Tuesday – Swine Flu Day 2

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Not day 2 since it started but since the markets decided to notice. The World Health Organization raised its alert level to Phase 4 on a scale of 1 to 6 (with 6 being full blown pandemic) yesterday afternoon and the U.S. has recommended not traveling to Mexico. The WSJ 's interactive map of announced cases to date. Stock and commodity futures are beating a retreat again as we approach the U.S. open.


In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Analyst Price Forecast Watch
  4. Earnings Watch - SWN and VLO Beat Estimates
  5. Crack Spread Update; VLO Thoughts
  6. Odds & Ends

Holdings Watch: The Holdings Wiki tab is updated.

  • SWN - $10KP - Taking a half position in the May $35 calls (SWNEG) for $0.95 (it fell back as soon as I filled so its $0.80 x $0.90 now with the stock at $33). Will either add on strength tomorrow or not but expecting good results after the close. Strong hedge position, continuously improving results, and a capital budget reduction likely tomorrow with little to no impact on activities (lower cost drilling), and an improved outlook on Fayetteville shale price realizations along with further news from the Haynesville arena. See breakout below.
  • HK - $10KP - Sold 1/5th of the HK $24 May call position, for $1.00 on the mid, up 60% (basically just taking the profits off the table). I continue to hold HK May calls in the $22.50s, $24s and $25s.

Commodity Watch:

Crude oil fell $1.41 to close at $50.14 yesterday as the markets absorbed Swine Flu fears and the dollar rallied as a safe haven currency. This morning crude is trading of a buck with the flu.

  • Demand Watch: The Federal Highway Administration reported that U.S. drivers increased their daily driving for the first time in 15 months in February.
  • Non-OPEC Supply Watch: PetroChina reported early on Tuesday a 5.7% cut in 1Q09 crude production vs 1Q08 levels,

Natural gas fell $0.04 to close at $3.25 yesterday, moving with oil. This is contract expiry for May gas so expect some volatility and then a bounce on gas (we get new supply numbers from the EIA later this week). This morning gas is trading off 5 cents.

  • Imports Watch:
    • LNG: flat at 1.4 Bcfgpd, up 0.3 Bcfgpd from last year.
    • Canada: fell to 6.6 Bcfgpd, down 1.5 Bcfgpd from last year.


Analyst Price Forecast Watch: With regard to oil prices analysts have got it just about right as far as the forward curve is concerned. On gas, they are still ahead of the curve but the variance has been nearly cut in half over the last month as estimates have fallen even faster than prices.



Earnings Watch:

SWN Easily Beats The Street On Volumes & Cost Controll; Spend Less, Produce More

The 1Q09 Numbers:

  • Production of 63.9 Bcfe (710 MMcfepd)  vs the guidance range of 60 to 61 Bcfe
    • up 64% from 1Q08
    • up 11% from 4Q08
    • 79% of production came from the Fayetteville Shale
    • 99.6% of production was natural gas
  • Revenues of $540.8 mm vs $450 mm expected (in part due to higher production but not as big a blow out on this line as it looks, a lot of the variance to analyst numbers is in the marketing component).
  • LOE of $0.79 per Mcfe vs $0.78 per Mcfe in 1Q08 and down from $0.87 last quarter (good to see them getting this back down). Guidance: none in the PR but this much better than the $0.90 - $0.95 mentioned as the go forward rate on the last conference call.
  • G&A per Mcfe of $0.31, down from $0.41 at 4Q08 and again, well below what management indicated was likely on the last call.
  • EPS of $0.36 (excluding a non cash impairment charge) vs $0.31 expected
    • ceiling test write down of $908 mm due to the 35% drop in natural gas prices since year end (non-event in my book).
  • CFPS of $1.09 vs $0.85 expected

Operational Update Highlights:

  • Fayetteville Shale:

    • Gross production at 850 MMcfepd, up over 100% from 1Q08 levels and up 13% since last report (mid February).
    • Transportation Issues: Laterals to the Boardwalk Pipeline (taking gas East) were placed in service April 1
      • The issue:  too much gas, up until now not enough pipeline capacity get it out of the area.
      • Sees initial break in issueswith Boardwalk coming to an end by the end of the third quarter (this is the only bugaboo with the quarter...that this might be longer than most people have been thinking).
      • Differentials are improving:
        • 4Q08 saw a $1.80 per Mcf spread to NYMEX
        • By 1Q09 this was down to $1.08 (they had hedged basis for 1Q09 for $1)
      • SWN has hedged basis at 25 cents differential to NYMEX for 64% of 2Q volumes and it sees the differential in 2Q and on to be less than 2H08 and 1Q09. They hedged basis for 3Q and 4Q for just under half of expected volumes at $0.25 and $0.20 respectively.
    • Drilling Results:
      • Completed Well Cost: $3.1 mm
      • Lateral lengths:  average 3,874'
      • 12 days to drill about flat with prior wells
      • IP - lower, for the first time in recent memory, than the prior quarter (ok, this might qualify as a second minor  bugaboo, explicable, one time so forgivable). This was foretold on the last conference call and is attributable to the delay of the Boardwalk pipeline which resulted in completion delays and a backlog of lower rate wells which were turned to sales after higher rate wells.  However, when looked at on a monthly basis, and taking into acount the timing of the aforementioned lateral additions to the pipeline system (average initial production):
        • Jan 09 IP: 2.806 MMcfepd
        • Feb 09 IP: 2.749 MMcfepd
        • March 09 IP: 3.375 MMcfepd
        • April 09 IP: 3.763 MMcfepd
  • East Texas:

    • First of 2 JV E. Tx Haynesville well IPs at 7.2 MMcfepd, second well has been drilled and will be completed this quarter.
    • They did not reiterate their current 40 well program here but did threaten to up, not cut, spending on the play.
  • New Ventures:
    • Still no numbers in print on their Marcellus wells.

Capex: Cutting by $100 mm to $1.8 billion.

  • They spent $450 mm in the first quarter (82% Fayetteville, 8% E. Texas, with the balance spent on Arkoma (non-Fayetteville and New Ventures)
  • 600 wells planned this year vs 620 as of last notice.

Balance Sheet: 24% debt to cap (this gets inflated by the ceiling test write down) but it is still more than manageable

Guidance: All production guidance ranges going up:

  • 2Q09: 67 to 68 increases to 70 to 71 Bcfe
  • 3Q09: 74 to 75 increases to 75 to 76 Bcfe
  • 4Q09: 79 to 80 increases to 80 to 81 Bcfe
  • 2009 up 3% on the mid point to a range of 289 to 292 Bcfe

    • that's up 49% YoY on the mid.
    • My sense is that these are all ranges they feel they can handily beat. No word in the press release on the number of drilled but not completed wells. -

Nutshell: Obviously strong results, big guidance, the capex reduction we were looking for, improved local pricing for gas, non-wow results in their first Haynesville well (but its E. Texas and there's probably not much in the stock for that extension of the Haynesville yet) and a hiccup in the Fayetteville in terms of quarter after quarter improvement in well results that is apparently readily explicable. Look for prying questions on that last one on the call.

Conference Call: Today 10 AM EST.


VLO Beats Estimates

The 1Q09 Numbers: EPS of $0.59 vs $0.50 expected

Capex: trimming another $200 mm out for an '09 budget of $2.5 B. Commented that they acquired 7 ethanol plants at 30% of replacement cost,

Nutshell:  Good cost control in a weak margin, weak demand environment. No guidance provided as per their usual MO. Will listen to the call later this morning. See other thoughts in the Crack Spread Update section below.

Conference Call: Today at 11 am


Reporting after the close today or before the open tomorrow: BHI, FSLR, OII, WLL

SII Post Call Takeaways: (the bits, mud, line pipe etc people)

  • They noted their well optimization team they helped CRK drill a Haynesville well in record time of "less than 30 days". Hence the pop in CRK shares yesterday.
  • Bright spots: deepwater, central Europe geo-thermal drilling. See geo-thermal as a growth market. 
  • No guidance due to lack of visibility
  • Oil service off mostly on volumes not so much lower prices in 1Q09;
  • They expect to see the biggest drop in prices come through in 2Q09 (resulting in a double whammy of lower volume and lower price hitting oil service margins).
  • They see N. American rig activity bottoming in June or July with 2Q off another 30% from 1Q levels.
  • Recovery in rig activity depends solely natural gas prices. Below $4 they don't see a recovery in drilling.
  • Russia drilling seems to have stabilized.



Crack Spread Update:  Low margins continue to crawl higher.


Refiner Multiple:

Why I Almost Bought VLO Yesterday And Still May Today:

1) Margins have been weak but appear to be stabilizing, even the diesel margins despite high inventory levels.

2) VLO is trading at 6.4x 2009 and 5.1x 2010 estimates.

3) Expectations from the Street are very modest, so if they miss, it should not be by a lot. Kind of plays into the same kind of contrarian trading pattern of oil service, starting to discount a recovery.

4) They have plenty of cash, more liquidity available and little debt coming due soon. Don’t think they are buying back shares now but it could become an option if they think we are on the road to economic recovery and don't see anything they want to buy.

5) They should talk about global refining capacity additions being delayed and canceled due to persistent weak pricing environment. This is especially good for them as the projects being canceled now are ones that handle medium and sour and heavier crudes, which their facilities have been designed to handle, which in turn means a little less demand for those crudes and therefore lower feedstock costs (that’s the theory at least) relative to the lighter sweeter crudes. This is more of a long term thought but they should be able to highlight on the call some big foreign delayed/canceled projects.

6) They are the low cost producer in the group, so when margins are low, it makes more sense to run with the lowest cost name.

7) Good progress to date in the domestic refiners sticking together to curb utilization and stabilize prices … probably better than they expected.

Odds & Ends

Analyst Watch: Barclays ups (BBG) target by $2 to $27, Jefferies ups (KWK) to Buy, cuts (FST) to Hold on valuation and lack of catalysts. JPM cuts (BJS) and ( HP)  to Underweight.

WSJ Story about the increasing furor over CHK CEO's pay.

Drybulk Update: Tabled until tomorrow.

117 Responses to “Tuesday – Swine Flu Day 2”

  1. 1
    zman Says:

    The Aubrey story in the WSJ is probably going to ding the stock a little, could be an opportunity if it gets out of hand.

    SWN called up slightly on this weak day and if it opens there I’ll add more on strength as per yesterday’s thought.

  2. 2
    Sambone Says:

    By Nick Heath

    LONDON (Dow Jones)–Crude oil futures fell by more than 3% Tuesday on
    continued worries that swine flu could exacerbate a slowdown in the global
    economy and associated crude demand.
    Crude fell alongside regional equity markets after the World Health
    Organization raised its pandemic level to four from three late Monday as
    reported cases of swine flu spread further around the globe.
    Demand for jet fuel is expected to be the immediate casualty of the outbreak
    as air travel is avoided, although whether the impact on oil demand could
    stretch beyond the aviation sector is likely to hinge upon the strain’s
    virulence and the knock-on impact on the wider economy.
    “Obviously, this is a problem that no one has a good handle on in terms of
    scope, and so, in many ways, markets will be adrift until the situation gets
    clearer,” said Edward Meir, analyst at MF Global in New York.
    “In the meantime, the likely trading tendency would either be to sell first
    and ask questions later, or more likely, to do nothing at all,” he said.
    At 1059 GMT, the front-month June Brent contract on London’s ICE futures
    exchange was down $1.22 at $49.10 a barrel.
    The front-month June light, sweet crude contract on the New York Mercantile
    Exchange was trading $1.46 lower at $48.68 a barrel.
    The ICE’s gasoil contract for May delivery was down $4.25 at $416.75 a metric
    ton, while Nymex gasoline for May delivery was down 352 points at 136.80 cents
    a gallon.
    While crude fell Tuesday, prices failed to test the depths reached Monday,
    suggesting that market participants were indeed waiting on developments.
    “A deadly flu pandemic would be a major weight to the market, but we do feel
    that it is too early to conclude that we are close to such an event,” said
    Olivier Jakob, managing director of Swiss consultancy Petromatrix.
    “Reducing exposure for the flu risk is one thing, betting on it is another
    that would require more confirmation,” he said.
    Flu fears and fresh trouble in the U.S. banking sector Tuesday tolled on
    regional equity markets to continue dampening wider market sentiment.
    Banking stocks earlier led bourses lower following a Wall Street Journal
    report that Citigroup and Bank of America have been told by regulators they may
    need to raise more capital. The report stoked renewed concerns over the health
    of a sector that has contributed substantially to the worldwide economic
    Similar unease also contributed to strength in the dollar against most major
    currencies, prompting selling from those holding crude as a means of insulation
    against dollar weakness.
    “We’re drifting lower on continued worries about the economic outlook,” said
    Ole Hansen, manager of futures and fixed income trading at Saxo Bank in
    Copenhagen. “Looking at the screens and the news, it’s difficult to find
    anything that could be a good reason for buying (crude).”
    Traders were also cautious Tuesday ahead of a brace of U.S. inventory data
    releases, due later in the day and on Wednesday, expected to reveal further
    builds in crude stocks. The American Petroleum Institute is due to release
    details of oil and products inventory levels at 2030GMT, ahead of Wednesday’s
    U.S. Energy Information Administration data. U.S. crude oil stocks are already
    near 19-year highs, with economy-linked demand weakness contributing to the
    buildup in crude inventories.
    The EIA readings are set to vie for attention with key macroeconomic events.
    The U.S. Federal Reserve’s two-day interest rate meeting culminates Wednesday,
    while first quarter U.S. GDP numbers are also due.
    -By Nick Heath; Dow Jones Newswires
    Dow Jones Newswires
    04-28-09 0729ET

  3. 3
    Nicky Says:

    Good morning all.

    Apologies for not being around to comment for a few days. I am trying to avoid the whipsaw so been busy doing other things.

    Okay as usual a couple of possibilities for the broader market:

    Cycles and patterns point to a correction which could be either a deeper wave B which is likely to go to at least SPX 823 and quite possibly SPX 790.

    Alternative which is building some credibility as the market appears to be showing huge resilience is that we have a triangle playing out in which case we are in wave e down now and this should terminate between 835 and 840 SPX, 7800 -7850 Dow. Any break below lows of 21st April lows takes the triangle count off the table.

    If we take out the highs of 875 SPX and 8190 Dow prior to the support levels above being tested I will have to take another look.

    Once the correction has played out then we should move higher into the end of May/June timeframe and I am looking for us to reach towards high 900’s on SPX (maybe a bit higher) but more on this as we get up there.

  4. 4
    Wyoming Says:

    SII – Yearwood is the best service CEO. Guess we wil not be having much drilling activity (Natty below $4).

    CHK, common sharholders always have one simple right if they don’t like what is going on. Sell.

  5. 5
    BirdsofpreyRcool Says:

    Good morning.

    Eco numbers and bond markets not as rattled as equity markets this morning. However, Note to self — markets can stay irrational longer than I can stay solvent.

    There are so many things that are overdone today (flu, stress test, GM/Chrysler proposals [more on this below], Govt Plane flyovers, TARP leaks) that a rational investor just has to step back and take a time-out. Crazy stuff.

    IG 180.5

    HY 75.7

  6. 6
    elduque Says:

    BDI -49 1790

    TED 91.97 The lowest I have seen it since the crisis started, let see now was that yesterday, or was it 10 months ago. Really was it that long ago.

  7. 7
    BirdsofpreyRcool Says:

    The Govt proposals on GM and Chrysler need to be read. I can only hope that it is the Govt’s intention to push both companies into the (more rational) process of an organized Chapter 11. Any other intention has implications that will send more than a shiver up the leg of American business.

    This sums the proposal up, from a bondholder’s perspective, simply and succinctly.


  8. 8
    zman Says:

    Thanks Nicky, back in 20 minutes.

  9. 9
    zman Says:

    Ok, back in the shop.

    SWN – nice reaction.

    HK, glad to see that get a bounce as natural gas actually in green, bounces are quick and on uniformly bigger volume than the sell downs. People may start thinking SWN performance to be repeated at HK and that prices for HK in the Fayetteville will be better than expected go forward.

    Nicky – so first SP500 levels to watch are 835-840. Thanks.

    Thanks BOP – keep us posted on stuff like that.

    Wyoming – Re CHK. Agreed. I was hoping it would knock them so I could buy some calls, I remain a shareholder there.

  10. 10
    BossmanG Says:

    Z, was wondering if you got my email a couple days ago, I believe BOP was sending around some energy bond info? (I might be mistaken).

  11. 11
    zman Says:

    Boss – I don’t recall getting it. Send it along again and I will forward to BOP.

  12. 12
    zman Says:


    Added 10 SWN May $40 calls for $0.40. See results breakdown in post. Conference call about to begin. I continue to hold the SWN $35 calls bought yesterday.

  13. 13
    BossmanG Says:

    Z, sent. Thanks.

  14. 14
    BirdsofpreyRcool Says:

    BossmanG — thought I sent you the info. Good news is that there is an update that came out yesterday. Will send that one.

  15. 15
    BirdsofpreyRcool Says:

    Consumer Conf up most since Nov 2005… from 26.9 to 39.2 for April

  16. 16
    zman Says:

    SWN still admitting participants pre call.

  17. 17
    BirdsofpreyRcool Says:

    IG 179 post-consumer confidence #.

  18. 18
    Sambone Says:

    By Jason Womack

    HOUSTON (Dow Jones)–Natural-gas futures edged higher Tuesday as traders found
    buying opportunities in a market that has been pushed lower by ample storage
    levels and weaker demand.
    Natural gas for May delivery on the New York Mercantile Exchange recently
    traded 3.5 cents, or 1.08%, higher at $3.288 a million British thermal units.
    The contract was recovering somewhat after sinking to a new 6 1/2-year low on
    Monday. Nymex May natural gas futures expire on Tuesday.
    “Gas is experiencing another one of its spasmodic moves higher after posting
    another new low. This is what is to be expected from an oversold market,” Mike
    Fitzpatrick, an analyst with MF Global in New York wrote in a note to clients.
    However, Fitzpatrick pointed out that fundamental market factors – including
    high natural gas storage levels and weaker demand for the fuel – remain
    Natural gas prices have lost about 75% of their value since last July, when
    prices peaked above $13/MMBtu. But the economic downturn, the resulting loss of
    demand for the fuel and robust domestic natural gas production have helped push
    gas prices off those highs.
    Natural gas storage levels have swelled, easing concerns over supply even
    through bouts of extreme hot and cold weather.
    Temperatures in the Northeast have created a spike in cooling demand. But
    those temperatures are expected to moderate as the week progresses.
    “Under almost any other circumstances, this record heat would be considered
    supportive,” analysts with the energy advisory firm Cameron Hanover wrote in a
    note to clients on Tuesday. “With storage levels at such high levels right now,
    though, the market has not really taken any notice.”
    Natural gas in U.S. storage stands at 1.741 trillion cubic feet – 35.8% above
    last year and 22.7% higher than the five-year average.

    -By Jason Womack, Dow Jones Newswires
    Dow Jones Newswires
    04-28-09 0954ET

  19. 19
    zman Says:

    HK through yesterday’s highs, volumes ok for early day.

  20. 20
    Nicky Says:

    Z – its possible that this morning’s dip was it for wave e of the triangle.

  21. 21
    zman Says:

    SWN 1Q09 CC Notes:

    Note to management: don’t read the press release…

    Thanks Nicky

    Thanks again Bill for yesterday’s headsup that I had omitted SWN from this week’s earnings calendar.

  22. 22
    zman Says:

    SWN – CC #2

    1st well was 2500 foot lateral, 2nd is a 3800′

  23. 23
    AAA Says:


    Don’t you think this GM plan was just designed to placate the union with everyone knowing the bondholders would never accept it? The bondholders end up looking like the bad guys, not the government or the union. Still, must be scary if you are a secured creditor of any shaky company to know the government is prepared to rob you. One more step in becoming a banana republic.

  24. 24
    zman Says:

    SWN #3

    47% of 2009 volumes with an average floor of $8.48 per Mcfe, then quite a bit hedged for basis as per the post.

    Indexes no longer swine flu red

  25. 25
    zman Says:

    “must be scary if you are a secured creditor of any shaky company to know the government is prepared to rob you”

    – well said.

    SWN Q&A about to start.

  26. 26
    zman Says:

    SWN Q&A 1

    Impairment question: analyst asked lame question. I’m always a bit shocked that guys that get paid to do this don’t know the obvious ones.

    Curtailment question: No. If you are going to drill it, you need to put it on production. They’ve said this on past calls. Basically they don’t curtail, neither does HK. They leave that to others.

  27. 27
    BirdsofpreyRcool Says:

    AAA — #23… That is exactly what I hope. That is the only scenario that makes any sense.

    The Washington Post is saying that the Chrysler bondholders have accepted the govt’s deal. Maybe the Post is wrong, maybe the govt modified the deal, or maybe the banks were strong-armed into accepting the deal. I’ll vote (and hope) for the 2nd scenario.

    However, knowing the bondholders in the ad hoc committee for GM, there is NO WAY they would roll over and accept the deal on the table. No way. Not if the President himself picked up the phone and asked.

    This would be entertaining, if one could just be a spectator from the sidelines. But, for the players invovled, this is brutal stuff.

  28. 28
    zman Says:

    SWN Q&A 2

    Non-Fayetteville production – direction is down not up, just not drilling much, 1 rig working Midway (that’s conventional gas production in Arkansas) and then the James Lime wells in Texas.

    Thinking behind the rig count reduction: trying to figure out how many wells they need to learn and the low gas prices and lower cash flow due to prices. They did not mention getting acreage into HBP status but that has to be a pressure on them. By my guesstimate, they need to drill about 1,500 wells over the next 3 years to get almost everything into HBP, could be a little lower but I’d bet they let some non-fairway acreage go. They are 26% HBP now and have 875K acres. They’ll drill 600 wells this year so its doable, but will need prices to rally longer term to get the program up.

    2010 Hedges:
    Current prices are too low for us to lock in. They think prices have to get above $6 before they will act. They are looking for the falling production/economic recovery confluence to drive prices higher later this year which will/should/could give them the opportunity to hedge at $6+.

  29. 29
    BirdsofpreyRcool Says:

    Head Trader is a “buyer here” unless it breaks 852 on spoos… at 855 now.

  30. 30
    zman Says:

    SWN Q&A 3

    Pad drilling. Drilled 4 wells off a single pad in 28 days. Yep, 7 days per well vs their current 12 to 13 day average. You have not seen any of the saving from this in the average numbers yet.

  31. 31
    zman Says:

    Re 30. That’s not a typo, that’s 7 days.

  32. 32
    BirdsofpreyRcool Says:

    z — what is the vertical and horiz depth of those 7-day wonders??

  33. 33
    zman Says:

    ZTRADE: Added another 10 SWN $40 Calls (SWNEH) with the stock at $36.40 for $0.35 while listening to the conference call. They are pointing to some pretty hefty drilling cost savings down the road.

  34. 34
    zman Says:

    BOP – don’t know, the play varies quite a bit from North to South on vertical depth and I did not catch the lateral length but they have been pushing just under 3,900 feet last quarter. Vertical takes little time and they are not super deep, 5,500 feet at most, will check.

  35. 35
    zman Says:

    re 34 should have said 6,500 feet, going from memory, it ranges from 1,500 feet to 6,500 across the play.

  36. 36
    zman Says:

    SWN Q&A

    Added acreage because they are really liking some of the wells being drilled around their acreage. Still not really talking about the wells they have drilled.

  37. 37
    zman Says:

    SWN taking some questions regarding type curves and sweet spots.

    Analyst is thinking they are seeing higher decline rates now so not bigger wells but simply pulling production forward in time relative to their older wells. Company said no, you need to be careful with that kind of assumption, that it is not correct.

    He also said they are drilling sweet spots as he was looking at a map. This is another assumption that I’ve heard. They don’t see the stats being widely divergent from place to place, not sweet spots but better completion methods from early days to now, still learning. The implication was that they were drilling the good stuff first…this is not the case, at least not purposefully.

  38. 38
    zman Says:

    SWN Call over, sense is it ends the day between 5 and 15% hihger, up 9% now.

  39. 39
    zman Says:

    Getting on VLO call

  40. 40
    zman Says:

    UBS raises SWN price target from 44 to 47

  41. 41
    zman Says:

    VLO – Q&A

    Demand for gasoline and diesel comment:

    Gasoline, it’s weak, its off 2.5% YoY
    Distillate much weaker…has not gotten any better, export volumes still strong to Europe and S. America is picking up as winter there approaches and certain supplies normally available to that market are not there this year.

    In their markets things are up 1% on gasoline, down 10% on diesel. So they are flat on demand.

  42. 42
    zman Says:

    VLO CEO hilarious on cap and trade:

    Says govt needs to money,

    says energy segment is a target for higher taxes because it is deemed to be able to pay.

    Says cap and trade is a bad idea, changes global competitiveness, says admin needs to be very careful with what they do.

    Says if you think about, all VLO does is collect taxes for the govt.

  43. 43
    tater Says:

    Wow, did HK ever bounce off that 22.65 to 22.80 in a hurry. Thought that pullback would last longer than that (one hour). If that former resistance area is now showing itself to be support, that is bullish. Any break below that area needs reassessment.

  44. 44
    bill Says:

    42, the vlo guy is right on the mark

    If co2 is polution, why does govt allow polution if you pay a price.

    Can we dump arsenic and industrial waste in streams if we pay a cap?

    Think of the beuracracy on reporting and tracking and regulating and civil penalties for messing up (under reporting)

    the whole thing is a sad joke, imho

  45. 45
    zman Says:

    Tater – yep, getting pretty interesting.

    Bill – well, such a tracking arm of the govt would create a lot of jobs, lol.

  46. 46
    Wyoming Says:

    Keep moving folks, nothing to see here:


  47. 47
    ram Says:

    ZMAN – You should look at USS’s 1st qtr report and CEO comments. Apparrently he doesn’t share the same view that improvements could be seen later this year.

  48. 48
    zman Says:

    Will do Ram.

  49. 49
    zman Says:

    Ram – is that X?

  50. 50
    Jay Reynolds Says:

    Matt Simmons has FIVE new papers up:

    Can The Lone Star State Survive Recent Oil And Gas Collapse?

    Has Oil And Gas Collapse Sealed Fate Of Peak Oil?

    Can The Pelican State Survive Our Oil And Gas Turbulence?

    Planning In A Most Uncertain Environment: The Energy Challenges In 2009 And Beyond

    The Oil Pricing Roller-Coaster: How It Impacts Energy Investment


  51. 51
    Wyoming Says:


    Saw USS presentation at an SPE lunch last week, same comments, almost crying to us about starting back to drilling. Showed one graph of inventory going ballistic (bad/up/high). Every plant was being “hot/shut down”, not sure what it means or if I have the words exactly right. Thing is, every operator carries a pipe inventory. That would have to be added to the ballistic chart of pipe glut.

    in the mean time, they also showed pictures of the Indian pipeline material for the Alberta project and how they were going to go after them too for Anti-dumping. They are going after the Chinese currently.

  52. 52
    ram Says:

    Yes. More focused on U.S. production of autos, buildings, and heavy equipment. CAT admitted that they have no idea when this will turn around.

  53. 53
    Wyoming Says:

    Fire the Chu-man.


    A good old fashioned tar and feathering would do too.

  54. 54
    zman Says:

    VLO calling going fine, not refuting any of my thoughts from yesterday, not really do anything for the stock though.

  55. 55
    bill Says:

    450 m scrubber needed with no roi

  56. 56
    zman Says:

    Re 53 – scanned it, I like guys who use back of the envelope math to smoke govt officials. I try to do that myself from time to time.

    On the Ng for transportation side, a fun metric to recall is that you have a 7 to 1 function on diesel vs NG. So 7 gallons of diesel in an 18 wheeler at a cost of $2.50 per gallon vs 1 Mcf of gas at a cost of $3.30 as of now (plus something small for compression). It makes a huge amount of sense. Plus, there is massive amounts of stranded gas around the world (this is what fuels all those LNG facilities) so you can have the clean burning NG at a substantial discount until moonbeams are harvested or you can stick with the dream of moonbeams. Chu has been a big disappointment but that’s not surprising given the history of appointing lawyers (no offense meant) and non-real world energy types to this post.

  57. 57
    zman Says:

    Re 55. Scrubbers limit SOx and NOx which are components of acid rain as well as particulates. We need that kind of stuff. No return true, but its a cost of doing business.

  58. 58
    Wyoming Says:

    Yea …. lawyers (knuckles cracking …) Oh, sorry, forgot it was day hours.

    Only acceptable lawyers are the ones who coach football ….

  59. 59
    jat Says:

    Z, any new thoughts on how refinery utilization trends post the VLO call? Just seems that unless we see mogas demand comps improving materially, back to the +2-3% range, that they’re not going to push it beyond the normal driving season recovery.

  60. 60
    BirdsofpreyRcool Says:

    HY index offered over $76 now.

    HY $76.7

    Seeing more bond deals get done. Albeit at very large spreads… but with treasury yields low, the absolute levels aren’t bad. BB&T and Northern Trust did non-govt-backed bond deals yesterday. At better spreads than JPMo did last week (and JPMo is higher-rated). Bullish.

  61. 61
    zman Says:

    Jat – good question, seemed a little vague on it, got a couple of things coming up now that aren’t small and so should push up U.S. by another 2% or so, sounds like demand stinks domestically for diesel and they have no clue when it comes back (confirmed by my transport analyst buddy, says stay away from truckers no matter how much their costs are going to be down). I’d guesstimate we see middle 80%s, maybe 86 /87% utilization in next month which would some crude demand and help ease us back from this peak on storage. But then wild card…they see unemployment rising and that will hurt, he didn’t quibble with the 10.5% rate some are talking about. Kind of different view than the press releases but maybe I’m reading some of his caustic govt opinion over into his outlook. As far as VLO goes, they see a brighter future a few quarters out as long as they don’t get sacked by cap-n-trade.

  62. 62
    zman Says:

    SWN moving on up, Tater, when you get a chance…

  63. 63
    BirdsofpreyRcool Says:

    Arlen Specter is switching teams… gives Dems a veto-proof majority now.

  64. 64
    ram Says:

    ZMAN – #61 relates to X’s point of weakness in the economy for the forseeable future. I wonder what part of the economy does the CEO of SWN see improving later this year?

  65. 65
    zman Says:

    Ram – Don’t know if there was anything specific, will go back and read that part of the transcript when available to check.

  66. 66
    zman Says:

    Not going to play FSLR this time on earnings, probably means it explodes to the upside.

  67. 67
    zman Says:

    Re 66. Should not say not, should say probably not, am low bidding some calls now.

  68. 68
    zman Says:

    I’m here if anyone has a question or comment, just doing a little reading sent in via email, and watching HK rally into $23.80 which has got the $24 calls on the move and is waking up the $25s.

  69. 69
    zman Says:

    Jat – are you playing OII in here? Just wondering, SII was talking about 6 deepwater rigs entering service soon which is a couple higher than I recall at last mention. Last quarter was a good one for them, outlook was strong, however that stock rallied sharply with service…still may have a pop left in it.

  70. 70
    zman Says:

    Anyone have any thoughts on the current state of the uranium market, wholesale prices, utility contract pricing vs current prices and when most utilities come off, inventory levels, etc. Thinking about CCJ, been meaning to come back up to speed.

  71. 71
    kyleandy Says:

    GMXR strong today

  72. 72
    elduque Says:

    BOP – What are your thoughts re the Treasury auction.

    Thank you

  73. 73
    zman Says:

    Kyle – yep, watching that too, guessing its the approach of earnings and bottoming action, chart is sort of interesting, should have redetermination of bank line any day now; still see no reason for that to show a cut in the amount they can borrow.

  74. 74
    zman Says:

    U.S. swine flu cases at 68, new cases mostly NY, TX, Ca

  75. 75
    kyleandy Says:

    thinking of selling my SD and EXXI and buying GMXR. know u cant give advice, but any general comments?

  76. 76
    BirdsofpreyRcool Says:

    elduque — i’m not the Fed Watcher i used to be, so let me check with someone who is and get back to you on the 5-yr auction.

    Treasury rates are a tad higher, across the board, from yesterday’s close… but about where they were on Friday, before the piggy flu took wings.

  77. 77
    zman Says:

    GMXR probably has more reserve upside but its early to say that.

    SD – needs higher prices, very strong asset base. Between the 2 I think SD is probably more of a sure thing long term as they will grow volumes by virtue of both drilling and debottlenecking of the CO2 issue.

    EXXI – is the high risk one of the bunch, with out of the ballpark potential.

    So they are all quite a bit different in my book.

  78. 78
    BirdsofpreyRcool Says:

    Treasuries Fall as $35 Billion Auction Draws Yield of 1.940%
    2009-04-28 17:10:26.353 GMT

    By Dakin Campbell
    April 28 (Bloomberg) — Treasuries dropped as the government’s auction of a record $35 billion in five-year notes drew a yield of 1.940 percent.
    Demand for the notes was about average, judging by total bids. The yield was higher than the 1.922 percent average forecast of seven bond-trading firms surveyed by Bloomberg News.
    Treasuries fell earlier after a climb in consumer confidence and a slowing in the decline in house prices signaled the economy may be stabilizing. Today’s auction is the second of three sales this week that will offer $101 billion in new notes.
    “There has been a nice little down trade,” Craig Ziegler, a Treasury and agency trader at Broadpoint Capital Inc. in New York, said before the sale.
    The benchmark 10-year note yield rose seven basis points, or 0.07 percentage point, to 2.98 percent at 1:06 p.m. in New York, according to BGCantor Market Data. The 2.75 percent security maturing in February 2019 fell 19/32, or $5.94 per $1,000 face amount, to 98 2/32.
    The yield at the last auction of five-year notes, on March 25, was 1.849 percent. Today’s so-called bid-to-cover ratio, which gauges demand by comparing total bids with the amount of securities offered, was 2.22, compared with a 2.20 average at the past 10 sales of the securities.
    The Conference Board’s sentiment index climbed to 39.2 this month, the highest level since November, from a revised 26.9 in March, the New York-based research group said today. The gain was the biggest since November 2005. The median estimate in a Bloomberg survey was for an advance to 29.7.

    Flu, Bank Tests

    The S&P/Case-Shiller index of home prices in 20 U.S. cities decreased 18.6 percent in February from a year earlier after a record 19 percent decline in January.
    Treasuries rose earlier as concern mounted that a swine flu outbreak could turn into a pandemic and the Wall Street Journal reported that early results of bank stress tests show Bank of America Corp. and Citigroup Inc. will need more capital. Both companies are objecting to the Federal Reserve’s preliminary report on the tests, the newspaper said, citing people familiar with the matter.
    “You start wondering how much capital they need and how much access they would have to it,” said Lawrence Dyer, an interest-rate strategist in New York at HSBC Securities USA Inc., one of the 16 primary dealers that trade with the Fed.

    More Auctions

    The Treasury Department will sell a record $26 billion of seven-year debt tomorrow, and also will announce how much it plans to offer in auctions of three-, 10- and 30-year securities next week. Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm that specializes in government finance, estimated the total at $73 billion.
    Treasuries rose yesterday after the government’s auction of $40 billion in two-year notes drew higher-than-average demand and the Fed bought $7.025 billion in U.S. debt as part of its efforts to reduce borrowing costs.
    The central bank will conclude its latest policy meeting tomorrow and hold another debt purchase operation on April 30.
    It already slashed the benchmark lending rate to a range between zero and 0.25 percent and pledged to purchase as much as $1.75 trillion in Treasuries and housing-related debt.
    The Fed is likely to increase the size of its purchases of Treasuries if yields on 10-year notes climb beyond a range of 3 percent to 3.10 percent, Pacific Investment Management Co.
    founder William Gross said today in an interview on Bloomberg Radio.

    Estimate Increased

    “It’ll be interesting tomorrow to hear their statement and to see what they suggest is the amount the Fed is willing to buy,” said Gross, manager of the $144 billion Total Return Fund.
    The government boosted its borrowing estimate for the April to June quarter by $196 billion yesterday, the Treasury Department said in a statement. It will borrow $361 billion this quarter and keep the Supplemental Financing Program, which helps the Fed finance its operations.
    The Treasury also said it expects to borrow $515 billion in the third quarter. In the quarter that ended March 31, the Treasury borrowed $481 billion. The U.S. needs to raise $3.25 trillion this fiscal year, according to primary dealer Goldman Sachs Group Inc.
    Ten-year yields have held in a range between 2.46 percent and 3.01 percent since March 19, the day after the Fed said it would buy up to $300 billion in U.S. securities over six months, as concerns about record Treasury supply were offset by the central bank’s buybacks. The yield has averaged 4.23 percent for the past five years.


    Treasuries lost money this year as the credit markets improved. U.S. debt dropped 1.1 percent so far in April, extending a 1.4 percent loss in the first quarter, the worst start to a year since 1999, according to Merrill Lynch & Co.’s U.S. Treasury Master index.
    The Libor-OIS premium, which indicates banks’ reluctance to lend to each other, fell to 0.84 percentage point today, the lowest level since before Lehman Brothers Holdings Inc.
    collapsed in September, according to data compiled by Bloomberg.

  79. 79
    zman Says:

    LINE drifting higher after closing new credit facility.

  80. 80
    BirdsofpreyRcool Says:

    elduque — last paragraph covers their way of measuring the TED spread. It echoes your comment from first thing this morning.

  81. 81
    zman Says:

    Next weak group action day, somebody throw a rock at me to remind me to buy some EOG (pre May 5th)

  82. 82
    zman Says:

    Kyle – could also be a broker comment on GMXR this am, don’t see one but its getting pretty easy to push these single digit names around …see KWK this morning on the Jefco upgrade.

  83. 83
    zman Says:

    With 15 minutes until the close of NYMEX

    Oil down 40 cents
    NG up 9 cents and rising into expiration. The out months are up slightly less.

  84. 84
    zman Says:

    HK at 24. I’ll take some more off the table up here.

  85. 85
    zman Says:


    Took another 2/5ths (20 contracts) of my HK $24 Call position off the table for $1.25 (up 105%) with the stock at $24. I continue to hold the remaining $24s, as well as some $22.50s and some $25 May calls here.

  86. 86
    zman Says:

    Had the wife check in with her brother who is a consultant for Homeland Defense and worked up contingency plans for bird flu a couple of years back. Basically said the U.S. has little to worry about but they are surprised by how quickly it is spreading.

  87. 87
    reefguy Says:

    z- Left Cancun airport yesterday at 2, American airlines flight full, no masks, no coughing. I think this is blown way out of reality. Mandarin Hotel had 35 guests, full is 256…

  88. 88
    zman Says:


    Sold the HK $22.50 call position for $2.10, up 95%, small position but the stock has had a good 4 day run and it would probably give quite a bit back on a dip. Still holding the remaining $24s and $25s.

  89. 89
    zman Says:

    Reef – Thanks for the color, agreed, market doing its best to shrug it off after the opening baubles.

  90. 90
    BirdsofpreyRcool Says:

    HK — nice trade, z! Book ’em, Dan-o.

  91. 91
    bill Says:

    resident Obama’s proposed cap-and-trade plan for controlling greenhouse gas (GHG) emissions is expected to push up demand for natural gas over the next decade, especially by power generators, but a large part of the demand isn’t likely to be met by domestic gas due to the emission allowance costs that will be imposed, according to a study released Tuesday. Rather, it said foreign imports of liquefied natural gas (LNG) are expected to fill the void

  92. 92
    zman Says:


    Added another set of SWN $40 calls for $0.55 with the stock up 10% even. Brings average cost on the day to $0.43.

  93. 93
    zman Says:

    Re 91 do you have a link?

  94. 94
    ram Says:

    ZMAN – You really like those SWN 40’s with 2 1/2 weeks left.

  95. 95
    zman Says:

    Ram – I like the $35s better but morning comments tomorrow and a favorable open will be all I need to turn a quick gain. I won’t fall in love with them.

  96. 96
    zman Says:

    Just keeping an eye out:

    NEW YORK (MarketWatch) — New York City Health Commissioner Thomas Frieden on Tuesday said “many hundreds” of students are sick at a school hit by swine flu, the Associated Press reported. While those cases were not officially confirmed, the students have the same symptoms as those in confirmed cases, Frieden was quoted as saying. Earlier, the Centers for Disease Control said that 64 cases of swine flu have now been confirmed in the U.S., including 45 in New York City.

  97. 97
    zman Says:

    Dollar gave back about half of yesterday’s gains, crude closed off but over $49.

  98. 98
    zman Says:

    BHI reports before the open. Sense there is they report a boring quarter, perhaps beating sharply downwardly revised estimates and then say vague things about the future. Not going to play.

  99. 99
    zman Says:

    Bloomberg survey looking for

    crude up 1.8 mm barrels
    gasoline up 0.25 mm
    distillates up 1.0 mm

  100. 100
    tater Says:



  101. 101
    zman Says:

    Venezuela on the tape making threatening comments to oil service companies.


  102. 102
    zman Says:

    Thanks Tater, looks like a gap back there, much appreciated.

  103. 103
    zman Says:


  104. 104
    tater Says:

    Yep, made an island reversal in August. Could be a problem. Tough for me to analyze names, I think everything I look at is a bit extended.

  105. 105
    zman Says:

    Hear ya T, me too.

    KOG to release earnings May 7, seems like they’d have well results on 1 if not 2, right?

  106. 106
    jat Says:

    Re: 98. LOL. Yes, BHI mgmt is the worst. Their Weil breakout was a “we don’t know nutin” festival. For what it’s worth, a buddy of mind who called the SII miss pretty well is expecting BHI to come a few pennies below.

    As for OII, sorry, I have no decent opinion. Sorry for the late response…I don’t know if anyone else has had this trouble, but I’ve been having major difficulty refreshing the site and following the updates.

    Will post the API imports/util when I see it.

  107. 107
    zman Says:

    Thanks. If you are ever having trouble with the site shoot me an email and I’ll have my host look into it. I haven’t had any trouble today but its often different from region to region.

  108. 108
    jat Says:


    Crude Build of 4584
    Gasoline Draw of -2560
    Distillate Build of 1581

    Crude Imports (‘000 b/d): -525 to 9722 from 10247

    Refining Utilization: -1% to 82% from 83%.

    So my first guess would be that it again looks slightly off as imports are off more than the alleged drop in utilization?

  109. 109
    Wyoming Says:

    About to head home. Vendor visited. Said they laid off 1/3 (~1000) of company (support frac market; water transfer/ frac tanks/communication/water disposal/rig cabins etc. ). Business is slow and getting slower, does not see an upswing in sight. One of his clients predicts they will have 100 wellbores ready to complete. Pricing is money loss.

  110. 110
    BirdsofpreyRcool Says:

    z — #105 KOG — There is a possibility that they would have results from the first well. I saw the release date and thought it looked early… and thought it might be due to anticipated well results being available. But looked at traditional release dates and May 7th is in line.

    Anyway, guesstimating that they moved the completion rig on site around April 20th. How many days to complete and test in the Bakken?

  111. 111
    zman Says:


    Sort of proportionally in line with the expected builds outlined in 99.

    Looking at the individual parts, they look a bit odd (forced). If refinery throughput fell back it would not take as many barrels out of demand as imports did out of supply. Non a wildly divergent set of numbers from what could be done but looks like smoothing between 2 weeks.

    On products, the dip in gasoline makes sense in light of the lower utilization. Oil likely to open a little off in the morning all other things being equal (down about 40 cents post close now).

    VLO basically said domestic diesel demand is dead but that exports remain solid and poised to grow. Have to trust them on that as the EIA data does not offer that kind of granularity.

  112. 112
    zman Says:

    Wyoming – BHI call tomorrow should give a little more detail on slow and getting slower.

    BOP – At IPAA they said 3 weeks to frac that. I think Wyoming put that in the rank amateur file.

  113. 113
    zman Says:

    so to add to KOG from 112, they could have some early data to share. If it were me, I’d wait until I had the data or the 15th rolled around, unless you already know its going to take longer. So maybe I’ll finally add some before the call and then, if no data, buy more on the disappointment and wait for a week or two to flip that piece.

  114. 114
    Wyoming Says:

    For the glass half full types (I get too bearish sometimes) You would have to fins someone in the rigless services. Coiled Tubing, acidizing, workover rigs (not drilling), re-perforating (same guns, shoot the same zone). Talking about who has what I like to use for maintaining production or enhancing (not looking at the fundies); First choice would have to be KEG (they have it all http://screencast.com/t/roJp27o5ur and smallish drill side exposure)http://screencast.com/t/u5jomd8XQ , ALY has a production segment but a lot on the drill side. WFT is a better choice than HAL or SLB as they are more cost effective (lower overhead) and still have a small company feel. WFT has done some serious slicing staff, shuttered their Farmington frac op’s an who knows what else. HAL and SLB will be influenced by the street(BIG folks) no matter what I/we/you think and feel.

    BHI not in pressure pumping. Just too new well heavily dependent vendor, have wireline but are geared more for openhole logging they have some production logging but lack a lot of the other rigless services. Keys wireline is more cased hole focused. BHI fishing more openhole, Key fishing more cased hole. BHI wants to sell you the packers (new wells) KEY not exposed. I would throw BHI in the same usefulness to me as a client as NOV.

    Let me try to phrase it this way. I am only spending money in rigless activities that either enhance existing production or reduce my Lease Operating Expenses. Activities I do are like Coiled Tubing Clean Outs, Plunger Lift Installations (no new tubulars required), finding and fixing holes in tubing (Key workover rigs for example). Punching holes in tubing (Any wireline unit), dumping acid or conveying the acid with coiled tubing (SLB, HAL, BJS, KEG, many cheap indies (KEG dances with the Indies))

    This is a whole different hat that we wear.

  115. 115
    Wyoming Says:


    Remember you can expand and then magnify again.

  116. 116
    BirdsofpreyRcool Says:

    z – re KOG, I agree with you. If I were the company, I would wait on the results of the first well b/f hosting a quarterly update. Unless I thought I would bump up against May 15th.

    Thing is, I don’t think KOG is in the mode of worrying about shareholders right now. They know they are not going to be a stand-alone operation 2,3 months from now. They are not going to try to raise more capital in the public markets. So, why worry about managing their earnings release. It doesn’t really matter at this point.

    KOG is going to have to sellout/combine with a larger company. Proving up their acreage on the first, second, and maybe third site is all that matters now.

    So, the May 7th earnings release will probably be a “non-event” and the stock will sell off. That is when I would think about buying more shares. Or, maybe everyone else is thinking the same thing. We shall see.

  117. 117
    curly haircuts Says:

    curly haircuts

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