Wrap – Week Ended 6/12/09

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Holdings Watch: Took some profits this week in June contracts as we approach expiry next week and also adopted a more cautious stance as oil started making new 7 month highs on an almost daily basis. As I've written before, this is not how I like to see prices unfold and despite the fact that the stocks have for the most part only partially kept pace with the rise in crude, they will no doubt suffer the consequences of an approaching, short lived but painful, correction of 10 to 15% in the commodity.

The $10,000 portfolio started in October 2008:

  • $10KP: $37,000
  • 52% Cash

Things We Sold This Past Week:

  • PXD - Sold 100 (75%) of my June $30 calls for $0.90, up 44%, with the stock at $29.75. The position had grown too large for the $10KP to be appropriate.  I continue to hold the July $30 calls here.
  • KWK - Sold the June $12.50 Calls for $0.45, up 73%. The stock has a had strong run and I will be selling the $10 strikes here shortly.
  • KWK - Sold the $10 June Calls for $2.40, up 113%.

Wrap Comments:

1) My kind of week for the equities.

  • Oil Service -  We've taken a hands off approach to the oil service names for the last several weeks.  I still think that the rally they have had is due for a setback (hard to put these kind of gains on 2011 earnings expectations which seems to be what the Street is doing) and I will re-examine puts (in tentative, toe dipping fashion) prior to 2Q earnings releases,
  • E&P - We  names
  • Majors - I've been away from the names all year ... and they have done nothing. Enough said.

2) Oil Up, Gas Flat... Not a new story here this week but as I mentioned above, I think the near term crude rally may be on borrowed time. Inventories are, after all, quite full, I know, I know, "what's new about that?" Nothing. But we've seen China's imports rally in May in part to support their own version of an SPR and this effect may be slowing. "What about the dollar?" The dollar / crude relationship is a strong one but the recent move in crude is not supported by current levels if history is a guide.

4) ... Crude Shorts On The Rise. I'm not alone in this thinking; the non-commercials (speculators) are adding to their short position as seen below. I think we may have a trip to $75 still in the cards for this leg up but then I'd expect profit taking and potentially a short term dead cat bounce in the dollar to take some wind out of the crude rally.


4 Responses to “Wrap – Week Ended 6/12/09”

  1. 1
    zman Says:

    Iran says Ahmadinejad wins. Results sure to be contested.


  2. 2
    zman Says:

    And the U.S. rejects Iran’s official election results:


  3. 3
    zman Says:

    Mimster – re ATN vs the pipeline Atlases:

    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.

  4. 4
    West Says:

    KOG: Buy, Sell or Hold, Do we have a Caddy with no money for gas?……….Z like disclaimer: Please do not use any information that I provide as a financial advice, please do your own research. (1) Probably the foremost item that we need some type of update on from KOG would be the status of the 2nd rig that they have contracted from Unit Corporation on a take or pay contract. Logic says they are able to work out some kind of a deal, since the 1st qtr cc Lynn said they were in discussions and had also been able to get a rate reduction on the current Unit Rig #117. I would not expect any news from the parties until an agreement is reached. It must be noted that a 5 million $ rig penalty guts their bank account and price movement would have a downward bias. (2) They are using several different drlg orientation ideas to see if they can match direction and length with this area. Please reference the way EOG and WLL drl different length horizontals in the Parshall and adjoining Sanish Fields to the North of this area. A cursory look at the NDIC site https://www.dmr.nd.gov/oilgas/ with gis map section will show there have been a great many different type of well orientations tested. Most would agree that the theory is to intersect as many stressed cracked or fractured zones in the formation as possible. There are many here on this site that can better describe this aspect than me. There is not a standard completion technique for the Bakken/TFS formations. MRO drills a long horizontal and does a large single stage frac that cost less money. BEXP has recently done a 20 stage multi-stage frac that is suppose to frac each of the 20 different areas individually. The undisputed king of the frac is EOG, in the Parshall most laterals are in the 4500′ range with 6 to 10 multi-stage frac. Some would say EOG’s success has to do with their advanced internal fracing knowledge and correct fracing fluids based on formation. This is a highly guarded secret, but as EOG has said it is not patentable. EOG fracing knowledge began with the Barnett Shale and they have stepped out and used this knowledge on many other shale basins in North America. XTO is said to have some of the best fracing knowledge also from the shale areas such as the Barnett . XTO is a partner with KOG on the 3,4 5, & 6 wells in the Two Shields Butte area, so it would be natural to think that they would be incorporating their knowledge into the design of these wells. Each completion should provide them with valuable information and act as an additional building block as they go forward. (3) Fort Berthold Indian Reservation…KOG acquired most of their present acreage at one of the first O&G lease sales held on the reservation in over 20 years per information from KOG’s website. This particular area is complicated by the fact that we have the Three Affiliated Tribes (Mandan, Hidatsa,and Arikara), individual ownership, the Missouri River and Lake Sakakawea ( with mineral ownership by North Dakota and The Federal Goverment). The following information is gleaned from the Rocky Mountain Oil Journal dated June 6, 2008. The presence of Bakken potential under the reservation has been known for years but several barriers to development have existed. The slow moving process of permitting by the Bureau of Indian Affairs (which has now supposedly been streamlined). There has not been an agreement between the Three Affiliated Tribes and the State of North Dakota concerning tax and royalty issues. After reviewing an agreement for 1 1/2 years, an agreement was signed June 10, 2008 between the state and the Tribal Council. According to Governor John Hoevem, the agreement “will provide economic development, jobs, and revenue for the Three Afiliated Tribes and its members, WHILE RECOGNIZING AND MAINTAINING TRIBAL SOVEREIGNTY.” KOG has 13 permits currently approved. A partial list of active companies on the Reservation include: KOG, XTO, MRO, EOG, WLL, HES, STR, Zenergy, Peak NorthDakota, and Slawson Exploration. “No Due Process” is probably not accurate legal description for Soverign Nations proceedings, but I’m not an attorney so I would have to defer that to someone else…..This provides some basic information on the 3 issues brought up Friday afternoon……As a side note and up date , One of the local investors made a trip to the FBIR and had the following information to share about the lease. The flare on TSB #16-8-7H (4th well) has been spotted, TSB 16-8-16H (3rd well) is waiting on completion to begin towards end of the month . The TSB 14-33-6h %th well) has been finished drilling with reported strong shows of gas and green oil over the shaker during drlg (from a very good authority). Unit 117 has slide over and is currently drilling the TSB14-33-28h their sixth well in a row. I continue to believe in the Company and the prospect. If you have ever participated in a wildcat well this is still a much better feel. I am going to go ahead and post this with additional information to follow when it becomes available. Sorry about the length, all comments good and bad are appreciated. thx ,West http://groups.google.com/group/bakken-shale-discussion/browse_thread/thread/9318088a7801208

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