04
May

Tuesday Morning – Lots O’ Earnings

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Market Sentiment Watch: Markets turn nervous over Greek and other European debts. In energy land, BP will ship out the first of three coffer dams designed to be lowered over the Macondo wellhead in an attempt to capture a majority of the escaping oil. BP also clarified overnight that while one set of rams on the blowout prevneter were activated (closed), the seals apparently leaked around them, failing to reduce the flow of oil. Attempts to activate more of the BOP stack continue. In other energy news we have a plethora of earnings out today. Highlights include EOG which missed on the bottom line despite outperforming on the top as costs came in above the mid point (but still within the range) of guidance (see Stuff section below for more details/thoughts). Also, SM had a big beat and an interesting operation update (they named all plays and even cased a hole in the Niobrara) setting up a number of near term catalysts (details also in the Stuff section) and this should provide for stronger performance there today as guidance is and analysts estimates will be going up.  Looking for a weaker open for the market and energy but with lots of volatility today and for the rest of the week as we all look to Payrolls on Friday.

Ecodata Watch:

  • We get Factory orders (F=0.0%) and pending home sales at 10 am EST. 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stuff We Care About Today –  Earnings Briefs (APC, SM, CRK, FST EOG)
  4. Odds & Ends

Holdings Watch:

  • ZCAT (Zman Catalyst portfolio):

    • $16,300
    • 46% Cash (6 POSITIONS: EOG, WLL, HK, 2 BEXP AND CAM)
    • The ZIM, ZCAT, ZLT page is updated.
    • Yesterday’s Trades:

      • BEXP – Sold (30 of 40) May $20 Calls for $1.20, up 139%, with the stock at $20.40.
      • Added (25) CAM $45 May Calls for $0.60 with the stock at $41.10. 

 

  • ZIM (Zman Inefficient Markets portfolio)
    • $31,400
    • 77% Cash (4 positions - BEXP, SLB, AND 2 CAM)
    • Yesterday’s Trades:
      • Sold (30 of 40) May $20 calls for $1.40, up 90%, with the stock at $20.70, 6% today.
      • RRC – Sold the (30) May $52.50 Calls for $0.75, up 87%, with the stock at $50.
      • CAM - Added (20) CAM May $42.50 Calls for $0.85 with the stock at $39.30.
      • RRC - Sold the RRC May $50 calls for $1.60, up 74% with the stock at $49.90.
      • CAM - Bought (25) May $45 call for $0.69.
      • CAM - Added a second set of (25) May $45 calls for $0.50.


Commodity Watch

Crude oil inched up $0.04 to close at $86.19 yesterday, on the back of a resurgent equity market and counter to yet again stronger dollar. This morning crude is trading off about $1.25 on the weak equity futures and another jump in the dollar.

  • Early Read On Oil Inventories:
    • Crude:  UP 1.7  mm barrels
    • Gasoline: UP 0.1 mm barrels
    • Distillates: UP 1.8 mm barrels

Natural gas bounced $0.08 to close at $4.00 yesterday. This morning gas is trading off two cents and I continue to expect it to remain range bound until we see some late Spring, consistent cooling load kick in.

  • Imports Watch: 7.7 Bcfgdp, down from 8.1 Bcfgpd from last week.

    • Canada: 6.8 Bcfgpd, up 1.1 Bcfgpd from last year.
    • LNG: 0.9 Bcfgpd, down 0.7 Bcfgpd from year ago levels. 

 

 

Stuff We Care About Today

Earnings Briefs (SM, CRK, FST, EOG)

SM Reports Much Better Than Expected 1Q10 Results, Raising Guidance

  • Production of 285.8 MMcfepd, vs guidance of 255 to 278 MMCfepd
  • Revenue of $360.1 mm vs $200 mm expected
  • EPS of $0.45 vs $0.26 expected
  • CFPS of $2.07 vs $1.79 expected
  • Highlights:

    • Production guidance range increased from 92 to 100 Bcfe to a range 98 to 104 Bcfe.
    • Eagle Ford Shale - 10 additional wells completed; rates intentionally constrained on all as they test optimal production procedures.
    • Niobrara - first well drilled and casing set (meaning they have a discovery as it produced from natural fractures while drilling) and the well will be completed in May.
    • Granite Wash - first well drilled and completed but was still cleaning up at press time.
    • Capex sticks to the original plan with more money being directed to the Eagle Ford and less to the Haynesville and Woodford.
    • This is the most interesting press release of the day.
  • Conference Call: Today, 10 am EST

CRK Reports Less Than Awe Inspiring 1Q10 Results

  • Production of 18.8 Bcfe vs 19.1 Bcfe in 4Q09
  • Revenue of $106.8 mm vs $112 mm expected
  • EPS of $0.16 vs $0.10 expected
  • CFPS of $1.57 vs $1.65 expected
  • Highlights:

    • production grew due to Haynesville drilling, (44% of total production in Q1, vs 4% a year ago.
    • No guidance in the pr

  • Conference Call: Today, 10:30 EST

 

FST 1Q10 Results Come Up Short On Lower Prices, Announces Big Granite Wash wells and Eagle Ford Position.

  • Production of 416.9 MMcfepd
  • Revenue of $222 mm vs $227 mm expected
  • EPS of $0.42 (ex items) vs $0.47 expected
  • EBITDA of $171 mm vs $165 mm expected
  • Highlights:

    • Eagle Ford Shale:
      • 102,000 net acres, nothing drilling yet.
    • Granite Wash: Wells #8 and #9 flow 45 and 24 MMcfepd, the 45 MM/d well is the biggest announced yet in the play.
    • Guidance: getting oilier faster than expected, 2010 liquids cut was 20%, now 22.5%.
  • Conference Call: Today, 2 pm EST

 


EOG Reported Good Top Line 1Q10 Results; Bottom Line Comes Up Short; Guidance Reaffirmed.

The 1Q10 Numbers:

  • Production of 2.151 Bcfepd, near the upper end of the guidance range of 2.012 to 2.170 Bcfepd.

    • oil production was up 25% over 1Q09
    • total production was up 1.5% sequentially and 1% YoY
  • Revenue of $1.370 mm vs $1.22 B expected
  • Operating Costs:  On the high side but overall within guidance

    • LOE of $0.86 / Mcfe (guidance was $0.81 to $0.85)
    • Transportation of $0.46 / Mcfe (guidance was $0.42 to $0.46)
    • The other cash costs, G&A and Gathering, came in near the low end of guidance but as most analysts will mid-point $/MCFE costs, it wasn't possible to completely offset the LOE and Transportation high end of range results. My sense is that higher liquids production is lifting LOE more than people expected this early. 
  • EPS of $0.46 (ex items) vs $0.51 expected
  • CFPS of $2.83 vs $2.88 expected

Highlights:

  • Niobrara - In the latest presentation the Niobrara 400,000 acreage is referred to only as "too soon" under reserve potential. 
  • Bakken
    • East Montana Bakken well - not mentioned.
  • Barnett Combo:
    • Best well drilled to date in the play, the Settle B #1 H, IP of 1,852 bopd and 3.7 MMcfgpd of liquids rich gas.
    • Sets up additional drilling in Cooke and Montague counties.
  • Cleveland Play - 2 big IP wells
  • Net debt to cap of 20%.

Guidance: In Line on Volumes, costs up slightly.

  • 2Q10 volume guidance of 2.18 to 2.313 Bcfepd, or up 4.4% sequentially on the mid.
  • 2010 target reaffirmed at 13%
  • 2011 target reaffirmed up 19%
  • 2012 target reaffirmed up 21%
  • Cost guidance remains the same except for LOE for the year which is inched up from a range of $0.75 to $0.80 / Mcfe to a range of $0.77 to $0.82 /Mcfe. 

Nutshell: In summary, strong on the top line, weak on the bottom. Costs were in line with guidance coming  in a little high on lease operating area but within the range, and several other categories came in low. Looks like the analysts just went too low to middle of the road in their models. Guidance remains unchanged for volumes. Guidance for costs is up ever so slightly. No Niobrara or E.Montana results available in the press release so little to wow the crowd but the very strong rates from the Barnett Combo wells should not be dismissed out of hand.

Conference Call: Today, 9 am EST

Other Stuff:

  • BHI call, Today, 8:30 am EST
  • APC call, Today, 10 am EST
  • WTI (mentioned in yesterday's Shelf player summary, beat estimates, raised guidance), Call Today at 11 am EST.

Odds & Ends

Analyst Watch:

  • FST - UBS raises target $5 to $32.
  • SM - UBS raises target 9 to $43, stays Neutral

 

164 Responses to “Tuesday Morning – Lots O’ Earnings”

  1. 1
    zman Says:

    Wyoming, thanks for the snapshots and a good quote form Fletch

    http://www.scribd.com/doc/30881586/5k-Tree

  2. 2
    dij Says:

    A larger perspective on the spill:
    http://www.nytimes.com/2010/05/04/us/04enviro.html?ref=global-home

  3. 3
    zman Says:

    I’m still mulling the impact of the CHK update and the oil play details contained therein.

  4. 4
    zman Says:

    CAM has $500 mm in liability insurance. I’d add that the BOP was out of warranty, had passed tests just recently and is owned by and the responsibility of RIG.

  5. 5
    elijahwc Says:

    “North Dakota mafia.”

    Wunderlich Securities, Inc.: 18th Williston Basin Petroleum Conference: Hey, Texas, Here Comes North Dakota
    AEZ:

    The first day of the Williston Basin Petroleum Conference in Bismarck, North Dakota, with its record attendance, showed the excitement for a play that continues to produce staggering results. One attendee commented that the 2,000+ attendees was quite a change from the conference a few years ago that consisted of just a few locals. To say the mood of the conference was positive would be an understatement as producers seem to continue to one-up each other with results on nearly a daily basis. What impressed us the most was the sheer size of the entire play along with the individuals that help set the records. Thanks to the Bakken play last May, North Dakota surpassed Louisiana as the fourth-largest oil-producing state in the nation behind only Texas, Alaska, and California, while ranking ninth just four years ago. North Dakota would have to triple its production to surpass third-ranked California, but given the amount of activity, this is not out of the question a couple of years out.

    Key Points

    A record demonstrates enthusiasm for play. With over 2,600 registered attendees, the first day of the conference was by far and away the most crowded on record. Attendees drove over 200 miles to visit the conference, given hotel rooms were sold out in surrounding areas. The mood by all in attendance was very positive with a number of deals being discussed. However, we were surprised by the lack of investors attending the conference with so many publicly traded companies in the play given the huge financial position in which many have invested.

    Not just what you know, but who you know. We came away from the conference believing that many of the top players in the Bakken are not associated with publicly traded E&Ps but private individuals. We call this group the “North Dakota mafia.” Members of the group such as King John and Ryan possess vast amounts of knowledge and have larger acreage positions than many public entities. We believe the key for many companies (public or private) is to tap into this knowledge base as most seem to know where the bodies are buried, which is crucial to know when deciding what, where, and how to drill wells. We were amazed to learn of the variance in the cost of neighboring wells largely because of the knowledge and local connections.

    Jaw-dropping statistics. When will the first 100 stage frac come? This is a question we found ourselves asking after hearing of a 50+ stage upcoming well with a lateral section over 10,000 feet. One operator said that with fracs costing less than $2,500 per stage, the cost is a small price to pay for increased results if the rock formations support such a process. However, we heard of another operator offering to pay a frac company a premium of 20% to ensure that the company had ample supplies for quarters to come. We hope that prices such as this do not inflate what we believe to currently be a fair market when it comes to oilfield service costs.

    Not all results are created equal. There have been a number of statistics released on numerous Bakken wells. Trying to interpret these results is key in determining not only how good a certain well is likely to be, but how attractive the play in that well’s region looks. We hope that instead of primarily initial production (IP) rates, companies begin releasing expected payback periods or at least 30, 60, and 90 day results like Whiting Petroleum (WLL-NR) spoke about during its lunch presentation. We heard of certain Bakken wells that, at today’s oil price, are paying back in less than three months and have EURs of over 500,000 barrels—rather astonishing, in our view.

    More excitement from the Bakken happens today via a state lease sale. We could see more evidence of the enthusiasm for the play tomorrow as there is a state lease sale held at the North Dakota state capital.

    American Oil & Gas’ (AEZ-$7.60, Buy) Bakken results just getting started. American was the only one of our followed companies operating in the Bakken that we spoke with at the conference. We believe that the company is doing all the right things to maximize its upcoming wells. Specifically, we believe the next completed well (Ron Viall 1-25H) could result in an IP and sustained rate of over 2,000 boe/d. We also look for American to continue to be active given its acreage position in the play. We believe the market could have a better idea of the company’s true value after some sustained production and reserves are shown. …

  6. 6
    BirdsofpreyRcool Says:

    Pritchard out with a report on KOG with a “buy” and a $5 PT.

  7. 7
    tomdavis12 Says:

    Z: CSFB lowering EPS estimates for DVN today.

  8. 8
    zman Says:

    Thanks ELI, knew it was going on as I almost went but had not yet seen a write up. Wonder who is doing the 50 stage frac, BEXP’s longest is 36 completing now.

  9. 9
    zman Says:

    EOG call starts in 2 minutes

  10. 10
    zman Says:

    TPH calling EOG CFPS was $3.01, above estimates, I’ll go back and check my math. They are attributing the EPS miss to higher DD&A (non cash).

    EOG CC Notes:

    Barnett Combo thoughts – very big well, considerably higher than plan, this well was drilled in the best rock quality of the play (eastern side), this area had natural fractures and was going to be developed via verticals as they would have been economic here. Now, it looks like they will go with horizontals, this could lead to upside on the liquids numbers.

  11. 11
    zman Says:

    EOG CC Notes 2:

    China – will complete 2 more wells this summer, to see if they can replicate the success of their first well.

    Divestitures: Canadian shallow gas unit to be sold mid year.

    Looking for a JV for Marcellus.

  12. 12
    zman Says:

    FST and SM to be strong this morning.

    That FST well is good for the name, also for the likes of NFX, SM, PVA, APA, and CHK in the play.

  13. 13
    BirdsofpreyRcool Says:

    From Madison Wms Energy Note this morning…

    TAT – in talks to acquire the oil & gas division of Zorlu (giant Turkish conglomerate); both mgmt teams confirmed the discussions involving the sale of Amity Oil Pty Ltd and Zorlu Petrogas; no additional information released on size of potential transaction, valuation, etc.

  14. 14
    zman Says:

    EOG CC

    Natural gas: think the EIA revision was only 1/3 of what it should have been.

    They don’t think this is a time to be adding gas hedges.

    They are short term slightly bullish on gas prices and long term rather bearish.

  15. 15
    zman Says:

    Ugly open on tap.

    BP has traded nearly 3 mm shares and is up as people start to bottom fish it.

  16. 16
    jiveyjr Says:

    thx for that note #5 that included comments on AEZ Eli

  17. 17
    elijahwc Says:

    Citi on APC: Note Insurance comment that even beyond limits BP may have to indemify them!

    Flash: APC: Quick Read: Solid Beat While Investors Fret Over Gulf Of Mexico

    Q1 Earnings/Production – Anadarko reported recurring Q1 2010 EPS/CFPS of $0.83/$3.06 well above our $0.50/$2.77 estimate and $0.42/$2.79 consensus. Production (excluding favorable Gulf of Mexico royalty adjustment) rose 14% vs. Q4’09, well above the guided 5-10% sequential increase. The beat was driven by no offshore Gulf of Mexico downtime benefitting oil, and the use of larger tankers to lift Algerian oil. Adjusted natural gas volumes were in-line with expectations.

    Gulf of Mexico Oil Leak – Disclosed insurance limit of $162.5 million (net of $15 million deductible), which given its 25% non-operated stake in the BP-operated well equates to a $710 million gross cleanup cost. As a leaseholder, APC appears responsible for 25% of expenses incurred above that figure (a likely outcome), although will (if possible) seek recovery from service companies and/or BP.

    Full-Year Guidance Raised 1.5% – To 230-234 MMBOE (4.5-6.5% year-over-year increase), from 226-231 MMBOE (3-5%) target in March. Given the adjusted ~60 MMBOE pace in Q1, this appears achievable. None of its GoM production is currently shut-in, nor does the company anticipate downtime due to the oil slick.

    Exploration/Development Pipeline – In the GoM, follow-up appraisals at Lucius, Vito are in progress, with the Heidelberg re-drilling teed up. Offshore Africa, the Mahogany-5 appraisal is drilling with Ironclad about to spud. Domestically, APC noted positive results at its oil-rich Bone Spring shale play. Mega-projects Jubilee (Ghana) and Caesar/Tonga (GoM) on-track for end of ‘10/mid-’11, respectively.

    Financial Update – Cash on hand now $3.7 billion (up $200 million from yr-end). Q1 CapEx of $1.24 billion pace below full-year $5.3-$5.6 billion guidance range. Added 55 MBbls/d of new 2011 oil hedges with ~60% now protected at ~$80/Bbl.

  18. 18
    zman Says:

    Re 17 – re leak, that could be a big hit.

    EOG – the DD&A rate is temporarily higher due to start up of their newer driller programs. This is non-cash, so it hits EPS but not cash flow. It should correct lower in time as the reserves per well in some of these plays rise. Stock getting sold hard. I own 10 contracts in the ZCAT and may add in the ZIM shortly (down $6.30 seems a bit over done).

  19. 19
    zman Says:

    Nicky – got levels? Market falling off rapidly here.

  20. 20
    zman Says:

    ZTRADE – ZIM – EOG

    EOG – Added (10) EOG May $115 Calls for $1.23 with the stock at 109.25, down on earnings. Conference call details offsetting a miss on earnings at this point. Story remains on track, more catalyst remain this summer. Buying this for a quick discount trade.

  21. 21
    Nicky Says:

    Morning all. With today’s open the triangle count is off the table.

    Support at 1180,1175,1168

  22. 22
    zman Says:

    Thanks much, we’re at 1,180 now. Seeing lots of stories about May dismay and bears out for the kill, yada, yada.

  23. 23
    Nicky Says:

    I am not favoring a really bearish count at this moment. For me this is a C wave and the fib possibilities are here at 1180 level or possibly down to 1166.

  24. 24
    zman Says:

    EOG CC

    “acreage costs have gone up dramatically in the play we highlighted since our analyst conference (one month ago), in some cases 10 fold.” That would be the Niobrara.

  25. 25
    zman Says:

    SM call in 10 minutes.

  26. 26
    ram Says:

    When ELI bet the brew on a SSN move that made me believe that the Niobrara could be special.

  27. 27
    dij Says:

    What is this about, European debt worries? I see what the dollar is doing, 83.07. Crude is down only a dollar. There are no headlines.

  28. 28
    zman Says:

    March pending home sales up 5.3%

  29. 29
    zman Says:

    Crude is down $2 on the dollar rally and the weak equity markets.

  30. 30
    zman Says:

    Niobrara natural fracturing is going to be the big deal about the play. Some of these wells have flowed as high as 1,500 bopd from a horizontal without a frac.

  31. 31
    zman Says:

    Factory orders were 1.3% vs 0.0% expectation.

  32. 32
    zman Says:

    SM call started, SM presentation:

    http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzgwMzQ4fENoaWxkSUQ9MzgwMzA3fFR5cGU9MQ==&t=1

  33. 33
    zman Says:

    SM increased guidance due to Hayensville and EFS drilling without an increase in capex.

  34. 34
    zman Says:

    SM Notes:

    Higher LOE guidance simply didn’t materialize.

    Not really feeling like chasing the name at this point, may revisit in a few days.

    Operations stuff on the call still to come. Will be interested in any color they can provide on timing of completion and what their expectations are for the Niobrara well.

  35. 35
    zman Says:

    SM Notes Operations:

    Reducing gas drilling in the Haynesville, Woodford and Marcellus as they boost Eagle Ford shale spend.

    SM – 4Q09 to 4Q10 to now grow 15% (and that includes some divestitures).

  36. 36
    zman Says:

    SM Notes:

    Eagle Ford Shale:

    Limiting their wells to a 2.5 MMcfepd initial rate to protect their completions.

    Results suggest condensate and rich gas is more prevalent on their acreage. Only think 15% of their acreage will be dry gas window.

    They have not noticed any decline in the condensate production to date from their previously disclosed wells.

  37. 37
    zman Says:

    Eli – sounds like worry over Macondo for APC is not as high as I would have thought. Operationally they had a very strong quarter.

  38. 38
    zman Says:

    SM Notes:

    Granite Wash – 32,000 net acres

    first well flowing back after completion, second well drilling.

    Niobrara Comments

    Atlas 1-19H – drilled and set casing. Drilling underbalanced to keep from mudding up the natural fractures. Plan to due a multi-stage fracture later this month. They have 25,000 acres here.

    I’d add that SSN has 40,000 net acres in the Niobrara.

  39. 39
    zman Says:

    SM Notes:

    Out of a complete lack of imagination that makes me think of EOG, Saint Marys is changing their name to SM Energy.

  40. 40
    zman Says:

    SM Notes

    Niobrara – very early days, very different from the Bakken in that you have these big open, natural fractures. Not yet clear if it is a widespread uniform play or if this will be a more sweet spot oriented play.

  41. 41
    zman Says:

    SM backing off its highs, market, not anything they said on this call yet that I can think of. Still not feeling like chasing.

    Not reading the headlines but is this debt worry resurgence a lot more than just Greece?

  42. 42
    zman Says:

    There went 1180.

  43. 43
    baylor3217 Says:

    Wow. What’s driving the NASDAQ down so much?

  44. 44
    zman Says:

    Probably AAPL

  45. 45
    BirdsofpreyRcool Says:

    TechTrader not around… but HeadTrader saying tough mrkt… and energy is a weak sector today.

  46. 46
    BirdsofpreyRcool Says:

    Greece is getting bailed out by other countries… and yet, their public sector employees are striking b/c their vacation bonuses may be cut. Shades of things to come??

  47. 47
    VTZ Says:

    Sounds like I-bankers getting bailed out directly and indirectly by Fannie/Freddie, govt and absurdly low rates and complaining because their outrageous bonuses may be cut.

  48. 48
    BirdsofpreyRcool Says:

    VTZ — can’t argue with that!

  49. 49
    VTZ Says:

    Funny stat would be I-banker bonuses as a % of Greece GDP.

  50. 50
    VTZ Says:

    Gold managed to recover important support at 1172. Dollar is approaching a 61.8% fib retracement.

  51. 51
    Nicky Says:

    Resistance is now at the 1180 – 83 level.

  52. 52
    tomdavis12 Says:

    43 GOOG also

  53. 53
    zman Says:

    Thanks Nicky.

    EOG nearing HOD now (look quick as things look collapsible)

  54. 54
    zman Says:

    RIG and BP up now.

    Market looking to roll up a bit but that’s probably just lunch time.

  55. 55
    zman Says:

    Analyst Watch:

    EOG cut to Hold at S&P, target cut $4 to $117.

    S&P obviously doesn’t get this or many other things in the world.

  56. 56
    VTZ Says:

    S&P is probably making record profits and giving out record bonuses for the masses of ratings changes this year.

  57. 57
    VTZ Says:

    I’ll stop being so cynical and sarcastic. Apologies.

  58. 58
    zman Says:

    V – No worries, they deserve the abuse. Only wish I could downgrade them.

  59. 59
    zman Says:

    ZTRADE – ZIM – FST

    FST – Added (20) FST May $30 Calls for $0.90 (on the mid and easily) with the stock down 2% following earnings. The stock has received at least 3 target upgrades this morning and I found earnings and the operational update to be impressive but the stock is succumbing at the moment to a very weak market and group day. Conference call at 2 pm EST.

  60. 60
    zman Says:

    Analyst Watch: FST

    UBS target upped $5 to $32

    Stifel ups $5 to $35

    Raymond James upped to Strong Buy, tgt $40.

  61. 61
    Gmlgdc Says:

    I am getting a strange quote on the FST May 28 Calls the number seems out of line

  62. 62
    zman Says:

    I show those $1.95 X $2.10

  63. 63
    Gmlgdc Says:

    Shouldn’t it be closer to $2.50 – $2.80 to be inline with other amounts seems abnormally low

  64. 64
    elijahwc Says:

    CNBC needs to fire everyone and start over.

  65. 65
    BirdsofpreyRcool Says:

    MIDDAY OVERVIEW

    Market Update – after a nice bounce on Mon, equities are back for sale today, w/European sovereign worries weighing hard on sentiment. The Euro is off more than 1.2% on the day and has broken through the technically important 1.31 level (breaking to 52w+ lows); the euro is off ~14% from its Nov ’09 highs. Sentiment towards Europe continues to rapidly deteriorate, w/each incremental action taken by officials (i.e. the EU/IMF rescue package, the Greek collateral rules, etc) being shrugged off. Today specifically, there was speculation that a bailout package was being prepared for Spain (something the Spain PM said was “crazy”) and also reports that Greece has secured Lazard to help w/a debt restructuring (Greece subsequently said Lazard would only be providing general financial advice and that no restructuring was being planned). Away from Europe, the markets are still worried that China is set on engineering a slowdown in its economy, which could send ripple waves through the world. The RRR hike from the weekend is just the latest move and comes after a slew of actions taken to cool housing. The China PMI today from HSBC/MarkIt showed the country’s economy is cooling. Despite the China PMI this morning, global eco numbers remain robust (see the latest JPMorgan Global PMI reading below – it hit a fresh new high again for this expansion) and we are wrapping up a very strong Q1 earnings season. In terms of desk color, the real start of this sell-off can be traced back to 4/16, when the sp500 closed off 1.6% on back of the SEC Goldman charges. There was a slight change in tone that day that is becoming increasingly apparent. There is no longer a firm bid underneath the tape from large long-only vanillas, although that cohort also hasn’t been a large seller either. In terms of quicker traders, they have become much more comfortable laying out shorts (although are still relatively quick to cover). The higher beta groups (like semis, metals) are being quickly sold off in the last few days. US equities have been able to bounce when Europe closes for the last few weeks, but so far that hasn’t happened – we will have to see how the afternoon shapes up and whether the sp can close north of 1170.

    Technicals: recall Krauss has been saying that 1175-1180 important range and wouldn’t be worried until a breach under 1170; note that the 50day MA on the sp is 1168 (this is all cash)

    Equity sectors: Materials are getting crushed today, falling nearly 3.25% as worries in Europe cause a spike in the dollar, sending commodity prices sharply lower. A lot of key base metals (copper, zinc, aluminum) are close to falling through their 200 day moving averages. Industrials are nearly just as bad, falling 3.1% as investors move money out of the higher beta machinery names as well as airlines and homebuilders. Tech and discretionary are off 2.75-3% as well today, pretty much with weakness across the board (although the SOX is lagging within tech, off ~4.5%). Energy is down over 2.5% as crude oil drops nearly $3 towards $83 and BHI reported weak earnings, offsetting strong earnings from SM and APC. Financials are slightly outperforming the market today, down just over 2% as GS remains flattish on talk that it will begin talking with the SEC to settle the fraud case. Telecoms are off around 1.75% on weakness in PCS and S. Healthcare is outperforming, off just 0.8% as the space gets a little bid on strength in PFE (earnings) and MRK (earnings). Utilities and staples are down 0.75% and 1.25%, respectively, outperforming as investors put money to work in the lower beta sectors.

    Europe : Europe is underperforming the S&P500 across the board (with the exception of the Swiss SMI). The weakness has been in part to a Bloomberg story that Greece has hired Lazard for a possible debt restructuring and a WSJ article that the aid from the EU/IMF may not be enough to match Greece’s costs. The Greek ASE is down >6.5%, with financials down >10%. The weakest stocks in the ASE include: Sidenor Steel, Sprider Stores and the National Bank of Greece. The IBEX is underperforming off a NYT article that says Spain might follow the same path as Greece. Weakest stocks in the IBEX include Sacyr Valleherm, Banco Popular and Gamesa. In other countries – the FTSE/DAX are trading relatively in line with the S&P 500.

    Commodities: Crude oil has sold off, and is trading near its lows around $83.30, down ~0.7% Natural gas has fluctuated throughout the morning and has fallen below $4 heading into the afternoon. In metals – both copper and gold are trading near their lows.

    FX: USD (DXY) is trading near its highs around $83.20, up >1% today. The dollar has rallied throughout the morning vs. the Euro, up ~1.2%. The Yen is also trading near its highs vs. the Euro up ~1.2% The dollar has just recently come off its lows (albeit modestly) vs. the pound and is up ~0.75%. The dollar is flat in choppy trading vs. the Yen.

    Corp. Credit: Corp. Credit is mixed with IG 14 underperforming equities, out 4 ½ bps, and HY 14 posting a less significant loss than stocks – dropping 21/32 of a point.

    Treasuries: The 2s have come off their highs and are yielding 95bps. The 10s have been able to hold on to much of their early morning rally and are yielding 362bps. The 2-10 year spread has flattened to 267 bps.

  66. 66
    zman Says:

    Eli – what did they do now?

    GMLGDC – I think it looks fairly in line with the other strikes.

  67. 67
    zman Says:

    Re 65, thanks, that about sums it up. My sense is they will bounce this quickly in the next couple of days, that the S&P is not headed back to the early 2010 lows. But I am an eternal optimist. I just don’t see much new in the “news”. Feels like a bit of panic (though not on big volumes) combined with overdue profit taking.

  68. 68
    BirdsofpreyRcool Says:

    I think a lot of people are in the “sell in May and go away” mode. Actually, I know they are.

  69. 69
    zman Says:

    BOP – seems early to me for the summer doldrums to start, that’s so next week. Besides, what was yesterday about?

  70. 70
    zman Says:

    Someone should have launched the Alert 5 aircraft:

    http://news.yahoo.com/s/nm/20100504/wl_nm/us_iran_gulf_wargames

  71. 71
    Nicky Says:

    Cycles really do not point to a larger sell off until around August and then it is likely to only be between 10 and 20% and higher highs will follow after.

  72. 72
    BirdsofpreyRcool Says:

    Thank you, Nicky.

  73. 73
    PackMan Says:

    Any comments on ATPG ? buy / sell / hold ?

  74. 74
    Nicky Says:

    Goldman Sachs is actually green.

  75. 75
    zman Says:

    Nicky – so is BP.

    Packman – nothing from me but maybe Bill or others have some thoughts.

  76. 76
    zman Says:

    Washbrob – Please check your email.

  77. 77
    Jerome Blank Says:

    #73 Packman…ATPG is on a new P&F sell signal but is currently holding within long term P&F trendline support…a $17.00 print breaks below long term P&F support…

  78. 78
    zman Says:

    OII getting drilled for 7.5% on a Howard Weil downgrade.

  79. 79
    RMD Says:

    WFC piece on ENP guesses it gets bot by another MLP, or maybe sells Elk Basin reserves back to DNR and then the rest is bought by someone. Will be interesting to seeas ENP sells at $4.24/mcfe and $20,190/m/d; since it is no growth production only another MLP would be interested in theory, unless CHK wants to buy a starter-MLP for it’s conventional reserves. Would a corp. buyer pay 6.5X Eda? That would approximate it’s EV today.

  80. 80
    zman Says:

    Favorite yield names remaining fairly bullet proof this so far. WHX and LINE barely budging.

  81. 81
    zman Says:

    FST call at the top of the hour, stock still stuck down 2%.

  82. 82
    Jerome Blank Says:

    FST..interesting bullish consolidation triangle on the 5 min intraday….I’ll leave it up while it’s relevant…

    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3724280

  83. 83
    zman Says:

    Thanks JB, will go have a look. Am only playing for a quick trade and only because the market is masking some pretty poppy news there.

  84. 84
    zman Says:

    Thanks and Voted.

  85. 85
    Jerome Blank Says:

    Re: #84, Zman, thank you…

  86. 86
    zman Says:

    Anyone have a link to the Coast Guard press conference? Their main site is down.

  87. 87
    zman Says:

    BP says its executive “misunderstood” the situation:

    http://www.fox10tv.com/dpp/news/gulf_oil_spill/bp-retracts-statement-on-gulf-oil-leak

  88. 88
    Jerome Blank Says:

    $SPX… an interesting inverted head and shoulder type pattern on the 5 min intraday…

    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3724280

  89. 89
    RMD Says:

    GST is just eroding higher. Broke a 6 month P&F top at $5.

  90. 90
    zman Says:

    EOG – Post call reading that Morgan Stanly kept their numbers unchanged, basically calling it an in line quarter. Saying cost control will be key going forward as the company gets more liquid rich. Duh.

  91. 91
    zman Says:

    FST call about to start:

    http://web.servicebureau.net/conf/meta?i=1113175173&c=2343&m=was&u=/w_ccbn.xsl&date_ticker=FST

  92. 92
    Jerome Blank Says:

    Re: #89, GST looks good right now…posted a chart…

  93. 93
    tomdavis12 Says:

    Z: 90 MS had been .07/sh below the street numbers.

  94. 94
    Jerome Blank Says:

    EOG intraday chart perspective…

    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3724280

  95. 95
    zman Says:

    Tom – right, the miss for everyone else was DD&A which was non cash, that and they got ahead of guidance.

    Feels like a buyers strike out there.

  96. 96
    zman Says:

    FST –

    Re the 45 MM/d well, they said it was the same frac design, same number of stages, as the previous wells, but this one just opened up a new interval (there are stacked pays here) that they had not seen before and got a great rate out of it. They added the 5th rig in this area with this interval in mind.

  97. 97
    PackMan Says:

    ATPG thanks JB

  98. 98
    zman Says:

    FST Notes – adding the 5th rig will get them 4 more wells into the same interval that produced the 45 MM/d well, in the south and central part of the Granite Wash.

    Total cost of these is $8.7 mm, cost falling on the drilling piece of this which is about $4.7 mm now, as the time to get to TD keeps dropping.

  99. 99
    RMD Says:

    12:54 GS Goldman Sachs: Fox Business News Analyst Charlie Gasparino reporting that GS would like to enter into settlement talks after filing response to subprime civil charges; says GS response to the SEC expected soon, maybe even this afternoon; believes a hefty fine and mgmt changes could possibly be involved if SEC agreed to a settlement (149.61 +0.11) -Update-

  100. 100
    zman Says:

    FST – Granite Wash

    They are confidant that this 45 mm/d well is not a one off event, they are seeing data from offset operators showing this to be the case.

  101. 101
    skimo Says:

    Is FST always this confident? These guys sound pretty self-assured.

  102. 102
    elijahwc Says:

    Niobrara Article:

    http://www.ogfj.com/index/article-display/4466065513/articles/oil-gas-financial-journal/volume-7/issue-4/analyze-this/Oil-shale-deal-flow-heating-up-in-Bakken-Niobrara.html

  103. 103
    john11 Says:

    Was wondering same thing skimo…lol.

  104. 104
    zman Says:

    RMD – thanks, could also take 1 weight off the market’s back.

    Movie Quote Tuesday

    “Roger…Pay the two dollars.” spoken with great exasperation and eye roll.

  105. 105
    zman Says:

    Re 104. Contest only valid on Fridays.

  106. 106
    elijahwc Says:

    #99 To add fuel to the fire; making the rounds is the rumor that Fairholme’s Bruce Berkowitz has bought a slug.

    Both seem resonable.

  107. 107
    zman Says:

    Skimo – they are a bit proud yes, but they’ve done a pretty good job and the stock has not moved that much of late considering the results.

    FST – they don’t have a 30 day rate yet but they will say it continues to perform well.

  108. 108
    Wyoming Says:

    North by Northwest

    Not to be confused with “Two Dollars …. I want my two dollars”

  109. 109
    zman Says:

    FST Notes:

    Wow. That gross production rate of the Granite Wash well is post tailgate, so that’s all the gas, 90% of the NGLs and all the condensate on the tail pipe of the processing plant. That’s a truly impressive onshore well. Heck, that would be a really nice well on the Shelf. Sounds like the declines on these are coming in north of the modeled curve.

  110. 110
    zman Says:

    IMF says board to consider Greece package Sunday.

  111. 111
    zman Says:

    Wyoming – right you are. $2, the fine for drunk driving in Glencove, NY in the late 50s.

  112. 112
    zman Says:

    TAT, like GST, inching up, despite the unknown cost of an acquisition that probably takes them closer to doing an equity offering.

    FST call over, pretty good stuff for a downbeat kind of day.

  113. 113
    BirdsofpreyRcool Says:

    rat-a-tat-TAT attack… somebody(s) like the rumored acqtn. Anyone know any details on the properties to be acquired? Are they in Thrace Field??

  114. 114
    Wyoming Says:

    So with Greece’s issue resolved, does that mean the rest are now the PIIS?

    BTW, I am first generation Greek. I won’t tolerate any jokes like:

    How do you separate the Greek boys from the mean?

    or

    Why do the Greek boy not want to leave home for College?

  115. 115
    ram Says:

    I doon’t understaaaand…….

  116. 116
    elijahwc Says:

    Another jam in volume on the S&P Emini’s on the turn into the final hour. I don’t think that it took, but it sure illustrates the trade that the machines and global macro folks want.

  117. 117
    BirdsofpreyRcool Says:

    HeadTrader saying that JPMo and GS have not covered the short they put on over the last few weeks. Says pit traders saying GS wants to cover at 1159 o 1168 on futures… so must be getting close.

  118. 118
    zman Says:

    Wonder if that Jeff Childs cat still has a job.

    Ram – I feel your lack of understanding but don’t understand what it is that you don’t understand.

  119. 119
    zman Says:

    Thanks for the laugh Wyo. Should be an interesting move into the close today. We have ADP numbers tomorrow.

  120. 120
    zman Says:

    re 117, thanks for the trading desk color. Makes you wonder if GS shorted GS going into the testimony last week.

  121. 121
    dij Says:

    BOP, On that GS note of covering, the 6 month indicators (STO and MACD) have a little way to go before bottoming

  122. 122
    ram Says:

    I don’t get how HW can down grade oil and then it gets drilled for 7.5%.

  123. 123
    zman Says:

    Interesting to watch those EOG options. Bid keeps rising even when glancing at the stock at the same level as the IV increases following the call.

  124. 124
    BirdsofpreyRcool Says:

    HeadTrader agrees with Nicky and dij… it’s not the beginning of a big down move. But it may have a little more to go, before turning north.

  125. 125
    zman Says:

    OII, not Oil.

  126. 126
    zman Says:

    Hey BOP, put me in that camp too as per # 67 above.

  127. 127
    ram Says:

    Oh, I must have glanced and the letters ran together or something.

  128. 128
    zman Says:

    Hear ya, no worries, beerthirty, another 10 or so companies I watch reporting tonight. yippee-skippee.

  129. 129
    dij Says:

    Those nasty I’s and L’s. Just write it out with the Palmer Method.

  130. 130
    zman Says:

    CHK looking like good sized beats top and bottom line, redirecting capital away from gas and to liquids projects.

  131. 131
    choices Says:

    BOP-any movement on credit spreads today?
    JNK/HYG fairly weak today, I guess along with everything else.

    Thanks.

  132. 132
    BirdsofpreyRcool Says:

    choices — thanks for asking… credit went out at the wides (weak) for the day.

    IG +7 1/2 bps to +98 1/4 bps

    HY -1 1/8 pts to 99 3/8

    so, credit indices followed stocks wider and lower on the day.

  133. 133
    zman Says:

    XCO on the tape deferring drilling in the Haynesville in areas that are held by production. About damn time.

  134. 134
    elijahwc Says:

    For those of us have who have been curious about this the following item is now on the tape:

    PXD Pioneer Natural Resources announced it will continue its Eagle Ford Shale program (64.13 -2.10)

  135. 135
    elijahwc Says:

    WOW department stuff:

    Anybody catch the Matt Simmons interview on CNBC with Maria B? The one where he raises the specter of having to allow the reservoir to drain naturally and the GOM turning into the Dead Sea as a result? Is he planning a new chapter in the Peak Oil book?

  136. 136
    BirdsofpreyRcool Says:

    Simmons’s comment seems a bit extreme… wonder why he tossed it out there? Maybe he is looking for a gig on MSNBC or something. wow, for sure.

  137. 137
    elijahwc Says:

    BOP it was a grenade. Maria B’s response was a jaw dropping oh my G.d

  138. 138
    VTZ Says:

    Dollar still going bonkers… Whoever said my blow off top needed a little further to go was right.

  139. 139
    elijahwc Says:

    Your Announcement:

    TAT TransAtlantic Petroleum announces planned acquisition in Turkey for $100 mln (3.89 -0.01)

    Co announce it has entered into a Memorandum of Understanding with Zorlu Enerji Elektrik Uretim A.S. (“Zorlu”) regarding the acquisition of Zorlu’s oil and natural gas exploration and production operations in Turkey for a purchase price of $100 million.

  140. 140
    zman Says:

    Thanks Eli

  141. 141
    elijahwc Says:

    And the winners are

    http://www.judicialwatch.org/news/2009/dec/judicial-watch-announces-list-washington-s-ten-most-wanted-corrupt-politicians-2009

  142. 142
    BirdsofpreyRcool Says:

    TAT — great announcement. The fact that TAT did NOT acquire 100% of the acreage interest is actually accretive to shareholders. TAT will use their services subsidiary to drill and produce wells, charging the partner it’s full pro-rata share. But, since TAT owns the service company (pretty sure about this… will double check), they will be basically getting their drilling costs underwritten.

    Also, ALWAYS wise to partner up with the Home Team… especially when you don’t speak the local language so good.

    Also, it totally makes sense to buy acreage in the Thrace Basin, prior to initiating their fracture stimulation of the field. Why prove it up for other producers?
    Step 1) tie up acreage,
    Step 2) put wholly-owned drilling services company in place,
    Step 3) drill, frac, produce.
    Step 4) income from production.
    Step 5) income from contracting out your services group to other producers in the Thrace Basin.

    Nice plan. They are executing… a little behind schedule…. but it is not “West Texas,” you know. Stuff shipped via camel just takes a little longer.

  143. 143
    elijahwc Says:

    “That’s the Warren Buffett query. Buffett knows and depends on Goldman not giving up his name when he sold those long-dated puts on the indexes that he is now fighting not to put collateral up for. He would fire Goldman for doing that. If Goldman had done what the Senate seems to have wanted it to do, which is give up Buffett’s name, then Buffett would actually never do a trade (with them) again. Shouldn’t the buyers know that the smartest person on earth was selling those puts? I can’t believe that Lloyd Blankfein hasn’t said it yet. It’s a killer argument.”

    JC Cramer On Goldman Sachs & Buffet

  144. 144
    zman Says:

    BOP – Pretty sure you are correct on the service company being their own. I would have liked to have seen the reserves associated with the deal and since this is is Turkey, not Texas, I won’t be making a guesstimate for now. I assume it’s a pretty small proved component.

    FXEN has tried the same approach for years in Poland to little effect but it’s a managerial issue I believe that holds them back.

  145. 145
    BirdsofpreyRcool Says:

    Included in the TAT announcement is a round-about statement by N. Malone Mitchell #3 that the company will use debt to finance their acqtns and operations until the stock hits around $6/share.

    That’s how I choose to read the “affiliated financing” agreement, so JMHO.

  146. 146
    BirdsofpreyRcool Says:

    z — doesn’t Aubrey do the same thing… only CHK doesn’t own the services company, but Aubrey does…?

  147. 147
    BirdsofpreyRcool Says:

    TAT — yep… there is is, confirmed in black and white (or, really, orange and black on my bb screen) — “The Company owns its own drilling rigs and oilfield service equipment…. In addition, the Company provides oilfield services and contract drilling services to third parties in Turkey…”

  148. 148
    zman Says:

    BOP – CHK, SD, a couple of others come to mind with their own rigs, even FST has some rigs. If you have a repeatable, manufacturing style, operation like back in the day what they thought was one in the Austin Chalk, then later in all the CBM plays (PXD has those Evergreen air drive rigs now) and now in the Shales it makes sense to own it, and employ the crews, keeps efficiency up and costs down or at least lower. At least it makes a lot more sense than if you were just drilling one’s and two’s.

  149. 149
    BirdsofpreyRcool Says:

    Not questioning the value proposition in owning your own rigs… just question who actually owns them. The company… or the CEO.

  150. 150
    zman Says:

    BOP – That’s a good question, I just like to type stuff I know about though. Not sure, sort of thought they belonged to the company but that the company is deeply into the pocket of MM, thanks for confirming.

  151. 151
    BirdsofpreyRcool Says:

    TAT — have to say, you were right, z. I’m increasingly impressed with the possibilities here. It’s definitely got a bit of a “story stock” aspect to it, as you can’t yet justify the price on production and acreage… but, MM3 seems to be a Man of His Word.

    And that is so refreshing!

  152. 152
    mimster90 Says:

    TAT

    TransAtlantic Petroleum Ltd. Announces Planned Acquisition in Turkey

    HAMILTON, BERMUDA — (MARKET WIRE) — 05/04/10 — TransAtlantic Petroleum Ltd.(TSX: TNP) (NYSE Amex: TAT) is pleased to announce it has entered into a Memorandum of Understanding (“MOU”) with Zorlu Enerji Elektrik Üretim A.S. (“Zorlu”) regarding the acquisition of Zorlu’s oil and natural gas exploration and production operations in Turkey for a purchase price of $100 million.

    Under the terms of the MOU, TransAtlantic Worldwide Ltd. (“TransAtlantic Worldwide”), a wholly-owned subsidiary of the Company, would acquire 100% of the voting securities of Amity Oil International Pty. Ltd. (“Amity”) and Zorlu Petrogas Petrol Gaz ve Petrokimya Ürünleri Insaat Sanayi ve Ticaret A.S. (“Petrogas”), each a wholly-owned subsidiary of Zorlu. Through the acquisition of Amity and Petrogas, TransAtlantic Worldwide would acquire interests ranging from 50% to 100% of 18 exploration licenses and one production lease, consisting of approximately 1.3 million gross acres (1 million net acres) in the Thrace Basin and approximately 730,000 gross and net acres in central Turkey. Current production from the licenses totals an average of approximately 7 million cubic feet of natural gas per day, net to Amity and Petrogas’ interest, with an estimated 10 million cubic feet per day of natural gas production awaiting connection to a pipeline. TransAtlantic Worldwide would also acquire other assets in the transaction, including inventory and a drilling rig. Under the terms of the MOU, Zorlu would use $20 million of the purchase price for the construction of pipelines to connect the Amity and Petrogas licenses to local and national natural gas distribution points.

    “The acquisition is an important development for us. We gain a strategic partner in Zorlu, one of the leading companies in Turkey. We also build on our presence in the Thrace Basin, obtaining acreage prospective for the shallow gas targets we have successfully developed in Edirne as well as deeper conventional and unconventional gas,” said N. Malone Mitchell, 3rd, the Company’s Chairman.

    The Company plans to mobilize fracture stimulation equipment into the Thrace Basin this summer. The fracture stimulation equipment should enable the Company to develop gas accumulations in the Thrace Basin that would otherwise be uneconomic. “Our plans are to be very active on these licenses, and we hope to significantly increase production and reserves. Having Zorlu as a partner, with its downstream expertise, is an important part of that plan,” Mr. Mitchell added.

    Under the terms of the MOU, Zorlu would have the right to purchase 100% of the natural gas that TransAtlantic Worldwide develops on the acquired licenses and will have the option to either receive a 5% net profits interest in new wells drilled on the licenses or a 25% participatory working interest, on a well-by-well basis. “We look forward to a long and prosperous relationship with Zorlu,” Mr. Mitchell concluded.

    The Company plans to finance the purchase price primarily through a bridge line of credit to be entered into between the Company and an affiliate of Mr. Mitchell. The line of credit, which is subject to negotiation of a definitive agreement, the approval of the Toronto Stock Exchange and the approval of the disinterested members of the Company’s Board of Directors, would bear interest at Libor plus 2.5%. In addition, for each $1 million drawn on the line of credit, the Company would issue 100,000 common share purchase warrants to the lender. The common share purchase warrants would be exercisable for four years from the date of issuance and would entitle the holder to purchase one common share for each warrant at an exercise price of $6.00 per share. The bridge line of credit would have a term of one year.

    The acquisition of Amity and Petrogas is subject to final negotiation of definitive agreements, the approval of each company’s respective board of directors, and other customary closing conditions. The Company expects to complete the acquisition of Amity and Petrogas by June 30, 2010. There is no assurance that the Company will be able to successfully negotiate final definitive agreements, obtain all necessary approvals and closing conditions and complete the acquisition of either Amity or Petrogas by June 30, 2010 or at all.

  153. 153
    baylor3217 Says:

    WLL closes on the lows of the day.

  154. 154
    zman Says:

    re 153. Strange that that would happen after running to 52 week highs yesterday, with the market doing what it did today and oil falling 4%.

  155. 155
    PackMan Says:

    141 — I love it !

  156. 156
    zman Says:

    BOP – I’d written some basic stuff on TAT and was noodling something more indepth when I saw your 142, so just so you know I’ll be “borrowing” that section for tomorrow’s post as I’m up to my elbows in earnings reports.

  157. 157
    zman Says:

    Dollar rally just want stop:

    U.S. dollar buys 94.84 yen vs 94.42 late in NY

  158. 158
    mimster90 Says:

    I am sorry for such basic questions. I feel I should know the answer, but I don’t.

    Why are so many US gas wells being drilled with gas prices so low and gas storage so high? Is it to hold acerage? Is gas very profitable for the producers at about $4?

  159. 159
    zman Says:

    Mim – you do know the answer, it’s the acreage issue. As to the economics, it varies from play to play and within the plays themselves depending on the richness of the gas and any condensate present. At $4 you lose a lot plays including the Fayetteville shale and much of the Woodford. Simply doesn’t make sense to drill in anything but the core of the Hayensville at that price either.

    Hedges act as the salve on the pain of drilling to get that acreage HBP and you’ll notice that hedges in 2010 are light at most of the big companies, especially after year. You’ll also notice tomorrow that several companies are again moving budgets around, transitioning from gas to oil drilling, even gas centric names like CHK are doing it and PXD has commented they aren’t putting much money towards dry gas drilling at all.

    Never fear asking questions, happy to answer.

  160. 160
    mimster90 Says:

    Thanks for the kind answer zman.

    Any idea when drilling to hold acreage will start to wind down?

    On a unrelated topic…

    Do you have any thought on ATLS (ATN and ATLS merged) stopping their dividend? In your opinion does that make business sense in the current environment? I am a bit annoyed with ATLS because I bought ATN for its dividend. Luckily for me, your write up gave me confidence to also buy LINE around the same time.

  161. 161
    zman Says:

    Re 160. Many of the bigger names in the Haynesville will be winding down around 3Q11, that includes HK and CHK. You are already seeing some areas back off now, as with XCO tonight saying they are already HBP in one Tx county and one LA parish and will cut rigs in those.

    ATLS/ATN – I don’t follow them at all as they are pipe guys and that’s not my bag. Cutting the dividend probably was a cash capture decision on the part of management of ATLS, if they want to be an MLP they’ll have to bring it back at some point but I’m the wrong guy to ask on that one.

  162. 162
    baylor3217 Says:

    re 154 lol. Agreed. I’m hoping this presents another term entry point shortly.

  163. 163
    RMD Says:

    BOP 142 you crack me up; great writing, keep it up.

  164. 164
    Wyoming Says:

    Ram, thanks for the lamb joke, nice to see a sense of humor sometimes.

    Before you read further, I run by one simple rule:

    BELIEVE HALF OF WHAT YOU SEE AND NOTHING OF WHAT YOU HEAR.

    On a serious note, this is the speculative comments from an email I received. I’ll just paste this one as we are at the end of a thread. Matches up with a conversation I had with one of our consultants as he worked with BP in another basin. His basic comment was that it was a tapered 9 5/8″ string back to the wellhead and that they had used water in between their plugs (something is odd and why this is hard to understand without all the information). He also said that the mud engineer was telling everyone that there was a lot of mud returning and that the alarms were being turned off (also an odd comment). Anyway, here is the unedited text from the email:

    ——————————–

    This well had been giving some problems all the way down and was a big discovery. Big pressure, 16ppg+ mud weight. They ran a long string of 7″ production casing – not a liner, the confusion arising from the fact that all casing strings on a floating rig are run on drill pipe and hung off on the wellhead on the sea floor, like a “liner”. They cemented this casing with lightweight cement containing nitrogen because they were having lost circulation in between the well kicking all the way down.

    The calculations and the execution of this kind of a cement job are complex, in order that you neither let the well flow from too little hydrostatic pressure nor break it down and lose the fluid and cement from too much hydrostatic. But you gotta believe BP had 8 or 10 of their best double and triple checking everything.

    On the outside of the top joint of casing is a seal assembly – “packoff” – that sets inside the subsea wellhead and seals. This was set and tested to 10,000 psi, OK. Remember they are doing all this from the surface 5,000 feet away. The technology is fascinating, like going to the moon or fishing out the Russian sub, or killing all the fires in Kuwait in 14 months instead of 5 years. We never have had an accident like this before so hubris, the folie d’grandeur, sort of takes over. BP were the leaders in all this stretching the envelope all over the world in deep water.

    This was the end of the well until testing was to begin at a later time, so a temporary “bridge plug” was run in on drill pipe to set somewhere near the top of the well below 5,000 ft. This is the second barrier, you always have to have 2, and the casing was the first one. It is not know if this was actually set or not. At the same time they took the 16+ ppg mud out of the riser and replaced it with sea water so that they could pull the riser, lay it down, and move off.

    When they did this, they of course took away all the hydrostatic on the well. But this was OK, normal, since the well was plugged both on the inside with the casing and on the outside with the tested packoff. But something turned loose all of a sudden, and the conventional wisdom would be the packoff on the outside of the casing.

    Gas and oil rushed up the riser; there was little wind, and a gas cloud got all over the rig. When the main inductions of the engines got a whiff, they ran away and exploded. Blew them right off the rig. This set everything on fire. A similar explosion in the mud pit / mud pump room blew the mud pumps overboard. Another in the mud sack storage room, sited most unfortunately right next to the living quarters, took out all the interior walls where everyone was hanging out having – I am not making this up – a party to celebrate 7 years of accident free work on this rig. 7 BP bigwigs were there visiting from town.

    In this sense they were lucky that the only ones lost were the 9 rig crew on the rig floor and 2 mud engineers down on the pits. The furniture and walls trapped some and broke some bones but they all managed to get in the lifeboats with assistance from the others.

    The safety shut ins on the BOP were tripped but it is not clear why they did not work. This system has 4 way redundancy; 2 separate hydraulic systems and 2 separate electric systems should be able to operate any of the functions on the stack. They are tested every 14 days, all of them. (there is also a stab on the stack so that an ROV can plug in and operate it, but now it is too late because things are damaged).

    The well is flowing through the BOP stack, probably around the outside of the 7″ casing. As reported elsewhere, none of the “rams”, those being the valves that are suppose to close around the drill pipe and / or shear it right in two and seal on the open hole, are sealing. Up the riser and out some holes in it where it is kinked. A little is coming out of the drill pipe too which is sticking out of the top of the riser and laid out on the ocean floor. The volumes as reported by the media are not correct but who knows exactly how much is coming?

    2 relief wells will be drilled but it will take at least 60 days to kill it that way. There is a “deep sea intervention vessel” on the way, I don’t know if that means a submarine or not, one would think this is too deep for subs, and it will have special cutting tools to try to cut off the very bottom of the riser on top of the BOP. The area is remarkably free from debris. The rig “Enterprise” is standing by with another BOP stack and a special connector to set down on top of the original one and then close. You saw this sort of thing in Red Adair movies and in Kuwait, a new stack dangling from a crane is just dropped down on the well after all the junk is removed. But that is not 5,000 ft underwater.

    One unknown is if they get a new stack on it and close it, will the bitch broach around the outside of all the casing??

    In order for a disaster of this magnitude to happen, more than one thing has to go wrong, or fail. First, a shitty cement job. The wellhead packoff / seal assembly, while designed to hold the pressure, is just a backup. And finally, the ability to close the well in with the BOP somehow went away.

    A bad deal for the industry, for sure. Forget about California and Florida. Normal operations in the Gulf will be overregulated like the N. Sea. And so on.

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