Tuesday Morning – End Of Year Calm Has Settled In


Market Sentiment Watch: Sluggish, with a bent towards the positive.

Ecodata Watch:

  • Case-Shiller home prices come out at 9 am EST, forecast down 7.7%,
  • Consumer confidence comes out at 10 am EST; forecast of 54 vs last reading of 49.5

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crack Spread Update
  4. Catalyst Watch
  5. Odds & Ends

Holdings Watch:

  • $10KP II:

    • $24,500
    • 55% Cash
    • The Holdings Tab is updated for the quick holdings view.
  • Yesterday's Trades:

    • SWN – Added (10) January $50 Calls (TKQAJ) for $2.15 with the stock up about 20 cents on the day. These are the ones I sold a bit higher on Thursday. Natural gas is surging this morning on a colder forecast and colder weather last week and this is one of the names I think people will gravitate to for year end window dressing as well as a gas play this week.
    • NFX – Added (3) February $50 calls (NFXBJ) for $3.50 with the stock at 50.70. About one-third of what I want to hold when they release their 2010 guidance probably in mid January.
    • BEXP – Doubled my position in the BEXP $15 January calls (QBJAC) for $0.65. Should see more well news there any day now.
    • SWN – Added (30) of the January $55 calls (TKQAK) for $0.30 with the stock just over $50.

Commodity Watch

Crude oil inched up $0.72 in quiet, Middle East tension and U.S. heating oil driven trading to close at $78.77 yesterday. Demand should be poised to rise again on the diesel side with tomorrow's report. This morning crude is trading up a dime.

  • Early Read On Oil Inventories: (from the Dow Jones Survey)

    • Crude: DOWN 1.1 mm barrels.

      • Crude is up 3% vs year ago levels
    • Gasoline: UP 0.5 mm barrels.

      • Gasoline is up 4.6% vs year ago levels 
    • Distillates: DOWN 1.8 mm barrels. This is the one we really need to see outperform to support crude near $80 and I expect to see a slightly bigger than expected draw here tomorrow.

      • Distillates are up 20% vs year ago levels 

Natural gas jumped 5.5% or $0.35 to close at $5.99 yesterday. The winter strip moved up a similar amount. February gas takes over as the front month contract on Wednesday and is currently trading at $5.98. A number of weather forecasting services are looking for continued colder than normal weather through at least mid January which should keep gas in the $5.75 to as much as $6.25 range through the early part of the month. This kind of weather does wonders for eating through the storage overhang but the most important number of the next 3 weeks should be the one for gas supply released this Thursday. This morning gas is trading flat.

Crack Spread Update

Key Takeaways:

  • Margins remain weak despite seasonally strengthening demand for diesel and unseasonably strong demand for gasoline. Not a good sign. Maybe these turn for a brief pop in early 2010 but lower margins for an extended period of time should be the name of the game next year. More on this in Thursday's 2010 thoughts post.
  • Earnings Estimates For 2010 Continue To Fall ... Since our last updated of the earnings estimates for the group back on 11/9/2009, earnings estimates have deteriorated sharply with all members of the independent refining group estimates falling double digits save HOC which only fell 5%. Since the beginning of the year, estimates are down a whopping 68% on average.

  • ... And The Stocks Continue To Languish As Well.

Stuff We Care About Today Watch

Conspiracy Theory Watch. I've been doing a little work in the Louisiana Oil and Gas Commission's database, going over well results in the Haynesville Shale. Specifically, I've been looking at (HK) wells that have been on stream for awhile. Of late there have been  a few claims that the wells don't contain nearly as much gas as the company and others in the play have projected. Since the vast majority of wells have been online for less than a year I can't completely debunk that claim with my quick and admittedly incomplete survey. But here's what I found in the first well, which I picked because it now has data for twelve full months:

This is API well no. 17081209270000, located in Red River parish (see map here - note also that most of the play's bigger wells have been discovered in neighboring Caddo, Bossier and De Soto parishes). It was permitted in mid 2008 and drilled in late 2008. Again, I picked it simply because it had enough time on it to show the first year's production decline. The well had cumulative production of 3.1 Bcf in that first year.  So basically, half of the original expected recoverable reserves are out of the ground in the first year. The peak to trough decline is 80%, again, in line with thinking on  a shale well. And note the flat tale at the end. As this smooths out over the next several years we should see the rest of the expected gas get out of the ground. Rest assured, I will continue to watch this well in the future and have expanded my look at their wells and have not seen anything yet that says "oh my, what a bunch of liars". This is state data so it should be honest for the naysayers unless they think the operator would be willing to pay the higher taxes that an attempt to fake out investors would generate. 

Catalyst Watch

Changes This Week:

  1. NFX budget timing
  2. PQ budget timing
  3. MMR - added my current thinking on their exploratory program and timing.
  4. HK - added reserve press release timing and comment


Odds & Ends

Analyst Watch:

  • (ROSE) - Wunderlich shoots target from $18 to $28, maintains Buy


94 Responses to “Tuesday Morning – End Of Year Calm Has Settled In”

  1. 1
    Jay Says:

    Re Haynesville Data.

    Not only would false data reporting be a huge offense against the State, (which could suspend your right to sell product), any royalty owner can audit their checks against the numbers being reported to the state.

    So, any attempt to fudge the data on the high side would, I think, cause the operator to have to pay the royalty owners on that higher claimed production as well. That would be very expensive ā€“ besides stupid.

  2. 2
    zman Says:

    Jay – yeah, I know good points and nobody is doing it but these reserve guys have come out of the woodwork of late and have lots of crazy theories about the reserves. Just thought I’d head off that question.

  3. 3
    bill Says:

    exxi completes deal


  4. 4
    TEXWS6 Says:


    Is that HK well the EGP #63?

  5. 5
    zman Says:

    TEX – It’s the HA RA SUD;SAMPLE 9 according to Sonris. I’m guessing its in the NW corner of the Parish where HK had 3 big IP wells.

  6. 6
    zman Says:

    Crude moving higher, up 57 cents following home price data.

  7. 7
    TEXWS6 Says:

    Let me know if you need any more data on the well…

  8. 8
    zman Says:

    TEX – Thanks. Probably what I need is a tutorial in how to use SONRIS for downloads. I use SONRIS Lite and I’m having trouble doing any downloads to excel. So I 10 key. And 10 key. And then I go watch football. Anyway, I plan to pick out a few wells from here and there and from some other operators, CHK, GDP, ECA, DVN, XCO etc and track them over time.

    That CXPO IPO had the biggest IP well down there, don’t know where it is but am looking at the name now. Deal came at $5, stock is at $4.40, may be a touch expensive on a TEV/EBITDA basis.

  9. 9
    bill Says:


    do you know whats going on with contango’s Nautilus well?

    How long does it take to drill a well in the gom

  10. 10
    bill Says:

    follow up

    does sonris cover wells offshore or is it onshore la only?

  11. 11
    zman Says:

    Bill – Depends on where it is and how deep they are going (once past the mudline). Shallow water water wells can be drilled in fairly short order, a month or two, if they are not super deep tests. Offshore in deepwater and going after a deep target you can drill for the better part of a year. At Ship Shoal, I would not expect it to take them more than 2 or 3 months to reach TD barring any trouble.

  12. 12
    TEXWS6 Says:

    I am working Haynesville, so just familiar with those wells, sorry bill!

  13. 13
    zman Says:

    Sonris covers La Parishes and state waters only so it would not be covered by that. Am thinking it would be in the MMS dataset but as its not down yet, you’d have to wait about 3 or 4 months to see any production data once it IPs.

  14. 14
    kyleandy Says:

    z -nothing in my e-mail re yesterdays msg from u

  15. 15
    zman Says:

    Ok thanks. Can you send me an email at zmanalpha@gmail.com? It is possible I have the wrong address for you.

  16. 16
    zman Says:

    Bill – if gas prices $6 instead of $4 the offshore guys, including and especially MCF should have a great 2010. Not saying they will be but I do think 2010 is better than 2009 for gas.

  17. 17
    zman Says:

    Volume at the open almost non-existent.

  18. 18
    zman Says:

    We get Consumer Confidence in 30 minutes, then Chicago PMI and oil tomorrow and Jobless claims and natural gas storage and supply on Thursday and that’s it for data for the rest of the year.

  19. 19
    Jay Says:

    HK Well location:


    411′ FNL & 1667′ FWL OF SEC 9. PBHL: 330′ FSL & 1667′ FWL OF SEC 9.T14N, R11W


    Think this is the one you’re talking about.

  20. 20
    zman Says:

    Yep, that’s it.

  21. 21
    tomdavis12 Says:

    Z: Re 1 – 2. I saw CHK has a lawsuit against them from the cities of Fort Worth and Dallas claiming they were short changed @ DFW Airport for 6MM in royalties. Trial set for Oct ’10. Does this type of disagreement happen often?

  22. 22
    zman Says:

    Tom – I see those from time to time and other things including lease checks bouncing if the operator decides not to lease after cutting a check but before its cashed. Ticks people off but doesn’t amount to much. Growing furor over water contamination may be a bit more troubling. Looks like NY Marcellus development will be slower to develop because of it. CHK has already bowed out of leasing there. You can google gas well and water and come up with a bunch of people with well water they say was ruined by nearby drilling. I think Wyoming did a good job of saying the frac is not the issue on that.

  23. 23
    zman Says:

    Reef – Do you disagree with my comment in the Catalyst List re shorting MMR if they don’t have news out prior to the quarter? That may be a little bit of a harsh statement but I am mulling do it. If the news on Blueberry Hill were good I think it would be out by now. Davy Jones could take a long time, don’t know if I could say whether it “should” be out by the time of the next quarterly release.

  24. 24
    bill Says:

    11 thanks.. yes i was expecting 3 months so sometime in january. I think its in 200 ft of water controlled by the feds

  25. 25
    zman Says:

    Consumer confidence at 52.9 vs 54 expected and 49.5 in November.

  26. 26
    zman Says:

    Bill – easy tie in location as well so it should be a fast hookup if it works. Page 13 of their last presentation was what I was thinking of when I made the gas price comment:


  27. 27
    bill Says:


    when ng averaged 3.40 in q3 (mcf q1), Mcf reported margins of 4 per mcf, gross was about 4.60 less 60 cents for cash expense. They have some oil and ngls in the mix

    So far for q4 (MCF q2) ng will avg about 4.40/ mcf or about a buck higher than the prior qtr. That buck will fall to the bottom line which is .63 cents more pre tax or 40 after tax..so im looking for 1.25 for q2

    with 6 ng they are rolling in money and earnings would double from q1 from .85 to 1.70 per qtr

    Also production is increasing.

    if nautilus is a dry hole they expense 15 m in drilling costs but that would be a q3 impact

  28. 28
    zman Says:

    Stocks fighting off a little post consumer confidence (lack of confidence?) dip. Volumes just abysmal.

    Bill – exactly. I think what the offshore guys need is stable, not soaring gas prices, to get their forward multiples out of the gutter. I think the easy short gas trade is winding down. I think we see softer prices in mid to late January for one last time, maybe as low as $5 and then we trade sideways for 2010 drifting higher as the year progresses and culminating in a price closer to $7 at year end. So the guys with production growth and good control should have easy comps all year long.

  29. 29
    bill Says:

    Agreed and mcf will have great comps as some wells were offline due to storms in late 2008 and wells being offline for a number of months spilling into 2009

  30. 30
    zman Says:

    Cold well into January: Import hubs 15 day forecasts
    New York:
    Little Rock

  31. 31
    zman Says:

    Bill – good point also.

    SD back over $10.

  32. 32
    ram Says:

    Bill, don’t say spilling.

  33. 33
    tomdavis12 Says:

    Z: For those of us who missed CLNE, do you have a price that you would be tempted to buy? I see support @ $12 – $12.5 and $14.5. I’m guessing we will see more press releases like yesterday. If towns, states and companies can save money that is powerful incentive.

  34. 34
    jy Says:

    Re #10 question about LA SONRIS data coverage. This covers only the onshore and STATE water bottoms only (out to the 3 mile limit)

    If you want offshore production info try ocsbbs.com It may have a subscription fee. You can get offshore info from the MMS website, but it is a laborious task.

  35. 35
    zman Says:

    Tom – I’m just waiting on a bad week in the market there. It’s had a heck of a run. Also, need to do a bit more work on what they plan to get accomplished in 2010 and when the Natural Gas Act is set for a vote.

  36. 36
    jy Says:

    Z, Re the decline curve in today’s post; a sample of 1 is a dangerous place from which to draw conclusions about a play. Suggest a larger sample base before drawing conclusions. šŸ™‚ my $.01 worth

  37. 37
    zman Says:

    Just got a note that the EIA 914 data – gross gas production will be out mid day today. The Natural Gas Monthly data is still scheduled to be out on Thursday.

  38. 38
    zman Says:

    Jy – I looked at more than one. This one had the longest production history I could find.

  39. 39
    zman Says:

    Kyle – Sent you another note.

  40. 40
    zman Says:

    Bloom now showing 2.2 mm draw for distillates tomorrow. Me and 3 other guys will be around to see it.

  41. 41
    zman Says:

    MMR on the tape, more in a second…

  42. 42
    zman Says:

    MMR – saying they are drilling ahead on Davy Jones,

    drilling another well at Blueberry Hill after encountering pay in the well I was saying was overdue in the post.

    and still drilling at Hurricane Deep, a Flatrock offset target.

    Conference Call tomorrow.

  43. 43
    zman Says:

    Funny they should pr this today as I was contemplating shorting them for their lack of news in the post today in the Catalyst List.

  44. 44
    ram Says:

    Sounds positive.

  45. 45
    bill Says:

    here is the link


    after reading it, i dont know if it is good or bad

  46. 46
    zman Says:

    Bill – There’s not a lot new there really. The pay at BB Hill is nice but they are drilling another well there. Other than that the big well, Davy Jones, is still indeterminate. I think they felt pressured to put something out before year end to prove they still exist.

  47. 47
    baylor3217 Says:

    I think the machines and maybe 10 people are doing the trading today.

  48. 48
    zman Says:

    Yeah, Skynet’s in charge.

  49. 49
    zman Says:

    Comments from a TA friend on CLNE

    The RSI is high and the MACD is mo hi. A pullback or just a breather could be expected.

    The second weekly chart, the RSI is hi, but can go higher and the MACD still has room to proceeeed.

  50. 50
    1520sbroad Says:

    Z – 914 data out

  51. 51
    zman Says:

    Thanks 1520, looking it over now.

  52. 52
    zman Says:

    Bearish first look but that includes some well shut ins coming back on from the “other states”.

    Texas continued to decline which is positive, Wyoming looks oddly strong, most everything else was flat or slightly up including the Gulf and somewhat surprisingly Oklahoma.

    Aggregate up 1.1 Bcfgpd, most of that will be due to the didp Other states took in September when the Fayetteville shale was crimped by capacity issues.

  53. 53
    zman Says:

    NG off a dime now, was off a little less before the numbers. It could lose another 20 or 30 cents on this through the weekend, although a 175+ Bcf number on Thursday could blunt that.

  54. 54
    zman Says:

    The numbers out on Thursday should give a better look at what’s getting to market in the form of dry gas which is really what we care about.

  55. 55
    RMD Says:

    Wild Hair Thought for ’10: if the Gov’t restricts fracing, the GOM is an obvious beneficiary, as are mature production MLP’s.

  56. 56
    zman Says:

    RMD – If you do that you might as well buy all the Canadians too. And the LNG guys.

  57. 57
    zman Says:

    NG down 8 cents, so not falling off a cliff on the number. The other states rebound was expected and Wyoming was known to have some treatment facility issues that had been going on since late summer. I would have liked to have seen a bigger dip out of Texas but I bet we do on Thursday when the marketed production numbers are released.

  58. 58
    zman Says:

    Note to self for next year. Take this week off. Trading day over half over about a third of normal.

  59. 59
    bill Says:

    excluding alaska the build was 1.1 b per day, tph said anything over .7 = bearish.

    We had very low prices in sept with prices as low as 2 per mcf which doesnt encourrage sales. Now that we are close to 6 , lng is coming in , and producers are selling all they can.

    This might mute the weekly draw numbers

    I dont see anything more than 150 for this week, same weather buy holiday’s in there

  60. 60
    zman Says:

    I’m looking for a little better number than that, it does have the holiday, weather was a little better and was consistently colder through the week last week than the prior week.

    Saw the TPH comment, I need to wait for the Thursday numbers. I think they are pretty “off the cuff” with that comment. Also, these are October prices which were better than September and quite a bit better than November. I’d like to see the LNG numbers but my source seems to be out of the office again this week.

  61. 61
    elijahwc Says:

    26-Mile Line of Ships


  62. 62
    zman Says:

    Thanks Eli, hard to see how the rally in those names like FRO continues.

  63. 63
    VTZ Says:

    Hey Z – To follow up your question the other day about plotting the Greeks historically on IB, you can’t. But you can obviously plot the historical contract prices. The Option Trader window does have the current greeks next to each contract in the chain as well.

  64. 64
    zman Says:

    NG down 19 cents now. Seeing more analysts call the numbers bearish.

  65. 65
    zman Says:

    Thanks V. I’m still trying to decide if I want to switch.

  66. 66
    bill Says:

    exxi appears to be moving with the mmr news

  67. 67
    zman Says:

    Should be a lot of hints dropped on the MMR conference call tomorrow.

  68. 68
    RMD Says:

    56: just bored musing, not believing.

  69. 69
    elijahwc Says:

    62 – that’s the way I see it as well. Corrections in the Tanker space have been fast and brutal as the common is normally supported by a piggish dividend that goes away overnight.

  70. 70
    elijahwc Says:

    Z – from time to time I am in reciept of rsch on the Cardium in Alberta. I’m primarly interested in the divi plays such as Nal Oil and Bonterra for equity income accounts. Would you be interested in a periodic email or two? I know that it is probally outside of the mission statement here but it is Bakken redux.

  71. 71
    zman Says:

    Sure, thanks, just doing some end of year CE.

  72. 72
    cargocult Says:

    Any idea as to whats going on with RAME? Ram energy?

  73. 73
    zman Says:

    Bill – the Street is with you at 145 Bcf.

  74. 74
    zman Says:

    Cargo – It caught an upgrade yesterday, other than that I don’t see anything.

  75. 75
    cargocult Says:

    If only all upgrades worked so well.

  76. 76
    zman Says:

    From Accuweather:

    “Very cold weather will attack the North Central states Thursday and Friday then spread to the South and East over the weekend. This is likely to be the coldest air mass that we’ve seen so far this season.

    Once the cold river of air becomes established into the United States, there won’t be any way for the atmosphere to get rid of it. For that reason, we believe that most of the central and eastern part of the country will have temperatures well below normal for at least the first 10 days of January.

    Add to that a storm or two, and no doubt we are going to have our hands full.”

  77. 77
    zman Says:

    No doubt, Wunderlich’s big target bump for ROSE going fairly unnoticed. Not that I’m complaining on it closing out the year above $20 or anything.

  78. 78
    ram Says:

    I recall that someone here had doubts of RAME’s survival. What’s changed?

  79. 79
    zman Says:

    Ram – I don’t know, don’t follow them closely enough to say if something has.

  80. 80
    ram Says:

    I see above. Zman, one of the many wonederful ideas that come from this space is covering the little guys and coming away with a comfort level of making decisions. I have been overrun with spam on the next bakken potential. Do you feel the urge to do a bakken minnow group and sort by best of group?

  81. 81
    bill Says:

    80 overrun with spam

    thats usually the sign of a bubble

  82. 82
    zman Says:

    Ram – I put BEXP, KOG, NOG, ROSE, AEZ, CXO, and CRED into that list and I own the first four in one way or another for varying reasons.

    BEXP is your big well, high profile driller of the group.

    KOG – well, we know KOG, 35000 acres, 8 wells with good results, 1 dry hole and slow going. No debt and just raised money.

    NOG – small interest, low LOE, big wells with good operators in the core, lots of acreage, no debt.

    ROSE lots of acreage in the Montana Bakken on option, good if it works.

    AEZ – drilling first wells now, not sure but should have some results next month or two, just did deal so has cash

    CXO and CRED – I think to small to have an impact but am willing to listen.

    What would you have me add to that group?

  83. 83
    ram Says:

    Stop with the bubble.

  84. 84
    zman Says:

    Bill – Maybe, but as long as valuations don’t get out of hand, and the wells continue to improve (at least for my names) at a lower per well cost, and the price oil remains firm I’ll stay after them.

  85. 85
    zman Says:

    CHK off 3% today. That light hedge position is worrying people.

  86. 86
    zman Says:


  87. 87
    ram Says:

    I’ll try to come up with a more focused inquiry tomorrow.

  88. 88
    bill Says:

    i meant small obscure penny stocks, non of the names on your list

    chk unhedged concerns me but it was more of a concern with a 5 strip

    seems like the ng stocks move opposite to fundamentals.. things appear to be getting better

    if prices are a concern, why doesnt sd get love with 75 to 80 % hedged

  89. 89
    zman Says:

    Bill 88 – all fair points. Of course, SD was up today with most of the group off. The shales especially. SWN a second down day, could be hedges could be just a soft market and could be the fact that the only news anyone has to read in the space is the steady flow of Form 4s coming across the tape. Window dressing may be done for the year. Thankfully, we have the cold air and more of it on the way to help with the storage surplus.

  90. 90
    zman Says:

    Wow – MMR at the end of the day, up nearly 7%.

  91. 91
    bill Says:

    mcf trades by appointment

    today it did 308,828 shares

    The company must of been on the buy side as I dont know who would step up to the plate to absorb that much

  92. 92
    bill Says:

    pxp was totally ignored today and i think they own a bigger piece of the mmr plays than mmr does

    they also have ng hedged at 10 in q4 and uncapped on oil which improved in q4.

    they are mostly unhedged to ng in 2010

  93. 93
    RMD Says:

    A few folks have commented on the the concept that paying $5,000+/acre (in the stock price) in the Bakken leads to questionable ROIs; I am getting belated agreement.
    Sold some AEZ today.

  94. 94
    see Says:


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