Pre Super Bowl Friday With Lots of Earnings & The Natural Gas Slide Shows

Posted on by zman

 

GDP down 3.8% versus an expected drop of 5.5%? Sounds like good news. Exclude the impact of inventories which are flying higher and that goes to 5.1%, the weakest growth in 28 years. Higher product inventories will lead to lower output so lookout Q1 GDP estimates. Otherwise, have a nice day. 

 

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Storage Review - Better than expected withdrawal. With cold weather we can still get to a decent trough storage level.
  4. Natural Gas Supply Review - EIA updates supply for November, if you're looking for a big roll in production, you are early, skip this section or be disappointed.
  5. Stuff We Care About Today - NFX Reserves.
  6. Earnings Watch - ACI, CVX, XOM (all with calls at 11 EST!)
  7. Odds & Ends

Holdings Watch: No changes yesterday.

Commodity Watch:

Crude oil eased $0.72 yesterday to close at $41.44. Crude seems to be holding up well despite further deterioration in U.S. economic data. This morning oil is trading up slightly.

Natural gas added $0.16 to close at $4.58 yesterday after the EIA released a better than expected storage withdrawal of 186 Bcf (see charts and thoughts next section). This morning gas is trading up 3 cents

  • Natural Gas Supply Update Watch: November data release: The quick read is total supply up nearly 2 Bcfgpd from October to 59.9 Bcfgpd, the majority is Gulf related restarts following Ike/Gustav shut ins. November production was the third highest of the year. See the full review below but suffice it to say that Texas is not yet showing rollover (its early to expect to see that) while Rockies and "other states" production continued to show higher production as well.

Natural Gas Storage Review

ZComment: Bigger than expected draw. I think I overly discounted the impact of a jump in electricity generation and the share that gas may be taking from coal given the current low prices. More of these sized withdrawals please. By the way, early read on HDDs was low for this week and could result in the first 200 Bcf withdrawal of the season next Thursday ... sometimes the light at the end of the tunnel is not a train but a gas powered lamp. 

 

Notes For Graph A) below:

Price does not always relate well to storage. At this point gas storage is only slightly above the five year average and year ago levels and is below 2007 and 2006 levels at this time of the year. Those years saw much higher January gas prices. The perception remains that we will see storage at the end of the withdrawal season well above the seasonal troughs seen below.

 

 

Natural Gas Supply Slide Show: U.S. Lower 48 gas production hit its second highest level of the year in November 2008 (most recent data available). Were it not for continued storm related production curtailments from the Gulf of Mexico we probably would have topped 60 Bcfgpd as Texas and Wyoming and several of the lessor or "other" states continued to climb. The rig count had not come off nearly as much then as it has now and it will take time for flush, initial production to work its way through the system and for declines to become evident. The average decline rate for gas production in the states is thought to be about 38% per year with the shale wells falling 80%ish in their first year so this isn't a question of "if" but "when" production rolls over given the plunging trajectory of natural gas directed activity in the states.

My best guesstimate is we see a slowing in the February data for the other states, and Texas towards mid year. The initial impact will be dampened in the Spring by the continued recovery of the Gulf of Mexico to pre storm levels. By July or August, we should be approaching something like a balanced market assuming a modest recovery is underway for industrial demand. I will look to sharpen this a bit with whatever new thoughts are dropped by APC, CHK, DVN, and EOG on their conference calls in coming weeks.

 

Stuff We Care About Today

NFX Releases Decent 2008 Reserve Data

  • First a general comment on reserve metrics. Finding and Development costs (F&D costs) and reserve replacement defnitions can be found on the Z's Dictionary tab at upper left in more detail but the basic concepts are these:
    • Finding & Development Costs. The cost of finding and developing hydrocarbon reserves, measured in dollars per unit ($/ Mcfe for a company with gassier reserves or $/BOE for an oil firm). The "all in" number is basically the capital budget divided by the reserve additions. The drillbit only number excludes Lower is better.
    • Reserve Replacement. This measures the relationship between a firm's production in a year versus how much they added in terms of reserves (which will be produced in future years). In general you want to add more reserves than you produce as this is generally the sign of a growing firm. The metric is expressed in % terms and you generally want to see it above 100%.

 

  • Ok, Back to NFX's 2008 Reserve Numbers:
    • Reserve Growth: of 18% ending 2008 with proved reserves of 2.95 Tcfe on the books.
    • F&D Development Cost:
      • All in: $3.02 per Mcfe; including 66 Bcf impairment the number rises to $3.31 per Mcfe. This is probably going to be about average this year.
      • Drill bit only $2.85 Mcfe (this excludes asset purchases)
    • Reserve Replacement: 294% (that's good any year, and especially this year given all the commodity price related write downs)
      • Production for 2008: 235 Bcfe
      • Reserves added for 2008: 758 Bcfe (less asset sales of 2 Bcf and that 66 Bcf impairment)
      • Reserve Replacement = Net Reserve Adds / Production = 294%. Not shabby at all.
  • New Face of Capital Budget
    • Gulf Coast division did not have a good year, capex there falls 70% this year, flows to higher return shale plays.

Earnings Watch

ACI Reports Better Than Expected Quarters; Playing It Safe 2009; Optimistic Intermeadiate and Long Term On Coal

  • The 4Q Numbers:
    • Revenue of $729.9 mm vs $714 mm expected. Avg sales price per ton eased $0.62 to $19.76.
    • EPS of $0.44 vs $0.39 expected. Avg cost per ton fell $0.41 to $16.24.
    • Cash margin per ton: Cash margin inching slightly lower to $5.72 from $5.79 per ton in the third quarter). On the year this is a stout cash margin per ton increase going from $3.96 in 2007 to $5.81 in 2008. 
    • Volumes: up 4% YoY
  • Outlook:
    • Reducing output to match environment (same as other coal producers right now).
    • Not projecting 2009 earnings due to the difficult market environment (recurring theme there)
    • Sees 16.5 gigawatts of new coal-fired capacity under construction in the U.S. now with 2/3 of that on line by the end of 2010.  That will equal incremental coal demand of at least 56 mm tons.
  • Balance Sheet: Debt to cap falls to 43% from 46% at YE07.
  • Conference Call: 11 EST

 

XOM Reports Easily Better Than Expected Quarter

  • The 4Q Numbers:
    • EPS of $1.55 vs $1.45 expected
    • Upstream Volumes: down 3% on a BOE basis from 4Q07. Would have been off 1% ex impact of OPEC and lower entitlement volumes.  Lower crude prices shave $3 billion off upstream earnings vs the year ago quarter.
    • Refining segment reported a loss of $20 mm
      • plan to spend $1B upgrading 3 refineries to produce more clean diesel
    • Chemical segment earnings fell to $155 mm from $1.1 B 4Q07
    • Repurchases 2.2% of shares out in the 4Q for $8 B. Share count fell 7.5% last year. Nice.
  • Cash Balance: Will listen for on the call, not mentioned in the press release.
  • Conference Call: 11 EST.

CVX also looks to have reported better than expected numbers and I'll look them over after the open.

Odds & Ends

Analyst Watch: FBR ups (NFX) target from 35 to 38.

Zeb Super Contest: Tired of waiting out contests tied to corporate takeovers? Cold because you need a free hat? Guess the the total super bowl score and take care of both problems.  And we'll throw in a coffee cup if you guess the number of extra points correctly. Submit entries by 5 PM CST Friday, with SUPER at the beginning of the comment. Some terms apply:

  • Offer to subscribers only,
  • Limit one set of forecasts per subscriber,
  • Offer invalid in Nigeria, Somalia, Cuba, and Red Square.

 

88 thoughts on “Pre Super Bowl Friday With Lots of Earnings & The Natural Gas Slide Shows”

  2. Just wanted to give an update on CHK price action. I know that most people don’t care about a 15 min chart, but price has formed a triangle at what I consider to be a determinative location. The break from this triangle could give a good clue where price is headed. (It is also the underlying action to the seeming rejection of price at the 50 EMA on the daily view). Give it a quick look and keep it in the back of your mind.

    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2933882

  4. Trading Desk Trading Recommendation for Today (not much conviction behind it tho) —

    For Today: Same game plan. Same horrible odds. Go long on the morning pullback for a rally up into lunch and 2:35. Look for a few points with below average odds of 55/45. Be sure to tighten stops after any rally in the morning and especially after 11:15 and 12:40. And tighten again at lunch at 1:40. Trading after 2:35 is probably not worth it.

  5. super pitt 34-14 am having similar contest at my bar for free drinks for feb. wud u like to submit your entry??

  8. SUPER

    Total pts = 46
    X Points = 5

    I don’t comment much, but I read the posts and comments religiously. Keep up the good work everyone!

  9. Red State over big bad blue, Cards 31 Pitt 24. Looking for a big XOM number today. Looking for some wins Z!

  11. Kyle – 38 pts. Where’s the bar?

    Tentative feeling market. Waiting for a bit more pullback before considering an add to the ACI. Numbers not bad, stance may be seen as overly conservative.

    Thanks for the market reads BOP/ELd

    HK still outperforming peers over the last couple of weeks…Last year they gave a ops update prior to earnings results…probably lots to say but so far silent (other than they slipped another two wells into last weeks presentation). Of course, you run the risk of them doing a secondary if the stock gets much higher so if you see the press release, you’ll see me sell calls against the brief pop (if its during market hours).

  12. Mr. Mrkt did not like the U. of Michigan Confidence number released at 10 am. He was expecting 61.9, but got 61.2. Seems like a bit of an over-reaction. But FEAR is a greater driver than GREED.

  13. BOP – I think Pisani summed it up pretty well…mkt participants tired of playing a market where the reality and expectations on the eco numbers are so divergent.

  14. hmmmm… interesting comment.

    I’ll pass along a thought from a long-time professional equity analyst friend of mine — he says he looks FOR opportunities where there is a large divergence in expectations. If everyone is thinking the same thing (like consesus earnings), then you don’t outperform the market.

    So, to be tired of playing a market where expectations and reality don’t match is to be tired of the process of investing, i guess.

    Can’t blame anyone for that. “Investing” these days seems to have the life-span of a Tasmanian Devil with ADD.

  15. make that “attention-span”… I have a feeling Tasmanian Devils are used to running around wildly in vicious circles and can live long and healthy lives doing that. As opposed to the rest of us.

  16. Morning all.

    Z sorry I haven’t put that chart together as yet. The short term count for oil is doing my head in!

    I am somewhat staggered by the response to the GDP numbers. I dread to imagine where we would be if they had come in worse than expected!

    Cycles still point to a low in this timeframe but we are on the edge of a precipice as far as do we retest the lows and lower right now. It would not take much to invalidate the fact that we are still in wave iv with another leg up needed as have us in v down instead.
    Same with oil.

  17. Is Maracaibo a valid location to place entries from (given the other exclusions)?

    Great Nat Gas data this AM.

    total points 42
    Extra Points 5

    p.s. Hugo sends his regards and asked us to place the following Ad on your Wesite:
    ‘Looking for Jackups….warm tropical nights, good fishing, lots of work, great day rates, terms to be negotiataed,……..free lodging /meals for crews should you have to stay over.

  18. Nicky – no worries, completely understand. Share when you got it figured out!

    On GDP it seems the inventory build was nasty. Less production down the road so 1Q numbers probably going down.

    Nat gas sagging…part market, part EIA supply report.

    Maracaibo is fine. Why punish a whole country because of one nutbag? Nice ad. Better offer full value on the rig up front + double the day rate.

  20. Steelers 27 cards 14 = 41 points 5 extra points

    wish the Eagles were playing instead of the cards.

  21. Z,

    I looked at the EIA report and it seems that nearly all states with the exception of Wyoming and the GOM had NG production peaks earlier this year and it looks like production is starting to come off. Do you think that one month make a trend that could accelerate due to the rig drops?

    Thanks

    Bill

  22. Wow …. market heading into the tank. Hard to be shocked by much anymore but these roller coaster weeks are for the birds. Very hard to do anything but trade for very short term profits. Best action there is to buy strong stocks at the LOD (easier said than done finding that) and then trade back out in a day or two. I’m not the best trader for such short swings so I’m trading less temporarily until the market grows a spine and a heart.

  25. z need score for each team. my contest a little harder bar in venice, fl (60 mi south of tampa

  26. Sport – We must be looking at different charts. Texas hit a new high in November as did the “Other states” production which includes Colorado CBM and conventional gas and Arkansas’ Fayetteville shale among others. I think we see mid-continent fall off more quickly than the others (you’ll be able to see it in the Oklahoma data) and Texas last, sometime around mid year but that’s a guess that I hope to improve with the help of the bigger Texas producing E&Ps soon. I don’t think one month does the trick but 2 or 3 more should show the signs of rolling over and at least flattening of growth rate as the rigs come off.

  27. Gaam – No, not that I saw. Generally people expect them to grow +/- 2 to 3% per year globally and to decline by 1 to 3% in the U.S. where they have shown little interest in trying to grow. That will be different next year as they get a full year of Thunderhorse in the deepwater Gomex production which should be about 250,000 bopd but that’s in all the models already.

    Ahhh, Venice. 24/14 Cards.

  30. Bob, in response to your query yesterday afternoon, (I was out most of the afternoon), I would urge caution at this point and in hindsight, I talked myself into jumping the gun on some of these Can gassy trusts. Case in point, PWE after the close yesterday announced that they were issuing $C250 million in new units to raise cash-naturally the stock got hammered this morning with news of the dilution.

    Almost all of these energy trusts have cut distributions and may cut more in the future-all need cash, have high debt levels, and without a strong move in NG (which does not look like its coming any time soon), they are just hunkering down and cutting distributions and capex. I watch or have owned on NYSE: PWE, ERF,AAV,HTE,PGH,PVX and DAY.UN and PEY.UN on Canadian exchange (the latter two have listing on OTC but difficult to get real time quotes. DAY has worked out for me with fairly conservative management. PWE mgmt causes concern. Some such as AAV are continuing to develop reserves but at a slower pace. PEY.UN has low costs and debt and has a high yield as do all but in this environment, who knows.

    Sorry if I mislead you but as Z would say, it is too early as well for these gas producers. I guess the feeling I have right now with PWE maybe will instill some patience but that has never been my strong suit.

    Best,

    Tom

  31. Z, I was looking at Table 5 on page 14 that tracks marketed production. Would you be kind enough to share your page of info?

    Thanks

    Bill

  32. Choices – thanks for that followup. I’m no expert on MLP (know enough to be dangerous elsewhere in energy land though) but I know of one long time, smart, MLP fund manager who got clocked last year. When the financial markets unfreeze there is going to be massive consolidation in the space. I think the ability to do a deal and buy your competitor will be a function of balance sheet and reserve report. Bigger low cost reserves will be able to come to the equity market soon to snap up the beaten down assets. The markets are opening back up. Lots of debt deals done and some secondaries as well (WLL got 8 mm shares out the door yesterday).

  33. z – when u track how the mkt does when obama speaks, do u use end of the day , or when he finishes, or other?

  34. Sport. Sure, I too am using Table 5 from this link from the Natural Gas Monthly:

    http://www.eia.doe.gov/oil_gas/natural_gas/data_publications/natural_gas_monthly/ngm.html

    I download the Excel link at the right and then put it in my file which puts everything in daily terms (no use comparing raw volumes month to month as the months all have different numbers of days in them making February inevitably look like a runt). Also recall that Texas and Louisiana had power outages associated with Hurricane season that brought September and October numbers down temporarily while the Gulf of Mexico was much more impacted by Ike and Gus. But in November Tx and Wyoming both were at 2009 highs. The other states which are broken out (NM, OK, LA) are more flattish. And the “other states” were at a new high.

  39. Choices- Thanks for 30. I have set up a watch list of MLPs, but agree that now is not the time to be brave. Will wait for NG to stabilize, and watch quarterly distributions

  40. Obama appears to have tanked the Dow. This does not bode well as we have another four years of him at least!

  42. ACI CC

    Focus on cost control,

    2009E – production of 120 to 127 mm tons, down from 138 mm tons 2008.

    $24 to $27 per ton cost for 2009 guidance for their western bituminous coal, up from about $22 in 2008.

    Not going to be adding any ACI until next week if at all. Analyst numbers are going to be coming down some.

  43. Great cargo, got ya down. Actually it was a test to see who reads to the bitter end of the posts, lol.

    Nicky – re 40. Maybe it was Biden.

  44. My read on the day so far:

    E&P not bad again relative to an ugly market. Lowish volumes, not big moves down. Some spots of green (people liked the NFX numbers), SWN still trying to rally, EOG up on an old bit of news about the Barnett oil play carried like its new news on Upstream.

    Majors – up and will likely go much higher with any semblance of a market bounce. XOM and CVX good numbers, and COP has been overbeaten down.

    Independent refiners – red across the board, even TSO, despite outperformance of gasoline and heating oil relative to heating oil. They probably complete reverse the days loss for you day traders if the market bounces given gasoline but I’m not yet will to drink that coolaid. Inventories are too high, demand still low.

    Coal – taking a hit due to ACI conservatism.

    OIH – down but it feels like just market related noise. Could move further down on the rig count this afternoon but their seems to be a lot of resilience building up in names like RIG (up today).

    Solar – good numbers and thoughts out of SPWRA last night. FSLR getting a small sympathy rally there.

    Next week we get several of the big cap E&P’s to report.

  45. That per ton cost on ACI is for the whole company, not just western bituminous. So we have fixed cost leverage making the per ton cost jump from $16.22 per ton in 2008 to a range of $24 to $27 with the higher end early in the year. That’s ugly.

    Obama impact on the coal industry from ACI: they always see regulation tightening, think it favors them and the other big companies who run safer and cleaner operations. They see intense debates in congress and statements out of the administration but that the economy will take precedence and they won’t get anything done negative to coal.

    They do see some natural gas displacing some of the older, less efficient coal-fired plants, not clear on how much.

  49. XOM CC Highlights:

    Thunderhorse: peak at 250,000 bopd and 200 MMcfpgd in 2009.

    Competed 8 major project startups in 2008.

    UK LNG regas site commissioning now. Will add 2 Bcfgpd of capacity into the UK market.

    Qmax LNG carriers offer 80% more capacity. 4 commissioned in 2008.

    Brazil: currently drilling in sub-salt. Should see some headlines out of Brazil 1H09.

    Downstream:

    Investing > $1 billion in refinery upgrades to 2 U.S. and 1 Belgium refinery. Will add as much diesel capacity via this upgrade as you get from 4 average size refineries.

    more in a second…

  56. tator, looked at your 15 min on CHK (and voted) CHK seems weaker than XTO, SWN, and HK, at least recently.

    Do you have a similar chart for HK of recent vintage?

    Thanks

  57. SUPER total: 34, xp: 4

    RE: Choices/Dman/Bob… I’ve said it before and I’ll say it again, IPL.un for a solid yield and low risk.

    COS.un for oil-based trust and incredible value as compared to SU.

  58. XOM call summary. Not a lot of guidance. Not a lot of analysts on the call which was at the same time as CVX but I’m not sure they all still have jobs either. Otherwise …. Zzzzzz….

    Market punching new lows.

    My political comment of the day. President Obama seems to favor unions. Unions may very well call a strike that closes much of the nation’s refining capacity over the weekend. So I wonder who he sides with, the unions or the American driver.

  59. Choices,
    HK – Not seeing anything on the 15 or 60 min charts that really presents itself as anything more than trading noise. I really think the info on the daily is far superior as it contains the “real” points of support and resistance. Too much attention to the shorter term charts will likely lead to missing the big picture on that name.
    HK daily chart
    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2933882

  63. I’m not saying cos is low risk or high yield. I’m saying it’s levered to oil and is THE play long-term.

  65. z – was shut out of all the fun the last 2 hrs… connections down. Will check up on credit mrkt and report back.

    Seems like the mrkt doesn’t like our sharp turn to the left. Check out the union work stoppage in France yesterday… they want more job security and higher wages and less work for teachers. All wonderful things… but, I want to believe in Santa Claus too. Doesn’t mean he’s real, tho.

  66. ZTRADE: Added (5) HK $20 Feb Calls HKBD for $1.20 with the stock of 50 cents in a week market. This is the repositioning to a little more leveraged position mentioned in the previous trade.

  67. Credit market a little weaker with stocks. No surprise, as credit is watching the stock market these days.

    There is definitely a bid for investment grade debt — a beautiful thing to behold. The number of companies issuing commercial paper off the Fed’s balance sheet came down. So, companies taking off the training wheels and issuing their own CP.

    Money continues to come in to buy higher-grade corporate debt, albeit at wide spreads. We are seeing the effect of people not buying treasuries as much in favor of non-govt debt. Good stuff.

    Where the news is not so good is in the below-investment-grade land (like our friends, HK). The Junk Bond index is back to it’s lows with the underlying individual bonds trading even wider than the index (not good). Good thing HK and CHK got thru the debt-door… don’t know how much longer it is going to stay open for junk issuers. People muttering about the upcoming uptick in default rates again. I would argue that higher defaults are already priced into the wide spreads… but we all know that what we THINK investors know, is not what investors DO when the news actually comes out. So, we could see some downward pressure on the high yield market. That said, it’s marked-to-market pressure, unless your bond defaults. So, if you like the yield and want to buy a bond in a company that you think will make it through the downturn, do it. I think coupon-clipping is a fine way to make a living for the next coupla quarters.

    IG 199 bps

    HY $74.125

  72. Reef – would you actually wear the hat? The easy money (well easier) is the the number of extra points to get a coffee cup. Everybody drinks coffee, you have to to get through snoozer market days like this one.

  77. Rally this beast for me, gotta step away for 20 minutes.

    RMD – should have been more clear, choices not mutually exclusive. If every picks same and wins, everybody gets stuff.

  80. V – regarding IPL & COS: maybe you’ve said it before but I guess I wasn’t paying attention.

    Now that I’m paying attention, I see COS listed in the RBC hedging report & mentioned along with BTE as having the most “torque” to recovery in energy prices. Looks like the US symbol is COSWF.

  81. I think the real matchup is the Cards front 7 vs the O-line, Spaeth and Miller.

    Cheering for Cards, the only thing to worry about in the secondary is Hood.

  82. If you guys want to see commentary on lots of the canadian trusts or oil and gas companies just go to the http://www.bnn.ca website and watch some of TV clips of “market call” or “market call tonight” with focus on Oil and gas or income trusts… it will at least give you gusy some ideas. You could look at the list of top picks as well.

    BNN is approximately a million times more responsible than CNBC.

  86. Credit Market pretty quiet since around 1pm. New CHK 9.5% bonds (issued at 95.07) were fairly active, tho, offered at 98.25. Nice rally off the issue price.

  87. S&P down 8% for January. Way to start the new year. That’s on top of a 38% loss for 2008 for those of you keeping score. January is often seen as a barometer for the rest of the year. I wonder if that holds true if the preceding year was such a loser.

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