Monday Morning – Welcome To The Rest Of Summer


If you missed the weekend wrap post click here, it contained the weekly wrap table, a few comments on the end of trading last week, the gas storage wrap and lots more.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stocks We Care About Today - 2Q08 first calendar look, (NFX), (KWK)
  4. Odds & Ends

Holdings Watch: The Wiki Holdings tab is up to date.

Commodity Watch:

  • Crude Oil rose 3.6% last week to close at a record $145.29. This morning oil is easing a little over $2 after Iran made comments that recent incentives from the West designed to get it to curb its nuclear program were "different than previous ones". The decent rally in the dollar this morning is also contributing to the fall. 
  • Natural Gas rose nearly 3% last week with the August contract closing at $13.32. This morning gas is taking crude's lead and backing off $0.20 to $0.30. Gas remains firmly in an uptrend and is unlikely to violate this trend until we see a pickup in imports or further acceleration in production growth allowing for increased injections. 
  • Tropics Watch - Hurricane Bertha. At present Bertha has developed into a Cat 1 hurricane (the first of the season and on the same day as another Bertha did in 1996 for those of you who like trivia). Bertah does not appear to be much of a threat to land, let alone the Gomex at present, as it is expected to continue to bend to the north into the north central Atlantic. We and gas traders will continue to monitor it and a series of tropical waves closely. 


Stocks We Care About Today:

Earnings Season Starts in Two Weeks. As usual, the reporting season begins on a Friday (July 18th) with (SLB) first up. The calendar is still pretty poorly populated but can be found on the Calendar tab. This is not meant to be a comprehensive list but in general contains most of the names I will be paying attention to during the season. I'll add the solars and drybulks as we get a little further down the road. By the way the red circle on (NFX) demonstrates the relative cheapness to the group on a forward cash flow multiple but also the fact that this bump in YoY growth in estimates is very recent. Less than a month ago NFX's '09 consensus cash flow number was $12.68 (see more comments on NFX below the calendar). 


Newfield Gets Barron's Nod. The weekly cites NFX's underperformance to its peers ytd blaming it on the remaining stigma from missed production targets during 2005. Went on to say shares could play catchup do to their lower costs and strong production growth. Fluff piece.

  • They should have cited upcoming Bakken results from at least 3 wellbores, the first dual lateral Woodford play, the upcoming much lower F&D costs than their historical average, etc.
  • One question on the mind of many institutional holders has been the running room in the Woodford, a play called into question when (CHK) decided to lighten up with Aubrey saying they aren't seeing what others (Newfield being the leader) see there.
    • The results are bearing out an excellent shale play in the Woodford. CHK's departure makes sense from their "first mover" strategy. (CHK) was not the first mover here and did not have the ideal acreage in the core or fairway of the play. So they opted out.
    • (NFX) is the most active player in the core with the largest holdings. NFX has drilled a number of Woodford wells in the "monster" IP category topping 10 MMcfgpd. These kind of IP's send Haynesville leveraged stocks leaping higher. As the dual lateral will likely bear out, economics here will be in the high double digits on currently modeled prices and lower trip digits on the strip.
    • So I don't see a problem with the play but I imagine from Newfield's perspective it is nice to not see acreage prices running in the $20-30K range as you now see in the Haynesville.

(KWK) Adds To Barnett Shale. Quicksilver acquired proven reserves of 350 Bcf in N. Tarrant and S. Denton counties for $1.307 B from a group of private firms. At first blush the deal yields a lofty $3.73 / Mcfe acquisition cost but when you lump in the more than 650 Bcf of probables they see on the 13,000 acquired acres the deal falls to less than $1.30 per Mcfe. Consider also that on a Btu basis KWK yields one of the highest netbacks of any gassy company I track due to the liquids rich (NGL's) nature of its holdings so paying even the $3.71 level for these assets is a no brainer.

  • Monster Well Potential. (KWK) also indicated it believes the newly acquired properties will have high production characteristics similar to its Lake Arlington project where recent IP's have averaged 6.5 MMcfgpd, which is a "monster" well in the context of Barnett Shale wells.
  • Guidance Boost
    • 2Q08 volume guidance boosted as well to 233 to 235 MMcfepd (high end of the prior range of 225 to 235) which is just about best in class except for maybe what SWN will do this quarter. They also commented that costs will come in at the low end of guidance.
    • 2008 volumes now seen averaging 275 MMcfepd, up 8% from prior guidance of 255. 
    • For 2009 and 2010 they project 40% and 30% unit volume growth respectively. That's best in class.
  • This is a significant add for them as you generally think of KWK as a Barnett players with a Canadian subsidiary. They had 1.2 Tcfe in the Barnett prior to this transaction so with this addition and including the probables they nearly double up in the play which has generated been the primary story to date.
  • Valuation: trading at 8.0x 2009 CFPS estimate of $4.47 (a number which will be coming up now) seems overcheap in my book. The stock had been consolidating until late last week when it was caught in the group downdraft. It's not a great options trader but depending on the open I may enter August or longer dated calls today.
  • Conference call at 11 am EST.

Odds & Ends

Analyst Watch: JPM and FBR take ratings up on (SU),  FBR takes (ANR) target from $168 to $178 with the stock at $86.

Housekeeping Watch: We have outgrown Gmail. It has come to our attention that gmail may be sending out our Zblast emails in batches due to the size of our send out list. We are researching an alternative email service service and plan to have a fix in place later this week.   


134 Responses to “Monday Morning – Welcome To The Rest Of Summer”

  1. 1
    Sambone Says:

    Bertha – Looks to move North after low comes off the Eastern US in a few days. If the low isn’t strong enough, may inpact Northeastern US. Nothing else of interest at this time.


  2. 2
    Sambone Says:

    8:04 am EST

    Crude Down On Profit-Taking; Bulls Eye $150/Bbl

    By Lananh Nguyen and Reza Amanat

    LONDON — Crude oil futures traded lower in London Monday as participants took profits after last week’s rally to record highs.

    A recovery in the dollar against most major currencies and comments over Iran’s nuclear program also pressured prices and were expected to remain key drivers throughout the session.

    “Developments surrounding Iran and the U.S. dollar are likely to continue dominating the market, while events in equity markets will also have an impact on oil prices,” said Andrey Kryuchenkov, an analyst at Sucden Research in London.

    At 1149 GMT, the front-month August Brent contract on London’s ICE futures exchange was down $1.18 at $143.24 a barrel.

    The front-month August contract on the New York Mercantile Exchange was trading $1.28 lower at $142.90 a barrel against Friday’s closing price.

    The ICE’s gasoil contract for July delivery was down $17 at $1,281 a metric ton, while Nymex gasoline for August delivery was down 510 points at 352 cents a gallon.

    With little fresh news emerging in oil markets, participants continued to take profits from last week’s heady gains.

    Prices were also weighed down by a recovering dollar, which was stronger against most major currencies earlier Monday.

    Meanwhile, signals that the dispute between Iran and the international community over the country’s nuclear program could be thawing were also keeping prices in negative territory.

    European Union foreign policy chief Javier Solana Monday said he hoped to meet later this month Iran’s top nuclear negotiator after Tehran gave its response to the latest offer to halt uranium enrichment.

    Solana declined to provide details of the response that Iran delivered Friday to the package of incentives aimed at persuading Tehran to end uranium enrichment, which the West fears could be used to make atomic weapons.

    Iran’s earlier-than-expected response gave market participants hope that tensions were easing, reducing the likelihood of a military conflict that could disrupt Middle Eastern oil exports.

    Despite Monday’s downward correction, crude oil’s bullish price trend was expected to resume as U.S. players return from a long weekend after the July 4 holiday.

    “Supply concerns and geopolitical instability continue to drive oil higher…it is difficult to see what is going to drive oil lower in the near-term, especially when commodities are the default asset class of choice,” said Peter Dixon, an economist at Commerzbank in London.

    One broker in London said he expected prices to recover later on in the session as U.S. participants came online, while others said technical charts would help smooth the way for higher prices.

    “(Profit-taking) hasn’t altered the bullish technical picture to the market and we would expect any dips to be seen as an opportunity for bulls to reestablish long positions,” said Glen Ward energy broker at ODL Securities in London.

    Stephen Schork, editor of the Schork report, said technical charts were still pointed toward the psychologically-significant $150 a barrel.

    “As we look ahead to this week the bulls have their crosshairs set on $150 .. that critical point of reference looks like a done deal, but time will tell,” Schork said.

    —By Lananh Nguyen and Reza Amanat, Dow Jones Newswires

  3. 3
    Nicky Says:

    Morning all. I see T Boone Pickens is on CNBC tomorrow morning – no doubt will be using this platform to ramp his positions. Last time he and GS were responsible for a huge move up in oil – so beware of more of the same!

  4. 4
    Bleemus Says:

    PXP Plains Exploration: Haynesville deal should increase production and organic growth; price tgt increased to $105 – Coker and Palmer (70.87 )

  5. 5
    zman Says:

    Nicky – agreed. All the stories you see, including the one Sam posted, take it as a foregone conclusion that $150 is in the near term cards.

    Thanks Bleemus

    Profit taking in oil looking like a quick lower open for much of the energy complex, don’t think it will last long unless oil just gets crushed. Iran can’t stay civil for long ya know.

  6. 6
    BossmanG Says:

    Z, haven’t been able to access the site the last hour, but all of a sudden works great now…was checking your backup site but maybe its something on my end>?

  7. 7
    Nicky Says:

    Z – I thought it was spelled out pretty clearly last week that the US will not support or welcome an attack on Iran at this moment in time. I don’t think the market had time to react to that last week and that is what we are probably seeing this morning. If the Iran factor were taken totally off the table – which of course it isn’t – it ‘should’ probably take $20 off the price of oil. But more importantly I think once the bullish sentiment starts to shift for whatever reason you could see way more than this off the price of oil. I don’t disagree with the $150 call but it may just be a bit too obvious at the moment.

  8. 8
    scoop006 Says:

    Cramer intends to sell his position in XTO up 15%; and buy COG, DVN, SWN, & EP on weakness

  9. 9
    scoop006 Says:

    I meant Crameroo

  10. 10
    zman Says:

    Boss – sounds like it, I have had no trouble myself and no other reports of problems.

    Nicky – agreed pretty obvious.

    Scoop – thanks, nice creation of a dip buy on his part.

  11. 11
    Nicky Says:

    Broader market – cycle is due for a low in this time region. So I am looking for a low to form and then a move back towards 1300 on the spx into the 15th July timeframe. From there into the end of the month/beginning of August the market should move lower again.

  12. 12
    ram Says:

    HAL has pulled back if anyone was thinking of an entry prior to earnings.

  13. 13
    zman Says:

    Good morning Ram, thanks, watching those guys, SLB, WFT, NBR etc for entries and adds pre 2Q

  14. 14
    Dman Says:

    RIG at $141 = 8.36 X ’09 estimates (!!)

  15. 15
    zman Says:

    D – people are looking at the dw drillers on 2010 numbers now as the 2008/09 estimates are largely locked in. 2010 is approaching $18.89.

  16. 16
    jazzkool Says:

    BRY is scheduled for 7/31 BTM, CHK on 7/31 ATM, and HK on 8/7 ATM. WLL on 7/24 ATM, XTO on 7/22 BTM. Didn’t have time to do the others.

    Will get to them later.


  17. 17
    zman Says:

    Treading a little careful this am. Opened an August position in a new relative account in CHK $65 calls. Am toying with the idea of starting a $20K portfolio with prices and # of contracts and cash position. Likely to do so post 2Q.

  18. 18
    zman Says:

    Thanks Jazz, did not see those names listed, what service are you using to schedule them?

  19. 19
    Sambone Says:

    9:49 am EST

    Nymex Crude Slides As Iran Tensions Eases

    By Gregory Meyer

    NEW YORK — Crude oil futures shed more than $4 a barrel Monday as prospects for an international showdown over Iran’s nuclear program abated somewhat and the dollar firmed.

    Light, sweet crude for August delivery was recently down $4.71, or 3.2%, at $140.58 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange lost $2.96 to trade at $141.46 a barrel.

    Nymex crude settled at an all-time high of $145.29 a barrel Thursday, fuelled in part by mounting concerns Israel may square off with Iran over its nuclear program. Floor trading was closed Friday for the U.S. Independence Day holiday.

    The market slackened as rhetoric softened late last week. Iran responded to an international offer aimed at persuading Tehran to suspend nuclear enrichment, and on Saturday offered to negotiate on its nuclear drive but without a freeze on uranium enrichment.

    European Union foreign policy chief Javier Solana said Monday he hopes to meet Iran’s top nuclear negotiator later this month.

    Iran is the No. 2 producer in the Organization of Petroleum Exporting Countries and lies on the Strait of Hormuz, a key waterway for the transport of Persian Gulf crude oil. With signs of a cooling in tensions, “You got some reduction in the fear premium” pushing prices higher last week, said Kyle Cooper, director of research at IAF Advisors in Houston.

    Still, Iranian President Mahmoud Ahmadinejad on Monday said Iran wouldn’t give up its nuclear rights, the official IRNA news agency reported.

    The dollar also strengthened Monday as weaker-than-expect economic data from the euro zone lessened the likelihood of more rate hikes from the European Central Bank. The dollar’s slow decline has corresponded with crude’s climb to record highs as speculators seek to hedge the weaker currency. The euro was at $1.5649 Monday, down from $1.5697 late Friday.

    Underpinning oil’s record run has been perceptions world supply will have trouble keeping up with steadily rising global demand. Updated global supply and demand projections are due later in the week, with the U.S. Energy Information Administration scheduled to put out its monthly short-term energy outlook Tuesday and the International Energy Agency, an energy adviser to the most industrialized nations, slated to release its monthly oil market report Thursday.

    Both agencies have trimmed forecasts for world demand growth this year amid record crude prices and a stumbling U.S. economy.

    Front-month August reformulated gasoline blendstock, or RBOB, fell 12.40 cents, or 3.5% to $3.4470 a gallon. August heating oil fell 14.92 cents, or 3.6%, to $3.9568 a gallon.

    —By Gregory Meyer, Dow Jones Newswires

  20. 20
    1520sbroad Says:

    Good morning all. Long time follower of the site – new subscriber. Already enjoying full access.

  21. 21
    Dman Says:

    Z – OK, so RIG now at $143 = 7.57 x 2010 estimates.

  22. 22
    zman Says:

    D – yes, which is cheap for them and cheap to most of the group. Thinking I like NE in here as well but have made no run on the DW guys in quite some time. Note the big jump in YoY estimates for ATW in today’s table. They are taking on more rigs too and the thin trading there may be behind most of that move. Will not be taking on that name pre earnings but may take RIG or NE. Don’t see taking on DO at this time either.

    Groups a very mixed bag this am, except the indie refiners who are just popping a bit on down oil. Not trusting that move at all. May take FTO into VLO’s earnings as they could meet or miss slightly and still pop after the beating they have all taken.

    Welcome 1520!

  23. 23
    texana Says:

    bo oct 135 eog

  24. 24
    el_vogel Says:

    more negative bias on oil/energy on Bloomberg news this AM. FYI

  25. 25
    zman Says:

    Tex – the EOG bludgeoning has been pretty undeserved in my book. Lots of news to come out of them on the 2Q, will wait out some of this noise in the group before buying pre cc.

    Thanks El.

    Still sitting on hands with regard to some of our favorite names which are below pre -news levels of last week, especially HK.

    CC in 45 minutes on KWK acquisition. On a better commodity day that would have been up strong, not down slightly.

  26. 26
    Dman Says:

    Nicky, # 7: it depends what you mean by “the US”. Whilst elected officials have continued the drumbeat for war, the Pentagon brass, via Adm. Mullen, have made it crystal clear that they do not want hostilities with Iran and I suspect this press conference might be what you are referring to:


    Key extracts:

    Q Admiral, you mentioned in your opening statement something about the idea of perhaps a need for dialogue over this issue. What did you have in mind? Are you thinking about some sort of military-to-military talks with Iran on some level?

    ADM. MULLEN: No, I’ve — when I talk about dialogue — actually, I would say very broadly, across the entirety of our government and their government, but specifically that would be — need — that would need to be led, obviously, politically and diplomatically. And if it then resulted in a military-to-military dialogue, I think that part of it certainly could add to a better understanding about each other. But I’m really focused on the diplomatic aspect.

    Q Do you think there is a lack of communication at the moment which elevates the risk of something happening here, military confrontation? Is that one of the risks that there is at the moment?

    ADM. MULLEN: I — we haven’t had much of a dialogue with the Iranians for a long time, and I think if I were just to take the high stakes that were — that we — I just talked about a minute ago, part of the results of that engagement or lack of engagement, I think, is there. But as has been pointed out more than once, it takes two people to want to have a dialogue, not just the desire on one part.


    Q Just to clarify, you’re saying we need dialogue between the United States government and the Iranian government?

    ADM. MULLEN: That’s not — I think it’s a broad dialogue. I think it would cover the full spectrum of international — and it could very well certainly cover the dialogue between us as well.


    So from that it is clear where the brass stands on Iran. But the problem is that equally clearly, this is not at all the way Bush or Cheney see it. So what is Adm. Mullen going to do if he is ordered to attack?

    Still and all, the fact that he is being so open suggests a fair degree of confidence in the Pentagon that they can win the argument.

  27. 27
    Sambone Says:

    Off subject – There go the banks again. Glad I don’t own WB.

  28. 28
    Dman Says:

    Oops, I forgot to add, that I think Nicky is right that the market ignored the implications of Mullen’s comments until today.

  29. 29
    jazzkool Says:

    Z, Briefing.com has them all. Sometimes you run into problems with PBR, and other non-US companies.


  30. 30
    VTZ Says:

    Z – I think the 20k portfolio would be a smooth addition and a good way to show balancing and whatnot.

    Do you think the E&P gas stocks are underreacting to a 40 cent drop in gas? You don’t seem overly concerned.

  31. 31
    zman Says:

    V – I don’t think they are under reacting because I don’t think they are reflecting anything like $13 gas in the first play (more like $10). Also, the trend remains unbroken here and the near term fundamentals point to a further inability to jack up injections prior to real summer heat setting in. The move down today was lockstep with oil before oil started to bounce and left gas behind. So yeah, not all that concerned for the stocks. For people living on a fixed income and the lower and middle classes you have to be worried about the economic impact of cooling bills this summer and more importantly heating fills this coming winter. Utilities are already requesting rate hikes and if you think gasoline prices are a killer try doubling your heating costs and see how happy you are.

  32. 32
    cattleman Says:

    DMAN -Saw an article discussing the fact that SecDef Gates couldn’t find three brigades to add to the Afghan mission. There are no reserves to apply to another challenge.

  33. 33
    Nicky Says:

    Dman re # 26. Yes that is exactly what I am referring to.

    The New York Daily News on July 2nd also said that President Bush and the top US Military commander warned Israel against bombing Iran, suggesting that the US does not want to get involved in a third war.

    To me it seems whether Bush/Cheney like it or not there is a great deal of pressure being bought to try and resolve this diplomatically first and foremost and I think the US – still reeling from having misled the world on Iraq – are going to have to be seen to do everything in their power along diplomatic lines before they resort to warfare. Whether negoatiations ultimately fail remains to be seen but an attack by Israel/US right now against Iran would be absolutely catastrophic to world markets and I cannot believe they would risk that.

    Going back to the Commander – he seems to be making it publicly quite clear that the US is in no position right now to fight another war and I wonder if he is covering himself so that he can say I told you so if put under pressure to attack.

    Right now this pullback in oil seems to be being seen as a buy the dips opportunity. That could change and I remain on guard for that. There is a chance that the move last week completed an ending diagonal – we would need to break the trendline that comes in at around $138.00 for confirmation of that. Straight down through 133 – 132 would be better confirmation!

  34. 34
    Nicky Says:

    SPX has resistance at 1275 and then 1288.

  35. 35
    italyinvestor Says:

    Cattleman – We are stretched on the ground troop side. Counterinsurgency takes a lot of troops and time. On the punative side we have plenty of excess aerial strike capability in the AF and Navy. We could easily source the 3 required brigades if we all pulled 15 month deployments, but we’re cutting back to 12 to maintain effectiveness. I’m on month 15 of this tour, and after 12 you start to lose the edge. We’re growing the Army and MC by several brigades, but it will take years to get them fully trained and resourced. Thin bringing a super deepwater find from discovery to production.

  36. 36
    scoop006 Says:

    Crameroooooo just bought 100 shares of COG which now represents 4.49% of the portfolio

  37. 37
    wragrep Says:

    Nicky Re: Iran
    Never, never believe all that is written, as the truth Especially from this current administration – Everybody has an agenda

  38. 38
    cattleman Says:

    Italy – Good points. You have to wonder what the longer term effects would be to an airstrike. What you hit today, assuming you do real damage is likely to be rebuilt, and with a vengence. Changing governments and national wills is another thing entirely. Also, finding the people to volunteer for the ground forces isn’t easy.

  39. 39
    reefguy Says:

    hy- Harrison panola counties- CHK pays private Dorado(In bankruptcy) 39MM for 2000 net acres below cv only. That is 18,500/ac for only deep rights and in a distressed sale

  40. 40
    zman Says:

    NG testing $13, down 4%

    Stocks eying crude tick for tick this morning. Seems to be good dip buying interest in HK and CHK. Tempted to take August 50s on HK.

    OII among best performing service names, will hold July calls a little longer and take closer to the money Augusts soon.

    NFX – a Baron’s mention isn’t what it used to be.

  41. 41
    jazzkool Says:

    Italyinvestor, thanks for your service. I don’t know how you guys and ladies do it, but I and the rest of US citizens appreciate what you are doing to protect our freedom and our lives.


  42. 42
    zman Says:

    Reef – welcome back! Talk about a good real estate market. Did you see the CHK note last week, $30K /acre from PXP so they can afford to pay $18.

  43. 43
    Sambone Says:

    Off subject again (Is it Friday?). A little different. Not quite sure how he does it.


  44. 44
    Nicky Says:

    Hi Wragrep – agree. We are being spoon fed what they want us to hear of that I have no doubt. I am continually shocked at how heavily the press is censored here in the US – being a Brit I find myself going back to the BBC news just to get a more objective view to world news!
    I think the Bush/Cheney agenda is clear –that said I for one would still be shocked if the US launch an attack on Iran in the next six months. Down the line it seems highly possible/probable and as the technicals are pointing to the stock market deteriorating in a big way next year and cycles in oil look higher into 2010 all that concurs too. Which looks like a McCain victory doesn’t it? Sorry the last comment is off topic and irrelevant really but just an obvservation.

  45. 45
    Sambone Says:

    Hmmmm, wonder what this means?


  46. 46
    Nicky Says:

    Z – is this the Phil Davis of Phil’s Stock World?


  47. 47
    zman Says:

    Nicky – yes it is.

    Group pulling in pretty hard as NG sinks $13 will off $4.50 now. It’s Monday and I’m feeling pretty patient right now. Lots of head fake looks on the stocks so far. If we get a post NYMEX close rally, the moves in CHK and in big cap service lead me to think they will green up first. Not seeing further signs of baby and bathwater action that we say end of last week. Looks very disciplined. Was on a call and missed the KWK call. Will review later but not in a rush to do much at the moment.

  48. 48
    tomdavis12 Says:

    Z: Last Thurs June oil production was released by PBR. 1867kbpd +.8 m/m and +2.2% y/y. Still significantly below offical targets.

  49. 49
    Nicky Says:

    Going to offer a bearish count for oil – against last weeks highs of course! This would follow on from earlier comments about an ending diagonal –

    look for a further brief pullback – very good support in the 140 region – then an advance to between 142 – 143. Then down….a sharp move through 140 at that time will concur.

    I hasten to add that its only a possible count for a bearish resolution and the bullish count remains on the table at this time and could still see us above 150 in a heartbeat.

  50. 50
    zman Says:

    Hmmm, back to the morning’s lows.

    Thanks Nicky, got an Elliot count on NG?

    Tom – thanks, looks like GS started PBR at buy this am, probably a valuation call re the subsalt and not a read on near term operational performance. I kind of lost interest in the story when it all boiled down to a Carl Sagan like billions upon billions of barrels fest which was quickly followed by a billions upon billions of dollars to develop fest. The last thing I saw of note was estimates approaching half a trillion $ to develop 30+ billion barrels which is not a bad F&D cost but you are certainly subject to self created inflationary pressures and a high degree of timing risk (things could get pushed back years here).

  51. 51
    Nicky Says:

    Yes Z – bearish count also shows an ending diagonal. Bounce from this region back towards 13.400 – 13.500, then down hard. A break of 12.680 and close below would confirm the downside.

    Bullish count of course has us ever onwards and upwards and has us likely to go above 14 before a top is in.

  52. 52
    zman Says:

    Big cap E&P taking it on the chin including everyones favorite last week, DVN (down the most of the bunch today). I won’t bottom fish until I see the declines in the big names (APC, APA, DVN, EOG, XTO) start to flatten out.

  53. 53
    isleworth Says:

    Z – do you have PQ valuation info on the site somewhere?….can’t find under E&P tab. Tks.

  54. 54
    zman Says:

    Isle – see today’s 2Q08 table for P/CF, one of the cheapest in the group, now under 4.2x 2009 estimates.

  55. 55
    zman Says:

    NFX off about 15% in 3 days, at the bottom of its range, this after upping production guidance less than 2 weeks ago. Stocks trading technically, just no buyers for the group at present. Large caps continue to get thumped. XNG at the bottom of support.

  56. 56
    uop Says:


    energy dropping with oil drop.

    is this the beginning of the end ?

  57. 57
    uop Says:


    why is HK get beaten up so badly ?

  58. 58
    zman Says:

    Uop – The end of the outperformance in the energy stocks? Don’t know but do not think so. This looks like protective profit taking during a lull in news items. If the market were up 500 points I’d even call it sector rotation or re-weighting but no such event is taking place. Market needs oily stocks to do well so it can go up. They are among the cheapest of sectors on current prices decks, let alone the strip.

    The end of oil going up? Don’t now again but I doubt it and long term I really doubt it. Too many snafu around the globe on the supply side, too many new sources of demand including the producing nations to take into account.

    HK – profit taking, plain and simple. Many of the Haynesville shale leverage names are down in the 3 to 5% range, it is off a little more but it has done extremely well in recent months. There is less reason to the move over the last hour than there was earlier in the morning and we are starting to see names slip on not a lot of volume.

  59. 59
    Nicky Says:

    So does this sell off in the broader market confirm that energy was the only thing holding it up?

  60. 60
    zman Says:

    As we have now seen a 10 to 15% drop in the energy names I wonder when Cramer will say I told you so and issue a loud Buy, Buy, Buy after his quiet (subscriber only) purchases of gassy names in the wake of his recent loud take profits call last week.

  61. 61
    zman Says:

    Nicky – I think so, what are you other choices, financials? retail? etc.? Talk about some slippery profit pictures.

  62. 62
    zman Says:

    Note the refiners slipping into red after this mornings’ pop. Just no relief for that group as people are noticing that products are outpacing are at best keeping up with crude’s losses.

  63. 63
    Nicky Says:

    Well….Z….. should oil futures continue to sell off and with the rest of the market being so badly beaten up we may start to see some sector rotation.
    My cycle low was due 7/8 plus or minus a day so this continued sell off is not a surprise…

  64. 64
    isleworth Says:

    Z – what has trough CFPS multiple been for PQ for forward year? Tks much.

  65. 65
    ram Says:

    It looks like all sectors are rotating to cash.

  66. 66
    Sambone Says:

    By Gregory Meyer

    NEW YORK (Dow Jones)–Crude oil futures shed nearly $6 a barrel Monday as the
    dollar gained ground and worries that friction over Iran’s nuclear program
    could affect oil supply abated somewhat.
    Light, sweet crude for August delivery was recently down $5.16, or 3.6%, at
    $140.13 a barrel on the New York Mercantile Exchange, after falling as low as
    $139.50. Brent crude on the ICE futures exchange lost $3.59 to trade at $140.83
    a barrel.
    The dollar firmed against the euro, which recently traded at $1.5651 from from
    $1.5697 late Friday. The dollar’s chronic weakness has fired up crude and other
    commodity markets in recent months as investors seek a hedge against the
    currency’s decline. Crude was among several commodities to stumble Monday, with
    gold recently down 1.6%.
    Crude traders also saw greater potential for a peaceful resolution of concerns
    over Iran’s nuclear program after communications between the Persian Gulf oil
    exporter and key international powers. European Union foreign policy chief
    Javier Solana said Monday he hopes to meet Iran’s top nuclear negotiator later
    this month.
    Iran is the No. 2 producer in the Organization of Petroleum Exporting
    Countries and lies on the Strait of Hormuz, a key waterway for the transport of
    Persian Gulf crude oil. Reuters reported the U.S. Navy said Monday that two of
    its ships, alongside one warship each from allies the U.K. and Bahrain, were
    conducting an exercise in the Persian Gulf meant “to practice the tactics and
    procedures of protecting maritime infrastructure such as gas and oil
    installations,” Royal Navy Commodore Peter Hudson said in a statement from the
    Navy’s Fifth Fleet.
    Traders also sounded relieved that Bertha, the first named hurricane of the
    2008 Atlantic storm season, is expected turn northwest and avoid Gulf Coast
    energy installations. The storm’s center was about 775 miles east of the
    northern Leeward Islands, the National Hurricane Center said.
    “The combination of the strengthening dollar, some mixed signals coming out of
    Iran and the fact that Hurricane Bertha looks like it’s not going to make any
    landfall to threaten oil infrastructure has taken some of the strength out of
    this market,” said Tom Bentz, a broker and analyst at BNP Paribas Commodity
    Derivatives in New York.
    Nymex crude settled at an all-time high of $145.29 a barrel Thursday, fueled
    in part by mounting concerns Israel may square off with Iran over its nuclear
    program. Floor trading was closed Friday for the U.S. Independence Day holiday.
    Underpinning oil’s record run has been perceptions world supply will have
    trouble keeping up with steadily rising global demand. Updated global supply
    and demand projections are due later in the week, with the U.S. Energy
    Information Administration scheduled to put out its monthly short-term energy
    outlook Tuesday and the International Energy Agency, an energy adviser to the
    most industrialized nations, slated to release its monthly oil market report
    Both agencies have trimmed forecasts for world demand growth this year amid
    record crude prices and a stumbling U.S. economy.
    Front-month August reformulated gasoline blendstock, or RBOB, fell 12.95
    cents, or 3.6% to $3.4415 a gallon. August heating oil fell 14.14 cents, or
    3.4%, to $3.9646 a gallon.

    -By Gregory Meyer, Dow Jones Newswires

    (END) Dow Jones Newswires
    07-07-08 1234ET

  67. 67
    tater Says:

    If any body cares, the HK and CHK moves are textbook TA plays after their gaps down (called a Hole-in-the-Wall). Has to do with Fib retracements. Basically they dropped so far that after a little bounce back up, they became big short candidates. Technically, they have to sell off to a point of support before the computers will buy them again.
    Target for CHK is either $64ish or all the way down to $60.97. Target for HK is right about now $43.50 (uptrend line and support of highs before the big up gaps)

  68. 68
    ram Says:

    HK is about to complete the gap that was created end of 6/27 to begin of 6/30.

  69. 69
    zman Says:

    Isle – around 3x I think, my trailing P/Cf chart looks odd there today.

    Tater – thanks for the Voodoo, getting knocked about pretty good on all names today. E&P names with biggest growth components getting hit the worst: SWN and HK very growthy and down 9+%. CHK high growth but highly hedged down “only” 3%.

  70. 70
    Sambone Says:

    Hmmm, looks like I’m gonna get my RIG at 135. Broke it’s support.

  71. 71
    Sambone Says:

    Uncle Phil


  72. 72
    zman Says:

    WILDZTRADE: Added HK July $45 Calls for $1.95.

  73. 73
    Sambone Says:

    There she goes!

  74. 74
    Nicky Says:

    No real support on spx until 1220

  75. 75
    Garyinhou Says:

    oh well, i’m back in clr common at 62.50 having just got out at 74.50 the other day.. only bright spot (knock on wood) etc..

  76. 76
    zman Says:

    E&P names down 4 to 8% pretty much across the board.

    Service down 2 to 5%.

    Oil back over 141, NG back to 13ish.

    Sort of feeling like bottoming action here at least on gassy E&P names.

  77. 77
    BeWater Says:

    FYI I think Option Addict pointed out technical on CLR possible 10 pt drop if it breaks support. I think it is solidly below that crayon line now.

    If you believe in that chart chomping stuff.

  78. 78
    ellwodo Says:

    Tater – #67: I’d love to know the same for XCO.

  79. 79
    tomdavis12 Says:

    Z: On the CHK and PXP deal. Do you consider this a creative way for CHK to continue to be aggressive drillers/buyers going forward without the pressure of having to finance in a difficult envoirnment? If so, have you noticed many wall st analysts giving credit for this.

  80. 80
    1520sbroad Says:

    wow – my first day with full access and a wildztrade pops up.

    greetings to the ZEB group.

    disclosure – long SWN, HK, CHK, assorted CANROYs, VLO, FTEK (clean coal player), APL, RAS (finance REIT). In previous life worked at Citi for years on a team running a covered call strategy. i am the only one in my family not directly involved in the energy patch somehow – hence my current portfolio.

    Look forward to participating actively.

  81. 81
    Sambone Says:

    Welcome 1520

  82. 82
    tater Says:

    running out the door, but a quick look at XCO, the idea is that the run-up had too hard of a sell-off, so the whole move has to be retraced. Whether you want to say that would be the low of 6/25 or the basing action around $30, that’s where it becomes an art, as what do you want to call “the whole move”? I will try to look at it in a couple hours, sorry.

  83. 83
    zman Says:

    BeWater – thanks, TA appreciated around here if not fully bought off on, lol.

    Tom – exactly and only a few. Last week saw some price target upgrades but many of the guys like GS said the deal was better for others involved in the Hs. I understand from a valuation vs leverage standpoint as you can get more bang from a smaller player who suddenly finds themselves on sitting on $30K per acre with the promise of double digit IPs and 6+ Bcfe EURS. But CHK really should get more respect for its home court advantage in the play…not all Haynesville Shale acres will turn out to be created equal, much like not all Barnett Shales acres have.

    1520 – good to have you onboard, nice list, maybe you can actually get me to buy a Canroy some day.

    As you guys can see we had a little growth spurt in terms of subscribers after I got back from Honduras. Many thanks to you all. Bios for those interested can be sent to Petra at zmanadmin@gmail.com for posting on the bios tab.

  84. 84
    ellwodo Says:

    tater, thanks.

  85. 85
    Sambone Says:

    Talk about a reversal in the US$, Wow, the financials are getting spanked bad. This don’t bode well for the overall market. Batten down the hatches, is all I can say. Rough weather ahead!

  86. 86
    Nicky Says:

    Not quite sure why the $ has sold off when the comments coming out of Yellen at the Fed are hawkish.

  87. 87
    1520sbroad Says:

    Z – i won’t try to convince anyone re:canroys. The list of pros and cons is lengthy on both sides.

    My favorite is PWE at the moment – good assets, big drillable inventory, they have dealt with Can. gov’t tax law changes proactively, good acquisitions recently, and they pay 34 cents($C) a month.

  88. 88
    zman Says:

    1520 – if you see me take a real interest in yield instruments run for the hills, unless I say it is for my daughter’s account, lol.

    Groups trying to lift as oil starts to bounce against the dollar move.

    QBIK – give me another 3 days like today and I go back in.

    Bakken names off 3 to 10%. BEXP getting drilled for that 10, guess the folks at Changewave have moved on to new things.

  89. 89
    Sambone Says:

    Z – I know you and yields, BUT, i still like Canadian Oil Sands Trust at these prices. McDep is looking for a Canadian dollar payout of $6.00 from $4.00. Not bad at $51 US.

  90. 90
    VTZ Says:

    COS gets less respect compared to suncor even though they are essentially the same, except managed by Exxon rather than independantly.

    The yield is a great deal for people interested in that stuff.

  91. 91
    Nicky Says:

    Volume is coming in lower on this move down from Thursdays numbers although not as much can be construed from this due to Thursday being a shortened holiday trading day.

  92. 92
    1520sbroad Says:

    canroys = vanilla ice cream. Cold, pretty plain, but still pretty good.

    i am still a recovering yield seeker /call writer – 1% a month every month was drilled into me pretty hard.

  93. 93
    zman Says:

    Agreed re volumes Nicky, think its a little early to call it a MOAR (mother of all reversals) on oil although bottom fishing in the group is paring early losses by a significant percentage and NG is back easily over $13 now.

    Call writing is the best kept secret in the stock market. The old stat was that 90% of all calls expire worthless (not around here but that’s probably about right in the big picture sense). Not really a focus here but I ‘m happy to reduce my cost basis on my names and if they take them from me, so be it, I’ll just buy them back. I won’t go out more than a month though as I like to stay pretty nimble.

  94. 94
    Nicky Says:

    Too many try to call a top in oil Z methinks and the trade is not bullish enough for a top to be in. Maybe T Boone will come on tomorrow and say 175 before 100 and that may do it!

  95. 95
    1520sbroad Says:

    Z – bingo – that’s me dead on – i still write a lot of calls against my stuff. Reduce cost basis, take advantage of the option buyers excitement and willingness to pay big rents on shares, also keeps me fully engaged with my holdings. I tend to go medium length – 3-6 months at or out of the money.

    james cordier/liberty trading wrote a good book on option selling that includes a lot of stats on calls that go unexercised. basics of options selling or something like that.

  96. 96
    Sambone Says:

    I guess everybody saw the article about $200.00 crude in the WSJ. What would $200.00 abarrel put Gasoline?


  97. 97
    ram Says:

    When a pawn shop operator, CSH, is one of the few company’s raising guidance, that can’t be good.

  98. 98
    zman Says:

    DNE exiting Barnett for $41 mm, not a bad price and it focuses them on their higher return projects. And completely overlooked on a day like today.

    Sam – $6

  99. 99
    zman Says:

    Oil sinking but also closing in 10 minutes. I want to see some recovery in the group once they all stop watching the tick chart on crude before getting more aggressive.

    Ram – too true.

  100. 100
    Nicky Says:

    Bearish count mentioned earlier with crude still on track…

  101. 101
    zman Says:

    Big cap E&P at LOD post NYMEX close.

  102. 102
    jsaun14 Says:


    Is that legion of doom or low of day? Or both?

    I keep hearing the new capital market buzzwords – “flight to quality.” What could be more quality than some of the stocks we care about? Money just seems tired…

  103. 103
    Fred Says:

    Great article thanks Sam. Phil Davis had another good one today in case you missed it:


    On those lights, History channel recently had a show about the mysterious rods. Bottom line they’re double and triple exposures and the lens and camera are being fooled:


  104. 104
    zman Says:

    JS – today they are the same thing. Note that the drubbing is across the board and could care less about recent analyst price target increases in our space. The bounce off the flush often portrays a similar “buy it all” nature. Ug.

  105. 105
    SkyKing Says:

    I missed the HK July 45’s for 1.95 this morning. Do you think it is worth it to still get in now at 2.10?
    Looks like it’s going down again.

  106. 106
    zman Says:

    Skyking, I’m not adding here but I am holding it as it too approaches its LOD. Right now the stocks are trading almost purely on technicals, something I’m not great at but but which cannot be ignored, at least from an options perspective. The July’s are pretty risky, hence the WildZ designation, but longer strikes, say ones that carry it through earnings and even other, non-H.S. related new items, which I also own and continue to hold along with the common, will give you a little more time for the group to clean up. I think the group will start to clean up between now and the next few days and that we have not seen the highs on the group for the year as some are suggesting in the press. Of course, I could be wrong, but I’m just telling you what I’m doing.

  107. 107
    Sambone Says:

    Thanks Fred on the photos.

  108. 108
    SkyKing Says:

    Thanks Zman
    Trying for HK Aug 45’s @ 4.70

  109. 109
    Nicky Says:

    Broader market seeing a nice bounce off the lows. I would like to see a daily close above 11495 before getting too excited about any rally but still expecting a short term low in this time frame.

  110. 110
    Nicky Says:

    Sorry that should have said 11440.

  111. 111
    zman Says:

    Thanks Nicky, bidding a little near month, near the money CHK now.

  112. 112
    VTZ Says:

    Does anyone have any TA on the NG chart?

  113. 113
    Sambone Says:

    Hmmm, 279 point swing today on the Dow.

  114. 114
    zman Says:

    V – see Nicky comments re NG #51. Nicky if you care to expand on that it would be great.

    Missed my bid on CHK’s. In this market I’d rather let them come to me than pay up and I already own those, the July $65s anyway.

  115. 115
    tater Says:

    HK 45’s. 60 min chart
    Just a head’s up as your trade is at the downtrend line and it will be interesting to see how it acts

  116. 116
    tater Says:

    Phrased that poorly. HK is at the line, not your trade.

  117. 117
    zman Says:

    Thanks Tater, nice to see a end of day bottom fish in the groups.

    Since I got back from Honduras I have made a point of not listening to CNBC. I didn’t miss it while I was away and so I figure why pick up an old bad habit. Just tuned in for a bit and its completely amateur opinion hour on the floor with a trader talking about real demand destruction that will show up in the quarterly results of companies, including energy companies. Wow. May just have to block the channel.

  118. 118
    Sambone Says:

    By Gregory Meyer

    NEW YORK (Dow Jones)–Crude oil futures took a dive Monday, pushed by early
    strength in the dollar and caught in a volatile swing downward.
    Light, sweet crude for August delivery settled $3.92, or 2.7%, lower at
    $141.37 a barrel on the New York Mercantile Exchange, marking its largest
    one-day drop since June 19. Brent crude on the ICE futures exchange settled
    down $2.55 at $141.87 a barrel.
    Crude’s decline coincided with a selloff in the stock market, with the Dow
    Jones Industrial Average down more than 100 points at the 2:30 p.m. EDT close
    of the Nymex pit session. While crude has soared to new records in recent weeks
    amid stocks’ descent to bear-market territory, on Monday the equity markets’
    mood spilled into commodities.
    “A falling stock market is not going to put cars back on the road,” said Tim
    Evans, an energy analyst at Citi Futures Perspective in New York. “And at some
    point those tempted to allocate assets in the direction of commodities may want
    to consider that $140 oil is not necessarily a bargain.”
    Oil fell as low as $139.50 earlier in the day as the dollar gained ground
    against the euro, but the single currency clawed back above $1.5700, helping
    crude regain some ground. A weaker dollar helps blunt the price increase of
    crude for customers using other currencies. The Nymex contract settled at a
    record $145.29 a barrel Thursday, its last full trading day before the
    Independence Day holiday.
    Also pressuring crude were signs friction may be easing over over Iran’s
    nuclear program. Separately, a Reuters report suggested the threat Iran could
    present to tanker traffic on the Strait of Hormuz in the event of a conflict
    might be prevented, as the U.S. Navy revealed an exercise in the Persian Gulf
    aimed at protecting gas and oil installations.
    Traders also sounded relieved that Bertha, the first named hurricane of the
    2008 Atlantic storm season, is expected to turn northwest and avoid Gulf Coast
    energy installations.
    “The combination of the strengthening dollar, some mixed signals coming out
    of Iran and the fact that Hurricane Bertha looks like it’s not going to make
    any landfall to threaten oil infrastructure has taken some of the strength out
    of this market,” said Tom Bentz, a broker and analyst at BNP Paribas Commodity
    Derivatives in New York.
    Volume was light, and some traders suggested the selloff will be short-lived.
    “The higher we go in price, the bigger the swings are going to be,” said Dean
    Hazelcorn, a trader at Coquest Inc. in Dallas. “The volume absolutely was not
    and is not there for a destruction of our market.”
    Indeed, analysts are increasingly talking about $150 a barrel and higher as
    realistic targets in the second half of the year. Deutsche Bank’s chief energy
    economist, Adam Sieminski, noted that options markets are implying a 51% chance
    crude for December delivery will expire above $150, from 41% two weeks ago.
    Merrill Lynch commodity strategist Francisco Blanch said in a note to clients
    that “the global crude oil market is spiralling out of control” as record
    prices haven’t drawn the expected responses from suppliers and consumers. A
    combination of tight diesel markets, lax monetary policy and other factors
    could push prices past $150 a barrel, he said.
    Front-month August reformulated gasoline blendstock, or RBOB, fell 8.83 cents,
    or 2.5%, to settle at $3.4827 a gallon. August heating oil fell 13.64 cents, or
    3.3%, to settle at $3.9696 a gallon.

    -By Gregory Meyer, Dow Jones Newswires

    (END) Dow Jones Newswires
    07-07-08 1530ET

  119. 119
    zman Says:

    Can’t close the books on this day fast enough. Declaring beer thirty 4 minutes early.

  120. 120
    scoop006 Says:

    Crameroo bought more DVN & SWN this afternoon. I Think he issues a BUY BUY BUY on the sector tonight

  121. 121
    tater Says:

    I will have XCO done in about 10 minutes. I will post a chart for you then

  122. 122
    BossmanG Says:

    scoop, which service do you suscribe to that you see what crameroo buys? is it worth it? (i’m assuming this is some crameroo subscript?)

  123. 123
    BossmanG Says:

    nm, seems like its the action alerts plus

  124. 124
    tater Says:


    Link to chart


    I had some trouble with my “Java Virtual Machine” whatever the hell that is, so I have to clean something out before I can post another chart. I did not get a 60 min chart done, but it shouldn’t really matter as the daily chart should be enough combined with some math.

    Using the high of 7/2 at $40.93 and a low of 5/28 at $22.27 for a total move of $18.66, we get Fib retracement levels of

    .38 = $33.84 (just about matching today’s closing price at $33.91)
    .50 = $31.60
    .62 = $29.36

    Low of the most recent move was on 6/25 at $32.70

    Today’s low of $32.99 was very near and probably close enough to be considered a %100 retracement of “the most recent move”.

    The idea for a trade target is based on the theory that when a stock makes a move, you total up the move and then watch as the stock eventually pulls back. If it pulls back more than about 2/3 of the total move (.62 is a rounded figure that is good enough) in a reasonable amount of time, then the stock is thought to most likely then go on to accomplish a 100% pullback of the most recent move.

    So basically, if it falls 2/3, it will probably fall back the whole move before basing.

    Today’s opening gap may pose an area of resistance should XCO move back up again, but it may not be a big deal as it was closed by today’s price action.

    I really don’t have much to add to what the chart shows. XCO has broken through its steep up-trendline and is sitting just above the 20 EMA. The black lines point to areas of price support should XCO continue to fall. The lower green trendline is still in force, but is way down at $27ish.

  125. 125
    scoop006 Says:

    BossmanG, The street.com His trust is Action Alert Plus

  126. 126
    arodeen Says:

    Funny video commentary on some recent oil headlines.


  127. 127
    tater Says:

    Charts for HK and CHK, daily and 60 min. Look at daily chart before 60 min chart. Couple of personal notes on the charts, it helps me to work more quickly.


  128. 128
    arodeen Says:

    Thanks a bunch tater.

  129. 129
    ellwodo Says:

    Tater, thank you very much for the XCO data.

  130. 130
    tater Says:

    Additional note about those charts for HK and CHK. Though I may be short different stocks at different times, I am not so sure that shorting either of these two is presently a good trade in terms of risk/reward because picking an entry right now is not very easy.
    So please don’t take the notes as a trade suggestion or advice. They are just one person’s analysis, and can be used to get long or short depending on the moment.

  131. 131
    ram Says:

    Tater – Thank you for the tater salad.

  132. 132
    arodeen Says:

    Tater – Nice disclaimer. I think it’s like Z said earlier, “Right now the stocks are trading almost purely on technicals…” This is from a newsletter I read from time to time put out by RedOption.com that basically confirms that sentiment:

    “A rare drop in the price of crude oil helped the energy sector to continue its correction that began last Wednesday. This caused the Oil Service HOLDR (OIH) to close below its 50-day MA for the first time since March 24 of this year. Conversely, the UltraShort Oil and Gas ProShares (DUG), which moves in the opposite direction of the energy sector, rallied to finish above its 50-day MA for the first time in nearly four months. As per the plan discussed in yesterday morning’s commentary, this triggered our buy entry into DUG. Our upside price target is a test of the prior high from May 1, just above the $34 area (approximately 19% above our entry price).” – Edited by Deron Wagoner of the Morpheus Trading Group.

  133. 133
    Fred Says:

    Copied from 7/7/08 lightning round:

    There is more pain to come with this one. Cramer recommends to wait a little bit before pulling the trigger again.

  134. 134
    zman Says:

    Thanks very much Tater!

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