Monday Morning And All Is Suddenly Cautious


Good morning. The market is poised to give back a little as everyone, all at once, begin to wonder if the road to economic recovery will not be V-shaped (not sure why they thought it would be in the first place) but instead W-shaped which implies larger hiccups down the road for consumer. Look for your favorite brokerage firm to recommend taking profits (generating commissions) before re-asserting a more bullish stance in the near future. Meanwhile, the White House is toning down expectations as well, calling for no job growth until 2010. This should provide a good back drop for a neutral to slight production cutting stance for the OPEC meeting scheduled for the end of May.

The Week Ahead:

  • Monday 5/11 - No U.S. eco data releases
  • Tuesday 5/12 - Trade balance and federal budget
  • Wednesday 5/13 - EIA oil inventory report, retail sales
  • Thursday 5/14 - EIA natural gas inventory report, jobless claims, PPI
  • Friday 5/15 - CPI, Empire State, industrial production, consumer sentiment

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Earnings Calendar - Energy Earnings - Week 4
  4. Earnings Watch - CRZO
  5. Multiples - Update - E&P
  6. Odds & Ends

Holdings Watch:

  • The 10KP is at $35,200; 74% cash
  • The Wiki Holdings and $10KP tabs are updated
  • For a wrap up of last week's closed trade click here to see the wrap.

Commodity Watch

Crude oil jumped 10% last week to close at $58.63. The 12 month strip is now at $62.73 and looks like a breakout on the weekly chart. I continue to think we are in for a near term test of $60. This morning oil is trading off about $1.50 with lower global equity futures and a small rally in the dollar. The dollar, by the way, looks poised for a technical breakdown.


Natural gas also moved rapidly last week, climbing a whopping 22% to close at $4.31, a five week high. Natural gas was oversold as one of the worst performers in the commodity world year to date and the crescendo of voices calling for its imminent collapse to $0 made a turn higher inevitable. This morning gas is trading off a couple of pennies.

  • Weather Watch: Mild.  36 HDDs and 23 CDDs ... nothing for gas demand to hang its hat on about last week's weather. This week's forecast is similarly boring.


  • Rig Count Watch:
    • Gas rigs continued their downward spiral last week falling another 11 to 730 in the U.S., down from 1,475 one year ago.
    • Texas, the largest source of gas production growth over the last 3 years continues to lead the charge lower losing 20 rigs last week to 355, down from 889 this time last year.
    • Rigs drilling horizontally, something the gas bears have pointed to as a sign that gas production will shrink less than the rig count would suggest due to their higher initial production and generally bigger reserve target wells, continue to dwindle in numbers as well, falling five last week to 380, down from 513 a year ago.



Earnings Calendar - Energy Earnings - Week 4 - Slow week as we wind down the season, below are a few companies I find interesting. 

Earnings Watch:

CRZO Reports Strong 1Q09 Results

The 1Q09 Results

  • Production of 91.8 MMcfepd - in line with guidance
    • up 30% YoY
    • up 14% sequentially
    • 97% natural gas
  • Revenue of $30.7 mm vs $46 mm expectations
    • including hedges they realized $3.63 per Mcf for gas. 
  • Lease operating expense of $0.74 vs $0.77 per Mcfe in 1Q08
  • EPS of $0.42 (clean) vs $0.16 expectations

Guidance: None given, look for them to drop some hints about current production and near term volume guidance on the conference call.

Operations Update:

  • This is primarily a Barnett shale player (3 rigs running now)
  • but they did drill their first vertical Marcellus well this past quarter and are currently evaluating data prior to completion. Analysts will be looking for thoughts on a program here.
  • They have substantial acreage positions for a company of their size in 6 different shale plays (Barnett, Fayetteville, Marcellus, Floyd, New Albany, and the Marfa Basin (west Texas Woodford/Barnett))

Balance Sheet:

  • 60% net debt to total cap. This is skewed by another asset impairment due to full cost accounting and low quarter end prices.
  • EBITDA to Interest (a good measure of a company's ability to meet their debt obligations was 7.3 to 1, which is more than adequate.
  • Borrowing base increased to $290 mm


  • a little strong hedge position in Q's 2- 4 with 76% of gas production hedged over $6.
  • in 2010, that falls back to about a quarter of expected production at $6.

Conference Call: Today, 11 am EST

Multiples Update Watch - As earnings season comes to a close and the stocks have been repositioned by a goodly sized rally in the market I find it helpful to review where the common names around here stand. Today E&P, tomorrow refining and so on throughout the week. By week's end we'll also have the extended E&P orange charts on the E&P tab updated to reflect 1Q09 balance sheets.


ZComment: None of the names are particularly expensive on a forward cash flow per share basis relative to their historical trading ranges. Several the ones that down estimated to generate lower cash flow in 2010 relative to 2009 due so due to a lack of expected growth and a lack of 2010 hedges. I'll have a revised 2010 hedge schedule out a little later in the week. The group was led higher by safety names; conservative management of the balance sheet and a willingness to stay within or close to expected cash flow on the budget side. At this point, it appears March 6th was the group low and the names have moved in quite a spread since then as seen below.


Odds & Ends

Analyst Watch:

  • Goldman Sachs plays with ratings and targets
    • EOG taken off conviction buy list (whatever dude, its been on and off 2 times in the last month) and raises their price target from $78 to $91
    • APA target upped from $81 to $92
    • APC upped to $42 to $56, raided to Neutral from Sell
    • CHK upped from $25 to $30
    • DVN upped from $67 to $80, added to Conviction Buy list from Neutral
    • PXD upped from $35 to $37
    • NFX upped from $37 to $45
    • SWN upped from $42 to $45
  • PXD cut to Neutral at UBS

Housekeeping Watch: We will begin sending text blasts along with the emailed blasts tomorrow. If you would like to receive text blast to your cell phone please send an email to zmanadmin@gmail.com with TEXT ME as the subject line and include your cell phone number, cell carrier, and user name.

160 Responses to “Monday Morning And All Is Suddenly Cautious”

  1. 1
    zman Says:

    GMXR is on the tape with another 8.5 MMcfepd Haynesville completion. Not bad news, consistent high single digit IPs which are above their original wells just enough to build confidence that their program is on track, especially once gas prices recover.

  2. 2
    zman Says:

    Goldman seems late to the upgrade game.

  3. 3
    zman Says:

    NG going green, oil down a buck, most things called a bit lower with the market.

    Not going to chase much this morning, especially things like CRZO which had good results but has had a whale of a run in the last week.

  4. 4
    zman Says:

    BOP, any HT and TT comments, also fixed market comments would be appreciated, thanks.

  5. 5
    BirdsofpreyRcool Says:

    Good morning. Rather strange trading advice today from Tech Trader.

    “program says it’s a 60/40 long day… but ‘bad’ colour + Monday = not good combo”

    Head Trader’s thoughts are to watch the banks closely to see how they react after the open… if they hold, it may be a “get-long” day. But he acknoledges that it feels like a “sell the rally day.”

    Reminder — this is day-trading advice. Albeit, not very straight-forward today.

  6. 6
    BirdsofpreyRcool Says:

    Head Trader just shared two of his go-to, mrkt colour sights:

    (says you have to read this one, knowing the writer is has a bearish bias)

    (for a decent recap of articles)

  7. 7
    BirdsofpreyRcool Says:

    Fixed income markets giving up some of the luuuuuv they felt last week. Still, holding below levels to be “worried” about. So far.

    IG 148 bps (want to see this stay below 150)

    HY 81.75 pts (want to see this stay above 80)

  8. 8
    zman Says:

    Thanks BOP

    Does anyone see a morning comment on CLNE? Stock getting hit for 20%.

  9. 9
    Garyinhou Says:

    clne?? the gas station deal?

  10. 10
    zman Says:

    Gary – yep. I don’t see anything new this morning, must be a broker didn’t like the deal on Friday. Seems excessive to sell it down by 20%, their earnings were pretty good.

  11. 11
    Garyinhou Says:

    I couldn’t find anything else either

  12. 12
    Garyinhou Says:

    Z.. whats the 10 second take on clne.. I hadn’t been inclined until cng really were to catch on etc.. but June 10’s are .20/.35 (an easy double or better if bounce back to 10 anytime soon)

  13. 13
    zman Says:

    Gary – quick take is they continue to move more volume quarter after quarter and to announce the occasional CNG fleet win. I think they are in the way of a trend of increasing use of natural gas as a transportation fuel. Soon or later, probably later, DC catches on to the fact electric vehicles don’t work on the trucking side, they simply don’t have the power to get the big rigs rolling from a dead stop repeatedly, due to the weight and the weight of the batteries needed. Natural gas is a 7 to 1 fuel vs diesel. That’s 1 Mcf at the current $4.30 price vs 7 gallons of diesel at $2.50. That math is pretty easy. Cummins and others are building more and more CNG powered tractors as we speak.

  14. 14
    BirdsofpreyRcool Says:

    Head Trader has a nat gas servies question. I am an upstream person, so could use some help here. Thanks!

    “when nat gas went below the magical 7 or 8 level they shut down many of the wells. when it starts to come back up they have to restart and to do so I assume they have to service them…like an a/c in the spring time…I think KEG does that….who is big player and does that make sense?”

  15. 15
    ram Says:

    Wyoming mentioned to keep an eye out on KEG.

  16. 16
    zman Says:

    Its not really “wells”, its “rigs”. The wells producing keep producing
    (for the most part except for some minor curtailments), its drilling for new gas and completing wells that have been drilled but not yet turned to sales. When the rig count starts moving back up, which should not be until near year end in earnest, all of oil service will catch an upswing, from HAL to WFT to onshore focused drillers like NBR and PTEN.

  17. 17
    zman Says:

    Also BOP, its going to get worse on revenues, margins, and earnings before it gets better for the service names. Q1 earnings reflect old contracts. They can cut costs all they want but they can’t keep up with rig count that is down by over half since the peak, less than 12 months ago. Also, as cost cutting at E&Ps has become increasingly the focus, names like CRR, who are more of a luxury than a necessity it turns out in the shales, will suffer extreme pricing pressure.

  18. 18
    zman Says:

    Craptastic Reporting Watch:

    CNBC citing Schork report saying natural gas has lousy fundamentals. Fails to mention that just before gas ran from $3.40 to $4.30, Schork was on the network saying gas was “going to $0”.

  19. 19
    zman Says:

    LINe bucking the group and the market today, up 1.6%. I think they payout tomorrow, yield now down to 14.4%.

  20. 20
    zman Says:

    May make a couple of bottom fish quick trades here, still does not feel like we are in for a big broad market sell off. Anyone with a thought on the broad markets would be welcome.

  21. 21
    Denise Says:

    Z-Good Morning
    I am in the “were due for a selloff” camp-reasoning -day 45 in buying stampede
    (RJ’s Saut says recoerd
    My vodoo man says technically inclined 2 to 3 wk correction
    Papa K all in short
    We are overbought-91% over 50 DMA and 44% over 200 DMA

  22. 22
    BirdsofpreyRcool Says:

    #16 — totally understand that. Question is aimed at producing nat gas wells that are “shut in.” I know some of those can never be brought back on line (due to permanent pressure losses)… but, don’t know enough about that to be dangerous. So, looking for some first-hand knowledge there. thx.

  23. 23
    tater Says:

    Support below at 910 then 905 then 900. Resistance above at 915 then anybody’s guess all the way to about 926. There should be a battle there if we get all the way back to that level.

    Personally I’m watching the 910 area for a run to 900.

  24. 24
    zman Says:

    Thanks Denise

    BOP, ok, I’ll try to raise a response from Wyoming, who better than a drilling engineer to answer that kind of question. I do know that wells don’t always come back on at the same rate but if you are talking about things like CHK’s curtailed shale wells I don’t think they’ve had any kind of a significant (noticeable to the market) problem turning them back on. You just wouldn’t be able to see it in the data for U.S. production, might see it in local basis but I think that’s all, much more micro than the macro Heat Trader is looking for.

  25. 25
    zman Says:

    Denise and Tater – one other thought on the broad market and a pull back. Everyone has been looking for one since week 3 of this 10 week rally. Things ran to up 35% in that period…just thinking it may be a bumpy pullback as too many are calling it lower.

  26. 26
    zman Says:

    Oil trying to go green as minor dollar rally fades.

    NG holding flat to up 2 pennies on the day, impressive after last week’s gains. I feel a squeeze coming on there. No weather to support higher gas here although next month storm season will be on everyone’s radar.

  27. 27
    zman Says:


    HK – Riskier trade – Added (20) HK May $26 calls with the stock at $25.40 for $0.60 on the mid. Also bidding some Junes.

  28. 28
    ram Says:

    Re #20 – Quick trades like HK MAY 26 or CLR MAY 30 for examples?

  29. 29
    zman Says:

    Ram – like 27

  30. 30
    zman Says:

    I was a bit underwhelmed by CLR, may revisit soon though on further weakness.

  31. 31
    zman Says:

    Volumes look very light in energy land.

  32. 32
    zman Says:

    CRZO conf call starting now.

  33. 33
    zman Says:


    Current production: 88 mmcfepd, 77 of that comes from the Banrett

    2Q – in the mid to lower 80 MMcfepd range.

    Still think they can hit 100 MMcfepd by year end but they are declining now in the face of low prices.

    Say they have 30 wells drilled but not completed, think that’s worth 80 MMcfgp of IP.

    Leasing almost shut down.

    Marcellus well results by others continue to improve, they control over 200,000 acres via their JV.

  34. 34
    zman Says:

    My first thought is that this has run too far too fast to be well supported by these results and this call so far.

    CRZO Q&A

    Tudor Pickering question on Marcellus.
    they plan to start drilling verticals in W. Va in the Fall

    they plan to drill horizontals after a vertical program and 3D is acquired.

    RBC Question on Barnett – when do you turn the wells to sale that are drilled but not completed – plan is to let costs fall, frac costs are down 50% from January. They also want higher prices, looks like they will frac a few over the summer but wait for the bulk to come on in winter.

    Barnett well costs: $3 mm drill, complete, frac, and facilities. Water has gotten a little more expensive but every other cost has come down.

  35. 35
    zman Says:

    Midgets WRES and KOG moving up nicely today.

  36. 36
    TEXWS6 Says:

    RE #16:

    The curtailments most often will lead to wells being “pinched” back. You will rarely see a tight gas well shut in, due to reservoir damage that could be caused by doing so. This is done by the “pumper” or lease operator who works for the operating company. Still trying to figure out what “permanent pressure damage” is that BOP mentioned?

  37. 37
    zman Says:

    CRZO – nutshell, not hedged enough going forward, drilling but not completing due to low prices, I’m losing interest for now, stock is falling off with each question they answer.

  38. 38
    zman Says:

    TEXW – check your email.

  39. 39
    ram Says:

    Has WRES gone too far too fast? The common or leaps still attractive? Does the recent release by WRES justify further up moves?

  40. 40
    TEXWS6 Says:

    C’mon man…all this valuable info…where else are you gonna get the latest scoop on the hottest play in north americal…LOL

  41. 41
    zman Says:

    Ram – I’m holding but not adding, I’m thinking oil goes higher in the medium and long term and these guys go back up with that. I was not wowed by the quarter or their conference call but I’m not going to sell my stock or my NOV calls at present. I may change my mind but for now holding. I think they had been overly pounded down so as long as they are not going out of business, which I don’t see them doing right now, I’m going to hang on for higher prices.

    TEX – LOL, its business.

  42. 42
    TEXWS6 Says:

    here’s some business…GMXR’s 8.5MMcfd well won’t cut it…

  43. 43
    BirdsofpreyRcool Says:

    #36 — TEX … I only had to find the stuff, never got to actually produce it! So, I’m not using the right engineering verbage… but, “reservoir damage” is what i meant by permanent pressure loss. Guess that’s how I understood the reservoir to be damaged. But, I have to plead ignorance here.

    Basically, any well that has to be frac’d to produce would be a bad candidate to shut in, thinking you could bring it back on line at the same production rate later. Correct? Thanks for your help!

  44. 44
    zman Says:

    Re 42 – when gas prices recover it will be enough. Their production growth forecasts were and continue to be based on lower IPs by half than that.

  45. 45
    TEXWS6 Says:

    Re #43:

    Correct, if you are gonna shut in a well, don’t frac or stimulate or complete it. Leave it shut in before you spend the money stimulating it, because once you shut it it, it damages the reservoir.

  46. 46
    kyleandy Says:

    so what’s it mean when somebody like CHK says they are gonna “curtail production”?? how do they do it?

  47. 47
    zman Says:

    Kyle – they turn the wells off at the wellhead.

  48. 48
    BirdsofpreyRcool Says:

    #47 — back to the original question… if you turn a fracc’d, producing well off at the wellhead, can you expect it to produce at the same rate when you turn it back on? Or, maybe the production rate is the same (due to choking back on pressure) but EURs drop?

    I know i’m mangling engineering terms here… sorry in avance.

  49. 49
    bill Says:

    is this good?

    CHK Northern LA Completions BAW

    COMPANY: Chesapeake Operating Inc., ha ra sujj; Spring R 24-15-16 H, 1: 238539. LOCATION: Bethany Longstreet, S 24, T. 15N R. 16W. DAILY PRODUCTION: 11894 mcf gas on 20/64 choke; 0 barrels n/a gravity condensate; 397 barrels water. PRESSURE: 0 lbs. SPECIFICS: Haynesville RA; perforations, 11639-16188 feet, depth, 16330 feet.

    COMPANY: Chesapeake Operating Inc., ha ra sugg; Spring R 13-15-16 H, 2: 238447. LOCATION: Bethany Longstreet, S 13, T. 15N R. 16W. DAILY PRODUCTION: 10679 mcf gas on 20/64 choke; 0 barrels n/a gravity condensate; 243 barrels water. PRESSURE: 0 lbs. SPECIFICS: Haynesville RA; perforations, 11588-16022 feet, depth, 16319 feet.

    COMPANY: Chesapeake Operating Inc., ha ra sua; Coval et al 19-11-14 H, 1: 238613. LOCATION: Spider, S 19, T. 11N R. 14W. DAILY PRODUCTION: 8670 mcf gas on 20/64 choke; 0 barrels n/a gravity condensate; 298 barrels water. PRESSURE: 0 lbs. SPECIFICS: Haynesville RB; perforations, 11525-15839 feet, depth, 15938 feet.

    COMPANY: Chesapeake Operating Inc., ha ra su60; M Crow 2-14-15 H, 1: 238641. LOCATION: Caspiana, S 2, T. 14N R. 15W. DAILY PRODUCTION: 11915 mcf gas on 20/64 choke; 0 barrels n/a gravity condensate; 206 barrels water. PRESSURE: 0 lbs. SPECIFICS: Haynesville RA; perforations, 12227-16210 feet, depth, 16305 feet.

    COMPANY: Chesapeake Operating Inc., ha ra sub; Mercer 30-11-14 H, 1: 238702. LOCATION: Spider, S 30, T. 11N R. 14W. DAILY PRODUCTION: 5733 mcf gas on 20/64 choke; 0 barrels n/a gravity condensate; 219 barrels water. PRESSURE: 0 lbs. SPECIFICS: Haynesville RA; perforations, 11574-15896 feet, depth, 16302 feet.

  50. 50
    zman Says:

    Bill – those are kind of run of the mill to low for Haynesville wells. They had mentioned on the last call that they would be doing some well management that would be resulting in lower IPs but potentially better recoveries over the life of the well. In the 4Q call, HK mentioned a pilot project with the same end goal but gave up on it as the data suggested that they were going to get the same recoveries either way, run hard or run slow initially so they opted to run hard.

  51. 51
    TEXWS6 Says:

    Re #46: More than likely they “choke” or “pinch” the well back, opposed to completely shutting the well in. Say a well was doing 10MMcfd, they will choke it back to 1MMcfd. This makes it much easier to bring back up to full rate when needed.

  52. 52
    BirdsofpreyRcool Says:

    TEX — thanks! That’s the kind of info I’m looking for. As I said, it’s kindergarten time for me, when it comes to what you engineers do. cool.

  53. 53
    zman Says:

    TEX – I have heard them say both on the recent conference calls but defer to your expertise. Net effect is essentially the same in terms of production.

  54. 54
    TEXWS6 Says:

    Re #48: Depends on the reservoir, some will come back the same or better (flush production). Tight gas wells (shale, tight sandstones) will incur damage when you shut them in after you frac due to capillary forces.

    Re #49: Rates are WORTHLESS without pressures, nothing more, nothing less.

  55. 55
    zman Says:

    TEX – check your email.

  56. 56
    zman Says:

    Re 54 – second half. Not to Wall Street. You can call them stupid if you like but its another data point they see, along with the choke and the area, which they know is over pressured. These wells will be judged by analysts as low, which impacts the stock price.

  57. 57
    tater Says:

    Very much agree with your call for a bumpy pullback. What’s the cliche? Crowd is wrong at the turn, but correct on the trend, or something like that. I’m just looking to take some small bites out of the moves. I just have to believe that at some point the sentiment will turn and there will be profit taking. If it doesn’t happen today, it just makes it more and more likely each following day as we defy gravity.
    The idea is that even though we sold off tremendously, this bounce is warranted as we are supposedly not going to go into the toilet now that my future grandchildren have been so gloriously appointed by the present credit card mentality to pay for today’s excesses. Wimpy and his hamburger strategy from Popeye. What a great idea!
    So the bounce is warranted. Great. Now what?
    It is not a coincidence that this present “what now?” feeling is coming over the market at exactly the 1/3 Fib retracement. That is what the Fib theory is all about. It just “feels” like we come far enough for now. As always, we’ll just have to see how it plays out, but I do think that there appear to be a couple of levels that are beginning to jump out as trading targets on both the bearish and bullish viewpoints.

  58. 58
    elduque Says:

    BDI +1 2215

    I have decided to get a few more hours sleep. So if you want the BDI you can go to the DRYS website for it. Or sometimes a little earlier on the Yahoo Board.

    Or you can just wait until I decide to get up.

  59. 59
    zman Says:

    Tater, agreed re sentiment turning and a time for profit taking coming. Just don’t know when. Also agree with the “so now what?” coming after the fib retracement and the end of earnings season when there will be no more “beats of significantly reduced expectations”. And then you’ve got summer which is pretty much always boring. So its just about got to happen.

  60. 60
    bill Says:

    z-ty for 50

  61. 61
    zman Says:

    POTUS speaking about health care.

  62. 62
    zman Says:

    Natural gas imports watch:

    LNG at 1.5 Bcfgpd, basically flat with imports.

    Canadian imports at 5.7 Bcfgpd, down a whopping 2.4 Bcfgpd from last year. This is the lowest level of imports from Canada in many, many years.

    Although I hear only 1 analyst out of 10 who mention a wave of LNG entering the U.S. later this year also mention the demise of Canadian volumes I expect this sub 6 Bcfgpd number to get some more notice.

  63. 63
    BirdsofpreyRcool Says:

    Not a rant. Just pointing out —

    In order to understand the current thinking from our own govt on the private capital sector, I need to post a comment from the Obama administration in the WSJ this morning… the up-ending of contract law and disrespect for providers of capital at Chrysler needs to be fully-understood by people. No matter what side of the argument you support.

    In making the argument why the bondholders were strong-armed and steamrolled: “You don’t need banks and bondholders to make cars,” said one administration official.

    Wow. Only a matter of time b/f the Chinese wonder when they “don’t matter” b/c they are only bondholders, either.

  64. 64
    BirdsofpreyRcool Says:

    Just something to keep in mind, as deficits become ever-larger.

  65. 65
    ram Says:

    ZMAN – Did you see the recent update from BEXP?

  66. 66
    zman Says:

    RE BEXP, from last Thursday. Yes, operations ok, big cash bleed there, that one definitely needs higher commodity prices and some more asset sales, just skimmed it but didn’t see any asset sales of note. Seems like the little ones want to run today, KOG is busting a buck to the upside.

  67. 67
    BirdsofpreyRcool Says:

    Bond market isn’t doing much, after opening a tad weaker this morning. Sort of sitting back on it’s heels, watching stocks. So, not giving the Credit Bears any incentive to step in. But everyone agrees, we covered a lot of ground, in a very short time.

    HY 81.625

    IG hasn’t traded in a while…

  68. 68
    BirdsofpreyRcool Says:

    Colour from a NY trading desk on the today’s energy space —

    Energy – Space gives up some of outsized gains from last week as market takes a breather from its torrent pace upward. We’ve seen lighter volumes. Tickets we do see feel more like buying the dip rather than panicked selling. Mostly HFs participating though have seen a couple vanilla sellers in specific names. Overall, better to buy 4:3. Utilities: Vanillas most active in the space with players on both sides of trades. Overall, modestly better to buy as UTY outperforms slightly (still dn on day) on defensive-type bid.

  69. 69
    bill Says:

    on drys


  70. 70
    Denise Says:

    Night time reading (getting a lot of positive mentions on many sites today)
    Jeremy Grantham’s piece “The last Hurrah and seven lean years”

    http://www.gmo.com site-you have to register
    but well worth plowing through

  71. 71
    zman Says:

    Pretty good arb opportunity:



  72. 72
    BirdsofpreyRcool Says:

    #70 — thanks, Denise. If you don’t want to register, the letter can also be found here —


  73. 73
    bill Says:

    71 will only benefit junk yard dealers whose clunkers
    go up in value from 100 bucks to 4,000

    ..Freaking amazing!!

    The spending is out of control

  74. 74
    Denise Says:

    BOP-nice call on KOG accumulation!

  75. 75
    zman Says:


    Added (10) more HK May $26 Calls for $0.45, HKEP, higher risk trade, averaging down from the earlier trade into makret weakness with the stock trading $25.

  76. 76
    bill Says:

    My rant of the day deals with Obama’s buddy Chavez taking over assets of American companies because they had the audicity to ask to be paid for their services.

    Where is the outrage of a foreign country stealing the assets of an Amercian company..not even a whimper in the press..not even a whimper by our leaders.. this country is impotent..or too busy figuring away to pizz away money

    Good day all

  77. 77
    BirdsofpreyRcool Says:

    #74 — thank you, Denise. The proof-of-concept will be when they report the results of wells 3 and 4. If those wells come in anywhere near the whisper numbers, I think KOG shoots to $1.25+. But, I thought we might see a sell-off first… so, not much good at calling near-term price action here.

    Have a call into mngmt to go over a bunch of questions, not asked on the conf call. For one, they refused to talk about the results of a TFS test by Peak Energy in the middle of KOG’s FBIR acreage. But, in their latest presentation, page 8 shows a gusher in the TFS that IP’d at 920 boepd. I have to guess that is the Peak Energy well. So, why they got all girly about it on the conf call is a head-scratcher. If the TFS underlies their acreage on the Rez, that could almost double any reserves. They have no plans to test the TFS any time soon (“focus” is a good thing for this mngmt team), but it would be like reserves in the bank for them, at some point.

  78. 78
    tater Says:

    As big of a free market guy as I am, I don’t really buy the whole “for whom the bell tolls” argument for CVX and XOM. I’m not so sure that the risk of doing biz with Hugo wasn’t factored into the biz model and the interest rate on the bond holders of those companies…at least I think that it still takes bond holders to drill for oil, not really sure at this point…

    But isn’t that what makes it business? Risk = return? They knew who they were getting into bed with, and if they didn’t, they were reckless.

  79. 79
    zman Says:

    Bill – I too am shocked so little has been made of it in the press. If it were a crop of unicorns or a rainbow generation factory the crowd would have gone wild. But, alas, it’s only oil. Ugh.

  80. 80
    zman Says:

    Tater – I hear, the immediate reaction in the stock was to rally on Friday when the first news broke. Vz has been behind on their payments to just about everyone so the seizure actually gives Williams a better case to get paid in court, lol.

  81. 81
    BirdsofpreyRcool Says:

    z — or nationalizing a Hollywood movie set, shooting on location at Lake Maracaibo. The Huffington Post would be upset.

  82. 82
    zman Says:

    Tater, Nicky and anyone else who cares to take a shot, have you taken a look at the dollar index of late? Looks a bit precipitous.

  83. 83
    BirdsofpreyRcool Says:

    KOG — another tidbit from the call. Sounded like Unit is not going to beat KOG into the ground about the take-or-pay on the 2nd rig. This is part of what spooked the mrkt, post 4Q conf call. KOG mgnt are good guys. When they contracted to buy rigs from Unit, they pretty much top-ticked the rig market. However, unlike many many competitors who went back and leaned on the service guys, KOG stuck by their original contracts. This seems to have bought them some goodwill. Glad to see there is still some value to “relationships” in this business.

    Just one more “risk” in KOG that has been aleviated, somewhat.

  84. 84
    tater Says:

    Could somebody repeat that line (term of art?) that you guys use about the Skittle pooping unicorns at the end of the rainbow. I feel the need to right a children’s book and it would seem to be a good working title.

  85. 85
    BirdsofpreyRcool Says:

    pit trader says GSCO is buying spoos here.

  86. 86
    zman Says:

    BOP – not sure I follow 83. Have they been given an out on the second rig? I have that in my thinking as a $5.6 mm hit to cancel.

  87. 87
    zman Says:

    Thanks for the color BOP

  88. 88
    BirdsofpreyRcool Says:

    #86 — they said on the call that the rig was “placed on hold with Unit” and that they were “still talking” here. That is about where they stood at the 4Q conf call too. So, Unit is not pushing. Again, hearing KOG mngmt has some goodwill built up with Unit.

  89. 89
    BirdsofpreyRcool Says:

    For anyone following the shipping mrkt, this is a helpful service.


  90. 90
    zman Says:

    Thanks BOP, I’ll add it to the list of links on the transports tab at upper left.

  91. 91
    zman Says:

    re 73. Actually it will benefit me as well. I plan to snag a $850 Bronco and trade it in on a Jetta TDI. Total savings, $4,500 in vouchers and another $1,300 in energy efficiency upgrade savings for the diesel. Less the $850 of course. I almost feel un-American doing it, until I look around and see the coming tax burden.

  92. 92
    zman Says:

    BOP – forwarding to you something on KOG, check your email.

  93. 93
    tater Says:

    Right/write, likely a Freudian slip.

    Looked at the dollar charts. Read a TA guy saying that he finds the last break below the 200 EMA on the UUP telling. Personally, I don’t find the daily bouncing around something that I can trade off of day to day.
    Monthly, weekly, and daily view:

  94. 94
    zman Says:

    Re 90. Thanks much, I just use it to match against my thinking in crude. Looks like it gets worse to me so more upside for crude. By the way, oil is down less than a dime now, and NG green again, just barely but after last week that’s a big victory and should make shorts nervous enough.

    Tater, you OSX read working out well so far.

  95. 95
    tater Says:

    Nicky, If you get a chance, would love to hear your updates on the dollar, oil, S&P. You’ve got those down so well, I feel like I am wasting people’s time chiming in there.

  96. 96
    zman Says:

    Tater, ok, care to take a shot at HAL then?

  97. 97
    zman Says:

    Housekeeping watch: we will start the text blasts tomorrow, assuming that I do any trades.

    For new subscribers see the Bios tab to get an idea of who’s who around here.

  98. 98
    BossmanG Says:

    Z, are you going to add yourself to the bio 😉

  99. 99
    zman Says:

    Boss – Isn’t the body of work in this site enough of a bio? ;->

  100. 100
    tater Says:

    HAL added. I’d be very surprised if it doesn’t come back to touch $21.

  101. 101
    zman Says:

    Thanks T, seems like a gap in need of filling, almost looks like one down at $16 as well but that would be a big stretch and would likely take a similar retrenchment in the the SP500 and more time than I care to invest fighting the current analyst love in with the service names.

  102. 102
    BirdsofpreyRcool Says:

    SD is in the process of issuing $300mm of Senior Notes due 2016. The price talk is said to be in the range of 10.75%. This is wider (higher yield) than the company’s 8.0% Senior Notes due 2018. That isn’t going to make SD any friends in their existing bondholder group (on the other hand, who likes “bondholders” these days… unless you need them, that is). The higher yield comes with the territory these days, but to make the notes 1 yr shorter maturity than the $750mm of outstanding notes is a bit of a slap-in-the-face. That said, if the 8.0% Notes weaken in line with the new offering, they could be a better buy, if you hold to maturity. More of your investment return would be in “capital gains” and less in interest payments (or “ordinary income”).

  103. 103
    zman Says:

    BOP, Bill, others, what do you guys think of the Lazard shipping analyst. He and the Jefco analyst who I know are liking DSX after the secondary. I did not listen to that call last week, but will go back and listen tonight.

  104. 104
    BirdsofpreyRcool Says:

    Strike that, TWO years shorter maturity. Can’t subtract 2016 from 2018 on Mondays, I guess. Ouch.

  105. 105
    zman Says:

    BOP – SD is repaying revolver. Interesting to see all the brokers up their thoughts on the stock after those earnings (gotta insure their spot on the syndicate I’d guess). There’s still a lot of debt and a lot of risk in that story but by 2012, they will be a much bigger company in terms of production without really having to gun drilling. Probably good for the stock to get this done and then hope for higher gas prices in 2010.

  106. 106
    BirdsofpreyRcool Says:

    Lazard shipping analyst, Urs Dur? Sounds like he’s from one of the two best countries to analyze shipping (making an assumption based on his name). Other than that, his timing on buys/sells doesn’t look so hot (looking at the Bloomberg scoreboard). But, doesn’t mean he isn’t a good analyst. Haven’t worked with him.

  107. 107
    zman Says:

    Hear ya there, the Jefco analyst was last I checked a Norg.

  108. 108
    BirdsofpreyRcool Says:

    SD is rated B3/B-, so yes… a lot of debt. It’s gotta kill them to issue at 10.75%, tho. Only a year ago they issued $750mm at 8.0% with the same rating. But, you sure don’t want to be beholden to the banks these days. Ya never know when someone is gonna pull the rug out from under your bank, it seems. (And getting the rug pulled out makes bankers rather pissy to deal with.)

  109. 109
    zman Says:

    Ram – just saw a piece on BEXP, upgrade at Johnson Rice, they liked the quarter better than I did it seems, stock flat on day, I’m not going to play until they sell more moose pasture, I think the stock won’t move to well until they get some asset sale done or oil jumps through $60.

  110. 110
    zman Says:

    This one will be on the Bio tab shortly. And thanks for compliment D!

    Denise- Spent 17 years on the sales side at Goldman Sachs. Retired in 1997 to become a “Soccer Mom” and became interested in the equity market. Been trading since 99 for my own account. My style is swing trading. I subscribe to every good site I can find (like Z’s) to educate myself and get an edge. I am more of a generalist but trying to learn more about energy.

  111. 111
    ram Says:

    Thank you. Does it seem that CRR is a little more reluctant to move down than its peers? If this is the Tiffanys of the service play, than surely this would slide quicker.

  112. 112
    tater Says:

    The only thing that I can think of to post for a bio is that I was in the background in a couple of scenes from the movie Breakin’. They couldn’t meet my price for Electric Boogaloo though, so I’m not in the sequel.

    S and P 910 just in time for the 20 min run for the roses.

  113. 113
    zman Says:

    Ram – yes it does. It’s thin, people don’t want to sell, it’s easy to squeeze with 33% of the float short already.


    Estimates continue to fall, 2009 at 1.90 with all the covering analysts bringing numbers down slowly but surely.

    Several E&P calls mentioned replacing ceramic with RCS or with beach sand as they look to cut costs. So with down volumes and falling product pricing I don’t think this deserves the premium forward multiple relative to its peers (19x is a bit lofty)

  114. 114
    zman Says:

    Tater – how about if we just put you down as resident T&A guy.

  115. 115
    Denise Says:

    Off energy but must read
    Solution to the global financial crisis?

    Posted By Prieur du Plessis On May 11, 2009 @ 9:49 am In Money, Markets, Investment | 3 Comments

    In a small town on the South Coast of France, the holiday season is in full swing, but it is raining so there is not too much business taking place.

    Everyone is heavily in debt.

    Luckily, a rich Russian tourist arrives in the foyer of the small local hotel.

    He asks for a room and puts a Euro100 note on the reception counter, takes a key and goes to inspect the room located up the stairs on the third floor.

    The hotel owner takes the banknote in a hurry and rushes to his meat supplier to whom he owes E100. The butcher takes the money and races to his supplier to pay his debt.

    The wholesaler rushes to the farmer to pay E100 for pigs he purchased some time ago.

    The farmer triumphantly gives the E100 note to a local prostitute who gave him her services on credit.

    The prostitute quickly goes to the hotel, as she was owing the hotel for her hourly room used to entertain clients.

    At that moment, the rich Russian comes down to reception and informs the hotel owner that the room is unsatisfactory and takes his E100 back and departs.

    There was no profit or income.

    But everyone no longer has any debt and the small town’s people look optimistically towards their future.

    Could this be the solution to the global financial crisis?

    Source: Unknown

  116. 116
    BirdsofpreyRcool Says:

    Meredith Whitney weighed in with her “sell banks and short consumer” call… right on schedule at 3:30. Not saying she’s wrong. Just saying she likes to move markets.

    Heck **I’d** like to move markets! Would be amusing, on dull Mondays.

  117. 117
    tater Says:

    that sounds kind of sexy

  118. 118
    zman Says:

    Thought you’d like it. Market doesn’t feel very panicky to me. Waiting on retail shoe to drop tomorrow.

  119. 119
    zman Says:


  120. 120
    zman Says:

    APC on the tape with 30 mm shares, a little over 10% of outstanding.

  121. 121
    zman Says:

    LINE on the tape with 4.5 mm units, about 4% of outstanding plus $200 mm senior secured.

  122. 122
    BirdsofpreyRcool Says:

    SD priced $365.5mm (upsized from $300mm) of new Senior Notes due 2016. 9.875% coupon, priced at a discount of 95.773 to yield 10.75%.

    Funny how CFOs don’t want TEN PERCENT handles on their debt. CFOs will go way out of their way, to avoid having a 10%+ coupon. They seem to view it as some sort of corporate Scarlet Letter, pinned to their capital structure. “Corporate Pride,” if you will. Just an aside (and a little bit of insight into the bond world).

    The Notes are 144a, so not available to the public until they are registered (at some point in the future).

  123. 123
    zman Says:

    BOP – on the other hand, you gotta find it encouraging from an E&P world view that the demand was there to support the upsized deal. Bet ya those deals in #120 and #121 see the shoe get exercised.

  124. 124
    BirdsofpreyRcool Says:

    z — absolutely! I just know how chagrinned SD is to have to suffer the embarasement of placing bonds at 10.75%. Great deal for investors, tho.

    The bond market is creaking open, for larger issuers. It’s the guys who only need $150mm or less that are still frozen out. But, thaws start at the top and trickle down. Although credit spreads moved a little wider today, 13 companies were able to place debt, the most in 11 months.

  125. 125
    BirdsofpreyRcool Says:

    (I’m embarrassed that I can’t spell embarrassed…)

  126. 126
    Wyoming Says:

    BOP – #22

    General Rule – You can’t screw up a good well (especially oil). I think engineers/managers try hard sometimes (your Kodiak folks too).

    I can not think of a time where I have seen a shut in well lose it’s pressure. You sometimes encounter subsurface cross flow but that would balance and it would be a commingled production flow allowed by the RR commission or a states Oil and Gas Comm.

    The concern is that a marginal well will load up with fluid. This is probably where you think it loses pressure but in reality the fluid hydrostatic pressure balance the reservoir. Someone like KEG / HAL / SLB will bring out a coiled tubing unit and “kick off” the well using nitrogen gas to lift out the fluid until it flows. If artificial lift is installed it would be as simple as turning it on. In some cases, compressors and other surface equipment may have to be re-leased or installed as it was removed to save LOE.

    I have seen stripper wells flow at a couple hundred psi and build up to 1200 psi after being shut in.

    This is a quick generic, some people would be justified in saying my comments are a little off. Ask away if you want anymore details.

    Going back to reading the rest of the days comments.

  127. 127
    Wyoming Says:

    RE comments in 40’s w/ TEXWS6

    He is right, frac wells are crappy reservoirs. In the case of gas, shutting in and allowing water to cover kill the well allows water imbibition. As in imbibe, drink in, absorb. The pores are pretty small, the water will pull in deep and destroy the relative perm to gas. Oil wells would be fluid filled and less compressible.

  128. 128
    Wyoming Says:

    #54, TEX is right.

    I will also add that by choking back reserves should pretty much remain as estimated. Shut in a well and not have it recover will effect recoverable reserves.

    Also, there are some chemical processes that can effect a wells performance such as scaling, asphaltense, paraffin. Some gas with water wells can start to build up with one or two weeks downtime. This is from personal experience. Shutting in for an extended period of time may require reperforating.

    Also, I will throw out the idea of shut in effects on EOR reservoirs such as the steam floods in California. Imagine the cooling effect on the heavy oil? I know this discussion is pretty much about gas.

  129. 129
    BirdsofpreyRcool Says:

    Wyoming — Your comments are great. They are clear, concise, practical, and help immensely. I like the reminder that “you can’t screw up a good well…” That says a lot. It also tells me that my KOG mngt are a special lot. That said, I do think there is a positively-sloped learning curve going on with those guys.

    I’ve been in and around the oil biz for so much of my professional and academic career, that I am chagrinned (much like SD mngmt is tonight, after issuing a 10.75% Senior Note) to know so little about what happens after you spud the hole. So, dragged out a reference book. Great stuff. By the old head of the G&G Dept at U of Tulsa. Hugely useful, terse, simple reference book: “Nontechnical Guide to Petroleum Geology, Exploration, Drilling, and Production” by Norman J. Hyne (1995).

    Dr. Hyne is famous for teaching thousands of non-science folks all about the oil biz. His book is pretty detailed, considering he calls it a “Nontechnical Guide.” Anyway, I am going to spend the next few evening reading the 2nd 1/2 of the text, to fill in all the stuff I don’t know (and so I won’t have to bug you quite so much).

    Thanks again, Wyoming.

  130. 130
    zman Says:

    BOP – I took a course from him, rocks for analysts or some such for a week in Houston once upon a time; have his 2000 Petroleum Glossary on the shelf next to my desk.

  131. 131
    BirdsofpreyRcool Says:

    #128 — read through some of that this evening. That said, your explanation beats the pants off the textbook discussion. Ever consider writing a book in all your spare time?

  132. 132
    BirdsofpreyRcool Says:

    z — I’ve heard great things about his courses. He’s pretty famous for teaching a huge percentage of the energy investment community. His book is dry, but has all the technical detail. Wyoming’s explanations are more colourful.

  133. 133
    Wyoming Says:

    When you want to feel better about yourself, ride the bus or head on over to the KOG offices.

  134. 134
    zman Says:

    BOP – I also picked up a copy of that book you referenced a couple of years back at the suggestion of Wyo.

  135. 135
    BirdsofpreyRcool Says:

    That said, Dr. Hyne’s book does NOT cover “sabkhas.” Any book that doesn’t include at least a few sentences about this fascinating depositional environment, can not call itself complete.

    (I had to write a paper on Sabkhas in grad school… never quite recovered from the experience…) 😉

  136. 136
    BirdsofpreyRcool Says:

    Wyo — LOL… literally.

  137. 137
    BirdsofpreyRcool Says:

    z — it’s a great reference book. I just buried it in a box for the last 7 yrs. Pulled it out this weekend. Glad I did. Will allow Wyoming to get more sleep.

  138. 138
    zman Says:

    He doesn’t sleep, he hibernates overnight. Closet bear there.

  139. 139
    Wyoming Says:

    131 – It would be amusing but I have reversed engineered so much that I would just plagiarize all my cool sources and end up like Stephen Ambrose (I have read a lot of his work and still like him).

    I was an instructor for one of my previous employer for about 3 years in England.

    I like to spend my free time with the kiddo’s (triplets and a 10 month older boy – they are getting at the fun stage (6) before the terror begins).

  140. 140
    Wyoming Says:

    Sleep when I die.

  141. 141
    BirdsofpreyRcool Says:

    z — back to KOG… what do you think the basis diff is now for Bakken oil? Even at $60 oil, I have to think they are just a little better than break even.

  142. 142
    zman Says:

    Floating between $5 and $10, last I heard close to $6. They may have some issues getting it out for low dollars come June when EOG turns the taps back on, um sorry, unpinches their wells, in the Parshall area. EOG is moving to rail to get out barrels due to pipeline and trucking constraints. I’d bet they end up paying to truck it but at $60 they should be ginning some good cash.

  143. 143
    BirdsofpreyRcool Says:

    Four kids should keep you off the author’s circuit for a while.

    But, you’re a good teacher. It shows. Your kids are lucky.

    (you ref’d one of my fav singer/songwriters… )

  144. 144
    BirdsofpreyRcool Says:

    $5 to 6 isn’t too bad. But, that’s wellhead, right? Put trucking on top of that… ?

  145. 145
    zman Says:

    Yep, still should easily be in the black at $60 oil.

  146. 146
    BirdsofpreyRcool Says:

    About $9/bbl to truck?

  147. 147
    zman Says:

    BOP – On the high side, yes.

  148. 148
    Wyoming Says:

    Hey, Z also reminded me. One other shut-in phenom is in the acquisition of a field from another operator. Take a look sometime, you can see that when the selling company puts up the for sale sign, the production department throws up their hands and lets everything start to slide, chemical treatment, sand cleanouts … ; production drop.

    The next step is the buyer and handover, now production is really hurting because most people don’t have a job or have been xferred. Then the buyer takes over and production never returns back to the pre-sale announcement levels. Crappy tight gas wells of course.

    Also, remember the shut in wells. Chemical treatments include protection for acids from CO2 and for H2S. Without treatment the tubulars and casing can start to corrode.

    WFT and Baker – Petrolite come to mind for this service (BHI is the industry best IMO). For the unintiated; basically chemicals are pumped down the backside of a well (say gallons per day) to prevent aspahlt forming, scale (think pipes at home with a water well),formation of H2S and other nasties. Sometimes a small tube is snaked into a certain depth representing a flowing temperature or dumped down the tubing/casing annulus (inefficient) ….

  149. 149
    zman Says:

    BOP – just went and checked, EOG during the 1Q said it got as high as $25 per barrel to truck at one point, I had not seen that it got that high, I know its backed way back off but don’t know how low, will dig around.

  150. 150
    BirdsofpreyRcool Says:

    The tough exercise in trying to value KOG is the current ramp up dilution with JVs and partnerships. But, at some point, they should be able to get around without training wheels on. 50-80 drilling locations… so, worth the exercise, I think.

    $1.50 price target is too low, if the wells at the northern end of the FBIR come in at 2kbo/d and there is TFS potential. These little nano-caps can be so squirrley, tho. One mis-step can be a game-changer.

  151. 151
    BirdsofpreyRcool Says:

    Wyo — where does KEG fall into the well services expertise categories?

  152. 152
    BirdsofpreyRcool Says:

    #148 — I never thought about that. But, totally makes sense. Just one more thing that can go wrong with an acqtn.

  153. 153
    zman Says:

    RE 148 … good to keep in mind for the coming land swaps. Time to look for some bottom fisher E&Ps as well.

    BOP – if they come in at 2,000 bopd you will be looking at a $5 stock most likely. They just have too much acreage for some analyst not to back of the envelope it with an EUR of say 600 to 800,000 barrels per location, with 35,000 acres and 60% prospective (which seems to be the conservative stance for analysts looking at any acreage these days) you are talking 65 locations (on 320s), put the mid EUR on it and give them $10 per barrel in the ground for it, and divide that figure by 97 mm shares and you get $4.75. Then round up because analysts like round numbers.

  154. 154
    BirdsofpreyRcool Says:

    Not sure if the Charging Eagle and Tall Bear areas to the SE will produce as prolific wells. But not enough go-by’s in the area to know for sure. Wells 7&8 will test that area. And all this is w/o TFS thrown in, correct?

  155. 155
    Wyoming Says:

    151 not sure what you mean.

    If I understand correctly. I said earlier that KEG will be around in North America for a long while but that the bigger boys seem to miss the boat. They get it (the customer). The bigger boys tend to get a too big to fail attitude and also have issues of bending over the customer during the sellers market of recent. KEG never really did that in the high times, very down to earth people.

    Their staffing is from engineers to people with hands on experience (former company reps). They staffing will only get better as the industry is decimated.

  156. 156
    zman Says:

    BOP – right, just thinking middle Bakken. Are any of those first 4 wells TFS tests?

  157. 157
    zman Says:

    Wyoming – have you added the Wii Fit yet to your Wii? Got one a couple of weeks back, crowd goes wild. Good for drinking games too, beer snowboarding, beer boxing, etc. once the kids are abed.

  158. 158
    BirdsofpreyRcool Says:

    No. And they have no plans to test for it any time soon. No complaints from me. I like the dedication and focus.

    But, I think the Peak Energy well in the middle of their acreage is producing from the TFS. IP’d (I think) at 920 boe/d.

  159. 159
    BirdsofpreyRcool Says:

    Calling it a night. Can’t keep up with you two. Thanks for the education/discussion.

  160. 160
    Wyoming Says:

    157 – No, was waiting for it to come out and then it just fell from memory. We have WII SKI which is where I got the initial idea.

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