Wednesday – Oil Inventory Preview

CPI came in better than expectations on the heals of weak comments from FedEx. Look for a tepid to poor open. Following the oil numbers I won't be shy about taking some losses in June contracts unless we see an upside surprise in gasoline demand or one of the headline numbers that rejuvenates the commodities.


In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. EIA Oil Inventory Preview
  4. Stuff We Care About Today
  5. Odds & Ends

Holdings Watch:

  • $10KP: $26,300 / 62% cash

Yesterday's Trades:

  • HK - Added (5) more July $25 Calls (HKGE) from $1.50 with the stock at 24.50 (after having been nearly a buck higher earlier).

Commodity Watch:

Crude oil fell $0.15 to close at $70.47, brought lower by a weak equity market and despite a weaker dollar. This morning crude is trading down into the mid $69s this morning on yesterday afternoon's API numbers and another weak start for the equity markets.  If we get disappointing numbers from EIA today, look for oil to move into the mid $60s by this time next week.

  • Russia Watch: One of Lukoil's VPs is urging Russia to again consider joining OPEC. His reasoning? Adding Russia's roughly 10 mm bopd capacity  to the Cartel bring OPEC capacity north of 50% of global production along them to more easily set oil prices. "Russia should join Opec and move to direct contracts. Then we will jointly control 51% of world output and we can dictate the price by directive." Russia has balked at joining the Cartel after teasing OPEC with hints that they would go along with production cuts with the group only to pull out at the last moment.
  • Nigeria Watch: Shell extended its force majeure on Forcados oil exports for remainder of June and all of July.  No comment on displaced volumes at this point but the Forecados oilfield was capable of producing 380,000 bopd back in 2006 before it was repeatedly attack by rebels, and flows were halted most recent in March following a pipeline attack.

Natural gas retreated 5 cents yesterday to $4.13. Like I wrote yesterday, it is hard to put a rally in gas together and two consecutive days proved to be too much. The warmer than normal weather should help keep gas prices close to the $4 mark as long as inventories behave tomorrow. This morning gas is trading off another 5 cents and without a good number on Thursday (double digits, not triple digits on the injection) its hard to see gas holding much above $4 on the very short term outlook. 

  • Early Read On Natural Gas Inventories: 100 Bcf vs ...
    • 106 Bcf last week
    • 60 Bcf last year (when it was exceedingly warm)
    • 81 Bcf for the five year average
  • Tropics Watch: Nothing brewing yet.

EIA Oil Inventory Preview

API Inventory Watch:

  • Crude: Down 1.3 mm barrels

    • Utilization:down slightly
    • Imports: up 830,000 bopd to 9.3 mm bopd - that's a big number.
  • Gasoline: Up 2.14 mm barrels bigger than people are looking for and a bit of an odd number given API also said that demand surged to 9.7 mm barrels per day. If EIA shows a similar spike in demand look for a rally in gasoline and in crude after a negative reaction to the headline numbers.
  • Distillates: Up 0.88 mm barrels - in line with expectations. API showed a retrenchment in demand here from the prior week. 


  • Gasoline demand continues to run sub par for this time of year. Not surprising given the 6 mm people who have found themselves unemployed. A number today over 9.2 mm bpd is really pretty important to keeping gasoline and thereby crude prices aloft. That's probably a bit a tall order (unless API is onto something) but RBOB prices have advanced for the last 49 days with and without oil and at this time of year, it becomes necessary for gasoline to start driving crude prices and not vice versa.
  • The expected distillate build is slightly less than average for this time of the year but that's a function of weak supply and not over strong demand. This component will probably surge to prominence out of season (perhaps in August or September) as we start to see a slow recovery in over the road diesel demand in the U.S. I spoke with the logistics manager of small trucking outfit over the week end and his basic comment was, "crops are headed out of California but nothing is headed to California." So instead of 2 way traffic, he's hiring out deadheads out of California to bring produce to the midwest. Trucks are then being left in the center of the country as no one wants to drive an empty truck back across the country. Until we see 2-way traffic picking up again, diesel demand will remain depressed. And that's before we address the depressed export market which continues to show no signs of life.

Stuff We Care About Today

GMXR Announces Two Haynesville / Bossier Well Completions

  • IPs of 8.9 and 9.4 from two wells with extended horizontal laterals with 12 and 14 stage fracs
  • In terms of IPs these are the best the company has drilled to data in this E. Texas, normally pressured part of the play.
  • They commented that production from their first 3 wells with laterals > 4,000' averaged over 5.8 MMcfepd

What this means for the company:

  • These were the 6th and 7th wells drilled in their planned 14 (or so) well Hayneville/Bossier program this year. This program eats up essentially all of their 2009 budget. 
  • Well #8 will be fraced in late June and well #9 is drilling so everything is pretty much on schedule for the drilling program.
  • The importance of the results is two fold:
  • the rates are not bad and are an improvement over prior results.
  • the company meeting expectations at this point which is what you want to see.
  • I think they need to get away from reporting on a well by well or every 2 well basis and that should begin after the second quarter press release.

Hedges: Not betting on a recovery in gas prices, just insuring enough cash flow to fund slow development program, probably comes close to maintaining production over this year and next.

  • 2009: 70% of expected production hedged at $7.77
  • 2010: 70%  at $6.50

Valuation: Not exactly cheap but not out of the realm  of reality given their upside potential

  • Price / CFPS:
    • 2009: 5.2x
    • 2010: 5.5x

    • 2009 and 2010: 8.0x 
  • Reserves
    • Proved: 465 Bcfe (94% natural gas)
    • 3P reserves: proved, probable, possible:  4,400 Bcfe
    • $1.15 per Mcfe for the proved only, which is pretty low, given the current strip, recent asset acquisition prices, and the location of their reserves which are economic at lower than average gas prices.  
  • GMXR should have a new presentation out soon for a presentation in London this Thursday. I continue to hold the common shares.


Odds & Ends

Analyst Watch: All quiet on the analyst front.

Interesting Article Watch:

  • Feds Want To Add Four New Nukes. In general, the U.S. doesn't add nuclear reactors, it uprates them and occasionally one of them is shuttered. The administration has plans to encourage the development of four new facilities. This, in my opinion, is a good idea. I'd bet it takes 10 years but its overdue as nuclear power provides about 20% of U.S. generation, is carbon emission free, but the reactors are aging. See article here.
  • Funds To Dismantle Aging Plants Fall Short. Just when you thought (because you read the previous article) that the nuclear population (now 104 facilities by the way, down from 109 reactors in  the mid '90s) was likely to rise, comes this article from AP detailing how 19 facilities have one the right from the NRC to be mothballed for 60 years instead of dismantled due to lack of funds.
  • Global Warming Watch: NOAA's report on Global Warming was released yesterday. You can download the 196 page report here.  Now, you may think Global Warming is a myth or that it is gospel. I'm not going to argue that either way as this isn't that kind of site. I think the report will be used to support passage of a climate change bill later this summer which will aim to reduce carbon emissions sharply, putting a greater financial burden on certain utilities, refiners, and the coal industry to name the big ones. If you look at the findings it is clear more electricity will be needed. 


145 Responses to “Wednesday – Oil Inventory Preview”

  1. 1
    Sambone Says:

    By Nick Heath

    LONDON (Dow Jones)–Crude oil prices dropped below the key $70 a barrel level
    for the third time in as many days Wednesday, as doubts over economic recovery
    European equity markets tracked losses on Wall Street as investors questioned
    the pace of any potential economic recovery, in turn raising doubts over future
    crude oil demand.
    A decline in U.S. May industrial production, alongside news U.S. producer
    prices had fallen the most for 60 years, helped knock the Dow Jones Industrial
    Average 1.25% lower Tuesday.
    Crude’s drop was limited by expectations weekly Energy Information
    Administration data will reveal U.S. crude oil stocks fell again last week,
    although gasoline demand was under scrutiny after the American Petroleum
    Institute said on Tuesday gasoline stocks rose 2.1 million barrels last week.
    “Optimism and confidence may be just petering out at this stage. If stock
    markets have definitely hit a top in the near term we could see some knock on
    in commodities,” said Simon Wardell, analyst at Global Insight in London.
    “We’ll be looking at those [EIA] numbers for any signs of life on the demand
    At 1054 GMT, the front-month August Brent contract on London’s ICE futures
    exchange was down 38 cents at $69.86 a barrel.
    The front-month July light, sweet, crude contract on the New York Mercantile
    Exchange was trading 61 cents lower at $69.86 a barrel.
    The ICE’s gasoil contract for July delivery was down $12.75 at $576.25 a
    metric ton, while Nymex gasoline for July delivery was down 411 points at
    203.00 cents a gallon.
    Much of crude’s recent rally to seven-month highs above $73 a barrel has been
    attributed to investors’ economic recovery hopes, given an ongoing weakness in
    near-term fundamentals. A faltering in those hopes could leave crude at risk of
    a pullback, some said.
    “If the guys controlling the speculative money suddenly get cold feet and
    decide the recovery is stalling and it is time to take profit on their oil
    bets, then hold on to your hat for a painful correction,” said David Hufton,
    managing director at PVM Oil Associates in London. “If they hold their nerve,
    feel the dollar will weaken and fear inflation, then all the big upside targets
    are valid.”
    Fundamentals-watchers are due an update on conditions in the world’s largest
    crude oil-consuming economy when the EIA publishes its weekly inventory data at
    1430 GMT.
    According to average forecasts of 12 analysts polled by Dow Jones, the data
    will show inventories fell by 1.7 million barrels last week while gasoline
    inventories rose by 300,000 barrels. Distillate stocks are seen to have risen
    by 800,000 barrels, while refinery utilization rose by 0.1 percentage point to
    86% of capacity. Tuesday the API reported crude oil stocks fell by 1.3 million
    Hopes the summer driving season will give U.S. demand a boost helped push
    crude prices higher in the run-up to the start of the season last month,
    although rising unemployment and economic slowdown remain an obstacle to
    improvements in U.S. gasoline demand. Recent higher prices could even further
    curb consumption, analysts say.
    “Gasoline demand is crucial,” said Andrey Kryuchenkov, vice president of
    commodities research at VTB Capital in London. “A disappointing [EIA] report
    could depress the market all the way towards $68, but it is more likely that
    $70 will hold, at least in New York.”
    The dollar was little changed against most major currencies Wednesday, leaving
    investors to focus their attention more on equities. U.S. May Consumer Price
    Index data is due at 1230 GMT.

    -By Nick Heath, Dow Jones Newswires Dow Jones Newswires
    06-17-09 0709ET

  2. 2
    Sambone Says:

    By Brian Baskin

    NEW YORK (DOW JONES)–Oilfield services shares will need more than a return to
    boom-era oil prices to fully recover from the sector’s worst downturn in a
    Shares in the Oil Service Sector Index have risen by about 50% since February,
    around when crude futures began a rally that has seen prices more than double.
    Investors are anticipating that higher prices will encourage producers to
    increase their budgets, benefitting the drillers and service companies that
    find and extract oil on their behalf.
    The road to recovery isn’t so clear cut. Last year, when oil prices were
    headed toward their July peak above $145 a barrel, the services industry had
    massively built up capacity to handle what was then a fast-growing market.
    Producers contracted scarce rigs years in advance, allowing drillers to dictate
    the prices they charged. When oil plunged into the low $30s during the second
    half of the year, the power balance flipped. Suddenly, service companies were
    competing for declining workloads. Producers demanded lower prices and, in many
    cases, got their wish. Baker Hughes Inc. (BHI), one of the largest service
    companies by market capitalization, saw its first-quarter earnings drop to 63
    cents a share, from $1.27 a year earlier.
    Analysts say it could take two years or more for service companies to regain
    the upper hand, even if oil prices keep rising at their current blistering
    pace. Many of the biggest producers are still skeptical of the recent rally and
    won’t reinflate their budgets until the end of the year at the earliest.
    Service companies would then need to run through spare capacity and hope that
    oil and gas prices support increasing activity over the long run. So while
    rising share prices indicate that the sector may have hit bottom, stocks are
    likely in for a bumpy ride over the next year.
    “It’s way too early to be looking at 2011,” said Kurt Hallead, co-head of
    global energy research at RBC Capital Markets in Austin, Texas. “There are too
    many variables, and absolutely a very low degree of predictability.”

    Delayed Gratification

    Service companies with a global reach have the best post-2010 outlook.
    In the U.S. and Canada, producers are more focused on natural gas, which is
    still trading near a seven-year low. The number of rigs in service is down
    about 60% from last summer, and is still falling.
    Outside North America, spending cuts weren’t nearly as steep, even when oil
    prices hit their nadir in December. Countries such as Brazil and Angola have
    pushed ahead with developing offshore oil fields, though in some cases at a
    slower pace than service companies had hoped.
    Schlumberger Ltd. (SLB) earns the largest share of its profits outside North
    America among the major service companies, though Weatherford (WFT) attracted
    buzz last month when it agreed to acquire the oilfield services arm of TNK-BP
    (TNBP.RS), the Russian oil producer half owned by BP PLC (BP).
    Lagging behind is Halliburton Co. (HAL), the market leader in pressure
    pumping, where water or chemicals are sent down a well to boost production. The
    technique is heavily dependent on rig activity, leaving Halliburton more
    vulnerable to the weak U.S. market.
    But Halliburton may see some immediate returns from rising oil prices, as the
    company has recently signed contracts with producers that increase payments if
    oil prices cross a certain threshold, said Bill Herbert, an analyst with
    Simmons & Co. in Houston.
    Weatherford has adopted a similar pricing mechanism for some of its work in
    Russia, Herbert said.
    However, the practice only began in the last six months and is still fairly
    rare, Herbert said.
    “They are the exception, as opposed to the rule,” he said.
    Weatherford didn’t respond to a request for comment on the new pricing
    Cathy Mann, a Halliburton spokeswoman, declined to comment on the “specific
    details” of the company’s pricing but described the current environment as
    “extremely challenging,” adding that “we expect that pricing for our services
    will remain under pressure until activity stabilizes.”

    (Brian Baskin covers energy markets for Dow Jones Newswires in New York, and
    previously covered oilfield services for Dow Jones in Houston.)

    Dow Jones Newswires
    06-17-09 0736ET

  3. 3
    Sambone Says:

    HOUSTON (Dow Jones)–The recent run-up in crude prices reflects perceptions
    that an improving economy is leading to a recovery in oil demand, while
    production cutbacks by the Organization of Petroleum Exporting Countries are
    effectively curbing excess supply, BP PLC (BP) energy economist Mark Finley
    said Tuesday.
    “It’s very clear that OPEC has largely delivered on production cuts,” and
    “demand has begun to stabilize as the economy recovers,” Finley told reporters
    on the sidelines of a presentation at Rice University’s Baker Institute Energy
    Forum. Finley is the general manager of global energy markets for BP America,
    and is responsible for the company’s Statistical Review of World Energy, an
    annual compendium of data.
    Oil settled at $70.47 per barrel Tuesday on the New York Mercantile Exchange,
    more than double the 2009 low of $33.98 per barrel in February. Many observers
    have said the run-up in prices is mainly due to inflation worries that have
    spurred a weakening of the U.S. dollar and investor flight toward commodities
    such as oil and gold. Finley said that financial markets play a part, but
    they’re not “key in determining the direction of price movements.”
    Finley said that supply-demand fundamentals pushed oil sharply off its record
    heights of $147 a barrel last summer, even before the current economic crisis
    boiled to a high point in September. The U.S. saw a steep decline in gasoline
    demand as consumers reacted to record prices at the pump, which coincided with
    unilateral production increases by Saudi Arabia reaching oil markets. “All this
    oil supply hits the system just when demand is ready to go away,” Finley said.
    Although Finley expects oil markets to remain volatile in the short term, he
    said that the OPEC cutbacks and a recovering economy should “begin to rebalance
    the market” in the medium term. But the likelihood of a short-term oil supply
    crunch similar to the one seen in recent years is unlikely as demand will
    recover slowly and spare production capacity, currently hovering around 4
    million barrels a day, is ample.
    The “overhang of spare capacity is likely to be out there for a while,” Finley

    -By Angel Gonzalez, Dow Jones Newswires

    Dow Jones Newswires
    06-17-09 0737ET

  4. 4
    zman Says:

    WLT upped to Outperform at FBR Capital

  5. 5
    zman Says:

    Addax in London to meet with Chinese and potential Koreans over takeout bids. If they get this deal done it will be the first deal of size ($7 to $8 billion is rumored) in the group in quite some time. In a normal environment you would have seen more deals by now preventing $/Mcfe reserve valuations from getting as low as they are now. But with greater than normal economic uncertainty driving commodity prices lower, the acquisition safety net for valuations has not been there. I think this is starting to change. Recent equity and debt deals will shore up balance sheets and may afford some of the larger independents with the opportunity to go on the hunt later this year.

  6. 6
    ram Says:

    Does this mean a new contest, like who’s next?

  7. 7
    zman Says:

    Ram – I still have the old files, will post in tomorrow’s post so people can see and add their thoughts.

    Opening could be worse but there is still time. Not much matters in terms of trading pre oil inventories this morning.

  8. 8
    ram Says:

    You would think that this potential buyout and the recent decision to remove the poison pill would let HK jump up not meander down.

  9. 9
    zman Says:

    NG up six cents, light volume, getting back all of yesterday’s loss though.

    Dollar slightly weaker after CPI, oil firming but again, doesn’t mean much this early.

    Watching the NYSE listed names gap lower on light volume now, not getting parsed for being gassy or oily, just specialists stepping out of the way.

  10. 10
    zman Says:

    Re 8 – yeah, but they aren’t giving the selling that much thought. It’ll take either good oil numbers today and gas numbers tomorrow or a market bounce to help me out on the Junes at this point. I’m not adding unless I see something exception in the inventory reports and if the market looks like it can get uncorked.

  11. 11
    zman Says:

    A little bird shot me the Tudor comments on GMXR, they like consistency too it seems. They have well costs coming down from forecast $8 to $7.5 mm a pop, says adds $2 to their NAV. Stock is basically unched today vs the group down about 1.5%.

  12. 12
    zman Says:

    LNG (the company) threatening to fall back into the $2s from recent highs of $4s. Still no gas tsunami makes LNG a dull stock.

  13. 13
    Dman Says:

    Z – what do you think of the WLL convert?

    (i.e. from WLL viewpoint, not from “do I wanna get some converts?” viewpoint)

  14. 14
    zman Says:

    HK from its 50 day average, moving towards the low end of the recent base.

    Dman – I saw it, kind of seems like they are going to the market quite a bit right now.

  15. 15
    Dman Says:

    CRK getting CRunKed

  16. 16
    zman Says:

    Dman – yep, CRK move is actually in line with a lot of the moves I am seeing this morning (down 4 to 5%). Volume is starting to pick up for this time of day as well, people are getting nervous about crude, about the broad market. Feels a bit like last mid June and I’m not tripping over myself to bottom fish.

  17. 17
    bill Says:

    fertilizer stocks are down driving down commodity sector and taking shippers with them

    pure carnage…

  18. 18
    zman Says:

    Bill – yep, best to be mostly on sidelines and not try to get too cute picking bottoms. Feels like we bounce soon but I’m long enough for now and will watch to see how cheap some things will get. The oil leveraged names have come back pretty good for instance and their number will be going up, so a CLR or a WLL (assuming they are done issuing paper) may turn out to be pretty interesting in front of 2Q upward revisions. But only if oil will trade sideways for a time.

  19. 19
    choices Says:

    KOG down to $0.93

  20. 20
    zman Says:

    Thanks choices, watching that.

  21. 21
    Sambone Says:

    By Madalina Iacob

    NEW YORK (Dow Jones)–This week’s losses in crude futures continued Wednesday
    in tentative trading ahead of data on U.S. oil inventories.
    Light, sweet crude oil for July delivery recently traded 45 cents, or 0.6%,
    lower at $70.02 a barrel on the New York Mercantile Exchange. Brent crude on
    the ICE Futures exchange traded 42 cents lower at $69.82 a barrel.
    Crude declined as concerns about the pace of an economic recovery mounted.
    U.S. consumer prices in May fell 1.3% from a year ago, the largest 12-month
    decline since April 1950, as the U.S. economy plods through a recession,
    according to data released Wednesday. Investors often view commodities such as
    oil as a hedge against inflation, and the data could weaken their appetite for
    hard assets.
    The inflation figures followed reports Tuesday that indicated falling U.S.
    industrial production and producer prices.
    “The economic data showed that we are not out of the woods yet,” said Tom
    Bentz, a broker and analyst at BNP Paribas Commodity Futures Inc. “The upward
    trend is showing signs of tiredness, and the market is in a corrective mode.”
    Closely watched U.S. government data on U.S. oil inventories are due to be
    released at 10:30 a.m. EDT. Analysts surveyed by Dow Jones Newswires expect
    crude inventories fell by 1.7 million barrels, gasoline inventories rose
    300,000 barrels, and distillate stocks, which include heating oil and diesel,
    rose by 800,000 barrels in the week ended June 12.
    Analysts estimate refineries operated at 86% of capacity, up 0.1 percentage
    point from the week before.
    On Tuesday, the American Petroleum Institute separately reported crude
    stockpiles decreased by 1.3 million barrels.
    Oil prices have more than doubled from lows this year on expectations an
    economic recovery would boost demand. Reduced investment in oil production has
    spurred fears of tighter supply to quickly tighten once demand picks up.
    Front-month July reformulated gasoline blendstock, or RBOB, recently traded
    down 2.95 cents, or 1.4%, at $2.0416 a gallon. July heating oil traded 31
    points, or 0.2%, lower at $1.8219 a gallon.

    -By Madalina Iacob, Dow Jones Newswires
    Dow Jones Newswires
    06-17-09 0956ET

  22. 22
    jpntexas Says:

    picked up a few KOG at 0.95

  23. 23
    zman Says:

    That’s probably a very good entry point. Once oil catches its breath (guessing $65) and they get news out later this month, you’d think it would have a new high in store. Did we ever get any confirmation on what the second rig is up to, do they have to pay to cancel the contract or is it drilling/going to be drilling?

  24. 24
    zman Says:

    EIA inventory report – crude just prior to report at 69.60, down $0.90

    crude: down 3.9 mm barrels
    gasoline: up by 3.4
    distillates: up by 0.3

    imports: 9 mm bopd, flattish
    gasoline demand: 9.354 mm bpd, pretty strong
    dist demand: weaker as per API

    Nutshell: mixed bag.

  25. 25
    zman Says:

    Inventory report continued:

    Cushing stocks: flat at 29

    SPR saw a 600,000 barrel increase

    bit of an oddball report again as gasoline production advance while inputs to refineries fell.

  26. 26
    zman Says:

    Gasoline is leading oil lower on the inventories numbers which was influenced by some of the highest inventories we’ve seen in a weeks. The fact that gasoline demand was at the second highest level of the year is so far being overlooked by traders. Gasoline demand was up 1.1% from year ago levels.

  27. 27
    zman Says:

    … and that may lead to a reversal of this dip in crude (now down $1.30) in a little while.

  28. 28
    Dman Says:

    Wouldn’t it be something if these EIA reports actually made sense 🙂

  29. 29
    tater Says:

    I would find it odd if we didn’t get some support on the S&P at the 900 round number level, at least temporarily, so watch for bounces in individual names if S&P approaches that point today.
    Gassy names appear to me to be playing their respective 20 and 50 EMA’s, so keep an eye on those levels from the daily charts as superior to any short term view you may be looking at (always a good idea anyway).
    Out all day today. Good luck.

  30. 30
    zman Says:

    Dman – Would be nice. The EIA tries to track too many variables on a weekly basis and ends up estimating many of them. Oil may be taking note of that gas demand figure now (it’s all the way at the bottom of the report after all).

  31. 31
    zman Says:

    Thanks T. When you get a chance, would like to hear your thoughts on a violation of a moving average but with a close back above said average when looking at the charts.

  32. 32
    Sambone Says:

    By Steve Gelsi

    Energy stocks fell Wednesday ahead of weekly data on U.S. petroleum
    inventories as crude-oil futures retreated back under $70 a barrel.

    The NYSE Arca Oil Index fell 1.6% to 933, pulled down by a 5% drop in shares
    of component Hess Corp. (HES).

    The NYSE Arca Natural Gas Index also fell, down 1.6% to 436. Component El Paso
    Corp. (EP) dropped 4% to $9.16.

    The Philadelphia Oil Service Index (OSX) fared worse, down 2.4% to 168.

    Energy prices played a role in the latest consumer price index, with rising
    gasoline prices helping to nudge up retail-level inflation by 0.1% in May.

    At last check, gasoline rose to an average U.S. price of $2.68 a gallon on
    Wednesday, up a penny, according to the AAA Daily Fuel Gauge Report.

    In the energy pits at the New York Mercantile Exchange, crude futures fell 56
    cents to $69.91.

    Among energy stocks in the spotlight, Royal Dutch Shell (RDSA) fell 1.4% to
    $50.90. The company said it would continue to be unable to fulfill delivery
    contracts at its 300,000-barrel-a-day Forcados facility in Nigeria.

    Also in the energy patch, TransCanada (TRP) will issue $1.6 billion of stock.
    The Calgary pipeline giant will pay ConocoPhillips (COP) $550 million plus
    assume $200 million debt to take sole ownership of the Keystone Pipeline

    Shares of TransCanada subtracted 6.6% to $27.29.

    Whiting Petroleum Corp. (WLL) saw its shares fall 8.8% to $37.30. The company
    launched an offering of 3 million shares of convertible perpetual preferred
    stock to raise gross $300 million to pay down debt.

    Analysts at Houston-based energy research firm Tudor Pickering Holt said in a
    note to clients on Wednesday that Exelon’s (EXC) buyout offer of NRG Energy
    (NRG) is losing momentum, after the electricity generator extended its tender
    offer deadline to Aug. 21 from July 26.

    Analysts said the extension marks a “positive for NRG as we believe Exelon’s
    offer undervalues its target. What is surprising is the significant drop in
    shares tendered…was 51% when last announced in February; now only 12%,” Tudor
    Pickering Holt said.

    NRG’s shares fell a penny to $22.89.
    -By Steve Gelsi

    Dow Jones Newswires
    06-17-09 1043ET

  33. 33
    zman Says:

    ZTRADE: $10KP

    KOG – 1,000 shares at $0.9298. Stock is off about 12% as crude retreats with the broad market. This is a starter position and I may add more when we get further Bakken results later this month or early next.

  34. 34
    tater Says:

    re 31, you know you always ask that same question 🙂
    To my knowledge and from what I can glean from study, there is no steadfast rule. Most technicians that I read seem to hedge themselves and say stuff like “we need to see a close, not just a move” but that’s not always the case.
    I look at it as an art, not a science, and therefore each equity that you may be looking at has it’s own personality and landmarks that are more or less important. Also a line only just a line. I tend to get very conservative as a line approaches and take it as a signal that I should react the second I am convinced of a bounce or a break from that area. You can get duped, much the way an announcement about same store sales numbers can dupe a fundy analyst.

    The short of it, there is no one rule. Take a move over an important line as a big huge warning, watch for signs of a false move (low volume/too fast), make a decision. A close beyond a line is by definition a true break.
    Best I can do.

  35. 35
    zman Says:

    Tater – yep, I know and I have my own set of thoughts on the subject but as you continue to read more texts on the subject I like to periodically check to see if you’ve changed your mind.

  36. 36
    West Says:

    KOG, I would say that price action is more market related than company specific. Icontinue to like the stock and would view this as a buying opportunity. I did send Lynn an email asking about the 2nd rig but I have not heard back from him.It should be noted that there are those that have a lot to gain by people that panic trade.Once again I would look at the long term view here for KOG. There may still be some moves up and down with the general market. Our thesis is strong there are 2 producing wells on production now and 1 long lateral well that has been fraced and is flaring gas and producing oil now . The off set well to this is the #3 which should be fraced next week and ip rates will be announced for both at the same time, probably at the end of the month. KOG averaged 100 bopd for North Dakota last year, with these new wells their production should move up to 500 to 1000 bopd in North Dakota. This company is doing it right they are not hyping their wells but putting their plan into action. … Sometimes I think that with all the instantaneous information we start to micromanage and loose sight of the bigger picture. Is there a possibility that the stock could go down more , of course. If you can’t sleep at night worrying about your position then you need to sell down to the level that lets you sleep at night…. I’m a fearless trader so I can take a little more pain as far consolidation periods for stocks. The chart says the longer we have this sideways consolidation the stronger the next move will be. Thesis: (1) Right Company, This is a veteran crew with years of experience partnered with XTO one of the most successful independents in the US. (2) Right Area, KOG has 37,000 net acres on trend between two large oilfields,to the north the Parshall/Sanish Field is one of the largest onshore oilfield discoveries in the contential US in the last 50 years. They have now drilled 5 wells all with oil and gas shows while drilling. In the last 3 months they have put 3 wells on production. The most recent was the long lateral #4 which is a tight hole but a visitor confirmed production and gas flare. So this is confirmation that we have the a productive formation under the leased acreage. There is also the deeper Three Forks Sanish Formation which is producing at an offset to the # 5, this is a tight hole so we don’t have any information on this well. This is additional potential in the future for the company. This would say that they are in the right area and have confirmation that it is productive. This is not confirmed but they have filed to sale 10,000 barrels of oil from the first 2 wells. (3) Better Information, we don’t know everything but I guarantee you that we have better information than the vast majority of people trading this stock. Go do a search on Google and see how much information you can find about the company. So the bottom line is that I think that we have the right co., in the right area and that we are ahead of the herd with our information. Have a plan, execute the plan and stick with the plan

  37. 37
    zman Says:

    Oil down $0.65 now. Part of that rally off the lows is now doubt the market recovering to slightly red from red, part of it should be gasoline demand.

    Interesting to see natural gas now up 8 cents back to 4.20. Shorts must be getting nervous about tomorrow’s number.

  38. 38
    zman Says:

    Thanks West, well said. Will add #36 to the KOG notes tab soon.

  39. 39
    zman Says:

    Heating oil turning flat to slight green on day. Gasoline still off 6 cents which is holding crude down, but now only 50 cents. Crude probably trends with the SP for the rest of the session. Stocks well off lows but still ugly color of red.

  40. 40
    choices Says:

    Thanks West for the updates

  41. 41
    zman Says:

    Jat – I guess we got our answer on that infra-red cushing survey accuracy, lol. Let me know if you see a follow up from them.

  42. 42
    zman Says:

    LINE getting hit pretty hard. That seems a little odd. The MLPs are often the ATM of the hedge fund world so it could simply selling to reinvest elsewhere in or out of energy. Don’t see anything that would make me want to punt a 14% yield completely hedged, low decline rate name in this environment though.

  43. 43
    Dman Says:

    Z – given the season, wouldn’t any NG short intend to be out in a few weeks at most?

  44. 44
    Dman Says:

    Z – check out the minute chart on LINE. Big seller an hour in (??)

  45. 45
    zman Says:

    Dman – one would suspect there would be a decline in the net short position on a seasonal basis as the Gulf churns up but in fact, they are gutsy crowd, and often you see short interest rally into moves up in NG prices. More often than not, the tropical depressions or waves that inspire the rallies in gas prices don’t amount to anything truly disruptive and they ride the gas price back down with more contracts short. This year, with gas already so beaten down, it seems the shorts are all eying each other and the exit on this long in the tooth trade.

  46. 46
    BirdsofpreyRcool Says:

    Good morning. Glad to see z got his cheap KOG shares. z is a better weed-waiter than i am. But, you picks your price, you buys your stocks, you waits for your plan to unfold.

    West says it best. Great summary on why we care about KOG. Bakken/TFS is an OIL PLAY. This is the only “resource play” out there (that i know of) that is oil. So, just have to prove you have it under your acreage and you know how to drill, frac, and produce it out. Key questions to be answered some time in future: what is optimal well-spacing? what is EUR? How can we lower the basis differential?

    I have a feeling that one frac job can’t drain a 640-acre block. But, would love to know the areal extent of a good frac in the Middle Bakken.

    Anyway, this mrkt rally is not over/dead/headed south. We had many many weeks of higher highs, off the intraday 666 on SPX. This week is just a breather.

    HeadTrader said “they wanted the mrkt to go down this week… so it did.” If TechTrader is correct, we might start to see a rally resume tomorrow (Thurs). Bouncy summer trading conditions. Real rally gets legs this Fall. So, pick your stocks, pick your prices, decide if you are a trader or a holder. Then execute your plan.

  47. 47
    zman Says:

    Thanks for 44, had not looked yet, honestly I don’t watch its chart as closely as other things as I’m a holder here to get paid and not to trade. Does look like a seller had to punt.

    WRES the only thing of note green on my screen.

  48. 48
    BirdsofpreyRcool Says:

    Before posting credit indices… the following is a Must-Read


  49. 49
    West Says:

    Tater Trader, Thx for adding the EOG chart to your list. I keeping voting for maybe you will catch Burge.

  50. 50
    Dman Says:

    Z – the LINE daily chart looks the same as a host of commodity charts: overbought, way over the 200 day & now falling. So to a lot of these hedgies, they all look the same = sell (& raise cash?).

    Not complaining, waiting for an entry.

  51. 51
    Paul in Kansas City Says:

    BOP; thanks for the link; very helpful. When I see LINE, NS, WMZ, COSWF all go lower makes no sense to me

  52. 52
    West Says:

    BOP, I don’t know if this link will work or not for MRO/NDIC , Surface Microseimic Study of a Bakken Fracture Stimulation.http://www.wbpc.ca/assets/File/Presentation/21_Brimberry_Marathon.pdf

  53. 53
    BirdsofpreyRcool Says:

    Pau #51 — KOG at 16¢ made no sense to me. PQ at 61¢ made no sense to me. CRZO at $7 made no sense. LINE at $13, no sense.

    Think of these prices as little gifts Mr. Market gives you. If it wasn’t for down and out days, you wouldn’t be able to snag your target stock at a juicy price. Key is to keep the bigger picture in mind. This time last year, credit was headed wider and drying up. This time, the opposite is true. Who you gonna believe, the global bond mrkt? Or the skittish stock market?

    Caveat — stupid Washington policy can (and will) roil markets. That is the X-Factor in this business cycle recovery.

  54. 54
    BirdsofpreyRcool Says:

    West — the link works. Now, i need to see if my brain will. Thank you!

  55. 55
    AAA Says:

    Z re 42, LINE spiked down on the inventory data. Seems odd.

  56. 56
    zman Says:

    Oil down 7 cents now. Epperson had this completely wrong on the call today and even let a trader say he was disappointed by the big build in gasoline attributing the build to weak demand. It was the second strongest week for gasoline of the year and #1 if you throw out the holiday week. People really ought to read through the report before they comment.

  57. 57
    zman Says:

    AAA – yeah, saw the timing, lots of energy stocks plunged pre data and then fell a little more after. With them it makes less sense.

    KOG getting its sea legs.

  58. 58
    choices Says:

    LINE: As Dman said, large trade at 10:35, 700,000 shares, down to 17.85, now trading at 18.65

  59. 59
    zman Says:

    Crude traded green.

    NG up 14 cents.

  60. 60
    BirdsofpreyRcool Says:


    · Equities rally off morning lows after SP500 cash fails to meaningfully break its 200dayMA (~906); SPX breaks back into pos territory midday as some of the “early cycles” that have been for sale over the last few days (transports, semis, retailers) lead on the bounce. Transports break into the green as FDX rallies off its lows and tech stages impressive rally (led by some large cap semis – TXN, QCOM, INTC). Consumer discretionary up 1.4% today and outperforming. Interesting that the VIX was down today and never rallied despite this morning’s selling. Equities volumes picked up a bit from where they had been earlier in June, but can still be called on light side. Buying the dips again?? It be interesting to see if this mini-rally has any legs to it (the “dip buying” rallies of the last few weeks have usually started later in the day) and the SP500 has done some decent damage on the technical front in the last few days that could be a sustained move up harder.

    · Healthcare acts great again: up more than 2% (was a strong outperformer yesterday too) – CBO came out Mon night and said Senate HELP plan was too expensive and last night said Senate Finance Committee plan was too expensive – this is raising hopes that both plans will be scaled back.

    · Financials are off lows but have underperformed all morning: s&p’s downgrade today pressuring the group (has been a while since the space has traded down on big credit worries – for wks the trade has been to buy on “normalized earnings”, but today people now talking more about credit)

    · Corp credit was underperforming equities this morning but is rallying back off its lows (IG is nearly flattish midday after widening out this morning, though HY is lagging).

    · Treasuries actually rally despite the uptick in stocks; S&P out w/a report mid-day today saying that its US rating is not likely to change in near-term. 10yr yields now 3.6% (vs. 3.95% last Wed recall)

    · CPI takeaways: The Consumer Price Index (CPI) increased 0.096% in May and the core, ex-food and energy, CPI rose 0.145. The core number was in line with expectations but the headline figure surprised to the downside as both food and energy prices came in softer than anticipated. Overall, we would expect the trends evident in this morning’s report to continue in upcoming CPI readings, as product market inflation responds to both weaker demand and softening marginal costs, as seen in the sharp slowing in wage inflation.

  61. 61
    choices Says:

    Obama to talk about Fin Regs at 12:50-will see how mkt takes it-VISA credit card getting hammered today.

  62. 62
    zman Says:

    re 61 – yeah, I think happy days over for high rate charging, change of fees, etc. Not a bad thing in my book though I believe in personal responsibility, I think some of the credit card practices were deceptive or at least a bit underhanded.

  63. 63
    zman Says:

    Hedge funds to be registered with SEC.

  64. 64
    BirdsofpreyRcool Says:

    ha! Being SEC-registered sure kept Bernie Madoff honest, eh?

  65. 65
    zman Says:

    Here ya on that one BOP. So far pretty ho-hum reaction from the markets.

  66. 66
    West Says:

    WLL, must be feeling some serious pressure from their banks as they continue to raise money with almost all of it going to the banks. I’m surprised that they haven’t sold their Michigan properties to raise capital. It looks like the only way they can develop their Sanish field is with a working interest partner. The only reason I mention this because the other day WLL was mentioned as a possible way to pay oil. Just me personally but I would avoid the high debt e&p cos that float more shares every time their stock price goes up,i.e. WLL & BEXP. EOG would be the better play to me. I also like ARD that has no debt and 50 mil cash on this pullback.

  67. 67
    BirdsofpreyRcool Says:

    west — i think some debt here is ok. Managed correctly, debt gives earnings leverage to equity. Like to see some hedges with debt on the BS, tho. Generate a baseline of cash flow to pay interest and amort… keeps your banks happy. Really like to see companies term out their bank debt in the public mrkt. Bondholders can’t come back and cut your credit line, until bond mature. Of course, too much debt = what got us into this fine kettle of (smelly) fish. We have Fannie and Freddie and the (mis)rating agencies to thank for that.

  68. 68
    choices Says:

    Article in Bloomberg mag indicates that Sheila Bair, Bush appointee to FDIC, will be a big player in fin reg revision.
    one minus=Barney Frank supports her, one plus=Geithner tried to get her fired.

    Curious as to what BOP’s opinion is.

    re #61-SEC under Cox was totally brain dead-hope springs eternal that new SEC will get more resources with a live breathing Mary Schapiro in charge. Cox did not bother to attend meetings last fall when the carnage was reaching a total collapse.

  69. 69
    zman Says:

    Energy stocks for the most part in land of the lost / purgatory now as the broad market drifts higher. Oil off a dime, NG up a dime. Energy stocks not at their highs and have largely been basing. Market will wake up to this again soon, perhaps as analysts begin to mark 2Q estimates to market prices, perhaps a little sooner.

    Agree on the debt, at this point the proper capital structure is probably in the 20 to 30% debt to cap range. I have and continue to like EOG with 17 to 18% debt to cap now and by year end but for the leverage to higher oil price environment, CLR will stand out with the crowd with higher debt levels and no oil hedges.

  70. 70
    zman Says:

    Woops – hit enter before looking back at oil, back to green again…With strong close for the broad market and everything green in commodity land aside from gasoline we could see a green close for the first green close for energy in 4 days.

    So far, only some little stuff acting right, WRES, CPE, END. Oil service is strangely not following the broad market today, buyers taking the day off there may indicate the group is just out of fashion now.

  71. 71
    BirdsofpreyRcool Says:

    choices — no opinion (yet) on Sheila. Barney Frank is smart… he is the CONSUMATE politician (ref: ability to pronounce that changes are needed when you said all along that everything was fine and blocked changes and then make it sound like it was your idea to make the changes to begin with and what took so long?). Timmy is turning out to be rather small-minded and mean. Not to say he isn’t smart. But, it’s like someone put the Class Nerd in charge and it’s gone to his head. He’s out to get all the normal people he blames for losing lunch money to the bullies. Something is just not right, about Timmy.

  72. 72
    West Says:

    I may be wrong about this but I still think XTO has best hedges with about 80% of 2009 hedged at $ 105 oil and $ 8 on gas but that is from a bad memory so don’t hold me to it.

  73. 73
    BirdsofpreyRcool Says:

    z #69 — thanks! Figured everyone thought “debt” was a dirty word. It’s not. But, it needs to be appropriate and it needs to be managed. Used correctly, it is the BEST equity-enhancer to use. 20-30% debt to total cap is good. Also, 3x leverage (Tot. Debt [including amortized deb]/EBITDAX) and 5x interest coverage (Total Interest/EBITDAX), would be appropriate way to look at it too. Of course, you also have to look at how capex is funded.

    Lots of moving parts. But, if you can successfully throw a bit of debt into the capital structure mix, it is a great way to control a larger asset base (from which earnings are produced… literally).

  74. 74
    zman Says:

    Re XTO – that sounds right, not a big fan of Simpson. Their hedges largely roll off in 2010 and you can see it in their CFPS estimates:

    2009: 9.59
    2010: 8.40

    vs someone like an EOG
    2009: 10.71
    2010: 12.02 when they are getting oilier

    or a SWN whose hedges also roll off:
    2009: $3.93
    2010: $5.06 but will continue to post strong production growth

  75. 75
    zman Says:

    BOP – that’s my one hang up with Mark Papa at EOG is his mission to get debt free. Anyone who went to B-school knows that 0% debt is the wrong capital structure. I like the assets and he’s not there yet but when he says “I want to be like Exxon” I think, “why?”. Certainly he just means as far as debt goes and not a company that can’t grow volumes but instead busy’s itself with share buybacks.

  76. 76
    zman Says:

    Don’t know ARD, should I?

  77. 77
    Dman Says:

    Z – service has looked jaded for a little while now.

  78. 78
    West Says:

    z do u know the % debt on clr. I have noticed that they r putiing some rigs back to work in ND. Of course they may have been active but just not the operator.

  79. 79
    VTZ Says:

    Rather than buybacks you’d rather see a dividend or putting the capital to work?

  80. 80
    Sambone Says:

    By Ian Talley

    WASHINGTON (Dow Jones)–Several influential U.S. House Democrats have filed a
    bill that would require the government to tap the nation’s Strategic Petroleum
    Reserve to counter rising oil prices.
    Reps. Ed Markey, D-Mass., Chris Van Hollen, D-Md. and Peter Welch, D-Vt., said
    their legislation would direct the Department of Energy to sell 70 million
    barrels of more expensive light, sweet crude and replace it with cheaper heavy
    Swapping the oil, the lawmakers say, would help to undercut rising oil prices.
    The proposal has been offered in previous sessions, but failed to win approval
    in both chambers last year despite GOP support in the House.
    Under the Obama Administration, the DOE has shifted its SPR policy, saying
    that it was prepared to tap the emergency stocks to moderate prices. The Bush
    Administration said it would only use the SPR oil in severe supply shortages.
    By mandating a release of oil into the market, legislators want to try and
    shake some speculators out of the market. Many lawmakers blame what they term
    “excessive” speculation in the market for skyrocketing crude prices, despite
    many economists citing the fundamentals of supply and demand as being the
    primary drivers.
    Analysts say that the swap would make the SPR more compatible with modern U.S.
    refineries, increasing the energy security of the country.
    The revenues brought in from the price differential in the swap would then go
    back into the SPR account to fill the reserve back up to its 727-million barrel
    The legislation would also require the SPR oil purchases at a constant dollar
    value rather than constant volume of oil and authorize the DOE to purchase
    refined petroleum product for emergency stocks.

    -By Ian Talley, Of Dow Jones Newswires

    Dow Jones Newswires
    06-17-09 1349ET

  81. 81
    West Says:

    I will work this up when I get a chance these guys use to run Magnum- Hunter that sold out to XEC(Cimarex). Permian Basin play

  82. 82
    zman Says:

    West – 37%, EBITDA / Interest is high though at 15x so no worries on can they make payments. Don’t have retirement schedule close at hand but given the re-opening of the markets that just leaves it as a valuation matter. One other thing, they were set to widely outspend cash flow earlier this year, that may not be so much the case now with higher oil, but have not looked at it hard yet as I’m out of the name for now.

  83. 83
    zman Says:

    V – I don’t have a big complaint about the buybacks but I’d like to see them to go after U.S. gas and they just won’t do it. They’d rather partner with the Russians on LNG than get all shaley in the States.

  84. 84
    zman Says:

    Hey West, does MHR (now XEC) still hold Gulf assets? Used to be an interesting story.

  85. 85
    BirdsofpreyRcool Says:

    z — that interest coverage looks high… (without looking, so pardon me)… but, does it include capitalized interest expense? That gets me, sometimes.

  86. 86
    zman Says:

    It does look and no, it wouldn’t the way I calculate it.

  87. 87
    West Says:

    XEC, As I remember still drlling gas wells, I will work on that also . Interestingly they have the Magnum assets (Westbrook Field) for sale.

  88. 88
    West Says:

    Tater could address this better than me , but this should Produce a very nice candle for KOG if price holds up thru the close.

  89. 89
    zman Says:

    BOP – just flipped through their Q, don’t see that they capitalize interest.

    1Q09 interest was 4.6 mm so I gross that up by 4x to 18.4. During the first quarter they were borrowing for capex so say 4.6 isn’t the run rate and $5 mm per quarter is. That puts you at $20mm on the year vs estimate ’09 EBITDA of $266 mm which gives 13x.

  90. 90
    zman Says:

    Nice crude rally into the Nymex close:

    Up 65 cents at 71.12, like to see it hold somewhere near hear.

    Dollar came off slightly after morning mini rally but I really think this is people taking eh time to read the rest of the EIA release. So often the case we get that headfake and then its compounded by Epperson and Co on CNBC yelling about down demand when it was actually up.

    Now just to get the stocks to notice.

    West – hear ya on the KOG, volume pretty stout as well.

  91. 91
    zman Says:

    Handful of names turning ever so slightly green now. I’m not normally one to comment about the minutia of the market but I do have a fair amount of June calls still in play.

    Oil closing 71; NG closing 4.25.

  92. 92
    BirdsofpreyRcool Says:

    z — #89… ha! Was just doing the same thing. Looks like they don’t capitalize interest. I use 4x trailing quarterly EBITDAX and 4x interest and come up with about 12.2x coverage. That still looks “too healthy” for a company with 37% debt/cap. HOWEVER, this is where the love affair with bank debt comes in. If you can keep your banks happy, not play it too close to the line, and underdraw your availability, bank debt is by FAR the cheapest. CLR pays only 3.31% on their bank debt (due to low interest/LIBOR rates at the front end of the curve). Compare that to a company who pays 8-12% on their fixed, public debt and you can see why companies can get in too deep with their bank borrowings.

    CLR looks to do it right, however. Good balance sheet and cash flow management, from my cursory overview.

  93. 93
    VTZ Says:

    Dollar is still reacting to all the jawboning on both sides. Fed vs. Russia vs. China vs. real actions.

    You can only talk up your strong dollar policy so long.

  94. 94
    zman Says:

    And they’ve taken some impairments which depress equity and exaggerate the debt/cap read.

  95. 95
    zman Says:

    V – and I don’t even get why they really want it up. Talk it up? Sure. But really want it up, I doubt it. Talk about a shot in the old exports arm by selling the buck off.

  96. 96
    BirdsofpreyRcool Says:

    z — you bring up a good point, debt/book cap is a tough metric to rely on, with asset impairments screwing around with the denominator. Can “fix” that by using mrkt cap of equity. That has it’s own problems, of course, but is probably a better metric in E&P than book cap. That’s why i focus more on interest coverage and leverage ratios… they are cash flow and fixed debt based. But, then you can’t just ignore the capex requirement. Especially for companies who produce in areas with steep decline curves.

  97. 97
    zman Says:

    Your last point is one of the reasons I’ve warmed to PXD of late. They can afford to keep capex low with low prices as the assets are long lived, slow decline on the whole.

  98. 98
    ram Says:

    Yes, a fair amount of Junes. What’s up with Congress and selling off 70mm of WTI and replacing it with heavy crude? How is this suppose to temper the evil speculators?

  99. 99
    West Says:

    Is there a norm for taking impairments yearly or quarterly or co by co?

  100. 100
    choices Says:

    Z, BOP, very interesting discussion on coverage of interest expense-does cash flow usually approximate (if not equal) EBITDA as it seems to me that cash flow is the important number in covering interst.


  101. 101
    choices Says:

    The more I think about #100, it may be a stupid question as Earnings Before Interest Taxes Depreciation Amortization probably does equal cash flow unless there is something other non-cash expense in earnings I’m not thinking of.

  102. 102
    BirdsofpreyRcool Says:

    choices — the only major difference between cash flow from operations and EBITDAX is working capital. And if there is a big difference between EBITDAX +/- change in working capital, then that is usually something you want to understand.

  103. 103
    BirdsofpreyRcool Says:

    choices — not a stupid question at all! good observation on your part.

  104. 104
    choices Says:

    BOP-what is the “X” in EBITDAX?

  105. 105
    BirdsofpreyRcool Says:

    choices — “X” is short-hand for CapEx. So, basically, the cash flow a company generates before changes in working capital and capital expenditures, adjusted for differences in capital structure (adding back interest).

  106. 106
    choices Says:

    Thanks-that is a little beyond my accounting 101-understand.

  107. 107
    BirdsofpreyRcool Says:

    “EBITDAX” is a number that puts companies on a level playing field. Then you can play around with the number by looking at debt and spending and interest expense. But, it gives you an apples-to-apples place to start. (All else equal…. which it never is, of course.)

  108. 108
    zman Says:

    99 – quarterly as per SEC regs for the full cost accounting guys. Determined by period end pricing although that changes at this year to use average prices. Probably going to see some smallish impairments again this quarter for the gas guys, should be none for the oilier names unless oil falls out of bed last day of June.

    100 – EBITDA and CF close enough, slightly different than each other if the company is a big cash tax payer. I use TEV / EBITDA as a measure of companies with different balance sheets (lots of debt vs not so much) to put them on a more equal footing. Otherwise I use Price / CF which is like earnings only earnings don’t matter in E&P as its a reinvestment business and not managed to have earnings or pay a lot of cash taxes. Simple rule of thumb on CF is to take net income and add back DD&A, deferred taxes, exploration expense, and non-recurring non cash items.

  109. 109
    zman Says:

    BOP – was typing end of 108 as you sent 107 … well said.

  110. 110
    zman Says:

    rally monkey time BOP.

  111. 111
    BirdsofpreyRcool Says:

    z — think the rally monkey might show up tomorrow. That’s what TechTrader thinks, anyway.

  112. 112
    zman Says:

    Broad market still just can’t get out of is own way. You really should have let the monkey out BOP.

  113. 113
    BirdsofpreyRcool Says:

    i think Wyoming is still traveling with him… anyway, Wyo is the last guy to see Rally Monkey alive…

  114. 114
    zman Says:

    Dollar continuing to sink, threatening to go below 80 again. Nicky, please post support levels on the SP and $ when you get a chance.

  115. 115
    BirdsofpreyRcool Says:

    Speaking of the US Dollar… this story is making the round today. WEIRD.

    Suitcase With $134 Billion Puts Dollar on Edge: William Pesek
    2009-06-16 19:00:00.0 GMT

    Commentary by William Pesek
    June 17 (Bloomberg) — It’s a plot better suited for a John Le Carre novel.
    Two Japanese men are detained in Italy after allegedly attempting to take $134 billion worth of U.S. bonds over the border into Switzerland. Details are maddeningly sketchy, so naturally the global rumor mill is kicking into high gear.
    Are these would-be smugglers agents of Kim Jong Il stashing North Korea’s cash in a Swiss vault? Bagmen for Nigerian Internet scammers? Was the money meant for terrorists looking to buy nuclear warheads? Is Japan dumping its dollars secretly? Are the bonds real or counterfeit?
    The implications of the securities being legitimate would be bigger than investors may realize. At a minimum, it would suggest that the U.S. risks losing control over its monetary supply on a massive scale.
    The trillions of dollars of debt the U.S. will issue in the next couple of years needs buyers. Attracting them will require making sure that existing ones aren’t losing faith in the U.S.’s ability to control the dollar.
    The dollar is, for better or worse, the core of our world economy and it’s best to keep it stable. News that’s more fitting for international spy novels than the financial pages won’t help that effort. It is incumbent upon the U.S. Treasury to get to the bottom of this tale and keep markets informed.

    GDP Carriers

    Think about it: These two guys were carrying the gross domestic product of New Zealand or enough for three Beijing Olympics. If economies were for sale, the men could buy Slovakia and Croatia and have plenty left over for Mongolia or Cambodia.
    Yes, they could have built vacation homes amidst Genghis Khan’s Gobi Desert or the famed Temples of Angkor. Bernard Madoff who?
    These men carrying bonds concealed in the bottom of their luggage also would be the fourth-largest U.S. creditors. It makes you wonder if some of the time Treasury Secretary Timothy Geithner spends keeping the Chinese and Japanese invested in dollars should be devoted to well-financed men crossing the Italian-Swiss border.
    This tale has gotten little attention in markets, perhaps because of the absurdity of our times. The last year has been a decidedly disorienting one for capitalists who once knew up from down, red from black and risk from reward. It almost fits with the surreal nature of today that a couple of travelers have more U.S. debt than Brazil in a suitcase and, well, that’s life.

    Clancy Bestseller

    You can almost picture Tom Clancy sitting in his study
    thinking: “Damn! Why didn’t I think of this yarn and novelize it years ago?” He could have sprinkled in a Chinese angle, a pinch of Russian intrigue, a dose of Pyongyang and a bit of Taiwan-Strait tension into the mix. Presto, a sure bestseller.
    Daniel Craig may be thinking this is a great story on which to base the next James Bond flick. Perhaps Don Johnson could buy the rights to this tale. In 2002, the “Miami Vice” star was stopped by German customs officers as he was traveling in a car carrying credit notes and other securities worth as much as $8 billion. Now he could claim it was all, uh, research.
    When I first heard of the $134 billion story, I was tempted to glance at my calendar to make sure it didn’t read April 1.
    Let’s assume for a moment that these U.S. bonds are real.
    That would make a mockery of Japanese Finance Minister Kaoru Yosano’s “absolutely unshakable” confidence in the credibility of the U.S. dollar. Yosano would have some explaining to do about Japan’s $686 billion of U.S. debt if more of these suitcase capers come to light.

    ‘Kennedy Bonds’

    Counterfeit $100 bills are one thing; two guys with undeclared bonds including 249 certificates worth $500 million and 10 “Kennedy bonds” of $1 billion each is quite another.
    The bust could be a boon for Italy. If the securities are found to be genuine, the smugglers could be fined 40 percent of the total value for attempting to take them out of the country.
    Not a bad payday for a government grappling with a widening budget deficit and rebuilding the town of L’Aquila, which was destroyed by an earthquake in April.
    It would be terrible news for the White House. Other than the U.S., China or Japan, no other nation could theoretically move those amounts. In the absence of clear explanations coming from the Treasury, conspiracy theories are filling the void.
    On his blog, the Market Ticker, Karl Denninger wonders if the Treasury “has been surreptitiously issuing bonds to, say, Japan, as a means of financing deficits that someone didn’t want reported over the last, oh, say 10 or 20 years.” Adds
    Denninger: “Let’s hope we get those answers, and this isn’t one of those ‘funny things’ that just disappears into the night.”
    This is still a story with far more questions than answers.
    It’s odd, though, that it’s not garnering more media attention.
    Interest is likely to grow. The last thing Geithner and Federal Reserve Chairman Ben Bernanke need right now is tens of billions more of U.S. bonds — or even high-quality fake ones — suddenly popping up around the globe.

  116. 116
    BirdsofpreyRcool Says:

    west — thank you for the link to the frac study by MRO. Presented a lot of data, but couldn’t actually SEE some of the numbers on the various charts. Also, sadly, MRO ain’t sharing. They left the interpretation of the data up to the reader. Me. Not a good place to leave it. Maybe a development engineer can take a look and decifer??

  117. 117
    bill Says:

    from clr q 1 earnings release

    Continental stored 216 MBbls of crude oil in the first quarter of 2009…due to prices

    now with prices in the 70’s, i assume this inventory will flow to q2 sales..maybe a pop in q2 numbers vs expectations

  118. 118
    BirdsofpreyRcool Says:

    bill — what’s the bakken differential these days? $8? more? less?

  119. 119
    West Says:

    BOP, would u play tbt on bond thoughts?

  120. 120
    BirdsofpreyRcool Says:

    z — just so’s i gets it right… the differential is the price at the wellhead minus the transportation cost to get the barrel to a hub. Am I doing that right?

  121. 121
    zman Says:

    RE CLR Here’s to hoping some of the analyst crowd miss that setting up a small beat. I kind of doubt it but you never know. I am hoping they get the transportation number too high and the differential number too low in their estimates by leaving it close to 1Q when there has been improvement. Will model this one up before the quarter.

  122. 122
    zman Says:

    Saw $6 somewhere the other day, will try to track down.

  123. 123
    zman Says:

    You’re talking basis of $6. Subtract about $20 for transportation.

  124. 124
    zman Says:

    Let me run down some 1Q numbers and then some more current numbers for you overnight.

  125. 125
    BirdsofpreyRcool Says:

    West — the “easy” part of that trade is over. Get’s harder from here, if you believe there is a lot of excess capacity in the world and somehow/someway we slow down the deficit spending (ok, all you Chinese students can stop laughing now). Also, US Treasuries (until something really changes) will continue to be the “safe haven” security for the world.

    So, long TBT = think inflation problem, deficits widen, tons of new US Treasury issuance, US Dollar less important, world becoming safer, corporate bond issuance continues to build.

    Don’t buy (or, Short TBT) = stop (or slow) the Treasury Printing Press, inflation not a problem, US Treasuries still the world’s Safe Haven, corporate bond issuance slows (and maybe equity issuance continues strong)…

    and a whole list of other stuff. Nicky’s good at playing that game too.

    Problem is, on any given day, week, month, the market mentality skips from Long to short TBT, depending on which horse is pulling the cart.

    If treasuries rally from here on the FEAR or DEFLATION trade, buy TBT. It’s a range-trade, until it’s not (either inflation emerges as a problem and/or Timmy runs wild with the Printing Press).

    Sorry, not much help.

  126. 126
    BirdsofpreyRcool Says:

    z — ok… so “basis differential” does NOT include transportation costs.

    So, $70 WTI – 6 basis – 20 transportation = $44/bbl for those CLR barrels, for example. ??

  127. 127
    zman Says:

    yep, they don’t break out their transportation from their loe, basis for 1Q was $8.32, I’m pretty sure I heard $6 the other day was average of late. Transportation for them may be the same, not sure the $20 applied to them or not, am checking. I know EOG Bakken was $20+ in 1Q on transportation out of the Parshall area.

  128. 128
    BirdsofpreyRcool Says:

    z — yeah… that transportation cost (tank, truck, rail) is killer!

  129. 129
    VTZ Says:

    Z- With regards to nat gas consumption per barrel of oil sands crude (mine/upgrader): ~650-700 cf/per bbl.

    I think that ends up being 10-15% of the energy of a barrel of oil meaning that oil sands production gives a net 85-90% energy benefit.

    Sorry it took so long to get an answer.

    Any numbers that you see that are higher do not show any heat integration.

  130. 130
    VTZ Says:

    I’ll try to find an insitu number.

  131. 131
    zman Says:

    Thanks much V. Any idea what % of Canada’s 3.3 mm bopd (2008) is oil sands? Don’t dig about for it if you don’t have it off top of head, I’ll track it down and back over time as well.

  132. 132
    zman Says:

    Found it. 1.2 mm bopd in 2008 for Canada were oil sands. Forecast now is 1.9 to 2.1 mm bopd by 2015.

    Using the mid point of the range that comes to gas demand of 0.8 Bcfgpd going to 1.4 Bcfgpd in 6 years. Last time I looked Canada produced less than 18 Bcfgpd and has been sending about 6 Bcfgpd south to the states of late.

  133. 133
    Nicky Says:

    Late afternoon all.

    Indices may have one more low early tomorrow in which case it will be a v and then we stage some sort of bounce. If the low was in today then what we have seen so far is either A up, B down and should be about to enter C up (target area 927 – 938 spx) or we are have completed 1 up, 2 down and are about to burst higher in a third wave.

    Oil looks pretty bullish and I still think we may head for 75 before all is said and done. When does this contract expire?

  134. 134
    VTZ Says:

    Yeah. Sorry I was out of office for a bit. 1.2 million for both mining and insitu. The incremental volume between now and 2015 will be from Shell Expansion 1, Kearl, ramp up of Horizon/Long Lake, insitu projects and probably some Firebag growth. I would imagine the balance of the major chunks will come from debottlenecks or unit additions at Shell, Syncrude and Suncor.

    That would be inline with that forecast.

  135. 135
    zman Says:

    Thanks V, just getting a handle on what its worth to Canadian gas volume availability. Not insignificant.

    Thanks Nicky. July contract expires 6/22

  136. 136
    BirdsofpreyRcool Says:


    · SP500 closes down 1pt, right in the middle of the 903-918 intraday range; while intra-day we broke down through the 200day (906), the move was not met with a ton of volume & the market was able to close north of that level (has closed ahead of the 200day since June 1). Credit, especially HY, lagged equities all day; even as SPX traded near the flatline late in the afternoon, HY12 was down a full point

    · Sectors: the rally off lows this morning off the lows was led by: 1) tech (really the semis, which closed up nearly 1% following 4 days of 1%+ declines); 2) transports (rallied off the lows despite FDX disappointment); 3) retailers (like the semis, this group has been for sale over last few days, w/BBY weighing yesterday, but saw some buy interest today – closed up 1%). Of these three groups, only transports ended in the red. Health care was very strong all day (ended up 2% and best acting major group) due to headlines out of Washington. Financials closed off 2.5% (near lows) as banks weighed (on back of the S&P announcement). Volumes/activity still on the light side.

    · While US tsys closed mixed (10yr & 30yrs lower but shorter end positive), there were some incremental positives today for outlook on tsys: 1) diminished inflation worries (see today’s CPI); 2) diminished rating worries (S&P had a report out today saying US rating unlikely to change in near-term); 3) diminished worries about hawkish language next week from FOMC (Bloomberg article this morning says Fed will use statement next week to signal to market that rates will stay low for long). Also helping Treasuries was lack of auctions this week, although tomorrow we hear about how large next week’s auctions are going to be (TSY going to do 2yr auction on June 23, 5yr on June 24, and 7yr on June 25).

    · Washington: a lot of headlines out of Washington today, but development impacting markets most appears to be on health care front. SP500 health care index up more than 2% on the day as CBO comes out w/neg. reports re the expense of both the Senate HELP and Finance HC plans (HELP’s mark-up started today but Finance taking more time to slash some expenses). The CBO reports leading to speculation that HC overhaul could be scaled back. On the regulatory front, Obama laid out his overhaul plan today, although most of the details had been released to the press over the last few days (Geithner will be testifying before Congress tomorrow on the plan).

    Catalysts to Watch

    · Economics numbers due out tomorrow: jobless claims, leading ind., Philly Fed

    · No Treasury auctions this week.

    · On the short selling front, the comment period for the SEC’s new proposals ends June 19, so we could see a formal announcement on new rules soon.

    · In financials, banks have begun formally redeeming TARP today (Wed)

    · S&P will conduct quarterly share rebalance for the S&P 500, 400, and 600 indices after the close on Friday, June 19, 2009.

    · Quad witch options expiration on Friday

    · In tech, RIMM reports Thurs

  137. 137
    bill Says:

    is the 20 deducted from gross revenue?

    i dont see that size of an expense in the pl

  138. 138
    BirdsofpreyRcool Says:

    bill — good question. this is what i’m trying to get at. i think it is.

    so, barrels produced x (WTI – differential – transportation) = net revenues.

    is this right?

  139. 139
    zman Says:

    BOP – it should be below the revenue line. In their Q they say transportation is in LOE. I went back and checked and they are not trucking any Bakken volumes (all going by pipe) so its going to be a lot less than that $20 something estimate. Total LOE is around $7 but that’s the whole firm so you are not going to be able to see it as it is masked by much lower mid-con, gulf coast and other area volumes.

    This is from the EOG 1Q transcript regarding Bakken transportation:

    “the stuff that we had to truck out of there, we were paying an up to $25 a barrel to get that crude truck to places like Salt Lake City and in some cases we truck to all the way to Cushing, Oklahoma which was absurd.”

  140. 140
    zman Says:

    so 138 should be

    (Price less differential) X Volumes = revenues.

    Then LOE comes out (including transportation)
    then production taxes,
    then G&A,
    that gets you to their field level margins.
    Subtract interest from that and you have cash margins which compare pretty well to their peers.

  141. 141
    BirdsofpreyRcool Says:

    z — thanks for the complete answer. So, someone like KOG (who is trucking, at least part of the way) is going to see huge LOE/BOE costs. It will be interesting. But, with wells on the FBIR several miles apart, it doesn’t make sense to lay transportation pipeline yet. That is an interesting aspect to a “resource play” where you have broadly-scattered production.

    hmmmmm….. musings……

  142. 142
    zman Says:

    Right BOP, and ya know, in my experience, no one will care much if the LOE is outrageous looking for at least a couple of quarters. They are going to be a lot more thoughtful about further dilution down the road or a sale of the company outright.

  143. 143
    BirdsofpreyRcool Says:

    yep — both will happen. altho, once they get some production going, they can use a little bit of revolver debt to fund some drilling…. assuming they HEDGE enough production to lock in and cover interest expense. still, they are too small and too concentrated to make use of any real debt. really, the End Game is to merge. Lynn looked at that 1Q… didn’t like the bids. But, it will happen, one day.

  144. 144
    zman Says:

    I’ll be listening to SWN and RRC and may listen to END as well, which I actually have a bit of from a couple years back and higher (see piece on the reports tab, I think it was 2007).

  145. 145
    zman Says:

    Leading indicators up 1.2%, first gain in 2 years.

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