24
Dec

Thursday – Oil Review and Gas Preview

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Market Sentiment Watch: Drifting higher before and after the jobless claims data (452K vs 470K forecast). The Market is in "Get off the trading floor as soon as humanly possible" mode. Today's oil inventory review section is abbreviated in the spirit of the season but I do plan on sticking around at least through the gas numbers which come out at the regularly scheduled time.  I also plan on taking more profits should this Santa rally continue to today as I still plan on entering 2010 cash heavy and the last week of the year often sees a whole lot of nothin' goin' on.  Have a safe and Merry Christmas!

 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Preview
  4. EIA Oil Inventory Review
  5. Odds & Ends

 

Holdings Watch:

  • $10KP II:
    • $25,700
    • 61% Cash
    • The Holdings Tab is updated.

Yesterday's Trades:

  • 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.
  • EOG – Added (5) EOG January $100 Calls (EOGAT) for $2.20 with the stock at 98.40. Will likely punt my $95 calls soon.
  • 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.
  • EOG – Sold the January $95 Calls for 5.80, up 104%. I continue to hold the $100 strikes I bought earlier today.

 

Commodity Watch:

Crude oil jumped $2.27 to close at $76.67 yesterday, after the EIA released a bullish looking set of inventory and demand numbers (see below). This morning crude is trading off a quarter.

  • Refining Watch: VLO reports fire at Texas City refinery, extent of damage appears to be minor and product futures are not lifting on this news.

Natural gas moved up another $0.11 to close at $5.82 yesterday, moving especially well after the bigger than expected distillate draw down included in the EIA numbers. This morning gas is trading up two pennies ahead of the gas storage report.

 Natural Gas Preview

  • My number: 175 Bcf
    • History:
      • 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
  • Street Consensus: 173 Bcf

EIA Oil Inventory Review


ZComments: This section is abbreviated due to eggnog.

  • Better than expected gasoline and distillate demand.
  • Tepid imports were behind the bigger than expected oil draw so really not a big deal there.

CRUDE OIL:

 

GASOLINE:


DISTILLATES:

 

 

Odds & Ends

Analyst Watch:

  • Nada

 

50 Responses to “Thursday – Oil Review and Gas Preview”

  1. 1
    zman Says:

    Bulls running hard on CNBC this morning. I say don’t mistake an end of year volumeless rally for intelligence or evidence that you are right. Most of these guys are thinking about very short term market direction. I went back and looked at the S&P in the last week for the last several years. Fairly random walk, often flat. Market often headfaked in the first week of trading in the new year, if moving higher first few days, it then often shot lower for awhile. I’m in the camp of continued upside in 2010 for the market but we’re due a pullback, most likely after year end.

    I think it was Paul Beutel on earlier saying the gas number should be over 200 Bcf, maybe but I doubt it since the weather had backed off considerably. I’m sticking with 175 but if we do go much higher I’d bet on a breach of $6 which may last through next week as this week is turning out to be colder in more of the midsection of the country than the original forecast called for. And in the midsection, we all use natural gas to heat our homes. Ok, maybe a little propane but for a vast majority of the population it’s piped gas.

  2. 2
    bill Says:

    tph almost calling for 6.50 ng and a ng gas stock recovery mentioning these names

    CHK, CPX, CRR, CRZO, EP, HAL, KEG, KWK, RRI, SD, SWSI.

    missing is swn, hk, rrc and my beloved mcf

    sd had a decent move yesterday

    Anyways, Merry Christmas and a Happy New Year

  3. 3
    zman Says:

    NG up 6 cents just before the equity market open.

    Crude has reversed an early slide and is up slightly. Overnight crude was trading back up through $77 and this could be one of those days where the NG number could provide a further push to crude.

  4. 4
    zman Says:

    Thanks Bill. TPH has had an on/off relationship with HK of late. Really ever since the last deal they have kind of acted like they don’t cover it, with only a few nods here and there. I don’t know that they cover SWN or RRC and I’d add where is UPL and COG. MCF I’m pretty sure I’ve never seen them mention.

    Backatcha on the MC & HNY!

  5. 5
    zman Says:

    LINE approaching $28

    EOG through $100.

    NOG at $12.50.

    Coals moving up.

  6. 6
    West Says:

    Merry Christmas to all and to all a very prosperous New Year. I appreciate everybody’s input and the high level conversation and data. Thanks to you Z we appreciate the great site. Merry Merry.

  7. 7
    bill Says:

    Warning, Im going to talk my book.

    Last qtr MCF had eps of 85 cents in a low pricing environment and ebitda per share was 2.00. NG prices will be almost 1.00 higher in q4. Since MCF doesnt hedge, that extra dollar will fall to the bottom line. Production is about 8 bcf per qtr so thats additional 8 m in cash flow or about 50 cents per share . So with current prices they are doing $10 per share per year pre tax ebitda or 4.7 times current price.

    They have reserves of 348 bcf. EV = 15.8 m shares *47.50 = 752 m less 53 m cash= 699 or about $ 2 per mcf and for the most part these are proved producing reserves. These reserve have a pv-10 value of 1.4 b as of 9/30 and with higher prices that number is probably closer to 1.6 b now

    They are drilling one Gom well at a cost of 15 m (nautilus) and if its a dry hole will come off the numbers. If they hit its a 5 to 10 upside impact to stock price, I think the downside risk is already priced in but it probably would go down 2 or 3 with a dry hole. Word should be out within the next month as they present in florida mid jan

    Earnings should come in at 1.15 excluding Nautilus. IBES has .92 cents , 1 analyst

    The Ceo doesnt draw a salary, and no one has a lower cost structure. Main risk is exploration disappointments and future ng prices and me liking it.

  8. 8
    ram Says:

    Come on West, don’t inflate Zman too much.

  9. 9
    zman Says:

    Thanks much West, very kind. Best wishes for a prosperous 2010 to you.

    Bill – that last one is not a reason for it not to go up, lol. Good work. I assume the CEO owns a ton, saw him sell a bit here, guess that is how he pays himself. Does not matter in my book as they have been and continue to shrink the outstanding share count.

  10. 10
    West Says:

    How many of you would want to deal with a hundred or so eccentric stock traders that think they know everything and want to tell you about it.

  11. 11
    bill Says:

    sd back to 10 , chk closing in on 28

    i hope the 10;30 number meets expectations

    I recall reading that our (relatively higher prices) was attracting lng as europe is fully supplied

  12. 12
    choices Says:

    I agree with West in #6-thanks Z for your work and a great site-excellent discussion from all, very informative and professional input from all contributers.

    Best wishes to you Z and your family for the Holidays and to all contributers on this site.

  13. 13
    zman Says:

    Bill – It is attracting LNG. However Britain became a net importer last month for the first time. Gas production from the North and East Irish Seas is off. And Winter there has been kicking too. I think some of the little pop in LNG is ships that are storing gas at sea, going after the higher price.

  14. 14
    zman Says:

    Thanks choices, and our thanks back to you. Joy, joy, joy.

    NOG at 12.60. yippee skippee. Ok, that was a little giddy but I didn’t expect my Jan $12.50s to be up 148% by the end of the week.

    EOG at 101.30.
    SWN through $51.

    If the number disappoints the last two should pull back with the gassy names. I think anything below 170 will send gas dipping back into the mid $5s.

  15. 15
    choices Says:

    I posted this late on yesterday’s message-it may be worth posting here again as Embry is respected in the Gold sector, FWIW for gold bugs.

    http://www.sprott.com/Docs/InvestorsDigest/2009/12_24_2009%20Gold%20bull%20has%20many%20years,%20thousands%20of%20dollars%20to%20go.pdf

  16. 16
    zman Says:

    HK putting on a little move here, albeit on no volume, its coming up out of the range. Wondering when they get a hall pass to come out and play with the other gassy names.

  17. 17
    bill Says:

    >saw him sell a bit here, guess that is how he pays himself. he is selling 200 k shares , about 13 k per month.

    He has an obsession with lowering taxes. This method he pays cap gain rate of 15 % vs 35 % plus if it was ordinary income/salary

  18. 18
    Wyoming Says:

    Z,

    Dual Lats in a nutshell. You may save about 50% at best of a second well. Basically the pad may be the same size, slightly larger, Share the same Conductor, surface and possibly an intermediate string. Problem also comes in that you may have to run larger casing then a single well. Larger casing means bigger bits, more cuttings disposal, larger BOP’s, drillpipe (may make you switch from the rigs to now having to rent larger DP) and other rentals. In the case of a frac’d well, you now have additional costs of the junction and all the additional costs to switch from one leg to another (Coil or workover rig).

    Junctions are classified by types, open, cemented, liners etc. Here is a good summary that includes the Level classifications

    http://tinyurl.com/ykcy7lc

    The completion will also have additional costs that may increase costs relative to a single. Just realize that there will not be any cost savings in that regard.

    Final comments on costs are that it is possible for one screw up could wipe out both laterals.

    Not a reservoir guy but you could essentially double the reserves relative to a single. I will add that you could double your dusters too. This sword has two sides.

  19. 19
    zman Says:

    Bill – yep, he’s smart. And I love the whole “the government is our biggest partner” thing. So true.

    Interesting article on FSLR:

    http://www.solarfeeds.com/greentech-media/10414-drama-at-first-solar-fslr.html

  20. 20
    skimo Says:

    Z- what are your thoughts on DVN at $73+?
    Still a bargain or overbought?
    Thanks in advance.

  21. 21
    zman Says:

    Fantastic Wyoming.

    Any thought about the extended lateral vs two singles. A bit lower cost I’m told, how about the risk of going for 30 plus stages vs 20?

  22. 22
    zman Says:

    Skimo – I haven’t been playing there for awhile. I was had been interested in the stuff they are now selling. Maybe punting deepwater and international makes them an easier target so you do have that. But it also kind of makes them a slightly oilier version of CHK. When I first covered them they had taken out Mitchell, the founder of the Barnett and in between I’ve only loosely eyed them in context of the large caps. I need to update my thoughts here anyway so let me put it on the pad for next week so I can be of some value add. If you mean for a milking trade through year end it might be ok. Beyond that, I don’t see it as standout to the group. I did think yesterday’s sale price looked a touch low but again, I haven’t run all the numbers I’d want to to be sure.

    In general, I feel like we are milking some unsustainable gains in the group at present (light, holiday drift up which may get macked next week by opportunity driven selling). I’m also keeping the XOM for XTO chart gaps in mind. Warm weather in January and those puppies get filled.

  23. 23
    zman Says:

    Gas numbers in 2 minutes. Bad and you will see the number and then a ZTRADE coming out of those $50 strike SWNs. Good and you’ll probably see some sells closer to the close.

  24. 24
    zman Says:

    Natural Gas Inventory Report:

    Gas up 10 cents at $5.92 just before the report.

    166 Bcf withdrawal

    Consensus was 173, I was 175 Bcf

  25. 25
    zman Says:

    ZTRADE:

    SWN – sold the 5 January $50 calls for $2.30, up 37% on a less than bullish 166 Bcf withdrawal. I’ll buy them back lower next week.

  26. 26
    zman Says:

    In #1 above, that was John Kilduff, not Beutel who thought we’d be 200Bcf + today.

  27. 27
    zman Says:

    ZTRADE:

    EOG – sold the (5) $100 January calls for $3.00, up 34%. Just taking a little cash off the table in this light market.

  28. 28
    zman Says:

    NG off a dime at 5.75.

  29. 29
    zman Says:

    $10 KP II at 70% cash.

  30. 30
    md Says:

    what were the NG imports for the week

  31. 31
    zman Says:

    MD – I don’t know. My source took the week off. If I had to guess I’d say strong again out of Canada. Shouldn’t be much more than 1 Bcfgpd swing week to week at the outside, unless something weird, like a big pop in LNG occurred.

  32. 32
    zman Says:

    Market certainly not in panic mode, just seemed prudent to pair back the most vulnerable. Will wait to do that to HAL which is also vulnerable, probably just hold those through at least year end as it has not been performing but should be.

  33. 33
    1520sbroad Says:

    Happy holidays to all – thanks to everyone for all the quality posts throughout the year.

    Z- keep up the great work and best to the interns and Mrs. Z.

    Here’s to a great 2010 – Cheers!

  34. 34
    zman Says:

    Ok, gotta go do some last minute shopping. Best to all, new post up in a second.

  35. 35
    ram Says:

    Merry Christmas Zman and to all of the Energy Brain Family.

  36. 36
    TEXWS6 Says:

    Multi-laterals are going to be the next technology step, but right now the tool company’s that produce price them so high that you can drill another wellbore for the same price or cheaper with lower risk. The application for these tools are offshore type environment where you don’t have to stimulate the formation, or your treating pressures are reltively low. The Haynesville play alone (HPHT) is going to cause all the service companies to really fall on their R&D. We treat close to 14,000psi at the surface on our frac jobs, so that means our casing is seeing 17,000psi or more, which is alot to ask for casing, and stick a complicated junction tool (multi-lateral) down there and it further complicates the situation. You have seen companies improvise this by drilling “super” laterals (10,000’+) because they can’t get two laterals off in the same wellbore.

    Remember that scene off Old School where Frank the Tank debates for the competition against the Ragin Cajun? LOL!

  37. 37
    isleworth Says:

    A very happy holiday to Z, the interns, Mrs. Z and all of you in the Zman Energy Brain family, and here’s to natural gas finally being recognized in 2010 by Congress as our most practical and best clean energy fuel…….. 🙂

  38. 38
    Wyoming Says:

    re 21;

    Extended Lats are probably a better choice for now, more applicable to larger lease holds. Whenever you see a short lateral you should first look at the lease the well is sitting on.

    The risk of an extended reach well is obviously a sidetrack and when you throw a frac program in the mix, you have more chance of failure there if you were to stick a tool or perf accidentally too high (close to the heel). Unfortunately, our quality record is nowhere near as good as some industries and failures happen more than desired. I have shown numerous photos of some of these events.

    With that said, don’t forget that BP has wells in Wytch Farms was one of the founding areas for extended reach wells, some over 10 km (6 miles or say 30,000 feet). I don’t know what completions they have (frac or not)

    http://www.bpnsi.com/index.asp?id=7369643D312669643D313531

  39. 39
    baylor3217 Says:

    Is there a link on this site for the current NG price?

  40. 40
    TEXWS6 Says:

    Wyoming,

    Thanks for the backup…I think it’s just us two oilfield trash guys in here now…

  41. 41
    RMD Says:

    WY and TX: excellent explanation. I cpoied/pasted them into a file for “things I need to know and forget until the next time”.
    DVN thought: could they be cleaning it up, selling things the buyer does not want? The 2 point P&F looks like the CHK at 24; I am moving DVN to my front page.
    Thank you; everyone adds a huge dimension to my understanding energy investments.

  42. 42
    Wyoming Says:

    Tex, Sorry going to abandon you now. Have to get the Honey Baked ham before the roads freeze up. I think you are here in DFW too? Anyway, I am usually here in the background but everyone is impressively knowledgeable about operations. Take the Z comment about a drilling rig in oil or gas wells. Merry Christmas.

  43. 43
    nifkin Says:

    FTK- huge volume- anyone hear anything?

  44. 44
    bill Says:

    baylor

    you can go here and see daily cash prices for various hubs

    http://intelligencepress.com/features/bentek/

    or on this site z has a 12 mo strip price

    under blogroll

    http://www2.barchart.com/dfutpage.asp?sym=X3&code=BSTK

  45. 45
    RMD Says:

    further to 41: DVN has the 2nd highest change-of-control package in the industry $149mm, behind …yup, you guessed XTO at $293mm. Larry Nichols gets $61mm, John Richels $41mm, Steve Hadden $18.6mm, Darryl Smette $17mm. I find this intriguing.

  46. 46
    baylor3217 Says:

    Is xto considered a greedy company with the higher ups pillaging all the profits?

  47. 47
    md Says:

    Seasons Greetings to the Z family and bloggers. Wishing all a great 2010

  48. 48
    baylor3217 Says:

    Merry Christmas everyone! I’ll see y’all on the other side of the holiday.

    Here’s to a healthy and profitable 2010!

  49. 49
    RMD Says:

    Batlor, I’d say XTO was not necessarily greedy though it could be. There were 3 people above $40mm. Being a founder is probably an important component also. Hopefully the Zboard will chime in with mgt comments after Xmas.
    FYI the other big payouts are:
    APA $34mm Farris
    APC $40mm Hackett
    CHK $35mm McClendon
    EOG $26mm Papa
    NBL $67mm Davidson
    PXP $75mm Flores

  50. 50
    bill Says:

    baylor

    company isnt greedy but some execs might be

    its hard to get on top of the pyramid, and if you are knocked off, the money soothes the pain

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