Monday Morning And All Is Greenish


The Week Ahead:  Slow start, then a deluge of data

  • Monday 9/28: No Economic data scheduled
  • Tuesday 9/29: IPAA OGIS San Francisco Begin (see below), Case Shiller home prices, Consumer Confidence (57 expected vs 54.1 last read),
  • Wednesday 9/30:  EIA Oil Inventory Report, EIA Natural Gas Supply Update (for July), ADP employment, GDP revision for 2Q (expect -1.2% vs -1.0% last read), Chicago PMI (Sept expected 52% vs 50% last read)
  • Thursday 10/1: EIA Natural Storage Report, Jobless claims (548K vs 530K last read), personal income, consumer spending, ISM (53.5% expected vs 52.9% last read), construction spending, pending home sales, motor vehical sales,
  • Friday 10/2: Nonfarm payrolls (expecting -167K vs -216 K last month), Unemployment rate (expect 9.8% vs 9.7% last month),  factory orders

In Today's Post:

  • Holdings Watch
  • Commodity  Watch
  • Stuff We Care About Today - IPAA tomorrow, CHK Midstream call
  • Odds & Ends

Holdings Watch:

  • $10KP II:
    • $15,000
    • 40% Cash
  • The Current Holdings tab is updated.


Commodity  Watch:

Crude oil fell 9% last week to close at $66.02. Blame a weak equity market, bearish looking oil inventory numbers from the EIA, and a small bounce in the dollar.  The 12 month crude strip is now trading at $68.80. This morning crude is trading fairly flat after being weaker in overnight trading.

  • Nutbag Watch: Iran test fired short, medium, and long range missiles over the weekend, day's before a Oct 1. meeting to discuss the future of its nuclear program.  Iran's long range missiles, the Shahab 3 and Sajjil 2 have ranges of about 1,240 miles putting Israel within easy reach.
  • China SPR Watch: China completed filling 100 mm barrels of strategic reserve capacity earlier this year and has begun construction of another 170 mm barrels of capacity, it now says will be in service by the end of 2011 (2 years earlier than previously thought). This will help to keep Chinese demand elevated as the country continues on a build it and fill it mode.

Natural gas continued its recent rebound, rising 5.5% last week to close at $3.99.  The November contract takes over as the prompt month tomorrow and is trading at $4.94. The 12 month strip is now trading at $5.71 and as you can see below, there is ample opportunity for E&Ps to hedge out a portion of their 2010  production at or above $6.  The recent rally should also allow many E&Ps to dodge a 3Q price related reserve write down. By mid week we will have fresh supply numbers from the EIA. If these don't show more significant declines I would not expect the rally in gas to continue or at the very least, I would expect the pattern of the last few months to resume, with a rapid sell off in the prompt month contract as we await better looking numbers "next month". If you refer back to the wrap post you can also see that short interest contracted by 15% last week so while the shorts have noticed the recent rally, they aren't yet scrambling for the exits and longs fell by 8% as the rally seemed at times to run out of steam.  This morning gas is trading slightly lower but expect extreme volatility today with expiration.

  • Weather Watch: Rapid Change. Cooling Degree Days (CDDs) compared to gas storage injections:

    • Week Before Last: 40 CDDs which contributed to a 67 Bcf injection.
    • Last Week: 43 CDDs vs 47 forecast. This was much warmer than last year and normal for this time of year. This should yield a 60 or smaller injection this week.
    • This Week's Forecast: Plummet to 22 CDDs which is exactly normal for this time of year.
  • Weather Watch: Cooling Off In The Week Ahead. Rockies Snow, New England and Midwest Chill. While CDD's plummet, Heating Degree Days begin to perk up on schedule. One of the worst things that can happen to gas demand during the shoulder season is an extended mild Fall, where neither heating demand nor cooling load are intense. This week we are seeing what looks like the beginning of a rapid switch with cold (and snow) in the West and a cooler air in the East.


  • Cabot Responds To Pennsylvania. Last week Susquehanna County order COG to stop all fraccing activity in the county after three surface leaks of frac fluids by contractors Baker (private) and HAL.

    • COG reported the frac fluids were 99.5% fresh water and 0.5% gel. They said the mixture is not hazardous or dangerous,
    • COG says surface remediation efforts were successful,
    • COG says this cease fraccing order has no impact on their drilling (elsewhere presumably) and their production will not be impacted,
    • They also released a Marcellus update showing production from the region reached a new high for the last week and move them to be slightly above guidance for the back half of the year.

      • Their most recent well had an IP and 30 day average rate > 10 MMcfepd.
      • They also announced 90 day production averages of 6 MMcfepd which is strong for these high decline rate wells.


  • Tropics Watch: Very quiet.

Stuff We Care About Today

IPAA OGIS San Francisco - Tomorrow through Thursday: Full Schedule.

Tuesday IPAA Presentations of Interest (all times EST)

  • 11:25a GDP - Haynesville update, look for fresh slides tonight.
  • 1:55p SFY - just listening for E.F.S. well results on the western side of the play and why the stock should be so richly valued after so many past fumbles.
  • 2:20p HK - potentially has news on two more Eagle Ford wells, comments on next set of asset monetizations
  • 5:05p BPZ
  • 6:20p SGY
  • 6:45p FXEN - See comments from last Wednesday's post.

CHK Midstream Call, today, 9am EST:

RAME Borrowing Base Reaffirmed. First one of these I've seen for the Fall season. Could be a sign of bank's willingness to be patient  as oil prices remain highn and as the gas price strip telegraphs better times ahead for producers. Nice to see banks not yet pressuring the smaller names in the group either.  

Odds & Ends

Analyst Watch:

  • (COG) upped to Buy at SunTrust
  • (CHK) target upped from $30 to $35 at FBR

Worth Reading Watch:


148 Responses to “Monday Morning And All Is Greenish”

  1. 1
    zman Says:

    CHK midstream monetization call underway

  2. 2
    zman Says:

    CHK talking about more VPPs down the road, including some Permian oil and some far east Appalachian assets.

    Analyst meeting in NYC in a couple of weeks. Will be summarizing their 2010/11 plans then.

  3. 3
    zman Says:

    NG down 15 cents on the open, out months down a little less.

  4. 4
    zman Says:

    Yom Kippur slow trading. Group listless to down with little news today, no direction from the commodities. Tomorrow news flow should pick up as IPAA geared press releases are fired off. Market drifting high enough to offset Friday’s drop, little else. Yawn.

  5. 5
    zman Says:

    WLL and BEXP down more than the group, looks like noise, small sellers early, little more.

  6. 6
    elijahwc Says:

    IOC InterOil: Stock jumps 1% following a DJ story about GAIL planning stake buy in InterOil PNG LNG project (38.60 +0.46)

    DJ reports India’s largest gas distribution co, GAIL (India), has begun discussions with Canada’s InterOil (IOC) on the purchase of a stake in the latter’s liquefied natural gas project in Papua New Guinea, a person familiar with the matter said Monday. The Indian state-run firm has joined a growing number of Asian firms keen on acquiring a strategic stake in the next big liquefied natural gas project in Papua New Guinea to secure future supplies. “The discussions are at a preliminary stage…It’s going to be a strategic investment. Gail plans to ship LNG back to India from Papua New Guinea,” said the person. China National Offshore Oil (CEO) and India’s Petronet LNG have also expressed interest in joining the project, which has been proposed by Liquid Niugini Gas Ltd., a consortium of companies including InterOil, and approved by the prime minister of Papua New Guinea. “InterOil’s CEO has met the GAIL team two-three times…They’ve offered GAIL a 2.5% stake in the project and an equivalent commitment of LNG,” the person said.

  7. 7
    zman Says:

    Morning Eli, thanks. I saw one of Reef’s other favorite names, HDY, is speaking at the tail end of IPAA on Thursday, just after KOG.

  8. 8
    1520sbroad Says:

    i would be curious to hear any gold thoughts from the group… technicals or fundamentals or geopolitical commentary.

    After some reading over the weekend and several lengthy conversation with Jewish friends – My thought is that this iranian/israeli issue will boil over and there will be shots fired sooner rather than later. There are likely a lot of discussions going on today at synagogues worldwide about how and what to do.

    I think the oil picture is clearer – shots fired = prices up.

  9. 9
    BirdsofpreyRcool Says:

    Good morning.

    Slow start to the morning… don’t think it will get much livelier.

    TechTrader is at 50/50 today. So, he has already left the office.

    HeadTrader says that nothing happens on Yom Kippur. Plus, he was at the football game last night, so moving slow. Like the market.

    Good day to ask questions and think big thoughts. Like, why does the rally in “toxic assets” continue and what does that mean for bank earnings? Why care about banks?? See z’s comment about RAME above. You don’t want weak, pissed off banks, going into redetermination season!

  10. 10
    zman Says:

    1520 – yeah, nobody likes living in fear. Ahmad is multi-time offender on the lie scale and a proven nutbag (although Ghaddafi is up there with his proposal to abolish Switzerland). Israel has been very patient but folks I know at Seeking Alpha are a bit worried.

  11. 11
    BirdsofpreyRcool Says:

    This Iran thing is really troubling/scary/explosive. I agree with 1520… I hope we avoid shots fired, but I don’t see how. Oil would spike into the 100s, I bet.

  12. 12
    zman Says:

    Welcome back BOP.

  13. 13
    BirdsofpreyRcool Says:

    Thanks, z. Good to be back.

  14. 14
    zman Says:

    BOP – I think a bombing run over Iran would add $10 within minutes. I think shots fired in the Straits of Hormuz would add $20, more if something actually sank. Market reaction likely mixed as commodity stocks advance and other things tank as the GDP floundering on high oil prices argument gears up.

  15. 15
    BirdsofpreyRcool Says:

    People wondered what would provide the next leg up in the mrkt? Well, as we have been talking about… access to credit means M&A is on the table. If people don’t buy stocks, companies will. Should make for exciting Mondays again.

    Note to self — do not go short the mrkt at close on Friday. Merger Mania is going to heat up.

  16. 16
    1520sbroad Says:

    Iran/Israel – explosive is likely the best word to describe the situation.

  17. 17
    BirdsofpreyRcool Says:

    z — it’s a binary world. Something crazy happens, it’s going to go down. Something crazy doesn’t happen, it’s credit-primed to go up. Guess that means Volatility still reigns.

  18. 18
    BirdsofpreyRcool Says:

    Funny thing, the best “hedge” in both scenarios is oil.

  19. 19
    1520sbroad Says:

    #15 – agreed there. Still loads of cash sitting on corporate (non-financials) balance sheets. There are still some decent valuations out there to be had if you can pay cash.

    BOP – Debt issuance still roaring?

    I’ve seen a lot of IPO’s too.

    Get while the getting good…

  20. 20
    zman Says:

    BOP = yep. Me options trader so volatility is good a thing.

    WLL keeps offering these early morning discounts for the watchful.

    BOP – re oil. Kilduff said the oil sell off stopped dead in tracks by Iran. Now I don’t normally agree with that chap because he is often a rear view mirror driving kind of guy if you get me, but in this case, the Iran trade may be on. It started too late in the week last week to get momentum and Ahmad hadn’t fired off one of his science projects at the time. Fresh new week and Iran has to meet the 6 parties on Oct 1.

  21. 21
    BirdsofpreyRcool Says:

    1520s — corporate bond funds can’t cash the deposit checks fast enough. That cash has to be put to work, as people didn’t send in their hard-earned earnings to sit in 0.5% money. Companies and i-banks know this. Especially high yield… it’s a technically-driven market at it’s best. Money flows in, deals will get announced to soak up that liquidty. Just a fact, Jack.

  22. 22
    Nicky Says:

    Morning all.

    Lines in the sand for the SPX – 1038 means the rally is done. 1062 and we see new highs.

    I am looking at a couple of wave counts (of course!). The bearish one says this is wave ii and we fail around here and head lower in iii of 1. This is not my preferred count.

    Preferred count has us on our way to new highs in v.

    A slightly less bullish alternative short term is that iv is playing out as an abc and we are currently in b. So we will need a c down before we head to new highs.

    I can’t believe how soft oil is on the back of this Iran stuff.

  23. 23
    Dman Says:

    And yet, all of the chatter about Iran, Israel etc is seemingly being completely discounted by the markets.

  24. 24
    zman Says:

    KOG speaking Thursday afternoon. Any chance they have 7/8 well news BOP/West? Seems a bit early but thought it was getting kind of close and am too lazy to check my notes.

    Nicky – thanks much for the levels. I think oil is soft because the market is 1) so oversupplied, 2) so over stored, and 3) somewhat confident that in the end nothing will happen this time. My sense is that this time is different on that last one. Ahmad maintains power by handing out cash to the poor and giving away gasoline at a loss. Stop those two things and he has more problems. China and Russia have the power to cut him off, not a lot of people think they will but ya never know.

  25. 25
    BirdsofpreyRcool Says:

    Good climate to hold calls on the oily kids. Economy creeps better = oil up. Iran goes nuclear = oil up.

    Caveat — Congress passes Tax-and-trade, US goes down, dollar drops through the basement floor.

  26. 26
    Dman Says:

    #20 part 3.

    Stocks doing better than crude here. With the recent crackdown on position limits etc, could mean that stocks will be the vehicle for the Iran trade, if it indeed on.

  27. 27
    zman Says:

    Bill – Got your email over the weekend, forgot to address due to soccer, then football etc. Will do shortly.

  28. 28
    BirdsofpreyRcool Says:

    Dman #26 — looks like you’re right. Oily KOG sure feeling the luuuuuuuuuuv this morning.

  29. 29
    zman Says:

    BOP – read the links at the bottom of the post. Wyo posted the first one on cap and trade. Mine is the second because I figure if you are going to tell people to reduce their carbon footprint, you should walk your talk.

  30. 30
    zman Says:

    BOP – any thoughts on 24?

  31. 31
    VTZ Says:

    BOP/Nicky – Have you done/seen any work on the impact of rate hikes on corporate earnings?

    I’m talking in terms of sensitivies as in for a 1/2/3% increaase in the Funds rate how that would affect earnings?

  32. 32
    elijahwc Says:

    Gas storage article on Bloomberg:


  33. 33
    Dman Says:

    Z – China wants to by crude on the cheap while it is there to be got. They also want the world economy to stabilize. This is a matter of desperation for them, as unemployment in China causes political unrest rather directly. I can’t see how it is in their interests to blow up the Gulf.

  34. 34
    reefguy Says:

    z- cannot print morning post, what’s up?

  35. 35
    zman Says:

    I don’t think cutting off gasoline blows up the Gulf. I think it fosters a coup.

    Reef – Hmmm. When you say can’t print are you hitting the “Print this post” link at the top of the post?

  36. 36
    1520sbroad Says:

    Iran/Israel continued:

    Iran – No question about nutbags being near the top of the pecking order here. Also a fair amount of “martyrdom as the way to go” sentiment too. Can China and Russia reign them in? China – good question there – i don’t know. I think the Chinese backpedal this one. Russia – far more interesting question. Maybe they backpedal, tell Iran to play nice, wait for Israel to lob an airstrike in, crude prices go up – Mother Russia likes higher crude prices.

    Does the US get involved – i don’t think Obama pulls any triggers first. Lots of talk though.

    I think Israel pea gravels suspected nuclear sites. Hormuz gets closed, lots of yelling by other Arab nations, crude prices go up, everyone says it’s a good thing we are “awash” in crude until we get this settled. Prices stay high.

  37. 37
    Dman Says:

    Z, BOP – I’ve been thinking for a while that the persistent bid in the smaller oily players is a kind of advance guard for the next move up in the whole oil complex.

    I need to re-read Simmons’ views, but I think he is much more bearish on non-OPEC production than the EIA etc. His concern that a lack of investment during the crunch is going to expose “naked declines” in many fields, i.e. declines without much mitigation being done.

  38. 38
    reefguy Says:

    z- it says permission denied 🙁

  39. 39
    zman Says:

    Eli – Well at least Shork now sees $4 and not $0. Gas is going to go into storage, that’s where. The 3,850 upper limit is EIA’s best guess on the max. If you look at non-coincident storage the number is higher. No doubt we see more and more OFO’s but the guy has been short, was very short at $2.50 when he said $0 so $4 last week probably hurt a bit.

  40. 40
    Dman Says:

    Z – law of unintended consequences: last time the US staged a coup in Iran, installing the Shah, it led directly to the current theocratic state.

    Before that coup they had a moderate, non-theocratic democracy.

    So who knows what would result this time? But any such convulsions would have to destabilize the Gulf, oil prices will rise & that will deliver a knock on the head to the economy. Again, I wouldn’t want to try selling that to the Chinese.

  41. 41
    zman Says:

    1520 – that’s a pretty good road for Russia as they get to rebuild whatever Israel blows up.

    Reef – Whoa. See that. I’ll get my guy on it, probably takes a day or two to fix, apologies for the inconvenience. It cuts and pastes into Word ok.

    E&P oily gains on the morning, very tentative, very low volumes.

  42. 42
    elijahwc Says:

    #39 How did I know that would wind you up…hee, hhee.

    Howard Weil comments on FST and CRK taken from briefing.com:

    Howard Weil upgrades FST to Market Outperform from Market Perform and raises their tgt to $30 from $29. The firm notes that improving gas prices should help facilitate planned divestitures, which should improve the co’s balance sheet and provide for a relatively robust capex program next year. The most notable ramp in activity should occur in the Granite Wash, which the firm believes will provide significant catalysts over the next 6 months.

    Howard Weil upgrades CRK to Market Outperform from Market Perform and raises their tgt to $49 from $48 given the co’s relative valuation discount. The firm believes that CRK holds the highest quality acreage among the 3 Haynesville pure-plays in the firm’s coverage universe. In addition, the co’s unhedged production portfolio in 2010 also gives it the greatest leverage to improving gas prices next year.

  43. 43
    Dman Says:

    #40 Imaginary conversation selling the Iran thing to China: ” … and would you like Treasuries with that?”

  44. 44
    BirdsofpreyRcool Says:

    VTZ — #31… haven’t seen any. Govt rate hikes are not inconsistant with rising earnings, however. The ones who “feel” the hike are the banks. To the extent it bites (too much) into the bank spreads on monies borrowed/loaned, there is less capital to lend to business. That is the most direct affect on companies, not the rate hike itself, per se. But, a better economy means that banks can charge more for money, so it is a balancing act.

  45. 45
    BirdsofpreyRcool Says:

    z — who are the oiliest of the bigger independents?

  46. 46
    zman Says:

    Eli – you now owe me a beer.

    CRK – funny how people view that lack of hedge as a hurt or a help from day to day. And a lot of the bigger cap E&Ps are in the same unprotected waters next year.

    Dman – So maybe we have to give them the Bakken as the cost of world peace.

  47. 47
    BirdsofpreyRcool Says:

    z — hands off my Bakken! I love that play. You can’t give it to the Chinese. Period.

  48. 48
    zman Says:

    re 45 % of production from oil

    APA 51%
    APC 29% – (OIL % CLIMBING)
    CHK 8%
    DVN 22% – (OIL % CLIMBING)
    XTO 15%

  49. 49
    reefguy Says:

    z- wanted to past your forward curve, cannot paste it.

  50. 50
    zman Says:

    Emailed in ?:

    Z: Chinese sovereign fund committed to invest $1B with Oaktree Capital Mgmt. Thoughts? S

    I saw that yesterday, thought it was a distressed debt investment they were after. BOP could answer this better than I.

  51. 51
    BirdsofpreyRcool Says:

    Thanks, z. So, during this Iran Crazy Season, makes it worth holding a few calls on the bigger oily names. Like APC (which you have, I know). Frankly, buying a few far-out-of-the-money calls might make for a nice (cheap?) hedge.

  52. 52
    Dman Says:

    For VTZ:


  53. 53
    zman Says:

    BOP – truly I was going to sell it to them. Good luck selling U.S. reserves to the Chinese, what was the last attempt, Unocal?

    Reef – I went to the bottom of the page, clicked and dragged to the top, then, with everything highlighted, I hit control C. In word, I hit control V and wallah, chart and all.

  54. 54
    Dman Says:

    BOP – #51 how far out would you buy?

  55. 55
    Dman Says:

    Z – SD somehow got itself in the green. I though it had forgotten how to do that.

  56. 56
    BirdsofpreyRcool Says:

    Love the boys and girls at Oaktree. One of the best in distressed. But, they also have a large private capital arm. So, could be that the Chinese are on the hunt for private companies in the U.S. If the leveraged loan/high yield mrkt continues to rip, $1B could go a long way.

    Been waiting to see more of this. Less buying of US teasuries by our creditors… more buying of our companies, assets. Bound to happen.

  57. 57
    elijahwc Says:

    Z – #50

    Howard Marks = the best busted distressed credit guy ever.

  58. 58
    zman Says:

    By the way, why is the market soaring? Xerox and other M&A? Just curious, it is dragging oil back up.

  59. 59
    BirdsofpreyRcool Says:

    Dman #54 — thx for asking. z is the options expert… what do you think, z? I mean you can buy a lot of options for a nickle, if you go far enough out. That’s the kind of out-of-the-money insurance i’m talking about.

  60. 60
    Dman Says:

    BOP #56 part 2. Yep, me too. By buying private, do they get under the congressional radar?

    Z – #58 Asking that myself. I think the market is doing a good job of driving everyone nuts, which is what it’s supposed to do, right?

  61. 61
    zman Says:

    BOP – The market is a silly place. If it thinks oil is going to rise it will indeed target liquidity first (XOM, COP, APA). I prefer to play with the oil focused kids, without all the baggage….guys like WLL, CLR (completely unhedged) and EOG (gassy but lots of oil plays just taking off and also unhedged). One thing that happens with options is the illusion that time translates to safety….but there are some low premium Jan calls out there.

    Oil vs Gold on CNBC now

  62. 62
    BirdsofpreyRcool Says:

    Dman — by investing the money with Oaktree, it’s the fund who would directly own the assets/companies. If Congress started looking at the ownership structure of funds buying companies, i think that would pretty much destroy the mrkts in the U.S. So, it’s frankly brilliant to give $$ to fund managers. And it’s frankly common sense on their part. I just don’t see how we can continue to be happy with the Chinese buying our Treasuries, but object when they buy our stocks. I think that is too inconsistant for even our Congress to appear.

  63. 63
    zman Says:

    Oaktree works with Treasury already

  64. 64
    elijahwc Says:

    #50 & #56

    Howard’s July 8 ’09 letter when time permits:


  65. 65
    BirdsofpreyRcool Says:

    #63. yep. So does pimco and blackrock, to name a few others.

  66. 66
    zman Says:

    Right BOP, from MW~ Oaktree was among the nine big asset-management firms chosen by the Treasury Department as fund managers for the Public-Private Investment Partnership, or PPIP, the government program designed to rid banks of toxic assets.

  67. 67
    VTZ Says:

    RE 61: Gold because you can store 1 million dollars of gold but you can’t store a million dollars of oil and there’s lots of millions out there.

  68. 68
    BirdsofpreyRcool Says:

    KOG — just to be clear. The stock ran up to almost $3 on M&A rumors. But Lynn’s in a good place. He doesn’t have to sell to repay banks or creditors. He has good partners. He is proving up his acreage. Oil prices are stablizing and could possibly go a lot higher. He knows KOG as a stand-alone is too small. But he is not going to give away the assets. This is good stuff. But makes for a highly-volatile stock.

    With M&A currently off the table, KOG will have to do a 2ndary at some point. But, should be only about 5% dilution, given KOG’s 2010 drilling schedule (unless KOG wants to raise some M&A capital of their own to put to work). So hardly a reason to dump the stock, if you think oil stays here/goes higher.

    Just a few thoughts, on M&A Monday.

  69. 69
    zman Says:

    re #22. SP hit 1601. And stalled.

  70. 70
    zman Says:

    BOP – they can’t have 7/8 results at IPAA this week can they?

  71. 71
    BirdsofpreyRcool Says:

    z #70 — don’t think so. But need to recalibrate the schedule there. Would expect to hear about 7/8 in about 2 weeks. Could be less, tho. They are getting better every day with their completion program. On the other hand, they are not RUSHING to get things done… and they are living within cash flow. So, Lynn is keeping to a pretty well-orchastrated schedule. No reason to rush. Try to minimize costs. Keep a cool head. Make good wells. That is the mantra.

  72. 72
    zman Says:

    NG vs Oil Stocks at 11:20 est on CNBC

  73. 73
    zman Says:

    re 59. I’m no options expert, I think AAA is the onsite former pro options trader. I just know a thing or two about oil and gas stocks.

  74. 74
    Dman Says:

    #73 Ha! For a non-expert, you must have the world record for number of option trades.

  75. 75
    bill Says:

    The analyst think more upside for ng and oil but more for ng.

    One thing about NG storage, once you are full you are full, so there is a cap to the oversupply.

    the analyst said one year 400 bcf was taken out with a normal winter season due to fuel switching. He is expecting a colder winter

    anyways, i buy in to better day for ng with the rig reductions, let alone fuel switching

  76. 76
    zman Says:

    Bill – yep, that guy from caprock is one of the few talking heads I like on TV. He did say go long the service co’s which I still don’t buy into but he’s otherwise with me on the natural gas theme. He’s very correct (if one can be very correct) about the ability to quickly pull gas from storage due to cold temps.

    One of the things that bugs me about the guys who think NG should be free because we are full and getting fuller is their ability to ignore the directionality of supply. In the past, when we were at previous records, front month gas prices were more than double current ones, yet production was on the upswing. Now, rigs have been curtailed and while high rate completions have kept production up longer than expected, production is flattening due to the mountain of conventional gas production which is the main component of U.S. supply and which falls at an inexorable rate.

    Nicky – SP above 1062.

  77. 77
    bill Says:

    >– law of unintended consequences: last time the US staged a coup in Iran, installing the Shah, it led directly to the current theocratic state.

    What led directly to the current theocratic state (Iran) was the election of Jimmy Carter.

    I haven’t voted for a democrat since. Thank you Jimmy for opening my eyes.

    Everything since then can be

  78. 78
    zman Says:

    Little stuff moving well again
    KOG up 13%
    HDY up 9%
    WRES up 5%

    most of the big caps up 1%, most of the mids 1 to 2%.

  79. 79
    zman Says:

    Nicky – way to stop the market dead in its tracks at 1062. I’m in awe.

  80. 80
    RMD Says:

    FST wuld be a pullback on a P&F chart at 18 and I will be a buyer.

  81. 81
    zman Says:

    RMD – they have a bunch of nice wells in all the right gas plays.

  82. 82
    bill Says:

    Z ty for note on my note

    I noticed Barclay puts a multiple on cash flow PICF that ranges from 3 to 7 depending on the company then subtracts debt and adds or subtracts free cash flow. The net number then is divided by shares o/s to get a value

  83. 83
    DrLink Says:

    re 77 Unintended consequences the “butterfly effect”

    Good site to follow the right wing thinking “over there” http://www.debka.com/


  84. 84
    bill Says:

    more on 82

    vq say they are worth 50 and trades at 11
    atpg says they are worth 110 and it trades at 18

    Just different methods in valuation

    cash flow jumps all over the place
    Some reserve are proved or proved undeveloped or hard to get too

    Anyways, probably multiple ways of looking at it

  85. 85
    zman Says:

    Imports Watch: total imports fall 0.4 Bcfgpd from last week and are down 0.7 Bcfgpd from last year.

    LNG flat at 1.1 Bcfgpd, up 0.1 Bcfgpd from last year.

    Canada fell 0.4 Bcfgpd from last week to 7.6 Bcfgpd last week, down 0.7 Bcfgpd from last year. Despite full storage levels north of the border, I expect to see Canadian exports to the U.S. continue to slip through the winter months as domestic demand picks up.

  86. 86
    Nicky Says:

    Action looks very bullish. We now need to see a close above 1062 for confirmation of a cycle low in place.

  87. 87
    zman Says:

    Bill – I hear ya. I recall GMXR saying they are worth > $400 per share.

    VQ and BPZ speak tomorrow at IPAA, both interesting.

  88. 88
    Dman Says:

    bill #77 I never knew the Iranians are Southern Baptists! Wow, ya learn something every day. And then Jimmy left the Baptists but the Iranians kept on with it!

    Ya wouldn’t read about it.

  89. 89
    zman Says:

    Bill – That’s similar to my TEV to EBITDA calc. Over time you kind of get where different stocks trade in terms of a multiple, target prices go from there. High reserve life and fast growth = higher multiple and vice versa. Low cost PUD conversion or assurity of reserves can get you a high multiple as well as can low operating expenses if you are lower than your peers. Flip side would be a high cost, low reserve life company or low RP company (reserves/annual production). This gets you a lower multiple as these guys have to work harder, faster, spend more to just replace their reserves. So the market will value someone like SWN with a 10+ year reserve life at a higher multiple than some with a 3 or 4 year reserve life, especially when commodity prices are low. If prices stay, SWN can still spend money to drill and make cash flow. Someone like an MMR has to constantly spend to grow, even if its costs are high and its cash flow is low.

  90. 90
    Nicky Says:

    1065 is 61.8% retracement of the decline.

  91. 91
    zman Says:

    Bill – re 89. And I know you know all that, I was just expounding for the new guys.

  92. 92
    Dman Says:

    Um … anyone know what lit a match under the market?

  93. 93
    bill Says:


    didnt know all of that so I appreciate the refresher especially the part why one gets 7 times cash flow and another gets a multiple of 3..

  94. 94
    bill Says:


    Merkel winning??

    rebirth of capitalism??

    BHO trying for the Olympics??

    Cheaper dollar getting priced in??

  95. 95
    zman Says:

    re 92 – No data today, maybe they like Nicky’s level.

    Marketwatch is running a correction in the making story but honestly it is more of a headline than something with substance:


  96. 96
    choices Says:

    re: Chinese buying US companies-it will definitely change corporate culture and the salary structure-personal experience.

  97. 97
    bill Says:

    Dman quick

    Michael Moore is on

    Click you can tell me what he said

  98. 98
    zman Says:

    Bill – that bit about Merkel could be adding to it. There was a lot of threatening in the last few weeks that there would be dire consequences if she were re-elected. Market climbs a wall of worry.

    Plus, Michael Moore will be on CNBC today so there could be bloodshed there too. I’d put money on Cabrera to smack him.

  99. 99
    kyleandy Says:

    TXCO – has quietly doubled in the past week. up a few cents every day. hear anything??

  100. 100
    Dman Says:

    There was talk about an end of quarter mark-up last week… maybe this is it now.

    Bill, you disappoint me with #77. I was so sure the Iranian Revolution was going to be Al Gore’s fault.

    I know, I know. It’s a far away country with an incomprehensible culture and would ordinarily seem to have nothing at all to do with Al Gore. But can’t it be at least a little bit Al Gore’s fault? Just a teeny bit? Gotta be something there.

  101. 101
    zman Says:

    Kyle – I see nothing. Could be one of the many recent filings. Don’t think they have coverage now they have gone pink. They could be moving off some recent EFS news and could again tomorrow with the SFY presentation.

  102. 102
    BirdsofpreyRcool Says:

    Harley-Davidson to sell $700mm of motorcycle-loan-backed debt. Who said the “asset-backed mrkt” would never return?

  103. 103
    BirdsofpreyRcool Says:

    The asset-backed-mrkt is kinda like CHK. 95% of fund mngrs in NYC wouldn’t touch CHK 2 months ago on Aubrey-pay-related issues. Well… that didn’t last long. CHK started going up… LOL. I can guarantee that now 95% of fund mngrs in NYC own CHK. Everything cycles.

  104. 104
    bill Says:

    I dont recall Gore ever doing anything other than inventing the internet and global warming so I cant blame him for the iran mess

  105. 105
    Dman Says:

    RIG has doubled off it’s lows & is still about half its 2007 highs. Which is about the same as crude, so maybe it makes sense.

  106. 106
    Wyoming Says:

    We interrupt your regularly scheduled program to bring you this important announcement (joke umkay – Aliens are not actually invading)


  107. 107
    Dman Says:

    #104 But surely Gore must have *claimed* at some point to have created Iran. He claimed to have invented everything. Gore said he invented TV, hot water and choc chip cookies. I’m sure Iran fits in there somewhere.

  108. 108
    zman Says:

    Dman – and in that time, their earnings picture has deteriorated substantially. So actually, it more than makes sense. Last year about this time people were looking for 2010 EPS approaching $20 for RIG. Now? $11.46 and estimates uniformly falling. I still much prefer the ATW but I have missed buying it so many times because I’ve been too cheap that I won’t chase it for now. EPS there:
    2008: 3.34
    2009: 3.76
    2010: 4.01
    2011: 5.03 (2011 has two new build rigs assumed which is a lot for their little fleet)

  109. 109
    zman Says:

    Wyoming – I just saw the Margarittaville episode of South Park. Should be required viewing in all Microeconomics 101 courses when they go over this credit crisis.

  110. 110
    zman Says:

    ATPG – Canaccord ups target from 17 to 20, keeps at Buy.

  111. 111
    BirdsofpreyRcool Says:

    X-Asset Class Strategist did some field work this weekend. Seems the caveat to any recovery continues to be what evils our own govt has planned for us.


  112. 112
    choices Says:

    Z-not sure if this the proper forum to ask but I’ll give it a try: I have a stock which announced a “bought deal” financing transaction, priced above market price. Obviously this is dilution but it seemed to affect the price action of the stock less so than secondary offers on stocks we follow-maybe it relates to the pricing of the shares in the bought deal.

    The questions is whether a bought deal is usually as negative to price as secondaries-in both cases, is the dilution a pure negative or does it depend on the use of the funds from the financing.
    (Long question).

  113. 113
    zman Says:

    Oil suffering a re-decline here, putting a drag on the group.

  114. 114
    Dman Says:

    USD is looking somewhat constructive on the hourly chart & has a weak positive MACD signal on the daily. If it just waffles for a few more days it will cross the downtrend line from March, which could trigger some technical buying, just in time to give equities their customary October fright.

  115. 115
    zman Says:

    Choices – case by case. Who is it? Generally dilution is dilution. Use of proceeds may warrant it though. Also depends on the terms of the stock being issued. Is there a lockup period?

  116. 116
    zman Says:

    October gas down 6.6%, November down 3.1%, strip down much less. Expiration shenanigans.

  117. 117
    choices Says:

    A gold stock: MFN-funds to be used to payoff debt, dev, etc. can’t tell about the lockup period w/o prospectus, deal to be purchased by underwriters.




  118. 118
    zman Says:

    Choices – the early read by the stock on those kind of deals is often the way the stock will perceive. Down= bad, flat or up = good. Paying off debt in this environment is a better statement than “general corporate purposes” or even “for the CEO’s maps and legends”

  119. 119
    VTZ Says:

    My friend follows Minefinders. It’s just to maintain a decent capital position and I bet they want to add some sustaining capital type expenditures to bump production.

  120. 120
    zman Says:

    Gassy stocks doing a good job ignoring a now 7% plunge in the front month. Not exactly going great guns but I figure we get out of purgatory, one way or the other on Wednesday.

  121. 121
    VTZ Says:

    Keep in mind their debt to cap ratio has gone from ~15% to 45% since 06′.

  122. 122
    zman Says:

    V – paying off what didn’t kill you makes you stronger in this market.

  123. 123
    VTZ Says:

    Agreed – Worked nicely for them. Hopefully HK (and ATPG) gets the same loving too.

  124. 124
    Dman Says:

    Z – can’t quite follow #122. Are you saying that even with bloated debt, since it hasn’t killed them they now do better because of more leverage?

  125. 125
    zman Says:

    Dman – I was over generalizing. But in general, right now, if you have 40 to 50% Net debt to total cap, that is no longer considered that big a deal (if you made it through the redeterminations without being declared over your line) and you have positive cash flow at these gas prices, then the idea of paying off debt, even low cost revolver debt, is more than acceptable to the Street for some dilution in the share count. That comment really only applies to my universe (E&P) and not gold as I know very little about the element.

  126. 126
    VTZ Says:

    By taking on debt rather than diluting at lower prices they come out ahead (as compared to the end of last year).On a longer term basis, by taking on debt to advance their projects they will see a payout on their capital as prices have increased and they were now able to issue equity at higher levels.

  127. 127
    VTZ Says:

    50% debt to cap is not uncommon in the junior/emerging/lower mid-tier miners either during development but it generally starts getting paid off as production starts. I think Minefinders started early in the summer (?).

  128. 128
    1520sbroad Says:

    z- do you know EXH – Exterran?? Compression equipment etc.

  129. 129
    zman Says:

    1520 – I don’t follow them or Hanover closely enough to comment. Wyoming or TEXW may have a comment regarding capacity in the space.

  130. 130
    1520sbroad Says:

    #129 – thanks – a general inquiry, if anyone sees this and has any info please post.

  131. 131
    zman Says:

    PETD – add that to the list of names I’ll be listening to tomorrow at IPAA.

    HK speaks tomorrow as well. Last year they put out a pr in conjunction with their engagement at the conference, as Floyd was the lunch time keynote. I’m not there this year but I don’t think Floyd or new president Stoneburner are doing the lunch. I continue to hold a set of the Oct 24 calls, having round tripped a nice set of gains over the last part of last week.

  132. 132
    zman Says:


    WLL – Sold my overweight in the $55 strike position (WLLJK) added last Thursday and Friday, (15 calls) for $3.30, up 35%. I continue to hold 5 calls at the $55 and 10 calls in the October $60s.

  133. 133
    zman Says:


    HK $24 October calls, added another 10 for $0.75, brings my average down to about $0.94.

    I’m also bidding some higher strike calls in case they have something interesting to say at IPAA tomorrow.

  134. 134
    zman Says:


    HK – Added (20) HK $25 October Calls (HKJE) for $0.40.

    HK – Added (50) HK $26 October Calls (HKJP) for $0.20. The delta here is about 0.15 so a dollar move in stock, if the company does have news will provide a decent move.

  135. 135
    BirdsofpreyRcool Says:

    from the z-berry… comcast took out z’s connection (something about not paying bills?? ha! just kidding)

    Anyway, he’s offline right now, fighting comcast to reconnect.

  136. 136
    zman Says:

    Thanks BOP. I’m back. Comcast = most likely cause of a stroke by me sometime down the road.

  137. 137
    Nicky Says:

    There is a minor cycle low due on Wednesday. We may put in a high late today/early tomorrow and then correct into that cycle low on Wednesday.

  138. 138
    Dman Says:

    Z – CRK looking a bit scoopy on 2year daily chart.

    Still intrigued by GDP just because it seems to be lagging the pack & I’m wondering about catch-up potential (for stock, not calls). Is there an obvious reason why it is lagging?

    WLL – where would you say it stops being cheap?

  139. 139
    zman Says:

    Thanks Nicky

    D – on the GDP, I think it is just gassyness and their complete lack of 2010 gas hedges (last I checked). Debt there more than easily managed. Maybe they tell us they have been using their time in the last two weeks wisely hedging the front half of 2010 at $6+. I think in that case they break out for a run.

    I think 6x 2010 CFPS estimate of $12.26 would be a more suitable near term multiple, so just over $70 and probably expensive in the mid $80s.

  140. 140
    nifkin Says:

    UNG – United States Natural Gas ETF – Shares of the natural gas
    exchange-traded fund are currently off by more than 1% to $11.80. One investor
    has picked up some serious downside protection on the fund today by purchasing a
    large chunk of put options in the April 2010 contract. We believe the trader is
    likely holding a long stock position in the UNG. It appears the trader purchased
    31,000 puts at the April 9.0 strike for a premium of 75 cents per contract. The
    net cost of the put options amounts to $2,325,000. Shares of UNG would need to
    decline 30% from the current price before downside protection kicks in beneath
    the breakeven point at $8.25. Perhaps the put buyer expects the fund to reach a
    new 52-week low by expiration in April. The current 52-week low of $8.94 was
    attained on September 3, 2009. We note that it is always possible the trader is
    essentially shorting the stock and placing a large bearish bet on the ETF in
    order to profit from downward movement in the share price.

  141. 141
    zman Says:

    RMD – MCF speaks Thursday at IPAA

  142. 142
    Jerome Blank Says:

    RE: #140, quite frankly, I would view a re-test of the $9 low as a gift of a buying opportunity. I think this put action means very little…early this past summer $14 and $15 calls were being bought in similiar vols, look what happened since then. With the premium now about 1%, tracking is good. Oct futures finished down 6%, Nov off 2.5%, UNG only down 1.75%.

  143. 143
    VTZ Says:

    Today was boring

  144. 144
    zman Says:

    Yeah, but boring green beats boring red any day. It allowed me to come out of that big overweight position in WLL from late last week so I really can’t complain.

  145. 145
    zman Says:


  146. 146
    Jerome Blank Says:

    If prices hold up into the close, KOG has a nice “morning star” reversal on its retrace to the 20 day daily MA. Morning stars are candlestick patterns suggesting higher prices, this one is nice because it follows a “hammer” base, ie: hammered out a base at the 20 day MA

  147. 147
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