Friday – Natural Gas Review + More Bakken Comps

Posted on by zman

 

Market Sentiment Watch: Ebullient over the jobs data. This sparking a small rally in the dollar which has capped rallies in gold and oil for the moment but such a lessening of the decline in the rate of jobs lost has pretty positive implications for stocks in general.

Ecodata Watch:

  • Nonfarm payrolls: Down 11,000 vs down 100,000 expected (no, I didn't get the comma in the wrong place), vs down 190,000 last month
  • Unemployment: 10% vs 10.2% expected, flat with last month
  • Factory orders come out at 10 EST, forecast at 0.0%

In Today's Post:

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

Holdings Watch

  • $10KP II:

    • $11,000
    • 35% Cash
    • The Current Holdings tab is updated.
    • I will update the $10KP tab on Monday.
  • Yesterday's Trades:

    • WLL – Sold the $60 December Calls (WLLLL) for $6.70, up 85%. I continue to hold the $65 December calls.

Commodity Watch

Crude oil fell 14 cents to close at $76.46 yesterday. Given the weak looking EIA report on Wednesday I'm surprised crude didn't try for a test of $75. We continue to be range bound as the OPEC December 22 meeting looms. I expect no action on quotas at that meeting but the group to make some vague comments about containing cheating that no one in the group will listen to. This morning crude is trading flat to slightly up as the dollar rally on jobs competes with the equity rally on jobs.

  • Saudi Watch: Manifa pushed back two years. Began in 2006, this nearly 1 mm bopd projection (900 Mbopd + natural gas plus condensate put it over the 1 mm boepd mark) was set to see first oil next year but that had been already bumped back to 2013. Now, Saudi Aramco sees 2015 as a target. Note that Manifa is not purely incremental to Saudi's spare capacity but is needed to offset decline at other fields. Interesting.

Natural gas fell another $0.07 to close at $4.46 yesterday after the EIA reported a higher than expected storage number (see below). This morning gas was trading up a dime+ early as the headline on Accuweather read "Earliest Measurable Snow Ever in Texas", which is good since weather in the producing region has been mild and was the cause of yesterday's small and unexpected injection (see below). Friday will also see cold spreading from the midwest to the northeast.


Natural Gas Storage Review


ZComment: Lousy number, should be the last.  Next week we get the first withdrawal of the season as the gas burning population weighted heating degree days soar from 126 in the prior week, which produced this 2 Bcf injection, to 169 HDDs. For gas to be buoyed we need to see persistant cold in the near term and more evidence that industrial demand is rising and supply is falling.

 

Stuff We Care About Today

Bakken Player Cash Costs (this helps to explain part of the whole "cheap" vs "cheap for a reason" thing):

Some Notes:

  • This is a just a reference point. It highlights good (low) operating costs in the play.
  • For the bigger boys here (EOG, NFX, XTO) the results are less meaningful as they are scattered across North America and, in the case of NFX, across the globe.
  • What it does show is that cash operating field costs (lease operating expense + transportation + gathering and processing + severance taxes are probably going to get below $10 per BOE over time as the more Bakken centric players grow production.
  • It also highlights the importance of controlling your G&A and interest expense (those other pesky cash costs). Note how BEXP goes from being pretty exceptional on costs at the field level until you encumber it with their interest expense.
  • NOG, as a non-operator, unencumbered with G&G and other back office costs is going to set the bar at the low end of the range.
  • When you combine cash costs with differentials in the Bakken that will fall over time to probably under $5 per barrel you can see how even $50 oil makes for healthy operating margins.  Most of the bigger players acknowledge that you need $50 oil in the core(Parshall, Sanish) and $60 oil in the rest of the Bakken to make an economic well. 

Sometimes this kind of data is better viewed in charts ...

Updated Bakken Player Acreage (adds in latest NOG acres)

Not to beat a dead horse and I may put this in a Bakken tab either under E&P for easy reference or on the reports tab as we have one for the EFS and it is going to be a "Go To" area for me for awhile. Will get that sorted out over the weekend.

 

 

Odds & Ends

Analyst Watch:

  • (FSLR) raised to Buy at Collins Stewart
  • (CLB) target upped from $126 to $136 at Barclays, maintains Overweight

102 thoughts on “Friday – Natural Gas Review + More Bakken Comps”

  2. Art Cashin – critical day for stocks, said if market pushes through resistance of recent high of 1117 (that would be yesterday by the way) then Christmas may come early, rally from here into January. If not, then we may go back into the penalty box. Repeats that its a critical day from the dollar vs stock market perspective. And he didn’t once mention a geopolitical event sabotaging the market.

  3. BOP = LOL. I think part of the boost is from contractors hired to fix the “created or saved” government web page.

  4. TechTrader is out today.

    HeadTrader saying he would buy any morning selloff for a trade.

  5. BOP – thanks.

    Crude deciding to run with equities and ignore the dollar for a bit.

    NG up 14 cents.

    Firesale on gnomes on Isle 3

  9. Art Cashin: He is sounding more and more confused by the day; seems like he is just making random comments now.

  11. Analyst Watch: XEC started at buy at Dalhman with a $56 target.

    May take some calls in some short squeeze, gassy names today. GMXR, GDP come to mind.

  12. WLL at $67, new high, lots of names at new highs for the year. ROSE, even BEXP finally making through the old 11.50 level.

  13. ZTRADE:

    EOG – Added (5) EOG December $90 calls for $2.05 with the stock at $89.50. EOG has lagged of late, and is cheap for it on forward cash flow. This is a quick trade on a short term expected improvement in price and I will roll to January calls probably next week.

  15. Any thoughts on FSLR here? This is starting to look eerily reminiscent of the action after their 2nd quarter announcemnt (with no similar results playing out after their 3rd quarter announcement).

    I understand they have a big company event mid December, but Yahoo didn’t have anything listed on their Company Events tab.

  16. Re FSLR – I looked around, saw nothing new yesterday. Stock is always very erratic and was probably due a bounce after all the analysts gave up on their price targets. They still face the same challenges they did at quarter end as far as waning European subsidies.

  17. Thoughts on CHK january calls? CHK has really lagged here recently down over 20% in recent weeks.

  18. FSLR did receive an upgrade to a BUY from Collins Stewart citing stronger pricing moving forward.

  19. Baylor – I don’t own anything but CHK common now. It has lagged, they put out as much good news as they could last month, it should rally with gas prices but I’m not playing there for now as it has its own way of trading…SWN is more responsive to gas prices and will grow faster and has the better balance sheet and lower risk in general if stock prices remain depressed.

  22. NOG by the way has the highest % of their float short of any of the Bakken names at 10%. Stock looking to make a move on $10.

    ROSE making a move on $18.
    P/CF 4.9x on 2010 numbers. I’d bet we get some news from them before year end, I hold the common here, options too oddly traded to play in.

  23. Baylor – they’ve backed the S&P off 2 points from the high on my screen, still up 1.6%. Not much of a dip in my book.

  27. Baylor – yep, a little profit taking but energy indexes still all up 1%+ on the day, in line with what the S&P and Dow are doing. I’d like to see them back off things like WLL, now up 2% by half so I can buy it back with some Januaries. Definitely a trader’s market here.

  29. ZTRADE:

    Gas weight addition, decided to go with quality instead of short squeeze candidates.

    SWN – Added (10) $43 December Calls (TKQLD) for $1.70 with the stock at $43.55. I also hold some $45s here which I will likely sell on the next green day in the gassy stocks, as I’m looking for a pretty good withdrawal next Thursday.

  30. Gotta say that most stuff I’m looking at in break out territory is doing so on light volume.

    BEXP and WLT. Will be interesting to see if the S&P goes for a new closing high if we see volume come into the market late.

    Getting ready to buy some WLL back, falling pretty rapidly.

  31. ZTRADE:

    WLL – Added back half of the WLL $65s (5) December calls for $2.50 (sold earlier for $3.30) with the stock pulled all the way back to $66.15 for a quick trade, probably be out of this and into the Januaries before next Wednesday.

  32. Energy really reddening up now. Oil backed off a buck, natural gas still up a dime but no one cares just yet about that, probably gets more attention next week.

  33. z — care to bet where EXXI prices their 2ndary next Tues afternoon? I thought $2.25 to begin with and I’m sticking to that price.

  34. ha! More important… where does EXXI trade to AFTER the 2ndary is priced? I think $2.75. 🙂

  35. Very bad technical sign for energy to have so much weakness in light of strong market……..

  36. EXXI – I’ll go with $2.20

    ZTRADE:

    WLL – Added back the second (5) contracts of the $65 strike with the stock at 65.25, for $2. Volatile group today.

  41. Isle – just thinking about why the profit taking set in so quickly on E&P and other energy (as coals went to new highs and are now down too as is some of the OIH).

    Best thought is what I mentioned in the post about the dollar doing battle with the broad market equities for the attention of oil and then applying that thought to energy stocks. People, as usual, will be thinking that the payrolls number means the end of the carry trade. Oil traders you’ll note have not bought off on that yet. Natural gas is in its own little world. So the stocks come off as people go away from the commodity stocks.

    That and the volumes were very light on the rally and light on the pullback. One thing I’ve always noted about new highs is that, more often than not, once a stock or index has made the move to a new high level once, its easier for it to go there again.

  47. Still working on improving my trading skills as I made well over 60% on the trade on FCX puts, but left 25% on the table with where things stand now.

    Fish in the boat is better than one on the line though. Moving on.

  49. Getting very ugly out there. Fear now is rising interest rates. Mkt leaders faltering……AAPL getting killed

  50. Anyone notice how when we’ve had recent pops lately, they never seem to be above 130-140 and then fade into the close.

    I don’t recall the last day about say 175.

  51. Re 48 – pick a ticker, say same thing.

    Isle – I hear ya re rates. Just not going to happen anytime soon.

    Baylor – what stock, index are you referring to in 50?

  52. Volumes do not look like panic volumes. Bakkens barely getting scratched. Gassy stocks down worse despite at 3% rally in natural gas and what should be a strong week there next week. Hmmm.

  56. Gold volatility will be matched by even bigger days to the upside. I hope gold pulls back to high 1000s and a pullback was fully expected in the 1200-1300 range. This correction could end at 1150, high 1000s or 1034 at breakout support.

    Not worried at all and looking for the most obvious buy opportunity we might see in a long time in gold.

  57. on a slow day I will share a thought or two; tough choppy market that is getting narrower in breadth especially in consumer discretionary stuff for example …gold is too crowded and reached a measured move objective around 1225 ….sold all of ours here last week; got thrashed by the family I work for and had to put some back on near its peak…noted Z’s comment that gas had shown good indication of production decline in recent EIA reports I think it was so I take note of that and that it is cold here in Texas and elsewhere…so I am going to hang on to my gassy stuff for now through the next gas inventory report…could get quite a pop if it works as Z thinks, which I might add it usually does

  58. I love the gold is crowded argument when 95%+ of investors don’t hold any and no mutuals or retirement funds hold any.

    That idea is based on technicals only.

    Trust me that the dollar shorts are just waiting to reload.

    This is just the start of the move. I will eat a hat if gold isn’t well above 1500 in a year.

  59. Also, the people who say they own gold, mostly own GLD who likely doesn’t even have close to as much bullion that they say they have.

    GLD is not a gold investment, it’s a gold derivative investment for which there is an likely an equal short interest… it’s not a real gold investment mechanism. The prospectus even says they don’t have to actually hold the gold.

  60. Also, it only makes sense that there would be some dollar intervention the day of and the day after Bernanke gets reamed out about easy money.

    If I wanted to protect my easy money interests that’s what I would do.

  61. I hold some physical gold I’ve had a long time; wish I had bought more obviously…I sold against the measured move in the derivative type stuff you mention that I held in brokerages…will reload later if it goes back between the breakout point around 1030and say 1150…appreciated your recent thoughts on CEF…will use that instead of or in addition to on the rebuy in various brokerage accts.

  62. Apologies if you thought my comments were directed at you. They were just in general because it actually makes me laugh when I hear all the squiggly-line-watchers call long-term tops and talk about how overowned the asset class is and how much of a bubble it is.

    If you think this is a bubble you haven’t seen anything.

  64. For folks watching or are in XLE..XLE broke below its supporting trendline intraday and is now battling the $56 mark, it’s trying to hold but…. if your’re long, and anything but a long term holder, I think you want to see it back above $56.50 by the end of the day…otherwise you have to deal with $54, the P&F sell signal, then major trendline support again at $52-$53…

  65. RE 63: what texas = canada? Man those Canadians that HATE us Americans (you know who you are) are really not going to like that — lol

  66. Can anyone tell me if oil and gold are correlated? Will oil act the same way re: the $ as gold?

  67. They both act on the dollar, the difference is that oil moves are more constrained by supply/demandd/inventories.

  70. #60, no offense taken whatsoever; your points on the gold are very good. mine were purely technical and not fully reflective of my overall attitude……just thought it was a little rich temporarily

  71. Bakken thoughts:

    ROSE – Interesting to see ROSE hold 5% gains on the day, so far. Expect news any day there could be as late as just before year end.

    BEXP should have more news (2 more wells) in a couple of weeks, I’m long January only calls there.

    KOG – news sometime soon, interested to hear the 2010 gameplan.

    WLL – Should have a press release out either next week or the week after with drilling news including the Lewis and Clareke well. Bouncy.

    NOG – some important wells going down, no news until after the end of the year expected.

  72. Z: I know you have been working hard on your Bakken Boys. Have you seen the RIG fleet update? Brent lately has been higher than WTI. Usually bullish for WTI. 2015 futures up around $96 – $97. Why 2015. Deep sea contracts go out that far. Petrobras uses Brent market.

  74. Tom – I did not look at it. Saw weather mangled one of their rigs earlier in the week. Was there anything in it that stood out or do you mean would I look at it?

    On the futures, Brent has gone back ahead of WTI due to the surge in storage at Cushing, almost for sure that’s the reasoning.

    I show futures out through 2018, those are trading $106 (which will be low by the way)

  77. Z- Did you see comment from HK CEO on Dow Jones wire last night?

    1. 2010 Capital expenditures $1.45B
    2. Major oil Cos have shown interest in HK; not eager for JV with majors
    3. Sale of HK Midstream business see in 1st half of 2010

  78. Isle – yes, nothing new on the capex, same as last comment.

    The JV thing comes up for them all the time and he shoots it down by saying what’s in it for us. Good point.

    Midstream – yep, that’s on track. There has been some question by TPH and others over the valuation there. They say its worth $1.2 B. The problem is one of EBITDA multiples for midstream transactions. I think this valuation puts them at something like 8x EBITDA which would be rich.

    Not planning to add to my HK as a gas play just yet…simply put it just is not trading well right now and it may be catching some variety of the Chesapeake flu. Strain A – “Sure you’re not going to spend more than you say you are, just because you always do doesn’t mean you will in the future, right?!” and/or Strain B – “So when is your next monetization? (wait for it wait for it), lack of interest? sell).

    I’d rather focus on a name like SWN who’s story has not garnered as much distrust from the Street. Who has a stronger balance sheet, and who has not yet spilled the beans on the 2010 growth forecast yet but when they do, is sure to please.

  84. ZTRADE:

    SWN – added a second (5) contracts in the December $23 calls (TKQLD) for $1.20 with the stock at $42.60. NG up 14 cents, no one cares today vs the market but next week should be our first shot at a strong withdrawal given the weather.

  86. Isle – not if I think gas is about to rally for a week or two. Then I like them unhedged and high beta to gas. If gas doesn’t rally then none of them are going to work in here, hedged or unhedged alike. But if it doesn move, say back to $5, with a corresponding move in the Strip, then SWN in my book outpaces a growthy but more hedged HK. At least until they let HK back out of the doghouse.

  87. HK; sold all my trading shares into the morning pump; bought them back lower; but not this low. Still; an ok trade; new traders at about 21.50. I think I can live with that.

  90. Hear ya weird day. Rallied the dollar, killed the market rally. Don’t see the dollar rally being sustained as this is just one number, the damage to the dollar has been done and is still being done and there is no way the Fed decides to become less accomodative while it is still rolling the short term debt to longer maturities.

  92. Jerome – are you a closing price is more important or a piercing of the price is more important kind of guy as far as things like your comment about WLL and $65 above. As far as support, I use closes, as far as resistance, I use any time of the day it reaches there although I prefer a close above the previous resistance to a hit and run move above it, as in the case of BEXP today, which I’d prefer to see close above $11.50. Thanks for all your TA thoughts.

  94. QBC announced a nice well in the Haynesville, will do an update there soon but from what I see at first blush, with gas prices down here, there’s no reason to play in the name. Still, worth a quick look based on their acreage and the fact that they are finally getting some Mcf’s out of the ground.

  96. Did anyone see how the Dubai World debt is backed by waterfront property 2 times the size of Hong Kong? Does anyone have any more details on that?

  97. Isle – of course, my timing can be off and NG traders are going to require extended cold and big withdrawal numbers before they get excited. My very near term theory is that we get a reflex bounce on the cold temps back to $5. Good for a trade on the remaining time of the Decembers but little more, it’s going to take time to get in sort of bullish sentiment back. Another set of numbers showing Texas down and other states growth muted at the end of December will help but that’s for the January call expiry.

  98. Lot of bottoming fishing in the last hour in the group. More volume since the lows getting the stocks back to close to even.

    Don’t think the XLE is going to make your level Jerome.

    Liking the moves on BEXP, ROSE late, WLL trying to get back to green, very volatile that one.

    SWN back to green, constantly reminding myself that I’ve done better with the name buy on red than green.

  99. Re: #92, I use both to form a total picture, in point and figure charting for example, if a price trades, that’s that, price print, no matter what time frame is all that matters, but for the nuances, total price action counts, did a trade leave a long tail and break back into a technical pattern, a P&F sell print might mean a potential bear trap, if the close is strong, leaving a strong closing candle…I also pay a lot of attention to technical points that many people track, the 20, 50 and 200 day SMA are widely followed…but my bread and butter is point and figure

  100. #98, XLE is a good example of nuances, XLE is back into o’s with the print thru $56, but it’s still on a P&F buy signal, however, it broke below an important lower triangle trendline intraday, it’s my guess that many TA’s are looking at this breach…not being able to close back into the formation is worrisome, even though from a longer term perspective nothing actionable has really happened yet, such as XLE going back on a P&F sell signal, here the close potentially provides a bit of color to the overall picture…

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