Thursday – Oil Review and Gas Preview

50 thoughts on “Thursday – Oil Review and Gas Preview”

1. 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. 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. 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. 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. LINE approaching $28

   EOG through $100.

   NOG at $12.50.

   Coals moving up.

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

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

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

27. 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. NG off a dime at 5.75.

29. $10 KP II at 70% cash.

30. what were the NG imports for the week

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

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

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

40. Wyoming,

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

41. 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. 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. FTK- huge volume- anyone hear anything?

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

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

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

    Here’s to a healthy and profitable 2010!

49. 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. 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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