So Now What Wednesday

Sentiment Watch:

  • Technically charts on the cusp of breaking down or enjoying a re-rally. My thought is its probably time for a modest rally in the equity markets and that the commodities will tag along.
  • Fundamentally, things look very shaky beginning with the financials and moving into every facet of the markets.
  • Trading sentiment remains on "buy strength on weaker days", shorten trading times, take profits and forget about fire and forget investments just yet unless your time horizon is 2010+. Regarding longer time horizon items I've included a brief update on the upstream MLPs reviewed last October at the end of the post. I still like LINE. 

In Today's Post:

  1. Holdings Watch - added a little HK
  2. Commodity Watch - no oil inventory report today due to the MLK holiday
  3. Stuff We Care About Today - MLP thoughts
  4. Odds & Ends

Holdings Watch: The holdings Wiki Tab is updated.

  • $10KP Trade: Added (4) February HK $17.50 Calls (HKBW) added for $1.85 with the stock flat on the day at $17.50. This morning Jefferies cut their price target for HK from $25 to $20 but stuck with their Buy rating. Last week Barclays issued a $38 price target here. Regardless of Wall Street's "diversity" as to target I continue to expect to see results from the five additional Haynesville Shale wells noted in the December 9 press release as well as two additional Eagle Ford Shale wells and the stock has been acting as well as can be expected during a tough time for the market and the group.

Commodity Watch

Crude Oil: The March contract fell $1.73 to close at $40.84 yesterday with the 12 month strip ending off $2.56 at $48.87. Another weak equity market day (major indexes off 4 to 6%) and a strong dollar (up 1.6% to a 5 week high) were to blame for the drop in crude along with a "pervasive sense" that the recession will be deeper and last longer than thought last Friday, Thursday, Wednesday etc. This morning crude is trading up slightly.

  • Reuters Poll Shows Global Oil Demand To Contract 400,000 Bopd. A poll of 10 analysts shows that demand fell 20,000 bopd in 2008 will fall another 400,000 bopd this year as gains from emerging markets can no longer mostly offset lost demand from the developed world. Recall that the IEA is predicting a 500,000 bopd drop (about 0.6%), the EIA is looking for a 800,000 bopd decline and OPEC has put out a forecast of that calls for a more modest decline of less than 200,000 bopd.


  • Early Read On Crude Inventories:  (EIA will release inventories tomorrow at 11 EST).
    • Oil stocks to rise 1.4 million barrels
    • Distillate stocks to fall 1.4 million barrels due to cold weather. It would be about time as inventories have been surging due to rising production and slackening demand and now stand 8% above the five year average for this time of year.
    • Gasoline stocks are expected to rise 2.1 mm barrels which would put them well into surplus territory for the first time in this cycle.

Natural gas fell $0.16 to close at $4.64 due to the weak everything market. This morning gas is trading pretty flat. We should see the biggest withdrawal of the season to date this Friday (day late due to MLK day) and if not, gas will get pounded.

  • Early Read on Natural Gas Inventories:
    • Bloomberg: 171 Bcf withdrawal.
  • My Gas Thoughts:
    • While considered big this year, the colder than expected January weather has not been enough to save U.S. gas prices and if these were normal times I'd be looking for a number in the 210 to 240 Bcf range.
    • The long and short of it is, without persistently cold weather the withdrawal season is going to end (about 12 weeks from now but perhaps sooner given the excess supply) with high storage levels which will depress gas prices until we can see signs that the rig reductions are having an impact on gas supplies (which is inevitable).  
    • (UNG) will continue to be a difficult way to play a mid accelerating into late year rebound in gas prices and that nearly 100% gassy, high growth E&P names will prove superior to this end. 


Stuff We Care About Today:

 SU Falls 20% On 4Q Numbers Yesterday

  • (SU) price targets trimmed three C$ by Barclays, UBS and RBC, again to widely divergent ends ($42, $39, and $29 respectively), while Raymond James just cut them from Strong Buy to Outperform.
  • Good proxy for oil, glad to have expectations kicked to the curb to make it easier to use as such again.

Upstream MLP Update

Last time I took a good look at the MLP's was October 21. Here's a link to that post in which I included some definitions of MLP metrics which are unique to the group and most of the stuff written then still applies. In closing that post I wrote:

If I had to pick favorites, I’d go with size. Probably (LINE) first, which operates a majority of its properties and has a strong management team which impressed at IPAA despite the downtrodden environment, then (ATN) who is largely Marcellus focused and then (EVEP). Even after  the modest recovery of the last few days these names are yielding 17%, 13%, 17% respectively with some of the better distribution coverage ratios in the business ahd better than average operating expesenes, especially (ATN).

Stock Performance from Oct 21 to Jan 20

I have to say, I'd stick with LINE at this point. They are well hedged and while their distribution will likely fall due to current lower prices it will do so by less than the other names in the group as they continue to have strong distribution coverage in 2009 and 2010. 

Odds & Ends

Analyst Watch: Wunderlich start (CLB) with Buy,Cannacord starts (CXO), (PLLL) and (TXCO) with Buy (TXCO is one of my favorite but un-owned single digit midgets). Merriman starts (FSLR) at Buy, (SPWRA) at Neutral and (STP) at Sell. Jefco cuts (WLL) from $78 to $62 on yesterday's ops update with the stock at $29.

95 Responses to “So Now What Wednesday”

  1. 1
    zman Says:

    MMR on the tape with 4Q estimates, says its sees significant hyrdocarbons in the S. Tim ultra deep well. This is the 35,000 or so foot depth well on the Gomex shelf testing massive, deepwater style pay potential. EXXI involved here as well.

  2. 2
    tater Says:

    Posted chart for LINE just before looking in this morning. Comforting to find that you were looking there today too (you’ve been on top of them for quite some time now).

    CLR is at a very difficult position on the chart again.


  3. 3
    nifkin Says:

    From The Oil Daily….Upstream MLPs Face Delicate Balancing Act as Credit Crunch Bites….Companies across the energy industry
    are scrambling to deal with the effects of
    the credit crunch. But US master limited
    partnerships (MLPs) — especially those
    in the upstream sector — face a particularly
    complex balancing act.
    “Cash is king” has been the mantra of
    companies looking to survive the current
    tight credit conditions. MLPs, however,
    are at an inherit disadvantage in this
    regard, since they pay out their available
    cash to unitholders in the form of quarterly
    Upstream MLPs face particular pressure
    in the current environment due to their
    reliance on asset acquisitions to grow their
    portfolios and their distributions.
    Energy MLPs have been an investor favorite
    in recent years, as strong commodity prices
    and easy access to credit allowed them to increase
    their distributions aggressively.
    Over the past several years, the annual
    growth of the sector’s cash distributions has
    ranged from 7% to 12%, according to investment
    bank Tudor Pickering & Holt.
    Tudor Pickering warned, however, that the
    adverse financial environment these companies
    face will likely curb MLP distribution
    growth this year. The bank expects distribution
    growth for the Alerian index of 50 MLPs
    (AMZ) to fall in the 0-5% range this year.
    While many MLPs have yet to announce
    their fourth-quarter distributions, early indications
    suggest a range of responses by upstream
    Eagle Rock Energy Partners — a hybrid
    upstream and midstream MLP — has taken
    the most aggressive measures thus far to
    protect its 2009 distribution by unwinding
    hedges to raise cash.
    Last week, the partnership unwound
    several 2011 and 2012 swaps and collars
    as well as two 2009 collars. The company
    plans to use the bulk of the proceeds to
    maintain its 41¢ per unit quarterly distribution
    through the end of 2009.
    Eagle Rock assumes it can maintain this
    distribution level in a $45/bbl oil environment
    for the rest of the year.
    Chief Executive Joe Mills warned, however,
    that if prices stay at $40/bbl or lower,
    “that could instigate us to have to look at a
    possible reduction down in our [quarterly
    distribution] levels.”
    Chief Financial Officer Jeff Wood added
    that the assumption that Eagle Rock can maintain its current distribution with
    $45/bbl oil is valid only for 2009. “If
    crude stays $45/bbl into 2010, we will
    have to do some revisiting,” he said.
    While the market responded to Eagle
    Rock’s decision by pushing its stock price up
    15% following the announcement, the decision
    could pose problems in the long run.
    After last week’s move to raise cash, the
    company has just 10% of its hedge position
    remaining for 2011 and 2012.
    Upstream MLPs are more heavily hedged
    than traditional exploration and production
    companies due to their active acquisition
    policies and the slow rate of decline of their
    reserves. Upstream MLPs often have most
    of their production hedged five years out.
    MLPs with an exclusive upstream focus,
    such as Linn Energy and Legacy Reserves,
    have indicated that their distributions will
    likely remain flat in the near term.
    Linn Chief Operating Officer Mark Ellis
    and Legacy Chief Financial Officer Stephen
    Pruett both told delegates at an MLP conference
    last week that they need acquisitions
    to grow their distributions. Until financing becomes
    more readily available and commodity
    prices support increased production, they
    explained, both companies are unlikely to
    stretch their budgets to raise the distribution.
    EV Energy Partners Chief Executive John
    Walker told delegates that he believes his
    company is sufficiently hedged through 2012
    to maintain or nominally raise its quarterly
    distribution over the period.
    However, Walker distanced himself from
    other MLP executives who seem willing to
    bend over backwards to defend distribution
    rates: “We are not going to sacrifice our liquidity
    in order to maintain our distribution.
    I want to make that clear.”
    Constellation Energy Partners has already
    made a decision to place its liquidity
    requirements above the maintenance of a
    steady payout.
    Last month the company slashed its
    fourth-quarter distribution to 13¢ per unit
    — down almost 80% from its previous distribution
    Constellation said the deep cut in its distribution
    was necessary to maintain the necessary
    financial flexibility.
    Casey Sattler, Houston

  4. 4
    zman Says:

    Thanks Tater and Nifkin.

    Uniformly green open. More please.

    Guy on CNBC just said it best:

    “If you have a 3 month outlook, everything is scary; if you have a 3 year outlook everything is cheap”

  5. 5
    zman Says:

    END had a discovery in the N. Sea. I’m not going to add to my position there (old position, well underwater) due to the current oil price environment but I will continue to hold as they are in the process of transitioning yet again and I like the guys at the top.

    HK – early strength above that of the group…it just feels like they’ll have news soon. Last year they put out an ops update (with much less than they have available now) on Jan 25 in advance of the 4Q press release in Feb.

  6. 6
    elduque Says:

    BDI +28 900
    TED unch at 1.02

  7. 7
    zman Says:

    MMR flat on the day so far, interesting to see them shrug off such a big writedown. That tells you that analysts are thinking big reserve impairments are largely factored into current thinking.

  8. 8
    zman Says:

    Comment on #3 as it pertains to line. LINE is the 20th largest E&P company out there and the largest MLP. Its more balanced than most with 56% of production from gas (properties are about 90% Oklahoma, then California). They’re more hedged than their peers and have in the past kept a higher spread between their cash flow and their distributions (distribution coverage ratio) than the competition. Its true they need to have access to capital to grow, like most MLPs but the need is not really pressing as they have a 21 year reserve life. So while they need to buy stuff to grow, the stuff they’ve bought declines very slowly in a predictable fashion and their large number of drilling locations, (over 4,000 identified at last check) will give them the ability, like an HK or a CHK to high grade what they do drill now, to get the highest IRR given the current low prices.

  9. 9
    zman Says:

    Tater – if you get a chance can you take a look at HK again.

  10. 10
    zman Says:

    March crude up $0.50 to $0.90, so far bucking the recent trend of selling the new front month contract on its first day as such. The gain matches that of the DJIA of a % basis, probably without real news oil traders lacking imagination carbon copy the major indexes. So the next time you see a headline that say oil falls due to more economic gloom and the story has nothing new on the demand or supply side or for that matter on the economic front, just translate it to Stocks Fall, Oil Falls.

  11. 11
    zman Says:

    MMR conf call starting now. Not one I follow closely but its a good test case for a market reaction to a big write down (so far the stock is up) and also I want to get an update on ST 168.

  12. 12
    BirdsofpreyRcool Says:

    Credit Market Update: We are on Bear Cave Watch. The credit market is vulnerable, as long as the SPX stays below 850.

    We saw the Bears stick a paw out of their cave again on Monday, as the credit markets in Europe were pushed wider and the US mrks were closed. Yesterday’s action in US credit was not able to retake any of that ground lost, with the sell off in equities.

    So, here we sit. Seeing a number of deals getting done in the debt market, with an even larger number waiting in the wings. Access to debt is the lifeblood of the US business economy. Functioning banks are the key to that happening. It’s time to stop talking about a “bank bailout” and realize that we ALL benefit from having a functioning banking system. All the other bailout stuff is a waste of money (in my opinion)… but we must have a functioning financial system.

    Bottom line: if we can’t regain and hold SPX 850, the Credit Bears will recommence a full frontal attack on the market. We will be able to see their work by watching the action in the CDS market. The most senstive of the indices is the HY CDS. We want to see that back in the mid-80s to breath easier.

    IG 223 bps -1 from close

    HY 75 unch’d (this is the one to watch)

  13. 13
    zman Says:

    Re #12 … well said.

    Blackbeard – drilled through 33,000 feet, temporarily abandoned, logged 4 sands, designing test and ordering special tubulars now. So we continue to wait on these guys (and EXXI) for some kind of time table.

  14. 14
    zman Says:

    Market suddenly hitting the breaks, flip on CNBC and sure enough, confirmation hearing for Tim Geitner with Volker talking about how bad the economy is.

  15. 15
    BirdsofpreyRcool Says:

    The more those guys talk, the more the banking index sells off. Nice.

    IG 224 1/2 now. selling off a bit.

  16. 16
    crysball Says:

    The reserve life of the MLP Players in this morning’s chart [like ATN at 27 years]who are in the Marcellus is based largely on their shallow [1000′] wells in PA & MI..which are low flow rate producers….but lot’s of them.

    As ATN proves up Marcellus [6,0000′ deep] using both Horizontal & Vertical Wells their reesrves will see a SHARP increase, but their reserve life will come down as the Marcellus wells deplete more rapidly, and their F&D costs will come down dramatically as Marcellus reserves prove up because the Marcellus wells have initial flow rates 100X to 1,000X of the shallow [1,000′] wells.

    LINE retained all their shallow & low flow Pennsylvania gas wells & and the right to continue drilling them in all their PA acreage , but sold out all the deep Marcellus drilling rights for a lump sum cash payment in early 2008.

    Two different strategies, it will be interesting to see who is right.

    ATN has the advantage of having in place and owning their Pennsylvania infrastructure & pipelines…..which serves both shallow wells & deeper Marcellus wells, and a long standing successful drilling partnership program.

  17. 17
    BirdsofpreyRcool Says:

    tater – any trading advice on HK? we seem to keep hitting our heads on the $17.75 ceiling…

  18. 18
    zman Says:

    BOP – agreed. It would be nice if the government could take a hike for awhile. Pessimism breeds pessimism.

    Reading through the GS conference takeaways: most in line with what we talk about around here such as the need to live within cash flow now, lack of M&A due to lack a real capital market but here are some interesting high points:

    CHK said 75% of U.S. shale plays are not economic under $5 gas. That sounds about right.

    CHK rigs in the Barnett are down to 28 from 43 peak in the summer

    Haynesville takeaway capacity is only 2 Bcfgpd and pipeline projects are being delayed by economics and the credit market freeze (so that stalls one source of natural gas fear) – I trust these guys to get the takeaway number right and I’ve hear others call it 2.5 to 3 Bcfgpd before.

    Majors and E&Ps alike see service costs falling 20% in 2009

    CHK said it thinks we’ve seen the last of the big shale (Haynesville or Barnett scale) plays.

    more in a bit…

  19. 19
    zman Says:

    Crys – I think ATN will look smarter if gas prices were to linger at lower prices for longer than I think they will. I still subscribe to a supply response generated 2H09 natural gas price rally. LINE pegged the timing correctly as you can see F&D acquisitions under $2/ Mcfe and sales over $4 / Mcfe. But ATN will do well with the east coast premium price for n gas if prices do stay low, in comparison to their peers. I don’t know how much the R/P contracts when they go to horizontals as the reserve size increases, the wells still seem to be 20+ year life wells in Barnett and Haynesville on current thinking and I would have thought the same would apply to Marcellus/Huron. No? Doesn’t the shape of the curve change some but still the well has a very long tail?

  20. 20
    BirdsofpreyRcool Says:

    IG 226 The CDS desk is turning more bearish this morning than I have seen in the last weveral weeks. Talking about seeing IG back at 250 and then 300 bps (the previous wide was 293). Don’t want this to become a self-fulfilling prophecy.

  21. 21
    zman Says:

    Senators successfully talked the market (and oil) into the red on the day. Your tax dollars at work … against you.

  22. 22
    BirdsofpreyRcool Says:

    Legislation is like sausage… you don’t want to see how it’s made or what goes into it.

    Up close and personal, these guys do not inspire confidence.

  23. 23
    zman Says:

    Still half listening to the MMR call, nothing really stands out.

    Turning back to the Goldman conference notes:

    universally, E&P and Majors think there is a large disconnect between commodity prices and service costs and rig rates. SFY went as far as to say its is pushing its vendors for price cuts and will go to a 0 rig count (first time I’ve seen them do that – onshore U.S. oil and gas player, mostly Gulf Coast, lots of salt dome work) since I’ve been following them, not even in 1998 did they go there as I remember it.

    XTO commented they see the gas rig count falling all year, not just the 1Q or 2Q trough many have expected.

  24. 24
    Popeye Says:

    Z, re:19 are you saying the horizontal in HV with 80% decline will still be producing something 20yr in?

  25. 25
    zman Says:

    BOP – FWIW, my read on the HK chart (especially given its resilience in the waxes and wanes of the broad market) is that it is bouncing off the 20 and 50 day SMA which are clustered together and could easily run to 20. We know they have 5 wells in the Haynesville near announcement, 2 have already come out in last week’s presentation, the other 3 should be completed or nearly so.

    A recurring theme is that Haynesville is king, not only of size but economics at these prices. So then you look at all the H.S. players and they are the only ones announcing multiple wells with IPs over 20 and then you have to think, hmmm, 10 IP well type curve is 8.5 Bcfe, so what is a 20? And what does that do to HK’s reserve replace (big up) and finding costs (big down).

  26. 26
    BirdsofpreyRcool Says:

    z – is the relationship between IP and EUR linear? Mathematically, I would think it would be, assuming the deline curves were the same, it’s just the area under the curve. So, a 20 IP well should yield a 17 Bcfe booked asset, correct?

  27. 27
    zman Says:

    BOP – not 100% linear but closely correlated. Varies from shale to shale, and depends on the choke to some extent, but yep, double the IP and you have a good shot at double the recoverable reserves assuming nothing tricky going on. Seems to be nice sweet spot HK has been tapping.

    Popeye – yes, see slide 12 in the recent GDP presentation here:

    You aren’t making much at that point (chart only goes out to year 9) but your operating costs are low as well. You get the majority of the wells production in the first 3 years and you can see on that chart that an 8.5 Bcfe well with the hyperbolic decline rate will be a breakeven well at $2.54 natural gas (woo-hoo!).

  28. 28
    zman Says:

    HK breaking through 18 to the upside and more importantly, outperforming the group by 3 to 1 on the day.

    I wonder if Jefco will cut its rating to a Hold based on target price assumption made in the post. Does anyone know if that PT cut was Subash Chandra or was it their other guy? Also, BOP, can you look up the Jefco natural gas price deck for 2009? It must be very low.

  29. 29
    BirdsofpreyRcool Says:

    FWIW Trading Desk saying it’s a 50/50 day. So, basically a coin flip whether we end up higher or lower on the day.

    They point out that it is a good day to get all of your payroll and unemployment taxes filed and paid. Wonder what they are trying to say here…

  30. 30
    choices Says:

    BOP, for a credit market retard, could you expand a little on #20, ie what are the implications for junk bonds, Treasuries, etc.



  31. 31
    sportlock Says:

    Z, Two quick questions. First, I have heard that there is a lot of faulting outside of the HS sweet spot makinig long laterals impossible and potentially making the play not as big as some think. Any thoughts on this? Also, do you have an update on where we are for HDD and storage for today?



  32. 32
    BirdsofpreyRcool Says:

    choices – believe me, we are ALL credit mrkt retards. The CDS market is the playground of (mainly) very large hedge funds and insurance companies. So, absolutely no such thing as a question that is too simple.

    That said, gotta run to a meeting. I’ll give you a better answer later.

    For now, higher numbers on the IG index mean wider spreads. Wider spreads mean greater “credit risk” (all else equal). Greater credit risk implies higher probablility of default. Higher probabibility of default means greater chance you won’t get your money back.

    It’s different for the HY index.


  33. 33
    zman Says:


    I have heard what I would call scattered comments re faulting but I continue to hear the larger names in the play (CHK, HK, DVN) talk about designing longer laterals. Given the sample size of wells below 10,000 feet is relative small (especially horizontals) and that the play is monstrous I’m pretty sure we don’t know yet. If it become pervasive then it may just require an extra well or two per section to get at the gas but the TOC is very high here and with good porosity and permiability to boot I would bet the estimates of recoverable reserves are going to be headed higher over time.

    Re HDDs. I don’t have much to add beyond what’s in today’s post. Last I saw consensus was 171 Bcf for Friday based on HDDs of 258. We seem to be running about 4 to 7 Bcfgpd unbalanced to year ago levels. I know we need to see a bigger number to keep gas here (not rally it as I think its early for that). If we get a 150 or 160 number gas may very well test $4.

  34. 34
    tater Says:

    Don’t really see any significance to the 17.74 area technically (other than very short term type stuff). Price is still working out the ascending triangle on the daily chart.

    As I was looking for the chart, I came upon the 10 year NatGas chart and put that up as well. Looks like we are at some real support there. Also looked at the SWN chart, but it’s really devolved into a bunch of sideways mush as the triangle pattern failed to breakout before price reached the apex. (We could actually that happening with HK if it doesn’t move soon, it is getting long in the tooth as you really want to get triangles over with before they get 3/4 of the way to the apex).


    Hate to bother you guys for something as lame as the vote on the charts, but I’m involved in a little panty-waist bet with somebody, so if it’s not too much of a bother I’d appreciate it.

  35. 35
    zman Says:

    Thanks T, just voted.

  36. 36
    choices Says:

    Just voted

  37. 37
    Wyoming Says:


    All I had to do was spell “Isthmus delivery”. I recommend something bubbly with your newfound loot, say a Jan 2009 Budweiser?

  38. 38
    Popeye Says:

    Love your charts Tater, a vote is a small price to pay.

  39. 39
    tater Says:

    Appreciate that. Added CHK. Looks like something interesting going on there.
    Bud? I’m much more refined than that being from Milwaukee.

    Quiz -Number one selling beer in the world in 1972? Number 3?

  40. 40
    Garyinhou Says:


  41. 41
    zman Says:

    Re CHK, has it gone low enough to satisfy the bottom of that base? Fundamentally its cheap but who cares about that.

    Re Beer, Guess would be Heineken and Bud

  42. 42
    tater Says:

    Come on now, that’s just too long even for a bunch of wine drinkers.
    Number 3 is PBR

  43. 43
    tater Says:

    Number one is …….Schlitz. No kidding. One of the biggest corporate screw-ups in history. Changed their formula to make the beer in a cheaper process and toileted the company.

    Can’t remember who was number 2.

  44. 44
    tater Says:

    CHK, it’s either here, the bottom of the gap on the 60 min chart or all the way back at 10 (or below that). Don’t know any more than that.

  45. 45
    nifkin Says:

    what about lone star?

  46. 46
    choices Says:

    Used to like Schlitz (and Hamns from the Sky Blue Waters) in my late High School years in Northern Montana.

  47. 47
    kyleandy Says:


  48. 48
    zman Says:

    Oil up $1.10 at just under $42, still bucking the sell the front month trend. Tomorrow will be the first big test for the March contract with 4Q Chinese GDP (I think consensus is for 7% growth) and then the oil inventory numbers. We should be seeing imports on the low end of historic norms (but are not so far) from the OPEC cuts. If we get another build at Cushing today’s gains will be gone. If we see a decline at Cushing and assuming we see anything at all positive it should give us a quick bounce into the mid 40s which should green light the stocks for the rest of the week.

  49. 49
    BirdsofpreyRcool Says:

    voted. thanks, tater!

  50. 50
    Jay Reynolds Says:

    voted Chicago Style

  51. 51
    zman Says:

    Obama speaking. Somebody should keep a record of his “at bats” vs the market.

  52. 52
    zman Says:

    Oil up $2+. Impressive, most impressive on the surface. But it looks like a bit of short covering after yesterday’s sell down of the strip. Going out a couple of months today is pretty unched.

  53. 53
    choices Says:

    SWN, SD up over 9% today

  54. 54
    zman Says:

    Talk about short memory, for all the disappoint and subsequent overkilling of SU, it is back to being the high beta proxy for oil today, up 9% despite a slew of price target cuts and at least one rating downgrade.

  55. 55
    zman Says:

    Choices – yes, rally broadening. Large cap E&Ps up 4 to 7% now, smalls and mids up 5 to 15%.

  56. 56
    tater Says:

    Added a 15 min chart for CHK. Shows a little more depth on the resistance points that need to be navigated. Thanks again for the voting.


  57. 57
    BirdsofpreyRcool Says:

    trying to decide if I should distrust this rally. Credit is definitely not playing along… but, not widening either. It’s good to see oil back above $40. Guess IBM and financials helping today.

  58. 58
    Bob Says:

    Any thoughts on NE going into earnings release AMC today? CC not until tomorrow at 2 PM est, so possibly time to react in morning. Possibly they make the $1.48 consensus but guide lower, tanking the stock?

    SLB is Friday BMO, so market reaction may predict a similar reaction Friday AM.

    HAL and WFT on Monday

  59. 59
    elduque Says:


  60. 60
    BirdsofpreyRcool Says:

    Market strength in equities and oil being attributed to speculation about a bank-rescue plan from the new President.

    Fix the banks, and the markets will take care of themselves.

  61. 61
    BirdsofpreyRcool Says:

    Bob – got a z-berry that said to tell you that he’s on a call and will answer your question in about 20 mins. So don’t go away.

  62. 62
    otrader777 Says:

    I voted

  63. 63
    Bob Says:

    BOP-Tnx, no hurry

  64. 64
    rseidman Says:

    I voted, too!

  65. 65
    BirdsofpreyRcool Says:

    Amazing… even with all the love being felt in equities today, the credit market is absolutely unchanged. Can’t stress enough, how important it is to get the SPX back above 850. The Bears are stirring and we need to see that level to send them back into their winter hibernation.

    IG 223 bps

    HY 75

  66. 66
    zman Says:

    Bob – apologies for the delay.

    Re NE, I’ll take a wait and see attitude. I’d heard talk their in the shipyard maintenance time may be higher than expected. If they beat and don’t guide poorly I like DO or RIG more as they have relative lower exposure to the Jackup market where prices are going to deteriorate more in the near term.

    As to SLB, very tempted to jump the gun and take puts. How can these guys talk about 2009 in a positive light. Same goes for HAL. Yes they’ve been bashed but rig count falling and through the year and service costs under enormous pressure (and have not really fallen yet).

    Wyo, Reef, chime in if you are seeing costs fall and if you think they are done falling, lol, but I really don’t get that impression. One of the E&P mantras for 2009 will be “paybacks a bitch”

  67. 67
    zman Says:

    Freeze warnings for Florida. That’s generally a good indicator for electricity and gas demand for next week’s gas storage number, perhaps a bit better reading than the initial forecast for HDDs.

    BOP – let us know when/if credit decides to play along.

  68. 68
    choices Says:

    BOP-Not sure about the implications but TBT (2x inverse of 20yr Lehman Bond index) is up 5% today, 30 yr Treas (as you well know) are down to 132 today.



  69. 69
    Bob Says:

    Z- Thanks. Will be looking for a SLB entry on the short side tomorrow, especially if it runs up into earnings

    Re:67 The gas turbines were running this morning at FPL. However, with a 30% rate increase at FPL and Progress recently (2005 hurricanes), many people are setting their thermostats down in winter, tempering the electric draw, FWIW

  70. 70
    BirdsofpreyRcool Says:

    Thanks, Tom. That’s one ETF i’m watching closely these days as an indicator of corporate bond issuance.

    There are two ways that the TBT ETF will go up if we see an uptick in the volume of corporate issuance: 1) selling of US Treasuries to buy risk-assets, and/or 2) selling of US Treasuries to hedge underwriting of new corporate bonds. In both these cases, an increase in TBT is correlated to an improvement in corporate bonds.

  71. 71
    zman Says:

    Bob – I’m still not sure I’ll do it. Me shorting is usually a sign of the apocalypse but I’m no poly anna and if I stuck to my guns on the short the OIH concept after that early Jan headfake I’d be a happier camper now.

  72. 72
    zman Says:

    Oil up 3.10. So the headline writers either have to save demand has improved, lol, or that its just a function of the equity market rally.

  73. 73
    crysball Says:

    Vaalco Energy up 11.9% on the day on light volume.

    IMHO they have a big upside in the making with their new shallow offshore Ebouri field in West Africa [Gabon].

    They are currently finishing up an Ebouri Horizontal Gravel Pack completion this month [Transocean Adriatic VI] , and will start to produce oil to the new Ebouri platform (tied back already to their FPSO (Petole Natupia) by the end of the month. After they finish the Horizontal, they are going back and drilling another [the 4th] Vertical Pilot at Ebouri.

    They also made a strike 1.5 miles away at Ebourin North [Pride Cabinda rig] and are currently running a sidetrack and the vertical Pilot hole

    Vaalco has already said the Ebouri production will exceed estimates [they had estimated 4,000 b/d].

    They Adriatic VI will be truned over on March 9 to consortium partner Adax, which will move the rig just a couple of miles away to start drilling the Adax Gryphon Marin concession…..all this activity leads me to speculate this field is MUCH LARGER than expected.

    All IMHO.

  74. 74
    VTZ Says:

    Z – What is a sustainable price for NG in order to maintain supply? Obviously production is falling quickly now, what kind of increase would stimulate enough drilling?

  75. 75
    zman Says:

    Crys – Addax is a very good operator.

    Oil at $44. Guess I got the rally I was looking for at the top of today’s post. Was there any one thing to cause this or just a bounce after yesterday’s bludgeoning. We could easily give the oil gain back with an off kilter number so I won’t get long(er) until after that, unless its to take a look at the offshore drillers.

  76. 76
    zman Says:

    V – its going to vary from Basin to Basin as you know but ballpark average is probably $6.50 Henry Hub. Kind of depends on where service costs go this year too.

  77. 77
    BirdsofpreyRcool Says:

    Bloomberg article out attributing rise in nat gas prices to cold weather we’re having. Gee… somebody must have stepped outside for lunch again.

  78. 78
    zman Says:

    Rally looks a bit out of steam, not going to chase pre oil numbers tomorrow at 11 EST.

  79. 79
    VTZ Says:

    Yeah, I just wasn’t sure about the ballpark average when you consider all the different plays. Could the 20% service cost reduction knock it below 6?

  80. 80
    choices Says:

    I tend to agree that I do not trust this rally but I’m reasonably impressed as how the mkt and crude are holding up. I did buy some May SLB puts today as an insurance hedge as I’m long the stk and way underwater. If they miss the consensus estimate or $1.07, I will hold the puts for awhile to see what develops.

  81. 81
    zman Says:

    It might bring back a couple of those shales, hard to say if $6 is right, at present, its the best I can glean from a lot of sources.

  82. 82
    BirdsofpreyRcool Says:

    FWIW, sold my HK trading shares. I promised myself I would lock in profits more quickly. This should send the stock to new highs…

  83. 83
    zman Says:

    Choice – I agree with the “reasonably impressed” statement. Me too, well said. After so many headfakes you start to get jaded. And that’s healthy as it allows you to play another day. I’d like to see this continue AFTER the oil numbers. Gas is probably less important to the market although it will kill stocks like SWN to get a sub 170 number after this run.

  84. 84
    crysball Says:

    Gaza war’s outcome determined in first 4 minutes
    DEBKAfile Exclusive Report

    January 19, 2009, 9:12 PM (GMT+02:00)

    The Israel air force demolished two key Hamas war systems in the first 4 minutes of its massive offensive on Gaza Saturday morning, Dec. 27, DEBKAfile’s military sources report. The bombers destroyed six mosques in Gaza City which held the terrorists’ biggest weapons arsenals and scores of “beehives” containing launchers primed for the simultaneous, automatic release of hundreds of powerful rockets against Israeli cities.

    These launchers were rigged for precision-targeting in Israeli town centers. They were operated by a unit of 300 special Hamas operatives trained for their mission at a Syrian military bases under the instruction of Hizballah rocket specialists.

    The aerial offensive knocked out 80 percent of the rockets Hamas had prepared to launch and saved Israel’s southern cities. The Palestinian Islamists were left only with inferior projectiles. Therefore, 98 percent of the hundreds of missiles they managed to fire in the 22-day war missed their targets and exploded in open ground.

    Answering questions about the extreme destruction wrought in Gaza and the high number of casualties – more than 1,300 – Israel commanders described combat conditions as the most complicated they had ever faced: Every second apartment building was booby-trapped and every third building concealed arms caches. Weapons were concealed under children’s beds and in basements. Inside of fighting out in the open, Hamas gunmen by and large avoided engaging Israeli troops, relying on these death traps.

    Monday, Jan. 19, the second day of the ceasefire, the second-echelon of the Hamas leadership emerged from their fortified bunkers after three weeks underground, claiming they had vanquished the Israeli enemy. The top leaders remained invisible. The homeless people picking their way through the rubble for their broken possessions were not exactly welcoming

  85. 85
    zman Says:

    BOP – I sincerely appreciate any effort you can make to get HK higher including taking one for the team.

  86. 86
    BirdsofpreyRcool Says:

    z – LOL. Anything for the Team, man!

  87. 87
    zman Says:

    Flatter contango by far from a week ago. Front months have come up while the out months are flat to down in the last five days. The impetus to tanker loads of crude for later delivery at a higher price just went way down.

    March: 44.14
    July: 50.19
    March 2010: 55.61

    The 12 month contango was $20 a week ago. This like means more production reaching the market which should again pull the front month down pretty quickly. Trust no one. Keep your sell button ready.

  88. 88
    BirdsofpreyRcool Says:

    wow. Kinda forgot what a green day felt like. Note to self: feels good.

    Credit just stuck it’s hands in it’s pockets and stood on the sidelines today, watching, waiting. If equities can get the ball past the SPX 850 line, then credit will jump back into the game.

    Closed only 10 lousy points away from that goal line… bring out the Cheer Leaders and keep the ball moving in the right direction!

  89. 89
    BirdsofpreyRcool Says:

    SD – just closed their preferred convert deal. Raised $244mm net.. but ended up paying 8.5% with only a 19% convert premium. That’s a nice piece of paper to own… get paid 8.5% and still get over 80% of the upside in the underlying stock. Plus, senior status to the common equity.

  90. 90
    mahout Says:


    Also voted for you. Don’t worry about HK. It’s going higher courtesy of BOP. LOL


    I sure know the feeling.

  91. 91
    BirdsofpreyRcool Says:

    HK – if my evil plan works, y’all owe me a fruitcake next Christmas for taking one for the Team. Hold that thought.

  92. 92
    BirdsofpreyRcool Says:

    whoa… AAPL’s results look pretty good. Should help the tone tomorrow. I see a fruitcake in my future.

  93. 93
    calvo Says:

    Z, what’s your view on this: http://www.energyinvestmentstrategies.com/2009/01/21/alberta-water-limits-a-warning-to-oil-sands-producers/

    Thanks for you opinion!

  94. 94
    zman Says:

    Calvo – I’ll put it in the mailbag section for the morning post.

  95. 95
    Definition Says:

    […] Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » So … Here’s a link to that post in which I included some definitions of MLP metrics which are unique to the group and most of the stuff written then still applies.  Mail this post […]

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