Tuesday Morning Pause

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Market Sentiment Watch: There's nothing like the equivalent of a trillion dollars of EU capital to put a spring in the market's step. Today the market is looking towards whether or not that infusion will be sufficient.  Economic data in the U.S. doesn't really pick up until later in the week but we do get wholesale inventories a little later this morning. On the energy front, a few more earnings releases are still dribbling out (see PETD below, TAT) along with a number of other odds and ends in energy news. In D.C., BP, RIG, and HAL execs will be under the senatorial microscope for their part in the Macondo tragedy. 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crack Spread Update
  4. Stuff We Care About Today –  WHX revised model, E&P Large Cap Multiples, PETD earnings, TAT, AEZ hits another Big Bakken well, other stuff.
  5. Odds & Ends

Holdings Watch:

  • ZCAT (Zman Catalyst portfolio):

    • $9,100
    • 82% Cash
    • Yesterday’s Trades:

      • None


  • ZIM (Zman Inefficient Markets portfolio)
    • $23,900
    • 57% Cash
    • Yesterday’s Trades:
      • None

Commodity Watch

Crude oil slipped higher by $1.69 to close at $76.80 yesterday, catching only a piece of the wave ridden by U.S. equity markets as the dollar failed to really rollover.  This morning crude is trading off a dollar as equities take a breather.

  • Early Read On Oil Inventories:
    • Crude:  UP 0.8 mm barrels
    • Gasoline: UP 0.7 mm barrels
    • Distillates: UP 1.0 mm barrels

Natural gas rose $0.16 to close at $4.17 yesterday on the back of stronger equity markets. Spring weather remains mild. This morning gas is trading flat.

  • Imports Watch: Not available this week. 

Crack Spread Update

Key Takeaways:

  1. Valuations for the independent domestic refiners remain depressed
  2. Gasoline demand is looking better than expected given the economy and current elevated prices
  3. Diesel demand, may, just may be making a come back. One anomalously high data point does not a trend make (last week) but we will be watching the coming week's data closely.
  4. Gulf spill may interrupt crude and product tanker shipments. So far there has been no impact other than possibly a rush to get Gulf Coast bound crude to port as quickly as possible. If product tanker shipments are interrupted or crude to Gulf Coast refiners is curtailed look for rising prices at the pump to translate into higher indie refiner stock prices.
  5. I still prefer VLO for option trades in the space and may enter another trade as early as Thursday's inventory report.


Stuff We Care About Today

WHX Reports Better Than Expected 1Q Distribution

  • $0.70 distribution vs my expectation of $0.61 to $0.65
  • Production was better than expected
  • Prices were slightly better than expected for oil and much better than expected for natural gas
  • Should set up an 11% yield from here this year.


Multiple Watch: E&P and Oil Service:

It's always good to start a new quarter off knowing where things stand, in terms of valuation, both in relation to each other and to history for an individual name. I'll have the more comprehensive Orange Charts out next week but for now I've include this year's and next year's price to cash rankings by my groupings for E&P (large cap, Gas shales, Bakkens, etc) as well as for the stocks versus their trailing 5 year high / low P/CF multiples. Later this week I'll do the same for the Oil Service group.


Today, the Large Cap E&P's

Notes for the above:

1) fund managers should be increasingly looking at 2011 mutiples

2) on this basis none of the large cap group looks exceedingly expensive, especially in light of current growth rates which are in most cases and especially for EOG, above the historic average.

3) APC appears to be bargain priced both to the group and to itself on an historic basis due to the accident in the Gulf.

4) Since the recent them has been, oil is the new black, it's a good idea to take a look at the most recent quarter's liquids vs gas production. I'll show the current profile and the expected end of year profile where guided in next week's Orange Charts

5) Tomorrow I'll have multiples with acreage on the Bakken, the Eagle Ford Shale, and the Granite Wash.


PETD Reports Big Beat;

The 1Q10 Numbers:

  • Production of 9.05 Bcfe (100.6 MMcfepd and 80% gas) vs guidance of 8.5 Bcfe:
    • down 10% sequentially
    • down 19% YoY due to capital curtailment in 2008 and an asset divestment
  • Revenue pf $131 mm vs $90 mm
  • EPS of $0.57 vs $0.44 expected
  • CFPS of $2.56 vs $2.28 expected


  • Reiterated guidance but could have raised
  • Niobrara not mentioned in the PR but look for it to be a hot topic on the call as the company has

Nutshell: Guidance remains unchanged due to low prices but with the 1Q beat and better than expected performance in the Wattenberg Field it is likely you'll see numbers go up now and see the company take up guidance next quarter. Valuation remains at the low end of the E&P onshore universe at 2.8x and 2.7x this year's and next year's cash flow respectively. I'll be on the call to come back up to speed on this one which has Niobrara, Bakken, and other Rockies exploration potential.

Conference Call: Today, 1 pm EST

TAT Announces 1Q Results


  • (no estimates available on this one as it's in start up mode)
  • Production:

    • Oil production averaged 1,625 bopd in the quarter
    • Selmo oil production in May has averaged 1,900 bopd, OK
    • Arpatepe acidizing continues as well as new well drilling (3 by TAT, 3 by their partner)
    • Thrace Basin gas producing at 9.7 MMcfgpd, looks a little low.
  • Exploration:

    • Bakuk 101 well is drilling on the Syrian border
    • another exploration well is expect spud late May or early June in south central Turkey (could be a fold belt test)
    • On License 4175 they plan to spud a well a large structure test late in the second quarter.
  • Nutshell: Company continues to move ahead in Turkey, although it's always a little slower than you'd think. Nothing here that stands out as particularly stock moving although it is good to see them puts some dates on the exploration program. Apparently they are not holding a conference call.

AEZ Announces Second Big Bakken Well

  • Ron Viall 1-25H well IPs at 2,844 BOEpd
  • Located Williams County, ND, or northeast Rough Rider, in AEZ's Goliath area
  • It's a 9,223 long lateral with 30 stages,
  • This is roughly double the IP of their first well, the Tong Trst 1-20H
  • The Tong IP'd at 1,421 BOEpd and had a first 30 days average of 652 BOEpd which is in line with other Bakken long lateral high frac stage decline rates in the area.
  • AEZ has drilled another shorter lateral outside of its main play which is awaiting completion and is preparing to spud another well back in Goliath
  • No word on cost of the well but AEZ is off to what I'd call a good start on their 76,000 net acres as this is their second big swing out of the gate in the Bakken and it looks like they have some of the same reserve potential that BEXP has in the area just to the south and west.

Other Stuff:


Odds & Ends

Analyst Watch:

  • KWK - BMO cuts to Market Perform


125 Responses to “Tuesday Morning Pause”

  1. 1
    zman Says:

    PETD getting marked higher on their beat. JB, that’s got an interesting looking daily chart and a much more interesting looking weekly.

    TRGL bid up on the HES news

    AEZ bid up on their well. I’ll update the catalyst list there next week.

  2. 2
    zman Says:

    OPEC Watch:

    OPEc raises 2010 crude demand forecast by 50,000 to show a 950,000 bopd increase over 2009 levels, 3rd month of ups for the group. Expect EIA and IEA to do the same.

  3. 3
    ram Says:

    Did OPEC isolate where the demand is increasing?

  4. 4
    zman Says:

    Not that I saw this time, last month it was due primarily to Asia so would guess the same plus middle east itself.

  5. 5
    milepost_43 Says:

    #3Much of the increase was tied to an upgrade in demand forecast for China, where double-digit gross-domestic-product growth in the first quarter pushed demand up 800,000 barrels a day in March compared with a year earlier.

  6. 6
    zman Says:

    Thanks MP, China can’t get enough oil, natural gas, steel, aluminum, etc. right now.

  7. 7
    ram Says:


  8. 8
    zman Says:

    Equity futures off their lows, oil has gained a buck off its early morning lows, now down 20 cents. Good chance we see a pullback in imports this week that could make for some upside surprise (a draw instead of a build in crude inventories) especially given how strong refining demand has been of late. Given that oil was off large for four sessions prior to yesterday, we could see a pretty good bounce in the near term if gasoline demand stays strong and especially if we get a second week of anomalously looking high distillate demand.

  9. 9
    isleworth Says:

    What is your take on the CHK news Z?

  10. 10
    bill Says:

    My take is the market wants to see some discipline on spending from aubrey

  11. 11
    BirdsofpreyRcool Says:

    Credit Markets are giving back about 1/2 of yesterday’s partial bounce-back. But the FEAR Indicator, TED, is actually marked a tad lower (better, less fear) today.

    IG +8 bps out to +108bps spread

    HY -1 1/4 points, down to 96 3/4 points

    TED Spread at +26.8 (down from the wide of 33 last week)

  12. 12
    zman Says:

    re 9 and 10. I absolutely agree with Bill on that, at least as far as natural gas prospects are concerned. It’s good for the balance sheet, and CHK has been a great aggregater of acreage and high priced monetizer. I get the preferred deal now for acceleration of liquids drilling but they will have to show improvement pretty quickly for the market to give them credit for the move.

    Thanks for 11.

  13. 13
    elduque Says:

    re chk – it seems funny that fellow competitors recognize the value in CHK by wanting to participate with them in all their major plays.

  14. 14
    BirdsofpreyRcool Says:

    That said, one can hardly blame an investor for wanting to go sit on the sidelines for a while. Between ECB/EU/Greece/PIIGS uncertainty, Washington “regulation” and interrogations, stock market manipulations, employment data that is stubbornly bleak, and unending red ink pouring from Congress as black mess is gushing from the Gulf…. tough to want to commit “risk capital” right now.

    Until the ECB/EU get their act together and start singing from the same hymnbook, they are looking like the U.S. Fed (and all their ambiguous dithering) during the summer of 2008… which ended badly (in the Fall of 2008). Just sayin’…

  15. 15
    Dman Says:

    gold/silver fund CEF has announced an offering today, so it is slightly down today with the metals up 2 & 3% respectively. This means it is currently at less of a premium (now about 7%) to the futures than it usually is. I’ve seen some commentary that the premium usually drops to about 1% when they do an offering, but I don’t know if that will happen in the current environment. Anyway, I’ve taken the opportunity to drop my remaining cash into it. I was staring hard at it yesterday and for once my attempt to be cheap paid off. Not that I was expecting an offering today, just sheer dumb luck.

  16. 16
    zman Says:

    Sitting on hands, waiting for the market to resolve itself this morning.

    ElD. Yep, CHK has been early to the natural gas game in all of its chosen plays so if the big boys want to enter in a meaningful way they often have to go to CHK for the acreage.

    AEZ – I’d be surprised at the lack of follow through on the stock here but the recent Shelf filing may be dampening sentiment.

  17. 17
    BirdsofpreyRcool Says:

    But, looking at the eco-data and company reports of the last several weeks, none of this has killed the nascent economomic recovery. Earnings are still improving, consumer is coming back, credit is being extended… just not a robust recovery, until we get employement back on track and housing finds a firm bottom.

  18. 18
    isleworth Says:

    Mkt seems to like CHK gameplan……so far…

  19. 19
    Dman Says:

    # 15 … of course I won’t be thrilled if the premium *does* go and drop to 1%, but I decided I could live with it.

    One gold stock that seems to be about to play catch up is AUY. Seems to be breaking out of a bowl-like thingy.

  20. 20
    zman Says:

    “interrogations” set to continue today (BP, RIG, HAL). At least the CNBC talking heads will get a break.

    SSN may be getting a little bump from the AEZ news.

  21. 21
    Dman Says:

    CHK going all EOG-like. No likey debt anymore. I hope that includes *Margin Debt* Aubrey. OK, that’s the last time I’ll mention it. Unless I forget of course.

  22. 22
    Jerome Blank Says:

    #1 PETD…held the daily 200 day SMA and long term P&F trendline support, on a sell signal but in X’s…


  23. 23
    zman Says:

    Wholesale inventories up 0.4%, market well off lows but falling back after that number.

    Crude up 30 cents, NG flat.

    Stocks in the ZIM and ZCAT mostly lower but also off lows.

  24. 24
    zman Says:

    WHX continues to inch back up, up 2% today. I made only modest tweaks to my model, chief among them was cutting the differential for natural gas prices in half which is still more of a penalty than they’ve been taking. Production trajectory and $LOE/BOE stayed the same as they were on target. Looks like an 11% yield going forward for this year.

  25. 25
    tomdavis12 Says:

    Z: CHK posted their Investor Presentation for May last night. Just some wild thoughts. Production growth 16 – 18% in 2011. Very impressive considering how large they are already. I know your cash flow numbers are not up significantly for next year. Is there a crude and NG price assumption that goes with your CF numbers? Surprised to see they are looking for JV with their EFS play. Did not JV with PXP in Haynesville until they had done quite a bit of drilling.

  26. 26
    BirdsofpreyRcool Says:

    Biggs Says U.S. Stocks May Rise 20% as Crisis Eases (Update1)
    2010-05-11 07:03:41.742 GMT

    By Shani Raja and Susan Li
    May 11 (Bloomberg) — U.S. stocks could jump as much as 20 percent, led by technology companies, as the global economy rebounds from Europe’s debt crisis, said Barton Biggs.
    “I’m betting the next move in the U.S. market is going to be up 15 to 20 percent,” Biggs, who runs New York-based hedge fund Traxis Partners LP and whose flagship fund returned three times the industry average last year, said in a Bloomberg Television interview today. “I would just point out that the world is having a strong economic recovery, and so is Europe.”
    Biggs recommended buying U.S. stocks last year when benchmark indexes sank to the lowest levels since the 1990s. He did not give a timeframe or refer to any specific stock index in his comments today. Futures on the Standard & Poor’s 500 Index lost 0.9 percent to 1,146.40 as of 3:59 p.m. in Tokyo.
    The stock gauge climbed 4.4 percent yesterday, the most in more than a year, after European policy makers announced an almost $1 trillion loan package to contain the region’s sovereign-debt crisis. The S&P 500’s advance followed an 8.7 percent slide since April 23 — and the biggest weekly retreat since the start of the bull market in March 2009 — on concern Europe’s leaders weren’t doing enough to avert the threat to global credit markets.
    An index of the S&P 500 Index’s computer hardware companies was the biggest contributor to yesterday’s advance.

    ‘World Isn’t Ending’

    “There are plenty of opportunities in the U.S.,” Biggs said, adding that shares in drug developers look cheap and that property companies are also attractive. “It’s by no means a foregone conclusion that we have a crisis every three years and, my God, that the world is coming to an end. I don’t believe that’s what’s happening at all.”
    Governments of the 16-euro nations have agreed to lend as much as 750 billion euros ($958 billion) to the most-indebted countries to resolve the region’s debt crisis, while the European Central Bank said it will counter “severe tensions”
    in “certain” markets by purchasing government and private debt.
    Europe’s debt problems illustrated the need for nations in the region to evolve towards a federal system of government capable of enforcing more “discipline” on countries, said Biggs.
    “In the long run, Europe will have to become similar to the United States,” he said.
    Biggs said in March 2009 that stocks would rise, following which the S&P 500 Index ended that year up 23 percent. On March
    22 this year, Biggs told Bloomberg TV that U.S. stocks had the potential to rally a further 10 percent. The gauge has shed 0.5 percent since then.

  27. 27
    Jerome Blank Says:

    PETD looks good…30 min added…


  28. 28
    VTZ Says:

    “Europe’s debt problems illustrated the need for nations in the region to evolve towards a federal system of government capable of enforcing more “discipline” on countries, said Biggs.
    “In the long run, Europe will have to become similar to the United States,” he said.

    What a joke… Yeah, The US federal/state system is a role model for fiscal discipline.

    The US is headed for their own sovereign debt crisis and it’s easy to produce several metrics where the US as a whole or certain states are as bad or worse than Greece.

  29. 29
    tomdavis12 Says:

    More from notes: They think Marcellus and Haynesville are their #1 & #2 best plays. 55% hedged NG @ 7.52 for ’10. NAV @ 6.00 NG = $89.34. @ $9.00 NG $171.68/sh. I have followed their NAV for 6 years. Stock does not usually trade any where near NAV. If you Z see $6 NG by the end of the year, I can not believe CHK will not be much higher.

  30. 30
    choices Says:

    As I have mentioned before,Dman, you also might take a look at PHYS for pure gold bullion-it tracks the gold price fairly well altho it has a hefty premium at this time. It is managed by Sprott, who has an excellent reputation-none of the games as with GLD and SLV. PHYS up 2.23%, gold futues up 1.8%.

    PHYS premium page:


  31. 31
    VTZ Says:

    Currently challenging the all time highs choices.

  32. 32
    choices Says:

    VTZ-thanks-I noticed.

  33. 33
    zman Says:

    Re 25. The estimates are pretty close to the 24 month strip, a little higher on gas than where we are now. I think we exit the year between $6 and $7 but a lot depends on summer heat, hurricanes, and early winter weather. And a lot more depends on the EIA 914 data coming clean.

  34. 34
    zman Says:

    Thanks JB.

    XEC approaching $68, where did you have resistance there? $69-$70?

  35. 35
    tomdavis12 Says:

    Z: More from CHK notes: Company put into print That they want to achieve investment grade rating. That is a first. Aubrey has been asked since ’04 on CC’s about becoming investment grade. His answer was always that he considered his company to already be there. Putting in print is a FIRST. Z do you think selling preffereds instead of bonds and now having 24.1M acres of 3D seismic adds good value to company?

  36. 36
    VTZ Says:

    RE 31: Caution to investors and traders alike, the volality is going to increase whether it cracks the highs or falls back to support.

  37. 37
    dij Says:

    WLL outperforming EOG

  38. 38
    zman Says:

    I don’t think he means it on investment grade. Not unless they change the definition. He said it a couple of quarters back by the way, or his CFO did, as I recall my smirk. You don’t do VPP’s, which people think of as debt and expect to get high debt ratings. You don’t add preferred’s, also considered by many as debt, and expect the same. Do I think it’s a good idea? Yes, given their track record.

  39. 39
    zman Says:

    Check out the lousy bid / ask on the in the money $65 XEC calls. Bid below intrinsic.

  40. 40
    Jerome Blank Says:

    #34 XEC charts added last week…next resistance $70-$70.50

  41. 41
    zman Says:

    Thanks much JB.

  42. 42
    Dman Says:

    choices – I like PHYS but not the premium! I know, I’m cheap. Can’t help it.

    Also, with CEF I get *both* gold and silver goodness.

    Like that quote from “Blues Brothers”:

    Elwood: What kind of music do you usually have here?

    Bartender: Oh, we got both kinds, country AND western!

    … but will keep an eye on PHYS.

  43. 43
    zman Says:

    Finishing my thought from 39, I’ll just about never take an offer or hit a bid on a spread like unless its a fast market or I think I’m really, really on to something. If I want to sell in that kind of market, I’ll start high to the mid and walk it down until I get taken. Opposite if I’m looking to buy.

  44. 44
    tomdavis12 Says:

    Z: Did check CHK’s bonds today. I show all his bonds as BB rated. There is a 6.25 of 1/15/18 @ par CUSIP # 165167BQ9. I really believe he wants a BBB rating. I know the street is in a “I’ll believe it when I see it” mode. I am not sure of $6 – $7NG this year. If it happens, CHK can make you money. FWIW

  45. 45
    zman Says:

    I don’t disagree and I own it. And the $6 to $7 is my loose target for an exit rate for the year, not anything close to an average. Right now I’m going with $4 in 2Q, $5 in 3Q and $6 in 4Q and the $6 may be a little aggressive for an average.

  46. 46
    tomdavis12 Says:

    Z: 44 I am not long CHK but will be watching. If NG gets to $6 – $7 I will get long.

  47. 47
    cargocult Says:

    I know everyone is paying attention to earnings calls so no immediate attention necessary but, Any thoughts on UNG? JB’s chart is pretty dramatic.

  48. 48
    tomdavis12 Says:

    Z: Libya and Switz are having a p*ssing contest because Gaddafi’s son Hannibal was expelled for mistreating domestic staff. Sounds like a real sleaze. Would post link if I could.

  49. 49
    Dman Says:

    #48 you’d think that being Gaddafi’s son was already a pretty high risk of turning out crazy. But not high enough, so they called him Hannibal to complete the job.

  50. 50
    zman Says:

    Any chance of maintaining the kinder, gentler, Momar image was blown last fall at a U.N. speech he gave. Good catch on the first name linkage to bad behavior.

    XEC bumping up on $69 now. A dollar higher than my last mention and still those bids won’t lift on the now in the money calls. Stock trying for a break out to new level here.

  51. 51
    zman Says:

    BOP – did you see EXXI’s S8?

  52. 52
    tomdavis12 Says:

    Z: This Thurs and Fri there is a CLSA/CAS Energy Conf in NYC. Do not have schedule and I believe NOT webcast. I know NE will be there Thurs.

  53. 53
    Dman Says:

    HAL gettin’ jiggy?

  54. 54
    tomdavis12 Says:

    Z: In EFS I read that Dewitt County now is up to $10K/acre. How much per acre rise is needed to effect a stock value like EOG? If prices get too high doesn’t that mean you are closer to the end than the beginning of increased stock value. I heard Barnett @ $30,000/acre was historical high price?

  55. 55
    zman Says:

    Dman – along with all the rest of the group involved. I have a spot on my screen for CHOBR


    News saying HAL saying they cemented the well in accordance with specs.

    BP saying RIG’s BOP didn’t work

    RIG saying you can’t blame the BOP for the explosion and all responsibility starts and ends with the operator.

    Anyway, they are all green except for BP and CAM which are teetering around green on the day.

  56. 56
    zman Says:

    Tom – EOG should be mostly done buying and at prices far lower than that. It’s more a question of do the well reserves support the acreage price, do you get your hurdle rate out of the well when you look at the all in finding costs. $10,000 is very high for the play but rates have been jumping, someone mentioned $6,000 yesterday on the ROSE call. I’m not sure if DeWitt county supports a good return at that acreage price but it’s going to ultimately depend on oil and gas prices, EURs rising, and spacing. It’s early to know.

  57. 57
    Nicky Says:

    Good morning all.

    Either we are in v up off a iv low this morning. Alternatively this is the b wave of a wave iv abc, which will require another move lower before we embark on wave v. Another alternative is a more bearish ABC for big wave 2 which would see us top out somewhere between 1164 and 1182 and then head below last weeks lows.

  58. 58
    zman Says:

    Thanks much Nicky, always appreciate your levels.

  59. 59
    zman Says:

    Nice day of follow on moves in WLL, BEXP, XEC … don’t know what gives with EOG but could be a broker comment I don’t have access to.

    Yield names all moving back up now.

  60. 60
    zman Says:


    XEC – Sold (10) May $65 Calls for $5.10, up 319%, just short of the offer on a very wide spread with the stock at $69.45.

  61. 61
    BirdsofpreyRcool Says:

    Some thoughts from XACS#1 today. FWIW, I completely agree with him. (“We have met the enemy and he is us.” I Go Pogo)


  62. 62
    BirdsofpreyRcool Says:

    z — saw the E21 S-8… registering 350,000 shares, probably associated with stock compensation plans. The “Proposed Maximum Offering Price” of $16.46 is there just so they can calculate a registration fee.

  63. 63
    RMD Says:

    musing on CHK and EVEP calls:
    1. would Aubrey be less frustrated if he did not have to title his call “Strategic and Financial Plan to Increase Shareholder Value”
    and just let operations increase value? Is he running a co. or a stock?
    2. Investment grade rating was supposed to flow from ops by the end of ’11 (or ’12?) without more financing.
    3. JVing EFS early: is this because he wants/ needs the proceeds now, or thinks the current frenzy over the play will fade ala the Fayetteville and HS.
    4. Aubrey is an ex land man, and they are good at accumulating acres. I think the problem is they have so many they can not drill them in a time frame which creates Present Value, that is, the PV the market will give to 20 yrs. of prospects is quite small for yrs. 5-20.
    5. This is another change of plan.
    6. EVEP, who has been very bearish on nat gas prices (some correctly, some not), expects prices to “get worse”. If CHK wants to hedge against this, being lightly hedged at the moment, they might want to implement something like their current plan.
    7. I’m going to relisten to the conf. call, and stay short.

  64. 64
    zman Says:

    Thanks BOP, meant to read it, got distracted and hit send before reading.

  65. 65
    RMD Says:

    TAT: according to Yahoo they had a conf. call at 7:30 CST.

  66. 66
    cargocult Says:

    BOP-I’m heading to Europe next week. Should I buy my Euro’s now?

  67. 67
    zman Says:

    Going to take some HAL.

    RMD – well thanks, I missed it.

  68. 68
    zman Says:


    HAL – Added (50) May $31 Calls for $0.20 with the stock at $28.40.

    CAM – Added (10) May $37.50 Calls for 1.15 with the stock at 36.40.

    Everything I am gleaning from my readings and from testimony out today puts these two out of the blame spotlight for the tragedy in the Gulf.

  69. 69
    zman Says:

    … and adding to 68, they’ve obviously been punished severely for it.

  70. 70
    zman Says:

    Thanks RMD, listening to TAT replay now but will break off for the PETD call in 20 minutes.

  71. 71
    choices Says:

    #68-tend to agree on HAL unless they can demonstrate that the cement process was faulty, which is unlikely. Saw something which could indicate that BP would go bankruptcy if retroactive increase in liability limits is increased by Congress.

    What I cannot understand is why RIG is green but APC continues to be punished-APC had non-op interest, well protected by insurance, etc, etc.

  72. 72
    TEXWS6 Says:

    Anytime you are pumping a nitrified cement, you are going to have some issues/struggles.

    If BP goes broke and sells it’s assets some small(er) player is going to get some great assets/property that has not been exploited properly.

  73. 73
    zman Says:

    Choice – can’t see BP = BK.
    Re APC = good question.

    TAT Notes

    TPAO exploration agreement

    Thrace Basin License (3791)
    Committment: renter 4 wells and drill 4 wells, beginning July 2010, ending by July 2011

    (south central Turkey) 3165 block License – re-enter a well for
    sands and shale.

    Zorlu deal – $100 mm announced last week.

    now have > 1mm acres

    This summer plan to bring new frac equipment to Thrace Basin, to get gas production up.

  74. 74
    zman Says:

    S&P at 1,167. Nicky, if it takes out 1,177 does that suffice to make you more bullish?

    TAT Call – little new other than the timing mentioned above. Lots of rain and delays. Oil production was off due to the lower activity.

    PETD call in 5 minutes, stock went ahead and ran but has a lot of room, based on cheap multiples to run quite a bit further.

  75. 75
    Gmlgdc Says:

    re 56 heard shell paid 10,000 per acre for a 120,000 acre ranch. It was actually $600,000,000 for half with the owner able to participate for 50%

  76. 76
    jat Says:

    anyone else watching this testimony? really putting the onus on BP in my biased opinion.

  77. 77
    jat Says:

    it’s like people are finally highlighting that BP is the OPERATOR.

  78. 78
    zman Says:

    Jat – where are you watching it? All I see is the occasional headline.

  79. 79
    Gmlgdc Says:


  80. 80
    jat Says:

    I’m watching on bloom but you can watch on cspan, also NYtimes did a live blog

  81. 81
    zman Says:

    Thanks guys. Jat, did you get the shirt?

  82. 82
    jat Says:

    BP has repeated the phrase “we will pay all legitimate claims” about a billion times, even when asked about $10bln in damages, they said that they won’t speculate on numbers but that they will pay all legitimate claims, legitimate being things damaged by the spill…

  83. 83
    jat Says:

    to speculate on choices’ question regarding APC, my understanding is that if BP pays XXX in damages then APC pays its working interest portion of XXX, but that could be incorrect.

  84. 84
    zman Says:

    Jat re 83, that’s how I understand it as well.

  85. 85
    zman Says:

    PETD call underway, operations update about to being, they just said they are specifically going to talk about the Niobrara shale play, especially on their July 15th analyst day.

  86. 86
    zman Says:

    CAM definitely acting like they are getting left off the hook. The RIG CEO said the BOP wasn’t designed to shear anything and everything that might be in it. CAM should be off the hook on a $ basis anyway as that BOP was sold to RIG in 2001 and carried a 1 year warranty but that’s good vindication for their reputation.

  87. 87
    jat Says:

    re 81, thanks, I got it. unfortunately it is the only thing I own related to Baaken proper.

  88. 88
    zman Says:

    The only thing worse than an oil company in the eyes of the Senate is a foreign oil company. BP repeated legitimate cost mantra is not playing well.

  89. 89
    zman Says:

    re 87 = Doooohhhh.

    PETD Notes:

    Production was up 7% vs guidance
    Wattenberg was 18% over plan, good weather, good drilling.

    Waiting on Niobrara comments. Stock keeps inching higher, now up 8%.

    CAM and HAL jumping on the testimony which I’m not really listening to but have tivo’d, thought I heard them say they are trying to wrap things up.

  90. 90
    choices Says:

    re APC-thanks jat, Z-insurance should be more than adequate.

  91. 91
    guru Says:


    CHK is paying off $3.5B in debt over the next 1-2 years while selling $500mm + $600 mm in new preferred along with interest in Marcellus and Haynesville. Why is this prepayment of debt plus monetization of assets (acreage) not good for shareholders? So, far I have not heard anything which is a ringing refute of Aubry’s strategy.

    In addition, he is also exploiting with this new capital liquid rich Eagle Ford Shale and other new acreage he has already acquired in JV which is at the heart of all the names pursued so actively here?

  92. 92
    choices Says:

    SD actually getting a bounce, up 6.6%-saw no news.

  93. 93
    guru Says:


    In addition, due to street’s obsession with momentum names such as EOG, CHK has been left behind wih very low CFPS valuations of slightly above 3.0. It seems to be pretty cheap here although granted it is not a momentum name which is good for call option plays.

  94. 94
    zman Says:

    I did not say it wasn’t good for the balance sheet and therefore for shareholders. I was just comment on his “get to investment grade” goal and his way of getting there. If you sell assets to pay off debt that’s one thing and you can balance cash in vs reserves out. But if you do a VPP, then the rating agencies, rightly or wrongly, view that VPP as an obligation (debt) and it doesn’t his cause much if at all to get to investment grade status. I like him getting oilier but would like to see some results that will be able to wag the whole dog here.

  95. 95
    RMD Says:

    PETD conf.call; mgt took good notes in Boring Conf. Call 101 class.

  96. 96
    zman Says:

    RMD – the opening was great … and then they started reading the financial tables. Q&A should be spicy.


    Probably better to look at them on a TEV/EBITDA basis to incorporate the debt they have and the general lack of debt names like EOG don’t have. I’ll have those included in the Orange Charts. You can see the old Orange Charts at upper left and see how CHK looks less expensive.

  97. 97
    zman Says:


    Sold the 1,000 KOG shares for $3.74, up 3%. I took these during the market discombobulation last Thursday in an effort to catch a falling knife in that fast market and while I have no problem holding the name in the ZLT, I don’t really want things to hang out for long periods in the ZIM (inefficient markets) portfolio.

  98. 98
    RMD Says:

    Goldman on CHK: lowering est. about $.25/share for dilution in ’11 and ’12. Don’t see co. spending within cash flow before asset sales by ’12. 4.5X EV/Eda vs. 4.2X for large caps, $30 target in line with peers.

  99. 99
    zman Says:

    PETD Notes:

    Encouraged by what they have seen, they would expect to spend some $ on it in 2H10. That’s a cagey way of saying we’ll probably drill a well in the second half. Sounds like they will outline this in much more definitive terms at their analyst day in July.

  100. 100
    Dman Says:

    Z – #86 wow, the BOP was 10 years old. You’d think the only way CAM could get hit was if they maintained it or something. But what does RIG mean when they say it wasn’t designed to shear everything? Are they basically saying that BP used it beyond its specs?

  101. 101
    guru Says:

    Goldman hedge funds must be sitting with a big short in CHK. An outfit like GS who trades against their clients, what credibility their opinion carries?

  102. 102
    zman Says:

    PETD call over, good quarter, nothing definitive on the Niobrara mentioned, will tune back in mid summer.

    Dman – I think he meant there could be something traveling through the bop that it couldn’t shear off. I didn’t catch all the testimony but it sounded like he said the BOP was not designed to cut off some types of tools that might be in it at the time the shears are activated.

  103. 103
    Nicky Says:

    Under any of the counts we should be approaching at least a short term top. Resistance is at 1170,1172 (50dma).

  104. 104
    zman Says:

    Apparently they also said, and I missed this part, that BP had modified the BOP in 2005 to make it easier to test. Open the back of your iPhone and see how good any thought of a warranty is (especially one that’s already expired). How that can be bad news for CAM I don’t know and judging by the run since the conference call started I’d say it isn’t. Looking for some of the analysts who were out early defending CAM to be out doing more of same today and tomorrow.

    Thanks much Nicky.

    grabbing some lunch.

  105. 105
    guru Says:


    Thanks for pointing to the Orange Charts for TEV/EBITDA ratios.

    The ratio (for 2010) is 6.0 for CHK while it is 6.8 for EOG. Similarly,for 2011, the ratio is 4.8 for CHK v/s 5.2 for EOG. How should I interpret this? Is CHK cheaper on this metric as well relative to EOG?

    In addition, CHK is ramping up forecasts for production frowth in 2011?

  106. 106
    Gmlgdc Says:

    re 100 and 102 said might not been able to close because of material being blown up the hole cement sand etc. Once flow starts the BOP’s get flow cut very quickly because of the abrasive nature of sand and high pressure fluid. I saw one blow out where there was no BOPs left.

  107. 107
    reefguy Says:

    EGY- Market Cap $275MM. $106 MM cash, no debt. Ginning better than $30MM/quarter. Thats $2/share in cash for a $5 stock….Please aquire me!

  108. 108
    VTZ Says:

    Gold just made a new high.

  109. 109
    AAA Says:

    While I think there are some good arguments as to why CAM, HAL and possibly RIG are not liable here, the fact remains that they face years, perhaps decades, of litigation and uncertainty. If BP is able to make use of the liability cap, there will be a frantic search for deep pockets. As we saw back in the financial crisis, insurance may not be all it’s cracked up to be either, not unless the government is prepared to backstop the underwriter.

    I understand that the BOP was out of warranty, but I am not at all sure that is relevant to tort liability on a product liability claim. Certainly there is an argument that a part like that has a useful life and it’s not the manufacturer’s responsibility if you misuse it or modify it, but those are defenses that will likely be argued in front of a gulf jury. Good luck with that.

    Maybe these companies all bounce back quickly, but I see a lot of drawn out litigation ahead of them, in addition to government investigations.

  110. 110
    zman Says:

    Re 105 . The way I look at is that they are both large caps so they should be in the same metrics ballparks but that EOG is going to trade at a premium for a number of reasons. 1) lower debt, strong balance sheet, just more financially flexible 2) EOG is oilier and getting oilier than that at a faster rate than CHK. 3) EOG has oil play running room in the Bakken, Barnett Combo, EFS, more proven for EOG than for CHK in the oil plays to date. 4) EOG is also seeing accelerating growth and this year, its growth comes almost entirely from liquids 5) credibility. EOG can stay around cash flow and they aren’t big acquirers so they are seen as safe, guys who do what they promise. 6) CHK has more of a gun slinger reputation and as far as buying and selling of land that has worked very well for them. I had planned to get long EOG common awhile back but missed the recent run and am not adding here until this market gets better sorted. I am not planning on selling my CHK shares soon but just haven’t gotten that excited about it for a long time. Long term I think both go quite a bit higher.

  111. 111
    guru Says:

    Re 110:

    Excellent summary. I am also looking to buy EOG common, hopefully at a price close to its 200 day mavg of 92.5 (even $95 looks fine) and not selling CHK comon for the next 2 years until EFS and their other oily plays bear fruit. Go Aubrey.

  112. 112
    guru Says:


    I am interested in an updated version of the Orange Charts for the small cap names, specifically WLL. Do you plan to update those in the near future? Thanks.

  113. 113
    zman Says:

    Planning an update of the L,M,Smalls for next week.

  114. 114
    zman Says:

    Reef. EGY and BPZ both interesting, kind of the fringe of stuff I watch.

    Did you listen to TAT, kind of like watching the Turkish weather there.

  115. 115
    reefguy Says:

    TAT was BORING

  116. 116
    zman Says:

    re 115, right, not to put too fine a point on it.

  117. 117
    jat Says:

    Re 109, BP has stated explicitly that they consider the $75mln liability cap irrelevant. They’re going to pay out above it.

  118. 118
    RMD Says:

    RAJA piece on TRGL:
    no shale commercial shale production in Europe; only oily basin is Paris Basin, Liassic shale. Other shales:
    Silurian (CVX, COP, XOM, MRO, TLM0
    Posidonia (XOM)
    Alum (RD)
    Montpellier (TOT)

  119. 119
    bill Says:


    what would the reaction be if chk stated

    chk to issue 5 b in convertible pref stock?

    chk to spend 1.5 b than prior plan.

    They do a great spin job

    the story was they are going to issue 5 b in new stock

    they announce it as chk going to pay down debt

  120. 120
    elijahwc Says:

    Lazard Capital Markets: CHK: Devil in the details (which disappoint

    Plan doesn’t live up to expectations. On the conference call this morning, CHK
    outlined the details of its “5 Step” program to reduce debt and increase
    shareholder value. Unfortunately, when we heard the details of the new plan, it
    sounded a lot like the old plan (buy acreage, flip acreage, monetize assets to

    Sounds like the Lizard wants Aubrey to move up to the Ten Step Plan.

  121. 121
    BirdsofpreyRcool Says:

    BedTime Market Strategist —

    A Whatever it Takes World.

    Late Sunday night, the EU leadership pulled out all of the stops in combating the sovereign debt crisis that has taken hold in Southern Europe. There are three important ways to view the announced plan. First, as we stated in a morning note yesterday, the FOMC’s announcement to resurrect the crisis Dollar liquidity Central Bank swap lines is akin to another round of easing in the United States. In the current context of the announcement, the FOMC did not say these actions would be sterilized. The move will lead to a further expansion of the Federal Reserve’s balance sheet, the size and amount will be dependent upon how strong the global demand for Dollars remains. In December 2008, the peak level of the Fed’s Central Bank swaps outstanding was $583 Billion. Today, Richmond Fed President and FOMC non-voter Jeffrey Lacker said the Fed should consider sterilizing the swaps. This was undoubtedly a move by the Federal Reserve to attempt to short circuit the transition from a European sovereign debt crisis into a global banking crisis. As is well known, U.S. Banking exposure to Southern Europe is relatively small. The key risk U.S. banks face is counterparty exposures to large Northern European banks. These swap lines insert the two respective central banks into the equation as counterparties to their respective local financial institutions for currency transactions. This was a smart and appropriate action by the Fed to help insulate U.S. institutions as much as possible in a global economy. As we noted, the expansion of the Fed’s balance sheet is equivalent to getting a shot of adrenaline when your neighbor is sick. It may not be necessary, but it is to be expected as the Fed seeks to mitigate the downside related to exogenous events. As U.S. markets calm, and if the economic recovery remains on pace, this does open the door for the FOMC to start asset sales sooner than anticipated simply just to offset the swap lines. That being said, the key imperative to remember about this Fed and Chairman Bernanke is that at all costs, they do not want to relive the Fall of 2008 again. Therefore, if further actions need to be taken to insulate the U.S. financial system, they will take them. If sterilization or asset sales need to wait, then they will wait (probably longer than necessary).

    The second key aspect is the EU-IMF €750 Billion European financial stabilization mechanism. Approximately one third of the funding for the $1 Trillion war chest is coming from the IMF. The €500 Billion coming from the EU members is a maneuver straight out of the Bernanke-Geithner playbook. The EU will supply €60 Billion and in essence, those funds will be levered through Special Purpose Entities to create another €440 Billion. The original architecture for the TALF here in the United States was $20 Billion of TARP funds being transferred from Treasury to the New York Fed, which then levered that amount into $200 Billion of buying power. At the heart of the crisis in March 2009, the Fed and Treasury jointly announced they were ready to take the program up to $1 Trillion if necessary, In retrospect, we know it was not necessary. Now that we know where the architecture for the plan came from, the question is whether it makes it any easier for Europe to implement? No, it does not. Here in the U.S., Bernanke and Geithner took immense personal risk in adopting such a plan. Had it failed, the repercussions would have been devastating. Over the past 18 months, both men have been ridiculed by Congress, yet their strategy for handling the crisis has been nothing short of an astounding success. Imagine their treatment if the U.S. continued to sink into the abyss. It bears repeating – the U.S. is one nation, one common cause and TARP and the related interventions were tough to pull off. In Europe, there are different sovereign entities, with different economies and tax structures making it that much more challenging to succeed. What is clear is that the EU has taken a combination of the “whatever it takes” and “failure is not an option” attitude, which means anything and everything is on the table should this package stumble.

    The third and most interesting aspect of the EU announcements was that which came from the ECB. The first line of the first bullet read, “To conduct interventions in the Euro area public and private debt securities markets (Securities Markets Programme) to ensure depth and liquidity in those market segments which are dysfunctional. The objective of this programme is to address the malfunctioning of securities markets and restore an appropriate monetary policy transmission mechanism.” The ECB has chosen to combat speculation with speculation. The outrage among European politicians against speculators is equivalent to U.S. politicians against bankers. This violates the long standing taboo of targeted Government intervention in private markets. The traditional risk is that consistent policies of intervention in market prices undermines market confidence out of the fear the Government is manipulating price levels for political purposes. The argument that ECB and European politicians will make is that until this week, the market pricing mechanism for Greek bonds has not been working. In the United States, we have witnessed a large scale government intervention in the credit markets but the difference is programs were announced, well telegraphed and transactions were disclosed in real time. The ECB’s response is very different in that they are planning a crisis response to defend different sovereign debts as they come under siege from market forces. Without debating the ideology of whether this response from the ECB is right or wrong, one must consider the potential consequences. Do investors shy from European sovereign debts out of fear of manipulated pricing or do speculators keep their respective wagers on only the weakest of the weak? We suspect the most manipulated pricing will occur in the weakest of the weak, and in that case, speculators should be enthused about the opportunity to sell at artificially high prices. The benefit of the European governments is that speculators will likely avoid the marginal bets against sovereign debt. We have advocated throughout that while this crisis is legitimate, it is not on the level of the global crisis a year ago. We have also noted our opinion that there is some speculative flare to the situation and the real crisis is the one of confidence that has been created (and still remains) in the Euro currency itself. As such, without condoning the ECB’s approach, this targeted strategy may have a higher likelihood of success at a lower price than the implementation of the Trillion dollar war chest. In the meantime, the mess and the uncertainty in the EU prevail. As a result, the S&P 500 looks relatively better and better every day.

  122. 122
    Jerome Blank Says:

    At close on 5/11/10…

    $bpener, bullish percent energy is sitting right on P&F trendline support, $bpnya, the NYSE bullish percent is still holding “bear alert” status, rising a fraction of a percentage point today, the McClellan has come off the extreme oversold levels, but still has plenty of potential upside…overall, from the tehnicals I look at, the equity macro picture is stressed (ie: the $bpspx, is bear confirmed), but still structurally holding…Crude goes back into o’s on the current P&F sell signal on a print of $75…but as of today, $WTIC still holding it’s reversal back into X’s…

    If you discount the tails from Thur, a few comments on a few stocks…

    AEZ essentially still trading within the bullish daily ascending triangle…still looks great…

    ATPG is now at a stong confluence of weekly support…

    BEXP holding the lower daily channel trendline, back into X’s on the current sell signal…

    ECA still trading within that huge bullish daily triangle, next support at $30.50, new P&F buy signal on a print of $34…

    EXXI…although the daily traditional chart does not currently “wow” me, the weekly is so far holding up nicely and looks promising, holding long term weekly trendline support and the
    P&F chart also held long term trendline support reversing back into X’s…

    FST, still holding a P&F buy signal, in X’s, holding that lower trendline on the ascending wedge at the 100 day SMA…somewhat stagnant today, but FST really held up nicely…

    KOG…new ascending channel developing on the daily, see the updated chart…you can also see how KOG is testing the long term weekly trendline resistance…overall technically bullish…

    I’ll cover some add’l stocks tomorrow…

  123. 123
    mimster90 Says:

    Thanks for the chart on the Large Cap E&P’s.

  124. 124
    Jerome Blank Says:

    RE: #123, mimster, you bet…

  125. 125
    zman Says:

    Analyst Watch:

    END initiated at Wunderlich at Buy, target $2.75.

    Oil inventories in 15 minutes.

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