Site Trouble Tuesday

Our host was offline due to an unknown event. We ran on the back upsite all day at:

http://zmanbackup.wordpress.com

 

Please bookmark this site as this is the internet and things like this, though rare, do happen. Apologies for the inconvenience but it was out of my hands and no amount of threatening from me could make our host repair its server any faster although I now have a better understanding of what 30 minutes to an hour means in the minds of techies. 

Monday was one of the single ugliest days of the year for energy. I would expect to see a little more follow through to the downside at least early today before bargain hunting starts in earnest.

In Today’s Watch:

1. Holdings Watch
2. Commodity Watch
3. Stocks We Care About Today - E&P multiple update w/ bubble charts
4. Odds & Ends

Holdings Watch: The Wiki Holdings tab is updated.

• HK - bottom fish trade. Added the July $45 calls (HKGI) for $1.95.

Current thinking on July calls: I have 6 July call positions on the books at present and while they may get punted at any moment here is my current thinking on each.

• (OII) - toast, will sell on any rally and reposition into longer dated calls. This is my one and only speculative hurricane season play and in general when something makes its way into the Gomex it generally puts a good move on as they are extremely leveraged to the offshore inspection and repair business. I like these guys anyway as a well managed play on the increasing utilization of deep water capable ROVs but that’s not why I’m here now.

• (HK) - July $45 and $50 calls. Likely to can the $50s this week. Hot stock with improving fundamentals suddenly turning very cold with group action. Earnings won’t arrive in time to save the $50s so only a sector bounce or other big news in the Haynesville that spells even better results for everyone there is likely to save that strike as I don’t expect news out of HK prior to their 2Q CC. The closer to the money $45s will get held slightly longer but expect to be out of both by late this week or early next (almost certainly out by next Wednesday’s EIA report (7/16).

• CHK - July $65 and $70 calls. Pretty much ditto the timing notes as per preceding (HK) comment although bottom fishing in the group may give the name a little better chance of a near term bounce as the larger players are likely to be the first ones chosen as fund managers start to bargain hunt prior to 2Q earnings.

• NFX - July $70s. Toast and at this point will hold on as you could get more catalytic news here at any time; not sure given the market environment at present that it would matter as the Malay news, an increase to production guidance, and a sharp upward repricing of 2009 CFPS estimates have all been ignored. I am in closer to the money August strikes here as well.

Current Weightings: Cash 44%, Stocks 23%, Options 33%.

Commodity Watch:

• Crude Oil fell 3.92 to close yesterday 141.97 after briefly falling into the $130s mid day. An easing of tensions between the U.S. and Iran were seen as prompting a round of profit taking. This morning oil is down another $2.25 in early trading.

• Watch T. Boone Watch: T. Boone Pickens will hold a press conference today in New York regarding U.S. energy issues.
  • Today, 10 EST
  • http://www.wsw.com/webcast/pickens/

• Natural Gas tumbled $0.60 to $12.98 yesterday as oil traded lower and Hurricane Bertha bent the wrong way. This morning gas is trading off another $0.20 with lower oil.

• Imports: Broken record watch: Imports remain down 3.2 Bcfgpd from last year, flat with the prior week.
  • LNG: stuck at 0.7 Bcfgpd, down 2.2 Bcfgpd from year ago levels. Not surprising with gas going for over $21 on the European winter strip.
  • Canadian Pipes remain near a 2008 low as well at 7.7 Bcfgpd, off 1 Bcfgpd from the year ago week.
• Early Read On This Week’s Gas Storage Injection: My number: 85-90 Bcf injection.
• Weather Watch: CDDs came in at 62 last week, up slightly from year ago figures and down just a tick below the prior week’s 65. According to EEI, electricity generation was 2.6% higher versus the prior week.
• Tropics Watch: Hurricane Bertha is now a category 3 storm but is expected to both weaken and turn further to the north away from the Gulf of Mexico.

Stocks We Care About Today Watch

(PQ) Provide Operations Update:

• Slightly negative news first, 2Q volumes slightly lower than expected (2Q looks like 91 to 94 MMcfepd average vs 1Q volumes of 86.7 MMcfepd). This may cause further weakness in the shares (especially in this market) but the reasoning behind it is timing related in the Gulf Coast division and not a function of higher than expected field performance and I expect they will be pretty quickly let of the hook here.
• Current production is over 100 MMcfepd for the first time.
• Woodford Shale. 20 wells drilled to date, up from 13 at last check, last five completed in the 2Q had IPs ranging from 5 to 8 MMcfepd which is a bit higher than I would have expected. Prior to this their best well in the Woodford had had initial production of a little better than 6 MMcfepd. Acreage has been bumped to 39,500 from 31,000 at last count.
• Fayetteville Shale: Production now over 4 MMcfgpd up from 3.3 MMcfgpd in , This a non-operated play for them and they are anticipating increased activity in the second half via five non-op’d rigs.
• Pelican Point: Flowing as expected at 19.7 MMcfepd gross or 4.3 MMcfepd net to them.

GMXR - Accelerating Haynesville Shale Horizontal Program. GMX Resources now sees 4 rigs drill Hz wells by 3Q08, previously planned for early 2009.

• 2008 Capex rises from $195 to $271 mm (4 to 6 net Hz wells included plus I assume infrastructure and further lease acreage acquisitions). All from bank line and cash flow, no equity issuance planned.
• 27,500 acres (100% working interest), puts them at a 1.3x multiple Haynesville reserve potential to current booked reserves  ranking it #6 in the top 15 producers leveraged to the play (based on 80 acre spacing, an average EUR of 6.5 Bcfe, 65% risking of acreage, and a 25% royalty rate).
• I had stayed away due to the high multiple of CF (12x 2008 / 10x 2009 estimates) and the delay in commencement of horizontal drilling until next year.
• 2008 exit rate guidance upped from 42 MMcfepd to 60 MMcfepd.

GDP - 3 MM Share Secondary. Paying down the revolver and helping to fund expansion of Haynesville activities. Valuation has come in in recent days and I would expect it to continue to do so today. At 12x 2009 numbers the stock is not cheap and is a poor option trader (thin). I would use this opportunity to point out that CHK and HK, two of our bigger holdings have already done secondaries obviating the need for further capital markets transactions quite possibly through year end.

Crack Spread Update: More pain. No reason to bottom fish the independent refiners at this time (see comments from analyst watch below), especially in this broad market environment.

Odds & Ends

Analyst Watch: Lehman cuts price targets on independent refiners, mini-Majors (HES, MRO, MUR), and the Majors