Quiet Monday Morning

143 thoughts on “Quiet Monday Morning”

1. Quiet Week… but here are some Catalysts to Watch

   · The FDIC will hold a board meeting on Wed and is due to discuss two important items: 1) rules concerning PE investments in depository institutions (they are supposed to be eased) and 2) bank accounting (whether adjustments will be made to the regulatory capital calculations w/a focus on off balance sheet consolidation).

   · In the Treasury market, auctions will continue ($42B of 2s on Tues Aug 25, $39B of 5s on Wed Aug 26, and $28B of 7s on Thurs Aug 27) while the NY Fed will start its new reduced purchase schedule (the NY Fed will slow its pace of TSY buys starting this week w/an eye towards ending the program in Oct).

   · The Obama administration plans to cut off dealer funding for the cash-for-clunkers program on Monday night, Aug. 24 at 8 p.m.

   · The FCC is due to hold a meeting Aug 27 and could formally initiate an investigation into the wireless industry (its pricing and business practices).

   · On Tues, the Obama administration plans to cut its budget deficit forecast for fiscal 2009 to $1.58 trillion, down from a $1.84 trillion estimate in May, although will raise its cumulative 10 year deficit forecast from ~$7T to $9T (which would be inline w/recent CBO projections).

   · In earnings this week, there are a few more big tech names to watch (inc. MRVL and DELL, both of which hit Thurs), a couple retailers (inc. TIF and DLTR), and all the major Canadian banks.

   · Short Interest data will next be released on Aug 25th after the close for the period July 31st to Aug 15th.

   · Economic events to watch coming up – Very quiet week coming up of eco events with the second look at Q2 GDP in the US (expected to be revised lower -1.4% vs. -1.0%), new home sales, and the S&P/Case-Shiller Index being the two highlights in the US. A bunch of #s will hit out of Germany, inc. IFO, GDP and CPI.

2. Thanks BOP, good stuff. When, not if, we do get the big short cover pop in gas, the names on the E&P roster with the high number of days short which are also gassy should pop as well. GMXR comes to mind. I’ll have the short charts out on E&P for Wednesday.

   Any thoughts from HT / TT ?

3. TT takes mondays and fridays off in August.

   HT thinks there should be a pullback… but, everyone wants a pullback to buy what they didn’t buy in July. So, will we get it? He thinks so… but, don’t know when and why it will happen. Meanwhile, a Goldman piece out this morning says that hedge funds are net 30%, the longest they have been since June 2008.

4. WTH, Cap – N – Trade at its finest:

   http://www.reuters.com/article/latestCrisis/idUSLO544093

5. JP Morgan upgrading ACI, not the name I’d up here given the operations, shakey economics but the group has had a good run and I suspect they already think BTU is a buy. This group is more vulnerable than most of the energy complex to thoughts of a re-slowing China.

   HK starting off on a group opposite note, anyone see a downgrade there?

6. Credit Markets very healthy this morning. High yield especially, making a positive move. Surprisingly, the stock market has recently reclaimed leadership from the credit (bond) mrkt and is pulling credit higher. Credit got us into this mess, credit started to recover last December, stocks finally started to believe this in May (or so). Since then credit has continued to pull stocks (reluctantly) higher until last week… when stocks took over the Bullish Leadership.

   Investment Grade (IG) Index at 112 1/2 bps

   High Yield (HY) Index at 89 7/8 points

7. #4. Wow, not surprising. But wow.

8. can’t find any news on HK…

9. NFX at new HOY. Name remains cheap at less than 4x ’09 and ’10 CFPS estimates. Rebound in gas prices obviously wouldn’t hurt them easier as they turn more of the “monster” Granite Wash wells to sales.

10. Morning Gary, can’t either, looked like a small seller didn’t care about the bid, got a little follow on action, may set the tone there for a bit, still looking. May also be someone playing the Friday buy for Monday news in the hedge fund set. No news = sell and hold your short piece.

11. do you follow atpg

    moving up nicely, lately

12. re 10. As in “unboxing with a deliberately heavy hand” to make others sell as well.

13. Bill – been working up a piece there, interesting, don’t own it yet.

14. CLR – this would be a HOY close for them too, getting back some of the move they saw on earnings when they released the “TFS is distinct from the m. Bakken” news as crude is now higher than then and I expect it to tap $40 again so. I should probably be long a little WLL in here as well but I honestly don’t care for the spikiness of oil. That and I still need to adjust positions in the $10KP to get things exactly where I want them with the current positions.

15. KOG, has spudded and is turning right on their 8th well the CE #1-22-23H. This should be a

16. West – thanks, is that on NDIC regular or the pay to play site?

17. Got of emails from folks saying no broker thoughts (from ones I don’t see) on HK and I continue to find nothing. My guess is its nothing, just a heavy unboxing. It’ll take a higher group to get that one green and I am seeing some profit taking set in in a number of names now.

18. 5,000′ lateral with a west to east orientation.

19. regular active rig tab

20. Thanks west – any more color on that CLR rig just to the south and west of the 7/8 pad? Has that one spud and is there another XTO well being drilled in the area?

21. oil/gas price ratio:
    Front month- 26.58/1
    Calender 2010- 13.7/1

    WOW

22. OIH and the service names in general are running again. Pretty far back to the recent top for many of them. With the last 4 weeks of rig data flat to up in the U.S. onshore. I have to think that the service names will run until they don’t and then tumble as forced natural gas curtailments hit.

23. Z-re: HK-this is definitely in the FWIW column but TD Amer provides various rating service opinions on stks-MarketEdge has it as avoid, Jaywalk, which is based on 19 “independent research firms” which attest to having no conflicts of interest, says sell, ie consensus of 19 firms, rates a sell-this report was updated today. This consensus has been fairly consistent for the past several months-ie in sell category. I do not use this service nor rely on it but you may have heard of it-again FWIW.

    I have also note cmts over the weekend that NG E &P firms have far outpaced price of NG (duh) and may be vulnerable to pull back-used XNG comparisons to NG (and XOI).

24. Reef – Saw your email. In short, no I don’t think the natural gas traders know something the oil traders don’t. The pendulum always swings too far and it is again. When the music stops (end of the injection season which will coincide with more sharply negative YoY supply comparisons) they will likely scramble to cover. I think this is what is keeping the stocks up, along with the market, even as NG retreats on a daily basis.

25. Tracker Resources has well about 6miles wsw of CLR new location,

26. Thanks choices. Could be. Now that the tone was set for the day, and on a slow, end of summer day like this, it will take a broad market rally to get that one into the green. I’m in no particular rush to see it higher but would like to see a close over the secondary price again.

27. #25 cont. Well CE #1-22-23H, WEISZ 28-1H
    the production history is weak. This is a sidetracked well so there might have been a problem or more likely the formation was wet.

28. West – how big a history of wet, small or no shows in the older verticals do you think there is in the area? There are some old major’s wells to the south that were dusters back in the day, right?

29. I’m having a problem with my computer post when she wants too. anyway WEISZ Pool: BAKKEN Cum Oil: 6438 Cum MCF Gas: 4993 Cum Water: 31610 [Interactive Performance Curve] [PDF Curve]
    Production Test Data
    IP Test Date: 10/18/2008 Pool: BAKKEN IP Oil: 47 IP MCF: 36 IP Water: 252
    well is currently making about 10 bopd and has cum’d 6438, not a commercial success. There is not much news on CLR’s well or Stetson’s well that are both drlg. I would give Stetson the better odds of success of the two. CLR has about 100,000 ac in this area so they need to drl some wells and see what they have and collect data. Also being a mutli-layered cake there is always the possibilitiy of find another productive zone while drl or testing.

30. I will look at the other wells to the south that are older vertical wells. Many of these wells were not drld deep enough to test bakken or no dst were run. Some of the wells were also deep test and they didn’t test any of shallower zones or there may only be driller notes while drlg thru the formation.

31. Thanks West.

32. DX-79.5 and 77.5 appear to be crucial levels-break of either will prob cause commods (and maybe gen mkt) to react IMHO.

33. ROSE going ballistic. Again. Without me. Interesting name, EFS on the come but probably ahead of itself here. Thin trader means easy to move it around for those who want to.

    Oil is getting a bit more volatile and the high oil beta names are moving with it more than with the broad market.

34. Morning all. This is truly insane. A rally that nobody really believes in. Its a bubble I guess and it of course will end badly. I hear them wheeling out people who tell us that actually those housing numbers on friday were not good because it was only cheap homes that were selling and more expensive homes were actually increasing, inventory levels were up as well. Roubini out again saying chances of a double dip are back on the table but nobody cares about the economy and fundamentals – they just want a piece of the stockmarket so they are buying any tiny dip. So I am thinking this could actually go parabolic before its done – heck it almost looks like that now anyway.
    Cycles are pointing to a top by 27th August but likely this will only be a brief pullback before we launch higher into the middle to end of September.

    Resistance is at 1033, 1038, 1042, 1044, 1040. If we can get through there then 1100 is game, possible target 1134.

35. NFX = Rodney Dangerfield

36. Hear ya Nicky. My greatest fear is market risk at this point. Cheap names won’t save you from that (only cash, puts).

37. ng green

    hk trying to come back

    atpg up another 5 %

    they christen Titan this week

38. BOP West

    Stetson Spuds First Bakken Well in North Dakota
    CALGARY, ALBERTA–(Marketwire – Aug. 24, 2009) – STETSON OIL & GAS LTD. (TSX VENTURE:SSN) (“Stetson” or the “Company”) today announced that on August 23 drilling operations commenced on its first horizontal well on land holdings in North Dakota. It is expected that the well, Stetson MHA 1-11H-148-90, will be drilled to a vertical depth of approximately 9500 feet (2896 meters) and open hole logs will be run to evaluate the Bakken and Three Forks formations. The well will then be plugged back and horizontally drilled in the Bakken formation for a length of approximately 4500 feet (1372 meters). The well is expected to take 26 days to drill and completion operations will commence approximately two to three weeks following release of the drilling rig. Production results should be known in early October 2009. Stetson is the operator of the well and has a 48.75% working interest.

    The well will be drilled, in part, on lands leased from the Three Affiliated Tribes of the Fort Berthold Reservation. Stetson is in the process of licensing a second well that is expected to be spud in Q4 2009.

39. NFX – hear ya, used to be the case. I think that is changing and it is one of the best performers of the last couple of years and this year. After they got rid of so much exposure to the shelf and found the Woodford, things started turning up. Add to that a string of successes in the Gomex deepwater which next year will yield 3 to 4 startup announcements, what they’ve done in the Rockies, now the Granite Wash and then throw in Asia and it starts to be a completely different company than just 5 years ago. R/P extending, but still has the old cheapness to it.

40. Tater – thanks for the coaching book, it took awhile to get used to his writing style but I plan to use some of this stuff this fall.

41. Nicky – a bit of grasping for news to take things higher here. Chicago Fed’s National Activity Index was less negative and at the best level since Jan ’08 today. Came across my energy news scroll … first time I’ve seen that indicator mention tied to energy.

42. on atpg

    http://finance.yahoo.com/news/ATP-Titan-Hull-bw-3192877216.html?x=0&.v=1

    took some hk calls sep 20’s

43. VLO breaking out. That one is now trying to fill the gap from their May announcement that not only were analyst’s 50 cents off on the quarterly estimate but that 3Q and 4Q would stink as well. I may try puts here again around $20 – $22. Tater, would you take a look at resistance here? Cracks ebbed last week and unless we get some more signs of real life out of gasoline demand and then evidence of a cold winter on the horizon I don’t see how margins don’t continue to retreat. Heating oil will take over as the key mover on oil soon and stocks remain bloated. Diesel stocks are high as well as truck continue to sit idle (with engines off).

44. Bill – yep saw it, feeling like I missed it for now but that’s not to say it can’t grind higher.

45. PXP at 26.80, having priced the deal right at $24. Now those folks are happy and the deal becomes more memory than trouble to the stock. HK made a bad decision not pricing their deal in the hole as the stock remains hugging the deal price. They really need to get some news out on the news EFS wells or at least on an asset monetization to move the name from here. Or gas has to get back up over $3.

46. Z – it may be energy that is the straw that breaks the camel’s back. I have heard many say that if oil goes over $80 it will be a serious headwind to the economy.

    On the subject of the indices all the risk is to the downside which I am sure is stating the obvious here. Eventually the market is on its way to new lows.

47. Z- #45 – transport update – my father in law (UPS pilot) came back from a month or so worth of flying this weekend. He said for the first time in a long time they were flying consistently full loads back and forth from Asia. Certainly not any need to add capacity but they are a lot happier to have full airplanes. As i said once before on this indicator – may be a bit misleading as there are now a lot fewer freight haulers that fly back and forth from asia now than there used to be.

48. Honestly I don’t believe that. The daily increase in spending on $70 vs $80 is not that much, at least as it relates to the consumer. Recall last year these same people sad the same at $100 and then at $120 people rolled out with studies saying the same. Then it went to $147 and it was houses and banking that did us in and not high oil.

49. 1520 – good data point. I’m watching pretty closely to see if we see trucks rolling … will check with my transportation analyst to see if he is seeing any signs of an activity bump and will relay your comment. Last time I asked about the truckers was 2 months ago and he said run for the hills.

50. On the subject of good economic news. Sure there are a few ‘green shoots’ but there really should be don’t you think with the money that has been thrown at this. Question is do we have enough green shoots to say we are out of the woods and more importantly whilst I realize that the stockmarket is always 6 months ahead of a recovery how big of a recovery has it priced in? From what I am reading stocks are way overvalued considering the growth we have ahead.

51. Nicky – I agree that high oil prices are a negative for the economy but they’ve been saying at xx$ or xxx$ it’s going to halt the economy but people still drive and manufacturers still make what they make if they have demand… The average person just buys less iphones/TVs.

    Also they’ve been that it will be a problem at xx$ since the lows and it’s broken many of the levels they said it would be a problem at.

    It’s probably the strength and leadership of the financial sector that’s pulling us through…

52. V – see 48. Great minds and all …

53. Nicky – Because I’m a stupid little non-finance type simpleton, here is my simple test of why we are overvalued or at the very minimum fully valued.

    P/E of 10 in bad times, 15 in normal times and 20 in amazing times, where are we at?

    Assuming 60$ of S&P earnings next year which is probably high we are what 17 times earnings?

    Maybe I’m missing something…

54. Agreed Z – I think that argument has already been proven wrong.

55. #49 – i would be interested to hear what the trucking analyst has to say. I’ll talk to my buddy the diesel mechanic and see what he has to say too. The Port of Newark starts to get busier this time of year for the holidays – that may be part of what UPS is seeing too.

56. 1520 – yep, seasonal. Still, it would be nice to see, from a diesel consumption standpoint, that Christmas isn’t canceled.

57. Best “rally” in NG in 2 weeks, up 8 whole cents to $2.89.

58. For those keeping score of the USDX, it’s continuing to have problems getting and staying above previous support that was broken above 78.

59. VTZ – hear ya there. Thinking recent low mid 77s needs a test. I honestly would not like to see it fall quickly to that 72 level as I think it would goose oil too much and then we are back that ending badly. Much happier having the stocks trade on the cash flow numbers which are on the low side of median historically speaking for most names.

60. … and not on whether or not crude moves up or down a buck or two on any given day.

61. 77.40-77.50 is my next area then if that breaks it’s down to 72.

62. Transportation update –

    “He’s 100% correct. Freight is picking up. Auto manufacturing and low retail inventories are contributing in a big way. We haven’t even hit the easy comps yet either…”

    I’ve asked for a little help in tracking that with some data.

63. VTZ – hear ya, the recent low needs to hold to keep the dollar index up. I think it breaks in the near term. Wondering if more green shoots and repayment by Wall Street firms will mean it hangs out mid $70s or if Europe coming out faster (in at least a couple of cases now) takes the dollar lower, faster.

64. Z and VTZ – I agree totally regarding the price and at what price it affects the economy. As you rightly say it was housing and banking that collapsed us last time and really nothing to do with oil price. Its more the perception I think and when they need an excuse for a pullback this may be it. For me its far more about the fact that we have a plentiful supply of oil when the economy is this sluggish so the price is likely to come under pressure again. Fundamentals don’t matter anyway remember! Its all about the voodoo!!!

65. Nicky – Couldn’t agree more with the perception comment. Feels trader light again, late summer vacations?

66. Will add some SWN for gas bounce over the next 2 weeks.

67. USD teetering on the edge for me. If we are in ii down off first wave up it needs to get going to the upside. Otherwise as you say new lows and that would fit better with the equity rally anyway.

    Nat gas – we hit the 2.76 area which was major support. I just don’t see much downside from here. To hell with the fundamentals wave v could be done. Possibly it hits 2.50 on expiration but I am not banking on it. My God when the shorts cover this one we are going to see the mother of all rallies.

68. CNBC saying the nat gas bounce today is due to shorts covering – er yes what else would it be down here? CNBC have been on about nat gas all morning – lets hope they turn out to be the great contrarian indicator they always are on this one. Reminds me I need to switch them off!

69. Ahhh, but you don’t have to include “the hell with the fundamentals” part as those are improving in a stealth mode manner. We’ve known since around Feb it was going to be a full storage plus year. We troughed lower at the end of the season so that gave injection season a head start. Then the economy was weak and our summer was late in most places and non existent in others. But supply has been sliding and LNG was a no show. I now read the same people saying it would flood us by April writing that it will flood us by October, lol. It will increase, I have no doubt, and Canada will remain lofty this fall as they are very full up there. But the rig counts will yield lower supply, in the U.S. and in Canada and I think you are starting to see this in the weekly data and you will soon see it in the monthly supply data. Recall that the latest data is for May:

    http://zmansenergybrain.com/subscriber-data/gas-storage/

70. Z – even better re 69 – its all aligning. I guess we just need a hurricane to kick it off.

71. ZTRADE:

    KWK – Added September $12.50 calls (KWKIV) for $0.60 and am bidding some out month calls as well. Stock was at $12.30 at the time of trade. This is a play on an expected bounce in natural gas. The name is well hedged compared to the group and remains at a discount to its normal forward P/CF.

72. BOP – Any more form 4’s from the KOG folks?

73. Thoughts on adding some FSLR call positions?

    Stock seems to be moving up for the first time since it’s plummet from nearly $190.

74. Baylor – yep, mulling, watching it cross frequently on the bottom of CNBC up $5 and change. Wasn’t happy with last week’s throw in the towel action from the analysts. Was thinking to grab some more pre next earnings or on a really bad market day. Could be a bottom but I’m no good at picking those. Also have to wonder was made the Jefco guy scrap his price target after defending it just after the rebate announcement on the 2Q earnings release.

75. Thoughts on playing UNG leaps? Jan 11 $12 strikes are going for $3.

    UNG is at an all time low, at least as far back as I can see on Yahoo. If the MOAC comes, it would seem to come in the next 18 months.

    Why would UNG be a bad play?

76. aman, re 74 it seemed he had a change of heart due to potential overproduction by China which would drive prices down in the face of limited demand….never a good combo.

    That seems to at least be the cop out anyway.

77. As a rule I don’t play UNG. Right now especially as they have restricted themselves from doing business in their normal way by not issuing more shares. It has done a poor job of tracking gas and I would rather play a gas leveraged name for a gas trade that UNG, hands down for this reason. Also, don’t care for the UNG call premiums although the spreads are tighter than ever. I’m not saying I won’t ever do it but I think there are better ways to play the gas trade.

78. Baylor – thanks re 76. And I saw positive stuff out of Chinese makes earlier that week. Go figure.

79. What’s with the hurricane talk. No hurricanes.

80. Baylor – UNG is at an all time low having an inception in April 2007 and gas being at a 7 year low.

    Jivey’s bio has been added to the Bios tab:

    http://zmansenergybrain.com/subscriber-data/bios/

81. Ram – Who’s talking Cane’s? Looks pretty quiet in the tropics at present.

82. Re: 78, yeah that confused me. I misread the 2007 as 2002 and I thought it was only a couple of years old so throw that data point out the window.

83. ZTRADE:

    KWK – Added (10) October $15 Calls (KWKJC) for $0.25 with the stock at $12.35.

    NG up 14 cents, first sign of a real bounce in a couple of weeks.

84. What sites do y’all use to check the spot price of natural gas?

85. So with the MOAC coming, and natural gas stocks not really falling as much as the commodity, what is the best way to play the looming short covering rally?

86. CNBC – “Call The Close” – Ok, that’s just about less than worthless. Why don’t they have a “Pin the Tail on the Ass” segment … oh, that would be redundant. Sheesh.

87. Baylor – I get live commodity quotes. If you don’t, there is a link at upper right in the blogroll entitled Live WTI charts and I think you can play around in there to get natural gas live. Will look at it and get back to you.

88. zman, what is the case for KWK bouncing on a NG bounce with it already up 50% from its 2009 lows in recent weeks?

89. Re 85 – I don’t tell you what I think is best or worst or what you should or shouldn’t do as I no longer give investment advice. I simply tell you what I’m doing.

    Re 88. Stock is underspending and is historically cheap. It has a high historical correlation to natural gas. It is well hedged, prices over $8/Mcf with a higher percentage hedged for the back half of 2009 than for 2010 but it still is almost 50% hedged next year and again, over $8. On valuation, at 5x CFPS with CFPS estimates from 2009 to 2010, a move up in gas will give analysts confidence to boost out year expectations. That’s it in a nutshell. Same applies to many names, SWN being one that has traded well with gas, though it is much more expensive on a forward CF basis given its much higher growth rate.

90. And adding to 89 – I usually don’t care so much about the magnitude of recent runs as I do about relative positioning to the group and to a stock’s historic position. Story plays a big part with me on many names but here, this is a more hum drum deal, underspending cash flow and hooking up previously drilled wells to maintain production until prices move higher…and resting on those strong hedges until gas does rise.

91. zman, re:83, oddly enough, I don’t even see the October QKQ calls on yahoo.

    Do they not show all open options? I never realized this as a possibility before.

92. Can’t speak to Yahoo but they exist so I guess they don’t show them all.

    I don’t back any particular trading system but I know people like Think or Swim and Street Smart Pro.

93. #91 – yahoo typically doesn;t show new option series the monday after expiration. They are usually there on tuesday.

94. Post lunch sell off in process.

95. Interesting that every day in recent memory that has had no scheduled economic release has been a red day.

96. FSLR hanging on to its gains.

    HK getting hammered. I’m losing faith in that trade.

97. KWK is also highly financially leveraged. This means it was pounded down harder than many names last Fall and this past Spring when fears of your own bankers persisted. When these names come out the other side, it is often the leveraged (but still alive) who catch the bigger moves.

98. Down just under 2% on the day is not what I would call hammered. Nor is down 40% on the $24s when the stock is still at 22.57 with 30 days of life left in the options. But my tolerance is different than most and I view my trades as a portfolio with some winning, some losing.

99. Here’s a couple three articles as to why one should not go near UNG or GAZ as a proxy for the underlying. So, caveat emptor!

    UNG Halts Share Creation to Shield Itself
    By Don Dion
    TheStreet.com Contributor
    8/13/2009 1:32 PM EDT

    The U.S. Natural Gas ETF (UNG) has decided to bite the hand that feeds it. In an unsurprising turn of events, UNG managers have declined to issue additional shares of the fund, despite requesting these very same shares last month.

    In early July, UNG “ran out” of its pre-approved share allotment. Fund managers then requested the creation of an additional 1 billion shares to sate public demand.

    The crux of the issue is what has transpired in the meantime. In the meantime, the Commodities Futures Trading Commission (CFTC) conducted a series of hearings to determine whether futures-based commodity ETFs like UNG and U.S. Oil (USO) were exacting undue influence on the commodities markets.

    Sudden scrutiny has made UNG change gear. After halting creation in early July, the fund began to unload futures contracts and buy over the counter swaps. UNG was right in anticipating regulation and the swaps will not be subject to the same rules as futures contracts on the New York Mercantile Exchange.

    Meanwhile, UNG has been functioning without the most basic of ETF needs: the creation/redemption process. The creation of ETF units keeps the market price of funds in line with their underlying values or NAVs. The jolt of the halt of creation has disconnected UNG from its underlying value, resulting in the fund trading at a premium for much of July.

    Now UNG is voluntarily halting this process in an effort to watch its back. The fund is anticipating upcoming regulation and does not want to get caught in a position where it has to restructure on the fly due to position limits.

    Each chapter in the UNG saga has added layers to an already-complex trading strategy. The fund will likely continue to separate from its value as the most basic promise of ETFs is broken.

    Investors need to avoid this fund. UNG itself isn’t sure how it will synthetically provide the exposure promised in its marketing, so investors can’t be sure what it’s getting.

    The ETF industry is being attacked by a host of regulators who need to sit down and coordinate their efforts.

    In the meantime, ETFs that halt creation should halt trading.

    UNG Investors Are Giving Away Money
    By Don Dion
    TheStreet.com Contributor
    8/19/2009 9:41 AM EDT

    The U.S. Natural Gas Fund (UNG) has fallen 47.91% in 2009, and the suspension of share issuance and switch from futures to swaps does not speak well for UNG’s future. Furthermore, without its closing premium of near 13%, its return would be much closer to the 53% drop seen in iPath Natural Gas (GAZ) — should the premium eventually evaporate, returns should fall in line with this fund.

    Stop Trading UNG

    UNG, the global behemoth of natural gas ETFs, decided to suspend the offering of new shares, based on fears of investment inhibition. UNG representatives expressed concern that expansion will lead to federal regulation of investment in natural gas futures.

    This decision is of particular concern to the fund’s well-being, given the context of UNG’s recent SEC allowance. The fund has been given the rights to expand (gaining approval for the sale of up to 1 billion new units — a monumental capacity when considering UNG’s current size of roughly 500,000 shares). Fear of regulation has also caused the fund to sell futures and purchase swaps, exposing investors to counterparty risk.

    Enterprising traders will find a way to profit from the massive premium on UNG. Already, UNG investors lose money due to exacerbated contango in the futures market. Buyers at these levels have the added bonus of giving away an extra 13%. Don’t join the herd.

    Running Out of GAZ
    By Don Dion
    TheStreet.com Contributor
    8/21/2009 3:38 PM EDT

    Following in the footsteps of the United States Natural Gas Fund (UNG) and the PowerShares DB Crude Oil Double Long ETN (DXO) , the iPath Dow Jones-AIG Natural Gas ETN (GAZ) recently halted the issuance of new shares. Over the past week or so, GAZ surged in response to UNG’s previous share lockdown — UNG later began trading at a premium, which pushed investors to look into ETN alternatives — specifically, GAZ expanded by nearly 50%, growing from $127 million to $187 million in total assets since the end of July.

    Thanks to GAZ’s halted issuance, however, both products are now mired in premium trades. As of this afternoon, UNG was trading with a 15.89% premium, while GAZ traded with a less harsh 6.70% premium.

    And it appears that this phenomenon is likely to spread to other products. In Barclays’ latest filing, the firm claimed that “factors underlying the temporary suspension of the Notes may impact other commodity-linked iPath ETNs in the future.” Companies such as iPath and PowerShares are increasingly fearful of CFTC position limits that could hinder proper benchmark tracking and suspend issuances in order to cap ETF/ETN size.

    To conclude, be prepared for more issuance suspension as well as a potential outbreak of premium trading.

100. Grabbing a bite of lunch, back in 20

101. Z – so even though KWK is well hedged, the magic of analyst valuations means it will be levered to NG ?

102. UNG- Keep in mind the contango effect at rollover time.

103. More Canadian Bakken consolidation… Crescent Point vs PetroBakken for leadership in the play!

     UPDATE 2-Crescent Point to buy Wave Energy for C$665 mln
     1 hour ago – Reuters
     * To acquire Wave Energy for about C$665 mln

     * To acquire other assets for about C$259 mln

     * To raise C$200 mln through bought deal financing

     * Sees production of 51,500 barrels per day by Dec 2009

     * Sees 2009 cash flows of about C$645 million

     (Adds details on deals, financing)

     TORONTO, Aug 24 (Reuters) – Crescent Point Energy Corp CPG.TO said on Monday it agreed to buy Wave Energy Ltd, a closely held oil and gas producer, for about C$665 million ($622 million), as part of its expansion in the Canadian province of Saskatchewan.

     Under the terms of the deal, Wave shareholders will receive 0.21 of a Crescent Point share for each Wave share, or about C$7.28 per Wave share based on a five-day weighted average trading price of C$34.68 per Crescent Point share.

     The Calgary, Alberta-based also announced a separate deal to acquire producing assets in southeast and southwest Saskatchewan for about C$259 million in cash.

     Crescent Point has been actively expanding its portfolio, having recently closed its acquisitions of Gibraltar Exploration Ltd and Villanova Energy Corp.

     The company also raised its year-end production by 16 percent to 51,500 barrels of oil equivalent per day. It also raised its 2009 capital expenditure budget by C$100 million to C$325 million.

     The company said its balance sheet remains strong, with more than C$300 million of unutilized capacity projected on its bank lines.

     CIBC and RBC Capital Markets acted as financial advisers to Crescent Point on the Wave deal, while FirstEnergy Capital Corp acted as financial adviser to Wave.

     Peters & Co Ltd and Scotia Waterous Inc acted as its financial advisers on the other asset acquisitions.

     BOUGHT DEAL

     Crescent Point also said it planned to sell discount-priced shares to a group of underwriters in a bid to raise capital for to fund a portion of the asset acquisitions.

     Crescent Point is selling 5.8 million shares at C$34.50 per share — a 3.9 percent discount to its closing price on the Toronto Stock Exchange on Friday.

     The offering is expected on or about Sept. 15. It would raise gross proceeds of about C$200 million. Scotia Capital Inc, BMO Capital Markets and CIBC are the joint lead underwriters of the bought deal.

     Crescent Point has also granted the underwriters an over-allotment option to purchase, on the same terms, up to an additional 870,000 shares. The maximum gross proceeds raised under this offering would amount to about C$230 million should this option be exercised in full.

     Crescent Point shares 1.8 percent to C$35.29 in early trade on the Toronto Stock Exchange. ($1=$1.07 Canadian) (Reporting by Euan Rocha; Editing by Frank McGurty)

104. zman, re:98, totally agree on the 2%. The 40% down move in the option is in what I call ‘hammered’ range, not to say it cannot come back as certainly there is quite a bit of time value left.

     We all have our different sensitivities to volatility. Like yourself, I accept that some of my trades will be losers.

     Hopefully the winners outnumber those losers 🙂

105. Dman:

     2009: 77% hedged at $8.75
     2010: 48% hedged at $8.17. So the upside is there, in the production, waiting to happen.

     Recall also these guys are wet gas, lots of liquids, which are priced relative to WTI. Normal BTU per Mcf is like 1,034. These guys are 1,200ish. So you take the piece that is gas and add to it the part that is liquids and priced at $30 per barrel (about) and you get a combined $/Mcfe of closer to $6 right now, which is a bit high for your typical 99% gas producing firm.

106. re 104 – I hear ya and they generally do.

107. RE: gas ETFs

     HNU on TSX the double long NG has the highest volume out of anything today.

108. Energy sector trading color, from a major NY trading desk

     Energy – Group outperforms on up day as both crude AND natgas (after getting crushed for second wk in a row last wk) trade higher. Flows a bit light as could be expected on these lighter volume days. Seeing better buying of deepwater services and integrateds (mostly generalist HFs involved), better selling of drillers and E&Ps (mostly generalist vanillas). REITs: Group continues to outperform as risk still well bid. Very active in lodging names. Seeing a number of buyers both dedicated and generalist, generalist profit taker. Two-way flow in offices, dedicated vanilla buying, generalist seller. Couple vanilla profit takers around in apartments. Utilities: Utes seem to be being used as source of funds in macro rotation as risky assets continue to rally. Fairly light flow-wise here. Still active in regulateds on sell-side, generalist HFs involved.

109. BOP – re 108. Yep, boring summer day, no news.

     Good close for oil and natural gas. No real reaction from the group, volumes look pretty light.

     Re KOG, I’m getting further away from my “deal needs to be pretty soon” theme and moving to more of a “deal is probably with the stock a bit higher and may not have to be this year”. Thanks for the nudge to look at the balance sheet prepaids, which along with cash flow and that bank line, which is small on the base now but should expand in the Fall with this year’s results, get you to a deal is not needed just yet view.

110. ummmmmmmmmmmmm…. anyone follow DBLE? It seems to be in “breakout” mode today on no news (that I can see).

111. z — #109… thanks for doing that work. Good to come to a similar conclusion from several angles.

     KOG today is world’s away from KOG-this-time-last-year. For one, I think their partner on some Bakken wells (XTO) is feeling better and better and better about the quality of the Bakken (and yet-to-be-tested-by-KOG-but-tested-by-Peak-already TFS potential on the FBIR).

     We are still on track to hear about well pairs 5 and 6 by the end of this month. Well 7 has completed drilling with well-pair 8 having spud this weekend. There were nice oil shows during drilling. Doesn’t mean that much, but better than NOT having “nice oil shows during drilling,” eh?

112. west — you guys buying DBLE??

113. Why is HK dragging compared to it’s peers? What’s wrong with this horse?

114. re 113. Post deal digestion. Waiting on news. It started the day off weaker and when the group went lower with the market it went lower in step. As the fastest growing name in the E&P space this year and most like next (30 to 40% growth target for 2010 and they don’t set targets they can’t beat the low end of) I think it picks up with gas. Potential catalysts include a rise in gas prices, news that they have monetized some low upsides assets, and Eagle Ford shale well results.

115. ram — i think everyone who wanted to own some HK shares at this point, has ’em. So, until HK comes out with some new information, I just don’t think people are loading up more shares here. That can change — in a heart-beat — on any “new news.” But, can’t watch it on a hour-by-hour basis… it will drive you nuts.

116. Gotta love the violent shorting/intervention in gold today. Yeah!

117. Z, Here is some information on those XTO wells se of KOG and south of CLR wildcat……. There is a “preliminary” completion report in the file stating that
     the 24 hr test in early February recovered 1250 bbls water and no
     oil. The well had a six stage frac and is shut in. At the end of the
     lateral they drilled down into the Three Forks for about a half mile.
     Doesn’t look good.

     The other XTO well that someone asked about recently close to this
     area was listed as a dry hole on the completion report, and had a
     cement plug set in the casing just above where the curve began. But I
     think the well was listed as shut-in and wasn’t officially plugged and
     abandoned.

     There is a “preliminary” completion report in the file stating that
     the 24 hr test in early February recovered 1250 bbls water and no
     oil. The well had a six stage frac and is shut in. At the end of the
     lateral they drilled down into the Three Forks for about a half mile.
     Doesn’t look good.

     The other XTO well that someone asked about recently close to this
     area was listed as a dry hole on the completion report, and had a
     cement plug set in the casing just above where the curve began. But I
     think the well was listed as shut-in and wasn’t officially plugged and
     abandoned.

     I will try and look up the boundary wells along the wavy line and post something this week. That being said I think that KOG’s 7th and 8th wellsare well within the inside boundary of oil bearing formation. The 9th well that is the furthest east may be close to the edge. EOG is having a hearing next month for five 1280ac units that in the Parshall Field but already have 640ac bakken wells producing. Maybe 3forks maybe in field drilling.These are lay down units.

118. Thanks West, hear ya wet wells. Their 1 and 2 wells were west but almost this far south. May be more of a concern for CLR’s territory.

119. West – re 25. Is that a new spud or do we have data there?

     Also, refresh my memory, do we know who their private partner is in these 60% WI wells (7,8,9)?

120. HK back to its 50 day at about $22.40. That’s me bidding to double the $24 strike position.

121. ZTRADE:

     HK – Doubled my position in the HK $24 September Calls (HKIO) at $0.55 with the stock off 2.8% at $22.36 on no news and acting weaker than the group.

122. approval of this act further illustrates the Administrations efforts
     to blame Big Oil for the nation’s ailments both fiscal and environmental and stick them
     with the hefty bill. Poisoning oil companies and refiners simply creates inefficiencies and
     weakens their ability to bring cheaper energy to the market

     http://files.irwebpage.com/reports/shipping/1oizmN3Qn7/P&P_WeeklyOpinion_082109.pdf

123. BOP, not “we” on DBLE. WE are loading up on KOG on all pull backs, which are few and far between. The 6 & 7 are going to be good wells much like northern wells. The # 7 acroos the river is going to be a producer just comparing the drlg, rock, shows and penetration rates…..You can call me crazy but with XTO failures down south on play that covers over 100,000 acres . You can look for them to increase activity in KOG’s area of mutual interest. SOme say that KOG controls development of all their acreage but look at that presentation again and u will see that there is 18k gross and 9k net that is 50/50 with XTO. XTO has already applied for permits on these units not KOG. This is in the NE portion of KOG acreage…..BOP thx for the infor on Petro-Gulf.

124. Z, BOP said that Petro-Gulf was their partner south of the river.

125. Thanks – just wondering if Petro brought anything to the table besides money, just snooping about for their other wells.

126. Oil pulling back post close with market and with a slight bump in the dollar. I think that’s healthy.

127. west — and RIGHT you ARE! XTO is getting more and more excited about their acreage holdings with KOG on the Rez. Think we will see them (XTO) make a unilateral move early in 2010 on that. Of course, KOG knows the schedule and the plan. So, KOG is just plugging that info into their 2010 drilling schedule and planning cash flow accordingly, I would imagine.

128. Their website doesn’t show anything else in ND. On # 119 which spud r u asking about?

129. west — anything you know about PetroGulf is more than I do. I’ve never run across them before… you?

130. West – The Tracker well mentioned above.

131. Z , I will hit u back later on that.

132. Beerthirty.

133. Ed Segner appointed to board of BBG. Ed’s a solid gas guy, formerly of EOG. That is a positive addition to Barret’s board.

134. Ram – the only threat I see for hurricanes right now.

     http://www.accuweather.com/news-story.asp?partner=accuweather&traveler=0&article=3

135. Danny?

     http://www.accuweather.com/news-top-headline.asp?partner=accuweather&date=2009-08-24_19:45

136. MD – looking at generation from 2 weeks ago, we saw the first uptick in YoY generation in memory.

     Electricity generation for the week ending Aug. 8 was 3.9 percent more than the prior week and 5.3 percent more than a year ago. Year-to-date electricity usage is 4.4 percent lower than last year.

137. What’s interesting about 136 is that CDDs were well below year ago levels at 67 vs 83.

     For the week ended 8/15 they were at 79 vs 53 a year ago which is when we got the 52 Bcf injection last Thursday.

     Last week (which is what will determine this week’s injection), CDDs ran 79 again. Imports were up just a touch but I suspect with the heat and with tighter storage we will see another 50 Bcf ish number this Thursday.

138. Adding to 134 and 135; these all seem to have hit just after the close:

     http://www.accuweather.com/news-story.asp?partner=accuweather&traveler=0&article=2

139. 92L Invest

     http://www.crownweather.com/?page_id=29

     They’re putting a 30 to 50% for development next 48 hours. Looks like another E. Coaster.

140. NFX on the tape with voluntary curtailment for 3Q, comments in post tomorrow but not negative in that they are saying they will be in the upper end of prior guidance range for the Q.

141. Bernanke to be reappointed tomorrow.

     http://www.marketwatch.com/story/fed-chairman-bernanke-gets-reappointment-reports-2009-08-24

142. Interesting read:

     http://www.foreignpolicy.com/articles/2009/08/17/scenes_from_the_violent_twilight_of_oil?page=full

     History might not repeat itself but it rhymes:

     http://www.traddr.com/profiles/blogs/oil-cup-amp-handle

143. Thoughts on SLB puts in September?

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