Job Less Friday

Posted on by zman

 

Ecodata Watch:

  • Non Farm Payrolls: Fell 263,000 vs consensus expectations of a 188,000 drop and Goldman's number, of a 250,000 drop, revised yesterday from a prior estimate of 200,000.

    • August was revised up from a loss of 216K to a loss of 201K.
  • Unemployment Rate: 9.8% vs a 9.8% expectation.
  • Factory orders arrive at 10 am EST but after weak Chicago PMI and ISM numbers early in the week I'm not sure if economists won't miss the ball here as well.

Nutshell:  Futures started out far into the red and tripled lower as the numbers came out. Energy futures fell hard as well. Going to be an ugly open. Next week's eco calendar is much lighter.

 

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Storage Review
  4. Stuff We Care About Today
  5. Odds & Ends

Holdings Watch

  • $10KP II:

    • $14,000
    • 37% Cash
    • The Current Holdings tab is updated.

  • Yesterday's Trades:

    • EOG – added (5) $85 October calls (EOGJQ) for $1.45 with the stock at 82.26, down with the group on a week day. Risky in front of tomorrow’s jobs numbers. Will revisit on significant weakness.

    • HK – Added (10) more HK $24 calls (HKJO) for $0.60 with the stock at $23.35, down almost 4% on weak market and weak gas prices.

    • SWN – Added (20) more SWN $45 Calls (TKQJI) for $0.35 with the stock off 3.6% at $41.15.

Commodity Watch

Crude oil waffled about yesterday finally closing up $0.21 to close at $70.82, despite a nearly $4 rally the day before on mixed bag news from the EIA, a stronger dollar and a very weak and nervous equity market. This would be the Iran factor propping prices up. After the close of NYMEX, President Obama disclosed that talks with Iran had indeed led to more talks with Iran and that the Iranians must let IAEA inspectors have a look at this latest secret nuclear facility within two weeks. Iran said it would allow the inspectors. I'm not holding my breath.  This morning crude is trading off between $1.50 and $2.00 following payrolls. The dollar remains flattish after jobs.

  • Congress' Empty Threat Watch. Congress voted to bar any company that delivers gasoline to Iran from also doing business with the SPR. Given that the 729 mm barrel capacity U.S. Strategic Petroleum Reserve is 2 mm barrels short of being full, I don't see the pressure point here but it makes for nice "get tough on Iran" headlines.
  • Russia Watch: In September, production exceeded 10 mm bopd for first time. Can't blame them for not joining OPEC, they get all the benefits of the group's curtailment efforts with none of pain having to cut production themselves.

Natural gas fell $0.38 to close at $4.47 yesterday after the EIA reported that, no surprise here if you have been paying attention since April, gas in storage reached a record high last week. The injection was in line with consensus but gas did sell off further after the announcement. This morning gas is trading off 5 cents as I post after having traded down a dime in early, post payrolls action. Pricing will remain volatile throughout October but my suspicion is that within a couple of weeks we will see pressure mount for a re-rally in gas as traders know that trade is increasingly tired and they eye another supply report that should show further declines.

  • Tropics Watch: Quiet, lots of wind shear, not conducive to tropical cyclone development.

Natural Gas Storage Review


ZComments:

  • Gas is at record storage levels now. No surprise there. 
  • There are two ways of looking at storage capacity:
    • The first is non-coincident or "demonstrated peak" storage (the historical peak of the various storage sites (not all at one time) is 3,889 Bcf.
    • The second is system design capacity which is 4,313 Bcf. This is the design capacity of all of the various salt caverns, depleted oil fields, surface tanks along the coasts, etc.
  • What I would refer to as reasonable maximum storage should lie in between. The higher number being impossible given the non-storage functions, like pipeline load balancing that storage facilities much also fulfill. In other words, logistically speaking its not likely to get completely full.
  • Traders fear that reaching maximum storage will yield further deterioration in gas prices as operators dump gas onto the market. Peak storage continues to track towards the middle to upper end of my band listed in the next set of graphs. Anecdotal evidence from companies presenting at IPAA this past week suggests a widespread narrowing of basis differentials to Henry Hub. This would suggest production declines are having an effect and/or that natural gas demand is picking up.
  • The old record for gas storage was set in October 2007, at 3,565 Bcf. Prices for natural gas during that month ranged from $6.84 early in the month to $8.33 per MMBTU, set at month's end.
  • One thing to note about reaching the then record for gas storage was that it was done as natural gas production was accelerating, with month after month of Lower 48 production demonstrating increasing YoY growth on a Bcfgpd basis.
  • At present, our latest available data, show that Lower 48 production growth has stall and a trend of decreasing YoY production is now in place. 


 

Stuff We Care About Today

Key Energy Selling Off Workover Rigs - the market is oversupplied, Key is trying to bring it back into balance.

  • retiring ~ 250 older, less efficient rigs
  • said pricing for 3Q was flat with 2Q exit levels....that's better than expected

(EPEX) Files Ch. 11 - selling off most of assets. Simply too much debt on the revolver.

Odds & Ends

Analyst Watch:

  • (SWN) raised to Buy at Deutsche Securities, target $58.
  • (XTO) cut to Hold at Deutsche.
  • (CHK) - Deutsche ups target by 20% to $35.
  • Janney initiates on solar sector: (FSLR) and (SPWRA) started with Buys, (STP) and (YGE) at Neutral. FSLR was announced as being added to the S&P500 last night.

156 thoughts on “Job Less Friday”

  1. Going to be an ugly opening. Period after the opening will be interesting to see if the bargain hunters start shopping or stay on the sidelines. People will probably start talking about Friday/Monday historical action in October later in the day if we are still down hard at that point.

  2. NG up 4 cents and climbing. Rebound after a big down day yesterday. If it carries through to the open I would suspect that it gets noticed by the gassy group after the morning wash out in the names.

  3. We are seeing a jobless recovery. This is no surprise to anyone who understands who creates “jobs” in this country… it’s mainly small businesses. And with all the stuff (read “taxes, costs, restrictions, paperwork”) that Congress is aiming at the small businessman/woman, they are just not going to start hiring until some of this gets resolved and costed out.

    My favorite — “raise taxes on THE RICH.” Well… most small businesses are reported as individual tax returns (sole proprietorship, partnership, Sub-Chapter S, LLCs). Note to Washington… it is the AFTER TAX PROCEEDS that get reinvested in a business… it’s not PRE-TAX MONEY. So, any increase in individual taxes at the high end just means less money available for the owners to plow back into their businesses. Plain and simple.

  4. I may purchase some more wll calls here to bring my avg down.

    looks like I sold my spy puts a litle early yesterday But they bad run and I was getting over exposed there and really didn’t want to be playing a coin flip with the employment number.

  5. BOP – With payroll losses reaccelerating, I’m wondering if the Stimulus 2 arguments get new life. Cash for couches?

    Any word from the HT/TT consortium.

    NG up 7 cents. Some of the gassy stocks catching a better bid than I would expect, still obviously going to be ugly on the open.

  6. Again, this reminds me a lot of what the first week and a half of July looked like. Fear that “the rally is over and we are headed back to the ditch.” The difference as we start this quarter (vs last) is that we have Congress going to work (as opposed to heading out on vacation). That is a huge difference. However, once we start to get the financial sector earnings (beginning with GS on Oct 15th), the mrkt should take a sigh of relief and start to inch up again. This pullback is healthy. It’s called “back-filling.”

    For those with cash on the sidelines, look for good prices on stocks you want to own on down days. If it wasn’t for down-days in the market, we wouldn’t get to buy at good prices.

    Credit softening with stocks —

    IG 114 1/2

    HY 90

    IG would get out to 125 in this downdraft and HY could drop to 88. Until we get beyond those levels, I see this as no more than what a “rocky recovery” looks like. Caveat = Govt.

  8. On another project so not able to post regularly, but try to keep up………Bakken Report: http://www.investorcalendar.com/IC/CEPage.asp?ID=149941&CID=…. link to recent KOG presentation. Best presentation to date by Lynn Peterson of KOG, basically bringing together all past information with update to current date. Important takeaways from cc, every well that they have drilled on the Rez has been successfull and are flowing without artifical lift. Wells have been referred to by company several times as compariable to Whiting’s Sanish field EURs of 600,000 bo per 640 acres. From Lynn’s comments I would say that wells 7&8 have very compariable drilling and formation samples to the their other 6 wells. Personally # 8 should be a very interesting well with 6,621 foot lateral with 13 stage frac, something close to BEXP type completion. With their recently completed Federal Unit designation for all acreage southeast of the Missouri River simple continous development will hold all this acreage without expiration worries. This represents approximately 1/3 rd of their REZ acreage and according to company only the second time that BIA , REZ and Federal Gov’t have approved such a unit. This helps relieve money pressure from having to drill all wells on acreage to hold it before expiration of primary lease. It should be noted that orientation of well #9 was changed from from se/nw to southeast to west or lay down unit. Personally, I think that this was done to give them the best opportunity of making a well. Remember that this well will test the eastern boundary of their acreage and is very close to the magic pink line of oil /water contact area that defines production limits north, south and east of their acreage…………………..Pipeline connections (oil, gas and water) are coming and will be determined by KOG as to whether they will contract with operator that is just to the west of their acreage or wait and do a deal with other operators for pipeline that would head south of REZ to gas plant that has excess capacity and would offer additional money for strippable liquids of 1700btu gas. Either way they decide to go they should be hooked on all wells by mid 2010 according to company. They are flaring enough gas at the present time to pay all their lease operating expenses with this flared gas alone……………………….They have also mentioned in recent cc that they have well sharing arrangements with Peak ND, XTO, Marathon and Petro-Hunt and I would also assume Zenergy in their current area of mutual interest. INVALUABLE RESOURCE……………….Peak ND will in the near future do simofracs of two parallel Bakken wells and will drill two parallel Three Forks wells near the middle part of KOG’s acreage. KOG anticipates drlling their first 3fks test with 10,000 foot lateral after the first of the year. Core samples from Shell’s Burbank-BIA 23-8 cores that they have examined show similiar oil cut and porosity to the bakken in this area if not better. Lynn’s has said Peak encountered some completion problems with their short 3fks well and makes you think prospects for the 3fks look really good going forward. They will get the benefit of Peak’s information before they ever start drilling…………………………….Cash flow from existing production has started to pick up with 6 wells flowing. I still think they will do some type of stock or preferred stock deal in here somewhere while the market is willing to share. BOP seems to think maybe only 5% dilutive which would really put the company in great financial shape and give them additional working capital. Notice that they have started to mention their northern acreage again and at least 3 different cos are drlling or have applied to drill close to this acreage. Actually BEXP was talking about some Red River production in Montana recently and this is actually KOG wells that they drld and BEXP was wi with them. Their acreage in northwestern North Dakota is in close proximity to recently permitted test by Zenergy for the Bakken/3fks formations. I don’t have any idea about their lease terms or if their acreage is hbp or not. At the end of last year they basically wrote off all their non-producing acreage to $ 0. So we could have some additional upside here probably way off in the future. …………………………….Wyoming acreage is very promising but is considered stranded gas without huge infrastructure investment to lay pipeline into the area. The upside is there are no cost to them anytime soon and Devon may buy their interest which would help their cash position………………………………………………..MOST IMPORTANT NOTE……………..I am looking for KOG to pullback here with the general market and present a great buying opportunity in the near future. I am hoping for a pull back below $ 2.00 and time will tell the story. If this happens I would load up the biggest truck you can find right when you think it is the worst time …….I would also recommend WLL & EOG on a pullbacks as they have some of the best acreage positions in the basin. WLL would probably give you more bang for the buck in a oiler % production co wide. BEXP looks interesting but I cannot get a handle on how much of their acreage is going to expire before they can develop it in their current financial position, but it will definitely high beta with the market so hold on for the ride. XTO is one of the bright stars and has some of the best acreage positions along the Nesson Anticline and in KOG’s REZ area. Their hedging has been great but the company doesn’t seem to get the respect of wall street . I still would not be surprised if XTO did a deal with KOG but that is pure speculation. They have had some recent dispointments in their 100,000 acre block south and southeast of KOG’s REZ acreage. They have had 2 water wells in both the BKN and 3fks but their recent huge 3fks well on the Nesson makes up for some of that. CLR has one of the best acreage positions and will definitely pick up steam with additional wells on their Nesson anticline acreage which has a lot of natural fracturing. NFX has large acreage position in the Williston basin but doesn’t have a lot of large contigous blocks of acreage in any one area, but this is more gravy to their other plays and makes them a little more oily. Other public names that are active in the region are EAC, MRO, HES, COP, and NOG.

  10. Thanks BOP

    Hear ya Baylor. On these kinds of days, I always let the stocks find a home, may take awhile, then I either go in for bargain hunting or not.

    SWN was temporarily up on that Deutsche upgrade. If the market does not just fall apart that could build higher as the day progresses. I added more there yesterday, sitting on hands at the moment.

  13. Did the market climb back from the abyss at the open? My real-time #’s aren’t working at the moment.

  14. Baylor – yep, dead cat bounce early, still, I don’t count it as much more than a reflex, just too early/quick for me to bite.

    Dman – nasty propensity for a selling crescendo into the close on Friday followed by a Monday drop. Not what I think will happen.

  15. west — #8. Thank you. That was a generous gift to the board and a great summary of where KOG currently stands.

  16. local weather watch – NJ – i had to turn on my heat last night. The complaining from my wife and kids was too loud to ignore. Low 40’s last night.

  17. FWIW, I am rubbing my hands together, anticipating KOG to drop below $2. When it does, I intend to pounce.

    I just love it when good stocks go on sale! This is the time we should be most chatty, picking through the panic of less informed sellers.

  19. Not to get political but I call it like I see it. Labor Secretary on CNBC saying “we are going everything we can to create jobs”

    Untrue. If I hear the phrase “green jobs” one more time when someone is asked about the impact of cap and trade or of proposed royalty increases for oil and gas I really am going to have to go off on a rant. Same goes for electric cars that apparently will get their electricity from the air. Irritating to hear the Secretary say they are doing everything when in fact, at least for traditional energy jobs, quite the opposite is the case. From drillers, to refiners, coal miners (sorry, no new EPA permits for new mines at this time, try later), to E&P types who are getting laid off because they have been too good at finding hydrocarbons, especially clean burning natural gas …. yada, yada, yada.

  20. CHK hammered in the last week. The put protection I had last month expired worthless for a $500 loss. No put protection this month and paying for it.

  21. baylor — you made some nice moola on your spy puts, tho. And you cashed those in at the window. CHK isn’t a loss until you sell it at a loss.

  22. Cold in the South as well. Accuweather maps are bright blue for most of the country (colder than normal). A short shoulder season would be a big benefit to natural gas stocks.

    On the SWN, I have not seen Deutsche’s report but I’d bet they are keying off the IPAA comments that production guidance is going back up due to Boardwalk gettng unclustered faster than expected. I doubt SWN pr’s it next week but you should see some analysts tweak their 3Q and 4Q numbers up. Also, those biggest in Texas (for the Haynesville) wells they announced should get some people to notices that along with SWN’s Angelina River trend assets, they have a second viable, high IRR shale play on their hands, while their first play, the Fayetteville, has still not seen its best wells nor have they been able to fully delineate its size.

  23. Baylor – if you ever need a like quote, just ask, I pretty much have live everything but grains.

    Green stocks on my screen … may not last but nice to see a lack of new lows minute after minute. Broad market is not exactly in panic ville.

  24. Z – #14 Wouldn’t surprise me to see a couple of weeks of grinding lower, maybe not the abyss that buyers are looking for.

    Marc Faber’s newsletter yesterday pointed out that 92.4% of S&P stocks were above their 50 days on Sept 18. That % has since been falling and usually falls to 30% whenever it exceeds 70%. So there is a ways to go yet.

  27. From X-Asset Class Strategist — summary = the selling ain’t over yet. Pick your prices and let the stocks come to you.

    From MJ — The recovery in 10YR Treasury yields and the surprisingly modest losses in the SP500 so far this morning may be providing a false sense of security….we are still convinced that a worse-than-expected Factory Orders number could easily generate another wave broad based shorting momentum….. At this point we continue to believe that the risk of a broad based downside move outweighs the likelihood of a strong move to the upside until earnings season kicks off….that being said…. We also believe investors should attempt to benefit from the current weakness by adding to positions relative to an overall market short…we would continue to stay away from companies whose equity has outperformed their debt as well as engineering companies we have talked about before….we would look to add to media/advertising based companies, some utilty companies, bank preferred and subordinated bonds, and banks that are likley to benefit from portfolio mark-ups in the 3rd quarter.

  28. Z – their jobs comment is a joke. To think of the mountain of new govt. debt that has been created … only a fraction of that has contributed any jobs (eg. the admittedly ludicrous but strangely effective cash-for-clunkers).

    That is what drives me nuts about all the mega bailouts: imagine what *could* have been done with that money. It’s not as if there aren’t things needing done.

  30. Agreed selling not over, I am letting them find a home for the day. Last 10 minutes will be interesting.

    XCO was dropped into the close yesterday, lots of good news there in the last week, much better balance sheet. Waiting.

    PXD – down grade today, but the story is turning the corner and they have a big well in EFS and a climbing rig count to talk about (oil directed) on the 3Q call. Waiting, missed its recent move.

    ROSE dropped a buck into the close yesterday. They will have another EFS and their first Bakken to talk about on the 3Q call. Waiting to add more.

    Natural Gas up 15 cents.

  31. baylor — i used to follow the E&C sector quite closely. Haven’t for about 2 yrs. The best analysts in that space (IMHO) are at Stifel Nicolaus and DA Davidson. SN hasn’t updated their “buy” rec since August, but DAD has a 9/14 PT of $40.

    E&C’s trade on backlog. If backlog is starting to grow YoY and QTQ, then it might be time to buy. Caveat is that they are all expecting margins to be dismal.

    Bottom line = I’m not much help… but FWLT would be one I’d look closely at, if i wanted to jump back into the sector.

    IG 111

    HY 90 3/8

  34. Z, thoughts on HK 23 Cs? NG seems to be holding up well compared to the selling we’ve seen in that name the past few days.

  35. If anyone asks you at a tailgate this weekend why natural gas shouldn’t be $0, give them this website address and give them the gas comments regarding “full” storage and then the price comments regarding the last time the U.S. was at “full” storage, and then cap it off with the YoY rising production from last time vs the YoY and sequentially falling production that we are seeing this time. Then have another beer.

  36. #8 Thanks very much West, the post was great. KOG remains on a P&F buy signal, it’s currently back into a col of o’s reflecting current mkt conditions, but I agree with you and BOP remaining very bullish on the stock and will look to add at short term support at $1.95, and if it ever gets there (doublt it) at $1.50. Position sizing for no stop. Back into X’s at 2.75, initial price objective remains at $3.25

  37. baylor — if you want to, see if you can dig up some comments from FWLT on the direction and composition of their backlog. It would be useful info to post here.

    IG 112

    HY 90 1/4

  38. Baylor – I’m still in a holding pattern. I’m also pretty fully loaded on HK. But $23 to $25 would be my strike if/when I do add.

  39. and Baylor, I’m only holding off on the names at the moment because 1) I’m pretty long with about 60% in right now and 2) I don’t trust the broad market to hold the early rally. If it tumbles the green names in E&P now will be the head fakes you “knew were coming” by the afternoon. If you are talking about a very short horizon, well, that’s different. Nice pik on the WLL by the way.

  40. BOP – backlog for FWLT at time of 2q filing was almost half the backlog the prior year. I know they have a huge cash position. Last I checked, almost $12 / share.

    I almost pulled the trigger at $18 / share about 60 days ago or so if memory serves but didn’t want to get overallocated.

  41. ATPG on the tape deferring $99 mm of construction costs of their hub for Cheviot (UK) N. Sea. A bit of a meandering PR but looks positive as the timeline for first oil in 2012 remains unaffected.

    Dman – I did look at that data issue last night. Monthlies show different than week files from the govt by a fairly wide margin on the product supplied figures. Your tax dollars hard at work. Weekly data is supposed to be inferior to the monthly. They adjust the weekly when they have more data to get the monthly numbers which is why they are both more accurate but also delayed. In my experience, oil keys off directionality in the weekly numbers and the weekly trend and rarely do the two data sources not match up in time. A bit odd that the weekly average of the months in question is substantially higher than the monthly data from which it was derived. I will do some more noodling on it.

  42. baylor — yipes… way to pick lows!

    Just to clarify, it’s not the absolute level in backlogs, it’s the change in QTQ backlog. So, if BL is starting to grow, I’d sit up and pay attention. Thanks for your comments here.

  43. Z, new poster here. Have an option related question. About 2 weeks left in the Octs, how long do you wait to sell some of the underwater calls? Just gut feel or you just let them “ride into the sunset” to zero?

  44. Morning all. What a morning! That dollar reveral has caught my eye with oil reversing a great deal of its losses along with metals. We are at a decision point. For sure I think they fill the opening gaps but are we going to see the more bullish count play out?

  45. Nasdaq in the green. Trying to decide if I should shift gears and go long some SPY Calls now.

  46. I listened to TRGL at IPAA: gist of story is Paris Basin geology is very similar to the Williston/Bakken and we are the science project to find out if our large acreage position is Bakken-like. We will need to raise just $30mm to find out.
    I can not judge whether the logs are “close enough” and how big a leap-of-faith the concept is, but they own lots of acres and modern technology has never been applied there. Co. sold interests in 2 other countries to focus on Paris.

  47. BSJ – welcome. Good question. Mostly case by case. Some were bought with the intention that the underlying common would never get to the strike level but that positive action in the stock would cause the option to be bid up. A good example is the HK 26s, that’s what I personally refer to as a delta play. Those were obviously a stretch when I bought them but on looking at the stock and the delta of the option I could see that a move into the mid $24s would result in a nice move on the bid of the call. In general, I start weeding out both winners and losers in the week before expiry. For things that are 5 or 10 cents bid I generally don’t bother and let them turn into scuds (100% loss). I have anywhere from 2 to 5 scuds per expiration. Sometimes more. I view the options as a portfolio and they can’t all be winners. Also know that I am no options expert and in general I just tell people what it is that I am up to and thinking. Background is in energy research and portfolio management, not options trading. But I’ve been trading options along with stocks for quite some time.

  49. Z – #41 OK, I didn’t think it would get this weird. I figured the difference must have been due to Martenson looking at slightly different categories of products or something simple like that. Evidently not.

  51. one has to wonder about a market that shrugs off that jobless data. Certainly a lot was baked in the cake and we’ll see churn until the earnings come out but it is making me feel like going long a little bit.

  52. RMD – good luck with that. I am not familiar with French tax regime, royalties, or gas market (although assume they are after oil if its like the Williston). I’m sure the logs will look good in any presentation they show you. How many straws have been put into. Is there a producing field nearby or over or under it? Why these guys (lease block I assume)? I’d make sure it isn’t listed on the Vancouver or Frankfurt exchanges before putting a dime in it.

    If you like Europe plays, FXEN has built in growth for the next 2 years in Poland and lots of acreage and after a long time, looks to be on the fundamental upswing. Also, they benefit when Putin/Medeyev turn off the gas to Ukraine/Europe.

  53. Just got this email from a research colleague at a Midwest shop… I’m going to post it b/c it agrees with my thoughts here (“Always look for an opportunity to talk your book” – Bill G.)
    =========================================

    We are hearing frequently from small business people (the biggest employers & political centers of the US) in the Midwest that they don’t know what to do vis a vis gov’t intervention, & even if they did, they couldn’t get a loan so it doesn’t much matter.

    The Keynesians always seem to leave out the part that in 1939, US unemployment was still near 17%, & never went below 16% from 1931-1939…

    Makes you wonder what plan B is…

  54. Irritating rally… oh well, there’s always Monday. And — who knows — the day ain’t over yet.

  56. That move down in the dollar looks impulsive to me whereas the upside over the last week had looked corrective. If indeed the low is in for the dollar then this would be a wave ii correction to the downside and its running out of room so would need quickly to the upside. If as I suspect the correction to the upside has in fact finished the dollar should move lower in short order. If this happens beware equity bears.

  57. I guess the point i’m trying to make is that we should embrace down trends, not fear them. You have to keep a macro trend in mind. My tea leaves point to a higher market at 12/31/09, so it is against that backdrop and belief that I welcome days, weeks, like this. I love buying good stocks on sale.

    IG 109

    HY 90 5/8

  58. DrL

    We used to joke that the VSE motto should be “there’s an American born every minute”

    As to Frankfurt, its a notorious naked short selling exchange.

    My point is that there are lots of names out there to choose from in the E&P realm. Lots of them shouldn’t be public companies and many of them have their hand out constantly to prove up the next big kahuna play. No slight intended to these guys. I don’t know them. But when people start making claims like “its the next Bakken” I have to ask who else is already there and why these guys have the keys to the city of gold. Sometimes its legit, often its hype.

  59. For those interested in TRGL, take along some Tums. The Paris basin play makes alot of sense, but so did the Turkish nat gas play, but TRGL botched that.

  60. Oil backing off but if bullish could be a wave ii retrace. look for it to hold at around $69.

  61. As to it being like the Williston, I assume they mean in size. The Williston is not that complex, limstones and interbedded dolomities, shales, sands. People have been making oil from the Williston since the 1920s. Again, I don’t know the Paris Basin, can’t recall anyone making a lot of oil from France though.

  63. RMD knows all this stuff as he taught me many things about markets and research over the year, so that was more just general commentary.

    XCO outperforming now. Not biting yet.

    Dollar continuing to weaken.

  64. TRGL – if you check out their presentations, they make a point of showing how the shale formation in the Paris basin are identical to the Bakkans. TRGL does produce oil in France, it is their most profitable part of the company. However they go through management teams as fast as I go through golf balls on a lake course.

  66. Yep, Tokoyo out too. My money is on Pele.

    Can’t think this has any impact on the market. I don’t see the big deal for the President that some are making out of it.

    Stocks drifting. Still think the last hour and especially the last 10 minutes will be key for next week which is data light compared with this week.

  68. DB downgrades XTO based on cash flow target of 42 and a NAV target of 47
    downgrading our rating on XTO to Hold from Buy, despite its solid
    growth outlook, our high regard for the asset portfolio and free cash flow profile, as our
    analysis suggests current valuations largely discount the company’s strong CF/DAS outlook.

  69. Re: 66 – What? Chicago didn’t get the olympics when Obama asked for it? Must be bush’s fault.

  70. Z, that was my response to your 67 as well. gawd I hate politics. no matter who’s in charge, we the people are typically the only ones getting screwed.

  71. Hear ya Baylor. I don’t like politics on the site in general because I’ve never figured out how it makes me money, lol. Plus its divisive and yada, yada, yada. But sometimes, on a Friday, I get a bit ranty from a long week. And I think its We The Sheeple now.

    Market fading a bit

    CRZO moving well in the wake of their IPAA presentation this week, insiders peeling off a few shares but not affecting the stock.

    NG up 18 cents. Bring on the cold air. SWN performing pretty well. Stocks in general holding up a lot better today than I would have thought … so far. Sitting on hands.

  72. KOG with a nice little rally off the lows today. Couldn’t pull the trigger at 2.15. I’m averaged in at 1.25 but looking for another good entry point.

  74. Right, OIH has been outperforming year to date relative to both broad market and energy by a wide margin. It has been very tough to get puts to work in an up market.

  75. Welcome any views on HDY IPAA presentation which I believe was late yesterday. Seems like a lot of things happening there, resignation of Board member Kent Watts, donation of shares, is there anything worthwhile prospective with this stock? Seems like a lot of press releases, but??

  76. HDY… do they have any revenues? Quick glace at income statement on BB shows nothing in the door since December.

    Of course, KOG had little to no revs for a while there too.

  77. HDY – No revenues. This is one I took at look at after Reef suggested it as a potential exploration play with analogues to APC Venus discovery to the south west. It is a bet on their new president (30 years experience with the Kuwait oil co.), they have a large lease block looking for traps in Cretacious fans. 2D will be shot soon. Plan is to partner up. I listened the August call when the new president took over and was impressed with the plan. Can’t really assign asset value to it. I have not listened to last night’s presentation yet but will shortly.

  78. Hi BOP, it seems like a lottery ticket to me, the attraction seems to be real estate..location, location…but it seems to have a good deal of buying interest and was even holding up early today when most still down, also has an interesting technical set-up

  80. On 9/17 Reef said –

    APC- significant discovery of first oil in “Liberia”basin makes the next basin to the north west off Guinea curious. A microcap; HDY holds 20,000,000 acre concession there. This is super high risk equity idea.

    And I responded with:

    I read up on them last night after Reef’s prompting. Essentially they are a company with some good resumes and a concession off Guinea which the geologist CEO (former of the Kuwait oil company) thinks is highly prospective. They have nothing in terms of a balance sheet at this time, not debt, market cap is under $100mm, but no production that I saw. The CEO is new and I read his transcript when he addressed shareholders about taking the job in August.

    Essentially they are working up the seismic on the concession, a very large patch of water with both deepwater and shallow water targets in an effort to get to a point where they can decide where to drill and whether or not to farmout part of the project to a partner. The CEO said they have had partnership interest and are exploring both majority parnterhsips (where they would be highly carried and not operate), minority partnerships (which would be more of a financial transaction), or lastly, doing a market deal to pay for further seismic and drilling. They have to drill a well by the end of 2011 so you won’t see real news here outside of a partnership before that time most likely.

    What will move the stock is activity in the vicinity by the likes of APC, Tullow, Woodside etc., grabs by the governments as well like you are seeing with Jubilee to the south east.

    Anyway, interesting, nothing in terms of an asset you can say something about reserves or production about. But interesting and it is the kind of thing that in this market can pop. I am probably not going to take a piece but I have a little more reading to do before I decide for sure and if I do take some it will be small.

  81. HDY — looks like they recapitalized with a conversion of their preferred into common just a coupla days ago. Looks like they will owe $439k of back interest on those preferreds, subject to getting a financing of at least $10mm at some point in the Future. Looks like they “donated” some warrants to the “American Friends of Guinea.” Looks like they are required to drill a well in the Guinea Contract Area no later than Dec 31, 2011.

    Looks like their only asset is offshore Guinea… where they will be “required to donate” 64% of their Contract Area according to some timetable set up by the National Assembly of Guinea, a Presidential Decree, and a Supreme Court ruling. HDY can “select” the area they have to give up.

    Interesting read, so far. Where does Guinea fall out on the Global Corruption Rankings? This is not a mean question. It is a serious question. The only thing HDY has is their Guinea acreage MOU.

    With only $1.3mm of cash on the BS and $1.7mm of debt (and negative WC), looks like HDY is going to have to pass the hat around… soon.

  82. HDY – seeing oil seeps, gas chimnees on seismic, taking surface cores.

    Discoveries up and down the coast. Play type clearly extends to offshore Guinea where their acreage is. BOP, your time tables are correct, but even with relinquishment you are talking about them keeping 36% of 31,000 sq km. All of their current prospects are in the area they would keep.

    Three play types: Turbidite fans, lower Cretaceous anticlines, and pre Cretaceous graben.

    Plan is to get carried by an independent or a management from pre workup. Small hat pass too for sure but the reason no wells have been drilled in the area is that HDY has the acreage.

    Don’t know politics are worse there than other areas…sounds like they have a pretty good relationship with local govt which is key. Like over in Nigeria, Shell not so much and look what happens. Addax very much and mostly good.

  83. Interesting comment from HDY on gas. They’ve been told by Rio Tinto that if you find gas there, we’ll help you develop it. Normally in these plays, its oil or nothing. Guinea is home to large iron ore deposits and the country is under powered to develop them.

  84. So, HDY can go for stratigraphic, structural, and faulted plays. Nice variety. And i know you’ve been DYING to use “turbidite” in a full sentence. Nicely done!

  85. Agreed, nice to have lots of angles. Their stated plan is to get the share price up and hold what they can, as long as they can, working up the prospects to the best of their abilities, so they can get the highest carry on the first well. Makes sense. How they pay themselves in the meantime will be the hat pass.

  86. RIO wins – probably good for GE via NBC as we’re in the same time zone roughly.

    Boring trading, no sign of panic.

    Oil holding $69, dollar off but not by much.

    TT may still turn out to be right on the short trade but it kind of looks like a bear trap.

  87. Rig Count Watch:

    Oil up 6 to 303 vs 422 a year ago

    Natural gas up 2 to 712 vs 1544 a year ago

    Horizontals up 2 to 444 vs 632 a year ago

  89. Indices: so far we have only seen 3 waves down off the highs. The bears need a lower low and they need it before we see 1041 on the SPX. If that gets taken out the bears may stampede for the exits.

  91. Thanks Nicky.

    BOP – On HDY, interesting they mentioned a graben play as emerging here. That could be a big thick segment. Those are in shallow waters, closer to shore so cheaper to develop, unlike their other plays. So graben forms due to tectonics, sediments fill it and you have a much thicker segment than the surrounding area. They think these are gas but again, that’s ok due to a gas needy local market. If they find something of real size then the talk will turn to LNG. That’s probably 3 to 4 years out as I’d bet they target oil in the deeper water first.

  92. To complete the Geology Lesson… the Los Angeles Basin is one great big graben fill. Just to put a mental picture on it.

  93. z Regarding 88: rig count nominally doesn’t speak to utilization. For instance, if nat gas rigs a year ago were 1544 but 50% utilized and today are 712 100% utilized, production is little change.

    Do the industry analyzers of this data apply any utilization ration to these type of numbers or do they just look at the counts to formulate an opinion on what that may be doing to production?

  95. I’m glad I closed my SPY put positions this morning. It just didn’t feel right bouncing so fast off those numbers. Thought dead cat at first but it’s been fighting back all day.

    May continue to trend lower in days to come until GS reports they blew the doors off with another quarter of outstanding trading.

    Seems a lot easier to trade when you have insider trading. Why I didn’t drop $100k into them when it was $50 I’ll never know. They are in deep in Washington. Probably the single greatest miss of my trading career.

  97. Baylor – those are rigs turning to the right. I don’t understand the comment as it relates to production. Are you saying gas production. Rigs correlate from basin to basin with production growth and decline. This has changed with bigger fracs and horizontal completions in the shales but it still holds that few rigs will results in less production growth or decline in production than would more rigs. I use it to gauge drilling activity as I think about change in production.

    I don’t look at utilization as its easier to ask a driller how pricing is going than to try to model it.

  99. Oil starting to move back up and dollar down, every man and his dog is bearish the market looking for a huge wave down -need to be careful here if they run it.

  100. WRES and KOG up about 10%. Speculative money still willing to make a bet here.

    NG at HOD, up 21 cents, getting back a little over half the move from before.

    Baylor – did I address that or were you asking a different question?

  101. Z – hearing from an old friend (resturant owner) in Conway that folks from Seeco & SLB are all a twitter about a “new area south of the Fayetteville Shale” in Faulkner County. Does this make sense?

  102. I better add that at the moment the move up looks more bearish and corrective than bullish. We would need to start moving up pretty substantially for the bullish count.

  104. Eli – re 102. No but am not surprised, lot wells being drilled in Cleburne, Conway, Van Buren, and White counties:

    For reference see map here:
    http://geology.com/county-map/arkansas.shtml

    So Faulkner not a shock.

    Note also that a lot of extended reach wells are being drilled on the south side of the play. See some recent completions here:

    http://aogc2.state.ar.us/WIPE/2009/WklyRep%209-25-09.pdf

    6 mm/d IP wells not uncommon now, 7 IP wells on the way.

    Refer also to a comment above about SWN saying they have not yet delineated just how big the FS is.

  107. Kind of a tall order for oil with 10 minutes to go. I think it moves with the market so a big end of day rally and you get there after hours.

    NG up 24 cents and climbing into the close. The shorts have got to be thinking this trade is getting long in the tooth and the volatility can hammer their gains to date. An early, deep cold snap can send it through $5 which I have a feeling is stop loss territory. I don’t think it should go much above five over the next month but I do think there is a good case to be made for higher gas, not just for the front month but for the strip, as we approach Halloween.

  108. Z – I’m having trouble with the sentiment read. Only about a week ago, there were huge % bullish. Now after a 5% decline in the SPX, there are too many bears? Is that because many “bulls” were actually scared bears being dragged along? So nobody ever believed in the 1st place?

    BOP – we need a sentiment TeddyBearCam

  111. Z – #109 I’m kinda curious: do the people who trade NG futures come across as, well, crazy? Or just the opposite, i.e. disciplined (?)

  114. z 101 – yes you did. I probably wasn’t using the right terminology.

    My only point (or more accurately, conjecture) was nominal counts don’t necessarily equate to less production (at least in a linear fashion) so I was curious how people in the biz looked at these numbers to make inferences about production.

  115. Dman – I think they are like any other set of traders, maybe with a stronger stomach for volatility. I certainly don’t think they are dumb. There is the normal herd mentality that comes from periods where the commodity moves in the same direction for extended periods and right now, gas has been falling for an extended period due to all the stuff I talk about daily. Some of those items are reversing course now, causing the a bit of a battle in price which I think will ultimately end in gas resolving higher than here and moving slowly higher for an extended period. One of the things that the E&Ps have been guilty of in the past is lack of capital discipline. If gas shoots to $8 and hangs out there for awhile and the rig count goes from 700 to 1,000 with a heavy weighting in the hot plays while the E&Ps repeatedly up their spending you will see me go short.

  116. 115 – very true. The historical correlation was fairly tight. Give a little time delay after rigs peaked and you could count on production coming off. That’s a big oversimplification.

    One of the things that plays in is rig efficiency. As the last rigs are added at a peak cycle for instance, you’ll see slower drilling, and often more mistakes in completions (feel free to tell me I’m smoking something on that Wyo or TexW) as you have less experienced crews.

    You also have differences in rigs and you have the whole horizontal shale well vs the conventional. Its pretty descriptive when you listen to an E&P president talk about a Haynesville well making as much well in its first month as a Cotton Valley well in its first year and the HS well in its first year producing more gas that the CV well in its life time.

    So no, not linear, but an indicator to watch nonetheless.

  117. Z – 116. Yes, I don’t imagine a dumb trader could survive very long in NG (or anywhere except the tech bubble from 1997-2000). But the volatility is freakazoidal & I just wonder how they handle it. But then, I kinda got used to the Xtreme stock volatility 6 months ago … only to see it go away.

    Q: a few days ago you said this when on the GDP call:

    “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.”

    I meant to ask you to ‘splain the logic of this: why the basis reflects actual demand as opposed to storage.

  118. Stepped out… back.

    Nicky — I’ll ask TT and HT for any mrkt thoughts and get back to you.

    Dman — the TeddyBear Cam is one useful spy… but I’m afraid we need a crystal ball, to determine sentiment. It has been my experience, that “mrkt sentiment” is an unruly and often contrary indicator… as is “consumer sentiment.” If you were waiting for consumers to feel good on a survey, you missed a heck of a stock market run this year.

  119. Dman – your basis is the difference between the basin price and the benchmark price. It widens and contracts depending on demand and how full storage is. Think of the big pipelines as storage. If storage is getting full you would expect basis to widen. If the pipes are also fuller than they’d like to be, you’d expect basis to widen even further. What I think he was trying to say was that is they are now seeing basis contract and, since storage is very full, you are left with the conclusion that the pipes that feed the factories and the gas fired generators are moving volumes to the burner tip.

  120. BOP – I was under the impression that the main use of sentiment *is* as a contrary indicator. That’s certainly all I look for, but I find it only seems to work at real extremes. Are we at one now? Hmmm…

  121. TT is over-and-out for today.

    HT thought the mrkt would head down for a while, but he notes that it doesn’t seem to be working that way. So he is now saying it’s “probably better just to add to weakness on the way down…”

    I’ll concur with that. Pick your stocks, pick your entry price, don’t forget to execute when it hits your price.

  123. Well, Dman… you have consumer sentiment, builder sentiment, investor sentiment, and probably a few other “feeling” indices out there. For the most part, I treat ’em as background noise and watch the bond mrkt.

    Bonds have very few nerve endings… 😉

  125. Dman — KOG at any price that is statistically close to $2.00 would have me making a few phone calls.

  126. BOP – I actually LoL’d at 124 line 2… tried to visualize a bond being subjected to medical experiments.

  127. CNBC counting their chickens a little early on a flat close. Last hour to be most important of the day in my book.

    Eli or Denise – any comments from Kass, has he said he is adding more SPY puts?

  128. Zman…In noticed that END is performing well today at its 200 MA, it has a nice looking P&F chart, I think its in your long term hold group, but you don’t mention it much…still worthwhile from a fundamental point of view?

  129. When it comes to sentiment right now I am looking at the very bearish sentiment amongst traders. The market always does what we least expect and it has me concerned that everyone is thinking a huge fall.

    The close is important I feel. Unless we tank into the close and put in this wave v down then I am thinking Asia, in particular Japan, and also Europe Monday has some clawing back to do. We have managed to scramble back to flat and they have all had several big down days. The Nikkei in particular has been absolutely trashed for several days and even now has futures pointing substantially lower than where it closed last night. If we don’t tank and close anywhere near flat or better then I will bet (barring any bad news of course!) that Asia and Europe have a decent start to the week. If that is the case then it could give the US an up start at least to start with. It will then become clear whether we are just going to get into the mid to high 30’s on the SPX or whether something more bullish is going on.

  130. Nicky, what about a sort of waffly, slow decline over the next 2 weeks. Wouldn’t that annoy both bulls & bears?

  131. Jerome – That’s one I’ve been sitting on, waiting for signs of a improvement. I’ve seen some but nothing that would make me add more now.

    Earning start mid next week with AA. Should be some volatility around that D.

  132. Neither of the counts I am look for really call for waffly Dman. That said I still favor that any move down is going to find support much higher than most are expecting ie we are not going to make new lows below the March low on this run.

  133. I thought I heard yesterday that AA had already been upgraded a couple of times this week ahead of their earnings.

    Also we have options expiry week after next – likely to be more bullish or bearish for stocks?

  135. Planet Earth to Mike Bloomberg

    Thomson One down nationwide.

    “they are sorry about this”

  137. Nicky – yikes! If the bears think there are new lows coming, I’d say they need their heads examined! And their heads will be even more sore than they are now.

    I’m thinking a correction, not a collapse. The reason I’m thinking it might be a bit waffly is precisely because there are under-invested funds lurking, who will support things at various levels not far from here. I.e. it might be largely a correction in time, not price.

  139. Dman – there is an Elliott Wave count which almost everyone seems to be onboard with that this has now topped and we heading to new lows and beyond.
    I am with you and even though I try to ignore the fundamentals (and never succeed) I think so many have missed this rally that would like another chance that for sure we see further upside and likely a lot further. I think the bears will be absolutely cremated by the time this is done in the Spring. But first things first. We need to see how low the correction goes before we can be sure.

  140. Amazing what talking heads call a “recovery” in the dollar.

    Dollar index:
    close on 9/25: 76.812
    today’s price 77

    Wow. Stunning. CNBC get someone who can interview a guest and blow the BS whistle when they say stuff like, “I can’t believe gold has rallied so much, especially in light of the dollar’s recovery this week, except for today of course”. The guy is a short. Stamp it on his forehead so I can flick channels for a minute.

    Funny how all the big shorts who come on TV on red days or “expected red days” like today talk about a correction, maybe a crash but only if the charts show the markets to be, um, crashing. They point to the need for one, but that down the road they see things higher. They should leave off the last part. Otherwise, their group think will bite them. I agree corrections are healthy. But pointing to a list of all things that are bad and saying we need a correction before we can go higher, well, that just lets everyone know you have cash on the sidelines and are a buyer of weakness.

  141. That’s what I was talking about the other day when everyone was touting “dollar strength”. It’s really less that 1 point off the recent lows.

  143. Here is whats going down with the TOne tradestations:

    We hear that Verizon is having major problems with their Data Network in the North East
    VZ: [WSS] – 10-02 3:46 PM

  150. SPX last 8 days: 3 down, 1 up, 4 down. Isn’t that what a downtrend looks like? A bounce at the open Monday would seem reasonable, since today was pretty tame.

  151. Nope and thanks. They have my number as well. Issue is whether its VZ or T1 and Problem is if its VZ’s backbone is ‘how can that happen’. That could be serious and I will be watching the news accordingly. I’m a T customer.

  152. vq calls 8.5 % debt pays 11.5 % + to do it.
    BOP, do you know why they would do that, covenants??

    DENVER, CO, Oct 02, 2009 (MARKETWIRE via COMTEX) — Venoco, Inc. (NYSE: VQ) announced today the pricing of its previously announced offering of $150 million principal amount of senior unsecured notes. The 11.5% senior notes mature on October 1, 2017. The senior notes were priced at 95.03% of their principal amount. The offering is expected to close on October 7, 2009, subject to customary closing conditions.

    Venoco intends to use the net proceeds of the offering, together with approximately $20.3 million of additional borrowings under its revolving credit facility, to effect a satisfaction and discharge of its existing 8.75% senior notes. At the closing of the offering, the company intends to issue an irrevocable notice of redemption to call the existing senior notes for redemption at 102.188% on December 15, 2009.

  153. bill — I’ll tell you exactly why VQ is doing it… the 8.75s are secured debt. The new 11.5s are unsecured.

    Having subordinated, unsecured debt makes VQ’s bankers very very happy.

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