Wednesday – Oil Preview Plus

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Sentiment Watch: Bullish tone softened by the slightest uptick in the dollar. (AA) reports after the close tonight and will set the early tone for earnings season. Sequential revenue growth will be key and while strong metal pricing during the quarter would suggest they have a good shot at such a feat as a bump in the top line above normal seasonal patterns I also think that this same pricing increase will mean (AA)'s top line growth will be anything but indicative of what the rest of the DJIA bellweathers will look like.

I started slowly raising cash again yesterday as the market moved closer to its 2009 highs. I plan to time more profit and loss taking with further strength in the market today and I plan to be fairly thin on October positions by week's end.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Oil Inventory Preview
  4. Stuff We Care About Today - LINE secondary, GDP hedges, RRC bank line reaffirmed
  5. Odds & Ends

Holdings Watch:

  • $10KP II:

    • $19,000
    • 33% Cash
    • The Current Holding tab has been updated.
  • Yesterday's Trades:
    • KWK – Sold the KWK $15 October calls (KWKJC) for $0.45, up 69%, with the stock at $14.50. Just starting to raise a little cash.
    • HK - Sold the (20) HK $24 Calls picked up yesterday at $0.45 for $0.75 on the mid with the stock holding at $23.90. I continue to hold (30) more of the $24s as well as $25 and $26 strikes. 

Commodity Watch:

Crude oil rose $0.47 to close at $70.88 yesterday on a weak dollar and strong equity market. After the close, the API released bullish looking inventory numbers including a large draw in distillates I had been looking for (see below). This morning crude is trading tilting slightly higher in advance of EIA inventory data.

  • Refinery Watch: (SUN) on the tape, pulling capacity due to slim margins. CEO does not see domestic refining market improving any time soon.

Natural gas retreated 11 cents to close the day at $4.88 yesterday. Gas did trade above $5 early in the session but looked to be in need of a pause and further, prolonged cold before trudging higher. This morning gas is trading back towards the $5 mark.

  • Early Read On Natural Gas Storage: 58 Bcf consensus vs:

    • 64 Bcf last week
    • 87 Bcf last year
    • 71 Bcf for the 5 year average
    • ZComment: Cold weather, if it is sustained will help bring the injection season to a timely close. Good to see below average and below last year early estimate for tomorrow's number.

Oil Inventory Preview

API Watch:

  • Crude: DOWN 0.254 MM Barrels
  • Gasoline: UP 0.544 MM Barrels
  • Distillates: DOWN 2.913 MM Barrels

ZComment: For the last two days, I've been commenting about a bigger than expected draw down of distillate inventories. API more than met my expectations but I'd like to see EIA show a larger draw as well. Distillate demand should be picking up due to the colder weather and seasonal stocking of heating oil. While distillate demand will likely propel crude prices going in winter, low utilization should start to shift crude inventories back into growth mode for a time (next 4 to 6 weeks), leading to a somewhat trapped crude price environment. A cold winter will likely help crude prices to resolve to an end of year price at or near the highs for the year. 


Stuff We Care About Today

LINE Announces Secondary

  • 6 mm units, or 5% of their currently outstanding unit count. 
  • Use of proceeds: repayment of revolver debt
  • Makes sense for the buy low, sell high asset exploiter to prepare for what promises to be a wave of M&A activity this Fall and Winter.
  • There is the possibility that LINE will acquire properties on an accretive basis in the near term which could be used to further bolster the MLP's distribution.
  • Nutshell: my sense is they take the normal secondary announcement hit and then bounce back in fairly short order.

GDP Adds Out Year Hedges:

  • 2010 gas hedge doubles to 20 MM/d at avg. with a $6 floor and a $7.275 ceiling
  • This is still fairly light at about 1/4 of Q3 expected volume levels (GDP has not yet provided official guidance for 2010 but it's likely to be above the 80 MMcfepd mark.

RRC Borrowing Base Reaffirmed With No Changes:

  • $1.5 billion line of credit
  • RRC elected to retain the current $1.25 B commitment amount
  • No changes to terms, interest rates, or number of banks in the lending group
  • $800+ mm availability
  • Probably a sign of things to come for the E&P group as the borrowing base redetermination season unfolds and higher or at least stabilized gas prices enter into banker thinking. 
  • Valuation: Still rich at 11.8x 2010 Est. CFPS but its what you expect from one of the most levered to gas and the Marcellus. 
  • Best gassy comparisons: UPL at 10.2x 2010E CFPS, SWN at 8.2x, COG at 7.7x, HK at 7.8x, and BBG at 4.0x. (BBG is Rockies focused which has caused them to trade at a perpetual discount).

3Q09 Emerging Trends Watch: (the first two are from yesterday, the third is new and I'll have more as we get closer to energy earnings season in a couple of weeks):

Emerging Trend For Earnings 3Q09 Watch #1:  "Energy names to see less oil production biased favoritism this quarter than last."

Last quarter, oil was rising into the close of the quarter and gas could find no bottom. The obvious choice for analysts was to lead recommendations with the oil names. As we approach this earnings season, oil remains aloft but subdued in a narrow trading range between $65 and $74. Natural gas, on the other hand, appears to be putting fears of a retest of recent lows with $2 handles in the distant rear view mirror. The stabilization potential of natural gas is going to yield more balanced calls (oil weighted production profiles vs gas weighted profiles) this quarter vs last quarter. Don’t get me wrong, I still think oil calls will be the easier "go to" trades at this time but gas won’t be so back burnered as it was last quarter.

Emerging Trend For Earnings 3Q09 Watch #2: "Earnings may hit lowered targets for 3Q09 but the market will be watching the top line with the fear that growth remains non-existent"

My answer to this thought is that people will flock to stocks and groups where they see a higher propensity for revenue growth. And I’m thinking on a sequential, not a YoY, basis. Oil prices moved in a fairly flat range during the quarter, but averaged $68.20 in 3Q vs $59.78 in 2Q. If you pull an oil price chart you can see oil was running up into the close of the second quarter. This will mean that for companies with flat or up production, higher sequential revenues are a given.

Emerging Trend For Earnings 3Q09 Watch #3: "Oil Service Will Not Deliver Top Line Sequential Growth"

2009 will probably go down as the year I picked on the OIH the most, calling its valuations over blown, calling the analysts who follow much of the service space too willing to look ahead to better times even as the fundamentals deteriorated. And I have been, more often than not, wrong in my efforts to short a handful of names in the group. The OIH is up 58% year to date vs 17% for the S&P500 and 59% for the gassy names of the XNG. Prices for much of the service industry continue to retreat and yet, analysts continue to call for an upturn. Ok, caveat complete. If the Street is looking for top line growth in 3Q09, it needs to look elsewhere.


The E&P Valuation (Orange) Charts Will Be Added To the E&P Tab.

The Emerging Trends Will Been Added To The Calendar Tab

Odds & Ends

Analyst Watch:

  • None

Mid Day Add - Gasoline Production according to the EIA. I have no confidence in this number and as such, no confidence in the much larger than expected build in gasoline inventories released today. Given the time of year and where utilization is, the surge in production looks highly suspect.


144 Responses to “Wednesday – Oil Preview Plus”

  1. 1
    Nicky Says:

    Morning all.

    Z – considering you are not a techie (!) you have an uncanny knack for being very right about the timing of the market.

    I believe we are very close to a top. Today/tomorrow will likely bring us a small iv correction and then one last move up in wave v to top this move before a much bigger correction. Targets for the upside? Million dollar question. Anywhere between 1080 and 1120.

  2. 2
    zman Says:

    Hey, thanks Nicky, coming from you that’s a pretty cool.

    NG got the mid 4.80s pull back into the close of Nymex on a soft equity market I was talking about in comments yesterday. Today, back above $5 and testing yesterday’s highs in pre market action. That distillate number form API will give some credence to the gas for heating angle to this week’s storage injection number due out tomorrow.

  3. 3
    BirdsofpreyRcool Says:

    Strange morning….

    Seeing the credit indices widen out on no particular news. Just lack of buyers at tighter (higher) levels. Maybe it’s unease around CIT or just hand-sitting, ahead of AA earnings after close. Don’t know. Has HeadTrader scratching his head too.

    TechTrader isn’t any help… he is calling for a 50/50 day. Basically, do nothing, sit on hands.

    I have my Market To Do List… it has “get EOG above 85” on it. Thanks to Jerome for providing that key number. I will be watching for it.

  4. 4
    zman Says:

    BOP – you got my morning email, basically, unless the market falls out of bed or the dollar goes nuts, energy should shine. Oh, third caveat, EIA story needs to mirror or come close to mirroring products numbers at API, especially that distillate draw. Given the little bounce in the dollar which tanked futures from some nicer gains overnight, the only thing holding crude here is heating oil.

  5. 5
    zman Says:

    Couple of late analyst watch adds:

    SUN target upped from 27 to 33 at Credit Suisse – probably a play on lower east coast refining tightening margins, cold winter, etc.

    NOV initiated at Positive at Susquehanna. Wish the brokerage firms would keep the ratings systems in the KISS realm. Positive? How about Sunny or Warm & Fuzzy or on the flipside Cloudy or Bloody Awful?

  6. 6
    BirdsofpreyRcool Says:

    z — I think energy continues the rally here. But, it makes me feel like Bill Gross to I say that… I’m talkin’ my book.

  7. 7
    Nicky Says:

    Z Terranova last night was flinging everything he had at the commodity trade – energy, metals. He sounded ridiculously manic. Wait for the U turn.

  8. 8
    zman Says:

    BOP – funny, I’m always talking my book. But of course, I do try to look at both sides of the issue. For instance, get natural gas too high, too quickly, before there is a good rebound in industrial demand for instance and you will have capital indiscipline amongst the E&Ps expand again as well as a long line of LNG tankers coming to U.S. ports.

  9. 9
    zman Says:

    Nicky – I just can’t deal with that group’s 30 second attention span. The oil in his hair must be affecting his brain.

  10. 10
    BirdsofpreyRcool Says:

    hmmmm… just doesn’t feel like we stay red today…

  11. 11
    zman Says:

    Re 10 – right.

  12. 12
    Nicky Says:

    BOP I can see the indecision here in the market having had two very good up days. Its like now what? Alcoa better not disappoint.

  13. 13
    BirdsofpreyRcool Says:

    Nicky — makes sense that TechTrader won’t go out on a limb today then. I think 50/50 says it all.

    That said, don’t think we stay red. But don’t think we go far into the green either. Won’t take much to get EOG above 85, tho. And that alone is worth sticking around for.

  14. 14
    Nicky Says:

    Z – his comments however did seem to sum up the, dare I say it, current speculation in the commodities market. My own view is that oil is overpriced considering the currently supply situation. As far as gold goes – we are a long way off inflation in fact we are in quite the opposite camp in my view at the moment. Why would you buy gold? You can’t do anything with it. Another bubble but one that doesn’t surprise me -its been brewing for awhile. I think they run it to around 1085 and that should cap it.

  15. 15
    BirdsofpreyRcool Says:

    Man. Talk about lack of volume!! Hell-looooooooooooooooo. Is anybody out there? (Pink Floyd)

    The bid/offer spread on some of the traditionally active stocks is wide enough to drive a Hummer thru.

  16. 16
    Nicky Says:

    Aren’t they voting on healthcare reform today or did I just dream it? If so what if any implications would that have on the market?

  17. 17
    BirdsofpreyRcool Says:

    Catalysts to Watch Today

    · Eco calendar for Wed Oct 7: very quiet in the US. Just MBA mortgage apps.

    · Corp Calendar for Wed Oct 7: earnings (MON, HELE, FDO, WWW, AYI, COST, RT, AA). Sainsbury trading statement.

    · Corp Calendar for Thurs Oct 8: same-store-sales reports for the month of Sept from the nation’s retailers will be reported. UMC reports Sept sales. Carphone Warehouse has a trading update. Earnings (MAR, PEP).

    · Corp Calendar for Fri Oct 9: earnings (INFY).

    · Bernanke is speaking Thurs Oct 8 (he will discuss the Fed’s balance sheet) and investors will look to him for some color on “exit strategies” (he will most likely echo Kohn’s “low for long” speech from this Wed).

    · Treasury auctions: $20B 10yr auction on Wed Oct 7, and a $12B 30yr sale on Thurs Oct 8

    · BAC – The search committee is expected to meet for the first time later this week, followed by a meeting of the full board Friday (WSJ)

    · GM – chief executive on Wednesday plans to deliver an update (@ 10amET) on the company’s progress since it emerged from bankruptcy in July (WSJ).

    · Health care – we are waiting for the CBO scoring on the new Senate Finance bill; CNBC says ests are that cost will come in ~$900B.

  18. 18
    zman Says:

    LINE – holding well; down less than 4% post secondary announcement.

  19. 19
    zman Says:

    Sitting on hands until oil inventory numbers.

    Thinking about the calendar, SD end of month purchase for approval of their Crusader acquisition in early November. Subsequent roadshow that will show a much broader company than the current West Texas Overthrust play, with of all things, an oil angle in the Bakken.

  20. 20
    zman Says:

    ROSE – back to $16 again, boring, unnoticed, quietly drifting higher. Still cheap, still has 3Q report catalytic news.

  21. 21
    zman Says:

    Play of the day for me in the event of very good EIA numbers will be additional WLL calls.

  22. 22
    Jerome Blank Says:

    I have one service showing a print on EOG at $85, the other showing $84.99, I have no $85 print on time and sales. IF it printed $85 EOG is now on a buy signal , if its $84.99, it’s not

  23. 23
    BirdsofpreyRcool Says:

    Jerome — I did see the 85 print on EOG… but it was on a HUGE bid/offer. So, I think someone screwed up with a “mrkt order” trade there. So, does it still count??

  24. 24
    zman Says:

    I have two services showing HOD $85 for EOG. I show two 100 share prints there.

  25. 25
    Jerome Blank Says:

    WLL perfects its bear trap and goes back on a buy signal at$59

  26. 26
    Jerome Blank Says:

    If $85 is an official print, EOG is now on a P&F buy signal, but given the circumstances of the low vol print, this may be the time to wait for that pullback and try to buy it at a better price, as BOP says, buy quality stuff on sale

  27. 27
    zman Says:

    Emailed in question from the compliance department constrained:

    Z: The caution that I keep reading is: a) Full storage, b) drilling technologies increasing production, c) lower drilling costs magnifying the risk of lower prices, d) rising supply overwhelming demand. Etc etc. I know you have addressed your position on the site often. I checked Nymex today and NG Dec ’10 and Jan ’11 are still above $7. What is it that does not allow many of the analysts to have today’s futures prices in their models? S

    My response:

    The answer there lies in the analysts’ desire to raise, not lower estimates over time. Raising estimates via rising prices allows you to mask sins in the cost structure of the model. So staying under the price until its time to mark your estimates to market allows you to keep your numbers intact and even raise them, even if costs or production is not as good as you would have previously modeled. Its also conservative in that the gas strip is so volatile. There are concerns out there to be sure regarding the supply/demand setup for natural gas. I try to figure out where the analysts are coming down with their numbers, often they are bagging their number at the behest of the companies, in effect, creating beats. That’s part of what I look for during earnings season.

  28. 28
    zman Says:

    Jerome – take a look at CRK.

    CRK = somewhat cheap, gassy, relatively unhedged name with strong growth potential.

  29. 29
    zman Says:

    SD too Jerome – looks to be leaving the station a little ahead of my schedule.

  30. 30
    zman Says:

    Nicky – found this on HC reform vote, sounds like end of week.


  31. 31
    Jerome Blank Says:

    It’s really interesting, both WLL and EOG have very similiar technical patterns from a P&F perspective, almost like twins with different personalities, both exhibited bear traps with strong momentum, EOG has now perfected its buy signal, albeit on what BOP thought might be a trading error. One strategy on the EOG trade might be to watch WLL for technical confirmation, it perfects its buy signal on a print of $59, WLL going back on a buy acts as confirmation of the EOG buy signal

  32. 32
    zman Says:

    … and adding to that I have to say that if lots of people are going to be added to the insured list then we better get more doctors. Took intern #1 for a flu shot 2 weeks ago and ended up waiting an hour, down the hall from the office. Now I know this flu season “is different” but this was the regular shot, not H1N1….

    Oil inventories in 8 minutes.

  33. 33
    BirdsofpreyRcool Says:

    Updated Market To Do List for today — get WLL above 59.

    Thanks, Jerome!

  34. 34
    cargocult Says:

    Anyone know why Pioneer Drilling’s so active?

  35. 35
    bloodystupidjohnson Says:

    There are alot of energy charts like EOG. Three of the top of my head, FST, WLL and PXD (which broke out). It will be interesting to see if these charts over a 2 or 3 month basis will be breakouts, or fakeouts.

  36. 36
    Jerome Blank Says:

    RE: #28, 29 CRK is currently on a P&F buy signal having broken above strong resistance at $42, SD still on a buy signal, but is currently in a col of O’s, SD has good support at $11, and stays on a buy signal until a print of $10.50, would like to see it reverse back into X’s which from here happens on a print of $13.50, initial target on SD trendline resistance at $19

  37. 37
    zman Says:

    EIA Oil Inventory Report
    Crude price just before report: $71.40, up 52 cents.

    Crude : Down 1 mm barrels
    Gasoline: up 2.9
    Distillates: up 0.7 mm barrels

    Imports: 9.3 mm bopd – a little high

    Gasoline demand: 9.269 mm bpd, better than last several weeks.

    Distillates demand: 3.527 mm bpd, good, improving.

    Nutshell: unexpected build on distillates will put a little pressure early on oil. Watching heating oil for now. Next week should then bring the draw on distillate stocks.

  38. 38
    West Says:

    Current Operator: KODIAK OIL & GAS (USA) INC.
    Current Well Name: TWO SHIELDS BUTTE 16-8-7H
    Elevation(s): 2075 KB 2053 GL Total Depth: 19743 Field: WILDCAT
    Spud Date(s): 4/4/2009
    Casing String(s): 9.625″ 2405′ 7″ 10748′
    Completion Data
    Pool: BAKKEN Perfs: 10748-19743 Comp: 6/7/2009 Status: F Date: 6/11/2009
    Cumulative Production Data
    Pool: BAKKEN Cum Oil: 43351 Cum MCF Gas: 29397 Cum Water: 11965 [Interactive Performance Curve] [PDF Curve]
    Production Test Data
    IP Test Date: 6/11/2009 Pool: BAKKEN IP Oil: 1666 IP MCF: 1380 IP Water: 2201

    Monthly Production Data
    Pool Date Days BBLS Oil Runs BBLS Water MCF Prod MCF Sold Vent/Flare
    BAKKEN 8-2009 31 13068 13020 4665 11263 0 10513
    BAKKEN 7-2009 31 17840 17510 6239 16505 0 15755
    BAKKEN 6-2009 15 12443 11825 1061 1629 0 1529

    [DMR Home] [Disclaimer] [Privacy] [Security] [Feedback] [My Account Information]

    Current Operator: KODIAK OIL & GAS (USA) INC.
    Current Well Name: TWO SHIELDS BUTTE 16-8-16H
    Elevation(s): 2075 KB 2047 GL Total Depth: 15760 Field: WILDCAT
    Spud Date(s): 3/4/2009
    Casing String(s): 9.625″ 2405′ 7″ 11297′
    Completion Data
    Pool: BAKKEN Perfs: 11297-15760 Comp: 6/21/2009 Status: F Date: 6/21/2009
    Cumulative Production Data
    Pool: BAKKEN Cum Oil: 21392 Cum MCF Gas: 15189 Cum Water: 6911 [Interactive Performance Curve] [PDF Curve]
    Production Test Data
    IP Test Date: 6/21/2009 Pool: BAKKEN IP Oil: 711 IP MCF: 604 IP Water: 880

    Monthly Production Data
    Pool Date Days BBLS Oil Runs BBLS Water MCF Prod MCF Sold Vent/Flare
    BAKKEN 8-2009 28 6642 6852 1660 5006 0 4256
    BAKKEN 7-2009 31 10564 10359 2680 8015 0 7265
    BAKKEN 6-2009 8 4186 3548 2571 2168 0 2068

    Current Well Name: MOCCASIN CREEK 16-34-2H
    Elevation(s): 2080 KB 2058 GL Total Depth: 15525 Field: WILDCAT
    Spud Date(s): 11/26/2008
    Casing String(s): 9.625″ 2408′ 7″ 11356′
    Completion Data
    Pool: BAKKEN Perfs: 11356-15525 Comp: 4/24/2009 Status: F Date: 4/24/2009
    Cumulative Production Data
    Pool: BAKKEN Cum Oil: 21961 Cum MCF Gas: 13974 Cum Water: 5236 [Interactive Performance Curve] [PDF Curve]
    Production Test Data
    IP Test Date: 4/24/2009 Pool: BAKKEN IP Oil: 604 IP MCF: 107 IP Water: 393

    Monthly Production Data
    Pool Date Days BBLS Oil Runs BBLS Water MCF Prod MCF Sold Vent/Flare
    BAKKEN 8-2009 31 3683 3954 580 2562 0 1812
    BAKKEN 7-2009 31 4012 4053 1200 2815 0 2065
    BAKKEN 6-2009 28 4454 4188 768 3057 0 2357
    BAKKEN 5-2009 31 7855 8392 1610 4365 0 3590
    BAKKEN 4-2009 5 1957 1028 1078 1175 0 1050

    Current Well Name: MOCCASIN CREEK 16-34H
    Elevation(s): 2080 KB 2052 GL Total Depth: 14810 Field: WILDCAT
    Spud Date(s): 1/9/2009
    Casing String(s): 9.625″ 2425′ 7″ 10651′
    Completion Data
    Pool: BAKKEN Perfs: 10651-14810 Comp: 5/6/2009 Status: F Date: 8/7/2009
    Cumulative Production Data
    Pool: BAKKEN Cum Oil: 31744 Cum MCF Gas: 19063 Cum Water: 10877 [Interactive Performance Curve] [PDF Curve]
    Production Test Data
    IP Test Date: 5/7/2009 Pool: BAKKEN IP Oil: 1274 IP MCF: 717 IP Water: 2138

    Monthly Production Data
    Pool Date Days BBLS Oil Runs BBLS Water MCF Prod MCF Sold Vent/Flare
    BAKKEN 8-2009 31 5518 5591 1324 3790 0 3040
    BAKKEN 7-2009 30 5851 5724 1759 3896 0 3146
    BAKKEN 6-2009 27 7771 7808 2121 5415 0 4740
    BAKKEN 5-2009 24 12604 11845 5673 5962 0 5362

  39. 39
    zman Says:

    More on inventories …

    Cushing crude stocks fell again, new 2009 low.

    Big increase in gasoline production, looks very squirrely given slight bump in utilization and inputs.

    Numbers should reverse out for gasoline next week.

  40. 40
    zman Says:

    No panic on my part to sell, oil looks like it is taking a look at the cushing stock draw and the weirdness of the gasoline numbers.

  41. 41
    reefguy Says:

    Starting to think about PXP…need some z waves!

  42. 42
    zman Says:

    HO turning green – barely. This helped natural gas rebound from a quick sell down on the report.

    Mogas down 1.5% – huge build in gasoline production looks like a typo, probably a true up for their numbers to work. Demand was up, but production up a lot more. This time of year, gasoline demand should be falling, not rising. Very weird set of gasoline numbers.

  43. 43
    bloodystupidjohnson Says:

    MCF – One of the knocks on MCF has been the overhang of stock own by Sellers Capital Management. Last year Sellers was selling stock on MCF becuause he was closing up his hedge fund. However what happen was that Sellers distributed these shares to partners in lieu of cash. This was done last year. Check out http://www.valueinvestorwatch.com

    Thus it has been almost a year since Sellers has distributed these shares, so the over hang issue should not be present anymore.

  44. 44
    BirdsofpreyRcool Says:

    BSJ — fwiw, bloomberg shows that Sellers Capital still holds 761,821 shares, as of a 13D filing on 8/26/09. So, are you sure he is done, making those stock distributions? That said, it’s only 4.8% of the shares o/s… so, shouldn’t be much of an overhang.

  45. 45
    zman Says:

    Crude not punting just yet.

    Crude eying the S&P which is eying the dollar and waiting on AA. Crude also watching heating oil which is flat.

    Good to see end products demand up, both gasoline and distillate.

  46. 46
    bill Says:

    can someone translate 38

    are those good numbers

  47. 47
    BirdsofpreyRcool Says:

    Financials are up… should drag the rest of the mrkt with it.

  48. 48
    zman Says:


    WLL – Added (10) October $60 Calls (WLLJL) for $1.00 (doubles my position here) with the stock at $58.20. See comments in the post on today’s oil numbers. I will likely take the remaining $55 calls here off the table today.

  49. 49
    ram Says:

    Thanks Bill. I was afraid to ask.

  50. 50
    Nicky Says:

    Bob Pisani saying he thinks Alcoa is likely to disappoint. This is a somewhat surprising comment from him as he always seems so bullish.

  51. 51
    bloodystupidjohnson Says:

    BOP – At one time he controlled over 2.7 million shares. He distributed 2 million at the end of last year. Reading interviews of him, I know he is still a big fan of MCF. It could be those are shares owned by him and other related parties. I don’t think 760,000 should be that big of an issue.

    If one was a big nat gas bull, I think MCF is the chicken way of playing it.

  52. 52
    zman Says:

    I have not yet gotten to translate 38 myself yet. Will get to it in a few minutes, cursor look shows monthly production from two wells, haven’t checked which two those are, oil production looks pretty much like what you would expect, flush, then falling off 4 months out. Back in a bit on it.

    Ram – the only stupid question around here is the one that goes unasked at the end of the day.

  53. 53
    BirdsofpreyRcool Says:

    BSJ — I have a friend, who basically retired, on the proceeds of buying MCF low and selling high. Now my friend always brings over a really nice bottle of wine when he comes to dinner.

    I have nothing but warm feelings toward that stock… even though I haven’t owned it myself.

  54. 54
    RMD Says:

    RAJA out with a piece concluding there’s a better than 50% chance of some military confrontation over Iran over the next 12 months; this echos Stratfor’s thinking.

  55. 55
    zman Says:

    Gasoline Production outlier of a number, makes very little sense given utilization, inventories, anecdotal evidence, and time of year. So I added the chart to the bottom of today’s post so you can see what I mean. I want a tax refund if they aren’t going to do a better job compiling the weekly data.

  56. 56
    BirdsofpreyRcool Says:

    HeadTrader — Google CEO says increasing hiring and investment rate in anticipation of recovery (reuters)

  57. 57
    bill Says:


    no debt, low cost, ceo a tightwad, no bonus’s,etc

    if ng goes recovers mcf has to go up.

    the ceo wants to sell 200 k over the next year..who knows , maybe he will sell the company

  58. 58
    zman Says:

    Gasoline demand set an all time record for that particular week in history last week. Won’t last but interesting to demand read as not only above weak levels last year but also above the 5 yr average and 2006 and 2007 which set the high bar… you know, back when things were go, go, go and people had jobs.

  59. 59
    bloodystupidjohnson Says:

    MCF one time last year was for sale, but Peak could not get a decent price, nat gas, the stock and credit market collapsed. The deal was that he was going to sell the current production, keep the offshore leases, and return the rest to sharesholders.

  60. 60
    zman Says:

    Oil going for a test of 70.

  61. 61
    zman Says:

    Choices – I see nothing to account for the PKD move. I have been getting some “check out the drillers” from people forwarding research comments. Basically the theory is they have discounted the move down and if you look around, some plays like the Marcellus, Haynesville, Eagle Ford, and Bakken have multiple operators reporting their intentions to ramp activity into year end and employ more rigs in 2010 vs 2009. I think this ramp is to the detriment in terms of rigs in higher cost basins however.

  62. 62
    Nicky Says:

    SPX has support at 1048 and 1042 – I think the latter has a good chance of being tested during this wave iv correction.

  63. 63
    zman Says:

    Crude breaking $70, volume picking up there, if it doesn’t regain it shortly I’d expect it to see the next level of whole number support at $69 in short order.

  64. 64
    Nicky Says:

    Adding here that its also possible we see a larger correction here back to the lows put in last Friday. Oil taking us lower it feels but indices still holding up for now.

  65. 65
    zman Says:

    Thanks Nicky.

    Someone sent me a comment calling AA a perpetual disappointer. Looking back at their EPS history can’t really disagree. They did beat last quarter, maybe they learned how to guide.

  66. 66
    Nicky Says:

    Z – if I understood Pisani correctly the bar has been set pretty high for AA which could turn out to be the problem.

  67. 67
    zman Says:

    re 66 – hear ya, the AA estimate looked kind of strong sequentially on revenues. I know the market will likely read them as the leading indicator for tomorrow but they really are not representative of the broader economy.

  68. 68
    zman Says:

    Anyone have access to Deutsche Bank’s comment from Oct 1 when they took AA up to a Buy?

  69. 69
    zman Says:

    Thanks for sending the AA piece Jat.

  70. 70
    zman Says:

    AA for tonight. Street at:

    Sales of $4.55 B
    EBITDA of $321 mm
    EPS of ($0.09) , this has been rising recently, was ($0.11) at the end of September.

    Deutsche with the most recent whack at numbers recent upgrade with
    Sales of: $5.244 B – which would make the Street pretty happy
    EBITDA of $225 mm
    EPS of ($0.13)

  71. 71
    zman Says:

    Santelli – “debt field of dreams” referring to another strong auction. Says this will do nothing to discourage the Treasury.

  72. 72
    Jerome Blank Says:

    For a alternative intraday technical perspective, crude futures bounced off the S2 pivot point support at $69.17 with a nice looking “hammer” on the 30 min chart, intraday bias changes to a bit more bullish on a 30 min close above 69.77, negated on a 30 min close below 69.12

  73. 73
    zman Says:

    CRT cutting ROSE to hold, recommending swapping into PXP.

  74. 74
    Jerome Blank Says:

    At this moment ROSE has a healthier looking chart

  75. 75
    zman Says:

    * Gasoline down 3.3%
    * Heating oil down 2%,
    * No real reason for crude to bounce at this point unless the dollar fails back and the SP rallies. This doesn’t mean the stocks can’t advance as there are a few remaining in green territory but the decline in HO is sapping strength from natural gas, marking another day in which we broke $5 only to fail back through it.

  76. 76
    zman Says:

    Yep. Also comparing the two is like comparing a grapefruit and a grape but I don’t think that shop covers a lot of names and you can’t blame them for cashing their ticket on ROSE after they have booked 300% since their upgrade of it.

  77. 77
    bloodystupidjohnson Says:

    Is NFX going to close yesterdays gap at 43.70?

  78. 78
    BirdsofpreyRcool Says:

    z — the energy analyst at CRT is an ex-geologist from Unocal. So, thank you for saying nice things about him. Yes, he is working with what he is handed… but he does a very good job.

  79. 79
    zman Says:

    BSJ – no idea re NFX, I’m no day trader or chartist. Maybe Jerome, Tater or someone else has an angle there.

  80. 80
    baylor3217 Says:

    Put an put position on yseterday on the USO Oct 37’s. Thoughts on where it trades from here short term?

  81. 81
    zman Says:

    By the way, I have a list of screens, at upper left with a good variety of what it is that I watch. I never watch a single name in a vacuum or in combination with non-energy names. So when I look at SWN, its with HK, CHK, CRK, RRC etc and when I look at WLL its with CLR, BEXP and so on.

  82. 82
    Jerome Blank Says:

    Re: #77, just looking at that, I’m thinking it could, but with no structural damage, from here NFX goes back into o’s on a print of $43 and has a confluence of support at $41

  83. 83
    zman Says:

    Baylor – not my game, the USO. I think crude trends with the SP until next Tuesday afternoon when the next set of API data come out. A good gas number tomorrow will likely help crude as it more often than not has an influence. But crude is stuck in a trading range and I don’t see it breaking out of that until we see more obvious end product demand and that’s going to take some time (and cold weather).

  84. 84
    zman Says:

    OIH very strong today. Positive brokerage comments on SLB moving it HAL and company higher. If it keeps up I’ll be looking at puts on HAL into earnings at the end of next week, just like last quarter.

  85. 85
    baylor3217 Says:

    Thanks Z. I punted on them up 21% as I felt I was getting into coin flip mode and ought to get the fish in the boat.

  86. 86
    zman Says:

    Hear ya Baylor, good trade. In my book, getting crude closed above $69 is no minor victory given the gasoline production data. 1 hour to NYMEX close so if we hold up in the $69s that may free the stocks to trade more with the broad market.

  87. 87
    zman Says:


    NFX – Added (10) more NFX $45 October calls (NFXJI) for $1.10 with the stock at $44.50, off 2.75% on a weak group day. Risky, will be quick to close this and hold the previously 10, likely into next week.

  88. 88
    baylor3217 Says:

    Z re 84 was lookingaf slb last night. It’s nearig it’s previous double top range of right at 60 and has been very range bound for a while. May be looking T puts there or Hal or OIH shortly

  89. 89
    zman Says:

    Baylor – hear ya. You know its the contrarian bet as the Street continues to love oil service despite the run and the slack looking fundamentals. I’ll be interested to hear whether or not HAL and SLB talk about pricing not just flattening but turning up in NAM.

  90. 90
    Jerome Blank Says:

    Crude is really making an effort to hold that intraday S2 pivot point level…

  91. 91
    zman Says:

    How to support your stock 101:

    COP on the tape

    a) cutting capex plan for 2010 relative to 2009 (from 12.5 B back to $11 B). This year the majors were spending more than 2008 or were flat with it despite the fall in the second half of last in commodity prices.

    b) Sell stuff. $10 billion in asset rationalizations. Hello LINE’s reasoning for a deal becoming more clear. There is little better than taking the neglected assets of a major who was busy doing other things in foreign lands and applying new technology to those assets with a fresh approach.

    c) raise your dividend.

  92. 92
    zman Says:

    Jerome – 2 minute until Nymex close and agreed.

  93. 93
    zman Says:

    Had not seen MCF’s operations update as it came out after the open.

    Nautilus prospect spudding this weekend, about a month ahead of expectation.

    4th prospect now named “His Dudeness”,

    Still a 4 well program planned between now and mid year 2010.

    So everything a little better than on schedule.

    Also, production well ahead of where it was mid September:

    Then: 75 MM/d
    Now: 88 MM/d – no comment from them on the delta, guessing a constrained well, one of the Mary Rose ones, is no longer constrained.

    FY 2009 – just ended, production for the year was 74.4 MMcfepd.

    That’s a big ramp but again, no Street coverage here so stock has no analysts to trumpet the news.

  94. 94
    zman Says:

    Well I have to be happy with oil closing down a $1.20 and not failing back into the mid $60s. Not that mid $60s is a bad thing mind you but it would put pressure on the stocks in the week and half left before expiry which I could do without. Stocks now coming off the lows and trading more with the market. As soon as oil closed and the SP started to move up, the XNG followed.

  95. 95
    zman Says:

    LINE – rising. See comments in post on them getting off light for announcing a secondary. I see a wire story saying they have already priced the deal at $21.90 and that they did 7.5 mm units, not the 6 announced last night.

    The overallotment has been bumped up too to 1.13 mm additional shares from 900K last night. That is demand. Last trade $22.60. I continue to hold the name in the ZLT.

  96. 96
    zman Says:

    TS Henri – Not expected to make it due to shear:


  97. 97
    jat Says:

    BTW, FWIW, I asked a metals and mining PM buddy for his read on AA. His prediction, not terribly specific, was that they “cook the books to beat the headline number and break out the pom poms on the call.” I dare say both he and I are not terribly enamored of management. They always seem to provide the least clarity and make the most BS statements of anyone in the world. And I was even long the stock in early ’08!

  98. 98
    zman Says:

    Group bouncing with the SP now. EOG threatening to go green. WLL is there again, NFX off the lows and ROSE retaking $16. Big days for two I watch but am not long at CRZO and CRK.

  99. 99
    zman Says:

    Thanks Jat. They’re first so they get the focus. Went through some of the recent PRs for the Qs, not a lot of forward read there. Dollar fall could smart their earnings a bit, here’s to price offsetting to give them at least a top line beat.

  100. 100
    zman Says:

    Insana on CNBC saying Fed unlikely to raise rates in an effort to “save” the dollar, says we are not in a currency crisis, we just have a declining currency, says that raising rates to bolster the dollar has not generally worked in the past anyway and said there was “no way on God’s green earth the Fed will raise rates in 2010”

  101. 101
    zman Says:

    LINE threatening to close green after closing its secondary early.

    KOG – data in #38 above:

    Will have that added to tomorrow’s post in a more user friendly (graphs) format.

  102. 102
    BirdsofpreyRcool Says:

    EOG on the 5 yrd line… trying to push over the goal line… seconds to go in the game…

  103. 103
    baylor3217 Says:

    Have had a limit order on the WLLJL’s at .80 for 4 hours and it didn’t hit. I can’t tell when it hit the lows but the volume is thin so maybe it totally missed me.

    Disappointed at the moment.

  104. 104
    BirdsofpreyRcool Says:

    and a field goal doesn’t count!

  105. 105
    BirdsofpreyRcool Says:

    EOG… time out called!! Waiting for AA to report.

  106. 106
    BirdsofpreyRcool Says:

    AA earnings report….

    4c EPS, expected -9c
    4,600 Sales, expected 45,111

  107. 107
    baylor3217 Says:

    survey says? I like these moments. It’s like watching the price of OJ in Trading Places.

  108. 108
    zman Says:

    AA Profitable

  109. 109
    BirdsofpreyRcool Says:

    oops… missed a digit….

    4,620mm in sales

    And the Crowd goes wild!!

  110. 110
    BirdsofpreyRcool Says:

    (should have read 4,511mm in expected sales)

  111. 111
    baylor3217 Says:

    they hockey stick’d up the last hour or so at a micro level. 13.90ish to 14.20 into the close.

  112. 112
    zman Says:

    AA – Signs that key markets are stabilizing

    On target to reach cap ex cuts by year end

    Sees global aluminum demand up 11% in 2H09

    Say exceeding all targets of its cash sustainability program.

  113. 113
    zman Says:

    BOP – right, one of my emerging trends for 3Q. Actual revenue growth is required. Oily E&P will provide this. Many sectors will not.

  114. 114
    Nicky Says:

    Futures haven’t moved. Odd. something tells me the market is going to expect a lot more this quarter than just cost cutting. Their figures are still absolutely dreadful compared to two years ago.

  115. 115
    BirdsofpreyRcool Says:

    (just for baylor)

    Looking good, Billy Ray… Feeling good, Louis.

  116. 116
    BirdsofpreyRcool Says:

    Right. Well, homebuilder numbers still stink to high heaven vs 2 yrs ago too… and the number one use use aluminum is in housing/contruction (unless i recall my stats wrong).

  117. 117
    BirdsofpreyRcool Says:

    ok… I know I’m being a bit silly. But it was a slow day in the market and I’m just trying to have a little fun.

    That said, I’m seeing AA bonds trade up in the after-market… guess stocks will continue to be pulled up by credit, kicking and complaining all the way.

  118. 118
    BirdsofpreyRcool Says:

    yikes… headline = new “CBO review says that Senate Finance Panel Health Plan would REDUCE deficit.”

    whoa. Who put the drugs in their Starbucks??

  119. 119
    Nicky Says:

    AA down in after hours trading. I guess this was baked in.

  120. 120
    BirdsofpreyRcool Says:

    AA bonds trading 30bps tighter… at +185 bps. That is a HUGE (positive) move in bonds.

    Guess the credit market didn’t get the whisper numbers…

  121. 121
    BirdsofpreyRcool Says:

    ok… AA bonds now trading “only” 20 bps tighter. Still, mega-move for an investment grade bond.

  122. 122
    zman Says:

    I’m not showing post close AA trades. Showing bid 14.17, offer 14.54, last 14.20.

  123. 123
    BirdsofpreyRcool Says:

    ha! I feel like a Cheerleader at a Grumpy Festival… so, will sign off for now.

  124. 124
    isleworth Says:

    AA is still halted

  125. 125
    BirdsofpreyRcool Says:

    (but, unless something hideous happens overnight, I think I’m gonna get my $85 on the EOG tomorrow. heh heh heh)

  126. 126
    zman Says:

    Trading $15 + now

  127. 127
    Nicky Says:

    When exceptional items are excluded, the p/e of AA is > 100. And this is not priced in?????

  128. 128
    BirdsofpreyRcool Says:

    Alcoa earnings summary from a debt desk perspective —

    Alcoa (AA) 3Q’09 (9/30/09) Financial Summary:
    * 3Q’09 adjusted EBITDA of $470.0 MM (vs. Jefferies & Co. forecast = $298.2 MM) vs. $27.0 MM in 2Q’09 and $959.0 MM in 3Q’08

    * Interest Coverage of 3.9x in 3Q’09 and 0.2x for 2Q’09

    * 3Q’09 Sales of $4,615.0 MM (vs. Jefferies & Co. forecast = $4,340.0 MM) vs. $4,244.0 MM in 2Q’09 and $7,234.0 MM in 3Q’08

    * 3Q’09 aluminum shipments of 1.288 MM tonnes vs. 1.23 MM tonnes shipped in 2Q’09 and 1.34 MM tonnes in 3Q’08
    * 3Q’09 CapEx of $370.0 MM
    * Total debt of $10,073.0 MM @ 9/30/09 vs. $10,150.0 MM @ 6/30/09

    * Total cash and equivalents of $1,066.0 MM @ 9/30/09 vs. $851.0 MM @ 6/30/09

    * AA reported restructuring ($17 MM) and net special items totaled ($17 MM) during the quarter.

    * The Company is exceeding its previous Cash Sustainability Program targets, with annualized overhead savings of $375 MM and procurement savings of $1.61 billion. Working capital reductions have generated $780 MM in cash, 98% of the 2009 ($800 MM) target.

    * Capital expenditures are on target for $1.7 billion for the full year, approximately one-half of 2008 spending.

    * Looking forward, AA noted that there are signs that key markets are stabilizing and due to low inventories at distributors, regional premiums are improving and global aluminum consumption is expected to increase 11% in 2H’09.

    * Conference Call Dial-in Information, Wednesday, October 7, 2009 @ 5:00 PM – 1-800-901-5226, Passcode: ALCOA

  129. 129
    Dman Says:

    #128 Wow, love the super cryptic passcode.

  130. 130
    PackMan Says:

    AA: http://market-ticker.denninger.net/archives/1495-Alcoa-Kicks-It-Off-AA.html

  131. 131
    zman Says:

    West – do you have any production data on 5 and 6?

  132. 132
    West Says:

    Z, KOG’s 5&6 are still showing confidential on NDIC site. The # 4 just came off confidential listing yesterday and KOG filed production for August. I had tried to copy some data from the well files but have not been able to get it to work. The most Northern well the # 4 with a 8995 foot lateral and 15 stage frac is a really good well. The first 3 months of production should have recovered 50% of total cost of well and completion at today’s prices….I think the normal confidential time is 6 months from spud date.

  133. 133
    zman Says:

    Thanks West, I’ve got what you sent today in bopd, declines look like what you’d expect for Bakkens, maybe a little better on the #1 well.

  134. 134
    West Says:

    The # 1 had a large fault that they actually drilled out of and had to come back cemment and drill lower to re-entry pay area. Most of EOG wells in the Parshall are se to nw trending to intersect as many natural fractures that seem to trend sw to ne in that area. Sometimes operators are forced to orient wells according to acreage position. In last cc KOG has changed well # 9 to west by northwest from se to nw. This was also probably done to go away from Magic Pink line on the eastern edge of the property. They should start fracing 7 sometime real soon and then about 2 weeks later # 8. We didn’t get much of a pull back in the stock price which in my book is a positive and may have to add at a higher price before well announcements in early November if not sooner.

  135. 135
    West Says:

    BOP… EOG will have quad top breakout on p&f chart tomorrow and is set up for strong run to 90. No field goal here, definite touchdown. Go to an Octoberfest, my recommendation would be New Baunfuels, Texas.

  136. 136
    BirdsofpreyRcool Says:

    West — excellent suggestion. The Germans who were lucky enough to pick Texas to settle DEFINITELY know how to party. And — let’s face it — who can hold a smile back when confronted by an OomPaPa Band?!

  137. 137
    zman Says:

    I’ve been to that Octobrefest a number of times. I’m told I had fun.

  138. 138
    BirdsofpreyRcool Says:

    It’s that “stein of beer before breakfast” ritual that kinda takes the edge off your memory brain cells…

  139. 139
    zman Says:

    To complete the experience you have to do the Chicken dance.

  140. 140
    BirdsofpreyRcool Says:

    As that usually happens after you lose complete control over your memory cells, so who can ever say you did… or didn’t…

    thank goodness for camera phones. You can get your friends to do a lot of things for you, for several years after. heh heh heh

  141. 141
    BirdsofpreyRcool Says:

    Nice bond rally going this a.m.

  142. 142
    BirdsofpreyRcool Says:

    high yield is already up a 1/2 point

  143. 143
    zman Says:

    EOG bid 85.06

    Still have to get through jobless claims but futures are pretty strong across the board.

    BOE and ECB left rates unched as expected so dollar weakness overnight is lessening.

  144. 144
    ram Says:

    Anybody pushing for HK to punch through 24 with conviction?

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