02
Jul

Jobless Thursday

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Have a great and safe 4th of July weekend. The market is closed on Friday, I anticipate only a token presence on the Street today, and I will be taking off around 11 am EST after the gas storage numbers have been released.

 

In Today’s Post:

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

 

Holdings Watch:

  • $10KP:
    • $19,300
    • 51% Cash

Yesterday's Trades: None. This week's trading is fairly directionless so I see little to trade in that environment except for the odd, event driven or fire sale trade. 

 

Commodity Watch:

Crude oil fell $0.58 to $69.31, erasing an earlier move on $72 after the EIA report showed further weak product demand. Oil continues to be range bound. Next week look for a bigger gasoline demand number but that is little cause to cheer as it will be holiday related. The road to recovery will be a long one. This morning crude is trading off a little over $1.50 after the jobs number came in worse than expected.

  • Dollar Watch: Dollar index was back below 80 yesterday but is trying to inch back above it this morning. My sense is that the dollar will continue to weaken, especially if the green shoots in the U.S. begin to look more tattered or take longer to develop.

Natural gas fell $0.04 to $3.80. Gas will trade with weekly storage numbers but I would not expect a move back above $4.50 until we get a monthly supply figure that shows more clearly defined declines. When do we see that? I am betting we are two months from such a number (the June report which we will get mid August). This morning gas is trading down 5 to 10 cents.

Natural Gas Preview

  • My number: 75 to 80 Bcf
    • History:
      • Last Week: 94 Bcf injection
      • Last Year: 86 Bcf
      • 5 Year Average: 85 Bcf
    • Weather:
    • Imports:
  • Street Consensus: 74 Bcf


EIA Oil Inventory Review


ZComments:

  • Better than expected crude number spawned by continued strong refiner input (won't last) and weak-ish imports (likely to persist through the season despite reports that OPEC compliance is waning). 
  • Products on the other hand, saw weak, very weak demand for this time of year.
  • Oil prices are between a rock and a hard place, as it pertains to U.S. fundamentals. I don't get the sense that we are about to see a big decline but this time of year, gasoline demand starts to wag the price of oil a little more than usual and we are in place where gasoline stocks are going to start to bloat (unless demand wakes up) or refiners cut production (I see this just around the corner). If gasoline production falls, oil inputs necessarily decline and the progress of late in reducing oil inventories vs the five year average (from 15% on May 1st to 8% as of this report) will be halted.

CRUDE OIL

 





 

GASOLINE:


Demand Hits Lowest Level (for this week) Since 2001.

 


 

DISTILLATES - Way overstocks, demand circling the drain.


 



 

Stuff We Care About Today

Question From El-D ~ What area of our market do you think has the most potential. Baaken, Eagle Ford or other shale plays. What co. or cos. do you think given their price relative to the plays do you think are the best value right now.

Quick Assumptions: Let's get these out of the way at the start as you may find these absurd and wish to stop reading and start thinking about the beach.

1) Natural gas prices mount a recovery to between $6 and $7 later this year and hold in the $5 to $8 range long term. Things that have to happen to make this occur:

  • Gas rigs stay down in the 650 to 800 level through year end - I think that is likely.
  • LNG can't get out of control. So far predictions of a gas tsunami for 2008 and then 2009 have not come to fruition. More gas is on the way but delays in new project start ups,  and low U.S. prices are c
  • A hot summer is needed, a hurricane of magnitude entering the Gulf could be helpful but is not needed.
  • On the natural gas side I think we have to face facts that there is more resource potential (at a price) than previously thought possible. Two aspects to this knowledge are that prices don't skyrocket when resource size is large, at least, not at first (see coal prices long term). The other is that large gas resource potential opens up the possibility of further inroads in electricity production and increased use for gas as a transportation fuel.

2) Oil remains above $50, even during a potential double dip scenario and then moves higher.

  • I think we are likely to be in a range of $50 to $80 in 2H09.
  • Moving higher in 2H10
  • 2 years out we are probably going to be testing $150

This is long term stuff and I stand by everything I wrote here back in March.

Natural Gas Names: Taking into account the comments about plentiful supplies and the impact that has on prices until new sources of demand sort themselves out I think it will be key to focus on names with exposure to high return plays, who are low cost operators and who flexible outlook on hedges, willing to give up some upside to ensure their capital budgets come to fruition. Addressing El-D's question about upside head on, I've included some names that are also depressed on a $/Mcfe basis.

High Return Gas Plays: (industry sources - breakeven by $ / Mcfe; at current costs); not a comprehensive list below obviously but I have highlighted some of the bigger players in the lower cost plays.

  • Upper Barcket - $3.50 to $4.00 / Mcfe Breakeven
    • Hayensville - CHK, HK, GDP, GMXR, PVA, XCO
    • Marcellus - CHK
    • Barnett - DVN, EOG, CHK, XTO, KWK etc
  •  Upper Middle Bracket ($4 to $5)
    • Pinedale
    • Piceance Core
    • Huron
    • Fayetteville (shallow and deep) - SWN, CHK, HK
  • Lower Middle Bracket  ($5 to $6)
    • Powder River - coalbed
    • Eagle Ford
    • Raton - coalbed
    • Woodford - NFX
  • Lower Bracket ($6+ for breakeven)
    • Barnett Tier 2 and 3
    • Picenance non-core

Nutshell on play exposure points to the Haynesville players list and then the names with biggest exposure relative to their current reserves:

  • HK (8x their current booked reserves, GDP (5x), and then CRK, GMXR, PVA, XCO, all above 2x

Low Cost Operator:  If prices stay low, you want the guy producing each Mcfe for the least amount of cash cost (LOE+ gathering + production taxes + G&A)

  • SWN at $1.42 per Mcfe, CHK at $1.58, NFX at $1.71 HK at $1.76, EOG at $1.80, 

I will publish an updated version of the E&P bar chart metrics on Monday which will show implied reserve valuations.

Deal Watch:

GST Sells Australia Assets

  • $240 mm, focus now on U.S. deep  Bossier. ($175 mm AT proceeds)
  • 1 for 5 reverse split announced.
  • I think the divestiture makes them more of a target, perhaps by partner CHK although now isnt' really good timing as CHK deleverages. They also have a small Marcellus position.
  • On a $ / Mcfe basis of proved reserves, the new company looks a bit undervalued.

    • E. Texas reserves at year end were 56.8 Bcfe or 89% of total so most of the reserves are staying with the company
    • Using the net proceeds of the deal to arrive at net debt of only $21 mm, the firm's current TEV puts remaining reserves at $2.04 per Mcfe
    • No value given to Marcellus as they have not booked reserves there yet but the acreage position will be worth something and the deal cash will allow them to start proving their piece of the play up.
  • Stock should move well with this at least initially as the deal proceeds are worth nearly as much as the entire TEV here.  I think the relatively high value received for the Australian asset along with the streamlining of the story in the U.S., where GST drills some large (but deep and somewhat expensive wells) will be good for the story. I'm not a big fan of reverse splits but generally my reasoning for that is that they are done in a news vacuum, with no other reason than the fear of delisting on management's mind. In this case, the story is improving concurrent with the split.

 

Odds & Ends

Analyst Watch:

  • JPM ups solars (ASTI), (ESLR) and (SPWRA) to Neutral; cuts (FSLR) to Neutral. Wow, way to have an opinion on the group.

 

69 Responses to “Jobless Thursday”

  1. 1
    Sambone Says:

    By Nick Heath
    Of DOW JONES NEWSWIRES

    LONDON (Dow Jones)–Crude oil futures fell more than $1 to below $68 a barrel
    Thursday, weighed by falling products prices and strengthening in the dollar.
    Data from the U.S. Energy Information Administration Wednesday – revealing
    gasoline and distillate stockpiles continued to build last week – helped push
    products lower Thursday, with Nymex gasoline futures dropping to one-month
    lows.
    The readings hardened worries for future oil demand amid the economic
    slowdown, and outweighed the impact of another drop in crude stockpiles.
    “Product demand has yet to pick up. Should products continue building, then it
    is likely that refinery runs will start to be impacted [and] bring to a halt
    the improving crude stock situation,” said David Hart, oil and gas analyst at
    Hanson Westhouse in London.
    At 1143 GMT, the front-month August Brent contract on London’s ICE futures
    exchange was down $1.07 at $67.72 a barrel.
    The front-month August light, sweet, crude contract on the New York Mercantile
    Exchange was trading $1.25 lower at $68.06 a barrel.
    The ICE’s gasoil contract for July delivery was down $11.50 at $545.50 a
    metric ton. Nymex gasoline for August delivery was down 385 points at 182.05
    cents a gallon, having earlier dropped to 181.30 cents a gallon, its lowest
    since May 26.
    “Those numbers that we saw yesterday rustled the market – everyone was gung-ho
    about crude, but then you get those products numbers and it deflates the
    whole thing,” said a broker at BGC Partners in London. “Gasoline has dented the
    whole market.”
    Crude’s rally has stuttered since breaking the $70 a barrel mark last month,
    as doubts over the pace of economic recovery have broadened and as fundamentals
    have failed to show a marked improvement.
    Crude prices spiked to eight-month highs above $73 a barrel Tuesday, although
    it emerged Thursday that unauthorized futures trading at London-based brokerage
    PVM Oil Futures Ltd. may have contributed to the sudden jump.
    Traders were also eyeing key unemployment data due from the U.S. Thursday
    which could give further indications of conditions in the world’s largest
    economy, as well as provide clues to the oil market on likely near-term
    consumption. The June employment report is due 1230 GMT. Usually released on a
    Friday, it is being brought forward a day due to the U.S. Independence Day
    holiday Friday.
    Rising unemployment levels are seen as a threat to gasoline consumption during
    this year’s driving season, and some have suggested that it may already be too
    late for a surge in gasoline demand to boost oil prices.
    “The balance of the summer season offers scant perspective for a strong up
    tick in demand given rising unemployment undermining consumer confidence, and
    higher retail prices limiting spending,” said Harry Tchilinguirian, senior oil
    market analyst at BNP Paribas in London.
    Also weighing on prices Thursday were reports that Organization of Petroleum
    Exporting Countries output rose for a third consecutive month in June.
    A survey by Dow Jones Newswires revealed that the group’s 11 quota-bound
    members, excluding Iraq, leaked an additional 125,000 barrels a day to the
    market in June – an increase of 0.49% to 25.865 million barrels a day against
    25.74 million barrels a day in May – as higher prices lured members into
    loosening their grip on production quotas. Compliance stood at 76% according to
    the survey, down from just above 80% at its recent peak.
    The dollar was up against most major currencies Thursday, adding to pressure
    on crude. Crude and the greenback often trade inversely to each other as some
    investors use crude as a tool to hedge against moves in the currency.
    -By Nick Heath; Dow Jones Newswires

    Dow Jones Newswires
    07-02-09 0815ET

  2. 2
    zman Says:

    “Product demand has yet to pick up. Should products continue building, then it
    is likely that refinery runs will start to be impacted [and] bring to a halt
    the improving crude stock situation,” said David Hart, oil and gas analyst at
    Hanson Westhouse in London.

    – Exactly my thoughts from the post. Puts crude prices, at least from a fundamental stance, between a rock and a hard place. By the end of 3Q, if we are not seeing a pick up in exports of diesel and use of diesel in the U.S., we will get no pricing support for oil from heating oil prices. That can put a kink in the crude chart, say down to $50.

  3. 3
    zman Says:

    GST is going to run a bit, I may take a little outside the $10KP for a trade, see post for deal details there.

  4. 4
    Dman Says:

    Z – the distillate demand story must surely put paid to all the green shoots talk, at least as far as the US is concerned. There may be green shoots in Asia but that demand curve suggests that the US economy still hasn’t finished its cliff diving performance.

  5. 5
    zman Says:

    Dman – I can’t disagree. Three different contacts in transportation say it is the great depression for freight.

    1) Friend of mine works for a hedge fund, sole focus is transportation. He says run, do not walk away from the trucking stocks. Nothing moving.

    2) Family member in trucking logistics. Nothing going to California, trucks piling up in the mid part of the country. Cost to get something out of California rising as the trucks get more scarce out there as no one wants to deadhead back to Calie.

    3) Friend in trucking insurance. All of the little trucking companies are either bankrupt, headed there, or are contracting for outside rigs, drivers here watching Oprah. Nothing moving.

  6. 6
    zman Says:

    On the plus side, you can probably buy a tractor trailer for cents on the dollar right now. Wouldn’t want to own something like Wabash for a while.

  7. 7
    Dman Says:

    #5 & 6

    … makes the WPRT chart even more remarkable. They are evidently doing well even in this environment. I guess their business is driven by cities, port authorities etc who still have funds & can save money by converting fleets to NG.

  8. 8
    zman Says:

    … right, same thought CLNE.

  9. 9
    1520sbroad Says:

    #5 – a neighbor of mine is a diesel mechanic. He runs a big shop that works only on big tractors. He is also a used dealer here in NJ – he told me the other day that he typically has 2-3 tractors for sale on his lot/at his shop at any one time. Right now he has 14 and has no more room. He said only trucking companies making any money right now are US mail haulers and the wrecking/recycling/waste management guys. He said that Port of Newark companies can’t find enough spots to store tractors

  10. 10
    tater Says:

    Wow I am so happy that I had CNBC on this morning to learn that my real income after taxes and stimulus has been rising. I am such an idiot! I really have to be re-programmed. That method that I use to count, 1, 2, 3, … doesn’t seem to be accurate anymore.
    Thankfully we have Al Franken on the job now. I really was beginning to doubt our current leadership. Silly me.

    (Just pouring a little coffee down the drain for my homey BOP).

  11. 11
    zman Says:

    Thanks for the color 1520. What’s ironic is the refiners didn’t see this coming at all. If you go back and look at my call notes for VLO and TSO and SUN and FTO last year, they all talk about diesel being their salvation, especially as it pertained to exports. They said to a tee that gasoline was not where they were at. While I know they haven’t given up on that concept, it is apparent they were not prepared for both domestic and export markets to evaporate on them.

  12. 12
    zman Says:

    Tater – Thanks for sharing on the stimulus, missed that as I turned off CNBC once they posted Madoff’s daily prison schedule down to his piss breaks. I’m not sure how that level detail can’t help but make me money.

  13. 13
    tater Says:

    Everybody is now going to be a big chartist as the S&P is beginning to show a head and shoulders topping action on the rally from March ’09.
    Big problem is that the neckline is upward sloping (which leads to a huge failure rate on playing such a pattern) so don’t give what you hear on TV too much credence. It’s just not a high percentage play.

    Careful. You said “piss” on the internet and the IRS has been instructed to tax every naughty word on the blogs. I mean online interactive journals.

    Oh, what would Brian Boitano do?

  14. 14
    jpntexas Says:

    thanks for the smile tater, Senator Al Franken, I’m good enough, I’, smart enough and doggone it people like me!

  15. 15
    zman Says:

    If you’re bullish on oil prices you should like the fact that Al is now on board. That’s one more vote to kill domestic drilling.

    Tater – oil chart looks like the same HST pattern to me too.

  16. 16
    TEXWS6 Says:

    The only argument I have against a low gas directed drilling rig count that will support higher natural gas prices is that 10 rigs in the Barnett equal 1 rig in the Haynesville in terms of production. We are making better wells across the country than we were 5 years ago (Haynesville, Woodford, EagleFord).

  17. 17
    tater Says:

    I gave up on looking at the oil charts after I became convinced that Nicky’s Eliot Wave methodology is what is being used at Goldman Sachs. No need to look at anything else. Just wait for Nicky to give an update.

    That said, I think the best way to analyze a H&S is to give it a good volume/sentiment study. It’s kind of a sucker’s rally on the right shoulder. You want to understand if the late comers on the right shoulder are really suckers or not. Tough to do, but that’s the game.
    Looking at USO to get a volume picture it sure does look like a weak rally on the right shoulder.

  18. 18
    zman Says:

    Tex – roger that. I wouldn’t put the ratio at 10 to 1 as that compares core Haynesville vs non-core Barnett but I hear ya. I think the 600 to 900 (hard to get a good estimate) of drilled but not completed gas wells is a problem for gas prices and now, better than expected well performance in the shales. A lot of you guys are drilling 20+ mm/d wells and not seeing the 80%+ first year decline shape they thought they would. Some are thinking its better but aren’t putting out numbers on it yet. XCO said that 6 months in they are holding up much better than expected on their big H.S. wells.

  19. 19
    Sambone Says:

    By Madalina Iacob
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–Crude futures fell Thursday after the U.S. reported
    payrolls fell last month, souring the outlook for oil demand in the world’s
    largest consumer.
    Light, sweet crude for August delivery traded $2.59, or 3.7%, lower at $66.72
    a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures
    exchange fell $2.34, or 3.4%, to $66.45 a barrel.
    Oil prices, already weakened by rising U.S. refined products inventories and a
    stronger dollar, fell further after the U.S. Labor Department reported nonfarm
    payrolls fell by an unexpectedly large 467,000 in June and unemployment edged
    up to 9.5%, the highest level in more than 25 years.
    “The unemployment data is one of the factors that’s driving us lower,” said
    Tim Jennings, an oil broker at Vantage Trading in New York. “It’s another
    reflection that the economy is not bouncing back,” which could stabilize oil
    demand.
    Rising unemployment levels could further damp gasoline consumption during the
    U.S. summer driving season. Travel is forecast to be down over the July 4
    weekend from a year ago, the AAA auto group has said.
    The price fall continued a selloff triggered by U.S. oil inventory data
    Wednesday showing building gasoline and distillates stockpiles. Fears about
    soft oil demand and the pace of the economic recovery have offset the impact of
    another drop in crude inventories.
    “The market is still looking at the bearish inventory data,” said Andy Lebow,
    senior vice president for energy at MF Global in New York.
    Crude briefly hit an eight-month high above $73 earlier this week, although it
    emerged Thursday that unauthorized futures trading at London-based brokerage
    PVM Oil Futures Ltd. may have caused the spike.
    Traders familiar with the situation said a broker at PVM’s London office had
    bought between 7 million and 10 million barrels of ICE Brent crude early
    Tuesday morning. Many were surprised that the loss accrued in covering the
    unauthorized position had been limited to below $10 million, having earlier
    estimated it would be closer to $20 million.
    With oil nearly double its lows from earlier in the year, members of the
    Organization of Petroleum Exporting Countries have leaked more crude into the
    market despite holding official quotas steady. A Dow Jones Newswires survey
    showed that OPEC’s crude oil output edged higher for a third consecutive month
    in June.
    The survey estimates OPEC’s 11 quota-bound members last month pumped about
    1.02 million barrels a day above their production target of 24.845 million
    barrels, indicating a compliance rate of about 76%, lower than the 79% achieved
    in May.
    Front-month August reformulated gasoline blendstock, or RBOB, fell 7.35 cents,
    or 4%, at $1.7855 a gallon. August heating oil fell 6 cents, or 3.4%, to
    $1.7057 a gallon.

    -By Madalina Iacob, Dow Jones Newswires
    Dow Jones Newswires
    07-02-09 0955ET

  20. 20
    zman Says:

    Tater – I have thought for quite a time we were in too far too fast mode on crude. Now that its off a bit, the talking heads will come on and say I told you so on crude calling for its demise. I don’t think that a large fall is likely. The stocks have already pulled well off the highs but they could have more downside, really going to depend on direction of broad market.

  21. 21
    RMD Says:

    #s 5 and 9 on trucks: given those data points, it looks difficult to believe the green-shoots hopes.

  22. 22
    zman Says:

    NG down 6 cents with 10 minutes until the inventory number. Red sea of energy (and everything else) hate today. Looks like a throw away day for the markets, B team in charge and told to do nothing risky most likely. If we get a number towards the low end of the range on gas you could see a little pop in the gassy stocks but nothing to write home about. We should get some ops updates next week.

  23. 23
    tater Says:

    I hate to sound like a nut (and prove the notion) but I really feel gold and oil to be manipulatable (spell checker thinks it’s a word) so by default, for me they are. Doesn’t mean they can’t be traded profitably, just means we need a way to calculate what the manipulators are doing.
    I seem to have been the blind squirrel this morning and have closed my shorts here on the verge of 900 so I’m off to tell my wife how cool I think I am.
    Good luck to everybody and thank a soldier and Thomas Jefferson when you pop the first cold one this evening.
    (And for anybody who hasn’t taken the time to actually read the document, turn off the idiot box and for an hour and give the Constitution a perusal. It actually says more than a few pertinent things).

  24. 24
    zman Says:

    Natural Gas Inventory Report:

    70 Bcf – good number, consensus was 74

  25. 25
    zman Says:

    Gas waffling about down 4 to 6 cents post number.

    Producing region only saw a 4 Bcf injection due to the heat in the south. Look for a bigger injection next week as things have cooled off considerably.

    Tater – well said.

  26. 26
    zman Says:

    If you are watching CNBC right now, what the trader just said about peak gasoline driving season and the idea we should be seeing withdrawals of gasoline demand is patently false. It’s true demand is soft but peak demand does not come for another month plus and we normally build stocks slightly in advance of that. This is why I post these charts every week. This is why I have 0 respect for Sharon Epperson as she just smiles and nods and does not know that she is helping to spread the lies of a trader who is obviously short mogas and probably oil here. I need to start a letter writing campaign to get here ousted. She’s is just useless. Maybe they will have me on to defend myself, I guarantee its not my first rodeo and that I would acquit myself better than that “Mike” chap from yesterday.

  27. 27
    choices Says:

    Best to you and your family for the weekend, Z.

    Tater, well said-maybe we can all reflect on where the hell our country has been and where it is headed-middle America has a hell of a lot more common sense than the politicians and talking heads understand.

  28. 28
    zman Says:

    Thanks Choices, back at ya!

    NG down a penny now, contemplating a rally but its hard with oil down $2.25 to $2.50 on the day.

  29. 29
    isleworth Says:

    Z – any quick thoughts on fair value of XCO with the recent deal. Saw RBC upgraded them and upped price target to $22.

  30. 30
    elduque Says:

    Thanks Z for answering my question.

    Have a great fourth!!

  31. 31
    zman Says:

    Isle – I would have said $16 at least given current oil and gas prices.

  32. 32
    zman Says:

    El-d – I did a so-so job on that I thought as there were a couple of graphs I would have put in there that didn’t get finished in lieu off birthday preps for Intern #1. I’ll have the big Orange Charts on the E&P’s out Monday with more observations.

    Key points are you want to be undervalued to reserves, light on LOE and light on cash costs in general, not overly leveraged or overly hedge in 2010 at this point. I think it will boil down to a tough road for the shale have nots.

  33. 33
    zman Says:

    Dismal performance last three weeks. Looking for a turn next week with greater news flow on a couple of shale plays. Obviously I’m looking for word from HK which should have an impact on the other H.S. and E.F.S. players.

  34. 34
    isleworth Says:

    The American Petroleum Institute issued a new study Wednesday saying that
    legislation pending before the US Congress to regulate hydraulic fracturing
    could cost the US economy as much as $374 billion in the year 2014 alone.

    The three-part study, which IHS Global Insight performed, is the latest
    in a series of studies and reports that energy industry advocacy groups issued
    in an attempt to block proposed legislation that would impose federal rules on
    the well-completion process of hydraulic fracturing, or “fracking.”

    “More than one million wells have been completed using this technology,”
    API President Jack Gerard said in a statement. “Unnecessary additional
    regulation of this practice would only hurt the nation’s energy security and
    threaten our economy.”

    The study compared three scenarios–a total elimination of fracking, a
    restriction of the fluids that can be used in fracking operations, and the
    implementation of additional federal underground injection control compliance
    regulations on top of current state and local rules that govern the practice.

    Restrictions on fracking would limit US oil and natural gas production,
    resulting in sharply increased imports by 2018. The study adds that
    international purchases of oil and gas would surge nearly 60% under a
    no-fracking scenario, almost 30% under the fluid-restriction scenario and
    nearly 14% under the UIC compliance scenario, the study says.

    Losses in US Gross Domestic Product, in 2008 dollars, would rise
    substantially in five years to reach $374 billion under the no-fracking
    scenario, $172 billion in the fluid-restriction scenario and $84 billion in
    the UIC compliance scenario, the study says.

    The study also says that legislation restricting fracking would lead
    to peak employment losses in 2015 of nearly 3 million jobs in the no-fracking
    scenario, 1.4 million jobs in the fluid-restriction scenario and 676,000 jobs
    in the UIC compliance scenario.

    Additionally, the US deficit would expand under each of the restricted
    fracking scenarios–by $139 billion in 2014 in the no-fracking scenario, by
    $66 billion in the fluid-restriction scenario and by $32 billion in the UIC
    compliance scenario, the study says.

    The study adds that the US trade balance would deteriorate, with the
    most dramatic impact — a widening of $135 billion in 2014 — seen with the
    no-fracking scenario. The current account deficit on trade in goods and
    services would widen by $95 billion in 2014 in the fluid restriction scenario
    and by $46 billion in the UIC compliance scenario.

    The API report is the latest salvo in an exploration-and-production
    industry campaign to derail passage of a bill that was introduced last month
    in both houses of Congress. The bill would repeal a portion of the Energy
    Policy Act of 2005 that states hydraulic fracturing is not subject to
    regulation under the US Safe Drinking Water Act.

    The Fracking Responsibility and Awareness of Chemicals Act, or FRAC Act
    — sponsored by Democratic lawmakers Senator Bob Casey of Pennsylvania,
    Representatives Diana DeGette and Jared Polis of Colorado and Maurice Hinchey
    of New York — also would require industry to disclose what chemicals are used
    in the fracking process.

    Representatives for two of the lawmakers on Wednesday dismissed the new
    study, calling it part of a campaign of “scare tactics” that the energy
    industry has employed to defeat the proposed legislation.

    “The continuous scare tactics by the industry lead me to believe that
    maybe they have something to hide in the chemicals that they’re using,”
    Kristofer Eisenla, a DeGette spokesman, said in an interview. “Our bill simply
    repeals an exemption to the oil and industry and requires them to play by the
    same rules as everybody else,” Eisenla said.

    DeGette, who is also vice chairwoman of the House of Representatives’
    Committee on Energy and Commerce, wants to “hold a hearing and commission a
    study that looks at the economic and environmental impacts of fracturing,”
    Eisenla said.

    Hinchey spokesman Jeff Lieberson said in an interview that the IHS study
    should be discounted, as it was not conducted independently.

    “It’s just ridiculous,” Lieberson said. “Their forecasting, showing
    production going down dramatically, doesn’t make sense because all we’re
    trying to do is to go back to the way things were in 2004, before the loophole
    was inserted in the 2005 energy bill.”

  35. 35
    isleworth Says:

    Z- If that bill(FRAC Act) passes, any thoughts on impact on nat gas prices?

  36. 36
    zman Says:

    Isle – Not yet. Higher but can’t quantify. I am trying to get a copy of the piece from API and I have not yet seen how they are calculating costs. That billions figure must take into account a 20+% drop in drilling for gas. I don’t know that that is medium case scenario. Sounds drastic to me but I’d like to see how they got there before commenting.

  37. 37
    isleworth Says:

    One of my friends says that is fraccing injections controls were implemented it would cut gas production by 2TCF. If banned outright, the cut would be 9TCF over next 5 years.

    Now I am really beginning to understand why the Obama administration has not embraced nat gas in any way. Yikes!

  38. 38
    isleworth Says:

    House bill link
    http://s3.amazonaws.com/propublica/assets/natural_gas/frac_act_house_090609.pdf

  39. 39
    zman Says:

    Isle – I think they don’t like drilling and they are scare of the water issue. The complete lack of understanding on the part of candidate Obama on the use of batteries with trucks should have been a warning. The concept of doubling wind in 3 years should be another. I should back the guy’s proposals as it will lead to much higher gas prices. They won’t ban fraccing in the end, they’ll just increase the cost of it and slow down the permitting process.

  40. 40
    isleworth Says:

    Senate Bill
    http://degette.house.gov/images/pdf/frack_senate.pdf

  41. 41
    zman Says:

    Isle – I have not read the frac bill yet. I would be surprised if it had actual numbers, costs estimates and the like in it. The energy bill passed last week had remarkably few specifics for a 1,500 page bill.

  42. 42
    zman Says:

    Thanks for those links, will read over weekend.

  43. 43
    RMD Says:

    discussion of FRAC act reminded me: REXX said disposal in Marcellus is tough because the geology makes it tough to reinject so they have to treat it. Co. says water no problem as they have PA’s approval fr 4mm gal. /day. Don’t think PA 5% severence tax proposal will pass Republican amjority in PA Senate.

  44. 44
    isleworth Says:

    My pleasure. Have a great long weekend!

  45. 45
    zman Says:

    I’m around if anyone has a blazing question or comment but will go silent for awhile.

    Have a great 4th of July!

  46. 46
    Sambone Says:

    BRUSSELS (Dow Jones)–The International Monetary Fund has told other
    international lenders and the European Union that it isn’t willing to help
    finance Ukraine’s purchases of Russian natural gas, creating a potential
    funding shortfall that could affect E.U. countries during the colder winter
    months.
    Other international lenders are considering offering Ukraine loans worth less
    than $1.4 billion in total, far short of the $4.2 billion the country’s state
    gas company, Naftogaz, says it needs to buy Russian gas. These loans would come
    with a range of conditions, including fuller disclosure of Naftogaz’s
    operations, people familiar with the matter said.
    Unresolved, this funding question could crimp E.U. gas supplies this winter.
    In January, for the second time in three years, several E.U. states suffered
    gas shortages because of pricing disputes between Russia and Ukraine, a key
    transit country for Russian gas shipments to the E.U.
    “The IMF is already heavily involved in financing Ukraine’s economic program.
    Our tools are not that flexible to give more money for gas payments,” an IMF
    spokeswoman said.
    The IMF last year arranged a $16.4 billion stand-by facility for Ukraine. Some
    of this money can be used for budget purposes, including financing the
    country’s natural gas industry, the IMF spokesman said.
    The E.U. has asked international lenders, including the IMF, to help Ukraine
    finance its gas purchases. A key uncertainty is how much gas – and money – the
    country needs to fill its reserves. The E.U. and international lenders earlier
    this week told Naftogaz they think the company needs only $2 billion to fund
    its gas purchases.
    So far, no lender has formally offered Ukraine a loan to buy natural gas.
    Other international lenders say they want to see what conditions the IMF
    negotiates for its next payment before offering Ukraine any money for natural
    gas purchases. An IMF team is currently in Ukraine negotiating the third
    installment of this bail-out package, slated to be worth about $3.3 billion.
    The terms of this payment are expected to be finalized next week, the IMF
    spokeswoman said.
    The European Bank for Reconstruction and Development, which was established to
    help former communist countries become market economies, has told E.U.
    officials and other institutions it is willing to lend about EUR300 million. In
    return, it wants more transparency at Naftogaz and a sovereign guarantee from
    the Ukrainian government, a person familiar with the matter said.
    “I cannot confirm this,” said Anton Usov, a spokesman for the EBRD. “Before we
    decide if any financing package is available, a number of conditions need to be
    in place. It should be under the political umbrella of the European Union and
    we would like to see the outcome of the IMF mission. This must be a joint
    effort [with other international lenders] and the government should demonstrate
    a clear commitment to reform the gas sector.”
    The World Bank said it is willing to offer $500 million, with the condition
    that Ukraine enacts a range of economic reforms, according to the person
    familiar with talks held in Brussels on Monday and Thursday.
    A World Bank spokesman wasn’t available to comment.
    The European Investment Bank, the E.U.’s lending arm, is willing to provide
    between EUR200 million and EUR300 million, but says this money must be used to
    fund infrastructure investments, not direct purchases of natural gas, the
    person familiar with the funding talks said.
    “We have said we are willing to help modernize Ukraine’s gas infrastructure,
    subject to reforms in Ukraine’s gas industry, however we don’t have any mandate
    for trade finance,” EIB spokesman Nick Antonovics said.
    Together, these funds add up to less than $1.4 billion. The E.U., however,
    thinks it still has time to resolve this issue. At a Thursday meeting in
    Brussels, gas experts from the E.U.’s 27 member countries agreed that current
    supplies in the bloc are at quite a comfortable level, the person familiar with
    the funding talks said.
    Next week will be a key test for Ukraine’s gas trade with Russia. Naftogaz on
    July 7 is due to make a payment of roughly $250 million to Russian gas monopoly
    OAO Gazprom (GAZP.RS). The E.U.’s gas experts say that Ukraine can cover this
    payment but that pressure will increase in August and September when the
    monthly bill climbs to $1 billion.

    -By Adam Cohen, Dow Jones Newswires (Alessandro Torello in Brussels and Paul Hannon in London contributed to this
    article.)

    Dow Jones Newswires
    07-02-09 1150ET

  47. 47
    kyleandy Says:

    does anyone have any ideas what might be a good short in the trucking industry or an ETF . looked up wabash , but its only 75 cents. thks

  48. 48
    john11 Says:

    Has anybody seen any broker comments re GST deal, or is it just too slow out there?

  49. 49
    choices Says:

    Kyle-NAV just lost $1 bil defense contract to Oshkosh-NAV has been weak last few days and fell substantially on the news of the loss of the contract.

  50. 50
    zman Says:

    John, I haven’t yet but with all of the debt essentially gone I’m buying a little in here at $0.55

  51. 51
    john11 Says:

    Thanks Z, I’ve been buying also.

  52. 52
    zman Says:

    John – Yep, watched that one for a long time, been in the going out of business maybe category for quite some time. CHK owns a piece, would like to own more. I have it in the buy and forget for now accounts (kids, dad, etc). I’ll work up an NAV for Monday. Gotta go start the ribs.

  53. 53
    1520sbroad Says:

    not sure if BOP is around today:
    BOP — check URKA today – good news on the pricing front for them and the industry.

  54. 54
    RMD Says:

    JRCO comment on GST had no analysis, just reporting.

  55. 55
    zman Says:

    1520 – Bop is on vacation all week

    Re JRCO – not surprising, I’m sure they are not really in.

  56. 56
    ram Says:

    Ribs – nice. It would be nice if we get a positive turn in the next two weeks. Have a safe and sane 4th of July everyone – you too ZMAN.

  57. 57
    zman Says:

    Thanks Ram, you too.

    On the GST, not surprising no analysts commenting as it is an ignored name and on the end of a holiday light traffic week. Rookie move on their part not to wait until Monday but you announce the deal when it is done and waiting can get people in trouble. Possible they were going to get a delist notice today, not sure where they are in the process but it was bound to happen if it already hasn’t. This should forestall that.

  58. 58
    zman Says:

    My last thoughts on GST from January

    http://zmansenergybrain.com/2009/01/05/gst-notes/

  59. 59
    Sambone Says:

    13:02 07/02 *DJ Baker Hughes: US Oil, Gas Rig Count Up 11 To 928 This Week

  60. 60
    zman Says:

    Rig Count Watch

    Oil rigs up 10 to 229, vs 373 YoY
    Gas rigs up 1 to 688 vs 1539 YoY

    Horizontal up 6 to 309 vs 555 YoY

    Texas rigs flat, Louisiana rigs off 1, increases in OK and N.D. (Bakken) drilling

  61. 61
    kyleandy Says:

    choices – re 49 thks

  62. 62
    zman Says:

    Upon asking for a trucking short from my hedge fund trucking analyst friend, I got back YRCW. I’ve put in a request for something with a little more meat on its bones as that is pretty much toast already.

  63. 63
    PackMan Says:

    UNG getting trashed … 2 pm dumpathon …

  64. 64
    jiveyjr Says:

    WLT is very strong in the coal group…I know that isn’t exactly what we do in here but thought it might be worth a look; I bought a few shares a couple of days ago when I noticed it coming off the 50 day in heavy volume

  65. 65
    zman Says:

    Hey Jivey, we do coal just not that often. Owned WLT last year as they made the transition from conglomerate to met coal company. Not sure if they are entirely out of housing just yet. That market is different from the traditional coal market like at a BTU, MEE, ACI etc, as the pricing is a little more, um, mystical. A lot of the metallurgical coal price is determined by Chinese demand so if you see iron ore shipments rising there, and the drybulk links on the transports tab are a good source for that data, then met coal prices are likely to be up. The guys at Dahlman Rose cover the group pretty well, like they do the dry bulks, and recently reiterated a buy on WLT for what it’s worth. I’ve been shying away from the traditional coals as I felt I had missed out after the recent run and coal prices lay down almost perfectly with natural gas prices and I don’t see a big rally in natural gas in the very near term.

  66. 66
    Sambone Says:

    Gone til Monday, Happy and safe 4th!

  67. 67
    jiveyjr Says:

    thx, for that insight Z on WLT….

  68. 68
    Wyoming Says:

    In the Spirit:

    http://screencast.com/t/FZSJrRBZWPd

    http://www.washingtontimes.com/news/2009/jul/03/powell-airs-doubts-on-obama-agenda/

  69. 69
    Wyoming Says:

    http://fora.tv/2009/06/23/IAEE_Conference_Unconventional_Oil_and_Gas_Resources

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