Thursday – Oil Review and Natural Gas Preview

Posted on by zman

 

Market Sentiment Watch: Still in the cautiously optimistic camp through year end. China by the way has said it sees "no chance" of a working climate agreement coming out of COP 15 ... as I've written before, China's path and the goals of the Copenhagen conference are not aligned.

  • Ecodata Watch:
    • Jobless claims came in at 480 K vs a forecast of 465K and 474K last week,
    • We get Leading Indicators (forecast 0.8%) and Philly Fed (forecast 17 vs 16.7 last month) later in the the day.

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Preview
  4. EIA Oil Inventory Review
  5. Stuff We Care About Today - FSLR, SM, DVN
  6. Odds & Ends

 

Holdings Watch:

  • $10KP II:
    • $19,500
    • 72% Cash
    • Given the number of changes in the portfolio over the last two days, I've updated the quick view of the current positions on the Holdings Tab and also the $10KP II spreadsheet.

Yesterday's Trades:

  • SWN – Sold all (15) of the December $43 calls for $2, up 28%, with the stock at $44.90. I pre rolled this yesterday to January. I continue to hold the Jan $45s, the December $45s and the common and wanted to be out of these given their size in front of the oil numbers.
  • WLT – Sold my December $70 contracts for $6.80 (on the mid), up 49%, with the stock at $76.75. I also hold a few worthless $80s.
  • EOG – Sold the (5) EOG $90 December calls (EOGLR) for $4, up 93%. I hold some worthless $100s as well so this will be a little better than a wash.
  • NFX – Sold (10, all) the December $45s for $1.50, up 29%, with the stock at $46.38. Will reload with January calls in short order.

 

Commodity Watch:

Crude oil rallied $1.97 to close at $72.66 yesterday, after the EIA released bullish looking numbers (see below). This contract expires next week (12/21) and the February contract is currently trading at $74.38 the 2010 strip in the upper $70s. This morning crude is trading off 70 cents on the dollar which is back above 77.50 after the  S&P downgraded Greece and put some euro denominated covered-bonds on CreditWatch for possible downgrade sending the euro lower.

Natural gas eased 6 cents to close at $5.46 yesterday, after an 8 day, 23% charge off of $4.45. Gas will pull back further as least briefly if the storage withdrawal does not at least top 160 Bcf today. However, given the current bout of cold I would think we are likely to a number in the 130+ range next week as well. This morning gas is trading up a dime.

Natural Gas Preview

  • My number: 155 to 165 Bcf
    • History:
      • Last Week: 64 Bcf withdrawal on Heating Degree Days of 169.
      • Last Year: 116 Bcf withdrawal on HDDs of 205.
      • 5 Year Average: 108 Bcf withdrawal – normal HDD reading is 189.
      • 10 year Hi: 162 Bcf withdrawal – HDDs were 243 in this week of 2005.
      • 10 year Low: 43 Bcf withdrawal - HDDs were 112 in this week of 2001.
  • Street Consensus: 176 Bcf

EIA Oil Inventory Review


ZComment: Better than expected numbers.

CRUDE OIL - Dip in utilization is more than offset by a drop in imports to a new low for 2009.

 

 

GASOLINE:

 

 

 

DISTILLATES: Finally some sign of demand.




 

Stuff We Care About Today

FSLR's 2010 Outlook:

Financial Guidance for 2010: Strong.

  • Revenues: $2.7 to $2.9 B (ahead)

    • this is up from a projected $2.0 B this year and
    • current estimates of $2.4 B for 2010
  • Operating Margins:

    • 23 to 24% - this represents a bottoming of op margins which had been plunging.
  • EPS of $6.05 to $6.85 (in line)

    • vs expected EPS of $7.32 this year and
    • Street consensus of $6.54 for 2010.

Other Comments:

  • Production capacity increases to 1.8 GW next year from about 1.2 GW at the end of last quarter. They are doing this to satisfy coming demand.
  • They see their PV competition getting costs down to 75 cents a megawatt hour, that's lower than I've seen anyone comment. Seems like just a couple of quarter back they were the ones breaking the $1 / MwH limit.
  • Still concerned about feed in tariffs (read subsidies) in Germany
  • I'll watch it a little closer for the next days and try to gauge the reaction beyond the initial little bump on the numbers vs the Street.

 

 

SM Provides Initial 2010 Budget/Volume Guidance:

Budget:

  • 2010 at $725 mm - through cash flow and planned divestitures.

    • Of their drilling portion of $561 mm:

      • 38% for the Eagle Ford Shale - where they have seen the same large drop in days to drill (45 days on first well, 14 on most recent) as have HK and others here.
      • 14% for the Haynesville - E. Texas
      • also 14% for the Bakken - 17 wells planned for Bakken and Three Forks. No comment yet on their Divide County Three Forks well.
      • Other drilling will include 4 Granite Wash tests on the Oklahoma side of the play (more expensive than the Texas side but with better results to date).

Production Volumes Guidance: 2010:  > 20% after adjusting for asset sales; 45% hedged at $8.61.

Valuation: P/CF of 4.6x looks a little on the low side given their growth

 APC / DVN Subsalt Discovery Off Brazil

  • Itaipu Prospect:
    • 90 net feet of pay and no water contact at
    • APC 30%, DVN 40%
    • Probably a little better news for DVN as they are going to divest this (probably to APC)

Odds & Ends

Analyst Watch:

  • UBS starts HAL, SLB, WFT at Buy (says HAL and WFT "top picks")
  • UBS starts BHI, SII at Hold
  • Stephens starts offshore drillers and service: NE and OII at Overweight, PDE and RIG at Equal Weight
  • END - Initiated at Overweigt at Thomas Weisel.

Photos of Decade That Was

 

 

 

 

 

180 thoughts on “Thursday – Oil Review and Natural Gas Preview”

  1. See more folks in the higher gas numbers camp for today. Here’s to them being right and me being overly conservative.

  2. Meredith Whitney takes down #s on GS and Morgan. If at first you don’t succeed in cracking a market, try, try again.

  5. Got to say… not a lot in those photos to make one feel good about the last 10 yrs. Very sad sad stuff.

  6. Happier Note (I hope) — Gasman thinks today’s nat gas draw will be 181 Bs. It was cold last week… and it is COLD this week. More draws to come!

  7. BOP – agreed, I’ll be on the look out for some happy, shiney photos before year end.

    Red open as expected, oil way off the lows though. MLPs opening green. Will wait on any new buys on the gas number for an end of week trade.

  8. RE 6 – Yeah, I was thinking of them when I wrote #1. I’m likely to take some small short cover trades and more SWN if we do see a big number, say over 185 Bcf.

    Any comments from HT and TT?

  10. Crude going to grow green with a strong dollar. Hmmm. Sell off overdone of late, especially in light of demand finally kicking up for distillates. Inventories of the big pieces (oil and gasoline) not that bloated any more.

  11. IOC-buying here before announcement. I see the current press release as additive.
    Back of envelope shows about $700MM(100%) puchase price for that 4.5% WI at $34 that IOC bought back.

  13. Reef – Hear ya on that, will be buying soon.

    Regarding the clip in #3. Little family movie history trivia there. How can you link the director and his grandfather via oil?

  15. TechTrader had computer glitches this morning… no report.

    HeadTrader is busy trading on the desk. He says he is getting a flurry of activity in the first and last half-hours of the day. In between, Dead’s-ville.

  27. Anyone notice they passed a “jobs” bill last night but that it contained none of the small business hiring incentives? Nice job congress.

  30. RE 21 – Mid 78s for first resistance with major resistance at 82 was my last read and I still think it’s likely. Depending on what you’re looking at the dollar already looks overbought on most shorter term charts.

    I expected people to pick through the Fed statement to look for any remotely bullish comments so the rally hasn’t surprised me due to the oversold nature of the dollar recently.

  31. Z: on your contest, I didn’t notice anyone taking FST. I thought that might be a logical choice for someone — cleaning up their balance sheet and Granite Wash properties.

    Another surprise was no one taking XCO – another company that has turn around its balance sheet, and has some decent shale acreage.

  32. Keep in mind that right now no currencies are strong… they are all getting weaker, it’s just that the USD is getting weaker less fast right.

    Competitive devaluation is the name of the game in order to save your homegrown manufacturing sector.

  33. Thoughts for a bullish number.

    GMXR Jan 15s, on the mid at 0.35 for a potential squeeze.

    SWN – straight up rally with gas
    HK – same

    NFX – same plus I want to be long next week anyway.

    HAL – trying to move higher despite the day due to the UBS upgrade.

  34. BSJ – both good points. Those are more likely to be nabbed by one of the large caps than by a major but it could happen. They wouldn’t be big enough to move the needle for a Major.

    Nicky said she will be on in 5 minutes.

  47. ZTRADE:

    SWN – Added (5) January $45 calls (TKQAI) for $1.90 with the stock at $44.75 bringing me to 15 in this strike. I continue to hold the December $45 (for a little longer).

  48. This kind of withdrawal will force some recalibration of models, mine included. Very good news for folks at SWN as they were waiting on higher prices to hedge and are getting there now.

    NG up 38 cents at $5.85. Given the weather this week and the size of this draw, we should see another 150+ Bcf next week which again would erode the surplus nicely. Next week’s weather is colder than this one so Merry Christmas for natural gas.

  49. z — it was a special kind of cold… not just cold, but COLD cold. Don’t think there is a linear relationship at that point, maybe it goes parabolic, somewhat. Anyway, wow-sers of a draw!

  51. Maybe the withdrawal is saying that economic activity, that has not been as yet shown, is starting to pick up.

  53. VTZ – for me the dollar has bottomed and we are in 5 of 1 up which I think is likely close to completion. I would expect to then see a fairly big wave ii retracement back towards 76.50 before it moves higher again.

  55. BSJ
    Thanks for bringing up US Nat Gas last week,this little cold snap has pushed the Jan 11’s to almost double in a week. Maybe little Nell will get some new shoes for Christmas after all.

  56. It hasn’t been that cold. Remember this is DEC. Only a pick up in economic activity could have caused such a jump in withdrawal. By the way, if any of you watched my Browns finally beat the Steelers, you know that it has been cold here.

  57. BSJ – it was very cold for that week, before that it was in line and before than since the beginning of November it has been warmer than normal. But this draw is largely weather, it was very cold, much colder than normal, last week.

  58. Isn’t it amazing, I talk about a stock, which I don’t own, and that same day it takes off. – lol

  61. 232 is unseasonably cold. and this week it’s brrr cold for this early in winter here N of the 49th.
    The likely cause is dry production decline DN from LY of 58 to TY 55 or lower. Electric switching is happening.

  62. Nicky – The most bullish dollar call is a move all the way up to >100 on the dollar index based on the multi-decade trendline.

    I don’t doubt that we’ll see a rally but I think it’s a relief rally and the downtrend will resume.

  66. md – From what I’ve read, the switching is now going the other way, has been since gas topped the high $4s as coal became cheaper on a BTU basis.

  68. Z: Could you look at a catalyst for CHK as a sale before year end of some Barnett assets. Didn’t they pull off a VPP just before year end last year.

  69. Re Copenhagen

    Watched Hillary’s speech this morning, basically said we need to all put aside our differences and get it done. China at the same time was telling people it ain’t gonna happen dudes.

  71. Tom – maybe, they are kind of in a trap on the monetization thing. Every day that goes by is fear they won’t get it done and that brings them close in the minds of the analysts to doing a deal instead to finance their budget. HK is sort of in this same trap as well although its a little different as its less pressing for them. I’m not sure what their current thoughts on timing are but on the last CC, Mobley at CHK expressed doubt about getting a VPP done prior to year end. (pretty sure it was him).

  76. VTZ – agreed, I’m in the Januaries there so not too concerned , I do have 5 of the December $45s as well, down 67% as I type that I’m eying for sale the impact is pretty darn small on the portfolio.

    Also eying my HAL $29s for sale that I bought back on 11/30 before the stock eased. And of course the $30s I just took.

  79. S&P acting like a boat anchor on the gas move.

    NOG moving on $11.
    BEXP holding $13.
    CLR has been outperforming last few days, need to go check if they have anything at TD? West, any help there?

  82. Z: so far the follow through on the gassers has been very disappointing. Do you think that is a function of a lousy overall market, and that the gassers will start to show their stuff once the market turns around?

  85. re: Christmas retiring… will check on that. But, not that I’ve heard. They keep giving him boatloads of stock to sell….

  89. No eco data tomorrow either so you can slllloooowwwww into the weekend. Unless someone says or does something to reverse the dollar rally.

  91. Jefco out with a short note on the gas number basically saying don’t mistake fundamentals for weather. Weather is fickle and can reverse on you. Industrials can’t account for the swing and they see rising coal use (in place of gas given prices) and rising imports (we saw that last week), so they are cautious. I generally agree. Gas is probably going to hold the $5s for the next couple of weeks on cold, now $5.80s, but I would not expect it to crest $6 on the front month. I still say this period is a gift from the weather gods for the unhedged and they’d be wise to grab some Spring gas contracts at current levels because the next shoulder season could be pretty brutal on prices.

  92. BOP – way off topic bond question for you – are you hearing any thoughts about what the final workout could be for LEH bonds? Timeline? Just curious if anyone on bond desks is talking about it… Most bonds are trading at 15 or so – thanks.

  94. Thanks West

    Working up ANR as a replacement for WLT, a bit cheaper, lot of leverage to higher met coal prices next year, top pick in coal for Simmons who I’m not prepared to argue with, stock just breaking out now.

  96. CLR continued …There was also a recent article in this month’s O&G Investor about the Trenton Trend play in Michigan that featured CLR and Mr. Hamm. One of my favorite oilmen. Now I know why they didn’t sell this play off.From 11-5-09 Press Release………..Continental Resources (CLR-NYSE) reported clean 3Q09 EPS of $0.26, above estimates of $0.21 and the consensus of $0.23 per share.

    3Q09 production averaged 37.39 Mboe/d, 2.8% above our estimate of 36.35 Mboe/d. Production for the quarter represented sequential growth of 0.1% and year-over-year growth of 12.3%. See Table 1 for a detailed breakdown of the Company’s production.

    CLR raised its 2009 total capital spending plans by ~6.4% from $390 million to $415 million. With the revised budget, CLR expects to exit 2009 with 12 operated rigs (vs. previous plans of six rigs). Of the six additional rigs, five will be deployed to the Company’s North Dakota Bakken play and one to the Montana part of the play. More importantly, CLR is guiding 2009 full year production at 13.3 Mmboe, exceeding the top-end of its previously issued guidance of 12.5-13.0 MMboe. Given the outperformance in production levels earlier in the year, we had anticipated that CLR would exceed its production guidance for 2009, thus, the revised guidance is basically in line with our estimate of 13.3 MMboe. We plan to revisit our estimates following the Company’s conference call this morning.

    For 2010, CLR has established an initial capital spending budget of $650 million (see Table 2 for breakdown and net wells planned). With this early budget, the Company expects to have up to 23 operated rigs by mid-year 2010 and expects to have year-over-year production growth of ~10%. We were previously projecting the Company to spend $425 million for production growth of 10.5% year-over-year.

    CLR completed 11 gross (6.6 net) operated wells targeting the Three Forks Sanish (TFS). In total, the Company participated in 21 gross wells (7.6 net) in North Dakota during the quarter for an initial seven-day test average of 761 boe/d vs. 28 gross wells (8.1 net) for an for an initial seven day test average of 737 boe/d during 2Q09. In Table 3 we break down CLR’s highlighted TFS wells, including the three new ones announced last night (several highlighted in last night’s release had already been reported).

    Production from the Arkoma Woodford play increased slightly from ~4.24 Mboe/d to ~4.26 Mboe/d, despite the reduced drilling activity in the play since the beginning of the year in response to the lower natural gas prices. CLR currently has one rig operating in the Arkoma Woodford play and one rig in the Anadarko Woodford play in Oklahoma. KeyBanc

  98. CLR would make some company a great onshore US asset. Thats if Hamm wanted it that way. Don’t they still control 80% of the company?

  99. Re CLR – yes, at least 80%. Lots of acres. COP could answer XOM’s plunge into shale gas with a shale oil acquisition of CLR to give it more balance and greatly add to its own Bakken effort.

  100. Barclays out with a report on Service:

    Says global upstream spend in 2010 to rise 11% after a down 2009

    Says U.S. spending to be up 12% which is higher than they had expected.

    Thoughts:
    1) good for service, especially NAM leveraged service but service in general.
    2) as you’d guess, probably puts a limit on natural gas prices next year. At least that’s the perception. From what I can tell, other than the Haynesville pure plays or highly leveraged names, the increases in spending are directed at oil.

  105. ZTRADE:

    HAL – Added (25) January $33 calls (HZLAT) for $0.24 with the stock stuck at $30 in a slow market. Likely to add more next week and will come out of both of my December positions either today or early tomorrow.

  107. 1520s — #92 Thanks for asking. I am not following the Lehman BK at all. I find financial BKs extremely difficult to “value” and timelines (and therefore lawyer and advisor fees) almost impossible. But, i’ve asked my financial expert on the trading desk. I will get back to you with any comments he might have.

    Always glad to try to help. Thanks again for asking.

  109. 1520s — most excellent response on the Lehman bond/BK situation from the desk …

    “too complex a situation… big rewards… but you would need to be very involved all the time.”

    That same advice really goes for investing in most BK bonds, as I know you know. But in this case, being close to the proceedings is especially important.

  110. BOP – #107 and 109 – Thanks for checking on that. Seems like there is some upside there for folks that bought bonds at 10-15 and are willing to wait. I have read some pieces that say it could be 5+ years before it all gets worked out.

  111. 5+ years would not surprise me in the least. And it makes the lawyers very very happy.

  113. Oil back down to only 20 cents down on the day. Maybe gold follows as its still 3% lower as the dollar starts to ease.

  115. interesting lampoon of Meredith Whitney and her downgrade over on jessescrossroadscafe.blogspot.com….too technically challenged to post the link

  118. Little to no upward movement on the gassy’s today on that huge draw. S&P in total control. I wonder if this is a huge opportunity for January action

  120. NOG knocking on $11, would like to see it take out $11.11 in the next couple of days. If not, I punch out of my $10s and add back more after it’s done from that potential pullback. Still thinking news in the works here.

  123. My favorite from 122

    FBR Capital: “Although FSLR’s analyst event was subtle in tone, on expectations and competitiveness, we think its proactive responses to the “new normal” are commendable … Reiterate Underperform rating.

  126. Z…thx for posting that flower mound bit…our little operation has a couple hundred acres in Flower Mound that is affected…we’ve worked out there in the real estate development biz for years and in other parts of the DFW area. that municipality is by far the hardest to work with in the area over zoning, drilling, you name it….socialism is alive and well and has been for a long time as it relates to city permitting…rant over!

  127. Jivey – one day those people will be out in the cold and realize that their unicorn, who’s butt they have bagged to capture gaseous emissions, just won’t do the trick.

  130. The rest of the strip however is off about 50 cents. Games being played near the end of the January contract’s life.

    NG on the other is up across the strip

  131. Coal – utilities had 50% more days inventory at end of Sept. Electric cons of coal was DN 9% YOY while receipts were only DN 4.5%. Latest 12/5/09 showed shipments DN 10% YOY for that week and 9.7% for the 52 week period.
    Electricity cons of coal would need to climb 5% to justify same production as 2010 and that would still not reduce the days inventory of utilities.

  132. MD – just read a piece on that topic. You know coal production is off in the U.S. this year, sharp contraction as people shut in mines. Simmons sees going from surplus in 2009 to deficit in 2010. They still see inventories high at end of 2010 and balancing in 2011. Exports continuing to rise, a recovery to a more normal summer and less gas switching all in there to increase demand. You also have 3 GW of new coal fired capacity that comes on by end of 2009. That adds more tonnage but is more than offset by 7 GW of new wind, if it all supplants coal. Their point is, 2010 just about can’t be as bad as 2009 for demand and production is down.

  134. md – yeah, that’s what I’m talking about. BTU and WLT covered it well in their 2Q and 3Q press releases. The shuttering of some 90 mm tons of coal capacity in the U.S. We were at about a 20 mm capacity surplus even with that in 2009, but Simmons sees us reversing to I think it was a 15 mm ton deficit.

  137. Elec cons dropped by 98MMtons YOY so that makes sense. While electr cons dropped overall the biggest culprit was NG taking market share from coal. Likely due to more economic to run NG for peak times when economy dictates less base need. Or is it $ or more greeny feely utilities. So higher NG$ means more production and less NG elect. use.
    Supply and demand keeps in c

  143. ZTRADE:

    NOG – Sold the (10) Janaury $10 Calls for $1.30, up 108%, with the stock at $11.10. Will buy it back on a pullback.

  155. woooo-HE! That was one Throw-Away Day.

    Except that we got to see a record natty gas draw. That was fun. But that was it.

  157. anyone see anything out of schork today after the nat gas number? I hope he found a hat to eat.

    The tv and radio weather hype machine here in NYC/NJ is all over the storm mentioned in #148. Cold day on the platform tomorrow…

  158. Schork is a smart guy. And he has good hair. But he is prone to the same kind of irrational statements that everyone on CNBC is, must be something in the coffee.

  166. You know… Pack TALKS short, but he goes long too. The sign of someone who just wants to make $$. Healthy stuff.

  167. Not going to be rushing to get back into the Bakkens this week for next week but I do suspect that there will be some end of year window dressing there and in the coals.

  173. Interesting Purchase by Director at HK of 6000 shares at $24.08 on 12/15. He even had to pay a short swing profit tax to HK, as he had sold some shares in October

  174. SWN announced a planned capital investment program for 2010 of ~$2.1 bln, including ~$1.5 bln of planned investments in its Fayetteville Shale play in Arkansas. The co’s 2010 capital program includes ~$1.7 bln for its exploration and production segment, $270 mln for its midstream segment and $95 mln for corporate and other purposes. SWN expects to participate in ~750 to 800 total gross wells (520 to 555 operated), compared to an estimated 610 total gross wells in 2009 (~460 operated). The co’s 2010 net well count will be ~430 to 465 wells compared to ~390 net wells in 2009. In 2010, SWN plans to participate in ~650-680 gross wells in the Fayetteville Shale play, 475 to 500 of which will be operated. In East Texas, the company expects to participate in ~50-60 gross wells, 22-27 of which will be operated… SWN is targeting total gas and oil production of 400 to 410 Bcfe, up ~36% (using midpoints) over the co’s current forecasted 2009 production of 297-300 Bcfe. Approximately 344 to 352 Bcf of the 2010 targeted gas production is projected to come from the co’s activities in the Fayetteville Shale play, up from the 2009 projected production of ~243-245 Bcf.

  175. Thanks Isle re 174.

    This is what I wrote re SWN in comments on Monday:

    SWN looking alive, kind of a sleeper of late but it is too big to be a mid cap, too small to be a large cap but close. On the growth front I bet they can do 20%+ for each of the next 3 years, probably over 30, maybe as high as 40% when they come with 2010 numbers in February. That will get the multiple down further and make them very attractive … their concept of not hedging until prices rise is serving them better now but I’d like to see them come to the market saying they’ve hedged the first quarter soon.

  176. z – modified your wildz trade today. bot the dec 29 and sold the 30’s at 71. just thought the 30’s weren’t cheap, but liked your thinking , just chose a more conservative route, altho i can lose a little more, and can’t make too much!!!

  179. BOP — Thank you ! LOL.

    Just want to make $$ long, short or sideways. Overall bias is bearish; the higher we go; the more the bias has increased; not a believer in this mega rally; just trading.

    listening to this Charles Nenner interview as we speak. Feeds the bear side.

  180. Good day to you all,

    We have new products (D6 200,000,000) gallons and (2million barrels of Jet-A1) new arrivals in Houston Ex-shore tanks for capable buyers lift. This offer is directly from Rostneft. Prices are considerably from Rosneft with no upfront fee. Kindly contact us via: via: jsc.uraloil@bk.ru for more clarifications.

    Kind Regards.
    Dr. Khaibullin Timur Tagirovich   
    Email: jsc.uraloil@bk.ru
    Skype: jsc.uraloil@bk.ru

Comment below here

This site uses Akismet to reduce spam. Learn how your comment data is processed.

s2Member®