Wednesday – Oil Inventory Preview + Plus A Few Other Items

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Stimulus Watch: Medical research and tax breaks for purchasing a new car together pushed the stimulus plan over $900 billion last night. Hmmmm, sales tax and interest payments now deductable on a new Suburban? I thought one of my jobs as a responsbile citizen was to buy a Prius, oops, that's really not buying American, so make that a Ford Focus, that helps the U.S. get off foreign oil. Now my government is encouraging me to borrow money, the more the better really, and is willing to give me a credit for buying even a gas guzzler. Granted this will have the effect of pushing money down to the states where budgets are rapidly shrinking but it seems, well, irresponsible. Desperate times indeed. And today the Senate turns to housing with a proposed $15,000 credit for anyone buying a new home. Doesn't that actually reduce the value of all existing homes much like when car companies offer cash back on new models? I know we are trying to artificially get things rolling again but as a taxpayer, who actually pays employment taxes by the way, I have to ask "what about me? I bought my ranchette 5 years ago? Where's mine pal? " Anyway, looks like we're going for a $T-sized stimulus plan by the end of the week.


Market Sentiment Watch: The market action here is the word of the day: heteroskedastic.

Today's Eco-Data:

  • ADP - sees January Payrolls down 522,000 vs current expectations of 525,000 when the non-farm payrolls number comes out on Friday. Recall that ADP overshot the mark last month estimating 659,000 job losses to the government's subsequent release of 524,000.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crude Inventory Preview
  4. Earnings Watch
  5. Stuff We Care About Today - APC, ATW
  6. Odds & Ends


Holdings Watch: The Wiki is updated.

  • Sold the RIG Feb $50 calls for $5.20, up 55% (did better with the first half of that trade).
  • Buying (3) ATW March $17.50 calls (ATWCS) for $1.40 with the stock at $16.50. ATW reports after the close today. See more on this in the Stuff We Care About Today section.

Commodity Watch

Crude oil rose $0.70 to close at $40.78 in equity market influenced trading and a modest sell off in the dollar. CNBC reported a story mid day that OPEC compliance was holding steady at 2/3rds of the decreed production cuts which is pretty good since the group normally manages about 50% compliance. This morning crude is trading up $0.75 ahead of inventory numbers which are expected to show yet another record level for oil in storage at Cushing, the Nymex pricing point.

  • OPEC Watch: January production from the Cartel was 26.2 mm bopd, down 1.05 mm bopd from December and 1.36 mm bopd above their target of 24.85 which is pretty good compliance. Angola's oil minister, the current OPEC president, said the group may cut production quotas further at its March 15th meeting if prices don't rise. Impact: better than expected compliance a smal plus for crude; prospect of further cuts done the road may be given a little more credence by traders.
  • U.S. Refinery Worker Strike Averted - this should allow products, especially gasoline, to fall back from recent rebounds.
  • Nigeria Watch: Nigerian oil workers union is threatening a strike for next Monday if the government does not take immediate steps to improve security in the Niger Delta. This comes on the heels of an attack that killed an oil worker's daughter last week and I'd give the strike better than usual odds of taking place. This is an upstream workers strike and would very likely affect production and in the past this action has raised the political instability/fear premium by $2 or $3 per barrel. Grade for Yar A'dua government in curbing violence and boosting Bonny Light production since taking office last year: C-. Reporters on the ground in Nigeria are making Somalia-like comparisons pointing out that much of the violence and kidnapping is more lawlessness and greed than the freedom fighter style efforts of MEND in 2005/2006.  



Natural gas fell $0.04 to $4.51 as the reality of big wells in the Haynesville, ((HK) announced four more boomers), overtook the prospect for a 200 Bcf withdrawal tomorrow. Gas appears to be attempting to form a bottom in the mid $4s. I think this will ultimately fail, probably in March when warm temps prompt an earlier than normal end to the withdrawal season. This morning gas is trading up slightly.


Large Cap E&P Multiple Update: You may have noticed I've been relatively absent from the large cap E&Ps for the last several months (excepting the occasional trade in EOG and CHK). My current thinking on the big guys:

  • We've reached that time of the year when fund managers, if they are paying attention at all, will start to look at the 2010 numbers.
  • Right now, those out year estimates are less concentrated around a mean than normal given the high degree of uncertainty regarding commodity prices and service costs and therefore budgets and production growth. 
  • The 4Q conference calls should provide analysts with enough data to firm up not only the 2009 but the 2010 numbers.
  • You can definitely tell who hedged more than others by the change in 2008 to 2009 in CFPS.

  • Once 2008 reserves are released for all of the group it will be a little easier to draw the "this guy's too cheap relative to his peers" conclusion and given the market's current lack of focus, I don't see a need to rush back in. 


Crude Inventory Preview: 10:30 am EST; estimates in the following table from the Bloomberg survey.


  • Crude Oil: Another big build but it was 7 mm barrels last year and this expected build is only slightly bigger than the five year average for this time of year (a 2.6 mm barrel increase). Either way, we have goodly levels of crude on hand and we need to see increased demand for products to get utilization up to forestall further big builds.
    • API reported an 8.1 mm barrel build. Again, the data here does not correlate perfectly as to magnitude but should be a good indication that analysts are thinking in the right direction (build in stocks).
    • Imports: looks like any other season as far as imports go, you certainly cannot tell OPEC just cut their production quota by the biggest amount in the cartel's history. This needs to begin trailing lower to support crude prices at these levels.
    • Refinery utilization remains at record lows for this time of year and it looks like it will remain low for the next several weeks as refiners reduce runs and extend elective maintenance in the face of weak, albeit, improved crack spreads.
  • Gasoline: Demand needs to rally this week if it is to track seasonally. Imports remain firm and if we don't see some demand response soon gasoline in storage will quickly build into the bloated inventory status that crude and distillates now labor under. 
  • Distillate: Bitterly cold weather has helped demand on the heating oil side but diesel demanded for transportation and for export continues to suffer. Need to see production fall off here more with maintenance.

Earnings Watch:

DVN Reports 4Q08 Results. Don't own it now, big ceiling test writedown on low prices but that should get shrugged off,  reason to listen to conference call is for Barnett Shale growth guidance (they exited 2008 producing 1.2 Bcfgpd from the Barnett which equates to about 2% of U.S. lower 48 gas production.

  • Announces new shale play Cana.
    • 112,000 net acres
    • nearly 4 Tcfe estimate recoverable reserves (great, just what we need, another big shale play)
  • Conference Call: 11 EST.

Stuff We Care About Today

APC Announces Another Deepwater Discovery at Shenandoah. Management on the 4Q call yesterday said to expect news here soon, but I don't think anyone on the call thought they meant quite so soon

  • Shenandoah - 5,750 feet of water, 30,000 foot total depth. See map here
  • Walker Ridge Block 52 (essentially the middle of nowhere for infrastructure)
  • 300 feet of pay, noted higher quality Wilcox sands than previously seen by industry in the Lower Tertiary play
  • Comes on the heels of Heidelberg middle Miocene discovery earlier this week (see Monday post)
  • APC operates with a 30% working interest, COP has 40%, MRO 10%, and the remained is private.
  • Nutshell: will give analysts confidence to upgrade the stock as they point to the recent successes. No change to numbers as this would be at least 4 years to initial production (probably 12 to 15,000 bopd best guess per development well here). Probably adds $1 to $2 to Net Asset Value thoughts here. 

Service Costs Update:

  • Follow up from yesterday's conference call, APC expects 20 to 40% drop in service costs in 2009. That's higher than most people have been thinking and will be a double whammy to the OIH names outside of the deepwater arena as they see both volume and price decline. Management said they will push very hard for price cuts.
  • DVN's call today should add more fuel to this fire.

ATW Reports After The Close Today

  • I swapped my RIG February calls (they'd done their job) for March ATW calls yesterday
  • We don't talk about ATW often but its in the offshore driller group straddling deep and shallow water and on the smallish side vs many of the other household names like RIG, DO, NE with only 9 rigs.
  • ATW has been beaten down with the other oil service names and the general market by roughly 75% from its summer highs
  • Business has not deteriorated (barring some unforeseen rig downtime)
  • They have one rig that came off contract in mid December and its potential placement could offer upside to 2009 estimtes. If it remains warm stacked there is little downside for the stock since the rig was for the most part pulled out of analyst's '09 numbers following the 3Q call.
  • Rates have remained aloft for semisubmersibles (a majority of their fleet) and high end Jack Ups
  • Operating cost improvements may make it into guidance this quarter. While personnel costs are unlikely to fall there is a good chance equipment costs will be coming down leading to improved margins.
  • At last check, 75% of 2009's available rig days were contracted.
  • Stock is trading at relatively low 4.0x next year's number which unlike non-offshore and deepwater focused names is expected to be up.


Odds & Ends

Analyst Watch: (LNG) upped to Outerperform at RBC, (ESV) and (CPX) cut to perform at Opco, Wunderlich picks up small cap E&Ps (ME), (MMR), (ATPG), and (WTI) as Buys in the "gutsy move Mav" play of the day. 

NAPE - February 5,6 in Houston. The preeminent oil and gas prospect venue is in Houston this week and while I'm not going this year (busy breaking in the new intern) we do have a contact on the floor there who will be shouting back things I need to look into.

Interesting Idea Watch: Senator Luger backs the "net zero" gasoline tax hike.

Well Duh Watch: Green jobs don't necessary mean good pay.

132 Responses to “Wednesday – Oil Inventory Preview + Plus A Few Other Items”

  1. 1
    Sambone Says:

    By Reza Amanat

    LONDON (Dow Jones)–Crude futures traded higher in London Wednesday, supported
    by firmer European equity markets and anticipation that the Organization of
    Petroleum Exporting Countries may decide on further trims to oil production at
    the group’s next meeting.
    However, participants’ immediate focus is likely to center on the release of
    U.S. Department of Energy crude and oil products inventory readings, with
    expectation of significant builds in crude stocks due to set the tone for the
    oil markets.
    Late Tuesday, statistics released by the American Petroleum Institute reported
    crude inventory builds of 8.13 million barrels, a figure above market
    “The increasing probability of further OPEC cuts have helped provide a floor
    to crude oil but if the DOE statistics confirm the API build, it should take a
    bit more time before crude oil can break the range to the upside,” said Olivier
    Jakob, managing director of consultancy Petromatrix in Switzerland.
    At 1203 GMT, the front-month March Brent contract on London’s ICE futures
    exchange was 47 cents higher at $44.55 a barrel.
    The front-month March contract on the New York Mercantile Exchange was trading
    51 cents higher at $41.29 a barrel.
    The ICE’s gasoil contract for February delivery was $2.00 lower at $420.75 a
    metric ton, while Nymex gasoline for March delivery was 45 points higher at
    117.15 cents a gallon.
    Oil prices gleaned a measure of support from higher equity markets in Europe,
    which were lifted by better-than-expected U.K. manufacturing data. But with
    U.S. DOE readings, due for release at 1530 GMT, expected to show significant
    builds in the country’s crude inventories, any strength in crude values could
    be short-lived, traders said.
    Crude in commercially held inventories in the U.S. are forecast to have risen
    by 2.9 million barrels in the week ended Jan. 30, according to the average of a
    Dow Jones Newswires survey of 13 analysts. Gasoline stocks are expected to have
    grown by 600,000 barrels, while seasonal heating oil demand is likely to see
    distillate stocks drawn by 1.4 million barrels, the survey showed.
    “A significant rise in crude inventories could push the market lower,” Andrey
    Kryuchenkov, vice president of commodities at VTB Capital in London, said,
    although a fall in distillate stock could lend support to oil prices “provided
    crude numbers do not disappoint,” he noted.
    Meanwhile, comments by OPEC officials earlier this week that the group may
    consider further production trims at their next meeting on March 15 – to guard
    against building global oil inventories – continued to influence market
    Iran’s OPEC governor, Mohammad Ali Khatibi, told Dow Jones Newswires late
    Monday that suppliers could take steps to balance brimming global crude
    stockpiles by cutting output further.
    -By Reza Amanat, Dow Jones Newswires

    Dow Jones Newswires
    02-04-09 0713ET

  2. 2
    Sambone Says:

    DVN = Ouch

  3. 3
    elduque Says:

    BDI +168 1316

    TED +1.204 93.63

    The sky is falling, the sky is falling. It is????

  4. 4
    reefguy Says:

    dvn- gonna trade down $2 at open

  5. 5
    zman Says:

    DVN = glad I don’t own, want to listen to call for reasons in post, Barnett guide mostly. That was a bigger writedown than people expected.

    Eld- going to write up the dry bulks tomorrow, was looking at the charts there this am. Survival of the fittest mode will yield some good buys.

  6. 6
    BirdsofpreyRcool Says:

    Trading Desk Technical Recommendation for Today: Go Long on the morning pullback, usually early, for a rally up through lunch. 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 11:20 and 12:15. And tighten again at lunch at 1:45. Trading after 2:15 is 50/50.

    (No mention of Full Moons in this one.)

  7. 7
    tater Says:

    I have not bought into LINE yet as I was waiting for a pullback to the 20 EMA. They announced that unit holders as of close of biz on Feb 6th get a .63 payout. Not familiar with how these big dividend payers trade but I thought the pullback usually comes after the payout, not before.
    Wondering if anybody can shed some light on this name for me.

  8. 8
    zman Says:

    Thanks BOP

    Tater – they generally trade down by the distribution amount the day it is paid. I wrote a piece back in late October and updated it on the 20th of January on the upstream MLPs highlighting LINE. I do not own it yet either.

  9. 9
    zman Says:

    and now we wait on Obama to speak on the stimulus.

  10. 10
    zman Says:

    FSLR – sitting up and taking notice of a chart that looks, to my layman’s TA eye primed for a move higher.

    HK – back to acting like you would expect, a touch better than the group and it has the advantage of already having announced its reserves, its reserve writedown, and its 4Q production and exit rate so operationally its somewhat de-risked compared to names like DVN who surprised with the reserve writedown on the same day as earnings.

  11. 11
    zman Says:

    ATW looking scoopish pre earnings tonight.

    ISM Services better than expected

  12. 12
    zman Says:

    Lot of bearishness out there. I know, go figure. Listening to CNBC pretty early this morning: multiple guests calling for Dow 6,000 to 7,000, some as soon as the next 3 weeks.

    One other thing to note, Stephen Schork, pretty smart fellow on oil, not as bearish as before. When asked why oil should rebound with the economy and now hang out at recession levels of $40 or $50 he basically said “this time its different” due to demand. Demand is higher on a per capita basis than in last cycles so once the global economy recovers those same people will be wanting oil again.

    Oil #s in 25 minutes.

  13. 13
    tater Says:

    Thanks for LINE. TSO up into the 200 EMA. Don’t know if that’s the resistance on this one. Seems like it would be either here or the $20 level.

  14. 14
    zman Says:

    Thanks on TSO – my botched refining trade there. They continue to defy gravity, probably because of a rolling short cover and a push by 3 or 4 refining analysts who’ve said its a bottom fish buy. No reason to add more until the chart breaks their will in my book. No reason to further fight a trend that’s working but not reason to go along with it either as product prices should come off relative to crude any minute, day, or week now.

  15. 15
    zman Says:

    Tater – how important is a breach of a level to you vs a close above that level. I know it probably varies from stock to stock and chart to chart but looking at HK which needs to take out $21 on its way to a gap fill around $22+. If it goes over 21 but then closes below is that good enough to keep upward momentum in your book (assuming it stays near here and doesn’t spike into the red).

  16. 16
    choices Says:

    Not sure if this adds anything new to the arguments on the supply side but at least it summarizes fairly well (by Matt Simmons.)

    This is in the FWIW column-sent to me by a former collegue.


  17. 17
    zman Says:

    crude up 7.2 big

    gasoline up 0.3 light
    distillate down 1.4 mm barrels – in line

    imports 10 mm bopd, that’s too high

    more in a bit

  18. 18
    tater Says:

    You’ve outlined the exact problem with TA. I find it to be the equal to psycho therapy. Just as much art as science, and a need to take a what works is true attitude.
    Personally, I find breaches as opposed to closes to be indicative of stop gunning from Wall St. That doesn’t really help, as sometimes they gun stops, pull it back, get you out, then push it through. Very frustrating, but that’s what they are paid to do.
    I think that the trend lines and MA’s are good up to a point. You also have to take into consideration the larger time frame trend as well as any patterns that seem to be over-riding the whole picture as well.
    Sorry, no real good answer.

  19. 19
    zman Says:

    more inventory report

    gasoline: one bright spot in the report, demand did bounce back to 9 mm bopd

    distillate remained flat.

    so this is a not bad report for refiners as imports continue to pile into the country (Cushing up to 34.3 mm barrels by the way, another record) and products saw an unexpected uptick in demand.

    Probably a trading in buying VLO hear.

    Crude is shrugging off the big inventory build so far…not sure that lasts all day unless the market stays aloft.

  20. 20
    zman Says:

    Tater – no, that helps, thanks. Perhaps in my overly simple TA world I should measure closes only…

    By the way, I’ve got a smart friend, money manager, who still charts the XXX OOO charts by hand and finds usefulness there if you need to kill a little time, lol.

  21. 21
    BirdsofpreyRcool Says:

    Goldman Sachs on the tape saying they would like to pay back TARP money. There’s a bunch of blah-blah-blah about “why.” Personally, I think they want to push the camels nose OUT of the tent. Too funny. In an ironic sort of way. The Boys from Goldman got us into this Govt Pickle (think: Paulson). Now they are leaving their own party.

    Smart guys. They play the game well.

  22. 22
    zman Says:

    Gasoline loving those numbers. No option play in UGA (the gasoline ETF) as the spreads are atrocious. Best play may be VLO or even COP.

  23. 23
    zman Says:

    BOP – I think 9 out of 10 bankers would give it back if they knew about the proposed $500K compensation limit. Is that total comp…if so, a lot of those guys will quit and got to the beach. And is it for execs or for the whole firm because executives would be making a lot less than the managing directors if not and that won’t fly…no one will take the job.

  24. 24
    zman Says:

    Thanks choices, will have a look, always good to see the latest tweaks to the bull/supply side story from the king.

  25. 25
    zman Says:

    FSLR continuing to act right. Note the link at the bottom of today’s post re green collar jobs. You’d make more making your father’s oldsmobile.

  26. 26
    choices Says:

    I’ve been watching copper futures and a couple of copper producers which I own-copper and the stocks have been firming up lately-in the past, has indicated “some” improvement in industrial progress-couple of the dry bulk shippers also up strong after getting hammered last week. I guess I’m always looking for a piece of good news.

  27. 27
    tater Says:

    A better answer is that is why I always attempt to look at a name with attention to three time frames. One above, one below, and then the time frame in which you are attempting the trade (weekly, 60 min, and daily charts for a 3 day to 2 week trade time frame). Again, stocks trend in different directions based on the time frame.
    A breach on one time frame is a close in another (obvious, but stated for emphasis).
    The ultimate trade is when the trends on all three charts align in the same direction. Some people don’t trade at all unless they do. Personally, I wish I had that kind of discipline.

  28. 28
    BirdsofpreyRcool Says:

    z – re: 23… absolutely!

    As i read it, the total “cash comp” is limited to $500k. But, they can award restricted stock above that amount.

    Anyway you slice it, why run a troubled US bank for that amount? People may not like the fact that those guys make so much (i HATE it)… but, they are not all bad either. Jamie Dimon only made $1mm last year. It’s the Thains and Lewises and Fannie/Freddie execs that are the Poster Children of stupidly-excessive compensation. But, they are throwing out the baby with the bathwater here, with this exec comp $500k limit. Something that Washington does really really well (think: Sarbanes-Oxley).

  29. 29
    tater Says:

    Good source for the above concept is Trading For a Living by Elder. Interesting book, easy read.

  30. 30
    zman Says:

    Choice – a friend of the site sent me some interest commodity price bar charts (about 20 commodities yesterday) for year to date and week to date performance. Copper was one of worst performers last week, don’t recall year to date but other commodities were picking up which is noteworthy. I’ll see if I can get an update.

    Tater – thanks much.

    BOP re 28. “Poster Children of stupidly-excessive compensation” can I add Katie Couric at $15 mm/year ?! Obama about to speak on compensation…do we not have more pressing things to discuss?

  31. 31
    zman Says:

    DVN call about to begin.

  32. 32
    BirdsofpreyRcool Says:

    z – DEFINITELY add Ms. Couric to that list!! Maybe Bill Gates too… i mean, where do you stop? Who’s to “sit in judgement” of executive compensation? It should be “fair,” of course. But I think it was Aristotle who said: The worst form of inequality is to try to make unequal things equal.

    This is what govt is “best” at, when they put on their activists hats.

  33. 33
    zman Says:

    RE HK – its also encroaching on its 200 day ema from below (looks to be 21.20 or so)

    Tater – fyi, your CHK call from last week is coming back up.

  34. 34
    BirdsofpreyRcool Says:

    Gotta love the Hawk.

    z – aren’t you long some $20 calls there?

  35. 35
    zman Says:

    DVN CC

    No write down would not have occurred under the new SEC rules for year end pricing of reserves.

    Debt to cap under 20%

    CFPS was a beat for the quarter

  36. 36
    zman Says:

    Re #34. Yep, that’s the reason for the TA questions, considering a roll there, small gain now (37%) but this market is roulette with each open so why not take profits and buy them back lower. I got the news I had been looking for yesterday and the market yawned and is now paying better attention. I’ll punt these if it doesn’t move above $21 soon and will definitely let them go on the $22 gap fill and then re load with some similar strike for March.

  37. 37
    zman Says:

    Same goes for the BEXP news out yesterday. Best ever Bakken well for them at 1,200 bopd and the stock was essentially unched on the day. Today, up 14%.

  38. 38
    zman Says:

    DVN still blah, blah, blahing. Will let you know of anything noteworthy.

    There’s one. New guidance is flat production for 09 vs 08. Zoiks.

  39. 39
    BirdsofpreyRcool Says:

    Credit Market Update: it’s all better today. For now. The IG index touched the lowest level in 2009 this morning at 190.5, before backing up a bit. Investment Grade substaintially outperforming high yield. January IG issuance was over $140 billion, the busiest January ever.

    IG 193

  40. 40
    zman Says:

    Gasoline up 4.4% vs a 1.2% bump in crude. Fill up now, we look to be going back to $2 retail land in most of the U.S. soon.

  41. 41
    zman Says:

    Obama speaking now. Dow was up 40 at the start of the speech.

  42. 42
    BirdsofpreyRcool Says:

    The POTUS is holding a press conference on exec comp. Wow. Let’s pick at nits and ignore the elephant beneath.

  43. 43
    zman Says:

    Hearing that big Haynesville well out there was an open flow rate, not choked back, don’t know length of test.

  44. 44
    zman Says:

    BOP – take notes for me, lol, I’m listening to something important, the DVN outlook for 2009.

  45. 45
    choices Says:

    Re: compensation, I agree with the comments about govt interference but it does not seem to me that the Boards of Directors have been doing their jobs-the executives were (are) making out like bandits with bonuses etc with horrible performance of company while the average worker is either laid off or pay is stagnent or the job is shipped overseas-the ratio of exec comp to average worker comp is off the scale-that is where the Dems are coming from-Jim Webb, who I respect (one of few), has been talking about this for months.

  46. 46
    zman Says:

    Reef / Wyoming / anyone. Know of anyone playing in this new shale DVN is talking about, the Cana?

  47. 47
    BirdsofpreyRcool Says:

    choices – I totally agree with you. I have been yammering about excessive exec compensation since the late 90s… often to the execs themselves (you only get to do this when they come asking you for money). I just knew it would get to the point where people would want the govt to weigh in on the topic… and I was afraid we would get to that point.

    Most execs/boards are fairly responsible. It’s the Poster Children who make life difficult for the 90% of the rest of us. (like Enron and WorldCom… really the only two mentioned in “defense” of Sar-Box… the bill that drove non-US companies away from listing on US stock exchanges in droves).

  48. 48
    zman Says:

    Cana Shale

    Talking about repeatable success stage,

    see drilling 27 wells in 2009 with a 4 rig program.

    says the last 4 wells are 8 Bcfe wells (nice).

    don’t know depth, cost.

  49. 49
    zman Says:

    Devon – Barnett Shale

    23 rigs now vs 39 in 4Q

    1.17 Bcfgpd in 4q

    2009 – see spending $750 mm on 200 wells, see cutting rig count to 8. That’s eight, no typo. Wow.

  50. 50
    cargocult Says:

    Sorry to weigh in on the compensation issue but these CEO’s need to be working for $1 a year until they get their house in order. Steve Jobs did it when Apple was in trouble and it had an amazing psychological effect. There is actually more status at this point from foregoing compensation than receiving big bucks for poor performance. It’s not like most of those guys actually need the money.

    The effect on “Main Street” of wealthy business leaders sucking big bucks while their companies fail and complaining that they have no incentive to work hard is very undermining for society at large and shows zero leadership in troubled times. I thought they had to earn their keep just like the rest of us. Maybe they are “Royalty” and we just haven’t caught on.

  51. 51
    reefguy Says:

    Cana shale, do you mean Caney shale?

  52. 52
    zman Says:



    11 wells planned for 2009 – not exactly a tsunami of gas there.

    1st 2 wells had problems, 3rd well not yet completed by found thick, organic section

    I would have thought they would have gone after this play much harder.

  53. 53
    zman Says:

    Reef – that’s what I thought at first, the caney/woodford but they are talking about the Cana, sounds like a different deal, got distracted when they first announced it. These are much bigger wells than anything I’ve heard of in a Woodford well.

  54. 54
    reefguy Says:

    Cana new for me, could it be Rockies?

  55. 55
    zman Says:

    Reef – Its Oklahoma but don’t know what part of state. Maybe they are just being sly with the name. If they are and are getting results like that you have to wonder what NFX is thinking not targeting both the Caney along with the Woodford. Hopefully they get a question on it in the Q&A.

  56. 56
    reefguy Says:

    32 rigs running, down by 2/3rds Gonna be staff reductions…

  57. 57
    zman Says:

    I was shocked to hear their Barnett division is going to 8 rigs. The are going to 2 in the Haynseville, 4 in the Woodford if I hear right, not real active up in the PRB. They are focusing on shareholder value and not trying to maximize gas production which is exactly what I think they should be doing. Wish CHK would go to 0 growth but then there’s all that debt, isn’t there. And a need to drill to get they acreage held.

  58. 58
    reefguy Says:

    z- how many floaters are they committed to? That is where dinero is tied up

  59. 59
    zman Says:

    Dunno, they are going to outstrip cash flow by $1 billion.

  60. 60
    reefguy Says:

    4 rigs in Cana and 4 in Woodford suggests same; it is a Caney/Woodford play

  61. 61
    zman Says:

    DVN is the cause of the 18 cent natural gas rally.

  62. 62
    zman Says:

    Analysts are busy downgrading DVN now.

    DVN Barnett:
    680 wells in ’08
    200 wells in ’09

    Says rig costs falling dramatically now

  63. 63
    zman Says:

    Reef, I think so. Will go back and read transcript. Those EURs imply good tidings for NFX.

  64. 64
    reefguy Says:

    Analysts better start rethinking gas Y/Y from 09 to 10

  65. 65
    reefguy Says:

    Cana in Anadarko basin…, they have 112,000 net acres

  66. 66
    reefguy Says:

    Cana- from 8K they have drilled 10 wells to date current production is 20 MMCFPD

  67. 67
    zman Says:

    Reef – yep, I see it and the net rate, wonder what the gross is. Sounds more and more like the Caney. Glad to see them not ramping it up…why would you with those mid-continent differentials? Anyway, I’ll shoot a note over to my NFX guy to confirm its same, if so, it seems that’s good news for them as the largest acreage holder in the Woodford.

  68. 68
    choices Says:

    Z, you have probably mentioned it several times but where does HK stand with projected cash flow versus cap ex and debt paydown? How does it compare with CHK?


  69. 69
    reefguy Says:

    Cana, same as in eastern Ok, buy at 14,000′(Overpressured like the HY-IMHO) and 200 bcfg recoverable/section. $9MM a whack

  70. 70
    zman Says:

    Choices – they are both supposed to be keeping spending in line with cash flow for 2009. Floyd at HK I believe. He had the 1000 yard stare back in October at IPAA and said then they’d knock it down as prices warranted. Aubrey on the other hand needs to build up his trust bank with analysts, investors (me) again. He’s a bit Jekyll and Hyde on growth vs price.

  71. 71
    choices Says:

    Thanks, Z. I need to review more closely the resources you have in upper left corner of site which I just looked at again. The data you have under E & P is well worth serious study.

  72. 72
    zman Says:

    Choices – I think it is but it also gets stale from time to time. I’ll be updating the bubble reserve charts which should begin to be useful again in setting floors on the stocks after the 4Q numbers are all out.

  73. 73
    Dman Says:

    choices, any thoughts on what would be a good way to play copper?

  74. 74
    Dman Says:

    Z – #12 “… and now hang out at recession levels”

    Should that be “… and not hang out at recession levels”


  75. 75
    zman Says:

    Yes, “not”, not “now”. In past recessions oil prices have often been slow to rebound.

  76. 76
    elduque Says:

    In past recessions, the amount of surplus oil available was significantly different than today.

  77. 77
    BirdsofpreyRcool Says:

    elduque – re#76

    B-I-N-G-O!! Precisely correct. Any rebound has the potential to be bungee-cord-like. (the Snap-Back Affect)

  78. 78
    choices Says:

    Dman, PCU and FCX are heavily in copper but carry political risks with some ops in Peru and other “?”countries-FCX is a huge company and very volitile, has also precious metals ops, PCU also has other base metal ops. Both have been severely hammered in past several months-I would suggest being very very careful because copper is NOT going to turn on a dime but I think it is a useful indicator that maybe things are not completely dire-it is going to be a long slow slog in 09 but probably better in 2010 as with everything else.

  79. 79
    zman Says:

    Gasoline demand was actually up 1% YoY. One week does not a trend make but that’s the first time we can say that year over year demand was positive since March 2008.

  80. 80
    ultyguy Says:

    Anyone have any thoughts on WRES? Trading in the $2 range from the $14 range about 7 months ago.

  81. 81
    zman Says:

    Re Warren. I like that name and that story but do not own. Generally familiar with them and have come close to writing them up twice. Needs high oil prices to work but I have not modeled it up. Will take another look and get back to you. Probably runs risk of a good sized write down this year but who doesn’t.

  82. 82
    zman Says:

    Market has not had a real uptick since the Obama compensation speech earlier.

  83. 83
    zman Says:

    So, on the logic that the government gets to weigh in on the operations of private enterprise if it helps during an ailing economy, shouldn’t it limit executive pay or other wise punish the homebuilders if their is a $15,000 tax credit offered to prompt home buying?

    Movie quote of the day ~ “This business will get out of control, it will get out of control and we’ll be lucky to live through it”

  84. 84
    Dman Says:

    Cramer has a piece today basically saying that the G-man has no plan. (G-man = my nickname for Geithner, as in “tax, what tax? Ooooh … that tax. Now I see it.”)

    It worried me right from the beginning of the transition that a lot of old-timers from the Clinton era were being yanked out of the freezer, microwaved & sat in front of Senate confirmation hearings. What about the idea of new blood? Didn’t any smart people show up since the ’90s?

    Of course the same goes for warmed-over Bush appointees & Cramer all along has said the G-man was getting off lightly for his part of the disasters. Admittedly he’s been saying that in his usual obsessive-lunatic manner, but sometimes even Cramer is right.

    So Z, my point here is that unless Obama can start figuring out who actually might have a clue as opposed to who is a cozy member of the Beltway mafia, the market will probably begin to wish he gave less speeches. If we are lucky, the market will rally in between the speeches.

  85. 85
    tater Says:

    Biggest mistake trading today; not shorting HOG after the Buffet move yesterday. Not exactly going to be an over-night turnaround and likely to not be such a good thing for common holders.
    Biggest mistake I’m making currently; not shorting SBUX into oblivion as price is up about 17% in two weeks.
    What does this have to do with energy? Seems like $ is moving around. Traders appear to be playing the sector rotation theme. The love me today and then leave me game could be profitable as dogs turn into chocolate covered goodies covered in caramel, and vice versa.
    Very flighty market.

  86. 86
    zman Says:

    Roger all of that Dman.

    Oil finally gave up as the broad market swooned, looking to close at the $40 mark again or somewhere near it. Surprising it didn’t panic sell lower but utilization was up a tad (that won’t last as we move into Spring).

  87. 87
    Fiveanddimer Says:

    Overall market seems to have developed a case of the heebie-geebies this afternoon. I wonder how much of this has to do with Friday’s release of the Jan unemployment report. According to Jim Puplava over at Financialsense.com, January is one of the two months every year, when the Dept of Labor readjusts their birth-death model. We know the undoctored unemployment number will be ugly, but if there is a significant downward adjustment in the b-d model,the total number could be psychologically traumatizing.

  88. 88
    BirdsofpreyRcool Says:

    z – i gave up… had to google your movie line. Good one!

  89. 89
    zman Says:

    Hear ya flighty, round tripped some nice gains myself today, too bad I’m not a day trader.

    Very green screen here for such a red day. For you new guys see the ZEB Screens link at upper left for what I generally am watching.

  90. 90
    zman Says:

    I find it noteworthy that SLB and HAL and NBR and BHI are shrugging off the DVN screeching tire sound in the Barnett. Tells me people have priced in the rig count going much lower. Hard to believe the stocks will happily go higher from here with the weekly count falling and service costs just starting to erode.

  91. 91
    occam Says:

    BOP – Any reason not to buy KOG at this price (.25)?

  92. 92
    Sambone Says:

    Looks like BAC is really going to become “The Bank of America”. It’s trading like it will be govenment owned before the end of the week.

  93. 93
    zman Says:

    Sam – CNBC saying rumor is below $5 some funds will have to punt the shares, same rumor as citi before it.

  94. 94
    zman Says:

    just added a little more ATW, little higher priced than yesterday

  95. 95
    zman Says:

    Bloomberg survey looking for 196 Bcf draw on inventories tomorrow. Gas traders would really like to see 200+ to get gas back closer to $5.

  96. 96
    BirdsofpreyRcool Says:

    occam – just saw your question. i’ve been watching KOG myself. without being able to go into details, i know there is a major seller out there. what i don’t know is why. but the seller was shopping 900k shares this morning. i have a feeling it’s one of the funds who is facing a lot of withdrawals… but, there is no way to confirm this.

    more in a sec.

  97. 97
    BirdsofpreyRcool Says:

    KOG TD’d their 1st bakken well, then skidded 50 ft to spud their second well. KOG bore only 20% of the operating cost of that first well (for their 60% WI)… but will bar 60% of the cost of the 2nd (for the same 60% WI). After the 2nd well is drilled, they will move a completion rig onto the 1st location.

    Here’s my question: if (for some reason) the 1st well was “bad” somehow, for heaven’s sake… why would they skid 50 ft to drill the 2nd?

    Only negative thing i’ve heard lately is weather has been pretty harsh over the last two weeks, so the timetable may have been pushed back a couple of days. If they stick to the timetable I have for them, I expect to see them announce they TD’d the 2nd well sometime around Feb 16th.

  98. 98
    elduque Says:

    Do you still like ATW at this price for a pop tomorrow?

  99. 99
    BirdsofpreyRcool Says:

    KOG – I don’t mean to sound like I’ve got non-public info on the company… ’cause I don’t. I know about the 900k shares being offered… but, so does everyone else who was offered those shares today. As far as operations, I just have to ask myself “does it make sense to spud the 2nd well (and bear more of the costs) if you weren’t pleased with what you saw in the 1st well??”

  100. 100
    zman Says:

    Yes. I took March just in case they had a currency trans issue or if they have unexpected down time. But their outlook should be positive.

  101. 101
    zman Says:

    BOP – how did they pick the location?

  102. 102
    zman Says:

    Market hanging on testimony of Volker now. This is now way to run a market.

  103. 103
    BirdsofpreyRcool Says:

    z – re: KOG… i can’t recall. There was some good reason… don’t know if it proves up the most acreage… or is the closest to existing production (6 miles away)… or is just the first parcel that made it through the permitting process. I’ll have to check and get back to you.

  104. 104
    zman Says:

    BOP – they don’t have 3D right, just 2D across the area?

  105. 105
    occam Says:

    BOP – Thanks, I am nibbling.

  106. 106
    BirdsofpreyRcool Says:

    z – correct. 2D seismic.

  107. 107
    BirdsofpreyRcool Says:

    z – but it’s not a structurally complex area… so 3-D wouldn’t buy you much more, in terms of economic information.

  108. 108
    zman Says:

    Ok, thanks, just wanted to make sure they weren’t drilling off well control alone. I assume they are in the middle of a section drilling 2 laterals in opposite directions with the horizontal portion a little under a half mile long, something like that?

  109. 109
    zman Says:

    Right, I was hoping they didn’t pay up for 3D. I’d bet they had shows of some sort in well 1 before skidding.

  110. 110
    Dman Says:

    Energy mostly green with the dollar up & both crude & the broad market down. This improbable sounding result is either random or it means something; I’m inclined toward the latter.

  111. 111
    BirdsofpreyRcool Says:

    And now for something completely different — Moody’s just confirmed New Zealand’s AAA status. That made Bret and Jemaine very happy.

  112. 112
    zman Says:

    Dman – yeah, me too. Dollar appears to be losing momentum.

    Chalk one up for the new President speaks and the market gets a drubbing column. Executive comp for TARP takers is a red herring. Sure I think it needs to be addressed but the only thing it stimulated was everyone’s Orwell gland.

  113. 113
    BirdsofpreyRcool Says:

    z #108. Yes. Drilling laterals in opposite directions. The lateral length on the first well was over 5,100 ft. They didn’t drill down to the TF/S on these first two wells, but plan to in following wells. Just concentrating on proving up the Bakken on the Rez.

  114. 114
    zman Says:

    Rookies. I would have drilled a pair of pint sized laterals and then blamed the low IP on the limited number of frac stages. Just kidding, I’m sure they’ll do fine.

  115. 115
    BirdsofpreyRcool Says:

    z #109 — KOG CEO said: “The oil shows encountered during drilling the MC #16-34-2H are encouraging, however economic quantities of hydrocardons can only be determined after hydraulic fracture stimulation operations and the ultimate completion of the well.”

    So, yes. They had oil shows.

  116. 116
    kyleandy Says:

    z – re KOG u said they prob had “shows” how accurate are they that they have a producing well??

  117. 117
    BirdsofpreyRcool Says:

    z – LOL. 25c shares usually don’t show up in the same sentence as “I’m sure they’ll do fine.” 😉

    On the other hand, if they prove up this acreage with the first well, they can sell the company for $2/share, I would think.

  118. 118
    zman Says:

    They’re not. The CEO said the right thing. You can get dribs and drabs of gas and oil during drilling that look the same for a producer as they do for a dry hole pre frac. Its better than no shows at all but it could still be uneconomic.

  119. 119
    kyleandy Says:

    bop wud u guess somebody took the 900,000 or with the stk on lod maybe there’s more left??

  120. 120
    zman Says:

    $5,300 an acre? They have something else of value, right?

  121. 121
    BirdsofpreyRcool Says:

    Z – yes. cash and pre-paid capex (mainly pipe) + value of JV with DVN ($30mm). But, only works if acreage on the Rez proves up.

  122. 122
    BirdsofpreyRcool Says:

    kyleandy – looking at the trade recap, just under 800k shares traded at 25c just before 2pm. Also, looking at the VWAP, I see exactly 900k shares traded in total at 25c. So, what I heard this morning seems to be true. It also seems that seller is done… for today. There could be more shares behind that. Last week, there was a 500k seller out there. That is what crashed the stock (assuming you can crash a penny stock). I don’t know if it’s the same seller. I don’t know if there are more share behind it. But, the 25c trade looks like a “clean up trade” to me.

    z… any thoughts here?

  123. 123
    zman Says:

    BOP – you don’t know the name of the seller?

    There are 11 names with that much stock on the books at 9/30. I’d bet that means there are only 5 that could be the seller now and not be history after today. FIDO and Wellington I would not think would be punting down here…why bother and they know energy well. Maybe its Barclays, I hear they have their own set of problems. Otherwise there are some bucket shops on the list but again, they’d be done in short order at that rate.

  124. 124
    zman Says:

    disregard last, wrong name in the quote screen.

  125. 125
    zman Says:

    Ok, got KOG up now. Wellington, Fido, Westcliff all probably not selling down here. That leaves about 15 names and of those maybe 7 wouldn’t be done selling. This is based on some pretty old data. No chance you can grab the seller name?

  126. 126
    BirdsofpreyRcool Says:

    can’t figure out how to find that out. you? if you put a gun to my head… and i had to guess… NorthPointe, maybe

  127. 127
    zman Says:

    No easy way to do that, no broker contacts at the covering firms.

  128. 128
    BirdsofpreyRcool Says:

    if it’s “knowable”… i know who will know. But, don’t know yet.

    hope that makes sense!

  129. 129
    zman Says:

    ATW partially on the tape:

    Revenue of $165.5 mm vs $163 mm expected
    EPS of $1.22 vs $1.15 expected

    No new work yet for the Southern Cross semi sub which would have been a plus.

    More in a bit…

  130. 130
    BirdsofpreyRcool Says:

    ATW trading up nicely in the a/h

  131. 131
    zman Says:

    very little volume…no real pr yet

  132. 132
    zman Says:

    Still no real press release, going to gym, back in later with the fleet status comparison. Looks like a good quarter but no guidance and little color in the 8K, certainly would not trade it either way in the AH based on the limited data out as of yet.

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