Monday Morning And All Is Pretty Quiet

Good morning. We have oil and gas opening lower despite a tropical storm in the Gomex and more Iranian defiance on the nuclear front. Pretty slow day on the news front with a couple of smaller service names reporting before another wave of energy names report later this week. I'm likely to continue releasing high strike near month options opportunistically this week repositioning into a combination of more cash and smaller positions further out. The group needs to trade sideways before a meaningful bounce can occur and economic concerns continue to pressure crude and in turn delay said bounce. For more thoughts on my current thinking on the E&P and oil service names click here for the wrap post.

In Today's Post:

  1. Commodity Watch
  2. Stocks We Care About Today
  3. Earnings Calendar
  4. Odds & Ends

Commodity Watch:

Crude Oil: trade higher overnight but reversed course this morning as Tropical Storm Edouard's forward progress towards a Texas landfall accelerated, giving the storm less time to strengthen. Oil is trading off $1.50 to $2 in early trading.

Natural Gas: Natural gas is trading lower after a similar overnight rally then reversal as seen in crude trading.

  • Weather Watch: CDDs hit 84, in line with last year's levels. The forecast for this week is 83 but the 6 to 10 day forecast shows a return to milder temps over a broad swath of the U.S.


  • Tropics Watch: Tropical Storm Edouard formed over the weekend just south of the Louisian coastline, and is moving to the West, some strengthening is forecast and the current track puts it ashore around Houston or Galeston early Tuesday possibly as a weak Cat 1. In the mid and Western Atlantic two lows have formed that bear watching. 


  • Electricity Watch: August is the most gas demanded for electricity generation intensive month. By this time of year, hydro-electric capacity is at a seasonal lull leaving natural gas as the only source of generation to meet peak demand. In recent years, this ability of natural gas to meet the rising call for generation has yielded large jumps in gas demand as you can see in the following chart. Don't  look at 2007 as that year saw abnormally hot August weather but take a look at 2003 and 2006 CDDs which were similar and demand, which saw a 5 Bcfgpd jump (23% ) increase. Simply put, no other generation has the capacity to meet excess demand during this hot, dry month.   

Stocks We Care About Today:

Drybulk Multiple Update: I've been away from the group since mid 1Q opting to sit out that quarter's results and not having felt compelled by the global economy or the stock price performances to re-enter the group since then. Capesize, Panamax, and Handysize rates, while just about flat year over year, appear less than compelling at present in terms of directionality. There are a couple of drybulk earnings calls later this week and I plan to listen to those before deciding whether or not to put more than half an eyeball on this group at this time.


Earnings Watch - Week 4 - Big and small cap E&P, refiners and a couple of dry bulks.


Odds & Ends

Analyst Watch: Lehman trims (CHK) target by $2 to $77, maintains overweight rating, Jefferies ups (GW) price target by a buck to $11.50, (CNX) lifted to outperform at Credit Suisse,

Conference Watch: Enercom Oil & Gas Conference - August 10-14. Conference Schedule


174 Responses to “Monday Morning And All Is Pretty Quiet”

  1. 1
    zman Says:

    Crysball – tried to address your weekend questions last night.

  2. 2
    zman Says:

    Part of what’s got oil down from early this am:


  3. 3
    Nicky Says:

    CNBC reporting an explosion at a Valero refinery in Huston.

  4. 4
    zman Says:

    See it, 130,000 bopd throughput refinery, no word on damage yet. Gasoline went green briefly.

  5. 5
    zman Says:

    Useless research watch: Goldman out reiterating their neutral rating on CHK this morning saying that the stock will likely get more attractive before the analyst meeting on Oct 16. Not sure if that means they think it falls or goes up. They continue to have a $91 target here vs the stock at just under $50 so yeah, of course, that’s a neutral rating…who would want an 85% increase in a stock?

  6. 6
    zman Says:

    Capital One (Southcoast) upgrades CHK to Strong Buy. Southcoast used to have pretty good E&P research but I have not seen their stuff since they were taken over by those annoying credit card guys. If anyone gets their stuff I’d love to see what they have to say here.

  7. 7
    Bleemus Says:

    LOOP says halts offloading tankers due to rough seas [ RTR http://tinyurl.com/5e4lkq ]

  8. 8
    Sambone Says:

    8:04 am EST

    Crude Little Changed; Mkt Eyes Tropical Storm

    By Reza Amanat


    LONDON — Crude prices traded sideways in London Wednesday, as the development of Tropical Storm Edouard off the U.S. Gulf Coast and the impasse over the Iranian nuclear issue failed to override concerns over falling crude demand in developed nations.

    “Risk of storms and supply disruptions might keep prices higher than they should be .. but all things being equal, the underlying moves are still down,” Simon Wardell, analyst at Global Insight in London said.

    At 1144 GMT, the front-month September Brent contract on London’s ICE futures exchange was 5 cents higher at $124.23 a barrel.

    The front-month September contract on the New York Mercantile Exchange was trading 41 cents lower at $124.69 a barrel.

    The ICE’s gasoil contract for August delivery was down $8.00 at $1,117.50 a metric ton, while Nymex gasoline for September delivery was 43 points lower at 308.00 cents a gallon.

    The development of Tropical Storm Edouard over the weekend provides a potential upside risk for crude prices, said Olivier Jakob, managing director of Swiss-based consultancy Petromatrix, with the storm set to pass through an area home to a raft of refining and production facilities.

    “The storm could reach Hurricane 1 status just before landfall and its calculated path is taking it directly towards the refining centers of Houston/Galveston,” he said.

    The U.S. National Hurricane Center said in an 4 AM CDT (0900 GMT) advisory Monday that a tropical storm warning is in effect from the mouth of the Mississippi River westward to San Luis Pass. By Tuesday morning the center of Edouard is forecast to be very near the upper Texas coast or the coast of southwestern Louisiana, and winds could near hurricane strength before reaching the coastline.

    Tensions over Iran’s nuclear enrichment program remains a concern for oil market participants, with the recent talks in Geneva failing to break the impasse.

    A spokesperson from the U.S. mission to the U.N. on Sunday called for further sanctions against Iran, Reuters news agency reported, after the Islamic Republic ignored U.S. demands to respond to a package of incentives over the weekend.

    However, despite the lack of a breakthrough, some analysts suggest the Iranian nuclear issue presents less of a price risk to oil, so long as the negotiations continue.

    “We get a distinct sense that as long as the Iranian negotiating track remains on track, the markets will be taking this issue in stride, and prices may not be as responsive to the upside as they once were,” MF Global analyst Edward Meir said.

    But the potential risks to supply served more to limit further falls than help prices advance Monday. A combination of record high prices and slowing economic activity, particularly in developed economies, have helped foment market concerns over declining demand. Those concerns last week helped push prices to their lowest levels since early May.

    With U.S. economic data continuing to paint a gloomy picture, a recovery in demand for crude and oil products in the U.S. — the world’s largest oil consumer — looks unlikely, analysts said.

    The U.S. unemployment rate jumped to a four-year high in July as companies shed workers for a seventh-straight month, according to data out Friday, providing further evidence that the economy remains vulnerable to recession in the second half of the year.

    “The pressure on commodities as an asset class seems to be continuing, and given the slowdown we are seeing on the U.S. growth front typified by Friday’s uninspiring employment (data)…we doubt we are going to have a V-shaped bounce anytime soon,” Meir said.

    —By Reza Amanat, Dow Jones Newswires

  9. 9
    PackMan Says:

    S&P on CHK:

    SNPMarketScopeResearchNotes2008-08-01 11:18:34.000CHKCHESAPEAKE ENERGYM. KayS&P MAINTAINS BUY RECOMMENDATION ON SHARES OF CHESAPEAKE ENERGYWe calculate Q2 operating loss of $2.90, after $3.79 derivative losses but before $0.08 in items, vs. EPS of $0.91. Before the losses, EPS of $0.89 misses our estimate by $0.18 on below-forecast realized prices. Q2 volumes of 2.33 Bcfe/d were 4% above forecast, but we cut Q3 outlook on guidance. Based on miss in Q2 and lower price forecasts, we lower our $3.83 ’08 EPS estimate to $1.08 loss (with $5.22 H1 derivative losses) and ’09’s EPS by $2.06 to $4.75. On lower outlook and relative metrics blended with DCF and our risked NAV projection, we reduce our target price $13 to $70.|US;CHK|52640|74836

  10. 10
    crysball Says:

    Received a JP Morgan [Big Joe Allman] analyst report on BEXP dated July 16.
    If you would like a copy advise.

  11. 11
    zman Says:

    Southcoast’s CHK target is $92 with 87% upside.

    Thanks Pack, it’s good to know what is out there. Ratings agencies have little business modeling E&P companies. Missing EPS because they were out of line on their pricing is a flogging offense for the analyst. Just ridiculous and he should have point out that he was well ahead of the Street in the first place. 2nd he focuses on earnings which are no basis for E&P valuation. Third he was ahead on production for 3Q but they had not guided so again, his fault and then he fails to say by how much and fails to note that CHK is bagging yet another quarter on guidance as they just beat the last several. Unreal.

  12. 12
    zman Says:

    Crys – yes please…zmanalpha@gmail.com. Big Joe asked better questions on that call and the CHK one despite the taunt than in the past.

  13. 13
    Bleemus Says:

    GDP Goodrich Petroleum tgt upped to $80 from $44 at Howard Weil

  14. 14
    zman Says:

    NG taking a hit on the 6 to 10 day forecast and the disorganized state of TS Ed. Would like to see it hold $9 and trade sideways. We should get a slightly smaller injection this this Thursday which may do a little to help stabilize prices here. Obviously crude will play a role as the battle for establishing a trading range in the $120 to $130 range takes hold.

    Bleemus – Re GDP have been a little concerned that smaller Haynesville players (smaller in terms of both acreage and market cap may get further wood shedded here if the glut story really takes hold.

    Going to take some way too high strike, near month calls off the table in E&P and service first half of this week, including some today.

  15. 15
    Nicky Says:

    Crazy as it sounds until last weeks lows are broken in oil and natural gas I still view this as a b wave in an abc correction ie we need to see a c up.
    Energy being extraordinarily complacent in view of the TS and Iran which gives us some insight into sentiment and keeps me convinced that in the bigger picture the downtrend is firmly intact.

  16. 16
    Nicky Says:

    SPX has support between 1247 and 1250.

  17. 17
    zman Says:


    EOG: out $120 August calls for $0.10, down 98%

  18. 18
    zman Says:

    Oil taking a look at going positive now, I will continue to punt higher strike calls opportunistically into this “strength”. This looks like a rally based on VLO and product prices.

  19. 19
    ellwodo Says:

    HK – seems as if they would normally have announced their earnings date by now. Just wishful thinking, but it would be nice if the delay relates to buyout negitiations. Any new rumors on HK (or XCO) to keep my spirits up? Old rumors are like chewing gum, they lose their flavor.

  20. 20
    zman Says:

    Elwo – nothing. The value of the currencies of the potential buys has fallen as well but not by as much. I’m just about ready to go to cash and stock except in a very few names as this “good news” doesn’t matter market is for the birds. Usually when I feel that way a bounce is around the corner but in this case its a very tough call…

  21. 21
    Bob Says:

    HK website has earnings conference call scheduled for 8/6

  22. 22
    zman Says:

    Things I won’t sell in the next couple of days. HK near the money and September calls and PQ in E&P and SLB and HAL in service. The rest are names I like and which I can buy back lower. CHK may or may not go over the side as they are still relatively close to the money for the most part but there is no sense being stubborn in the face of bathwater action. You can be right and lose your shirt all the same.

    Thanks Bob – just no time listed that I saw.

  23. 23
    Nicky Says:

    Broader market – cycle highs are due early to mid week. The bounce off whatever low we make here (1247 I hazard a guess should hold) will give us a clue as to what to expect. Two scenarios one the bounce stalls at 1270 region and we head down hard or we can make a stronger bounce back to the 1291 region or even 1310.

  24. 24
    Bleemus Says:

    Briefing has HK Next earnings release: Aug 7 before market, unconfirmed. First Call Research estimate: 0.27

  25. 25
    ddaley Says:

    Nicky, #170 Friday
    Thanks so much for the note re Elliot and your thoughts. Well, bleak picture in the large time frame. So how do you invest with your perspective?
    I know this is personal and perhaps I should not ask. But this topic came up earlier last week, and it would seem useful to have a sense of others perspectives of that fundamental aspect of our work.

  26. 26
    Nicky Says:

    CNBC saying that OPEC have increased supply for the third month running. Why would they need to increase supply if there was no demand???

  27. 27
    rseidman Says:

    04-Aug-08 09:55 ET
    Chesapeake Energy upgraded to Strong Buy at CapitalOne southcoast (47.88

  28. 28
    zman Says:


    WFT $42.50 Aug calls closed for $0.15, down 93%.

    SLB $110 Aug calls closed for $0.15, down 94%.

  29. 29
    Sambone Says:

    HOUSTON, Aug 4 (Reuters) – Inbound vessel traffic was
    suspended on Monday morning along the Houston Ship Channel due
    to rough seas in the Gulf of Mexico, according to local ship
    (Reporting by Erwin Seba)

    Mon Aug 4 13:59:05 2008 -GMT

  30. 30
    ddaley Says:

    briefing commodity thoughts, no NG:
    Drilling down, if you’ll pardon the pun, Oil and Coal (in that order) seem best positioned to take advantage of a rally. Two weeks ago the Stowe Coal Index (KOL) formed a reversal bar at its 20 week MA and last week spot West Texas Intermediate (USO) did the same thing. Should these indices be able to find support at the 20 MA weekly I would approach them with the idea that they are in consolidations as opposed to possibly having seen their tops.

  31. 31
    zman Says:

    DD – I’d be careful about what you infer from the KOL. That is an index of consumers and producers of coal and not of coal itself. It’s got utilities as well as miner s in it.

  32. 32
    zman Says:

    hot off the presses:

    Barack Obama is proposing tapping the nation’s strategic oil reserves to help drive down gasoline prices, his campaign said Monday. Obama supports releasing light oil from the emergency oil stockpile now and replacing it later with heavier crude more suited to the country’s long-term needs, according to a campaign fact sheet. Light crude oil is easier to refine into gasoline than heavier oil.

    I’d tie an offshore drilling rider to any legislation along these lines.

  33. 33
    Bleemus Says:

    VLO Valero Energy says Houston, Port Arthur, Texas, shipping interruptions may affect refinery output – Reuters

  34. 34
    Nicky Says:

    Hi DD – was waiting for you to come on. I took a look at Conquer the Crash over the weekend. As said before this book was written in 2002 so great to see how accurate he has been or not! In fact he called the top too early and the indices went on to make higher highs than he predicted into October 2007. That said his reasons for the collapse etc and how it would unfold have been pretty accurate. What I also did not realize is that there have only actually been two depressions in the USA since 1800 – one in 1840 and obviously the 1929 one. Since 1932 we have experienced a huge period of prosperity. His count says that Wave V has now topped and that the indices should now fall back to the area of the preceding fourth wave, which is at least to 577 – 1051 in the Dow and possible down to the 41 – 381 range. He obviously adds that this sounds impossible but that he is quite comfortable saying that the Dow will fall from quintuple digits to triple digits. What he is not sure about is which wave of the bear market will carry the Dow down to that area. Odds he thinks are strong that it will happen on the first major decline otherwise it will do so on another decline decades from now. Over the next hundred years he forecasts 3 bear markets (we are currently in the first) and two bull markets.
    In answer to your question re how to invest – my simple answer is you have to be able to short the market!
    I have something else Elliott Wave orientated I would like to send you – can you either post your email or get Z to send it to me so I can then send to you.

  35. 35
    Dman Says:


    the very low-key response from the White House to the Iranian non-response (or really their negative response, to my reading) is telling the oil market that WWIII is not scheduled to begin just yet.
    Both sides are shouting that it is they who are ready to begin talking. This is quite different from a few months ago (or is it weeks?)

    However, before we write off WWIII, the harsh words from the US to Pakistan (which actually *has* the bomb), following a rapid deterioration in US-Pakistan relations as the situation in Afghanistan gets worse, seems to me to be a real flashpoint that could rapidly destabilize the whole region. This quite serious situation in Pakistan seems to have been completely ignored by the market (not even gold is up).

  36. 36
    zman Says:

    Dman – the oil market does not believe the Pakistan thing will spread to actually impact oil flows.

    Its also pretty telling that we have down oil (or up depending on which minute you look at the screen) and the refiners can’t make any headway on a day with a problem in one of their own and a TS right off the coast that may turn hurricane and with stories that the HSC is closed. Direction was picked at the open and for now they are sticking with it.

  37. 37
    tomdavis12 Says:

    Z: Do you update your CFPS numbers as each company releases or do you wait til the whole group is out? If you look at ’09 earnings numbers MANY commodity type companies are 6 – 7 times earnings. Unless things worldwide get much slower, there should be good values here.

  38. 38
    Nicky Says:

    Hi Dman,

    Yes agree re Iran and Pakistan. Iran I think everyone knows is going to take some time to play out – the oil market will use it to their own end at some stage I am sure!

    Metals quite interesting at the moment. Not sure what you think but still think they are short term playing out an ABC like oil and I am expecting gold to retest somewhere between 930 and 950 before turning lower again. If we then get the big C down then it can go anywhere between 850 and 600.

  39. 39
    VTZ Says:

    How can you say gold is going between 850 and 600 when every day we hear stories about the FDIC givign up billions of dollars of cash. That cash has to come from somewhere and it’s at the expense of the dollar.

    If technical trading trumps the fact that the american currency gets devalued more every week then I give up.

  40. 40
    Nicky Says:

    Nat gas – I gave two possibilities on Friday. The move to the 9600 area overnight satisfies wave 4 as an abc and we are now in v down. Until the lows of last week are taken out the less likely alternative of this still being a b wave down with c up to come is on the table.

  41. 41
    zman Says:

    Tom – I update them each time you see a new table. I keep the old ones in a file to compare to and its generally not worth doing daily as it takes a little while after earnings come out for everyone to settle up with First call (we used to send our tables in on Friday mornings). That said, there are some steep discounts to historic multiples being put in place right now…and no one is paying attention as they wait for a bottom to set in. I think we saw the bottom on price last week in names like CHK and HK but if oil cracks I’ll be wrong on that thought. NG too is obviously a concern as traders seem to be giving up despite all the heat in the producing region (which by the way saw no injection last week and could see a pull from storage this week).

  42. 42
    Nicky Says:

    VTZ – gold move down will be very quick. Dollar due a short term bounce.

    Don’t give up!!

  43. 43
    VTZ Says:

    But why is the dollar due for a bounce? Just because? It doesn’t make sense. Everything points to inflation and the FDIC bailing out more and more banks at the expense of the dollar.

    I don’t understand WHO is making a bullish trade on the us dollar right now.

  44. 44
    zman Says:

    latest advisory on TS. Ed. provides little change, 45 mph winds, moving west at 8, expected to be a strong TS or weak hurricane by Texas landfall tomorrow.

  45. 45
    Fiveanddimer Says:

    VTZ – I’d love to have a chance to buy more gold below $900. I’ll trade overvalued dollars for undervalued bullion anyday. I’m buying the physical metal, just to be on the safe side.

  46. 46
    VTZ Says:

    To me, technical trading sounds like an excuse for i-banks to have an “understanding” more commonly known as collusion.

    I guess I should just play the game and stop complaining. It just makes me feel stupider.

  47. 47
    Nicky Says:

    Likely reason for the $ to bounce is the economic weakness we are starting to see come out of the EU. As this shows up more then you are going to see the likelihood of the EU and probably first the UK cutting their rates.

    Don’t get me wrong I am not saying this will be anything more than a short term $ bounce. But it does tie in with a stockmarket rally I expect to see later in the year and the bottom fishing in the financials which I think will turn out to be a doomed trade unless you are in and out quickly…

  48. 48
    Nicky Says:

    And yes it will be a fantastic opportunity to get long gold and silver….

  49. 49
    Bleemus Says:

    EPD Enterprise Prdcts says Gulf of Mexico independence hub natgas platform still shut, pipeline work delayed by storm – Reuters (29.02 -0.33)

    Says independence hub natgas platform seen back later this week.

  50. 50
    Bleemus Says:

    APA Apache says shut in gross production of 8,600 bpd of oil, 130 mln cubic feet per day of gas – Reuters (113.74 -3.89)

    Says evacuated 110 personnel from several oil facilities off Louisiana coast due to storm

  51. 51
    zman Says:

    ZTRADE: Added to SLB $100 August calls for a quick trade at $1.50 with the stock off 4% at $96. Just think the retreat after earnings is overdone as neither the move in oil or natural gas is a game changer for them at this point.

  52. 52
    BirdsofpreyRcool Says:

    we used to think of “light volume, august, boss-off-the-desk-in-the-Hamptons” trading days as not too meaningful. doesn’t mean they don’t hurt. but although directionally down today, there’s not a lot of volume behind it. about 1/3 of friday’s volume at the same point in time.

    not that it means much, but worth pointing out, i hope.

  53. 53
    zman Says:

    Thanks for the updates Bleemus.

    GDP down 9% on a Howard Weil doubling of their price target in the $80s. Right now nothing matters to investors here.

  54. 54
    zman Says:

    BOP – saw that on CHK and BEXP moves in particular….pretty light and could recover with as little as a saber rattle or increased organization of Edouard. The positions I’m knocking out had little hope of working at this point anyway and I’ve still got skin in the game close to the money.

  55. 55
    BirdsofpreyRcool Says:

    “timing” is everything in options. and i have absolutely no sense of what timing is right now. so, i like your idea of long cash and stock.

    i continue to think that any e&p you purchase around here will make for a lovely Christmas present.

    buy some CHK, XTO, HK… wait for KOG to announce their 2ndary… then head to the beach (along with your boss)

  56. 56
    BirdsofpreyRcool Says:

    by the way, that is NOT a real “buy recommendation”… that is only what I am doing.

  57. 57
    Nicky Says:

    Oil suddenly off 4 bucks…

  58. 58
    zman Says:

    This looks capitulatory on light volume with the stocks moving back to the lows from early last week.

    NG down double the move of crude, off 7+%, lot of fear, not a lot of reason here.

  59. 59
    zman Says:

    How’s $115 look to you for support Nicky, or $114? If they are trading technically and news doesn’t matter then I think the sooner they get there the better. Oil briefly traded below $120 for the first time since early May.

  60. 60
    bill Says:

    hk 29.00 down 10 % ++ wtf ???

  61. 61
    Nicky Says:

    117 first, then 114…

  62. 62
    tater Says:

    Added a couple of Oil/Gas sector money flow type charts, just to confirm the obvious (right at the front page of link). Not really very excited, as areas that could have looked good for support are not presently holding, as everything is still trading off the commodity. Not a good sign.


  63. 63
    zman Says:


    CHK – Out the Aug $57.50 calls for a dime, down 96%.

    XTO – Out the Aug $55 calls also for a dime, down.

  64. 64
    BirdsofpreyRcool Says:

    the last of the fast money / sector rotation guys had their strategy meetings this weekend. time to “sell energy.” not enough interest from fundamental buyers means stock prices drop into the void.

  65. 65
    reefguy Says:

    hk,gdp.rrc,bexp,kog,kog, all down 9-11%

  66. 66
    Nicky Says:

    You would think if oil keys off the Fed tomorrow then a bounce is likely as I just cannot see the Fed saying they are in a position to raise rates anytime soon.

  67. 67
    BirdsofpreyRcool Says:

    the hottest of the hot-money names.

  68. 68
    zman Says:

    HK failed last week’s low, tempted to take puts as support his probably $26, but 1) its a little late as the stock is off by nearly half in a month, 2) it has earnings this week and while “sell the good news” has been in effect for 4 weeks now I have to think we are near the bottom. I will not add any calls here until right before or maybe after earnings.

  69. 69
    BirdsofpreyRcool Says:

    agreed. somewhere between 23 and 26 is the low on HK. but, light volumes + August trading patterns = anything can happen. just have to have a bit of conviction.

  70. 70
    Nicky Says:

    hmmmm CNBC saying there is a letter due to be delivered from Iran tomorrow and the rumor (!) is that it will show more concillatory tones out of Iran.

  71. 71
    Pete Says:

    Thus far, the market is 300+ points lower (and counting), since Cramer’s recent bottom call.

  72. 72
    BirdsofpreyRcool Says:

    maybe if oil prices let up a bit, they will stop all the silly stuff about “windfall profits tax” and stop channeling Hugo Chavez.

  73. 73
    Nicky Says:

    Pete someone told me at the weekend that about a week ago Cramer said we had seen the all time bottom in the market? ie we would never see these levels again??? Is that right?

  74. 74
    zman Says:

    Pete – yep but he’s far from the only guy wrong of late, either on the broad or in energy. I’ve been adding into weakness for 4 weeks now and that has been the wrong move too. I just read a comment from a prominent analyst group’s monday morning notes that echoed my thoughts in the weekend post that we are due a bounce in the group, especially oil service and in natural gas.

  75. 75
    Pete Says:


  76. 76
    Garyinhou Says:

    I hope it is a 33% bounce

  77. 77
    BossmanG Says:

    Z, can you comment on the energy environment last summer? (July-August)…same type of trading going on?

  78. 78
    zman Says:

    Nicky – no doubt oil headed lower on that Iran rumor. I wouldn’t put a lot of hope on something getting resolved there but it would buy them more time I guess.

  79. 79
    Nicky Says:

    Well that is an unbelievably arrogant call. And totally stupid! Unless he is suddenly in charge of world events and is walking on water!
    Z – I am with you on a bounce due and technicals still point to the possibility although it has to be said its finally poised right now!

  80. 80
    Nicky Says:

    Z- well imagine the opposite comes out of Iran….this market could be caught right on the hop…

  81. 81
    Sambone Says:

    N #73, for your viewing pleasure.

    “My bottom call isn’t gutsy,” Cramer said. “I think it’s just a smart call that all the evidence points toward.”

    “Bye, bye, bear market,” he said. “Say hello to the bull, and don’t let the door hit you on the way out.”


  82. 82
    Nicky Says:

    Thanks Samborne. Unbelievable. If he had said for the next 3 months I could have understood but forever is just ridiculous. Lets hope that he is held accountable and they get rid of him if proved wrong. Although zero chance I expect…

  83. 83
    Sambone Says:

    One more site for you “Boo yah” heads.


  84. 84
    zman Says:

    Boss – there was not anything approaching this level of pain in the energy complex last summer. Take a look at a weekly chart of the XNG and one of NG/u8 which now looks like it is headed to $8 or even $7.50 and which will result in Capex reductions this fall if it stays there for any length of time. What caught me off guard was the velocity of the move. All year to build, 4 weeks to knock back down. There’s going to be a great big bottom fish here soon but for today and on recent days like this one, the would be buyers are stepping aside and probably thinking these are going to make for a fine 4Q performance.

  85. 85
    Sambone Says:

    11:45 am EST

    Nymex Crude Steady As Market Weighs Storm, Iran

    By Carolyn Cui

    NEW YORK — Crude oil futures were flat in jumpy trading Monday, as the latest Gulf of Mexico storm was seen causing little damage and traders kept Iran talks in abeyance.

    Light, sweet crude for September delivery traded around $125 a barrel, roughly in line with Friday’s settlement. It had traded as high as $126.35 and as low as $123.35 a barrel. Brent crude on the ICE futures exchange traded 72 cents higher at $124.90.

    “We are in a downtrend right now, and the market is overbought,” said Jeff Grossman, a broker at BRG Brokerage, referring to historically high prices for oil futures despite an 11% slump in July. “You’ll see more new lows to be made.”

    News of an impasse in talks on Iran’s nuclear ambitions failed to keep oil prices in positive territory. On Sunday, Israeli Foreign Minister Tzipi Livni called for new sanctions against oil-rich Iran, after Tehran let pass a U.S. deadline to halt its uranium-enrichment program.

    Tropical Storm Edouard appeared unexpectedly Sunday evening off the coast of Louisiana, in close proximity to the Gulf Coast’s crude oil and natural gas infrastructure. According to the U.S. National Hurricane Center, Edouard could reach hurricane strength before reaching the Texas or Louisiana coastline Tuesday morning. Edouard’s quick formation raised the specter of previous storms, such as Hurricanes Rita and Katrina, which wreaked havoc with producers and refiners in 2005.

    Traders are keeping an eye on the development of the storm, as “refiners might be closed down and every storm in that area should be taken seriously,” said Phil Flynn with Alaron Trading Corp.

    Oil’s inability to rally on news of the storm underscores how dramatically market sentiment has changed over the past weeks. Until recently, it appeared that oil’s scorching run past $100 was unstoppable, with many observers calling for $150-a-barrel crude. Crude oil futures hit an all-time intraday high of $147.27 on July 11.

    “All of this news only stops the market from collapsing,” Flynn said. Weeks ago, such a newsflow would have led oil to surge by $4 or $5, he added.

    Ahead of the Edouard’s landfall, key waterways for oil tanker shipments were closed, and Chevron Corp. (CVX) said it had evacuated some personnel from its facilities.

    Tensions over Iran, which have at times supported prices, remain taut, but there’s little fear currently than an escalation will lead to a curbing of global oil supplies.

    “We get a distinct sense that as long as the Iranian negotiating track remains on track, the markets will be taking this issue in stride, and prices may not be as responsive to the upside as they once were,” MF Global’s Edward Meir wrote in a research note this morning.

    The sudden drop of oil prices has reflected the market’s concerns over economic weakness and the ensuing slowing demand for energy products. The ongoing political debate in U.S. Congress over oil-market speculation has also contributed to scare off some speculative investors.

    Front-month September reformulated gasoline blendstock, or RBOB, recently traded up 1.43 cents at $3.0986 a gallon. September heating oil traded 1.97 cents higher at $3.4565 a gallon.

    —By Carolyn Cui, The Wall Street Journal

  86. 86
    zman Says:

    Sam – where does Carolyn Cui get her quotes on crude???!!! It’s getting drowned and she says “steady and flat in Jumpy trading” Talk about head in the sand. Then she quotes ago saying the market is overbought…Hmmm… So now it seems everything hinges on Iran and sentiment.

  87. 87
    BirdsofpreyRcool Says:

    this year is much more severe (because the run-up was so high)… but it’s not unusual to see a low in nat gas prices in August. then nat gas prices move up through December and peak in January. you can have some weird years throw things off, like 2005 (Katrina) or maybe this year (huge spring run-up). but, by October, people remember that they are going to have to turn on the furnace again for the season and nat gas prices historically move higher.

  88. 88
    Garyinhou Says:

    Z.. thoughts on the bounces possible for service and the equip mfgs?? I had a near double last week in NOV and seeing the service (Both onshore/off) and mfg’s pounded along with e&p it, just curious as to them separating from this commodity driven wackiness…

  89. 89
    zman Says:

    BOP – the sell off has been drifting earlier in the calendar each year, advancing a month for each of the last three years. CHK said it on the call the other day when discussing their thoughts on a glut but its not untrue. The demand picture for gas is starting to rise and this decline will likely get some industrial demand cranking, especially in the ammonia and methanol areas. Agreed, first sign of cool area on the subway platform and gas spikes. Agreed run up was stronger and earlier than usual but nothing has changed outside of 1 bad weekly number which was probably holiday related to inspire the magnitude of this sell off in NG. It’s a volatile commodity and prone to swings of the pendulum through the side of the clock.

  90. 90
    BirdsofpreyRcool Says:

    z – thanks. you’re right, it has been creeping a bit earlier every year. don’t know why that is. anyway, agree that industrial demand is rising… listen to TRA or APD, their demand is rising. Also, high prices for LNG is delaying nat gas-based projects in the Middle East (like aluminum smelting). GS hates TRA b/c of all the capacity that could come on from lower nat gas locales. But, i think the global demand for LNG is going to throw a bit of a wrench into that argument. anyway, this is all good for our domestic demand… and pricing. just not today.

  91. 91
    zman Says:

    Gary – just a guess but it will be on the order of 10 to 15% in a very quick 2 to 3 day move. Hard to play unless you are already in and just add on day 1 or 2 for the trade. At present the oil service numbers, the estimates, are not in jeopardy from this dip in commodity prices, so they are just getting cheaper on a fwd basis. The E&Ps are seeing some trimming by analysts, esepcially the ones who jumped out with the Strip a month or so ago. Those guys are bringing in their PTs accordingly but are still well ahead of current prices. I think this reverses some M&A activity, with more stability in the commodities, and with a big broker call with a well thought out look at the commodities. GS has toyed with this in the last 2 weeks but has not come out yet swinging. They probably will soon.

  92. 92
    Garyinhou Says:

    Thanks Z.. I’d like to come out swinging and actually hit something meaningful.. I can only kick the dog so much.

  93. 93
    zman Says:

    Gary – hear ya, its why I have 3 dogs, fast little buggers at that.

  94. 94
    Sambone Says:

    By Carolyn Cui

    NEW YORK (Dow Jones)–Crude oil futures plunged and briefly slipped below the
    $120 support level Monday morning, as hurricane worries eased and as Sen.
    Barack Obama, D-Ill., the presumptive Democratic presidential candidate, called
    to release strategic oil reserves as part of his broader energy policy.
    Light, sweet crude for September delivery was $3.96, or 3.2%, lower at $121.14
    a barrel on the New York Mercantile Exchange after slipping as low as $119.50.
    Obama called for releasing oil from the Strategic Petroleum Reserves during a
    Monday speech.
    “Senator Obama has looked at this issue and he realizes Americans are
    suffering and he made the distinction that we do need to tap the strategic
    energy reserve,” energy policy director Heather Zichal said on a conference
    call with reporters.
    Whether to tap U.S. strategic petroleum stockpiles at a time of high prices is
    a point of political contention. While efforts in Congress to force the opening
    of the SPR have so far failed, they could be included in a compromise energy
    package currently being put together.
    Among politicians, the hope is that such a move would push oil prices lower.
    The Bush administration had been steadfast in its resolve to keep oil in the
    SPR unless a significant supply disruption has taken place. The prospect alone
    of more government intervention in oil markets has in the past been enough to
    pull prices back.
    Prices moved sideways in morning trade, largely supported by the appearance of
    Tropical Storm Edouard. The U.S. National Hurricane Center said it could reach
    hurricane strength before reaching the Texas or Louisiana coastline Tuesday
    “The intensity is lowered,” the NHC said in a 11:00 a.m. update.
    “Minimal impact to the energy infrastructure is anticipated,” said Jim
    Rouiller, senior energy meteorologist at weather forecasting firm Planalytics,
    in a note.
    Traders continue to cite the pessimistic sentiment in the marketplace but news
    of an impasse in talks on Iran’s nuclear program and the tropical storm were
    just enough to stop the market from collapsing.
    Also weighing down the crude oil is the weakness of natural gas, which down
    6.5% at $8.775 a million British thermal units.
    Oil prices plummeted in about 20 minutes, which “shows how nervous the market
    is now,” said Peter Donovan, vice president at Vantage Trading.
    Once the concerns over possible supply disruptions from the storm were off the
    table, the market once again turned to focus on the woes over economic weakness
    and the ensuing slowing demand for energy products. The ongoing political
    debate in U.S. Congress over oil-market speculation has also contributed to
    scare off some speculative investors.

    -By Carolyn Cui, The Wall Street Journal;

  95. 95
    zman Says:

    5% off oil service (OIH) and more off the large cap gassy E&P names today (5 to 8%). Small cap E&P is mostly off 8+%. Don’t see a reason to add a penny to any positions until this flattens out.

    FYI: Nicky’s bio added to the bio tab.

  96. 96
    zman Says:

    Volumes have doubled over early levels with the stocks not much lower. Seems to be a lot of interest in CHK at 45, SLB just over 95 etc…

  97. 97
    BirdsofpreyRcool Says:

    BRF: “CNBC discusses sell-off in energy complex; says there is talk of a large HF blowing up due to incorrect position in nat gas”

  98. 98
    Nicky Says:

    This call by Obama to sell from the SPR I am afraid just smacks of trying to get votes. I can’t believe the market would really take it that seriously at this moment as he is not going to be able to do this until next year anyway.

    Its interesting that the indices are hardly bouncing big on the back of this fall in oil.

  99. 99
    zman Says:

    Could be Boone’s shop. Certainly there is more than one and if this is a forced liquidation of contracts there is likely to be a big bounce once they are done ala the trading around the Amaranth collapse in 9/06.

  100. 100
    zman Says:

    Nicky – and I thought his $1000 checks for everyone who drives a car last week was for the votes, lol.

  101. 101
    Nicky Says:

    Z – you did say last week that you were hearing T Boone had liquidated his position – was that nat gas as well as oil?

  102. 102
    zman Says:

    I heard just oil.

  103. 103
    BirdsofpreyRcool Says:

    it’s sure trading like someone(s) puking the sector. would be comforting to have a real reason. let me know if you hear anything else.

  104. 104
    Nicky Says:

    A slightly lower low would do here in nat gas and then bounce…

  105. 105
    apbd Says:

    Great Bio, Nicky. Glad you’re with us.

  106. 106
    Nicky Says:

    Thanks apbd! To be honest I felt way out of my depth compared to the company I am in on this site. Thought Z would abbreviate it and maybe sum up by saying dizzy blonde!!

  107. 107
    zman Says:

    CNBC with oil trader saying 115.

  108. 108
    zman Says:

    Awful lot of interest in CHK at the $45 level.

  109. 109
    BirdsofpreyRcool Says:

    thx. technical bottom? or, money flows?

  110. 110
    ram Says:

    Does Aubrey have a lockout period around the CHK earnings anouncement?

  111. 111
    zman Says:

    BOP – me personal opinion of TA which probably isn’t worth that much…call it a feeling.

    Ram – Don’t know for sure but it would be over the day after or even day of earnings.

  112. 112
    zman Says:

    Somebody gave me a “drill dammit” bumper sticker. Won’t see it on the truck as my position there is hard to sum up in 2 words but ya gotta love the ring of that statement.

  113. 113
    Brian08 Says:

    CHK within 10% of where it was at the beginning of 2008…That’s just funny…

  114. 114
    Popeye Says:

    I head Aubrey on fri say he could not buy until the period was up.

  115. 115
    zman Says:

    Pop – thanks, then I stand corrected. Usually it ends with the earnings release. Will see if I can pin down that date of his freedom to buy

  116. 116
    ddaley Says:

    briiefing trader is buying, though I am sure FOR A TRADE ONLY:
    FundTrader: HK Long (28.32 4.21) -Update-

    Buying name as stock down -13% on the day and hitting S3 ($28.07) as a handful of Energy and Ag names bouncing. Could bounce as S3 level coinciding with short-term bounce in Energy names. Buying here with a stop at $27.85

  117. 117
    antrimshale74 Says:

    Here’s a cute little intra-day counter rally.

  118. 118
    zman Says:

    Taking you guys word for it re Aubrey, looked over the transcript and I can’t find it but I did not read the whole thing. You know that he will buy a million shares on the first day he can.

  119. 119
    arodeen Says:

    Tater re: #62 – Thanks much for the charts, as always. Voted for you. Do you see any other support for XES before ~37?

  120. 120
    Popeye Says:

    Z, I heard the Aubrey comment on a TV interview. CNBC I think.

  121. 121
    zman Says:

    Ah, thanks Pop. Know he’d be a screaming buyer here and that while he’s far from unbiased that will have a positive impact on sentiment when the trade does hit, whenever that might be. Will lob a request for clarification in with Mobley.

  122. 122
    zman Says:

    SWN getting dropped for 9% just like everybody else despite their great 2Q and outlook.

  123. 123
    BirdsofpreyRcool Says:

    this is acting a lot like margin calls…

  124. 124
    tater Says:

    Thanks aro,
    Been trading in XOM today, have to love the penny spreads on the options, and now I’m am just staring at the cyclicality of the NFX weekly chart. Thing seems to move just about every 5 months or so…
    I will take a better look at XES for you. I pretty much use those for money flow ideas, so I’ll do a better job if you actually trade it.

    Also wondering if the player in HAL will continue to make the last hour purchase.

  125. 125
    zman Says:

    Refining group down as well despite products having a better day than crude. VLO hurt worst of all with little additional news yet on the explosion in Houston. It used to be that this was the only industry where having a problem at one facility boosted the stocks over everyone else as capacity is just that tight but the fears of slowdown continue to way on the group as does the general negative energy sentiment.

  126. 126
    zman Says:

    PXD should put up another quarter of strong earnings, not playing as that seems to be the key to dropping your stock 10% in this market.

    UNT should also be strong and have great things to say but again, will await the call (have some way out of the money calls there).

    APC – ok quarter, time for them to announce a resource play acquisition but I have not heard any rumors that they will do so…just think its part of the puzzle they are missing and if we do see a tightening of resources on the service side APC is one where the marginal economics of $8 gas will pinch a bit.

  127. 127
    zman Says:

    Security Council agrees to pursue new sanctions against Iran.

    Iran says it tested a new ship killing missile that can strike from 200 miles away.

    and no one notices.


  128. 128
    zman Says:

    Wow coal. Not immune either.

    WLT down $17, PCX down 14, MEE down $9 despite an upgrade.

    Solar starting to sink as well though it has largely been immune and a place where people like Cramer have been saying to buy in.

  129. 129
    ellwodo Says:

    A question for the TA gurus: I did a comparative chart of % price changes since 1/1 for CHK and (as surrogates for oil and nat gas) USO and UNG. The result looks like one of those TA charts I’ve seen (and not necessarily understood) where a stock is in a “channel”. CHK never made it above the UNG line on the chart nor below the USO line until the USO and UNG lines crossed a couple of weeks ago. Now CHK is still in a “channel”, but with USO being the top instead of the bottom. Does this mean anything? (It certainly makes an interesting picture.)Sorry for the depths of ignorance probably revealed by my question.

  130. 130
    BirdsofpreyRcool Says:

    FCX down $11.50… doesn’t make sense either. less than 4x EV/EBITDA.

  131. 131
    Sambone Says:

    By Palash R. Ghosh
    A Dow Jones Newswires Column

    NEW YORK (Dow Jones)–Energy stocks are down for the year, despite historic
    highs in crude oil prices, some huge profits from Exxon Mobil Corp. (XOM), and
    continued surging demand from China and India.
    Indeed, the S&P Energy index has slipped 5.6% year-to-date through Friday,
    while virtually all energy subindexes are in the red.
    So, why has the U.S. energy sector delivered such a lackluster performance
    amid such a cornucopia of blessings?
    Well, to be fair, energy has significantly outperformed the broader market –
    the S&P 500 index has declined 13.7% year-to-date. But with crude oil prices
    breaching $140 this year, one may wonder why energy equities have not done
    Ben Halliburton, chief investment officer of Tradition Capital Management in
    Summit, N.J., says that long-term investors may believe that profits in the
    energy sector, as well as crude oil prices, have already peaked, as global
    demand slows and the cost of oil and gas production creeps ever-upward.
    For example, Exxon just posted the largest quarterly profit figure in
    corporate history – an astronomical $11.7 billion – and its shares dropped that
    day. “Exxon has been underinvesting its exploration plays for many years,” he
    said. “They just don’t have the resource base to drill and increase production.
    Investors are well-aware that Exxon has a very low growth rate going forward
    and declining growth rate in production.”
    More importantly, with regard to the global supply/demand picture for crude
    oil, “we are now on the steep part of the supply curve,” Halliburton added.
    There may also be other factors damping the performance of energy securities –
    things that have nothing to do with supply/demand or crude oil prices.
    Zach Liggett, portfolio manager for Utopia Funds, explained that energy stocks
    now form such a large portion of the U.S. equity universe that any weakness in
    the overall market will hurt them too, regardless of the price of crude oil.
    Energy shares now represent about 15% of the S&P 500 by market cap, up from 5%
    in 1998, when the current secular bull market for oil commenced.
    “Whenever the stock market falls, it will be hard for energy stocks to have
    any positive absolute return momentum simply because they now represent a
    larger chunk of the market,” Liggett said. “Energy stocks are still simply
    stocks and sometimes they follow the normal behavior of other stocks. Think of
    all those index funds that are geared to the S&P 500 index. If there is fear in
    the equity markets, oil stocks will go down in lock-step, regardless what
    happens to the underlying commodity.”
    Halliburton also pointed out that some parts of the energy industry are in
    abysmal shape, notably the refining and marketing segment, and they are
    dragging the whole sector downward. In fact, S&P’s Refining & Marketing
    subindustry index has plunged about 53% year-to-date through Friday, reflecting
    weak profit growth in that business.
    But for now, energy demand is intertwined with how much money people and
    corporations have in their pockets.
    The developed world – plagued by softening economies, credit crises and
    worsening consumer spending – is actually showing decreases in crude oil
    consumption, somewhat offsetting robust demand from China and India.
    “Going into 2009, with a sluggish economy, we’ll likely see flat or even
    slightly declining consumption demand for crude oil,” Halliburton said. “Saudi
    Arabia is likely to increase production and even Iraq may be pumping 1 million
    barrels per day in a few years.”
    Halliburton thinks the price of crude oil in 2009 could range from $100 to
    $120 barrel, reflecting flattening demand and higher supply. “If demand weakens
    significantly, and we have a severe recession, crude prices could go down even
    further,” he added.
    Energy stocks also look very cheap now. S&P’s energy sector is trading at
    about 8.3 based on estimated 2008 earnings. But Liggett indicated that while
    the P/E for energy shares may seem modest, when one adjusts for a more
    normalized profit environment, they don’t seem so attractive anymore.
    “Profit margins for energy companies are near historic highs, but they
    probably peaked in 2007,” he said. “It’s logical to assume that as production
    costs climb, profit margins will begin a long steady decline in the coming
    years. Combine that with stalled global demand, crude oil prices are also
    likely to face further headwinds. Thus, energy is not a growth story.”
    Energy-related shares will likely continue to show lackluster returns even if
    oil prices remain where they are – although Exxon and BP PLC (BP) might not
    care too much, already having amassed untold billions. We may even see energy
    stocks resume their traditional role as solid value plays – strong dividends
    and moderate growth.

    (Palash R. Ghosh has been writing about U.S. and international equity and bond
    markets for the past 17 years.)

    -By Palash R. Ghosh, Dow Jones Newswires

    Dow Jones Newswires
    08-04-08 1522ET

  132. 132
    zman Says:

    Worst Monday I can remember for years. Large cap E&P down 7 to 9%, mids and smalls 8 to 15%. Big cap service off 7%.

    thanks Sam

  133. 133
    ddaley Says:

    Rick Santelli just described the blow up in Commodities today: “An asset allocation out of Commodities and into margin calls”

  134. 134
    zman Says:

    DD – That’d be funny if it were not true.

    I think OPEC, in adding more barrels to output last month, is trying to defeat the movement to green up in the U.S., to drill offshore, or to do anything to get the U.S. less dependent on foreign oil.

    CNBC pointed to demand destruction signs (without actually saying anything new) and then said OPEC added more with a smile like the two went hand in hand. Ug.

  135. 135
    isleworth Says:

    CHK 4x 2009 CFPS here at $45…

  136. 136
    ddaley Says:

    Sam’s DJ piece is pretty dire, Z.
    Realism and a warning to us or, smoke?

  137. 137
    arodeen Says:

    Tater – All immensely appreciated, but don’t spend too much time for my sake. I’m holding out for the moment, but I’m trying to see the same thing you are looking for in money moving into/out of service companies as a whole, and then (hopefully) follow that trend to play the better companies individually. I’m internally weighing “buy and hold” with “wait to buy”.

  138. 138
    reefguy Says:

    BP Cap EQUITY fund down 35% in July…worse today

  139. 139
    Dman Says:

    DD re. #136 – seems to me that the logic in that piece applies to the majors i.e XOM. Whereas if oil trades in the $100-120 range they suggest, that would be just fine (maybe even perfect) for most of the E&P’s and service co’s.

  140. 140
    zman Says:

    DD- I think there are some oversimplifications in the story that don’t work including the demand down idea in 2009. As far as energy not being a growth story but only a price taker story, that’s true for the Majors but not for my realm. These guys throw around the term energy but its not all homogeneous as you know. CHK is largely locked into prices this year and next and that gives them 20% growth in both on CFPS as their top line delivers same. Reserve growth is close to same etc.

    The good news in the piece for the service companies lies in the pricing statement and in the inability of the majors to grow statement. XOM and others have to step up drilling and dollars just to stand still. Not a bad thing to be in the way of.

  141. 141
    tater Says:


    Updated the daily XES and added a 60 min chart. No big deal, I have to update that stuff anyway, I appreciate the input.

    ellwado #129 –
    I will not answer as a guru, but if I could weigh in with a little story. (I know you are refering to Nicky when you ask for a guru). I remember my first year law school contracts prof saying to us before Thanksgiving break, “you all now know just enough law to get yourselves into a lot of trouble”.

    Kind of think the KISS principle works real well sometimes.
    Is it going up or down? Are the 20, 50 and 200 moving averages sloping up or down? Most of the time, the answer to those questions will get you the answer (if you really want to hear it). Sometimes we go in looking for the chart to tell us what we want to hear. I doubt that helps on a day like today.

  142. 142
    ddaley Says:

    Thanks Z, and Dman.

  143. 143
    zman Says:

    T – agree completely on looking for a chart to tell you what you “want”. I try to do the same with the fundamental side. When the fundamentals fall to 10% or less of the picture vs charts, sentiment etc I don’t like to play. That’s where we have been for the last month and where we remain.

  144. 144
    Pete Says:

    Another day in the patch— going for massive beer intake

  145. 145
    zman Says:

    MMS saying Edouard has so far cut US oil and gas production by 0.9% and 7.9%, the LOOP, and a refinery and traffic on the HSC is down as well.

    CNBC guest said oil was off because this storm wasn’t all it was cracked up to be… funny since it didn’t come into being until the weekend so it should not have been in prices at all on Friday. Sentiment in oil remains terrible with everyone talking prices, including OPEC, lower.

    Thanks Reef – that’s gotta be a big dollar figure.

  146. 146
    doc Says:

    I will buy more fcx and wlt tuesday. Wlt could ear $16 a share next year

  147. 147
    BirdsofpreyRcool Says:

    GMXR = awesome earnings surprise… 77¢ vs 54¢ expected.

  148. 148
    ellwodo Says:

    Tater, thanks but I think you are giving me too much credit for a deep question. I was just reacting to a chart that shows for the entire year CHK (on a % price change basis)has almost never broken out of a channel bounded by UNG on one side and USO on the other side. Even when USO and UNG crossed on the chart a couple of weeks ago CHK is still staying in the resulting channel.

  149. 149
    zman Says:

    Was just looking GMXR over, record production, down LOE/MCFE, boosted Haynesville acreage by 40% to 38,455. Adding rigs in the play this year, more built to suit next year.

  150. 150
    BirdsofpreyRcool Says:

    GMXR: Southcoast has a $114 PT, Howard Weil at $103. it closed at $54.24.

    the only way these current stock prices make sense, is if nat gas drops back to $7-8 and stays there. and if nat gas drops back to $7-8 and stays there, drilling will slow down. If drilling slows down (and LNG is headed elsewhere), nat gas is gonna get real expensive, Nov-Jan.

    This is going to get very interesting…

  151. 151
    zman Says:

    BOP – it’ll be interesting to see how beats here and at some of the other smaller players will be received. They had little to say in the ops update except that they have had 1 to 2 mmcfgpd from the Haynesville across their acreage with PVA. Wonder if they can reenter and add laterals on those or not (probably not since they didn’t say and they were no doubt just barely thinking of the Haynesville/Bossier at that time instead really targeting CV and Travis Peak. But Also wonder if they were unstimulated at that interval. This is one of the Haynesville names that can really move once things start to turn…really glad to see that LOE number down here with volume. Sub $1 /Mcfe is probably where the Street likes you in the play. Wait til they see HK ($0.50 ish probably) and then PQ (in the CV only as no mention yet of deeper potential) later this week.

  152. 152
    zman Says:

    I don’t make recs or guarantees but I guarantee you some Rockies and some Texas gas production gets shut in by November if we are $7. Basis differentials are fattening in many areas so $7 Henry Hub may be $5.50 mid-continent at that point.

  153. 153
    BirdsofpreyRcool Says:

    z – thanks for the GMXR color. I’ve never spent quality time with the name as I’ve found other ways to play trends I like. Also, not a fan of deep deep wells (which the Bossier gas can be). So, pretty ignorant on the name. Lots of really good analysts like the stock, tho. (And lots of Kenworthy’s running around the company).

  154. 154
    tater Says:


    If I am understanding correctly, it sounds like the chart is just saying that CHK is trading in lock step with commodity prices, and that UNG beat USO on the way up, and now UNG is winning the race with USO on the way down.

    If that’s what you are getting from the chart, I think it’s really a fundamental question for Z and the rest of everybody. Does CHK deserve to trade like a commodity or not? If not, it’s undervalued and value investors will soon realize this. If it does deserve to trade like a commodity, then it is fairly priced, as UNG and USO and CHK are all headed down together (which obviously can change at any second).

  155. 155
    BirdsofpreyRcool Says:

    z – excellent point about the differentials. thing is, there is no SPR to “release” if things get crazy this winter.

  156. 156
    BirdsofpreyRcool Says:

    one thing to look at re: CHK (and something i need to do). plot quarterly production vs quarterly number of FD shares outstanding for the last 5 yrs. there has been a lot of share issuance… i’ve been meaning to do that exercise. could be part of the answer.

  157. 157
    Nicky Says:

    Tater – your technical analysis is excellent – don’t sell yourself short – and I am no guru!

    With that thought a look to the broader market for tomorrow. Support did hold on the spx going into the close – just. Market is running short on time to get back to 1291 on spx or above as cycles are due to top out by Wednesday. So do we see some crazy rally (wouldn’t be the first time!)first? Possibly or equally possible is that the rally stalls at 1270 on the spx. Either way I think the market should turn lower into the end of the month which is probably going to be THE time to get positioned for what should be a good rally into the election.

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    zman Says:

    BOP – Will look into as was thinking about per share metrics earlier today to stave off the WTF’s? I think they are ahead on a reserves per share and know they have turned the quarter on F&D with material improvement there. I think the problem is leverage which is easily manageable but the Street wants to see proof that Aubrey really will stay within cash flow.

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    tater Says:

    That is very nice of you, thank you. (Loved reading your bio, by the way!)

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    arodeen Says:

    Z – do you ever look at CLB? I understand it’s not a by-Hoyle service company, but, well, kinda…

  161. 161
    ellwodo Says:

    Tater – thanks, you framed the question a lot better than I did.

  162. 162
    zman Says:

    Aro – CLB, the “we look at more cores than anyone on the planet from everyone on the planet but Chesapeake who looks at their own” people. Yeah, I do. Avoided them for awhile now as I have not liked their fat option spreads and I did not listen to their quarter (was last week I think). I take it you did, plan to read transcript of the call, anything interesting? I don’t see how they won’t be one of the busiest names around, both from a pure acceleration of activity standpoint but also from an increasing number of “touches” per well.

  163. 163
    BirdsofpreyRcool Says:

    z – thanks. someone just sent me a CHK spreadsheet, so i’ve got a start on it.

    i don’t think the street is as worried about the level of debt as when CHK was much smaller. that said, i know i personally am somewhat uncomfortable with the way Aubrey slings around his hedges. He’s been more right than wrong for a number of years… but, it hasn’t always been that way. You always get a little suprise at earnings time, either good or bad, from the hedging program. not sure that is the reason, but it does add a level of volatility not found (as much) elsewhere.

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    zman Says:

    Gotta step out for a couple of hours actually so if you ask about CLB or others, will get back to you after dinner.

  165. 165
    Nicky Says:

    Nat gas is now close to making a lower low on the day. I must be nuts trying to call a bounce against this downtrend but I think we are close…
    Crude I think should do the same – a lower low and then bounce….

  166. 166
    zman Says:

    Bird – I think it is the higher level of debt than his peers combined with the serial issuer status XTO was ribbing him about. I think if you back it up with the IRRs he has on being the core player in plays and the operating leverage he gets from scale and his own rig fleet it should, in a rationale world, leave the stock less, not more volatile, when he locks in the capex needed to carry out his designs with hedges. But the market is often negative saying “look what you left on the table” with those hedges as prices march higher which makes his stock ascend more slowly than many of the peers and then completely ignores the hedges when gas comes off. Ug.

    I read one report this morning that calls CHK expensive on a TEV/EBITDA basis but it is an unadjusted EBITDA that leaves the impact of the non-cash mark to market hedges in the operating income. If you ding the EBITDA that way then yes, they were expensive at quarter end. Of course, he’s probably $5.5 billion for the better since gas came off but who’s counting.

  167. 167
    BirdsofpreyRcool Says:

    z – just my 2 cents… although he will explain it that way, historically i have seen Aubrey use his “hedging program” like an in-house hedge fund. i could be wrong about this… it’s just a perception thing i have. but, when i had to follow him more closely years ago, it was always a “surprise” when the hedging was added. heck, one quarter (back in 2000, i think) he completely ignored nat gas hedges and made a $26mm profit trading US Treasury Bonds (with the excess cash on his BS). Anyway, it was a few years before I could look at CHK seriously again. just my own bias…

    not sure many people remember that far back these days, so, your explanation probably makes more sense.

  168. 168
    arodeen Says:

    I didn’t listen in to CLB – I’ve had to get busy making money the old fashioned way. I just asked because I’ve been hearing more about their activity with NFX in the field. I’ll let you know if anything potentially fruitful is heard.

  169. 169
    Brian08 Says:

    That’s exactly the point…When you invest in CHK you don’t/shouldn’t get the wild fluxes in the stock price due to natty gas movement…I’ve posted on here before and have had debates in classes on whether hedging is a good thing or not…Guess it all depends on what you are looking to invest in…If you are looking to get the price moves in natty gas then CHK shouldn’t be on your radar…If you are looking to invest in a company that SHOULD be judged on increasing volumes, +NPV projects, and good IRR then CHK should be for you…

  170. 170
    BirdsofpreyRcool Says:

    Brian… again, jmho, but if CHK had a constant level of hedging, I would totally agree with you. But it’s not constant. Also, if an E&P is going to employ a fair amount of debt in it’s capital structure, then, yes, the company should employ a partial hedging stratetgy (to balance the interest payments and some of the maint capex). However, if an E&P utilizes a less leveraged cap structure (i don’t know, something like less than 20% debt to total cap), then it should not hedge as investors want to own it as a proxy for owning the hydrocarbons.

    anyway, no one answer. also depends on the percentage wildcat vs development wells in the projected budget.

    basically, matching “operating and financial risk” with “energy price fluctuation risk.” low operating and/or fincancial risk = little need to hedge, and vice versa.

  171. 171
    Brian08 Says:

    I feel ya Birds, match cash flows to debt payments…All makes perfect sense…

    The argument you made about not hedging was made to me by my classmates who worked in the oil industry before business school…They would say you don’t want your E&P to hedge because you are investing in the stock exactly for the hydrocarbons…

    I guess to each his own I guess…I’d take anything that would show me green at the end of the day…This move lower has just been stupidly absurd…

  172. 172
    davidjeso Says:

    Pioneer (PXD) earnings out:

    1) second quarter net income of $159 million, or $1.32 per diluted share (v. analyst est. of $1.36)
    2) Increased average daily oil and gas sales to 113,987 barrels oil equivalent per day (BOEPD); 19% above sales for the second quarter of 2007 (excluding 2007 sales from divested Canada assets)
    3) Posted strong production growth in Spraberry, Raton, Edwards, Tunisia and Alaska
    4) Increased 2008 production growth target to 18% to 20% from 14% versus 2007 in response to strong production growth to date, improved drilling efficiencies (more wells per rig) and operational success
    5) Raised 2008 capital budget by $300 million to fund a portion of the incremental production growth and to cover rising costs for tubulars, fuel and pumping services

  173. 173
    BirdsofpreyRcool Says:

    ha! guess i am consistent then… having worked in the oil industry before (and after) b-school. it’s a fun argument/discussion to have, actually, as there really is no “right” answer. just depends on how senior mngmt wants to run the company, i guess.

    for a long time CRK was B3/B- rated and never hedged. could be a wild ride for the shareholders… but mngmt pulled it off, eventually.

  174. 174
    arodeen Says:

    Thanks David. So, based on the “sell the good news” strategy we’ve seen the last few weeks, maybe we’ll see “buy bad news” for PXD missing expectations.

    OK, if that really happens, I’m taking some time off.

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