Thursday – Oil Review and Natural Gas Preview Plus Some E&P Stuff


In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Preview
  4. E&P Spotlight - Mids & Smalls - Part I Comments & Slide Show - this section has been added to the top of the E&P tab.
  5. EIA Oil Inventory Review
  6. Stuff We Care About Today
  7. Odds & Ends


Holdings Watch: No changes yesterday.

Commodity Watch:

Crude oil rallied $3.73 to close at $45.38 yesterday using an unexpected draw down on crude inventories as an excuse for a rally after getting an early day jump-start from a glimmer of bright news from the Chinese industrial segment. This morning crude is trading off $1.20 as the equity market retreats over failure of a China to announce a new stimulus package each and every day and GM warns that it may not survive. Shocking.

Natural gas rose $0.06 to close at $4.34 yesterday. Today's gas review is below.  This morning gas is trading slightly with crude.

  • Vlad the Freezer Watch: Putin warns Ukraine he will turn off the natural gas flowing to them from Russia unless they pay their February gas bill by Saturday. Vlad, where's your sense of global unity during this time of financial crisis? Putin also warned that gas supplies that transit Ukraine to Western Europe would be affected. 

Natural Gas Preview

  • My number: 75 to 90 Bcf. Apologies for the wide range but the withdrawals get kind of squishy this time of year with the weather and that's before you look at the weakness on the industrial side of demand. The low end of my 
    • History:
      • Last Week: 101 Bcf withdrawal
      • Last Year: 139 Bcf
      • 5 Year Average: 121 Bcf withdrawal.
    • Weather: 183 gas-weighted heating degree days last week, down from 205 in the prior week (which gave us that 101 Bcf number).
    • Imports: up 0.9 Bcfgpd. This alone would account for 6 extra Bcf coming out of the withdrawal number.
  • Street Consensus: 98- 103 Bcf according to the Platts Survey



E&P Spotlight - Mids & Smalls - Part I Slide Show

A Few Comments And Then Some Charts: 

  • First, this is by no means a comprehensive list of the mid and small cap E&Ps but these are a few of my favorite and therefore most talked about names. I plan to add BRY, COG, XCO, PVA, and PXP at the very least to the list but you have to draw the line somewhere and so I'm starting with these 18 names. I plan to get my large cap data into this format next week (APC,APA,DVN,EOG,CHK,XTO).


  • Second, there is no magic bullet when looking at the following charts. No one chart is enough to say "hey, there it is! That's the one to buy!" Instead, I try to look at all of them in the context of the specific characteristics of the company and its resources and management team (and their current plan) and my thoughts on commodity prices. The following charts are however good to have at hand along with more I will add in the Friday and Monday posts (hedges, capital budgets, cash operating costs etc) and all of them will be deposited on the E&P tab for future quick reference.


  • You'll note that several of my favorite names fall on the high side of the ranking of valuations. I could simply say there's cheap and there's cheap for a reason and let it go at that but I won't. In the case of SWN and HK, you are seeing the 2P and 3P reserves shining through the valuation ranking. So when you look at the market's implied valuation of say SWN, and see it being listed at $4.89 per Mcfe, don't immediately think, "wow, that's expensive, with the best of deals last cycle down in the mid $4s how could they hope to be acquired (for instance) with current gas prices so low. The answer is they are unlikely to be just yet but that's really not why we're there is it? That's a high growth name (as you'll see from the growth table) so it gets a high multiple, but the unproven reserves are what is really keeping that name lofiter than its peers, along with an ever improving Estimate Ultimate Recovery story as it hones the process in the Fayetteville ... but I digress.


  • I've included today charts for:

    • Reserve Life: this is simply the companies Proven Reserves (using SEC permitted reporting under the existing rules, not the new ones) divided by the company's production in 2008. This is measure in years and gives you an idea of what kind of treadmill the company is on as they look to not only grow production but replace the reserves they have on the books. In general, longer is better.
    • Percent of 4Q08 Production Coming From Natural Gas: pretty self explanatory but useful when you are making a play on gas and the flipside of the number is of course the amount of production coming from oil.
    • Total Enterprise Value (TEV/ 2009 EBITDA): this is akin to price to earnings but much more useful as it lumps in the debt (net of working capital) in the numerator / and divides it by the pre interest earnings power of the firm. This levelizes the playing field when looking at two or more firms with drastically different capital structures, like CHK and EOG.
    • Market Implied Value Per Mcre: This is the TEV / Proved Reserves and tells you what value the market is placing upon the proven reserves of the company.
    • Price to Estimated Cash Flow for 2009 and 2010. This is like looking at the forward and the further out year PE but again, much more useful in an industry dependent upon reinvestment with various methods for looking at exploration costs, taxes etc. In general, the higher the RP or the higher the growth rate, the higher the P/CF.
    • Expected 2009 Production Growth: From company guidance. I may or may not buy it but its useful to keep at hand what story managmenet's are telling. I prefer the guys who play the game with an "underpromise and over deliver" mentality.

EIA Oil Inventory Review

ZComment:  When you look at where refinery utilization is (in the low 80%s) and you look at where gasoline consumption is (UP 2% now on the 4 week average relative to year ago levels), and then you look at crude imports(holding at just under average levels for the season), and then you look at the high level of OPEC compliance (several trackers saying between 80 and 90% which is in unheard of high territory so soon after a quota adjustment), you have to think that the impact of further cuts, should they be adhered to would put upward pressure on oil prices as refiners gear up for what is so far not looking to be fall out of bed gasoline demand (production of gasoline is currently below demand for gasoline).

CRUDE OIL - Unexpected dip in U.S. crude inventories driven by higher refinery intake and continued soft-ish imports.

Utilization and inputs: 83.1% utilization, still low but an improvement that drove a 400,000 bopd week to week increase in refinery demand for crude.




GASOLINE - Demand is up on a year over year basis despite all the bad news out there. This is the one area in crude inventories that isn't bloated and can lend support to oil prices.



Gasoline demand is up on a YoY basis on both the 4 week average and the single week read. Prices are lower by 39% vs year ago levels but a lot more people are unemployed as well meaning less commutes. Perhaps the unemployed are driving more going to interviews, getting out of the house for going out of business sales, etc.



DISTILLATES - Just way too much in storage. Demand continues to weaken despite coolish weather probably meaning diesel consumption on the highways and for export continues to slide.




Stuff We Care About Today

Exxon Analyst Day Today. Beginning at 9 EST. Click here for link.

EPL's CFO Quit. Just another sign of the weak times for the little players.

Odds & Ends

Analyst Watch: (GNK) upped to Outperform at Opco.

Shocking News Watch:  Congress ups spending on self more than other programs.


96 Responses to “Thursday – Oil Review and Natural Gas Preview Plus Some E&P Stuff”

  1. 1
    BirdsofpreyRcool Says:

    Great charts. Thanks, z. Something to peruse during the slow part of the day… hopefully, we have one.

  2. 2
    zman Says:

    If I’m to believe the headlines have the right of it, U.S. futures are giving back yesterday’s gains over China not adding to its recent stim pack and GM saying it may fail?!

  3. 3
    zman Says:

    Does anyone have a good source of trucking stats, monthly or even weekly basis? Would like to have historic data, don’t care if its miles driven of cargos driven or what. Just trying to gauge how much traffic is off.

  4. 4
    BirdsofpreyRcool Says:

    Credit Market Comments — Tale of Two Universes. Stock want to rally. Bonds are just inches away from jumping out the window.

    The junk bond index has fallen through the low of last year. The investment grade index is on it’s way back to the wides (293, if i recall correctly, but not there yet). Bond and CDS traders are starting to let FEAR creep into their daily comments. Everything the govt is doing now, is making the healing process in credit worse, not better. Law of Unintended Consequences popping up like a Whack-a-Mole at a Chuck-e-Cheeze. ‘Nuff said.

    IG 250 +5bps… solidifying it’s “oh-sh*t” level

    HY 67.75 -0.88 pts… pretty much continuing down the path of “we’re all gonna die”

    On the other hand, stock could bounce.

    Tech Trader’s morning comments next…

  5. 5
    BirdsofpreyRcool Says:

    “GM has a ‘going concern’ risk”… that has been the case for the last several years.

    “GM Board cuts Wagoner’s pay”… like showing up at an Easter Parade dressed like Santa Claus… a little late, pals.

  6. 6
    zman Says:

    BOP – No kidding. Standard auditor stuff being lifted from the 10K to make headlines. Pretty stupid to tout the obvious.

    Re: Wagoner’s pay … and he’s the better of them. Nardelli, he’s the one I could stand to see get bagged.

  7. 7
    BirdsofpreyRcool Says:

    Tech Trader comments — small odds of working, but buy the open, 9:35 EST most common LOD, but also look for lows later in the morning, around 10:50 EST. Highs are scattered throughout the day… tricky to pick a bottom. So, if “buy the open” works, will be out of the trade early and go home.

    No comments about where we close the day.

  8. 8
    BirdsofpreyRcool Says:

    Wagoner… Nardelli… put them in the same ballroom at the Sheraton and you can’t fit anyone else in the room. Their Big Heads take up all the space.

    I’ve seen up close how these guys “play ball…” If one is better than the other, it’s like holding a beauty contest at a leper colony.

  9. 9
    zman Says:

    BOP = LOL. Nardelli still owes me money from my days holding HD, during a good economy, that cat made out a lot better than the shareholders.

  10. 10
    zman Says:

    PXD dividend trimmed, says excess cash to be used to buy back 1 mm shares. Lot of debt but not on the road to trouble. Just slashing activity and I do mean slashing in the face of low oil and gas prices.

  11. 11
    elduque Says:

    BDI +83 2167

    TED +1.728 104.54

    Commerce is doing better

    Credit is slipping.

  12. 12
    zman Says:

    PXD will be interesting to watch for a reaction to a buyback…why they have a yield in the first place is kind of a mystery to me with that debt load.

  13. 13
    zman Says:

    Cramer wrote a great piece last night after WH spokesman Gibbs went on the attack. Cramer now an enemy of the state? If anybody has a link it was a very well thought out piece but it was subscription only as of last night.

  14. 14
    Dman Says:


    Thanks for all the E&P stuff. I think I may have been getting my PXPs & PXDs confused.

    Mystery for ya: when Matt Simmons says, as he does in every presentation, that inventories are tight, do you know which ones he is talking about?

    From a Feb 11 talk, discussing January 2009, he sez: “Most reported oil inventories generally stayed tight.”

  15. 15
    zman Says:

    Geithner Watch: comments from someone who has no idea about the law of unintended consequences:

    “We don’t believe it makes sense to significantly subsidize the production and use of sources of energy (like oil and gas) that are dramatically going to add to our climate change (problem). We don’t think that’s good economic policy and we think changing those incentives is good for the country,”

    “The additional taxes can be absorbed by the oil and gas companies, given the billions of dollars they have earned from high energy prices.”

    Meanwhile, COP begins laying people off in Bartlesville today. I guess we don’t care about saving or creating those jobs.

  16. 16
    BirdsofpreyRcool Says:

    z — those jobs aren’t “Union”….

  17. 17
    zman Says:

    Dman – he’s look at the US and OECD. Basically, when you look at the crude chart, we’re near the highs but not stratospherically above them. Crude is close to an 11 year high in storage during the worst recession since the Depression so in the big scheme of things, not too bad as OPEC acted quickly enough to stem a really crude price killing inventory pinnacle.

  18. 18
    zman Says:

    BOP = Dooohhhh!

  19. 19
    BirdsofpreyRcool Says:

    Washington Watch —

    Speakers – Geithner will testify (again!) on the budget – 10amET; the Fed’s Kohn will be testifying (at a separate hearing) @ 10amET.

    Cramdown legislation is due to be voted on in the House on Thurs according to media reports.

    Brad Pitt to Meet with Nancy Pelosi; Pitt will be in Washington, D.C. – where Angelina Jolie is filming her upcoming movie Salt – on Thursday and will meet
    with Speaker of the House Nancy Pelosi.

  20. 20
    zman Says:

    These guys confuse scale with margins constantly. “BIG OIL” made billions, true, but they are oil price takers. The public and congress act like “BIG OIL” creates the high oil price and then makes billions off of it. But through high, XOM’s margin was 11%. Microsoft, who sets their own price sees margins more than double that and also makes billions. They too have scale. WMT, also know to have scale, also makes billions, maybe we should tax them more to create insulation installer gigs for the masses. Ugh.

  21. 21
    zman Says:

    Pisani reported WMT numbers were better than expected and they are raising their dividend. Can’t tell it from the open.

  22. 22
    BirdsofpreyRcool Says:

    if Tech Trader is correct, we just saw the LOD.

  23. 23
    zman Says:

    Mark Haines: where can I make money?

    Guest on CNBC: Natural gas E&P stocks…price is below the cost of production, marginal players will move out, production will peak in 1Q, prices will move up. Well said, a little aggressive but well said.

  24. 24
    Garyinhou Says:

    Z – Cramer response to his dem buds…


  25. 25
    zman Says:

    Second guest on CNBC said we like natural gas too. Good to see Buysiders thinking this way. The sellside analysts have crawled into a hole and covered the opening.

  26. 26
    zman Says:

    Thanks Gary, thought he was rather eloquent in that piece.

  27. 27
    zman Says:

    E&P starting to green up with the broader markets up 1.7%.

  28. 28
    BirdsofpreyRcool Says:

    Factory Orders for Jan down 1.9% vs down 3.5% exp’d and -3.9% last month. However, prior month, revised to -4.9 from -3.9.

    Still, a little ray of not-so-bad.

  29. 29
    BirdsofpreyRcool Says:

    Mortage Delinquencies for 4Q08 at 7.88% vs 6.99% 3Q08

  30. 30
    zman Says:

    NG going positive ahead of the storage numbers in 20 minutes.

  31. 31
    zman Says:

    Dow has given up all of yesterday’s bump.

  32. 32
    zman Says:

    102 Bcf withdrawal – high end of range, better than I would have thought by a good bit.

  33. 33
    zman Says:

    NG down 6 cents at the time of the report.

    Based on the weather forecast we should get another 2 reports of this size or better which will put us into a trough close to 1.6 and maybe the 1.5 Tcf level which is not too bad.

    Storage is now: 1,793 Bcf
    Year Ago: 1,523
    5 Year Average: 1,575

  34. 34
    zman Says:

    gas down 2 pennies now

  35. 35
    Popeye Says:

    Z, did you catch the Jon Stewart smackdown of CNBC last nite? Too funny for words.

  36. 36
    zman Says:

    Popeye – nope, is there a youtube?

  37. 37
    zman Says:

    Here’s that Jon Stewart clip:


    I’m here, working in the background if anyone has a question on this return to the sea of red day.

  38. 38
    john11 Says:

    No worries Z, Kass and Cramer said its straight up from here.

  39. 39
    zman Says:

    NG off 14 cents, fading with oil, down $1.55 now, which in turn is fading with the Dow, which is off 200. Pretty hard to make progress in this environment.

    GMXR and GDP both down another 8%, along with BRY (who has a little H.S. play) and PVA who has some of the smaller sized H.S. completions on the E. side of the play. The market is starting to bifurcate between big and small IPs in the Haynesville, rightly or wrongly as that may be.

    The financials are off 8% now.

  40. 40
    zman Says:

    Thanks John, I feel much better.

  41. 41
    Popeye Says:


  42. 42
    zman Says:

    T Boone on CNBC now

  43. 43
    zman Says:

    TBP: oil at $75 by year end.

    Says price is too low for OPEC investment. That’s an indisputable fact.

  44. 44
    Eagle Says:

    Z Does GMXR fall into the too Cheap or Cheap for a reason category? I have been sitting on my hands from the long side for quite some time now, but getting tempted.

  45. 45
    reefguy Says:

    41: Worth the watch.

  46. 46
    BirdsofpreyRcool Says:

    Comments about AIG killing financial services… killing the market…

    I hate what AIG did (is doing) as much as the next guy. But, allowing it to fail at this point will reignite the credit crisis, beyond what it was when Lehman failed last Sept. Any positive momentum that the Fed has been able to achieve will be undone.

    This situation totally, completely stinks. Continue to prop up a company we ALL HATE… or, risk allowing the Global Run on the Banks that we came within a hair of seeing, post-Lehman. Only with massive injections of cash into all the banks, was the Fed/Treasury able to stop that last time. Not sure they can do it a second time around.

    Jon Stewart can poke fun at people all he wants… he doesn’t have to make these tough, unpopular decisions on a daily basis.

  47. 47
    zman Says:

    Eagle – They’re not overly leveraged, they are sitting on a large gas resource. They are going to grow 84% this year (by their guidance) and a slower program might see them only grow 60% if prices stay depressed and they slow spending. Right now people are upset for lack of a better word over the initial well results. People were looking for the 20+ MMcfepd IPs of some of the wells HK has drilled and got 7s and 8s. The company tried to address this on the conference call but given the markets over the last week, the easy path is to sell and buy it back later. I think there is a lot of unvalued value here but I’m on the sidelines here now and waiting for a trade sideways as picking bottoms is for apes. I will take a little for a trade near the end of the month as they will have another 3 wells to talk about in April and the stock has already discounted lack of improvement in those.

  48. 48
    choices Says:

    bank index 52 wk low, off >10%, C broke one dollar level, off >14%.

  49. 49
    Nicky Says:

    Good morning all.

    What chance the SPX hits 650 – 671 tomorrow on the non farm payrolls data and from that area reverses sharply?

  50. 50
    choices Says:

    Seidman of Resolution Trust fame (S & L bailout) says govt must take over some of the zombie banks, peel off the toxic assets, form new private mgnt and begin anew with a relatively balance sheet he says this is not the same as the common understanding of nationalization-Geithner and Summers want to protect the taxpayers (and shareholders) what is to protect on the shareholder side with Citi below a dollar. Taxpayers, it is going to cost, one way or another and the quicker we realize this, the better off it will be.

  51. 51
    Nicky Says:

    The bottom of the channel on the Dow comes in around 6500.

  52. 52
    zman Says:

    More on my bifurcation theory of the Haynesville Player list.

    CHK down 1.2%, HK down 0.8% today. If you are across the basin, to the west in Texas, look GDP, BRY, PVA, GMXR, all down another 8% today. This kind of stark split creates opportunities and is pretty common when the market is pulling this kind of “baby and bathwater” action.

  53. 53
    zman Says:

    Nicky – I’ve been sitting on my hands waiting for the payrolls number to get out of the way among other things.

  54. 54
    tater Says:

    I’m sorry, but your #15 needs emphasis,

    Geithner Watch: comments from someone who has no idea about the law of unintended consequences:
    “We don’t believe it makes sense to significantly subsidize the production and use of sources of energy (like oil and gas) that are dramatically going to add to our climate change (problem). We don’t think that’s good economic policy and we think changing those incentives is good for the country,”
    “The additional taxes can be absorbed by the oil and gas companies, given the billions of dollars they have earned from high energy prices.”

    Unintended consequences? These guys INTEND the consequences. Do they really think that businesses absorb the costs of taxes? For crying out loud, BUSINESSES PASS ON COSTS TO CONSUMERS!!!! That is the basic design of a “for profit.”
    Great strategy for getting the consumer to start to again consume more. Make them pay higher taxes (by forcing them to pay the passed-on tax increase).

    Have ANY of these guys ever opened even so much as a lemonade stand? Good lord!

  55. 55
    zman Says:


    IRA Buy.

    LINE for $13.52. 18.7% yield. This is the largest upstream master limited partnership in the U.S. and is hedged 100% on expect oil and gas production for the next 3 years. Can the stock fall further? Sure, but the distribution should be well covered by hedge protected cash flows. See the Feb 26th post using the calendar function on the left hand side of the site for more on my thoughts there.

  56. 56
    choices Says:

    Maybe the Dow will get stronger-talk of removing Citi if it stays below $1 for a period of time.

  57. 57
    zman Says:

    Nicky – I received your email but google mail is having difficulty pulling the chart off. Will post when I can. Thanks.

  58. 58
    zman Says:

    Nicky – I can’t post it, too big.

  59. 59
    choices Says:

    Z-Excellent work on E & P’s today-very useful. CRK ranks favorably but not sure why it has been so weak lately compared to the others.

  60. 60
    Nicky Says:

    Z – not sure I can make it smaller – will take another look

  61. 61
    zman Says:

    Choices – will add hedges, Capex vs Estimated EBITDA tomorrow and Cash Costs / Mcfe on Monday.

    Re CRK – if you read through this:


    there are a couple of issues, the biggest of which seems to be the almost lack of hedges. The other is the shift to Haynesville focused drilling which is troubling GDP and GMXR as well

  62. 62
    choices Says:

    thanks, Z. Lack of hedges seems to be a severe problem in this environs-affecting EOG as well but EOG has been stronger last few days.

  63. 63
    zman Says:

    Just got a comment in on IRAs owning MLPs

    “You are aware of the additional tax implications of owning MLP’s in IRA’s if your distributions are more than 1000.00 in a calendar year you may have to file a form 965 which mean’s you could surrender your tax sheltered status of your IRA. At a minimum, you’ll have to pay income taxes on your IRA on income earned over the $1000.00 cut off.”

    This is a good point and I failed to remember the rule and will move it to a regular account shortly.

  64. 64
    zman Says:

    Energy sector wants to rally.

    Choice – I’ve been watching the EOG as well, strangely counter group positive. Very, very cheap for it on a historical basis but a lot of things fall into that camp of late. High quality management, very conservative, normally I’d call CEO Papa overly conservative but that’s what you want right now. Don’t know why its up, could be a broker pounding the table on it but not sure brokerages do that anymore, lol.

  65. 65
    zman Says:

    SWN green too.

  66. 66
    zman Says:

    NG down 24 cents now to 4.10. That has a lot less to do with the storage number than with profit taking in a bad overall market. The last 2 numbers could have been a lot worse. Storage will get down to a respectable level before the injection season starts and soon, well soon people will start talking about an above active hurricane season again. And this time, the onshore will not be able to make up for any dips in the offshore.

  67. 67
    md Says:

    What were the NG imports this past week.
    The withdrawal looked very much on high side.

  68. 68
    zman Says:

    Imports were high by almost a Bcfgpd from the prior week so that’s no help in solving the bigger #.

  69. 69
    zman Says:

    Market just melting lower…

  70. 70
    tomdavis12 Says:

    Z: Have you looked at the GMXR pfrd symbol GMXRP. I do not have the terms but maybe like LINE when you get 18%/yr you are offseting some risk. Since the options stink for GMXR this weakness is making both the common and the pfrd into expireless options.

  71. 71
    zman Says:

    Tom – I have not looked at it but I hear what you are saying. Their outspending of cash flow this year has got everyone I think overly concerned.

  72. 72
    zman Says:

    Its wow quiet. No questions. You have to remember that for someone who used to have an equity and a trading mike on his desk, silence is deafening. Anyway, I’m here, working up some more E&P stats into the format I think is most useful for reference.

  73. 73
    Jason Says:

    OK, I’m game…..anybody feel like we need to see the VIX back at November’s 70ish level before these indexes can make a longer term turn?

  74. 74
    choices Says:

    RIG,SLB getting pounded today with volume-any downgrades out there?

  75. 75
    zman Says:

    Choices – none that I see. There is worry in the deepwater segment about contract cancellations going round again. I have not seen any but that’s what the worry is, that and some shallow water stackings. SLB going back to its lows. Not surprised to see the big cap service names give it up as they’ve outperformed in the face of big rig count declines and a coming crushing in pricing for too long.

  76. 76
    zman Says:

    Market tumbling to fresh lows, very ugly, financials leading everything lower, XLF down 11%.

  77. 77
    ram Says:

    Hi Nicky. We might get your above levels today.

  78. 78
    Jay Reynolds Says:

    OK, Slow Day….

    My View of the Stripper Well Patch.

    It’s been years since most of us have had a vacation. We live in modest frame homes, nice single-wides and most of us have at least two generations working in our family operations. The nearest espresso is in Shreveport, 24 miles south. I can count the college educated in the field that I know on two hands. My best friends are here and are the true salt of the earth. Most of us have a nice car or a nice truck but not one of each. We are guilty of having overly reinvested in our business.

    We remember well the last time all of us went broke during the late 80’s when the price of oil cratered. Since then, hanging on to our leases, clawing our way back, we’ve gotten lumped into one big ball and labeled “big/bad oil” even though, as Stripper Well Operators, none of my wells make even a barrel a day. “Burned Out Strippers” sounds about right.

    I believe in my work, live my 1/2 paid for 2,200 sq ft 60’s vintage house and lie awake at night trying to figure out how not to have to lay somebody off. I have completely cashed out my IRA so I can keep my business afloat. Luckily none of us I know are leveraged on borrowed funds but most of us have reinvested more than we ought to back into our businesses. “Dear God Let Me Have One More Oil Boom And I Promise Not To Piss It Away This Time” bumpers stickers have come and gone, neither revelant nor in good taste.

    I’ve been obsessed with enhanced recovery for more than 20 years that I’ve worked in this old field and that’s how long I’ve been working towards earning my first Enhanced Oil Recovery Tax Credit. Having millions of barrels of oil just “stuck” in the shallow formations in the area – just out of economic reach of the thousands and thousands of wellbores still open and unequipped – that just bothers me. Because we’re all “local” to our area, our money stays here and is turned over again and again to the benefit of our local community.

    If we can just stay in business we could do the technology transfer necessary to liberate that stranded asset and employ thousands in the process. We’ll never have the gushers of the old days again – but if allowed to continue in business, pay the myriad of taxes with which we’re burdened, slowly update to more newer and more functional equipment, you know, something manufactured during the lifetimes of any of our children. Oh, and by the way, we are militantly “Made In America” proud shoppers – even the Chinese operators in the area still run pumpjacks built in the USA.

    We are responsible operators. We often operate wells on our own land that others drilled years ago. If the economics do not improve soon, if we go out of business, then there won’t be anyone to plug these old wells and no one standing in line to assume the liability. Ultimately, the taxpayers will have that burden. We don’t need or want a handout.

    At 55 I’ve got enough gas left to do fieldwork to cover for a laid off hand. I can probably invent my way out of a jam if I have to. I’m about finished with an absurdly cost-effective enhanced oil recovery method that will be suitable to a number of oilfields. I have the marketing rights for the BlackStorm Oil Production System in Oklahoma for sale on EBay (http://tinyurl.com/cvuoje) , I’ll eat more beans and curse the idiots who make policy that simply don’t get it… I’ll have both barrels loaded when the lines of supply and demand collide – and this time it won’t be pretty. I’ll be smart enough to hoarde funds next time around and much less inclined to give away technology to the broader market.

  79. 79
    Alhambra Says:

    Z, what is your feel on the deepwater drillers? Are we seeing softness in contract prices with lower crude price? Will there be softness coming? Thanks for your opinion.

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    zman Says:

    A – on a call, back to you shortly. Short answer. No, not seeing rates come off, are seeing newbuild rigs being canceled which helps keep rates up. Oil companies involved in deepwater have a long time line from spud to production and so that helps too as demand for rigs remains tight.

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    jat Says:

    As for the question involving deepwater downgrades… MS took RIG down today around 2pm, brokers calling out shortly thereafter

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    BirdsofpreyRcool Says:

    Jay Reynolds — your words, comments, and observations mean a lot. At a time when not a lot seems to have any real common sense thought behind it. Thank you for that.

  83. 83
    zman Says:

    Thanks Jat, had not seen. RIG now down to the technical level, or very close to it, that I was looking for as a low some weeks back. Would like to see the bullets of MS’s call. I would assume its contract rollover risk in the 2H09.

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    BirdsofpreyRcool Says:

    Best quote I’ve heard all day — “We haven’t been this oversold since tomorrow.”

  85. 85
    jat Says:


    Ole Slorer is double downgrading Transocean (RIG) from Overweight to Underweight as he is rebalancing his ratings for a recovery and prefers exposure to higher beta names. RIG has been one of the best performing names within Ole’s coverage universe YTD (20%+ outperformance vs. the OSX), and in the deepwater segment he recommends rotating out of RIG and into TS, HLX, DRQ, CAM, or FTI. Alternatively, he would rotate into more cyclical jackup names or beaten-up deepwater names like ATW.

    · Resiliency in deepwater rates has become the centerpiece of the debate on RIG. Ole expects ultra-deepwater rates to come down 20% (from $650+kpd peak in mid-2008 towards the low $500 kpd range) and deepwater 4G rates to decline by up to 30%, with leading-edge rates troughing in 2010.

    · Ole sees this as roughly in line with consensus, and much milder than the expected +40% near-term decline for jackups. However, Ole differs with the Street, arguing that absent other near-term catalysts, resiliency alone will not be enough for shares to outperform.

    · While Ole sees substantial upside for RIG on an absolute basis (+121% upside to $125 PT), he does not expect sector outperformance until there is a positive inflection point in leading-edge deepwater rig rates.

    · Ole remains of the view that RIG is trading in deep-value territory given steep discounts to historical average multiples. Ole sees safe backlogs accounting for most of RIG’s expected cash flow in the next few years.

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    choices Says:

    #78, Jay, appreciated your summary. It is these stories which will never get to Washington nor will Washington ever get it. You are right about “big bad oil”-it is just one category fits all, unfortunately.

    Hang in there-that is about all I can say but appreciate reading your comments-as they say, my words cannot change anything but just maybe, this too will pass away and change will come. In the end, I guess we are all optimists but we tend to hunker down in the meantime.

    Best of luck,


  87. 87
    zman Says:

    Jat – thanks much. Runs counter to what GS said 2 days ago. Then you read on and see he has a $125 price target. Hmmm. This kind of double speak is why people from time to time have to say things like “I hate analysts”. Unreal how he can prefer ATW (which I like just fine) over RIG. ATW, which a much smaller fleet is subject to the same if not greater pricing pressures but also can take a much greater hit from a single rig contract cancellation than would be the case if it were to happen at RIG. I won’t even get into comparing TS and RIG as they don’t do at all the same thing and there is still great and increasing pressure on OCTG at this time where the ultra-deep price pressure he expects has yet to materialize. He also fails to point out the “locked in nature” of RIG’s ’09 and ’10 book. Thanks for posting as it’s always good to see what the smart guys are thinking.

  88. 88
    zman Says:

    BOP – 84 = LOL

    Gotta bop to a soccer practice, back later.

  89. 89
    jat Says:

    Alhambra, regarding your question on the rig day-rates, I think we’re already seeing jackup rates down 30-50% from the peak depending on the source, whether you’re talking about RDC / ESV fleet status updates or PDE mgmt statements. On the mid-water and deepwater, ATW and DO have said that maintaining utilization is a top priority (unlike RIG/NE, which seem to have been stacking more rigs). So I think, even if you needed to cut a midwater rate from say 420kpd to 220kpd, you would do as you’re well above operating costs. Not sure if this will come as a large surprise to anyone at current stock prices.

  90. 90
    RMD Says:

    Jay, Thoughtful, sobering comment. You ought to send it to your Congressman; he should know enough about his district to know it’s true and maybe can wake up one other Congressman…etc.
    Hang in there.

  91. 91
    Alhambra Says:

    Thanks jat and Z, much appreciated.

  92. 92
    choices Says:

    It is the end of another lousy day so I thought I would post an article from the Economist, a pub which I respect.


  93. 93
    choices Says:

    Z-you prob have this on RIG but could you give a brief comment on its significance. one item is that appears that one contract was terminated and RIG is challenging the termination.



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    students.in Says:


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    ฟรีหนังเอ็ก Says:


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    freewebsite-service.com Says:


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