Teetering Tuesday

Sentiment Watch: Market is less panicked but lacks confidence. Eco data of the day came in mixed with  housing starts down 1% for July but single family building permits up 5.8%. PPI came in benign. Home Depot actually sees things turning up in contrast to Lowe's more dour forecast from yesterday.

Nicky's Technical Comment Watch (from yesterday)

  • My preferred count for the broader market is that we are in C of B down which when complete will lead to the final push up for 2C.
  • Sure its possible that the top is in but cycles make me think we have another move up into the middle to end of September once this correction is done. There is a minor cycle bottoming today. Support is here at 982 and then more important support at 967, 950. I think 950 will hold the downside, maybe 967 and then we see the final push to the 1055 SPX area.
  • If I am wrong and the top is in then likely the first wave down is complete or close to completion and we will see a 3 wave correction to the upside.


In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crack Spread Update
  4. Stuff We Care About Today - The large cap E&P orange charts
  5. Odds & Ends

Holdings Watch:

  • $10KP:

    • $16,700
    • 61% Cash
    • The Wiki Holdings Tab Is Updated
  • Yesterday's Trades:

    • VLO - Sold out of the August $17 puts, VLBTM for $0.26, down 40% with the stock at $17.20. Refining margins remain depressed but the stocks continue to hold their own fairly well, perhaps due to the potential for storm related disruptions this time of year.
    • CLR - Added (10) August $35 Calls (CLRHG) for $0.35 with the stock down 9% today ($32.95 now) on 2.7% down oil and a weak market. This will be a quick one and is obviously a bit higher risk as the options have less than 5 days of life left in them. I continue to hold September calls here.
    • HK - Added (9 - part fill) August $22 calls (HKHS) for $0.40 with the stock at $21.50. Risky. I continue to hold $23 and $24 strikes here and am in some September calls as well.

Commodity Watch

Crude oil fell $0.76 to close at $76.55 yesterday. The move was strongly influenced by a weak equity market and a stronger dollar and at the end of the day crude fared better than I would have expected, influenced by a strong bid for gasoline which itself was likely higher on tropical concerns. This morning crude is trading flat.

  • Early Reach On Oil Inventories:
    • Crude: UP 1.35 million barrels
    • Gasoline: DOWN 1.9 million barrels
    • Distillates: UPP 0.5 million barrels

Natural gas fell $0.075 to close at $7.16 yesterday. Gas prices are largely at the whim of the tropics now and I suspect the first near miss will result in first a small rally and then a test of $2 land. I suspect such a move will be both sharp and brief with a short covering rally carrying gas back into the middle $3s in short order. I also suspect we will see forced production curtailments by early September, which should have a similar impact with gas moving at first down, then up on the news.  This morning gas is trading up slightly.

  • Imports Watch #1: 9.2 Bcfgdp, flat with last week and 0.2 Bcfgpd lower than last year.

    • Canada: 7.9 Bcfgpd, flat with last week, donw 0.3 Bcfgpd from last year.
    • LNG: 1.1 Bcfgpd. Where is the massive wave of LNG that came on line and was expected reach U.S. shores this past Spring? It is mid August ... and we are up 0.1 Bcfgpd to last year's low numbers but well off normal levels of as much as 3 Bcfgpd seen in 2007.
  • Imports Watch #2: PetroChina signs a $41 billion contract to receive 2.25 mm tons per year of LNG from Exxon and Shell's Gorgon project in Australia. This is the biggest energy contract ever signed by China. This works out to about 58 Bcf per year or nearly 1.2 Tcfe in total and adds to the 1.0 mm tons per year China was already going to take from Gorgon.  This insatiable demand may give one an idea of where all that gas that was supposed to be going to the U.S. is actually headed. 
    • XOM may run a bit on this news.


  • Tropics Watch:
    • Ana - pretty much dissipated over the Caribbean last night
    • Bill - predicted to be a Cat 3 fish storm over the Atlantic later this week.
    • There is another wave behind Bill.

Crack Spread Update



Key Takeaways:

  1. Cracks Are Likely To Worsen This Fall. Unless cool air forecasts bear fruit early or refining utilization falls more steeply than normal for the time of year. High distillate inventories, especially of heating oil are going to make a margin recovery somewhat difficult until we reach mid winter and see just how cold the weather is (how high demand is).
  2. Estimates Have Been Dropping Like Stones. Industry leaders VLO and TSO have seen over a buck of earning expectation evaporate since our last look at the group just before earnings season started.
  3. The Smaller Names Seem To Get Less Frequent or Less Accurate Updates. The smaller refining names often don't see estimate updates as frequently as their big cap peers. Note from the table the negative expectations for VLO and TSO for 2009 but the relatively unscathed EPS of smaller players like HOC and WNR. These estimates are likely to come down but not until just before 3Q results.


Stuff We Care About Today

TSL Says To Reach FSLR Cost Targets Soon.

  • Beat estimates last night (announced $0.71 vs expectations of $0.37) and reaffirmed guidance. This is a Chinese solar name and in the past results from this group have been a little squirrely.
  • They mentioned on the call they will be competitive in 2010 with modules made by FSLR; that's a pretty steep claim to make for a polysilicon producer.
  • My sense is they mean they might achieve FSLR's current levels and not the levels First Solar will be at by then on a cost per watt basis (probably below $0.80 per watt).
  • They are expanding capacity which is a positive sign for the group after many other Chinese players have been talking about layoffs.


I'll have the Large Cap E&P Valuations charts out in tomorrow's post and will put both the small/mid and large cap tables on the E&P tab.


Odds & Ends

Analyst Watch:

  • KWK target cut at Jefferies from $15 to $13, keeps at Buy
  • PXD  raised to Outperform at Oppenheimer

169 Responses to “Teetering Tuesday”

  1. 1
    zman Says:

    Art Cashin about as negative as I’ve seen him this morning. For the past four months I would have called him highly frustrated. Now he’s calling for “historic trading” over the next 8 weeks … implication is crash. He says he’s watching the BDI, Chinese stats (which he calls suspect and they probably are but so is BDI), he pointed to Ramadan on 8/22 (I don’t really get that reference as it pertains to the market???) and the time of year (Sept/Oct can be volatile it is fair to say and often negative). Anyway, he was saying that he was pointing to things not making sense last week and then yesterday happens. I seem to recall several months of him saying the same so it may be a stuck clock being right every so often. For the record, I continue to the think we are in a bumpy move higher in the stock market which goes along with a jobless recovery in the economy. The market will always discount the future prospects of the economy and has done so in this case and probably needs a breather. Crash on the fear of a double dip? I don’t think so. A lot of money missed the move of the last 4 to 5 months and wants to be longer by year end. People want to see higher revenues from companies but given all the discounting that’s not really possible at this time. A measure of units would be more appropriate. Unless you are a perma bear.

  2. 2
    ram Says:

    Is there a possibility of repeating this time frame, last year, going into the new year? It was quite the disaster.

  3. 3
    zman Says:

    Re 2 – Sure. I think things are quite different now than they were then though, especially in energy land, where you were coming off record high prices for both oil and natural gas and the market was discovering new things on a daily basis about the instability of the financials.

  4. 4
    zman Says:

    RBOB and HO getting hit pretty hard this morning. Death of Ana likely culprit.

  5. 5
    ram Says:

    Has there been TS’s that break up, especially as they approach FL, and then regroup into something dangerous once it’s over the warm GOM waters?

  6. 6
    BirdsofpreyRcool Says:

    ram — i don’t think it’s a high probability we repeat last year’s Cliff Dive. That happened b/c we were one hair-breath’s away from a global run on the banks. I don’t think we will revisit that FEAR level… doesn’t mean we don’t go down for a while. But, not seeing anything in the Credit Mrkt to indicate we are headed back toward the abyss.

    IG 124

    TED 24 bps (it was over 100, this time last yr)

  7. 7
    BirdsofpreyRcool Says:

    That said, TechTrader thinks it’s a 60/40 short day… short early and then again on any bounces around 11:05-11:40 EDT.

    HeadTrader agrees.

  8. 8
    BirdsofpreyRcool Says:

    This time last year, the IG index was around 150. Just to round out the comps.

  9. 9
    zman Says:

    re 5. yes. It depends on a lot of things as you’d guess. One is how much the islands break up the system. How well organized and how big it was and what it faces on the other side of Hispaniola (where the mountains are quite high) in terms of pressure systems also plays in. SSTs in the Gulf are quite hot:


    (you can zoom in on the Gulf in that graph)

    As to Ana, it was small and poorly organized in the first play. They put the probability of reorg in the Gulf at less than 30%. It could however pull a popup action like Claudette.

  10. 10
    zman Says:

    Thanks much BOP.

  11. 11
    reefguy Says:

    NG- $3.75 by Thursday afternoon..IMHO

  12. 12
    ram Says:

    O.K., but the millions of unemployed that will not contribute to the GDP engine could set us for a double dip. Maybe not a banking disater, but a lack of consumer dollars chasing goods disaster could be looming.

  13. 13
    ram Says:

    I finally move to a happy place and all I can think of is negative things.

  14. 14
    zman Says:

    See 11, that right there, that is the kind of optimistic leadership this country needs. I have not seen consensus yet as its a bit early in the week just yet but I’m thinking 45 to 55 Bcf on the number. Reef, does your price forecast include the resuscitation of Ana? Right now sie is tot.

  15. 15
    zman Says:

    Ram – I hear ya. And I’m mindful of it as well. On all those unemployed folks, I suspect benefits will be extended until we are close to positive job numbers.

    BOP – This much be the rally HT and TT are looking for.

  16. 16
    reefguy Says:

    z- current ratio is 21.0 to 1, that is unsustainable. Historic range is 3.5 to 21.4/ 1, with about 98% range of 8 to 16. At $60 oil that is $3.75. I do not think we touch $2.99; at current $66 oil that would be 22 to 1

  17. 17
    zman Says:

    Reef – Not disagreeing with you. Let me play devil’s advocate for a bit though. If supply is no longer a function of bright spots on 3D but instead a function of applied capital to shale projects, with supply readily scalable to meeting future increased demand, would it not be possible for the two commodities to decouple a bit more than usual? I know unconventional gas is probably only 15 to 20% of the mix and declines at 75 to 85% in the first year but isn’t it possible that it will quickly become a large piece of the production pie (the flipside being you have to keep drilling or you drop like a stone). Anyway, just thinking that the pendulum always swings to far and that the coming curtailments may see us at least initially stretch the multiple further as traders say “holy cow, there is so much gas in the ground that EOG, CHK, APC, DVN, XTO are having to pinch back wells on order of the pipe the companies.”?

  18. 18
    zman Says:

    And for those of you keeping track, natural gas has fallen for nine straight days now.

  19. 19
    zman Says:

    Also, in about 10 days we get more supply data. Hard to say if we get more pronounced declines. Normally I would have said we would. But the number of previously drilled but uncompleted wells that are being completed in a dribbled out fashion so E&Ps can make there targets is a big unknown. We know there are lots of them. We just don’t know when they are getting tied in. If we don’t see more prounounced declines I would suspect we see the front months come under more pressure.

  20. 20
    BirdsofpreyRcool Says:

    KOG seems to have developed a fan base… so, it’s not just you, me, occam, kyleandy, and john11. We have some company now.

    The next four wells that KOG drills will pretty much prove up all their acreage for the Bakken. Then it’s a matter of when do they test the TFS and what does the infill drilling program look like.

    TeddyCam reported that KOG mngmt is already busy laying out the 2010 drilling program. I think they are working more and more closely with XTO and that shows in their increasingly professional communications with their investor base.

    Nice work KOG Mngmt team!

  21. 21
    zman Says:

    Nice moves in the midget class, again moving together. KOG up 5%, WRES up 3%

    Stocks just fought off round 1 of selling. Still thinking pretty short term on yesterday’s adds to CLR and HK.

  22. 22
    Dman Says:

    Interesting talk by the regulator who cleaned up the 1980s S&L mess:


  23. 23
    BirdsofpreyRcool Says:

    ram — #12. the difference between a banking disaster and consumers not buying is like the difference between a head-on collision at 60 miles per hour vs getting bumped by an old lady in a Cadillac in the Target parking lot.

    The first is a disaster. The second is a lot of noise and fury and pain to fix, but you live through it.

  24. 24
    BirdsofpreyRcool Says:

    HeadTrader — with AXP being upgraded and good TGT and HD, hard to believe we get a sell-off….

  25. 25
    BirdsofpreyRcool Says:

    IG 123.5

  26. 26
    zman Says:

    FSLR on the tape with 2 new projects in California. 550 MW total – that is very large for solar, about half a nuke in size.

  27. 27
    zman Says:

    At 550 megawatts, that FSLR contract is the biggest I’ve ever heard of for a solar installation. As a point of reference FSLR produced 288 MW for worldwide distribution in the second quarter. This gives visibility on revenues into 2012.

    Most solar announcements you see are for 30 MW here and 50 MW there. In March of 2009, they announced they had reached 1 gigawatt installed since their inception as a company, so this deal is for over half of that amount. Surprised the stock isn’t moving better but the announcement came out 30 minutes before the open and still isn’t on their website.

    They still seem to be Street-unfriendly with regard to earnings and news. The idea would be to work with the Street to buoy your stock, don’t give them so little time to analyze the news it gets sidelined. Much better to come out with this kind of stuff after the close.

  28. 28
    ram Says:

    BOP – I don’t agree or disagree with your comparison. All I know is facts: you have millions of americans that have their incomes reduced, so they modify their consumption. They will drive less, cooling will be at 80+ deg and heating will be low 60 deg to save on energy costs. You also have a gov’t that doesn’t like the energy crowd. That is quite the wall of worry for the energy stocks to climb. And I hope they do still climb the wall.

  29. 29
    BirdsofpreyRcool Says:

    ram — if you’re just talking about the energy sector, then my-bad. I thought you might be refering to the market as a whole. Energy is a bit of a tough sell, right now. With storage headed toward record fill, no exciting weather to talk about, a govt hell-bent on eliminating the hydrocarbon molecule, and consumers and businesses on hold (waiting to see what shoes drop next). So, we agree.

  30. 30
    choices Says:

    FWIW column-Cramer was pounding the table apprx week ago about FSYS-heavily involved in nat gas development for transport sector-with poss passage of NatGas Act in Congress, could get more upside-looking at chart, would not touch it now, it has a triple since mar 09 but have it on my watch list.

  31. 31
    BirdsofpreyRcool Says:

    But, the best time to do your homework on what stocks to own is when everyone else hates them.

    Never buy anything that everyone has agreed to love. You don’t make $$ that way.

  32. 32
    choices Says:


    Article “may” be info for FSLR in Germany

  33. 33
    zman Says:

    BOP – re 29 – please note the poor correlation between pricing of natural gas and storage levels. The trajectory of the supply imbalance has proven to be a better indicator of price than absolute storage which is why you had prices almost triple their current levels in 2006 with similar bloated storage levels. Once supply levels noticeably rollover, the full storage levels will have less of an impact on price.

  34. 34
    BirdsofpreyRcool Says:

    z — hence, my follow-up statement in 31. Agreed. Storage is a poor indicator of price. But, it’s being used as an excuse right now, not to jump with both feet into the sector.

  35. 35
    zman Says:

    One near term thought meant to put in post. I was surprised by the lack of gasoline demand last week. Number looked a bit odd given the normal seasonal end of season driving but instead of an uptick we saw it move lower. My best guess is we see a bigger move up this week in gasoline demand figures which along with curtailed capacity could lead to a good sized draw down of gasoline. Street is already looking for a good sized draw, could be bigger if imports remain at average levels.

    Hear ya BOP, didn’t mean to lecture, wanted to be clear for the new folks.

  36. 36
    zman Says:

    … and higher gasoline demand would likely spur an uptick in gasoline prices as the continued restock will be seen moving towards the holiday. That could give oil prices a bit of a relief rally for the week. Just my big picture thoughts for the week. If the equity does melt down then none of that will keep oil away from the lower $60s.

  37. 37
    BirdsofpreyRcool Says:

    z — lecture away! Never mind a healthy exchange of comments/opinions. Goal here is to educate, elucidate, and make everyone some pocket money.

  38. 38
    zman Says:

    BOP – do you see any of the week’s remaining data as catalytic outside of claims, leading indicators and Philly fed?

  39. 39
    BirdsofpreyRcool Says:

    Just a bunch of wishy-washy stuff, that could drive the mrkt either way, but don’t mean a heck of a lot. Like ram says, it’s about the consumer and jobs. We will get personal income/spending on Aug 28th, Chicago Purchasing Manager in Aug 31st and ISM Manufacturing on Sept 1st. There are a few mortgage indicators, consumer sentiment, and home price surveys… but, these are not permanent mrkt movers right now. JOBS and SPENDING is.

    Oh, and whatever is streaming out of Washington DC. With Congress and the President on vacation (Martha’s Vineyard next week), don’t think we will see much mrkt-moving headline news.

    Sentiment and day-trading will rule, for now, i think.

    What do you think?

  40. 40
    zman Says:

    Just speaking as to this week, I think jobs and leading indicators would normally be the big swings. I’d expect a positive surprise in existing home sales due to the $8K giveaway as well. But agree, mostly just trading noise.

    In energy land, there is not really a near term catalyst. No conferences this week that I’m aware of, storage number doesn’t matter that much from a big picture view but may for pricing given where gas is now. Still haven’t seen a number for the estimate there and am thinking they need to be careful and set that bar for an easy beat of gas will take a trip to $2 land.

  41. 41
    zman Says:

    Market looks bored. Maybe a rally in the U.S. today can inspire a rally in sentiment and markets abroad (recall China is off like 20% in the last 2 weeks) and thus a further move higher tomorrow but that’s somewhat circular, eh?

  42. 42
    zman Says:

    Angola set to add 50,000 bopd to production to reach 1.9 mm bopd in October, was already cheating on its current OPEC quota of 1.52 mm bopd.

    September OPEC meeting should be all about member compliance. I don’t see a chance for a group increase in output at that meeting. I think OPEC will see itself as having done its part to help grow the global economy by producing as much as it has and letting stockpiles stay bloated while the dollar has come off.

  43. 43
    reefguy Says:

    67.76/3.128= 21.66, Think its going to break 22/1???

  44. 44
    zman Says:

    Reef – yes. briefly.

    Somebody wake up the stocks, crude at HOD, stocks not close to it.

  45. 45
    BirdsofpreyRcool Says:

    reef — yep. you?

  46. 46
    reefguy Says:


  47. 47
    BirdsofpreyRcool Says:

    I see the seismic company stocks doing well as a group today. Any particular reason?

  48. 48
    reefguy Says:

    Topic change: MHR- any thoughts??

  49. 49
    reefguy Says:

    47- Marcellus needs 3-D

  50. 50
    BirdsofpreyRcool Says:

    reef — is the Marcellus structurally complex? Like, a lot of faulting?

  51. 51
    BirdsofpreyRcool Says:

    Magnum Hunter? Thought they sold out…

    See a LOT of insider buying in June and early July… rigth up to 80 cents. What’s going on there?

  52. 52
    reefguy Says:

    yes and much natural fracturing. Some of the verticals nave encountered open systems with big ip’s that go poof. Much of it will get 3-D. Maybe like 5 MM acres…

  53. 53
    BirdsofpreyRcool Says:

    is the Marcellus a high-silica shale?

  54. 54
    reefguy Says:

    Gary Evans buys into PRC, name change back to his old name MHR. He is tring to get into Marcellus…

  55. 55
    reefguy Says:

    53- si, with calcite filled and open fractures. Much of it is overpressured. Now see the similarities to Hy and EFS?

  56. 56
    BirdsofpreyRcool Says:

    ha! ok. see that now… changed the name in July. Haven’t heard the Magnum Hunter name in a while. You a Gary Evans fan?

  57. 57
    BirdsofpreyRcool Says:

    hi-Si + structural overlay ==> natural fracturing… much better than the man-induced stuff, if you can get it. thx

  58. 58
    zman Says:

    EFS economics may turn out to be a bit better than Hayensville.

  59. 59
    BirdsofpreyRcool Says:

    ok… back to MHR… what’s so special there? Looks like someone gave them a bank line, so accretive acreage deals?

  60. 60
    reefguy Says:

    59- How much availability??

  61. 61
    BirdsofpreyRcool Says:

    reef — as of 7/13/09, zero avail

  62. 62
    zman Says:

    Oil just got back all of yesterday’s loss plus a buck. One word: dollar.

  63. 63
    BirdsofpreyRcool Says:

    how much cash equity did the current mngt put into MHR?? That is key. Because, the way the stock option awards are set up, mngmt gets rewarded if they raise $$, do an acqtn, or issue equity. Seems like mngmt has carved out a pretty nice call option, on the backs of the lenders.

    That said, MHR is paying LIBOR + 6.50-7.50% on their $15mm Term Loan…so, bankers taking a nice chunk out of cash flow too. Question is, who ends up with the assets, and what ARE the assets?

    MHR always did like to run with knives…

  64. 64
    zman Says:

    MHR – like HK without all the conservatism.

  65. 65
    BirdsofpreyRcool Says:

    (i’d say “sissors”…. but that would underestimate the risk here)

  66. 66
    reefguy Says:

    MHR is no HK. They are looking to control 42k of leases in WV

  67. 67
    zman Says:

    Reef – true, not at all from a company comparison. I was thinking of past financial risk tolerance levels.

  68. 68
    BirdsofpreyRcool Says:

    And CIT is the banker to MHR. CIT reduced their line from $17mm to 12mm in March.

    Reef — you see something you like here??

  69. 69
    zman Says:

    Nice eye – be sure to click animate. Matters not a bit to gas prices.


    Anybody here an excuse other than the dollar for oil being up $1.70?

  70. 70
    Gtinvest Says:

    Here is any article about ny pushing for marcellus gas:http://www.ibdeditorials.com/IBDArticles.aspx?id=335400162148553

  71. 71
    BirdsofpreyRcool Says:

    IG 122.5

  72. 72
    reefguy Says:

    MHR- shortly I will know, certainly not a long term holding!

  73. 73
    BirdsofpreyRcool Says:

    reef — looking forward to your conclusions. With that kind of financial leverage on the company, you can get BIG swings in equity. Either way.

    Back to the question, tho… how much cash-moola did MHR mngt put in at the beginning?

  74. 74
    PackMan Says:

    FWIW, I remember in summer 2007 a big summer run in the indexes with the Dow topping at 14000 plus … that top was on Aug 17.

    coincidental timing ?

  75. 75
    reefguy Says:

    73-looking for it…

  76. 76
    BirdsofpreyRcool Says:

    MIDDAY Trading Update

    · Stocks rebounding from their drubbing on Mon, although volumes/conviction pretty light today in equities and other asset classes (corp credit, TSYs, etc) aren’t reversing as much. The selling from yesterday has abated today and some small buying is appearing, but the rally today in stocks feel tentative and investors for the most part aren’t viewing yesterday’s action as a 1-day isolated event. As of 12:15pm: DJIA +0.8%, SP500 +1%, Nasdaq +1.11%.

    · Sectors – pretty much a reversal of yesterday’s trends: financials up more than 2% (recall fell 4.2% Mon) and best acting major group. The following sectors all up more than 1%: tech, industrials, discretionary, materials. Utilities, health care are relative laggards (flattish on the day. Autos up >3% (AXL’s 100%+ rally helping a lot).

    · Corp credit – IG underperforming while HY strong – IG is pretty much flattish (+/- half a BP); HY is strong today, up 7/8 (helped by the AXL news)

    · Treasuries – 10yrs fall just a bit today (10yr yields rise 2bp today to 3.49%). 2s are flattish on the day.

    · FX – the DXY is falling 0.3% today after a large increase Fri/Mon. The yen falls slightly against the dollar (off 0.28%), although has gained a lot over the last three days.

    · Earnings wrap – bunch of retailer earnings today – HD +4%, SKS +8%, TGT +7%, TJX -3%. CIT is up 3% after posting its 10Q last night. A rallies 9% post its report. Big night for tech today w/HPQ and ADI due to post earnings.

    · CX shrs rally ~4% on its debt restructuring announcement; AXL surges more than 100% after its credit agreement unveiled this morning.


    · Housing starts declined 1.0% in July and permits fell 1.8%, but the housing construction report was still reasonable favorable. The report was more positive than the headline numbers would suggest because starts and permits in the important single-family category both increased, and because housing starts are still on track to be well higher in the third quarter than in the second quarter. We have been forecasting that real residential investment would rise 10%q/q annualized in 3Q, but that may turn out to be too low. Abiel Reinhart

    · PPI – Both headline and core producer prices fell in July, another sign that inflation is moderating. The PPI for all finished goods declined 0.9%m/m and a record 6.8%oya, while the core PPI dropped 0.1%m/m and rose 2.6%oya. Core intermediate goods prices rose for the second consecutive month in July, but the increase was a muted 0.2%. Given the significant level of slack in the economy, core inflation at the producer level will probably continue to decline in coming quarters. That should in turn contribute to low inflation at the consumer level, in particular for core goods. Abiel Reinhart

    Calendar of events

    · Economics for Wed Aug 19: MBA mortgage apps; Architecture Billings Index

    · In CMBS, the next TALF window will close on Aug 20.

    · Earnings for Tuesday – HPQ, ADI

    · Fed summit – investors will also be watching for guidance on the economy from the Fed’s annual huddle in Jackson Hole, Wyo., where Fed Chairman Ben Bernanke gives the keynote address Friday. CNBC

    · Options expiration Friday

    · Credit cards – recently passed credit card legislation is set to go into effect Aug. 20

    · Treasury sales – the Treasury will announce on Thurs Aug 20 the size of its next coupon sales (it will be selling 2s on Tues Aug 25, 5s on Wed Aug 26, 7s on Thurs Aug 27).

    · Fed’s Treasury purchase schedule – next update due Aug 19; the Federal Reserve Bank of New York Open Market Trading Desk will gradually reduce both the size of individual operations and the frequency of operations, beginning with the two-week schedule to be released on Wednesday, August 19, 2009.

    · Brett Favre to sign w/the Vikings later on Tues according to Fox Business (DJ)

  77. 77
    zman Says:

    WRES bounced off its 50 day. Up 8% at $2.45, may actually get out of the 2.50 calls there with head partially intact but will take another day like today to manage it. Like PQ back in the day, hard to trade with options but like the common shares I hold through next Spring when I’m looking for a better looking reserve report.

  78. 78
    zman Says:

    And now for something both obvious and suspect in nature from the IMF:

    The global recession is over and a recovery has begun, Olivier Blanchard, the top economist for the International Monetary Fund, said Tuesday. “The turnaround will not be simple,” Blancard wrote in an article released by the IMF. “The crisis has left deep scars, which will affect both supply and demand for many years to come.” Growth is coming for most countries, he said, but it won’t be strong enough to reduce unemployment for a while. Potential output may have been permanently reduced. Growth is still highly dependent on government stimulus from fiscal and monetary policies. Sustaining growth “will require delicate rebalancing acts, both within and across countries,” he said.

  79. 79
    zman Says:

    Weekly chart of the WRES chart is pretty interest, especially if you overlay with oil.

  80. 80
    choices Says:

    Brett Favre, Michael Jackson, Britney Spears, BradJolina, et al what is it that I’m missing here.

  81. 81
    zman Says:

    adding to 79:


  82. 82
    zman Says:

    The CLR trade from yesterday is up 36%, fair warning.

  83. 83
    zman Says:

    Reef – did you work out the implied $ per Mcf on that China LNG deal in the post today? I did and thought my math must be wrong.

    2.25 million metric tons
    converts to billion cubic meters at 0.73
    1.6425 billion cubic meters
    converts to BCF at 35.3
    57.98 Bcf per year
    1159 Bcf over 20 years
    For $41 billion U.S.
    That’s $35 per Mcf

  84. 84
    BirdsofpreyRcool Says:

    From one of my two Cross-asset class strategists. The bond mrkt has done the heavy lifting (of balance sheets)… it’s up to the company’s performances (income statements) to take equity valuations higher from here.

    To repeat what I said at the beginning of June (or so), my work here is done. We aren’t going back to the abyss. But, we have to find out what the “New Normal” looks like and then pick our investment points. Just a few thoughts…


  85. 85
    bill Says:

    >That’s $35 per Mcf

    That cant be right can it??

    Why dont we build a lng export facility and ship all our ng away from the us

  86. 86
    zman Says:

    Bill – I thought in the wee hours of the morning that I’d slipped a decimal, that it was 3.50 an Mcf. So I didn’t put the pricing in the bullet at the beginning of the post. But my conversions have held up through noon.

    I could see higher than $3.50 by a long shot for 20 years of price escalations. It does not include a chunk of the project itself which is bigger at a total capacity of 15 mm ton per year. I’m sure China will buy more of that production when it comes on line. They use gas to make things like ethylene which they then sell to the U.S. in the form of toys and other plastic items.

  87. 87
    gaamblor Says:

    FSLR really not liking the news

  88. 88
    zman Says:

    Gaamblor – I know, just don’t see why. Maybe they thought the date on it was a slow start (2012). Also, no $ figure attached may be off putting.

    I saw Wedbush come with an outperform and $190 target … and no one cared.

  89. 89
    bill Says:

    how come we do not export lng?

  90. 90
    gaamblor Says:

    z, do you have any idea approx how much revenue this would be for fslr?

  91. 91
    zman Says:

    Bill – we do. A minimal amount goes to Japan each month. But for the most part 4 LNG receiving facilities have accounted for the bulk of imports to the U.S. for the last 20 something years. These facilities have been recently expanded and some new ones have been added such that current intake capacity is over 10 Bcfgpd. The reason for this is that up until the last couple of years supply and demand were fairly well balanced when Canada was taken into account with LNG being the swing fill on the equation. Gas was not as “easy” to find as it now appears to be. Although we are drilling less quality reservoir rock, the gas in place in the shales is high and so supply is simply a function of application of capital and not exploratory acumen. With that said, you are now seeing the LNG receiving stations apply and receive licenses to export gas. The Sabine facility just received a license to “re-export” gas in June and others have made applications, I think with FERC, to install liquefaction trains (using the same port facility that they normally would receive LNG from abroad to send LNG out through).

  92. 92
    zman Says:

    Bill – the easier thing to do would be to tell Canada to keep their gas.

  93. 93
    reefguy Says:

    68.79/3.128= 21.99….

  94. 94
    gaamblor Says:

    reef, isn’t the respective strip ratio more relevant?

  95. 95
    reefguy Says:

    22.03- z and bop you guys got it right

  96. 96
    tater Says:

    Little fly-by here. Haven’t read anything for a couple days, been dealing with city hall. (Please, please, please pass public health care so that everybody who loves the move to socialism can have a first hand account of what it’s like to actually work with government red tape. Then we will finally get an end to this nonsense.)

    CLR update


  97. 97
    reefguy Says:

    94, no doubt! this current dislocation is temporary.

  98. 98
    md Says:

    Canada is doing just that


  99. 99
    zman Says:

    Gaam – re 90, not yet. Its more than the simple cost of watts by size of the facilities. I’d just be guessing given the different scale vs past deals. Am trying to find out.

  100. 100
    zman Says:

    EOG has signed on to the Kitimat deal as well.

  101. 101
    kyleandy Says:

    z – u think if we have big draw in gasoline stocks, that helps refiners?

  102. 102
    zman Says:

    Kyle – I think if we have a big draw in gasoline it helps gasoline prices, then oil, then the energy stocks in that order. The refiners would get a temporary boost out of it. Given their depressed nature and unwillingness to fall when I have puts on I’d guess at a 5% move in the big names. That fear was enough to prompt me to kill off my VLO puts yesterday.

  103. 103
    zman Says:

    Oil up $2.70 and flying higher. Hmmm.

    GM ups capacity for 3Q and 4Q. UAW sees 1,350 jobs reinstated.

  104. 104
    zman Says:

    Re 103 – so, does anyone else smell Cash For Clunkers Volume 3 in say, October?

  105. 105
    zman Says:


    CLR – Sold the $35 August calls (CLRHG) taken yesterday for $0.75, up 104%. I continue to hold the $40 strike Septembers here.

  106. 106
    1520sbroad Says:

    #104 – i think that is a given.

    Does anyone else think we are merely borrowing from future auto sales to the point that once GM gets production back up over 0 that all of a sudden new auto sales will fall off again?

  107. 107
    zman Says:

    Yes – and the cost will be my kids paying interest on an infinite car loan for some other guy’s car.

  108. 108
    joelk522 Says:

    hey Z is CLR still a good buy here on the sept 35or 40’s after todays jump?

  109. 109
    zman Says:

    Joel – I’m continuing to hold my $40s and will add some September $35s if oil holds up here through next week. A little nervous about the market, not the name so am not adding at this time.

  110. 110
    zman Says:

    NG closed down 6 cents, it’s ninth consecutive loss.

  111. 111
    zman Says:

    Thanks Tater

  112. 112
    BirdsofpreyRcool Says:


    Yes. “Cash for Clunkers” will continue. Because the President went out on a limb to nationalize GM and save the UAW’s influence and control. So, getting people to BUY CARS directly benefits a company that the US President owns and will buy him support.

    Oh yeah… and it also pulls forward sales from the future and leaves our little ones with the consumption debt to pay off.

    Why economists aren’t talking about this… i don’t know. Guess it’s b/c people LOVE free money. And politicians know nothing, if they don’t know how to buy votes. And — no mistake about it — this is all about “buying votes.”

  113. 113
    zman Says:

    BOP – I really think they should put those little “paid for by” signs on the Cash for Clunkers cars. You know, like the ones used at the highway construction sites. Your tax dollars busily announcing what your tax dollars are doing.

  114. 114
    BirdsofpreyRcool Says:

    People who DON’T have clunkers are getting mad.

    This thing is outta control, if you ask me. It was stupid to begin with (more monetization of the LAST asset this country has, our tax base)… and it just gets stupider all the time.

    rant over.

  115. 115
    zman Says:

    Hey Ram, as to your question this morning, just got sent this from Accuweather on Ana … they say it could reorg.


  116. 116
    RMD Says:

    Nat gas bears: just listened to EVEP conf. call replay. They (John Walker) thinks gas is going to be under $2.00 and the longer it stays up into Sept the lower it will go. They passed on longer term price estimate. Mentioned they expect to buy conventional assets in shale areas very cheaply, mentionin Cotton valley in east TX ex. Haynesville, and the Permian.
    I have trouble believing stocks have discounted $2.00 gas.

  117. 117
    ram Says:

    No, it will not reorg.!

  118. 118
    zman Says:

    RMD – they haven’t but I don’t believe gas will go sub $2 and I don’t think it will be sub $3 for any length of time.

    How hedged is EVEP now? I find that the more hedged you are the lower you think gas will go and vice versa. I also think that those who are well hedged and live by buying assets low and producing them and then selling them when prices are high, something LINE does well, tends to shade your thinking on prices.

  119. 119
    RMD Says:

    EVEP 85-90% hedged in 2H09, 75% in ’10, 70% in ’11, 25% in ’13 on todays (preacquisition) production. Bank line limits hedges to 90% of proved developed producing.
    Another tidbit; said only the Austin Chalk of the 8 basins they are in meets their risk-adjusted IRR hurdle of 20% before hedging.

  120. 120
    zman Says:

    RMD – thanks. I assume they meant on the current strip. That’s an odd statement. Lots of people talking about 20% IRRs at current prices in the Hayensville, EFS, Granite Wash, somebody said that about Pinedale (have to assume the center), parts of the core Barnett and the Marcellus. I don’t follow them actively, but I bet they aren’t the cheapest operator in town, eh?

  121. 121
    zman Says:

    That’s me bidding for a little more of the HK $22 so if anybody wants to hit me there I am.

  122. 122
    BirdsofpreyRcool Says:

    KOG CFO out with a Form 4. He sold 4,000 shares yesterday. As CFO, you have to ask yourself if the $5,000 or so is worth that headline.

    Usually, the answer is no. Wonder if it was a charitable contribution? Nah… you only donate APPRECIATED stock in that case.


  123. 123
    zman Says:



    Added (10) more HK August $22 Calls (HKHS) for $0.40 with the stock at $21.82, up a little over 1%. Obviously risky with expiration later this week.

  124. 124
    zman Says:

    BOP – it hasn’t hit sec.gov yet. What’s his remaining stake?

  125. 125
    zman Says:

    … and did he just get them as a grant and flip them?

  126. 126
    zman Says:

    I have to see a man about a dog after the close. Would someone please post the API numbers when they come out? Thanks.

    Ram – you crack me up.

  127. 127
    BirdsofpreyRcool Says:

    only 27k shares

  128. 128
    BirdsofpreyRcool Says:

    KOG — either the CFO is one Nervous Nelly, or a record-setting Cheapskate, or he has a mistress and second family to support.

    That is just stupid to sell 4k shares as a senior officer of a publicly-traded company.

  129. 129
    zman Says:

    Bop – those were free back from May of 2008. That is kind of weird. And he has less stake in it than some of us here as stocks go.

  130. 130
    BirdsofpreyRcool Says:

    yeah… weird. I stick by my reasons in #128 above.

  131. 131
    ram Says:

    What about the upcoming September mortgage?

  132. 132
    BirdsofpreyRcool Says:

    for the wife? or for the mistress??

  133. 133
    ram Says:

    CFO’s are too busy keeping their respective companies afloat to have a side honey.

  134. 134
    BirdsofpreyRcool Says:

    hmmm… or maybe just too nerdy?

    Nah… it’s always the quiet, nerdy ones who surprise you. 😉

  135. 135
    zman Says:


  136. 136
    BirdsofpreyRcool Says:

    LOL…. just got the answer on the KOG CFO. It’s a combination of explanation 1 and 2.

    ram, you’re right. He’s not the type to have a side honey.

  137. 137
    West Says:

    Catching up here. Has anyone noticed that in KOG new presentation, http://www.kodiakog.com/pdf/KOG-August2009.pdf, that on page 12 . That they have new information on “What this could possibly mean” concerning EURs and have included TFS at 400k per 640 ac location with possible 27 locations and possible 9 mmbo reserves. They have a very optimistic Bakken % prespective at 90% X 35k ac/640 ac spacing for 50 locations at 600,000 EUR X .82 = 25 mmbo. Pretty, Pretty optimistic #s. It would seem that they think all of their play is real good.

  138. 138
    BirdsofpreyRcool Says:

    West — good catch. What a coincidence… was just talking to another KOG owner who was saying the new presentation is worth going through. Thanks for pointing out the bottom line.

    z — care to take those assumptions and run them through your model???

  139. 139
    john11 Says:

    KOG director Knutson reported sale of 48,250 shs at around $1.22. Has 200k shs left. Date of sale 8/14

  140. 140
    BirdsofpreyRcool Says:

    john11 — now this is getting really irritating!

  141. 141
    West Says:

    Somebody had 150k shares to sell in the last 5 minutes and sold 100k. I hope they weren’t on the board.

  142. 142
    BirdsofpreyRcool Says:

    Hope it wasn’t Lynn.

    I mean, it was only last May, when KOG had to go around, hat in hand, to raise money. HATE to see this kind of insider selling, so soon after raising outside money. It really irritates me!

  143. 143
    zman Says:

    Thanks for pointing that out west.

    I’ll run it my way and theirs. I’d like to see them start their EURs lower and walk them up over time. 600,000 barrels (I assume that’s BOE and not just the BBs is not exactly conservative at this point in the game). The acreage perspective at 90% drives a lot of locations. I don’t mind the spacing so much and that could actually be better but the 90% leaves me a bit cold. Why say that now? Why not walk it up there as wells are drilled across the acreage.

  144. 144
    zman Says:

    My guess is its a director. They sell in packs.

  145. 145
    BirdsofpreyRcool Says:

    The assumptions in KOG’s presentation make it seem like more of a marketing presentation than before. We know they are going to have to raise money at some point, to fund 2010 drilling… but we also know they are open to combining with a larger entity.

    Insider selling points to a higher probabiilty of the former, than the latter.

  146. 146
    BirdsofpreyRcool Says:


    crude -6134k
    gasoline -847k
    distillate 1529k

  147. 147
    kyleandy Says:

    bop – re KOG just when things were really looking good we run into insider selling are we missing something??

  148. 148
    Nicky Says:

    Afternoon all. Wow that API must have been unexpected.

  149. 149
    Nicky Says:

    TA wise I expect this oil move to run out of steam. Don’t really want to see it much above 70.40 however for the bearish count to play out.

    Broader market ‘should’ roll over too. Move up today looks very corrective.

  150. 150
    Nicky Says:

    I think nat gas has finally made a lower low. It can turn up now if its listening!

  151. 151
    Nicky Says:

    Z – are those API numbers seriously that bullish? We are awash with crude and the gas and distillate numbers were better than your early read.

  152. 152
    BirdsofpreyRcool Says:

    kyleandy — on KOG, i don’t think we are missing anything. But I’ll see if I can get some inside explanation for the insider selling.

    So soon after raising outside capital is not cool, in my book.

  153. 153
    BirdsofpreyRcool Says:

    That API crude draw of -6.134mm barrels looks weird. Especially as expectations for tomorrow’s DOE Crude Inventories is +1.2mm.

  154. 154
    BirdsofpreyRcool Says:

    Does anyone have a oil futures quote for z?

    He is sitting in the doctor’s office and they are playing soap re-runs on the TV. Apparently, he can’t convince the 300-lb woman to change the channel to CNBC…

  155. 155
    Nicky Says:

    re 154 – that is too funny!. I just emailed him – price is around 70.27.

  156. 156
    BirdsofpreyRcool Says:

    HeadTrader is sticking around late… he said the oil futures closed at $69.19… but he said it looks weird, as it dropped about a buck, just as it closed. CL1 was trading at 70.15, just before close.

  157. 157
    BirdsofpreyRcool Says:

    thanks, Nicky. I don’t get real-time on energy stuff.

  158. 158
    BirdsofpreyRcool Says:

    U.S. Markets Wrap: Stocks, Oil Advance as Target Tops Estimates
    2009-08-18 21:25:54.135 GMT

    By Kayla Carrick and Stuart Wallace
    Aug. 18 (Bloomberg) — U.S. stocks rose, helping global equities rebound from the worst drop since April, following better-than-estimated earnings at Home Depot Inc. and Target Corp. Crude oil rose for the first time in three days, while Treasuries and the dollar fell.
    The MSCI World Index added 1.1 percent at 4:05 p.m. in New York, with 20 of 23 developed markets advancing. The Standard & Poor’s 500 Index climbed 1 percent to 989.67 as financial, commodity and technology companies led gains.
    “This is a bull market, and it will continue to do OK,”
    said Craig Hodges, a fund manager at Dallas-based Hodges Capital Management Inc., which oversees about $750 million. “There are necessary corrections you need in order for it to stay healthy.
    It’s a tug of war.”
    The advance in equities today restored less than half of yesterday’s 2.8 percent slump in the MSCI World Index. The global benchmark index has rallied 52 percent from a 13-year low in March on speculation the worst of the global recession is over. The Dow Jones Industrial Average gained 82.6 points, or
    0.9 percent, to 9,217.94 today. Europe’s Dow Jones Stoxx 600 Index added 1.3 percent after German investor confidence increased.
    Home Depot, the largest home-improvement retailer, added
    3.1 percent to $26.93 to help lead the gain in the Dow industrials. The world’s largest home-improvement chain said second-quarter profit, excluding costs to close the company’s Expo business, was 67 cents a share. That beat the average estimate of 59 cents in a Bloomberg survey.

    Target Jumps

    Target rallied 7.6 percent to $44.32. Second-quarter net income declined to $594 million, or 79 cents a share, from $634 million, or 82 cents a share, a year earlier. Analysts estimated profit excluding some items of 66 cents, the average in a Bloomberg survey.
    Per-share earnings topped analysts’ estimates by 10 percent on average for the 471 companies in the S&P 500 that have reported results since June 17, according to data compiled by Bloomberg. Profits slumped about 29 percent in the period, a record eighth straight quarter of falling earnings.
    “There’s some room to the upside for companies if people get excited about the prospects for growth over the next couple of months, which I think they will,” said Jason Trennert, chief investment strategist at Strategas Research Partners, in an interview on Bloomberg Radio.

    European Shares Rally

    American Express Co. advanced the most in the Dow Jones Industrial Average, adding 4.3 percent to $31.69. The biggest U.S. credit-card issuer by purchases was upgraded to “outperform” by Keefe, Bruyette & Woods Inc., which cited “improving trends in credit.”
    Goldman Sachs Group Inc. rallied 2.1 percent to $160.48.
    The company, which was the biggest U.S. securities firm before converting to a bank last year, was raised to “buy” from “neutral” at Pali Capital Inc.
    European shares rallied after the ZEW Center for European Economic Research’s index of German investor and analyst expectations rose to 56.1 in August from 39.5 in July, exceeding the median forecast in a Bloomberg News survey for a reading of 45.
    Crude oil rose for the first time in three days, surging the most this month, as the dollar dropped against the euro, bolstering the appeal of commodities.

    Oil Rises

    “Oil is rising today because stocks are up and the dollar is a little weaker,” said Stephen Schork, president of consultant Schork Group Inc. in Villanova, Pennsylvania. “This market is getting smacked around a lot. It’s following what’s occurring elsewhere.”
    Crude oil for September delivery increased $2.44, or 3.7 percent, to settle at $69.19 a barrel at 2:44 p.m. on the New York Mercantile Exchange. It was the biggest gain since July 31.
    Oil has advanced 55 percent this year.
    Treasuries fell for the first time in four days after single-family home starts rose in July for a fifth month, indicating further stabilization in the housing industry.
    Ten-year note yields rose from near the lowest levels in almost four weeks as single-family home starts increased 1.7 percent from June to a 490,000 annual pace. Producer prices fell
    0.9 percent in July, more than forecast, capping the biggest 12- month drop on record.

    ‘Pendulum Swinging Back’

    “Treasuries may have been rich after the recent rally and once the stock market started taking off at some point it was going to start weighing on Treasuries,” said Suvrat Prakash, an interest-rate strategist in New York at BNP Paribas Securities Corp., one of the 18 primary dealers that trade with the Federal Reserve. “The pendulum is swinging back to stocks.”
    The yield on the 10-year note rose five basis points, or
    0.05 percentage point, to 3.52 percent at 4:16 p.m. in New York, according to BGCantor Market Data. The 3.625 percent security maturing in August 2019 fell 3/8, or $3.75 per $1,000 face amount, to 100 7/8.
    Yields touched 3.46 percent yesterday, a level not seen since July 22, as the decline in stocks spurred investors toward the relative safety of U.S. debt.
    The dollar fell against the euro for the first time in three days as the increase in German investor confidence added to evidence a global economic recovery is taking shape.

    Dollar Drops

    The pound increased from near a one-month low versus the dollar after a report showed the U.K. inflation rate was higher in July than economists forecast as the nation’s recession eased. The dollar and yen declined against major counterparts including the South African rand as stocks and commodities advanced, reducing demand for relative safety.
    “Economic growth looks better, and capital flows into commodity-sensitive currencies,” said Warren Naphtal, who oversees $870 million in assets as the chief investment officer at P/E Investments in Weston, Massachusetts. “For the flight- to-quality trade to be taken to the next level, you really need very negative news.”
    Europe’s currency increased 0.6 percent to 133.86 yen at
    4:25 p.m. in New York, from 133.08 yesterday. The euro appreciated 0.3 percent to $1.4127 after touching $1.4046 yesterday, the lowest level since July 30. The yen weakened 0.3 percent to 94.74 per dollar, from 94.50 yesterday, when it reached 94.21, the strongest level since July 29.

  159. 159
    Nicky Says:

    the funniest thing of all is if he had been able to switch on cnbc he would have seen that idiot Terranova talk about nat gas going to 2.0!

  160. 160
    BirdsofpreyRcool Says:

    Nicky — LOL!!

    Well… i guess if you’re going to have a heart attack, sitting in a doctor’s waiting room isn’t a bad place to be.


  161. 161
    Nicky Says:

    re 160 – LOL! Can you imagine they would have had to resuscitate him!

  162. 162
    zman Says:

    Thanks for the color on prices, oil hanging out at 70.25 now. You just about had to have a big fall in imports for that to happen, especially with a flat to down refining utilization. If refiners ticked up, this could be masking an uptick in gasoline demand I’m looking for in the report for tomorrow.

    Given the size of the move in crude today relative to the small ups for the market and the small down for the dollar you have to wonder about the integrity of the API data room.

  163. 163
    Wyoming Says:

    Free one time access to Bob Prechters “Theororist”


  164. 164
    zman Says:

    Thanks Wyoming

  165. 165
    Wyoming Says:


  166. 166
    Wyoming Says:

    de nada

  167. 167
    zman Says:

    Almost looks like Ana is trying to recenter south of Cuba.

    Be sure to click animate:

  168. 168
    bill Says:


    there are “aspects of Qatar LNG that make it extraordinarily competitive.” What might they be? Consider this: ExxonMobil and its partners could give away the LNG for free and still make a profit. The secret is that gas is only half the revenue story here.

    The stream of hydrocarbons that gushes from the North Field is “wet”–laden with larger molecules like propane and butane that don’t need such extreme treatment to be liquefied. The wells that feed the megatrains give up some 300,000 barrels a day of these so-called liquids. At current prices the liquids will generate revenue of $5.8 billion a year. Compare that with $6.8 billion in revenue from the gas. But the cost of moving the methane (capital investment, liquefaction, shipping and regasification) is high: $3.3 billion a year. Producing the liquids costs only $350 million a year.

    After paying royalties to the Qatari government of 40% on LNG and 18% on the liquids, the joint venture ends up with a pretax profit of $2.2 billion on LNG and $4.7 billion on the liquids. ExxonMobil’s 30% share comes to $2 billion a year. “They can afford to undercut everybody,” says Gavin Law, a consultant at Wood Mackenzie in the U.K.

  169. 169
    bill Says:

    great article


    According to Mr. Berman, “If every operator in the Barnett Shale was hedged at a netback gas price of $8/Mcf, only 31% of horizontal wells would break even or make money. At $6/Mcf, only 15% of wells would reach this commercial threshold.” Does this analysis suggest that many of the gas producers are deluding themselves about how successful they are progressing in developing gas shales? Will the new gas-shale plays really have better economics? Are producers who suggest they have superior acreage positions and better technology really exceptional? Maybe they are all citizens of Garrison Keillor’s Lake Wobegon where everyone is “above average.”

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