Monday Morning – Some E&P Thoughts


In Today's Post:

  1. Commodity Watch
  2. Multiple Updates - E&P
  3. WIOWIO E&P Edition - CLR, CHK, HK, PQ, NFX, EOG, XCO (tomorrow - oil service)
  4. Stocks We Care About Today - ECA, PBR, HOC
  5. Odds & Ends

Commodity Watch:

  • Crude Oil: closed up 8% last week to $125.96. This morning oil is trading off between $1.00 and $2.00 in what appears to be a little early morning profit taking on a slight bump in the dollar.
  • Crude Thoughts Watch: This rapid rise is not healthy for the continued march upwards in E&P (see below) and other energy shares as it is likely to lead to greater volatility and a likely near term speculative top in which oil rises multiple points and then rolls over to close in heavy profit taking in a single day resulting in a "baby and bathwater" type event in the energy groups...something I personally loath. The euphoria of the run up does not match the pummeling which comes later as the fast money seeks other pools to swim in, leaving names that it barely understood in the first place as they now seem suddenly radioactive. Also, $120+ oil is tough on the consumer and manufacturer alike and is difficult for the market psyche to digest as it looks towards and economic recovery later this year. This concept is making me a little more cautious and will prompt me to raise more cash (along with all the May selling this week) and to be quicker in taking profits in stocks without near term catalysts.
  • Summer in Lebanon Watch: It's that time of year again and tensions are rising. Not a crude producing nation to any extent but fighting there increases regional concerns and gives the oil bulls fodder.
  • Turkey Shoot Watch. Turkish airstrikes on Northern Iraq Kurd positions again over the weekend. This is becoming a semi-regular event and has not, to my knowledge ever resulted in direct oil supply disruptions. It is possible it encourages sabotage but it in a place like Iraq I don't think the bad guys wait around for an excuse to bomb anything.
  • Natural Gas: closed up 7% last week to $11.54.  The rally here been tied to everything from the advance in crude  and the discounted BTU exchange rate there to colder than year ago weather, to the desertion of LNG tankers from U.S. shores (for higher prices in Europe and Asia), to the coming busy (at least in initial forecast) hurricane season, to a continual short covering rally (which never shows up in the data because more shorts simply pile on), to speculators. The reason for the rally is probably a little bit of all of the above but with the rally in crude and coal currently in the driver's seat as we approach the cooling season. This morning gas is trading +/- $0.10.
  • Weather: Heating degree days came in as expected at 45 last week. This week's early read was not available at post time.
  • Domestic Production: The Growth Continues. With a majority of the large natural gas producers in the Lower 48 having reported, its time to take a look at their 1Q production relative to year ago levels. The majors continue to suffer production declines while the biggest E&P companies push themselves towards the top positions. The following chart is not scrubbed for acquisitions or divestitures but it does give the viewer a handle on directionality and helps to confirm some of the EIA data which is pointing towards mid single digit production growth. This graph excludes ECA but I'll add them in when I get the U.S. gas breakout (suffice it to say for now that production was up there YoY in every one of their U.S. operating regions). 



E&P - Big Share Price Appreciation, But Are They Getting Expensive. In a nutshell, no. Despite the big moves in several of our favorite names, valuations remain relatively conservative especially in consideration of the mean price deck used by analysts at present (2009 oil: $88.55, 2009 natural gas: $8.44). In general, at least in our favorite names production growth continues to rise and costs remain in good check. We are seeing some signs of cost creep in the field in terms of rig rates and tubulars (discussed last week and we'll have more on that later this week). Look for an E&P commodity price sensitivity analysis and updated bubble charts in tomorrow's post. Note, I do plan on adding (PXD) soon. 



Why I Own What I Own Watch: E&P Edition 5/12/2008. Please note, we've added a WIOWIO tab at upper left and these and future segments will be placed there for quick reference. Please note that WIOWIO are only the current, very near term highlights of why I own a position. More in depth reasoning can often be found on the reports page.

CLR - June $50 Calls with a large profit. I'm likely to take half off the table a few hours after I see a headline with the words "Three Fork Sanish" in it.

  • held through earnings and got exactly what I wanted, good numbers, better guidance and Street estimates that were caught loafing.
  • numbers here are transitioning from the lower $5 CFPS for 2009 into the lower $7s - in some cases estimates are in the process of rising 40% from week ago levels.
  • so despite the rally, it's likely trading closer to 7x 2009 CFPS which is not bad when you consider their projection of an '08 volume exit rate 42% above 1Q08 average volume levels. Especially since potentially bigger Bakken well results (there's that Three Forks Sanish test) are just around the corner (couple of weeks to a couple months away probably). 

CHK - July $60 Calls. I recently sold my May positions here and will be looking to add more exposure on any large dips in the group.

  • rapidly gathering Haynesville acreage so everyday we are coming closer to seeing a rate out of them which should explain what Aubrey is so excited about here.
  • stock has started to get some respect but still trades at a discount the group. They will likely bump production guidance next quarter.

HK - June $25 and $30 Calls. I'll likely sell the $30s into the next and roll the proceeds longer short thereafter.

  • bumped Capex, did equity and stock deals and the share continue to move up
  • read the 1Q08 note here,
  • expecting some price target upgrades, albeit from the bankers on the deal, in the very near term,
  • not sure if we have a near term catalyst from within the stock but again, we should get Haynesville results from one or more other operators and with 150,000 acres under their belt, good results will shine on their stock as well. 
  • I expect volume guidance to raised here, most likely on the second quarter call and I expect the stock to be taken out sometime in the next 6 to 12 months.

PQ - May and July Calls, the Mays will go away early this week.

  • cheap to the group at just over 4x '09 CFPS numbers,
  • no extremely near term catalyst other than estimate increases
  • expect them to increase guidance by 2Q call 

NFX - May 65 and June $60 calls. The Mays are probably hopeless and will get punted soon.

  • Mancos shale test results in next few weeks in Monument Butte. This could be a company mover as this underlies acreage already held by production. They can ramp it up or down as gas prices dictate, not risking capital to acquire leases. 82,000 net acres here. ~ I wrote that back on April 23rd so really it could be any week now. NFX has a habit of releasing good news in between quarterly reports so again, could be any week now.
  • Bakken tests - coming very soon on their 160,000 acre position. They are in several tests with multiple operators here.
  • Expecting P/CF multiple to continue to slowly rise here which along with a severe upgrade on the part of analyst estimate should continue to move the shares higher. Production growth here is expected to be between 18 and 23%, their core property in the Woodford Shale continues to generate improving economics and it may yet see sub $1/Mcfe finding costs this summer as they begin testing dual laterals in the play bringing NFX's corporate F&D into more respectable levels this year.   


EOG, June $140 calls. This is one of 3 high growth large cap E&Ps I rotate between and should be listed in the dictionary under the heading "horizontal repeatable success".

  • This once almost entirely gas focused name has a made some increasingly oily moves of late and has drilled some of the best wells to date in the Bakken.
  • Could have news out on 320 acre spacing test in the Bakken but I wouldn't count on it before 2Q earnings.
  • The stock is not exactly cheap relative to the group but it does have one of the lowest debt to cap ratios in teh E&P universe (14% going to around 5% by year end).
  • This is one I can come in and out but plan to be long in July for the 2Q call as I expect upgraded reserve estimates in the Bakken and results from several of the other oil shale plays, including the Barnett oil play at that time.

XCO - June calls

  • Haynesville shale results anytime in the next couple of months - "encouraging results so far" from the number 3 acreage holder in the play.
  • large Marcellus shale exposure, notes from other operators continue to provide encouraging noise here
  • cheap multiple of 2009 expected CFPS vs high growth expectation

Stocks We Care About Today Watch:

PBR - About To Add Rigs Like There's No Tomorrow. Petrobras is soon to announce order for 15 to 17 deepwater capable rigs for the further delineation and development of the Tupi and Cariaca discoveries.

ECA Splits Into Oil & Gas Concerns.

  • First question, do they celebrate mother's day in Canada and what's with a Sunday announcement?
  • Essentially:
    • the oil company will get the U.S. and Canadian refining and Canadian oil sands operations and
    • the gas company will get the U.S. Rockies and Texas assets along with the gassy E&P operations in the Canadian foothills.
  • Normally this kind of de-conglomeratization is an obvious value unlocking event. The size of the stock limited the ability of new field developments to make a significant impact on the share price, either from an oil sands perspective or from a new gas play persepective.
  • However, from an ECA specific standpoint, the company was already trading at a pretty respectable multiple of an integrated concern. As of Friday's closed, ECA (wholeco) traded 7.0x '09 est CFPS.
  • The Transaction: current shareholders get 1 share in each of the two new companies. Neither of the new co's will look cheap to their peers on a standalone basis but...
  • ...look for a significant rally on the open to gain momentum as the day goes on. ECA has a reputation has an efficient operator and its two offspring are likely to be granted better than average multiples early on.

(HOC) Reports 1Q08

  • EPS of $0.17 vs $0.15 expected,
  • same story as the rest of the refining group at present, average selling price up a whopping 38% but the cost of products sold up an even more impressive 63%. Note also that its not just the weak cracks that are affecting them and the other refineries but the rising cost of utility expenses (purchased electricity)
  • YoY throughput was up 7% due to the expansion at their Navajo refinery,
  • Conference call 10 EST

Odds & Ends

Analyst Watch: RBC cuts (LNG) from outperform to underperform - gee, what tipped them off? But they aren't alone, Citigroup cuts (LNG) from Buy to Hold and their price target from, wait for it, $37 to $7 ... can you say "banker?". FBR reiterates hold of (ECA) after the re-org news while Raymond James upgrades it to Strong Buy. (CPST) initiated at Buy at Merriman, (NM) cut to hold at Opco. (NFX) upped to Buy Calyon. Credit Suisse ups (PXD) target by $10 to $77.




75 Responses to “Monday Morning – Some E&P Thoughts”

  1. 1
    VTZ Says:

    Haha. Yes there’s mothers day in canada, but I have no clue what’s up with a Sunday announcement.

  2. 2
    isleworth Says:

    Z- at what level do these beaten down independent refiners, specifically TSO and VLO make some sense?

  3. 3
    zman Says:

    V – I thought so, these guys much be orphans and unmarried. There seem to conflicting currents as to what value this unlocks given the pro forma valuations already being so high. As a day trade, I would expect it to rally as/if oil recovers from the lows.

    Isle – I think the next couple of weeks will be telling. Production has been higher than one would expect on the gasoline side given low utilization due to the incorporation of greater amounts of blending products in the finished gasoline number. I the indie refiners can keep utilization low, as a group, as we enter the big pre summer ramp season, they may have a good shot at expanding cracks and causing a bottom here. Lots of people, including myself, have tried bottom fishing here but with crude on such a roll, it is very difficult to know how low their numbers are going to go.

  4. 4
    ram Says:

    Anybody down grade the land or deep water rig guys?

  5. 5
    zman Says:

    Ram – not that I saw, all of service opened weak and got weaker fast with down oil and gas. Volumes were light and market makers and specialists just stepped out of the way. Just looks like a little nervous hands profit taking both in the groups and in the commodities. Starting to see some decent bottom fishing action already but its random and not well organizied.

  6. 6
    zman Says:

    Distillates rallying off lows early, dragging crude well of its lows.

  7. 7
    Sambone Says:

    9:42 am EST

    Crude Down On Profit-Taking After Six Up Days


    NEW YORK — Crude oil and petroleum products futures prices were down Monday from Friday’s record highs in profit-taking after sharp gains over the previous six trading sessions.

    At 9:25 a.m. EDT, light, sweet crude for June delivery was down $1.31 a barrel, at $124.65.

    Heating oil futures prices were down 2.05 cents a gallon, at $3.6155, while RBOB gasoline blendstock futures were 1.97c lower at $3.1815 a gallon.

    Phil Flynn, analyst and trader at Alaron in Chicago, said prices will need a spark of bullish news to avoid a pause in the latest racuous bullish run.

    “Can oil follow up on its phenomenal performance this week? Or has this oil run gone as far as it might go?”, Flynn said in a note to clients. “Technically the next target is $130, but the key to hitting that level soon will be the news. The bulls must be fed every day with bullish stories to continue to justify these lofty levels.”

    Crude oil futures have jumped 11.9%, or $13.44 a barrel, in the previous six trading days, hitting an intraday record high on Friday of $126.25 a barrel, before settling at a record $125.96.

    Heating oil, responding to strong overseas demand, had surged 16.6%, or nearly 52 cents a gallon, in the past six sessions. Gasoline blendstock futures rose 11.2% in the period.

    Amid that rally, large speculators, such as commodity funds, added to their net long position in Nymex crude oil futures last week, U.S. data show. In the week ended May 6, the net speculative long position in crude rose to 63,298 contracts from 53,311 a week earlier.

    OPEC ministers continued to give indications that the group isn’t likely to change its oil output policy, despite record high prices. Oil ministers from the UAE and Qatar said they don’t favor a meeting prior to OPEC’s next scheduled session in September.

    Qatari Oil Minister Abdullah bin Hamad al-Attiyah said he believes oil prices are “too high,” but this is because of geopolitical factors influencing prices, not due to an imbalance in the market.

    OPEC issues are likely to dominate headlines this week, as U.S. President George W. Bush travels to the Middle East, including talks in Saudi Arabia, the world’s largest oil exporter and de facto leader of OPEC, on Friday. Bush aides said the president will stress that high oil prices are detrimental to the global economy.

    —By David Bird, Dow Jones Newswires

  8. 8
    isleworth Says:

    XCO became seemingly cheapest in E&P group this AM.

  9. 9
    uop Says:


    my charts are not working,

    is there news about VLO ?

  10. 10
    zman Says:

    Uop – No news I see. The independent refiners are the only bright spot in energy today on the HOC beat (of markedly reduced estimates) and on slightly weaker oil relative to products.

  11. 11
    tater Says:

    You said something about a Canada play on the Williston area, so I poked around for a bit. Best I could come up with are PBG CPG and ENP. They seem to want to play in a bad way. Am I warm?

  12. 12
    john11 Says:

    SeaDrill given antitrust clearance to buy more PDE, already have close to 10%.

  13. 13
    VTZ Says:

    One thing I can editorialize about the Encana split is that they love being the center of attention (see a picture of their new billion dollar office building, if yo udon’t think so).

    Another is that they have been aggressively hiring for the past 2 years and this split has likely been planned since maybe even before gwynn morgan left.

  14. 14
    Sambone Says:

    BQI halted

  15. 15
    zman Says:

    Tater – still working on it myself

    V- agreed, I note one of their biggest shareholders said he didn’t see the need to split it up as it was not getting the typical conglomerate discount.

  16. 16
    uop Says:


    now I have datafeed on VLO, I see its going up, probably because oil down ???
    Now USO data missing, is this a cyber-rebel attack ??

  17. 17
    zman Says:

    Uop – see 10. Sounds like you need a better feed.

  18. 18
    zman Says:

    NG has gone green.
    Crude off $0.60.
    Dollar up 0.09%.

    XNG off 1%
    OIH off 2% – anybody see a group rating cut here?

  19. 19
    zman Says:

    John11 – PDE sort of interesting here.

    WNR – upgraded to average at Caris (another broker bottom fishing this beaten down group)

  20. 20
    Sambone Says:


    With Oil At Record High, Bush Heads To Saudi


    NEW YORK — Since U.S. President George W. Bush pressed Saudi Arabia for increased oil supplies in January, crude prices have surged some 28%, and — U.S. estimates show — the Saudis actually cut production.

    Amid record prices above $126 a barrel, the president returns to Saudi Arabia next week, where aides say he’ll press the issue again. But there’s little sign that the rollicking oil market will be slowed anytime soon.

    The Organization of Petroleum Exporting Countries, which is essentially led by Saudi Arabia, the world’s largest oil exporter, said Thursday that supplies are adequate and it isn’t to blame for soaring prices. It gave no hint that a policy shift is coming soon.

    OPEC followed Bush’s January plea to the Saudis with a March 5 decision to hold oil output steady, not increase it, and moved to cement the decision through the summer demand season by not scheduling another meeting until Sept. 9.

    OPEC’s output, though, actually declined, according to the U.S. Energy Information Administration, which estimated Tuesday that OPEC pumped 31.78 million barrels a day in April, down 530,000 barrels a day, or 1.7%, from March.

    Nigeria, plagued by rebel violence in the Delta oil producing region, dropped 250,000 barrels a day to a five-year low of 1.85 million barrels a day.

    Nigeria accounts for more than 10% of U.S. crude oil imports and is a vital source of low-sulfur oil, prized for making gasoline ahead of the peak driving season.

    Saudi Arabia’s output fell 100,000 barrels a day from its first-quarter average to 9.1 million barrels a day, EIA said.

    Bush’s visit to the kingdom, to commemorate the 75th anniversary of the formal start of U.S.-Saudi relations, comes as part of a Middle East trip, which includes Israel and Egypt.

    Item one on the president’s agenda is pushing forward prospects for Middle East peace, but record high oil prices threaten to steal the headlines, as energy prices, inevitably, have become the hot-button economic issue of the presidential campaign season.

    Another Try At Jawboning
    Neither Bush or Vice President Dick Cheney are running, but administration policies are at the heart of the political fight. As a candidate in 2000, Bush criticized President Bill Clinton’s decision to tap the Strategic Petroleum Reserve to ease pressure from rising oil prices and pledged to “jawbone” OPEC to boost supplies.

    “It is in the Saudis best interest for the price of oil to mellow out,” candidate Bush said, when prices were about $100 lower than they are now.

    Bush may find himself saying very similar things next week, as he did in January, and the U.S. Senate may vote next week to halt Bush’s ongoing moves to divert oil into the SPR.

    “We are in a time of high demand, high prices and limited supply. And the message the president has sent to oil suppliers in the Middle East, and I’m sure will continue to send, is that…as they consider their pricing policies and as they consider their production targets, (they) need to take into account the economic health of their customers who pay these prices,” National Security Advisor Stephen Hadley said Wednesday at a press briefing about Bush’s trip.

    In March, when oil was near $100 a barrel, Cheney visited Saudi Arabia and praised officials for keeping their pledge to lift oil production capacity to 12.5 million barrels a day by the end of 2009.

    Since then Saudi Oil Minister Ali Naimi said last month that the kingdom would pause its capacity growth when it hits that level next year, in the absence of “real genuine demand,” as it evaluates the impact of increased use of renewable fuels and other factors. The Saudis previously had penciled in production capacity growth to 15 million barrels a day.

    Global production capacity is a major worry in an increasingly nervous market where some in OPEC and some analysts see a potential continued march to $200 a barrel crude oil.

    OPEC Spare Capacity Dilemma
    OPEC may have done itself more harm than good on Wednesday, when it asserted it is holding 3 million barrels a day of spare production capacity, at a time of record high prices.

    With global oil demand expected to rise by 1.4% to 86.6 million barrels a day this year, even with high prices, 3 million barrels a day of spare production is a thin cushion. Worse still, that’s probably an exaggeration — EIA sees the figure at just 1.9 million barrels a day. That’s held by Saudi Arabia, and the additional oil would be of a heavy grade, not the more desirable light, sweet crude.

    The Catch-22 is that while OPEC may catch flak by keeping some capacity idle, boosting production would erase that cushion and send prices higher still.

    Sen. Hillary Clinton, D-N.Y., seeking her party’s presidential nomination, favors legislation to change federal law to allow sovereign nations, such as OPEC members, to be sued for price-fixing for agreeing to restrain oil output.

    Clinton and Sen. John McCain, R-Ariz., the likely Republican nominee, both support dropping the 18.4-cents-a-gallon federal tax on gasoline sales this summer, in a move aimed at providing some relief from record-high gasoline prices.

    Back of the envelope calculations suggest that even excluding the tax through the June-July-August heart of the summer, U.S. spending on gasoline would still exceed year-ago levels, including taxes, by 19.4%.

    While EIA expects high prices to cut gasoline demand by 0.7% in these months, compared with a year ago, prices of retail regular gasoline, excluding federal taxes this year, would still top year ago prices, including taxes, by 20.2%. Critics say the move wouldn’t address the core problem — reducing the huge U.S. appetite for oil, which currently is about 25% of global demand.

    Ironically, the notion that consumer countries wanting lower oil prices should slash the taxes they impose is an old OPEC argument, from way back when oil prices in the $20 a barrel level were considered high. Small wonder that OPEC favored lower oil prices that would stimulate demand while not threatening their revenues.

    Energy independence is again a buzzword of campaign rhetoric as it has been for decades through oil shocks in the 1970s and 1980s. Yet the U.S. last year used the most oil from OPEC that it has in 30 years, EIA data show.

    Ed Morse, chief energy economist at Lehman Brothers, believes Saudi oil intentions, and their relation to the broader Middle East situation, may remain a mystery for some months, perhaps into the term of the next president, which means little near-term comfort for the market.

    “It is absolutely critical for Saudi Arabia to be able to influence the outcome of the U.S. withdrawal from Iraq and its subsequent policy towards Iran,” Morse wrote in a research report Friday. “Right now, Saudi Arabia may be best served by diverting attention from its upstream (capital expenditure) program, hinting that perhaps the country needs to save its oil in the ground for future generations, leaving demand for inventory unsatisfied and allowing prices to rise. But ultimately, if Saudi Arabia wants to raise its profile in future U.S. policy in the Middle East, it must develop a way to drop prices from their highs. That will require new production capacity.”

    (David Bird is senior energy correspondent for Dow Jones Newswires).

    —By David Bird, Dow Jones Newswires

  21. 21
    Sambone Says:

    Uncle Phil


  22. 22
    zman Says:

    good comments in 20 re spare capacity dilemma.

  23. 23
    reefguy Says:

    EXXI-converting warrants to shares, 77MM of those little piggies…

  24. 24
    zman Says:

    crude toying with even to up now.

    The ECA deal probably values SU lower than here. May see some money shift between the two. ECA doing what I though but I did not play.

    Morning Reef – when do you think they are at new TD at Blackbeard? Any other comments you’d care to share?

  25. 25
    ram Says:

    PBR seems to be the only bright spot.

  26. 26
    Dman Says:

    The comments from Ed Morse in 20 could do with a bit of clarification, because as quoted they seem a bit daft, frankly. The Saudis have found that they have no influence at all on Bush’s foreign policy. They begged him not to invade Iraq. They begged him to do something about the Israel-Palestine issue. He barely even bothered to pretend to listen. Now Bush is the beggar and they pretend to listen politely. If he really wanted to get their attention, how about “We’ve decided to elevate energy conservation to a war-footing and will reduce oil consumption by 1/3 in the next 2 years”.

    Now the Saudis are looking ahead to the next president. They know that historically all presidents except W have listened to them (perhaps because other presidents were worried about those strange things called “consequences”), and they know their hand is much stronger that it was historically. I can’t see what they would be worrying about frankly. The only thing might be that Bush attacks Iran, which could cause them serious grief, but they know he won’t listen to them on that so again it doesn’t present them with any necessity to take action one way or another.

  27. 27
    Popeye Says:

    Bloomberg reporting ship building hurt by credit woes and rates to rise rather than drop.

  28. 28
    zman Says:

    CLR – re Three Forks Sanish test, somebody was asking about how far it was from the big kahuna of a well Petro-Hunt LLC drilled, I’m not exactly sure which well it is as the North Dakota map server site is crushing my PC’s ram but it looks to be either 8 or 15 miles to the north of that well, ontrend with recent discoveries, looks like they run north south along an anticline.

    Popeye – thanks, had not thought of that angle, may go a ways towards alleviating some of the overbuilding concerns seen in the drybulk sapce in 2009. I also hear that the tanker conversion to drybulk argument is overstated.

  29. 29
    uop Says:



    are you going to buy more nHK, maybe sep 25 ?

  30. 30
    zman Says:

    HK – eventually, probably not today.

  31. 31
    Dman Says:

    Z – I don’t suppose there is a convenient E&P index out there? If not, we need a ZEP index.

  32. 32
    zman Says:

    XNG works in a pinch.

    Wow, if you had difficulties subscribing to my site, try subscribing to the pay portion of the ND oil and gas site, fax a copy of your check or snail mail. Unreal.

  33. 33
    zman Says:

    very quiet day, oil toying with falling through this morning’s low but not committed to it yet.

    I’ve been toying with the ND site for CLR, no update there yet.

    CNBC about to talk about coal plays, they are off slightly today except for Quarryman’s WLT which continues to march higher. BTU and ACI may get a little play during this segment as their guest will likely push one or both for higher expected utility demand this summer and for met coal demand.

  34. 34
    zman Says:

    NFX getting a little follow through from their upgrade at Caris. If anyone has access to that report I’d like to see it. The stock has gotten little play since the day after earnings and it does have near and medium term news on the horizon.

  35. 35
    zman Says:

    ZTRADE: PBR Entered $67.50 June Calls for $3.30 (PMJFA). Small to start with oil tipsy at these levels. Will punt the May PBR calls soonish.

  36. 36
    john11 Says:

    Link to Bloomberg on shipping, thanks for mention Popeye

  37. 37
    zman Says:

    Decent article on Haynesville land grab on Dow Jones. Don’t have a link as it is not free. Basic elements, hedge funds buying CHK and GDP and HK specifically for the Haynesville production to be seen later this year. Mentions some negative view on CHK due to their debt load (this is nothing new). Has a quote for Goodrich saying new Haynesville leases are going for $4,000 acre which is quite a bit lower than I have heard quoted by a couple of analysts. My thought here is that perhaps the estimated capital outlays by these companies are being over estimated by the Street so either they get more acres under lease than originally planned (bad in my book for the little guys as they’ll never get it all drilled up) or they spend less than the Street thinks they will.

  38. 38
    uop Says:

    rolling to Jul135 on EOG,

    makes sense ?

  39. 39
    zman Says:

    NFX may be speaking at the Calyon Energy conference this week. Good opportunity to speak about their new JV with XOM in S. Tx and potentially about their Mancos Shale tests although I’m not holding my breath. Checking with company.

    EOG – I’m holding June 140s now.

  40. 40
    reefguy Says:

    Blackbeard TD estimated at 33,000′ on or before June 1

  41. 41
    zman Says:

    Thanks Reef. Stock looks like it is digesting recent gains before another leg up. Did you listen to a Lehman conf call on the well last week?

  42. 42
    Dman Says:

    Interesting quote from Howard Simmons on RealMoney last Friday on the role of speculation in the oil price run up:

    “If you take ‘the speculators’, out and shoot them, which is a common practice in human history, all you are doing is hiding the thermometer and pretending the air conditioner is working.”

  43. 43
    zman Says:

    Dman – priceless.

    CNBC wondering over the dollars somewhat failed rally here. One guest saying pressure on the consumer is intense which could lead to further easing…which would hurt the $. Other guest is saying watch Europe and Asia/Pacific for increasing signs of weakness.

  44. 44
    guru1 Says:


    Any thoughts on the merits of an investment (or speculation?) in DRYS at this juncture? It has run up quite a bit but I do not have a good feel for the baltic dry shipping rates and how much of DRYS revenues indexed to that rate. Thanks for the prompt response to my question on HK secondary last Friday.

  45. 45
    zman Says:

    Guru – DRYS is the most leveraged to the BDI index although a little less so than last year. I’m sitting out the current run and waiting on a pull back. I think, Bill, who is well versed in dry bulks and tankers would tell me I’ll be sitting out for quite some time but I can’t kiss all the girls and have less feel for the global environment than I’d like which should determine what prices are going to do.

  46. 46
    zman Says:

    RIG – starting to get a little more interested in them and possible in DO (less jackup exposure where rates and demand continues to soften). Could be a hard second half for names like RDC. Not sure about the PDE with the increased foreign interest.

    Crude just took a dive to LOD and saw quick buying action. This is the volatility increase I was talking about as crude fell over a buck in 2 minutes and is increasingly trading technically.

  47. 47
    zman Says:

    more about the last part of #46. Lower oil having a direct boosting effect on the Dow and S&P and not necessarily a further downer on the energy stocks. I am going to be lightening up on the rest of the Mays in short order.

  48. 48
    zman Says:

    PBR breaking out on the daily chart.

    PQ bucking the trend of the group enough that I hang onto at least the May 20s, if not the 22.50s through the close.

  49. 49
    Jason Says:

    TSO breaking out on the daily as well.

  50. 50
    zman Says:

    Jason – yeah, I see the group moving. Lots of head fakes on the way down, I have those $30 May calls if you want them, lol. I’m doing a little work on cracks for tomorrow and all I can say right now is, zzzzz. FTO may be interesting down here but I’d like to see products doing a little better than crude for more than a few days in a row (and today, that HO rally rolled over which was the one thing helping out the refiners on the distillates side.

  51. 51
    zman Says:

    ZTRADE: Out PQ May $22.50 calls for $0.50, up 43%. Still holding the May $20s as well as the July calls here.

  52. 52
    Jason Says:

    Re 50 – I’ll trade you my May 47 QID calls for your May TSO’s…ha, ha. I’m just excited about TSO because I’ve been shorting oil in my own way by building a position in the Jan 2010 TSO calls.

  53. 53
    uop Says:


    my DOjun150 not doing well,

    does it have a future

  54. 54
    Sambone Says:

    By David Bird

    NEW YORK (Dow Jones)–Crude oil futures prices settled lower Monday, despite a
    push to a new intraday record, as profit-takers dominated the market, cashing
    in on six days of consecutive gains.
    Traders said the market was overbought after the spurt since May 2, which had
    pushed crude oil and petroleum products prices to repeated record highs.
    Light, sweet crude oil for June delivery settled down $1.73 at $124.23 a
    barrel, down 1.4%, after a brief mid-session runup to a fresh record intraday
    high of $126.40.
    Heating oil, which surged last week on strong global demand, settled 2%, or
    7.62 cents lower, at $3.5598 a gallon.
    RBOB gasoline blendstock futures ended 3.70c lower at $3.1642 a gallon, after
    setting an intraday record high of $3.2180 a gallon.
    Worries about a potential slowdown in oil demand from China, the world’s
    second-largest oil consumer after the U.S., added selling pressure.
    Traders said the market was also unnerved by official confirmation Monday of a
    Dow Jones Newswires report Thursday that China’s crude oil imports in April
    fell 3.8% from a year earlier, in the first year-on-year decline in 18 months.
    Oil demand from China has been the driving force in rising oil demand in the
    price surge to record highs, and clear signs of a slowdown could trigger a
    steep sell-off, analysts said.
    China is expected to account for about 25% of global oil demand growth this
    year, the U.S. Energy Information Administration said last week, posting a 5.5%
    rise to 8 million barrels a day.
    Analysts also are closely watching for details on the impact of the massive
    earthquake that stuck southwestern China on Monday, killing thousands of people
    and flattening schools and homes. The quake, with a magnitude of 7.8, struck
    close to densely populated areas of Sichuan province, including the capital
    Addison Armstrong, analyst at brokerage Tradition Energy, noted that
    year-to-date Chinese crude imports are up 9.8% from a year ago, “but the April
    drop could be a preview of slowing Asian demand.
    “Clearly, it is too early to say that with any certainty, but with crude and
    products overbought from a technical perspective,” the China news added selling

    -By David Bird, Dow Jones Newswires,
    05-12-08 1524ET

  55. 55
    Nicky Says:

    Afternoon all. Well we got the minimum upside projection which was a new high at 126.40 and we then saw a weak close…was it enough to call a top? In essence I just don’t know! I had hoped there would be a bit more fanfare about it all and more of a blow off in all honesty and instead we got a damp squib! Also of concern is that Brent and Distillates did not yet make new highs. That said I believe it is at the least an early warning…
    I want to see last Thursdays low at 121.58 taken out for confirmation that at least i is done but we may not pullback more than about 118 if this is only wave ii. 110.29 has to fall for confirmation of a bigger top.

    Broader market – its options expiry week, volume is low (better on the nasdaq than the spx) and it is therefore likely to be a very volatile week with the market being pushed around all over the place. Todays move on low volume is more bearish than bullish but I still believe we go higher after any short term weakness.

  56. 56
    zman Says:

    Jason – no kidding, that may be the way to play them, leaps.

    Uop – not a lot of hope they will close in the money if that’s what you mean but the stock could very well be higher than here once this little profit taking period in oil has run its course. Long term demand story very much intact in the deepwater and the near term is seeing pricing acceleration. I continue to hold my Junes but will likely reposition soon as they’ve moved pretty hard against me now.

  57. 57
    zman Says:

    Thanks Nicky.

  58. 58
    irished Says:

    Interesting article in Barron’s on CAM, a rig specialist in your neighborhood, Houston, literally and figuratively.
    Any thoughts??

  59. 59
    zman Says:

    Irish – did not see it, will see if I can get it via WSJ online.

  60. 60
    Sambone Says:

    Z – Just tried to put through, but probably to big. Ref #58

  61. 61
    zman Says:

    Bidding some CLR but unlikely to get it, another day like today and I’ll be in on the offer.

  62. 62
    Sambone Says:

    Tini time

  63. 63
    md Says:

    LNG subsidiary CQP looks to be a good PUT opportunity. It’s subject to LNG commitments which does not look to be worth a whole lot among other issues. It’s got all kinds of limited upside entrenched in it’s covenants.
    Might be worth taking a look for a LNG CALL and CQP PUT spread.

  64. 64
    zman Says:

    Md – will have a look

  65. 65
    zman Says:

    Volume in the refining space was high, a little higher than it was in the last head fake rally in mid April. I may dip another toe here. Probably VLO.

  66. 66
    isleworth Says:

    Petrobras Brasileiro Q1 net up to BRL6.925 bln vs BRL4.131 bln in 1Q07; revs BRL46.892 bln vs BRL38.894 bln in 1Q07

  67. 67
    isleworth Says:

    PBR up to $67+ in AH

  68. 68
    zman Says:

    Thanks Isle. Light trading in the after market I see up around $67.80

  69. 69
    bill Says:


    I got out of drys (my favorite stock) because

    1. the ceo gave himself 95m of free stock and diluted shareholders 2.5 %.
    2. His selling into the market 5 .0 m shares at prices from 90 all the way to 60 to fund investments in 2 Ocean Rigs and drillships with another potential 5.o m share overhang
    3. His 2. b investment into drillships makes drys less a pure play in the dry bulker space.

    That being said, dry rates are chasing their previous highs and drys will have great numbers perhaps 900 m in cash flow.

    Message 36 is good for shipping companies because it reduces the total capicity to carry the goods.

    I redployed the capital other bulkers, egle,nm, and exm and into z energy plays.

    I regret getting out of drys but i wouldnt chase it here. I think they will have a good q1 but miss the analyst estimates due to many huge 1 time expenses, so you might get a bargain on the sell off but the stock might run up into the release.

  70. 70
    Jay Reynolds Says:

    Responded to ads run in Sunday’s Shreveport Times from HK and CHK asking potential lessors to call them. I have about 650 acres, HBP, all depths around Sec 36 – 22N – 16W, Caddo Parish. CHK emailed “no thanks”. HK called back and asked me to be patient, well informed and do nothing until their land dept could call me back.

    Said they didn’t care what section I was in, gave me a grid of 8 Townships X 8 Ranges that they were buying in (64 twps X 36 secs/twp X 640/acs/sec).

    I’m a tad north of their primary of interest as yet.

  71. 71
    zman Says:

    Thanks Bill – good stuff, was thinking about EXM myself.

    JR – thanks for the update, would like to see HK acting a little more selective.

    PBR – no ops update, just blow out numbers and good cost control.

  72. 72
    Jay Reynolds Says:

    I wasn’t alarmed (being long of HK) about the whole of the conversation..

    On balance I took it to mean that they (even though they must have been beseiged by calls) staffed sufficiently to call me before 9 am the next day, had somebody skilled on the phone who would listen (tried to see that the limits were) patiently and she did a good job of “getting their foot in the door”.

    I don’t know what to say about the HS here except that it will be where they find it.. I’m hearing a lot of “where the Smackover drops out the HS is better” and there just aren’t very many wells around here of that depth.

  73. 73
    zman Says:

    JR – I hear ya, just wish there was a little more well control. Believe me I’m long and strong but the mad dash to acquire acreage, much of which won’t get drilled gives me cause for pause. I think the stock goes higher but I’d sure like to see some new well results down there.

  74. 74
    Jay Reynolds Says:

    To the extent it matters. I may have received a different “pitch” than the average caller because I emphasized my acreage is all HBP and that we are very “producer friendly”. That may account for the interest (also mentioned that we have roads, abundant fresh water, iron ore, elec and lots of SWD capabilty).

  75. 75
    zman Says:

    Ok, ok, I feel better. I’ve just been through too many boom/bust cycles in E&P capex I’m always on the looking for signs of weakening discipline. Here’s hoping they pay you $10,000+ per acre but less than $2,000 to other less savvy owners, lol.

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