Thursday Morning – More of the same drifting lower action on tap

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In Today’s Post:

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


Holdings Watch: The Wiki Tab is Update; The $10KP is $31,100, 75% cash.

  • Added (20) May CLR $30 Calls for $0.15 as a high risk oil bump up play on a big draw in crude.
  • Sold (10-all) HAL June $22 Puts (HALRV) for $1.50, up 21%. Got tired of fighting the tape here, will revisit the idea soon.
  • Added (20) HK $24 May calls for $0.40 with the stock trading at $23.75, off another 4%.
  • Added June PXD $25 Calls (PXDFE) with the stock at $25.10 for $2.20. I liked it with lower oil and gas prices last week at $30 so I like it a little more 20% lower.

Commodity Watch

Crude oil fell $0.83 to close at $58.02 yesterday after the EIA's report of lower oil and gasoline inventories failed to support prices since low imports and not strong demand was behind the data. This allowed a weak equity and a small bounce in the dollar to hold sway and induce a minor bit of profit taking. This morning is trading off another buck at $57 on the IEA demand forecast (see next bullet), mounting fears that a resurfacing of demand just may not be around the corner, concerns that OPEC is starting to lose its control of quota discipline again, and a slightly stronger dollar.

  • IEA Watch: The IEA revised its 2009 global oil demand forecast to down 2.56 mm bopd, from its prior forecast of down 2.4 mm bopd. IEA also confirmed Reuters reports earlier this week that OPEC has begun to inch up production as higher prices prompt cheating. 
  • MEND Watch: MEND has given oil companies another 48 hours to evacuate workers declaring a renewed effort will be made to disrupt oil production. MEND said the entire Niger Delta will become a "no fly zone" for oil companies beginning Saturday.

Natural gas turned lower falling $0.12 to close at $4.33 yesterday with the higher distillate inventory number which inspired a bit of fear about the size of today's natural gas injection. The move lower was exacerbated by word that the University of Colorado was considering cutting their Hurricane Season forecast from 12 to 11 names storms. There's not a lot of data to support all of the rally gas has enjoyed over the last two weeks so any reason to sell is acceptable when the number of times I read or hear the words "cash is king" reaches 6 months highs. My sense is that a bit of profit taking is healthy and gas should trade sideways with an upwards bent into summer. Nothing out of hand, just inching higher. Volatility will likely be more muted except on data days unless we get some storm news. This morning gas is trading down 10 to 20 cents on weak oil and equity futures.


Natural Gas Preview

  • My number: 95 to 100 Bcf
    • History:
      • Last Week: 95 Bcf Injection
      • Last Year: 89 Bcf Injection
      • 5 Year Average:  83 Bcf Injection
    • Weather: Mild; warmer than normal as cooling degree days go.
    • Imports: Down 0.5 Bcfgpd from last week and 2.0 Bcfgpd from last year, all of the downside being attributable to weak volumes coming down from Canada.
    • Production: Probably running flat to down 1 Bcfgpd from last year at this time.
    • Demand: presumably running about 3 Bcfgpd less than last year, due to lower industrial consumption
  • Street Consensus:  99 Bcf Injection

ZComment: Natural gas rallied sharply last week before the weak equity and crude oil market caught up with it and inspired a little profit taking this week. I think the over/under today is 100 Bcf. Anything less and we see some price stability, anything more and we get a retest of $4. If oil pulls back below $55 that may take gas below $4 again. Injections are running high to historic levels but not by as much as you'd probably guess and in the next couple of weeks we will be getting some heat which will make for some interesting gas injections.

EIA Oil Inventory Review

ZComment: As you can see from the table above crude oil and gasoline inventories fell by large, unexpected amounts last week.  The report represented extremely low crude oil imports and extremely low refinery utilization. The low refining resulted in lower gasoline production. Gasoline demand remained at sub par levels for this time of year as the unemployed stayed home, far away from their normal commute and all the going out of business sales along the way. Had it not been for those imports falling as they did, with nearly 20% of U.S. refining capacity off line, we would have seen very large, scary sized builds in crude stocks. As things stand now, crude levels are elevated but backing away from near two decade high levels. I suspect there were some logistical issues with refining that will result in higher utilization in next weeks report. Imports are commonly volatile and could just as likely spring back to more normal levels next week.


Crude Imports Tumbled Week To Week. Crude imports dropped by over a million barrels per day last week from the prior week. These numbers are often volatile and are probably less likely a sign of reduced OPEC shipments as they are of logistical difficulties. Often with big swings like this you get a sharp reversal the following week. Give me three weeks at this level and I'll raise an eyebrow.

Crude Stocks: First significant withdrawal in 11 weeks ... need more.


GASOLINE - In a nutshell, reduced refiner output saved the day as demand remained pathetically low.



Demand needs to get back to the red circle, 0% YoY growth to have a shot at warding off an inventory bloat.



DISTILLATES - SSDD. The song remains the same here: too much production, too little demand, too much in storage.








Stuff We Care About Today

DNR Sells Barnett Shale Assets

  • The Deal:
    • $270 mm for 60% of its Barnett assets
    • They have 458 Bcfe booked in the Barnett so for 60% this works out to about $0.98 / Mcfe which is nothing to brag about but a sign of the cheap gas times under which we currently live.
  • DNR Post Deal Impact:
    • Oil as a percent of production rises from 70% to 78%
    • Net Debt to Total / Cap will from 1Q09 levels of 40% to about 34%
    • Production guidance will likely be reduced by the amount of production from the property (about 45.7 MMcfed) but when you reduce the comparable historic period they probably won't take much of a hit from analysts for that.
    • Price to 2009 estimated CFPS is at 7.7x and I'd expect estimates to come in by roughly 10% but that the reduced leverage and increased oiliness will likely result in a little margin expansion for the name.
  • Nutshell: Ok deal on price, gives them increased financial flexibility to redeploy capital into higher return basins

GMXR completes previously announced deal, sells 5 mm shares at $12, bad timing with the market sell down.

BEXP to 30 mm shares.

  • Two comments:
    • I'm staying away and
    • You guys need to sell acreage, not equity
  • This represents desperation with dilution of 64%.

ROSE filed a $500 mm universal mixed securities shelf

  • Shelf registrations are good to have on hand and don't necessarily mean a deal is around the corner, they just add flexibility
  • Given the run ROSE has had and the number of deals hitting the tape over the last week however, this may be more than just your typical flexibility shelf. Will look into that today.

Odds & Ends

Analyst Watch: 

  • UBS cuts ratings on the drillers: PTEN, BRNC, HP, PDC
  • Opco takes MUR target from $60 to $65
  • Jesup cuts numbers at (TDW) post quarter

123 Responses to “Thursday Morning – More of the same drifting lower action on tap”

  1. 1
    Sambone Says:

    By Nick Heath

    LONDON (Dow Jones)–Crude oil futures fell for a second day Thursday after
    demand projections from the International Energy Agency added to doubts over
    the sustainability of crude’s recent rally.
    The IEA Thursday revised its 2009 demand projections down by 200,000 barrels a
    day Thursday and warned that while a slowdown in consumption is starting to
    bottom, recovery will be sluggish and long in coming.
    World crude demand this year is expected to contract by 2.6 million barrels a
    day, or 3%, to 83.2 million barrels a day, the IEA said, representing the
    biggest contraction in almost 30 years.
    “The demand picture is still very, very gloomy, there’s no question of that.
    The run up in prices we have seen from the lows back in February has seemed a
    bit generous given the demand outlook wasn’t improving,” said Neil Atkinson,
    senior consultant at KBC Market Services in London. “This data from the IEA
    reminds us that the underlying market fundamentals are not encouraging at the
    At 1143 GMT, the front-month June Brent contract on London’s ICE futures
    exchange was down 76 cents at $56.58 a barrel. The contract expires later
    The front-month June light, sweet, crude contract on the New York Mercantile
    Exchange was trading $1.05 lower at $56.97 a barrel.
    The ICE’s gasoil contract for June delivery was down $10.25 at $473.50 a
    metric ton, while Nymex gasoline for June delivery was down 152 points at
    167.36 cents a gallon.
    Weakness on equity markets – which have been a key indicator for crude
    recently – also pressured crude prices Thursday, while Nymex crude’s failure to
    comprehensively break though the $60 a barrel mark this week spurred doubts
    over crude’s ability to sustain recent gains, given weak oil market
    Further indications that initial encouraging compliance to Organization of
    Petroleum Exporting Countries’ output cuts is starting to waver also weighed on
    The IEA said Thursday that adherence to the latest 4.2 million barrels a day
    in production cuts eased in April to 78% versus 83% in March as group output
    rose for the first time in seven months. Wednesday OPEC itself said that output
    from its 11 quota-bound members had risen by 224,300 barrels a day in April
    compared with March.
    The slip could be key in determining what decision the organization reaches
    when it meets later this month in Vienna.
    “We believe a combination of weakening compliance and crude’s recent strength
    reduce the likelihood of another OPEC target cut at its May 28 meeting,” said
    Gordon Gray, analyst at Collins Stewart in London.
    Meanwhile U.S. retail sales data Wednesday challenged the hopes of a slowdown
    in global economic contraction that have helped support crude and other
    financial markets recently.
    Crude’s rise to $60 a barrel this week has been largely due to optimism
    surrounding the global economic outlook, analysts said, despite brimming U.S.
    oil inventories, weak demand and a glut of floating storage worldwide arguing
    against such moves.
    Prices were unable to take much support from U.S. inventory data out Wednesday
    revealing U.S. crude stocks fell for the first time since February last week.
    While the crude oil data were seen as constructive, a repeat of similar
    numbers, and some indications that demand is improving, will be required to
    provide a fundamental fillip to prices.
    “Even though the report could be seen as positive, the trend has to persist.
    We need significant evidence of a demand pick up in the U.S. this summer, while
    crude stockpiles are still way too high,” said Andrey Kryuchenkov, vice
    president of commodities research at VTB Capital in London.
    -By Nick Heath; Dow Jones Newswires

    Dow Jones Newswires
    05-14-09 0806ET

  2. 2
    Sambone Says:

    You know you’re a bad a** when you’re not afraid to fight Taliban in pink I ♥ NY boxer shorts.


  3. 3
    Nicky Says:

    Good morning to all. It now seems like my preferred count for a higher high before the correction started was wrong. I had said if we bust through spx 900 it was likely done. Now I am looking for support at 880, 877, 872, 865. I think we likely hold support on this leg at the 872 level before correcting a percentage of the fall. I am expecting the March lows to hold but anywhere in between is fair game for the big picture correction!

  4. 4
    zman Says:

    Sam – No kidding.

    Nicky – thanks much. Interesting to watch what oil will do here. As the green shoots in the economy seem to be whithering or at least, um, stunted, oil fundamentals will not be improving as fast as some expected. That makes it harder to look through the trough. My sense is that oil is due some profit taking and will move with the equity market, especially to the downside if we got to your 872 level best guess is that is $56 to $55, then everyone starts eying $50. No rush to jump back out of cash right now. See fundamental factors in the oil bullet.

    Nicky – care to take a shot at natural gas on a chart?!

  5. 5
    BirdsofpreyRcool Says:

    Tech Trader weighs in this morning — “sell rallies… rally is usually early but for sure in the first hour… selloff into lunch, tighten stops and rid it out with a stop”

  6. 6
    BirdsofpreyRcool Says:

    Credit Markets weaker again this morning. But, in all fairness, we have had a nubmer of debt issues hit the market over the last week and a half… so, giving back some gains due to supply. That said, the weakness is still real. And getting worse.

    IG 157 1/2 +3bps

    HY 78 4/3 -1 full point… alas.

  7. 7
    zman Says:

    BOP – glad to know you still read the post cover to cover, lol.

  8. 8
    zman Says:

    Fair warning, I will be as nimble as possible with those May high risk trades today. I am not a guy who falls for the trap of trying to get out even or better. I realized long ago that the only person in the world who cares what I paid for an option or a share is me and that that price should be the last thing on my mind as I decide to hold or not.

  9. 9
    zman Says:

    Epperson Watch: She actually made a good point talking about the contango having steepened. I made this point in my comments on Monday with regard to the jump in the 12 month strip. It is a sign that traders see more of a drop off in gas production by year end than they did previously. More important to our E&P names, it provides an opportunity to hedge at much better prices than were available for early 2010 (> $6 now) just 3 weeks ago.

  10. 10
    zman Says:

    BOP – thanks also for 5.

  11. 11
    zman Says:

    PQ off over 20% from its high on Monday on an analyst recommendation. Amazing how easy it is to push these little names around on so little volume these days. Says to me that holders are nervous and not willing to step in to support names with fresh dollars. Also tells me Stifel did a poor job at the teach in when they rolled PQ out.

  12. 12
    zman Says:

    Credit Suisse cuts DBR target from $16 to $14 following Barnett sale.

  13. 13
    zman Says:

    Just looking at a lot of down E&P today and last few days, looks like a buyers strike, not big volumes, half sized volumes. Big moves this morning in very light trading.

  14. 14
    VTZ Says:

    Dman – Related to our COS vs. SU conversation yesterday, the main reason I prefer COS is that they are committed to paying out all excess capital. In the longterm, if you think oil will be >100 again their dividend will increase drastically and your income stream will be significant. If COS falls to the 18-20 range again on a pull back in oil, I will add significantly to my position. Even if oil stays in the 60-80 range they will bump their dividend up again.

    The structure of their business is such that now that they have assets that can produce for 30+ years, their sustaining capital is limited.

    Their business looks even stronger the longer that natural gas underperforms oil on a BTU basis and if this trend reverses, all upgraders will be building gasifiers so that problem can be resolved.

    Pure leverage to oil, committed to dividend increases, steady predictable oil production over the longterm = win

  15. 15
    Nicky Says:

    Z. Nat gas – I had 4.429 as resistance for the rally and we went a touch higher. Now we should see a 3 wave pullback.
    fib retracement areas are as follows:

    38.2 is 4.04
    50% is 3.89
    61.8 is 3.73
    76.4 is 3.54

    Interesting to me that is that the 61.8% and 76.4% fib retracements are back at support levels that date back years as previously noted on here.

  16. 16
    BirdsofpreyRcool Says:

    z — maybe buyers are striking b/c companies have ramped up the selling. 2ndaries are just streaming out of the woodwork. So, as an investor, you not only face the usual energy price risk, but also dilution risk. Why put your hand out to catch that falling knife?

    The nail in the coffin of this lousy week for energy will be if HK announces a 2ndary any time soon. As widely owned and followed as that stock is (by the hedge funds and momentum guys), I think that would deal a fairly large blow to the psychology of energy sector investing.


  17. 17
    jy Says:

    Z, Re #11 what does
    “Also tells me Stifel did a poor job at the teach in when they rolled PQ out.” mean???

  18. 18
    zman Says:

    Thank you VTZ

    Nicky – I have a hat to eat all picked out should we poke into the $2s.

    BOP – I think the debt window for E&Ps has opened twice since everything went dark last Fall. For HK, the first deals were needed to paydown revolver and fund Eagle Ford work. They don’t need to do a deal now (unless they see some other shiny bauble of a play to spend money on) and since we’ve seen that the end isn’t at hand for new issuances I don’t see them doing another preemptive strike. I think they also know that another deal in the high teens low 20s will be met with a wave of downgrades (apart from the deal team) and a general disaffection by their installed base. I think there is time to be patient, again, given previous deals and in light of continued weak gas prices. So anything more now and Floyd gets thrown into the gunslinger camp with Aubrey.

  19. 19
    tater Says:

    HK –
    Bounced this morning off of the .38 Fib (blue line on the 60 min view). Don’t know where it will wind up, but for now we’ve got the correct landmarks noted on the chart. Very much in agreement with your #13 about a buyers strike (also a “for now” idea).
    Heading out for the day, just wanted to note that if HK does get some juice and head back up, be very leery of that middle Bollinger Band coming down from above (60 min chart). It is very likely to be strong resistance, at least on the first meeting with price. Maybe a little too TA for most traders, but in the days before expiration, this stuff can come into play. Good luck today.

  20. 20
    zman Says:

    re 17 – Stifel Nichlaus initiated on PQ with a buy rating on Tuesday. After the close on Monday, the analyst would have had a “teach in” with the sales force to discuss the company’s plays, management, balance sheet, hedges, guidance (and the believability there in ) etc. Usually we’d talk on the box for 15 to 20 minutes and then the institutional salesman would ask a few questions. The analyst would also then call his favorite mutual, hedge and other fund clients and start pumping interest. Then you roll out coverage the next morning. Looks like he didn’t build a big book or that others just used his buy recommendation as an opportunity to sell which is pretty common too. If the analyst and his sales force can’t generate follow on flow (and Stifel is a smallish shop) then a poor market can quickly round trip the move off an initiation.

  21. 21
    BirdsofpreyRcool Says:

    Z — #18, thanks. Sums it up nicely. HK doesn’t need to do a deal here. I was very happy with the timing and use of their debt deal (to get pesky banks off their back). Just grumbling at all the 2ndary action. That said, the guys issuing now all really NEED the money. So, that’s part of it. If HK issues equity here, it would make me rethink their capex and cash management ability. Just thinking out loud. Hoping Floyd keeps his finger off the equity-issuance trigger. But, Floyd does what Floyd wants to do.

  22. 22
    Nicky Says:

    Z – I don’t think we are going into the 2’s anytime soon (unfortunately as far as the hat eating goes!). I had thought it would hold 3.5 and was slightly surprised we went lower to be honest.

  23. 23
    bill Says:


  24. 24
    bill Says:

    >BEXP to 30 mm shares.

    * Two comments:
    o I’m staying away and
    o You guys need to sell acreage, not equity
    * This represents desperation with dilution of 64%.

    so true

    I guess it means they cant find buyers

  25. 25
    zman Says:

    Bill – yep, that’s how I see it.

    Gas number in 1 minute

    Wow, nice recovery off the panic down 12% on PQ, flat now.

  26. 26
    zman Says:

    KOG getting back towards your range BOP. Any thoughts on an entry?

  27. 27
    zman Says:

    Gas Inventory:

    95 Bcf

    Gas down 20 cents at time of report. Should be seen positively.

  28. 28
    zman Says:

    The impact of lower gas imports and higher demand for electricity (my best guess) showed up in that number which matched the prior week. Also, gotta be seeing some impact from curtailments and lower production. Gassy stocks not getting a thrill out of it just yet. RRC and SWN likely to get boosts if gas can nudge close to or into the green here.

  29. 29
    zman Says:

    Adding to #20. Jefferies had cut their PQ target from $6 to $4 just days before Stifel initiated. Some I’m sure the Jefco used the Stifel rating as reason to make a round of found calls advising clients to sell it into that strength.

  30. 30
    zman Says:

    MEND getting into the pirate business, hijacked 2 cargo ships off Nigeria.


  31. 31
    BirdsofpreyRcool Says:

    KOG — glad you asked. I don’t mean to pollute the board with too many comments on KOG. So, picking my points. But, you asked…

    In all sincerity, i do hope the stock falls back toward the 75¢ 2ndary price range. I want to add a few more shares and would be happy with a price anywhere below 85¢. KOG has achieved several milestone steps, since the miserable day the stock traded at 16¢ (and I felt I had let occam down). But, there are also at least 3 important steps they have yet to achieve.

    [I started to write more, but want to do a little more thinking about recent results, so working out some numbers now… will post later]

  32. 32
    zman Says:

    E&P group looks to be attempting a quiet recovery. Very tentative.

    NG down 8 cents now. I think people will be looking at that gas number pretty hard in coming days and thinking that somewhere around this level could be the max we see on injections before the summer heat comes along and pounds them lower in August/September.

  33. 33
    jy Says:

    Z Thanks for explanation in #20 & #29. The finance shorthand still sometimes eludes me.

  34. 34
    zman Says:

    Jy – probably same way I feel when you driller types starting talking about cross-linked gel fracs.

    TEX – if you are around, could I get your thoughts on the demand for ceramic proppants these days. Lots of anecdotal evidence saying beach sand or RCS is all you need in Haynesville. Curious your thoughts on that. Thanks.

  35. 35
    1520sbroad Says:

    #33 – 29 – 20 – Z and Jy – in talking to a couple of remaining contacts at Smith Barney about the way things are going on the research/analyst/push side – lots of analysts have left or been unloaded. This leaves a lot of analysts without a big broker base now that they may have moved to someone smaller. there are also a lot of brokers drifting at the moment without much of a research force to support them (tell them what to buy and why.) Add in the fact that absolutely no one wants to be wrong and i think that = some lame volume, roundtrip moves on research calls.

  36. 36
    BirdsofpreyRcool Says:

    HT scratching his head over the rally… sees no reason behind it. Does anyone else know? Just the Max Pain direction? Hearing some shorts are creeping back into the mrkt….

  37. 37
    zman Says:

    Thanks 1520. The Street is usually a giant game of musical chairs. People get let go, they drift across the street or down the block or over to Short Hills and are rehired in a day or so. No more. All is not lost though, got a call earlier this week to interview for a sellside analyst position so some people still want to go forward with the whole research and sales thing.

  38. 38
    1520sbroad Says:

    37 – agreed – lots of chairs yet to fill. Loads of people that still have jobs are looking for their next chair.

  39. 39
    kiaora Says:

    BOP-re#36..Hope we’re near HOD cause I’m one of the creepers.

  40. 40
    BirdsofpreyRcool Says:

    kiaora — i was going to play from the short-side myself, this morning. But hesitated… still waiting in the weeds. Can’t see how mrkt continues to climb, with all the uncertainty eminating from Washington, consumer weakness, and jobs being lost.

    HT and TT thought we would see HOD at 10:30 EDT… so, they are a little speechless. That said, they have not changed their bearish call for today, fwiw.

  41. 41
    zman Says:

    … market climbs a wall of worry …

  42. 42
    Nicky Says:

    I know many on here are watching the $. Just noticed that Elliott Wave International have a free week on currencies –


  43. 43
    elduque Says:

    BDI +100 2432

    TED in the 60’s at 69.11

  44. 44
    BirdsofpreyRcool Says:

    elduque — tha TED spread sure seems to indicate that at least the money markets are getting back to some sort of normal. Hard to believe that spread got to almost FIVE HUNDRED on October 10th last year. From 500bps to 69… Just to put it in perspective, +500bps was something like an 8-sigma event. The blackest of black swans.

  45. 45
    zman Says:

    Oil back to taking its cue from the market, back to flat on the day with this rally. Doing a little reading and sitting on my hands today on trades.

  46. 46
    BirdsofpreyRcool Says:

    KOG — to add to earlier comments…

    Milestones Completed =

    o They proved the Bakken is productive on the Rez. 1st well had completion problems (only 4 of an 8-stage frac program completed); IP’d at 711 BOE/d; 2nd well (5 stage frac, successful), IP’d at 1,394 BOE/d. These were both about 4,150 ft laterals. First well took 41 days to drill, 2nd took 36 days to drill. Don’t know how long they took to complete (5-7days, maybe?)

    o picked a funding path. KOG wanted to JV or sell out to a larger company… but didn’t like the bids that came back. So, instead, mngt went to its shareholder base and privately raised $7.5mm to partially fund their $15mm 2009 capex program. So, know they are going to try to bootstrap the stock value up, flying solo. For now. They will have to raise more $$ down the road. But, there will be a few more options available, if their Bakken wells keep coming in.

    o The Peak Energy well in the middle of KOG’s FBIR acreage tested and completed in the TFS. If TFS underlies KOG’s acreage, that could almost double reserves someday. This is down the road. KOG mngmt indicated they are solely-focussed on the Bakken for now. But, still, that Peak well was extremely significant.

    o 1st well took 41 days to drill, 2nd 36, 3rd 31, 4th 28. Also, the 4th well has a 9,000 foot lateral and so drains a 640 (vs 320) acre spacing. If this works, could be a way to get drilling costs down even more.

    o Company said that drilling costs “came down significantly.” They had originally budgeted $6-7mm/ well, completed. Seeing $4-6mm/ well now.

    Milestones Yet to Accomplish, will follow.

  47. 47
    zman Says:

    Accuweather cuts 2009 named storms from 12 to 10.

  48. 48
    zman Says:

    Energy still having a tough time participating in the rally, volumes remain light.

    Thanks for the summation BOP.

  49. 49
    gaamblor Says:

    re HOD, reading about 900 being the largest open interest for SPX so some up gravity to that for the close/open tomorrow,

    always read about that but never seems to pan out that way….

  50. 50
    BirdsofpreyRcool Says:

    z — as it’s kinda quiet, could i get you to go thru a KOG valuation (from your perspective) again? I’ll give you the pertinant details… if you gots the time, that is. thx

  51. 51
    zman Says:

    BOP – sure, just doing some filing, feels like the pin is in on this market. I would be we get a strong move early tomorrow then sideways with low volume through the close.

  52. 52
    choices Says:

    re: bailout (continued) Extract from article at link (maybe of interest to some):

    “The bailout is not something “neutral” that cancels itself out, but instead amounts to a transfer of trillions of dollars of purchasing power directly and indirectly from those who didn’t finance reckless mortgage loans to those who did. Farewell to the projects, innovation, research, investment, and growth that might have been financed by the savings and retained earnings of good stewards of capital. Those funds are being diverted to the careless stewards who now stand to be made whole.

    In short, these bailouts are emphatically not neutral to society as a whole, because they damage incentives and divert productive resources into hands that have proven themselves to be reckless and incapable. To believe that the bailouts are just money we owe to ourselves is to overlook serious ethical implications, as well as distributional and incentive effects.”

  53. 53
    zman Says:

    PXD starting to work again,

    HK thinking about coming green, I would imagine it will run back to $24 and get pinned there or $25 tomorrow.

  54. 54
    BirdsofpreyRcool Says:

    choices — #52. Well said. And so sadly true.

    z — thanks for playing the KOG game… details to follow.

  55. 55
    Garyinhou Says:

    Anybody a Potash follower? POT has been on fire and seems due some serious profit taking. There are several good jokes in here somewhere but I am serious.

  56. 56
    BirdsofpreyRcool Says:

    KOG — data package

    o 37,000 net acres in the Bakken on the FIR
    o 4 wells drilled, 320 acre spacing (4th well drains two 320s)
    o wells 1&2 IP’d at almost 1,400 boe/d (correcting for the botched completion in well 1); defines the SW corner of their FBIR acreage
    o wells 3&4 expected to IP at better rates than 1&2 (whisper # close to 2k); defines the NW corner of their FBIR acreage
    o mngmt reiterated they believe wells are in the 350-500 mboe EUR range
    o costs $4-6mm/well to drill and complete
    o 15% royalty to the Rez (i think… less than 20, I know)
    o 2009 capex budget covered (barely), but have to raise more capital in the future
    o mngmt thinks they have 50-80 Bakken drilling locations on the FBIR
    o there is TFS potential on the FBIR, but don’t know enough details here yet and KOG mngmt has no plans to test it in any of their wells any time soon
    o IPs for wells 3 & 4 expected to be reported sometime in June.

  57. 57
    VTZ Says:

    I’m into POT, I love the ag space.

  58. 58
    BirdsofpreyRcool Says:

    CRZO on the tape with a $250mm mixed shelf filing… to be used for repay debt, capex, acqtns

  59. 59
    BirdsofpreyRcool Says:

    KOG — 112mm shares o/s, no debt.

  60. 60
    zman Says:

    Thanks BOP, back at in a few.

  61. 61
    zman Says:

    Oil heading into the close up $0.60 back into the mid $58s.

    NG off 4 cents.

    I am Jack’s Unending Surprise at HK holding the line on the color red today.

  62. 62
    Garyinhou Says:

    VTZ.. what are your thoughts on the latest moves in the fertilizer folks..

  63. 63
    ram Says:

    “Because it knows were trying to kill it.”

  64. 64
    zman Says:

    Good one Ram, one more minute BOP

  65. 65
    zman Says:


    At this point I’d switch to barrels in the ground (potential reserves) from valuing it on acreage.

    I think they have 37.5 K acres. Call spacing 320 acres and call 60% of that prospective and that gives you 70 locations.

    Call the locations 400,000 barrels apiece, (yes, I know it could be 600 to 800,000 with those IPs but I don’t want to drive Tex nuts and you scale up the number to suit your estimates from here). EOG is punching some nice sized IP wells which they say correlate ok to their reserve size of 600 to 800 K a piece.

    So 400 K barrels each comes to 28.1 million barrels.

    Give them $10 per barrel in the ground which might be the case if oil can hang out above $60 soon and that comes $2.50 per share.

    In another year or two you start looking at working it up on cash flow per share but for now, that’s premature as the costs will be out of joint with the operation once it is scaled up.

    If you do take the low end of the range from EOG per well that comes to a KOG price of $3.75.

  66. 66
    cargocult Says:

    So Is KOG a buy at this price in your HO?

  67. 67
    zman Says:

    Cargo – I think it is interesting, I’m thinking about buying it, lower.

  68. 68
    BirdsofpreyRcool Says:

    z — thanks. coupla follow-on questions… some of which i should know… but, here goes.

    “net acres” = net of royalties and partnership interests, correct?

    Since the Bakken is a resource play, why risk-weight the prospective locations?

  69. 69
    BirdsofpreyRcool Says:

    KOG — btw, i have little doubt that the stock will see 85¢ or below, before it sees $1.50 again. Of course, that is only an opinion. But, next well report isn’t due until mid-June. That’s 30 whole days from now. Dog-years, in this market. Unless, of course, something leaks out about well #3. And KOG is not good at the “tight hole” game.

  70. 70
    zman Says:

    Net acres – usual mentioned as net working interest unless they say NRI. I didn’t actually put the royalty into those numbers because I’m dumb sometimes on Thursday afternoons. The knock will be small, will put in a comment in a minute.

    Re why risk, because it’s not homogeneous, they could be on a sweet spot with their first wells, because I like to be conservative, because it’s KOG and not EOG, etc.

  71. 71
    reefguy Says:

    Net acres is the net working interest acres, not net royalty acres. So say you havr a 50% WI in 10,000 net acres your net acres are 5,000, not matter the NRI.

  72. 72
    BirdsofpreyRcool Says:

    KOG — I really appreciate your taking a stab at valuation for me. It is very helpful to see the way you look at it. Also, I can up with a lower number, so I like yours better. Thank you!!

  73. 73
    RMD Says:

    Simmons on DNR adds perspective that in late ’02, 50 day spot gas was around today’s $3.80 and three sales at the time averaged $1.18/mcfe and $31,161/d vs DNR’s sale at ~$1.00/m and $36,745/d.

  74. 74
    BirdsofpreyRcool Says:

    reef — so, if KOG has 37,000 net acres and owed 15% royalties to the Tribe, would you knock 15% off the value? Or, is that assumed in the $10/bbl m&a value.

  75. 75
    zman Says:

    Reef – thanks for clarifying that, what I meant, not sure it sounding that way.

  76. 76
    zman Says:

    RMD – went back and read their 1Q transcript last night. During the quarter they said they were getting realized prices in the Barnett at $0.75 to $1.00. That is just awful. I applaud them for getting oilier as where they were was pretty tough, I wonder that they didn’t punt the rest of the reserves, I assume they will when prices improve. Proceeds going to oil recovery program, makes sense down the road.

  77. 77
    zman Says:


  78. 78
    reefguy Says:

    BOP- do not knock off the royalty, that is assumed. I think the 15% is low if from injun’s, more like 25…

  79. 79
    BirdsofpreyRcool Says:

    reef — true, but in this case, KOG was the first company to get leases on the FBIR. Leasors who came later, paid higher prices (like the one you just quoted).

  80. 80
    BirdsofpreyRcool Says:

    KOG royalties to the Bureau of Indian Affairs = 18% on avg.

  81. 81
    VTZ Says:

    Gary – Ag was lagging for a while because of grain prices but, I like the longterm outlook for all of them. They are going to be a longterm holding for me and it’s a good global recovery play too.

  82. 82
    zman Says:

    VTZ – do you favor SU over COS.

    Also, do you know Addax? Canadian listed Swiss. Interesting story, reminds one of an early Talisman. Ticker AXC.TO

  83. 83
    VTZ Says:

    I prefer COS because I know that at some point the income on my shares is going to be large and I get paid a little to wait. Also, by not having the refining portion (especially now with the PCA acquisition) it is more leveraged to oil price. I like the idea of owning x shares of COS at <20 bucks and getting paid out 1$ CAD per Q once oil price is over 100 again.

    SU is a much better growth story considering the economies of scale with the PCA merger and the huge amount of oil resources they have. If Suncor completed all their Expansions and the Fort Hills Expansions they could be almost a MILLION barrels a day of upgrading.

    Basically, I like COS until I see what Suncor plans to do with the mergeco assets. If Suncor uses mature PCA E&P assets as a piggy bank to fund expansion and they make good use of the economies of scale (Fort Hills land is adjacent to Suncor land) then I will move back to Suncor.

    I know that not everyone thinks the USD is going to hell like me, but if the majority of my assets were in USDs, this is a great way to diversify assets. If oil goes back up, the CAD will go up and you’ll be happy you bought them with relatively strong USDs and get paid with relatively strong CADs.

    I really like Addax, they are exactly like an early Talisman. A true, independant, underappreciated, global E&P. Their management is also quite strong. I know a pretty smart guy who owns an awful lot of them, but I don’t hold it right now.

    If you’d like I do a head-to-head oil sands companies comparison for my next oil sands piece.

  84. 84
    Wyoming Says:

    Fun with Hippi’s


  85. 85
    Wyoming Says:

    Sometimes good to know what other people are thinking, like this:


    I got it here:


  86. 86
    zman Says:

    Thanks Wyoming, I take it you got the invitation to this today:

    Questar CEO Keith Rattie will expand on these recent comments and more in this not-to-be missed webinar event:

    –“Wind and solar can never be relied upon to provide base-load power…Please, let’s get real: Wind and solar are not ‘alternatives’ to fossil fuels.”

    –“2008 will be remembered in the energy industry as the year U.S. natural gas producers changed the game for domestic energy policy. Smart people in this industry have ‘cracked the code’—they’ve figured out how to produce stunning amounts of natural gas from shale formations right here in the U.S….a feat that most energy experts thought impossible a few years ago.”

  87. 87
    Wyoming Says:

    4 little guesses who won’t be going into Petroleum Engineering.



  88. 88
    zman Says:

    Cute kids Wyoming.

  89. 89
    Wyoming Says:

    Check out the efficiency components of electricity, it’s a lot. Also, look at which fossil fuel stays through 2030.

    No, I did not get an invite. STR is a good company, I played them in the past and made decent loot, albeit it was a natty upswing.

  90. 90
    Wyoming Says:

    Thanks, not Pet E’s though, rather they learn to play piano and work (playing piano) …

  91. 91
    zman Says:

    Re 85 – But they left out the cogeneration you could get from burning all that hemp.

  92. 92
    VTZ Says:

    Wind and Solar are supplements, not alternatives.

  93. 93
    Wyoming Says:

    Seriously, check out the Hippi story in the other link, make sure you say “Damn Hippi’s” like Eric Cartman. Skip it if I have to explain Eric.

    Yup, tell anyone who listens that the correct answer for the future will be everything. Of course, we will probably be unemployed according to the job chart.

  94. 94
    zman Says:

    V – As “they” will find out one long, hot, cranky, but still summer when there isn’t enough peaker capacity and the lights go dim. Need a new category for power. I heard some talking head calling wind baseload the other day.

    Here’s the definition of baseload:
    Wind would not qualify since it does not have a continuous source unless you plant those in the DC Beltway.

  95. 95
    zman Says:

    Wyoming, thanks for the hippie link, Rhonda is pretty funny writer.

  96. 96
    zman Says:

    V – thanks for COS earlier. I need to do some reading there.

  97. 97
    Wyoming Says:

    One more, for the South Park challenged:


  98. 98
    Wyoming Says:

    DC Beltway wind


  99. 99
    zman Says:

    Wyoming – any more thoughts on #34?

  100. 100
    VTZ Says:

    The one thing about COS is they are having some troubles recently because Exxon/Imperial Oil recently came in to replace a large amount of management and they’ve been having problems.

  101. 101
    VTZ Says:

    … and by recently I mean over the past year, so it hasn’t affected them too much but I’ve heard some funny stories from people who now work with me.

  102. 102
    Wyoming Says:

    Careful on the driller types (in that department) and I can talk about Zirconates, Titanates and Borates.

    On the prop, have not really dug down anymore as it is a general understanding in the circles I keep. Note that I do not work in the HS/B.

    Here is some rumor, talked to a buddy on the service side, said that they offered an early retirement (US geo-market) and 71% took it. That means that 71% of 53 year olds + are gone. The next upswing will be fun, don’t matter anyway, will probably be unemployed according to Google.

  103. 103
    Wyoming Says:

    Hey, 34, don’t worry TPH will have a review tomorrow morning for you, probably reference Hippi’s too. They have a man love for CRR you know. They also like to go on these Proppant forums as “experts” to talk their book, looks like it has done them well with the hard dip and recovery.

  104. 104
    zman Says:

    V – but its essentially a mining operation, right, smaller than SU, less growthy long term, but margins explode once oil gets to a certain level. Have not looked at all yet a balance sheet.

    Thanks Wyoming, I can’t count the number of EP calls that said they are trying cheaper things than ceramic including HS players.

    Goog is on my out list right now, they’ve upped fees on everything in recent weeks. Seems they are trying to offset declining ad revenue by pillaging those people still paying them for other things.

  105. 105
    zman Says:

    They’re in here, just can’t tell which user it is. They signed up originally with a tudor pickering address but then didn’t want to pay, at least with that address.

  106. 106
    VTZ Says:

    Think of it as the exact same as Suncor except without Firebag and the refining… mining -> upgrading by coking -> sell sweet crude at a premium to WTI.

    No major asset additions and cost around 35$/bbl. All gravy after that. Long life asset.

  107. 107
    VTZ Says:

    Syncrude actually isn’t any smaller than Suncor. They are both around 300-350 kbpd capacity. COS just takes a % of the production. They aren’t even an operator. Exxon/Imperial is the operator.

  108. 108
    zman Says:

    V – and the growth between now and 2012, are they adding capacity or are they one of the stalled ones. If so, that can be ok, works like an annuity, just streamline costs and crank at same ol same production level. Like you said, long life asset, oil sand isn’t going away soon. Can they get their crude south to premium pricing ok or are they going to run into some takeaway issues soon. Easier to ask you before I read about it.

  109. 109
    Wyoming Says:

    Remeber you can point to enlarge and then use the + to make it bigger again.

    CRR dip at the phone symbol

    HAL, no dip.

    BTW, HAL crossed the under the 50 EMA.

  110. 110
    zman Says:

    In case you are wondering about those orange charts I promised on Monday they will be out with the morning post.

  111. 111
    zman Says:

    What’s the phone symbol denote?

    HAL crossing below, it only took me covering my puts.

  112. 112
    VTZ Says:

    They are stalled as well, nobody is building any new mining or upgrading except for Shell/Chevron/Marathon JV now that Horizon and Long Lake are started up.

    They probably won’t get their expansion added by 2012 but like you said, it’s not going anywhere.

    There’s no takeaway issues for any of these projects because companies like Enbridge/Kinder Morgan/Interpipeline Fund all get engaged in early development stages and their construction is much quicker. The oil sands companies will always be able to sell to whichever PADD or to their own refineries they want.

  113. 113
    VTZ Says:

    I should amend that nobody is building anything because Suncor has a half-built naphtha hydrotreater haha.

  114. 114
    zman Says:

    Thanks V.

  115. 115
    Wyoming Says:

    CC call and report. Prophet Charts in Think or Swim.

    Meant to tell you, for those who are interested in free RT (I think) CL quotes, all you have to do is sign up for a free papertrading account.


  116. 116
    Wyoming Says:

    This is Nucking Futs;


    We deserve Waxman because this is how most of bus riders think:


  117. 117
    Wyoming Says:

    More DC Wind


  118. 118
    zman Says:

    Now, don’t hold back, tell us how you really feel. I’ve noticed you get cranky when you’re not turning to the right. Lot of workovers, huh.

  119. 119
    zman Says:

    117 – that makes writing those checks on the 15th all the more fun in retrospect.

  120. 120
    Wyoming Says:

    Yup, done some good squeezing of some gas wells 300 k to 1 mm on 1 pad, plus a bunch of others. Pulled the compressors off so LOE should drop like a prom dress. Only 1 asset drilling, one of those projects that you get fully committed regardless of commod price.

    No, been a bad day, put down my 2nd dog, 15 years. Did the other one in Sept., 8 years, up one month down the next, unexpected. Really should not drink and type but what the hell its Christmas … err Memorial Day …. almost.

  121. 121
    zman Says:

    Dude, sorry to hear that. That sucks. Got a 14 year old blue healer myself. Ornery bastard but I’ll miss him when he goes.

  122. 122
    Wyoming Says:

    Something you know will eventually happen, she was not getting up, the young one was the surprise. Anyway, there is enough stuff above to entertain the early birds awaiting the Friday post. Sure they don’t want to rehash their own personal experiences.

  123. 123
    ram Says:

    Entertaining for the late birds too.

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