Wednesday – Oil Preview Plus Other Interesting Tidbits



Market Sentiment Watch: Welcome to the end of 1Q10. The market feels decidedly distracted bordering between on Holiday and in a coma.  From here we should see analysts start to revise oil and gas prices in the normal mark to market fashion for 1Q results which will start coming out as early as mid month April. Look for oily E&Ps to see upward revisions and for the unhedged gassy names to face further reductions.

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Oil Inventory Preview
  4. Stuff We Care About Today – Price estimate preview for 1Q, SSN, LINE, TSO, BTU
  5. Odds & Ends

Holdings Watch:

ZCAT (Zman Catalyst portfolio, formerly the $10KP II):

  • $8,900
  • 61% Cash
  • Positions for the quick view are updated on the ZCAT, ZIM, ZLT page.
  • Yesterday’s Trades: NONE


ZIM (Zman Inefficient Markets portfolio)

  • $9,000
  • 56% Cash

  • Yesterday’s Trades:
    • Bought 5,000 at $0.4247.
    • See comments in the Stuff Section below but suffice it to say here that this is the kind of trade the ZIM was created for. The market is over-reacting to what it perceives as bad news with the potential for good news from a much more important play just around the corner.

Commodity Watch:


Crude oil inched up $0.20 to close at $82.37 yesterday.  After the close, the API released a somewhat bullish looking report (see below) that may foreshadow a smaller-than-the-Street-expects build in crude stocks and I continue to think the bar has been set fairly low for a reversal in crude imports and therefore stocks with today's EIA report. This morning crude is trading up $0.75, notably above $83.

  • Sanctions Watch: Look for Iran to step up the threatening rhetoric after this.
  • OPEC Watch: The Cartel says it is uncertain what actions it will take should oil prices rise definitively above the $70 to $80 range. "Prices above $85 for a sustained period of time could well be harmful. We have to be aware that the economic recovery is still fragile," according to one OPEC delegate.

Natural gas actually gained $0.06  to close the day at $3.97 yesterday. Gas is trying to form a bottom. The EIA data released Monday night isn't much of a help but things like Aubrey McClendon taking action to get gassier should be. Aubrey also echoed my comments regarding the neglect conventional gas assets are seeing in favor of shale and took his comments one further in stating that the 50% of production that comes from non public companies is declining (again, assigning them as mostly non-shale gas producers).  This morning gas is trading up nearly a dime.


  • Early Read On Natural Gas Storage: Street is at a 20 BCF injection for tomorrow’s report.

    • Last Week: 11 Bcf Injection

    • Last Year: Unchanged

    • 5 Year Average: 3 Bcf Withdrawal

    • 10 year Hi: 36 Bcf Injection

    • 10 year Low: 61 Bcf Withdrawal


Oil Inventory Preview

API Watch: An OK report. 

  • Crude: UP 421,000 barrels
  • Gasoline: DOWN 946,000
  • Distillates: DOWN 1,007,000


Refinery devotion to curtailments has been very strong through the first quarter. The temptation to push a little more volume through as margins creep higher is increasing and besides, the demand figures on the gasoline side are supportive of a little more production as long as a flood of finished product gasoline does not show up on U.S. shores as prices rise. I'll be watching for both in coming weeks as well as how demand is holding up as prices inch up (so far so good).

I do think the big bump in crude imports last week was anomalous and will be worked out in the next week or two. Recall that last week API showed a similar jump in crude inventories and that the next day EIA numbers mirrored them. 

Stuff We Care About Today

SSN Thoughts ... Not Planning To Stay Long But This Drop Seemed Like Overkill, Especially With A Potential Game Changer Well A Week From Results. 

Reason For The Fall Yesterday:

  • The well that they were being punished for yesterday (which ended with the stock down 16% yesterday at $0.46) was a dry hole on a 1 Bcfe potential Yegua, gas well in Grimes County, Texas, which took about a week to drill.
  • I think falling 20+% on the failure of this 1 well vs the company's current reserves of 18 Bcfe is an over reaction.

The Potential Catalyst:

  • SSN is within about a week of having production data on their second Bakken well, the Gene #1-22H (30.6% working interest).
  • You’ll note it was on the catalyst list as their first Bakken well but technically they deepened an earlier well to the Bakken so this is the second, although I think it has a longer lateral (at 5,500 feet) and definitely has more stages (at 16) than the first well.
  • This is in Williams County, North Dakota, in the east side of what BEXP calls Rough Rider. This well is not far from where BEXP drilled their highest IP Bakken well to date, the State 36-1H, with an IP of 3,807 BOEpd.
  • If this one works they have acreage for an additional 5 wells, not a lot, but it would be significant to their reserve base and I’m not planning on being here very long.


LINE Thoughts Another day, another deal, this time a debt deal

  • $1.3 B of 10 year, 8.625% senior notes.
    • part of proceeds to repay outstanding balance on the revolver
    • new revolver in place,
  • This is a natural balancing of the capital structure in the wake of the upsized units offering last week.
  • I continue to own the units here in the ZLT.

Price Deck Changes On The Way

Price deck revisions. As the quarter comes to a close it’s that time of the year again when analysts need to tweak their oil and gas price forecasts to match reality for the just passed quarter and to take another fresh look at the coming quarters.

Oil was slightly under priced for 1Q and remains so into the out quarters. I would not expect analysts to do much in the way of raising their targets for 2Q-4Q as they are not that far below the strip.  If oil breaks through $85 I would expect them to begin creeping their out quarter numbers slowly higher. This would have the effect of putting oily names further into the spotlight as it becomes easier for analysts to keep Buy rated names Buy rated and just walk their price targets higher as share prices approach them. 

For natural gas, look for downward revisions. The Street is 20% high to current prices. So if you are unhedged look for you EPS and CFPS estimates for 2010 to take a pretty good hit in coming weeks, depending of course on your leverage to natural gas. That means it’s likely guys like SWN will see their numbers get chopped back, and they will either cut capex or raise their debt/equity levels. I bought them yesterday for different reasons after they’d already been whacked via their share price but the pain may not be over their as house after house downgrades their numbers ... at the same time as natural gas prices are likely to be finding a floor.


Other Stuff:

  • CLNE does another deal with AT&T, this time providing CNG refueling stations for its planned fleet of 8,000 natural gas fueled trucks. No dollar figure attached to this announcement but CLNE is clearly out in front as the leader in providing natural gas to fleets. Look for that to expand later this year.
  • TSO swaps out CEO Bruce Smith for Greg Goff, an SVP from COP. Not sure what to make of Goff; Bruce was a good guy.
  • BTU bid $3 B for Australian player Macarther Coal. And was rejected. The deal did not look particularly overpriced on Macarthur's current reserves of 145 mm tons of reserves and makes sense from a strategic standpoint for BTU as they anticipate further growth in Asian demand. 


Odds & Ends

Analyst Watch:

  • USEG picked up at Buy with a $7.50 target at CK Cooper
  • HP started at Susquehanna at Positive, NBR at Neutral  


164 Responses to “Wednesday – Oil Preview Plus Other Interesting Tidbits”

  1. 1
    zman Says:

    ADP jobs down 23K, expected up 40K

  2. 2
    VTZ Says:


    There’s the IPO I was talking about a while ago. This is the last big holding company. They didn’t disclose size until now.

  3. 3
    zman Says:

    Futures down after ADP. Except for oil which is up $1.30 now, at 83.70. End of quarter squaring will be the reason put on the crude rally. Not sure I buy that as usually that doens’t break you out of a long established range and this move just about does.

  4. 4
    zman Says:

    VTZ – thoughts on the deal, metrics vs other existing operations? Curious. This would be another one of BOP’s signs of a working recovery … big IPO’s getting done.

  5. 5
    zman Says:

    Wondering who is making all the engines for the AT&T CNG trucks, know it as been announced, can’t find it.

  6. 6
    zman Says:

    NG up 7 cents and notably back above $4. That would make two days in a row. Wow.

  7. 7
    zman Says:

    There are 12.5 mm shares of UNG short now out of 404.5 mm shares out.

  8. 8
    BirdsofpreyRcool Says:

    I think nat gas back over $4 is much bigger (better) news for our domestic e&ps than oil prices. It’s a head-scratcher why they seem to trade on oil headlines… althought lately, we have seen a clear bias for oilier names in the group (except for a couple of special sits).

    Will be most interesting to see if nat gas can hold onto that 4-handle today.

    MMR and GDP shorts… wonder when they hit the “exit” button….

  9. 9
    zman Says:

    JB – sent you an email.

  10. 10
    BirdsofpreyRcool Says:

    From TPH this morning….

    More offshore drilling approvals? ($83.20/bbl, $4.05/mcf) – Checked calendar – it’s not April 1st so apparently not April Fool’s joke, but we’ll believe it when we see it. News headlines saying Obama Administration considering plan to allow oil and gas drilling off previously protected east and west coast, Alaska, and presumably GOM Florida. Won’t happen tomorrow as we’d expect mucho political and legal wrangling, but would be positive for oil service (seismic, jackups) and US economy. But do we really need more natural gas? (No!) Oil? (yes!)

  11. 11
    zman Says:

    BOP – I think oil trades with the S&P and most stocks trade with the S&P and therefore you have the illusion that the gassy stocks, which are, after all, stock, trading with oil.

    Tough to say on the shorts, they can stick around a long time.

    I’m going to submit a piece on the SSN trade to Seeking Alpha. Don’t know if they’ll take it as it’s pretty short and not a full fledged piece but it is what it is.

  12. 12
    Jerome Blank Says:

    #9, Zman, got it …thank you

  13. 13
    zman Says:

    Virginia is pushing ahead with drilling off their coast I hear.

  14. 14
    zman Says:

    How to keep costs down at ZEB, recommend me here:


    I’m not a big marketer. I see I have 179 followers over on SeekingAlpha where as my former business associate Phil Davis, a marketing genius, now has 29,000. Hmmm, must be doing something wrong on that front.

    Your help in this matter is greatly appreciated and like I said, it helps stem the tide of rising costs.

  15. 15
    andy Says:

    z – now u have 180!!!!!

  16. 16
    zman Says:

    Andy – thanks man! That’s a good start for a slow a Wednesday. Forgot to mention you could follow me there in addition to recommending the site. And you can always spam your friends to do the same, lol!

    Recall that you get free time on the site for bringing in new members.

    Ok, enough of that.

    WLL and BEXP and the rest of the Bakkens responding well to $83+ oil.
    KOG at 3.32
    NOG firmly over $15 now

    Also seeing some of the gassy names wake up.

    HK and SWN even playing.

    Safer bets than SWN for a move in gas, which I’m back long calls on for the New Brunkswick deal and because it looked overly beaten down, are UPL and RRC.

  17. 17
    zman Says:

    Of course, if the S&P rolls over all of 16 will be offset. But you can still see that there is a definite predilection for oil amongst energy group investors.

    Day 3 of asking this re HK. Has anyone seen a post Howard Weil First Call note that details the Red Hawk and Black Hawk discoveries? I have seen the Howard Weil blurb and it was essentially boiler plate … hard to believe they call it a focus stock when what they wrote took less time than I did to type this comment.

  18. 18
    dij Says:

    I am no longer at Phil’s, and was in the early days, (were you not participant then, there?.)
    But he is more rah, rah and more wide ranging. Now following!

  19. 19
    zman Says:

    Dij – I was around those parts in 2006. He and I had philosophical differences regarding oil and energy companies.

  20. 20
    Jerome Blank Says:

    #14 Zman, added my name to the follow list…

  21. 21
    skimo Says:

    now 181

  22. 22
    zman Says:

    Thanks guys, tell your friends. That site only gets the very rare free post but they may find it interesting.

    Nicky – got levels? S&P coming off pretty sharply now.

  23. 23
    zman Says:

    Chicago PMI came in light to estimates. 58.8 vs 59.9% expected.

  24. 24
    elijahwc Says:

    ARD – CapitalOne Southcoast upgraded ARD to Add from Neutral and raised their tgt to $44 from $39. The firm feels that with the 23% decline in the shares over the past 4 weeks and due to the oil price deck increase, ARD merits an upgrade. The firm believes that Fuhrman-Mascho EURs will gain back some of the reduction reflected in the YE09 bookings once the field level issues are resolved. Also, the company could add an additional drilling rig since oil is now above $82/bbl, thereby accelerating production growth.

  25. 25
    zman Says:

    Thanks Eli, looks like they are trying to break it out of its post sell of base.

  26. 26
    elijahwc Says:

    opps attribution for #24 is a summary scrolling on briefing.com

  27. 27
    elijahwc Says:

    Z any long dated strikes/leaps appeal on ARD?

  28. 28
    andy Says:

    z – have u thot about one week free trial?? i think if people could see what we have here, it would be pretty hard to resist.

  29. 29
    zman Says:

    Andy – I have mulled it over in the past and we are working on installing some new software that would automate that process. Thanks and keep the ideas coming.

  30. 30
    Nicky Says:

    Good morning to all. Corrective counts still on the table. SPX hit the 1066 target area for wave e of the triangle if that is playing out. If a larger pullback is needed then as said yesterday this could be the C wave down of a larger ABC correction. In which case look for support at 1158 and 1147.
    Personally why would anyone stay long after that crap ADP data ahead of a non farm payroll number they can’t trade as the market is closed.

  31. 31
    zman Says:

    SSN giving back yesterday afternoon’s little bounce. I am likely to add it to the ZLT at this level in a bit.

  32. 32
    bill Says:

    24 thanks for that

  33. 33
    zman Says:

    Nicky – maybe they just look through this payroll number to the next one at this point, which is expected to be higher. But I hear ya. Could be an unlocking effect after the end of the quarter, with people rushing to cash today / tomorrow as well. Hard to say with the recent moves in the markets on such light volume what it does. Still hearing there is a lot of cash on the sidelines.

  34. 34
    Nicky Says:

    Factory Orders 0.6 vs exp of 0.5%, prior revised to 2.5% from 1.7%

  35. 35
    zman Says:

    SWN looks to be making a run on JB’s $41 level again, caught up in a little resistance. Wondering when their next opportunity to speak about the new play is.

  36. 36
    elijahwc Says:

    MHR coming in light vs expectations. Not sure it matters as MS and EFS drilling results which commence next quarter are all that count operationally.

  37. 37
    Nicky Says:

    Z – I had the expectations for Chicago PMI as 61. I may have been wrong of course.

    Regarding payroll – not sure I think a good number is now fully priced in to this market.

    Also consider this the Census part time hires will add 100,000 and the faked Birth Death model is going to add 125,000 jobs. Therefore we are at 225,000 before a single real job is added.

  38. 38
    zman Says:


    Sold CLR, down 37% since mid 2008 entry. Will revisit but I think the valuation is pricey here and wanted to make a little room in this portfolio.

  39. 39
    zman Says:

    Oil inventories in 15 minutes.

  40. 40
    ram Says:

    Please explain “faked Birth Death model”.

  41. 41
    zman Says:

    Nicky – I was using Market Watch estimate for PMI, they sometimes get stale vs Bloom. Sounds like a pretty good sized miss then. Market looks more concerned with end of quarter books than much else, volumes in my names a little more up than recently on the whole for this time of morning but not by much, still pretty boring.

    NG reversed, down 2 pennies now.

  42. 42
    dij Says:

    Birds of Prey are Cool:
    Sorry to not to get back to you about Max Pain sooner. Z is the expert here and has offered comments before. I just check it out as it can be an indication of selling (or buying) pressure come expiration. Needless to say, events, discoveries can change all. Perhaps it is a way to look for anomalies and exploit them. But there are no sure things!

    ARD will be interesting as its # is 30.

  43. 43
    zman Says:

    Skimo – now 188, thanks much, you too JB.

  44. 44
    bill Says:

    >ARD will be interesting as its # is 30.

    i dont understand that comment..# 30??

    Anyways to eli question, i like the july 30s

    I think it pops on q1 earnings which come out in may

  45. 45
    bill Says:

    oh, i get it max pain is 30

    yes that would be max pain!!! ( as i hold the 30’s)

  46. 46
    Nicky Says:

    The birth/death model is used by the Bureau of Labor Statistics to estimate the gains/losses in jobs from the launching and demise of businesses.


    Suffice to say it skews the ‘real’ numbers every month. ADP is much more accurate as its actual pay checks written.

  47. 47
    zman Says:

    WHX – marking my own numbers to market, I still have their 1Q distribution at $0.61, unchanged from my modeling earlier this month, which keeps them in the 12% range for the next 12 months, again, based on my model.

  48. 48
    Nicky Says:

    Bill not sure if you are referring to my #30? Let me know if so and I will try and explain more clearly.

  49. 49
    Jerome Blank Says:

    #31 SSN…looking at the same thing…holding within a tight range…just added a bit more at .43, the risk is easy to manage with major support right below us here at .37…

  50. 50
    Nicky Says:

    The Chicago PMI, which is compiled by the Institute for Supply Management – Chicago and Kingsbury International, Ltd., saw a significant decline in its March business barometer as the index fell from 62.6 to 58.8. The consensus estimate predicted a deceleration in activity, but it called for the index to fall to only 61.0 While all components declined over the month except for inventories, the movement was not strong enough to put much of a dent into the manufacturing expansion. Production and new orders remained above 60 and continued to show signs of growth. While backlogs slipped from 58.5 to 54.3, they still show an increase in overall unfilled orders and signal that some production is being held back for a later time. Employment, which broke above the 50 threshold for the first time in January, remained at 53.0. However, we have not yet seen the expansion in manufacturing employment nationwide and this may be a strong indicator of a bad employment report.

  51. 51
    andy Says:

    bop – any new rumors KOG? pretty nice run -up

  52. 52
    zman Says:

    EIA Oil Inventory Report:

    Crude up $1.06 at 83.43 just prior.

    Crude: up 2.9
    Gasoline: up 0.3
    Distillates: down 1.1

    Gasoline: strong at 9.06 mm bpd
    Distillates: ok at 3.646

    neutral to mildly bearish report as the gasoline number bricked ….

  53. 53
    zman Says:

    Crude imports backed off but not as much as I would have thought. Not really a big deal but it did lead to the slightly larger build in crude stocks.

    Refining throughput did turn up a notch adding 200,000 bopd week to week … this is the impact of the higher margins enticing more production.

    Utilization is back up to 82.6%, probably a bit higher than expected, still low for this time of year

  54. 54
    BirdsofpreyRcool Says:

    andy — nothing that i’ve picked up on. Just drilling and proving up more acreage. But, must be some sort of buzz… like a TFS well and/or acqtn rumors that are driving this. Or, maybe we just busted through to a new level. Stock was cheap at $2.50. Oil is a lot higher now. KOG is 100% oil.

  55. 55
    zman Says:

    Cushing stocks crept up slightly, not a big concern yet

    Gasoline production did not rise commensurate with the higher refinery throughput but I’ll be looking for that next week. If the refiners go ahead and start ramping production in April I think they are probably shorts.

    Oil holding up 85 cents post report.

  56. 56
    elijahwc Says:

    Bill – on ARD I agree that you have to go deep in the money. I was thinking Oct 30’s for a buck more.

  57. 57
    zman Says:

    Andy – oiliness and Bakkeness. See AEZ at $7, NOG at $15.40. Lots of rumors swirling that the drive to get oily will mean the gobbling up of some of the smaller names. AEZ may be the prime candidate there as they have a lot of acreage, almost all of it untested but some of it in apparently very good zip codes for the Bakken. SSN would make a nice cheap toehold for someone in that same area (northeast Rough Rider).

  58. 58
    Nicky Says:

    z – re 41 – don’t the funds usually sell today and then start buying again tomorrow?

  59. 59
    zman Says:


    For a fairly quick trade, maybe a week to 10 days.

    Added for $0.426 per share. See site for details.

  60. 60
    zman Says:

    Nicky – if they are still inclined to buy, yes. S&P looks like it wants to fight higher.

  61. 61
    ram Says:

    ZMAN – CLR is pricey on a CF basis compared to it’s bakken peers? With $80 oil, wouldn’t their CF improve last quarter and possibly the next quarter?

  62. 62
    Jerome Blank Says:

    MMR…interesting triangle on the 30 min…keeping a eye on it…added a 30 min chart…


  63. 63
    zman Says:

    Ram – It’s pricier than I think it should be given it’s slower growth and more low profile catalysts. It gets a premium for being a big acreage holder with the thought that it will be big enough to be impactful to someone of size like a major should they want to venture into the Bakken. XOM took out XTO and last night said that it will be years before you notice XTO results being meaningful to them. That got me thinking, more than I did already, that it will be a large cap E&P than makes the next move in the Bakken and they will probably go after one of the mids or smalls. Plus, I already have plenty of Bakken exposure in the ZLT with BEXP, KOG, ROSE (sort of exposed), and most cheaply WLL. I will likely add some more WLL over time, don’t mind averaging up in that cheap name at all.

  64. 64
    zman Says:

    Jerome – any thoughts on BEXP here? Looks like a wedge forming. News soon I think could bounce it out of that.

  65. 65
    Nicky Says:

    If the broader market has been led up by commodities in the last few days then it should roll over with oil. Financials have already been showing signs of weakness.

  66. 66
    ram Says:

    Thanks Nicky. Thanks Zman.

  67. 67
    zman Says:

    Sure Ram, anytime, ask away.

    I should add this on BEXP. As you know BEXP is the most expensive of the group of what I call the real Bakken players but I forgive the high multiple due to the radical change the company is undergoing in terms of growth, in terms of getting oilier rapidly, and due to the constant string of strong results and the potential for results from the TFS in Rough Rider and the Bakken in E. Montana. I continue to hold a sizable chunk for me in the ZLT. However, they are at that point in their financial life where they will have to meet expectations on the top line or the stock will feel the weight of that high multiple. 1Q earnings are going to be pretty import from a financial as well as an operational sense.

  68. 68
    zman Says:

    SSN – moving back up a little. Saw 144K shares in a minutes trading a bit ago, so maybe some institutional buying or maybe one of our overseas subscribers who likes these little ones.

  69. 69
    Nicky Says:

    A triangle is still in play until 1161.48 SPX is breached. If it goes then I will switch my count to a straight C wave decline.

  70. 70
    ram Says:

    Zman – Do you also feel that CLR has limited % upside potential compared to the other bakken players?

  71. 71
    zman Says:

    Ram – Depends on the time frame and what oil does. I think it goes much higher than here at $125 oil. Does it double? Probably not. Does BEXP double? Probably something close to $25. Do AEZ, NOG, KOG, WLL double, yeah, I think they do.

  72. 72
    andy Says:

    z – how many net acres does SSN have in the Bakken. not too many as i recall, but not sure.

  73. 73
    Jerome Blank Says:

    #64 BEXP intraday 30 min chart added…I agree, looks very promising at the moment…details on the 30 min chart…


  74. 74
    ram Says:

    Thanks – That helps in understanding your thought process on the ZLT trade.

  75. 75
    zman Says:

    Andy – about 3,000, enough they say for four more wells after this one.

    Thanks JB, good Ram, thanks.

  76. 76
    bill Says:

    After dropping their gas price outlook for 2010 a week ago , Barclays analyst Jim Crandell and colleagues Biliana Pehlivanova and Michael Zenker looked ahead to 2011 to determine what the markets may look like. What they see ahead is another bearish year.

    “After growth in U.S. supply of 2.4 Bcf/d in 2009, despite the rig count cut of last year, U.S. supply is expected to grow an additional 2.7 Bcf/d in 2010,” they wrote. “This momentum carries into 2011, which features growth of 1.2 Bcf/d. Note that supply growth in each of these years is above trend-level demand growth in the U.S.”

    Because this year’s supply growth will spill into the 2011 balance, it “points to another disappointing year for producers and another year of inflation-fighting natural gas prices for consumers. Balances are even looser in 2011 than in 2010, and the only way we get to a reasonable storage finish in 2011 is by driving coal displacement even higher in 2011.”

    Forecasting the gas-directed rig count through 2011 “is clearly a fool’s errand,” said the analysts, but they wanted to highlight the role in gas balances. “Even assuming that the rig count falls to 700 and stays there, 2011 remains well supplied. This means that if the rig count does not fall that far, or if it recovers later in 2011, the market is even more awash in gas.”

    Coal displacement needs to be about 30% higher in 2011 than in 2009, the trio estimated. “The combination of the implied competition with coal and high estimated levels of storage yields a bearish outlook for prices, leading to our forecast for 2011 of $4.10/MMBtu. 2011, therefore, is not a year of price recovery.”

    The ability of producers to oversupply the market “could remain a market feature beyond 2011,” they wrote. “We have not prepared balances for 2012 and beyond, as there are too many moving parts, but remain convinced that producer discipline will be key to price outcomes, as the potential for production growth appears to significantly outpace the potential for demand increases.”

    Rising service costs and the need for the market ultimately to price at levels that approach the cost of marginal wells means that prices will have to rise to $6-7/MMBtu by 2015, the Barclays team has concluded.

    “While we do not dismiss the possibility that they could correct to that level, the evidence that producers can rapidly ramp supply higher in response to prices well below $7 suggests that such prices are unlikely to be sustained.”

    Considering the drilling efficiencies in the past two years and the production-growth producer business model, the market is faced with “two daunting obstacles for a sustained pullback in U.S. supply. While producers may require $6 or higher prices for supply to remain near current levels, a willingness to drill in a lower price environment suggests that prices can remain detached from costs for an extended period.”

    With several unknowns still to be determined, the Barclays team set its 2012 price outlook to $5.25/MMBtu and the long-term (2015) gas price to $5.75.

  77. 77
    zman Says:

    The President on offshore drilling on TV now.


    The bit about drilling 125 miles off Florida is still annoying. I was on an Alabama beach, completely not bothered by rigs on the horizon and clean white sand. If you are lucky enough to live on a beach and the rig out in the haze of the horizon bothers you enough that you can’t tolerate it then I say you should sell your car, get a recumbent bike, and buy lots of blankets. It’s not hurting you or the environment … deal with it.

  78. 78
    zman Says:

    Obama giving a good energy speech.

    He’s pushing the military angle on replacing JP8 with biofuels.

    An F18, the Green Hornet, will fly over the speed of sound on Earth Day, on a mix of half avgas and half biodiesel.

    Time to buy Camelina seeds.

  79. 79
    zman Says:

    … but he’s not giving up on cap and trade.

  80. 80
    zman Says:

    POTUS off TV, again, I thought that was a pretty good speech. I would have liked to hear the words “natural gas” used in conjunction with transportation and not just the words “hybrid” and “clean energy” but maybe I missed it.

  81. 81
    cargocult Says:

    Goldman Says Commodities May Witness ‘Violent Price Spikes’
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    By Grant Smith

    March 31 (Bloomberg) — Commodities are set for “violent price spikes” as constraints on investment in new supplies and emerging market demand lead to shortages, according to Goldman Sachs Group Inc.

    Volatility in prices is driven by limits in the production and storage of commodities, rather than by financial investors, the bank said in an e-mailed report.

    “Commodity markets have faced a growing physical imbalance over the last several years resulting from a lack of investment in underlying production, distribution and storage infrastructure,” Goldman analysts said in the report. ‘Not just rising price levels, but violent price spikes likely lie ahead for much of the commodity complex.”

    Do they say what they mean and mean what they say?

  82. 82
    zman Says:

    JB – does that $41 tick on SWN count for purposes of going back into X’s?

  83. 83
    ilikericky Says:

    ZMAN tried to find a company that makes fuel out of Camelina seeds,no luck.Have you been lucky?

  84. 84
    zman Says:

    Cargo – Sounds like they are talking about some metals and oil. I was listening to similar comments early this am on CNBC, and the point is going around that China has 1 car for every 10 people (I haven’t checked that and I think India is similar) while the U.S. has something like 1 car for every 2 people. Given the population sizes, and the new boon in car production, it would seem that if they cut their ratios in half you have the potential of creating a whole new piece of demand the size of the U.S. in pretty shore order. Then you have the whole Mexico and S. America upgrade cycle that’s underway and you can see that a global recovery will send prices for oil and metals much higher.

  85. 85
    zman Says:

    re 83. No pure play that I found. I can be you ADM will be on the case. Am going to look harder this weekend.

  86. 86
    Jerome Blank Says:

    #82 SWN, you bet…that’s the signal for shorts to cover

  87. 87
    cargocult Says:

    That’s what I thought when I bought WATG, a China auto parts mfg. Meanwhile the stock is languishing.

  88. 88
    zman Says:

    JB – thanks and good point. Wish their short interest was a bit higher but it should be a factor in getting the name off the floor.

    By the way, if you are wondering about drilling off the coast and whether or not you could see one of those rigs here’s a good site for it:


  89. 89
    1520sbroad Says:

    #77 – I am the only person in the state of NJ that is for drilling off the Jersey Shore. I have been to Gulf shores, mobile bay, houston, houma, la and have seen the oil and gas industry in action. It is no more unsightly/annoying than the commercial shipping industry (or the folks with the huge boats with huge motors that scream up and down the beach) here in NJ is. On any given summer day at the beach in my town you can see more than a dozen container ships lined up headed for the ports in NY/NJ.

  90. 90
    zman Says:

    CLNE breaking out again today on that blurb in the post. In early 2009 I called that a 2010 story … man, I’ll say and I never bought that one.

  91. 91
    zman Says:

    1520 – good point, it makes very little sense from the unsightlyness standpoint. And from a spill standpoint, the data just doesn’t reflect a high degree of risk.

  92. 92
    bloodystupidjohnson Says:

    You can only see a couple miles out in any direction because the EARTH CURVES!

  93. 93
    zman Says:

    If you live in a two you can see out a little further but definitely not 125 miles. There is big potential in the eastern Gulf but it remains uptapped due to Florida’s protestations. Ask Shell, they have a lot of eastern Gulf leases they are not allowed to drill.

  94. 94
    1520sbroad Says:

    There are plenty of unsightly sights at the Jersey Shore on the beach or the boardwalk.

    Maybe if the state of NJ saw that there was something in it for them – taxes, economic impact, jobs, etc.

  95. 95
    zman Says:

    Anyone have access to the CK Cooper USEG initiation piece? Thanks.

  96. 96
    bill Says:

    ng is bad, coal is good says this guy

    re co2

    i wonder why he doesnt have nuclear in his chart


  97. 97
    BirdsofpreyRcool Says:

    Love this…

    It is a high-school exercise in geometry to show that the distance the eye can see to the horizon is the square root of the product of the elevation of the eye and the diameter of the Earth. So, if the elevation of the eye is 1.75 metres and the diameter of the Earth is 12,714,000 metres, you can see 4717 metres, or 4.7 kilometres.

  98. 98
    Popeye Says:

    Don’t forget the height of the rig in your calculation.

  99. 99
    bloodystupidjohnson Says:

    RE:97 which is 2.97 statute miles. Curvature of the earth means you CAN NOT see that far in the distance. Anyone standing at sea level and tells you he can see something 4 or 5 miles out is lying or drunk or both.

  100. 100
    Popeye Says:

    I may be drunk but I can see every rig off SoCal from the beach.

  101. 101
    zman Says:

    Pop – they’re tall for one thing but also not all that far out. And added bonus was that the ones off Alabama had such pretty lights at night and one even was flaring some gas.

    Re 97. Need to get you a hat with a little propeller on it.

  102. 102
    bloodystupidjohnson Says:

    Maybe its all the spinanch you have eatin popeye. — lol

  103. 103
    zman Says:

    Oil back to being up a buck.

  104. 104
    BirdsofpreyRcool Says:


    • Market Update – another very quiet session; as we exit Q1, sp500 remains in the same range it has spent much of the last couple weeks (high 1160s/low 1170ds); for the day, major indices are approx flat as of noon. Holidays impacting volume/attendance and hurting liquidity (this will prob. only become worse tomorrow). Equities opened on the lows following this morning’s sluggish ADP report & some fresh Greece worries, but once again demonstrating resiliency as we rally back to flat heading into the afternoon. Investors most interested in return preservation through the end of the day and not really doing a whole lot in either direction.

    • Equity sectors – Energy is the top performer as oil shrugs off a larger than expected inventory build and rallies higher (the drilling announcement from the US also not impacting crude it seems). Financials also very strong, led higher by the banks (BKX up another ~0.7% and is up ~22% for Q1). Discretionary and staples are the weakest areas in the market, largely on profit taking. The rest of the spaces are mixed as materials is the only group to eek out a small gain thanks to a weaker dollar. All eyes will be on tech after the close as RIMM/MU are set to report earnings.

    • Best Performing SP500 stocks: GNW, JDSU, DO, RDC, DNR, VIA, FITB, EXPE, RF

    • Weakest performing: SAI, AN, CEPH, LEN, OMC, BIG, RHI, IP, TGT

    • Commodities: Commodities are mixed this morning. Gold has come off its highs and is trading around $1115, up ~0.8%. Copper has sold off and is trading near its lows down ~0.75%. Natural Gas has weakened since the open, and is trading near its lows down around ~3.90 down ~1.85% Oil sold – off after inventories rose 2.93M barrels; however, it has come off its lows and has moved past $83, up ~0.9%

    • FX: USD (DXY) has weakened throughout the morning, trading near its lows around $81, down ~0.5%. The dollar has been steadily moving lower all morning and is essentially flat since 8:15am (when the weak ADP report hit). The dollar is trading near its lows vs. the Euro, down ~0.7%. After selling off overnight, the dollar has traded mostly flat vs. the Pound and is down ~0.7%. The dollar spiked vs. the Yen this morning, and is trading near its highs, up ~0.9%. The Euro has strengthened vs. the Yen throughout the morning and is trading near its highs, up ~1.6%.

    • Corp. Credit: Corp. Credit is underperforming equities – IG 14 is out 1 bp while HY 14 has lost ½ pt.

    • Treasuries: Treasuries have rallied a bit this morning (caught a bid off the weak ADP number) — the 2s are yielding 104 bps while the 10s are yielding 3.85%. The 2-10 year spread has flattened a bit to 280bps.

    • Greek debt worries back in the headlines; Greek CDS widening but Euro very strong today. the country’s bonds are selling off and CDS is widening (Greek CDS out at ~340bp, well off the ~280 lows from Mar 3). The debt issue priced this Mon continues to trade poorly in the after hours. Moody’s came out and downgraded 5 Greek banks today and there continues to be articles discussing May funding needs and interest costs that are well outside the projections contained in the country’s budget. From our desk today on a Greek debt auction – “Market participants seem still to be misunderstanding the 2022 tap which was requested by dealers to clear up a series of fails. Somehow got reported as a poor auction rather than a successful curve management exercise. The amount issued was simply a reflection of the size of the street short”

  105. 105
    zman Says:

    NOG just got away from me on this recent small cap Bakken rally, will pursue next dip.

  106. 106
    bill Says:

    who cares if you can see it

    except some moon bats that probably guzzle more fuel than the average person

    missing in todays approved drilling area is off of calif where popeye has stated they are already drilling

  107. 107
    Popeye Says:

    I have the hat already Z but thanks.

  108. 108
    bloodystupidjohnson Says:

    Rig count: yesterday on the site I read about how that rig count has not come back to where it was. But is that really comparing apples to oranges? The new drilling rigs are much more eficient that the old. On EVERY conf call, EVERY company is bragging about how their time to drill a well is going down with new rigs and new tech. So is it possible that drilling stats even a couple years old are out of date when comparing to todays drilling techniques and stats.

  109. 109
    zman Says:

    Blueberry Hill drilled an additional 1,000 feet over the last week.


  110. 110
    zman Says:

    BSJ – Yes they are different in a couple of ways but it’s still important in measuring activity. The shales are getting all of the attention. One way they are more different is that they are drilling shales faster than before thanks to PDC bits, more experienced crews etc. Secondly, they are targeting different things, non-conventional (shale) vs what they were before which was a lot more vertical holes looking for conventional gas reserves. While they drill faster and the cost of the reserves are lower, the decline rate is much higher than a conventional well. As the conventional portion of production is neglected it will decline and it is is the decline in this much bigger piece of production (80% of total) that will bring production lower. Right now the drilling is largely driven by acreage concerns. During 2011 that will transition to more of an economic decision. If your first year decline is 80% and you slow drilling of those types of wells, guess what happens to total production.

  111. 111
    bloodystupidjohnson Says:

    Yea, but if you drill a gadzillion wells in 2010, then 80% of that is still a really big number.

  112. 112
    bloodystupidjohnson Says:

    RE 111: Correction: I mean 20% of that is still a really big number.

  113. 113
    zman Says:

    We are talking an 80% decline in the first year so a well that makes 20 MM/d day 1 might be making 2-4 mm/d on day 365. When you stop drilling those wells you fall off a cliff. You can see where they are being drilled in the monthly slide show I put out. They are the cause of the hockey stick growth in Louisiana. When you stop that the hockey stick shape becomes a lump, unless you keep drilling at the same speed.

    The shelf used to be like this to only the decline rate was more linear with a 4 to 5 year straightline to 0. These essentially get a lot of their production out the door, call it half of it, in the first 2 to 3 years with the rest coming over the next 10 to 15 years.

  114. 114
    choices Says:

    Another hit on NG in New York


  115. 115
    zman Says:

    Choices – thanks. CHK toned it’s NY activity down last fall as the piece states. You’d think they’d double time getting the study on potential troubles done as the revenue source and jobs are definitely needed in NY.

  116. 116
    ram Says:

    What is supposedly the worst component in the liquid mix in fracing that could affect the water supply – hydraulic oil, diesel, other petro product?

  117. 117
    zman Says:

    re 116. Chemicals in the mix.

  118. 118
    zman Says:

    Ram – there is a lot of info in here:


    Personally, I think its all safe. Wyoming has this stuff on his Wheaties.

  119. 119
    cargocult Says:

    After reading your link I can see why a city might not want fracturing fluids in their water supply.

  120. 120
    zman Says:

    Cargo – Sure but getting them into the supply is the trick. Thousands of feet of rock between the aquifer and the shale zone. Those fluids cannot migrate through that.

  121. 121
    zman Says:

    HK working higher, finally. They are getting oilier, slowly but surely from 96% gas. Would have liked to have heard the presentation at HW and not just be looking at it. I probably won’t stick around in the options very long as that stock still has some deal fear stigma attached to it but honestly, I think people are missing the boat here, again, much like they did when HK broke the Hanynesville play wide open, only to see the stock sit there and wait for CHK to announce the same play. Then they both ran.

  122. 122
    zman Says:

    Adding to 121, I will very likely play HK for earnings though. I think that will be the first public forum where they can spell out the oil plays, with more drilling results.

  123. 123
    VTZ Says:

    RE 4: Haven’t done any work on it yet, but I also know a guy who works for one of the underwriters who might be able to help me out.

    I anticipate that it was massively oversubscribed and there will be built up demand when it starts trading.

    I’ll let you know when I have more info.

  124. 124
    zman Says:

    Thanks much V. When is it expected to come?

  125. 125
    zman Says:


    Sold the 10 SWN April $41 Calls for $1.25, up 49%. I continue to hold them in the ZCAT as well as the common in the ZLT. But for the ZIM, I think the initial pop due over the New Brunswick news has played out. From here it’s more a bit on ongoing discovery there in the market’s eyes and gas prices as we move towards 1Q reporting season.

  126. 126
    VTZ Says:

    I think it starts trading on the TSX in June… ATH.

  127. 127
    zman Says:

    Oil up 1.23 at 83.58, above where it was prior to the EIA inventory report.

    E&P names green, oily names a bit better on the day than gassy ones.

    NG down 5 cents.

    WLL going for a breakout.

  128. 128
    RobBanks Says:

    z – any chance SSN got crushed because the company had bigger plans than just the one well in that area, and the dry hole renders the whole area useless to them?

    Just wondering…

  129. 129
    zman Says:

    Rob – good question and I thought about that. This was a brightspot on seismic, near other production, which looked the same on seismic. It not working doesn’t necessarily debunk the other prospects (they have a couple in the area), probably makes a bit more risky and I’d bet they are going back over things trying to see what they missed with this well. Frankly, I say take your time, it’s gas and it wasn’t a big play and a successful run in the Bakken would be much more impactful to the company. And the Bakken may not work for them either, but they are in some pretty good real estate for it to. If they bring in a 1,000+ BOEpd well (which is possible given the area, lateral length) it will mean a lot more to them than a miss on this small gas target, which, had no big play plans after it, just a few other prospects.

  130. 130
    zman Says:

    Rob – you can see all about it here:


    Page 22 shows the failed Ripsaw prospect on seismic with some notes.

    Again, I don’t plan on being here long, not falling in love with the name by any means, just feel that it was an overaction with the possibility of a reversal and more due to a very near term catalyst.

  131. 131
    zman Says:

    Crude jumping as we approach the close of NYMEX for the quarter, now up $1.35 at $83.75. Needs to get through $85 to mark a new high for the year.

  132. 132
    zman Says:

    LINE up another percent, acting very well in the face of that bigger Senior deal last night.

  133. 133
    BirdsofpreyRcool Says:

    File under FWIW… I just feel (sense, smell) that the “short nat gas and the horse it road in on” trade is done. Quarter end. Big gains for shorts. Time to move on. Industrial production showing signs of life.

    Also, we are going to start hearing 1Q reports soon. If they (company managements) don’t start throwing in comments about lowering drilling capex, slowing programs, lowering production forcasts…. well, I will be surprised.

    Seems to me that CRK might be one of the faster horses for the next leg of the race. Been so shorted, due to their unhedged nat gas production… could see a fairly violent snap back.


  134. 134
    BirdsofpreyRcool Says:


  135. 135
    zman Says:

    Need to look at CRK again, re hedges, budget, growth comments, before I comment.

  136. 136
    zman Says:

    EXXI – VP Lawrence Buys 1,700 ($30.1K)

  137. 137
    RobBanks Says:

    129, 130

    Thanks for the color on SSN. Took a small gambling position.

    Any idea why NOG has been so strong lately?

  138. 138
    zman Says:

    NFX running a bit today, I have common there only at the moment. Reason for the run appears to be installation of a new platform at Belmut (Malaysia) which means production there is still on schedule for the 4Q. Not really news but that could be the reason for this little push.

    Re NOG – I’d just be speculating on the cause but am guessing it’s part of the small Bakken player allure mentioned above. KOG, AEZ also moving with this and with strong oil. I think it’s undervalued based on their acreage position and well results but not wildly so. Maybe it just needed to break out technically. I’m not in at present.

  139. 139
    zman Says:

    KOG running nicely.

  140. 140
    zman Says:

    Whole day turning into much ado about nothing as the S&P comes off.

  141. 141
    zman Says:

    Thanks for the additional followers here, every little bit helps


  142. 142
    zman Says:


  143. 143
    jat Says:

    Agree on 133 and I am largely out of pure gas shorts. I still question, though, how sustainable of a gas bounce you see in the next few months… barring massive EIA revisions / hurricanes / Aubrey down 50% on rig count. So they can be good for a good 15%ish across the gassys, more for some / less for others, but I don’t see them pricing in 7.50LT any time soon…

  144. 144
    elijahwc Says:

    MVO – someone certainly wanted it up at the close.

  145. 145
    elijahwc Says:

    #133 – Thoughts on BOP’s “to catch a fast horse you must ride a fast horse” comment on CHK:

    When my mule breaks from the gate I will be on the busted convertible pfd, CHKprD. We plan to cash a ticket or two even if we don’t cross the line with the fillys.

  146. 146
    elijahwc Says:

    On briefing: LNG/CQP Good one

    “WSJ reports on the heels of its February deal to buy a major commodities business, J.P. Morgan Chase is pushing deeper into the energy industry through a deal with a liquefied natural gas importer. Under a pact to be announced as soon as Wednesday, Cheniere Energy will give J.P. Morgan’s clients access to its Sabine Pass terminal in Louisiana. The two cos will also share profits from transactions they arrange together for clients shipping the fuel, according to people familiar with the matter. In addition, J.P. Morgan will offer financial backing for those transactions, the people said. Financial terms of the deal could not be learned.”

  147. 147
    BirdsofpreyRcool Says:

    elijah — what about the GDP converst?

  148. 148
    bill Says:



    might help z favorite stock, lng

  149. 149
    zman Says:

    Re 146. The pr says they will “utilize their combined expertise in the LNG market”. Hope JPM can bring some to the table, as LNG, the company has not demonstrated it has expertise in the global LNG market.

  150. 150
    elijahwc Says:

    BOP, I own them both, GDPAN & CHKprD.

  151. 151
    zman Says:

    TBP on Obama’s drilling announcement today:


    We’ve got their attention and things are starting to move.

    President Obama made the announcement this morning that he is in favor of drilling for oil off the shores of parts of the Atlantic Coast from Virginia on south, the Gulf coast of Florida, and Alaska. Why? Because the Administration agrees with us that we have to do what we’ve been saying all along: Anything American to reduce our dependence on foreign oil.

    I want you to be among the first to see the official statement we put out today so you can be up-to-speed:

    “President Obama’s plan to promote more offshore drilling for oil and natural gas is an important step in achieving true energy reform. We should be taking full advantage of every available American resource to help decrease our crippling dependency on foreign oil — a dependency that is slowing our economic recovery and jeopardizing our homeland security.

    “Even if the estimates of the reserves are correct, we are 10 years away from being able to use them. It’s imperative that we promote other immediately available domestic alternatives to solve the national security crisis created by foreign oil dependency.

    “Transportation has to lead the way — it accounts for two-thirds of our oil imports. No energy strategy can be effective unless it promotes the use of domestic natural gas as a transportation fuel alternative to foreign oil/diesel, and the focus has to be on America’s eight million heavy duty vehicles. The NAT GAS Act , a bipartisan bill proposed on both sides of Congress, would advance the use of natural gas as a transportation fuel.”

    If you agree with me, please forward this to your friends and family. Let’s keep pushing forward.

    — Boone

  152. 152
    Patipati Says:

    SEC Filing Alert
    TransAtlantic Petroleum Ltd. has filed the following document(s) with the United States Securities and Exchange Commission.
    Mar 31, 2010
    Form 10-K / Annual Report


    TAT: View all SEC Filings

    SEC Filing Alert
    TransAtlantic Petroleum Ltd. has filed the following document(s) with the United States Securities and Exchange Commission.
    Mar 31, 2010

    Form 10-K / Annual Report


    View all SEC Filings

  153. 153
    zman Says:

    Thanks Pati.

  154. 154
    BirdsofpreyRcool Says:

    elijah — what is the yield on the GDPANs? about 8%?

  155. 155
    elijahwc Says:

    BOP: Gassy cvts

    GDPAN – $2.69 cuml divi, so 7.8% at a 35.50 price.

    CHKprD – $4.50 cuml divi, so 5.4% vs a 83.625 price

    MMRprM – $6.75 so 6.4% vs a 107 price (but BEWARE this is a “Mandatory”, which means auto conversion into common later this year. November)

    EPprC – $2.375 cuml conv capital trst, so 6.3% @ 38.00. Everyone should own this one. Singularly unexciting but will pay pay pay with a 24% discount from par.

  156. 156
    Paul in Kansas City Says:

    Z i recommended on seeeking alpha as this site is MONEY WELL SPENT!!

  157. 157
    BirdsofpreyRcool Says:

    elijah — thank you for the list. I bought some of the GDP 5% convertible notes today at 88 (6% yield). Not a very sexy yield, and 97% out-of-the-money… but, liked the position in the capital structure. Still 200 bps spread between Sr and Sub securities is about right. A bit on the tight side, but about right.

  158. 158
    zman Says:

    Paul is my favorite person today.

    Looking through the TAT 10K, comments in the a.m.

  159. 159
    rseidman Says:

    Z: You’ve got one more follower on seeking alpha.

  160. 160
    BirdsofpreyRcool Says:

    BedTime Market Strategist

    Undressed Windows.

    The S&P 500 remained in its tight grinding trading range today. Overall, the action was fairly slow, especially since it was quarter end. The volume for the final day of Q4 last year was also slow. It will be interesting to see if this is a sign that regulatory efforts to crackdown are working or if it’s simply a lack of confidence in the tape that is keeping investors honest. The ADP employment report appeared to be the key catalyst of the session. The report missed expectations by 63,000 jobs. Following the report, equity futures down ticked and Treasuries rallied. In addition, the Euro, which started strengthening versus the Dollar overnight as European markets commenced trading, received an added boost and finally reclaimed the 1.35 level. The Yen attempted to strengthen following the report but was back to its weakest level of the session by 11 am. The energy sector had a bid thanks to the President (who would have guessed we would be saying that?). All in all, it was a ho-hum closeout to a quarter in which all of the gains were registered this month.

    Due to its compilation methodology, the ADP is not influenced by weather, which is expected to influence Friday’s BLS report. ADP also does not include Government, hence, no Census jobs were included. Despite the ADP numbers’ disappointment today, Joel Prakken, the Chairman of Macroeconomic Advisors who compiles the ADP report, noted that he still expects the BLS report Friday to be somewhere in the ballpark of 200,000 jobs added, largely due to the census and the weather. It is interesting that the economist who compiles the ADP does not expect its miss to materially influence the BLS report.

  161. 161
    zman Says:

    Thanks much RS!

  162. 162
    milepost_43 Says:

    141…am “onboard”

  163. 163
    zman Says:

    Thanks MP, seems silly I know but would like to get more eyeballs on the site.

  164. 164
    Patipati Says:

    Not silly, Zman — pays the bills. I commented, said was subscriber and great value

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