Tuesday Morning


IPAA's Oil and Gas Investment Symposium starts today (see notes below). The markets are giving back some gains this morning as the dollar tries to make another small move higher. Natural gas in particular is moving lower ahead of the EIA's supply data release (either today or tomorrow) and all movement before those numbers is moot. The last several reports have been disappointing on the declines front but we should see the effect of curtailed drilling and production show up in the data soon. On the economic front we get consumer sentiment and home prices a little later this morning.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crack Spread Update
  4. Stuff We Care About Today - IPAA Day 1
  5. Odds & Ends

Holdings Watch:

  • $10KP II:

    • $17,000
    • 49% Cash
    • The Current Holdings Tab is updated
    • The $10KP II Spread Sheet Tab is updated.
  • Yesterday's Trades:

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

Commodity Watch

Crude oil closed up $0.82 at $66.84 yesterday on strong equities and flat dollar trading.  This morning crude is trading down $1 with a small rally in the dollar.

  • Early Read On Oil Inventories:
    • Crude: UP 250,000  barrels
    • Gasoline: UP 1.25 mm barrels
    • Distillates: Up 1.0 mm barrels - I think this one may surprise everyone with a draw down.
  • Nigeria Watch: China To Enter. Reported CNOOC is looking at some expired Shell leases as well as some new blocks to enter region with the goal of tapping for itself, 6 billion barrels. 
  • Dollar Watch: Next time someone tells you the only thing that's holding up crude is the dollar you tell them that fundamentals play a part as well and that for the last two months, while crude has been influenced by the continued deterioration in the dollar, it has not been governed by it. For a number of fundamental reasons, I think the dollar is going lower and that oil will continue to find support from this weakness. High finished product inventories must be met with high demand or this relationship will only be weakly supportive through the Fall and Winter months. 

Natural gas fell $0.12 to close at $4.84 yesterday on the November contract, dipping as the October contract expired.   This morning gas is trading off 15 to 20 cents in what has become typical action when the  front month contract starts. There are about 6 weeks left in the injection season and we will pierce record storage levels this week. Forecasts of early cold are going to be helpful in keeping storage from break the top end of my range for peak storage which coincides with the EIA's estimate of storage capacity. My sense is that the EIA's supply data due out tomorrow (likely to show a return to small declinesville) will be the key to gas prices over the course of the next 2 weeks. 

  • Imports Watch: Total imports fall 0.4 Bcfgpd from last week and are down 0.7 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, I expect to see Canadian exports to the U.S. continue to slip through the winter months as domestic demand picks up.
    • LNG: flat at 1.1 Bcfgpd, up 0.1 Bcfgpd from last year.

      • LNG Daily reports that rates for LNG tankers have been rising due to gas being "stored at sea".


Crack Spread Update

Key Takeaways:

1) I'm being patient. We are seeing lots of capacity curtailment announcements and even the random unplanned outage. So far, no luck in maintaining margins following the end of driving season.

2) Cold weather and curtailments should prop margins from here so the best thing I can say is, we may be near the bottom and expectations remain subdued.

3) The group tried to stage a couple of different rallies last week but for the most part, trading still looks tentative.


Stuff We Care About Today

  • 11:25a GDP – Trying to figure out why I don't own it, this presentation may help.


  • 1:55p SFY – Oily small cap with Eagle Ford potential

    • What I'm Looking For: Swift has been coming out of Capex hibernation. They could have results from their first Eagle Ford Shale test which should have spud in August. They have said they are looking for a JV partner in the play. I'm look for reasons (be they Lake Washington, the horizontal Olmos (doubt it), or the E.F.S) as to why the name has run so hard .... my best guess is that the run is attributable to their oiliness and the potential for a new breakout play in the E.F.S.
    • Net Debt to Cap: Big move down recent with equity deal and asset sale. Net debt fell from 46% at the beginning of August to 31% at present.
    • EBITDA / Interest: 6.0x (using last quarter's numbers which were bleak, this multiple is still in good shape. A year ago their interest coverage was over 20x  due to higher prices. At 6.0x they shouldn't be scaring any of their lenders.
    • Oil vs Gassy: 59% liquids, much of that coming from their Lake Washington salt dome development in Louisiana.
    • Got Hedges? No, not really. 3Q has a little oil hedged, beyond that they appear to be open.
    • Valuation: Cheap despite the run but probably cheap for a reason (not growing at their current spend rate). Trades at 4.7x 2009 and 3.4x 2010 CFPS.  The cheapening next year comes from analyst's expectations of higher oil and gas prices (especially oil) and not from production growth.


  • 2:20p HK – Basically your fastest growing (for a company of size), North American onshore, natural gas focused pedal to metal in all the hot gas plays except for the Marcellus mid cap E&P company. One of the lowest cost producers out there.

    • What I'm Looking For:
      • Dick Stoneburner to give the speech. I have no idea who is doing it but I'd prefer the newly appointed president to get front and center.
      • Possibly news on two more Eagle Ford wells,
      • Could here results of two more HK/EOG JV wells in E. Texas portion of the Haynesville (probably not but we could),
      • An increase in their EFS acreage total above the 210K acres they already hold.
      • Comments on what area may see the next asset sale.
      • Another catalyst for this name should be more news out of Boardwalk, probably next week, regarding pipeline fixes out of the Fayetteville.
    • Debt to Cap: Should be about 42 to 43% after taking into account their recent asset sale.
    • Oil vs Gassy: 92% natural gas. Not getting any oilier but on the distant horizon we could see an uptick in their liquids profile as the Eagle Ford expands to the north and east.
    • Got Hedges? Well hedged, compared to their peers for the rest of 2009, 2010, and 2011.
      • 2010: 400 MMcfepd with collars of $5.93 to $9.21. This would be about 63% 2010 production based on the mid point of recent guidance for 30 to 40% growth.
      • 2011: 325 Mmcfepd
    • Valuation:  Never cheap, given its gassy, high leverage, but also high production growth profile, HK at present trades at 7.6x 2010 expected CFPS which is towards the middle to low end of its usual range.


  • 5:05p BPZ - I just watch this one to keep current on the story. Always interesting but I don't know what unlocks value here. I will keep listening until I hear them give game changer guidance.


Odds & Ends

Analyst Watch:

  • (COP) upped to Buy at Collins
  • (WNR) cut to Hold at Soleil
  • Citi raises price targets modestly for DO, HERO, ESV

LATE EDITION WATCH 914 DATA - THIS WAS RELEASE AT 1:50 EST - I'll have more comments in the comments section but these are strong numbers showing good declines, down 0.75 Bcfpd in the lower 48 states from June to July. Would have been better were it not for continued Gulf of Mexico recovery.

158 Responses to “Tuesday Morning”

  1. 1
    zman Says:

    Case Shiller shows July home prices up 1.6%, YoY down 13.3%.

  2. 2
    zman Says:

    EIA shows we get the 914 (raw production data) today, not tomorrow. Natural gas monthly comes out tomorrow.

  3. 3
    reefguy Says:

    Asking the following question at HDY cc tomorrow morning: “Given APC’s recent discovery at the Venus prospect in the Liberia Basin, does this Cretaceous Fan Play spill over onto HDY’s concession?” A yes makes the stock a buy for sure. IMHO

  4. 4
    BirdsofpreyRcool Says:

    TechTrader is 60/40 LONG for today.

    HeadTrader thinks banks will rally. He thinks PMs want to list bank holdings for quarter end as they have outperformed the mrkt during the quarter. Also, Dick Bove put out a “buy” on C last night with a $6/50 PT. C is one of the names that X-Asset Class Strategist has been pounding the table on.

  5. 5
    zman Says:

    Reef – Agreed. If your are going would you ask how they would gauge partner interest? It was one of the key tenants of the new CEO’s plan.

  6. 6
    zman Says:

    NG off 18; Crude off 44 cents at the open.

  7. 7
    zman Says:

    Nicky – well, we got the 1062+ close. What’re your upside thoughts?

  8. 8
    BirdsofpreyRcool Says:

    I know this is an “All Energy, All the Time” site… but the banks are important. Happy banks means better outcomes at bank redetermination time. You can’t have a recovery if you don’t have happy banks.

    You can hate the banks. You can hate the bankers. You can hate the bailouts and mergers and paychecks. But, you HAVE TO HAVE THEM. Without a functioning and happy banking system, nothing else works. They are the grease that make the Wheels of Commerce turn.

    Rant over.

  9. 9
    reefguy Says:

    z, it is a call in and you can post questions. Please post that from the access on their website. If They are in the Fan Play and are close to a JV partner it is a five bagger.

  10. 10
    zman Says:

    BOP – I probably ask this at each quarter end but for window dressing purposes, when does the mutual fund and hedge fund trade have to be done. Is it today (T+1) or tomorrow. Seems they will not want to kill the rally before that point.

  11. 11
    BirdsofpreyRcool Says:

    z — I know how I mark it… will ask HT how others do it. Give me a sec….

  12. 12
    Nicky Says:

    Morning all.

    If we can get above 1067 spx area which is where we are now then likely any retracement we make will just be a retracement of yesterdays rally. Minor cycle low due tomorrow. Looks like we are working on a small wave v to the upside to finish off this wave then I expect to see this minor correction.

  13. 13
    bondbuddha Says:

    Z Stoneburner on vacation, Floyd will be giving the HK presentation, sorry to rain on your parade.


  14. 14
    zman Says:

    BOP – I like banks. Please talk about banks. I plan on having a beer across the street from mine on Friday afternoon and watching the FDIC cops roll on it. CFO quit last week, capital raise due by tomorrow looks doubtful …. banks are fascinating. Seriously, keep up the “outside the energy space” knowledge push.

  15. 15
    BirdsofpreyRcool Says:

    ha! HT says “not sure. I ask the same question every qtr and get both answers.”

    So, I guess the answer is “depends.” We use trade day. Does anyone else have an answer here?

  16. 16
    zman Says:

    Reef – I don’t disagree, I may find room for it in the ZLT. I think they clearly think these overlapping fans migrate up the coast. Lot of water, be good, careful with the seismic, I’d prefer to see something more than just a financial partner here, someone like an APC or even a major. Heck, maybe they should call CNOOC.

  17. 17
    zman Says:

    JP – vacations are for summer. Do you know when/where they speak next. I really think it is important to get the front man, well, out front.

  18. 18
    BirdsofpreyRcool Says:

    z — I like the banks b/c I knew we need the banks. The bank bailout was the ONLY bailout we should have done. The rest was politics. Hating the banks is worse than shooting yourself in the foot… it’s stabbing yourself in the heart. Without banks, NOTHING ELSE MATTERS.

    Just something to keep in mind.

    And, yes. Banks do fail. They fail in good times and they fail in droves in bad times. But, that is an individual bank and allowing failure of an individual bank is good/healthy/necessary. However, allowing a failure of the banking SYSTEM kills everyone.

  19. 19
    zman Says:

    BOP – We used to used trade date, I assume there is a rule and maybe a different one for mutual funds vs hedge funds to use settle or not. Thanks for checking.

    WLL – morning constitutional underway. Probably a gift, they speak tomorrow, last two conference presentations were good, second one sounded like a recording down to the humor so maybe they have a little extra on Thursday.

  20. 20
    zman Says:

    Consumer confidence falls to 53.1

  21. 21
    zman Says:

    from 57 expected

  22. 22
    zman Says:

    Consumer confidence slips, pops the morning rally.


  23. 23
    VTZ Says:

    BOP – This was conveniently posted on another website and Atlas Shrugged is one of my favorite books. This about sums up how I feel about the banks:

    When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing — when you see money flowing to those who deal, not in goods, but in favors — when you see that men get richer by graft and pull than by work, and your laws don’t protect you against them, but protect them against you — when you see corruption being rewarded and honesty becoming a self-sacrifice — you may know that your society is doomed.

    Ayn Rand
    Atlas Shrugged, page 413

    Banks produce nothing, deal in favours, trade by compulsion, get richer by graft and pull of politicians than work, and get rewarded by corruption.

  24. 24
    VTZ Says:

    Laws (SEC) protect banks from investors/consumers as well, not the other way around.

  25. 25
    kyleandy Says:

    z – about a month ago they closed 2 banks in my county – the 2 I used. went to make a deposit and there were about 20 cop cars outside and allkinds of cops inside. have no idea what they were doing – dont think they knew either, but it was business as usual as there was a sign w/ new bank owner (stearns bank from minnesota)

  26. 26
    Nicky Says:

    What a surprise – consumer is not buying in to this recovery. Fool me once (2000) Fool me twice (2003) but you aren’t going to fool me three times!

  27. 27
    VTZ Says:

    Count on Atlas (ie. China and industry) shrugging the world (US world) the from it’s shoulders.


  28. 28
    BirdsofpreyRcool Says:

    VTZ — don’t disagree with you at all. But, commerce needs “liquidty” (working capital) to function. Who do you suggest provides that? The Govt? I would rather lobby a banker than a politician.

  29. 29
    zman Says:

    Speaking of shrugging, market already trying to shrug off the confidence numbers.

    Crude was almost back to even on the day just prior to the report, now back to down 75 cents. If confidence is down the dollar could easily give back this little rally.

  30. 30
    Nicky Says:

    SPX has support at 1060, 1055/56, 1053 and then 1048.

  31. 31
    zman Says:

    Kyle – saw a documentary on the FDIC procedures for Friday afternoon bank takeovers. It goes smoothly if the FDIC has a bank to buy yours. If not, incoming checks get sent back, ATM cards and checks don’t work and eventually the FDIC mails you a check for your balance.

  32. 32
    RMD Says:

    Z: #14, is that Metropolitan?

  33. 33
    VTZ Says:

    How about responsible corporations lend out money they have without making up exotic products because they don’t want to bring down their whole business.

    I’m suggesting more products like GE Capital except not as risky because they were forced to compete with the banks.

  34. 34
    VTZ Says:

    XOM, WMT, etc could bankroll other smaller companies as an example.

    Eliminate Level 3 assets altogether as well.

  35. 35
    VTZ Says:

    No off-balance sheet transactions either.

  36. 36
    Dman Says:

    BOP, the liquidity *is* coming from the government & the bankers are all politicians.

  37. 37
    zman Says:

    RMD – yep. And I know nothing there other than what I read. It just looks similar and their ratios aren’t great. CFO left to pursue better opportunities , yada, yada, yada.

  38. 38
    VTZ Says:

    Exactly… it’s all made up anyways. 1 quadrillion in derivatives BOP? Cmon.

    There’s probably asset backed paper that’s backed by part of that quadrillion and most of it isn’t worth as much cow crap because you could at least get some methane for heat.

  39. 39
    BirdsofpreyRcool Says:

    GE Capital is just one way the liquidty market functions. What about small businesses? The ones who don’t have large borrowing needs, but need capital to function and grow? The local bank is what works here. If you are large enough, you can borrow from GE Capital, or the capital markets (issue bonds). But, something like 70% of US companies are considered “small businesses.” They are of no interest to the likes of GE Capital.

    Also, corporations with money to lend are called banks. They have a profit motive and they have competition. The “exotic products” that brought the US (and the World) to it’s knees was sanctioned/backed/promoted/and bought by Govt Agencies (Fannie, Freddie, SLMA, etc). Without the Govt backing, the whole subprime mrkt would have stayed realistically a small part of the overall mrkt… dominated by entities who understand risk. It was the Govt that allowed the exotic asset mrkt to be blown way out of all proportion. Not the banks. They just went where they saw money to be made.

    The Profit Motive is not pretty. But it is the best motivator and regulator we have. It’s far from perfect, but it is better than any alternative at sorting through risk. It is the involvement of Govt that creates distortions. But, if you admire Ms Rand, you already believe that.

  40. 40
    VTZ Says:

    My last point BOP – You don’t need endless new liquidity creation to have a functioning system. You just need an idea good enough to entice existing capital.

  41. 41
    BirdsofpreyRcool Says:

    Dman — ref #36 for the kind of liquidity the govt provides when it tries to play social equalizer. Providing banks with Fed Funds at low rates (to lend out) is in a different universe from the “implicit” (which is now explicit) backing of the US taxpayer of the housing agencies.

  42. 42
    BirdsofpreyRcool Says:

    VTZ — I don’t think we are arguing. I think we agree.

  43. 43
    VTZ Says:

    If it’s a small business the Capital needs can be met even more easily by smaller corporations.

    Banks provide no fundamental product to society. They are glofied middlemen who skim a disgusting amount of all their revenue into their pockets.

    BOP – Let me propose a scenario to you. All energy companies decide that their salaries are worth 50% of the revenue they take in. Oil prices therefore go up ridiculously. Energy is a fundamental part of the economy (like bankers supposedly, although I understand their function). Imagine the outrage if 50% of the energy price you pay at the pump goes to mine and Wyoming’s and others pockets.

    Why can’t individuals or groups of individuals sort through risk?

  44. 44
    BirdsofpreyRcool Says:

    #34 — I would rather XOM and WMT stick to their knitting. Finding oil and selling consumer goods is what they do. I recall when XOM bought IBM Business Machines (which is a form of “bankrolling” them) and Mobil bought Montgomery Wards. The result wasn’t pretty.

  45. 45
    zman Says:

    Dman – I started to work up GDP last night, been awhile since I tracked it closely. Liked everything I saw which led to my comment in the post. Big short interest still there, ability to ratchet growth with higher prices…just needs higher prices. Only thing I don’t care for is the unhedged nature of the name. It would seem prudent for them or anyone to add some gas protection in the 4Q and 1Q10 periods.

  46. 46
    zman Says:

    IPAA conference schedule:


  47. 47
    Dman Says:

    #45 thanks Z. Doesn’t being unhedged become good at some point?

  48. 48
    VTZ Says:

    RE #44 – Yeah, because bankers understand industry/business so well. The primary function of a bank is how to extract the most money from productive businesses.

  49. 49
    zman Says:

    NFX in strong get stronger mode on this directionless day.

    NG off a dime now from down 20 cents at the open. EIA data not out yet.

    Crude off 13 cents. Who needs consumer sentiment when there is Iran, lol

  50. 50
    zman Says:

    Dman – yeah, but it depends on the day of the week it seems. I am seeing analysts go both ways on the issue. It just seems a bit gunslinger to go unhedged in the near months given storage and the run gas just had.

  51. 51
    BirdsofpreyRcool Says:

    VTZ — #43… individuals and groups of individuals DO sort thru risk. The former are Venture Capitalists, the latter are banks. It’s what they do. They are better at it than finding oil or selling tea cozies.

    I don’t understand why people don’t think banking is a business. It is. Banks are in the business of lending capital for a profit. And they have competition. So the interest rates don’t get too far out of whack. It is the intervention of the Govt into the process that screws things up. It creates “incentives” where incentives don’t exist (like, to take excess risk) and pushing pricing that doesn’t adequately compensate for the the risk. Then the Taxpayers underwrite these mistakes and the politicians all point to the banks and say “THEY did it, blame THEM.”

    I am not a nuclear physicist… I am not an oil sands engineer… I have nothing to say (and everything to learn) from those who are. But I have worked in capital markets for a long time. I see how the world works there. Again, it’s far from perfect. But it’s the best system we have. And it’s been perfected (to the extent it can be) over centuries.

  52. 52
    BirdsofpreyRcool Says:

    VTZ — #48… the perfect argument for competition. And letting stupid/bad/incompetent banks fail.

  53. 53
    VTZ Says:

    So stick to lending money that aggregates and stop creating new liquidity!

  54. 54
    VTZ Says:

    You don’t see Venture Capitalists with 20 to 1 leverage. You see a billionaire venture capitalist lending out xx million to a business.

  55. 55
    Dman Says:

    Z – the pdf in #46 lists GDP at Tues 8:25 PM

  56. 56
    zman Says:

    Crude up 26 cents and back over 67 DESPITE the dollar strength. Maybe they think the dollar strength won’t last. Bit of a surprise to see crude up today as the media has been focused on demand again and that is likely to stay weak.

    On that subject, spoke to my transportation analyst yesterday late. He says not to look for a big recovery in diesel. While shipments are rising (and he gave me a good website to use as a proxy for determining 18 wheeler activity levels) he put great emphasis on the fact that many trucks are idle and will remain idle for a long time. He does see retail restocking occurring at a pretty good pace, more in October and November, but then said “then what?” so it doesn’t sound like he’s getting much from the demand pull side as he is from the restock of now depleted inventories side of the equation. The consumer does not seem to have legs essentially.

    At least it appears that the normal Oct/Nov pattern of more trucks on the road is intact and he said you will hear positive things from one trucking company after another on their 3Q calls regarding their 4Q activity.

    On the topic of drybulks, he saw no end in site to their pain.

  57. 57
    cargocult Says:

    Z-Any idea as to a price you will consider adding more KOG to your position?

  58. 58
    zman Says:

    Dman – yep, Pac Coast time. There call should be in another half hour.

    Cargo – I’m waiting on data more than price. I don’t have a problem buying higher than here. I’d like to see them prove up the southern acreage and I’d like to see some other firms punch Three Fork test on their acreage. But if it takes another 10% down day for no apparent reason I might add a little.

    NG flat. Data still not out.

  59. 59
    kyleandy Says:

    z am still short FWRD, which was one of his recs. does he still like the short side or time to cover?

  60. 60
    zman Says:

    The 914 Production Data comes from this address:


    Can anyone else get that to refresh to show it has been released? I can’t but gas is acting like someone has the data, up 2 cents now from down 20 cents an hour ago.

  61. 61
    zman Says:

    Kyle – he didn’t mention liking any shorts in here on the truckers. He said he expects strong 3Q results from van, flatbed, climate controlled operators.

  62. 62
    zman Says:

    BEXP – Canaccord takes target from 8 to 10, rating stays Buy. Good example of an asleep at the wheel analyst and director of research.

  63. 63
    kyleandy Says:

    dman – re46 don’t think that is accurate. sched on ipaa’s web site shows 11:25 this morn http://www.vcall.com/CustomEvent/conferences/IPAA/20090929/agenda.html

  64. 64
    Dman Says:

    thanks kyl, I was even more confused after #58!

    (Z it says *PM* on the PDF. But kyl sez it is wrong)

  65. 65
    zman Says:

    NG up a dime now.

  66. 66
    zman Says:

    It’s Pacific Standard Time on their sheet, on my post it is Eastern Standard Time which is easier for me (in the CST) to keep up with. The GDP call starts in 15 minutes.

  67. 67
    zman Says:

    Here’s the GDP webcast link:


  68. 68
    Dman Says:

    I see the confusion: on page 1 they have 8.25 PM & on page 2 they have 8:25 AM, which must be the correct one.

  69. 69
    Dman Says:

    Dollar going on a rampage, up 0.3 %

    (insert appropriate emoticon)

  70. 70
    zman Says:

    Looking through new GDP presentation, see one new well with a rate on it (decent, below the HK avg IP by a long shot), some wells moved from drilling to completing in the core, not a lot new so far.

  71. 71
    zman Says:

    I find the 30 cent reversal on natural gas interesting. Data still not out (at least to the public).

    Market going back into bored and waiting mode. We get a lot of eco data tomorrow through Friday.

    Pretty much everything today before the gas production numbers and the API after the close is noise. I do expect to see that uptick in distillate demand with tomorrow’s EIA report and that could be the thing that wakes oil up. The headline number for crude inventories could again be ugly at first blush if imports don’t fall back off because utilization is almost certainly falling.

  72. 72
    zman Says:

    GDP call on now, started early

  73. 73
    zman Says:

    Support for Oil / target practice for Israel:


    GDP call

    Trosper well at 11 Mm/d is the new well I referred to above. This is the most encouraging thing on the presentation so far as they just said this well may mean this area Greenwood/Waskom looks more like Caddo field (core of the Haynesville) than it does to the Longwood Field to the north where the rock quality dimishes and where EURs fall back to the 4.5 Bcfe range. The core would be 6.5 Bcfe according to many players here, 7.5 Bcfe if you has HK.

  74. 74
    zman Says:

    GDP – growing 20% this year, they think they do at least that kind of number next year.

    They plan to hedge 2010 above $6, seeing industrial demand picking up so they are confident. They point to flattening of the basis as supply rolling over and demand improving. Good point. As he put, any time you see basis to hub flattening, that is someone buying your gas because they want it, not short covering or for storage.

  75. 75
    zman Says:

    GDP – debt to cap is low (about 24%), plenty of cash, and he said no need to borrow until 2011 to conduct their current plans. I should probably own this.

  76. 76
    VTZ Says:

    BOP – One last thing for real this time RE 51. I think I drank too much coffee this morning and it got me all fiesty 🙂

    The reason the public blames the banks is that they DID do it to themselves. Just because the govt doesn’t tell you NOT to have 40 times leverage by creating worthless “assets” to sell to other banks so they can create new worthless “assets”, doesn’t mean that you should immediately go do that.

    If the majority of bankers were as good as they say at quantifying risk then they wouldn’t have had a problem. Too bad the majority of the industry obviously sucks at managing risk.

    People blame the banks because they did do it. It’s not the government’s fault for letting them.

    It’s the equivalent of the govt giving a permit to every energy company to go drill ridiculously expensive and prospective wells like Blackbeard and so the whole industry does that in order to get rich. Then most of them come up dry because they weren’t evaluated properly and the energy industry almost goes tits up. Then the energy industry comes back and says “It’s not our fault, they let us do it”.

    I understand lending capital/risk management is a business so maybe that’s what they should do instead of focusing on creation new products and more “liquidity”.

  77. 77
    oklahoma Says:

    Z-your thoughts on Rose…chart looks good but good use some volume

  78. 78
    zman Says:

    Anyone have an idea what Kass is saying this week? For a sell down, this is paltry.

    PETD not airing their presentation from IPAA which is lame, unfortunate, sort of interesting.

    VQ at 1 EST is next thing on the list worth the time to listen to although Abraxas might be interesting. Talk about an always “also ran” name. It’s gotten play from the all tiny boats have been lifted angle to the market of late.

  79. 79
    1520sbroad Says:

    #61 – truckers etc. – father in law still seeing good loads on air cargo out of the pac rim to the US. He says UPS has started to slow down US Gov’t shipments (mostly military related) in favor of better paying customers on some routes.

    Diesel mechanic neighbor said that truckers here in NJ are starting to see loads pickup slightly. He said still hard to say whether it is holiday related or legit increase. He did say that some of the small trucking companies that were going bk weekly have stopped putting everything up for sale and it appears that the strong are the only ones left. He still has a bunch of rigs on his lot for sale. He also said that almost every fleet that he does maint. for has delayed anything that can be delayed and he is only doing “must” type work.

  80. 80
    oklahoma Says:

    z-excuse me “could” use volume

  81. 81
    zman Says:

    Ok – I’m holding the common and waiting to hear more on their call at IPAA tomorrow. Nothing has changed in my opinion since I wrote that opening piece on the reports page a couple of weeks back.

    What I’d look for tomorrow:
    Possibly results on Eagle Ford wells 1 and 2.

    Maybe some hint of their Montana Bakken drilling progress but it can’t be completed yet.

    Heding: hopefully they have added some 2010 gas hedges to their very small position.

  82. 82
    zman Says:

    Good color 1520. My said that the wave of BK’s in the truckers is close to done. Said a lot of inventory out there.

  83. 83
    zman Says:

    TA piece from market watch:


  84. 84
    1520sbroad Says:

    82 – i still see a lot of rigs for sale when i drive up near Newark/Elizabeth/Port of Newark in NJ. I need to find a friend in the diesel retailing business around here to get a better read on distillate demand. I would like to see that number surprise folks tomorrow.

  85. 85
    zman Says:

    1520 – realize that I’m going on 1) gut, 2) time of year and heating demand with the cold snap, 3) API last week which showed a spike in demand, and 4) gut.

  86. 86
    Nicky Says:

    Re #78 – the top is not in and the sell down will not come until the first or second week of October.

  87. 87
    zman Says:

    GDP and GMXR should get a pop if the gas declines show up in the data. Shorts now 28 and 21% of float respectively. Obvious names for me to look at adding include SD, KWK, SWN which I already have pieces of. HK should benefit as well.

  88. 88
    zman Says:

    Nicky – Is that what Kass is saying or what you are saying?

  89. 89
    apbd Says:

    DK reiterates March call:
    Despite the strong share price momentum and the aforementioned emerging optimistic economic/profit consensus, I continue to hold on to the variant view that the markets have likely peaked for the year based on the existence of nontraditional headwinds, an end to decades of aggressive credit expansion and financial inventiveness, a still-vulnerable housing recovery (in the form of outsized phantom inventory challenges) and a still-fragile consumer — among other factors.

  90. 90
    oklahoma Says:

    z- #81 thanks, looks to be firming in front of the meeting

  91. 91
    zman Says:

    APBD – thanks. Wasn’t his March call go long and his August call go short?

    Ok – I am thinking I need to keep a catalyst spread sheet on the E&P tab with loose dates. When KOG’s wells could be completed, ROSE’s, what’s important to who and where on the hot list around here. Thanks for prompting that line of thought.

  92. 92
    zman Says:

    China cutting gasoline and diesel retail prices by 2.5% and 2.8% respectively. That probably inspires a little more demand for crude to offset lost margins with higher volumes. Probably a non-event but it should support crude imports there as I would bet they subsidize any small hit the refiners take at this time.

  93. 93
    bill Says:

    hk ive been holding and waiting and waiting and waiting

    all the hot money left them

  94. 94
    bill Says:

    plll has a 3.15 tender in process

    traded as high as 3.45 today

  95. 95
    Nicky Says:

    Z- re 88 – that is what I am saying.

  96. 96
    bill Says:

    vq starting now

    look at page 10

    wll has most proved reserves at lowest cost


  97. 97
    zman Says:

    Yeah, that slide includes only the proved. So if you have a ton of acreage in a good play its not counted.

  98. 98
    zman Says:

    Nicky – thanks. Rather hear your opinion on it any day.

  99. 99
    zman Says:

    Bill – you gotta like the VQ comments on DNR/Hastings Field complete carry. 30 to 60 mm barrels net to them at no costs. Hmmm.

  100. 100
    apbd Says:

    RE 91
    ” Bearish SPY “

  101. 101
    zman Says:

    Listening to AXAS … because I will never learn. Now these guys are calling themselves a Bakken player

  102. 102
    zman Says:

    AP – thanks.

    West – have you come across Abraxus in the Bakken. I didn’t even know they were up there. Last time I remember this name they were toast (or at least I thought they were). Hmmm.

    Saying 60,000 net acres scattered across the play. No lease expirations. About to drill a second (no op) well. Hmmmm.

  103. 103
    reefguy Says:

    EXXI- up 8% on change in CFO???

  104. 104
    reefguy Says:

    check 103- CFO no longer a director, add outside board member to rebalance board

  105. 105
    zman Says:

    AXAS interesting, could have a good week next week. I’m passing for now though as I don’t know it well but their name is one I’m familiar with. I’ll let them restructure and watch it.

    LINE up next. Listening as I like to know what my cash position is doing.

  106. 106
    elijahwc Says:

    OT – Z

    Blast from the past, I just got asked what I knew about EEE which is of course zero.

    Is this still the old KFX operators and can they and their technology be trusted?

    Thought you might be able to opine in a word or two but no real work requested.

  107. 107
    zman Says:

    LINE Call

    Sitting on biggest cash pile/availability of line in their history.

    Actively looking for acquisitions

    Sounds like they will sell Granite Wash acreage while its hot.

    Coverage still 1.2x for their distribution, very strong.

    Moved hedges out of 2013 and 2014 and used them to bolster prices in ’11 and ’12- I think RMD mentioned this the other day. Target is to remain 5 years hedged. They are timing a rally/recovery to add back those longer dated hedged.

    If you like yield, this continues to be my yield vehicle. I think their presentation is worth a listen.

  108. 108
    zman Says:

    EEE – Eli, I’m not current there but it would only take a moment to get there.

    Off top of head, Mark Sexton, smart guy CEO quit, last I heard Kevin Collins took healm, also smart, more numbers oriented. Last I saw they were not making KFUEL or whatever they call it these days. At least not in commercial quantities. I saw them venture into the carbon credit market … thought that a mistake/unnecessary diversion.

    Don’t know if Venners is still there but I don’t think that would be a plus if he is. Smart guy but a dreamer.

  109. 109
    oklahoma Says:

    exxi Energy XXI (Bermuda) Limited (Nasdaq:EXXI) (LSE:EXXI) today announced Chairman and CEO John Schiller will present at the IPAA Oil and Gas Investment Symposium in San Francisco beginning at 5:00 p.m. PDT on Sept. 29, 2009.

  110. 110
    zman Says:

    914 Production Data Out:
    Lower 48 gross withdrawals fell 0.75 Bcfgpd from June to July. That is the biggest drop we have seen. Will have some charts to add to today’s post shortly.

  111. 111
    zman Says:

    Natural gas holding up a dime on the day. Out months firming more. This is good news. Looking at some back month revision, back in a bit with some quick charts.

  112. 112
    elijahwc Says:


    Wow you are good. Hopefully FB is no where near it. Thanks.

  113. 113
    bill Says:

    eia data is out

  114. 114
    elijahwc Says:

    12:47 CST Kass sighting:

    “I am buying Spyder (SPY) 104 puts and selling 106 Spyder calls now. “

  115. 115
    zman Says:

    Hit refresh and scroll up to see just added 914 level production data. The roll is much more evident with this set of numbers.

    NG up 12+ cents now, strip is up more in the winter months. This may cause further short covering and or buying. Will give more opportunity for producers to think about hedging higher.

  116. 116
    zman Says:

    Bill – HK liking those gas number now.

  117. 117
    zman Says:

    Shork should find a hat to eat.

  118. 118
    zman Says:

    Eli – Thanks for 114. Do you want me to take a quick pass at EEE from a 10,000 foot level, I’m out of date by at least 3 months there?

  119. 119
    zman Says:

    Eli – Does Kass have a place where he discloses the covering of those positions?

  120. 120
    baylor3217 Says:

    Hk heating up

  121. 121
    1520sbroad Says:

    #117 – he is a jack of all asses. That smarmy tone… he was a friend of a friend many moons ago. I’m not a fan.

  122. 122
    zman Says:

    re 914 data. The Wyoming data looks a bit off to me, too fast of a deceleration. Could be attributable to casinghead gas shut in when some of the Bakken wells with gas were shut in. Could be something else entirely. But it is responsible for a majority of the dip here. Texas fell too but not as much, other states eased and Louisiana rose as expected although the slope of their curve isn’t as steep as one would think.

  123. 123
    zman Says:

    1520 – I think he is smart. I just can’t get past those rash statements, “gas is going to $0″… it’s a shame CNBC can’t hire someone to interview the guy with sharp questions. Someone who knows something about gas and storage and the relationship to price. End of rant.

    Adding to 122. Nutshell… good numbers but I would like to have seen some more declines out of places like OK and NM and less isolated to Wyoming (which could bounce back next month).

  124. 124
    zman Says:

    HK about to start, slides just updated.

    Fall revolver borrowing base review completed. $1.5 Billion as expected. Will be $1.3 B after completion of the Permian asset sale.

    Otherwise not a new thing in the presentation.

  125. 125
    zman Says:

    Listening to HK

    Market appears stall awaiting ADP, GDP revision, and Chicago PMI in the morning.

  126. 126
    elijahwc Says:

    119: Not in table form. But he does write daily for RealMoney’s Silver service.

    118: Only if you can do it on the fly and it doesn’t add to your workload. I’m only interested in that they blew up recently and the question revolves around some smart money who sees the stock getting a push. Beats me how unless the tech or bus plan actualy works.

  127. 127
    zman Says:

    HK Notes:

    On track to make or exceed their projections for 2H09 production.

    Think they will have all their Haynesville leases captured by mid 2011, spending same next year as this year to do it. Getting a lot more wells per rig per year.

  128. 128
    zman Says:

    HK notes:

    Floyd noting that they will be able to talk about some Bossier shale tests (just on top of the Haynesville) that are underway now, in the near future.

  129. 129
    zman Says:

    Nat Gas Monthly out now as well. Will have the supply show in tomorrow’s post.

  130. 130
    zman Says:

    HK commenting on recent EFS well came on at 4.2 MMcfgpd and 300 bcpd. Two months later later the gas has inclined to 6+ Mmcfpgd, not due to well cleaning up but due to frac having time to percolate.

  131. 131
    ram Says:

    Zman – Would it be possible to have ticker symbols of E&P’s that matter to this site with live quotes? Just imagine, near the top, columns with names, symbols, price, and the change flashing red or green depending on next tick. Just wondering.

  132. 132
    zman Says:

    Ram – I looked into. It makes the site drag. Maybe when we get a faster server we can try that.

  133. 133
    zman Says:

    HK over – same presentation as last time, bullish sounding but no real new data. I’d expect it to just move with the market/gas from here. He sounded confident they will beat growth expectations but he always sounds that way and they pretty much always do.

  134. 134
    ram Says:

    Thank you for considering request. I thought it would be way off base, but asked anyways.

  135. 135
    RMD Says:

    ELI re: EEE; I recaall listening to a conf. call or presentation and wanting to keep my hand on my wallet ’cause it was ‘too good to be true”, (but I may be remembering incorrectly).

  136. 136
    zman Says:

    U.S. natural gas production down 0.2 Bcfgpd on YoY basis. Been awhile since I could say that. Baby steps.

  137. 137
    zman Says:

    RMD – Once upon a time I was a believer there. Like the day I did the teach in. That was just on the other side of the peak in that one. Ugly.

  138. 138
    baylor3217 Says:

    Thoughts on where atpg may be a good buy?

  139. 139
    elijahwc Says:

    Thanks RMD. They were fast in the old days. Your not fishing today?

    Back on topic this just crossing about Aubrey counting his coins:

    PXP Plains Exploration discloses it paid to Chesapeake $1.1 billion remaining commitment to fund Chesapeake’s share of drilling and completion costs for future Haynesville Shale wells (27.42 +0.45)

    Co discloses that on September 29, 2009, it closed the transaction contemplated by that certain amendment to PXP’s Participation Agreement with Chesapeake Energy Corporation (CHK) entered into by PXP and certain of its subsidiaries on August 5, 2009. Pursuant to the Amendment, PXP paid to Chesapeake $1.1 billion for PXP’s remaining commitment to fund 50% of Chesapeake’s share of drilling and completion costs for future Haynesville Shale wells. In addition to this payment, the Amendment requires Chesapeake to drill at least 150 wells per year for the three-year period starting October 1, 2009 and terminates PXP’s one-time option exercisable in June 2010 to avoid paying the last $800 million of the Haynesville Carry in exchange for an assignment to Chesapeake of 50% of PXP’s interest in its Haynesville acreage.

  140. 140
    zman Says:

    Baylor – I’m watching it, would like to buy it lower, maybe in those lower gap areas. I’ll probably miss it.

  141. 141
    zman Says:

    Texas is off 1.5 Bcfgpd since last Nov peak

    That is 1/3 of U.S. production down 7% in 8 months. It is down 1.0 Bcfgpd since March. The roll is real.

  142. 142
    bill Says:

    pxp gave chk 1.1 b today

  143. 143
    zman Says:

    That was the previously announced deal, right? I thought it was only going to be a $1 B, not $1.1B.

  144. 144
    elijahwc Says:

    #’s 138 & 141:

    They just closed the full private 140mm 8% pfd this afternoon along with the full over-allot which means the convert arb will come off in the next few days an the stock should erode higher.

  145. 145
    bill Says:

    I think atpg could have a soft q3 but the ceo and his team does a nice job on the earnings call talking about all the good things they have done or will be doing

    it fell into high 16’s after the offering

    so a dip in the 17’s might be a good entry point

    if you like calls

    march 15’s and 17.50 could work if they execute on their plans and oil holds up

  146. 146
    bill Says:

    >full over-allot

    i didnt know that but i view that as good news and there is a huge short position

  147. 147
    bill Says:

    143 — yes previously announced

    im not sure of exact number

  148. 148
    bill Says:

    On September 29, 2009, Plains Exploration & Production Company (“PXP”) closed the transaction contemplated by that certain amendment (the “Amendment”) to PXP’s Participation Agreement with Chesapeake Energy Corporation (“Chesapeake”) entered into by PXP and certain of its subsidiaries on August 5, 2009. Pursuant to the Amendment, PXP paid to Chesapeake $1.1 billion for PXP’s remaining commitment to fund 50% of Chesapeake’s share of drilling and completion costs for future Haynesville Shale wells (the “Haynesville Carry”). In addition to this payment, the Amendment requires Chesapeake to drill at least 150 wells per year for the three-year period starting October 1, 2009 and terminates PXP’s one-time option exercisable in June 2010 to avoid paying the last $800 million of the Haynesville Carry in exchange for an assignment to Chesapeake of 50% of PXP’s interest in its Haynesville acreage.

  149. 149
    zman Says:

    Thanks Bill. Good for both of them.

  150. 150
    zman Says:

    Anyone see a comment on EOG to account for this late afternoon rally. Wondering if someone made a comment on their E. Tx Haynesville wells with HK. Not in the meeting but in the breakout session.

  151. 151
    zman Says:

    Volumes look low today, buyers strike. Beerthirty.

  152. 152
    Denise Says:

    Something to pay attention to-although off energy but would ultimaly affect
    the space

    Bill Gross making changes-selling mortgage backs and buying treasuries
    saying he expects deflation


    Your view BOP?

  153. 153
    zman Says:

    API Watch:

    Crude UP 2.8 mm barrels
    * utilization only off 0.1%
    * imports up again, up 278Kbopd (so that would be most of the delta to analyst estimates

    Gasoline DOWN 1.7 mm barrels – expected a small build here which would be normal for this time of year.

    Distillates UP 2.3 mm barrels – last week API showed this down sharply so perhaps they are squaring their numbers. Still expect a smaller than expect build or a draw down on distillates tomorrow from the EIA report.

  154. 154
    zman Says:

    Johnson Rice added SD to their Focus List.

  155. 155
    zman Says:

    GMXR on tape with ops update – deets in the post tomorrow.

    SD – two directors on the tape with decent size buys. Stock bid 13, last 12.84

  156. 156
    BirdsofpreyRcool Says:

    Denise — #152… I have a different view of “inflation” than most, but it is consistant with a number of other economists. My view of inflation would have had Bernanke lowering interest rates aggressively, about 9 months before he actually did. Bernanke was worried about spiking energy prices. I was worried about banking and job losses. Once energy prices fell, Ben woke up and saw the banking crisis and dropped rates much lower than he would have had to do (if he had done it 9 months earlier).

    Inflation is something you make or expect. Merely having prices go up, is not necessarily inflation. If — for example — oil is increasingly expensive to produce and comes from riskier and riskier places… is the increase in oil price “inflation”? I don’t view it as such. And as such, we (as an economy and public policy) have no control over it. Of course, you can crash your economy and then lack of demand will bring energy prices down. But I don’t think that is what Ben had in mind.

    I digress. But you need to know what i don’t consider inflation, to know what i do consider inflation. I think “inflation” is the embedded expectation that prices go up every year because prices go up every year. And prices go up every year when everyone makes more money every year but do the same thing. So wage increases become automatic (remember the old “COLA” wage increases?). And this vicious circle keeps feeding on itself in a good, growthy economy.

    Here’s what I think we are facing — a permanent loss of many jobs, continued cost-cutting, continued globalization, mounting taxes, and a long period of excess capacity (in many things, commercial and residential real estate, factory space, trucking, distribution warehousing, electronics, and the list goes on). So, what does this add up to? Certainly “automatic” pay raises every year are out the door. And many people are facing a cut in their wages and/or an increase in the direct cost of their benefit package (as companies pass thru the higher costs of health insurance, for example). Also, many people who lost jobs will replace them with lower-paying jobs. The costs to employ people will go up, so it will cost more to put kids in daycare (for example). Therefore, you will see more families where one parent stays home to take care of the kids. All this is terribly DISinflationary.

    Take residential real estate, for example. As most people do not pay all cash for their house, they have to take out a mortage. How much mortage you can afford is determined by the present value of your expected income stream, discounted by prevailing mortage interest rates. So, if the “average” salary is going to continue to come down, then the price of the average house will continue to come down. This is deflationary. It is tough to have pernicious inflation when your home values are falling, or not going up.

    Then there is the pending affect of higher govt interest rates. With the flood of treasuries growing ever larger, I don’t see how we escape seeing treasury rates creep up, at some point. Not like the early 80’s… but higher than they are now. As home values are the PV of wages discounted by interest rates, higher interest rates lowers the PV (and housing prices) again.

    Lengthy, wordy answer. Bottom line — you can have higher energy prices, taxes, and govt interest rates at the same time as the value of the stuff you actually own and the salary you actually make decrease. That is deflation. Actually, it’s worst that that, it’s deflation in a higher priced world. But the prices of the last 20 yrs are artificially-low anyway. We got the one-time benefit (albeit, over a long period of time) of re-sourcing high cost manufacturing into low-cost parts of the world. It only makes sense, in a physics sort of way, if the increase in the standard of living in the rest of the world is coming up, our standard of living is falling to a new “level.” Like water finding it’s new level after a stormy period of readjustment.

    I worry about deflation and it’s affects on the population. I worry about high prices of some things we used to see as low-priced (like drinking water, or energy). But I don’t see pernicious INflation as a problem down the road.

    Who thinks they will go into the office on January 2, 2010 and be handed an automatic “cost-of-living” raise? Anyone? No. We will just be thankful we still have a job. That is deflation, not inflation.

  157. 157
    RMD Says:

    BOP, read #156 late; my reaction and investment answer to 156, which makes a great deal of sense, is MLP yield which should be bot and held, as 25% in march, or 13-15% now isn’t so bad for a portion of your $. The energy assets hedge (maybe) someof the bad-guys out there. Just some late night thinking….

  158. 158
    bill Says:

    i dont see weds post 902 am

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