Monday Morning Asian Flu

54 thoughts on “Monday Morning Asian Flu”

1. TPH saying other pressure pumping names will receive BJS deal glow today. My sense it will not be lasting. They put SWSI, RES and a couple of Canadians up there. Say there is still too much capacity in pressure pumping (true enough). Which is why those moves likely peter out quickly. They say HAL likely long for them which is a bit counter intuitive since HAL will likely be seen as one of the names that will be doing the shopping should we see more service mergers. I still think its a bit early for that and with gas prices so, so, so weak we should see rigs rollover in the U.S., again, and gas leveraged HAL trade lower with them.

2. I put West’s comments on KOG last night on the KOG Reports tab.

3. Oil fought off one attack on $70 that was accompanied by some pretty heavy volumes. Seeing stories out claiming oil is lower on inventory fears for this week’s numbers. Bahhh. It’s Monday and Shanghai fell by the second highest amount in a single day in 15 years. That is why oil is down and why the futures are down.

4. BOP is on vacation, have a feeling its going to be a quiet week.

   I may take some BHI puts but will wait for their post merger call stock reaction. BHI has had a tendency to miss targets in the past, and while they’ve given themselves 2 years to make the deal accretive I could see how a re-rollover in the U.S. natural gas rig count could send them a bit lower. Mulling.

5. NG down below 3 and 29 % for the month of august

6. Bill – yeah, the temptation to hedge the winter strip must be increasing.

   Oct: 2.96
   Nov: 3.98
   Dec: 4.83
   Jan: 5.13
   Feb: 5.21
   Mar: 5.20

   The following is not normal. Usually your summer swoons a bit following the seasonal winter peak. This is the gas market realizing that conventional gas production will continue to slip and that current prices will not be inspirational enough to warrant attempting to offset said conventional slippage via unconventional (shale) drilling acceleration.
   Apr: 5.21
   May: 5.28
   Jun: 5.36
   Jul: 5.68

7. Chicago PMI came in just now at 50% vs 47% expected and 43.4% at last reading. Market tried a little mini rally but seems unimpressed.

8. ZTRADE:

   WLL – Added WLL $50 Call for $1.60 with the stock at $48.60, down 3.4% in a weak market. Tiptoeing into one of the cheapest E&Ps out there, big Bakken focus, with a feeling that the end of $65 to $75 is not here.

9. NG quietly working up off the morning lows, back up to 2.99. Probably the influence of 94 L.

   http://weather.myfoxtampabay.com/maps/WTVT/custom/sat_atl.html

   If you click animate you can see it getting better organized. Tracks are consolidating on a more westerly course now than Bill and Danny.

10. BHI owned BJS before ’91 and then sold them due to a scandal involving Parker (pre PXD) leases out in West Texas. Funny how this oil patch is!

11. right, before Mesa.

12. Oil broke $70. Mondays.

13. z here is a good article for you

    http://files.irwebpage.com/reports/shipping/0JNLMEbK8I/WeberWeekly35.pdf

    U.S. politicians must
    muster the courage to scrap the fable of energy independence once
    and for all. If they continue to lead their people toward the mirage
    of independence and forsake the oasis of interdependence and
    cooperation, only disaster will result.”

    the US political
    elite continue to create an adversarial relationship with oil
    companies (i.e. threats of taxes on windfall profits, accusations of
    price gouging, et cetera).

14. Thanks Bill, will give me something to do today. Shamwow boring. Volumes in most of my names are pathetic and levels are for the most part holding the opening gap down.

15. From the compliance office challenged:

    If we were to look back 4 – 5 months ago and tried to predict production and supply, might you not be surprised today at the persistent supply and the resilient production numbers. What is your biggest fear – concern for E&P space to continue to underperform going forward?

    a) yes. A bit. I would have figured conventional gas production declines would have been more apparent outside of Texas (where they have been). The number of previously drilled but not completed wells is high. E&P companies have made guidance projections which they want to keep and cost projections which they also want to keep. The first despite low prices and the second because of low prices. This means drill a little but complete more of your inventory. As we move into the later part of the year conventional projection declines HAVE TO show up in the data. Conventional production is north of 80% of all gas production in the U.S. It doesn’t grab the headlines but CHK produces a lot more gas via 2 MM/d producers than it does via their 20 MM/d monster big brothers. So it’s not if but when and that is clouded by the uncompleted inventory.

    Re E&P underperforming. Hmmm. XNG up 24% ytd, SP500 up 14% ytd. I don’t think that is too shabby with natural gas off 50% on the year. My biggest fear would have to be a warm winter and/or industrial demand not coming back. See post on Industrial above and not the size of those swings. Industrial demand in the past has been price elastic and normally, you would have had everyone from Dow to Agrium to Nucor upping their intake of gas to scoop the low prices. Not so far, at least as far as the June data shows (with demand down over 2 Bcfgpd from June 08 to June 09). Note however that for the injection season to date we are only off 1.1 Bcfpgd cumulatively. That just about has to be improved industrial demand as the economy picks itself up, if somewhat slowy, it is still picking up. So I guess a warm winter is the biggest problem out there from a “things the companies can’t control” standpoint. From a “things they can control” standpoint, I’d worry about a willingness to go deeper into debt in an unhedged 2010 environment with weak prices to protect acreage for the “long view”. CHK may do this. If we get a double dip at the same time it will be hard on the names that go there.

16. will we have another round of bank line redeterminations?

    http://www.bloomberg.com/apps/news?pid=20601103&sid=aUUb6bjxZqCY

    3 ng might affect guys on the edge

17. Is this another buy the dip situation?

    Seems to have been the MO for months. Oil down almost 5%. The last two times this happened in recent weeks, it quickly ripped to the upside.

18. Bill – sure, if gas stays $3 we will see a return to negative redeterminations in October/November. Which is why a lot of folks have done deals over the last three months to raise cash to kill off their revolvers. Probably need to take a look and see who hasn’t done it yet and who is gassy and unhedged.

19. Baylor – Yeah, still has that same feeling. Get the shorts excited and then shut the door on them. Oil is down due to China. Sets up a little easier day for Wednesday when we should get some pretty solid looking products demand numbers (gasoline and jet fuel for vacation travel and what looks like a pickup in demand from trucking – I keep getting told truck traffic is picking up, sure would make sense that it show up in the diesel numbers).

20. Pretty rare when you see a multi billion acquisition not spark some excitement in a group. OIH down 3%. Only BJS, the acquired, green.

21. NG back above 3 (barely). It’s all due to 94L. I’m around if anyone has anything, just doing some reading on a very boring end of summer Monday.

22. Not even CNBC working today. They keep playing the Leaseman / Dudley interview over and over.

    KOG off to 1.25 on ok volume, saw 1 big buy earlier at the bottom. News is thought to be out there on wells 5/6 any day now.

    Barclays kicks off Fall conferences next week with their Capital CEO Energy/Power conference. I’d expect to see HK give a presentation there but have not seen the pr yet.

23. BOGA files Ch 11

    http://www.baselineoil.com/

24. Compliance Challenged: thanks for #15. Thoughtful,as I don’t think the market is considering the downside for those co.s who might be getting it wrong here. Of course if they are wrong, then the June-July ’10 strip is wrong at $5.36-5.68 too.

25. One thing that will help with demand this winter. Utilities are beginning to request rate reductions. Puget Sound Energy today requesting a 17% rate reduction, taking residential gas rates back to 2005 levels.

26. RMD – yep. Combine that with Bill’s comment re redetermination season and you probably have your short list for the Fall. Anyone unhedged with a big piece of their line tapped and gassy is going to get stepped on or is going to have to float debt or shares.

27. Nicky – Joe T on CNBC saying he’s on the sideline with oil, “I’m not saying to short it” but the tape is telling you its going lower.

28. Dollar index bounced off 78 earlier, now down 0.35% at 78.08. Looks weaker to me but it refuses to break down.

29. back to 15 and 24: DB wieghed in with the short term conundrum;
    Would $4 gas be bearish (because it’s low), or bullish (b/c it’s above $3)?
    In light of the bleak storage outlook (see Figure 1), one of the clients we spoke
    with this week likened the current natural gas situation to a “slow-motion
    trainwreck–” everyone knows prices are in trouble, but there’s not much to do
    other than just watch. The paralysis is compounded by the recent rally in E&P
    equities, as we just hate chasing the stocks (even though the contrarian in all of us
    says “buy E&Ps when gas is below $3”). To wit, while the stocks aren’t “cheap,”
    it’s hard to imagine them underperforming once storage begins to actually decline.
    Our answer is to be selective…
    (Selective = only those which outperform from here.)

30. Just got sent a DB piece saying they see gas storage topping out at 4.05 Tcf. I’m sticking with my 3.7 to 3.85 Tcf target. I think a lot of the Street is moving to the 4+ target.

31. Afternoon all.

    This move looks like a zig zag off the highs(ending diagonal?)and to me looks corrective and therefore I think another high is still out there. If c = a then the target is 1014, lower support is at 1006.

    Same pattern for oil which I think also will resolve higher. If a lower level is needed then 69, 67.50 are support levels.

32. re 26: Who would be on your watch list?

33. Nicky – Your boy Terranova sounded about as bearish as I can recall on oil earlier.

34. Occam – working that up now.

35. Z re 33 – that figures when he told everyone it was a raging buy as it hit 75 last week! Seriously how does this guy make any money trading oil = he flip flops literally every day. I just don’t see how he can turn from being a raging bull based on fundamentals a few days ago to now being bearish. If he really believed his call of a few days ago he would see this as a buying opportunity. Instead it has spooked him. The sell off in energy today is just a reflection of that overnight move in China imo. As with the indices I still see another move up in oil.

36. Nicky – could not agree more. China down big = market down and oil down big. Nothing more than that to explain today. Did not know he said long at $75 but since it hit to the penny and then richocheted lower it was pretty obvious it was just profit taking. It could get out of hand and break some TA levels but nothing really changed from a fundamental standpoint with last week’s data and we are seeing the beginnings of a pick up in product demand. Need to see more for me to get enthusiastic about prices over $75 but the $65 to $75 range will do quite nicely for the oily names. He actually was speaking bearishly with oil at the LOD near $69 and we are setting to close closer to 70.30. Good indicator that guy is, lol.

37. Wow. Joe Granville on CNBC saying market will go straight up next two years. Says both September and October will be good (up) months. Wow.

38. NG trading limits deferred on NYMEX-large hedge fund complained.

    http://www.ft.com/cms/s/0/f31781fc-95c4-11de-90e0-00144feabdc0.html?nclick_check=1

39. Thanks Choices. Interesting, sounds like they are going to wait until the CFTC rules in Sept or Oct.

40. Energy just drifting, approaching LOD on many names with 1 hour to go in the day.

41. Having a plan for energy needs helps:

    PTR buying into Canadian oil sands projects:

    http://www.reuters.com/article/marketsNews/idAFN3123351120090831?rpc=44

42. BJS – up less than 4% now, with a 16% deal premium announced. Just not a very attractive deal all around in my book.

43. BEXP Bakken news out, will have it in the post tomorrow.

44. Deals heating up, PXD on the tape monetizing some Spraberry reserves.

45. Problem with BOE or MCFE

    From an investment perspective, BOE and MCFE are meaningless. The ratio between the cost of a btu from oil and gas varies so much that it is impossible to tell the value of an asset reported this way. One needs to know much oil and how much gas have been aggregated. I realize that most E&Ps have both, and that it is more trouble to report on both classes of assets, but why can’t they report the percentage that is gas or oil (and NGL, if significant)? If they arrive at the composite number based on price rather than btu, then it is important to know the price points at the time as well.

    Just as an example, look at the BEXP well result reported today. One service listed it as initial production of 1882 boe. That is true on a btu basis, but using current prices, it is really only about 1676 boe equivalent, and that is assuming that they can get as good a price for the gas as for the oil compared with futures market prices.

46. Typo in previous post, boe equivalent for BEXP based on cost would be 1686.

47. Occam – In the Qs and Ks and the quarterly press releases they report oil and gas production broken out as such. Most people reporting IPs on new wells will also list oil in bopd, and gas in Mcfgpd, occasional you get the water as well bwpd. In the Bakken, the wells are predominantly oil and although the gas will come into play as gas gathering infrastructure is expanded. When I model a company I used both. As far as the composite number Mcfe or BOE goes, that is purely a function of volume, nothing to do with price.

48. 6 to 1 is the accepted convention. It’s not done on price. All we care about is cash flow so oil barrels times oil prices less differential and same for gas. IPs can be distorted and a longer history is important. Generally people accept that a bigger IP means more recoverable reserves but this may not in fact be the case. Also, you can have bad or partial frac and the IP won’t tell you much about the reserves that could have been recovered from the well, especially if the well is just one of many that will ultimately be drilled on the acreage.

49. pxd sold proved reserves at about 10 per bbl ..thats kind of light isn’t it?

50. bexp up 10 % ah

    http://www.reuters.com/article/marketsNews/idAFBNG46421620090831?rpc=44

    how does this play with the useg deal last week

51. Bill – it goes back to the old adage “a barrel is not a barrel is not a barrel”. These reserves are in older, mature fields unless I am mistaken so you are talking water floods to get more barrels out of the ground so it translates into higher lifting costs. Two weeks ago I used $15 per barrel for some Bakken reserves which were all upside on the KOG acreage. I felt this was pretty fair for risking and for the costs to get that acreage developed, so $10 is probably about ok for these as an “in the ground” valuation.

    I’ll have comments out on this deal and the BEXP results in the Tuesday post. Glad to see the news trickle increasing a bit. Look forward to an increasing flow as we approach the end of Summer/end of quarter/Fall conference schedule.

52. thanks

    good explanation

    i always thought 15 was a good number

53. Bill – I’ll have more tomorrow but you also have to consider that they sold it to an entity in which they have a majority interest and it will essentially allow them to bump that drilling program which was planned to go from 0 now to 10 to 12 by year end by another 2 rigs. Win/win. Should be viewed well. Haven’t run a p/CF on it yet (they said production was 1,300 boepd off the sold and gave the oil/gas split so I’ll wing one) but I’d bet its a pretty steep multiple, definitely bigger than the skinny multiple PXD trades at. Again, win/win. Should boost PXD tomorrow, market willing.

54. Asia slightly higher, crude back over $70

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