23
Sep

Wednesday – Fed Decision, Energy Space Heating Up

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Sentiment Watch: More energizer bunny action in the markets yesterday. I notched my cash position back up. Market looks to be in "waiting for the Fed mode" until 2:15 pm EST when the Fed will likely do nothing but issue a slightly re-worked statement indicating it sees further improvement in the economy (based on Ben's recent comments). In energy land, we saw deals after the close at (ATPG) (how can you blame them given the run?) and an interesting acquisition by (SD) where it  appears they got a steal (see details on both below).

National Energy Summit Watch:  An energy summit that promises to talk about hydrocarbons actually having a role in fulfilling future U.S. energy needs! Say it isn't so.

  • Conference Agenda
  • You can catch the webcast here including a presentation by Secretary of Energy Chu's at 2:30 pm EST today, who I would assume will once again refer to the U.S. citizenry as unruly teenagers, incapable of understanding the complexities of green energy.

In Today's Post:

  • Holdings Watch
  • Commodity Watch
  • Oil Inventory Preview
  • Stuff We Care About Today - BEXP, ATPG, SD, FXEN
  • Odds & Ends

Holdings Watch:

  • $10KP II:

    • $22,600
    • 59% Cash
    • The Current Holdings Tab is Updated.
    • The $10KP II Spread Sheet Tab is Updated.

 

  • Yesterday's Trades:
    • DPTR – Sold 50 (all) $2 October Puts (QHRVI) for $0.30, up 86%, with the stock falling through $2.
    • APC – Sold (10 – all) of the APC October $65 Calls for $2.55, up 40% to my average cost. I continue to hold the $70 strikes here but didn’t need a 10% position going into inventories today. I may add this back in the morning if we see an unexpected build in crude stocks and the group weakens. These calls were taken after the Venus discovery and doubled on group weakness and prior to the Horn River announcements by their competitors over night.

Commodity Watch:

Crude oil jumped $1.83 to close at $71.76 yesterday on the November contract which takes over as the prompt month this morning. After the close, API released somewhat bullish numbers, at least from a products standpoint showing a surprising jump in distillates demand (see details below). This morning crude is trading down slightly.

  • Dollar Watch: Looks ready to break support at 76.

Natural gas inched up 3 cents to close the day at $3.61. This morning gas is trading up five cents.

  • FWIW Watch:

"The coldest winter in a decade may be on the way," meteorologists with the private forecasting firm Commodity Weather Group, wrote in seasonal winter outlook released this week. The forecasters noted, however, that it is still too early to predict winter weather with a high level of confidence.

 

Oil Inventory Preview


API Watch:

  • Crude: Up 276,000 barrels - the result of a small recovery in imports and a modest retreat in refining capacity utilization.
  • Gasoline: UP 3.815 million barrels
  • Distillates: DOWN 1.882 million barrels - API attributed this to a sharp rally in demand. If that is reflected by EIA today that will likely be more important than the drop in gasoline demand. In the after hours market this surprise decline boosted HO pricing. 

ZComment: Last week we saw refining output remain strong for a surprising third week as refiners made one last products push before the fall maintenance season and announced additional curtailments (due to weak margins) come into play, suppressing crude demand. At the same time, we saw imports fall to seasonal lows. The reversal of one or both of  these could easily set up a large miss on the top line crude inventory number with today's report and I took a more conservative stance 

Stuff We Care About Today

BEXP Williston Basin Presentation Comments From Last Night's Call

  • 660 Net Potential Locations in the Parshall/Austin/Sanish / Ross / Rough Rider areas
  • Large extension acreage areas including Montana would potentially double locations

    • Montana - very encouraged - about to start drilling in their Ghost Rider area.

      • 89K net acres
      • Already know its prospective for the Red River
      • But they think it is highly prospective for Bakken, TFS, other objectives
      • EOG spudding a well in the area soon, think this will be a Bakken test
  • Rough RiderArea
    • 94,800 net acres
    • Brad Olson Well - currently fracing, very excited, first 28 stage well they have done. It will serve as a good model for infill drilling as it offsets the Olson well by about a mile.
  • 3Q looks ahead of guidance due to well outperformance. Estimates will be coming up out of this meeting.
  • Three Forks has them "very excited"
    • They have seen some competitors frac in a very simple way in their Rough Rider area with strong results (500 bopd but done with a simple white sand frac)
    • Depositionally very similar to Middle Bakken, shale interspered with Dolomites
    • > 70% of TFS by volume is oil bearing.
  • Lower Bakken shale - oil generating zone. The Lower Bakken is thickest in the Williston in their Ross area - so generating more, much thicker than it is in the Parshall Field which has been the home of many of the biggest Bakken IPs seen to date. The Ross area is where their biggest well to data (the Anderson 28-33) was drilled. Anderson well now with over 30 days of production, strong IP, looks like about ~ 1,100 BOEpd
  • Completion Cost Comparison:
    • 2006: single frac, $3.5 mm, 127M BOE
    • 2007: 7 stages, $4 mm, 236M BOE
    • Late 2008: 12 stages, $4.4mm 411M BOE
    • Early 2009: 20 stages, $6.1 mm, 500M BOE
    • Mid 2009: 24 stages, $6.25 mm, 700M BOE
    • Late 2009: 28 stages, $6.3 mm, Don't know BOEs yet, these should be announced within the next month. 
      • Brad Olson - completing
      • BCD Farms - later this year complete
    • Takeaway: 80% increase in reserves for a 35% increase in costs. Some of these wells are a mile apart but you see double the reserves due to the longer lateral, increased number of stages with same or shorter interval between stages.
    • There has been a 45% reduction in cost of a drilling a long later well with 24 frac stages over the last year.  
  • Reserve Bookings - Think they can add significant proven undeveloped reserves in adjacent sections beginning with this year's reserve reports. This means adding Proven Undeveloped Reserves to the reserve report without spending any money actually drilling. Later they will focus on PUD conversion.
  • Drilling Plan 2009/2010
    • Rest of 2009:

      • Brad Olson - completing now
      • BCD - just TD'd
      • 4 more wells between now and end of year, with USEG. Helps to delineate their Rough Rider acreage as the wells are dispersed over this acreage, much of which is on a short fuse as far as leases go.
        • spud first 2 in next 2 to 3 weeks - Strand andf Lee
    • 2010:
      • was 10 wells as of May
      • USEG adds as many as 9 wells
      • Now planning 13 net wells 
  • Nutshell: Good, data riddled update on their current thoughts. The Q&A was not broadcast which is unfortunate. They are essentially guiding 2H09 production higher now due to better than expected well results and they should have well results from two more wells, both 28 stage fracs, in the next 30 days or so.

 

ATPG Raises Cash ...

  • 6.1 mm shares (if you include the green shoe), at $20 after fees that would probably net the company about $100mm. This represents 13.6% of current outstanding shares. Primary use of proceeds for capex
  • $78 mm asset sale pipeline sale ... this sale was planned and delivered in a timely fashion.
  • $125 mm Convertible Preferred with option to beef up the deal by 18,75, same uses as outlined above.
    • The three transactions will probably raise total cash of ~ $300 mm
    • Net Debt to Equity at the end of last quarter was 69%
    • This should help alleviate some concerns there as they pile up some additional cash from the monetization.

...And Updates Operations 

  • They better defined pay at a downdip location at a previously disclosed discovery, not really much of an increase in the data
  • I find the lack of detail on two other wells a bit odd.
  • Lastly, they are taking 3Q guidance down by 1 to 2 Bcfe, or 10 to 20% of 2Q production levels of 9.339 Bcfe, impact due to a delayed allowance on commingling and a voluntary reduction of . 
  • 4Q guidance is for a recover

Valuation:

  • Pro forma the deal they should be trading at about 4.5x 2010 EBITDA which isn't expensive.
  • At mid year they disclosed their read on proved and probable reserves. While you can disclose this I thought it odd they are using a non-standard measure to describe reserves at the mid point of the year without going on and describing what the by-the-book, proved reserves were. It is a less than conservative way of looking at the numbers that leaves me with a funny feeling. I'm not playing.

 

M&A Watch

SD Picks Off Crusader For A Song

  • The Deal: $230 mm to take Crusader as it emerges from reorganization (they filed in March)

    • max of $85 mm in cash
    • If they go with max cash, shares issued at $13.45 per share for the balance would yield an additional 10.8 mm SD shares or 6% of shares currently outstanding
  • Crusader ... Where Were They?
    • Anadarko Basin and Central Uplift - 262,000 net acres, Granite Wash potential here.
    • Permian Basin -82,500 net acres - nice geographic overlap
    • Barnett Shale - 76,000 net acres
    • Delaware Basin - CHK working around this area, trying to make it economic
    • Val Verde Basin
    • and the Bakken of the Williston Basin. Ahem. 23,500 net acres. Crusader was partnered with XTO and CLR here.
  • Crusader Stats:
    • Production for 3Q08 (last filing) was 2.9 Bcfe (75% gas) (vs SD's26.6 Bcfe last quarter)
    • Reserves at mid 2008: 195 Bcfe (which puts this at the dirt cheap end of the scale for reserve acquisitions at $1.18 per Mcfe on a prove alone basis).
    • The estimated 2P reserves (proved + probable reserves) at 447 Bcfe last September
    • 465,000 net acres in the aforementioned plays.
      • 12,800 identified drilling locations
    • LOE had increased substantially in recent quarters but was still barely over buck, there is good potential for SD to get that back down.

Conference Call at 9 pm EST. I'll have more after the call.

FXEN Finally Hits One In Poland

  • Polish well to produce 15 MMcfepd, they have a 49% interest, this well will double their company wide production (yep, they are tiny)
  • They have been trying for five years to produce significant well results in Poland and have recently been drilling wells into the Permian basin in Poland (the Rotliegend) where porosity is high. Unlike shale wells, these wells are slow to decline and come on near flat with their IPs for the first 3 to 4 years.
  • They have 3 more wells awainting pipeline hookup.
  • Early 2010, they will be drilling new wells, targeted from a new 3D survery.
  • Thesis is that Europe needs more natural gas as relations have become strained with Russian supply; 2/3rds of Polish supply comes from Russia.
  • Production: 2010 production seen doubling from wells that have already been completed but not yet turned to sales. They plan to grow production in hockey stick fashion as they add 3 wells per year for the foreseeable future.Their growth forecast:

    • 2008A: 4.6 MMcfepd
    • 2009E:  ~ 6 MMcfepd
    • 2010E:  ~ 12 MMcfepd (growth from already drilled wells)
    • 2011E:  ~ 17 MMcfepd
  • 2008 proved reserves of 46 Bcfe on their leasehold of 4.87 mm net acres. On a proved only basis, they are trading a touch on the high side but reserves do not take into account 2009 drilling success.
  • This is a little midget I watch, could get a pop on this news. They have $25 mm in debt which for them is quite a bit representing their fully drawn revolver. They believe they can increase their borrowing line based on 2009 discoveries.  They will be presenting at IPAA next week and for the first time, they may actually get a little respect. It looks like they no longer have Street coverage as the wait for this Polish play to get off the ground has taken a lot longer than management initially promised.
  • Stock action: Note the chart, note the dip in August. Insider buying in early August helped the stock to new highs, only to see the stock fall back after they had a high profile dryhole.  Getting this well hooked up, along with the move in the dollar which is helping the Polish currency (the Zlotys) won't hurt the story either. I'm going to watch it, maybe take a small common position and do some more work as they will likley be in need of additional funding next year.
  • By the way, take a look at slide 9 in their most recent presentation. Economics of gas in Poland are a lot more favorable from a royalty and income tax standpoint than they are in the U.S. 

 

 

 

Odds & Ends

Analyst Watch:

  • Nothing so far this morning.

 

 Reading List:

 

160 Responses to “Wednesday – Fed Decision, Energy Space Heating Up”

  1. 1
    Wyoming Says:

    Forget about geology and location of a lease, if you want a good well all you have to do is call Billy and the Boys at IPT. This was spam I received this morning. Thought the KOG folks would be interested.

    Subject: Improved Stimulation Technology Makes Better Bakken Wells

    Ladies and Gentlemen:

    We believe it is our responsibility to ensure you are properly informed about an improved stimulation approach that is making a significant economic impact in the Bakken formation of the Williston Basin. Preliminary estimates suggest this technology provides an approximate 33% increase in production response and reserve recovery. Our concern is that operators are starting to ask the service companies for look-a-like applications to what we have been doing with Kodiak and we wanted to get this communication out as soon as possible. The success of the application is not any single item and is composed of many integrated technical details that have been successfully applied by IPT in numerous areas. A number of these techniques are unique to IPT and we are concerned that misapplication may lead to incorrect conclusions.

    We acknowledge the operator, Kodiak, and specifically Mr. Russ Branting, who accepted our recommendations and implemented them on their wells. Without operators open to well thought-out technology, approaches of this type would never be done.

    The improved stimulation approach is technically consistent with the observed physics in the Bakken and experience gained from many other horizontal applications. In our efforts to fully optimize these horizontal well completions, we also believe there is an additional advancement remaining that will reduce risk and further improve the production response, reserve recovery and financial benefit.

    If you are interested in this unique technology and making sure you accurately apply this improved approach, please feel free to contact us. We take pride in our engineering and stimulation capability and we want it to be properly represented and implemented because it does work when done correctly.

    We wish you the best of success. Thank you for your time and consideration.

    Sincerely,

    Billy Aud
    President
    Integrated Petroleum Technologies, Inc.
    405 Urban Street, Suite 401
    Lakewood, Colorado 80228
    Phone: 303-216-0703
    Cell: 303-809-9250
    Fax: 303-216-2139
    http://www.iptengineers.com

  2. 2
    zman Says:

    SD Conference Call in an hour.

  3. 3
    zman Says:

    Wyoming- wow. Nice arrogance there. Sounds like they have the only golden key, lol. I recall acting like that when I drank my first beer too.

  4. 4
    Wyoming Says:

    They dd the same thing in Wyoming, always left out that the well was an infill drilled in the sweet spot, but hey, they designed the best completion. A drunk monkey would have designed the best completion in that example … and that would be someone like me.

  5. 5
    zman Says:

    Wyoming – pop quiz. BEXP has done 20 and 24 stage fracs in their long lateral Bakken wells. As they have marched the number of stages up and kept the interval the same (longer total lateral) IPs and presumably EURs have been walked up as well. Now they are completing a 28 stage lateral, on what is essentially an infill well. Can you say big IP? But more importantly, how far can the industry take this? How many frac stages can they successfully pull off. If they can line up 3 sections and the economics work, would drilling a 15,000 foot lateral, if you don’t run into faults or other geology issues, be doable with say a 42 stage frac? TEXW, feel free to jump in, I’m killing time while I wait for this call to start and brew some coffee.

  6. 6
    zman Says:

    It looks like BOP will be out all week. Family loss. Best wishes to her.

  7. 7
    zman Says:

    Live from the National Energy Summit:

    http://www.compete.org/nes

  8. 8
    zman Says:

    XTO on the tape with a 2,700 bopd Three Forks Well. The Jorgenson 43X-04. Probably good for all the Bakkens, NOG is in this area.

    Says bumping rig count in the Bakken.

  9. 9
    Wyoming Says:

    Number of stages is unlimited. The longer the lateral, the more risk that a failure will cost you millions (abandon the toe/stuck drilling and have to sidetrack). Risk/reward needs to be done. From an HK, HS completion presentation, looks like they are still normal, just tightening up the distance between clusters and stages. They actually appear to have tweaked a bit and dropped some stages with good NPV results.

  10. 10
    zman Says:

    Re 8

    NFX has acreage all over this area of the Bakken, they may be in this well as they have been in 3 of the prior Jorgensen wells.

  11. 11
    TEXWS6 Says:

    Wyoming,

    Glad to see another completions guy that is “impressed” with the guys at IPT. It amazes me at the stupidity of these E&P companies that pay for his overpriced idiots to be out on location. Can you tell I have been in some sticky situations with these guys? LOL!

  12. 12
    Wyoming Says:

    Tex,

    We should hook up for a beer sometime. I actually got drug back to Denver one time over these clowns so we could smoke a peace pipe …..

  13. 13
    TEXWS6 Says:

    Z,

    I think these extended laterals will lend themselves more towards the PackersPlus style technologies that alot of companies are utilizing in teh Bakken. The major problem with these is getting them to bottom.

  14. 14
    zman Says:

    NFX had a TFS test about 3 miles away from that XTO well, checking to see if NFX is in this well. They definitely have acreage around it.

  15. 15
    zman Says:

    SD / Crusader call starting now.

  16. 16
    zman Says:

    SD / Crusader

    $55 to $85 mm in cash of the $230 price tag.

    So 10.8 to 13 mm shares depending on how much cash.

    The equity holders will be subject to a 180 day lockup.

    They see it as accretive to cash flow.

    Can’t talk about assets until the deal closes in the 4Q due to competitive reasons.

    So SD is now in the Bakken but can’t talk about it.

    ….

  17. 17
    baylor3217 Says:

    Can anyone recmemd a good book on trading options? Someone did the other day but o can’t find the post.

  18. 18
    bill Says:

    why have a call if you dont talk about anything

  19. 19
    zman Says:

    SD / Crusader Notes #2

    Q&A:
    Barclays? – Anadarko Basin, see good economics in Crusader’s key asset, the Cleveland horizontal play.

    Simmons? – hedging going forward. Won’t know until the end of the year if this is going to happen, not going to hedge today as the size is small.

    Is there any assumption of debt – that retires KRU’s capital structure.

    Should know if they have it or not within 40 days.

  20. 20
    baylor3217 Says:

    Atpg buyin opportunity here ot too early?

  21. 21
    zman Says:

    Bill – Its a fairly material event so they had a call. Now we know the timeline, that it is accretive on a per share basis, that it will be cash flow neutral. They just don’t want to talk about the assets yet as another bidder could come in. There was a competitive bidding process but if you talk it up a lot, someone else may get interested.

  22. 22
    zman Says:

    Baylor – if you can pick up a copy of Options – An Introduction by Kolb on the internet, that would be a good start.

  23. 23
    bill Says:

    20- atpg, it depends what your investment horizon is

    pxp was at 30, did a secondary, the stock open down 10 % then they priced it at 24

    if the same thing happens with atpg it open down 10 % to 20, but if the deal gets priced at 18, it falls to that number

    then later rebounds

    if you buy in to the story that 2010 production doubles then the stock price should double as well

    But then again , it has doubled, lol

  24. 24
    zman Says:

    West – can you get working interest allocations on that Jorgensen well?

  25. 25
    Dman Says:

    #4 Now there’s a great name for a service firm: “Drunk Monkey Completions”

  26. 26
    zman Says:

    BEXP – bidding up. TPH provided the correct spelling of that Montana Bakken well that EOG is drilling “Carate”. BEXP says they are excited about their 90K acres in this area “Ghost Rider”.

  27. 27
    1520sbroad Says:

    baylor – “Selling Options” by james Cordier and Michael Gross is a pretty good handbook for the covered call/more conservative option strategies.

    The Kolb book that Z listed is a great one too.

  28. 28
    Wyoming Says:

    Not a big fan of the rock packer type of completions (packers plus/Frac Point). We did a micro-seismic run during one of our completions and the first three stages went to the same sleeve. Can’t imagine what is happening when we are not “watching”. One other problem is the small ball seats in the first couple stages, high rates can prematurely shift open the sleeves up hole.

  29. 29
    zman Says:

    SMH raising target on KWK from $14 to $17 on yesterday’s Horn River well.

  30. 30
    zman Says:

    SD trading flat. Probably going to be a lot of calls from analysts to the company all day long. The idea that they have added 12,000 + drilling locations to their inventory, put themselves into several hot basins, including the Bakken which could make them oilier, well, that’s interesting.

  31. 31
    zman Says:

    ZTRADE:

    SD – Added a starter position of (10) October $14 calls (SDJP) for $0.65 with the stock at just over $13 today.

  32. 32
    zman Says:

    Were it not for oil inventories today, I’d be adding to my NFX position. Will wait just in case we get some hinky numbers.

  33. 33
    bill Says:

    lol atpg soaring off the bottom

  34. 34
    AAA Says:

    Baylor,

    I believe I rec’d Natenberg’s Option Volatility and Pricing. If you went to work for a CBOE market maker, they would expect you to know it cold. When looking for options educational material, you have to keep in mind that there are no secret techniques or strategies. Anyone saying otherwise is peddling snakeoil, and there are a lot of them in the options world.

  35. 35
    zman Says:

    AAA- too true. The Kolb book was a college text book I still have from an options course I was in. I have bought a couple of off the shelf “101 option trading secrets” books over the years … absolute BS.

    Market just marking time in front of the Fed.

  36. 36
    bill Says:

    i dumped my bexp at the open

    i think bexp will have to raise money and if they were willing to sell shares below 4 bucks , they would be willing to sell shares at 10.

    Last night mtg was probably opening move in the secondary offer planning

  37. 37
    bill Says:

    bexp needs to spend 10 minutes on financials

    they keep talking about other peoples wells

  38. 38
    zman Says:

    Bill – agree they have to raise additional capital at some point to go into full development mode. But they did that deal with USEG to allow them to up the well count and get more acreage into HBP status so that helps mitigate the need to do another deal nearby. The analyst meeting is an annual event and this one was designed to highlight the Williston.

  39. 39
    bill Says:

    i have no idea how much cash they need to execute their plan

    do they still plan on living on cash flow?

    will they go out and raise money to get more aggresive?

  40. 40
    zman Says:

    Bill – yes, they do plan on living within cash flow in 2009 and should be close to it 2010 unless they change their plan. I’m not defending them, maybe they do a deal later today. All I’m saying is that that was never designed to be a company wide overview presentation. That’s why they did it from the location. The analysts are walking around well sites today. It was a geological run through and talking about what other people are doing in a play where the geology is not that complex is important when you have lots of overlapping acreage.

  41. 41
    Dman Says:

    GDP down 6% on a convert deal

  42. 42
    zman Says:

    XTO flat after announcing the biggest IP Three Forks well in the Williston. Jittery market.

  43. 43
    jiveyjr Says:

    there is a guy here in the DFW area that teaches options and has a connection with think or swim…his all day classes usually cost $129…his website is deltheta.com; he is foreign and a bit hard to understand but he is very, very good and cheap

  44. 44
    Dman Says:

    Z – if SD got those assets for a song, can you speculate as to why nobody else was bidding them up?

  45. 45
    zman Says:

    Their was a competitive bidding process, don’t know how many other bidders but SD came with the highest number in the end. Right now, most people are not looking to buy assets, especially conventional gas assets which is what these primarily consist of so the bidding field would have been pretty narrow.

  46. 46
    Dman Says:

    NG looks technically rather sweet here.

  47. 47
    zman Says:

    Sweet gas is good. SO2 laden gas not so much.

    NG up 4% with crude off nearly 2%. Could get interesting if the market reacts to improved diesel demand numbers. Numbers out in 10 minutes.

    Listening to the National Energy Summit in the background, pretty interesting.

  48. 48
    zman Says:

    EIA Oil Inventory Report

    Crude up 2.8 mm barrels
    Gasoline up 5.4 mm barrels
    Distillates up 3 mm barrels

    Utilization: 85.6% – backing off as expected
    Imports: imports were up to 9.8 mm bopd which is a big swing and the cause behind the big crude number.

    Gas demand: 8.79 mm bopd
    Distillates demand: ok at 3.303

    Crude at time of report: down 1.30

    pretty bearish looking report at first glance.

  49. 49
    bill Says:

    crude down 2.50

    ouch

  50. 50
    zman Says:

    Natural gas rallying post oil report. Hmmm.

    Oil imports rallied almost 900,000 bopd from week to week. So that pretty much explains the fat build in crude stocks (7 days X 0.9 mm bopd = 6.3 mm barrel difference week to week).

  51. 51
    zman Says:

    Crude may settle off its lows since it is an imports based miss on the crude inventory number. I’m more concerned about the persistent lack of product demand.

    Gasoline demand is supposed to fall off this time of year and was actually up 0.6% to the year ago week. Imports there also surged which helped the inventory number further disappoint.

    Distillates on the other hand really should be catching their stride. Just not seeing it in the data yet.

  52. 52
    zman Says:

    Its one of those weak get weaker days. What was down before the report is down a lot more after it.

    Gassy names tracking oil, not natural gas.

  53. 53
    zman Says:

    Probably a lot of people drawing a line from the April lows in crude, through the dip in crude in mid July and coming up with a make or break level on crude of $68. Oil now down 2.90 at 68.80

  54. 54
    Dman Says:

    UNG pitiful. Up 1%, NG up 4%.

  55. 55
    bill Says:

    bho to un, days of climate change are over

    yippee

    every day 75 sunny and beautiful

    amazing , we humans can control mother nature.

    I wont have to leave new england in the winter for florida

    Thanks to dman , gore for making it happen

  56. 56
    zman Says:

    Agreed – given that the strip is up almost as much as the front month on $/MMBTU basis, not as much on a percentage basis as those months are higher priced. Seems UNG is really only a good deal for the ETF’s parent firm.

  57. 57
    Jerome Blank Says:

    Re:#54, 56, UNG still dealing with the premium/add’l unit issue, which as of yesterday was about 5%, adjusting for the current problems, it’s tracking fairly well, I’ve been buying at specific points and have not lost money, when backwardation eventually happens, it should outperform

  58. 58
    zman Says:

    Was listening to a utility CEO a little while ago at this summit. He said they had tested a little device that changes from green (when the electricity you are consuming in your home is cheap) to red (when it is expensive – during peak hours). They found that participants on average reduced their bills by 35%. People would see it go red and decide it was better to run the dishwasher at midnight etc. Now that kind of thing is a good idea.

  59. 59
    1520sbroad Says:

    johnny hotmoney sold anything with the word energy in it right after the inventory numbers. fed day – everybody jittery.

  60. 60
    ram Says:

    I thought power bills are based on usage, not timing. How would that device benefit?

  61. 61
    Jerome Blank Says:

    RE: #57, let me correct that, no I was losing money until I started buying near the lows on UNG above $9, so probably just got luckly making it back?

  62. 62
    zman Says:

    Power is cheaper during periods of low demand.

  63. 63
    Dman Says:

    bill – blue-green algae managed to control the climate all by their little selves.

    So I think the species that invented H-bombs might have a shot at doing the same job. (I don’t mean by setting off H-bombs, but actually just a few of those in the right spot can easily shift the climate).

    But we also have a much greater capacity than algae for screwing things up – and I’m confident that’s what we’ll do. So there’s no need for you to worry.

  64. 64
    baylor3217 Says:

    Thoughst on hk oct 24 C on weakness? Buy the dips has been th mo for a really long time

  65. 65
    bill Says:

    60,62

    Demand for elec peaks between 8 and 5 and drops off in the evening

    some people would like to charge 2 times face during the day to get you to shift electrical usage to overnight

    remember telephone calls in the old days

    so Momma will have to do laundry after 11 pm or pay thru the nose

  66. 66
    ram Says:

    So the meter runs faster during the day for the same load? So power companies add a “factor” to a known load during peak times so your consumption is fictiously higher?

  67. 67
    zman Says:

    Baylor – I’m sitting on my hands at the moment, watching oil. If crude cracks $68 it could go into the mid $60s. Not a terrible thing for cash flows but the stocks probably take it on the chin for the move, both gassy and oily. I’m in no rush to get heavily long again right now.

    Ram – no, but your average cost per KwH is indeed an average. They know when you consume the power and it costs more during the day than at night. During the day, if demand is high enough, peaking units, which are in some cases higher cost, have to be brought on to meet demand. This is a good primer:
    http://tonto.eia.doe.gov/energy_in_brief/electricity.cfm

  68. 68
    Jerome Blank Says:

    FXEN is currently on a P&F sell signal with its break of $3.25 back on 9/1, also breaking its bullish trendline support, but it’s performing well today relative to the group, trading against its 200 day SMA resistance at $3.40 as we speak, if FXEN holds $3.25, watch for a “bear trap” on the news pointed out by ZMAN, which would be confirmed on a 3 box reversal to $4, which if it happens may be enough to carry it to strong resistance at $4.50 to 4.75.

  69. 69
    VTZ Says:

    If the Fed come out with anti-inflation and dollar strength guns blazing today is anyone going to believe them or does everyone know that it’s posturing/jawboning?

  70. 70
    zman Says:

    Thanks J.

    Good question V. Pondering that myself. If they signal and end to quantitative easing (or the beginning of the end), does dollar rally or is the damage done. Other central banks have been talking like they are going to be tightening soon. I don’t think the Fed is ready to tighten yet…seems like a good way to re-squash the economy before jobs are, pardon the use of this phrase, created or saved.

  71. 71
    VTZ Says:

    If they do the market sells off for sure.

  72. 72
    jiveyjr Says:

    you were certainly right in your advice re: selling oil stocks yesterday Z…took your advice…thx

  73. 73
    zman Says:

    ATPG – not taking any today but that seems like an overreaction at this point, down 11%.

    Stocks walking up off their lows, all things considered, makes me think if Johnny hot money left the building or just went across the hall for a minute. Saw more comments this morning that a lot of sidelined money still wants in to play before year end and commodities are high on the list.

  74. 74
    zman Says:

    I have to wonder about both anecdotal evidence on trucking and the API numbers last night as it relates to distillate demand. Could be that we start to see the demand build with EIA’s numbers. Sometimes they are a week off.

    XCO – must have said positive things on their analyst meeting call, am not hooked into that one, but they are talking Haynesville and Marcellus stories today.

    XTO – crossing back into green. No, really, that is one big TFS well. Like, the biggest one so far. Should not be discounted in the stock, should be moving the Bakken players better because if XTO can do it, so can the other guys. Still waiting on confirmation NFX is in that Jorgenson well. They were in 3 others named Jorg and they have other neighboring TFS wells ….

    Gassy names starting to wake up and notice that gas isn’t dying off with oil. Many of them closing back to par on the day.

    Ram – I can find you some more stuff to read on that if you’d like.

  75. 75
    zman Says:

    Jivey – Thanks but no advice intended, just thinking out loud. May see a bit of a smaller number next week as logistically it gets difficult to push imports that hard two consecutive weeks although they can certainly do it so my confidence is not exactly high. On the utilization front, we are coming down as expected. That should hurt the crude numbers but begin to help gasoline which, due to a big jump in gasoline imports, is now surging into bloated territory, despite the fact that demand there is not terrible, and was actually ahead of year ago numbers. I suspect the next surprise will be when distillate demand suddenly takes off – should see it from both agri and trucking, and perhaps from early winter stocking of heating oil as well.

  76. 76
    bill Says:

    ram

    there are smart meters coming out that will look at your usage real time, and with that data, utilities could come up with a pricing scheme higher during the day and cheaper at night

  77. 77
    bill Says:

    its a good day to buy to names that you want

    i took a little more sd and wll and a litte more atpg to replace what i sold yesterday

  78. 78
    md Says:

    Ontario, Canada has just introduced TOU ( Time of use billing)
    with peak, mid and offpeak rates.
    I’ll get my first TOU bill in a month.
    Am thinking of switching dryer to NG and see more households switching their stoves and dryers to NG in the years to come. We are likley not the first or the last.

  79. 79
    bill Says:

    hk is storming back

  80. 80
    ram Says:

    Yes, thank you. That device will only work when your utility company has different rates during the day. My washer uses the same energy whether it’s day or night. I wish the power companies would encourage power usage at night by various incentives.

  81. 81
    zman Says:

    Johnson Rice – post BEXP meeting note saying they see 50 to 100% upside from current levels. Came away more impressed by strategy than they thought they would. They are highlighting the upped drilling schedule and the increased booking potential that I talked about in the post. Points out that others in industry are helping to prove up BEXP’s acreage. I generally agree with their comments. I’m not surprised by the sell down on a weak day in a name like this and may add a little as I think they have some catalytic well news just around the corner (call it 2 to 4 weeks on the outside).

  82. 82
    bill Says:

    80 , they will in time

    they smooth out the peak usage during the day which means less new plants

  83. 83
    zman Says:

    ZTRADE:

    WLL – Added (10) October $60 Calls (WLLJL) for $1.55 with the stock just under $57 on a weak day for oil and the group. I continue to hold $55 strikes here as well.

  84. 84
    elijahwc Says:

    Aubrey Watch: DJ Story coming up

    DJ Chesapeake CEO: Gas Producers, Customers Should Ink Long-Term Price Agreements

  85. 85
    RMD Says:

    Over the last week or 2 I have been noticing a relative strength shift from E&P to MLP (not measured scientifically.)

  86. 86
    1520sbroad Says:

    73 – i think it is more of a hotmoney water cooler break before the 2:15 fed day hoopla.

    VTZ – any thoughts on G / GG(NYSE)? I like their lack of hedges in a rising price scenario, low debt, seems like their Chilean project is on schedule

  87. 87
    zman Says:

    ZTRADE:

    SWN – Added (10) October $45 Calls (TKQJI) for $1.20 with the stock at 43.20. This will probably be a relatively quick one but natural gas is rallying into tomorrow’s inventory numbers. My suspicion is that the Street has the number set a bit too high.

  88. 88
    elijahwc Says:

    76 – for smart Meter Wi-Fi wins both home and abroad the name is ELON.

  89. 89
    zman Says:

    Ok, back to sitting on hands.

    Eli – thanks. Aubrey has spoken that way before. I see the headlines, a number of them coming out, do you know where he is speaking?

    CHK says $4 not enough to grow output
    Says it will take much stronger price signal to lift rig count

    NG up 6% now.

  90. 90
    VTZ Says:

    I have nothing against Goldcorp or Agnico Eagle whatsoever. Most of the midcaps don’t hedge. Only a few of them are stupid enough.

    Goldcorp does have nice production growth potential.

  91. 91
    1520sbroad Says:

    #90 – thanks. i follow a couple of chilean miners (SQM in particular) – it seems like the government there has taken a very pro-mining stance. I like to see miners with new chilean projects just getting going.

  92. 92
    Dman Says:

    V – actual concrete signs of recovery are a bit thin on the ground. I think the Fed knows perfectly well that if they try to claw back liquidity now, everything will collapse. So I don’t see them doing that.

    But the problem with politically driven markets is that you really need to know the agenda. Here’s one scenario that could play out at some point: if the WH decides they need to spend more stimulus money, but Congress doesn’t want to spend it, the WH could lean on the Fed to arrange a “demonstration” of what will happen without stimulus. A few words & the market will crash. Then, just like the 1st round, Congress will be told they hafta spend it or the world will end & they will sign on because once again they will be scared and clueless, instead of just the usual clueless.

    But for the WH to want more stimulus, I’m guessing the market would already have to be wobbly – not what we see here.

  93. 93
    zman Says:

    NFX has a little over a quarter of that XTO well.

  94. 94
    zman Says:

    ZTRADE:

    NFX – Adding (8) NFX $45 October calls (to the two I already had) (NFXJI) for $1.20 with the stock at 43.30.

  95. 95
    VTZ Says:

    Good point Dman. So much for an independant Fed.

  96. 96
    zman Says:

    NFX well off the bottom when I did that trade, still big well and they have a chunk of it. That’s what I get for waiting on confirmation when I was just about damn sure they were in the thing and that it was on top of one of their acreage pods.

  97. 97
    elijahwc Says:

    #89 – IHS Herold Pacesetters Energy
    Conference. Full Dow Wire available now:

    DJ Chesapeake CEO: Long-Term Price Deals For Gas Supply Are Near
    By Brian Baskin
    Of DOW JONES NEWSWIRES

    NEW YORK (Dow Jones)–U.S. gas producers are likely to soon begin entering
    into long-term supply contracts at set prices with some of their biggest
    customers, Chesapeake Energy Corp. (CHK) Chief Executive Aubrey McClendon said
    Wednesday.
    Such arrangements would mark a major break on both sides, which have
    traditionally bought and sold physical gas based on the market rate, then used
    the futures market to reduce the impact of price volatility. Ideally,
    producers and customers would settle on a “collar,” where a company like
    Chesapeake would agree not to charge above a certain price, and end users
    would accept a minimum price, regardless of the current market value of gas,
    McClendon said.
    “Above [the collar] we’d protect the user, and below they’d protect us,”
    McClendon said, speaking on the sidelines of the IHS Herold Pacesetters Energy
    Conference in Old Greenwich, Conn.
    McClendon said long-term contracts are becoming possible as gas producers
    get a better sense of the cost of developing new reserves, making it easier to
    decide well in advance how much cash is needed to meet production goals.
    Hedging prices in the futures market may also become more difficult if federal
    regulators follow through with recently announced plans to create new margin
    requirements and set limits on speculative energy trading, McClendon said.
    Earlier this month, McClendon said he was comfortable with Chesapeake
    entering into contracts to sell gas anywhere from two to 10 years out.
    “We’ve never been quite as sure about what our costs were going to be” as
    today, he said at an energy conference hosted by Barclays Capital.
    Producers were hit hard when gas futures plunged toward a seven-year low
    below $3 a million British thermal units this summer, well below the price
    needed to maintain production and generate enough cash to develop new
    reserves.
    McClendon said the industry “can cope with $4 gas,” but that production
    would fall unless prices rose to between $6 and $9.

    -By Brian Baskin, Dow Jones Newswires; 212-416-2453;
    brian.baskin@dowjones.com

  98. 98
    ram Says:

    Bernake is too much of an “academic” to understand what’s happening in the trenches. He was behind the curve initially. I hope he doesn’t feel that being in front of the curve will compensate.

  99. 99
    zman Says:

    Thanks Eli – smart firm that one. That conference is not being webcast is it?

  100. 100
    zman Says:

    West – you around? Am about to go questing to see how far that XTO well is from KOG, looks not that far on a cartoon map. That is the biggest TFS IP I have seen to date. Nobody cares because of oil action and Fed (inaction?) today but it seems to derisk the western side of KOG acreage for TFS or at least improve prospectivity for it. If anyone sees a broker comment about the stats on that well let me know.

  101. 101
    elijahwc Says:

    Appears to bo Pay to Play:
    https://www.herold.com/pec/pec.home

  102. 102
    Dman Says:

    V – do you subscribe to chrismartenson.com ?

    They have some great analysis there on the Fed & the amazing amount of manipulation going on with all official figures. For example, recently they were able to release some “good news” on housing valuation, but only because they just switched to using a private company for valuation data. If they had kept using the public valuation data, there would have been no good news.

    So they are really pulling out all the stops to try to convince the public that a recovery is real – hoping that the psychology will self-reinforce. That’s a big part of why they want the markets up too.

  103. 103
    VTZ Says:

    I do not, but sometimes I read his freebie articles if they are posted elsewhere.

  104. 104
    zman Says:

    Thanks Eli

    That XTO well is about 19 miles from western most KOG well. As BEXP said last night, not exactly complex geology here. Also pretty good news for BEXP, beyond the obvious good news for NFX.

  105. 105
    gwilch Says:

    Is there still a good chance NG may head back below 3.00 in the next couple of weeks or is it pretty much up from here?

  106. 106
    zman Says:

    Well, now that’s the multi-billion dollar question isn’t it. I think there is a good shot at a retest of the $3 level. It may came just after a failure to break the $4 level. Gas looks like it may go higher to me in the short term but one bad storage number or a near miss of a tropical storm (which by the way have just not been about this week, not even a chance) or a return to mild, low demand weather, and gas could come off. Very hard call to make in the shoulder season. Hopefully what some of the less hedged E&Ps are doing is taking some 4Q hedges at these “elevated” prices.

  107. 107
    reefguy Says:

    Aubrey moving NG- up .30

  108. 108
    Dman Says:

    #107 – it crossed my mind that maybe he wants to put some hedges on today

  109. 109
    Dman Says:

    v – one of Martenson’s recent posts looked at where all the foreign buyers of Treasuries are getting all the money from, since the usual suspects have taken a huge beating in their exports & shouldn’t have the cash available. His conclusion: they must be printing it. So in other words, there is a kind of money-printing competition going on, except that it isn’t competitive, it’s cooperative.

  110. 110
    zman Says:

    Dman – You think he’d do that? Actually he’s quite well hedged. I’d like SWN to add some here but I know they are holding out for $6 to $7 on the winter part of the strip.

  111. 111
    zman Says:

    If you ever wonder about us “digging around” on the Bakken data, you can look around here, plenty of fun if you don’t have better things to do.

    https://www.dmr.nd.gov/OaGIMS/viewer.htm

  112. 112
    Dman Says:

    V – I’m looking at the Canadian trusts that took a beating due to low NG: eg PWE & PGH. They are moving now but it seems to me they could have a lot further to run. Any views on those two (or others, for that matter)?

  113. 113
    reefguy Says:

    Calender 2010 strip right at $6

  114. 114
    VTZ Says:

    The only trusts I own right now are COS and IPL. I haven’t followed the rest well enough in the last 9 months or so to comment, sorry.

  115. 115
    zman Says:

    20 minutes until Fed.

  116. 116
    zman Says:

    SD – Gotta say, nice to see it return to and hold green after making an acquisition announcement and after taking a dip with everything else on the oil numbers. Analyst blurbs I have seen prove that they don’t work very late at night these day. Not a lot of detail yet it was all there for the asking on the old KRU website and in their last K and Q.

  117. 117
    RMD Says:

    CHK mentioned long term supply contracts with utilities/industrial co.s 6-8 quarters ago for the first time; sounds like Aubrey is getting close now. Z (I think) pointed out they are a variant of VPPs.

  118. 118
    zman Says:

    RMD – Not a coincidence that the utilities and industry want to lock in near decade lows. I’m sure the structure will contain cost walk up features to maintain his IRR over time. Makes a lot of sense for both parties as the CFTC gets ready to narrow Aubrey’s field of counterparties.

  119. 119
    reefguy Says:

    NG sniffing $4

  120. 120
    Jerome Blank Says:

    Interesting flag pattern on the daily KOG chart…traditional technical analysis suggests that this should be a consolidation pattern with a continuation break higher, price action is moving to a point on low vol…let’s see, a break above sends this to $3.25, if it fails, $2 is proabaly a given

  121. 121
    baylor3217 Says:

    Aubrey also said on fast money in June 2008 that with chk at abt $50 he thought it had a double in it. Less than 30 days later it all started to unravel.

  122. 122
    Nicky Says:

    Afternoon all.

    Indices I believe are in v of iii, I am still looking for 1079 – 1091 SPX.

  123. 123
    bill Says:

    WLL MENTIONED THEY ENTERED LONG TERM CONTRACTS AT 5.50

    sorry for the caps

    the ceo says with them you get away from crazy accounting of mark to market (on hedges)

  124. 124
    reefguy Says:

    119- HOD, traders returned from lunch and made a mutual decision to crush NG, now $3.80

  125. 125
    zman Says:

    FOMC – staying accomodative, growth ticking up, yada, yada. Dollar index selling off below 76. Would like to see a close below that level.

  126. 126
    zman Says:

    Am still listening to this National Energy Summit while listening to the fed statement come across CNBC. Someone, and I think it was the Secretary of Transportation, just said oil will be irrelevant in 20 years.

  127. 127
    zman Says:

    From Mkt Watch:

    Federal Reserve officials welcomed the improving economy and made a few changes to their debt buying plans. In a statement after their closed door meeting, Fed officials said that economic activity has “picked up” with improved conditions in financial markets. The Fed announced that it has extended its purchase of mortgage-backed securities and agency debt into the first quarter of 2010 from December. Analysts had expected the move, which smoothes out the purchases. As expected, the Fed kept its target for its federal funds rate set at a range of zero to 0.25%. The Fed repeated that it “continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period.”

  128. 128
    Nicky Says:

    Dow 10,000 on a blow off spike? Feels like it.

  129. 129
    Nicky Says:

    This looks like it could be setting up for the final wave down in the USD too.

  130. 130
    zman Says:

    Nicky – agreed x2.

    Chu up next at this summit.

    Guy asking why many positions on the sci and tech side in the govt have not been put in place. Answer. Tougher to vet candidates these days.

  131. 131
    zman Says:

    Bill – forwarded you a message

  132. 132
    zman Says:

    Chu about to present:

    http://www.compete.org/nes

  133. 133
    Jerome Blank Says:

    Is it just me or does this feel like a long day?

  134. 134
    zman Says:

    Jerome – eh, market seems a bit tired/sluggish. Best guess is that the close will be volatile.

    Chu Watch: Basic takeaway… We need a new industrial revolution for green energy. There will be some casualties as there were in past industrial revolutions. Cross hairs on O&G and coal.

  135. 135
    bill Says:

    atpg slammed today

    even though i expected a decline toward 18..

    its hard to watch it

    amazingly this traded as high as 21.50 this am

    z remind me to short with abandon any stock that comes out with a secondary

  136. 136
    zman Says:

    That was a quick round trip on the indexes. Market in “so now what” mode. Still doesn’t feel like a big sell down in the broad markets is in the offing.

  137. 137
    bill Says:

    there are 7.6 m traded in atpg at 2 pm it was about 5 m

    jpm is selling short shares hand over fist to knock down offer price, imho

    company should hold firm and put a hard limit on offer price

    these guys make huge money on these offerings

  138. 138
    bill Says:

    i sold my eroc holdings as i do not like the one sided ngp offer.

    z thanks for the email

  139. 139
    zman Says:

    Looking at volume other energy names, on this pullback in energy, more like a buyer’s holiday than a panic sell.

  140. 140
    zman Says:

    Gotcha Bill – understand.

    Just listening to Chu Q&A. Doesn’t seem to be an E&P guy near the microphone.

  141. 141
    Jerome Blank Says:

    ATPG holds its buy signal until a print of $18, $18.50 is a classic buy point with a stop at $18

  142. 142
    zman Says:

    re 139 – famous last words…

    beerthirty

  143. 143
    bill Says:

    the low is 18.72

    now 8.5 m traded another 1 m traded in 15 minutes

  144. 144
    zman Says:

    Bill – looks like sell programs on the indexes causing a little panic now, accelerated when the Dow fell back through 9900 and then again when falling through 9800.

    I’m sure the gnome will resurface overnight.

  145. 145
    RMD Says:

    Bill: #138, glad you did better in EROC than I did.

  146. 146
    elijahwc Says:

    HERO Hercules Offshore announces 17.5 mln common share offering (6.29 -0.48)

    This will be one of what I would bet will be 30+ deals announced tonight. Just like last night and I am sure it will be a ditto for the rest of the week. Supply is created to meet demand and there is always more supply than demand in the end.

  147. 147
    bill Says:

    atpg closes at 18.60 on 9.2 m shares

    they had to sell those 5 m shares with that volume

    eroc looked like a great value

    i think the “fix” is in and if the proposed deal goes thru, the ceo is unethical at best and a crook at worst

    this is the type of deal the sec needs to crack down on. A 20 % owner that has representation on the bod screws the other 80%

  148. 148
    Nicky Says:

    we hit the lower end of my target area at 1080. I actually think that was only the top of iii and we now see a correction for IV. I think this is likely to hold above the 1040 area but we will see.

  149. 149
    VTZ Says:

    Pretty sharp dollar move.

  150. 150
    zman Says:

    http://www.marketwatch.com/story/dollar-trades-near-lows-before-fed-move-2009-09-23

  151. 151
    baylor3217 Says:

    Tso up $.44 in ah trading. Why? Didn’t see any news?

  152. 152
    zman Says:

    Re TSO – that looks like a late trade report, no news.

  153. 153
    baylor3217 Says:

    What’s a late trade report?

  154. 154
    Wyoming Says:

    http://www.nytimes.com/2009/09/24/business/energy-environment/24oil.html?_r=1

    http://www.latimes.com/business/la-fi-cal-oil24-2009sep24,0,3884900.story

  155. 155
    zman Says:

    late trade = a trade that’s out of sequence, catching up from an earlier time of the day, a non event.

    ATPG deals priced

    Common done at $18.50
    Preferred done at 8%

  156. 156
    West Says:

    Z, another project today so missed most of the action. Thanks for the ATPG prices, it will be interesting to see how the stock trades around here. Question when do these additional shares actually start trading ? I have support at 18.25. THX

  157. 157
    zman Says:

    West – should show up in the volume Thursday.

  158. 158
    West Says:

    I would like to ask a question about ATPG in particular and additional offerings in general.Some of the people that know that they are going to get the stock in advance usually sell as much as they can up to there allotment before the actual release of the stock, when the known price of the offering is going to be lower. They then tender these new shares for settlement, would that be fair to say? The question is do these people actual have to find the shortable shares that they are selling or is this actually naked short selling of not so fathom stock? Maybe tomorrow you could give a little insight as to how this all works. THX

  159. 159
    zman Says:

    Re 154 – Need to find more, as IHS also reported reserve replacement was only 88% last year.

  160. 160
    bill Says:

    158

    doesnt have to be short

    lets say they are long 500,000 shares

    they sign up for 500,000 and dump the first 500 k and replace it with the cheaper ones

    Yes , i think there is alot of shortselling in advance of the secondary

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