In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Storage Review
  4. Stuff We Care About Today - Gassy name comments
  5. Odds & Ends

Holdings Watch

  • $10KP:

    • $5,500
    • 41% Cash
    • The Wiki Holdings tab is updated.
    • I will update the $10KP II spreadsheet tab over weekend.
  • Yesterday's Trades: None

Commodity Watch

Crude oil reversed early losses to close up $1.06 yesterday at $72.49. The rally looks to have been triggered by a quick, afternoon drop in the dollar. This morning crude is trading up $0.40.

The October natural gas contract, which takes over as the front month today, fell $0.09 to close at $3.21 yesterday after the EIA reported an "in line" storage injection. With this injection the surpluses to the year ago and five year average fell from 21% to 19% and from 19% to 18% respectively. The expiring gas contract made a run on even on the day with crude before falling away into the close. My continued sense is that the short play here is long in the tooth.  This morning gas is trading off below $3.10 and it looks like traders want to go ahead and test $3.00 on the new front month before seeing supply data which should come out either later today or Monday.



  • Tropics Watch: Danny is not a threat to oil and gas infrastructure. Elsewhere in the Atlantic, not much is brewing.

Natural Gas Storage Review

ZComment: The Western and Producing regions continue to see smaller than normal injections. With Rockies Express functioning some Rockies gas is heading east instead of being stored locally, accounting for the continued strong Eastern region injection.. Taking a look at the Bcfgpd delta to last year we can see that the number looks to have peaked and is falling.

We know that imports have ticked up late in the season from Canada due to high storage up there and yet this Bcfgpd surplus graph continues to show improvement. Part of this is attributable to warmer weather in the most recent weeks. But note the graph peaked mid season. This is reflecting, as best I can tell due to limited data, the beginnings of a recovery in industrial natural gas demand (see that rail chem chart from yesterday's post plus you've had some pick up of late in metals production). This augers well for my fuller storage early leads to smaller injections later in the season argument and I'm now projecting end of season storage of just over 3.7 Tcf while I've seen several on the Street tossing out a 4 Tcf number just before they say gas is going to $0. The blue highlighted bars below reflect low storage at this time of year, the orange reflects some of the higher storage levels for this time of year.

Notes for The Gas Graphs: Nothing out of the ordinary other than the surplus to the year ago and five year average storage level is eroding faster than before (see graphs B and C).

Stuff We Care About Today

Gassy Stock Thoughts: (E&P). Here are some pure or nearly pure play gassy, U.S. focused names, with growth, hedge, and valuation stats.  These tables will be added to the E&P tabs and I will add the Large Caps next week although for the most part they are more diversified internationally and as such don't bear as strong a correlation to U.S. gas prices as do the following names.

Hedge Positions This Year and Next. Since growth target for next year are for the most part not yet set some of these show volumes instead of percentages.

Valuations remain tilted towards the high side for the growthier names. On the unhedged and low growth or more uncertain growth in 2010, valuations have fallen into the gutter. Your higher growth names normally trade with forward CFPS multiples in the 8 to 12x range during good times while a more middling growth name, with a high single digits reserves to production range should be in the 5 to 7x forward range. Both the fast and the slow growers are below their historic ranges now. In 2010, if you aren't growing and, chances are if you don't have good hedges on, you will see lower cash flow as the Street is looking for lower gas prices into at least the first half of the year.


Odds & Ends

Analyst Watch:

  • JP Morgan adds (HK) and (OII) to their Sjid money list. I continue to like both names here although I am not presently in OII. The HK addition may get "grain of salted" by the market given JPM's lead of the recent HK deal.
  • ATPG target upped from $13 to $15 at Wunderlich.


93 Responses to “T.G.I.F.”

  1. 1
    zman Says:

    Gas supply data for June 2009 has been released, parsing now.

  2. 2
    zman Says:

    Natural gas supply:

    June 2009 data for the U.S. (including the offshore) 59.53 Billion cubic feet of gas per day. This is up 0.3 Bcfgpd from May 2009 and up 0.9 Bcfgpd on a year over year basis.

    If you look at the U.S. onshore we fell 0.1 Bcfgpd from last month.

    Since October to present the monthly YoY change in gas production from the U.S. onshore has looked like this:

    5.2 Bcfgpd
    1.1 (this June data)

    So the shale play growth is relaxing; we are getting there. Slowly.

  3. 3
    Nicky Says:

    Morning all. Z thinking that the front month contract may need to test the lows made in the september contract before a low is in.

  4. 4
    bill Says:

    atpg has a huge short interest and jump for the current month.

    noted short seller, (lehmaan fame) Greenlight capital just took a LONG position in atpg 1,750,000 shares

  5. 5
    bill Says:

    >seeing supply data which should come out either later today or Monday

    didnt that come out already??

    ..tudor today said production was .3 higher .2 down onshore with +.5 more offshore

  6. 6
    zman Says:

    Nicky – That’s a good possibility. There was nothing in the supply data that made you want to say, look, supply is falling off a cliff. Still very strong. On a YoY basis, the growth is definitely slowing but we have not rolled over yet (at least through June). I still think the short play is pretty played out here, doesn’t mean it won’t retest that low though and maybe $2.50. At this price, there are no basins in the U.S. that are economic. If prices stay down here for another month (and I’d be surprised if they do but its largely up to the weather) I would bet we see U.S. gas directed drilling take another dive after the pause and modest uptick we have seen. It’s just not worth it to drill right now out side of the cores of the best basins. Note in today’s post the limited hedges for the E&Ps in 2010. Drilling now is fine but if prices don’t get up by then activity has got to roll further south.

  7. 7
    zman Says:

    Bill – see 2, came out last night, just saw it a few minutes ago.

  8. 8
    bill Says:

    this isnt good news


  9. 9
    zman Says:

    I’ll have the Natural Gas Supply slide show out on Monday. Essentially onshore rose to new recent highs, due to deepwater associated gas production. Onshore slipped slightly but I mean slightly, barely enough to notice. As you would expect, Louisiana ticked up slightly. And Texas ticked down.

  10. 10
    elijahwc Says:

    Worth keeping an eye on:

    U.S. finds water polluted near gas-drilling sites
    Thu Aug 27, 2009 12:54pm EDT
    * Potential obstacle for U.S. energy extraction

    * 2-BE, used in drilling, linked to series of illnesses

    * Natural gas companies say drilling technique is safe

    By Jon Hurdle

    PHILADELPHIA, Aug 27 (Reuters) – U.S. government scientists have for the first time found chemical contaminants in drinking water wells near natural gas drilling operations, fueling concern that a gas-extraction technique is endangering the health of people who live close to drilling rigs.

    The Environmental Protection Agency found chemicals that researchers say may cause illnesses including cancer, kidney failure, anemia and fertility problems in water from 11 of 39 wells tested around the Wyoming town of Pavillion in March and May this year.

    The report issued this month did not reach a conclusion about the cause of contamination but named gas drilling as a potential source.

    Gas drilling companies say the gas drilling technique called hydraulic fracturing, or “fracking,” is safe, but opponents contend it pollutes groundwater with dangerous substances.

    Evidence of a link between gas drilling and water contamination would set back development of a clean-burning fuel promoted by the Obama administration as crucial to the future of U.S. energy production.

    Some experts believe the United States holds more than 100 years worth of natural gas reserves. The new findings may raise questions about the process companies such as EnCana Corp (ECA.TO: Quote, Profile, Research, Stock Buzz), Halliburton Co (HAL.N: Quote, Profile, Research, Stock Buzz) and others commonly use to pump the gas from deep geological formations. Encana, Canada’s biggest energy company, is drilling in Pavillion.

    “There may be an indication of groundwater contamination by oil and gas activities,” said the 44-page report, which received little public attention when released on Aug. 11. “Many activities in gas well drilling (and) hydraulic fracturing … involve injecting water and other fluids into the well and have the potential to create cross-contamination of aquifers.”

    Among the contaminants found in some of the wells was 2-butoyethanol, or 2-BE, a solvent used in natural gas extraction, which researchers say causes the breakdown of red blood cells, leading to blood in the urine and feces, and can damage the kidneys, liver, spleen and bone marrow.

    Greg Oberley, an EPA scientist who has been testing the water samples, said the agency did not set out to prove that hydraulic fracturing caused groundwater contamination, but was responding to complaints from local residents that their well water had become discolored or foul-smelling or tasted bad.

    The investigation was the EPA’s first in response to claims that gas drilling is polluting water supplies, he said. Testing will continue.


    While the EPA team has not determined how the chemicals got into the water, many are associated with gas drilling, Oberley said in a telephone interview.

    “The preponderance of those compounds in the area would be attributable to the oil and gas industry,” he said.

    In hydraulic fracturing, energy companies inject a mixture of water, sand and chemicals a mile (1.6 km) or more underground at high pressure, causing rock to fracture and release natural gas.

    Drillers such as EnCana are not required to disclose the chemicals they use because of an exemption to the federal Safe Drinking Water Act, granted to the oil and gas industry in 2005.

    In the U.S. Congress, concern about the safety of fracking led to the introduction in June this year of a bill that would require disclosure of fracking chemicals.

    Industry representatives say fracking chemicals are heavily diluted and are injected thousands of feet below drinking-water aquifers through steel and concrete shafts that prevent the escape of toxic substances into water supplies.

    Randy Teeuwen, a spokesman for EnCana, said the substances found by the EPA had been “tentatively identified.” He said many were naturally occurring and some are commonly found in household products and agricultural degreasers.

    He said EnCana was working with the agency to identify possible sources of the contamination. “One of those sources could be oil and gas development,” Teeuwen said.

    Teeuwen said EnCana, which operates 248 wells in the area, stopped using 2-BE in spring 2009 because of concerns about its health effects.

    “It’s a banned substance as far as EnCana is concerned,” Teeuwen said.

    John Fenton, a farmer in Pavillion, a rural community of about 150 people, said residents blame gas drilling for a range of illnesses including rare cancers, miscarriages and nervous system disorders.

    Families with contaminated water wells have been advised by the U.S. Centers for Disease Control and Prevention not to drink the water, which in some cases was black and oily, with a petroleum-like sheen, and a smell of gas, Fenton said.

    “The stress is incredible,” Fenton told Reuters. “People have built their lives and businesses here. What’s it all worth now?” (Editing by Daniel Trotta and Mohammad Zargham)

  11. 11
    zman Says:

    Eli – Eyes on it. Lot of variables there. EPA said in that piece that it was a possibility it was from drilling. Could have been a surface spill as well. I think they witch hunt this but in the end the Potus gets a note that says do this and there will be a huge contraction in gas production and a huge boost in the unemployment rate.

  12. 12
    zman Says:

    I think the $100 mm tax bill in Louisiana may be a bigger deal for some of the small players. Put the list on the site yesterday. Note that it may spread outside Terreborne parish. Also note HK was not on that list.

  13. 13
    zman Says:

    Oil up a buck, natural gas down a dime. Feels like old times.

    Nicky, whats your thinking on the markets with SP at 1,038? This just keeps squishing the shorts and energy hasn’t participated this week until this morning. My thought is if the market continues this “I got be part of the rally” rally then energy will play catch up and outperform. JPM essentially said that this morning. But if the market does take the much anticipated dive energy will dive worse.

  14. 14
    zman Says:

    One other thing to note about the post. When you look at names like CHK and HK and GMXR you know they have a fuse on them in terms of their acreage. Drill it in a certain amount of time or lose it. HK has said they can hold all of their Hayensville and Eagle Ford shale with a $1.3 Billion capital budget in each of 2009 and 2010. They should have the cash flow from their hedges, and their balance sheet to accomplish that.

    Same goes for a GMXR where they have hedged up 2010 in advance of low prices so that they can drill through the price trough if need be.

    CHK is down to about 20% hedged in 2010 and along with SWN is expecting a bounce in prices to give them a shot at more hedges for next year (they want to get it up over 70%). Now, the difference between a CHK and a SWN is that CHK has a big acreage position in one of its favorite plays (the Haynesville) that is largely not held by production. So they have to drill or in 2 to 3 years they start losing some of the acreage they acquired in last year’s gas acreage rush. Granted, they get a lot of help from their partners like PXP who will bear a lot of the costs or have already done so but still, they have to drill to hold the land. SWN on the other hand is largely HBP and while their hedges for 2010 are fairly light, they could afford to cut back activity substantially (by as much as 2/3rds) and still keep their leases. Just food for thought.

  15. 15
    AAA Says:

    Z, re 10. The government doesn’t have to do anything. This will be the bakken for the trial lawyers. They will sue anyone who ever drilled anywhere near these areas and collect billions. Simple country folk murdered by evil oil companies. Are you kidding me? They are probably working on movie deals right now.

  16. 16
    Nicky Says:

    FWIW Bob Prechter has just sent out an email telling everyone to go full in short. I haven’t personally seen the email.

  17. 17
    zman Says:

    AAA – I hear ya. I was referring to the fact that the government is trying to get frac approval placed under the Clean Water Act as we speak. Eliminating the so called “Halliburton Exemption”.

  18. 18
    zman Says:

    Thanks Nicky. Someone sent me a deal yesterday saying Prechtor sees something like $3 to $5 oil too. He’s going to be wrong on that one.

  19. 19
    Nicky Says:

    Z – when you see AIG up 29% yesterday, another 16% today frankly this dash for trash leaves me speechless.

  20. 20
    zman Says:

    Nicky – couldn’t agree more. The share of trash volume in the NYSE is shocking as well. Does anyone have a gauge or have a story with some hard data about just how much cash is on the sidelines? You hear everyday it is a lot. And every time we have the smallest dip, it doesn’t last more than a day or two and then there is almost a panic to buy in. Anyway … September is coming and with it plenty of fear, greatest risk is still market risk. I may short a bit of service here as a small hedge.

  21. 21
    cargocult Says:

    Regarding Nicky’s warning: what is your thinking on a good way to hedge a long position in energy stocks?

  22. 22
    zman Says:

    Cargo – If you own the stocks then puts are generally appropriate. Note the lack of advice in that statement. If you believe energy goes down with the market then little room in the portfolio for long calls. You can also take puts on the XOI, OIH or XNG. I prefer cash and buying on weakness. I’m not a subscriber to us falling to pieces because of the time of year or because of the run we have had. I’m not saying its onward and upward but the market has a way of disappointing those calling things like tops and bottoms.

    If I believed the market was going to simply crack, I would go to cash. Best hedge there is in my book.

  23. 23
    bill Says:

    q3 will end for most ep companies in 30 days with ng at a record low prices which means more ONE TIME write down of reserves.

    If it happens, it will be the 4th time in 9 months we had ONE TIME non cash write down of reserves. The new rules, which is based on the strip comes in at year end.

    Some companies will have a negative net worth. I read somewhere banks are getting quesy with reserve based lending

    Im tryng to be just in oily names, id love to unload my HK position. Im hoping that they report something good here

  24. 24
    zman Says:

    By the way, if you saw a database error earlier I’m on it. I have been contacted by my host in the last two weeks and I will be moved to a new, faster, better, smart, server in the next two weeks. The activity on this site is giving their old server fits.

    Should you ever see that problem for more than a few minutes check with me over at the backup site:


  25. 25
    zman Says:

    Bill – hear ya there. Again, non cash charge flows through the income statement and onto the balance sheet. Has no impact on operations. Gas is still in the ground and the Street has historically ignored the non-cash charge because it is non cash and focused on a single point in time. The charges will be smaller since the weaker economic stuff in the reserve portfolios has already been plucked. The way the accounting works, you don’t get to flow the non cash gains back through your income statement and onto the balance sheet in the form of enhanced net worth. Another reason why these charges are largely ignored.

  26. 26
    bill Says:

    I find 9 disappointing as ng hasnt supply hasnt really dropped off despite the rig reductions

    every ng stock i know are reporting higher production rates and the hedges are running out for chk and those that are hedge for 2010 are at lower prices

    CHK is chomping on the bit to sell another 25 to 50 m shares in the 20’s imho. The PXP deal pushes out the need for another 3 months

  27. 27
    bill Says:

    15 lol

    I was thinking the same thing

    whistle blower movie
    If you watched Damages last season, the theme was an evil energy company poluting and covering up with help from washington.

    The evil energy company owned the world killing, (literally) anyone in their way

  28. 28
    zman Says:

    Bill – I agree. Gas would have fallen much more noticeably if the offshore hadn’t surprised to the upside. But that doesn’t matter. Onshore we were only down 0.1 Bcfgpd. This is delayed completions being threaded through the system by operators who have few if any rigs turning to the right at the time. This may go on all summer.

  29. 29
    zman Says:

    Damages = garbage.

  30. 30
    zman Says:

    Bill – at least your guys at PXP know how to price a deal. $24 then $26.60 now.

    HK priced flat on the close at $22.86 and despite the fact that their deal was smaller, and the cash went to them (unlike PXP where it basically went to CHK) their stock is having trouble getting back over $22.

  31. 31
    BossmanG Says:

    Z, did you get to your options rules trading guide?
    Also, come september, october, do you expect ng storage to be filled to the max?

  32. 32
    Nicky Says:

    Oil doesn’t look complete to the upside or dollar to the downside so likely we have only seen i of v up for the indices and we are now in the wave ii pullback. I may be wrong and the rally could be done but until we break 1018 on a closing basis I am not banking on it.

  33. 33
    zman Says:


    No – intermittently working on them

    Yes – “Full” is kind of a wide range in people’s minds. The highest storage of all time 3,539 in 2007. At that time, gas was trading at $8 per MMbtu. People were jumping up and down about record storage. Again, gas was at $8 and when higher into the winter months from there. I think gas goes to 3,700 to 3,850 this year (next 8 to 9 weeks). See more comments on why in the post.

  34. 34
    zman Says:


    Added more KOG at $1.28.

  35. 35
    kyleandy Says:

    z – glad to see add. u have feeling from bop when announcenent is?

  36. 36
    zman Says:

    Kyle – I know nothing. Soon I’d guess.

  37. 37
    zman Says:

    This is my third add with the first two at something like 0.94 and 1.13. Depending on the reaction to 5/6 wells I may add a 4th little tranche.

  38. 38
    bill Says:

    atpg had a mtg yesterday

    here is a report from someone that attended


    you also can read the presntation here


    they have hi debt with 300 m due at ye but plenty of potential

    shorts are in this in a big way

    Its volitile and its a good trading stock if you like doing that

  39. 39
    zman Says:

    And to be clear, I am not expecting a big rally on those results unless they are very good. The last two sets of data were good in my book, and we got BTRSTN action. Could be same this time. Wells 5/6 will serve to prove up some of the center of their acreage, 7/8 are a bit more important by my way of thinking as they step out to the south side of the river.

  40. 40
    zman Says:

    Natixis took ATPG from 11 to 13 today.

    WLL cresting $50. That’s my next oily add on a pullback.

  41. 41
    zman Says:

    UK gets it.

    From newswires:

    In April, the UK government cut the tax rate to 30% from 50% on small oilfields, estimating it could unlock about 400 million barrels of North Sea oil plus an unspecified amount onshore with a view to securing reliable energy supplies.

    Small oil companies say they are likely to increase exploration in the UK’s onshore play, spurred on by low capital expenditure and lifting costs, as well as by a government tax cut.

    Meanwhile, back in the U.S. federal royalities will be going up, lease terms will be shortened and additional fees will be added. Just not smart.

  42. 42
    bill Says:

    Atpg has a pv10 value of 110 and stock is at 11

    got me thinking not all pv10 values are created equal

    obviously producing reserves are the best kind of reserves

    Z..how should one look at these numbers

  43. 43
    zman Says:

    Bill – I don’t often look at PV10. This is the SEC’s valuation method of all the future revenues and costs of their booked reserves (that will serve as production in the future) brought back to the present at a 10% discount rate. First, the number has some issues itself in that it utilizes a point in time price deck for oil and gas held flat into the future. 2) it doesn’t count reserves added since the beginning of the year and would have to be adjusted for those and for production and for any reserves written down. Since the reserves are uniquely their’s with their own cost structure and since they have a high need for development capital and a short reserve life than many companies you can’t really compare them to anyone but an offshore operator which is a pretty small sample size. I much prefer looking at them on a production growth, LOE/BOE, and P/CF basis (although given their debt I’d be using TEV to EBITDA). They do have a lot of potential though, and I’m interested in the story, just not ready to add it yet myself, especially given this run. I missed it and ROSE of late but you can’t kiss all the girls and I’d rather know the story better than I do now.

  44. 44
    Dman Says:

    #8 that jug of water sure looks ugly.

    Z – surface spill? With all the same chemicals as drilling? Not the way I would bet, but anyway it should be possible to get an answer if they investigate it adequately.

    I’m guessing that very little has been done on finding ways to avoid using the nasties, because first they were given the exemption, so why bother? And second, although the new administration obviously has a different view, the industry has been too distressed in that period to be investing in that kind of work.

    Longer term, I would think there has to be a way to get the NG out without using he nasties.

    So there’s a stimulus project for Obama to take credit for: spend some money on clean fracking research.

  45. 45
    Nicky Says:

    Wow you would think we are going to see a bit more market participation than this if this rally is to continue:

    Besides the fact that the S&P 500 P/E on a 12 month trailing basis sits atop a frothy 147… some of Wall Street’s most hated names have accounted for 40% of NYSE volume this week… including Citigroup, Fannie Mae, Bank of America, and Freddie Mac…
    On Wednesday alone:
    Citigroup had volume of 648 million shares, following the 969 million the prior day.
    Fannie Mae had volume of 425 million shares, following the 673 million the prior day.
    Bank of America had volume of 173 million, following the 236 million the prior day.
    And Freddie Mac had volume of 153 million, following the 235 million the prior day.

  46. 46
    zman Says:

    I was just saying surface spilled by the driller. The wells are cased. The aquifer and the gas zone are too far apart for fluids from the perforated pipe to flow into the aquifer (through thousands of feet of rock).

  47. 47
    Nicky Says:


  48. 48
    zman Says:

    It’s the second to last Friday of summer. After the run we’ve had I’m surprised we aren’t seeing more selling. I think a lot of these talking heads are calling for a crash, crack, correction, retrenchment, what have you so they can buy in lower.

  49. 49
    baylor3217 Says:

    Re:48, Don’t forget it’s the end of the month and the mutual funds want to window dress for their clients so it probably goes through the 31st and possibly next until the A team players show back up to work.

  50. 50
    rseidman Says:

    bill: Thanks for your coverage of ATPG.
    Bought some this morningCertainly looks like a good story, time and price will tell.

  51. 51
    bill Says:

    43 makes sense thanks

  52. 52
    Dman Says:

    Z – #46. Now I see what you are saying. Question: is it at all possible that a flaw in the casing (eg at the bottom of the well) allows fluid to squirt back up the outside of the tube & contaminate higher layers? I don’t have a mental model of how the casing is sealed at the bottom to prevent this.

  53. 53
    zman Says:

    Dman – It is cemented in place, will try to find you a wiki page with a diagram.

  54. 54
    bill Says:


    I looked at it a few months ago and passed due to concerns on debt.

    Since then they partnered up with service providers extending them 200m in deferred payments, they sold off 50 % of 1 asset to GE for 150 m, had a secondary and launched a 600 m gathering platform

    What really got me interested was Greenlight Capital taking a long position. Its a hedge fund with half its assets long and half short. They went long on it. Also, there has been a huge rise in short interest. Greenlight shorted Lehman for 5 years prior to its implosion and earned the ire of the great Spitzer.

    So if they get their debt in order, the stock could really move. The ceo said yesterday that a deal is almost 100 % which could be an asset sale or a partner.

    Worse case the banks give them another 6 months to get Titan online.

    Ive take an initial token stake. I dont like the volatility. Yesterday, on a down opening it traded below 10.50, 1 day later its 10 % higher at 11.50. If Monday opens lower it will be back in the 10’s.

    I will buy more on any pullback.

    There also a risk of another secondary anyways, GL

  55. 55
    bill Says:

    here is a link to the manager of Greenlight capital


    you can read about him (David Einhorn)

    aside he came in 16th in WSOP Hold ’em for you poker players..smart guy

    Does anyone else know about him?

  56. 56
    bill Says:

    more on him


    so the guy is notorious for short selling takes a long position 1,750,000 shares of atpg makes me say HELLO

    and the funny thing is this stock is heavily shorted you would think he would be on the other side

  57. 57
    zman Says:

    Dow broke back below 9500. Interesting to see how they close it.

  58. 58
    bill Says:

    sorry if im beating a dead horse

    more on this guy


    I find it all very interesting.. hope you do too

  59. 59
    zman Says:

    Bill – good color. My sense the short is largely legacy, maybe some new stuff on top of it. These guys were once in the not too distant pass seen as toast.

    CPE might be worth a look again to when prices rise and suddenly some projects look economic. If they don’t just die first.

  60. 60
    zman Says:

    Eli – good site on the finviz.com but the version I see is not live. Am I missing something?

  61. 61
    zman Says:

    AAA – check your email.

  62. 62
    baylor3217 Says:

    trying to fill in KOG at $1.26

  63. 63
    zman Says:

    Baylor – I hear ya. I was holding out for $1.20 but decided to go ahead and take a little more today, in case they have something to say early next week. On a chart alone, it looks like $1.20 to me.

  64. 64
    bill Says:


    that’s the reason i like it..things appear to be getting better so no “toast” and those legacy shorts will have to cover

  65. 65
    Jerome Blank Says:

    Re #63, 1.20 is the 20 day SMA and the bottom of the consolidation after the big run up on on 8/13

  66. 66
    baylor3217 Says:

    Options question. When you have a loser that runs down to a nickel or less as the contract is expiring and you can still sell and recoup some of your money, who is actually buying it and why?

  67. 67
    Jerome Blank Says:

    Kog does not go on a point and figure sell signal until a print of .63, which breaks the 200 MA, so longer term good til then

  68. 68
    zman Says:

    Jerome – thanks.

    Baylor – re 66. I’m going to use HK $26 calls as an example of who would be buying a way out of the money call and why.

    Those are HK 26 HKIP, 0.05 x 0.10. There is open interest of 17,769 contracts, the most of any front month contract.

    Who’s buying now?
    1) speculators – I won’t do it because that’s pretty far out of the money now and while I own some, I think it is a stretch that it gets back there. Could happen on news and a few positive days after the news with a fair wind of the market at your back. But its a stretch. I don’t look at the greeks often but I do look at delta which is the rate of change in the option value for change in the stock. Right now that is a whopping 0.07 so a buck up in the stock gets you between 7 and 10 cents most likely. The IV is middling now and that would crank up on news so maybe you get lucky and a dollar higher stock gets you between a dime and 15 cents. Good on a percentage basis but you need a real pop to get there. Risky. If I were adding, and I have this week, I’d add lower. Less deterioration in the premium if it hangs out here, better delta if it does move.

    2) short covering. Call writers can lock in some nice profits here and go about there business or wait 3 more weeks and risk that news event happening. I don’t know if we get news before then. Maybe we do, maybe we don’t. Given that JPM put them on their SMID list today after doing the deal two weeks ago might be an indication that the analyst thinks something is around the corner or maybe he’s just trying to placate irate holders from the secondary with a reiteration. Personally I don’t think that analyst could peddle hookers on a troop ship but that’s neither here nor there. Maybe his partner in the deal at Barclays is getting ready to say something more positive. Dunno.

  69. 69
    elijahwc Says:

    Z – I believe that the forex items are 5 minute charts which is plenty fast for me in those areas. http://www.finviz.com is powerfull stuff. Make your people go there and kick around for an hour or two.

    #55 – GLRE is how you own him. This reinsurer was put together to allow him to manage the general account al la BRK. He’s very good, very hot and also very cold. Wins the Heggie’s tout dinners regularly. Was short ALD for years before the street caught up. Here is a great site institutional insider activity: http://www.j3sg.com Free after registration.

  70. 70
    zman Says:

    Thanks Eli – five minutes is next to live, thought it looked longer but I was looking at oil which has been all over the map today. My live showed big up, their read was 40 cents down. It was just moving that fast. Is the dollar index there or do I have to look at the USE/Euro and do the math?

  71. 71
    john11 Says:

    Eli, its a cool site thanks for mentioning it, been playing around with it.

  72. 72
    RMD Says:

    Admitting my bearish bent to CHK, Z’s #14 and Bill’s #26 point out that CHK has seemingly made a huge bet on gas prices recovering so they can rehedge 2H10. Relative valuations close to other E&Ps suggest to me the St. is ignoring a big cash flow shortfall/debt crunch (?) in 2H10 is prices don’t recover as planned. Another stock deal Bill?? Oh dear!

  73. 73
    baylor3217 Says:

    KOG just won’t get down to $1.26. Maybe I’ll be happy about that later. Got to $1.27 again

  74. 74
    zman Says:

    RMD – same bet being made at SWN. Of course, they can better afford to make it. At some point Aubrey is going to have to get back on the curtailment band wagon and cut drilling back again. He’ll spend about $5B this year…next year who knows but looks like less. That $1B from PXP helps as does his cash flow through year end so I don’t think a secondary is around the corner. Street has gotten damn jaded on growth for the sake of growth given current prices but he’s almost adopted some kind of Stalingrad fall back policy. No debt due soon so no pressing need there. I did notice a change though from 1Q when it sounded like “hey, we can always slow down if prices don’t move up” to “we’re growing hell or highwater”, my words not his and I’m sure I’ll get an email on that one from one of his guys but that’s what I took away. “why curtail when no one else is?” yada, yada, yada.

  75. 75
    zman Says:

    Rig Count Watch:

    Oil up 6 to 286, vs 416 last year
    Gas up 4 to 699, vs 1606 last year

    Horizontal up 1 to 429 vs 626 last year

  76. 76
    zman Says:

    Dman – Wyoming or TEXW might want to address the frac fluids in the water well issue. Or they may just say ugh. Here’s a diagram.


  77. 77
    hoggzilla Says:

    re: ATPG
    I am certainly no expert but
    I have been following them for the last 10-12 months. From my perspective the main concern is whether they can get Titan (their new deepwater drilling facility) deployed on time. They are planning to have it installed and producing from Telemark sometime in the 1st quarter 2010. If the deployment or production is delayed more than a few months they will likely run into problems with their debt covenants. Even then, I expect the lenders will have some flexibility with the covenants as long the Telemark production is still expected.

  78. 78
    elijahwc Says:

    Z – ThomsonOne

    They distribute forex with the equity trader platform. Mine is one of the subtabs under Market Overview and titled “Forex”.

    Do you see it?

  79. 79
    Dman Says:

    Thanx Z, nice picture.

  80. 80
    zman Says:

    My rant for the day: asked via email about that peak oil article from earlier in the week.

    I read that earlier in the week. He’s misinformed. He needs to re-read Twilight in the Desert by Matt Simmons who he alludes to but obviously doesn’t buy off on.

    I believe in “peak at price.” So the higher the oil price, the higher the peak. Obviously we have a finite amount of hydrocarbons and the more capital/technology applied, the greater the recovery factor. But his comment about Gwahar shows he an academic. Not being concerned a rising water cut in the country’s biggest oil field which is 50 years old is complacency/arrogance at its finest. Yes they are doing massive water floods. And after that, what CO2? They are very cagey about their reserves there with good reason. Tell people you aren’t the axe they think you are and see your position fall down the totem pole.

    Even with capital and technology currently available you get situations like Cantarell which has driven Mexican production for years only to suddenly rollover, faster and more sharply than expected. Mexico has spent billions trying to keep volumes from Cantarell up … to the extent that total Mexican production will fall only 15% per year. Ouch. That’s our number 2 or 3 (depending on the year) supplier of crude probably shifting to net importer status in the next five years because low oil prices don’t replace mega fields. Chicontepec, the next great hope down there is having troubles.

    I could go on but again, the guy is from MIT, so how can I be right? He’s probably friends with Chu, Sect. of Energy, who thinks we we shouldn’t be drilling everywhere we are now, let alone off Florida or on more of the Federal lands but at the same time states that increasing taxes on domestic E&Ps will help us “get off foreign oil”. I have seen a number of articles of late from the left saying there is a lot of oil around but that natural gas from the shales is substantially less than believed by the various reserve engineering firms. I ran the last one of these claiming the reserves were much lower than expected in the Barnett by some guys at Simmons with geo degrees and they came back with horse pucky, bad research, etc on his work. Menawhile, Hillary is in Angola telling them to step up production. So much for getting off those foreign barrels.

    Lastly, I recall Pelosi saying $35 per barrel was enough to inspire drillers to drill. And this guy says $30. Wrong. Our number one supplier is Canada. Oil sands lifting costs are above $20 per barrel and then you have G&A, taxes etc and that’s just operating costs, not the up front capital needed to get your hurdle rate to a place where you’d do the project in the first place. The deepwater Gulf of Mexico is lower cost but the risk is much higher. The Bakken is great play but really not economic under $50 even as transportation costs drop as capacity via pipe and rail is expanded. But the startup of that boom was advanced by those willing to pay as much as $25 per barrel to truck oil all the way down to Cushing. If you have to pay that much for trucking and another $15 for lifting, $30 is not going to cut it. These people are not qualified to make those kinds of economic calls. Very frustrating

  81. 81
    zman Says:

    Eli – yes I do. Thank you. I probably don’t use half of Thomson which is unfortunate because they seem to bill me for all of it.

    Anyone have a movie quote, my mind is blank today?

  82. 82
    baylor3217 Says:

    why in the hell would someone see value in buying AGI up here?

    That fits into the old axiom that the market can stay irrational longer than you can stay solvent theory

  83. 83
    zman Says:

    Dunno but I can tell you one area where insurance isn’t going to be collecting premiums this summer. Gulf of Mexico wind. Majors, E&Ps and oil service (quite a few of them) have canceled their wind policies for this Hurricane season.

  84. 84
    BossmanG Says:

    Z, enjoy your rants! thanks

  85. 85
    zman Says:

    Petra needs something to do so if you have a bio you want to send mail it to zmanadmin@gmail.com

  86. 86
    zman Says:

    Ok closes on HK, NFX, CLR. Nothing to write home about but at least green. Market itself didn’t fall apart as many hoped/feared either. Oil close to $73, hanging in there. NG = Ugh, down 18 cents at 3.03 … not much to keep it from going lower in terms of heat or tropical action.

    Beerthirty. Have a good one.

  87. 87
    choices Says:

    AIG shorts getting crushed-may indicate hedge fund blowups and subsequent de-leveraging, none of it good.

  88. 88
    elijahwc Says:

    re: ATPG I borrowed this from another service I subscribe to:

    Related quotes »
    (20+ minutes delayed)
    ATPG 11.48 3.42%

    ATPG analyst breakfast —

    Notes from ATP Analysts’ Breakfast

    I attended the analyst breakfast this AM at ATP’s Houston office. The meeting was very well attended and about half the crowd of around 40 had been at the Titan christening yesterday. From what I gathered most of those were the bankers that have financed ATP’s ambitious expansion plans. The large group of bankers mostly from Credit Suisse seem to be very involved in the process of bringing Telemark onto production in 1Q of next year. This seems to be a good sign that they would be willing to have some flexibility with the debt covenants since they are very aware of the eventual reward at the end ATP’s transformation into a major deepwater producer. This presentation was focused solely on Telemark and did not involve any discussion about the North Sea projects or financials. The presentation was largely technical in nature which was right up my alley. Being a Geoscientist from a competitor of ATP’s was kind of like letting a fox in the hen house. I asked a lot of questions the analysts would never think of and I came away with a much better feeling about the upside potential of their reserves at Telemark. The plan is to put the Titan over the Morgus/Mirage fields and produce those reserves before moving to Telemark in about 4 years to produce the remaining reserves there. With the potential upside reserves and possible tie-ins from future discoveries I have a feeling that Titan will stay much longer over Morgus and we could see the Mindoc II built to finish up at Telemark or deploy to some other remote asset in the Gulf. They did not suggest any such thing but this is my instinct from working assets like theirs.

    ATP started the meeting by discussing the monetization of assets and ended the meeting talking about that as well. Obviously, the only way to pay off the $297M of debt by the end of the year is to monetize something by then. The Titan hull is worth at least $600M so selling half of that works out perfectly. CFO Albert Reese was very confident that they could monetize the Titan very easily. In fact he stated “the chance to monetize the pipelines, Titan and Octobuoy are as close to 100% as you can get.” They are likely working on a deal on the Titan right now and the indicated GE was not the only company interested. At the end of the meeting COO George Morris stated that no one would finalize the deal before the Titan was actually on location at Telemark and it was fully hooked up and ready to produce. The companies like GE that are interested in owning production assets are not interested in taking any of the risks of constructing and deploying those assets. Fortunately, the Titan is on track to be ready in November but delays are common in deepwater construction. I asked if production was delayed 90-180 days would they run afoul of their debt covenants and Mr. Morris gave me a nervous “maybe”. They are keenly aware of the situation but there is not much they can do about it other than manage the deployment of the Titan to the best of their abilities. With most of the bankers sitting in the room I suspect they will get some flexibility with the debt covenants since on one would benefit from calling that $297M debt a few weeks or months before it could easily be paid in full.

    ATP spent a great deal of time discussing how the development of Gomez and the ATP Innovator has steered the company towards their current business model of building hubs in remote areas of the deepwater Gulf. In 2003, ATP bought the Gomez field which was thought to be a one well, one block (offshore leases are divided into 5000 acre blocks and leased from the Federal Gov’t) development with about 15 MMBOE (million bbls of oil equivalent). The next year, ATP was able to flow test the well and it flowed at a rate many times what ATP initially assumed. This significantly expanded the scope of the project and spurred ATP to purchase the Innovator rather than lease it as they had planned. The Innovator needed significant upgrading to handle the larger production volume and it was going to be in a remote location with no pipelines so it would be a strategic hub for other producers to tie their discoveries back to. The next year ATP purchased the two adjacent leases to the north of Gomez so that they could protect their asset from potential competitors and possibly drill additional prospects on those blocks. The very next year (2006) they achieved first production and by the end of the year they were able to add 7 MMBOE of proven reserves based on the performance of the 2 wells that they had online. After that they added a third well, acquired an working interest in 2 ¼ nearby blocks and sold a 49% interest in the Innovator earlier this year. As of June 30th they had already produced the initial 15 MMBOE estimate and they now have an additional 41 MMBOE of probable reserves remaining in the field. Additionally, a number of discoveries have been made near the Gomez hub by other operators (including one I’m involved in) and those discoveries will likely be tied back the Innovator. ATP will receive substantial fees from those operators to process their oil on the Innovator and put it into the pipeline. The great hope is that the Telemark development turns out as successful as Gomez. From the technical work I witnessed today I would say that is a likely outcome.

    The rest of the presentation was focused on the technical work at Telemark. Ironically, the Titan will be moored at the Morgus field to the north of Telemark and Telemark will initially utilize a single well with a subsea tie-back to the Titan. It is expected that 4 years after commencing production at Morgus, the Morgus/Mirage fields will be depleted and the Titan will move down to the Telemark field to drill 3 wells and produce the remaining reserves there. In reality, it is likely the reserves picture will dramatically increase at Morgus and Mirage and the Titan will need to stay there much longer. If everything goes well I suspect they will start construction of a second hull to produce Telemark and future similar opportunities in the deepwater.

    The Mirage field is in the adjacent block to the Morgus about 10 miles NW of Telemark. Mirage has two proven pay sands that have been well delineated but it has deeper potential sands that have not been drilled and are found productive in the Morgus field to the west. Diamond Offshore is currently drilling through the proven sands and will be drilling ahead to test the deeper potential in that block. Next door at Morgus only one sand is found productive (which is the deeper potential sand at Mirage) but the size of the reservoir is not fully delineated. The discovery well has a very nice pay sand that is filled to the base and the delineation well drilled too far down dip to find the oil water contact. Since the oil water contact is unknown, ATP can only book proven reserves to the base of the sand in the original well. Also, they can only carry one sand thickness (about 150’) down structure as the probable reserves even though there is some seismic evidence that the oil water contact is much deeper. That means the reservoir at Morgus could be much larger than what is on the books. Additionally, there is an adjacent fault block to the east that is untested which is highly prospective since it sits between two known productive fault blocks. The next fault block to the northeast sits on another lease and is known as the Crosby field. Shell is producing that field right now and flowing it back to some facilities they have way to the north. This untested block could add a substantial amount of reserves to the Morgus field if it is productive. They would likely be testing that fault block in a couple years once they have some cash flow and the debt is under control. Further to the east is the Oasis prospect which they apparently don’t have any timeline in mind to drill. I wouldn’t be surprised to see them drill that one along with the untested fault block at Morgus in a couple years. They could find a partner to drill those exploration wells to mitigate some of the risk.

    The Telemark field to the southeast is a much more complicated development and will eventually require the Titan or some other facility to fully deplete it. The entire field is underneath a salt canopy which makes it very hard to seismically image. It was discovered in 2000 by Texaco and only one fault block has been tested. Texaco found 12 thin pay sands on a very large structure and could not fully delineate it with their wells. That means like Morgus the oil water and gas water contacts are further down structure than what is booked to the field. Significant upside exists in several pay sands and of course on the adjacent fault blocks. ATP will only drill one well at first to produce the deepest sands which have oil in them. Once the Titan moves down to Telemark then 3-4 additional wells will be needed to full develop that field. ATP recently picked up two adjacent blocks at the last lease sale but they said the structure at Telemark spills over onto those blocks so they are buying them to protect themselves from someone else drilling into their field on the adjacent lease. Like I said, with the upside at Morgus/Mirage the 4 year estimate to move down to Telemark is unlikely IMO.

    It is worth mentioning that once the Titan is producing it will take 6 months to ramp up production to full capacity. The Titan will initially produce about 6000 bbls/day and some gas then ramp up as additional wells are hooked up to the facility. The max capacity is 25000 bbls/day and another 30 million cu. ft./day of associated gas. The Titan will produce at max capacity for a couple years then start declining for a couple years before it becomes uneconomic to keep producing and it then moves to Telemark. Of course, if some of the upside reserves come to fruition it will stay at max capacity much longer. The presentation shows the production profile of Telemark along with maps and logs of the fields. It well worth reading if you have the time after this lengthy post.


  89. 89
    bill Says:

    ty for 77 and 88

  90. 90
    bill Says:

    on 88 you might got that from z in msg 38 , lol 🙂

    I knew that sounded familiar

  91. 91
    elijahwc Says:

    Very interesting. No this is from a site of very vetted pros. the interesting part is that your reference is a better fit. Thanks.

  92. 92
    RMD Says:

    re#74: email or paraphase CHK’s comment if you et one. I don’t think SWN is really comparable as they have lots less debt vs. CHK. It’s the debt vs. SWN’s much smaller debt and the increasingly unhedged position which makes CHK exposed. OK, that and he lost big once before, but maybe 12/08/08 at9.84 counts as the second time so we are finished. But the nagging (long term) thought persists that is nat gas does NOT recover, CHK has a big problem. Late night museins…

  93. 93
    zman Says:

    RMD – that was kind of my point. SWN low debt and largely HBP so they are not forced to keep rig count high. CHK higher debt, scrambling to monetize assets to fund capex, and gotta keep drilling or will fall behind on leases in nw La. Both sets of management think you get a recovery in gas prices into the $7 to $8 in the not too distant future and you will not see SWN bumping 2010 hedges until we are substantially higher on gas according to their last couple of conf calls and presentations.

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