Tuesday Morning

PXD News Watch: Pioneer announced an IP of 3.7 MMcfepd in their first Eagle Ford Shale test, the Friedrichs Gas Unit. A lot lower than I would have liked to see but they had mechanical difficulties with the well. PXD thinks only 500 feet of the 3,000 foot lateral section of the well are producing gas as they did not complete their planned 8 stage frac. The second well to test another part of the Eagle Ford remains on schedule for testing in 3Q, some 40 miles away in an undisclosed Texas county. I will watch it this morning and not panic sell but this is obviously not the news you would like to have seen.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stuff We Care About Today
  4. Crack Spread Update
  5. Odds & Ends

Holdings Watch

  • $10KP is at $30,600 / 37% Cash
  • Added 25 PXD June $30 calls for $0.40 with the stock at $26.90 in a weak market this morning. Average cost here is $0.62. The company had no news at this morning and I continue to await news on their Eagle Ford shale well but may not get it by the June expiration.

Commodity Watch

Crude oil fell $0.35 to close at $68.09 yesterday, for the most part bucking a rally in the buck in favor of taking the long view (also know as speculation). This morning crude is trading up over $1.25, back over the $69 level with a resumption of weakness in the dollar.

  • IEA Watch: Speaking as the Asia Oil & Gas Conference, IEA head Nobuo Tanaka said "this is probably a turning point (in the demand recovery) or we are very close to it.

Early read on crude inventories for last week (from the Reuters survey):

  • Crude: down 400,000 barrels with refinery utilization seen rising slightly.
  • Gasoline: up 1.3 mm barrels.
  • Distillates: up 1.2 mm barrels.

Natural gas fell $0.14 to close at $3.73 as last week's mild weather offered little support on the demand side. It's a bit difficult to see how we escape the week without another 120+ Bcf injection into storage.  This morning gas is trading flat after an early morning rally with oil. I suspect the second bullet below is throwing more cold water on prices for now.

  • Imports Watch: Total imports down 0.8 Bcfgpd from last year at this time.
    • LNG at 1.6 Bcfgpd - still no tsunami of foreign gas.
    • Canada at 5.6 Bcfgpd, still very low,
  • Russia Watch: Russian gas giant Gazprom said it wants to supply 5 to 10% of U.S. gas consumption with LNG shipped from it's Shtokman and Yamal developments. This is part of the "tsunami of gas" set to hit the U.S. in 2009 and 2010 and honestly, unless the Russians plan to build additional storage in the U.S. I don't know where they plan to put it all.

Stuff We Care About Today

CHK Property Sale

  • This came across the wire yesterday but is noteworthy as CHK has promised to get their debt level down through asset monetizations and VPPs and they continue to deliver on this promise
  • This sale to a private firm (Indigo Minerals LLC) was of 519 producing wells scattered over 60 fields in East Texas and Northwest Louisiana.
  • Production was only 26 MMcfepd and I don't have associated reserves but these are likely to be a mix of long and medium lived reserves so assuming an R/P of 10 years puts reserves at under 100 Bcfe which would still be a respectable sale price for them. They also transferred 40,000 undevelped acres and certain midstream assets.
  • CHK retained the deep rights (Haynesville) on the properties. 
  • Pro forma the deal, CHK's debt to equity ratio eases down from 47% to 46%.

Drilling On Wall Street Watch. Heritage Oil Acquisition - Heritage acquiring a private Turkish outfit with interests in Kurdish held Iraqi territory. Not tradeable but noteworthy for followers of Addax and in a more general sense, one more sign that drilling on Wall Street (or the global Street), is preferable to drilling with an actual bit right now. I continue to think that as the global capital markets thaw we will see a wave of energy deals in the second half of 2010.

Eagle Ford Shale Update:

  • It appears Apache is the operator of the large IP well mentioned in the REOS press release, thanks to Reef for bird dogging that one! This is way to the east in Grimes county vs previously announced discoveries by:
    • (HK) across a wide stretch of La Salle and McMullen counties - (see slide 13 here) with IPs ranging from 6  to 9.3 MMcfepd; they have not released the results of their recent drilling but noted the 2 most recent wells were their best wells drilled in the play to date.
    • (APC)/(SM)/(TXCO)/(COP) in Maverick county where the companies are putting reserve potential at 7 to 10 Tcf.

  • PXD 's completed well is in Dewitt county, in between the southwest Texas and apparent (APA) E.F.S discoveries. The well had an IP of 3.7 MMcfepd from a partial completion.
  • SFY is preparing to spud a well in 2H09
  • ROSE has drilled 2 vertical wells; not sure when they drill a horizontal.

  • SM plans to test 4 wells in 2H09 in partnership with (APC) and (TXCO)

Acreage in the Eagle Ford - Latest Update

Note that (APA) and (COP) are not on the list but they have subtantial south Texas acreage around the Edwards Trend that could be prospective and while I'll monitor news out of the two I suspect that positive developments here would benefit the smaller names more given the overall scope of these two names. 

Crack Spread Update

Refiner Update: In my book, there is little reason to get excited about the group. Gasoline demand failed to hold up last week and global (not just U.S. ) distillate inventories remain bloated with 12 to 14 mm barrels of diesel thought to be tankered offshore. With a majority of the names in the independent refining group having raised equity and/or debt deals in the last two weeks, at least that need for capital and dilution is in the rear view mirror but my sense is that group will be tethered to lower multiples until real, sustainable signs of a global recovery in demand appear, which would allow margins to rise from current suppressed levels (see last graph above showing the 2Q average).

Odds & Ends

Analyst Watch:

  • (ATW) price target eased from $36 to $34.50 at Jessup. Look for an offshore rig update piece later this week. 

Turbine Blade Maker Announces Layoffs. LM Glasfiber is laying off 80 of 380 employees as wind projects continue to be delayed despite the administrations push for a surge in wind based generation. I drove by their facility the other day and saw blades in their inventory yard as far as the eye could see. As the story indicates, these guys are a leading supplier of turbines.

166 Responses to “Tuesday Morning”

  1. 1
    BirdsofpreyRcool Says:

    SummerTime… and the trading is… well… light.

    No TechTrader commentary today.

    HeadTrader thinks it’s too light to trade. “too many non-sensical headlines can stop u out of a position.” — well put.

    Credit Market holding onto gains from last 2 weeks. But, listless also. IG rallied a bit, fell back, dropped a bit. Who cares?

    IG 126 +1 bps to last night’s close

    HY 84 3/8 +1/4 to close.

  2. 2
    Dman Says:

    Z – can you expand on the Russian import/storage issue?

    i.e. are you saying they wouldn’t be able to pipe those volumes direct from the degas plants & so they would need an intermediate storage facility?

  3. 3
    zman Says:

    PXD also news from its Alaska division which was positive and what you do when your lead story is not going to to be well received.

    On the Eagle Ford shale well, some analysts will undoubtedly take a sour view and their will be some who just dump the shares this morning. Others will likely take the “500 feet producing out of 3,000 foot of lateral” comment and multiple the IP by 6x to gross it up for good completions. That’s probably not a good idea either. At this stage, this is still very much an exploration play and these are deep, high temp, wells where completions are not simple. So again, I’m not panic selling.

  4. 4
    zman Says:

    Dman – I’m saying with current imports and production, storage is going to get very full by Fall, fuller than ever before. So unless those volumes displace other volumes or demand picks up markedly, I don’t know where the gas is going to be put.

  5. 5
    BirdsofpreyRcool Says:

    z — what was the depth of PXD’s EF well? not in the PR

  6. 6
    BirdsofpreyRcool Says:

    just approximately… the TVD, that is. thx

  7. 7
    zman Says:

    re 5 – 14,000 feet vertical, 3,000 foot lateral. Very hot, 315 degrees, slightly overpressured.

  8. 8
    della05 Says:

    Ok, no panic on PXD but is there anything else expected that can move the price up in June?

  9. 9
    BirdsofpreyRcool Says:

    re 7 — that’s pretty darn deep. Overpressure good for tight production… are they really thinking about 80 acre spacing on those wells for 4 BCFE EUR? Guestimating, what, $8mm to drill and complete at that depth? thx

  10. 10
    zman Says:

    Della – don’t get me wrong, I’m not happy as I’m sure they are either. It will hurt the stock initially and maybe through June. The Alaska news is positive, that can help, higher oil can help as well, but nothing that I know of will be catalytic from a well news standpoint as they really are not drilling much now. The initial reaction in the shares may be reversed or it may not. Right now, sellside and buyside analysts will be getting management on the phone to get more details (like BOP said, there were not a lot in the PR), but they have already released some data and it will now be up to them to give the Street a little bit more of what they saw in the well, despite the botched completion. They obviously have hydrocarbons, enough to keep them on course to more drilling, just a bad completion.

  11. 11
    zman Says:

    BOP – I think more like $6 mm with current prices, not the first wells which will be loaded with science but on an ongoing basis.

    The spacing is a guesstimate, way too early to tell but eventually could get there. Drilling in the Fayetteville early on was thought to drain with 2 wells per section (320s), then 160s, now 80s but talk of 40s. So ya never know how tight they will be able to get it.

    Several players here are talking high gas content in place, something on the order of 200 Bcf per section.

  12. 12
    della05 Says:

    Obviously, the early mkt reaction is positive ….??

  13. 13
    zman Says:

    So far the reaction in PXD is a lot better than I would have expected. Maybe people are content to do the math in #3. Stock trading in the green at $28+.

  14. 14
    zman Says:

    Della – volume very light. I like to see the cool heads at the open but I’m certainly not adding in here. It’s going to take some time for this thing (the stock price) to sort itself out.

  15. 15
    zman Says:

    One offset to this PXD story is what I mentioned in the post about HK having drilled but not yet press released their best wells in the Eagle Ford shale. They are going to look like Rockstars if they release 10+ mm/d IP wells after this mechanical flub.

  16. 16
    BirdsofpreyRcool Says:

    Even if you disagree with the conclusions (mrkt getting better), this is a very worthwhile read. Works as a tutorial on how to incorporate CDS mrkt data into an outlook for risk in the equity market. This is a good cross-asset-class discussion.


  17. 17
    zman Says:

    PXD – The safest course is to dump the June 30 calls and then ride the Julys for the longer view reaction.

  18. 18
    zman Says:

    Thanks BOP for #16

    Anyone see a broker call on WRES, I have a news indicator but no story.

  19. 19
    della05 Says:

    thnx, PXD seems to still hold promise, but I think June is too risky to hold. I’ll look to take my loss and shift into July.

  20. 20
    BirdsofpreyRcool Says:

    headlines: “US allows 10 of biggest banks to repay $68B of TARP Funds”

    Geithner says repayment “encourgaging sign of financial repair”

  21. 21
    zman Says:

    PXD down almost 2% now. The Alaska news was pretty good with a 1,000 bopd stabilized rate meaning their current production for the region is at their 2009 target average now, with more wells to drill this summer we are likely to see a boost to 2009 production guidance later this year. That is being overridden by the Eagle Ford well “non-results” and the market coming in. I don’t see a sense of panic in the shares yet or the volume would be much higher. Hanging on to my Junes at least for awhile longer.

  22. 22
    BirdsofpreyRcool Says:

    Wholesale Inventories down 1.4% for April vs down 1.2% expected. So… sold out more stuff than expected? Replaced less stuff than expected? March inventories revised down even more.

    IBD Eco Optimism at 50.8 vs 49.0 exp’d and 48.6 last month.

  23. 23
    BirdsofpreyRcool Says:

    TechTrader just weighed in… “sell the morning rally.”

    Thanks. A bit late, that.

  24. 24
    Dman Says:

    Z – the 5-10% Russian supply target is “by 2020”, with a whole-lotta-not-much happening before 2014. If anyone can predict the NG market for 2020, I’m all ears!


  25. 25
    zman Says:

    Thanks Dman. At 10% that replaces Canada.

  26. 26
    zman Says:

    PXD – I’ve seen one comment from a broker this morning, they basically called it neutral news and then copied in the press release. They did say the Alaska news was positive and in my book, that’s being a bit overlooked here as the EFS was not going to affect production for some time whereas Alaska is oil (which is kind of what you want right now) and looks likely to bump company numbers a bit.

    Checked with sources and there does not seem to be a note out yet by a major covering firm on the news so this is just trading lower in a analyst commentary vacuum. Stock trying to hold $27.

  27. 27
    zman Says:

    Just looking at the lack of upgrades and downgrades of late and going by memory, this is when the analysts try to grab some vacation time as they will be busy enough with 2Q numbers in about a month and with marking to market their 2Q numbers in about 2 weeks.

  28. 28
    zman Says:

    Timmy about to testify.

  29. 29
    BirdsofpreyRcool Says:

    TIMMEH! Time to put a limit order buy on… he just might push a stock or two into my Buy Zone.

  30. 30
    BirdsofpreyRcool Says:

    HeadTrader just yawned… there is absolutely NO VOLUME out there. So, quiet everywhere… not just here.

  31. 31
    nifkin Says:

    RBC comments on PXD, but not a published note. PXD (OP) released the results of its first horizontal Eagle Ford shale well. The well was somewhat of a disappointment as it produced at an initial rate of 3.7 MMcfepd, however, the well had mechanical problems. PXD will spud its next Eagle Ford well in 3Q09 and may drill a third well later in the year. The Company has a total of about 310,000 gross acres in the play, 30,000 of which are adjacent to areas of recent Petrohawk success. PXD has longer-term plans to continue to test its acreage, but hasn’t given us too much of a timeline beyond the next few wells. We expect PXD to slightly underperform today. At current levels, the stock trades at a 53% discount to our $50.93 NAV, which makes it one of the cheapest oily names. We are buyers of the stock on weakness

  32. 32
    1520sbroad Says:

    bop – do you have a 3mo libor fix from this morning? my screen is not cooperating

  33. 33
    zman Says:

    Nifkin – thanks. Pretty much my assessment as well but I’d add that the Alaska results provide some upside to current numbers whereas EF was never in the guidance. Anyway, never good to botch a completion but it happens and may even be forgiven by the Street in short order if they provide extra color about what they saw in the well on the phone to analysts.

  34. 34
    BirdsofpreyRcool Says:

    1520s — 3M LIBOR Fix 0.64750

  35. 35
    zman Says:

    Agree not a lot volume but Tim must not be saying things people want to hear.

  36. 36
    1520sbroad Says:


  37. 37
    BirdsofpreyRcool Says:

    #34 — i think once, he spoke and the mrkt went up. other than that, down seems to be the natural reaction to anything Timmy says.

  38. 38
    nifkin Says:

    wsj article this morning- KKR investing in the Marcellus http://online.wsj.com/article/SB124450489713796095.html

  39. 39
    nifkin Says:

    UPL has joint acreage with the seller, but hearing Bernstein is out neg on UPL (sell the news?)

  40. 40
    Sambone Says:

    Off subject

    By Andy Pasztor

    WASHINGTON (Dow Jones)–US Airways Group Inc. (LCC) Capt. Chesley “Sully”
    Sullenberger, the much-heralded hero of the January airliner ditching on New
    York’s Hudson River, told federal investigators Tuesday that in a matter of
    seconds he determined only the river was “long enough, wide enough and smooth
    enough” to put down his crippled jetliner.
    Testifying before the National Transportation Safety Board, Capt. Sullenberger
    said that when both engines of his Airbus A320 lost power at about 2,700 feet
    after sucking in birds, he quickly decided that the plane was losing speed and
    altitude and that returning to LaGuardia airport was “problematic.”
    “I had to make sure I could make it [back to LaGuardia] before I chose that
    option,” Capt. Sullenberger said. “I couldn’t afford to be wrong.”
    In many ways, the scene in the packed hearing room resembled an interview of a
    pop idol more than the testimony of an aviator who started flying as a teenager
    and has worked for US Airways for nearly three decades. The questioning was
    gentle, respectful and at times, downright congenial.
    In the highly unusual hearing, Capt. Sullenberger’s unemotional, sometimes
    clipped testimony was watched by a throng of international media.
    While the first part of the hearing produced little new technical information,
    it did highlight the intense drama, adrenalin and teamwork that saved the lives
    of all 155 people aboard the plane on the afternoon of Jan. 15.
    After spotting a flock of birds that “were very large and filled the entire
    windscreen” of the jet, Capt Sullenberger noticed a dramatic drop in thrust.
    Investigators later determined at least three birds were sucked into the
    engines. Disregarding air-traffic controller suggestions to return to LaGuardia
    or try to swoop into another nearby airport, Capt. Sullenberger set his sights
    on the surface of the Hudson.
    With the plane’s flaps out, speed dwindling fast and splashdown barely seconds
    away, Capt. Sullenberger asked his first officer: “Got any ideas?” Co-pilot
    Jeff Skiles instantly replied: “Actually not.”
    Once the plane settled in the water and the crew realized the fuselage
    remained intact, Capt. Sullenberger told the safety board, he turned toward his
    first officer and both instinctively blurted out at the same instant: “That
    wasn’t as bad as I thought.”

    -By Andy Pasztor, The Wall Street Journal

    Dow Jones Newswires
    06-09-09 1051ET

  41. 41
    zman Says:

    Thanks Nifkin, another example of drilling on Wall Street. Does the full article say what % they would own if it converts?

  42. 42
    zman Says:

    Nif – could be that Bernstein is just negative on gas prices but I don’t often see them in print.

  43. 43
    BirdsofpreyRcool Says:

    #40 — great read. thx for posting.

  44. 44
    bill Says:

    several bulker companies are presenting today at morgan stanley

    next up gnk at 1130 am


    egle present at 1 pm

    the stocks are off recent highs as the bdi has fallen late last week

    my view still too early to invest, although some stocks seem oversold like egle.

  45. 45
    zman Says:

    Thanks Bill. SEA interest cranking up last two weeks.

  46. 46
    BirdsofpreyRcool Says:

    just FYI… 3-yr note auction today at 1:00 pm EDT. As this has recently had the ability to move the equity mrkts, I’ll pass along 3 parameters that a seasoned auction-watcher is using to gauge whether the 3-yr Treasury action goes well —

    Actual yield vs. expected yield — as of right now, 3 yr when-issued (WI) is yielding 1.95%… if the auction yield is +/- 2 bps to the WI yield, then the action is said to go poorly/well.

    Amount of bids — the amount of bonds being sold results in a number called the “bid-to-cover ratio.” It is simply how many bids were placed relative to the amount of debt being sold. Since November, this has averaged 2.49 for the 3-year (each maturity has its own characteristics) with a range from 2.15 to 3.07. A number at the low end would result in people judging the auction to be poor, and a number at the high end would result in people judging the auction to have gone well.

    Foreign Bank Participation — people look at the percentage of the deal that was bought by “indirect bidders,” which frequently includes foreign central banks. For the 3-year since November, this has averaged 37%, with a range from 28% to 45%. A number at the low end would result in people judging the auction to be poor, and a number at the high end would result in people judging the auction to have gone well.

  47. 47
    zman Says:

    PXD decline halted for now just above yesterday’s lows. Given the neutral to slightly positive aggregate stance of the Street, I’d be the reaction in tomorrow’s first call notes will be muted, no reason to upgrade and you don’t (in general) downgrade a stock over one well or for a mechanical issue. I think I will get a better exit point than this current just under $27 level.

  48. 48
    zman Says:

    Thanks very much for 46.

  49. 49
    gaamblor Says:

    re: 46 how does the size of this one relate to the average 3 year auction? the 35B number seems high at a glance

  50. 50
    VTZ Says:

    BOP – How does the % of indirect bidders compare on the short end of the curve to the 10 yr and how has it changed?

  51. 51
    bill Says:

    i was able to pick up 100 july 25 calls on pxd at 3.40..hopefully we get a bounce ..

    also picked up kog..gave up on sub 1.00

  52. 52
    BirdsofpreyRcool Says:

    gaamblor and VTZ — it’s been a long time since i’ve traded treasuries (and even then, it was only the 2-yr). So, I was passing along info from a bond strategist i have confidence in. I’ll try to find out the answers to your questions, tho, as they are very good questions.

  53. 53
    zman Says:

    Just got off the phone with PXD:

    They are disappointed by the mechanical issue, they didn’t have their 3D reprocessed when they drilled this well which they will for the next well.

    Everything looked good as far as rock quality and gas content…as expected.

    This in no way changes their thoughts on the Eagle Ford Shale. They plan to drill another well in close proximity to this one next year.

    The next well in the play will be drilled some 40 miles to the southwest in an undisclosed county in the third quarter.

    They are sticking with the $6 mm figure for well costs here ($4mm to drill and $2 to frac) (first well is more expensive but it’s loaded with tests so that’s to be expected). He would not comment on an EUR but said the ranges out there (4 to 7 Bcfe per well were likely to be reasonable) and did not balk at all at $1 finding costs (which suggests a 6 Bcfe well at $6 mm.

    Also looking at a potential drillsite to the north east.

    Had no comment on APA’s well but had apparently been getting lots of questions about it.

  54. 54
    Sambone Says:

    All knowing!

    06/09 12:04 *DJ EIA Sees US Crude At $67.42/Bbl In 2010, Revises It Up 16.7%

    06/09 12:02 *DJ EIA Revises ’09 US Crude Forecast +13.5% To $58.70/Bbl

  55. 55
    Nicky Says:

    Afternoon all.

    Indices: as long as 925 holds on the spx we work higher. V seems to be playing out as an ending diagonal. So difficult to know where to put the top. Maybe 967,979,999(666?).

    Same pattern for oil. I see virtually no pullbacks for weeks now. It will come down hard when it does but target area anywhere between here and 80 which I know is not helpful!

    USD – we will soon know if this is just a pullback and the low is in or we need more slightly lower low in the 77 area.

    The markets are aligning and will all turn together.

  56. 56
    Sambone Says:

    06/09 12:12 *DJ US Retail Gasoline To Peak In July At $2.70/Gal – EIA

    06/09 12:11 *DJ US Crude To Average $67/Bbl In 2nd Half 2009 – EIA

    06/09 12:11 *DJ EIA Sees ’10 US Oil Use +1.6% Vs Yr Ago At 19.16M B/D

    06/09 12:10 *DJ EIA Sees ’09 US Oil Use -2.9% Vs Yr Ago At 18.86M B/D

    06/09 12:10 *DJ EIA Sees 4Q US Oil Use -1.2% Vs Yr Ago At 19.05M B/D

    06/09 12:08 *DJ EIA Sees 3Q US Oil Use Near Flat Vs Yr Ago At 18.83M B/D

  57. 57
    Sambone Says:

    06/09 12:13 *DJ EIA Sees 4Q World Oil Use +0.8% Vs Yr Ago 84.73M B/D

    06/09 12:12 *DJ EIA: 3Q World Oil Use -1.4% Vs Yr Ago At 83.97M B/D

    06/09 12:13 *DJ EIA: Weaker Dollar Provides ‘Upside Risk’ To Oil Forecast

  58. 58
    BirdsofpreyRcool Says:

    VTX — re your great question on indirect bidders and how that has changed… I don’t have a great source on color there. I can pull up historical percentages, but that doesn’t answer your question. Perhaps someone else (1520s, maybe?) can help here.

  59. 59
    zman Says:

    My sense is that PXD does a good job of conveying the stuff in #53 to the analyst community that they may be somewhat supportive here, finding no reason to abandon ship on the name.

  60. 60
    zman Says:

    By the way on PXD, the recent bounce saw the most volume of the day so there is some appetite to add the shares in here on weakness. For the rest of the day it probably just moves with the broad market only going green if the market is well up or some talented analyst highlights it on the lunch call as undervalued and sold down for the wrong reasons.

  61. 61
    BirdsofpreyRcool Says:

    gaamblor — your intuition is spot on. The 3-yr T-Note used to be auctioned 4x a yr, at the quarterly financing in Feb, May, August and Nov. We now appear to have a monthly auction. So, more auctions, higher amount/auction. Going back to the beginning of this year, we started at 32B in Feb, then 34, 35, 35, and now 35 again for June.

    Historically, the 3-yr auction ran about 20B… but, again, it was only 4x a yr.

    Kinda scary, eh?

  62. 62
    zman Says:

    One last thing on the PXD well and then I’ll probably leave that horse alone. They had a problem with the well, we know that, they had to sidetrack the well and ended up with only 500 feet of producing interval, we know that. But of the 500 feet, they were HIGH in the Eagle Ford. Put that well in the middle of a 200 foot thick section and frac it over the 3000 foot interval successfully and the well is a much better one. That’s an argument a non-vacationing analyst could make. The fact that they will drill another well here (right around this well) next year is telling. Unfortunately on the mechanical side of course, but the gas is there, and this changes nothing about the play for them.

  63. 63
    zman Says:

    Johnson Rice just raised PXD to overweight.

  64. 64
    Sambone Says:

    NEW YORK, June 9 (Reuters) – The 2009 hurricane season is expected to cause production shut-ins on the U.S. Gulf Coast of around 4.5 million barrels of crude oil, the government’s Energy Information Administration said Tuesday.
    The EIA expects storm activity to shut in much less production than last year’s hurricane season, when storms
    curtailed around 49 million barrels of oil and 270 billion cubic feet of gas production, according to Reuters estimates.
    The storm season usually runs from June through November, although the Reuters estimates reflect production that remained shut-in through the end of 2008.
    The EIA figures, presented in a monthly short-term energy outlook, reflect a median forecast and actual shut-ins may differ significantly, depending on the number, track and
    strength of hurricanes as the season progresses, EIA said.
    (Reporting by Joshua Schneyer)
    Tue Jun 9 16:09:47 2009

  65. 65
    VTZ Says:

    Thanks, I just don’t know where I would find that info and it would be quite interesting to me. I expect to see yields continue to climb on the 10 year and yields move back down on the 2 year, but then again I’m not a bond trader and am an engineer so what do I know.

    I just wanted to see evidence of international confidence or lack thereof in those bonds.

  66. 66
    zman Says:

    Simmons putting a positive spin on PXD as well.

  67. 67
    Sambone Says:

    06/09 12:27 *DJ EIA: ’09 Oil Use Of 18.86M B/D Lowest Since 1997

    06/09 12:21 *DJ EIA: OECD Stock Cover 63 Days In May, Sees 57 Days In Dec

    06/09 12:15 *DJ EIA Sees ’10 World Oil Use +0.9% Vs ’09 At 84.41M B/D

    06/09 12:14 *DJ EIA Sees ’09 World Oil Use -2% Vs Yr Ago At 83.68M B/D

    06/09 12:13 *DJ EIA Sees 4Q World Oil Use +0.8% Vs Yr Ago 84.73M B/D

  68. 68
    West Says:

    A couple of questions for the panel: (1) Does anyone follow ATPG or have a comment? (2) What r most of u using for gas to oil conversion factor and is this the same # u would use in purchasing assets? (3) r the hedge funds the ones buying r participating in m&a activity for e&p more than the bigger oil cos? Don’t they generally lead the movement and usually smarter and faster? Any thoughts would be appreciated

  69. 69
    BirdsofpreyRcool Says:

    the “quarterly financing” now takes place monthly. This monthly (as opposed to quarterly) auction began last August. Makes sense, given the massive amount of borrowing the US Govt needed to do, to replace private market borrowing (which dried up in August). However, liquidty is returning to the private market now… so now the Govt is borrowing to fund a massive deficit.

  70. 70
    bill Says:

    egle presents at 1

    up 54 cents after being oversold


  71. 71
    BirdsofpreyRcool Says:

    VTZ — given the info in #69, we can see it’s tougher to compare apples-to-apples… we left “normal” last summer. Monthly vs quarterly and almost 2x the amount (at least in 3 yrs) per auction. Think we will have to estabish new benchmarks.

  72. 72
    elduque Says:

    I see that SD has a drilling partner to invest up to $75MM. Any comments or color?

  73. 73
    elduque Says:

    BOP what is the best source for immediate analysis of the tsy auction???

  74. 74
    BirdsofpreyRcool Says:

    MIDDAY Trading Update

    · Another very slow summer trading day. Broader sp500 flattish on the day, w/strong tech/energy/materials being offset by weak industrials, health care. Tech is one of the market’s best performing sectors, led higher by the semis (SOX up 2.5%+) on back of a bunch of pos. data points (TXN, MCHP, FCS). Commodity-linked stocks also act well on back of a weaker dollar. Volumes are very light all around, continuing recent trends. Technically, the ~945/950 on sp500 cash remains a tough level (highs of the day as of noon 945); on the downside, ~929 was support yesterday (this was the 200day MA on last Mon, when the SP500 first broke above the level) and below that the current 200day (916) is being watched.

    · Color from the trading desk – volumes have declined over the last few weeks and for the first time in 2 years, the environment is starting to feel like it normally does in the summer (quiet w/lighter activity and reduced liquidity). Our flows are more like ~70/30 MF/HF of late vs. more typical 65/35 (lack of liquidity, along w/strong recent gains, prompting some HFs to pull back and preserve performance). The focus among client base shifting a lot from macro and more towards single stocks – ETF volume as a % of total has been declining (to ~30% vs. ~40+ of last few months).

    · Treasuries – 2yr yields are dwn about ~11bp this morning to 1.3% (vs. high low 1.40%s yesterday). recall yields have surged on 2yr (which is TSY most sensitive to Fed rate expectations) following last week’s labor report as some have started to anticipate Fed rate HIKES (as anticipation rose that Fed may hike rates, the US$ also started to benefit); related to the back-up in yields, DXY off ~1% on the day (which is giving a boost to some commodities and commodity-linked equities).

    · Economic headline today quiet in the US. The NFIB small business optimism index increased to 88.9 in May from 86.8 in April and the cycle low of 81.0 in March. The level of the index is still lower than in any of the three previous recessions, but it is positive to see that small business sentiment is slowly coming back.

    · Negative headlines out of Germany this morning – Following some clear signs of stabillization recently, German exports collapsed again. They fell 4.8%m/m in April (Consensus 0.1%). IP also came in below expectations.

    · TARP – 10 banks received permission from the Fed/Treasury to redeem their TARP preferred stock; $68B in total being returned to Treasury; the 10 companies: AXP; BBT; COF; MS; USB; NTRS; STT; JPM; GS; BK


    · Eco events scheduled for Wed: MBA mortgage apps, trade balance, monthly budget statement, and the Beige Book (2pmET).

    · Treasury auctions will resume (there is a $35B 3yr sale Tues June 9, $19B 10yr on Wed June 10, and $11B 30yrs on Thurs June 11). The Fed conducted a Treasury purchase Mon and is scheduled to make another on Wed.

    · GM – the co could name its new board of directors as early as Tues (CNBC).

    · The White House is due to propose a new round of executive compensation regulations on Wednesday.

    · USDA WASDE release tomorrow @ 8:30amET

    · China eco data for May is due out early Thurs morning

    SP500 Performance Breakdown (source: Bloomberg)

    · Stocks helping sp500 most: INTC, IBM, TXN, SLB, JNJ, MON, ORCL, GLW, DOW, MOT

    · Stocks hurting sp500 most: AAPL, HPQ, PG, PM, PEP, MS, BA, GOOG, UTX, MRK

    · Top Gainers: LSI, CTX, PHM, TXN, FLR, COF, MCHP, AKS, X, MBI

    · Top Decliners: JBL, MAS, HOG, CBE, HIG, IP, KIM, NYT, LNC, PXD, STI

  75. 75
    BirdsofpreyRcool Says:

    elduque — i see headlines scroll on bloomberg… might try the bloomberg public website. Maybe something like MarketWatch has instant auction data?

    Anyone have any suggestions??

  76. 76
    Wyoming Says:

    Just trying something out


    Hazards you don’t see while milking a cow.

  77. 77
    elduque Says:

    tks BOP, probably easier to watch CNBC, but I refuse to turn on the TV set during the trading day.

    I guess I can make an exception. I’ll try Z’s approach, turn off the sound.

  78. 78
    Sambone Says:

    Off subject

    OMG, Gotta rush out and buy me some “Slim Jim’s!”


  79. 79
    zman Says:

    Re 68 – I used to follow ATPG, they are bottom feeders, as long as their balance sheet allows, they should do well in a forced asset sale environment. Otherwise, I have never been a big fan of them.

  80. 80
    West Says:


  81. 81
    zman Says:

    More in a second West,

    Re SD, its a pretty small deal in the scheme of things, would like to know what kind of participation they are getting but doubt it impacts CF much.

  82. 82
    zman Says:

    West – 6 to 1 is standard as you know, 10 to 1 in Canada. Right now the delta is something like 18 to 1 and I hear people saying buy natural gas because that is a record wide spread. I say that’s a bad reason to like gas, there are other reasons but that one is not it. It’s not a causal relationship so other factors will be more important. On acquisitions I’m seeing them all over the map on reserves with oil getting a premium to gas assets right now.

  83. 83
    Sambone Says:

    Not even sure why I post this dribble?

    NEW YORK (Dow Jones)–The U.S. Energy Information Administration on Tuesday
    played catchup with oil markets in its latest forecasts, hiking its official
    crude price prediction for 2009 by 13.5%.
    The agency now predicts U.S. benchmark crude prices will average $58.70 a
    barrel in 2009, up from a prior forecast of $51.70. In 2010, the EIA says crude
    will likely average $67.42 a barrel, raising its forecast 16.7% from $57.75 a
    The EIA is the statistics and analytical wing of the U.S. Department of
    Energy. Since May 12, when it last forecast prices, benchmark U.S. crude
    futures have climbed nearly 16%. Last week they topped $70 a barrel for the
    first time in seven months, though prices remain well below the triple-digit
    heights of a year ago.
    The EIA attributed the rapid climb to “expectations of a global economic
    recovery and future increases in oil consumption.” A weakening dollar and
    “increasing financial market activity” are also pushing up commodity prices,
    even as producers struggle to lower output to meet anemic demand.
    The dollar has fallen nearly 10% from recent highs in early March, possibly
    reflecting economies in Asia and other foreign countries that are stronger than
    many analysts estimate, the EIA said. Their strength could create an “an upside
    risk” to the EIA’s oil price forecast, the agency said.
    Despite the revisions, the EIA appears to be taking a dim view of current
    market values. Crude for July delivery was trading Tuesday at $69.44 a barrel
    on the New York Mercantile Exchange, while December crude was at nearly $74 a
    barrel. The EIA predicts oil will average $67 a barrel in the second half of
    2009, and noted prices could be tugged lower if demand stays weak, inventories
    remain high and spare capacity is ample inside the Organization of Petroleum
    Exporting Countries.
    The EIA predicts gasoline will on average retail for $2.33 a gallon in 2009,
    revising its forecast up 9.9% from $2.12 a gallon last month. Prices will
    likely peak in July at $2.70 a gallon, the EIA said.
    The agency thinks gasoline will average $2.56 a gallon in 2010.
    Diesel fuel will likely average $2.40 a gallon this year, a price revised up
    6.2% from last month’s $2.26 forecast. Heating oil, like diesel a distillate,
    will likely average $2.49 a gallon this year, a forecast revised up 6.0% from
    $2.35 a gallon last month.
    The EIA’s forecast is the first of three closely watched oil market reports
    due this week. The International Energy Agency is scheduled to release its
    report Thursday, with the Organization of Petroleum Exporting Countries
    following on Friday.

    -By Gregory Meyer, Dow Jones Newswires
    Dow Jones Newswires
    06-09-09 1246ET

  84. 84
    BirdsofpreyRcool Says:

    very good 3-yr auction

  85. 85
    zman Says:

    Someone asked me in an email what I meant by “in the top of the Eagle Ford”.

    My response is basically this: The part that they got into the Eagle Ford was at the top of it, not in the middle so when you frac you are not getting the full 200 feet of thickness, maybe less than half.

    Here’s a picture:


    Imagine the horizontal part higher in the zone with the little squigglies (penetrations) only hitting the upper half or so.

  86. 86
    BirdsofpreyRcool Says:

    3-yr auction = success

    yield 1.96%
    bid to cover 2.82
    indirect bidders 43.8%

  87. 87
    zman Says:

    Re 76 – more bungee cords would have helped.

  88. 88
    occam Says:

    Z – You have dismissed ATPG with the “bottom feeder” comment before. So is DNR, but it is one of the best long term plays out there. ATPG is worth another look.

  89. 89
    zman Says:

    Occam – Ok. Will take another look. DNR is a bit different.

  90. 90
    VTZ Says:

    Z – Regarding NG:Oil ratios. In Alberta if you compare AECO spot to synthetic crudes the ratio is ~25:1.

  91. 91
    zman Says:

    Thanks V, didn’t know that, was just thinking oil.

    Anyone have WRES news?

  92. 92
    zman Says:

    PXD thinking about going green.

  93. 93
    zman Says:

    Thanks as always for the levels Nicky, I did notice even if I forgot to comment. So no real resistance for the SP until 967?!

  94. 94
    Wyoming Says:

    RE 85. Fluids travel in the path of least resistance. If a horizontal is in the bottom of the interval, more than likely (a lot of variables) the frac will head upward. Proppant / Sand is carried in a viscosified fluid, straight water or as a foam.

    Sometimes the frac will go down but that will be a function of how much overlying rock is above or a fault / fracture in the existing reservoir rock.

  95. 95
    zman Says:

    Thanks Wyoming – so better to be middle than high and better to be low than middle, even if 200 foot thick. Thanks for your patience. I read books and talk to companies but there is nothing like a degree. I am not an engineer and I don’t even pretend to be one on the internet.

    PXD green. Look now or you may miss it.

  96. 96
    Wyoming Says:

    It would depend. Now we get into the variables. There may be some log data in a verticle pilot or someone lays out some serious coin to log the horizontal. either way, you can try to get an idea of the different elements and mechanical properties in the rock (brittle, more silica content, kerogen, natural fractures present ….) From there, you would lay out a map of where you want to place your horizontal. Throw in some 3D seismic and now you can try to stear (steer?) around a karst or fault. To do this you may sacrifice some of the horizontal. Throw in some funny lease lines and that may answer why someone drills a 1250′ lateral.

    If there are multiple horizons, they may try to ungulate the lateral in order to intercept both pay zones. Depends on the state regs for commingle I suppose.

  97. 97
    Wyoming Says:

    Forgot to mention that the horizontal well plan will also have to include the dip direction of the bedding plane. Usually understand this from seismic or structure maps from the Geology folks. You then have to plan whether you want the horizontal in the direction of the max stress plane or perpendicular. This dictates whether your fracs will be transverse or orthogonal to the wellbore. Basically, the azimuth.

  98. 98
    BirdsofpreyRcool Says:

    headline: GE’s Immelt says capital markets have ‘largely healed’

  99. 99
    zman Says:

    Oil took another quick trip up through $70 before backing away.

  100. 100
    zman Says:

    Thanks Wyoming.

  101. 101
    zman Says:

    Oil looking to close 70 plus

  102. 102
    jy Says:

    Re #76. Got a jerky video of what appears to be some sort of pipe handling equipment moving around on a rig floor. What are we seeing here?

  103. 103
    zman Says:

    SU and CLR reacting most to $70 oil which is not surprising. I think too far too fast on oil is the feel amongst much of E&P and hence, the lighter rally in the oil influenced but not overwhelmingly oily names. If it stays up here then expect to see people like EOG pop.

  104. 104
    Nicky Says:

    How predicatable that they would push for a close above $70. I thought they were investigating speculation of the oil market a year ago. I am guessing that the GS boys were in charge of the investigation as clearly they haven’t put a stop to it. Even CNBC admit the market is being run by speculators and that a year ago it was speculators who ran it up. And yet for months everyone yelled what speculators.

  105. 105
    zman Says:

    Nicky – ours is not to reason why, ours is to look into the future(s) and profit.

  106. 106
    Wyoming Says:


    traveling block letting loose and almost dropping the derrickman about 90 feet down to the rig floor. Traveling block weighs about 5 tons. That looks to be drillpipe, pretty stout stuff and you can see how it flaps about as the traveling block zooms by. The ting is; who was down on the rig floor 90 feet below when the blocks came down to visit?

  107. 107
    Nicky Says:

    I hear quite a few people saying they are looking to short oil and go long natural gas here.

  108. 108
    Nicky Says:

    Z – very difficult as you just don’t know how far they could run this as we have all seen before. This is a b wave -technically they can take it back to last years highs!

  109. 109
    zman Says:

    Nicky – I am hearing that on CNBC. I think gas will have an exceedingly hard time going up if oil takes a hit. I think gas is at least a month and probably several away from a significant rally, it really depends on what time frame they are looking at. The 6 to 1 heat value spread is pretty meaningless when it comes to futures prices and Cramer argued for $20 natural gas last summer because of where oil was trading. He said the spread had to contract. Right but with the absolute wrong result.

  110. 110
    elduque Says:

    Just listened to PRGN presentation at MS. He certainly is not constructive on the industry. Too many ships coming on line for the amount of business. PRGN is ok financially.

  111. 111
    jy Says:

    Thanks WY, my video ran so herky jerky I couldn’t discern sequence of events. Hope the driller and hands were out of the way at block arrival time!

  112. 112
    Nicky Says:

    I don’t disagree on fundamentals Z – but as I am always saying on here the energy market does not run on fundamentals. They will find a way to say the natural gas market needs to pop. Shut ins etc. And all we need is a hurricane in the Gulf and they can double it from here.

  113. 113
    Nicky Says:

    That said I would love to see it in the 2’s first. If only to know what that paper hat I am likely to be eating myself next year actually tastes like!

  114. 114
    Wyoming Says:


    just trying the feature out. I would ask for my money back but it was free. I always get cool videos like a marlin stuck in a subsea stack being removed by an ROV, blowouts, etc … and just trying to give folks who have not been there a little feel for the life.

  115. 115
    zman Says:

    Nicky – it runs on a mix of fundamentals, technicals and psychology with the last most important during a turn in the chart. I think that we will be higher in the Fall, enough for companies to hedge out production somewhere between $5 and $7 for 2010 but little more. Then, the LNG won’t be a threat to price… it will need to show up in earnest to keep prices from running too high. Because $6 hedged gas does not leave much room for higher capital spending which means the rig count stays low and production drops 10% or so in 2010. Which is 5 to 6 Bcfgpd which if you’ve noticed is how much the bigger forecasts for LNG import growth for 2010 are gravitating to.

  116. 116
    Nicky Says:

    An out aloud thought – but after last years’ historic fall in oil I wonder when they ‘let it go’ this time whether there will be an absolute stampede for the exits as they all bail in fear of what could lie ahead.

  117. 117
    Popeye Says:

    Always appreciated Wyoming.

  118. 118
    zman Says:

    Nicky – I’ll ask TBP tonight for you.

  119. 119
    Nicky Says:

    Oh yes please do. So little heard of him nowadays. A few wrong calls and you are history.
    FWIW the count I am looking at says the fall will be very sharp.

  120. 120
    Nicky Says:

    totally feeble bounce in metals going on. Could be ii down today and we about to launch higher in iii of v but need to get on with it. If not then we are in danger of rolling over hard.

  121. 121
    VTZ Says:

    I like the consolidation in the metals.

  122. 122
    zman Says:

    Nicky – would you bet the dollar has to test the lows from last week, 78.33?

  123. 123
    Nicky Says:

    lol VTZ – I wondered if you would come out to play!

    Its all up for grabs here and of course dependant on the $. I am surprised gold and silver have not been a bit stronger today.

  124. 124
    Nicky Says:

    Z – if we go much lower in the $ we are going to make new lows – 76.5 – 77.5. At the moment it can just be a wave ii pullback and I am watching sterling and euro. Cable has retraced 61.8% of last weeks move lower and the euro nearly that.

  125. 125
    VTZ Says:

    Haha. I was pretty sure you were provoking me. It could tank to 800 and I wouldn’t really care. If it breaks 930ish I’ll be a short term seller though.

  126. 126
    VTZ Says:

    In fact I’m pretty sure another takedown is in the cards only because many interests are still short.

  127. 127
    Nicky Says:

    Oh groan groan Miss Eppppppeeeeerson talking oil up. I thought those days were behind us. When she can no longer talk with excitement we know the top is in.

  128. 128
    Nicky Says:

    That US Treasury Bond is starting to look very interesting. Currently at 113.40 and testing the 113.00 area for the 4th time. It has a huge shelf of support at 112 – 113. And its hugely oversold.

  129. 129
    Nicky Says:

    VTZ – I want to see the BIG move down in metals and I don’t think this is it.

  130. 130
    Nicky Says:

    Levels to watch for the top being in on the indices are 8600 Dow and 923 SPX.

  131. 131
    VTZ Says:

    I want to see one too but I’m not going to get one so I’m happy to be long between the 600s and 800s. You already saw a fall from 1000 to 625 last year anyways. That WAS the big one down.

  132. 132
    zman Says:

    Dman – missed my chance on the SPWRA dip yesterday, will wait for another general market pullback, want to be in that and/or FSLR for earnings… “green solar shoots”.

  133. 133
    Popeye Says:

    Senate panel OKs expanded oil and gas leasing in eastern gulf


  134. 134
    zman Says:

    That is good for Shell, they have a lot of leases in Eastern Gulf that they have not been allowed to exploit.

  135. 135
    zman Says:

    See what Florida has gotten away with all these years. Much of the 125 blocks that are leased are Shell.


  136. 136
    Popeye Says:

    It does not sound like a done deal when you read the fine print.

  137. 137
    zman Says:

    Popeye – yep, rarely that simple. The map kind of gives you an idea of what the U.S. has kept off the table.

  138. 138
    zman Says:

    Of course, even if they make the blocks available for sale, interest will be limited if they are 5 year (instead of 10) with an 18.75% royalty, a penalty for not producing in 4 years and no development capital recovery period forgiveness.

  139. 139
    Dman Says:

    Z – I thought about taking SPWRA on the 9% dip but passed, hoping for follow thru today. Market not offering those back-to-back 10-15% crashes anymore. A trader could get nostalgic.

  140. 140
    Nicky Says:

    Kind of interesting today – apologies if it has already been posted.


  141. 141
    West Says:

    BOP, got any opinion on KOG down here r did u fill @ 1.08 yesterday?

  142. 142
    zman Says:

    Re 140 – so now he created the dollar / crude linkage. Please. These guys used to send me pictures of little zman in a noose with notes of affection attached. I take nothing he or his firm says seriously since he picks a direction and then rewrites history when wrong. Recall he became a bear at 97 only to watch it go to 147 and was bullish near the top before it rolled over.

  143. 143
    Nicky Says:

    Remember it well Z. He missed the entire rally from what I could see but feels he has covered himself in glory by riding the wave down. Of course he is now long again.

  144. 144
    zman Says:

    Hear ya, makes me want to go short.

  145. 145
    Nicky Says:

    Carter Worth calling a top in oil now on CNBC – he is technical guy. Bit of a groan here as really we want to hear everyone yelling for $100 for a turn to be imminent.

  146. 146
    BirdsofpreyRcool Says:

    west — #141, was afraid you would ask that question.

    Note to self: Plan the trade, trade the plan.

    I saw the 1.07 and put an order in to add to KOG at 1.03 (instead of the 1.08 target). So, twin bads: got greedy and now highly irritated. Still waiting in the weeds.

  147. 147
    zman Says:


  148. 148
    VTZ Says:

    BOP – Regarding the auction today I dont know if you posted after we were talking about the bid ratio and foreign bidders but courtesy of bloomberg:

    The bid-to-cover ratio, which gauges demand by comparing the number of bids with the amount of securities sold, was 2.82 today, compared with 2.66 in May and an average of 2.49 for the seven sales since the Treasury began selling the notes in November after an 18-month hiatus.

    Indirect bidders, the class of investors that includes foreign central banks, bought 43.8 percent of the notes at today’s sale. That compared with 37.3 percent of the notes at the May auction and an average 37.2 percent at the past seven auctions.


  149. 149
    BirdsofpreyRcool Says:

    VTZ — #86. But your version is much nicer. Thanks.

    It was considered a “very good” 3-yr auction. Market liked it, until they remembered that we have to get through a 10-yr and 30-yr action on Wed and Thurs.

    The drama continues!

  150. 150
    zman Says:

    BOP – APC offering notes at what look like pretty good rates to knock out some floating rate notes due this year.

  151. 151
    BirdsofpreyRcool Says:

    APC = lowest investment grade rating at Baa3/BBB-. Nice rates and spread of maturites for APC; 5, 10, and 30 yr issues (almost the same as the US Treasury auctions this week… coincidence??). I do think there is good demand for asset-based business paper (like energy). Wouldn’t be surprised if there was increased interest from non-US investors too.

    Gosh. I sure do miss those 13.5% issues, priced at a discount to yield 15%. Those days are gone, for this credit cycle at least.

  152. 152
    jat Says:


    Crude DRAW -5.959
    Gasoline BUILD 27k
    Distillate BUILD 19k

    Utilization up 1% from 83 to 84
    Refinery runs up 203kb/d

    Imports down 510kb/d from 9028 to 8518

    Looks very bullish.

  153. 153
    Nicky Says:

    Should give them a reason to run it to 72.

  154. 154
    Wyoming Says:

    Coal’s King Hubbert?


  155. 155
    zman Says:

    Thanks Jat.

    Imports very low at that level, surprised at the small gasoline and distillate builds, almost has to be an uptick in demand on the gasoline side. Distillates I just don’t have much faith in. As to prices, people will be looking at the big headline crude number as bullish, stepping it down a notch in for the imports.

    Crude at 70.38. Could be an interesting morning.

  156. 156
    Nicky Says:

    Oil is in danger of tanking the broader market if this continues.

  157. 157
    West Says:

    KOG, Just wanted to see if any opinion as to value of bakken wells that make 100bopd. A lot of the offset wells to KOG’s area are coming off the confidential list and after 5 months of production they are averaging about 100bopd. MRO’s are avg more as they have been able to tie into nat gas lines. MRO standard well is about 9,000′ lateral with single stage frac. Peak ND has a couple of wells that just came off confidential list that offset KOG’s well that is drlg. This well is now avg 100bopd and flaring all gas, this is about a 4500′ lateral but I don’t any information about completion or # of or type of frac. Anyone with behind the envelope # ? STR is drlg an offset to their discovery east of the lake that is now avg 100bopd, so the economics must work. KOG est 300k to 400k eur on 4500′ lateral and 500k to 600k eur on 9000′ lateral. Any insight would be appreciated. thx

  158. 158
    BirdsofpreyRcool Says:

    west — KOG = good, solid info. Thanks. With an 80% decline curve in the first year, doesn’t take long to get to 100bopd if IP’s low, I would think. Ignoring KOG’s 1st well (only 4 of 8 frac stages completed), the 2nd well (4,169 ft lateral, 5 stage frac) IP’d at 1,274 bod/d + 717 mcf/d. I’ve been adding the gas into the IP number, but if they had to flair, doesn’t make sense to do that.

    In their last PR, they were estimating 350-500mboe/4,500 ft lateral + “seeing well costs come down significantly.”

    I only have Back-of-Envelope estimates for the value of KOG (based on assumptions about acreage, well spacing, NRI, and EURs). I haven’t seen anyone else come up with anything more exacting.

    Until we get a cost/IP/decline/EUR profile using 4,500 ft laterals and 5-8 stage fracs, it’s just cocktail napkin calculations. Also, we are ignoring any upside from the TFS. It sounds like that formation underlies the entire Bakken play as a 2nd resource objective.

    But, all the data points you cite are helpful. What do you think?

  159. 159
    Nicky Says:

    Oil appears to be in wave iii of v up. Could run quite a bit higher.

    Joe Terranova wildly bullish now but admits at the same time the oil price is going to tank the broader market. Great.

  160. 160
    VTZ Says:

    It’s not like it’s the only thing that’s going to tank the broader market…

  161. 161
    West Says:

    I think that they will have 8 wells producing by the end of 12-2009. I think the four short laterals will avg 100bopd after initial flush production and the four 9000′ laterals will avg 250 bopd this is probably the low end but realistic. In the 1st qtr conf call Lynn said that he thought they would be more like WLL’s Sanish field. If this was the case, then with a reference to WLL site infor avg prod data, we would be looking at something more like 400 to 500 bopd on the long laterals after 60 days. I would caution that we would need to see something in the range of 2500 plus ip, to match avg Sanish well, in the Two Shields Butte # 4 for this to apply. Please don’t use this information for investment, but I expect the # 4 to ip for 2000+ bopd and in excess of 2 mmcfgpd based on drlg speeds in lateral and associated fracturing in the area if orientation is correct. Time will tell the story but they did frac the # 4 first and did change their drlg sequence for upcoming wells to more directly be drlg in the area of #3 & 4. The decline curve on the bakken is ski slope material so investor beware. So bottom line what value do we assume for the co with this information? I would like to think that we are in the neighborhood of at least $ 2.00 by the end of the year, but honestly I wouldn’t have so many shares if I didn’t the long term price wasn’t considerably higher. I have to complement the KOG crew for not pumping the stock and taking their time to do it right. As I have said before I am probably not objective as I have a bullish lean towards the stock. thx, any thoughts from anybody are always appreciated. Maybe Tater can post his link to his excellent chart work on KOG on the stockcharts.com site

  162. 162
    Nicky Says:

    VTZ – the surprise to me is that oil is pricing in an economic recovery when there is very little sign of that.

  163. 163
    BirdsofpreyRcool Says:

    west — didn’t know about the sequence change. Sounds like a ringing endorsement of the 3/4 area. Lynn has been pretty consistant, with his thinking 2kbpod IP in the 3/4 wells. Glad to hear this hasn’t changed. You have any idea why they are waiting until June 20th or so to complete well #3? How many days does it take to get a good 24-hr IP test, then skid over to complete the next well?

  164. 164
    West Says:

    BOP, I believe the time delay is about the the same as the first set of wells and has to do with setting up production facility on the lease. As I remember on 1& 2 they were shutting in 1 during the day to frac and complete # 2. Maybe they are getting everything hooked up on # 4 before preceding with # 3. At the conference call Lynn had mentioned that there would be a time delay of about 10 days between completions. As far as the ip this is a closely guarded secret, as you know.SO anyway from your comment about the his upbeat mood of late, I would think it is a good entry point here on pull back. I didn’t get any at 1.08 either so there still may be time . There is not much volume during the day so the stock is easy to move with any big trade. If I should get any add’l information I will post. thx

  165. 165
    West Says:

    Z, if u have any references in site on ATPG would u be so kind as to let me know. They announced a good horizontal well in the North Sea with EDF Production. For reference: http://phx.corporate-ir.net/phoenix.zhtml?c=123846&p=irol-newsArticle&ID=1297817&highlight=, thx

  166. 166
    zman Says:

    West – just got back to my desk, never had a lot of call for ATPG so nothing to point to. I’ll be taking a look at them soon.

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