Tuesday – One Small Sway For Felix, One Giant Walloping For Gas

It's Back To Work For Wall Street After A Long Hot Summer. This morning the general tone seems to be one of throwing in the towel on natural gas with several firms talking mid $4s now due to high levels of gas in storage. I'm biding my time on further E&P purchases as the gassy stocks appear precariously positioned (technically) despite strong hedge positions that should carry most of them through the current rough pricing patch without seriously eroding quarterly cash flow.  I continue to hold a (KWK) put position and if natural gas prices do cross the $5 mark I'll be looking hard at adding one in (COP), gassiest of the majors.  

Speaking of Wall Street. I read a lot. No seriously, quite a lot. It continues to surprise me how many brokerage firms pump out essentially identical 6 to 10 page weeklies for E&P, refiners, service etc full of earnings tables and valuation plots with little to no commentary. The charts and graphs are nice and maybe that's what some people want but pointing ranking stocks by various metrics is only useful if you have something to say about it. Is the outlier new? Will it come back to trend or is this divergence warranted and lasting? Who knows, they just throw a table generated by a research assistance into a PDF and add it to the page count tally for year end review by the director of research. While the occasional data dump is useful for getting one's bearings it's not analysis. If I ever start doing that please unsubscribe or throw a brick at me. Talk about a waste of energy.

Tropics Watch #1: Felix Factor:  Very far south but could deal a glancing blow to the Bay of Campeche causing another, probably shorter shutdown for Pemex.

  • Crude Oil. Somewhat positive impact on prices unless it completely misses the southern Gulf in which case you can skip down to OPEC watch below. Pemex had just reported on Sunday that it had finally restored 100% of production taken down by Hurricane Dean. If it does make waterfall again in the GOMEX I'd bet on a another, smaller, disruption in imports from Mexico in the EIA's inventory report next week.
  • Natural Gas. Yet another storm brews up and carves up the Mexican mainland, far and away from the natural gas producing infrastructure of the GOMEX. Gas is off $0.18 at $5.28 this morning and I'd expect it to test $5.00 over the second not so near miss of the season.

Tropics Watch #2: Two other waves behind Felix are as of yet unorganized.

OPEC Watch: According to Bloomberg, OPEC ministers plan to order the lamb with a dinner salad followed by a plate of cheese and the check but to leave quotas the same when they meet September 11. Comment: cheat, cheat, cheat, look around sheepishly while talking about maintaining quota discipline and then cheat some more. Maybe we get an official reduction in the 1.7 million bopd of curtailments last altered in February at the December meeting. Maybe not. I'd say it'll  be smallish and only occur if oil is north of $70.  

A few more words on the energy sector charts. Nicky should be back from vacation this week and she may take exception with my charting abilities but in her absence... 

  • (XOI) -Oily Stocks. Technical Opinion: Looking a little better. Last Wednesday I deemed that chart "not altogether horrible" and said it "held it's 200 day average mid August and now it would need to hold 1,260 to due the same again." So far so good. Mission accomplished 
  • (XNG) - Gassy Stocks. TO: Still Perilous. At 477 the index lies just under its 200 day moving average and the "Felix Factor" (or lack thereof) may knock gas at least temporarily for a loop and leave the XNG once again headed toward chart support at 450 or a little under 5% lower.
  • (OIH) - Oil Service. TO: Even Better. Despite a bit of bad news for the weaker end of the market last week in the form of a 3Q warning from (ESV) the OIH marched like an index with purpose into the long weekend and sliced cleanly through that 50 day simple moving average I was talking about on Wednesday. As long as the Fed makes everyone happy and commodity and other funds start to recommit capital to U.S. equities markets (unlike the last few weeks when they were pulling it out to pay their illiquidity bills) the OIH should fare pretty well. Components of it will of course vary in performance but those sectors of it with specialized capabilities and/or long capital budgeting horizons do disproportionately well.

Natural Gas: Continuing to slip.

  • CDDs fells slightly to 74 from 77 in the prior week. Expectation was for a more flattish number so this very slightly unwelcome news if you're a gas bull. Not a big enough drop to worry about and it was still 23% warmer than the year ago week. We are currently ahead of last year by 71 Bcf and should be able to reduce that surplus by 20 or so B's given the large injection / mild weather in the year ago week unless imports surged to another new high this week (we'll know today).
  • Gas Rig Counts: At 20+ year high. If you missed the weekend wrap click here as it was contained some pretty interesting rig graphs.

Odds & Ends 

Analyst Watch: (OII) started at overweight at JP Morgan, (PXP) upped to neutral at Credit Suisse, (RDS.A) to buy at UBS. BMO cuts (CHK) to Hold and their price target from $42 to $37 (this is a throwing in the towel on natural gas prices call). 

Stocks We Care About Watch:

  • (PBR) - more good news in the form of confirmation that two of it's biggest 2H07 developments remain on schedule and that a third, hung up by environmental problems, will be on line before year end (not on perma hold). 
  • Chinese oils have continued to run strongly after the blistering they took in the wake of the sub-prime mess. Still waiting for another big down oil day opportunity to jump on (PTR).
  • (I0) - For Quarryman Watch: Strong, technology advantage driven seismic player with plans to double revenues but quadruple operating profits by 2011. Seismic is a bit of a weird animal for me and these stocks can burn you just as fast as anything I've seen in the energy realm but (IO) appears well positioned to take advantage of a growing need for ultra-deep seismic data. That being said, a good  and growing portion of their resources are allocated to land data acquisition and this segment will experience reduced activity in the event natural gas prices decide to collapse or just rest for awhile around the $5 mark. Suddenly the time horizon for acquiring new data for infill drilling programs could be lengthened leading to EPS reductions near term. Again, I have only a peripheral knowledge of these guys from seeing them present many years ago at and energy conference and then watching their most recent IR presentation last night so take this read from that perspective. I would be cautious since I believe E&P and Major capital budgets for 2008 will show little if any YoY growth for 2008.
  • (DEEP) - Time for a bounce? Not an option bearing name but still one of interest. They announced the return to service of one their vessels today which forced me take notice of just how beat up this name is. With a $10 price tag on it I almost didn't recognize it as it was $18 in July! However, estimates for the third quarter have been cut almost by half in the same time from and annual estimates have been slashed as well. The problem here is the continued reduction  shallow water activity (at least in the GOMEX). I  still prefer (OII) where day rates and estimates continue to increase. It's much like the Jack-Up vs semi-sub argument where I prefer deeper capable firms like (RIG) and (DO) over ones like (ESV) right now. I'll continue to watch and if it takes another leg down I may pick up a bit as the company is actively taking steps to geographically diversify themselves away from the Gomex shelf. Also, like OII this one would benefit greatly from a damage causing hurricane in the Gulf.
  • Valero webcast from Lehman conference: 1:25 CST Wednesday.

Kashagan Watch: Turning up the heat on (E), the Kazahks are looking for $10 billion as payment for cost over runs at the project. Putin would be proud.

The Russians Are Coming Watch: Here's one piece of non-OPEC production you can't deny is on the rise. The Caspian Pipeline Consortium reported Black Sea volumes entering the system jumped 5% from July to August to 715,000 bopd.

Gorgon LNG To Sell Gas To PTR: Looks like confirmation the Australian project remains on schedule as Shell (50% stateholder) commits 1 tonnes per year of LNG to China for the next 20 years.  

To my new friends in Honduras, keep you heads down. You are in my prayers. 

83 Responses to “Tuesday – One Small Sway For Felix, One Giant Walloping For Gas”

  1. 1
    Sambone Says:

    Z – Roger that on the waste of energy by the Streets analysis. They are all lemmings IMO

  2. 2
    zman Says:

    I used to be a lemming but then I jumped off a cliff and landed here.

  3. 3
    zman Says:

    RIG and OII continuing to please here.

    USO adding 1/2 percent, nat gas has paired some early losses, still scary looking though.

    Refiners looking up a bit. I’ll be watching the Lehman presentation closely tomorrow since it’s their first big conference since cracks have fallen and started to bounce.

    Another $2 for PBR. I’ll be waiting for that dip for awhile it appears. They just keep going up which is usually when people get and then they crash. In this case, the string of positive developments, underscored by both managements PRs regarding timing of new production as well as new contract commitments to service provides for the projects that are a little further from fruition are fueling the stock rally here.

    PTR – ditto.

    SWN actually getting a boost while KWK is flat. Maybe somebody read my hedge piece last week.

    Nice rally APC as well.

  4. 4
    scoop006 Says:

    Z Re performance page are you still holding OII Sept 70C

  5. 5
    scoop006 Says:

    Cramer plugging RIG on CNBC says should be trading with NOV if not for the GSF merger.

  6. 6
    zman Says:

    Scoop – Sept 60s and yes.

    Thanks for the Cramer heads up re RIG. He really should say that it should be trading with DO which trades at a much higher multiple than any of them.

  7. 7
    scoop006 Says:

    He mentioned DO was a buy here also, I was listening with one ear.

  8. 8
    zman Says:

    TSO – back up through $50. If it can take out last week’s $51.40 high the stock may get a leg up as cracks continue to improved off mid 3Q lows.

  9. 9
    scoop006 Says:

    Z Your thoughts NFX OCT. 45C? @ $2.

  10. 10
    zman Says:

    Not a bad bet. I still hold some now worthless Septembers in the name which I continue to like in the extreme. However, a sketchy looking gas price can just as easily send it to $40. What’s cheap can get cheaper.

  11. 11
    zman Says:

    Looks like some activity in both the Sep and Oct 45s there.

  12. 12
    zman Says:

    October $10 PQ calls not a bad deal here for $1.60 with the stock at $11.40. I’ll have a piece out on the stock shortly, one of my little reports, but suffice it to say for now that I still like them. Also the January $10s at $2.40 ish are pretty cheap for the time you get. Again, the caveats to gassy stocks apply.

  13. 13
    zman Says:

    Everybody say thank you Cramer.

    Half out RIG $105 calls – avg price $4.60 = 156% gain since 8/22.

  14. 14
    scoop006 Says:


  15. 15

    Being new, and not having perused past comments, what is “in the name which I continue to like in the extreme.” Is this NFX? or VLO?

    Any purchase suggestions on these?
    [I’ve been selling all morning and am building cash for next opps.]

  16. 16
    zman Says:

    Q-man. It was in reference to NFX. On Newfield the Oct $45s are not too pricey for me to bite but have not done it yet.

    VLO has had a heck of a rebound in the last 2 weeks and I would be taking profits were it not 1) so cheap and 2) speaking tomorrow at Lehman (which gets a little but not a lot of weight in my book). I still may take a little (1/2 of my current position) via a stop if VLO can’t stick close to $70 by the close. My combined position here in the Sept 65s (bought on 8/22 and 8/29) is up 93% at current bid.

  17. 17
    scoop006 Says:

    Quarryman Re post # 10 = NFX

  18. 18
    scoop006 Says:

    Z Any opinion on CHK Sept $32.50 or $35.00 C’s

  19. 19
    zman Says:

    Sccop – that’s a tough one. They got hit with that BMO downgrade this morning which in my opinion was bogus.

    The Street has a long running intolerance for CHK as this morning’s note referenced a continuing fear of an equity deal being just around the corner. As such the stock has a lid on it. Maybe the $32.50s if you’re going to go that short but without a big near term catalyst in natural gas, which I don’t see before September expiry, I like longer dated positions.

    We’re about to get the “Gas Reaches 3 Tcf At Earliest Point In History” headline. Historically 3 Tcf was seen as full storage. That happens either this week or next. Thus my trepidation re gassy names.

    I called it a bogus downgrade b/c they didn’t cut estimates. This is all about tight liquidity and the potential equity deal which will overhang the stock (see it underperforming its peers again today) until gas prices recover some.

  20. 20
    scoop006 Says:

    Thanks for # 19. I’ll play PQ Jan $10 instead.

  21. 21
    rammastr Says:

    ZMAN – Thanks for the holdout on RIG until today! I had to go all out.

  22. 22
    zman Says:

    RAM – not sure I follow…

  23. 23
    rammastr Says:

    I aksed about taking a little out last week and you said you weren’t. Therefore I held out. I sold this morning (110 calls at 1.80 – bought at .60). I’m cool. It could go up more, but I’ll take it and run.

  24. 24
    zman Says:

    RAM – I already held it at that point. I sold some today.

  25. 25
    zman Says:

    Oh you mean taking out as in selling some you were long? Misunderstood you completely. So you got a trip! Cool.

  26. 26
    Sambone Says:

    Nymex Crude Steady As Felix Hits Central America


    NEW YORK — Crude oil futures were steady early Tuesday, falling from a one-month intraday high as Hurricane Felix battered the Central American coast and was forecast to miss Gulf of Mexico oil production.

    The front-month October, light sweet crude contract on the New York Mercantile Exchange was recently up 6 cents from Friday’s settlement at $74.10 a barrel. Prices rose as high as $74.60, the highest for a front month contract since Aug. 6, in electronic trading during the Monday U.S. Labor Day holiday as Felix strengthened rapidly. There was no Nymex crude settlement price Monday.

    Brent crude on the ICE futures exchange fell 17 cents to $73.24 a barrel.

    “The fall in prices (from their intraday high) is mostly the fact that the hurricane didn’t get on track to do damage,” said Peter Beutel, president of trading advisory firm Cameron Hanover in New Canaan, Conn.

    Hurricane Felix made landfall early Tuesday near the Nicaragua-Honduras border as a Category 5 storm, the fiercest category in a five-level scale used by the U.S. National Hurricane Center. The storm is forecast to head west across Honduras and Guatemala and isn’t set to enter the Gulf of Mexico, according to the latest charts issued by the NHC.

    Felix’s strength as it made landfall means it is the first time in recorded history that two Category 5 hurricanes have come ashore in the same season. Dean hit the coast of Mexico’s Yucatan Peninsula in August, also missing key oil production areas.

    Colorado State University, a respected hurricane forecaster, said it expects the September to November hurricane season to be above normal, with four hurricanes forecast for September, two of them major hurricanes.

    Beutel said the strength and speed of development of Dean and Felix have some traders wary of further hurricanes for the season, while others are saying their path away from production could indicate future storms aren’t headed into the Gulf of Mexico this year.

    Front-month October reformulated gasoline blendstock, or RBOB, rose 35 points to $1.968 a gallon. October heating oil rose 1.3 cents, or 0.6%, to $2.0704 a gallon.

    Traders’ attention is now turning to weekly U.S. oil inventory data, which is due Thursday, delayed a day because of the Labor Day holiday. Crude prices surged last week after the U.S. Department of Energy said refinery use, as well as crude oil and gasoline inventories, fell much more than analysts had expected.

    —By Matt Chambers, Dow Jones Newswires

  27. 27
    rammastr Says:

    ZMAN – I know. I bought when you pulled the trigger. Longer term calls on RIG NOV or JAN?

  28. 28
    zman Says:

    I was just about to ask what the heck had jumpstarted nat gas here and then I read Sambone’s comment about the CO State folks predicting above normal for the rest of the season. That’s giving gas a break and keeping it in this trading range. Nothing on the radar now that I see though.

  29. 29
    drdavis124 Says:

    CHK “listen carefully” It is my largest holding with very long term LEAPS. Don’t trade CHK short term. The big houses & Crameer hate CHK & have no clue that it is the largest owner of Nat Gas acres & has the most drills working in North America. Chk is “best in Class”. At some point it will take off. When “”I have no Clue”” Until some Big respected Firm touts it & the lemmings follow.


  30. 30
    zman Says:

    RAM – not sure yet. Probably wait a little longer (wed, thurs). Still have a half load of the Septembers.

    Nat gas is on fire of a sudden. Thinking of some longer dated calls in HAL (Oct $35s. I’d go into the gassy stocks but the gas move can easily be squashed later this week if we got > 3Tcf. If not then next week.

  31. 31
    Sambone Says:

    Z – Nothing out there to look at. 98L got ripped apart by shear.

    On Cramer note, isn’t it true that when he saids to buy a stock, it goes up short term, but then down. That has been the case with CHK since 05 in my experience.

    Dr Davis, I love CHK by the way.

  32. 32
    zman Says:

    Dr D – I like CHK too (own some Jan 08s) and think it’s a long term winner and probably a takeout for its 11,000 locations but the current Street environment is not favorable for them.

    It’s not just about having the most rigs or the best growth rate. It helps with service costs that they’ll be the biggest producer of gas in the US next year (currently 3rd)but they paid up to get where they are. Now they’re monetizing but the Street is full of the uncoverted who still look at the last few years F&D costs and turn up their noses. With the idea of an equity offering out there many are reluctant to get behind the story and instead will send you towards a DVN or and EOG for similar plays if not growth rates.

    Sambone – he’s been pumping RIG for awhile now. I like it longer term as its cheap and has excellent long term contracts going out past 2010

  33. 33
    scoop006 Says:

    Sambone You will be a winner if you take the opposite side of most Cramer trades.His picks usually decline within a 2-3 week window.
    That has been my experience with his calls.

  34. 34
    zman Says:

    Scoop – I’d normally agree. Part of it’s the Cramer effect of getting a lot of people into a stock they know little about who then turn around and sell it at a loss once the initial hype is over. Part of it’s the he’s said time and time again that guys like himself NEVER tell the truth so he may be providing exit strategies for others. It’s done all the time on CNBC by many of their guests.

    In the case of RIG, a $15 number is doable for 2009 EPS up from $7 and change this year. That 100% ish growth with a forward multiple of 7 and the analyst community is pretty happy with it there as well.

  35. 35
    scoop006 Says:

    Z I firmly believe most of his diatribes are designed to provide selling opportunities for his hedge fund buddies.

  36. 36
    zman Says:

    Sambone – do you think most of the crowd is back at their desks?

  37. 37
    Popeye Says:

    SLB looks like it’s going to break $100. OIH is cranking.

  38. 38
    zman Says:

    Popeye – hear ya OIH on fire! Glad I’ve still got the second half of my RIG position.

    TRADE: HAL SEPT $35 for $0.90

    SLB- nice catch! huge breakout on the daily their today. May take a little near term $100 call action for a quick trade.

  39. 39
    zman Says:

    …in fact OIH looking to take out that 190 high. Could very well do it soon. It won’t take a recovery in nat gas, just stable nat gas and oil.

    SII has got to be doing very well now (bits and mud) given the seemingly ever steepening rig counts.

  40. 40
    zman Says:

    Setting stops on the RIG $105s at $6. Too far too fast and oil is softening a bit during late lunch.

  41. 41
    Sambone Says:

    Z – Yes, at their desks. What I find interesting is the #’s came in below consenus, F #’s are down big, etc. I guess everybody is expecting the Ben put in about two weeks.

  42. 42
    zman Says:

    #40 my bad, was looking at my vlo calls not rig’s. wishful thinking.

  43. 43
    zman Says:

    Sambone – what I was reading made it sound like Ben cutting Fed Funds on the 18th is a done deal.

  44. 44
    zman Says:

    Natural gas up $0.074 and trying to break out at 5.54. Would need another 3 cents.

    I’m pretty shocked they aren’t more worried about the 3 Tcf headline which is just around the corner.

  45. 45
    rammastr Says:

    ZMAN – Why do you think HAL will go this time?

  46. 46
    zman Says:

    HAL –

    1) it’s cheap to its peers (the old reason was the KBR sub which was lower margin and that’s been punted),

    2) and most importantly from an options perspective, I think they’ve gone light with the recent buy back to date. If they feel the market is going to rebound over Bernanke I’d bet they give the buyback broker the go ahead on accelerating to get the shares lower.

    I’ll include a discount to the group and SLB chart tonight if I get a chance.

  47. 47
    Sambone Says:

    Z- Ben put – Street expects it and is betting on it (See Friday). Watch out below if he doesn’t.

  48. 48
    rammastr Says:

    Thank you.

  49. 49
    Sambone Says:

    Off subject, but here is a real cool photo of the moon from the center of Felix.


  50. 50
    zman Says:

    Sambone – very cool. You can see the cane hunters port prop at lower left. Those guys are nuts!

  51. 51
    Sambone Says:

    Too true.

  52. 52
    zman Says:

    ah, there’s that nat gas breakout, tagged $5.57…no panic to get out of gas like last post hurricane miss or rather, it was much shorter lived.

    Liking my APC calls more and more now.

  53. 53
    kyleandy Says:

    disregard my e-mail finally got in never have worked so hard to give one my money but since i bot nfx and tso at the close on fri am very happy

  54. 54
    zman Says:

    K – sorry for the hassle…but I appreciate the money. 🙂

  55. 55
    Sambone Says:

    KY – Don’t feel like the “Lone Ranger”. Just get in line with everybody else, LOL

  56. 56
    zman Says:

    Oil back up through $75 for first time in a month. Just think if we actually get a hurricane that goes into a productive area again. Part of today’s rally is lighter amount of cheating going on. OPEC production was announced to be up 0.23% earlier today in Aug relative to July. So they’re still cheating but the rate of cheating isn’t as fast as it was as they approach the next meeting.

  57. 57
    zman Says:

    SU just reported some pretty big numbers for the month of August:

    280,000 bopd vs year to date average of 224,000. Target range for 2007 remains the same at 265-275.

  58. 58
    zman Says:

    If you figure oil is on a collision course with $78 nd then you’ve gotta think SU goes back to test 95 from it’s current $91.33. $95s and $90s (little safer) calls of Sept are interesting here for a quick trade.

  59. 59
    rammastr Says:

    Is Felix close enough to disrupt PEMEX?

  60. 60
    zman Says:

    TSO – feeling even more vindicated on those calls from last week…just had to gut out the stock being the only one that didn’t respond to higher cracks for a few days there.

  61. 61
    zman Says:

    RAM – I don’t think so. Maybe some onshore stuff but mostly it’s going to (is) currently messing over some friends of mine in Honduras.

    I was surprised over the weekend to see how rapidly it strengthened. Models on Friday were calling for it to top out in the 2 to 3 Cat range and it goes on to make landfall as a 5, the first time two Cat 5s have come ashore since recordings started in the 1880s. Tells you something about water and shear conditions and the Colorado guys are saying busy and bad for the rest of the season and why gas just can’t get enough today.

  62. 62
    rammastr Says:

    Thank you ZMAN. I also appreciate the intellicast link above for further storm info.

  63. 63
    scoop006 Says:

    Z Is it time to take some profits in APC,COP,RIG, TSO,VLO? Averaging a double

  64. 64
    zman Says:

    I’m holding APC, don’t own COP (but should have), RIG took 1/2 off earlier. TSO and VLO not a bad idea at all.

  65. 65
    zman Says:

    Wow, OII caught a late wave.

  66. 66
    zman Says:

    Nice day…stepping out for an hour.

    You can always get me here or on the zmanalpha@gmail…it all goes to my blackberry although I’ll be driving so forgive the syntax.

  67. 67
    zman Says:

    thought I was check out. CHK news out.

    forming MLP as expected,

    selling 145 Bcfe of non operated assets in Kentucky and WV (1.5% of total proved reserves and production)

    should reduce need for equity deal / alleviate analyst fears of one as it raises $55 million. That’s a nice price for those assets.

  68. 68
    zman Says:

    last 32.82
    bid 33.40

  69. 69
    zman Says:

    announced 4 similar size packages are on the block, one every 6 months through 2009.
    Expecting aggregate $2 billion.

    This is a royal “shut the hell up” to the BMO analyst downgrade this morning. Like I said, bogus downgrade.

  70. 70
    zman Says:

    CHK continued…

    Got UBS to form the much anticipated gathering Master Limited Partnership.

    Sees > $1 Billion from its sale.

    This brings total proceeds from the sales and MLP listing to $3.5 B between now and 2009.

  71. 71
    zman Says:

    And then they cap the whole thing with a production curtailment. Awesome. Like clockwork but a bit early.

    6% of production or about 125 mm/d net (200mm/d gross). I knew it. It’s even the same percent as last year’s number. THIS will boost gas prices.

    And its from the Barnett Shale. What have I been saying? You can’t justify this level of drilling in the shale at these prices!

  72. 72
    zman Says:

    Bet you UNG pops in the morning.

  73. 73
    scoop006 Says:

    So is CHK a buy in the AM?

  74. 74
    zman Says:

    Depends on where it opens (sub $36 I’d say yet). No kidding, this is a big deal. It’ll have big implications for the likes of APC and NFX, SWN, KWK all on the long side.

    The MLP concept isn’t new but it sure can get a stock off it’s butt. The curtailment of production…well that’s what turned gas last year.

  75. 75
    zman Says:

    Ok, gotta run. back in a bit.

  76. 76
    coco Says:

    Open forum question, how does one play the recent rally in Heating Oil. Not a big suprise that people are starting to focus on the upcoming winter months, but is there anyway to trade this on the equity side?

  77. 77
    zman Says:

    Coco- everybody[‘s out to lunch. There are some fuel gas plays but I like to stick to playin gthe run in HO via the impact it has on crack spreads and therefore VLO and potentially SUN.

  78. 78
    texana Says:

    Z comments on HK , long Dec calls 12.50 and 17.50 , they should have mlp announcement soon , potential takeover candiate as acreage is harder to come by. thoughts ?

  79. 79
    zman Says:

    I wrote this back on August 8th. I couldn’t agree with it more now than I did then but the stock succumbed along with everything else to 1) subprime and 2) lower nat gas prices.

    * (HK) Nice Beat. Major operational quarter. Kicked butt with the drill bit.
    o Reported $0.17 versus $0.15E;
    o More importantly reported $0.86 CFPS which is pretty massive for 1 quarter on a $15 stock if you think about it given the their high production growth rate and low cost structure.
    o Revenue $234mm actual vs $228 expected;
    o Production: 324 Mmcfepd (middle of guidance) which is up 151% from a year ago.
    o 3Q production guidance: 322 to 332 Mmcfepd.
    o LOE at $0.59 per Mce is below mid point of previous guidance.
    o Cost guidance remains low and unaltered from last quarter except for per unit G&A which is expected to fall.
    o Operations: 98 out of 100 wells drilled during the quarter successful. 19 rigs running now.
    + Mid-continent region saw 74 of 75 wells successful, seven were Fayetteville Shale, four of those were company operated with nice IPs of 3 mm/d.
    + Gulf Coast 17 of 18 wells successful (Elm Grove and Terryville in La).
    + Permian: 7 for 7.
    o Acquisition: bought a private company in the last week for undisclosed $ with properties in Arkansas, Indiana, and Texas. Adds 32,000 acres to their position in the Fayetteville and gives them a good start in the New Albany. This is in addition to the 32,500 acres acquired in the Fayetteville announced in June (now 80,000 net acres there)
    * Fayetteville Shale: Plan 50 operated wells for 2H07 and will participate in another 40 during that time. This is a significant acceleration of activity since the last report. Two wells had multiple simultaneous stimulations (probably by Multifrac) and came in with IPs of 3.5 and 3.8 Mcfgpd. I know this is a small number of wells and the Fayetteville is anything but homogeneous but these are some sweet rates. Ask (SWN) whose last 10 wells averaged IPs of 2.6 Mmcfgpd. They have three rigs running now and expect to be at eight rigs by mid 2008. Wow.

    * Louisiana: Terryville Field. Downspacing a portion of the field to 20 acres. They didn’t quantify how much of the field they could expect to downspace but said it could add substantially to the 550 locations they have on 40s. Don’t expect to double here but it should be a nice add to inventories. Also, completing one Gray sand well after another came in at 6.1 mm/d (which is a little above the old average as I recall it closer to 5). These are $2.5 million wells which have typical initial production of 2.5 mmcfepd and an additional $600K gets you deeper to the Gray. Nice. They’ve grown this area from nothing in 2004 to an expected 40,000 Mcfepd in 2007.

    * Louisiana: Elm Grove: operated wells IPs of 2 mm/d with program running like clockwork. Second horizontal test came in at 4 mm/d; plan four more by year end. 20 acre infills showing strong results with average IP of 1.5 mm/d.

    * Lion Field, Goliad County, Texas. Two big wells added during the quarter.

    * Along the Gulf Coast – they drilled several deeper tests (some with (NFX)) and have encountered quite a bit of pay. More later on this druing the conference call.

    Adds Conference call notes:

    Raised Capex Budget to $675mm

    MLP will be filed in 3Q

    Expect Gulf Coast to close prior to year end and given their continued success there I would agree with them that it should be a pretty competitive sale.

    Elm Grove – after drilling of the second horizontal well that program is just getting kicked off. Targets the Davis and Taylor in the lower Cotton Valley as well as certain structural features. Thing the horizontals outperform the verticals by a factor of 2 to 2.5x.

    Terryville – 3D shoot will be delivered in 3Q and will give better focus for targeting the gray sands outlined above.

    Fayetteville Shales: those two wells mentioned in the PR that were multi-fracced and came in at IPs of 3.8 adn 3.5 Mmcfgpd are flowing 3.1 30 days later. Pretty strong for wells that are costing $2.7mm apiece now and are planned to fall to $2.4 to $2.5 as the science firms up. EURs looking like 2.0 to 2.5 though of course, that’s the sweet spots, not the whole 80,000 acres.

    Gulf Coast: Peregrine apparent discovery

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    scoop006 Says:

    Z Don’t you ever sleep. Got to for action in AM

  81. 81
    zman Says:

    Just doing a little reading.

  82. 82
    ndog Says:

    hoping you check the late posts in the morning…. got a call on ung and chk?

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    corporate proxy solicitation services seta Says:

    Us proxy solicitation rules

    Tuesday – One Small Sway For Felix, One Giant Walloping For Gas | Zman

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