Thursday – Natural Gas Preview and Oil Review Plus A Raft Of Earnings

153 thoughts on “Thursday – Natural Gas Preview and Oil Review Plus A Raft Of Earnings”

1. Forgot to add RIG on the tape with a big 5 year ultra deep contract which works out to nearly $650,000 per day. Says something about the strength of the current deepwater market.

2. 3Q GDP revised to Down 0.3%. Estimates were for down 0.6%.

3. Credit Market: Recall that the trading desk went long last night… it paid off. IG opened about 9 bps tighter and has rallied from there (so the desk made a good call). However, everyone has been programmed to “fade the rallies,” and that is what the credit mrkt is trying to do right now. A lot of people got short around 215, so they are trying to defend/add to the short right here. That is keeping a cap on the credit rally, for now.

   BUT when too many people get short at once, it usually rallies.

   Volume is weak this morning, that means that people don’t want to sell here. The battle between the shorts and longs continues. But the max pain trade here is a rally… so, trading desk thinking the next stop will be 185.

   IG 198 -12 bps from official close last night. Bullish move.

4. Thanks for the color bird, looks like nice green opening in energy although GDP sapped oil which is a little odd since it was actually better than expected. I probably add SWN and more CHK to 10KP today for earnings tonight. Probably December calls just OOTM. May also add some more NTM calls on CLR as WLL is going to fly on their results. NFX may be in the hunt in the Bakken players list too but I’ve got EOG next week and that’s probably enough exposure and you have to wonder if any will ever notice NFX again.

5. UNG down on up nat gas..any reason to explain…ex dividend??

6. Shell delaying Athabasca Oil sands expansion due to oil prices.

7. October Crude Price Fall Most Since 1986 Crash

   By DAVID BIRD
   A DOW JONES NEWSWIRES COLUMN

   NEW YORK — OPEC ministers, watching oil prices fall further in recent days, may wish they hadn’t bothered to meet last Friday and announce an output cut.

   Since they announced a 1.5-million-barrel-a-day cut in output, Nymex crude oil futures slid by more than $5 a barrel to a low of $61.61 a barrel, the lowest level since mid-May 2007.

   But Wednesday, traders turned the clock back to before OPEC’s emergency talks, with crude oil, gasoline and heating oil clawing back nearly all of the post-OPEC declines. Gains were fueled by a bounce in stock prices and fulfillment of expectations for a rate cut by the Federal Reserve.

   At $67.50 a barrel Wednesday, prices are back near Thursday’s levels, but there’s no strong sign that the market is anywhere near putting in a strong floor. Matching the pre-OPEC-meeting footing of the market, the first five contract months were priced below $70 a barrel Wednesday, and front-month crude, for December delivery, settled at a $20 discount to crude for December 2016 delivery, the furthest-forward listed contract and the most expensive on the board.

   The market paid little attention to U.S. weekly oil inventory data, which showed stocks, relative to demand, still holding near five-year average levels.

   U.S. oil demand in the four weeks ended Oct. 24 averaged 18.878 million barrels a day, down 7.8%, or 1.459 million barrels a day, according to the Energy Information Administration. The four-week decline was the smallest in a month, but year-to-date demand 19.645 million barrels a day, down 5.1% from a year ago, a slight widening of the decline of 5% reported a week earlier.

   Heating oil and diesel stocks rose more than expected, and the nationwide stock level gained 1.9% from a week earlier. But in parts of the U.S. Northeast, the world’s largest heating oil market, stocks are as much as 34% below the five-year average for this time of year.

   Forget Jakarta, Remember Geneva
   The return to Thursday’s pre-meeting prices will be welcomed by OPEC, which lamented last week that the price decline was “unprecedented in speed and magnitude.”

   But the longer-term price trend stirs dark memories for the group that date well beyond the 1997-98 Jakarta crash, when prices fell by half in the space of a year.

   With two trading days left in October, average front-month Nymex crude oil futures prices in the month are averaging $77.66 a barrel, the lowest level since August 2007 and a whopping 25.2% decline from the September average.

   That’s the biggest month-to-month percentage decline since February 1986 — an ignominious time for OPEC — when the group fought in vain to save its control over oil prices and the market. Back then, average prices fell a record 32.7% in the month.

   Years of keeping oil prices high by dictating fixed-price quarterly sales contracts to international oil majors provided the seed money for competitors. Growing North Sea oil output, from the U.K. and Norway, began to cut into market share. Norway decided to sell its crude at market-related prices, forcing OPEC member Nigeria to do the same with its similar crude.

   In the resulting price war, Kuwait’s oil minister announced on British television his intention to drive oil down to its cost of production, essentially a move to price the North Sea out of business. Spot cargoes of North Sea crude sold well below $10 a barrel and the Saudis eventually sold their oil at “netback” values, pricing the oil at the value of the products derived from it, in order to keep customers.

   OPEC’s longest-ever meeting, an affair that dragged beyond sixteen days in Geneva 22 years ago this month, finally ended after a statement from the Saudi king that OPEC needed to return to a fixed-price strategy. The price target was set at $18 a barrel, $10 less than OPEC’s last fixed price for its benchmark crude.

   Saudis To Trim 1.1 Mln B/D Vs Peak
   Saudi King Fahd’s statement, which stirred exhausted delegations to action, followed a meeting in Saudi Arabia between the king and then-U.S. Vice President George H.W. Bush, who was said to have expressed concerns about the impact of extremely low oil prices on the U.S. oil industry, where high-cost, low-yield wells were being shut in.

   Shortly after the meeting, Ahmed Zaki Yamani, the Saudi oil minister for 24 years and an architect of the market-share strategy, was unceremoniously ousted.

   Fast forward to today and the Saudis, the world’s largest oil exporters, again are trying to stabilize the market — though without firm clues on a target price.

   After King Abdullah ordered Saudi output cranked up to 9.7 million barrels a day this summer, as prices headed toward a record $150 a barrel, the Saudis are preparing significant cuts in the falling market.

   A lack of buyers amid a global plunge in demand caused by the spreading economic crisis led the Saudis to trim output in September to little more than 9 million barrels a day. In the Oct. 24 OPEC pact, they’ve agreed to cut by a further 466,000 barrels a day.

   That will leave the Saudis near 8.6 million barrels a day in November, some 1.1 million barrels a day below the 25-year peak they hit in the summer, and back at levels in late summer 2007, when prices last averaged below current levels.

   Whether that will put a floor under prices remains to be seen.

   –David Bird, senior energy correspondent for Dow Jones Newswires, has covered global oil markets for more than 20 years.

8. John – I don’t UNG ex div, but they do spread a bit from gas prices…can’t explain it. Gas only up slightly and I’m not watching the intraday so much as the turn in direction. It just does not trade that tight all the time.

9. Chevron Project Offers Glimpse Of Oil’s Future

   By RUSSELL GOLD
   Of THE WALL STREET JOURNAL

   RIO DE JANEIRO — Chevron Corp. executive Ali Moshiri spent the past seven years scouring the globe for hard-to-get equipment, schmoozing foreign officials and taking billion-dollar risks to fast-track a new oil prospect off the coast of Brazil.

   Despite the full-out effort, Mr. Moshiri concedes Chevron’s $3 billion Frade (pronounced Frah-jay) project is a mediocre prospect compared with the huge pools of easy-to-get oil the company has tapped in the past. Even if it fulfills its greatest promise, the deep-water oil field will contribute only a trickle to the global river of petroleum. And Frade, whose first well is now being drilled, could still fail to deliver enough oil to make all the effort worthwhile.

   But Mr. Moshiri remained dedicated to the project for a simple reason: It’s about as good as it gets these days. For oil companies seeking to reverse years of falling production, the consuming and expensive birthing of Frade has become the norm.

   Big Western oil companies such as Chevron once had the run of the world’s biggest oil fields, known in the industry as elephants. Not anymore. Today, they are locked out of the best prospects by uncooperative governments. “If you’re only going after elephants, you’ll never hunt,” says Mr. Moshiri, sitting in his wood-paneled office in a downtown Houston skyscraper.

   What does all the effort buy? Chevron believes it can extract about 270 million barrels out of Frade over the next 18 years. The world guzzles that much every three days.

   The global economic slowdown is shrinking demand for crude oil and has caused oil prices to plummet since this summer. Pressure on the global oil industry to find new sources of crude is receding, but the daily struggle of replacing production declines in aging fields is a problem that isn’t going away. And cuts to capital budgets to cope with the downturn in prices could hobble the industry’s ability to ramp up supply when demand returns. The result could be “a serious supply crunch” in as little as two years, says Paul Horsnell, commodities research head for Barclays Capital.

   Companies in oil-rich exporting nations, of course, don’t face as bad a squeeze, because they usually get first shot at fields on their home turf. Brazil, for instance, has announced a series of vast offshore discoveries this year, which the government may open to home-grown giant Petroleo Brasileiro SA or a new national oil operator. But in general, even oil superpowers such as Saudi Arabia have fewer giant fields to tap than in the past, making large increases in output costlier and tougher to achieve.

   Next month, the Paris-based International Energy Agency is expected to release its first-ever assessment of the condition of the world’s 400 largest oil fields. It is expected to conclude that future crude supplies will be far tighter than previously believed.

   The five largest Western oil companies produced 3.2% less oil and natural gas last year than they did five years earlier, despite spending billions of dollars a year on the effort. UBS AG, the Swiss financial giant, expects these companies to eke out a 2% annual increase in production through 2011, as years of investment bear fruit. For this, the industry can credit the work of executives such as the 56-year-old Mr. Moshiri. The Iranian-born engineer heads Chevron’s exploration effort in Africa and Latin America. His job is to take marginal projects and make them profitable in order to keep production growing.

   Publicly traded energy companies are being criticized for not increasing production fast enough. Mr. Moshiri doubts the industry can shift to a higher gear. “Can we do more than what we are doing today? I don’t think so. I really don’t,” he says.

   Frade’s long road from idea to oil production shows the daunting obstacles oil executives face. Projects are more complex and costly, but oil prices — a huge factor in returns — are harder than ever to predict. Oil prices this year have been volatile, rising from $86.99 a barrel in January to $145.29 in July before falling as low as $62.73 on Tuesday. Oil closed at $67.50 on Wednesday.

   In this environment, Mr. Moshiri believes his approach for making Frade work could become a template for the future. He vetoed conventional approaches, pushed for solutions to drill fewer wells and recycled nearly derelict equipment in order to save time and money. Still, Frade’s budget more than doubled over the past four years.

   Mr. Moshiri became involved with developing Frade in October 2001, when he was promoted to lead the Latin American exploration and production unit of the newly merged Chevron and Texaco. He concluded the oil reservoir was still too poorly understood to calculate the risks or the costs. In one of his first moves as Latin America chief, he sent the Frade team back to the drawing board.

   Texaco’s plan to build a large floating platform was scrapped. It was too expensive, he decided. The economics of Frade were fragile, in part because the oil was heavy — or viscous — which produces less gasoline and diesel fuel, and therefore sells for less than light oil found in Louisiana. “This was a project that was challenged from day one,” says Mr. Moshiri.

   As Chevron struggled with designing a lower-cost development plan, it caught a break. Well data suggested the oil wasn’t trapped in a honeycomb of compartments, a situation that could have made it prohibitively expensive to develop.

   The Frade team wanted to drill more wells to better understand the oil chamber. Mr. Moshiri put his foot down. The plan was too expensive and time-consuming. He backed a plan to drill fewer, simpler and less-expensive wells.

   Many of the project engineers had spent decades in the business and were accustomed to attacking bigger and easier-to-develop fields. An engineer assigned to Frade, who had spent 16 years in Saudi Arabia working with the world’s largest oil deposits, wrote that Frade was a “marginally economic asset,” in a 2007 Society of Professional Engineers paper.

   Mr. Moshiri had to remind the team that the days of cherry picking fields with huge reserves are over. “If we do that, we will create huge problems for our industry and the supply picture,” he said.

   But coming up with an economic plan to develop Frade was tough. In August 2004, a top official at the Brazilian agency that oversees offshore oil production criticized the company. “There has not been enough done to get it ready,” Newton Reis Monteiro, the official, told an industry publication.

   To counter that impression, Mr. Moshiri and a team of Chevron engineers and geophysicists flew to Rio de Janeiro for a series of meetings with officials. They presented technical data to impress on them that Chevron was seriously studying Frade, not idling. It worked, and pressure from the Brazilian government abated, according to Mr. Moshiri. Efforts to reach Mr. Monteiro were unsuccessful. A government spokesperson declined to comment.

   Chevron’s original plan was to drill about half of the planned 19 wells, begin producing oil, then study production data for 18 months before drilling the remaining wells. It was a conservative approach. If the first wells didn’t look good, the company could forgo drilling more and cut its losses.

   But as Chevron geologists counseled moving slowly, Mr. Moshiri decided in the middle of 2005 to place a big bet on Frade. They would drill all the wells, one after another without a break. It was the oil industry equivalent of going all in with a poker hand. “That is our job, to take risks and push the envelope,” he says.

   All indications were that costs were about to rise, amid growing demand for oil-field equipment. Mr. Moshiri realized Frade’s window of opportunity was closing. Wait too long, and the project economics would fizzle out.

   This set off a rush to line up a rig capable of drilling in deep water. The daily rates for rigs — giant floating machinery that are part ship and part island — were rising swiftly.

   Mike Mileo, the project manager, couldn’t find an available rig. So, in November 2005, he cut a deal to create one. The Sedco 706 was a 30-year-old rig designed for an earlier generation of shallower exploration. But it was battle tested. In 1982, it was drilling off Canada’s Newfoundland coast in bad weather when a nearby rig was felled in a winter storm, killing all 84 people on board. The Sedco 706 was unscathed.

   But it wasn’t suited for modern deep-water drilling. It wasn’t even being used to drill anymore. It was moored in the North Sea, attached to another rig by a walkway. It was a floating sleeping quarters for oil workers, a marine motel of sorts.

   A year earlier, Chevron would have had its choice of rigs sitting idle around the world, but those had been snapped up amid rising prices. Chevron proposed a three-year contract at $315,000 a day if owner Transocean Inc. upgraded Sedco to operate in deeper water. Transocean agreed.

   But Mr. Moshiri had a problem. Transocean needed a $345 million commitment within a week. If not, there were other suitors. Mr. Moshiri called his boss in California. “How sure are you about this project?” asked executive vice president George Kirkland. Mr. Moshiri wasn’t sure about Frade and dodged his boss’s question. “What I am sure about is that we’ll keep this rig busy throughout the contract,” he recalls saying, if not drilling Frade, then some other Chevron well.

   If rig prices dropped and Mr. Moshiri had needlessly locked Chevron into a contract for an expensive piece of equipment, it would be a career black mark. But it was a necessary gamble, he thought. Three days after asking, Chevron’s executive committee voted by email and gave Mr. Moshiri the go ahead. After finishing its North Sea contract, the rig was towed to a Singapore shipyard to be readied for Frade, before heading to Brazil.

10. thx Z

11. Nymex Crude Up, Tracking US Stock Futures

    From MARKET TALK
    [Dow Jones] Oil remains up, but off its intraday highs, as US stock futures climb. “We continue to see energy tracking the US equity markets, and in this regard suspect that both could work higher from here,” writes Edward Meir at MF Global. Nymex Dec crude +71c at $68.21/bbl.

    Crude Up But Demand Concerns Narrow Gains
    By Nick Heath

    Of DOW JONES NEWSWIRES

    LONDON — Crude oil futures were higher in European trade Thursday, but retreated from their earlier advances as demand worries kept traders cautious in spite of another bout of strengthening in European and Asian stock markets.

    Nymex light, sweet crude futures climbed back over $70 a barrel in Asian trade, tracking another push higher on Asian bourses, but doubts over how much further crude can climb given a still-bleak economic outlook helped restrict advances.

    “I don’t think we’ve seen the lows on oil,” said a London-based oil broker. “I think demand will be more of an issue than anything else. You’ve got to view these (climbs) as selling opportunities.”

    At 1154 GMT, the front-month December Brent contract on London’s ICE futures exchange was up 71 cents at $66.18 a barrel.

    The front-month December light, sweet, crude contract on the New York Mercantile Exchange was trading 92 cents higher at $68.42 a barrel.

    The ICE’s gasoil contract for November delivery was down $5.50 at $652.25 a metric ton, while Nymex gasoline for November delivery was up 280 points at 156.10 cents a gallon.

    Expectations that more central banks will likely follow the Federal Reserve in announcing rate cuts in the coming week lifted regional equity markets, but doubts surround how effective such action will be in preventing global economic growth from slowing, a development which threatens demand for crude.

    “Given the loss of economic momentum we have already witnessed, the decision by the Federal Reserve is unlikely to prevent the U.S. economy from experiencing a growth recession during the coming quarters as severe as any experienced since the end of World War II,” said Jamie Lewin, head of International Asset Allocation Strategies at BNY Mellon Asset Management.

    A further bout of weakening in the U.S. dollar helped push crude prices higher Wednesday, and a further slide against most major currencies early Thursday helped oil prices to intraday highs. However, expectations of further central bank rate cuts left traders hesitant in relying on any further weakness in the U.S. dollar against other currencies. This would provide upwards support for crude prices, and the greenback’s pull back from earlier lows against the euro Thursday assisted crude’s retreat from the day’s heights.

    “After all this cutting, we could see the weakness in the dollar prove to be relatively short-lived, as rate differentials may not alter all that much,” said Edward Meir, analyst at MF Global in New York.

    While crude’s drop from its record, mid-July highs has eased the burden on consumers’ pockets, analysts continue to warn a lower price environment, allied with tighter credit conditions, threatens to derail investment in oil production infrastructure. That could ultimately lead to another bout of high prices when economic conditions, and subsequently oil demand, recover.

    “A significant increase in investment will not happen with current prices and credit market conditions,” analyst at Barclays Capital said. “Given that incremental non-OPEC output is due over the coming few years to become more reliant on large capital-intensive projects in difficult frontier areas, the long-run impact of immediate credit constraints may prove to be very damaging indeed.”

    -By Nick Heath, Dow Jones Newswires

12. Odd XOM reaction, may have to buy that dip. Will see if I can dig up a balance sheet first but they should have built cash.

    FSLR up $20. Crazy world true, but I think that goes higher. Lot of fear that subsidized customer based would feel the pain of the global markets and go away. Who wants solar when times are tight? Well, European and European style governments, that’s who. 1) there’s jobs to be filled in the industry, 2) its more costs effective (see post on price per MW falling) and 3) the programs are popular and the subsidies won’t likely go away any time soon. This is the premier name in the group and the Street has cut numbers to reasonably attainable levels and all but certainly be taking numbers back up now due to solid top line forecast, better than expected costs and a lower than expected and stationary tax rate afforded by hedges, both natural and financial of the Euro. I would not be surprise to see it move over $150 in the near term and have a run on $200 in the medium time frame. I don’t use price targets as you guys know but this also runs into the election and they are moving into the utility and residential US markets at just the right time in my book.

13. ZTRADE: $10KP TRADE

    CLR – Bought (10) November $35 Calls (CLRKG) for $1.10 (with the stock up $1.90 on the day) for a relatively quick trade on the back of the strength in fellow Bakken player WLL. CLR reports next week. This is the first half of a trade here as I will likely add more soon.

14. Anyone see a negative comment on XOM, searched high and low and see little negative.

    One thought is the stock tanked after running up into earnings and now just can’t lift without a further move in the broad market, especially with oil off. Following the circular logic of the day, better than expected GDP, though negative, means stronger dollar (and it has come off its lows) which means lower crude (now down $1.40). I think this is profit taking on the crude side too after the first size run in crude in weeks. I think this is short sighted and will be short lived as the combination of OPEC/Russia is greater than threats from either of them alone and this is why the OPEC president went to the Kremlin 2 weeks ago… to establish a united front against price declines. Together their production represents 45% of world demand.

15. John – your are right. Very odd trading in UNG. I’m a bit longer time frame than worrying about the mornings trading so far but damn if UNG isn’t a poor mans’ futures contract when it comes to looking at a natural gas trade.

    DEC NG up 0.25%
    UNG down 2.3% …. that’s smelly.

16. Your riskier sidebet to play WLL success is BEXP by the way, which I’m also long. Your low risk path is EOG.

    XOM starting to act better and traded green earlier so I don’t think its something I missed in the numbers.

    Crude down $2 now, acting like an anchor on the group. Still, XNG and OIH up 4%.

    On the service names it looks like there is some pricing pressure creeping in. Just not happy with the idea of being long much there outside of the big three SLB, HAL and maybe BHI but the easy macro trends are against you there and in the deepwater which I bowed out of yesterday after a nice run in DO which I will re-enter on weakness.

17. z – the only negative comment i can see is that the WSJ had a front page article on how difficult it is going to be for majors to enjoy profitable projects going forward.

18. Thanks for looking Bird. No argument there except that that augers for higher prices, lol.

    COP and CVX up as well as most of the foreign Majors aside from TOT and BP. Maybe its something to due with Russian projects.

19. hk down a buck in 15 minutes

20. IG 202… the shorts are not giving up without a fight.

21. 9:39 (Dow Jones) Exxon’s (XOM) overall upstream volume was lower than
    expected, but the international E&P division provided most of the earnings
    beat, Credit Suisse says, even though it didn’t show any apparent upside in
    volume or price realizations. Firm suspects a combination of lower costs or
    better production. Upside also came in the chemicals division, which apparently
    benefited more from falling feedstock prices than it lost in volume. “These
    better than expected results will be welcome, but they are from a different
    source than the larger earnings beats seen at BP and Shell,” firm writes. XOM
    down 1.1% at $73.86. (PJV)

22. chk down as well rbob down 8 cents

    rally’s last about 15 minutes lol

23. ZTRADE: $10KP TRADE

    Added XOM November $80 calls (XOMKP) for $2.07 for a quicker trade that the Decembers I already hold. The stock is weak following good earnings and I think its a combination of profit taking and lack of upstream growth. I won’t hold this long but think the conference call could shed positive light on the name. The more important influence in the very near term will be crude which is off nearly $2 now and I think likely to rally again soon after a bout of profit taking (see comments on OPEC/Russia in today’s post as well as comments on XOM’s quarter).

24. I hear ya Bill, still, tone of trading is improved.

25. 46 Bcf injection. High to me and the Street.

    Storage now at 3,393 Bcf (basically 3.4 Tcf) which is essentially full storage. We need to see next week be the last injection or people are going to get worried and gas is going to tumble.

26. XOM’s TA is behaving differently than many other names. Ran up quickly into some of it’s moving averages that signal resistance. On the weekly chart it hit up into the 20 wk MA yesterday and eased off to close at the 50 EMA on the daily view. This formed a couple of bearish looking candlestick formations (harami and star, need closing confirmation) on the daily which point to yesterday’s high of 78 as at least temporary resistance. The “harami” is a signal of a momentum shift, basically that it’s had a good run and like you say, it’s time for some profits.
    $76 as a closing price is also overhead resistance as a .50 Fib line of the fall from 96 to 56. You want to see price hold 71.50 or it could be back down to the lows.

27. IG 205

28. Thanks Tater, got that same read from another sharp guy with the TA. Conf call in 20 minutes, maybe a little relief from that but this is momentum and second guessing “what’s wrong” at this point.

    Can you take a look at FSLR for me?

29. IG 206

30. FSLR? You are asking the world! Nobody’s that good 🙂

    Quick look tells me from the 10 year weekly it bottomed out at support from 2001. Now due to it’s wildness I really have to beg off without the ability to do a full Fib analysis. I will try to give it a shot later tonight, sorry but that one cannot be done quickly.

31. Ha, ha, fair enough! Thanks T. Love the voo-doo, keep it up.

32. ng down 21

    i didnt think +46 was bad

    i heard the estimate was +45

33. Bill, it wasn’t great…just a bit high and has people wondering how cold we have to get to see withdrawals.

34. XOM call so far nothing unexpected, pretty granular vs big picture.

35. Anyone listening to the WLL call? Would honestly rather be listening to that.

36. Q&A:

    XOM volume question. Should we expect growth in 2009?

    Down 2% if you exclude price impact on PSC, maintenance, and hurricanes.

    Projects that underpin previously stated growth are on track, they do see volume growth in 2009. This seems to be the big concern, that 8% number in the press release.

    On the production sharing contracts (PSC) they get less volumes with high prices but, they point out, they get the benefit from the higher prices. The problem is the higher prices triggered permanent reductions in working interests in these contracts (foreign countries). That’s scaring the stock today. Sounds like a small trimming of EPS for 2009.

37. XOM

    No change to XOM long range capital budget, dividends, and buyback.

    Re M&A activity. Monitoring the market, does not sound front burner for them.

    Call not going great. Analysts sound irked with top line volume growth. Stock still cheap, just don’t expect a big rally. If it gets over done and I can add for half off on those November calls today I may but I’d really like to hear a little more optimism on the call.

38. ZTRADE: XOM $75 November calls (XOMKO) added for $3.45 (pretty tight spreads) with the stock off $2.50.

39. Bill – its just pulling back with everything else in the patch and in the broad market. We were up 200 on the dow and now barely positive. Lots of noise but the sector is clearly being bargain hunted if you look at the XNG relative to the S&P and keeping in mind that you have down oil, down NG and no leadership from the majors today.

40. ZMAN – Are possible election results and there possible effects in the back of your mind as you make ZTRADES?

41. XOM call over, what a snoozer.

    Going to listen to a replay of the WLL if available.

42. Z,
    CHK, any reason for the nosedive ?

43. ung down 10% ish … big over-reaction ?

44. this probably didn’t help…

    Seeking Alpha: Chesapeake Energy: Marcellus Shale Looking 2008-10-30 16:01:24.750 GMT

    http://seekingalpha.com/article/102622-chesapeake-energy-marcellus-shale-looking-farther-and-farther-away?source=feed

45. Ram – That’s a great question.

    In my mind the election is at least partially already factored in. Based on the current electoral math Obama has it locked up. There will be people writing pieces about the death of Exxon and Merck in the event of that outcome. I think that’s pretty far fetched.

    Take Exxon instance who spends $5 to $7 billion dollars each quarter for exploration. They still don’t grow volumes. Pass a windfall profits tax and oil will spike as production falls further. Also, you put more power in the hands of NOC’s.

    One area where you are likely to see a knee jerk reaction is solar and wind. Those names have been halved or worse right along with oil and yet sunshine still costs the same amount and the cost to produce electricity from it keeps falling. A windfall profits tax on “Big Oil” would be used to subsidize some alternative energy projects smoothing the way for even greater inroads there. And when you consider that alt energy is tiny in the electrical make up of the U.S., less than 5% of total generation and that its popularity in Europe has been a function of subsidies more than improved function, it seems like a no brainer.

46. BOP thanks for the info

47. Pete – agree with Bird, people are worried they won’t have a deal in hand for tonight’s earnings release. Pretty sarcastic tone of article in #44 misses one point which is OGIP (original gas in place) valuation will justify the $1.7 B ask price for someone like BP. You simply can’t get the kind of position they will need to be impactful to their results trying to cobble it together with all the large holders there.

    Packman – seems like it to me yes.

48. Thanks Z, will be interested in your thoughts of CHK after they report.

49. Thank you ZMAN.

50. Pete – to be clear on CHK, I don’t know if they will have a deal done and if that’s what the market want’s and they don’t it will drop 10 to 15%. I’m not very long except some much higher priced stock which I hold for long term including for my daughter who now appears to be headed to state schools and some a few calls. I like these guys long term but its a hard one given their debt level and this current environment re leverage to play with a lot of confidence via options. Conversely, I’ll be happy to add on a deal and with good fundamentals (which I expect). EPS for the quarter will look funny as they will have a giant mark to market gain which is non cash and won’t matter. They’d do better to talk about getting within cash flow next year than to talk about big plays that add massive amounts of gas just now.

51. Ram – no follow up?

52. RE #44, CKH “Aubrey the landman” Seeking Alpha article.

    Read it yesterday and thought the writer had really missed the point. Thought Aubrey was NOT “buying and flipping” acreage – which economics would be hurt by CHK’s work to drive lease bonuses down, but RATHER selling developmental acreage after the play is proved up, ie, being consistent with their stated objective of monetizing assets in their plays with less upside potential.

53. whiting had a great qtr but looking forward they havent hedged–ceo says he takes blame for that

    I liked their folksy conf call

54. ZMAN – No, too tired.

55. Jay – my thoughts exactly. Other topic, what % of US oil production is from stripper wells? Just ballpark.

56. Ram – hear ya on that. You are not alone. Management teams, analysts and pm’s on these calls sound absolutely spent.

57. re chk 52

    he is flipping land because he has too.

    aubrey mentioned in his investor day that he views it like mfg business

    buy cheap and sell hi but after listening to oxy cfo the sellers want too much and doesnt reflect todays ng prices..

    also in the marcellus, more restrictions on water use

    if i was chk id sell the whole thing off

58. Z- are you seeing UNG own 8% just a reaction to injections or something else?

59. Bill – will have comment on Marcellus in a few minutes.

    Dman – combo of bigger than expected injection, big run up yesterday on the cold, and down oil and commodities. Seems like an over-reaction to me, especially when you look at field prices being uneconomic. Need to see more cold AND a falling gas-directed rig count (ok, more falling)

60. Z – #16 “… the easy macro trends are against you there and in the deepwater”

    What macro trends are against the deepwater?

61. Re CHK 57.

    Not to be a shill for Aubrey but I understand why he does not punt the Marcellus. 1) prices too low now, 2) long term nice to have the giant inventory, 3) proximity to premium priced natural gas market, 4) deal will get them carried for development of the initial stage (which is when all the costly science side happens) so by the time they ramp to full development with more of their dollars they will have gotten the well costs down and the per well reserves up. Marcellus has for some time now been seen as the giant but slow to develop play and I think that if he tried to sell all of it now, in this climate, it would be a hard, low $ sale.

62. Dman – sorry, that was a run on sentence. I meant to say.

    Not happy being long oil service aside from the big three names (SLB, HAL, BHI) and the deepwater.

    If there is a trend against the deepwater it is entities like PBR who have professed big exploration budgets and who may not be able to go forward at the same pace. This would yield falling dayrates as new build rigs enter the market and find less interest. So far, this has not been seen in reality as people are signing big rig projects still as per RIG’s pr today but it is a small weight on deepwater group sentiment. Again, apologies for the run-on sentence.

63. last number I had was 25% of US domestic production is from stripper wells, forget the number. Will look up “Stripper Well Consortium” and try to find out (again) later on.

64. Jay – I thought I remembered 15% but defer to you. Low oil prices a disaster for the recent uptick in activity there. I think they should all buy your product.

65. z – any thoughts on SWN for this afternoon. They are seeing a nice pop in the last 30 minutes or so.

66. 1520 – I think they beat and guide production higher. I still have my half position but missed a dip this am to get it into the 10KP.

67. Whoa, just saw BEXP news from this am. Lot of irons in fire. Back in bit.

68. #66 – agree – SWN will benefit from low cost producer status in the fayetteville shale. I’m listening/looking for more info on angelina river trend acreage (i think they have completed a couple of new wells there). I would look for them to punt marcellus development (not as in sell it but lengthen the timeline there.) Also will be curious to look at their balance sheet compared to CHK’s. My opinion here – SWN liquidated some assets at the right time (NOARK pipeline and their gas utility) I think this will serve them extremely well given the current credit issues. Funding the drillbit with cash flow will be a big driver of my analysis going forward.

69. CALGARY, Oct 30, 2008 /PRNewswire-FirstCall via COMTEX/ — Diaz Resources Ltd. (CA:DZR: news, chart, profile) today reported that the Company has acquired, over the last three months, approximately 5,400 gross acres (2,125 net acres) in the Eagleford Shale play, located in Texas.
    Diaz’s acreage is on trend with the recently announced gas discovery by Petrohawk Energy Corporation and a large development program, operated by Apache Corporation.
    On October 21, 2008, Petrohawk announced the successful completion of the STS #241-1H well that had an initial production of 7.6 MMcfd and 250 Bbls condensate per day.

70. Bleemus – I just got a news alert on HK for that Diaz, guess I’ll have to have a look. Its probably the next Cubic, lol.

71. It’s a penny stock but saw the HK news in it and thought you guys might like it.

72. Another way to play solar stocks, ETF TAN which does have options but which do not trade like water. Other solar names starting to play catch up to the FSLR move.

73. chk underperforming hk

    why i dont know

    maybe some are selling pre earnings but im (hoping) for some positive news

74. Bleemus, gotta love those little pennis with big dreamns. Will work up a back of the envelope NAV for the Friday post.

    XOM trying to claw back with this market rally, if that fails I may take the Nov calls off the table.

    E&P sporting a third nice day in a row, unreal.

75. Bill, I think its trepidation over did they or did they not make progress in getting an asset sale done or the next VPP (volumetric production payment)

76. i love these penny stocks with 2000 acres tring to throw names around like hk and apache

77. Bill, agreed, gotta be substance, like the Cubic, it can however trade at several multiples over what a real E&P can so as long as you aren’t the last guy holding it when the music stops….

78. IG 199 1/2

79. FTO making a fairly big move… other than crude being down and TSO reining in spending, any particular reason for it to outperform?

80. David Trice on the tape buying NFX (he’s CEO), just 18,000 shares but am seeing more managements nibble at their stocks again.

81. CLR topping $30 and with oil down, nice.

    Bird – you should post that list you sent me, good for a laugh if nothing else.

82. z – since you asked me too… from an un-named, sell-side firm. some “ideas”

    Stocks to consider for an Obama election

    Energy

    Diamon Offshore (DO)

    We think natural gas weighted E&P companies will benefit as its clean burning and readily available in the US. So any energy plan will have to include using more

    not less. One of the five dominant players in the offshore drilling space is DO. The company also pays a dividend (current yield is 8.5%).

    Petroleum Development Corp (PETD)

    We think natural gas weighted E&P companies will benefit as its clean burning and readily available in the US. So any energy plan will have to include using more

    not less. PETD should benefit w/80% natural gas and 5 years of low risk drilling inventory; upside potential in the hottest emerging resource play the Marcellous

    Shale in Pennsylvania. Company’s EV is ~$600MM and they have over 800 Bcfe of reserves so your only paying $0.75 per Mcfe for proven reserves. Using

    $65/$6.50 price deck company will generate over $12.00 per share in cash flow in 2009, stock currently at $16.50.

    Restaurants

    Brinker International Inc. (EAT), Darden Restaurants (DRI)

    We could see consumer sentiment improving with a Democratic administration. Consequently, we could see top line improving at large, wide-spread national chains

    such as DRI and EAT (with the edge given to DRI for better management).

    CBRL Group Inc. (CBRL), Bob Evans Farms Inc. (BOBE), Yum! Brands Inc. (YUM), McDonald’s Corp. (MCD)

    What concerns us is that an Obama-led administration would likely pass legislation to force employers to pay for health benefits for non-covered workers; this would

    cause a larger drag on earnings for company-owned systems (CBRL, BOBE), and less so for heavily franchised systems (YUM, MCD).

    Consumer

    True Religion Apparel (TRLG)

    An Obama administration is expected to bring a higher level of fashion back to the States. The Clinton administration ushered in the casualization of the

    workplace. The Bush administration was credited with the return of the suit. Rolling out its own retail stores while still building its wholesale biz. Owned stores are

    delivering strong sales & high margins. Cont’d retail rollout to drive rev and op margin expansion LT. Cont’d rollout of denim related sportswear also drives growth.

    Innovation of denim and product extensions should drive high rev growth next yr; building True Religion into a lifestyle brand.

    Wal-Mart (WMT)

    Probability of higher inflation under Obama is rising. This would maintain existing pressures on consumers so they would maintain focus on price and value. Higher

    taxes would reinforce this. If corporate tax rates increase then WMT has greater advantage over competitors than before. The company is already involved in projects

    to offset this such as investment tax credits for solar panels in addition to ramp up of tax credits for offering jobs to various types of workers in addition to credits for

    buying from certain types of suppliers.

    Cato Corp. (CTR)

    Piggybacks to WMT locations. No debt, tons of cash, pays dividend, sells to lower-income demographics.

    Alternative Energy

    GreenHunter Energy (GRH)

    Supporting biofuels and reliance on renewable energy sources. GRH operates the largest biodiesel plant in the US. Additionally, the

    company has biomass and wind projects under development.

    RealGoods Solar (RSOL)

    Supporting reliance on renewable energy sources, especially solar. RSOL sells solar related products via catalog and installers solar systems primarily to residential

    customers.

    Echelon (ELON)

    Obama supported a smart electricity production, should drive adoption of smart metering systems.

    Claymore/MAC Global Solar Energy (TAN)

    Solar energy ETF. Given a focus on renewable energy, this company should benefit since they supply solar cells to the solar industry.

    iShares S&P Global Clean Energy Index (ICLN)

    Alternative energy index. Given a focus on renewable energy, this company should benefit since they supply solar cells to the solar industry.

83. The true religion comment kills me.

84. so… if Obama is elected, we’re all gonna go out and buy $500 jeans? or, is he just gonna GIVE ’em away with his “tax cut for 95% of the people”…?

85. what a ridiculous statement…it is official..bush can be blamed for everything..including fashion.

86. BOP- Is the corporate market any better?

87. for Wyoming and Z

    Yesterday i asked about when a company knows if they hit something

    Here is a drilling report for HNR latest well

    Hnr is a small cap with exposure to venezula

    http://sonlite.dnr.state.la.us/sundown/cart_prod/cart_con_wellinfo2?p_wsn=237809

    anyways, if they hit oil here this alone could be worth its current market cap

    no debt, 4 cash, company buying back shares and with obama a shoo in– he and chavez will be buddies

    anyways at 8 i thinks its a good play

    does the well log tell you anything

88. Stepped out for a bit. Those pennies use the names of big companies in their press releases so they show up in scans and on places like Yahoo Finance. Sneaky bastards. Everyone does it though.

89. Bill got to step out for 20 minutes will answer b4 close.

    Fair warning, coming out of that quick trade on CLR, will keep my DEC but the day trade on the Nov $35s has got to go.

90. elduque – IG index sitting right around 200. Not a lot of conviction to take it one direction (or the other). But, better than yesterday.

    We are seeing a little bit of corporate bond issuance being done. So, that is certainly a good thing. But, I saw some stats on money market funds that was very disturbing this morning. Since last August, investors have continued to pull money from traditional money market funds and put it into all Treasury money market funds… IN SPITE OF THE FACT that about 2/3 of all money market funds are now guaranteed by the govt!

    So, we have the Fed buying commercial paper, the Treasury guaranteeing the money market funds, and yet investors are still leaving corporate bond (and money market) funds in droves. This is very very scary.

    That said, the equity market is still oversold. If equity investors want to believe the credit crisis is over, they will take stocks higher (perhaps a lot higher). This could last for a while (like last March – May). But, unless we see a money start to make a meaningful move into credit, the stock market has yet to see its low.

    [NB: I have lifted some of the data and comments from one of the best credit/equity strategists out there. I am not making this stuff up just on my own.]

91. ZTRADE: $10KP Trade

    Out CLR $35 November Calls (CLRKG) for $2.30, up 109% since entry this morning. I continue to hold the December calls in the regular account.

92. Didn’t buy ’em with you, but I sure am selling with you!

93. Out for 20 minutes

94. elduque – do you live on Maui and have lots of dogs and a really nice swimming pool?

95. IG 199

96. Volume looks to be on the light side today.

97. Antrim – thanks, same story last several days.

98. Bill re #87. A log suite in a well in Calcasieu parish Louisiana will likely tell the operator whether he has a well that he wants to complete or not. In the typical reservoirs encountered in that area logs are very diagnostic.

99. thanks jy

    so we should hear something soon as the well has been drilled

100. Bill, will take another look at HNR, this one is still drilling, any reason to think its a big one. One well is unlikely to be valued at their market cap, esp onshore.

101. Even more so today, though. Should be interesting to watch the close again, I guess.

102. Antrim – getting to be such that we need 2 sessions. 15 min in the morning and 15 in the afternoon, lol. I like volume to dry up into a base, not a rally.

103. CHK really rallying off that low from earlier today. Huge volume there again.

104. Not overweight on CHK as per earlier comments, if I like what I hear I’ll add. If they say “good progress being made to sell assets” I add after it gets macked.

105. BOP- yes, I live on Maui about 800 ft. above my big ocean pool.
     One dog, a Maltese. Play golf, garden and trade the market.

     Seems to me when the corp market improves all the high yielding MLP’s, dry bulkers, Canadian energy trusts will go along with it. Yield has to mean something eventually.

     Have a great evening.

106. thanks elduque … do you have a guest room? you sound like you are having way too much fun! (and were smart enough to put money in your desk drawer)

107. XOM closing flat, lol.

     That turned into a pretty good day.

108. z 100

     yes 200 m is wishfull thinking

     the ceo has his hands in 3 plays and he said any one could be worth the market cap

     i like the fact they are debt free and insiders and company have buying back heavily at prices north of 10

109. chk numbers are out

     http://biz.yahoo.com/bw/081030/20081030006371.html

110. K Chesapeake Energy prelim $0.85 vs $0.88 First Call consensus; revs $7.49 bln

111. CHK on the tape with 3Q

     CFPS of $2.38 vs 2.23 consensus
     EPS of 0.85 vs 0.88 which is a miss but probably due to higher depreciation which is non-cash so I really don’t care.
     Production of 2.3 Bcfepd is in line

112. IG 200 … that’s back to “neutral” in this mrkt

113. flat 2Q to 3Q production volumes on a per Mcfe basis may give the stock a little pause but need to get through rest of it. May have a piece out on it tonight, after hours called up but its early.

114. Re CHK – those sequentially flat volumes were apples to oranges. Exclude asset sales, VPPs, and back out the impact of hurricane Ike and they show pretty good growth.

     Lease operating expense was $1.12 / Mcfe which is high for them (has been running about a buck) but that quibbeling with the #s and most co’s would kill to have numbers that low (except HK and PQ who easily beat it).

     PV10 of their 1P reserves are $24.4B which I normally don’t care about but asset valuation has come sharply into focus of late. That’s valued at a $6.48 / Mcfe price deck unescalated. You can add $440 mm to the value for each 10 cent increase in gas prices so $7 gas would add another $2 + billion.

     Enterprise value is $26 (mkt cap + debt) so its trading on reserves and not giving anything to the acreage, rigs, gathering systems, core center, hq, etc…

115. z – CHK adjusted EBITDA looks a little light in the loafers… mrkt expecting $1,595 vs $1,386 reported. but, who knows what the difference in the “adjustement” are.

116. Q4 hedges: 62% of gas hedged at $9.15 (who’s looking smart now)

     2009: 38% at $9.33
     2010: 40% at $9.58

     plus a little more gas hedged with collars

     net debt to book cap at 43%, improved from 57% at end 2Q

117. Bird – I’d answer only 4 analysts published their EBITDA estimates according to Thomson, avg was 1,447 with a range of 1,515 to 1,393.

     I’ll go with cash flow as its less likely to be cluttered and 19 analysts were at $2.23 which CHK beat reporting $2.38.

118. the hedges are nice

     chk cut q4 numbers– maybe due to divesitures and they must feel pretty certain a deal is going to be done to revise q4 #’s.. 2 weeks after they put out their last one

     Market likes is as it up about 50 cents in after hours

119. No new asset sale to announce though, that may not sit well with nervous analysts.

120. tso down today on great numbers

     is it too early for the refiners

121. Bill – the rest of the refiners were strong. I did not get a chance to listen to the TSO call so maybe something they said. I think the refiners are trying to bottom here.

122. z – good point.

     my BB estimates give 10 analysts to get the EBITDA ests… but i don’t disagree with you. CF = least messed-up number… and BB has $2.25 expected with 17 ananlysts weighing in.

123. Hear ya BOP. I think the $2 B in cash comment on the balance sheet and plans to under spend by $1 B in 2009 and again in 2010 may be responsible for the post mkt rally in a thin trading environment. Analyst crowd like to cast a doubtful eye on those plans. Still, hope it rallies as I’ll chuck some into strength and reposition on the dip.

     Once again, no ops update until the call it seems?

     Thanks for the headsup on 4Q guide Bill, not there yet. Going to go kick a soccer ball with my kid.

124. IG 199 (-10) for the close.

125. Seeing lots of buy imbalances at the close, bids above closing prices on names like HK.

     Ok, out for a coupla hours

126. IG rallying after the “close” too… now 196 1/2

     Let’s see how Asia does over night.

127. bill,

     RE 87;

     This is just a daily drilling report for the Harvest Hunter #1 well in CALCASIEU Parish for Harvest Holdings. You might think it is like a log of events but the log actually is a long plot of certain parameters versus the depth of the well. It might be porosity from a neutron tool, resistivity, gamma ray etc … Looks like it was permitted for 12k feet and they are past it, not uncommon, geologist off. Not bad drilling rate, little slow but they did get a saltwater kick and fished their logging tools.

     On an exploration well, you would probably have to be an investor to get a copy of the log or the logging engineer screws up and puts you on the partner distribution list. If you do see a copy of the log, run away from the deal … joke.

128. Thanks, Wyoming, maybe I should post a picture of one.

     SWN numbers were just stellar. Declines in the Fayetteville are shallowing substantially on the newer wells

129. just go to my favorite oil and gas encyclopedia – wikipedia and type in mud log

     “http://en.wikipedia.org/wiki/Mud_log”

     It is a mud log and not an electric log but they have the same presentation package of depth vs some data.

130. Thanks Wyoming – thought you’d get all gamma ray on us!

131. Actually, I am neutron on all of it. I try and not be a dip meter and still retain my spontaneous potential. Sorry, had to get the last word. Good night.

132. Hey, thanks for playing, I’ll be here all week!

133. thanks for the info

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