Wednesday – Oil Preview Plus Thoughts Through Year End

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Market Sentiment Watch: Not a whole lot of trading going on so stocks just in Happy Drift Higher Mode. I raised a little cash yesterday and see doing more of that between now and mid next week. I have a short list of names that would look good for managers to own at year end which may give the names some up creep into New Year's. I'll have my 2010 thoughts and 2009 thought review out next week.

  • Eco Data Watch: 
    • Personal income up 0.4%, in line with forecast,
    • Consumer spending up 0.2% for November, short of forecast of 0.6%,
    • We get Consumer sentiment at 10 am EST (forecast 74, last read 73.4),
    • We get New home sales at 10 am EST (forecast 420K),

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Oil Inventory Preview
  4. Stuff We Care About Today - IOC, APC
  5. Odds & Ends

Holdings Watch:

  • $10KP II:

    • $21,100
    • 60% Cash


  • Yesterday's Trades:
    • BEXP – Sold the January $10 Calls for $4, up 240% with the stock at $14. Will reposition in short order as I want to maintain leverage for further news here. I continue to hold the common.
    • BEXP – Added (10) January $15 calls (QBJAC) for $0.45 (0n the mid and easily) with the stock at $14.05.

Commodity Watch:

Crude oil bumped up $0.68 to close at $74.40 yesterday in volatile trading, shrugging off yet another rally in the dollar. After the close, the API released a fairly bullish looking set of data. This morning crude is trading up 50 cents as the dollar takes a bit of a breather.

  • Nigeria Watch: Rebel Yell Over Late 'Amnesty Allowances". Former rebels are protesting the government's failure to follow through on promises to pay them not to be, well, um, rebels. MEND is getting restless. What a shock. 

Natural gas inched up $0.05 to close the day at $5.71 reversing early losses as crude turned around. This morning gas is trading off a dime. Last week I wrote that further gains in gas in the near term would likely be capped without more data as the weather patterns, while still cold, have moderated from the temps that produced last weeks big kahuna storage draw.  

  • International Gas Watch: UK imported natural gas for the first time in November.
  • Early Read On Natural Gas Storage: The Street is at 172 Bcf.

    • Last Week: 207 Bcf withdrawal
    • Last Year: 144 Bcf withdrawal
    • 5 Year Average: 126 Bcf withdrawal
    • 10 year Hi: 46 Bcf withdrawal
    • 10 year Low: 167 Bcf withdrawal

Oil Inventory Preview

API Watch:

  • Crude: DOWN 3.7 mm barrels
  • Gasoline: DOWN 1.1 mm barrels
  • Distillates: DOWN 0.7 mm barrels

ZComment: Directionality has been good between API and EIA results of late so that's positive for oil bulls given the across the board withdrawals API shows above.  Magnitude however is a different story. If we get API's distillate number that will likely prompt some selling of HO and crude. I'll be looking for a continuation of the seasonal rally in demand we saw really get underway last week for distillates. Crude is anyone's guess as the imports ventured into "below range" territory last week and by all rights should improve with this week's report.   

Stuff We Care About Today

IOC's LNG Plant Gets Go Ahead

  • LNG Plant approved by Papua New Guinea government ($5 to $7 B cost to complete)
  • First LNG production - late 2014 or early 2015 - in line with prior guidance upon approval
  • PNG would have ownership of 22.5% in the deal which is not egregious and is in line with past thinking here. 
  • Near term catalysts:
    • Testing the oil leg in the current well (Antelope 2).
    • Sell down interest in Elk/Antelope structure to a Major or a NOC to fund the LNG project
    • Condensate stripping project should yield liquids volumes beginning 2011.
  • Nutshell: Should move the stock today as this is a major milestone in the story.

APC - Hits Keep Coming of West Africa

  • Mahogany Deep 2 well (greater Jubilee area) a successful appraisal
  • Encountered light oil in three intervals
  • APC has 31% of the well in this growing field.

If I Were Running A Fund With Energy Exposure Coming Into Year End... and I wanted to look smart I'd want investors to see many of the following names on my books at year end: (Note also that these are not necessarily my favorite picks for 2010; those will be out next week although admittedly there is quite a bit of overlap and the format will look similar to this only expanded to add some less obvious names and colorful charts).

Focused Natural Gas Exposure With Growth:
Theme - 2010 will be a better year for natural gas than 2009 so owning these tells them you can see the future.

  • SWN - Fayetteville shale leader, emerging E.Texas, nascent Marcellus, big growth, costs that will surprise to the downside.
  • RRC - Marcellus, Marcellus, Marcellus,
  • UPL - Wyoming gas plus Marcellus 
  • HK - Haynesville shale core leader, Eagle Ford, Fayetteville,

Bakken, The Big U.S. Onshore Play: Theme: Every barrel of U.S. oil production is one less barrel of imported oil.

  • WLL - Clear winner in IPs,
  • CLR - Mid Cap name with leadership acreage position,
  • BEXP - Emerging player (but only for the higher risk types)

Gassy But Getting oilier, With Deep Value Reserves:

  • EOG - look for more oil plays in 2010, plus better Bakken returns and mid 2010 China gas play announcement.  
  • NFX - 5 deepwater projects coming on line in next 12 to 15 months plus better Bakken results, offshore China, Malaysia, and big gas from the Granite Wash.

Gulf of Mexico Shelf: Theme: Multiple Expansion on Product Price Stability

  • SGY and or ATPG - Because the Shelf-trinsic should 

Oil Service - I'll expand on this next week.

  • Into year end I think they own the bigger names (HAL, SLB, BHI)

Coal - Theme: Higher demand and prices for thermal and met coal next year. 

  • BTU, WLT, ANR, and even ACI and MEE



CXPO - Will have a quick look at this IPO next week


Odds & Ends

Analyst Watch:

  • SLB - Upped to Overweight at Barclays, target bumped from $64 to $73.

Interesting Reading Watch:

138 Responses to “Wednesday – Oil Preview Plus Thoughts Through Year End”

  1. 1
    BirdsofpreyRcool Says:

    Pritchard out with a morning note, upping their PT for BEXP from $14 to $17.

    These guys are quick! Considering the stock is already at $14.57…

  2. 2
    zman Says:



    Thanks BOP. They probably have a director of research who watches price targets as a way to get his guys to publish. “Can you justify raising the target price?” If yes, do so with a 1 or 2 sentence blurb, if no, ya gotta right a valuation downgrade piece. The yes one is easier to write just before vacation time, especially if the stock has some momentum and catalysts on the way.

  3. 3
    BirdsofpreyRcool Says:

    z — great perspective. Thank you for sharing. Makes sense… lol.

  4. 4
    zman Says:

    Reef- Congrats on your continuing shepherding of the IOC story around these parts. Good call.

  5. 5
    zman Says:

    BOP – It would be interesting to see if there are numbers behind their justification that actually hit the bottom line. Or did they just say, “good stuff on the way, increasing our NAV” (which is a pretty soft reason as NAVs and stocks prices often have little to do with each other until you get acquired) or the even worse “we think it’s worth 15x next years CFPS instead of the 13x we previously saw as a forward multiple target”. Love to hear it if you have it.

  6. 6
    zman Says:

    Story in Business Week saying HAL said there are 1,500 gas wells left to be completed in North America. This runs directly opposite to what EOG and others said on their 3Q calls, that the inventory of drilled but not completed wells has been substantially eaten through.


  7. 7
    BirdsofpreyRcool Says:

    z #5 — if there is more to the PT upgrade, then they aren’t putting it in writing. Just stuffed it in the morning note saying “increasing price target from $14 to $17.” If there is more, I don’t see it.

  8. 8
    BirdsofpreyRcool Says:

    reef — Major Kudos on your IOC call… you have been persistantly correct on this one. Nice.

  9. 9
    zman Says:

    BOP – LOL. I left that possibility out. The “because we say so in a table full of data, it’s Christmas, leave us alone, and give us our bonus checks” reason. Bet they upped their NAV and didn’t feel like explaining it.

  10. 10
    zman Says:

    IOC bid 75.05.

  11. 11
    zman Says:

    Crude back over $75 on the dollar and thoughts that year end tax issues may yield continued crude and product drawdowns.

    HAL may coat tail that SLB upgrade through the resistance at 30.50 this morning.

  12. 12
    zman Says:

    BOP – saw the TPH comment on APC and I agree, underperformance relative to the big cap E&Ps is undeserved and should/could reverse on the Mahogany 2 results.

  13. 13
    zman Says:

    TMR gobbled up by Alta Mesa holdings, a private company. Will be interesting to see if we see Alta Mesa come public in due to time as it plays in the E.F.S. See ya TMR.

  14. 14
    bill Says:

    Tudor has a love hate with sd.

    Today they are out with an accumulate and a 20 target. In the last 3 months they went from a buy to a sell to a hold and now back to a buy.

    They mentioned that fst is up 24 % with sd flat on the latest 800 m asset purchase from fst for 80 mboe .. half of which is oily.

    Market pundits say they got a steal to they overpaid for the asset. Put PXP ceo in the former as he pointed out how smart they were at a recent industry presentation.

    I have to admit i lost some of my bullishness in the name when ward sold stock and issued more shares.

    Longer term, sd should do well assuming ng prices dont crater

  15. 15
    zman Says:

    Morning Bill – long term, and by that I mean 2011 its probably a double. I managed to sell at the low there. Twice. That’s my problem, not theirs and I won’t let it jade my view of them. However, I think they need higher NG prices to help the stock and at some point they have to look at all that debt.

  16. 16
    kiaora Says:

    Z…Do you plan on increasing your January BEXP exposure?

  17. 17
    reefguy Says:

    sd- i like that one at this price

  18. 18
    zman Says:

    K – If you mean before year end, no, I’d rather wait on a pullback. I added leverage yesterday with the high strike calls and don’t plan to add to them or to be greedy with them. Jerome was pointing to a need for a pullback and I think we get another piece of news by year end which at this point may turn into a BTRSTN event given the run we’ve had. Although, I do plan on holding these for the news unless it jumps quickly through $15 as the well that’s on the way I think is a 32 stage frac and we could see another big IP number out of them. As to the common, I plan on holding that for a while longer.

  19. 19
    zman Says:

    Reef – Any sense of timing on the oil leg test?

    Any sense potential interest sell down partners? I’d guess Exxon goes for it.

  20. 20
    baylor3217 Says:

    Where do we think the IOC announcement will take the stock near term?

  21. 21
    zman Says:

    Crude up a buck now.

    NFX outperforming early. Chart looks like it wants to breakout into year end. Still cheap with CFPS of $11.15 next year which is more than likely to rise. I own nothing but the common at present.

    EOG – onward towards $100.

  22. 22
    zman Says:

    Baylor – I don’t have a good sense for that on this one. I think getting the deal done was a necessary step in the process. I think getting the oil leg tested at Antelope 2 is the next catalyst and that there are a lot of believers in the name going much much higher given massive reserve potential as they have a lot of prospects (40) outside of the Elk/Antelope structure which will become the basis for the LNG plant. So while this announcement is positive, I don’t know what it adds to the shares. Terms look as expected and getting it done before year end should please everyone and allows them to maintain their previously stated LNG timeline.

  23. 23
    zman Says:

    NOG breaking out of its little flag formation to the upside. I can get to some pretty strong numbers for share price there, easily double current based on their results to date and acreage.

  24. 24
    reefguy Says:

    First Dst is lower gas leg with high Condensate yield. That before year end, maybe tomorrow. Oil leg is about 30 days out. I think we see a new investment house pick up coverage before YE.

  25. 25
    bill Says:

    exxi still strong up 20 % in 6 days at 2.25 now. No one wanted it last wek at 1.87. Latest research calls for 3.50 to 6.00. Amazing what a research report can do for a name

    MMR is starting to show some life.

    USEG must be chomping at the bit to make new investments in the energy sector with its successful partnership with bexp. It moved its stock up from the 2’s to 6 and helped it raise new money

  26. 26
    zman Says:

    Re 24. Roger, thanks much.

  27. 27
    zman Says:

    Bill – I have to protest. My second EXXI buy was $1.88, so at least I wanted it, lol.

    Re USEG – Pretty sure they are going to option another 6 wells with BEXP I think all in the Rough Rider area.

  28. 28
    BirdsofpreyRcool Says:

    EXXI — not so sure it is a research-driven move entorely. There are a lot of wannabe funds out there, who watch what the Rock Stars do. With both Mt Kellett and Omega Advisors filing 13Gs on EXXI in the last coupla days, I wouldn’t downplay the effect of the “Me toos!”

  29. 29
    zman Says:

    EOG approaching $99. Jerome?

  30. 30
    BirdsofpreyRcool Says:

    AEZ doing a very impressive impression of a Complete Rebound… following their 2ndary at $3.50 the other day. Too bad I’m not smart enough to own that one anymore.

  31. 31
    bill Says:

    whats up with HK, down again

    Then again, the gassy names arent doing much

  32. 32
    isleworth Says:

    IOC looking very overbought technically for short term – technicians?

  33. 33
    zman Says:

    Bill – you said it best in 31. Mixed bag in the group today. I’ve been thinking about adding HK back but am still waiting, just holding the common.

  34. 34
    zman Says:

    Bill – here’s my thought on AEZ

    It’s like a biotech with a drug in phase 1 clinical trials.

    KOG is closer to phase II

    Then you have EOG, CLR, WLL, BEXP,NOG in phase III with more areas in Phase I and II.

    Phase I is easy, just keep moving forward, get it all rolling. That phase II is the toughest as you have to actually produce results.

  35. 35
    bill Says:

    swn trading volume 600,000 shares

    mcf trading volume 930

    Obviously, apples and oranges. Sooner or later I am going to learn that unloved value stocks stay that way

  36. 36
    reefguy Says:

    z-Of those gassy shale names, one has a CEO who is a serial seller. Do you know which one?

  37. 37
    zman Says:

    Which gassy names, the ones in the post?

  38. 38
    reefguy Says:


  39. 39
    zman Says:


  40. 40
    reefguy Says:

    Hint: He owns 3.365MM shares

  41. 41
    reefguy Says:

    At a $30 take out price that’s an nove round $100MM. I am betting their next

  42. 42
    Jerome Blank Says:

    #29 EOG adds another x box with the trade thru $99…EOG is now a “15” box bullish tower of power…WOW…but the oxygen is getting a bit thin up here…I would expect a good deal of profit stops at $100…I think you really need deep pockets to buy and hold the stock up here and weather the inevitable retrace, as the probabilites continue to increase for a pull back, especially as we get to $100…

  43. 43
    zman Says:

    See 39

  44. 44
    reefguy Says:

    Floyd Wilson owns 1.12% of HK

  45. 45
    zman Says:

    Thanks Jerome

  46. 46
    zman Says:

    He hasn’t sold any since May that I see. But before that, yeah, he chucked some.

  47. 47
    zman Says:

    Jerome – PF question. On the lower price names, are the boxes in smaller increments than a dollar?

  48. 48
    reefguy Says:

    Not shares- Companies he builds

  49. 49
    zman Says:

    …Adding to 47, is there a cut off in terms of $0 to $10? $10 to $50 etc? Or does something else dictate box size?

  50. 50
    zman Says:

    Crude getting stronger as we approach the numbers. A bit odd, usually it backs off. 20 minutes to release, crude up $1.30. Gasoline and HO up 2+%, presumably the strength in gasoline is API.

  51. 51
    zman Says:

    LINE just under $27.

  52. 52
    zman Says:

    Anyone see news on SWN? I see a news bug nut don’t have access to the story or the headline?

    That one is approaching its October high fast which is $50.61 with the all time high for the stock just $2 above that.

  53. 53
    baylor3217 Says:

    Thoughts on eog puts or shorts?

  54. 54
    zman Says:

    Since I’m long EOG at present and wrote about it as a play through year end I assume you don’t mean from me? Besides, the oil numbers are in two minutes. If it gets hit on those I may sell and then add them back later.

  55. 55
    zman Says:

    EIA Inventory Review

    Crude pre report: 75.60

    Crude: DOWN 4.9 mm barrels
    Gasoline: DOWN 0.9 mm barrels
    Distillates: DOWN 3.1 – that’s big

    Gasoline: 9.045 mm bpd, solid
    Distillates: 3.988 mm bpd, very solid


  56. 56
    Jerome Blank Says:

    #47, #49, P&F box sizes are one of the nuances of P&F charting, and there are exceptions and debate to the following, but generally speaking:

    0 to $5 1/4 pt box size
    $5-$20 1/2 pt box size
    $20-$100 1 pt box size
    $100-$200 2 pt box size
    Above $200 4 pt box size

    Most charting servces will make the proper adjustments when a stock trades between price zones, it can become a pain to try and do it by hand…

  57. 57
    zman Says:

    More EIA

    Imports fell a little further, very low even for this time of year, so that explains the crude draw.

    Cushing was up again, puts a bit of a damper on a big crude price rally. Overall however we are getting to levels of crude that are not excessive.

  58. 58
    tomdavis12 Says:

    Z: Your LINE and VNR wicked good. Take a bow.

  59. 59
    zman Says:

    Thanks much Jerome!

  60. 60
    zman Says:

    Thanks Tom, only a half bow as I have not done anything on the VNR except watch it rally. I think the reasoning on the rally is sound though, distributions likely higher in 2010 so they crimp the yield back in advance of that.

  61. 61
    zman Says:

    NG green.

  62. 62
    zman Says:

    Not much of a reaction in stock land to the numbers. Feels like not a lot of people playing or wanting to chase things up here. Just took a risk for the week off the table with those demand figures though. Sitting, watching.

  63. 63
    zman Says:

    WLL at $73. At $15.32 Street CFPS next year, it’s still not expensive (at 4.8x).

  64. 64
    bloodystupidjohnson Says:

    Since you’all seem to be giddy with excitment over the rise in energy names, maybe one should look at the laggard in the sector. How about the deep water drillers? DO, RIG, ATW, and ESV have not really kept pace with this rally. If one believes in this upswing, then they should play catch up.

  65. 65
    zman Says:


    SWN – Added (5) January $50 calls (TKQAJ) for 1.65 with the stock at $49.85. Plan to add more today or tomorrow. Also plan to punt my lower strike $48s soon, maybe before the gas numbers tomorrow.

  66. 66
    zman Says:


    EOG – Added (5) EOG January $100 Calls (EOGAT) for $2.20 with the stock at 98.40. Will likely punt my $95 calls soon.

  67. 67
    zman Says:

    BSJ – not giddy. Just talking to myself in here on a slow day. I like the ATW out of the group best.

  68. 68
    tomdavis12 Says:

    Z: You list of names this morning does not include the offshore drillers like your ATW. Is this sector further down on your wish list? If you had to choose between PBR and APC, which makes the cut?

  69. 69
    zman Says:

    APC without a doubt.

    Regarding the drillers, I was being pretty specific about my must own through year end. All the names have size to them and are the easy, obvious ones. If you had to pick on that basis, and you aren’t a energy only fund, as was my thinking there, then you buy a HAL or an SLB way before you get down to an ATW or an OII. If you wanted a driller to note on your list by year it end it would probably be NE, RIG, or DO. They might be in there too but the bigger names are a must. Much of this buying has already been done to be sure. I was just thinking of the names that could drift on up into year end, a short term play for sure. I’ll have the 2010 list out, which includes much of the same but also little guys like NOG in the Bakkens and ROSE sometime next week.

  70. 70
    zman Says:

    Warning: The following section may contain a hint of giddiness.

    LINE at $27.09. Officially up 99% on the name, not counting the yield. Not really thinking about selling either until I hear the Fed get serious about raising rates.

    SWN through $50. TA types should be enthusiastic about that chart.

  71. 71
    bloodystupidjohnson Says:

    Z: are you going to send someone at XOM a Xmas gift? — lol — That buyout could have could have happened AFTER

  72. 72
    bloodystupidjohnson Says:

    RE: 71 AFTER option expiry — lol

  73. 73
    zman Says:

    True enough. Got lucky. I plan to buy gasoline from their stations only in 2010.

  74. 74
    zman Says:

    But we also have Oil pulling back from the brink of a price step down and the big rally in natural gas to thank.

  75. 75
    bloodystupidjohnson Says:

    RE: that’s true, but your options only had 5 days to run, and they need something big to prevent a major skud attack.

  76. 76
    zman Says:

    BSJ – Part of the game I play. That’s why the options are the small part of the puzzle that is ZEB.

  77. 77
    cargocult Says:

    I’m adding MWE to the giddy list.

  78. 78
    cargocult Says:

    Help me here, I can buy low but can’t seem to sell high.

  79. 79
    zman Says:

    Cargo – Is that midstream? Sounds like a midstream name?

  80. 80
    zman Says:

    Sorry Cargo – other than them being in RRC with some stuff I don’t know thing one about them.

  81. 81
    zman Says:

    BSJ – Also, you’ve had a number of things happen off the catalyst list which have served as individual stock drivers.

  82. 82
    baylor3217 Says:

    POT hit high of 113 today, pulled back and is mounting another move upward.

    I expect it to run to the 116 to 118 range

  83. 83
    zman Says:

    Slightly off topic. I’m amazed by the number of free next day air offers from retailers. Not good for retail margins but great for fuel demand. I can get a just about anything sent free, overnight to my house if I order by 3 today.

  84. 84
    jy Says:

    Don’t know if this has been mentioned previously but Cobalt Energy “CIE” did an IPO of 63,000,000 shares last week. They are a GOM deepwater and offshore west Africa focused group populated by folks w/backgrounds at Ocean Energy and BP chiefly. They have 142 deepwater GOM leases and 3 concessions ofshore Gabon & Angola. Don’t know if there is any coverage of them yet. They could be one to watch.

    “…Cobalt said it expects to start commercial production from its Gulf of Mexico properties between 2012 and 2014, and from its African properties between 2014 and 2016. Cobalt International has development agreements with French oil concern Total SA (TOTF.PA) SA and Angola’s national oil company, Sonangol, and plans to use the IPO’s net proceeds to fund its drilling and exploration program through 2011.

    Cobalt was founded in 2005 by a group of oil industry executives and private equity investors. Its chief executive, Joseph Bryant, had previously been chief operating officer of oil and gas exploration company Unocal Corp.

    The funds backing the company are affiliated with Goldman Sachs & Co, and private equity firms Riverstone Holdings LLC and The Carlyle Group…”

  85. 85
    bloodystupidjohnson Says:

    Z: All those points are true, but it seems to me that the XOM/XTO buyout, was the spark that causes people to take interest in all the other points you are making. It could be that maybe the group would have taken off without the buyout, the group was really oversold, but then again maybe not.

  86. 86
    zman Says:

    Thanks JY, had not seen, also saw another IPO yesterday, will look at both for next week.

    BSJ – that’s a fair statement. I guess my megaphone about undervalued gas and E&Ps and coal is not loud enough to be the spark.

    NYC urging no shale drilling in watershed. Where’s Wyoming, this is his favorite topic, lol.

  87. 87
    bloodystupidjohnson Says:

    My giddiness comment was the contrarian in me saying that this group, ex the deep water drillers, has had quite a run in a very short time. If you are playing Jan options, then be carefull out there. A correction would not be out of the question here.

  88. 88
    zman Says:

    BSJ – Fair enough. If you like the unloved what about the refiners? VLO, TSO, SUN, HOC, WNR, ALJ. You can’t find less love for a sector in energy and probably not in the broad market. Analysts there resorting to cleaning the trading floor floors at night to justify their existence. Sad really. Anyway, a recovery in the economy of the U.S., should we see one would mean gasoline picks up and you could see the stocks move higher in early 2010 for a time. I think it’ll be a headfake as you have lots of capacity coming on in foreign lands that won’t be subject to any form of cap and trade and only half the burden by volume as it enters the U.S. giving it an advantage. So maybe an early year move on demand and then another trouncing in the second half.

  89. 89
    bloodystupidjohnson Says:

    RE: 88 — absolutely. If energy is going up because of an improved economy, then I can’t see how the refiners would not benefit. I don’t really follow the refiners, so I could not really pick one over the other. But I do like the basic premise.

  90. 90
    bloodystupidjohnson Says:

    RE refiners, on your list I don’t see FTO. Do you follow FTO too?

  91. 91
    RMD Says:

    BSJ 87: you are not alone. HK (and the HS) were the momentum focus this summer; now it is oil and the Bakken. In July everyone thought BEXP mgt was stupid.
    Seems to me few are now questioning things like
    1.do long laterals increase EURs? Or do you just get it faster?
    2. % acres prospective in TFS? EURs in TFS.
    3. why are WLL’s results so different from CLR’s?
    And so on.
    Thinking there is a trading opportunity coming on short side and want to hedge my ROSE position.

  92. 92
    zman Says:

    I just grabbed some tickers off the top of my head. FTO is well run with a very small refining footprint (2 facilities). I’d be more likely to be long them in front of WNR and HOC for sure. If the names move then the big three VLO, SUN and TSO will be the early safe bets relative to the others.

  93. 93
    zman Says:

    RMD –

    Re #1 Both. If your lateral stretches across two sections you are in touch with more of the reservoir.

    2) Is still very much in question, don’t agree with the comment.

    3) Sweet spot of the play vs scatter gun approach to acreage. There’s Bakken Core and Bakken Lite and the differences are large.

  94. 94
    bloodystupidjohnson Says:

    Z: general question — when companies announce their IP’s, some are one day, some are for a week, etc.. Do you think there should be a general standard? Do you find the more conservative companies are more carefull when reporting there IP’s?

  95. 95
    zman Says:

    I’d like to see consistency within a company and across a play.

    As to your last question, yes. That’s doesn’t necessarily mean the bigger IPs are bad, they might be in a sweeter spot.

  96. 96
    baylor3217 Says:

    Sold my KOG traunch that I purchased at 2.09

  97. 97
    bloodystupidjohnson Says:

    RMD: I agree with your comments about upcoming shorting opps. Are you looking at shorting the market in general or E&P’s in particular?

  98. 98
    BirdsofpreyRcool Says:

    Nice job, Baylor! Thx for sharing.

  99. 99
    zman Says:


    SWN – Sold the $48 January calls for $3.30, up 111% with the stock at $50.50. I continue to hold the common and the $50 strikes I took earlier.

  100. 100
    zman Says:

    Meanwhile, LINE is officially a double for the first time. Woohoo.

    Getting ready to take my lower strike EOG s off the table.

  101. 101
    zman Says:


    EOG – Sold the January $95 Calls for 5.80, up 104%. I continue to hold the $100 strikes I bought earlier today.

  102. 102
    jat Says:

    re drillers, I very much agree with Z’s thought concerning priority of buying on the service side. In general I think the Street is still way too high on all the driller estimates, think Jud Bailey’s work on the group is rock solid. I’m only playing drillers for pairs, no absolute longs for me in the short term.

  103. 103
    BirdsofpreyRcool Says:

    EXXI announcing an exchange on all $338.6mm their 16% (14% cash + 2% PIK) notes from 144a to registered securities. That means us “normal” people can buy those notes now, if we wish.

  104. 104
    VTZ Says:

    I just read this and didn’t know it:

    Dave Rosenberg wrote this week; “We are not sure if this is a well known “fact”, but the U.S. government has a record $2.5 trillion of its debt, including bills, bonds and notes, rolling over in 2010. That, my friends, is 35% of the outstanding level of Uncle Sam’s marketable obligations having to be refinanced in one single year. “

  105. 105
    VTZ Says:

    NOG at HOD.

  106. 106
    baylor3217 Says:

    Thoughts on ANR?

  107. 107
    zman Says:

    VTZ – I heard something 104 a couple of weeks back. Steve Leasman on CNBC said something like “talk about impetus to keep your rates low”.

  108. 108
    zman Says:

    Re 106 – Can you be more specific?

  109. 109
    VTZ Says:

    RE 107 – Yeah I guess it just means bigger bank profits as the short to long term spread widens more and more.

  110. 110
    baylor3217 Says:

    Z 108 – near term catalysts? It’s seeming to have a healthy move with the rest of the sector.

  111. 111
    zman Says:

    Leaseman was saying the Fed would have to keep rates down while they extended U.S. debt maturities or the interest would be crushing. Crushing my word, not his but it has the same ring to it.

  112. 112
    zman Says:

    re 110. I think it falls into year end window dressing. It’s also gotten a pump from Simmons as their favorite idea in the coal space for the reasons I was talking about a couple of days ago.

  113. 113
    bloodystupidjohnson Says:

    I wish the readers on this site a Merry Xmas and a Happy New Year. I also wish to our Jewish friends a Happy Hanukkah.

  114. 114
    VTZ Says:

    They just might not have as much control over the longer maturity yield as they think.

  115. 115
    zman Says:

    Backatcha BSJ!

    I will be here tomorrow through at least the natural gas numbers.

  116. 116
    zman Says:

    Dollar getting hit a bit today.

  117. 117
    RMD Says:

    Z 93, #1 question is how much more EUR will a 1280 have vs. a 640? Not much data here?
    BSJ 97: thinking the Bakken stocks primarily.

  118. 118
    zman Says:

    In a perfect world, double the length, double the reserves.

  119. 119
    zman Says:

    BEXP – not playing today.

    NOG approaching $12.

  120. 120
    zman Says:

    HAL glued to 30.50.

  121. 121
    baylor3217 Says:

    No kidding on Hal. I’ve traded it for years and it seems to react to catalysts much less than slb

  122. 122
    BirdsofpreyRcool Says:

    RMD… just guessing… but think the EUR for a 1280 will have about 80-85% of the EUR for two 640s.

  123. 123
    zman Says:

    BOP – that’s what I’ve heard some management’s guesstimate. Then it becomes of a question of which costs less.

  124. 124
    zman Says:

    Dashing out for some last minute items, back before the close most likely.

  125. 125
    BirdsofpreyRcool Says:

    z #123 — yes… cost PLUS the increased probablity of screwing up a frac stage that screws up an entire section. Which seems to be a risk attached to some companies more than others (and will probably diminish? over time).

  126. 126
    BirdsofpreyRcool Says:

    It’s OK in TX, LA, OK, and elsewhere… but NIMBY!!

    City Agency Warns Against Gas Drilling Plan
    2009-12-23 19:49:43.895 GMT

    Dec. 23 (New York Times) — New York City environmental officials said Wednesday that months of scientific research had indicated that hydraulic drilling for natural gas would contaminate the watershed serving the city.
    The study, undertaken by the city’s Department of Environmental Protection, also showed that the drilling would damage infrastructure, including aqueducts, the officials told the city’s water board at a briefing. In a forceful letter to the state Department of Environmental Conservation on Tuesday, the city’s acting environmental commissioner, Steven W. Lawitts, called on the state to withdraw its draft regulations approving the drilling.
    Yancey Roy, a spokeswoman for the state agency, said it had no comment.
    The draft regulations apply to a type of drilling called hydraulic fracturing in the Marcellus Shale region of New York, which includes the city’s watershed region in the Catskills. A public comment period on the rules, released by the state environmental agency in September after months of discussions, ends on Dec. 31.
    Already concerned about the watershed, the city’s environmental department had hired scientists and environmental engineers specializing in gas drilling to begin researching the potential impact of the drilling last January. The report argues that drilling is dangerous for several reasons.
    “We took a technical look at this and made a decision based on the science,” said Paul Rush, the department’s deputy commissioner, who presented the report at the briefing.
    Extracting gas from the shale involves blasting water, mixed with chemicals into the rock at a high pressure, which causes the natural gas to flow out. The chemicals result in significant amounts of wastewater that can contaminate water supplies and damage the infrastructure, the report found.
    Twenty to 50 percent of the chemicals used in extraction results in wastewater, for which the state currently has no disposal method, Mr. Rush said.
    He added that the projected operating costs would increase water rates for New York City residents by at least 30 percent.
    Mr. Rush said the environmental engineers and scientists hired by the department collected data from hydraulic fracturing in other states to draw their conclusions.
    Citing data from drilling in Fayetteville, N.C., the scientists estimated that drilling in the New York watershed could result in hundreds of tons per day of fracturing chemicals seeping through the watershed over a 20-year period.
    Massive industrial development would be needed to dig and maintain the 3,000 to 6,000 wells that would be dug in the watershed, the report said. Maintenance alone could result in up to 600,000 truck trips per year within the watershed’s boundaries alone, it said.
    Responding to rising public concern, the Chesapeake Energy Corporation, which currently owns the lease to drill in the watershed, announced in October that it did not plan to drill in the watershed under its current lease.
    Nonetheless, hundreds of New York City residents turned out in November to protest hydraulic drilling at a state hearing on the draft regulations.
    Eric Goldstein, a senior attorney for the Natural Resources Defense Council and an advocate for protection of the watershed, said Wednesday that Chesapeake’s promise meant little.
    “It’s nonbinding, it’s temporary and it only applies to one company,” he said at the water board’s meeting. “Other companies could take over the lease, or Chesapeake could choose to go in and drill if they renew the lease.”
    Mehul Patel, a member of the water board, also spoke out against the drilling. “We’re trading off the most precious natural resource we have,” he said. “It’s appalling to me that the state would consider this.”
    The watershed area under discussion spans one million acres and provides unfiltered drinking water to about 8.2 million people in New York City and one million people in Westchester, Putnam and Dutchess counties.

  127. 127
    RMD Says:

    I’m just entertaining the possibility that the EUR is 1.5X or less, as this would jinx the cheery consensus.

  128. 128
    baylor3217 Says:

    NOG breaking out

  129. 129
    BirdsofpreyRcool Says:

    Merry Christmas to ALL !!

    I will be traveling all day tomorrow. Then checking in sporatically the week between Christmas and New Year’s. So… keep the hearth fires burning (nat gas!) and talk with y’all next week.


  130. 130
    Wyoming Says:

    Hundreds Gather to Protest Global Warming


    Click on the image to expand.

  131. 131
    baylor3217 Says:

    Have a good one BOP!

    Catch you on the flip side

  132. 132
    Wyoming Says:


  133. 133
    Dman Says:

    #64 Giddy!??

    I’ve been on this site for a fair while. Not sure I’ve ever seen Z giddy. Not about stocks anyway.

    I think what you mean is “long”. Which happens to be “right”. But not giddy.

  134. 134
    BirdsofpreyRcool Says:

    Dman — a very special “Merry Christmas” to you! You and I fall on different sides of the issues, but we are both smart enough to know that z provides a great forum for ideas.

    Here’s to making $$ in 2010!!

  135. 135
    zman Says:

    Thanks guys and a Very Merry Christmas to you all. I will be here at least through the gas number tomorrow.

    Wyoming – re 130 very funny. And if you want to expound upon costs of a dual lateral or an extended lateral versus two verticals with 5,000 foot laterals and the technical complexities of each vs reserve expectations I more than sure that that would be greatly appreciated.

  136. 136
    choices Says:

    #132-Wyoming-interesting article-thanks.

    I personally observed Chinese operations when they came into Kazakhstan in 05 and purchased Petrokazakhstan (referenced towards the end of the article). They negotiated with a very difficult Kazakh Govt and a Russian company and ended up with a good supply of crude and pipeline at what now appear to be reasonable prices-they never lost focus.

  137. 137
    choices Says:

    VTZ and other gold bugs-You might be interested in this article by John Embry.


  138. 138
    RMD Says:

    WY 130: great picture, wonder who did them?

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