Wednesday – Oil Preview + BEXP, PQ, Coal Thoughts …

 

Market Sentiment Watch: Good morning. Still liking 2010 after a whopping two days of trading. The rest of the year's sessions will undoubtedly not be as good but a 50% gain on a $20,000 portfolio over two days has to make one smile. Or be more cautious. I'm going with the latter. I spent yesterday raising my cash position and while I'm back over 50% cash I'd also note that I'm only slightly more weighted in January calls at this point than the longer dated options.  I plan to beat more of a retreat from the Jan calls as the week progresses.  After the close yesterday, BEXP announced their best well yet in the Bakken. This well was next up on the Catalyst List and was everything I was looking for if not more in terms of an initial rate (see details in the Stuff section below).  Lastly, Pritchard is holding an energy conference today through Friday and I'll be on a number of presentations today including BEXP (see Stuff section for the full roster).

Eco Data Watch:

• ADP employment came in at -84K. Economists are looking for a positive number from this Friday's payrolls data and ADP has been running about 100K short of the government data,
• ISM non-manufacturing (forecast 51%) will be released at 10 am EST.
• FOMC minutes this afternoon. Look for lots of stay the low rate course talk.
  

Other Errata Watch:

• Interior Czar Salazar to announce changes to the U.S. onshore leasing system at a press conference at 12:30 EST. Look for lease durations to be cut short.

In Today's Post:

1. Holdings Watch
   
2. Commodity Watch
   
3. Oil Inventory Preview
   
4. Stuff We Care About Today - BEXP Bakken well, Coal Thoughts 2010, Pritchard energy conference, PQ operations update.
   
5. Odds & Ends
   

Holdings Watch:

• $10KP II:
  
  • $31,000
    
  • 54% Cash
    
  • The quick view holdings are updated on the Holding Tab.

 

• Yesterday's Trades:
  • Added (10) January $15 calls (QBJAC) for $0.30 with the stock at $14.20, pulling back on a downgrade. The company presents at the Pritchard Energize Conference tomorrow and I would not be surprised to see an operations update out of them either tomorrow or next week.
    
  • IOC - Sold my (2) January $70 calls (IOCAN) for $14, up 135%. Will reposition soon.
    
  • NOG - Sold (40) NOG $12.50 January calls for $0.50 (on the mid), up 91%, with the stock at $12.67. I continue to own the Feb $10s and plan to add to that position soon.
  • SWN - Sold (20) SWN $50 January calls (TKQAJ) for $2.40, up 55%, with the stock at 51.75. I continue to hold the January and February $55 calls here and the common.
  • BEXP - Bit of a WildZ (higher risk) given the amount of time to expiry. Added another (20) BEXP January $15 calls for $0.30 with the stock at $14.20. This brings me to (50) of these with an average cost of about $0.41.

Commodity Watch:

Crude oil inched up $0.26 to close at $81.77 yesterday. After the close, the API released another oddball looking report. I'm not sure anyone cares what they report anymore.  This morning crude is trading off a dime.

Natural gas dropped 4% (the day after climbing 5+%) to close the day at $5.64. Felt like profit taking in advance of this week's storage number that slowly got out of hand. This morning gas is trading up 14 cents.

• Early Read On Natural Gas Storage: The Street is looking for a 153 Bcf withdrawal.
  
  • Last Week: 124 Bcf withdrawal
    
  • Last Year: 67 Bcf withdrawal
    
  • 5 Year Average: 75 Bcf withdrawal
    
  • 5 year Hi: 20 Bcf withdrawal
    
  • 5 year Low: 171 Bcf withdrawal

Oil Inventory Preview

API Watch: Nonsensical.

• Crude - DOWN 2.3 mm barrels. Despite a big surge in imports, much bigger than a small rally in refinery throughput.
  
• Gasoline - UP 5.5 mm barrels. Not surprising it would be up but the size seems a bit out of hand.
  
• Distillates - UP 0.96 mm barrels. A bit surprising.  I am thinking the Street is closer to correct in what the EIA will report today.
  

Stuff We Care About Today

BEXP Announces Its Biggest IP Yet In The Bakken

• The State 36-1 #1H tested 3,807 BOEpd (3,236 bopd, 3.42 MMcfgpd)
  
• What's important about this well?
  
  • It's the furthest east well in their Rough Rider area drilled by BEXP to date so it helps to derisk some of that acreage which has been relatively untested until now.
    
  • It is another of BEXP's long lateral, high frac stage count (30 in this case) wells to come in above industry IP rates
    
  • This is their strongest well to date and they have now drilled all about their 104,000 Rough Rider area acres.
    
  • Other operators in the play with average IPs in the 2,000 BOEpd range have put per well reserves in the 750 to 1 mm barrel recoverable range.
  • While a record for BEXP, this well is still nearly 1,000 BOEpd short of the Bakken record holder, WLL's Maki well located in the Sanish field, in the Core of the play.
  • Also of note, BEXP is releasing 7 and 30 day average rates in their latest presentation. These rates look pretty much as you' expect ... look for pretty quick payouts here on the order of 18 months.
  • These BEXP notes will be archived on the Reports page.
  • The progression of their recent wells is obviously nice to see:

• What's Next For The BEXP Bakken Effort?
  
  • One more Central Rough Rider well within a week or two. This should not be as risky as the last well as it's in close proximity to some previously drilled wells.
    
  • One more Rough Rider and one Ross area well by late January.
• What Else?
  
  • NFX has yet to disclose results from its Chanel 1-33 Well which is just south of being in between this well and the Williston 25-36 well. So not quite straddled by two big wells, we could hear something from NFX as soon as mid January or as late as their 4Q09 conference call.

PQ Operations Update:

• Woodford Share
  
  • 4 Woodford wells completed - Initial Production rates ranging from 5.6 to 7.9 MMcfepd, which is solid.
    
  • They are completing their 33rd well in the play now and the last 15 have seen average IPs of 6.0 MMcfepd; these should be highly economic wells at current gas prices for the slightly over $4 mm well cost.
    
  • Woodford production now 30 MMcfepd, about a third of total company production at present.
    
    
• Production Below Guidance:
  
  • 4Q Guidance Coming Down. Now quoting a range of 81 to 83 MMcfepd vs prior guidance of 83 to 88 MMcfepd
    
    • Pelican Point (Gulf Coast) production offline temporarily due to pipeline issues
      
    • Shut ins for Hurricane Ida
      
  • Current production is back up to 90 MMcfepd
    
  • Still going to make their 2009 production range
    
  • Not yet talking 2010 volumes.
• Financial:
  
  • 2009 Capex came in at $60 mm, slightly low to the last estimate of $65 to $75m; deferred some projects and spent less in the Fayetteville Shale which comes as a surprise.
    
  • Paid down debt in lieu of that spending
    
  • $20 mm of bank debt repaid in quarter
    
  • Revolver now with $29 mm drawn on $100 mm allowable.
    
  • $20 mm in cash at end of quarter
    
  • At quarter end they had fixed debt of $149 mm and bank debt of $100 mm; so total debt has fallen from $249 mm to $178 mm since 9/30/09.
• Nutshell:
  
  • Stock may get taken down a bit today on knee jerk reaction to the production guidance miss. Depending on how much it falls I may play.
  • Along with the cash on the balance sheet, the debt reduction puts their Total Enterprise Value at $577 mm for a TEV / EBITDA of 4.4x which is fairly inexpensive.
    
  • This section will be added to the Reports tab.

 

The Pritchard Energize 2010 Conference (Wed - Fri)

• Full schedule here
  
• Ones I'll be tuning into today: (all times EST, note that these start later in the day as this is a left coast conference)
  • BEXP -  11:55
  • BPZ  - 12:20 - refreshing myself on this oily little name
    
  • SWN - 12:45 - Not expecting much new but will listen all the same
    
  • GST - 1:10
    
  • PQ - 1:35
    
  • SFY - 2:25 - Want to hear their Eagle Ford Plans
    
  • Crimson (CXPO) - 2:50 the recent IPO, very interested to hear these guys speak.
    
• I'll wing the afternoon part of the schedule.

Coal Thoughts for 2010

• Generation can't get a lot worse than it was in 2009. Ok, it can but it is unlikely. Generation in 2009 was off just under 4% due to the economy and a mild summer. Moreover, with low gas prices last summer, gas was able to steal market share from more expensive coal. That price relationship is reversing out for all but the most inefficient coal plants.
  
• U.S. coal inventories are likely to remain high through year end
• U.S. coal production has been steeply curtailed due to the economy driving lower demand
• Prices for thermal coal are not much off their lows but they appear to have stopped falling and higher natural gas prices will likely be supportive of higher coal prices.
  
• Eastern coal prices hit $135 per ton in July of 2008 and are now at $48, near their 2009 lows, trading in what I often refer to as a scoop chart.
• Similarly, the low BTU, but lower polluting Powder River Basin coals of Wyoming are trading in a range between $8 and $9 per ton, having peaked in Summer 2008 close to $22 per ton.
• Coal export markets remain strong, especially China.
• Met coal demand continues unabated with domestic producers repeatedly commenting they are selling every ton they can get out of the ground.
• I'm only long a small (ANR) position at present via January calls but I plan to be more involved in this space in 2010.

 

 

 

Odds & Ends

Analyst Watch:

• CHK - Barclays boosts target by $2 to $34, maintains Overweight
  
• ECA cut to Market Perform at Raymond James
• ACI - upped to Buy at UBS

Interesting Reading Watch:

• Deepwater Article