16
Jul

Thursday Morning Pause

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Sentiment Watch: Bullishness probably muted early but feels to me like the market seems to like having a direction (up) and will no doubt carry this too far too fast.

  • Last night China announced GDP growth of 7.9% for the second quarter vs expectations of 7.7% and up strongly from Q1's 6.1% pace. 
  • JPM - big name on the Street of the Day announced better than expected earnings.
  • CIT gets no help from the Feds
  • AMR lost less than expected due to lower fuel costs, this past quarter spent $1.3 billion on fuel, down from $2.3 in 2Q08. While lower fuel costs certainly helps the airlines demand is the real problem. Of course, when demand comes back, so too will higher fuel costs. Hedge it while you can boys.  See story here.
  • Jobless claims came in at 522,000 vs 505,000 expected and 565,000 last week. So worse than expected but the best (least bad) levels we've seen since January.

 

 

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 - RRC Ops Update
  6. Odds & Ends

 

Holdings Watch:

  • $10KP:
    • $18,100
    • 60% Cash
    • The Wiki tab is updated; I will update the $10KP spreadsheet on Monday.

Yesterday's Trades: Busy

  • CRL - Sold the July $25 Calls for $1.65, up 150%, with the stock at 26.50, up 9% today on the BEXP news.
  • HK - Sold (30) of the July $20 calls for $1.20, up 22% with the stock at $21.15. Will reload into more August calls soon but oil and crude products are looking wobbly to me following a somewhat mixed oil inventory report and if the broad market eases later today, this one and the E&Ps could shave gains pretty quickly which would be tough on the July positions.
  • NFX - Added (5) NFX August $35 calls (NFXHG) for $1.50 wit the stock at $33.25. Taken for earnings next and will likely double that or triple it prior to then. Not wild about the chart as its “gappy” but I think they will have good things to say on the call regarding the Bakken, deepwater, international, realizations out of the Rockies, and could turn in a small beat on the top and bottom lines. I bought these on the mid and probably could have bagged it a little lower with patience but I plan to add more later so am taking what I can get now think towards an average entry under $2 per contract. NFX - Doubled the August $35 call position (NFXHG) for $1.45 with the stock at $33.15.
  • HK - Added (5) more HK August $22 Calls (HKHS) for $1.20 with the stock around $21.10.
  • CLR - Added (10) CLR August $30 Calls (CLRHF) for $1.15 (on the mid after a pretty long wait) with the stock up 9% on the day. This is just a roll of the previous trade into the next month.

 

Commodity Watch:

Crude oil rallied $2.02 to close at $61.54 yesterday despite rather mixed bag of nuts looking report out of the EIA (see EIA review section below). This morning crude is trading off $0.50 plus with lower equity futures.



Natural gas fell $0.15 to close at $3.28 as analysts lowered their early read estimates for today's natural gas storage report. This morning gas is trading flat.

Natural Gas Preview

  • My number: 85 Bcf
    • History:
      • Last Week: 75 Bcf
      • Last Year:102 Bcf
      • 5 Year Average: 80 Bcf
    • Weather: Mild, not hot enough, especially in the north east. This will change sharply with next week's report which should show this week as having been the hottest of the year so far and hotter than normal.
    • Imports: down 1.2 Bcfgpd from last year, all due to lower Canadian volumes. This was 0.5 Bcfgpd less than the prior week as well.
  • Street Consensus: 92 Bcf

ZComment: The Street is setting the bar fairly low for this week's report having started out close to the mid 80's before arriving at the 92 Bcf number.

EIA Oil Inventory Review

 

ZComment: In 2Q09, refinery inputs were down almost 1 mm bopd and still finished product inventories were up (they increased for gasoline and surged for distillates). Without product demand crude will have a tough time making anything but "speculative highs" over the $75 mark. However, sometimes the EIA's graphs deliver the point quite succinctly; the point being that crude stocks in the U.S. have done a good job of backing away from the highs reached this past Spring and while stocks are not back to normal levels for this time of year, they are no longer on a trajectory towards the moon.

 

CRUDE OIL - Refining hit peak levels for 2009 driving a bigger than expected draw down on crude stocks despite higher imports. I think we are very near or at the top for refining demand for crude for this year as product inventories and demand do not warrant further increases in production.




 

 

GASOLINE - Demand remains sloppy and soft.



 


 

DISTILLATES




 

Stuff We Care About Today

 

RRC Pre Announces 2Q Volumes, Provides Ops Update

Volumes:

  • 2Q Production of 434 MMcfepd, beats guidance of 420 to 425 Mcfepd; cites better than expected drilling results Barnett and Marcellus
  • Sees double digit volume growth in 2009; prior guidance was 10% growth so without getting specific they are bumping that up a bit.

Operations Update

  • Running 14 rigs vs 30 a year ago but they've been very busy with the drill bit, both in their Barnett and Marcellus shales and in their more conventional gas plays.

Marcellus Update:

  • Marcellus production now > 50 MMcfepd net; sees production close to high end of YE09 target of 80 to 100
    • No "monster wells" highlighted in this press release but the trend has been moving from low 7s MMcfepd at YE08 higher, with at least one well coming in over 24 MMcfepd.
  • 46 wells drilled in last 2 years; of these 24 on line for over 120 days, estimates EUR of these at 4.4 Bcfe - strong for the play and up from their last estimate of 3.5 Bcfe in the 1Q press release.
  • This year alone that amounts to an additional net 53 Bcfe of incremental reserves (for a total of 262 Bcfe) which is not insignificant relative to RRC's year end proved reserves of 2,700 Bcfe
  • Completed well cost of $3.5 mm for under $1 per Mcfe development cost after 15% royalty; yields IRR of 50% at $5 gas (they get strong pricing in Pennsylvania to Nymex)
  • 3 rigs now, 6 by year end
  • Total of 70 wells planned for 2009 with 50 on line by year end. This is up from 60 planned at the end of 1Q.
  • RRC has 1.4 mm net acres (900,000 acres in the "fairway")
  • Before the increased EUR comment they thought they had unrisked reserve potential of 22 Tcfe (8x YE08 reserves)

Barnett Update:

  • Barnett production of 120 MMcfepd net
  • Recent strong tests; big well in Parker County (on the edge of core Barnett  territory) at 7.6 MMcfepd
  • 2 rig program for now. This is down from a planned 3 rigs as of last quarter, surely due to gas prices.
  • They see 2H09 F&D in the core at $1.25 per Mcfe which is a touch higher than in past comments but the IRRs here should still be close to 20% at $4 gas.  Thankfully they are well hedged for 2009 (see below).

In other areas:

  • Appalachia - continues to hum along; this is $1 per Mcfe finding cost country, stacked payss with very low lifting costs ($0.60 per Mcfe)
  • Midcon - set a new production record at 57 MMcfepd.

Hedges:

  • Second Half 2009: 80% collared with floors at $7.49 and ceilings averaging $8.15. Nice.
  • Starting to hedge 2010:

    • 1H10: 30% of expected volumes hedged with floors at $5.50 and a ceiling of $7.41
    • 2H10: 7% hedged with a $5.50 floor

 

Valuation:

  • P/CF of 10.1x for 2009, 9.6x for 2010; lofty but not overly so for such a high RP company (17+ years) that isn't overly leveraged and is having repeatable, high IRR success.

Nutshell: Good to see a production beat and increased focus on the company's highest return play, the Marcellus. Very good to seem them up the estimate of recoverable reserves there (or at least imply that they will by talking about their longest set of running wells there).  Range has recently increased its financial flexibility through asset sales and continues to protect medium term cash flow while allowing for upside should gas prices improve next year (or at least they are giving themselves time to hedge at better prices during the normal seasonal run in prices later this year (yep, I still think we see higher prices by year end).  The production beat will likely mean a small boost to 2009 CFPS estimates but the real boost to the story comes from better drilling results leading to stronger reserve bookings. The stock is likely to do well today and into their 2Q press release on July 23rd. I have been looking to bring (RRC) into my fold of habitually traded companies since last quarter and I am likely to take some calls here this morning. Just an FYI, they do have a shelf filed so this could be the "announcement before the deal" and I won't swing for the fence in terms of number of contracts today. 

This note and the 1Q09 comments are located in a RRC Notes file on the reports page here.

Odds & Ends

Analyst Watch:

  • (COP) upped to Hold at Benchmark
  • (MRO) and (RDS.A) cut to Hold at Benchmark
  • Coal Upgrades:
    • (PCX) upped to Buy at UBS
    • (JRCC) upped to Overweight at JPM

82 Responses to “Thursday Morning Pause”

  1. 1
    nifkin Says:

    morning- yesterday was also day 1 of the UNG roll- goes thru monday- heard day 1 is usually the most distruptive

  2. 2
    zman Says:

    Morning Nifkin, good point.

    NG up 7 cents pre storage

    Oil looking to open down $1

  3. 3
    BirdsofpreyRcool Says:

    rats… did it again… posted under one of your prior notes… can you move the comments, z? thx

  4. 4
    BirdsofpreyRcool Says:

    Comments from one of our cross-asset strategists on CIT and BAC situations
    ————————————-

    CIT’s membership in the CDX IG12 Index should cause the index to trade at least 5-6bps wider due to its relatively small 125 member cohort. However, we do not expect CIT will generate a worsening of the credit crisis simply because the market has had a lot of time to deal with this possibility. It’s also nice to see the lack of articles blaming the CDS market as the reason for CIT’s imminent demise – rather everyone seems correctly convinced that CIT’s demise is based on their business practices. The test balloon announcement that the government apparently leaked last week indicates that the equity markets are only going to be lightly effected by CIT’s demise. Contagion will be minor. We also expect that the phenomenon of a REVERSE DEAD CAT BOUNCE and the leaking of government correspondence about BAC could have a more negative effect on the market. [Although, if the reason for BAC’s secret censure was reported correctly in the WSJ it would indicate an environment of gotcha at the lowest point of the recession. If the regulators were so much better at thier jobs than bank managers they should have told BAC that they would not have allowed them to do the deals….it also provides a unique background to all of Ken Lewis’ 1Q09 statements highlighting the deals as the reason for BAC 1Q09 better than expected results. I.E. these statements were likely directed at regulators as a crude “I told you so…”. Was BAC telling the FED – see we were right and you were being hysterical?]

  5. 5
    BirdsofpreyRcool Says:

    TechTrader says it’s a low odds (45/55) long day.

    HeadTrader thinks we sell rallies, but want to be flat by the end of the day with IBM and GOOG tonight… this is subject to change, however, if we get above 930 SPX. All-in-all, a low odds, do-nothing day becaue of all the EPS reports and option expiry tomorrow.

  6. 6
    zman Says:

    ZTRADE:

    RRC

    Wildz – Added (20) RRC July $42.50 Calls (RRCGV) for $0.25. Obviously risky with the stock at $41.65 and expiry tomorrow.

    Also Added (5) RRC August $42.50 Calls (RRCHV) for $2.20.

    See reasoning in today’s post.

  7. 7
    zman Says:

    BOP, WEST, all, I have not gotten to add the KOG comments from yesterday to the KOG notes page but will shortly.

    BOP – there is a calendar on the left margin that will allow you to select different days’ posts and copy and paste comments from them to the current one. Clicking on the Zman E. B. at top gets you back to the current post.

  8. 8
    BirdsofpreyRcool Says:

    NP, z… just did it. thx

  9. 9
    zman Says:

    BOP – I’ll just go ahead and second West’s late night comments saying thanks for bird dogging all the news we can all use on KOG.

  10. 10
    choices Says:

    CIT off 79%, down to $0.39, vol 81 mil- BK prob tomorrow according to reports-

  11. 11
    BirdsofpreyRcool Says:

    z — no need to say “thanks.” But, nice to hear it. It’s just my job. What I do. And i feel responsible for other people in the stock.

    That said, I have always prefered analysts who “eat their own cooking.” I like the fact that you own what you talk about, z. I own a lot of KOG, so just talkin’ my book.

    Next thing to watch for — EOG’s purchase of acreage on the Rez from a little, private company (whose name sounds a lot like something Robert Redford would own… only Robert Redford thinks oil companies are EVIL). Will give us a per-acre metric baseline for KOG.

  12. 12
    zman Says:

    Philly Fed must be ugly.

  13. 13
    choices Says:

    z-I take it from your comments above that refinery stks such as VLO are pretty much dead money-altho VLO has been hanging in there technically, but certainly showing no strong signs that it wants to go up.

  14. 14
    BirdsofpreyRcool Says:

    z — you going to sit in your HAL calls through earnings on Monday? LUFK reaction gives me pause (which is why Wyoming pointed it out, i guess)

  15. 15
    zman Says:

    Yep, down 7.5 vs expected down 3.3. Ugh. Setback for the market time.

    Choices – I just don’t see a reason to own them yet. Gasoline production capacity is actually increasing so that will hamper margins next year even as we recover demand. On the distillate side, I just don’t see demand recovering. I think if diesel can string together 3 weeks of gains it will be headlilne worthy, until then I just watch.

  16. 16
    BirdsofpreyRcool Says:

    Philly Fed ugly alright… -7.5 vs -4.5 expected and -2.2 prior.

  17. 17
    choices Says:

    BOP-respect your sense of committment and responsibility vis-a-vis KOG-

    Thanks.

  18. 18
    BirdsofpreyRcool Says:

    This came out pre-mrkt… I find it disturbing. On the other hand, maybe it will slow down those drunken sailors, busy spending other people’s savings, in Washington
    —————————————

    International Demand for Long-Term U.S. Assets Falls (Update1)
    2009-07-16 13:33:59.947 GMT

    By Vincent Del Giudice
    July 16 (Bloomberg) — International demand for long-term U.S. financial assets weakened in May as Russia, Japan and Caribbean banking centers trimmed their holdings even as China stepped up its purchases.
    Total net sales of long-term equities, notes and bonds were a net $19.8 billion in May, compared with buying of $11.5 billion the month before, the Treasury said today in Washington.
    Monthly foreign investment flows dropped $66.6 billion in May, compared with a decline of $38 billion in April.
    While Treasuries have been a haven for investors during the credit crisis, emerging economic powers question the dollar’s status as the U.S. runs up record debt to fund the economic recovery. At a Group of Eight summit last week in Italy, China repeated calls for a “diversified and rational” global currency regime. Russian and Brazilian officials said the issue may come up at the wider G-20 forum in Pittsburgh in September.
    “We still need the foreign capital,” David Wyss, chief economist at Standard & Poor’s in New York, said before the report. “We’re still borrowing. It’s important to see a significant inflow.”
    China, the biggest foreign holder of U.S. Treasuries, increased its holdings of government notes and bonds by $38 billion to $801.5 billion. Holdings in Hong Kong also increased.
    Japan, the second-biggest international investor, reduced its total by $8.7 billion to $677.2 billion. Russia’s holdings fell
    $12.5 billion to $124.5 billion. Holdings at Caribbean banking centers also fell, declining by $9.9 billion to $194.8 billion.

    Forecasts

    Analysts had anticipated international net purchases of long-term U.S. assets of $16.5 billion, according to the median of five estimates in a Bloomberg News survey.
    Including bills, foreign holdings of U.S. Treasuries rose a net $30.5 billion.
    The Treasury’s reporting on long-term securities captures international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies such as Fannie Mae and Freddie Mac, which buy home mortgages.
    Foreign investments in U.S. agency debt increased by $12.8 billion in May. Net purchases of American equities rose $16.7 billion in May after rising $4.6 billion the prior month.
    Holdings of corporate bonds increased a net $935 million.

    Record Deficit

    The U.S. budget deficit topped $1 trillion for the first nine months of the fiscal year and broke a monthly record for June as the recession subtracted from revenue and the government spent to rejuvenate the economy.
    The shortfall for the fiscal year that began Oct. 1 totaled
    $1.1 trillion, the first time that the gap for the period surpassed $1 trillion, Treasury figures showed July 13 in Washington. The excess of spending over revenue for June was
    $94.3 billion, the first deficit for that month since 1991, according to data compiled by Bloomberg.
    For the fiscal year that ends Sept. 30, the Office of Management and Budget forecasts the deficit to reach a record
    $1.841 trillion, more than four times the previous fiscal year’s
    $459 billion shortfall.
    Chinese Premier Wen Jiabao expressed concerned earlier this year that his country’s Treasury holdings may fall in value as the U.S. sells record amounts of debt to fund the budget gap.
    President Barack Obama is counting on nations such as China to fund his $787 billion economic stimulus and separate programs to aid financial firms and homeowners amid the worst downturn since World War II, which has cost about 6.5 million jobs.

  19. 19
    zman Says:

    Market trying to shrug off Philly Fed. Tough after yesterday’s rally. Index is notoriously volatile but it still makes you wonder if economists use chicken or turkey bones to divine their estimates.

  20. 20
    BirdsofpreyRcool Says:

    choices — the only thing i really worry about with KOG is a sustained period of less than $50 oil prices. They are generating cash flow from some production now. So, they are in the position of not HAVING to raise capital, just to keep the doors open. That is worlds away from last winter.

    I do think KOG will be sold. I think $2 is the minimum acceptable bid. And I think it would be a stock-for-stock deal. But, no special insight there.

  21. 21
    zman Says:

    May take another whack at RRC calls as Philly Fed just round tripped a double in the quick trade for me.

  22. 22
    zman Says:

    Choices – one of the other things that would make me get off the bench, or at least think about it, would be independent refiner activism on production volumes. Like production curtailments for the E&Ps, the refiners do not have to make product at a loss. See VLO today and their now shuttered Aruba refinery. There has been some minor production curtailments but if the group as a whole acts to limit production I’ll take notice.

  23. 23
    zman Says:

    Feels like the market just got pinned.

  24. 24
    choices Says:

    Thanks, Z, BOP

  25. 25
    zman Says:

    90 Bcf, in line.

  26. 26
    zman Says:

    Gas and gassy stocks breathing a big sigh of relief. This week’s weather is hotter, will prompt the smallest injection of the season next Thursday, then we are back to worrying over the weather as the south is cooling down today and into next week pretty substantially.

    Crude going green, tracking market.
    NG up 18 cents.

  27. 27
    BirdsofpreyRcool Says:

    KOG — as West pointed out, they have spudded well #5 on the Charging Eagle prospect. After drilling #5 and #6 from the same pad, they will move in a completion rig the first week in August. We should have well results from 5&6 by the end of August.

  28. 28
    bill Says:

    MMR is having a conf call right now.

    they lost 100 m in the qtr

  29. 29
    zman Says:

    Bill – you know that story is not about earnings. I’m away from them in terms of interest but if you listen let me know if you hear anything of interest.

  30. 30
    West Says:

    long ARD

  31. 31
    BirdsofpreyRcool Says:

    #27 — oops… that’s what I get for typing and talking on the phone at the same time. Wells 5/6 are Two Shields Butte. Charging Eagle is the next area… south of the river; wells 7&8, which will be an October event. Got a bit ahead of myself there.

  32. 32
    BirdsofpreyRcool Says:

    CIT — CNBC saying they are seeking to line up $2-3B in secured financing from private investors… this would be a huge positive. A NON-GOVT, private market solution. Would be great to see.

  33. 33
    RMD Says:

    MMR call: if we hit one of these, we will light up the whole pinball machine.

  34. 34
    zman Says:

    NG up 23 cents, 12 month strip is up about 12 cents, DEC gas is $5.20.

    Crude up 30 cents now.

  35. 35
    zman Says:

    RMD – yep, Moffett is pretty colorful.

  36. 36
    DrLink Says:

    MMR Interesting that Moffett bought 5 million worth on June 17th . ($5.75) Thats a drop in the bucket for him….but he has been around for a long time and must have thought underpriced……

  37. 37
    bill Says:

    MMR call

    Sounds like they might be onto something still a work in progress

    They are in final stages of adding a partner (Nippon) when formerlly announced should be viewed as a positive

    Not in in PXP and EXXI are existing partners

  38. 38
    bill Says:

    not in it.. sorry for typo

  39. 39
    zman Says:

    Bill – is that for Blackbeard?

  40. 40
    DrLink Says:

    Raymond James’ Energy Outlook

    On March 2, we slashed our natural gas estimates, cutting our 2009 forecast by
    25% to ~$3.75/Mcf, including $2.50/Mcf in 3Q09. The market is oversupplied by
    600 Bcf, and we are still looser (more supply) on a y/y basis over the past four
    weeks. Despite our assumption of a 70% peak-to-trough decline in the gas rig
    count, we believe total shut-ins may still total in excess of 500 Bcf. To force
    such large shut-ins, natural gas prices would need to fall well below $3.00/Mcf.
    For 2010, the outlook is much more uncertain. 1) Will demand recover? 2) How
    far/long will supply fall? 3) How much will LNG imports increase? Given these
    questions, we conservatively reduced our 2010 forecast to $6.00/Mcf.

    On June 22, we boosted our 2009 and 2010 oil price forecasts from $48/bbl and
    $65/bbl to $56/bbl and $80/bbl, respectively. While we still felt there was the
    possibility of a short-term pullback in oil prices (see oil’s correction over
    the past couple of weeks), we didn’t expect it to happen quite this rapidly,
    hence our 4Q09 estimate of only $65/bbl (3Q09 estimate is $70/bbl). In the
    near-term, the global economic crisis continues to obscure oil demand, with
    virtually no near-term visibility. Longer-term, incremental supply projects
    continue to get shelved and/or postponed indefinitely. Such moves will result in
    a supply-constrained crude market. The only question is when. That answer
    depends entirely on when global oil demand can stabilize and begin to recover

  41. 41
    reefguy Says:

    NG up.34

  42. 42
    zman Says:

    Thanks DRL

    Fair warning on those RRC July calls taken this morning. If it doesn’t break through the early high in the next little bit I am out. Will hold the Augusts through earnings next week unless it carries on significantly higher.

  43. 43
    zman Says:

    Reef – yep, oversold, to use an overused word. Not even Haynesville or Marcellus production is profitable sub $3.

  44. 44
    Wyoming Says:

    Re LUFK, don’t worry, TPH says all is well; Many thanks to the lurker.

    LUFK Q2 follow-up, upgrade to Accumulate ($39.52 – A) – Business hasn’t turned the corner yet but think orders will start to improve soon. Valuation not table pounding but reasonable at 16x 2010 P/E (<14x P/E if ex-net cash) and we don’t want to be too cute with stock as illiquid as LUFK. Q3 earnings should be trough, with ability to hang hat on 30+% improvement in US oil directed rig count off bottom as support for this view. More below.

  45. 45
    Wyoming Says:

    Casual reading:

    http://www.epmag.com/EPBuzz/2009/07/16/

  46. 46
    BirdsofpreyRcool Says:

    Brian Reynolds and the Infamous 950 level (also, note the graph of junk bond spreads at the end of this piece)

    http://www.capmarkets.com/ViewFile.asp?ID1=304697&ID2=322486089&ssid=2&directory=11608&bm=0&filename=Re-Examining_Sentiment_7-16-09.pdf

  47. 47
    sportlock Says:

    Z,

    Do you the think today’s reaction to the NG number was a realization supply is starting to fold? Are you somewhat surprised that Louisiana has not shown any growth in NG production according to 914 despite all that has come on in the Hville?

    Thanks

    Bill

  48. 48
    zman Says:

    Bill

    I think it was oversold, this is the 4th consecutive under performance (better than) for injections vs the estimate. Although, I have to admit the Street went out of its way at the 11th hour to set the bar very low this week. They wanted a beat and got it and that sent gas higher. I don’t find it particularly sustainable and certainly would not be surprised to see a fade in the next day or two. A range of $3.50 to $4.00 would be healthy before we see more evidence of declines.

    Looking at Louisiana, no, not surprised it took awhile to see the bump. You had a lot of people transitioning from Cotton Valley and other conventional production to Haynesville Shale during the first half and their were hiccups involved with that. In the April data you can see gas production is starting to turn up. I expect it to be up 1 Bcfgpd within 2 years but you still have to fight conventional declines and you have to accelerate the rig count in La for that to happen.

  49. 49
    zman Says:

    Crude goofing about today, dropped 80 cents in 20 minutes coming to rest on $61 even now. Hmmm. Stocks holding up through that very well. Double Hmmm. Gives me a little more confidence that the trade is on to get it back up a bit, say to mid $60s by next week’s inventory release.

    Still milking the RRC.

  50. 50
    zman Says:

    Adding to 48 … there is also the large short position out there which is twitchy having made fat gains and knowing that the majority of the easy gain is now behind them and that the risk reward may be turning to favor upside and that as Hurricane season matures, the chart will likely force them to endure rapid spikes. They may view these as new entry points for re shorting as well.

  51. 51
    zman Says:

    ZTRADE:

    RRC – Sold the July $42.50 Calls for $0.55, up 120% since entry this morning, with the stock now at $42.55. I will hold the August calls through earnings next week unless the stock puts on a larger move before then.

  52. 52
    zman Says:

    ZTRADE:

    HK – Added (10) August $24 Calls (HKHO) for $0.70 with the stock at $21.55. I find it unusually that they have not provided an operations update prior to the release of the quarter but at the same time, they have not yet announced their 2Q release date yet and I would be it will be in the second week of August so there is still time. I will add to this position and the lower strike $22 Augusts I hold now on an opportunistic basis.

  53. 53
    zman Says:

    Paint drying. I have most of the trades on I’d like to for the first week of earnings season. May buy a little more NFX tomorrow, not feeling like chasing it or EOG which I left some cash on the table with and will get back to soon. I may add a little more HAL if it will slow down but right now, just sitting on hands there as well.

  54. 54
    jiveyjr Says:

    I bot far too little of WLT a week or so ago…

  55. 55
    VTZ Says:

    http://www.bloomberg.com/apps/news?pid=20601109&sid=aQBXqFcd5gJo

    Devastating oil glut says that guy.

  56. 56
    zman Says:

    Jivey – I missed the coals again. BTU ran hard too. Now I will listen to call next week but not own before.

  57. 57
    zman Says:

    V – I don’t know about the $20 figure, I think it will be higher and I do think OPEC is quite aware of where storage is headed. I don’t think they change quotas in September but I do think they toughen up again on quota discipline. Refinery utilization will be lower, true, in the Fall during maintenance season but I also think we see some pickup in 4Q demand. If you think the recession worsens and we have his warm winter (a distinct possibility on the later as El Nino is back) then I would say we won’t be rallying into New Years.

    As to myself I think we see somewhat stronger demand in the fall for diesel which eats through some storage, I think some international demand picks up. I think weather is still a toss up at this point. So I’m in the 4Q camp of $65 to $75. $20 would be kind of a worst case economy and worst case weather and no disruptions between now and then from the Gulf case.

  58. 58
    zman Says:

    Big rally into the close for crude, ending up $0.50, been all over the map today. Contract expires 7/21 so its not that, just blowing in the wind with the DJIA.

  59. 59
    RMD Says:

    DVN saying Horn River is a 2015 play for them.

  60. 60
    VTZ Says:

    I wasn’t buying it… just passing along for perspectives.

  61. 61
    zman Says:

    11% gain on natural gas for the day. We now well above the levels from last week when Pack (I think it was Pack) went long UNG.

    By the way, LINE continuing to push up against old resistant, back over $20. Saw a broker note earlier musing about the possibility that they make an acquisition. I don’t know if he is on to something or just supposing. If I were to suppose, in the wake of their recent deal, now would be a very good time for them to buy assets. Historically they have done a good job of buying low and selling high and even selling high in a low market. Lots of further optimization they can do via other peoples acres right now. And the 100% 3 year hedge gives them courage to do it. I agree with the analyst that they could pull off an accretive deal in this market, and raise the dividend. They are overly conservative on their payout anyway and their will be more asset packages on the market this winter as people who are unhedged in 2010 scramble to pay for 2010’s drilling program and any debt commitments they have.

  62. 62
    zman Says:

    VTZ – Didn’t think so but I wanted to walk through it. I didn’t exactly throw a rock at him over it but I think he picked a low ball number to grab attention.

  63. 63
    bill Says:

    bot some vq today

    oily name

    http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9ODc0NXxDaGlsZElEPS0xfFR5cGU9Mw==&t=1

  64. 64
    zman Says:

    CLR on fire again.

  65. 65
    zman Says:

    Hear ya bill, holding my WRES for California crude instead.

  66. 66
    bill Says:

    Congress alarmed that Goldman Sachs made a profit..seems liked they prefer they lose money

    Someone needs to remind the good commies that profits are good and the the us govt gets 34 % of the bottom line

    Paulson just got a homework assignment, lol

    If i were him, id become unglued at their pontificating

  67. 67
    bill Says:

    on 39

    blueberry hill

    they are drilling a sidetrack and have hit some pay zones but are going lower to find the bottom

  68. 68
    zman Says:

    Bill – did they even mention blackbeard or treasure island?

  69. 69
    zman Says:

    This goes with 61 above.

    Emailed in question from the compliance department challenged:

    Z: Do you want to make a guesstimate as to the high and low over the next 12 months? S

    My response:
    Oh goodness no. I’d think higher than here but a lot depends on the weather this winter. I’m holding long term and getting paid to so I don’t really care as long as they don’t do anything stupid which has not been their pattern.

  70. 70
    apbd Says:

    Will somebody please tell KOG that the market is up.
    apbd

  71. 71
    zman Says:

    APBD – little names not really moving today, plus, it got goosed by West for 18% yesterday so it needed a rest, still up 2% today is not too shabby. Long term thinking required there my friend.

  72. 72
    zman Says:

    Beerthirty.

  73. 73
    john11 Says:

    apbd…the specialist heard you and put out a bogus 1.06 closing print.

  74. 74
    zman Says:

    IBM and GOOG beat, IBM up, GOOG off

  75. 75
    West Says:

    KOG wells off confidential status have following production reports. The MOCCASIN CREEK 16-34H
    5-2009,prod 12604 bo, sold 11845 bo, 5673 bow, 5962 mcf vented, 24 days of production…….MOCCASIN CREEK 16-34-2H
    prod for 36 days as follows: 8883 bo, Cum Oil: 9812 Cum MCF Gas: 5540 Cum Water: 2688 they sold 9420 bo from this well. All figures from NDIC site and are thru the end of May, 2009.

  76. 76
    BirdsofpreyRcool Says:

    West — thank UUUUUUUUUU

  77. 77
    zman Says:

    The KOG notes page has been updated to include yesterday and today’s comments

    http://zmansenergybrain.com/2009/06/11/kog-notes/

  78. 78
    zman Says:

    Agree with 76. Nice to see the CF coming in the door.

  79. 79
    bill Says:

    >5962 mcf vented

    im suprised the gas is allowed to be vented

    total waste of energy and gawd knows what that does to harm global warming

    isnt there a way to efficiently capture this

  80. 80
    BirdsofpreyRcool Says:

    bill — #79 yes. in a pipeline.

    But there is no pipeline anywhere near the Rez until the end of this year… and KOG thinks they will be able to build about 6 miles of feeder pipeline to join up with it “sometime in mid-2010.” I think it’s called the “Arrow Pipeline” and is being built by a consortium and backed by funding by Och-Ziff. Just to fill in a few blanks.

    And yes, KOG (and all the others) are painfully aware of the EPA’s new activist stance…. oil wells have been flaring nat gas for decades, but…

  81. 81
    PackMan Says:

    Z 61 – I am long some UNG w/ covered calls sold and short puts sold.

    Not sure that was me you were recalling however. Just a little ST trade.

  82. 82
    West Says:

    Informational article about the TFS for those with an interest.North Dakota could have a huge new oil field
    Wells in North Dakota’s Bakken shale show promise for huge new oil
    deposit
    By James Macpherson, Associated Press Writer
    On Tuesday July 14, 2009, 12:03 pm EDT

    BISMARCK, N.D. (AP) — Dozens of fruitful wells beneath the rich
    Bakken shale in North Dakota continue to fuel a hunch among oilmen and
    geologists that another vast crude-bearing formation may be buried in
    the state’s vast oil patch.

    Lynn Helms, director of the state Department of Mineral Resources,
    said recent production results from 103 newly tapped wells in the
    Three Forks-Sanish formation show many that are “as good or better”
    than some in the Bakken, which lies two miles under the surface in
    western North Dakota and holds billions of barrels of oil.

    “I think it’s a big deal and we’re pretty fired up about it,” Helms
    said.

    Companies have reported some Three Forks wells recovering more than
    800 barrels daily, considered decent by Bakken standards.

    Denver-based Whiting Petroleum Corp. has drilled two wells in the
    Three Forks formation, with one that recorded more than 1,000 barrels
    of oil a day, said John Kelso, a company spokesman.

    “We are excited about Three Forks but it’s early on in the play,”
    Kelso said. “I do know a lot of companies are redirecting focus from
    the Bakken to Three Forks.”

    Whiting has one Bakken well that recorded more than 4,000 barrels a
    day last year, thought to be a record for the formation and about
    double the highest Three Forks well drilled to date.

    Kelso said Whiting’s primary focus at present is on the Bakken. The
    company has more than 300,000 acres under lease in North Dakota.

    “With the turbulence in crude oil prices, we’ve kind of backed off
    Three Forks for the Bakken,” Kelso said. “We will very likely get
    after Three Forks in 2010, depending on oil prices.

    The Bakken formation encompasses some 25,000 square miles within the
    Williston Basin in North Dakota and Montana. The U.S. Geological
    Survey has called it the largest continuous oil accumulation it has
    ever assessed.

    The Three Forks-Sanish formation is made up of sand and porous rock
    directly below the Bakken shale. But geologists don’t know whether the
    Three Forks-Sanish is a separate oil-producing formation or if it
    catches oil that flows from the Bakken shale above.

    Fort Worth, Texas-based XTO Energy Inc. has reported to the state that
    one of its Three Forks wells pulled more than 2,100 barrels a day. An
    ETO Energy spokeswoman said the company does not comment on its
    operations publicly.

    State and industry officials are conducting a study to determine
    whether the Three Forks is a unique reservoir. The plan is to compare
    results from closely spaced wells, one aiming for the Three Forks, and
    the other at the Bakken. Researchers will look at pressure changes in
    the formations to determine if they are connected.

    Results from the study could be ready later this year, officials say.
    It already is spurring some speculation that the state has billions of
    barrels more in oil reserves.

    “Eventually it could equal the Bakken, which is remarkable, and that’s
    an understatement,” Helms said.

    “Is it the same or is it a separate formation? I think everybody is
    hoping for the latter,” Harms said. “That could literally double the
    potential we have — a Bakken 2, if you will.”

    Kelso, of Whiting Petroleum, said his company’s drilling activity
    shows that Three Forks likely is a separate formation. He said core
    samples taken from the Bakken and Three Forks show more hydrocarbons
    in the latter.

    “From the core samples, Three Forks looks better for us than the
    Bakken,” he said.

    Promising production results from the Three Forks could mean that
    companies that come up empty in the Bakken could use existing leases
    to drill in the same area for Three Forks oil.

    “It’s another target,” LeFever said. “If the Bakken doesn’t pay, maybe
    the Three Forks will.”

    Most companies working in the state’s oil patch continue to focus
    solely on the Bakken, said Ron Ness, president of the North Dakota
    Petroleum Council, a Bismarck-based group that represents about 160
    companies.

    “I think it’s a huge deal,” Ness said of the emerging Three Forks
    play. “But it is still vastly unknown and overshadowed by the urgency
    to develop the Bakken.”

    Donald Kessel, vice president of Houston-based Murex Petroleum Corp.,
    said his company was among the first to get a producing well in the
    Bakken in North Dakota about four years ago. The company now has 26
    producing wells in the Tioga and Stanley areas of northwestern North
    Dakota.

    Kessel believes that not all of the Three Forks is laden with oil.

    “Right now, we’re doing Bakken, and in those areas it doesn’t look
    like the Three Forks is going to work,” he said.

    “With Three Forks, you have got to find a sweet spot where it
    develops,” Kessel said. “It is not sandwiched like the Bakken between
    two shales producing oil.”

    Oilmen and others had known for years that the Bakken held oil. High
    oil prices and demand in the past few years spurred technology enough
    to begin tapping it.

    Kessel said techniques learned from the Bakken are now being used at
    other oil shales in the U.S. and internationally. But he said advances
    in technology have slowed with lower oil prices that have idled drill
    rigs.

    “Technology is not moving at the same pace because there are fewer
    well bores to do it at,” Kessel said.

    State geologist Ed Murphy said researchers will know more about the
    characteristics and potential of the Three Forks formation once more
    wells are tapped into it.

    “One-hundred wells is not that many wells when you’re trying to look
    at overall trends,” Murphy said. “Everyone will feel a lot safer with
    100 or 200 more wells down the road.”

    Drilling and well completion technology developed for the Bakken
    formation likely also could be used in the half-dozen formations above
    the Bakken and the dozen or so that reach 4,000 feet below it, he said

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