Wednesday – Oil Inventory Preview Plus Some Odds and Ends

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Thoughts and prayers to poor Haiti. Thankful that no tsunami apparently reached my friends in Honduras.

Market Sentiment Watch: Nothing on the economic or earnings front to speak of this morning; we get Beige Book later in the day. As BOP said in comments, "yesterday was a weird day" which seems to be the case any time government sets out on the populist course - in this case putting fear into the banks over a "bank tax" in an apparent fist shaking tantrum over banker bonuses. This too shall pass.

In Today's Post:

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

Holdings Watch:

  • $10KP II:

    • $26,100
    • 46% Cash 
  • Yesterday's Trades:
    • EOG – Added (5) February $100 calls (EOGBT) for $2.35 with the stock at $95.60 on a weak market day and a broker downgrade.
    • MMR - Added (20) February $17.50 calls (MMRBW) for $0.59 with the stock just under $14.

Commodity Watch:

Crude oil fell $1.73 to close at $80.79 yesterday. After the close, the API released a very ugly set of data, showing large builds in crude and products (see below). As such, this morning crude is trading just under $80 this morning, as it awaits confirmation of the API data by EIA.

Natural gas rose $0.14 to close the day at $5.59 as Street consensus for this Thursday's report formed up to indicate a large report. This morning gas is trading a dime lower in sympathy with the fall in heating oil and oil.

  • Early Read On Natural Gas Storage: 254 Bcf. People are looking for big numbers despite the surge we saw in last week's gas import figures which appears to be setting the bar a bit high for this week's report despite last week's record setting weather.

    • Last Week: 153 Bcf withdrawal
    • Last Year: 94 Bcf withdrawal
    • 5 Year Average: 97 Bcf withdrawal
    • 10 year Hi: 147 Bcf withdrawal
    • 10 year Low: 47 Bcf withdrawal

Oil Inventory Preview

API Watch: Bearish, bearish, bearish

  • Crude: Up 1.2 mm barrels - due to a large jump in imports (API thinks 1 mm bopd increase week to week which is certainly possible) coming up against relatively stable refinery through put.
  • Gasoline: Up 6.8 mm barrels - this one makes little sense but is what is spooking the market this morning. API said demand was up and imports were flat. Taken to together with the "relatively stable" comment above you have to scratch your head and think that EIA is not going to show a similar build.
  • Distillates: Up 3.6 mm barrels - API saw falling demand and rising imports. The rising imports is not hard to buy given the given the cold and higher diesel prices and the floating distillate at sea issue that still persists. Continued falling demand is another head scratcher however.

ZComment:  More than usual, the API numbers are leading the market this morning. Of late they have been directionally correct if inaccurate in magnitude. EIA is likely to show a very different set of goods. Last year saw a large build in distillate inventories (up 6.4 mm barrels) so any reduction this year is going to lead to a significant reduction in that YoY surplus to the five year average chart that I show in the Thursday post.

Stuff We Care About Today

NFX Notes From Yesterday's Mid Day Abbreviated Ops Update

NFX issued what felt like half of an operations update yesterday, mid day, as they were speaking at Goldman Sachs. Some highlights:

  • Uinta Basin - Good oil wells announced, 6x normal IPs with IPs in the mid to high 300 bopd range for 2 wells,
  • Montana Bakken:

    • They picked up a lot of acres in the Montana Bakken, 221,000 net acres, did a deal for 156K of those with the Blackfeet in Glacier County.
    • This is where ROSE is drilling and would believe is validation for what ROSE is trying to do in the area (ROSE is on their 3rd well now but has not yet released results from the first).
    • NFX plans to drill 10 wells there this year.
  • It looks like NFX’s Channel well was 860 bopd, this is the one near BEXP’s last two big 3,000+ boepd wells, hard to tell if that’s it or not on the map.

Things that were left out of the update:

  • Nothing on the Granite Wash,
  • nothing on this year's deepwater developments that form the basis for production growth in 2010 and 2011,
  • and nothing on international operations (China and Malaysia should have news soon).
  • And no new 2010 guidance.

Nutshell: This is not the big operations update I've been waiting for and I now assume that that will come out with their 4Q results, allowing them to save further big Granite Wash wells and other tidbits for the call.

Subscriber Mailbag:

Z-question on option strategy-what delta do you look for when selecting the option strike ~ Choices

For me at least it is a judgment call, no hard and fast rules as each stock and each stock's options trade differently. Very simply, it depends on the price of the option, time to expiry, the strike price relative to the common, and the timing of catalysts (internal to the stock like company specific news and external like expected movements in oil or gas prices).

  • I generally look for deltas of .20 or greater on the lower priced options (sub dollar premium) but sometimes I will take a lower delta if a significant catalyst is looming. On these I'm looking for more contracts so that a dollar move in the common yields only a small move in the option but which is impactful to the overall portfolio.   
  • Regarding time, the more time to expiry, the less I care about delta and vice versa.
  • If I have a catalyst mind, then I go pay much more attention to what I think that catalyst can do in terms of moving the stock and the delta really won't enter in. In that case I'm try to add strikes that are just above where I think the stock could go on the news.

Credo Updates Operations

  • Bakken - Big 9,200 foot lateral, drilled and awaiting completion (early February) in the Fort Berthold Reservation - probably worthy of the Catalyst List - although they have only a small acreage position in the Williston.  CRED has a 10% interest in this well.
  • Central Kansas Uplift - 48% drilling success in the play, remains very small in terms of production.
  • Nutshell - not really a newsworthy pile of information here. Watching this one as a potential short candidate. Will be listening to their quarter.

Odds & Ends

Analyst Watch:

  • BofA / Merrill - raising targets on ANR ($50 -> $60), BTU ($50 -> $56), ACI ($26 -> $30), MEE ($41 -> $57 and raised to Buy).

Interesting Article Watch:


229 Responses to “Wednesday – Oil Inventory Preview Plus Some Odds and Ends”

  1. 1
    zman Says:

    MRO on the tape, while the mini majors are not really in my space, production came in near the top of guidance, LNG volumes appear strong as well. The weekly chart on this one looks constructive.

  2. 2
    zman Says:

    MLP Deal stats from TPH:

    Equity market was busy in 2009 (~55 equity deals for +$7.6B), but strong appetite/thirst for yield continues as ETP, EPD, TLP, LGCY, EPB and NGLS have raised ~$1.3B in equity so far.

    so this is your pressure on VNR, EVEP yesterday.

  3. 3
    BirdsofpreyRcool Says:

    Good morning!

    Bloomberg Headlines this am — Energing mrkts were off… corn prices down… oil sliding a bit… but why? Because China upped bank reserve requirements? This is a presage to what Central Banks have to do, when a recovery is starting.

    Frankly, you can get a heck of a long-term stock market rally, in an interest-rating tightening environment. China raising rates means they are worried about the EXPANSION getting too steamy. This is a good thing. But is always greeted with stock mrkt volatility. So, buy on down days, sell on up. Rinse and repeat.

    To summarize: Central Banks raising rates = positive eco-indicator. Oil prices sliding = near-term supply reaction, demand will go up as economies all over the world continue to strengthen. Corn prices down… well… they are expecting record corn plantings this year. Supply and demand at work.

    What to do in a rising interest rate environment presaging a global recovery?? Buy oily stocks. What to do if buying oily stocks makes you nervous? Sell calls against your position.

    Just a few pre-mrkt thoughts.

  4. 4
    zman Says:

    Good morning and well said BOP.

  5. 5
    bill Says:

    Todays hearing, who caused the financial mess.

    I’d like to see someone say the politicians caused it and the banks were the victims.

    Also, given that the market reacts to the future, the “market” didnt like what it saw coming in Nov 2008 in Sept 2008

  6. 6
    zman Says:

    MLP comments from TPH are like the near term supply of crude’s impact on crude prices, fleeting and will be met by higher demand as funds are directed towards acquisitions and debt repayment, both of which can lead to higher distributions.

  7. 7
    zman Says:

    Bill – I’ve noticed the market has tough day whenever CNBC turns the majority of its day over to CSPAN. Maybe Jamie Dimon will throw a coaster at one of these eggheads.


  8. 8
    bill Says:

    >”There was a lack of appreciation that the White House could even contemplate doing something like this

    ie 120 b in fees

    lol, not suprising at all

    tax,tax,tax,tax,tax anything that moves

  9. 9
    BirdsofpreyRcool Says:

    EXXI… cheap and oily. Reading UBS report from Jan 11, where they upped the PT to $5.50. EXXI’s FY ends on June 30th, so looking at FY 2011 (when all the hurricane-damaged, ramping production is back on line, but no contribution from DavyJones), UBS is modeling $400mm of EBITDAX and $1.65 of CFPS. They don’t say in the report, but guessing UBS is using $65 oil and $6 nat gas.

    z, what multiple of CFPS should little oily shelf players trade at?

  10. 10
    elijahwc Says:

    MV Oil Trust upgraded to Outperform from Market Perform at Raymond James- tgt $24.50

    FYI: This is a Grantor Trust which means that unlike an MLP it will not generate taxable income in a non-taxable account.

  11. 11
    BirdsofpreyRcool Says:

    TechTrader is 60/40 SHORT for the best trade today.

    HeadTrader isn’t buying that. Says it “doesn’t feel that way” to him. He points out that there seems to be more “okay” news than negative news out today. (With sympathy going out to Haiti… earthquakes are dreadful dreadful things)

  12. 12
    zman Says:

    BOP – not sure, so many are gassy and trade cheaply. Higher than their gassy peers for sure, maybe 3 to 5x current year’s cash flow.

    Off its current 2010 street CFPS of $1.48, it trades 2.4x.

    So 3.0x gets you $4.45.
    and 4.0x gets you $6.

    Thanks ELI, what’s the symbol there?

  13. 13
    elijahwc Says:

    opps = MVO

  14. 14
    BirdsofpreyRcool Says:

    EXXI — thanks, z. even a move “just” to $4.45 is nice upside from here. And CFPS is going higher from FY2010…

  15. 15
    zman Says:

    Thanks Eli, will have a look there, I seem to recall owning that ticker long ago, back when I used to play with SJT on the gas side. Is that a monthly distributor?

  16. 16
    zman Says:

    Scratch 15, that was a different name, will have a look.

  17. 17
    zman Says:

    Um, weird open, hue of monitor seems off, odd to see little plus signs next to things though.

    Stocks caring more about the S&P and oter broad indexes than they are for sub $80 oil (which is still a very good price I might add when you are looking at comps to last year and CFPS this year).

    I have a promise from Nicky to come on and give her view of the oil chart today.

  18. 18
    zman Says:

    Stocks may be thinking that the API numbers set the bar pretty low for anything EIA can release.

  19. 19
    zman Says:

    NFX – favorable Street treatment over their half ops update yesterday.

  20. 20
    elijahwc Says:

    MMR Dahlman Rose & Co, LLC: Ultradeep Begins to Payoff, the Move Is Real, And More Upside Remains – Raising PT to $19/share
    [Contact: Institutional Trading – 212-920-2940] Davy Jones well hits what appears to be a multi-Tcf reservoir – production test pending but estimate value of $7.50/share. Nothing gets an E&P analyst more excited than the discussion of 20,000-acre structures draped with porous clean sands, filled from base to the top with what appears to be natural gas, and no faults or trapdoors to let the pesky hydrocarbons escape. But, with all the excitement, it’s still important to understand the remaining risks involved in this well that should be answered with a production test. Produceability and the exact composition of the hydrocarbon are still key questions. At the pressures and depths we’re dealing with, there are few certainties and few comparables. But, we acknowledge the risks and think that the Davy Jones discovery is likely on the order of 2.5 Tcf (gross) and we estimate it’s worth roughly $7.50/share (risked). A production test is expected in the 2H10, and Davy Jones value could rise significantly with derisking. One rig will continue to drill at Davy Jones in the immediate term, after casing the identified pay zones, and then drill through the Lower Wilcox and into the upper Tuscaloosa (possibly adding additional pay) before moving to drill an offset development location. ► But, the greater Ultradeep trend is what excites us even more – over 150,000 acres of leasehold on the shelf with at least 12-15 similarly sized prospects to Davy Jones remain ahead. MMR is bringing in a second rig to begin further exploration on the shelf, likely starting with the Blackbeard East prospect. Davy Jones has confirmed a few items on the Ultradeep – the sands are quality, they’re where MMR’s Ultradeep team thought they were, and they contain Hydrocarbons. The team at MMR has spent years mapping out appropriate structures on the Shelf that have appropriate size, traps and fit the geologic deposition model of the Ultradeep trend. Each prospect has similar scale to Davy Jones. We only estimate $2/share (heavily risked) in our NAV for the remaining Ultradeep potential. ► MMR could ramp to 3 and possibly 4 rigs in 2010 in the Ultradeep without stretching the balance sheet. MMR is expecting that in development mode, Ultradeep wells should cost approximately $100MM to drill and $50-100MM to complete. It also expects it can drill the wells in 160 days. Thus, we are looking at a program where MMR could drill two Ultradeep wells per year per rig at a cost of $90MM per rig per year (net to MMR). With our expected discretionary cash flow estimates of $290MM in 2010, and estimated current cash levels between $220-240MM, we think MMR could ramp up to a three rig drilling program in the Ultradeep by midyear (RDC’s Bob Palmer?) and potentially a fourth rig before year end, without stretching the balance sheet. We believe that the RDC’s Gorilla class jack-ups are the most appropriate rigs for the Ultradeep service in the Gulf. We think MMR could look to raise capital at some point in 2010 in an effort to accelerate the development of the Ultradeep, but likely after a production test. ► Hurricane Deep and Blueberry Hill results are imminent, though slightly less exciting than successes at Ultradeep. Amazingly, a multi-Tcf discovery throws next week earnings and year-end results onto the backburner with the impending results from two Deepshelf wells (Hurricane Deep S/T and the Blueberry Hill producer well). We don’t expect the earnings and cash flow to drive near term trading, but we have some concerns with respect to year-end reserves after seeing SGY’s reported negative revisions yesterday. On the more positive side, we expect that both Blueberry Hill and Hurricane Deep are nearing completion, and we could hear results from one of these wells when MMR reports on Jan 19th. ► Reiterating our BUY rating and raising up our price target to $19/share. We still find MMR’s valuation compelling. A Davy Jones production test, near term deep shelf drilling catalysts, and ongoing Ultradeep exploration provide an intriguing amount of upside. We are raising our price target to $19/ based on the near term catalysts, our sum-of-parts valuation of $20/share and a 6.0x EV/2010 EBITDAX multiple. However, investors need to be aware of convertible securities (both debt and stock) that are back in play after the equity surge. MMR has three convertible securities outstanding, including a 6.75% preferred stock, 8% preferred stock and a 5.25% Convertible Senior Notes 

  21. 21
    skimo Says:

    Z, anything jump out at you during the DVN cc yesterday? TIA

  22. 22
    Wyoming Says:

    I have seen several times in the past people requesting basic literature about the industry. Talking with a non-technical friend of mine, this was brought up:


  23. 23
    zman Says:

    re 21 – No, not really, it was more of a history lesson about the shale. Started at Mitchell and moved on from there.

  24. 24
    zman Says:

    Wyoming – a very good book, not 3 feet from my right shoulder.

  25. 25
    choices Says:

    Thanks, Z, for option cmt in post-common sense and judgement combined with any catalyst on the horizon.

  26. 26
    Garyinhou Says:

    love that book, must have, ups the ante in layman conversations with friends

  27. 27
    zman Says:

    Choices – yeah, I wasn’t happy with it when I was finished so my apologies there. I’ve been doing this for a long time and its definitely more art (for me at least) than science. A buy on EOG calls a lot different than say ROSE calls and still again HAL options. As you know, I stay close to the current price (within 20%) almost always. One of the traps of options is overstretching. Another is believing that more time really helps you in the event prices really turn down. If prices do that (and don’t bounce right back) all that means is that you have longer to wait for the $0 to hit the account. I left out in the post the part about market environment and dip buying but I think that’s more self explanatory.

  28. 28
    zman Says:

    OPEC on the tape saying it won’t raise production quotas unless oil hits $100. Yawn. Do something about your cheating or mark you quotas to current production.

  29. 29
    zman Says:

    Anyone see a broker comment on BEXP?

  30. 30
    BirdsofpreyRcool Says:

    Energy just couldn’t shake off the API report last night, I guess.

    Buy on down days…

  31. 31
    zman Says:

    BOP – also tracking with the S&P which is hinging on testimony on CNBC. Which is a complete waste of time to watch.

  32. 32
    BirdsofpreyRcool Says:

    Is it anti-patriotic to simultaneously love one’s country, but severely-dislike one’s government? ugh. “Confederacy of Fools” is the title that comes to mind here…

  33. 33
    bill Says:

    profit taking in the 3 names mmr,exxi,pxp

    pxp now lower than what it was pre announcement, lol

  34. 34
    zman Says:

    CLNE new high, waiting on a pull back there.

  35. 35
    Jerome Blank Says:

    EXXI 30 min channel broken to downside…next intraday minor support right here at $3.45, again at $3.35, and major major support at $3.15…

  36. 36
    Hoss Says:

    #31 Déjà vu


  37. 37
    zman Says:

    All trading moot before the oil numbers in 20 minutes.

    Re 32, 33, hear ya.

  38. 38
    Jerome Blank Says:

    Re: #35, subtract one “major”…I did’nt mean to go that far (insert simile face)

  39. 39
    zman Says:

    re 36 – awesome, thanks for the chuckle.

  40. 40
    BirdsofpreyRcool Says:

    Hoss #36… made my day!

  41. 41
    bill Says:

    36 , great one!

  42. 42
    BirdsofpreyRcool Says:

    EXXI back to where I swapped into more shares yesterday. Just ‘fessing up….

  43. 43
    bill Says:

    It always amazing to me to see these guys get grilled and sit there and take it.

  44. 44
    bill Says:

    Ok, how low does exxi go on the profit taking

    Could we test 3.00 ?

  45. 45
    VTZ Says:

    RE 43: If I got paid what they do and was a major contributor the losses the world economy has sustained I think the least I could do is sit there and answer some questions.

  46. 46
    BirdsofpreyRcool Says:

    EXXI — I hope it does drop to $3.00. I’d swap the last of my KOG into EXXI at that price.

    Last year’s winners are rarely next year’s winners. Find a dog in the process of shedding his fleas… that is how next year’s winners are found.

  47. 47
    VTZ Says:

    RE 43: The day that I see a banker provide their salaries worth of productive benefits to society will be the day that they can stop answering questions.

  48. 48
    VTZ Says:

    One last one RE 43: In no other industry is it acceptable to pay out such large percentages of revenue just because those dollars go through your hands.

  49. 49
    BirdsofpreyRcool Says:

    VTZ — both sides should be in the docket, being grilled by the American People. The ones doing the “outraged” act are the ones who are the MOST guilty here. They set the rules (Congress), the other guys (bankers) just played the game. You could cut the hypocrasy with a knife, it’s so thick.

  50. 50
    VTZ Says:

    The irony is this is all happening the same day that Wall Street is selling down the market because China is taking proactive steps to avoid a situation like the one we just had.

  51. 51
    Jerome Blank Says:

    Re: #46…BOP you really seem to have had a mojor change of opinion about KOG…it’s a slow trade right now, but, so far it is still hanging in there technically…any further thoughts?

  52. 52
    zman Says:

    Crude off $1.60 at 79.20, oil numbers in 2 minutes.

  53. 53
    VTZ Says:

    RE 49: Just because I’m not stopping you from doing something, doesn’t mean you should go do it. These people knew what they were selling.

    The difference between banking as a “profession” and doctors, for example is that doctors are self-regulating and that is one of the main aspects of a profession. Ethics are something that Wall St has none of.

  54. 54
    VTZ Says:

    “Professions” also act on behalf of society as a whole.

  55. 55
    zman Says:

    EIA Oil Inventory Review

    Crude off $1.50 pre report

    Crude up 3.7 mm barrels – imports surged as per API
    Gasoline up 3.8 mm
    Distillates up 1.4 m

    Gasoline 8.74 mm bpd, flat with last week
    Distillates: 3.614 mm bpd, up from last week slightly, still low for this time of year.

    Bearish numbers, not as bad as API, but again, directionally in line with API

    Crude off $2.15

  56. 56
    VTZ Says:

    And yes, I agree the Fed and congress are also culpable, but it doesn’t let the bankers off the hook to say, “They had interest rates too low for too long”.

  57. 57
    zman Says:

    Oil not really getting killed on the numbers, after all, API had dulled the news some. Stocs near lows but mostly not a lot worse.

    Oil could even recover a bit on the news that stocks at Cushing fell back from recent highs by a large 1.2 mm barrels to 34.5 mm barrels.

    There also those that will give the inventory builds a bit of a shoulder shrug, saying they are generated by end of year tax considerations being reversed in the new year, which is common. The YoY surplus for distillates still contracts given the small build vs a large one last year.

  58. 58
    zman Says:

    RMD – which presentation was the CHK 2013/2014 comment in?

  59. 59
    BirdsofpreyRcool Says:

    Jerome — #51 KOG still has a lot of upside. And the thing is, it’s LOW RISK upside, at this point. No debt, own the acreage HBP, have the cash, have the rig/drilling schedule. Upside from improving completion techniques, TFS, infill drilling, oil prices. It’s a great place to park and not worry. My dad owns a bunch.

    I manage some more active accounts… so find a racetrack I like (energy), but am willing to switch horses in the middle of the race. When you watch mrtks everyday, you can afford to manage more volatile positions (with the view that they have more upside). That is what EXXI is here… a lot riskier than KOG, but has more upside.

    I don’t have a large staff to support my positions, so tend to pick just a few and watch then closely (instead of owing a stable-full). Just don’t have the bandwidth… plus, when you ride fast horses, you need to keep on top of them.

    So, KOG is still a great investment here… but moving to more actively-manage a full position in EXXI. “Focused investing.” It’s what we do.

  60. 60
    zman Says:

    S&P raised NFX target by $3 to $58, maintains Buy rating.

  61. 61
    VTZ Says:

    BOP – You can call me populist, but I see myself as nothing more than an impartial realist.

  62. 62
    Jerome Blank Says:

    RE: #59, I understand…thanks

  63. 63
    bill Says:

    global cooling????

    hold cap and trade..we need to pump co2 in air to warm things up


  64. 64
    Jerome Blank Says:

    RE: #59, #62…EXXI, BOP, with that in mind, EXXI is holding the intraday support zone at $3.35 to $3.45…resistance to watch now is $3.65, things look brighter intraday if we can get back into the channel above $3.65…

  65. 65
    bill Says:

    46, i agree, id like to back up the truck

    looks like the 3 names are bouncing off the lows post api number

  66. 66
    BirdsofpreyRcool Says:

    VTZ — i don’t think you’re a populist (unless you want to be). But, I don’t think you are in touch with all the details on how financial markets and regulatory implications work (and i KNOW i don’t have all the facts, but I have been living/working in these mrkts for a long time). That’s ok. I don’t know how oil sands work either… other than a 10,000 ft view. Doesn’t keep me from expressing opinions on oil sands, tho. But I do defer to your overarching expertise there.

    On a side note — Doctors are more “ethical” because when they screw up, the results are immediate. There are a lot of “ethical” bankers and “unethical” doctors out there. The major difference is that it takes longer for govt/banking screw-ups to affect our health.

  67. 67
    zman Says:

    BOP and Bill – I don’t know the level it drops to but if its that low ($3) I’m likely to add more, just waiting for it and commodities to find a level.

  68. 68
    BirdsofpreyRcool Says:

    Jerome — #64 thanks. But, pls don’t ignore little KOG either. There will be times when it makes sense to swap back onto that horse. Plus, my Dad thanks you for watching KOG in here too!

  69. 69
    elijahwc Says:

    #46: MHR = lots of fleas. I’m getting itchy.

  70. 70
    BirdsofpreyRcool Says:

    VTZ — Not to get too personal, but I value your opinions. You are a very informed person. Your thoughts keep me grounded. Thank you.

  71. 71
    zman Says:

    Eli – MHR? Magnum Hunter? Re 46?

  72. 72
    BirdsofpreyRcool Says:

    elijah — MHR…are the fleas jumping ship? Or, pulling up a chair and and getting more comfortable there.

  73. 73
    zman Says:

    Group greening a tad. Oil down $1.80 now. S&P just short of flat.

  74. 74
    zman Says:

    IOC – Reef – any new thoughts there? Stock’s off about $10 from that high, JD or JB, any thoughts on the chart there?

  75. 75
    elijahwc Says:

    Re MHR: you know how these things work once the Inv Bankers pull up their chairs hold hands and chant roll up. $5.00 by the end of the year with happy fleas and shareholders.

  76. 76
    zman Says:

    NFx back up through $50. Valuation is cheap, story has a lot of catalysts on the way. However, it is also a name that has historically been cheap and the Street has ignored big news at times when it has come. I own the common for the simple reason that I’ve had difficulty with timing options here profitably in the past. I own Feb options because I think the current M&A environment and some new ventures on their part will make news here a little more compelling when it arrives.

  77. 77
    zman Says:

    ELI – then why not AXAS, a perennial mutt? They just took the balance sheet through the ringer.

  78. 78
    zman Says:

    NG down 3 cents. Big numbers tomorrow. A big miss and gas will be $5. A bigger number and I’d bet we are up 20 cents but capped just short of $6 until at least Feb.

  79. 79
    zman Says:

    Eli – question for you, my tax accountant is to busy to breath at the moment. Regarding MVO, that’s ok in a 401K or IRA, right? No restriction on the size of the divies?

  80. 80
    bill Says:

    z, chk hedges

    it came up on the 1/4/10 call


    Sounded like they juiced up 2011 hedges by selling calls in out years

    page 28 shows chk position for 2010 43 % @7.49

    given that these were written in the last 3 months there is no way they couldnt have hedged at that level without something juicing it up.

    End result is they helped 2010 results while capping out years

    Someone asked aubrey the question and he deffered it to his cfo

  81. 81
    elijahwc Says:

    Don’t know them Z. On MHR I was around the last time and made multiples on my investment, so I’m comfortable with both the script and the players. Not suggesting it for anyone with the exception of funny money to be placed on the pass line. You are correct that the balance sheet will be put through the ringer. It will still be 5 by year end.

  82. 82
    bill Says:

    78, i m positioned for the latter.

    Aside from the absolute number, i think the yoy number will be even as early as next week report for this week

  83. 83
    bill Says:

    80 meant to say juice up 2010 number not 2011

  84. 84
    Gtinvest Says:

    z when you have a chance please comment:
    record withdrawal was week ending jan 25,2008
    274 bcf on 272 gas weighted degree days.
    New England 297, last week 289 -8 Mid.Altlantic 293 ” 290 -3
    E. N Central 365 ” 349 -16
    W. N Central 381 ” 431 +50
    S.Atlantic 226 ” 258 +32
    E.S. Central 175 ” 320 +145
    W.S. Central 178 ” 228 +50
    Mountain 263 ” 247 -16
    Pacific 157 ” 87 -70
    totals 272 269
    The cumulative diff is 164 more degree days this time and the diff woudl be larger except for 4 states, Cal, wa,or. and idaho. The comparisons are not one to one with the Eia storage data because I cannot find a one to one relationship between cpc regions to eia regions. Mabye you have a better idea. I simply look at the 2 data sets and it was colder last week overall in the areas that use alot of gas for heat and for electricity except those for states the rest of the west about the same. sorry for format

  85. 85
    reefguy Says:

    ioc- Profit taking I think

  86. 86
    zman Says:

    AXAS – Is Abraxas, San Antonio based, been around forever, now talking up Bakken and every hot play name you can think of, just restructured. I pitched a deal to them in the 90s and as such, I keep them and CPE on my screen of walking wounded.

    Bill – Thanks. RMD was talking about them selling calls in 2013 and 2014. I was wondering if you saw a schedule that goes out that far to see how much gas they actually hedged there. I cannot find such a long term filing but I would be it is a very small piece of gas. RMD said they said they did this because they think gas prices will be below the hedge price (around $8 at that point). I’d like to hear that in context. I have noticed a change in Aubrey’s gas price comments, I think he doesn’t want to talk them up before the NGA is passed. I think he’d rather say gas is abundant and cheap forever, so that cars will get put on it en masse.

  87. 87
    bill Says:

    ng up now

  88. 88
    BirdsofpreyRcool Says:

    Speaking of keeping people (professionals) “grounded”…


  89. 89
    elijahwc Says:

    Here is the question for interns favorite accountant: Is it correct that in a “Grantor Trust” income in excess of $1000 annualy will not be considered to be unrelated taxable business income and therefore will not cause either a filing requirement or a tax event in a qualified plan? Now, I can’t give tax advice, nor point you to a specific letter ruling, but that is in fact my understanding.

  90. 90
    bill Says:

    >selling calls in 2013 and 2014. I was wondering if you saw a schedule that goes out that far to see how

    the hedge schedule doesnt show the short calls

    As i understand it, they did a 3 way transaction comprised of


    1. a floor
    2. a cap
    3. short calls in 2013 and 2014

    and wrapped it all up and called it a 2010 hedge
    im going to relisten to the call

  91. 91
    zman Says:

    GT – sorry, not sure exactly what you are asking me. Apologies but can you rephrase. I don’t have a better way of looking at it than the regions CPC provides but I do use GW degree days in my model. I would also point out that when it’s very, very cold like that (also when its way warm in the winter), the results can be quite varied.

  92. 92
    bill Says:

    88 lol the chimp would have beaten me too

  93. 93
    Jerome Blank Says:

    #74, IOC has an interesting P&F chart…the P&F chart is forming a consolidation triangle above its projectied price objective, looking at the traditional chart, a nice bearish “hanging man” printed on 1/11 which also engulfed the little “hangman” the day before…with a subsequent follow thru break below the 20 day SMA today…it’s time to review stop points, consider taking profits if IOC breaks a new P&F sell signal on a print of $72, this sell signal would also break the P&F triangle to the downside…

  94. 94
    zman Says:

    Eli – so the answer is no, it’s ok, you can stick it in a tax free account? Understanding in fact that you are not an accountant.

  95. 95
    jiveyjr Says:

    EOG seems to be headed higher…look at the wash and rinse on 30 min chart

  96. 96
    zman Says:

    Re 92 – pound for pound chimp muscles are 8x the density to that of a human, so its not surprising the chimp would beat you.

    Reef and Jerome – re IOC. Thanks. Reef, my feeling as well that it’s not the end of the game there as we know it and more that it’s a little pt. JB, so if it holds 72 …?

  97. 97
    BirdsofpreyRcool Says:

    MMR and PXP green…. and on the outside, making a break for it, coming into the turn… could EXXI be next??

  98. 98
    bill Says:

    reading the transcript>

    Bob Morris – Citigroup – Analyst
    Okay, and just one last question real quick here. I did not see anything in the 8-K — perhaps I missed it — but I thought you had
    mentioned before you were selling $8 and $9 call options in 2012 — 2013 on natural gas. Are those positions in place, or if so
    what are the proceeds?

    Obviously when we have been hedging in the last few weeks, the strip for 2010 has been I think probably as low as $5.40 an
    Mcf and probably as high as $5.80, $5.90 an Mcf. As we have said in the past and as we have seen other companies hedge those
    levels or even lower, we didn’t think that was a way to create value.
    One of the things that I think people really fail to appreciate about our Company and others in the business is, one of our greatest
    assets is volatility. And we have over the years always looked for ways to monetize volatility and one of the ways that we have
    done that here is to structure our 2010 swaps — they are straight swaps — but at prices of anywhere from, say, $7.25 and Mcf to
    $8.00 an Mcf, in return for which we will sell equal volumes of out-year calls. 2013, ’14 and ’15, tend to be the kind of sweet spot
    of where we have sold some calls. So those will decay in value over time, and also if we happen to get called away at $7.50 or
    $8.00 in 2014, that is a price above the strip today and a price that I think most analysts and investors believe gas will be at at
    that same time frame.
    So we have been able to increase our 2010 swap levels by anywhere from $1.50 an Mcf to $2.00 by being willing to sell out-year
    call volatility. And we think that is a pretty good program and I want to make sure everyone is aware that this is not a kick-out.
    These are straight swaps that no matter what price they will deliver the swap price that we have entered into, which has, again,
    during the past few weeks been anywhere between $7.25 and about $8.00 an Mcf.

    Lewis Robb – Barrow Hanley – Analyst
    You know, Bob Morris asked my question really about the hedges and the way you were able to increase what your — it looks
    like your realized price for the hedges are going to be above the current strip. Maybe I’m not as sophisticated as Bob because
    I really didn’t understand your answer. But are you taking the premium that you get for selling the calls in the out years and
    adding that, or are you actually able to get a higher swap price as a result of agreeing to sell the calls in the out years?

    Aubrey McClendon – Chesapeake Energy Corporation – Chairman & CEO
    The answer is yes, we basically take that call premium and roll it in. Marc Rowland is not here; he is out of town, but I haven’t
    given him the opportunity to jump in here. Marc, this may be your cue if you would like to spend a little more time with Lewis
    answering that question.

    It’s a fairly straightforward transaction and I think Aubrey did discuss it pretty much in detail. It’s really that we grant someone
    the option to buy gas from us in the out years at a price that is acceptable to us if we were there and selling it. As Aubrey
    mentioned, we have got our cost in line very predictably able to deliver these gas shale molecules for well under $1.50, you roll
    everything else in. And somewhere between $7.50 and $8 it looks like a price that would be well within the range that we would
    expect gas to be between 11 and 12, 13 or so. So we take that option that we have sold in effect in a combined transaction with
    a current swap and it increases the value that the counterparty is willing to pay us. And as Aubrey mentioned, this is a
    straightforward swap. Those $8.20 numbers, or roughly that that we’re talking about, per Mcf equivalent are going to be delivered
    to us during 2010 for those molecules that we have pitched. And really, that’s it. That’s as — there’s nothing more to it. It’s not
    exotic in any way and it’s simply a combination of that volatility and the optionality that we have with our asset base combined
    with our predictable nature of being able to deliver those molecules at low cost over a long period of time that gives us the
    ability to do this. And we have done it a lot in the past. We have done things that have been called straight calls, extendables,
    etc., and those have delivered a lot of value for our investors because of the decay in time value that Aubrey mentioned.
    Frequently when we have gotten to that point in time, the calls either no longer exist because we’ve traded out of them or they
    have been extended into the future years, again taking advantage of that big asset base and the optionality embedded in it.
    Aubrey McClendon – Chesapeake Energy Corporation – Chairman & CEO
    Lewis, I would like to just add one other thought, which is we also didn’t go out and sell a $5, 2012 or ’13 or ’14 or ’15 call. We
    sold calls that actually if we get called away at $7.50 or $8 in 2013, I don’t think anybody is going to have a big problem with
    that given we make a lot of money in this business at $7.50 or $8.

  99. 99
    zman Says:

    Jivey – happy with my add of EOG yesterday in the Febs, will wait on the gas number to add more, either higher or lower as that doesn’t affect the story, just the stock.

    MMR – going back towards $14.

    NG up 8 cents of a sudden, CL still down $1.70.

  100. 100
    Jerome Blank Says:

    RE: #95, jivey, yes, EOG bounced off Zman’s dec consolidatiom zone at $94…

  101. 101
    bill Says:

    in summary, they take to the pl the higher ng price in 2010 for limiting upside in 2013

    seems to me it should be marked to market

  102. 102
    zman Says:

    Thanks Bill, that is exactly what I was looking for in #98. Saves me the trouble of digging for it while I type my other various inanities. I don’t get a crushing sense out of that that they are overtly bearish on long term gas prices, does anyone? Do I need to read it again?

  103. 103
    bill Says:

    97, lol

  104. 104
    bill Says:

    and here comes rosebud on the outside..ie rose

  105. 105
    Jerome Blank Says:

    #96, IOC, so if we get a nice intraday 30 min reversal candle between $71.01 and $72, ie: support is holding…buy, stop loss at $71…small risk trade at support…

  106. 106
    BirdsofpreyRcool Says:

    Bluehorseshoe luvs rosebud??

    Sounds like the Clash of the Hollywood Scripts.

  107. 107
    zman Says:

    Re ROSE – still in the “news any day” category. The longer they wait, the more likely they could talk about 2 or even 3 wells. Weather up there at the top edge of Montana has not been great. I do like/trust management there which is not to say they have good wells in the play, but I reference NFX going in in a big way as a little more evidence of credibility for the play.

    I did not grab the RSEBD’s yet, just the ROSE.

  108. 108
    zman Says:


    From my September intro piece on ROSE:

    * CFPS estimate of $3.55 for 3.2x. This is a fairly low number but since the company is not growing at present its probably only a little bit of a discount.”

    CFPS now $3.76 for a multiple of 5.6x. I’d put that in the camp of more fairly valued. The number could go a little over $4 this year with modest success in the Bakken and I would imagine the multiple could get marked close 7.0x which would be $28 on the stock.

  109. 109
    Jerome Blank Says:

    KOG…added a little bit of add’l
    shares of KOG @2.5499… I just love the way this stock is flagging at the topside trendline on too quiet vol…and what is is not doing… it’s not going down…

  110. 110
    zman Says:

    Jerome – any thoughts MMR?

  111. 111
    zman Says:

    Just looking further into the EIA numbers. Got the big, API predicted surge in imports, those are usually one or two in a row and then back to trend.

    But also noting refining utilization got off the floor, from low of 79.9 to 81.3%, so this added 300,000 bopd of oil demand vs the prior week and helped cause those big product builds.

  112. 112
    BirdsofpreyRcool Says:

    KOG presents at OGIS on Wed, Jan 20th. I like that conference. Can be accessed via http://www.ipaa.org

  113. 113
    Jerome Blank Says:

    Re: $110…I’m not in this stock, but I would like to be…I just can’t seem to get comfortable with buying “this much” up, especially after a 50% pop…I’m looking for the reversal back into o’s on a print of $13, if it gets there, this will make it much easier for me to set up a stop strategy…or if MMR can get above $14.25 on the 30 min intraday, I can set someting up with that…

  114. 114
    zman Says:

    Re 111. Make that 200,000 bopd week to week increase in oil demanded by refineries.

    Thanks JB.

  115. 115
    zman Says:

    CXPO bouncing off $4 on tiny volume, up 6%, best guess is that official Street coverage starts there next Tuesday. I’ll be finished with my homework there by Friday morning.

  116. 116
    zman Says:

    EOG …. Morgan who?

  117. 117
    bill Says:

    rose good call # 108

    up 6 & from lod

    something is going on

  118. 118
    zman Says:

    Bill I tend to agree. Am looking at some options there now.

  119. 119
    zman Says:


    ROSE – Added (15) ROSE February $22.50 calls (RSEBX) for $0.70 with the stock at $21.20. I continue to hold the common as well and think that they could have news out anytime between now and their quarterly results on their Montana Bakken wells.

  120. 120
    zman Says:

    VNR seeing another 5% off day.

  121. 121
    zman Says:

    Crude down 90 cents

    NG up 12 cents

  122. 122
    kiaora Says:

    Fron Phil: Oil Top! A Long Time Forming
    By Phil Flynn…..Oil could fall as low as the $40 handle before we see the prices rise. As the stimulus comes off and demand growth stimulus wears off the market will have to work off a glut of supply.

  123. 123
    zman Says:

    Kiaora – Wow. I just … wow. You can tell which one of us lives by paying commissions and which one lives by being paid commissions.

  124. 124
    elijahwc Says:

    Z sorry so long to get back. No tax event as they do not issue a K-1. This is still not tax advice.

  125. 125
    zman Says:

    Hear ya ELI, muchos gracias! 😉

  126. 126
    choices Says:

    Not sure if this was noted elsewhere but it is good news (for a change) for the operators in this area.


  127. 127
    zman Says:

    Re 126 – nope, not discussed, good catch and good news.

  128. 128
    RMD Says:

    Bill, thanks for answering my question on CHK; I have been on other (non energy -horrors) conf. calls.

  129. 129
    zman Says:

    Way off topic.

    Got little ones around. WII Sports 2 is a lot of fun, just don’t let em whack each other with the remotes when sword fighting.

  130. 130
    md Says:

    If imports are as you say there are, it’s unlikely we’re above 220.
    If same as LW we’d be closer to 235-240.
    Are you sitting this one out.

  131. 131
    zman Says:

    md – I’m “riding” it out with Febs. 240 would still be a great number, if a touch disappointing to the Street.

  132. 132
    zman Says:

    md – Also, I have not yet seen whether some of the pipeline monitoring guys have put out numbers yet but I think they have been more accurate than the HDD modelers of late.

  133. 133
    Dman Says:

    Z – do you recall what caused the gap up in EOG,HK,CHK & others on Dec 14?

  134. 134
    bill Says:

    132 one pipeline guy is showing -277

  135. 135
    bill Says:

    133 no remind me

  136. 136
    RMD Says:

    133 XOM?XTO merger

  137. 137
    zman Says:

    Re 133/136 – Yes, Exxon for XTO.

  138. 138
    zman Says:

    Re 134 – wow, thanks.

  139. 139
    Dman Says:

    Thanks Z, RMD.

    I shoulda known, it’s the same gap that I’ve worried about before.

    GMXR looks to be winning the race to fill it.

    Z – whilst your swap from GMXR to EXXI makes perfect sense, just wondering what your current thought are on GMXR.

  140. 140
    BirdsofpreyRcool Says:

    by the way, “MadWill” = Madison Williams. This is the old SMH Energy Group. They did a management buyout at the end of last year and renamed themselves.

  141. 141
    Dman Says:

    #139 correction: make that “thoughts”. You’re allowed to have more than one.

  142. 142
    zman Says:

    Dman – I have not been overly impressed with their drilling results. I think they have a good position in the H.S. and will move higher if natural gas drifts higher. Just felt that it was a little bit of a redundant position to my HK and CHK common positions. Plus I had a nice gain there so I cashed it for something I thought had more near and long term upside.

  143. 143
    zman Says:

    Will be interesting to see if oil can shrug off the inventories and close north of $80.

  144. 144
    BirdsofpreyRcool Says:

    Just FYI, “MadWill” is Madison Williams. The old SMG Energy Group did a management buyout at the end of last year and changed their name.

  145. 145
    BirdsofpreyRcool Says:

    make that “SMH Energy Group”

  146. 146
    zman Says:

    If ever you comment and it doesn’t appear here, shoot us an email (zmanalpha@gmail.com) as that means an overzealous spam filter nabbed it.

  147. 147
    Dman Says:

    Thanks Z – one more Q on GMXR: long-term take out potential?

  148. 148
    Dman Says:

    BOP, #144. I did mean to ask, actually. I was hoping it was another mad hedgie … like there aren’t enough of those already.

  149. 149
    kiaora Says:

    What’s with IOC ? New Guinea sink?

  150. 150
    Dman Says:

    continuing #148. I mean, Cramer used to set the standard for the mad hedgie, but he’s got nothing on this guy:


    … who as well as being funny, has also been almost absurdly right.

    I cancelled my Realmoney subscription, because I realized I didn’t need it anymore. There’s plenty of crazy out there for free.

  151. 151
    RobBanks Says:

    Z – I own MVO and am very familiar with it. It is a nightmare in a taxable account but not so in tax free. BTW, they will sell a fixed amount of oil, then go poof (in 2026). Currently about 70% hedged at $66, with a differential that is about $7.80. All hedges expire permanently at the end of this year.

  152. 152
    zman Says:

    Dman – that’s a tough one. The would tell you a number well over $100 due to potential reserves. I have no idea what they’d take. I’d bet the Street would pay them between $1.75 and $2.50 / Mcfe for the proved. So lets assume 2009 reserves build slightly upon 2008 YE levels and move to 500 Bcfe (just to use round numbers). So the valuation range is between $24 and $40 after backing their debt out.

    Right now, the Street is “valuing” their reserves at a whopping $1.11 / Mcfe. I don’t see anyone willing to pay double for the stock so if it went tomorrow, I’d think they’d be offered a 40% premium and I’d bet they laugh at it.

  153. 153
    Jerome Blank Says:

    Re: IOC post #93 correction, #105, …the IOC P&F sell signal prints at $71 not $72…

  154. 154
    andy Says:

    XEC the star today

  155. 155
    zman Says:

    Rob – thanks much, have promised to take a look, not really my sort of thing but am always looking for a little yield.

    Kia – a little buy the rumor, sell the news profit taking. Thinking about taking some Febs or Marchs back at the high as they do have more news out there and this name is good for reflex rally on a moment’s notice.

  156. 156
    andy Says:

    z – bop – if i were to go to that IPAA conf next week, how would i go about getting in??

  157. 157
    zman Says:

    ROSE – big volume yesterday, on track for same today, making new HOD.

  158. 158
    zman Says:

    Andy – get a hotel room at the regular rate as the block discount as expired, tell them you are a money manager and they will wave the registration fee. I’m likely to go to the Fall one again in San Fran.

  159. 159
    Jerome Blank Says:

    RE: #153, IOC…if you take a look at the 30 min chart you can see the mkt is paying attention to the $71 level, the stock reversed at $71.05 on 1/11 to print a nice “hammer” off the low…the mkt was defending the buy signal…

  160. 160
    zman Says:

    JB – by the way, EOG went right down to where you said it would before this bounce. Nice job man.

  161. 161
    zman Says:

    Adding to 158, this conference is much smaller than the Fall one, lot smaller names and fewer of them.

  162. 162
    zman Says:

    Product placement watch: For you iphone users, got to admit that the CNBC RT ap is very good.

  163. 163
    BirdsofpreyRcool Says:

    andy — you still own KOG?…

  164. 164
    BirdsofpreyRcool Says:

    Nice Beige Book… Fed says 10 of 12 District Banks reported economy improved.

  165. 165
    zman Says:

    BOP – thanks for the info, telling me that the NG number for tomorrow has been bumped up to 260 Bcf.

    NG now up 16 cents.

  166. 166
    Denise Says:

    Thought this was interesting-
    comment made by Cramer today “I think that the natural gas bill could be on the front burner after health care. There is talk that the president may talk about it in the State of the Union address, now that we are the biggest producer of natural gas in the world, surpassing Russia!

  167. 167
    zman Says:

    Bill Gross saying the 2 mm job growth figure is probably accurate. I’m somewhat shocked.

  168. 168
    zman Says:

    Happy New Year Denise!

    TBP has re-energized that campaign. It makes a lot of sense if you can balance getting the U.S. off foreign oil vs the whole benzene, groundwater not in my backyard thing.

    Saw Cramer talking about CLNE again yesterday as well.

  169. 169
    andy Says:

    bop – yes , switched about 20% to EXXI, mulling (nice z word) whether to do more.

  170. 170
    BirdsofpreyRcool Says:

    andy — didn’t mean to put you on the spot… but, as a KOG shareholder, perhaps we can wrangle an invitation for you to IPAA.

  171. 171
    zman Says:

    Just call them on the phone, they like people coming to the conference.

  172. 172
    andy Says:

    bop – cool , i still have a lot of KOG

  173. 173
    BirdsofpreyRcool Says:

    see if this registration link works… if they give you any guff, we’ll get KOG to get you in!


  174. 174
    Denise Says:

    Z-The only problem might be Cramer is probably in the politically hated camp along with T Boone by Washington-
    Better liked politically connected champions needed.

  175. 175
    BirdsofpreyRcool Says:

    all the usual suspects will be there…


  176. 176
    zman Says:

    Denise – hear ya on that. Sad really as it makes a lot of sense. I don’t know where these guys think all the electricity will come from to power the plug-ins. Wind and solar? Not a chance if you want to dent gasoline. At least not soon.

  177. 177
    guru Says:


    What are your thoughts on EOG here? Are you looking to punt Jan $100 Calls? Today MS also downgraded EOG to neutral from Overweight on the premise that their strategy in shifting to liquids seems risky.

  178. 178
    BirdsofpreyRcool Says:

    once again, kudos to WEST, for highlighting XEC the other day!

  179. 179
    zman Says:

    Guru – I added Feb calls yesterday on that MS downgrade. I read his downgrade comments yesterday and found them to lack merit. I can pull those comments from yesterday’s comment section if you’d like. I plan to punt the Jan calls for a loss tomorrow after the gas numbers.

  180. 180
    bill Says:

    did the madwill comment on gom valuation drop off? I dont see it anymore.

    Anyways, i think i saw a valuation of 3 dollar an mcf for proved reserves. I think thats a fair value. Sd just paid 3 per mcf for the fst assets.

    MCF Contango is currently priced at 2 per mcf for proved reserves.

    When the earnings and cash flow comes in , i think e=we kamke a move to 75 and that 3 dollar target.

    the deep july 30 and 35 calls are cheap and I took aposition in those today.

    caveats> Im often wrong, lol, and ng supply may not drop off and ng prices drop from here

    TPH says eia number wrong and says they are still on the side of tightening supply numbers.

  181. 181
    guru Says:

    Thanks Z. I also followed along with you to Feb $100 calls. I have access to MS research but I wanted to know what your read is on EOG’s strategy and valuation since MS is the second major firm (besides JPM) to downgrade EOG. Just a nagging question whether there was something that was being overlooked here at Z.

  182. 182
    andy Says:

    bop – can get in that way for $500. can u get me in thru KOG for free?? thks

  183. 183
    zman Says:

    Guru – re the nagging question. I don’t think so. Morgan was worried that with 2010 being a year of transitioning to a more liquids rich production profile, that management would not be able to pull it off. And if they do pull it off, that the recent run in the stock had already discounted this feat. Two things 1) I used to talk with Ed Segner there and Baldin and Papa more rarely. Ed’s gone I think now but their culture remains the same, under promise and deliver on the button or a little better. They were a ones and two’s company for years before transitioning to a repeatable success story in the last couple of years. The repeatable success method (big shales, other unconventional plays) gives them greater visibility on growth. So I’m not worried about the first concern.

    2) valuation. I noted that his EBITDA was 6% light to the Streets, so its probably not as rich as he thinks it is at present, and given that the MS price deck is higher than the Street, I have to wonder if he has costs or maybe his oil price differential a bit out of whack. Even at his multiple, it is not historically in nosebleed territory for it and his comment about it being rich to the group can be made any day of the year. Better balance sheet, strong plays, long reserve life will beget a better multiple.

    Re JPM downing it, don’t get me started on that guy.

  184. 184
    zman Says:

    EIA released OPEC surplus capacity estimates with today’s oil report for the first time. That data may inspire some to call for much lower oil prices because you can overlay the oil price with the spare capacity chart, look left along the chart, and see that the last time we had this much space capacity out of the Cartel was 2001, oil was $30. I will have a look at their numbers for the post tomorrow but it looks like oil spare capacity overstated by 10 or 20%. What’s different vs 2001 is the ramp in Asian demand and the slump in U.S. demand. My sense is that drawing the conclusion that oil roundtrips to the March lows based on excess capacity will be a mistake. But, as an impartial presenter of information, I will include the data in tomorrow’s post along with this comment and anything else I come up with over night on the subject.

  185. 185
    Dman Says:

    Marc Faber’s advice for 2010: go on a drinking holiday. The fun starts at about 8:20 in the video.

  186. 186
    guru Says:

    Ref 183:

    Excellent insight and thanks.

    I agree that the JPM analyst has always been biased on the bearish side and always grudgingly raises estimates after the fact (useless for his clients, if he has any!!!).

    BTW, MS is very bullish on NE with a $60 target when the stock is trading in mid $40s. This offshore driller also has an extremely low PE of 7. Is this in the same league as ATW as an investment (not options)?

  187. 187
    zman Says:

    Traders / analysts calling the demand levels “snow inhibited”. I think I gave a nod to last week’s weak numbers based on blizzards.

    HO demand is not linear like NG demand, which is more akin to a light switch. I would suspect that many home fuel tanks in the northeast are running low and will be replenished in the next two weeks after this weekend’s storm and before another round of really cold weather sets in in February.

  188. 188
    BirdsofpreyRcool Says:

    andy — let me see if we can do something about that…

  189. 189
    guru Says:

    Ref 183:

    NE: Noble Energy is an offshore driller mostly near Indonesian waters and Gulf coast.

  190. 190
    zman Says:

    Guru – funny you should ask. I have a hat bet against a coffee mug with one of the guys here that ATW outperforms NE from I think last Friday, through the close of January. I have to admit, I don’t know NE that well, but I have been told repeatedly that it is a high quality driller. ATW is a small outfit by comparison and set for much, much, much bigger EPS expansion in step function fashion between now and 2012 as two rigs now under construction get to work.

    2009 3.89
    2010 4.15
    2011 4.83
    2012 6.13

    2009 5.74
    2010 6.31
    2011 5.54
    2012 5.46

    And so far my friend is winning.

  191. 191
    zman Says:

    ROSE $21.50. Almost gotta be impact of NFX entering “ROSE’s” play. Unless they’ve gotten leaky on news.

  192. 192
    andy Says:

    z – while we’re on drillers, won’t RDC get a big boost from all the future davy jones activity?

  193. 193
    bill Says:

    z’s buddy


  194. 194
    zman Says:

    Re RDC – yes it will. From MMR and co. but also from some others who may try to do the same.

    You’re probably also going to see some costly high pressure subsea trees ordered and some pressure control devices. Maybe CAM a play. Will be awhile before you see those orders hit though.

  195. 195
    jiveyjr Says:

    my two cents on EOG is that what MS and JPM wrote is just opinion…but EOG came firing out of the top of the support zone Z and JB highlighted….didn’t test the lower part toward 92…that tells me all I need to know about those two opinions…

  196. 196
    zman Says:

    Andy – just sent you an email about IPAA

  197. 197
    zman Says:

    Thanks Jivey, appreciate the nod.

  198. 198
    zman Says:

    … I could still be wrong of course but the MS opinion piece seemed to be a take profits because you’ve got them piece and he had upgraded it lower no doubt.

  199. 199
    zman Says:

    NFX refused to break down as well, up 3%, another day like today and it takes out this cycle’s high.

  200. 200
    tomdavis12 Says:

    Z: Just wanted to let you know , I did not prompt guru to ask his question about NE. I have a 190 page report from UBS re the drillers dated mid Dec ’09. Do you have an interest?

  201. 201
    tomdavis12 Says:

    189 There is a difference between Noble Corp NE and Noble Energy NBL.

  202. 202
    jat Says:

    re 186, Ole is always bullish on everything so his price targets are less than useful for anyone trying to think of price targets with a 6-12 month time horizon.

  203. 203
    zman Says:

    Wizard, let me know when you get in.

  204. 204
    elijahwc Says:

    Sam Zell on TV now. Worth a watch


    Double secret covert under the radar screen observation: MHR up another 7% today. Trying not to be promotional on the journey to $5. Got to stay out of the Catnip.

  205. 205
    Jerome Blank Says:

    Test post of KOG chart on Stockcharts public list…I’m still working with it…but let me know what you think…I enabled the feedback button at the top of the chart…

  206. 206
    zman Says:

    JB, cool, got a link to that?

  207. 207
    zman Says:

    Andy – A few others have voiced the same issue, techie wife tells me its getting more common for email to reject messages from freemail systems. I will migrating to my domain name’s email very soon which should help. I sent your email address to BOP.

  208. 208
    Jerome Blank Says:

    I think there is a way to post a link, I’ll try to sort it out…

  209. 209
    choices Says:

    Jerome-just checked and voted-I did not get a chance a couple of days ago to support your idea on Stockcharts but thanks for your tech readouts-they are valuable additions to this site. The Stockcharts idea could take some time so anything you provide is welcomed.

  210. 210
    choices Says:

    It may require a subscription to Stockcharts.

  211. 211
    choices Says:

    Try this and access public charts on right side:


  212. 212
    zman Says:

    Got it:


  213. 213
    BirdsofpreyRcool Says:

    This would be funny… if it wasn’t so pathetic. All this will do is push ethanol production offshore. Then, think about it… more deforestation in Brazil… more bunker fuel for tankers to ship it to the West Coast, more congestion on the LongBeach Freeway. Yikes. This is an example of what happens when “emotion” over-rules “common-sense.”

    California Approves Standard ‘Crippling’ U.S. Ethanol (Update1)
    2010-01-13 22:46:18.926 GMT

    By Mario Parker
    Jan. 13 (Bloomberg) — California regulators approved a carbon fuel standard yesterday that the U.S. ethanol industry says will bar domestic forms of the fuel from being used in the nation’s largest fuel-consuming state.
    The state’s Office of Administrative Law yesterday approved the implementation of the Low Carbon Fuel Standard, or LCFS, which aims to reduce carbon-dioxide emissions. The regulations will count the emissions created when corn is planted, harvested and ground into fuel as part of ethanol’s carbon output.
    “It’s crippling,” said Cory Garcia, an analyst at Raymond James & Associates in Houston. “It makes ethanol produced in the Midwest uncompetitive.”
    Last month, the two largest ethanol trade organizations sued California over the standard, saying the regulation is unconstitutional because it discriminates against out-of-state goods and will stunt ethanol’s growth. The industry also says the standard favors foreign fuels such as ethanol made in Brazil over the fuel made in the U.S.
    “What’s at stake is the California market, particularly for ethanol produced outside the state,” said Matt Hartwig, a spokesman for the Renewable Fuels Association in Washington.
    “This doesn’t change the fundamentals of the lawsuit.”
    The policy, which would take effect in 2011, would also examine the effect on deforestation. Heat-trapping greenhouse gases from fuels must not exceed California gasoline blendstock’s calculation of 96.88 grams of carbon dioxide equivalent per megajoule.
    The regulation also employs so-called indirect land-use changes, which estimate the impact on other areas of planting corn in the Midwest for ethanol. Counting indirect land use, ethanol produced from a dry-mill plant has a carbon intensity of
    97.6 grams of carbon dioxide equivalent per megajoule.
    Poet LLC, in Sioux Falls, South Dakota, Archer Daniels Midland Co. in Decatur, Illinois, and San Antonio-based Valero Energy Corp. are the largest U.S. ethanol producers.

  214. 214
    bill Says:

    >elijahwc ty got a little the other day at 2.04

  215. 215
    Jerome Blank Says:

    RE: #209, choices…thank you
    #212, Zman, thanks for the link, did you copy the shortcut of the title, or was the link posted in some other way?

  216. 216
    Jerome Blank Says:

    EXXI…I posted both candlestick and P&F charts in the Stockkcharts forum…for some reason you don’t seem to be able to annotate the P&F charts, but I can add comments to the bottom of the chart


  217. 217
    West Says:

    JB good work on the stockcharts, added a vote for you…….For those with an interest in Rosetta from Rocky Mountain Oil Journal October 2009 issue Vol. 89 Num. 44 – October 30, 2009Next >Rosetta, Anschutz Plan More Exploration on Blackfeet Lands
    Glacier County, Montana
    Houston-based Rosetta Resources (Rosetta) and Anschutz Exploration (Anschutz), Denver, both plan more exploration within the confines of the 1.5-million acre Blackfeet Indian Reservation along the western flank of the Sweetgrass Arch in northern Montana. Both of these firms have active exploration programs on the tribal lands.

    Rosetta plans another horizontal Bakken test some 7 miles north of the huge Cut Bank field complex and in between two smaller fields, Big Rock to the west and Blackfoot to the east. Both of these smaller fields produce oil and gas from the Cretaceous and Paleozoic strata.

    Representing their fourth horizontal wildcat staked on the reservation, Rosetta plans to drill the Tribal Big Rock #29-13H, sw-sw 29-37n-6w, a proposed 9,097’ Bakken test that will have a bottom-hole location in the nw-nw 29-37n-6w. There are no Bakken penetrations in the immediate area. Roughly 3 miles east of this staking is Blackfoot Field, a shallow oil pool discovered in 1956 that has produced more than 1.8 mmbo and 1.3 bcfg from the Dakota, Cut Bank, and Madison. A similar distance to the west is Big Rock Field, a gas reservoir that has cumulated more than 7.3 bcfg and 13 k bo since 1963. This production is coming from the Blackleaf, Colorado Shale, Big Rock, and Bow Island.

    Nineteen miles to the south, Rosetta has completed drilling the the #31-16H Tribal Gunsight, se-se 31-34n-6w, a a 9,150’ horizontal Devonian Three Forks test. No information has been released on this well; however, field reports indicate oil has been recovered and it is possible that this wildcat may be a discovery. This test is roughly 1 mile northeast of a dry hole that had good shows in the Devonian. Drilled by Flank Oil, the #1 Bugbee, se-sw 6-33n-6w, bottomed in the Three Forks at a depth of 5,350’. The company perforated the Three Forks section open-hole from 5,028’ to 5,030’ and swabbed up to 10 gallons of oil per hour. Deemed noncommercial, no production casing was run, and the hole was abandoned in 1958.

    Two miles west of Rosetta’s possible discovery is the huge Cut Bank field complex, a stratigraphic-type trap that is considered a class “A” oil and gas reservoir. First discovered in 1926, this field has cumulated more than 171.6 mmbo and 650 bcfg from the Cut Bank, Madison, Bow Island, Kootenai, Sunburst, Lander, Moulton, Black Leaf, and Dakota. This production is coming from depths less than 4,500’. With more than 1,000 holes drilled within this field, this reservoir is currently producing from 600 wells and is averaging 23,731 bo and 130 mmcfg per month. At this time, there is no Devonian production within the field.

    The rig that drilled the #31-16H—Elenburg No. 21—has now moved 18 miles northwest and is making hole for Rosetta at the Tribal Riverbend #12-13H, sw-nw 12-37n-9w. This 10,675’ horizontal Bakken prospect is roughly a mile west of Landslide Butte Field, a vertical Mississippian Sun River and Madison oil pool that has produced more than 861 k bo and 925 mmcfg following its discovery in 1966. The nearest well to the #12-13H active drillsite to penetrate the Bakken section is nearly a mile to the east at a dry hole drilled by Beren Corp. at the #1 Johnson, se-se 12-37n-9w. This hole bottomed in the Devonian Souris River at a depth of 6,984’. The company set 5½-inch production casing to 6,355’ and perforated the Madison, Banff, Bakken, and Nisku with negligible results. No additional testing was conducted, and the hole was abandoned in 1981.

    The final test planned by the company on reservation lands is the Tribal Riverbend W #07-4H, nw-nw 7-36n-9w, a projected 11,230’ horizontal Devonian Souris River test that will spot in the nw-nw 7-36n-9w, Glacier County. The bottom hole is scheduled to terminate in the sw-sw 7-36n-9w.

    This staking by Rosetta is a little more than a mile southwest of a dry hole drilled by Cenergy Exploration at the #1-32 Swenson Warren, sw-se 32-37n-9w. Reaching the Mississippian Madison at a depth of 5,775’, this well was abandoned in 1983. The company ran two DSTs in the hole, one in the Lower Cretaceous Bow Island and the other in the Jurassic Sawtooth. The Bow Island interval at 4,447’–4,465’ reversed out 730’ of mud while the Sawtooth test from 5,637’ to 5,700’ recovered 20’ of slightly gas-cut mud with the sampler containing 1,300 cc of mud. No additional tests were performed, and the hole was plugged. Log tops of this failure include the Rierdon at 5,540’, Sawtooth at 5,636’, and the Madison was picked at 5,671’ under a KB elevation of 4,282’.

    The W #07-4H location scales some 6 miles southwest of Rosetta’s active Tribal Riverbend #12-13H.

    Another outfit that has exploration plans on the reservation is Anschutz. The company has announced plans to drill a 9,543’ vertical Bakken test at the White Calf #1-4, sw-nw 4-30n-10w. This remote test is roughly 7 miles southeast of Two Medicine Field, an anticlinal trap that is bounded on the east flank by thrust faults. This pool, which is currently shut in, was discovered in 1954 by Union Oil at the Morning Gun #31, sw-sw 18-31n-11w. This venture tested up to 10 mmcfgpd and 250 bcpd from the Mississippian section near 9,000’ but was plugged in 1955 because of a lack of market. Several offsets were drilled, and the field cumulated more than 275 mmcfg, 11,510 bc, and 17,223 bw from the Mississippian. This field has been shut-in since 1982.

    The nearest hole drilled to the White Calf #1-4 staking is 2 miles southwest at a failure drilled by Atlantic Richfield (Arco) at the #1-7 MaGee, se-nw 7-30n-10w. This test bottomed in the vertical section of the Duperow at a depth of 10,200’. The company conducted DSTs in the Blackleaf, Sun River, Sunburst, and Potlatch. The only show was across the Potlatch interval from 9,445’ to 9,482’ where Arco recovered 10’ of slightly oil- and gas-cut mud with the sampler holding 2,000 cc of slightly gas- and oil-cut mud and 1 cubic foot of gas. Production casing was run to 10,198’ and the Sun River, Cut Bank, and Duperow were perforated with negligible results. The well was plugged in 1984.

    This newest Anschutz staking is the sixth test planned by the company on the Blackfeet Indian Reservation. To date, Anschutz has drilled three prospects on tribal lands, none of which have been completed as any type of discovery. The company has at least three more prospects to drill.


  218. 218
    zman Says:

    Thanks much West, that one’s printed and in the file.

    Good work JB, if that’s not too time consuming it is a help to see the PFs while reading your comments.

  219. 219
    bill Says:


  220. 220
    zman Says:

    Wow FST in the Granite Wash … 2 37 MMcfepd wells. See the Granite Wash players list in my post a from 1/5:


  221. 221
    zman Says:

    FWIW, also mulling the sale of my lower strike MMR calls, taken the day of the announcement (Monday).

  222. 222
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