Tuesday Morning

Posted on by zman

 

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crack Spread Update
  4. Stocks We Care About Today - Haynesville players, HAL, WLT, links to Bakken and Deepwater panel discussions at RBC Energy Conference.
  5. Odds & Ends

Holdings Watch: Performance and Wiki Tabs Are Updated.

  • (HK) - sold the June $30 Calls for $2.85, up 418%. Still holding the July and September positions.
  • (CHK) - sold half of the $52.50 calls for $4.40, up 110%
  • (HAL) - bought the HAL June $47.50 calls for $1.80 for a quick trade.
  • (PQ) - bought the common stock at $23.18. 

Commodity Watch:

  • Crude Oil closed up $0.41 at $127.76 yesterday as a dollar rally waned and traders grew bored with threats from congress to regulate speculators and instead focused on rumors the U.S. is on the verge of stone-aging part of Iran. I find this unlikely. Israel is much more likely to carry out any tactical strikes on nuclear facilities. This morning oil is trading off about $0.25 but has been off over $1 in the overnight session. 
  • Natural Gas closed up $0.27 at $11.97 yesterday in trading that was not characterized by what has become typically just a shadowing of the crude trade. Instead gas marched to the drumbeat of traders focused on westward moving cloud clusters in the Atlantic. This morning gas is surging nearly $0.40 higher, well into the $12s on hot weather forecasts
  • . 
  • Imports Watch: Same Song, Different Week. Natural gas imports remained at a low 8.1 Bcfgpd last week, down 2.9 Bcfgpd from year ago levels. LNG remains at a paltry 0.7 Bcfgpd and Canadian piped gas is holding steady at 7.4 Bcfgpd (down from 8.0 Bcfgpd a year ago). We are overdue for a seasonal uptick in LNG volumes and given the now high teens prices for gas being paid in Europe it is doubtful we will see meaningful increases in the near future.
  • Canadian Gas Production Is Falling. The National Energy Board, Canada's version of the EIA, said that Canadian gas production is now off 1 Bcfgpd from year ago as natural declines meet up with lower drilling activity. Canadian focused driller (PDS) may just get bought by me soon.
  • Cooling Load Watch: Electricity demand jumped 6% last week versus the year ago and YTD generation is up 0.5%. On an annual basis, roughly one-fifth of U.S. generation is gas-fired, half is coal, another fifth comes from splitting the atom, and the last tenth is solar, wind, hydro, and a very little bit of oil. In the south, forecasters are expecting record breaking heat today, and they expect the week to see a a rapid warm up of the eastern half of the States. 

 

Crack Spread Update

crack-spread-060108.jpg

Higher Margins. Products continued to outpace crude yielding another week of higher margins in all regions except for the Northeast where cracks were already doing pretty well. Though the refiners are now coming off the bottom, they are by no means extended and I will likely enter VLO (cheap for it and for the group) and re-enter (FTO) on a pullback in the near future. 

Refiner Multiple

refiner-multiple-060208.jpg

 

Stocks We Care About Today:

(HAL) vs Expro. Expro recommended to its shareholders that they vote for the competing bid from Umbrellastream when  they meet on June 9 but said they continue to talk to (HAL) who has not yet raised its bid.  

Haynesville Acreage Update: I'm updating my estimated recovery factors and a few of the acreage positions for the Haynesville leveraged players.

This was my old leverage graph from the end of April. At the time, I used the following assumptions: estimated recoveries of 3 Bcfe, 65% of acreage as prospective for Haynesville development, 60 acre spacing, 80% net revenue interest. 

haynesville-play-exposure-043008.jpg 

 

Here's the new graph with EUR's of 5 Bcfe which I think is still going to turn out to be conservative. 

haynesville-play-exposure-060208.jpg

Bakken Panel Discussion, today at 9:40 EST from the RBC Energy Conference, click here to listen.

Deep Water Panel Discussion, today at 10:50 EST from the RBC Energy Conference, click here to listen.

Coals Continuing To Explode Higher. Back in March I toyed with the idea of getting long the group again, then got distracted. What an idiot. Coal prices have spiraled higher with demand coming from international markets for both metallurgical coal and power generation. I gave up on waiting for a pullback quite some time ago and am going to be taking a look at a non-traditional coal company, (WLT), brought to our attention a long time and many dollars ago by a subscriber.

WLT runs an interesting gamut of industries from coal mining (69% met coal) to coalbed methane gas production, to home loan financing to home construction. I suspect the last 2 items on that list drag down their PE relative to the traditional miners. They are planning to divest the financial / homebuilding subsidiaries by year end 2008. Most of their met coal sales go to Europe and then South America to meet burgeoning steel demand (met coal prices have doubled from year ago levels). They have a JV with EP on the natural gas side. Anyway, interesting company moving towards becoming the next coal pure play.

coal-multiple-060208.jpg

Odds & Ends

Analyst Watch: Deutsche Securities upgrades (MT) and (X) price targets substantially.

 

 

109 thoughts on “Tuesday Morning”

  2. Thanks Reef – is that on the tape? They have been resting, much like XCO, maybe now is their time to begin moving back towards the highs.

  3. Z – What do you think about EOG? It is now below it’s 50 day MA and resting on it’s lower Bolinger Band. Any reason for the pullback?

  4. Z- Do you think the outperformance of GDP is attributable to their strong geographic concentration in Haynes & East Texas.. where as someone like PQ has more property diversification. -Lije-

  5. 2:37 am EST

    Nymex Crude Slips, Few Leads Before US Oil Data

    Dow Jones Newswires

    SINGAPORE — Crude oil futures lost ground Tuesday in Asia as an absence of fresh leads encouraged traders to square off positions, amid some second-guessing over the near-term price outlook.

    With the upward momentum that recently took the market above $135 a barrel appearing to have fizzled out, traders opted to take profits even though, with longer-term fundamentals staying supportive, a significant price correction isn’t anticipated.

    Many are awaiting weekly oil data from the U.S. Energy Information Administration due Wednesday for directional cues.

    Prices are “likely to be rangebound. The direction for the U.S. dollar is still unclear so we’ll have to wait for news,” said Ken Hasegawa, a broker at Newedge Japan.

    “The (refined) products side should continue to influence prices — natural gas is not very easy to anticipate,” he said of the overnight price volatility attributed by some analysts to supply concerns in the natural gas market.

    On the New York Mercantile Exchange, light sweet crude futures for delivery in July traded at $127.58 a barrel at 0633 GMT, down 18 cents in the Globex electronic session.

    Nymex heating oil for July lost 85 points to 371.35 cents a gallon, while July reformulated gasoline blendstock stood at 337.50 cents a gallon, 157 points lower.

    Nymex crude spiked by $2 Monday, but settled only 41 cents higher in what was interpreted as a reaction to concerns in the U.S. natural gas market, where traders kept their eye on a storm system passing through Mexico’s Yucatan Peninsula.

    Arthur, which weakened Sunday to a tropical depression from a tropical storm, was the first named storm of the Atlantic hurricane season and served as a reminder of severe disruptions to oil and gas operations in the U.S. Gulf in 2005.

    Still, for oil market participants, it was uncertain whether natural gas prices are influencing the oil market. In any case, the storm season typically picks up pace only late in August.

    “We feel that the natural gas/heating oil price strength will have difficulty being sustained,” said Jim Ritterbusch, president at trading advisory firm Ritterbusch and Associates.

    He added the gasoline market, instead, may provide some price leadership Wednesday, when the EIA releases its Weekly Petroleum Status Report.

    Commercially held U.S. crude, gasoline and distillate inventories are expected to have risen across the board in the week to May 30, alongside an increase in average refinery operating rates, according to a Dow Jones Newswires survey of analysts.

    This may provide a hint of where prices might be headed: last week, Nymex crude fell 3.4% despite the EIA posting a steep 8.8 million-barrel drop in crude stockpiles and as gasoline stocks fell below the five-year average level.

    “We have traditionally seen (price) corrections in June…almost everything increases in early June. All three major inventory figures, crude oil imports and utilization all typically increase at this time of year,” Peter Beutel at Cameron Hanover said in an overnight note to clients.

    As of 0631 GMT, oil prices on London’s ICE Futures exchange had also drifted lower.

    Brent crude for July slipped 62 cents to $127.40 a barrel, while June gasoil changed hands at $1,191.75 a metric ton, down $1.25 from Monday’s settlement.

    —By Yee Kai Pin, Dow Jones Newswires

  6. Pattern Shows Oil Price Gains Before Expiry

    By DAVID BIRD
    A DOW JONES NEWSWIRES COLUMN

    NEW YORK — Think crude oil and products prices are high? The odds are they’ll be higher still in coming weeks.

    Prices opened June with modest gains Monday, but a review of recent trading patterns show prices are likely to move higher in the second half of the month.

    Crude oil futures prices are double their levels from three years ago and over that time show a strong tendency to post their highest settlements after the 15th of the month. What’s more, the lowest settlement price for front-month contracts usually occurs prior to the 15th, meaning the real punch in prices comes late in the month, around the time of crude and products expirations.

    Light, sweet crude oil futures prices in May averaged $125.46 a barrel, up 97.5% from a year ago.

    On Monday, front-month crude rose 41 cents, or 0.3%, to settle at $127.76 a barrel.

    During June, historical prices from the New York Mercantile Exchange show, average prices for front-month futures have risen from May in four of the past five years, by 4.6%.

    If last year’s June gain of 6.3% occurred again this year, the price would average a record $133.36 a barrel, a level that prices had topped intraday, but never settled above. Longer-term, there’s less confidence in June gains, as over the 25-year history of Nymex crude trading, June has topped May’s average just 10 times.

    But a strong trend in when peak settlement prices are reached in the second half of each month suggests further gains in coming weeks.

    In the last 12 months, the highest front-month settlement occurred in the second half of the month 83% of the time. Over the past 24 months, gains came after the 15th in 75% of the time and over 36 months, this occurred 64% of time.

    Lowest Price Early In Month
    Further indication of potential higher second-half prices comes from a pattern showing that the low settlement price each month occurred in the second half 75% of the time in the past 12 months.

    Analysts and traders said the tendency toward higher second-half-of-the-month prices may be linked to increased commodity fund and speculative investing. Funds often roll their funds forward when a crude oil futures contract expires around the 20th of each month.

    In any month — May, for example — crude oil for June delivery will trade as the front-month contract up until its expiration on May 20. On May 21, July-delivery crude becomes the front month.

    Tracking average prices over the calendar month of May would include prices for both June and July crude, whichever is the front month. Switching funds into the new front-month contract on expiration can boost prices.

    Crude prices also may be spurred higher later in the month by expirations of front-month gasoline and heating oil futures on the last day of each month.

    In the last three Junes, settlement prices post their highest level of the month after the 27th and twice on the last trading day, when products contracts expired.

    Still, some analysts say that despite the strong pattern, the historical performance doesn’t predict the future.

    “It is a description of what has happened, but does not necessarily make any promises about the pattern continuing,” said Tim Evans, analyst at Citi Futures Perspective in New York.

    “Pay your money, take your chance. If the pattern continues, win; if it doesn’t, lose,” he said.

    Front-month heating oil futures prices in the past 12 months have posted their high after the 15th of the month 75% of the time, while the lowest settlement price has occurred in the first half of the month 83% of the time.

    Over 36 months, the trend narrowly points to higher prices in the second half of the month, with a 58% occurrence rate.

    Heating Oil Outpaces Gasoline
    The trend for heating oil futures in June shows contracts rising above average levels in May in four of the past five years by 7%. That’s stronger than gasoline’s performance.

    Nymex front-month heating oil futures in May averaged a record $3.6163 a gallon, up 92.3% from a year ago. If last year’s June rise of 5.9% from May was replayed this year, prices would average a monthly record near $3.83 a gallon. The long-term trend is less definitive, with June rising over May in just seven of 20 years.

    But that doesn’t reflect the continued strength in the past few years of Chinese demand for heating oil and similar fuels, which has been driving prices around the world to record highs.

    Gasoline futures prices also show a strong tendency to post their highest settlement prices in the second half of the month. Gasoline futures in the past 12 months posted highs after the 15th 83% of the time. But the lowest settlement price was just as likely to occur before or after the 15th of the month in the past 12 months and in the 32 months that Nymex reformulated gasoline blendstock futures have traded.

    Over the 32 months of RBOB gasoline trading, highest settlements have occurred after the 15th of each month 63% of the time.

    Despite the arrival of the peak summer gasoline in June, historical Nymex data show average prices in June rose over May in just three of the past five years. Last year, gasoline futures were 3.4% lower in June vs May. In the past 20 years, front-month gasoline futures have risen from the May average just seven times.

    Front-month gasoline futures in May averaged a record $3.2239 a gallon, up nearly 40% from a year ago. On Monday, gasoline futures rose 4.25 cents, or 1.3%, to settle at $3.3907 a gallon.

    -By David Bird, Dow Jones Newswires

  8. Loop – Re EOG – no reason for the pullback other than a good run. The large cap E&P players have lagged the recent move in the mid-cap, seemingly more shaley names. As such, $ flow out of them and into the sexy shale names. I plan on being long in the run up prior to the 2Q cc.

    Lije – re GDP, yes. As the field becomes more well delineated a fairway should develop. Right now we know the Haynesville thins to the West although you get stacked Bossier Shale there. I expect PQ to be a name that suddenly plays catch up but the time is difficult to judge and it is a poor trader from an option perspective, hence the share purchase.

  13. pathetic open for service names including HAL.

    Reef – ugly energy open with that sharp reversal in crude from 30 minutes ago.

  19. Looks like reflex-action selling in response to crude being down. Sellers already getting a dose of remorse.

  23. Bakken – interesting, nothign earth shattering yet.

    KOG sounds interesting , they have seen a private company punch a 1,000 bopd well next to their acreage in the last 2 weeks. They are on an indian reservation and they have just worked through the permitting process and now can start drilling.

  26. Dman Good call on OII. It got away from me and I always get in trouble when I chase it. Nice!!

  28. BJS – said they feel like a kid in a candy store as they are all over the Bakken play, fraccing and cementing wells.

  33. HK bumping against yesterday’s highs.

    Think NFX move is all the refocus on the Bakken.

    WLL doing nicely

    NBR moving on Bakken effect as well.

    Now I feel like a kid in a candy store.

  34. They closed with a mention of an upcoming Bloomberg piece on the Bakken at noon and five EST. I don’t get Bloomberg channel so if any one does feel free to relay notes.

    Will get on the deepwater panel in a minute.

    NBR at all time high, going to be punting Junes soon.

  35. Yep, NBR lifting off.

    irished: I already have some OII, so didn’t need to grab any more just now. Probably couldn’t have moved quick enough anyway. Sometimes I should just take some calls at the ask, but I hate doing that 🙂

  38. Z – Any thoughts on UPL? It’s making some nice moves over the last 2 days. I haven’t seen much discussion on this one.

  40. ZTRADES:

    Out NBR June Calls.

    Sold the NBR $40 June Calls for $3.10, up 125%
    Sold the NBR June $42.50 calls for $1.40, up 17%

  41. CLR – how annoying is the volatility here? Thought I’d keep the junes through Bloomberg presentation. Oil goes plop down $2+ now and the stock gives back record highs. A good trader could make a mint buying the dips here.

  44. Any news on the deepwater panel specifically RIG.

    Notice “X” is like a seesaw $5.00 moves just about every day.

  47. anybody see news re CRR, exploding higher today. This is one of the girls I did not kiss but man oh man does it make a lot sense.

  48. Thanks for those Bakken links Eli. Bloomberg is going to do that big spread on the Bakken in 5 minutes (just heard the commercial). Also, that Bloomberg piece is a very good read.

  49. Morning all.
    Broader market. This move up is looking corrective (and somewhat laboured!. Could still drift a touch higher. SPX has resistance at 1395 but ultimately I think we head lower again.
    Crude – we took out 125.22 which implies a lower low out there even if this does still turn out to be ii down before iii up. We may see a corrective move to the upside first.

  50. BEXP is down $1.30 at present and mentioned in the first Bloomberg article, could see them mentioned heavily in the Bloomberg on air piece. Stock started selling off during their presentation at RBC this morning.

  51. ZMAN – Re SD, It seems to ignore comm more than others. Thoughts on the remaining trade?

  52. Ignore comm? what is comm?

    I think SD goes to $60 and I will sell the second half between here and there in the next week or so. Longer term it probably goes higher and I plan to be for a run up into the 2Q call when they will talk more about east of Pinon drilling results.

  53. Eli – if you around where do you get a schedule of upcoming news on Bloom TV? It’s not on when they said.

  56. Dman – probably so. In that case I’d say they are 85% nat gas and nat gas is up 3% today defying oil’s slump due to hot forecast.

  57. Regarding BEXP decline:
    Changewave/Toby Smith who recommended the stock at $9 last month told its readers to take profit on half of their shares. This is being reflected in the weakness from the open.
    Crysball

  58. Thanks Crysball – toby the great pump and dump artist. I saw his opening report, he’s quite the “artist”.

  59. Z & Reefguy,
    Do you monitor Thompson I-watch or similar similar service showing institutional buying interest?

    You are so astute in your ability to detect surges/breakouts so early.

  60. Crysball – I use two trading platforms and five flatscreens and just kind of osmose as much data through my, um, brain as possible. I don’t track institutional purchases at all but I do to think like they think, lol.

  62. Uop – you just can’t ask open ended question of me lack. It’s not what I do and I don’t hold it currently.

  67. Technical picture for SLB improving. It has been stuck in a fairly weird looking corrective phase, but now the MACD is approaching positive status & a very short term downtrend is currently being breached.

  68. Scoop -thanks, I just heard them say that.

    Dman – it has been weak despite some upgrades, had been looking for it to cruise back to $110 as price targets and, to a lessor extent, earnings estimates rise there.

    Steels and coal on fire. I am likely to just hold my breath and go back in. WLT likely to be first purchase there.

    Refiners: will wait for EIA numbers tomorrow. We should get a surge in imports which would yield a surge in crude stocks.

    Bakken Bloomberg coming up next on BTV

  69. ZTRADE: Out the final quarter position of CLR $55 June calls for $10.60, up 324%. I continue to hold the July $65 calls for now.

  70. Oil tripping through 125 now, down about $2.70. Heard some bears say earlier a close below $125 spells the end for oil. Bahhh.

  71. ZTRADE: Out XCO June $25 Calls for $2.55, up 55%. I had thought this one was toast so the gain here is welcome. Will likely roll this to longer date calls in a few weeks.

  73. Ram – got a bit luck on that last one, just banged the bid. Unreal how fast things are moving right now. SD, NFX, and WLL gave their gains and then some. HAL trading very sloppy and I’m taking a hit on three positions there. Need a little more luck I guess.

  75. Nicky – I think the magic number is 124, not $125 and honestly I’d like to see a test of 124 and a bounce to 125+ for a closing price. I do think there is a lot of fear in front of tomorrow’s gasoline demand numbers and we are very likely to get a big build in oil stocks as imports play catchup. If they don’t catch then you have to start wondering what’s up with imports.

  76. Still getting use to BlbBry while on the run. I wish you could also trade through it as well.

  77. If any of you tech analysis fans would take a look at FTO with thought of re-entry that would be great. I look at it, see that gap in the chart and say “stocks fill gaps, I’ll wait” but you more sophisticated chartists please take a stab at that one because I am tempted to nibble pull the trigger there and on VLO (and maybe some more) at the crack of the numbers tomorrow.

  80. Ram, you can trade on blackberry with thinkorswim broker, they have a thinkmobile app

  81. Ram – I would be thinking near the money and July for a position and if I really like the combination of the numbers (something I have not for the last two reporting Wednesday’s) I would take some Junes just out of the money for a quick trade.

    Scoop – Long term great, near term oil influenced. Market is a bunch of nattering nabobs in the oil arena in front of tomorrow’s number. Better odds with craps. That said it should shoot the moon soon. It’s just uncanny.

  86. Ram and Nicky. And all I can think of is Maria B on CNBC 4 weeks ago yelling everything is ok now, market recovery underway. Then all these guys talking Dow 14,000. Unreal.

    Oil looking to close $124.50-ish.

  96. Z – At a quick glance does this seem chepa to you? GCE on the TSX.

    “For fiscal 2009, the company projects coal sales volumes of 1.8 million-2.0 million tons at an average sales price of US$245-US$255 a ton.”

    Cost of 85$ or something

    – from their PR

    The stock has a market cap of 680 mill right now.

    Do you trade coal stocks on P/E or cash flows?

  97. VTZ – I can’t them to come upon my terminal. I use PE on those but conventions in the space vary between earnings, cash flow, and NAV onr coal serves adjusted for price. Is there a special ticker for them?

  100. Z – Grande Cache Coal Corp (GCE:TSX, CA)

    You could find them on yahoo with gce.to

  102. CLR rallying better than the market re-rally here. HK looking to recover too.

    GCE.to – I see it on yahoo but I get no estimates over there for them. Hard to say how they look on a relative basis. The numbers sound right for a met coal company on a per ton basis.

  103. SD and WLL probably about to run on this “recovery”, maybe worth a trade, I think I will pass.

  105. Haynesville group not getting hurt bad at all, definitely off highs but PVA, GDP, GMXR, HK all up.

  106. Evening Z

    Enterprise Partners reporting Independence Hub is up and expected to be in full swing (850-950Mcfgpd) by mid June.

    Does this news have the potential to put a hitch in the giddy-up of NG or will it be perceived as temporary “noise” until attention returns to CDD’s, hurricanes, and LNG imports again?

    Initial thought would be that the news would give EPD,APC and other parties connected to the hub a quick goose?

  107. Hoss – Just saw that come across, I would say it would soften prices slightly for a short amount of time but that cont. low LNG and hot weather is more important. I don’t see a big I-hub sell off as it was expected sometime first half June. It will be a couple of weeks before it shows up in the weekly numbers as an increase to the slope of that refill wedge. Agreed sigh of relief for Enterprise and Anadarko.

  108. Thanks Z,

    Just noticed DOE approved COP/MRO application for the continued export of LNG from the Kenai, Alaska LNG export terminal for a period of two years. Don’t know if that’s worth a kick in the pants, but I thought I’d throw it out there. Also of note, MRO has a 120,000 B/D “Alvheim” Oil Project coming on soon.

    Have a good night.

  109. excellent art. in may 2008 oil &gas investor on haynesville shale. points, jpmorgan anyl said 5bcf wl worth about 40k/ac w/ 6mil drlg cost. chk plans to have 10 rigs by yr end, hk 5 to 6 rigs. hk has data on more than 30 hs penetrations & they know geo limits to the north, east & west. hk wilson said @ that time that they were all in cost of 2k/ac, since then lse cost have exploded & most mineral owners have advisor or attorney. 800 land brokers working the play which could pot. cover 3000 sq miles. gdp pot. of 1tcf from hs with the entire co’s prob&poss now 1.7tcf without hs makes them someone that u would like to take to the dance. they probably don’t have the capital to fully develop their ac & may joint venture r as i would hope get taken out …….i’m long hk & gdp & would like to get long eac for pot. of hs plus their williston position and their for sale sign hanging out. thx t

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