24
Sep

Thursday – Oil Review and Natural Gas Preview

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Market Sentiment Watch: Market suddenly nervous? Yesterday the Fed held steady on rates and remained accommodative - in their own words. On the economic data front jobless claims came in at 530K vs 550K forecast and 545K last week and we will get existing home sales for the month of August at 10 am EST (5.4 mm forecast).

 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Preview
  4. EIA Oil Inventory Review
  5. Stuff We Care About Today- ATPG, NFX, SD
  6. Odds & Ends

 

Holdings Watch:

  • $10KP II:
    • $19,700
    • 46% Cash
    • The Current Holdings Tab is updated.

Yesterday's Trades:

  • SD – Added a starter position of (10) October $14 calls (SDJP) for $0.65 with the stock at just over $13 today.
  • 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.
  • 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.
  • NFX – Adding (8) NFX $45 October calls (to the two I already had) (NFXJI) for $1.20 with the stock at 43.30. See follow up comments below.

 

Commodity Watch:

Crude oil dropped $2.79 to close at $68.97 yesterday after the EIA released showed high imports of oil and gasoline and weak demand for gasoline and diesel.  This morning crude is trading slightly lower despite a pullback in the dollar.

Natural gas jumped 7% to close at $3.86 yesterday in what appeared to be another round of short covering. The rally was not attributable to some pile of clouds in the Atlantic or a late season heat wave but instead was likely prompted by the first freeze warnings of the season for New England and  likely built momentum on mid morning comments from, CHK CEO McClendon who said that:

  • $4 natural gas was not enough to grow U.S. volumes
  • that long term contracts for natural gas with utilities and industrial consumers could be around the corner
  • $6 to $9 gas was needed to get the gas rig count back up to 1,100,
  • it would take a much stronger price signal to lift gas prices above 700 (current is 705) and
  • that CHK doesn't expect to add rigs back until it sees "much higher" gas prices.

Note that we may get supply data for the month of July on Friday from the EIA or they may wait for the official month end. Traders will be looking at this data very closely for signs that a turn in production is showing up in an easily noticeable way. The last several reports have shown more modest declines than I or others would have expected and the EIA even ran a piece on rig counts and gas production on the cover of the weekly oil report which may be foreshadowing another set of slim to modest production decline data. This morning gas is trading off slightly.

Natural Gas Preview

  • My number: 65 Bcf. 
    • History:
      • Last Week: 66 Bcf - this week included the labor day holiday.
      • Last Year: 54 Bcf
      • 5 Year Average: 65 Bcf
    • Weather:  40 CDDs vs 45 CDDs in previous week.
    • Imports: 9.1 Bcfgpd vs 9.3 Bcfgpd both last week and in the year ago week.
  • Street Consensus: 71 Bcf

EIA Oil Inventory Review


ZComment: First glance = ugly. Second glance = imports + weak demand + time of year = somewhat less ugly but far from bullish. Hard to find much bullish at all in the stocks levels. Distillate stocks should turn lower soon but they are exceedingly bloated onshore at present and there is a large quantity of tanker diesel offshore waiting to fill any gap caused by a cold winter in the States and / or Europe. This likely means the export market from the U.S. for distillates is a still a long time away from recovery.

CRUDE OIL - Crude surged on the back of a big jump in oil imports. Expect inventories to continue rising slowly for the next several weeks.

 

GASOLINE -  Demand ok, but big surge in imports boosts inventories beyond expectations.

 

 

DISTILLATES - Production remains too high and demand should turn higher, just due to seasonal factors, in the next few weeks. This should shift the last chart below, away from its moonshot status. But without a sustained cold spell, stocks are going to remain well above normal levels through the season. 


 


 

Stuff We Care About Today

ATPG Offers Priced:

  • 5.3 mm common shares at $18.50, for gross proceeds of $98.5, if the overallotment is taken, another 0.8 mm shares would be added in.
  • $125 mm convertible preferred priced at 8%
  • Along with the $78 mm pipeline sale, ATPG will have raised close to $300 mm after fees and if the overallotment is exercised.
  • Time for the post deal digestion phase to begin.

NFX Follow Up To XTO's Big TFS Well Announced

  • Yesterday, XTO announced a Three Forks Sanish completion, with an IP over 2,700 bopd, west of the Neeson anticline, in the Williston Basin.
  • This is the highest rate well I have seen to date announced from the Three Forks.
  • XTO announced that they will be doubling their rig count by year end from 3 to 6 rigs. NFX will be a partner in some of XTO's future Willliston Drilling.
  • NFX holds a 27% working interest in this well, the Jorgensen 43x-4.
  • NFX has over 7,000 acres in close proximity to the well and over 170,000 acres in the Williston Basin in total.
  • Importantly, this is a section away from a prior Jorgensen well, the 1-4H, that produced 622 from the middle Bakken.
  • In my book, this further derisks NFX's acreage and is as least as important as the Mathistad well was for CLR a couple of weeks back.
  • Valuation: NFX has been hitting on all cylinders, from Asia to the Deepwater Gulf of Mexico, to the Bakken. At present, it trades at the middle to lower end of its forward CFPS multiple at 4.1x. Recently, NFX elected to curtail a small amount of gas production and yet their guidance for the year remains in the upper half of their previously stated range. It is well performance like this that allows that to occur. 2009 has been a further transformational year and 2010, when the company is scheduled to begin production from four deepwater projects currently under development in the Gulf of Mexico promises to continue to transform the company into a liquids rich, growthy, and longer reserve life name.
  • This section will be added to the NFX link on the reports tab.

 SD's Bid For Crusader Follow UP

  • SD was a little cagey with details as they don't want to attract other bidders
  • They should know if they will be the winning bidder for the Crusader assets in 40 days (so around Nov. 5)
  • The $230 million price wipes out all liabilities for KRU so its assets are a clean slate from closing, which is expected in 4Q should the deal happen.
  • The deal was said by management to be cash flow per share accretive and cash flow neutral as far as maintaining current production.
  • The assets get them into the Bakken which is an interesting new twist to SD's nearly pure gas story.
  • My sense is management will host another conference call to layout the new assets and their plans for them in November.

Odds & Ends

Analyst Watch:

  • (HAL) - Citi raises target from $27 to $37, rating Buy
  •  (BWP) - Morgan Keegan upped it to Outperform
  • (BBG) - Morgan Stanley cuts it to Underweight
  • (APA) - MS raised it to Overweight

Reading List:

 

130 Responses to “Thursday – Oil Review and Natural Gas Preview”

  1. 1
    zman Says:

    MMR on the tape with an ops update. Flat Rock #5 on line at a good rate. PXP has almost have that well. Number of other little tidbits, in their with implications for EXXI, MCF

  2. 2
    zman Says:

    Rare earth element story for Denise

    http://www.marketwatch.com/story/rare-earths-are-vital-and-china-owns-them-all-2009-09-24?link=kiosk

  3. 3
    bill Says:

    put oxy on the long term buy and hold list

    http://www.latimes.com/business/la-fi-cal-oil24-2009sep24,0,3884900.story?page=2

  4. 4
    zman Says:

    Get It While You Can Watch:

    http://www.rigzone.com/news/article.asp?hpf=1&a_id=80630

  5. 5
    bill Says:

    z are you doing a piece on mcf?

  6. 6
    zman Says:

    Mcf = yes, about half done, didn’t see a rush. It’s a 9 well story at present, not cheap on reserves, good operating metrics, interesting…

  7. 7
    bcinca Says:

    Nice story on Avalon Rare Earth Minerals..AVL.TO or AVARF…pink sheets…disclosure…I own

  8. 8
    zman Says:

    Crude broke $68 despite weaker dollar. Could be the Herold story about this being a banner year for deepwater discoveries. Not a lot to say about that, they come in strings and they take 3 to 5 years, for the most part from discovery to production.

  9. 9
    zman Says:

    re 8, expect to see oil bears come out of the woodwork on CNBC today.

  10. 10
    zman Says:

    One thing we have not seen in the data yet is a restocking effect of heating oil. Going to have see that happen very soon. I know people are tapped and some will be willing or forced to keep the thermostat cooler this winter but prices are also down and my thought is that people will delay taking HO until the last possible minute and may take on smaller buys at their homes but that they aren’t just going to go all LL Bean and sheepskins.

  11. 11
    zman Says:

    MS raises EOG target from 92 to 95 and DVN from 82 to 85, keeps both at Overweight

  12. 12
    zman Says:

    Somewhat surprised by the muted energy opening, would have expected more downside on the open after the late day drubbing yesterday, especially given the trip below $68 for oil. I expect that its probably coming, maybe waiting on the NG number.

  13. 13
    reefguy Says:

    MMR et al. Davy Jones headed to objectives in Wilcox and Tuscaloosa. If they find pay in Cretaceous, it is a brave new world on the shelf.

  14. 14
    zman Says:

    Reef – Do you know what TD is on that well?

    Crude eying whole number support at $67. For the broad market to keep going up, it needs the support of the energy complex.

  15. 15
    Denise Says:

    Z- Thanks for the rare element article-
    Definately something our children will be dealing with and to put on ones radar screen.

  16. 16
    reefguy Says:

    Drillng below 23,000′ headed to at least 28,000. I see Tex Moncrief has 8.8%. I know he put this thing together and he is likely to be pushing Jim Bob to go through the Tuscaloosa. Tex owns 1/3 of Madden deep in Wyoming. That is a 6 TCF structure below 22,000′.

  17. 17
    zman Says:

    ZTRADE:

    HAL – Sold my $27.50 puts for $1.37, up 12%. Just not liking the way it resists falling due to continued strong support from the Street. I may reenter higher later.

  18. 18
    Jerome Blank Says:

    ATPG printed a sell signal at $18

  19. 19
    zman Says:

    Reef – Onshore analogue?

  20. 20
    zman Says:

    WRES – down 6% on the move in oil and illustrative of what happens to the little names that have some hot money in them if people start to think the oil trade is over.

    Crude hanging out at $67.25. If the broad market sinks I would imagine we could see $66 or $65 by late Friday.

  21. 21
    jiveyjr Says:

    I took more WRES at 3.06

  22. 22
    zman Says:

    Thanks for that email Denise. I have to wonder why the DTO would be up so strongly today.

  23. 23
    zman Says:

    May add a little more WLL call position for a swing trade.

  24. 24
    zman Says:

    or maybe not, spreads ripped wide open today. May wait to decide on the gas number in 30 minutes which if low can give strength to crude.

  25. 25
    zman Says:

    Existing home sales drop 2.7% to 5.1 mm, weighing on broad market.

  26. 26
    reefguy Says:

    Tex is about 95.( google him, he is the real deal ) He , like his Dad is a true wildcatter. He only drills the biggest, deepest structures. His Dad found a number of thise big South Ala and Florida Smackover and Norphlet giants. Tex found mucho in Wyoming. If that Davy Jones stucture is a pre salt weld( Meaning a buried) structure with 20,000 acres of structural closure, Tex will want it drilled to a depth that will only be limited by the design of the casing system that MMR is using. They have done the tough part; getting through the weld and running intermediate casing. Now it is just slow expensive slogging into the unknown.
    The big risk is are their any reservoirs? Your many miles down dip of the nearest Wilcox or Tusc reservoir. I think the risk is Jum Bob and Tex want to keep going, and EXXI and PXP say uncle.

  27. 27
    oklahoma Says:

    HK leasing 23,330 ft space in Tulsa…came across this doing some real estate work..
    http://www.costar.com/News/Article.aspx?id=F0EF65D53D4960F5001FB2E20E65D277

  28. 28
    zman Says:

    Crude breaking $67 as the market turns red and the dollar firms up a bit after the housing number.

    KOG down 9%, same comment from above re WRES applies.

    DPTR approaching what I understand to major investor support level at $1.80.

  29. 29
    reefguy Says:

    z- DPTR, old Kirk had some bad press today related to Pelicano wiretapping…

  30. 30
    zman Says:

    re 29 – he’s having a bad week.

    Going to fish a little WLL down here…

  31. 31
    zman Says:

    ZTRADE:

    WLL – Added another (5) of the October $55 Calls (WLLJK) for $2.65 with the stock off nearly 4% at $55.25 and on a weak market, weak oil day.

  32. 32
    zman Says:

    Market can’t go up without energy/oil. Simple fact. Oil now down almost 4% and closing on $66. Looks like we have support in the $62 to $66 range.

  33. 33
    zman Says:

    Crude through $66 but bouncing around that level.

  34. 34
    VTZ Says:

    This is a pretty violent move considering the broad market.

  35. 35
    zman Says:

    67 Bcf

  36. 36
    Jerome Blank Says:

    If a trader was going to buy add’l shares of either KOG or WRES into weakness and wanted to only buy one which one has the stronger fundamentals…assume equal technical strength, any thoughts from the group?

  37. 37
    cargocult Says:

    Thoughts on adding to KOG position?

  38. 38
    zman Says:

    Curtailments, voluntary and otherwise, continue to manifest themselves in the weekly data along with increased industrial demand inspired by bargain pricing. Gas coming positive on the data release.

    We are now 16% above the five year average for this time of year, having peaked several weeks back at a 23% surplus.

  39. 39
    zman Says:

    Re KOG add – I’m not doing that right now. I am not selling either. It obviously depends on you and your time horizon. In my case, its not that big of a position and I could add to it. My time horizon is fairly long. I try to pick my points in these little names fairly carefully as their pricing is a bit more random than is the case with a real stock, no slight intended but the pennies are different beasts when it comes to trading. Anyway, group is weak, crude is weak, and there may be a flight to safety or perceived quality that can further whack the little names. So I’ll wait for crude to find a range and then maybe take another piece. KOG will be the more news driven name of the two mentioned in #36 with a nearer term move upwards (or downwards if wells 7 and 8 are disappointing). While both are tiny cap oil, they are very different stories, with the KOG probably a bit less dependent on rising oil prices, although at this level, WRES’s reserve statement should improve substantially making them suddenly appear cheap on a $/Barrel of proved reserves basis. You won’t get that reserve report until March 2010.

  40. 40
    zman Says:

    Re 34 – Was just thinking the same thing. Dollar back to green, crude no like, but I really have to wonder at the staying power of the dollar here. We have seen quite a few of these technical rallies in recent weeks which caused turmoil in the crude pits.

    Crude keeps fighting to stay over the $66 level. Traders have got to be at least thinking about locking in quick gains on the short side. Data yesterday was not good on the top line but was largely an imports event, which while not exactly random, can seem that way. If we are seeing tankered volumes rush ashore to cash in while they can, as I’ve seen some theorize, we’d see that continue for several more weeks.

  41. 41
    Nicky Says:

    Morning all.

    Once that 68 area broke convincingly on oil it gave a pretty strong sell signal. That said it is short term oversold. Support at the 66 area as you said Z and then 62 as you also said!

    Broader market – spx has support at 1046. Not reading too much into this correction at this stage as I believe it is just that – a correction.

  42. 42
    zman Says:

    BOP sent in a piece from her cross asset manager. He writes that yesterday’s Fed statement was not an event that will lead to a double dip and that those yelling “sell everything” will find ready buyers. Hmmm.

  43. 43
    VTZ Says:

    I would agree that the short traders have got to be worried about yet another rally.

    I don’t know if you listened to CNBC this morning but I listen to it on the radio for the drive in and Art Cashin and others kept pumping the idea that the broad market needed to close green otherwise the reversal from late yesterday has more merit.

  44. 44
    VTZ Says:

    Gold just got crushed at the hands of the dollar rally.

  45. 45
    zman Says:

    Reef – NG taking out yesterday’s highs, now $3.92 and has to have its eye on $4.

  46. 46
    zman Says:

    V – CNBC saying coffee getting whacked as well.

    V – Art is smart but he has been stuck on bear since, like, March to my recollection. I recall his early September comment that we needed to get through the first post summer week and see what the second held for the market going forward. Those were both strong.

  47. 47
    1520sbroad Says:

    Z – with respect to storage and 5 yr averages – is there normally the vast spread between the East = +8% and Producing = +30%? Is this the result of packed lines and gas not moving? Am i reading way too much into this sort of thing?

    I would like to see the gassy names notice ng @ $4ish as opposed to $0.something as it was supposed to be by now.

  48. 48
    BirdsofpreyRcool Says:

    Good morning. Just checking in to get a quick update.

    Both HeadTrader and Cross-Asset Class Strategist say today is a buying opportunity. Stangely, we are seeing almost NO (negative) response from the credit market to the recent equity sell-off. One credit trader’s comment this morning was along this line… “SPOOS down 12 points and Credit is UNCH’D??!!!” So, still seeing buyers of risk in credit… even in the face of a shake-and-bake stock market.

    People are nervous. But the Fed’s comments were actually quite positive, especially for (what is termed) the “toxic asset class” mrkt. And if the toxics (CMBS, for example) continue to rally, stocks WILL follow.

    On KOG… the only negative I see is that they will have to issue more equity at some point. But that point will be after the results from 7&8 are known and 9 is at least TD’d. That means earliest would be in late October. Personally, I think they wait until results are out and the stock is trading with at least a 3-handle. Still no debt and operating all of their own wells at present (partner XTO will drill a couple of non-KOG operated wells in 1Q10). So, they have a very good handle on their near-term cash flow. Unless oil drops through the floor, of course.

  49. 49
    zman Says:

    1520 – That’s a good question. The producing region includes Texas, Louisiana, Oklahoma, and Arkansas – 4 big shale plays right there and given weak U.S. demand in the east, it makes sense that storage in the region would be driven higher than total U.S. storage or East region storage.

    But the current elevated levels are also the function of a higher starting point. When you look at producing region storage at present vs the 5 year average it has been FALLING, on a % of surplus basis, consistently since Spring when it was at 42% to its present 31% surplus. I’ll show that in a graph tomorrow. What does that tell us? That either demand is rising or supply is falling, relative to the norms for the year.

    Go figure, UNG outperforming today.

  50. 50
    zman Says:

    BOP – good morning and thanks.

    Did you see the big XTO TFS well drilled 20 miles to the northwest of KOG’s 1/2 wells? Over 2,700 bopd and the crowd could really have cared less.

  51. 51
    BirdsofpreyRcool Says:

    z — didn’t see the XTO news. In a word, WOW. How long was the lateral? How many frac zones?

  52. 52
    zman Says:

    I asked NFX and got back, “ask the operator, we’re just the poor little partner.” I don’t have a contact at XTO. I’d guess it was 5,000 feet, it may be on the ND map server by today, will check.

  53. 53
    BirdsofpreyRcool Says:

    I am really looking forward to learning what the decline curves look like, now that we are getting more 3FS wells. They think declines are less and that ultimately the 3FS may be more economic than the MB. That could have the effect of more than doubling the reserve guestimates on the Bakken players. Then, add in the developmental growth from in-fill drilling and you have the Gift that just keeps on giving!

  54. 54
    BirdsofpreyRcool Says:

    z — I’ll see if I can find out.

  55. 55
    zman Says:

    BOP – well still listed as confidential. However not far away XTO has been drilling 10,000 foot laterals.

  56. 56
    zman Says:

    BOP – have you looked at the isopach on the L. Bakken, pretty thick this area, lots of generation.

  57. 57
    BirdsofpreyRcool Says:

    z — who has the latest isopach on the LB. Was it in the WLL update?

  58. 58
    zman Says:

    BEXP analyst meeting slides

  59. 59
    BirdsofpreyRcool Says:

    thx. Will go have a look later today.

  60. 60
    RMD Says:

    FST: Simmons out with nice comment abut paying down debt with FCF, asset sales. If alocate $$ to G. Wash (Buffalo Wallow) can increase production in ’10. Only 32% hedged for ’10 at $6.65. Canadian co. QEC claiming big reserves in Utica Shale. (I’m an owner.)

  61. 61
    zman Says:

    Natural gas just can’t fight the negative equity tape/oil, looking tired.

    From Accuweather regarding the New England.

    As the sun sets this afternoon, the cool air will begin to be felt as temperatures fall. Friday will be a much cooler day than the last several have been, so make sure to bundle up Friday night! As high pressure sits right on top of the Northeast, skies will be clear and winds will be calm. This will allow temperatures to plummet to the coldest levels experienced so far this season! Expect widespread freezes and frosts in many locations away from the coast.

  62. 62
    RMD Says:

    Oil Industry Sets a Brisk Pace of New Discoveries. New oil discoveries have totaled about 10 billion barrels this year, on a pace to reach the highest level since 2000. 9/24/09, The New York Times. See: http://www.nytimes.com/2009/09/24/business/energy-environment/24oil.html?th&emc=th.

  63. 63
    bill Says:

    why is chk outperforming hk

    chk is up 17 % vs flat for hk

  64. 64
    jiveyjr Says:

    G. Friedman (Stratfor) just on Bloomberg indicating that sanctions, principally gasoline, against Iran are being rendered ineffective by Chinese/Russian measures. His conclusion seemed to be that without effective sanctions Israel will pursue military resolution which means Iran will mine the Straits of Hormuz yada/yada……I’ve never found him to be excessively zealous with what he predicts.

  65. 65
    zman Says:

    Bill – What time frame? CHK is a lot cheaper stock in the group and didn’t due a deal. HK is growing quite a bit faster but much of that growth is probably factored into the multiple. By the way, HK is above the deal price of 22.86 with 10% more shares out….it just takes time for the market to digest the secondaries in most cases. When HK did theirs, gas was still cliff diving which didn’t help.

  66. 66
    zman Says:

    RMD – see comment #8

    Thanks for the headsup Jivey, heard same the other day and then Russia tried to “open the door ” to further sanctions at the U.N. this week. Look good for the press on stage and in the back rooms, sign new nuclear, gasoline, and arms deals.

  67. 67
    zman Says:

    Anyone see post deal notes from JPM or Credit Suisse on ATPG yet? For a guy who asks some of the most “I don’t follow this story very closely” type questions on conference calls, Alman at JPM sure does get his share of the deals these days.

    Of course, I can’t say much for the post deal support JPM provided to HK shares but again, you can blame falling gas prices, an unwillingness to price that deal at a discount, and the weather on the post deal abnormal sluggishness of the shares.

    HK is well hedged, and will be the #1 or #2 fastest grower in the gas space next year after having put up the #1 performance this year for both production and reserve growth. Their capital program also got a shot from their recent permian sale which should help to slide back the need for another equity deal for some time.

  68. 68
    West Says:

    Does anyone have name or location for the XTO well? Just got off Oil & Gas Investor conf. Subash/Jefferies, Lynn/KOG, Don/EERC Univ of ND. Good infor, maybe I can do a report, but it will have to be later.

  69. 69
    zman Says:

    Things that make little sense today item #1

    Gassy players getting hit more than the market and in many cases more than oily names when gas continues to hold its recent rally post data which was better than expected. I’m used to this occurrence as oil is in the driver’s seat as to what energy does but a couple of outliers I see are SD and KWK. Mulling.

  70. 70
    zman Says:

    West – this is what I wrote about it this morning:

    # Yesterday, XTO announced a Three Forks Sanish completion, with an IP over 2,700 bopd, west of the Neeson anticline, in the Williston Basin.
    # This is the highest rate well I have seen to date announced from the Three Forks.
    # XTO announced that they will be doubling their rig count by year end from 3 to 6 rigs. NFX will be a partner in some of XTO’s future Willliston Drilling.
    # NFX holds a 27% working interest in this well, the Jorgensen 43x-4.
    # NFX has over 7,000 acres in close proximity to the well and over 170,000 acres in the Williston Basin in total.
    # Importantly, this is a section away from a prior Jorgensen well, the 1-4H, that produced 622 from the middle Bakken.
    # In my book, this further derisks NFX’s acreage and is as least as important as the Mathistad well was for CLR a couple of weeks back.
    # Valuation: NFX has been hitting on all cylinders, from Asia to the Deepwater Gulf of Mexico, to the Bakken. At present, it trades at the middle to lower end of its forward CFPS multiple at 4.1x. Recently, NFX elected to curtail a small amount of gas production and yet their guidance for the year remains in the upper half of their previously stated range. It is well performance like this that allows that to occur. 2009 has been a further transformational year and 2010, when the company is scheduled to begin production from four deepwater projects currently under development in the Gulf of Mexico promises to continue to transform the company into a liquids rich, growthy, and longer reserve life name.

  71. 71
    zman Says:

    The API #

    33-025-00943-00-00

    Still on the confidential list

  72. 72
    West Says:

    THX Z, Nothing on NDIC about length still on Confidential status

  73. 73
    zman Says:

    Grabbing lunch, back in 30

  74. 74
    jy Says:

    How does MMR make any money on projects like “Blueberry Hill”? 4 wells total drilled from 2005 – 2009 to depths between 21,000 & 24,000 feet. Well costs must be in excess of $50MM total with no completion costs yet. At $3/mcf gas they’ll need at least 26 BCF to break even on finding and development cost and more gas to pay operating costs over the well life. Breaking even doesn’t take into account any time value of the money. There better be a lot of producible gas in Blueberry Hill!

  75. 75
    bill Says:

    atpg had to spend 900 m for a production platform to get its oil and gas out

    btw, i show 0 shares available for shorting

  76. 76
    zman Says:

    Host is having server difficulties, pardon the slow site today, can’t be helped I’m told.

  77. 77
    zman Says:

    Bill – realize you are talking Apples to Grapefruits there on infrastructure needs as Blueberry hill is on the shelf, in the shallow waters off Louisiana whereas ATPG’s hub is deepwater. World of difference in economics.

    JY – don’t know the pre drill estimate but they never planned these things to be economic in a $3 gas environment. It would have to be a lot bigger than 28 Bcfe to be worth their while given the capital already expended. This is one of the things that keeps me from getting excited about the shelf players. I used to follow a number of them for a living (SGY, SKE, REM) come to mind on the shelf and things were different then. Exploration wasn’t such a dirty word in the North American Gas realm. But now, with the application of capital to this or that shale play being the only governor of growth, and with those reserves being high decline, but also long lived, it is hard to make a case for the risk that comes with shelf players. The idea of deep, deep reserves, like MMR is going after at Davey Jones in only 10 feet of water would alter my thinking there, but the days of the bright spot on seismic shelf straight up exploration with high risk/reward is going with a high stock multiple to boot are in my book over. Not saying people won’t keep drilling on the Shelf at all. Just saying the market is not going to pay up for those short lived, high risk, and more often than not high operating cost reserves.

  78. 78
    West Says:

    For those keeping tabs on the NDIC both Stetson’s and CLR’s rigs are gone from map. I haven’t seen any announcement from either, but Stetson would be yelling loud if they had anything or so I think.

  79. 79
    zman Says:

    As this site continues to be slow, we have activated the backup site at

    http://www.zmanbackup.wordpress.com

    and I will monitor both sites.

  80. 80
    West Says:

    I should have said those East of KOG lands and east of the Missouri. Sorry about that.

  81. 81
    zman Says:

    NG up a dime now at $3.96. Natural gas stocks do not seem to care yet.

  82. 82
    zman Says:

    Emailed in question:

    Z: I know the discussion about UNG has been on your site many times. I understand for the most part why it is not a good mirror of nat gas prices. If you were to explain to someone who does not understand energy why you should stay away, how would you explain it? Thanks. S

    Response:

    I’d show them the track record of UNG vs NG. Wide divergence. The way they operate they roll the contracts each month as the near month futures contract for natural gas is about to expire and buy the next one out. At present natural gas is in contango (contracts further out cost more) but supply is high so as contracts approach expiry, they fall in value. This yields a situation where the fund is constantly buying high and selling low. At some point next year it may make a good investment but I would rather be long a good gassy stock any day as a gas proxy than this thing.

  83. 83
    occam Says:

    re 38 – the 16% above average storage now vs. 23% surplus a while back is mostly due to the larger denominator in the calculation. The surplus has stayed above 450 bcf most of that time.

    I suspect that if storage doesn’t drop quickly toward normal range in December and January, there will be continued pressure on NG prices. People will start to think that we will end the withdrawal season well above normal. Even though there may be a supply-demand imbalance due to declining production, that may be masked by the storage overhang.

  84. 84
    zman Says:

    Occam – Prior years have not looked like that. If the surplus stays flat on Bcf that’s a good sign that deliverability is down, partly due to capacity, partly due to production declines and partly due to demand.

  85. 85
    elijahwc Says:

    #78 – I went to their website and found the following update on the well. Could this explain the map removal?

    Press Release | September 21, 2009

    Stetson Provides Operational Update on North Dakota Drilling and Acquires Producing Oil and Gas Properties

    September 21, 2009 – Calgary, Alberta – STETSON OIL & GAS LTD. (TSXV: SSN) (“Stetson” or the “Company”) is pleased to announce that it has now completed the drilling of its first Bakken horizontal well in North Dakota. The well was drilled to a total measured depth of 13,837 feet, with a 3932 ft. horizontal leg. Stetson is currently running a production liner and packer assembly that will allow for an 11 stage fracture stimulation. Stetson expects to commence the completion of the well in early October 2009 and production results should be known shortly thereafter.

    Stetson and Longford Energy Inc. (“Longford”) also announced that they have signed a letter of intent whereby Stetson will acquire Canadian oil and gas properties from Longford for a purchase price of $425,000 (the “Transaction”) effective September 1, 2009. Closing of the Transaction is expected to occur on or before September 30, 2009, subject to TSX Venture Exchange approval.

    Longford’s Canadian oil and gas assets are situated in the Lashburn area of Saskatchewan, and the Brazeau and Alder Flats areas of Alberta. Total net production is approximately 45 boepd and net operating income is approximately $25,000 per month. Following completion of the Transaction, Stetson expects to have daily production of approximately 175 boepd which is expected to increase in September as additional gas volumes from central Alberta are brought on-stream.

    At Lashburn, Saskatchewan Longford has working interests ranging from 16.67% to 85% in four producing oil wells that produce approximately 30 bopd net to Longford. Stetson is currently a partner with Longford in Lashburn and the Operator of these wells. At Brazeau and Alder Flats, Longford owns interests of 49% and 100% respectively in two wells that have net production of approximately 15 boepd.

    Longford’s oil and gas reserves were evaluated by GLJ Petroleum Consultants Ltd. (“GLJ”) effective July 31, 2009. The GLJ evaluation estimated total proven and probable reserves of 96,000 barrels of oil equivalent (“boe”), with a net present value, before tax and discounted at 10%, of $1,281,000. Stetson will acquire proven and probable reserves at a cost of $4.43 per barrel of oil equivalent (“boe”). As part of the Transaction, Stetson will also assume abandonment liabilities on two wells and an oil battery located at Alder Flats.

    Stetson is an emerging junior oil and gas company with exploration, development, and production programs in Saskatchewan and Alberta, Canada and North Dakota, USA.

    For further information, please contact:

    Bill Ward, President & CEO
    Phone: (403) 531-1711

    Email: bward@stetsonoilandgas.com

  86. 86
    zman Says:

    NG approaching $4. Would like to see a $4+ print on the close but not holding breath. Broad market and the dollar strength still sapping the group and other commodities in general.

  87. 87
    zman Says:

    Eli = yes.

  88. 88
    jy Says:

    Z,
    Tks for #77. I echo your sentiments. After more than 20 years exploring on the GOM shelf, I don’t see public companies as a good fit for the type of prospects that remain at less than 15,000′. That has become the land of private outfits.

  89. 89
    elijahwc Says:

    Thanks Z. I always wonder whats really going on when cos mix multiple news items in a single release.

    House keeping question. Is NG/1 the item to watch for natty on Thomson or is there a better symbol or site.

  90. 90
    zman Says:

    Crude closing down $3, that’s about 10% in 2 days.

    NG closing up a dime at 3.96. Notably, the winter strip was up more than the front month. Feb gas is $5.90. Some cold weather but no tropical weather. We should see some short covering with tomorrow’s CFTC report but I said that last week and it really was not apparent.

  91. 91
    zman Says:

    NG/V9

    then open desktop services and add futures montage

  92. 92
    elijahwc Says:

    THX

  93. 93
    zman Says:

    JY – right, LBO’s for the whole shelf, the Callon model.

  94. 94
    zman Says:

    Bill – meant to ask, is there a website where you get shares available to borrow data? I used to have to call Lehman’s stock loan unit for that.

  95. 95
    zman Says:

    Denise – thanks for that piece on the dollar vs crude. Guy is basically saying it is bad that crude feel out of a coiling pattern and that we could no be entering a phase where people want dollars and abhor risky assets (commodities). I think I summarized his thoughts as it was on a chart in small print. I happen to disagree with that point of view and think that an ugly oil report happened to come on the day of a market reversal in the broads. Gasoline demand is not that bad. Distillate demand will rise soon on a seasonal basis alone and will likely start to show some signs of recovery on the diesel side as well (harvest, trucking). Anyway, just throwing out the other side of the coin.

  96. 96
    zman Says:

    Bill – ATPG still highly reactive to swings in the market, this late rally is seeing that name fished off the bottom. This may be one of the more quickly “forgiven” deals.

  97. 97
    Denise Says:

    For all of you that usually have CNBC off
    the Julian Robertson interview is worth watching

    http://www.cnbc.com/id/15840232?video=1274981993&play=1

  98. 98
    Jerome Blank Says:

    It would be nice to see SD hold its daily trendline on a closing basis (traditional daily chart) SD still very solid into its P&F buy signal, no risk there right now

  99. 99
    zman Says:

    Jerome – do you lend your P&F analysis to the market at large?

  100. 100
    Jerome Blank Says:

    Interesting to watch KOG and WRES intraday, WRES performing a little better on a percentage basis hugging its 200 period MA on a 30 min chart, KOG is trying to base, but remains well above its 200 period MA on the 30 minute intraday…all in all although down a bit more on a % basis, KOG seems to be in a little better techincal shape at this moment

  101. 101
    rseidman Says:

    Denise: Thanks for the CNBC interview link. We all need to take heed.

  102. 102
    Jerome Blank Says:

    Re: #99, no, I just enjoy sharing with this group because there seems to be some interest and as a new member I would like to contribute something which I hope is of some value…

  103. 103
    zman Says:

    Yes, thanks, listening now. Exact opposite message of the Fed, Treasury, and the Administration on the spending issue. Could not agree more with the “Armageddon if China and Japan won’t continue to buy U.S. debt”

  104. 104
    Denise Says:

    I thought I read somewhere the other day Tiger was short the 30 year
    Kass started shorting it about a week ago

  105. 105
    West Says:

    anything on XCO ?

  106. 106
    zman Says:

    Market and group off the LOD, seemed like a little modest nibbling in beaten back energy names last quarter hour.

    XCO – had an analyst day yesterday, talked up Haynesville and Marcellus results, don’t have details.

    Beerthirty.

  107. 107
    Denise Says:

    Correction-(about Julian Robertson)-was thinking about a Jim Rogers interview I recently viewed
    and Kass did not elaborate on maturity-probably the ten yr is what I would imagine he started shorting

  108. 108
    Denise Says:

    I did come across this thought on gold
    from Robertson

    “While Julian certainly thinks inflation is in our future, he is hesitant to buy gold. In the Value Investor Insight interview, he goes on to say that,

    “I’ve never been particularly comfortable with gold as an investment. Once it’s discovered none of it is used up, to the point where they take it out of cadavers’ mouths.

    It’s less a supply/demand situation and more a psychological one –

    better a psychiatrist to invest in gold than me.”

  109. 109
    zman Says:

    EVEP on the tape with a secondary, 2.8 mm units, 14% vs their outstanding unit count.

  110. 110
    choices Says:

    http://www.bloomberg.com/apps/news?pid=newsarchive&sid=awiq7K1Ch3BU

    Prof Verleger in Calgary predicting $30 crude (article dated 21 Sep)-not sure what this guys creds are but posted FWIW.

  111. 111
    zman Says:

    Don’t know him. His statements fall into the “master of the obvious realm”. We’ve been bloated all year on distillates, and I have been saying that crude would be unsupported if demand there did not pick up on time. Unsupported however does not mean $30 oil and if it does leg hard lower OPEC will be in emergency session with renewed cuts. Nigeria will heat up, etc…

  112. 112
    bill Says:

    94

    my trading platform (fidelity) shows it

  113. 113
    bill Says:

    i think interactive brokers site does the same as well

    short interest on atpg soar to over 10 m from 7 2 weeks ago so i guess the underwriters were front running this thing

  114. 114
    elijahwc Says:

    RE: 109

    And TRCR and AUXL and SMTB and still the evening is young.

    Supply will now begin to race with a weaker tape.

    CFOs who didn’t repair their balance sheet into this rally now must allocate time to preparing their resume.

  115. 115
    elijahwc Says:

    and, VIA Viacom Announces $550 Million Debt Offering

  116. 116
    elijahwc Says:

    and, Conexant Prices 7M Shr Offer At 16% Discount

  117. 117
    bill Says:

    looks like atpg called the top of the oil market

  118. 118
    bill Says:

    been looking at the numbers

    q 3 pl will be flat

    they can use the cash just raised to reduce the net debt number

    q 4 volumes pick up

    and next year it doubles

    march 10 calls may be the way to play this on a further pull back

  119. 119
    elijahwc Says:

    “march 10 calls may be the way to play this on a further pull back”

    I believe Leon Levy in “The Mind of the Market” offered that one should always allocate 5% of a portfolio to leaps.

    Wonderful read that should be in every investors bookshelf.

  120. 120
    zman Says:

    NG at 4.000 in AH.

    Article saying it won’t last because storage is going to get full (insert duh here)

    http://www.marketwatch.com/story/natural-gas-rally-at-risk-of-record-inventories-2009-09-24

  121. 121
    zman Says:

    Eli – deals picked up 3 months ago too. Then the window closed for a time. HK was on the back half of that window with a “hey wait, I want to sell some shares too” offering. After the window closed the group and the market powered higher. I see the pickup in deals again but you have not seen the group leadership (APC, APA, DVN, EOG, CHK, XTO) doing much in terms of stock deals. If they do, then I think it is a clarion call. Until then, I think we get some hinky days in the market, the shorts start getting more vocal … and then they get jammed.

  122. 122
    zman Says:

    CHK on the tape with a midstream JV with a private equity firm.

    * CHK to receive $588 million in cash and have 50% ownership in the new midstream company.

    * Most of the gathering assets CHK will contribute come from its Barnett Shale gathering system. Other gathering assets included come from a variety of conventional plays in the mid-continent.

    * They have been talking about this monetization for quite some time and I would think the stock should react favorably to getting this deal done.

  123. 123
    West Says:

    ATPG: http://www.schaeffersresearch.com/commentary/content/options+update+short+strangling+atp+oil+gas+corp/observations.aspx?click=home&ID=95361&source=businesswire

  124. 124
    West Says:

    Bill on # 113 did u get some updated figures today on ATPG short interest? The site I use is still showing the 7 mill …..http://www.shortsqueeze.com/?symbol=atpg….thx

  125. 125
    West Says:

    http://www.shortsqueeze.com/?symbol=atpg

  126. 126
    PackMan Says:

    Some climate stuff to chew on, fwiw:

    via Instapundit, we have this story at PhysicsWorld:

    Researchers in the US may have discovered further evidence that the Sun is heading towards an extended period of quiet activity, the like of which has not been seen since the 17th century. The impact this may have on climate is poorly understood but it would be good news for satellite communications, which would continue to avoid the harsher impacts of space weather.

    Scientists have long known that the Sun’s magnetic activity varies over a cycle of approximately 11 years. Greater magnetic activity leads to more “sunspots”, or darker patches visible on the solar surface. These sunspots are regions where the magnetic field lines have become twisted due to differential rotation in the outer layers of the Sun.

    Particularly violent sunspots can result in the sudden release of magnetic energy in the form of solar flares, which cause the outpouring of protons and electrons into space. Some of these particles can reach the Van Allen radiation belt of Earth – the outer region of Earth’s own magnetic field – where they are accelerated to speeds approaching the speed of light. During the solar maxima, when sunspot numbers are at their peak, the abundance of particles shooting around in the radiation belt can become a real hazard to the satellites that reside there.

    Extended calm
    We were expecting to reach the next solar maxima around 2011–2012. However, space weather experts have been surprised over the past few years to report very few signs that the number of sunspots has been picking up since the last solar minimum in 2006. This has prompted some space scientists to forecast that we are heading towards another prolonged spell of quiet sunspot activity, the last of which was observed between 1645 and 1715 in a period called the “Maunder Minimum”.

  127. 127
    PackMan Says:

    Related:

    “Yesterday, as one of the articles on NPR’s “The Takeaway,” they were going on about “climate stability,” rather than “global warming” or “climate change” or whatever it is today.

    The guy doing most of the talking, some climate blogger from the NYT, was talking about how the entire planet doesn’t experience climate change uniformly, but rather that different parts of the globe experience differnt sorts of climate change, at different rates.

    The reason for all this blather eventuallty became obvious: the hurricane season is going into its cyclic lull, which will last for about 30 years, so environmentalists aren’t going to have hurricanes to beat us over the head about climate change. They’re prepping the battlespace for the notion that “even though you have it good, look at these poor people over here.”

    So, I think he environmental community is expecting weather patterns to moderate over the US in the next few years, and they’re grasping at whatever they can inorder to remain relevant.

    Personally, I think it’s all crap. The Sun is the driver for all the warming or cooling. What we might be doing is roundoff error.”

  128. 128
    jiveyjr Says:

    I don’t see a post since 10:55; everyone go to the saloon without me

  129. 129
    bill Says:

    Packman, you are a wise person.

  130. 130
    bill Says:

    atpg short interest is 10 m shares as west reported

    total shares outstanding iss about 50.0

    % Owned by Insiders
    16.82 %
    % Owned by Institutions
    49.80 %

    only 17.5 m shares are owned by the public

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