in and out of service. Arrgghh. Hope the Vaykay is going well. Here ya go: 76.69; 2.088 rbob; 2.048 ho (delayed 15). Nat gas at 6.444!!!

  32. 32
    bill fraser Says:

    im throwing caution to the wind and loading up on vlo calls

    bot 45 60’s, 45 70’s and 10 67’5’s

    rbob is making a bounce and earnings will be good, that coupled with oversold conditions and z comments

    lets go baby

  33. 33
    zman Says:

    bid NFX 50 calls since $1.00 in 5 increments to $1.15 so far, whiffff.

  34. 34
    codydog Says:

    1.15 just got paid in the 50s

  35. 35
    zman Says:

    SWN – I’m not chasing here but I like the action.

    TRADE: NFX August $50 CALLS for $1.15 (small).

  36. 36
    codydog Says:

    z–are Oct gas cracks getting, well, cracked?

  37. 37
    bill fraser Says:

    i suspect the cracks are better and the refineries are still making good money despite the fall in cracks instead of obscene money, imho

  38. 38
    zman Says:

    Cody: off tiny.

  39. 39
    codydog Says:

    z–any views for the afternoon?

  40. 40
    zman Says:

    Sorry, I don’t really do that. I may try to get into trades on weakness and such but I’m no day trader and as I’ve said often, my short game is pretty mixed.

    Natural gas is shooting higher, we have a storm some where?

  41. 41
    zman Says:

    With that said I think we end higher, especially the OIH and things like NFX and HAL but that’s just a hunch not worth listening to.

  42. 42
    Brian08 Says:

    With natty gas higher, finally starting to get a nice little firm in CHK and EOG…Been waiting for that ever since the natty gas prices looked good today…Hopefully we get a nice firm in NFX as well…

  43. 43
    zman Says:

    Cody – maybe you should ask me that ? more often! Nice little afternoon rally lol

  44. 44
    codydog Says:

    48.40-48.60 seems to attract very steady buying to NFX

  45. 45
    codydog Says:

    z–haha…not really playing in energy today,

  46. 46
    Sambone Says:

    Looks like we’ve got rotation started on 99L
    Will watch for the next two to three days and see what happens.

  47. 47
    yunker Says:

    Help me out folks. What does “RBOB” stand for? I’m on the exploration portion of upstream and this isn’t an acronym I’m familiar with.

  48. 48
    Brian08 Says:

    RBOB: reformulated gasoline blendstock for oxygen blending

  49. 49
    codydog Says:

    crude hits highs and …voila…FSLR takes off

  50. 50
    zman Says:

    hey Cody, this is pretty much what I had in mind.

    NFX, SWN, VLO with rally caps on.

    APC is before market and I missed my trade there but otherwise can’t complain about today.

  51. 51
    Alan Says:

    I’m buying Aug. puts on VLO TSO and FTO now ’cause I can easily see them retracing those lows later or wednesday. Sorry z-man, I hate to bet against Valero but…

  52. 52
    zman Says:


    No skin off me and you could be right. You’re aware VLO reports in the morning?

  53. 53
    codydog Says:

    z–does it make any sense for MEE to take over EEE?

  54. 54
    zman Says:

    Cody – more likely Arch as they’ve had dealing with them. You hearing a rumor?

  55. 55
    Alan Says:

    Yep VLO reports tomorrow and I’m sure it will be GOOD. I’m just hoping not great and that everyone sees where we are now, not at the end of June. That may be asking a lot though.

  56. 56
    scoop006 Says:

    Z Heavy volume in FTO MRO VLO August P’s

  57. 57
    codydog Says:


  58. 58
    Brian08 Says:

    Z– I’m sure you are as confused as I am, but any idea why CHK +1%, EOG +2.5+% today and NFX is flatlined…Just doesn’t make any sense…I’m not the most knowledgeable energy guy, but their quarter didn’t seem to have any skunks in it…

  59. 59
    zman Says:

    Alan – I’m sure they’ll be looking ahead but since it hasn’t had near the run the others have and doesn’t trade at near the multiple…well, you get where I’m at. Could go either way.

    Scoop – thanks man.

  60. 60
    codydog Says:

    as a way to get EEE’s K-fuel tech

  61. 61
    zman Says:

    It’s less proprietary than you’d think but I guess they’ve got patents. Sure wouldn’t pay a big premium.

  62. 62
    codydog Says:

    z–sorry for truncated response, was in JASO and trying to get out before it slid away

  63. 63
    zman Says:

    EEE brought in Mark Sexton, the guy who built the original Evergreen coalbed methane play in the Raton, in fact one of the pioneers of CBM. Mark is smart and he couldn’t make it work.

    They branched out into emissions credits and the idea of selling the tech but the commercial plant they built has not run for any long continuous stretches that I’m aware. I mean 24/7 for months on end. Not just test runs.

    We know the process works in terms of BTU upgrades, lower SO2 and mercury as a science project but does the continuous process work and if so where are the longer term, size contracts. They just dropped another $95 mm of conv debt onto shareholders today. Maybe MEE is waiting in the wings for the dilution to crush the life out of the current set of shareholders…

  64. 64
    codydog Says:

    hearing CSUN as next potential hot solar play due to low float

  65. 65
    yunker Says:

    RBOB= “RBOB: reformulated gasoline blendstock for oxygen blending”

    Thanks Brian08!

  66. 66
    codydog Says:

    z–you hearing anything in NG after-mkt?

  67. 67
    scoop006 Says:

    HEAVY volume VLO calls

  68. 68
    zman Says:

    Scoop – yeah, gotta get this site private so we don’t have that happen all the time. lol.

    CODY – it all came true pal. What should be hearing in the after market re nat gas?

  69. 69
    codydog Says:

    hopefully that short covering continues or a massive supply disruption..usual good news stuff that longs pray for…

  70. 70
    zman Says:

    VLO breaking out into the close. Strong put and call volume in the Augusts. Going for a swim, catch you guys a little later.

  71. 71
    rammastr Says:

    Why is HAL stalled?

  72. 72
    zman Says:

    In what sense do you mean stalled? Today, this year? Revenue and earnings growth?

  73. 73
    zman Says:

    Hey Nicky,

    We’ve also got some heat expected. CDDs jump from 70 this past week to an expected 92 this week which would make it the hottest week of the year so far.

  74. 74
    codydog Says:


    TXU Corp: “$1 Billion Breakup Fee To Lenders Less Than Possible Losses; Lenders Nervous Over $300 Billion of Unfunded Buyout Debt — Bloomberg

  75. 75
    bill fraser Says:

    vlo beat 3.89 vs 3.75

  76. 76
    zman Says:

    Bill – I’ve got a whole section in there just for you!

  77. 77
    asset gps tracking Says:

    asset gps tracking

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  78. 78
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