12
Mar

Thursday – Gas Inventory Preview and Oil Review

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Retail sales came in better than expected for a second month and January's surprising 1.0% ex auto's number gets revised up as well. People are indeed shopping at all those going out of business sales I keep seeing. Initial weekly jobless claims however inched up to 654,000.

 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Preview
  4. EIA Oil Inventory Review
  5. Stuff We Care About Today - CPE
  6. Odds & Ends

 

Holdings Watch: No changes yesterday

 

Commodity Watch

Crude oil fell $3.38 to close at $42.38 yesterday after the EIA reported a set of inventory numbers that ran directly counter to the prior day's inventory read from the API. This morning oil is trading up about a buck.

  • Chu Watch: The newly minted U.S. Energy Secretary "told reporters after a Senate hearing that he'll speak to Opec oil ministers before the cartel's meeting Sunday to urge them to keep production at current levels" according to AP. He said that a production cut would "create a huge strain on the ability of the world economy to recover." This from the guy who didn't have an opinion one way or the other or even whether or not he should have an opinion one month ago.  

Natural gas slipped $0.04 to close at $3.80 yesterday. This morning gas is trading up slightly with crude before the EIA gas storage report.

Natural Gas Preview

  • My number: 90 Bcf withdrawal.
    • History:
      • Last Week's Report: 102 Bcf withdrawal with HDDs of 183 (this is for the period 2 weeks ago).
      • Last Year: 113 Bcf withdrawal with HDDs of 168.
      • 5 Year Average: 91 Bcf withdrawal.
    • Weather: gas-population weighted HDDs were 179.
    • Imports: Down 0.3 Bcfgpd from last week and 0.9 Bcfgpd from year ago levels. All of the decline comes from Canada.
  • Street Consensus: 104 Bcf

ZComment: A little late season colder than normal weather and a dearth of imports from Canada are helping to save natural gas' bacon from a very high inventory end to the storage season. I don't see gas getting a big boost from today's number if it exceeds but I do think we could be in for another shot, of downside, into the mid 3s should it come up short, followed by a big round of short covering.

 

EIA Oil Inventory Review

CRUDE OIL -  Stocks remain high but have so far failed to punch into record territory as imports have finally started to show some signs that at least OPEC's crude volumes coming to the U.S. are lower at a time of low domestic refinery crude inputs. In the U.S., oil production has risen above pre 2008 Gulf storm levels as production shut in from Gustav and Ike comes back on line and the 250,000 bopd Thunderhorse deepwater development ramps to full capacity. I would not expect much higher production than shown in the following charts this year in the U.S.

 

 

GASOLINE - Lowish production and OK demand are setting up a decent scenario for stronger gasoline prices during the driving season.

 

Gasoline Stocks By Region - East coast and West coast stocks of gasoline are pretty low, off 17% and 14% respectively vs year ago levels.


 

 

Stuff We Care About Today

CPE - Quick Look: 4Q Earnings were released yesterday and this is one hurt puppy but I thought worth a look after such a beat down.

What I think about here, the good with the bad when taking a look at modeling this one:

  • 2009 Capital Program: $25 Million (Survival Mode)
    • $10 mm for scheduled plugging and abandonment activity
    • $15 for capitalized interest and G&A
    • No drilling.
    • No workovers (to improve rates)
    • No big foreseen maintenance projects until 2010
  • Balance Sheet:
    • Senior Notes; 9.75% due 12/2010: $194.4 mm - they are looking to "restructure" these. Tough sell on that concept.
    • Non Recourse debt of $78.4 mm related to Entrada. Entrada, once their expected source of growth in the deepwater Gulf of Mexico, was put on permahold back in November. The project is uneconomic at current oil prices and is responsible for that gap down you see in the chart in November.  This goes away with the expiration of the Entrada lease in June and there is no further obligation owed on Entrada.
    • Cash position: $12 to $15 mm as of yesterday.
    • Revolver with $70 mm borrowing base
      • Undrawn as of yesterday
      • redetermination underway, to be completed in March
      • very likely to see the borrowing base reduced substantially
  • Production Guidance: A bit hard to buy the lack of a decline from 1Q to the mid point average for 2009. One thing that no one asked on the call yesterday was "what's current production?" They had said most things were back up from the shut ins forced by the double whammy of Gustav and Ike and a February presentation showed production at 38 MMcfepd which would be just above pre storm levels of 2Q08 (this was the same figure from an early December press release so I don't know if they meant February was at that level - one would assume so given that it was a new presentation - or that it was a holdover); we won't know for sure until they release the 1Q results in early May. 

  • Producing Properties:
    • Deepwater: Medusa and Habanero and 4 shelf properties. Medusa represents about 36% of their production, then Habanero at about 21% and then the higher decline rate shelf properties.
  • Reserves: 55 Bcfe, dow 191 Bcfe from last year due to the loss of Entrada. OUCH. In a sale they might get $2 per Mcfe for the proved or 110 mm which doesn't clear the debt less the small piece of cash and the hedge value, let alone the $20 mm ish of market cap.
  • Strategy: Make selective acquisitions of proved developed producing. Seems pretty aggressive but its what you do when you are in the position they are in. I would imagine they can squeek along unable to drill but potentially purchasing a little growth to offset declines this year and maybe next before they come up against that big note at the end of 2010.  
  • Nutshell: They need higher commodity prices. There are safer things to buy but I imagine it won't be a straight line down and I will watch it now a little more closely. Reef has commented before that they get "merged away" and this is my feeling as well having looked at this more closely, that or they go into bankruptcy and the assets are rolled up and re-presented as part of a new company in 2 or 3 years when prices are higher. I'll wait and see what the 6 analysts who still follow the company do to them with this morning's notes. My model follows.

 

Next Stops on the ZFASTMODEL List: GMXR, PVA

The PQ model and comments from yesterday have been added to the reports tab.

KOG Conference Call: today, 11 est.

Odds & Ends

Analyst Watch: (SNP) upped to Buy at UBS, (CRZO) and (PLLL) cut to Hold at Jefferies. (PQ) was upped to Buy at Southcoast yesterday. 

135 Responses to “Thursday – Gas Inventory Preview and Oil Review”

  1. 1
    zman Says:

    Bakken Watch:

    BEXP call at 10 EST
    KOG at 11 EST

  2. 2
    Sambone Says:

    By Nick Heath
    Of DOW JONES NEWSWIRES

    LONDON (Dow Jones)–Crude oil futures climbed more than $1 Thursday amid
    caution that the Organization of Petroleum Exporting Countries could cut
    production again when it meets this weekend.
    With weekly U.S. government inventory data out of the way Wednesday, the crude
    market’s focus is set to be firmly trained on Sunday’s gathering in Vienna for
    the remainder of the week.
    However, market moves were hesitant Thursday with debate centering on whether
    OPEC will choose to cut output again – given the price resistance to previously
    announced cuts – or choose instead to focus on securing comprehensive
    compliance with the 4.2 million barrel-a-day reduction previously announced.
    Already relatively good compliance with those cuts has been seen to contribute
    to a tighter global crude market.
    “When you look at balances, OPEC doesn’t really have to cut at the next
    meeting. But when you look at prices, I think it will be difficult for the
    Organization to do nothing. I think they will have to announce something,” said
    Chrisophe Barret, global oil analyst at Calyon in London.
    At 1148 GMT, the front-month April Brent contract on London’s ICE futures
    exchange was up 93 cents at $42.33 a barrel.
    The front-month April light, sweet, crude contract on the New York Mercantile
    Exchange was trading 94 cents higher at $43.27 a barrel.
    The ICE’s gasoil contract for March delivery was down $4.00 at $359.50 a
    metric ton, just ahead of expiry at 1200 GMT. Nymex gasoline for April delivery
    was up 221 points at 127.33 cents a gallon.
    “My view, looking at fundamentals, is (OPEC) just need to be patient – the
    cuts they made already starting to come through. They just need to get through
    the floating storage, need some inventory draws and some signs of recovery in
    the second half,” said Simon Wardell, analyst at Global Insight in London.
    But a steep drop in prices Wednesday following weekly U.S. Department of
    Energy data may have boosted the case for a weekend cut. Nymex crude oil prices
    fell by more than $3 to below $43 a barrel after the DoE revealed a build in
    crude oil and distillate inventories. A fall in gasoline stocks was seen as
    bullish, but may have owed more to less supply rather than increased demand.
    “It is (a) surprisingly large gasoline supply shortfall, rather than
    questionable demand resilience, that truly accounts for last week’s
    steeper-than-normal gasoline draws,” said Antoine Halff, deputy head of
    research at Newedge in New York.
    “Ambiguous data over the last several weeks have done little to lift the fog
    over gasoline demand prospects, torn between the economic meltdown and a steep
    retreat in gasoline retail prices from last summer’s highs.”
    While the trio of OPEC cuts announced since last September have helped
    underpin crude prices, largely keeping them above $40 a barrel, persistent
    concerns over the prospects for the global economy have repeatedly ambushed
    moves higher, snuffing out any advances above the $50 a barrel level.
    OPEC’s aspirations for higher prices could remain challenged by weak investor
    sentiment linked to the global economic outlook.
    “Sentiment has improved, but remains poor, and the potential remains for
    another sharp (price) pullback, particularly on the back of any further flow of
    particularly negative macroeconomic news,” said analysts at Barclays Capital.
    -By Nick Heath; Dow Jones Newswires

    Dow Jones Newswires
    03-12-09 0808ET

  3. 3
    nifkin Says:

    NFX write uo in th Oil Daily- Newfield Exploration is dedicating nearly
    half of its anticipated 2009 capital spending
    budget to further developing reserves and improving
    drilling efficiency in its biggest operating
    area, the Midcontinent region of the US.
    The Midcontinent holds 47% of the company’s
    total proved reserves or some 1.39 trillion
    cubic feet of gas equivalent.
    Newfield plans to build on the success it had
    last year in drilling more cost-efficient and productive
    wells in the Midcontinent’s Woodford
    Shale gas play, which is located in the Arkoma
    Basin of southeast Oklahoma.
    Last year, Newfield increased the lateral
    length of its horizontal wells in the Woodford
    and brought costs down to $1,432 per lateral
    foot, 42% below 2007 levels. That achievement
    is even more impressive given the inflationary
    service cost environment in 2008.
    Newfield plans to nearly double the average
    length of its Woodford laterals to 5,000
    feet in 2009, a move that will further improve
    margins, company executives told the Raymond
    James Institutional Investor Conference
    on Wednesday.
    In fact, the company is so confident in the
    improved efficiency of its wells that it expects to
    increase its Woodford production by 30% this
    year even though it will reduce the number of
    rigs operating in the play.
    Newfield presently has 11 rigs working in
    the Woodford, nine of which are set to come off
    contract later this year. Industry-wide there are
    currently about 40 rigs operating in the play.
    The Woodford Shale accounts for some
    30% of Newfield’s proved reserves of 2.95 Tcfe
    and is the company’s single largest asset. It was
    also the company’s largest investment region
    last year and will remain so in 2009, with 30%
    of Newfield’s $1.45 billion budget dedicated to
    the play (OD Feb.9,p2).
    Newfield’s finding and development costs in
    the Woodford were about $1.80 per million cubic
    feet of gas equivalent last year and are expected
    to decline this year as service industry
    costs fall and well productivity improves.
    The company estimates it can achieve 12%
    rates of return in the Woodford this year at a
    Henry Hub gas price of $4/Mcfe if its F&D
    costs fall to $1.25/Mcfe. Its rate of return would
    jump to 22% if gas prices average $5/Mcfe.
    Newfield has established a strong position in
    the Woodford, where supermajor BP made its
    entry via an acquisition last year. It has 165,000
    net acres in the play, 90% of which is held by
    production. Of the 750 horizontal wells that
    have been drilled in the play to date, Newfield
    operates 225 of them.
    The company told investors that the Woodford
    is still in the early stages of development.
    Just less than three years ago fewer than a dozen
    wells had been drilled in the play.
    Newfield’s second largest asset is the Monument
    Butte oil play in the US Rockies. The company
    told investors it is drilling wells there at
    nearly twice the pace it did when it first entered
    the play in 2004.
    Newfield controls over 180,000 acres in
    Monument Butte, all of which is held by production.
    Monument Butte has nearly 2 billion
    barrels of oil in place, an estimated 20% of
    which are recoverable.
    The play may also hold significant deep
    gas potential. Initial test results from six
    Newfield wells drilled last year showed the
    play could hold more than a trillion cubic
    feet of natural gas.
    Separately, Newfield has pledged to keep its
    capital spending budget within anticipated cash
    flows this year, like many of its peers in the exploration
    and production sector. The $1.45 billion
    budget is 30% lower than initial estimates
    issued last September and allocates nearly twothirds
    of spending to the Midcontinent and
    Rocky Mountain regions.
    Around 70% of the company’s expected
    2009 gas production is hedged with an average
    minimum price of around $8/Mcf. Almost all of
    Newfield’s 2009 domestic oil output is hedged,
    with half of it fixed at about $129/bbl and the
    remainder with a floor price of $107/bbl.
    Despite its conservative budget, Newfield
    plans to increase production by 6% to
    10% this year to between 685 MMcfe/d
    and 712 MMcfe/d.
    Rachael Seeley, Houston

  4. 4
    BirdsofpreyRcool Says:

    GE losses it’s AAA status. Long-Term rating cut by S&P tp AA+

  5. 5
    BirdsofpreyRcool Says:

    Sell side analyst out with comments on SWN this morning. Says it’s his #1 pick of the 17 e&p stocks in his universe.

  6. 6
    zman Says:

    Thanks BOP, which firm?

  7. 7
    BirdsofpreyRcool Says:

    Credit opened very weak, even on the back of yesterday’s sell off. Now trading tighter.

    IG 247 1/2 +2bps

    HY 68.375 -0.25 points

  8. 8
    BirdsofpreyRcool Says:

    BMO Capital Markets, Dan McSpirit.

  9. 9
    BirdsofpreyRcool Says:

    z — i forward the BMO report to you… did you get it? i am having (continuing) email problems. irritating.

  10. 10
    elduque Says:

    BDI -70 2201

    Oops

  11. 11
    BirdsofpreyRcool Says:

    Tech Trader’s Comments (uneditted) —

    For Today: Same game plan. But with odds down to 50/50 for it to work. Plus a Blue pattern day and the worst pattern to trade. And rollover too??? Forget it. Take the day off. As one of our clients said a long time ago….”the best thing about today being Blue is…we all made a lot of money yesterday” (as in yesterday was Red).
    Gamblers: The real gamble today is trading at all. Retail has never learned that. After getting killed by GSCO in the afternoon yesterday

  12. 12
    reefguy Says:

    z- Good job on CPE

  13. 13
    zman Says:

    BOP – didn’t get it, thanks. Gotta love tech problems.

    Reef – thanks, took me awhile to figure out that I had no real reason to get positive but if prices move up they might squeak something out. I don’t know how they can ever swap out that debt though. It’s just so big compared to who the firm was pre Entrada to now.

  14. 14
    zman Says:

    BOP – you saw KOG is talking today?

  15. 15
    PackMan Says:

    HK this morning ?

  16. 16
    zman Says:

    Pack – the whole group is red with the market, don’t see anything about the opening move on light volume that would be an outlier.

  17. 17
    Garyinhou Says:

    pq at 700k+ shares already this morning

  18. 18
    zman Says:

    BEXP call about to begin. Reserves were not good due to low oil prices and booking methodology on some wells. No full year guidance provided due to uncertainty over price.

  19. 19
    BirdsofpreyRcool Says:

    z — KOG… will be on conf call. This is a binary outcome situation… if the first two wells are “economic” for Bakken on the FBIR acreage, stock goes up. Well’s a duster, game over.

    KOG delayed completing their first two wells b/c weather was so bad in North Dakota. Apparently another operator in the area tried to complete and screwed up their well b/c of weaher conditions. Sounds like a pretty weak excuse to me… but, KOG can not afford to screw up on their first two completions (two wells, drilled from the same pad, in opposite directions).

    Also, KOG has spud it’s 3rd well, in the NE corner of it’s acreage, the closest it can get to the monster wells in the Parshall Field. This well is a partnership with XTO… don’t know who the operator is, but it’s KOG’s new rig.

    Can’t imagine the conf call is going to be a love-fest. “Weather delays” just doesn’t cut it with the analyst community.

    Conf call at 11 am. Will report back.

  20. 20
    BirdsofpreyRcool Says:

    z — yep. confirmed. email problems… IT problems can turn really turn someone into a Screaming Blue Meanie!

  21. 21
    zman Says:

    BEXP still queuing up callers.

    Re KOG – hey, the weather has been bad up there, heard that from either EOG or CLR as I recall from 4Q calls. Wyoming could weigh in but it stinks to produce in those freezing conditions. I have heard others talk about the difficulty of fraccing in extreme cold weather.

  22. 22
    zman Says:

    BEXP is touting multiple good results from WLL. Biggest well, good higher density well, etc.

  23. 23
    zman Says:

    BEXP sounds like a love in on WLL.

  24. 24
    BirdsofpreyRcool Says:

    Tech Trader update —

    the gap up increases the odds of a long trade working to 85/15, the spoos close positive 89% of the time and the INDU closes positive 80% of the time.

  25. 25
    BirdsofpreyRcool Says:

    z — KOG… i have no doubt they made the prudent decision wrt the weather. Just saying, the mrkt doesn’t like it. Stock down on the press release, but there is nothing really new in the situation. Either the first well location is productive, or the story’s a bust.

  26. 26
    zman Says:

    BEXP CC

    Saying they have more oil in place west of the Neeson anticline (Williams and McKensie counties), higher porosity, than the Montrail county wells were EOG and WLL have been hitting the big wells (Parshall/Sanish field). They however are normally pressure so much rely on more frac stages relative to Montrail

  27. 27
    zman Says:

    BOP – I hear ya. I’m going to listen for tone from management and may pick up a little.

  28. 28
    zman Says:

    GMXR getting cuffed on the back of the head like a red-headed stepchild again. Writeup coming there soon.

  29. 29
    zman Says:

    BEXP – presentation slide 25 and 26, pretty interesting demonstration of PUD bookings on old vs new technology. Wow big difference on the go forward.

    2 Proven undeveloped (PUD) locations are allowed to be booked on the reserve report for each well drilled per 640 acre spacing. Wells drilled with fewer than 10 fracs got 175 Mboe for the well plus 2x 175 Mboe for the two PUD offsets.

    On wells using a greater number of fracs, which all of their wells now are, they were allowed to book 409 Mboe on the well plus 2X 409 for the PUDs. That’s a huge swing. Most of what they have booked so far were on the old completion (low # of fracs) wells, so their reserve report was low.

    NG inventories in 5 minutes

  30. 30
    zman Says:

    BEXP – CC – presentation slides 30 and 31. The current stock price implies a negative $300 per acre valuation on their Bakken acreage position.

    They may sell 50% position in 1/3 of their acrage (up to 125,000 of their position).

  31. 31
    zman Says:

    EOG moving up nicely now, I chose not to bite during the big up market day the other day but that’s the safety play in the E&P space right now.

    HK still lower despite group improvement, could be a broker comment, still see nothing on the tape. Probably just noise, started weak, staying weak pre gas number.

  32. 32
    zman Says:

    Good to see PQ resilience after morning profit taking, back to even on the day now.

  33. 33
    zman Says:

    Storage Number:

    112 Bcf withdrawal, bigger than expected.

  34. 34
    zman Says:

    Gas popped immediately on the release, may take a shot at $4 from its current $3.85. This will point people to the idea that it is March and production has rolled over some more since the last data on U.S. supply were seen (December).

  35. 35
    zman Says:

    Storage now at 1,681 Bcfe, that’s 19% above year ago levels and 13% high to the 5 year average. With a little more cold weather we may yet see gas fall into the 1,500 Bcf (1.5 Tcf) level. That’s not so awful. Anything below that would obviously be helpful.

  36. 36
    zman Says:

    BEXP – outlining 3 sets of Williston (Bakken) acreage tracts up for sale or farmout. Interest is strong, expect May close on these, numerous unsolicited offers.

    NG up 11 cents to $3.90.

    Oil up near $2 now. Stories out saying not so fast on giving up on an OPEC cut this weekend. No kidding.

  37. 37
    kiaora Says:

    Want to put $100000 to work within the next 6-8 months. Thinking about 10 stocks. Want to have 3 or 4 in energy. Have a 10 year horizon….Any strong ideas out there?

  38. 38
    Sambone Says:

    K – I like PBR and RIG

  39. 39
    zman Says:

    K – I’ll put a long term stock holding portfolio together, mix of E&P, service, other for that time frame in the Monday post. Not recommendations mind you, just my thoughts on what I would do starting fresh from these levels with that horizon.

  40. 40
    VTZ Says:

    kiaora – SU

  41. 41
    Sambone Says:

    By Chad Bray
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Disgraced financier Bernard L. Madoff on Thursday
    publicly admitted to running a massive, decades-long Ponzi scheme that bilked
    investors out of billions of dollars – just over three months after his arrest
    on fraud charges shocked the financial world.
    At a packed hearing in U.S. District Court in Manhattan on Thursday, Madoff
    pleaded guilty to 11 criminal charges, including securities fraud, wire fraud,
    mail fraud, money laundering and making a false filing with the U.S. Securities
    & Exchange Commission.
    “For many years, up until my arrest on Dec. 11, 2008, I operated a Ponzi
    scheme through the investment advisory side of my business, Bernard L. Madoff
    Investment Securities LLC,” Madoff said.
    Dressed in a charcoal gray suit, Madoff said he never invested client funds as
    promised, instead paying investors who sought redemptions from a bank account
    held at Chase Manhattan Bank in New York.
    Madoff said he felt pressured to meet client expectations that their
    investments would outperform the market and thought the scheme would end
    shortly. It didn’t, he said.
    Madoff, 70 years old, will likely spend the rest of his life in prison. The
    charges carry of a maximum of 150 years in prison. Sentencing is set for June
    16.
    Prosecutors had alleged that Madoff, who was initially arrested in December,
    defrauded charities, hedge funds, trusts and other investors in a massive fraud
    that dated back to the early 1980s.

    -By Chad Bray, Dow Jones Newswires
    Dow Jones Newswires
    03-12-09 1102ET

  42. 42
    zman Says:

    KOG call starting.

  43. 43
    BirdsofpreyRcool Says:

    KOG — not even going to bother talking about operating results (good… what results). Will discuss liquidity and outlook.

  44. 44
    zman Says:

    I so hate it when management reads the press release.

  45. 45
    BirdsofpreyRcool Says:

    z — agreed, it is a massive insult to their shareholders.

  46. 46
    zman Says:

    KOG:

    See wells completed for $4.5 mm vs $6.0 mm prior thoughts.

  47. 47
    zman Says:

    Intend to complete 2 wells, what about 3rd? Spending a lot of time talking about the termination fees for the second well.

  48. 48
    BirdsofpreyRcool Says:

    KOG — looking for dancing partners. Can’t afford to hang out on the ballroom floor alone.

  49. 49
    BirdsofpreyRcool Says:

    wow!… no questions?!

  50. 50
    zman Says:

    Wow, no questions on the Q&A.

  51. 51
    zman Says:

    Sheesh. One question on the first 2 wells

  52. 52
    Sambone Says:

    11:13 03/12 *DJ Judge Orders Madoff Jailed Pending Sentencing; Revokes Bail

  53. 53
    zman Says:

    Partner wanted to defer completion over low prices, working out for them as completion costs.

    Costs down maybe more than 40% to complete.

    Think next 45 days or so on “moving in the direction of completing the wells”

  54. 54
    zman Says:

    52 = sweet.

  55. 55
    zman Says:

    KOG completion plans

    1st well: 6 stages
    2nd well: 5 stages

    See costs falling further in the future.

    4th well thought to be a 10,000 foot lateral.

  56. 56
    zman Says:

    Isn’t Geithner testifying? CNBC needs to stop talking about Madoff. Put the guy in a hole and forget about him.

  57. 57
    BirdsofpreyRcool Says:

    the 3rd and 4th wells are the ones with XTO… fwiw

  58. 58
    Sambone Says:

    Judge Denny Chin: Madoff Sentencing Will Take Place June 16.

    So, old Bernie will be in tha Big House (Not his Condo)going forward. I wonder if they will let Ruthie have conjual visits?

  59. 59
    zman Says:

    KOG – saying the 10 wells in the vicinity are average IP of 1,000 bopd and EUR thoughts are 350 to 500,000 barrels recoverable.

  60. 60
    zman Says:

    KOG – great question in the Q&A. You will stay in business even if you have to shut everything down. Answer: absolutely. They have no debt.

    BOP – did you hear anything new negative here?

  61. 61
    zman Says:

    IEA will release their global oil supply / demand forecast tomorrow. Widely anticipate it to show demand further down.

  62. 62
    BirdsofpreyRcool Says:

    z — no new negatives. glad that last question was asked. it need to be laid on the table. think the answer was credible. again, no debt = key here.

    need $50 oil… happy at $60 oil. think it will get there.

    100% of acreage on the Rez is now leased. I did not know that. Good. Should make it easier for KOG to find dance partners.

  63. 63
    zman Says:

    Heard nothing on the BEXP call to make me want to jump in now.

    Same for KOG, will work up a quick NAV there though.

  64. 64
    BirdsofpreyRcool Says:

    z — the only new negative is that it’s another 45 days to wait until they complete the first well. so, dead $ until then… unless oil moves a lot. But, the longer they wait, the more service costs are coming down (including costs of trucking out the oil) and the more oil prices could go up. So, while the wait is painful, it does make sense.

  65. 65
    zman Says:

    BOP – how long to due they have to get the current wells into HBP?

  66. 66
    BirdsofpreyRcool Says:

    z — re KOG. nope. nothing on the call triggered the urge to buy right now.

    It’s not over for them… but, 45 days (at the minimum) to hear about their “make-it-or-break-it-well” is dog years in this mrkt. It’s an end of April event now.

  67. 67
    zman Says:

    Right, 45 days to just hear that they are “moving in that direction” I’d guess another month to hear that they actually completed the wells, maybe longer.

    Energy land, very mixed, reddish reaction to the market and higher commodities today. Could be trepidation in front of OPEC but if that’s the case no one told the oil guys to be scared.

  68. 68
    BirdsofpreyRcool Says:

    z — don’t know. will ask. But don’t think the devil’s in the details here. Either the first wells work, or they don’t.

    Wells work = stock up. Wells don’t = game over.

  69. 69
    BirdsofpreyRcool Says:

    z — sent you a response… think my email outbox has checked out. Weird. Get emails, can’t send/forward emails. Don’t need that hassle-factor.

  70. 70
    zman Says:

    BOP – thanks but did not receive, you can just tell me here as I forgot who is operator, is it the same company on all 3 wells and the planned 4th? I thought it was DVN but may be thinking of the Vermillion stuff.

  71. 71
    zman Says:

    FSLR trying for a second shot having filled the gap and bounced lower yesterday while my back was turned.

  72. 72
    RMD Says:

    BEXP cc: question = if they sell acres for lots of money, would you buy in debt? Answer = co. looked at repurchasing Sr. notes at current big discount “and it does not make sense for co. to do it”.
    The math here is baffling unless all proceeds go to repay Sr. credit to banks; if PV10 is $172mm, pretax PV10 based on strip was $421mm, debt $304mm (Sr. notes $159mm +Sr.credit $145mm)

  73. 73
    zman Says:

    LINE still inching. I’ve been making the rounds with some wealthy individual types on that one asking them to poke holes in my theory there and so far, mild interest, no holes.

  74. 74
    zman Says:

    RMD – I too am baffled. Want a Bakken play, CLR or WLL is making it a lot easier to look at them. Or EOG. Would need to dig in on BEXP and I don’t see the need right now.

  75. 75
    BirdsofpreyRcool Says:

    KOG = operator on first pad (2 wells)… 3rd and 4th well is with partner XTO… using KOG’s Unit rig and crew… so, makes KOG operator…?? not sure.

  76. 76
    RMD Says:

    BEXP the need right now would be if they can sell 100m acres for $100-200mm, repay the banks, validate the “value” of their holdings, etc. Then the question becomes mgt’s ability to not screw it up further…..

  77. 77
    AAA Says:

    No comments on big NG draw?

  78. 78
    zman Says:

    Thanks BOP – just wondering because I thought I heard them say “operator” but it could have been “partner” …”wanted to delay the completion of the two wells due to low oil prices and rapidly falling completions costs. Too bad they order the steel early. Stimulation costs up there down over 50%. Nice.

  79. 79
    PackMan Says:

    Z – Geithner, I guess they want to keep him off so he doesn’t crash the market again !

  80. 80
    zman Says:

    AAA – see #33, 34. Like I wrote in the post:

    “I don’t see gas getting a big boost from today’s number if it exceeds but I do think we could be in for another shot, of downside, into the mid 3s should it come up short, followed by a big round of short covering.”

    It exceeded by 8 Bcf and we are up a whopping 8 cents.

  81. 81
    VTZ Says:

    I thought Geithner was supposed to have meaningful commentary today. When is Shapiro talking about shorting reforms?

  82. 82
    BirdsofpreyRcool Says:

    z — KOG… the partner in the first two wells is Hunt, the 2nd two wells is XTO. I assumed it was Hunt who wanted to delay the completion on the first two wells.

  83. 83
    Jay Reynolds Says:

    My customer, a workover contractor, that commissioned the invention and construction of a new kind of Pickup and Laydown machine was told by their client (large NG co whose CEO has a rep as a gunslinger) that if they had 40% utilization in the HS through year end they’d be lucky. My customer immediately ceased discretionary spending and my almost finished project was put on slow track.

    Survival Mode: Working to get world’s largest hydraulic supplier to provide hydraulic parts.. Will take their commitment and see if I can raise $100K if private capital (if I can find it!) to build again from scratch and give up most or all IP rights in the process.

    Seems like somebody would want to own the rights to a machine w/ < 4 month payout at < 50% utilization. Gee, I remember when an 18 month payout was attractive : )

    JR

  84. 84
    zman Says:

    Thanks BOP. I have trouble with the valuation here having seen what acreage is still going for all over the Bakken.

  85. 85
    zman Says:

    Good luck JR.

  86. 86
    BirdsofpreyRcool Says:

    Midday Overview

    · Stocks are trying to make it three consecutive up days (and financials are going to try to make it 4 days); some of the catalysts for the move higher: 1) GE credit downgrade cathartic for many and takes this off the table as an overhang (for now); 2) cramdown chatter – the measure will be taken up in the Senate next week (recall House already passed) and there is a push to have the language watered down more (inc. only applying to subprime mortgages); 3) mark-to-market accounting – a lot of talk about adjusting current rules and issuing new guidance (head of SEC says further guidance may be needed); the FASB said new guidance on MTM could be out within the next three weeks; 4) the Swiss franc raising hope that the strains of Eastern Europe could ease (as a decent amount of the debt is franc denominated); 5) retail sales improve in the month of Feb (and Jan gets revised higher).

    · Financials still have a nice bid to them (note that the banks have been in rally mode since Mon & our desk is seeing some genuine interest in the group…..there is increased optimism heading into Apr Q1 earnings season). Health care staging an impressive rebound (the group is up >3% overall; biotech up near 5% on all the M&A activity) following a very weak showing on Wed (health care is the best performing major sector). Tech is on the sluggish side today (still higher overall but on the tired side; MSFT a notable laggard in tech land)

    · FX – the “safe havens” are quickly dropping – the Swiss franc was crushed today after the country’s central bank said it would intervene to weaken its currency; The yen was rallying earlier today (more b/c of repatriations ahead of that country’s fiscal year-end than a return of its “safe haven” status) but is also weakening. Gold is very strong on the Swiss move.

    · GE received its long awaited downgrade today, although the severity of the cut wasn’t as bad as some had feared; S&P cuts to AA+ from AAA, outlook stable (the fact the outlook wasn’t chged to negative is a positive); eyes are now on what/if/when Moody’s will act.

    · Huge volume of health care deals this week, inc. pharma and biotech (this morning we saw Roche/DNA and GILD/CVTX)

    · Some good news from the autos – GM says they don’t need the $2B requested from Washington for the month of Mar b/c prior cost cuts are starting to take hold and showing some benefit – CNBC (the auto task force however still has to make a decision on the industry by the Mar 31 deadline)

    · Mark-to-market accounting – the House’s hearing is ongoing today….there is no support for an outright suspension of mark-to-market rules, although the FASB has promised to issue enhanced guidance on the subject in the very near term (they say within the next three weeks)…..Financial Accounting Standards Board member Lawrence Smith said on Wednesday that the accounting standards setter would include guidance on whether a market is active or inactive and whether a transaction is distressed – Reuters

    · Flow of Funds Summary Statistics Fourth Quarter 2008 – Household net worth—the difference between the value of assets and liabilities—was an estimated $51.5 trillion at the end of the fourth quarter of 2008, $5.1 trillion dollars less than in the preceding quarter. For 2008 as a whole, household net worth fell $11.2 trillion. Household debt contracted at an annual rate of 2 percent in the fourth quarter, following two quarters of very weak growth. In the fourth quarter, home mortgage debt decreased at an annual rate of 1½ percent, while consumer credit decreased at an annual rate of 3¼ percent. In 2008, household debt increased ½ percent, 6¼ percentage points less than in the previous year. Fed release http://www.federalreserve.gov/releases/z1/Current/z1r-1.pdf

    · Retail sales come in strong today – Total retail sales in February declined 0.1%, reflecting the already announced decline in unit auto sales. But ex auto sales rose 0.7%. And sales ex autos and gasoline rose 0.5% and the January figure was revised up to a gain of 1.4%. Following sharp declined through 4Q08, several categories of sales show large increases in both January and February including electronics stores, clothing stores, general merchandise stores and nonstore retailers.

  87. 87
    BirdsofpreyRcool Says:

    Midday Energy Overview

    · Energy – Seeing both vanillas and HFs in on the sell side in some size in refiners and integrateds. Very little action from the buy side…couple tickets in integrated/service spaces. We’re hearing some noise about possible macro unwind of core longs, specifically in E&P space, but across energy in general as street begins to digest likelihood of $2 handle on natgas. Seen some noteworthy underperformance from strong names over the past few days, lots of questions…this is our take. Better to sell 3:1. Utilities: Dedicated guy in swapping some names. Vanillas two ways. Little participation from HFs but better to sell. Overall, 1:1 buy, sell.

  88. 88
    BirdsofpreyRcool Says:

    (these are Trading Desk updates)

  89. 89
    zman Says:

    Oil almost taking back all of yesterday’s losses. Tomorrow IEA will post low demand forecast and that has in the past, even though it should be a surprise to no one, put pressure on oil.

  90. 90
    zman Says:

    BOP – Re KOG: I think that potential $5 mm rig cancellation fee for the second rig is what’s giving the stock the hit today.

    90 mm shares x .19 = $17 mm

    Cash of $7.5 mm

    costs to complete first 2 wells (no more than) $4 mm

    Reserves on the books at $5.3 mm (that’s PV10 with low year end prices)

    Acreage: going for upwards of $1,000 across a broad swath of the Bakken according to latest lease sale, good map of this in the BEXP presentation today.

    So call that 37,500 net acres X $1,000 = $37 mm but risk that down to $18.75 mm

    So we have
    $18.75 mm for acreage
    $7.5 mm for cash
    $5.3 mm for reserves
    less

    completion costs of $4 and another 10.9 mm of potential early termination fees.

    That nets out 16.65 mm of worth which is just under 18 cents per share. If you assume they could get $1,000 per acre that obviously helps as does negotiating the early termination fees lower.

  91. 91
    zman Says:

    BOP – on #90, am I missing something there?

  92. 92
    AAA Says:

    Z,

    Re NG number, sorry I missed your earlier posts, forgot posts show CDT.

  93. 93
    zman Says:

    AAA – no apologies, just didn’t know if you wanted more than my initial blurb. Really got little to add to that, the draw was mainly east coast and if we can keep those guys cold we have a shot at getting through the 1.5 Tcf mark for the seasonal low for storage which is psychologically important if nothing else. I do think the numbers are starting to show a pronounced reduction in supply somewhere in the chain. My thought would be Texas is already producing less and Oklahoma has rolled over in March. That’s based on rigs and extrapolates the last data.

    There is a story out about Iran inviting Russia to join the Cartel. Fat chance on that one. It is possible that Putin will decide to announce some kind of an official “go along cut” however and if he or Medeyev does that would be worth at least $5 on crude from here, possibly $10 if they went for a 1 mm bopd cut.

  94. 94
    zman Says:

    FLSR = wild ride. Gap officially filled, again. I would expect it to at least run to $130 in here. I’ve seen a lot of positive broker comments since the day it swan dived following better than expected numbers.

  95. 95
    reefguy Says:

    why oil up $3.70?

  96. 96
    zman Says:

    Reef – 1) it fell too much yesterday on the OPEC “no production cut comment” and the small rise in inventories and 2) Iran is out saying it welcomes Russia to join up. I say fat chance but they could make a coordinated cut with the Cartel.

  97. 97
    zman Says:

    S&P above Nicky’s gap level.

    Denise just sent me a chart of the XLE vs the RYDEX energy ratio. Shows the energy groups were “over invested” last summer and are now “under invested”. This measure the amount of assets in the energy and energy services Rydex funds / total assets in Rydex sector funds. The XLE peaked with the “over-invested” peak and is now very low at the same time the “under-invested” territory of the Rydex index seems to be turning up.

  98. 98
    zman Says:

    Reef – I also see people pointing the better than expected retail sales data as a reason for the oil bounce, now up $3.80 at 46+

  99. 99
    reefguy Says:

    Dow up 165- “The Madoff Rally”

  100. 100
    nifkin Says:

    sorry if Im asking a question that was already answered- but was there anything on the KOG or BEXP calls that would have been a positive read through for the entire Bakken play- all the names seem to be outperforming – EOG, WLL, CLR, HES

  101. 101
    zman Says:

    EOG flying higher now, up 8% …put that in the shoulda, woulda, coulda file as I should have listened to myself when I put the big cap charts out, safest name when people want safety.

  102. 102
    zman Says:

    Nifkin – not so much from KOG. From BEXP they highlighted recent high priced lease activity with some acres going for as much as $4K per and all going for $1000 or more. They then pointed to great success from WLL with the biggest well in the play they know of at over 4,500 bopd, a good down spacing result, and a good extended lateral result. It almost felt like BEXP management had bought WLL stock.

  103. 103
    zman Says:

    Re 99. I guess if we hung guy in front of the NYSE we’d be up a grand.

  104. 104
    elduque Says:

    Z when do you estimate the rig drop and flow drop (gas depletion) start to have an effect on production?

    Thank you

  105. 105
    zman Says:

    Interior Secretary Salazar has suspended those research leases in Colorado for oil shale development indefinitely. Enviros wanted this killed despite the fact that the leases did not allow for commercial production. An estimated 3x the amount of oil held by the Saudis is in this shale and the study of how to get at it is now off the table. The administration added they wanted to “go slow” here.

  106. 106
    zman Says:

    Eld – I think we are seeing it in the weekly numbers now. The weather should not have produced this large a withdrawal given the deficit to year ago withdrawals we have seen due to slack industrial and electrical demand. The fact that we are getting “non-pathetic sized” withdrawals is testimony to the fact that we either have seen demand pick up (I doubt that) or a combination of lower supply and end of season gaming of storage. I think it’s supply. We saw cracks in the growth in the December data and we are now in March. We won’t see the numbers for March until the end of May but I would expect to see some more small evidence in the January number due out at the end of the month. I think that’s it, along with a little help from the Canadians who are sending less gas south of the border, which helps too.

  107. 107
    BirdsofpreyRcool Says:

    z — #90 KOG… i think that is a good baseline. But, they also have something like $28mm of cash they get if DVN walks on the Vermillion commitment. So, think there should be something for all that acreage… even though it’s been ceiling-tested and written to zero.

    Also, the Bakken acreage valuation is as broad as the side of a barn. They said on the call that 100% of the acreage on the Rez is leased and that the last Federal lease sale saw $3,000/acre on the prospective stuff (unless i heard that wrong). So, if their first well comes in, what is their 37,500 acreas worth? Can’t argue with $1k/acre + 50% risk-weighting… can’t argue with $2,000/acre and no risk weighting (b/c 100% of the acreage all around is gone)… it totally depends on the outcome of the first well.

    Also, the second set of wells (#s 3 and 4) are 10 miles north of wells 1&2 and will test whether the tasty Parshall enhanced structure runs under KOG’s acreage…

    Addendum — well 3 is partnered with XTO. Well 4 (from the same pad, I think)is with partner, Peak. Well 4 will drill the 10,000 ft lateral. Also, Peak is drilling their own well on acreage in the middle of KOG’s agreage. Peak is going to complete in the TFS, so KOG will get a “free look” at the prospectivity of the TFS underlying their acreage.

    Bottom line — it sounds horrible, it is bad, it could turn out ok. But, at $45 oil, no one is in a hurry to produce… and — heaven help you — if you have to sell acreage to meet debt obligations. KOG isn’t in that camp right now.

  108. 108
    zman Says:

    BOP – thanks very much. Where are the current reserves on the reserve report coming from, Vermillion? What is the basis for the $28 mm comment. Thanks again, just working to finally come up to speed.

  109. 109
    BirdsofpreyRcool Says:

    BAC — all over the tape making happy noises … “we expect to be profitable in 2009″…”we were profitable for the first two months of ’09″…

  110. 110
    zman Says:

    Fair warning on the PQ, mine could be sold at anytime. Will let you know. Frankly tired of keeping the minute chart on one screen and in the back of my mind while I work. As I said yesterday, the name has a lot of hot, very fast money in it that does not know the difference between oil that has an API gravity and oil that has an SPF rating.

  111. 111
    zman Says:

    Pack – HK is finally green and all it took was 171 dow points, lol.

  112. 112
    zman Says:

    Oil looking to be up $4 into the close of NYMEX. I can see the headlines for tomorrow now:

    “Oil rises on retail sales data, OPEC cut hope.”

    And a little later,

    “Oil falls as IEA slashes global demand forecast; OPEC seen not cutting”

  113. 113
    zman Says:

    BOP – forwarded something from md to you.

  114. 114
    zman Says:

    FSLR running through yesterday’s high. Tater or any of you TA types, is there are a name for a confirmed gap fill and then a run on higher.

  115. 115
    BirdsofpreyRcool Says:

    #113 thanks… will look

    $108 it is in my notes, from a conversation i had with the CEO last summer… just trying to find the notes now to confirm that “take or pay” number with DVN in the Vermillion.

  116. 116
    zman Says:

    NG just went over $4 and back below it, following a nearly $5 move in oil.

  117. 117
    BirdsofpreyRcool Says:

    md — thanks!

  118. 118
    VTZ Says:

    Z – Re oil shale in 105. That wouldn’t be commercial for at least 10 years and it’s extremely energy intensive.

  119. 119
    zman Says:

    What’s moving FSLR today? A 50 MW Sempra project that is weeks away from being penned. This would be the largest utility based solar project in the U.S. to date, FSLR picked because they have the cheapest cost per watt.

    Ironically, there are a couple of sticking points to the deal.

    Sempra wants to apply for federal loan guarantees but under the wage provisions, union installers would have to be paid the minimum on the federal register which is $40 per hour. Typically solar installers get $16 per hour.

    Second issue will be the need to conduct an environmental study on the project (yep, on a solar project).

    Your tax dollars at work making things more expensive and take longer.

  120. 120
    zman Says:

    V – I know but it goes to the direction they seem to be taking. They are making it harder to research ways to get the costs down because they don’t like oil. Period. I know there are water and energy cost issues…just thinking it would be good to get the research ball rolling.

  121. 121
    zman Says:

    BOP – sent you another email

  122. 122
    zman Says:

    Nicky or Tater – if you get a chance could you give some fresh levels on the SP500? Thanks.

  123. 123
    VTZ Says:

    I agree. The research needs to continue.

  124. 124
    ram Says:

    ZMAN Re #111 – It seems that HK is being dragged up vs. following the E&P’s. It seems like we’ll need Dow 9,000 for the 17.50’s and Dow 12,000 for the 20’s.

  125. 125
    zman Says:

    2 more office purchases on the tape from PQ. The SVP of exploration bought $200K worth.

    Ram – it took the morning off and is playing a little catch up. I think your levels would prove conservative on the HK performance relative to the averages.

  126. 126
    zman Says:

    On HK, it has been a laggard since the deal. I know people hate these low $ per share deals. I do too. The alternative though is to be suject to the whim (or near whim) or your bankers who may slap you with a redetermination bill due in 45 days. That can really put the beat down on the shares as well. At least with the deal, you take the dilution but have more control over your company.

  127. 127
    zman Says:

    Watching GMXR bounce off $6. Am working it up for tomorrow’s post and not too worried that its off the low, has a long way to go. Redetermination fear is there, I think with the lower budget it really doesn’t matter, they should not have anything on the revolver at this time to worry about it.

  128. 128
    zman Says:

    ZTRADE: $10KP – Sold the FSLR Call for $1.40, down 82%. Still holding the $135s. Potential contract announcement story is propping the shares up along with a green market but these were slipping through cracks pretty quickly.

  129. 129
    zman Says:

    Retracting GMXR comment on revolver, got my columns mixed up, thought something was amiss. Need new glasses. Thanks BOP.

  130. 130
    Dman Says:

    Z – so to clarify, there could be a GMXR problem with the redetermination? Even after the capital budget cut?

  131. 131
    zman Says:

    Dman – It would be one heck of a redetermination lower to get there. $190 borrowing base now with $110 drawn.

  132. 132
    zman Says:

    Dman – They may have 4 more Haynesville wells down before the redetermination is finalized in early April. If I was the banker I’d want to see those wells.

  133. 133
    zman Says:

    Pretty nice day. Beer thirty.

  134. 134
    PackMan Says:

    HK .. Z – thanks. Bought some today at the lows but did not hold long enuf to get the most out of the ride. Still, a profit is a profit.

  135. 135
    mimster90 Says:

    zman I would be interested in your thoughts on the rankings of undervalued oil plays, like APA, with a 3+ year horizon for an IRA so no MLPS. I am in no rush just been making another list. thinking of EOG for the gassy side.

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