Thursday – Natural Gas Preview And Oil Inventory Review Plus

85 thoughts on “Thursday – Natural Gas Preview And Oil Inventory Review Plus”

1. Initial jobless claims fall to 610,000 vs 655,000 expected and 663,000 last week.

2. Housing starts fall 10.8% to 510,000 for March, well below analyst expectations of 550,000 and the 572,000 starts in February. I hear people say when they see numbers like that its a sign of a worsening but in my way of looking at it, we need to work through the inventory of homes we already have on hand to avoid further deflation. It may be troubling for the housing sector in the near term but if the homes aren’t selling why keep building so many? Building permits fell to a record low…good.

3. Good news?

   BDI +70 1604

   Long way to go????

4. MS going native on NAM players ahead of earnings– looking for the beta bounce. I also think rig count bottoms in next few months but still not chasing:

   MS Oilfield Research- Recommending stocks levered to positive inflection point in N American rig count in beginning of June

   · Ole believes a rig count inflection point will be reached in June and it will coincide with an end to the EPS downgrade season and the first signs of a negative gas production response. Thus, he believes the OSX is on the starting blocks of a bull race for the next 6 months that will be driven mainly by P/E multiple expansion. He recommends a basket of 8 stocks into this six month rally: PTEN, NBR, HP, BJS, RES, SWSI, CFW.TO, TCW.TO. He prefers these names because of their high exposure to the US land market, they are oversold relative to the OSX, they have high betas vs. the group average, and they all have high short interest ratios. Within this basket of stocks, he is upgrading BJS and PTEN from Equal-Weight to Overweight, and double upgrading TCW.TO and CFW.TO from Underweight to Overweight.

   · Ole is also initiating coverage on Superior Well Services (SWSI) at Overweight (PT of $16) and RPC Inc. (RES) at Overweight (PT of $15). Both stocks are trading at historically low implied asset valuations that discount asset values well below full cycle asset values. The bottoming in the US rig could boost implied asset valuations closer to full-cycle levels and Ole recommends buying both names ahead of the bottoming in the rig count.

   · Also Initiating coverage on Helmerich & Payne Inc (HP) at Overweight and PT of $50. With a young fleet of high horsepower electric rigs backed by superior contracts, a strong balance sheet and an integrated in-house rig manufacturing capability, Ole believes the company is well positioned to take advantage of the secular trends towards increased unconventional drilling.

   · Downgrading HLX after a good run (220% since our upgrade). Stock now appropriately discounts first legs of catalysts (Asset sales, easing liquidity concerns). See stock taking a breather here before next leg is realized (deepwater construction story). See risk to ’09 consensus (MS at $0.57 vs cons $1.14) as consensus seems to discount flat contracting services gross profit which we view as unlikely given project delays, reduced activity levels, and modest backlog.

5. Thanks Jat. I have little doubt rigs are bottomed by then. Its the bounce in rigs I see taking quite some time and recently burned on price E&Ps are hesitant to ramp activity. I think he’s early on that coinciding with a bottom in EPS reductions.

6. Oil toying with $50 again, ng off nearly a dime pre inventories.

7. Jat – you’ll also note I’m not adding as there’s no sense fighting the crowd for now. Monday’s HAL call will be interesting.

8. Crude completely tied to market, rally in both fizzled in lockstep.

   E&P off slightly pre ng numbers. SD working slightly higher after buy initiation.

9. Yeah, we haven’t done anything except covering a bit at the beginning of the month. I was joking yesterday that it was the first Wednesday in forever that I couldn’t wait till Monday to see how things react. Right now the MS desk guy is saying the HAL whisper is 38-39c, to your point in the HAL posting above (“Stuff We Care About Today”. I was going to throw in a $0.48 guess to him to try to skew the average, but didn’t have the heart.

10. Ok, we look to be back on line. I’ll monitor both this site and the backup site:

    http://zmanbackup.wordpress.com/

    Make sure to bookmark that address.

11. Nice rally in SWN vs the group. No news or broker notes that I see. A little odd to see it rally without the group and five minutes before the natural gas storage numbers. Will give me a nice out for the April 30 calls if it holds.

12. Jat Re 9 – Nice idea, set the bar high my friend, lol.

13. 21 Bcf injection

14. Gas trying to rally a little on the number, fear it was going to be bigger it seem.

15. Commercial real estate seems to be the next bomb going off-not good for general market sentiment.

    http://news.yahoo.com/s/nm/20090416/bs_nm/us_generalgrowth_bankrupcty

16. Natural gas pretty nonplussed by the storage number, down 6 to 7 cents which is where it was pre release. Stocks likely to tag along with market for rest of week now.

17. Just got notice of PQ 8k filing of new april presentation.

18. Gold seems to be weak today, Canadian Dollar has been relatively strong against USD in recent days, which I believe is a positive indicator for resource/energy stks.

19. Thanks John, will have look, its probably for IPAA next week. GDP said yesterday they will have their presentation up tomorrow and others may do the same pre conference.

20. whats the HDD estimate for this week?

21. HDD = 89, that will likely be revised up into the mid 90s.

22. Ran through the PQ presentation. Not much changed. Fayetteville production looks to have double from last month if memory serves but that’s not a big deal as it went from 4 to 8 MMcfepd of production (os about 8% of volumes for the year), gross Woodford looks to be trailing a bit lower, guidance stayed the same, hedges might be up a touch, still weak position for 2010 hedges.

23. If you read only one thing, read this one:

    … solar and wind sources are providing the equivalent of 76,000 barrels of oil per day. America ’s total primary energy use is about 47.4 million barrels of oil equivalent per day.

    “Of that 47.4 million barrels of oil equivalent, oil itself has the biggest share – we consume about 19 million barrels per day. Natural gas is the second biggest contributor, supplying the equivalent of 11.9 million barrels of oil, while coal provided the equivalent of 11.6 million barrels of oil per day.”

    http://www.epmag.com/WebOnly2009/item35743.php

    Obama actually has some smart people in the National Intelligence Council, “new energy technologies probably will not be commercially viable by 2025.”.

    http://blogs.epmag.com/kevin/2009/04/15/us-intelligence-sees-decades-long-shift-within-fossil-fuels-coming/

    Fuel Switchus Interruptus:

    http://blogs.epmag.com/kevin/2009/04/15/us-intelligence-sees-decades-long-shift-within-fossil-fuels-coming/

    BG in Brazil :

    http://www.epmag.com/WebOnly2009/item35771.php

    Text book example of how journalists are not authority figures of what they write about. Now, if I can only get her to write that check out to me or the Wyoming Human Fund?

    This article is Sorry, read at your own dismay.

    http://blogs.epmag.com/rhonda/2009/04/09/it%25e2%2580%2599s-not-all-gloom-and-doom-%25e2%2580%2593-sorry/

    Maybe the Editor needs to have a talk with Mrs. Perky (Above)?:

    http://blogs.epmag.com/bill/2009/04/15/uk-exploration-plummets/

    If you are bored and want something to read:

    http://blogs.epmag.com/tayvis/2009/04/15/green-jobs-green-economy-a-mythology-for-the-new-millennium/

24. Thanks Wyo, shoot me an email whenever you post something with more than 2 links in it as it gets autospamfiled.

    Somebody let the rally monkey out for a bit.

25. Evidently bad news is now good news if it’s not really bad news. My HOG short is not such a good place to be today.
    Relevant in that it might foretell reception/reaction to HAL report?

26. Tater – I’m very likely toast on all April puts on HAL. Did you see the comment on LUFK in the post and then Jat’s comments from MS above? State of denial by analysts. They seem to willing to look through the trough and live with greater multiple expansion with 0 growth for the next 2 years than I am. Stock moving technically it seems to me.

27. Yep, I read it. I’m not backing off my shorts (ugly image) just yet. I’m playing with May and I have to believe that we are going to get a pullback soon. Things look overdone to me. SD is an example. I know that it got whacked so people can say that it needs a good bounce off that bottom. Right/exactly. 100% is a good bounce, etc. I think we at least get some profit taking as we are up into exact TA resistance on more than a few names. JP Morgan, that’s not good news to have 9% default rate on your credit cards no matter how you spin it. SBUX? Have you found yourself cutting back at all? Just one less $5 coffee/week is not small change when extrapolated to millions of customers, especially if the cutback becomes a permanent change in behavior.
    Obviously I remain a bear. A pissy one for now.

28. NG getting tagged for 13 cents to $3.56 which is a not a new low for this cycle (that was $3.50 on Monday) but it looks like it wants to test it. How this is good news for activity in the U.S. I don’t know. It certainly is not going to get the E&Ps running to grab rigs any time soon.

29. Re SD – up 50 cents to 9.40, too little too late for my April 10s, I’m afraid. My bad timing on the sale of my May 10s yesterday flat but the stock had run as Tater suggests pretty strongly and my thought was to get back in lower.

30. Question emailed in from the compliance department challenged:

    Z: I have a big picture question. If one were to add $ to commodity exposure today, what is your level of confidence that that E&P and NG is the place right now. If you look at other commodities like copper, crude, wheat and many others it seems that many have already run up this year from lack of supply and if demand picks up can continue to do well. NG does not have a supply issue right now. I do have confidence it will but I am conflicted as to which area may have more bang for your buck. I do not expect you to be an expert on all commodities. It just feels like playing the E&P space might still be a month to two away before more momentum money sees the light. What is your level of confidence that now is the time.

    My response:

    I think we are starting, just starting, to turn the corner. Its not just a function of commodity price but also one of costs. 1Q will show cost improvements, 2Q will show a lot more. I think the market is starting to discount that into its picture. But the confidence level out there is modest. I think E&P has a place but only in select names. We seem to be making a transition from hedged and low debt is good tentatively to less hedged and somewhat leveraged is also good. But it will have fits and starts. If you have a 2 year time horizon I think now is as good a time as any. If shorter, maybe not, we are in the shoulder season and LNG remains the big guy in the room. The stuff I’m doing now is just “target of opportunity” type of investing.

31. I searched the world over and found no reason for SWN to be outperforming so much on this kind of day other than a comment that its up because it has been underperforming. That’s probably a bit short of a full explanation but it will have to do. Will hold as I suspect it could be time for a Haynesville well update there.

32. And then I get an email telling me it’s JPM updating their target from 43 to 48 over better well perf.

33. Z -New Definition of a Molotov cocktail = the 45% cut in rig count, hurricane season and a stabilizing economy. 🙂

34. swn gets hi marks for low debt and growing production but imho is overpriced with ng at 3.50

35. Funny Isle.

    Re Swn – they’ve kept roughly the same premium over their peers on a P/CF basis so they are on relative basis, its all equal. Auguring for a premium multiple:

    1) a good hedge position
    2) improved take away capacity from the Fayetteville shale which will shrink the discount to Henry Hub
    3) falling well costs for longer laterals with higher per well productino and reserves which means lower F&D costs
    4) upside not yet in the stock due to new Haynesville tests.

36. re swn

    z good points….

    how about ev/reserves

37. True, they are rich vs proved reserves. See E&P tab, its > $5/ Mcfe

38. Bill – if you are after cheap with smaller growth but a leading position in a different shale (woodford) then NFX is probably the ticket. Much cheaper p/CF, TEV/Mcfe etc. Stock acting well as well and probably due for an update of ops but may wait for the call. Good solid company, more like a mini large cap (like a small DVN) as they have deepwater GOM, China, Malaysia as well as U.S. onshore gas.

39. Hello rally monkey. Volumes in energy look light though.

40. Pemex on the tape saying 2010 Mexico volumes to be 2.6 mm bopd, vs 2009 at 2.7 mm bopd – blames Cantarell.

41. LINE inching into a breakout here. 100% hedged for next 3 years looks pretty good on days when gas is toying with $3.50.

42. One thing to note about today’s injection. It was in line with last year and the five year average of 20 Bcf for this week of the year. It took cooler than normal weather to achieve that but given weak non-weather related demand that’s not terrible and it does confirm or come close to confirming that production is flat with year ago levels now.

    Given that we were in line on the numbers with history, our surplus to both year ago and the five year average eased slightly for the first time in 10 weeks.

    Next week’s comp is an injection of 25 Bcf and then the comps soar as weather is no longer a factor until electricity demand runs up. This year, look for demand to be up for gas-fired generation relative to total generation as the EIA points out that cheap gas backs some coal out of the generation equation.

    With an hour to go before the close of NYMEX gas is off 11 cents.

43. Any particular reason for EOG’s relative weakness?

44. John –

    Fundamental answer – no
    Technical answer – it looks like weak got weaker action for the last two days.
    Brokerage call answer – nothing that I have seen, as been pumped up for last few days after more brokers put it in their top 3 names for E&P
    Sarcastic – I went back to the well with profits from the half position sale made late last week too soon.

    In short, it looks like profit taking.

45. Thanks Z

46. John – it wasn’t the best answer but for the short swing time frame of a day or two its the best one I have.

    Crude tapping on $50 from below again. Kind of amazing given the inventory reports we keep getting.

47. OIH stocks just raging higher before earnings. NBR up over 40% in the last week.

48. I added to my stock position in EOG on the dip, I just wanted to make sure i wasn’t missing anything important.

49. Z – does seem to be a fair bit of random action and then catch-up from said action. Eg CLR up today/yesterday. I was hoping for a second day to get in, but no dice.

    Choices #18 USD has reversed against both AUD & CAD today, looks like a pause it the big run the two commodity currencies just had. Maybe then a pause in the metals & the general reflation trade?

    But crude seems to be ignoring currencies, inventories, pretty much everything. Correction in time instead of price?

50. OIH action is bewildering

51. Dman – seeing a lot of that type of action too. Lag then surge. Seems some analysts are getting a little more proactive with short notes out with very little new but taking advantage of some of the dips like SWN today from JPM.

    Re oil – well, if they can look through a two year earnings trough for oil service I think they can look through another month or so of weak refining pulls before the refiners ramp up. The ramp will be later and smaller than normal but they will bring more production back on line which will stop the builds in crude inventories.

52. #4 Good to at least see the bull case spelled out. Main assumption: “this is a normal cycle”. Hmmm.

53. Dman – too true. I and many others think that we will trough but stay low on the counts for an extended period. In the past we’ve often seen spikyness at the bottom with rigs running back up on a sort of reflex rally….just doesn’t seem to be the E&P game plan this time.

    ZTRADE: Out SWN $30 April Calls for $2.20 for a even money.

54. Good afternoon all.
    Finally looks like we are getting the breakout from consolidation we have been waiting for in the indices. For me this should be the final move to the upside before a deeper correction. Targets I am looking at are SPX 875, 878, 880, 890. We also have resistance at 864 which we are just getting through.

55. Gold (and silver) in v of 3 of 1 to the downside. Looking for the 858 area.

56. Oil seems to be struggling up here. I had thought it could go a bit higher before we saw a correction but its looking unlikely unless it really gets legs tomorrow.

57. ZTRADE: WILDZ – Extreme Risk Trade

    Doubled the HK $22.50 April Calls for $0.15 with the stock just under $22. They speak at IPAA on Tuesday of next week and I own May calls for that. There is an outside chance they catch some favorable comments from analysts tomorrow along the lines of getting in front of a coming favorable ops update for both the Haynesville and the Eagle Ford shales. High risk, one day of life on these options but it has been lagging the move in the group and it has potential near term catalysts. And again, I own the Mays as well.

58. For some evening listen-Jon Stewart interviews Elizabeth Warren, Congressional Oversight of TARP. She is a very intelligent (and frustrated) lady who has been trying for months to get transparancy and accountability of the bailout funds and has been stonewalled at every turn.

    For those who wish to skip the initial talk by Stewart, the interview starts at about 09:15.

    http://www.thedailyshow.com/full-episodes/index.jhtml?episodeId=224255

59. Dman-agree on #49-USD/CAD bounced strongly today off 1.20-I hope it is only a pause as I am short USD long CAD forex.

60. Thanks much to Nicky for the levels on the broad market, much appreciated, looks like we might get some legs on Friday.

61. Z – are any of the holdings tabs up to date? (Specifically looking for E&P)

62. Dman – do you mean the E&P tab. Or the Wiki Holdings Tab?

63. Anything with the E&P holdings in it.

64. Ok, the E&P tab has all the charts and graphs, the fundamental data on the most popular E&Ps around these parts.

    The wiki holdings tab is updated as of the last trade.

65. Thanks Z. While I’m at it, any chance of an updated earnings calendar. Might make sense of some of the moves.

66. Re Earnings Calendar – will have next week’s up in the post tomorrow, will have the full 1Q calendar up on Monday.

67. Google after the close. May give us a blow off top.

68. Thanks Nicky. Hope they do well, have owned quite some time. And they are boosting the fees they charge me on transactions by 50% so them doing well is a way of relining my pocket.

69. FWIW

    HAL should show a triple top breakout when/if it closes at 19 or above on the P&F charts. Until then it carries a bearish price objective of $11.

    http://stockcharts.com/charts/gallery.html?hal

70. GOOG up $20 post numbers.

71. Z, re the HK calls. I don’t understand why you would want to take the risk of buying OTM options with one day left on them. I understand you’re risking all of $75 on them, but why not just do the Mays? You’re going to need probably at least a $1.00 move in the underlying to get to b/e. Not trying to be critical, I just want to understand your reasoning.

72. AAA – I own the Mays already. I wanted a little more leverage going into expiry. My hypothetical option calculator shows a 40 cent up move for breakeven in the morning while a 50 cent move would put the bid at $0.20, up 33% to that cost. I did plaster the trade with “extreme risk” but its not a lot of money and it has a decent chance of pulling out as those kind of moves in an up market on the Friday before IPAA are not out of the realm of possibility. If I held them through the close tomorrow, I would need an $0.85 move to break even.

73. CHK on the tape:

    Doubling gas production curtailment to 400 MMcfgpd (0.4 Bcfgpd) due to low gas prices.

    Added back 7,000 bopd previously curtailed (that’s 42 MMcfepd), so net net they are voluntarily down about 160 MMcfepd of additional production.

    Most of the curtailed gas comes from the Fayetteville and the Barnett Shale.

    Wow, Unprecedented Action Watch: They go on to say they will curtail production from “most newly completed wells in the Barnett and Fayetteville shales to 2 MMcf per day and in the Marcellus and Haynesville shales to 5 to 10 MMcfgpd, respectively, in addition to the approximate 400 MMcfgpd day curtailment.”

74. Re 73: Now all they need is a cartel.

75. Lets see if anyone wants to spin the overhang of shut-in wells as somehow positive for NBR etc.

    This sort of thing suggests a U shaped recovery for NG: it will constrain further price erosion but the capacity overhang should also prevent a large spike up.

76. Dman – I agree, same can be said of oil although oil’s case is more pronounced with OPEC excess capacity.

    Aubrey has curtailed on and off before but this is the first time I’ve heard about him deliberately limiting a majority of new well production from his big plays, let alone all 4 of them, that’s a bit harder to quantify but since they are still the most active driller in the U.S. (major or E&P) its going to have an impact. He’s not alone either, just the most vocal and may just spend time testifying in front of congress by winter.

77. Crude seems to be at $52 after hours, something to do with unemployment numbers.

78. D – I show the front month (May) at 49.88, the June contract at $52.04.

79. Oops. Right, I see the same here.

    I was looking at the continuous contract, which must have sneaked into June (at least on the thinkorswim platform).

    I think the May contract expires April 20 (?). So I don’t know why the continuous data wouldn’t stay with May for tomorrow.

    Aside from that … with June at $52 I begin to doubt my correction target of $45.

80. Z – What’s your best guess on impact of CHK news on stock price = tomorrow and near term ?

    The reason I ask is most of my CHK long shares have covered April 20 calls sold. If stock closes above 20, I need to decide whether to roll them up or should I let shares get called away in expectation of a cheaper re-entry.

    Not looking for advice on what to do, just opinion on what you think the stock may do.

81. And why does CHK have to come out w/ stuff like that on top of options expiration ?

82. chk is presenting next week and you can view this as a warning for q1 and q2 numbers.

    with 82 % hedged, its the 18% not hedged which is the issue. These cuts affect 13 % of their production

    and if they were selling it in the 2’s they werent making money on it anyways

    i think its a good move but chk will fall a buck

    the markets likes growth

83. Back from dinner.

    Pack – I think it falls early, small, then rallies, may take a day to five to get its legs but in the end cannot disagree that its the right move. If natural gas takes a cue to rally from the move, the dip will be shorter. Its not really the 200 or now 400 MMcfepd but the new well production being reigned in and the fact that several of their peers have in the past joined in or at least decided close to the same time to do the same thing albeit less publicly. CHK curtailed a couple of years back, think it was September 2006, and was followed quietly by industry, then did same last fall and saw followers soon after. At these prices if you are curtailing you are not getting busy with the drill bit to say the least…you don’t really want the volumes you already have, not at these prices. Should be bad for service, good for their peers.

84. http://www.spiegel.de/international/business/0,1518,618911,00.html

85. Thanks Z & bill.
    I will see how it trades and decide on my plan.

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