T.G.I.F.

97 thoughts on “T.G.I.F.”

1. http://www.marketwatch.com/story/natural-gas-could-see-sharp-rebound-this-year

   http://www.ft.com/cms/s/0/1d73e2e0-55e9-11de-ab7e-00144feabdc0,dwp_uuid=f2b40164-cfea-11dc-9309-0000779fd2ac.html?ftcamp=rss

2. Wyoming – got any thoughts on when we see U.S. onshore oil rig count start to tick back up? I know many who have put their plans on hold and its seems with rig rates lower and oil coming back a bit we could start to see capital budget increases or at least increases in planned activity with the 2Q press releases. Maybe I’m a bit early but EOG has already said Bakken will get re-activated now that they have transportation in hand. I’m thinking others will follow, to stem declines as least beyond what can be done with workovers.

3. Credit Market Update — falling back (a little)… more from “rally exhaustion” than anything else. The HY index appears up today, but only b/c a lagging security was dropped from the index. So, while it’ appears up 5/8ths, it’s actually about flat with last night’s close.

   IG 128 1/2 bps

   HY 85 5/8 pts

   Was supposed to be out today… but flights last night were cancelled… apparently there was a little pesky wind action in the dallas area that messed up some planes on the ground. So, i’m here today… ha!

4. TechTrader says it’s a 50/50 day. So he is taking his winnings….errr, i mean earnings, from Wednesday and going new car shopping. He doesn’t trade on 50/50 days.

   HeadTrader is feeling contrary this morning… says he wud [sic] do the opposite of any major moves once it turned.

5. We get the University of Michigan Confidence report at 10am. But HeadTrader points out that if you are a subscriber, you get that number early. So, it’s not really a market mover. Says there are a coupla eco numbers that are reported that way (some people get it early). — Interesting.

6. BOP – is he a subscriber, if so what’s the number.

   Seeing some non-energy type authors trying to pile into the sector saying big oil is ready to move back up because it hasn’t an oil has. Be careful where you get your news/opinion.

   KWK – downgrade today. I applaud Keybanc’s timing since I punted my positions yesterday. If it tanks I will be adding a July position here.

7. By Nick Heath
   Of DOW JONES NEWSWIRES

   LONDON (Dow Jones)–Crude oil futures fell more than $1 to below $72 a barrel
   Friday as a slight recovery in the dollar prompted traders to book profits from
   another strong week of gains.
   The greenback’s move higher against most major currencies was the major
   catalyst for the fall in crude prices, analysts said, although also weighing
   were concerns that oil’s rise to seven-month highs above $72 a barrel this week
   could tarnish the economic recovery hopes that have helped support crude’s
   rally.
   Adding to pressure on crude Friday, the 16-nation eurozone reported industrial
   production fell by the sharpest rate on record in April, down 1.9% from March,
   and by 21.6% from April 2008, worse than analysts had expected. May Chinese
   industrial production data also out Friday were higher than forecast, but had
   largely been priced into the market after details were leaked earlier in the
   week.
   Crude “can’t go up for ever and maybe we’re going to have some sideways action
   rather than steep continuation,” said Christopher Bellew, senior vice president
   of energy sales at Bache Commodities in London. “I think we’re beginning to see
   talk about these higher prices beginning to impact on demand again. It’s
   probably better for the world economy if prices stabilize at these levels than
   $75 or $80 a barrel.”
   At 1122 GMT, the front-month July Brent contract on London’s ICE futures
   exchange was down $1.23 at $70.56 a barrel.
   The front-month July light, sweet, crude contract on the New York Mercantile
   Exchange was trading $1.31 lower at $71.37 a barrel.
   The ICE’s gasoil contract for July delivery was down $8.75 at $580.00 a metric
   ton, while Nymex gasoline for July delivery was down 372 points at 202.77 cents
   a gallon.
   The Organization of Petroleum Exporting Countries Friday forecast that global
   demand will contract by 1.6 million barrels a day to 83.8 million barrels a day
   in 2009, a slightly larger contraction than the 1.57 million barrels a day
   previously forecast. But it said that the worst was over for the oil markets
   and demand will start to rise again in the third quarter.
   OPEC was the only one of the three agencies publishing demand outlooks this
   week to revise their 2009 demand assumptions lower. Both the International
   Energy Agency and the U.S. Energy Information Administration raised their
   demand expectations, citing signals of economic recovery, although overall
   demand levels remain well below last year’s.
   “The oil market is, in our view, moving toward a transition period of very
   gradually improving demand, falling inventories, and prices closer to the
   desired range of key producers, which we would place in the $75-$85 region,”
   said analysts at Barclays Capital.
   Despite the slight retreat Friday, crude remained on course for a fourth
   straight week of gains, with strong upward momentum seen little interrupted by
   the move.
   “As long as WTI closes above $70 a barrel the bulls are still in control for
   next week. The technical momentum has been so strong that bulls can afford to
   allow some profit-taking,” said Olivier Jakob, managing director consultancy
   Petromatrix in Switzerland.
   As crude again moved in conjunction with the dollar Friday, the greenback, as
   well as equity markets, will likely continue to determine crude’s fate in the
   near term, analysts said. The slide in the dollar has come about partly because
   investors are chasing higher returns in riskier assets such as crude, but also
   as investors seek a hedge against inflation and falls in the currency.
   “Despite the overwhelming bearish fundamentals built-up for oil, we need to
   recognize that the oil price is path-dependent on the U.S. dollar and equity
   market valuations,” said Harry Tchilinguirian, senior oil market analyst at BNP
   Paribas in London.
   -By Nick Heath; Dow Jones Newswires

   Dow Jones Newswires
   06-12-09 0754ET

8. z — HeadTrader is one cheap guy.

9. There are Q4 rumors. With what has been done, team gears up in Q4 drilling starts in 2010.

   IMHO, it would be the opposite of last year where we saw commodities tanking and all the service co’s saying that Q4 was great. That is because the budgets did not get cut and upper mgmt thought it was a correction … wrong. CRR is a good example when they said that things were great and the horiz rig market was their metric.

   In 2009, everyone will say that oil is up we should drill. The opposite will happen, budgets will not be increased, Upper Mgmt will be conservative and want to see stability and also work on better rig/service deals…. Q1/Q2 2010.

   We should also keep in mind the drilled/uncompleted wellbores that are out there. They will be first priority before drilling … KEG (for the TPH folks).

   I will be personally be warm stacked next week (vacation) so reading trading emails will be hit and miss.

10. I hope you are right Wyoming. E&P managements capital discipline is often a fleeting thing. I wasn’t thinking a rush on rigs back to the highs but for those folks are basically doing nothing, I could see them adding a rig or two, thinking small and mid cap players, like a SFY who have plenty of prospects but have been almost dormant.

11. Re Cap disc. there are some people who are hurting, hearing things about people want to sell off assets. Smaller indie types.

12. Murphy (MUR) on the tape with Malaysian discoveries, as a mini-major I find them more interesting than most of their bigger cap breathren and more interesting than the majors. Could be a little play there soon.

13. Re 11 – hearing same. Hearing we are going to see lots of transactions as the second redetermination season of the year approaches this Fall, more gas than oil, with the guys who just did deals buying assets on the cheap from the little players who are still overleveraged and/or unhedged.

14. Wyoming – any idea on the U.S. gas rig count drilled but not completed? Last figure I heard was just north of 600 but that’s a bit stale now.

15. BOP – today may be your chance at that $1.08 KOG entry.

16. 13, that is why I think service / rig cost will be low and captital discipline will be in order. Drilling on wall st rather than the bit.

    Funny how not much is being said up the uncompletes. IMO, EnP is scared to have dead capital, maybe ran the numbers and just paid out their rig contracts like smart shops did EOLY. Cheaper to pay out the rig than to drill dead cap at the spread rate (rig cost plus added services like tools, cabins, cement, mud…)

17. By Benoit Faucon
    Of DOW JONES NEWSWIRES
    LONDON (Dow Jones)–The Organization of Petroleum Exporting Countries said the
    worst may be over for oil markets and slightly upgraded its third quarter
    demand forecast as green shoots of economic recovery restore quarterly growth
    after months of decline.
    In its June report, OPEC said “in light of the considerable challenges the
    world economy and commodity markets, particularly the oil market, have
    undergone, the worst appears to be behind us.”
    The report comes after the International Energy Agency revised its 2009 oil
    demand estimates for the first time in 10 months Thursday and as oil prices
    rose to $73 a barrel this week from $32 in December.
    OPEC added that a “gradual recovery in demand is expected by the end of the
    year,” with third quarter demand now seen as rising 40,000 barrels a day more
    than it forecast last month.
    Oil consumption generally gets a boost from the U.S. driving season in the
    third quarter. But last year, demand sequentially fell during the period.
    The organization said the expected demand growth was driven by Chinese and
    Indian consumption, particularly for petrochemical units.
    OPEC said it was keeping broadly unchanged its global demand decline forecast
    for the whole year -seen as about 1.6 million barrels a day- after downgrading
    its 2008 estimates.
    But it also cut its demand estimate for 2009 by about 230,000 barrels a day to
    83.8 million barrels a day – one day after the International Energy Agency
    slightly revised upward its 2009 estimate for the first time in 10 months.
    “As the world economy stabilizes, the world oil demand appears to be settling
    down,” OPEC said in the report. “This should stop the bleeding in oil demand.”
    But OPEC said: “efforts to reduce the excess supply are the key factor in
    supporting market stability” as it disclosed compliance to its own commitments
    to cut output had continued to slip in May.
    Using external sources, the organization, which generally supplies 40% of the
    world’s oil, said its output rose by 135,000 barrels a day in May compared with
    April.
    The increase for the second time in a row comes despite the organization
    agreeing late last year to cut 4.2 million barrels a day of production.
    Angola, Venezuela and Nigeria experienced the largest increases in May, it
    said.
    -By Benoit Faucon, Dow Jones Newswires
    Dow Jones Newswires
    06-12-09 0929ET

18. Probably going to do a couple of trades here for a bounce later in the day.

19. By Madalina Iacob
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Crude futures dropped below $72 a barrel early Friday,
    erasing three days of gains, as the dollar rebounded and eurozone industrial
    production plummeted to a record low, damping hopes of an economic recovery
    that would boost oil demand.
    Light, sweet crude oil for July delivery recently traded $1.30, or 1.8%, lower
    at $71.38 a barrel on the New York Mercantile Exchange, sliding to an intradday
    low of $70.80. Crude settled at $72.68 on Thursday, the highest level since
    Oct. 20. Brent crude on the ICE Futures exchange traded $1.31 lower at $70.54 a
    barrel.
    “The negative economic data from Europe pushed the dollar stronger and the oil
    down,” said Tom Bentz broker at BNP Paribas Commodity Futures. “The market
    (which is up about $14 in the past month) is overbought so we could dip at
    anytime. We can have corrections.” Industrial production in the 16 countries
    using the euro slumped in April by 21.6%, the sharpest year-on-year drop since
    statistics began in 1990, according to Eurostat, the European Union’s
    statistics bureau.
    The dollar gained ground, following weak data from EU, suggesting that US may
    be ahead in a recovery stage than other industrialized nations, boosting
    confidence in the greenback. A strong dollar eases investors appetite for
    commodities as a hedge against inflation.
    On the other hand, China’s industrial production accelerated in May, and
    consumption also rose, lifting expectations of a domestic economic recovery in
    China, the world’s second oil consumer.
    Oil prices have more than doubled since their January lows of $32 as traders
    bet a lack of investments in oil fields will put pressure on supply as the
    economy strengthens and demand picks up.
    But oil demand is still at a 10 year-low in the U.S., the world’s biggest oil
    consumer. The International Energy Agency made a upward revision to its 2009
    world oil demand forecast, but still expects a 2.9% drop from a year earlier.
    Forecasts from OPEC and the U.S. Energy Information Administration see demand
    dropping by 1.9% to 2% this year.
    Investors are also keeping an eye on Friday’s presidential elections in Iran,
    one of OPEC’s founding members, which holds the world’s third-largest proven
    oil reserves. The incumbent hardline president Mahmoud Ahmadinejad is running
    neck-in-neck with centrist candidate Hossein Mousavi. “A Mousavi victory would
    likely apply some downward pressure on oil markets and lead some investors to
    begin exploring the Iranian market as a possible medium-term option. An
    Ahmadinejad win would probably not affect markets,” Cliff Kupchan, analyst at
    Eurasia Group wrote in a note.
    Front-month July reformulated gasoline blendstock, or RBOB, recently traded
    1.87 cents lower at $2.2094 a gallon. July heating oil recently traded 2.26
    cents lower at $1.8308 a gallon.

    -By Madalina Iacob, Dow Jones Newswires
    Dow Jones Newswires
    06-12-09 0936ET

20. We are actually completing or fraccing the wells now with LOW service costs and just pinching the well back. I think you might find others doing the same.

21. ZTRADE: $10KP

    HK – Added (25) June $26 calls at $0.40 with the stock at $25.15 on a red market open. Somewhat higher risk as we have a week to expiry.

22. TEX

    Just the toe or the complete wellbore?

23. z — #18… quit pointing out my antelope! I’m getting tired of waiting in the weeds… hoping the beast comes my way.

24. Consumer Confidence…. ho-hum… expected 69.5 and got 69.0 (vs 68.7 last month).

25. This feels much more like a buyers strike than heartfelt selling. Volumes very light.

26. Have been seeing signs of a pick up international jackups. I seem some analysts going with RDC and ESV, I sort of prefer taking the deeper route (still with exposure to the shallow waters) of RIG. I’ll be looking at them, ATW, DO, NE next week on a pullback for an entry into earnings season.

27. The number of liquefied natural gas tankers bound for the U.S. fell to 0 from 3 last week.

    No LNG Tankers Heading to U.S. as Atlantic-Bound Ships Rise
    2009-06-12 12:55:10.657 GMT

    By Ben Farey
    June 12 (Bloomberg) — The number of liquefied natural gas tankers bound for the U.S. fell to zero as more ships gave the Atlantic Basin as their destination, according to AISLive tracking data compiled by Bloomberg.
    A tanker arrived at the Cameron LNG terminal in Louisiana yesterday. It was the first “cool-down cargo” at Sempra Energy’s recently completed terminal. Three ships were heading to the U.S. last week.
    “We’re still short of supply,” Andy Flower, an independent consultant and former executive at BP Plc’s LNG unit, said by phone today.
    New production plants in Qatar and Indonesia have been delayed in starting and Algeria and Nigeria have had production problems, he said.
    Tankers giving the Atlantic Basin as their destination increased to six from five last week. Flower said these vessels may be “keeping their options open” and looking to exploit price differences between the U.S. and U.K. markets.
    Japan, the world’s biggest buyer of LNG, is to receive 22 LNG shipments, up from 21 last week.
    France will get three LNG tankers compared with none last week. Three ships are sailing to India, up from two a week ago.
    Signals were captured from 153 vessels, 4 fewer than on June 5. That’s 49 percent of the global fleet of 310 LNG carriers.
    The following table lists by country of destination all the LNG tankers that have transmitted a time of arrival within the next three months, including today. LNG is natural gas that’s cooled to a liquid for transport.

28. [Unable to provide a link to the “Chart of the Day”… but, think it’s fairl obvious.]

    Natural Gas ETF Won’t Deliver Same Return as Fuel: Chart of Day
    2009-06-12 04:00:01.1 GMT

    By Asjylyn Loder
    June 12 (Bloomberg) — The United States Natural Gas Fund, the first and largest exchange-traded fund for the fuel, attracted record volume yesterday as investors bet rising prices will reward them with a comparable return. They may be setting themselves up for a disappointment.
    The CHART OF THE DAY shows the fund underperforming the front-month natural gas future contract on the New York Mercantile Exchange. The fund has fallen 75 percent over the past year, while gas is down 69 percent. Shares outstanding as of June 10 grew to 224,800, five times the 12-month average.
    The fund doesn’t try to match the spot price of the commodity. Its goal is to follow the percentage change in the price of the commodity’s front month contract, said John Hyland, portfolio manager and chief investment officer of the fund. When the market is in contango, meaning the near month contract is cheaper than the contracts further out, the fund will underperform the underlying commodity, he said.
    Investors see “natural gas” in the name of the fund and assume the fund mimics the commodity’s performance, said Paul Justice, an ETF strategist at Morningstar Inc. in Chicago.
    That’s not the case.
    “It’s a horrible investor experience if you believe gas prices will go up, and they went up, and you still didn’t make money,” said Justice in an interview. “You just didn’t do your homework. The ETF is doing what it said it was going to do. You just didn’t find the right product.”

29. Nifkin – must be the calm before the tsunami.

    BOP – I’ve built that chart myself before. I dislike UNG as a vehicle for trading gas. If you want to trade gas get a futures account or trade gassy stocks, much better leverage as well when you are right on the gas call by owning a SWN, RRC, HK etc.

30. Came close earlier to buying a little CLR, will own next week most likely, my junior charting skills say it has a bit more pullback in it before it rallies on upped estimates (due to price revisions of their unhedged crude by analysts) in about 2 weeks.

31. z — KOG is now free to trade below 1.10. Had to scoot up a bit, but snared my additional shares. And your “light trading” comment is confirmed… i was most of the volume, at that price… so, it really might dip to 1.08 or so now, without the floor.

    Now it’s just kick back and wait until they frac and test well #3, set to commence on June 20th. Well-watching at it’s finest.

32. Hear ya BOP, thanks.

33. west — on that KOG drilling schedule… wells 5 and 6 were scheduled to be located just south of 3 and 4. Wells 7 and 8 were supposed to be much further south, in the Charging Eagle area. Are you hearing that 7/8 locations have changed?

34. complete wellbore

35. bop in west in kyleandy in Z?????????

36. ha! z is waiting for those 99 cent shares… who knows? he just might get ’em. (Hint: z is a much better trader than i am)

37. Z – excellent trader – like to have him on the team. unless oil tanks (which his buddy from phils stock world thinks is going to happen) would hate to see KOG going down pre-announcement.

38. if KOG tanks on no real news, that doesn’t bother me. these micro-cap companies can do some squirrely stuff, if a large holder has to sell down or liquidate for some reason. And on low liquidity days, even small investors can push the price of the micro-minis around. That is why KOG dropped to 16 in March. It wasn’t worth $1.00 back then, but it sure wasn’t worth 16¢ either.

39. Re 38 – agreed.

40. Sent in by the compliance department constrained via email:

    Z: I very much agree with your comments about moving to heavier weighted oil names. I have not heard you say this but a problem for a CHK and gassy names can be in early Sept if it has not been a hot summer or no great hurricanes and no significant production declines, the shorts use the full storage card to panic the E&P space. If I have heavy cash I would buy into that instead of now. You are free to steal that thought if you concur. S

41. ‘course, it feels a LOT better to buy a stock and have it go straight up from there… but, i am still waiting to find out what that feels like…. 😉

42. Out for 30 minutes

43. By Liam Denning
    A DOW JONES COLUMN

    A decade ago, Russia was haggling with the International Monetary Fund for a
    $4.5 billion bailout. Today, with about $600 billion stuffed in its pockets,
    the Kremlin walks with more swagger. But this masks a limping economy.
    The most important result of the financial crisis is the state’s strengthened
    grip on the economy. Once powerful oligarchs, having overleveraged themselves,
    must now seek credit from the only readily available source: the Kremlin.
    Its grip on the dominant energy sector already secure, Moscow’s power is
    encroaching on others. It is now the banking sector’s single biggest creditor,
    accounting for 12% of all liabilities, according to Marko Papic at Stratfor, a
    global intelligence consultancy.
    In the short run, the Kremlin’s strength should ensure there will be no rerun
    of the late 1990s crisis. As in many countries, state spending will provide
    some offset to falling consumption.
    The government’s steadier hand, however, remains a dead hand.
    Productivity is vital for growing wealth sustainably anywhere, not least
    Russia. The country’s vast scale and often inhospitable geography make economic
    development very capital intensive.
    History has not been kind either. “A lot of people make the mistake of
    neglecting the very recent Soviet past,” says Thane Gustafson of consultancy
    IHS Cambridge Energy Research Associates. Among other things, this manifests
    itself in infrastructure sited for the needs of a centrally-planned economy.
    Corruption is also a problem. Alena Ledeneva, author of How Russia Really
    Works, sees some progress in addressing this, not least open presidential
    discussion of the issue and anti-corruption legislation passed in December.
    However, she says the economic crisis could set back efforts to increase
    transparency.
    Then there is labor. Russia’s population has fallen by 6 million people, or
    about 4%, since the collapse of the Soviet Union.
    Pro-natalist policies, such as increasing the number of neo-natal
    rehabilitation facilities, and the earlier economic boom have helped raise the
    birth rate recently. Relief looks temporary, though. Murray Feshbach, an expert
    on Russian demographics at Georgetown University, expects the population of
    women aged 20 to 29 will fall by at least one-third over the next decade, an
    echo of the slump in births accompanying the collapse of the Soviet Union.
    Meanwhile, mortality remains high. Feshbach points to the high incidence of
    serious diseases such as tuberculosis, which he estimates runs at more than
    double the World Health Organization’s definition of an epidemic. He reckons
    between 30% and 40% of Russian males die during their working years.
    The working age population looks set to start declining again soon, perhaps by
    10 million by 2020, according to McKinsey & Co. Besides the societal and
    potential geopolitical impact, this makes it even more important to raise
    productivity – currently averaging just 26% the level of the U.S. in five
    Russian industry sectors, says McKinsey.
    Rapid increases in Russian productivity over the past decade came largely from
    increasing utilization of old industrial capacity from under half to about 80%
    by 2007. The oil sector, where companies such as Lukoil have applied better
    techniques to wring barrels from old fields, offers a good example.
    Gains from here on will be harder to achieve, particularly if the rest of the
    world recovers slowly. And it’s difficult to imagine best practice being widely
    adopted in an economy where the state is reverting to its historical norm of
    centralizing control. Increased import tariffs and an apparent cooling of
    Moscow’s desire for entry to the World Trade Organization do not bode well for
    increased competitiveness either.
    Unlike a decade ago, the Kremlin has money. Oil prices are helpfully higher,
    too. Indeed, with energy now accounting for almost two-thirds of gross exports,
    Russia has become even more of a bet on commodities over the past decade.
    There are less complicated ways for an investor to gain exposure to minerals,
    though. And even if Russia has survived this crisis, the more fundamental
    challenges to its continuing economic development, and long-term investment
    case, remain unanswered.

    Dow Jones Newswires
    06-12-09 1059ET

44. Good morning-
    thought I would throw this interesting thought I read this am

    China could be be moving $ back into our debt(might have helped yesterday’s auction)after deciding this spring oil at $30 was a better investment than our low yielding treasuries. They may not find $75 a barrel not worth investing anymore.

    NYT article worth reading on China and commodities
    http://www.nytimes.com/2009/06/11/business/economy/11commodity.html?pagewanted=2&fta=y

45. BOP, I should apologize because that dates back from them changing 3&4 to their new location in the 2 Shields Butte and making the old 3&4 the new 5&6. Then south of the river do drill 7&8. Their most recent updated maps r the ones that show add’l acreage on the north end of #7 horizontal leg that has not been there on previous presentations. Is that confusing enough. I keep expecting them to announce some type of joint venture deal for the Charging Eagle wells # 7&8. The NDIC still shows rig on # 5 and we r about 30 days so we should be about through with this 4500′ lateral. They will then skid and start long lateral # 6. I’m sure locations may be determined by many factors , but their newest presentations has changed orientation for a couple of the wells south of the river. The Charging Eagle still shows 100% wi but I don’t see them keeping all of that in their present financial condition. I would expect them to anounce a deal for this prospect before the completion of well # 6. I continue to believe that that partner will be Zenergy, although there is ample room to think that they may form some type of jv with STR as most of their 78,000 acres underlies the Lake with very rough terrain on what sites they do have on swamp lands. Of course what everybody really wants to know is if a white knight will appear with his checkbook. MRO has checkbook but turtle speed execution. My past experience has been that it always takes longer than normal for the offer to show up and then everybody has an interest. Only thing of note in RMOJ today is that MRO adds rig to Reunion Bay area north of KOG. Zenergy has most of the land acreage between MRO’s Reunion area and KOG’s 2 Shields. Sorry about the length of post.

46. Denise – thanks for that article. Correlates well with the weak oil imports in the U.S. over the last 5 or 6 weeks and the comments of recent stock piling of oil in China coming to an end soon. More reasons for oil to dip back into the $60s this summer.

    West – appreciate the detail.

47. Gary – if you have listings send them over.

48. west — total gold mine of info on KOG. You have a great grasp of the lay of the land there. Thank you for sharing.

    Partnering on wells 7 and 8… maybe. Maybe not. Depends on whether they can get some liquidity on their bank revolver, perhaps. But, would hate to see them pull down much debt until they have some real (profitable) production and hedges to cover the interest expense there. I do think that KOG is bought out/merges at some point. But I also know that the bids haven’t been in the same universe as what the company thinks they are worth. So, might have to wait until the next oil spike to accomplish that. Meanwhile, I have been impressed with Lynn’s ability to manage across the Abyss. I think he did the right things to keep the call option (called KOG stock) alive.

    Here’s something to think about… one of the reasons KOG sold down to that 16¢ after 4Q conf call, was the $5mm (or so) take-or-pay contract on that 2nd Unit rig. Hear that rig rates in the Bakken are one of the few areas that are higher lately. Given that, KOG might be able to get out or subcontract that 2nd rig. I think the stock would do a Happy Dance, if that was the case.

    Pure speculation, on my part. But, wonder if Lynn has resolved that 2nd rig…

49. You guys have good insights and data on KOG and I’ve added a KOG Notes page to the reports tab. I’ve gone back to the start of the month adding in the comments that were data laden and I’ll go back and grab more as I come further up to speed. My way of substituting for not having a good memory.

    KOG Notes is about half way down the reports tab:

    http://zmansenergybrain.com/subscriber-data/zeb-reports/

    and I plan to update it with comments here weekly as well as some of my own stuff.

50. Movie quote Friday;

    1st one;

    Look, do you want to be leader of this gang?

    No, we agreed: No leader!

    Right. So shut up and do as I say.

51. Not Fargo?

52. Midday Overview

    · SPX dn 5pts to 939 as equities trade in a tight 936-943 range. USD strength (DXY +0.6%) putting pressure on commodities (Crude -74c to $71.90, Gold -$16 to $941) although USD is off highs of the session. Treasuries are higher across the curve with the 10yr yielding 3.79%.

    · So far another relatively lackluster trading day (for the first time in a bunch of weeks, the sp500 hasn’t closed up/down more than 1% a single day this week). Volumes and activity both remain on the light side (contributing to the sluggish trading today are some technical issues on the NYSE, which is impacting volumes/trading). A lot of the same trends remain – equities being dominated by technicals (950 on the upside; ~929 on the downside) and other asset classes (namely Treasuries and the dollar). Commodity-linked sectors are weak today on back of a stronger dollar (sp500 energy and materials both off >1.5%) while tech (esp. the semis) extends its underperformance. Consumer discretionary names also extend their weakness from yesterday. Financials rally on back of bank strength (similar pattern to yesterday), although investors are still wait for the XLF/SP500 Fin to close north of their 200day MAs. Health care acts great again, up another 1% (HC was up 1% yesterday also), led by the large-cap pharmas (DRG up 2% and making multi-month highs). Treasuries are higher today (despite the WSJ article about how the Fed won’t be ramping up its asset purchases) as the strong 30yr auction from yesterday and technical resistance (~4% on the 10yr) provide a bid (despite all the noise around Treasuries, the 10yr yield is on pace to end the week lower than where it started). The 2yr yield closed Mon @ 1.4% but is now under 1.3%. Within equities, for all the intra-day volatility, the sp500 has closed in the 940s for every day so far in June (other than 2 and one of those was 939) and many are wondering when/if this coil/wedge will be resolved.

    · CDX.IG is outperforming the S&P 500 since March lows. The CDX.IG index and the S&P 500 have historically moved in tandem. CDX.IG has rallied strongly, recovering all of its spread sell-off since pre-Lehman default. In fact, the CDX.IG spread of 125bp is 18bp through (or tighter) than its pre-Lehman default levels. On the other hand, at the current 939, the S&P 500 has only recovered 56% of its sell-off, measuring the movements from the pre-Lehman default level of 1278 to the low of 677 seen in Mar ’09.

53. Hint #2; “Do be careful! Don’t lose any of that stuff. That’s concentrated evil. One drop of that could turn you all into hermit crabs.”

    Hint #3; ” We made trees and shrubs. We helped make all this.

    Whew! That’s not bad.

    Yeah. But did we get a thimble full of credit for it? No! All we got was the sack. Just for creating the Pink Bunkadoo.

    Pink Bunkadoo?
    Yeah. Beautiful trees that was. Og designed it. 600 feet high, bright red, and smelled terrible.

54. By the way, don’t know if you guys pay attention to the picks and the $10kp but I’m back to half cash and am concentrated in only 4 names at present on the calls (EOG, HK, PXD, and little WRES).

    Gassy getting oilier,
    gassy growing quickly,
    balanced with oil price upside,
    and gassy upside and heavy oil helped out by higher prices respectively.

    I’m starting to “feel” more and more like a weak/opportunistic buyer on dips and a stronger seller of contracts on the big up days. I do think the group and the broader market has more upside in it before quarter end and I plan to use that to raise cash. I plan on reentering some of my usual suspects as well as some new names once we get a 10 to 20% pullback and probably not before we get to 15%. You’re probably not going to see a lot of higher risk calls taken next week as the broad market seems close to fagged out.

55. Time bandits?

56. Man, I never thought that you get that one! D@*$!

57. Big turnout at Iranian election. That should be bad for Ahmad. Not saying he’ll lose but it makes it more likely if the students turn out in force.

    http://news.yahoo.com/s/ap/20090612/ap_on_re_mi_ea/ml_iran_election

58. it was the “concentrated evil”, we say that to intern #1 all the time to keep her out of trouble.

59. [This makes sense to me! Again, no chart, but you get the picture.]

    Oil Beats Gold as Inflation Hedge, JPMorgan Says: Chart of Day
    2009-06-11 23:00:01.1 GMT

    By Nicholas Larkin and Halia Pavliva
    June 12 (Bloomberg) — Investors should buy oil rather than gold as an inflation hedge because it has a stronger tie to rising prices and trades at a bigger discount to its record, according to Jan Loeys, global head of market strategy at JPMorgan Chase & Co.
    The CHART OF THE DAY shows New York-traded crude, in red, is 51 percent below last year’s all-time high, while the precious metal is 7.2 percent off its peak. The difference between Treasury Inflation Protected Securities and two-year U.S. Treasuries, in white, has widened to a nine-month high, indicating expectations are growing that inflation will quicken.
    “My preference for oil over gold as an inflation hedge was and remains based on two arguments,” London-based Loeys said in an e-mail June 9. “Oil has shown better correlation with inflation. And oil was and remains well below last year’s high, while gold is near its all-time highs.”
    Governments around the world are selling record amounts of debt to fund stimulus programs and bank bailouts amid the worst economic slump since the Great Depression. That may devalue currencies against assets and spark inflation. Consumer prices in the U.S., the world’s largest economy, are set to rise 1.7 percent next year, following a 0.6 percent decline this year, according to the median of 70 economists surveyed by Bloomberg.
    Crude prices have surged 63 percent this year, while gold, which is also bought as a haven from market turmoil, has climbed
    8.7 percent.
    The U.S. Energy Department on June 9 raised its summer forecast for gasoline pump prices by 12 percent. Yesterday, the International Energy Agency increased its global oil-demand estimate for the first time in 10 months on signs that the economic slowdown is abating.

60. Excellent idea on the tab as I sometimes miss a lot of infor. BOP, I hear you on the rig deal I have not heard anything,although Lynn did say that they had been in discussion with Unit and that they had also been able to get a reduction in rate on present rig. The other fact that drove the price down was fund liquidation I tried to find the link but will have to post later. Several of the their previous holders completely liquidiated their positions which accelerated on the break of a $ 1.00 , one of the magic #s. They also basically wrote off all their undeveloped acreage in Northeastern Montana Red River play, which BEXP touts as a good with wi with KOG and their undeveloped ac in the Mon-Dak. As the prices improve there is some upside potentional for these properties. There is also the Wyoming gas ac but I would say that is in the future, with the exception being that I don’t think DVN would like this acreage to go to another player……Thoughts for a paint drying fast Friday

61. Rig count watch:

    Oil rigs up 4 to 183, from 389 last year

    Gas rigs down 15 to 685 from 1,504 at this time last year.

    Horizontals up 9 to 381 from 547 a year ago

    Texas again leading losses, down 7 to 320 from 929 a year ago.

62. Re 61, that’s a fresh 7 year low on gas rigs, although its not apples to apples on the completions as you have a higher % now drilling horizontally.

    Still, E&P feeling uninspired by current prices … going back to just before q1 conferences, I recall several oil service companies saying they thought the gas rig count would tick up with a week or two. Talk about talking your own book. That was late March / early April, back when the gas rig count was over 800 … and here we sit at 685.

63. Your tax dollars stolen:

    http://www.marketwatch.com/story/stimulus-fraud-could-hit-50-billion

64. Z – I’m not sure Ive seen your thinking on CRK & GMXR lately. Thoughts?

65. Z – #63 you seem to be saying that like it’s a bad thing. But think of the velocity of all that fraudulated money! Certain industries will be well and truly stimulated by all the ill-gotten gains being recirculated at high velocity.

    OK, enough of me pretending to think like an economist.

66. GMXR – I continue to hold some common, not in the $10KP. It needs higher gas prices to get much of a boost in the fundamentals, not much chance of a production boost here of size this year and the news on wells should be few and far between. I’d be tempted to get long again on the calls before 3Q or if it really comes off with gas prices this summer.

    CRK – I’ve been watching again, like it on pullbacks, not sure they have a catalyst before earnings.

67. RWH – please check your email.

68. Oil closing just north of $72, close to best levels of the day, down $0.60, that’s pretty strong considering the run oil has had.

69. EOG flat vs down 1 to 3% on the large cap E&Ps, kind of interesting as it has been lagging the moves of its peers again. Flat or higher oil and I think that retakes $80 in short order.

70. This has got to be the single most boring trading session of the year.

71. Ahmand… reportedly lost the election

72. From HeadTrader earlier —

    this is how bored they are in the pits today…”red hot news from the pits” World’s Shortest Fairy Tale: Once upon a time, a guy asked a girl…
    ‘Will you marry me ?’ And the girl said…
    ‘NO !’
    And the guy lived happily ever after and rode motorcycles and went fishing and hunting and played golf a lot and drank beer and scotch and had money in the bank and left the toilet seat up whenever he wanted.
    The end

73. Nicky – got a link to that, been watching, have not seen a vote counts of any kind yet, just rumors?

    BOP – LOL, I’ll send that to some of my single friends and tell them they are obviously doing something wrong to have no wife and no motorcycle and little hunting, fishing, and golf.

74. CHK shareholders approve board. That’s a win for Aubrey. Story also says CHK faces legal action from 6 financial institutions regarding Aubrey’s pay package last year. I bet you nothing comes of it.

75. I feel like throwing rocks at guys who should not be writing about things they don’t understand. I’m referring to this guy’s glib, data less attitude and his past condemnation of deals done during a very strange, non -deal friendly market.

    http://www.fool.com/investing/general/2009/06/12/petrohawk-purges-its-poison-pill.aspx

76. Nicky – how do levels look for you know, SP went down through your 943 but is flat at 945 now.

77. Sorry Z I crashed,back now. My level last night was 938 actually.

78. That said I think we went a bit lower. I still think we work higher. Last night from the top may have been A, currently in B up, with a C wave down to come, could go as low as 927 yet again, then we blast higher for the final wave.

79. Z – if crude does back off into the $60s over summer (let’s say low $60’s), would you still expect a move from EOG?

    Re. rock throwing: they try to disarm critics by calling themselves fools already. I say throw the rocks anyway.

80. I used to work with Cliff… he was into things like “did phases of the moon cause eathquakes” and “can the behavior of ants and ground squirrels forecast earthquakes.” He’s a smart guy, but he’s never met a crazy idea he didn’t like! (Not saying he’s wrong, by the way… but, i’ll bet he’s going for Govt Grant $$ to study the topic. And he’ll probably get it too!)

    Drilling Might Be Culprit Behind Texas Earthquakes
    2009-06-12 18:42:14.672 GMT

    CLEBURNE, Texas (AP) — The earth moved here on June 2. It was the first recorded earthquake in this Texas town’s 140-year history — but not the last.
    There have been four small earthquakes since, none with a magnitude greater than 2.8. The most recent ones came Tuesday night, just as the City Council was meeting in an emergency session to discuss what to do about the ground moving.
    The council’s solution was to hire a geology consultant to try to answer the question on everyone’s mind: Is natural gas drilling — which began in earnest here in 2001 and has brought great prosperity to Cleburne and other towns across North Texas — causing the quakes?
    “I think John Q. Public thinks there is a correlation with drilling,” Mayor Ted Reynolds said. “We haven’t had a quake in recorded history, and all the sudden you drill and there are earthquakes.”
    At issue is a drilling practice called “fracking,” in which water is injected into the ground at high pressure to fracture the layers of shale and release natural gas trapped in the rock.
    There is no consensus among scientists about whether the practice is contributing to the quakes. But such seismic activity was once rare in Texas and seems to be increasing lately, lending support to the theory that drilling is having a destabilizing effect.
    On May 16, three small quakes shook Bedford, a suburb of Dallas and Fort Worth. Two small earthquakes hit nearby Grand Prairie and Irving on Oct. 31, and again on Nov. 1.
    The towns sit upon the Barnett Shale, a geologic formation that is perhaps the nation’s richest natural gas field. The area is estimated to have 30 trillion cubic feet of recoverable gas and provides about 7 percent of the country’s supply.
    The drilling’s economic impact has been significant, because gas companies pay signing bonuses and royalties to property owners for the right to drill beneath their land.
    Signing bonuses climbed to around $25,000 an acre at the boom’s peak.
    Cleburne agreed to lease the mineral rights in the earliest stages of the frenzy, receiving a modest $55 an acre for 3,500 acres of city land. There are about 200 drilling sites in Cleburne, and it is not unusual to see cattle chewing grass in the shadow of gas pipes.
    Cleburne has collected between $20 million and $25 million in royalties since 2001, about $6 million in 2008 alone, Reynolds said. Such riches have allowed the building of parks and sports complexes in the city of 30,000, about 30 miles south of Fort Worth.
    “That’s a lot of libraries and police cars,” the mayor said proudly. “It’s enabled us to escape the worst part of the recession, enables us to keep tax rates low and lowered unemployment.”
    Landowners are also getting theirs. Locals call it “mailbox money,” occasional royalty checks that arrive from the gas companies. The mayor, a contractor who owns three quarters of an acre, said his most recent check, for three months’ worth of royalties, was nearly $850.
    “It’s better than a poke in the eye,” he said.
    Although many residents never felt the quakes, those who did have described them in different ways. When the first few hit, some ran outside to see if a house had exploded. The city manager said he thought his wife was closing the garage door.
    Picture frames and windows rattled.
    None of the quakes caused any damage or injuries, though city officials said they are keeping a close eye on the earthen dam at Lake Pat Cleburne.
    There seems to be little fear around town of any catastrophic damage, but the ground shaking is unnerving nonetheless. Townspeople want to find out at least what is causing it, even if it is unclear whether anything can be done about it.
    The gas is extracted through a process known as horizontal drilling. A company will drill roughly 5,000 feet to 7,000 feet down and then go horizontally for as much as 4,000 feet or so.
    Then the fracking begins.
    A spokeswoman for Chesapeake Energy, which owns most of the mineral rights leases in the Cleburne area, said the company is “eager to get to the facts” and is working with the government and local researchers to determine whether there is a link.
    “Drilling has occurred for more than a hundred years,”
    Julie Wilson said in an e-mail. “Tens of thousands of wells have been drilled with no nearby earthquakes at all; hundreds of earthquakes have occurred with no drilling nearby.”
    Cliff Frohlich, a scientist at the University of Texas and author of “Texas Earthquakes,” said he believes more than 20 Texas earthquakes in the past 100 years are related to drilling for petroleum and gas. But he added: “I would be surprised if a seriously damaging earthquake came out of this.”
    John Breyer, a petroleum geologist and professor at Texas Christian University, said drilling is absolutely not causing the earthquakes.
    “It’s like the Great Wall of China,” he said. “If you pull a brick out of the wall every half-mile, you are not going to affect the stability of the structure.”
    The mayor said he is open to any answer the city’s geologist brings him.
    “We are going to find out what’s causing them and if it is something that we can deal with, I promise we will deal with it,” Reynolds said. “But it’s like the dog that chases the car and catches the car: I don’t know what you do then.”

81. If it explodes to the upside here we are in iii of v up and this morning finished ii.

82. re 79. Depends on how crude gets back there. I think EOG goes higher following a decline into the mid 60s. If that decline is all at once (or in a few days time) then the reset button gets hit on the group and you start from the high $60s on EOG. No hedges, falling lease operating costs in the Bakken and Barnet combo plays, higher oil production all translate into better than expected bottom line performance. Watching the Street’s numbers, they don’t yet get it but when they flow those oil price through and then modify their cost assumptions and their differentials as well it will not be an insignificant jump for some of them.

83. Bill – it could be worse:

    http://en.wikipedia.org/wiki/Sidoarjo_mud_flow

84. ZMAN – Is there news on WH?

85. Ram – Not that I see. That stock has been frozen. Guessing its an analyst comment.

86. Thanks much Nicky.

87. seeing headlines… someone saying Ahmad… won.

88. CLNE moving to new highs, otherwise I could not be more bored. Declaring beerthirty early.

89. BOP – he is bound to say that – let the fireworks begin.

90. BOP’s storms are here, pretty sure going to lose power, signing off. Have a great weekend.

91. Nicky — re: Amad… agreed. Thought the exact same thing. But at least they are not nuclear fireworks. Yet.

    Have a great weekend all.

92. Everyone claims victory:

    http://news.yahoo.com/s/ap/20090612/ap_on_re_mi_ea/ml_iran_election;_ylt=Atrw953QWbFuA8yF3b4VOlCs0NUE;_ylu=X3oDMTJodDhtbmpqBGFzc2V0A2FwLzIwMDkwNjEyL21sX2lyYW5fZWxlY3Rpb24EY3BvcwMxBHBvcwMyBHNlYwN5bl90b3Bfc3RvcnkEc2xrA3JpdmFsc2luaXJhbg–

93. Last credit update for the week —

    Everything rallied in credit… albeit on practically zero volume. Going out at the tights (highs) of the day. For now, feels like most accounts are happy to buy risky assets. SPX 940 seems to be the magic number.

    IH 123 bps -4bps

    HY 86 1/8 points +1/2 pt

94. KOG comment from Bakken investor:
    1. there’s a reason there are few wells on the Rez: there’s no due process and they can even abrogate the deal if they want (and have in the past). The local co.s know there is oil there, but it is just not worth it.
    2. rig penalty exceeded capital raise; can’t see a way out of the hole given rig committments.
    3. working on 3 different ways to drill/complete wells = don’t know what they are doing yet.
    Just passing comments along.

95. Thx, RMD for infor. I will try and work up a post this weekend on the information that I have available for KOG. Everybody have a good weekend.

96. zman any ideas on why AHD and APL have risen so much recently? ATN has not shared the price rise with them.

97. Mimster – Different businesses. Don’t know why the pipelines would be outperforming the E&P focused name, probably something company specific. I’ve never been a pipeline guy and never will be, just not my thing. ATN is going to be tied more to natural gas prices than those other two.

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