01
Jun

Tuesday – Welcome To June

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Market Sentiment Watch: Dazed and confused. Not going to miss May as that was the worst May for the markets since 1940. Europe continued to lead world markets around by the nose taking just about everything but gold and gas (natural gas) lower.  Today looks like more of the same and I will be slower to add on weakness in the ZIM during this holiday shortened week and will continue to wait until we get closer to some approaching catalysts to trade in the ZCAT. In today's post along with the usual stuff we've included the Natural Gas Supply Slide show for the most recent monthly data (March 2010) and to sum it in a word up for those looking for a quick return to higher natural gas prices: bummer. There's a more detailed summary in the charts below.

 

Macondo Watch:

  • BP announced that their top kill effort failed on Saturday.
  • Next step will be to attach a smaller containment dome atop the BOP with a target of Friday to Sunday for knowing if that works.
  • After that BP plans to attach a second BOP to the top of the current one.
  • BP shares got crushed overnight in Europe and are set to open in the States down 14%. Including today's pre market move, BP is now just over 1/3 and lost $19 B in market today.
  • You can watch spillvision here.
  • Onshore, oily stocks will likely to continue to drain dollars from the offshore crowd
    • Names that probably see earnings revised lower (either this year's or nexts) due to the deepwater moratium:
      • ATPG and APC in E&P
    • Rig operators with the biggest impacts:
      • RIG (9 rigs), DO (4 rigs), HP (3),
    • Others:
      • OII - ROVs, sometimes two per rig and many of their systems operating in the deep water Gulf of Mexico
      • SLB and HAL will feel the impact but earnings for both from the Gulf are not enough to account for the hit the names have already taken.
      • NOV and CAM could actual benefit due to new offshore regulations but it's too early to tell.

 

The Week Ahead: 

  • Tuesday 6/1: ISM (F=58.9%) and construction spending (F -0.2%) at 10 EST
  • Wednesday 6/2: vehicle sales,
  • Thursday 6/3: EIA Natural Storage Report at 9:30 EST, EIA Oil Inventory Report at 11 am EST, ADP employment (F=110K), Jobless claims (F=450K), Productivity (F=3.2%), ISM services (F=55.7%), Factory orders (F=1.8%)
  • Friday 6/4: Nonfarm payrolls (F = +508K), unemployment rate (F=9.8%)

In Today's Post:

  • Holdings Watch
  • Commodity  Watch
  • Natural Gas Supply Slide Show - Absolutely nothing for bulls to like here
  • Odds & Ends

Holdings Watch:

ZCAT (Zman Catalyst portfolio):

  • $7,500
  • 99% Cash
  • Positions are updated on the ZCAT, ZIM, ZLT.
  • Friday’s Trades:

    • None

ZIM (Zman Inefficient Markets portfolio)

  • $7,300
  • 4% Cash (4 positions)
  • Positions are updated on the ZCAT, ZIM, ZLT page.

Commodity  Watch:

Crude oil bounced 6% last week to close at $73.97. The 12 month crude strip is now trading at $77.97.  This morning crude is down $1.50 to $2.00 with a soft market but also with data out of China showing a deceleration in manufacturing activity.


Natural gas oscillated 8% higher last week to close at $4.34. The 12 month strip is now trading at $4.97. This morning gas is trading up a penny.


  • Tropics Watch: Today marks the beginning of the Atlantic Hurricane Season:
    • NOAA is calling for one of the stormiest seasons on record looking for up to 23 named storms with 8 to 14 of those becoming hurricanes.
    • Colorado State plans to revise their forecast higher tomorrow as well.

 


Natural Gas Supply Slide Show 

Quick Notes Before The Graphs:

  • Production was up:

    • 1.3% from February 2010
    • and 2.6% from March 2009
  • Nothing in this report could be considered bullish. I'd say it's still too early but either the new EIA methodology is still broken or more broken, or the decline rates of the conventional reservoirs are not as step as once thought.
  • Texas production which had been sliding with the lower rig count appears to be turning the corner after a strong recovery in rigs and the completion of some long delayed wells in the Barnett Shale.
  • "Other States" production hit a new record and I will be asking EIA when they plan to start breaking some of the larger pieces of that puzzle out. Rig counts in several of the others states like AR (Fayetteville Shale) and PA (Marcellus) remains quite strong.
  • Gulf of Mexico production appears to have recovered nearly as much as can be expected from hurricanes Ike and Gustav but not from Katrina before them (see spikes on the Gulf of Mexico graphs) and now appears to be struggling to offset normal declines. I would not look for a big impact on gas in the future from the deepwater moratorium as to date, most deepwater targets have been oily.

 

Odds & Ends

Analyst Watch:

  • NFX - Added to Conviction Buy List at Goldman
  • KWK - Cut to Sell at Goldman
  • NBL - Upped to Neutral at Goldman
  • EOG - Target upped $8 to $140 at Goldman

 

 

144 Responses to “Tuesday – Welcome To June”

  1. 1
    zman Says:

    Going to be an ugly open:

    DJ fut down 119
    SP fut down 15

    Oil down 2.3%
    NG flat

    BP down 14%
    Oil service off 5 to 8% pre market

  2. 2
    ram Says:

    It would be nice if we put the low in for June on the open and don’t look back :).

  3. 3
    zman Says:

    Agreed. Oil is simply reacting to the markets and the China deceleration fears again but I think we saw the near term low there last week in the upper $60s. We should see a pop in gasoline demand with this Thursday EIA report.

    NG is being propped up by weather and the hurricane forecasts for the season as that supply report was no good for bulls.

    Onshore and oily would still seem to be the safest bet for now but there is not a lot of catalytic news out this time of year.

  4. 4
    zman Says:

    Saw the Tudor piece today, basically agree. Service EPS reductions should already easily be in the beating the stocks have taken. HAL and SLB especially overdone here. For now they are saying go with onshore E&P over offshore anything or onshore service. Agreed but HAL is awfully cheap now. They like BEXP in oily names (or names that are getting oily) and HK on the gas side.

  5. 5
    zman Says:

    BP thoughts = another attempt starting Wednesday will bring out the bottom fishers on this hit today. A lot of people are going to be thinking that enough is enough (iteration 3 or 4 for many of them). I will play in the $40 strikes after the open but only for a very quick trade. Milepost put out some articles on the wrap which may come to fruition regarding this deal going into the criminal prosecution realm. It’s possible. I’d be more concerned if the stock hadn’t already paid for more than double the drop in any of the liability estimates in market cap. Also, BP is a cash cow and while this will leave a heck of a mark on the balance sheet, they can afford it.

  6. 6
    zman Says:

    APC also taking a beating this morning pre market on the top kill failure. Estimates there will come down but not by much as some projects are delayed. Again, should already be reflected. The liability of redrill, capping and clean up however remains the open ended question. This one may rally more than BP in the event of a successful capping.

  7. 7
    BirdsofpreyRcool Says:

    TED still creeping wider… out to +38.2bps today. But it is the really steep, one or two day moves that are scary. TED just sort of drifting since May 25th.

    Credit indices red with the futures. Actually, a lot redder than stock futures. If the SPX was to mirror the IG index this morning (according to XACS’s model) then we would open down about 35 pts in stocks. Lately, stocks and credit have not traded together during the day, but tend to close around where the model predicts. So, more important where the IG index is at, say 2pm today, than where it opens.

    IG +6 3/4 bps wider to 123 3/4

    HY -7/8 pts lower

    Hang onto your hat, could be a wild open.

  8. 8
    zman Says:

    Analyst Watch:

    Carris & Co upgrading the refiners from below average to average. Makes sense in light of the recent stronger than expected refining margins. No differentiation between ratings of different names in the group makes less sense as all of the names are rated the same. They essentially marked all of their targets to current market prices (kinda lazy). I think VLO and SUN outperform the group.

  9. 9
    zman Says:

    Thanks BOP, sitting on hands.

  10. 10
    Dman Says:

    ATPG=wow

    That’s quite a haircut.

  11. 11
    zman Says:

    Dman – yep, see APC, marking BP. The bottom fishers are starting to come out now.

    Also, nice rally in oil off the morning lows and +5c for NG which is pretty amazing given the numbers on Friday. Everyone is expect Grey at CSU to come with a big hurricane forecast tomorrow.

  12. 12
    BirdsofpreyRcool Says:

    HeadTrader sitting on his hands too. Looking to take his cue from eco-#s at 10am. He is pointing out that banks are strong… can’t really point to why, tho.

  13. 13
    dij Says:

    CL now 73.78, up from 71.78.

  14. 14
    zman Says:

    ZTRADE – ZIM – BP

    Added (10) BP June $45 calls for $0.21 with the stock at $37.70, gapping lower on their failure over the weekend. BP is now down 40% from it’s pre Macondo failure highs.

  15. 15
    Dman Says:

    Z – is APC strictly a case of collatoral damage here or do they have some interest in the Macondo well?

  16. 16
    zman Says:

    dij – yep, quite the rally. NG up 8 cents as well.

  17. 17
    zman Says:

    Dman – they have a 25%, non operated, working interest.

    Good shot of what an underwater skilsaw looks like in the hands of an ROV right now:

    http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/homepage/STAGING/local_assets/bp_homepage/html/rov_stream.html

  18. 18
    zman Says:

    BEXP sitting at its 20 and 50 day moving averages, just underneath. Any thoughts there JB? Thanks.

  19. 19
    Dman Says:

    Hard to have much faith in BP putting a cork in this thing. They are going thru their options in order of highest success probability & lowest risk of making it worse. Now that we are at number 4 (or so) on the list … yikes.

    Matt Simmons, commenting in the 1st few days of the spill, said he didn’t have much faith in any of the options, including the relief well. He said the entire reservoir could end up in the Gulf, i.e. destroying the gulf basically. He seemed pretty angry & I wasn’t sure what to make of it then, but I guess that scenario is now on the table.

    It has now gone beyond the stage where I’d like to predict government responses. It may take a real spike in oil prices down the track before they are willing to risk more drilling.
    Or maybe a change of government.

  20. 20
    Nicky Says:

    Good morning. The voodoo points to a wildly volatile week with a downside bias into the end of the week with next week looking a lot more positive. The cycles are a pain as they are actually positive short term with negativity next week but my instinct is that they are inverting and my preference is for a down week this week, and a much more positive week next week. But the voodoo says expect the unexpected!
    Support at 1070, and then 1065, resistance at 1089.

  21. 21
    zman Says:

    ISM at 59.7 vs 58.9 forecast

  22. 22
    zman Says:

    Matt = increasingly alarmist. The relief well will take multiple tries (sidetracks) but eventually they’ll get that to work.

  23. 23
    zman Says:

    Oil back to even on the day, dollar falling off after ISM data, S&P popping up.

  24. 24
    zman Says:

    Thanks much Nicky.

  25. 25
    dij Says:

    Oil is now off a dollar, and EOG is down six. Anomoly, or is there a reason reason? Inefficiency?

  26. 26
    VTZ Says:

    Gold working its way through resistance band from 1224 to 1228 for another run to a new high.

  27. 27
    zman Says:

    Dij – I think you’re quotes are off, I have oil up $0.40 at 74.33 and EOG off 2.70

  28. 28
    zman Says:

    BP cutting what looks like the riser now. Flow may get worse depending on what may have been impeding it in the part that’s cut off.

  29. 29
    Jerome Blank Says:

    RE: #18, BEXP, holding up well… $16.35 is the support level to watch, corresponds with the daily 100 day SMA and is right in the neighborhood of the 50/200 period crossover on the 30 min, strong support levels, BEXP is now on a new P&F buy signal from Friday…all charts posted

  30. 30
    Pati Says:

    Visualizing US Energy Policy
    May 31, 2010

    There is a rather antiquated belief that the oil and gas industry drives US energy policy. This is usually framed in people’s minds as a pleading oil and gas lobbyist making sure that the US stays hooked on oil. While this image may be accurate with regards to the US coal industry, which does indeed have heavy influence on Congress and policy, it’s much less the case with oil and gas. And here’s why: The US automobile industry and the US highway construction industry performs all the heavy lifting one could require, to ensure that US primary energy usage stays overweighted to liquid fuel consumption. These two industries dwarf any other influence on US energy policy through their widespread distribution throughout 50 US states, and Congress.

    One of the first major acts of our new President and Congress in 2009 was to invest over 100 billion in the auto manufacturing complex, and the highway construction complex. US energy policy, therefore, is not so much about the oil and gas industry or even the coal industry. US energy policy, which is essentially about how we will use energy in the future, is guided most by our transport–not our powergrid–system. It is the height of either irony, or absurdity, therefore that the US climate change movement has incorrectly and repeatedly chosen to focus on the powergrid as the lever to effect carbon reduction. Neither on a primary usage basis nor especially on an emissions basis does the powergrid exceed transport as the problem. The President and Congress, and especially US Governors, remain committed to investing in the Automobile-US Highway Construction complex. Here is President Obama just last month:

    So, GM and Chrysler went through painful restructurings: ones that required enormous sacrifices on the part of all involved. Many believed this was a fool’s errand. Many feared we would be throwing good money after bad: that taxpayers would lose most of their investment and that these companies would soon fail regardless. But one year later, the outlook is very different. In fact, the industry is recovering at a pace few thought possible.

    Overall energy policy in the US is depicted nicely in the above painting by Hubert Blanz, from his Roadshow series. Although fanciful and exaggerated, there is a helpful truth in the exaggeration: The US does precisely zero to transition away from automobile and highway transport, and quantifiably, undertakes nothing but token investment in other means of conveyance. Meanwhile, we continue to plan for massive, new investment in our highways. It’s legitimate to be aggrieved that the global, and US, oil and gas industry no doubt spends hundreds of millions of dollars each year to restrain regulation over extraction. There’s no argument that this is the case, but this skews more towards environmental policy–not overall energy policy–which governs the most important factor of all: demand. Your President, your Congress, and your Governors are doing everything they possibly can to make sure that the demand for oil here in the US, and dependency on oil here in the US, rolls onward.

    -Gregor
    ShareThis • 2 Comments
    Author: Gregor Macdonald Posted in: Alternative Energy Americas EV Policy Psychology coal fossil fuels politics rail Tagged: Automobiles BO demand Highways Obama Oil Roads

  31. 31
    zman Says:

    JB, thanks much. Most important two wells for them are due around month end. I’ll have a revised Catalyst out in the post tomorrow.

  32. 32
    zman Says:

    Onshore outperforming, again. AEZ and BEXP going green.

  33. 33
    zman Says:

    WLL running too. Bakken focused oil probably rules the day in June.

  34. 34
    zman Says:

    Nicky – SP 1093, what are your next resistance levels. I agree that week may be jittery given Europe, China, and employment at week’s end. Big gain expected then (up 500,000+).

  35. 35
    Jerome Blank Says:

    Any thoughts on the KOG subscription offer, ADS shares, involving the Australian Share Purchase Plan…I really have no idea what’s going on with this….

  36. 36
    zman Says:

    HAL just getting crushed. OIH down another 5%. Seems way overdone at this point but seemed that way last week too. It’s getting hit for the deepwater biz but the contraction in earnings should be less than $0.25 this year. Market trading on emotion here.

  37. 37
    zman Says:

    JB – stock should move more freely following the subscription date. I just got the terms from my broker over the weekend so will review and get back to you.

    Hate to ask but how’s the BP chart look to you? Big gap today.

  38. 38
    BirdsofpreyRcool Says:

    JB — looking at KOG news and recent filings… I don’t see what you are seeing. The annual shareholder mtg is June 3rd and they filed the bank agreemetn with Wells Fargo. I have no idea what they would be doing with an Australian Share Purchase Plan… ??

  39. 39
    Nicky Says:

    re # 34 – 1096

    Z – re # 22. Are you confident they are going to stop the oil flow?

  40. 40
    zman Says:

    BOP – he meant SSN

  41. 41
    BirdsofpreyRcool Says:

    #40 phew! thx.

  42. 42
    ilikericky Says:

    ZMAN can you please give us your opinion on taking up the SSN rights,is it worth it?once you have digested.

  43. 43
    zman Says:

    Nicky – yes, but not until August/September. I think before that we see significantly reduced flow, one way or the other. First way would be the small containtment device that will go on the freshly cut riser, with a hose to the surface to suction flow to a tanker. That will get part of the flow if it doesn’t freeze up. If that fails they can put a second BOP atop the first. That should work as as long as the first BOP can take the pressure or you don’t have other issues crop up. When they have cut through the riser you’ll see stories about increased flow rates almost assuredly before they get the new containment device on. At this point, a hurricane in the area might be a good thing as the wave action would “weather” the oil faster, as long as it doesn’t create a storm surge that takes it ashore.

  44. 44
    zman Says:

    42 – yes.

  45. 45
    Jerome Blank Says:

    Re: , #37, #38, Zman, thanks,I appreciate that… BOP, received a subscription offer by mail today…says Samsoon announced an offering of add’l shares (up to 123 million) in the form of ADS’s …offer being conducted concurrently with a Share Purchase Plan being undertaken by the Co. in Australia and New Zealand…

  46. 46
    zman Says:

    APC down $8 or 15% now. Wow.

  47. 47
    zman Says:

    JB – the offering was announced several weeks back to the potential dilution should already be in the share price. They need the cash to move forward with the Niobrara deal. Once the deal is done I think we’ll get more data timing there and also whether or not they are going to sell down their interest to do a JV there.

  48. 48
    skimo Says:

    re 3 perhaps I’m offbase but who needs to worry about a hurricane season when the BHO show is shutting down the GOM anyway? Shouldn’t we start seeing pricing impacts of that shut-in sooner than any Hurricane related updraft?

  49. 49
    Nicky Says:

    Thanks Z.

  50. 50
    Jerome Blank Says:

    Re: #47, I guess the question is do we want to participate…I have the offer expiring June 10, 1010

  51. 51
    zman Says:

    Skimo – perhaps and I know that’s partially tongue in cheek. Since only 3% of U.S. natural gas production comes from the deepwater it’s really not that big a deal to delay drilling there for 6 months. Especially if rig counts stay elevated in LA and rise in TX which appears to the current trend.

  52. 52
    zman Says:

    I’m putting my SSN subscription thoughts in tomorrow’s post.

  53. 53
    zman Says:

    Coal stocks backing off again.

    WLT getting hit particularly hard, at $75 from a recent trip to $100. They bought a CBM asset next to one of their current operations. $210 mm for 190 Bcf, pretty cheap.

  54. 54
    zman Says:

    Analyst Watch:

    AEZ – started at Overweight, not sure what the price target is. I continue to own the shares in the ZLT.

  55. 55
    zman Says:

    Obama speaking on BP spill now.

  56. 56
    BirdsofpreyRcool Says:

    Anything useful? Not watching…

  57. 57
    zman Says:

    Administration to take a comprehensive look at how the oil and gas industry in the U.S. operates.

  58. 58
    PackMan Says:

    more Obama commissions …

  59. 59
    PackMan Says:

    HAL down 12%

  60. 60
    zman Says:

    BOP – lots of people being appointed to a commission for review. Holding all parties accountable, keeps mentioning BP, RIG, and HAL. Looks like a 6 month time line until they get recommendations out.

    “Untold damage being done to the environment, damage that could last for decades”

  61. 61
    BirdsofpreyRcool Says:

    Command and Control. Let no disaster go to waste. Govt is the answer. Same old same old. Thx.

  62. 62
    zman Says:

    re 59. Yep, CAM, HAL, APC, BP, RIG group all taking it on the chin from 6 to 15%. Seems overdone but math went out the window on this for the moment.

  63. 63
    BirdsofpreyRcool Says:

    Thing is… there are lots of things that can be done. Like allowing drilling in safer areas (shallower water off all states, North Slope, move to more nat gas-powered vehicles, increased shale drilling). But, I don’t really expect the govt to come up with these answers.

    There are simple, matter-of-fact solutions… and there are Govt Solutions. Rarely do the two mingle in the same room.

    That said, this BP spill is just beyond disaster. This is the industry’s worse nightmare come true. You can drill in pretty much any depth of water… have been able to do that for decades… but it was always the fear of a blowout that kept oil companies from drilling this deep. Tragic stuff.

  64. 64
    zman Says:

    BOP – Agreed. Best guess is the Administration uses the 6 months to come up with higher royalties off shore. They then make a big push on green energy. The President isn’t making a big push on wind and solar now as that would be a bit too obvious for his critics who just say he’s trying to use this event. But over the next six months, they can put together a package of Green incentives that will largely be paid for by “Big Oil”. At least that’s what I’m thinking. Probably a good time to buy GEX or TAN ETFs and sit on them.

  65. 65
    BirdsofpreyRcool Says:

    Good will come of this. There will be new ways to think about drilling in deepwater. New back-up safety procedures and devices. Everybody wants that. No one wants this to ever happen again. Just wonder at what the bad will be. And who it will hurt the most.

  66. 66
    zman Says:

    Agreed. I think DVN could not have timed their exit better. Tasty morsel for Shell or TOT to pick off. Cheap gassy onshore name amongst the big caps along with CHK that could also be a target.

  67. 67
    PackMan Says:

    “If the laws are insufficient to prevent such a spill, then the laws must change”.

    What an absurd statement …

  68. 68
    zman Says:

    Pack – the only law that would prevent a spill is the one that prevent a drill.

  69. 69
    AAA Says:

    I think we can forget about any more deepwater drilling. Clearly the risk outweighs the reward. It’s another of those situations like the financial disaster where the rewards are private, but we all get to share in the downside.

    No thanks.

  70. 70
    BirdsofpreyRcool Says:

    Thing is… the rewards aren’t private. We — the public — all drive cars that use gasoline. And we want that gasoline under $4/gal. Laws have prevented oil companies from drilling in safer places. So I think it’s a mistake to just blame “greedy oil companies” for supplying oil to a public that demands cheap oil. There is a lot to be done… and will be.

  71. 71
    Geno Says:

    re 69 This disaster and the financial disaster have nothing in common. The oil companies get beat up for being greedy. They are a giant employer, and supply a tangible product. Louisiana will be decimated through this.

  72. 72
    BirdsofpreyRcool Says:

    MIDDAY OVERVIEW

    Market Update – very quiet trading as the US as attendance and volumes both remain on the light side coming back from the three-day Memorial Day holiday. The action so far today is encouraging given Fri’s sloppy US close, the weak US futures/Europe activity for much of the early morning, the fact that China is already down more than 3% WTD, continued sovereign worries, the first G7 rate hike (Canada), and the BP/GOM disaster. There was a lot of data out Mon/Tues and while certain key metrics missed forecasts (China PMI), on the whole data for May is coming in strong so far (esp. the US manufacturing ISM) and better than feared (the worry was that the month of May, the first full month to be impacted by the European sov debt crisis, would show meaningful weakness vs. Mar and Apr – based on what we have seen thus far, this isn’t the case). While the BoC did become the first G7 central bank to hike rates, the move was widely expected and the accompanying statement wasn’t as hawkish s feared (meanwhile, the RBA, which has been among the most aggressive banks in the world, decided to stay on hold today). Trading is subdued and US equities are off ~4-5 points as of noon; volumes are on pace for a lighter session than Fri and there isn’t any really notable activity occurring in either direction. Equities rallied into the green after the 10amET US economic numbers but there hasn’t been a lot of follow-through and prices are drifting lower off their highs. The successful 1040 test-and-bounce of last Tues, along w/the rally on Thurs, are being viewed as positives but investors will want to see more progress made on the upside (for the moment the 200day MA, which was firm resistance last week, is being watched as an important level – it now stands at 1105). The calendar is pretty sparse this week, w/the biggest events to watch being: 1) BLS jobs number on Fri; 2) the G20 fin min meeting Fri/Sat; 3) the ECB meeting 6/10.

    Equity sectors: Energy is off over 1.75% and is the weakest space in the market, led lower by Gulf-exposed names following news that BP was unsuccessful with its top kill efforts to plug the leaking oil well. Materials are off 1.25%, led lower by particular weakness in metals following a weak China PMI number and a sharp drop in commodities. Utilities are lagging the tape, off nearly 1% on weakness in AES and NRG. After being the best space early in the day, financials rolled over and are off 0.75%, led lower by weakness in regional banks. Industrials are lagging the tape a bit, led lower by higher-beta machinery names as investors de-risk on macro uncertainties. Discretionary is mostly in line with the tape, led lower on weakness in auto parts and some building materials names. Tech is slightly higher, as strength in internets and softwares offsets weakness in semis (SOX is off 1%). Healthcare is flattish on the day, getting a little bit of a safety bid and also helped by JP Morgan’s GENZ upgrade. Staples and telecoms are the best areas in the market, up 0.5% as investors turn to the space looking for defensive names.

  73. 73
    zman Says:

    I don’t think we are seeing an end to deepwater drilling. I recall when 1,000 feet was “deep” water and then 5,000 feet and now 10,000ish. Clearly the disaster plans did not keep up with the drilling capabilities and that needs to change.

    Deepwater is 9% of U.S. oil production. Shut down drilling there (and that would include workovers and development drilling) and you are probably looking at it only being 2% within 5 years. This would be partially offset by a move to more onshore drilling but the targets aren’t nearly as large and shales are crappy reservoir rock so you are looking at a much higher onshore rig count. So maybe you have a net boost in jobs in the Rockies and west Texas. But again, I don’t see deepwater being shut down.

    If they do that, I wonder if the MMS is prepared to buyback all of those leases.

  74. 74
    VTZ Says:

    Maybe “dirty oil” can have a new definition. Shove it Obama/Gore/Greenpeace.

  75. 75
    BirdsofpreyRcool Says:

    z — #73 you said that well. Thank you. Agreed.

  76. 76
    zman Says:

    V – hear ya. Looks like Al has his own problems today.

  77. 77
    BirdsofpreyRcool Says:

    VTZ — funny. That is what Tipper just told Al too!

  78. 78
    zman Says:

    Analyst Watch:

    Stephens has HAL at Overweight with a $40 target and SLB at Over with a $95 target, seems to have been pounding the table on the HAL of late along with much of the Street. HAL down $3 at $21.80 just makes little sense.

  79. 79
    zman Says:

    London-based investment bank Arbuthnot Securities Ltd., analyst comment on BP,

    “Given the collapse in the share price and the potential for it to fall further we expect that it could become a takeover target — particularly if its operating position in the U.S. becomes untenable.”

  80. 80
    zman Says:

    West – Congrats on the XEC call. It continues to make new highs here which is sort of unreal given the market and the group action. Anything new there to drive that?

  81. 81
    AAA Says:

    Here’s the problem. There is a non-trivial risk of an accident in any well. We now see that there are just not any reliable ways of fixing such accidents in deep water. It’s becoming clear that BP is just half-heartedly going through the motions of pretending to come up with solutions. They know the only solution is a long-shot relief well or failing that, letting the reservoir exhaust itself into the gulf,the same way the mexicans did with their blowout.

    I don’t see how anyone can say that BP can cover the damages or that it has lost more in market cap than the damages. We don’t have a clue what the damages ultimately will be. Nor do we know what will happen with congress and the administration, both of which will be vying to demonstrate to the public how tough they are. My prediction is that BP doesn’t survive this, or if they do, it will be as some sort of trust to pay off claims for generations.

    I’m not knocking oil companies, but I think people have to be realistic, both in terms of the outcome here and the risks going forward. We see now that these deep wells are like a nuke plant. A series of mistakes and you have the equivalent of a Chernobyl. Most voters are going to say no thanks on taking that risk again.

  82. 82
    Dman Says:

    Z – I think HAL is being priced for getting its name mentioned by the WH every week for the next six months. Massive uncertainty = lower price. But long term, some of these names have gotta be bargains.

  83. 83
    VTZ Says:

    I virtually guarantee a Shell buyout… it’s been in the cards for years. Now is the chance.

  84. 84
    VTZ Says:

    Also, notice how Shell is acting all big brother like. They have cited this being an industry incident, helped to provide dispersants and their general tone has been one of “Hey we are responsible, we can help” in a sense that would be appealing for governments to approve so they can point and cheer for the new wave of HSE responsibility.

  85. 85
    zman Says:

    AAA – You could be right about BP’s future and I agree the damages will be large yet unknown. Let me address that thought in tomorrow’s post.

  86. 86
    zman Says:

    VTZ – I agree and note that Exxon is lending a hand as well although I think the chance of them as a buyer is 0%. The Shell idea makes a lot of sense.

  87. 87
    Dman Says:

    AAA – what you mean no-one’s going to vote for “drill baby drill”? I find that *very* hard to believe.

    But yeah, I also concluded that we are seeing a “going thru the motions” charade while the relief well(s) are drilled.

    There was an leakage incident in the Timor Sea a few months ago. I think the depths involved would be much smaller but it still took 5 attempts to get the relief well done. How long would that take in this case?

  88. 88
    zman Says:

    Volatility in BP is an interesting thing from an option trader standpoint. Those BP calls I took this morning are up 72% at the moment and the stock has been up down and all around where I bought it.

  89. 89
    VTZ Says:

    Shell is helping with intangibles though in terms of media comments as well, but yes, there are other people providing aid. I’m sure Exxon just feels obligated, if it was North Sea, I doubt Exxon would be heavily involved.

  90. 90
    Dman Says:

    #88 = SELL!!

    🙂

  91. 91
    zman Says:

    Dman – that’s Montara, a PTTEP field and that was in about 225 feet of water and about half the depth below the sea floor. That was/is a bad one in terms of the size of the spill as well. In this case they are taking twice as long to drill the Montara wells (due to the depth of the rock) and then you have the number of passes once you get down there to actually intersect the wellbore. So aim at it, miss, back off, try again. I think Montara took 4 or 5 passes and that added a month or so once they were at TD. So if they miss on the first pass, and they almost certainly will, they should take a little longer. But they have two wells. So best guess is they are at TD around the beginning of August and then they take a month or two to get it right.

  92. 92
    zman Says:

    In fact, Dman, this guy did a good write up on that:

    http://blogs.ft.com/energy-source/2010/06/01/how-difficult-are-relief-wells-some-comparisons-with-montara/

  93. 93
    Dman Says:

    #92 kind of amazing that any of this stuff can be done at all… 5km of drilling.

  94. 94
    ftc88 Says:

    re: 92 I don’t understand why they have to intercept the original well at the oil reservoir in order to inject drilling mud. Afterall, they did try drilling mud at the seabed. I can see that maybe there was not enough vertical mud weight at the seabed, but why not intercept a few thousand feet down (saving a couple of months of drilling) instead of going all the way to the oil reservoir and risking another blowout? What am I missing here?

  95. 95
    zman Says:

    ftc 88 – I thought the same but Wyoming answered on that last week. Will dig up that post and repost.

  96. 96
    milepost_43 Says:

    92…and in the middle of hurricane season…wait till they have to disconnect to dodge a couple of hurricanes and “LET’ER BLOW” for a week or so each time!!!!!!!!

  97. 97
    zman Says:

    FTC:

    This was wyoming’s response to my query about the same issue:

    “If you drill a shallow kill, the mud you pump will have a minimal kill hydrostatic.

    Water=.433 psi/ft pressure gradient
    17# mud = .86 psi/ft (say this is what we need)

    Hit you kill well below the mud line and you only add 2,150 psi of kill pressure. Remember the well blew out with basically water. Take the kill well down to 20,000 feet. Now the kill mud will 8,600 psi to the water hydrostatic. You have 6,000 psi more kill pressure relative to the 5,000ft of kill fluid below the mud line.”

  98. 98
    West Says:

    # 80, XEC…. Continued mutual fund flow into the name as Funds redeploy assets from companies with offshore exposure. They should at mininum double the # of wells this year versus 2009. At the present time their #1 play the Cana-Woodford is profitable at anything above $3/mcf and is high in nat gas liquids at over 1300btu s. If you look at DVN’s presentation they have the same acreage in the Cana with est at 6 tcf while XEC is still using 3 tcf. I still think that DVN makes an offer at about 90 , just based on the Cana acreage. Any offer would soon draw additional interest from APA and other mutli nationals. Their Permian assets continue to over perform with the huge Bone Springs play offering better returns than the Wolfberry. DVN also has a strong position here in the PB. XEC’s 380,000 acres in these areas of the Permian are hard to come by, especially since a large portion of the acreage is HBP. They have over 90,000 acres in the Granite Wash and have just now started to drill horizontal wells as an operator. It appears that the the trend will be extended to the Northwest as additional excellent wells by SM, NFX and FST have recently shown..Along the Texas coast their Yeagua play is in the sweet spot and their recent extension well, Nine Dragons #1, should be another excellent well . XEC has said that it should be comparable to the Two Sisters well which is saying something…They have very low debt, strong balance sheet and they are all about making money. One thing that could bring down the stock price would be if they decided to make an acquistion in here somewhere which they would do if they saw value……..Out of all of JB’s charts , their’s seemed to hold up better thru the recent downturn and has popped back up to a 52 week high. This is a great stock to own for your long term portifolio, but extremely hard to play with options because they are so expensive. Just my opinion but when you have a conservative management team like theirs and the stock continues to move up on improved volume and out perform their peer group it is a good bet that their is accumulation. My #1 pick followed by SM, CXO, SD, EOG and MHR.

  99. 99
    BirdsofpreyRcool Says:

    HeadTrader said BP is dropping attempt to install 2nd BOP…

  100. 100
    elduque Says:

    when does the supply curtailment from the gulf start to effect Cushing?

    Thank you

  101. 101
    BirdsofpreyRcool Says:

    Wonder if BP is dropping 2nd containment vessel too… just leaving the relief well(s)…

  102. 102
    BirdsofpreyRcool Says:

    It’s a long way to august….

  103. 103
    zman Says:

    Thanks much west, sounds very plausible given DVN’s asset sales and predilection for onshore U.S. gas.

    ElD – I don’t think it really does as that crude doesn’t get up there and really there’s no crimp on supply at the moment, just potentially of future supply.

    BOP – Not quite an hour ago, the Coast Guard said containment vessel plan start tomorrow.

  104. 104
    Jerome Blank Says:

    Re: #98 XEC has an amazing chart, even today the 30 min shows a nice ascending triangle, resistance at $76, support at $74.50…posted a 30 min, but I don’t know where the charts are, the reset at the new month pushed it down somewhere?

  105. 105
    zman Says:

    Oil falling off pretty sharply as we approach the close of NYMEX, down $1.50 at 72.40.

  106. 106
    zman Says:

    Analyst Watch:

    GS dropped HAL from their Conviction Buy list.

  107. 107
    ftc88 Says:

    97: thanks Z. But it seems it would be prudent to stop just short of penetrating the oil reservoir. Would only lose a couple of psi and would avoid any possibility of another blowout. If one needs 18,000 feet of drilling mud to overcome the well pressure, I don’t understand why they even attempted to do it at the ocean floor. PR? Finally, there’s probably a point somewhere between the sea level and the reservoir where there is enough mud pressure to kill the well. I’d take the 2nd relief well and try that intercept — anything to save time. The 2nd well can always continue on down if it doesn’t work.

  108. 108
    zman Says:

    What the GS analyst said re HAL:

    “We recognize that in the near term, oil service/driller stocks could continue to trade on fear and negative sentiment rather than fundamentals due to the potential for negative headlines risk,” Reuters quoted analyst Daniel Boyd saying in a note to clients.

    Boyd, however, kept his “buy” rating on shares of the world’s second-largest oilfield services company and said he expects minimal financial impact from the moratorium as many of the rigs will move to international locations.

    “Investor fears related to the six-month moratorium on deep-water drilling in the US Gulf are overdone from a fundamental perspective, in our view as this represents just 3% to 5% of annual revenues for the major companies,” Boyd said.

  109. 109
    zman Says:

    FTC – Good question. There about 20 things they could try including crushing the riser casing with weight or sending explosives down hold and blowing up the casing that sound OK to me, the guy on the surface who’s never drilled a well. I do think they are doing everything they can to stop the flow, that’s not just for show as the string of failures is worse than just saying it’ll take two months, at least I think it would be.

    It looked like they cut the riser earlier but the ROV they were filming with just came to the surface. They’re certainly not showing the oil plume footage at the moment.

  110. 110
    Dman Says:

    The nuclear option:

    http://www.salon.com/news/louisiana_oil_spill/index.html?story=/tech/htww/2010/06/01/oil_spill_nuclear_option

  111. 111
    zman Says:

    Hey BOP, how’s credit looking? Dollar is back to green.

  112. 112
    BirdsofpreyRcool Says:

    Credit still red. But no one’s home. So not sure anyone cares.

  113. 113
    zman Says:

    BOP – hear ya, volumes look pretty light.

  114. 114
    milepost_43 Says:

    Morgan-Stanley on Moratorium from IV MB

    We see the GoM deepwater moratorium lasting

    12–18 months in our base-case scenario. Our

    political and legal experts appear confident that the ban

    will meaningfully exceed the 6-months announced last

    week. In our base-case scenario, we believe a portion

    of the 35 floaters will leave the region, as operators

    declare force majeure. While the legislative process

    could take 9–18 months, it could take even longer for

    rigs to come back into the region after the ban is lifted.

  115. 115
    Popeye Says:

    I saw a note somewhere that the nuke option could create a giant caldera releasing the entire reservoir at once.

  116. 116
    West Says:

    Didn’t forget to vote for Jerome B. Blank on Stockcharts.com. Thanks JB

  117. 117
    zman Says:

    S&P trading in a very erratic fashion, reminds me of about 3 weeks ago. Very trendless, but better on the weak side obviously.

  118. 118
    Geno Says:

    re#115 Just what we need, 20 million barrels of radioactive crude. Sounds a bit James Bondish (Goldfinger)

  119. 119
    Popeye Says:

    This is one of those days I would just like to put behind me.

  120. 120
    zman Says:

    BP back to plume monitoring camera. Gotta say it looks like the flow has increased.

  121. 121
    Jerome Blank Says:

    Re: #116 Thanks West, I’m moving back up now….

  122. 122
    elduque Says:

    HK is sure trading like a dog that nobody loves

  123. 123
    zman Says:

    BP options from early. Still holding, up 46% now but with the stock below where I added, near the lows of the day. Implied volatility run amok.

  124. 124
    occam Says:

    This CNN feed seems better than BP’s right now:

    http://www.cnn.com/video/flashLive/live.html?stream=3

  125. 125
    PackMan Says:

    What a beatdown on the sector !

  126. 126
    zman Says:

    Thanks Occam.

    Incredibly baby and bathwater today. Onshore names not at all escaping, taking a high beta hit vs the late day sell down in the S&P500.

  127. 127
    zman Says:

    re 125 – 19.3% off on APC. That’s just incredible. Volume there through the roof.

  128. 128
    zman Says:

    S&P diving into the close.

  129. 129
    PackMan Says:

    Eric Holder is on the case ! He knows nothing about terrorism or immigration but apparently he is an oil expert.

  130. 130
    zman Says:

    Nicky – got any late day voodoo comments, S&P shooting for your first support level at 1070.

  131. 131
    BirdsofpreyRcool Says:

    PackMan — Another “expert” weighing in as an “oil consultant”…

    http://news.yahoo.com/s/afp/20100601/en_afp/usoilpollutionenvironmentfilm

  132. 132
    BirdsofpreyRcool Says:

    Credit closed near the wides of the day… so, equities dropped to meet the level that credit predicted this morning. FWIW.

  133. 133
    zman Says:

    Alabama closes all oyster beds, discourages swimming off Dauphin Island due to oil.

    Holder says he’s launched civil and criminal investigations into BP.

  134. 134
    BirdsofpreyRcool Says:

    Maybe Holder should wait until BP plugs the leak. As bad as it is, it would be worse if Eric and his crew of Legal Eagles had to take over the plugging operation.

  135. 135
    zman Says:

    It is way early in the season but everyone in the press is talking about hurricanes due to the spill and the forecasts.

    And there is something off the Yucatan which won’t amount to anything in all probability but it does look like its going to be a busy year for it.

    http://www.crownweather.com/
    and
    http://www.ssd.noaa.gov/goes/east/watl/loop-vis.html

  136. 136
    zman Says:

    BP back to cutting:
    http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/homepage/STAGING/local_assets/bp_homepage/html/rov_stream.html

  137. 137
    Wyoming Says:

    I do apologize for the hasty comment last week; I am back home now and have more time to type. Basically, the kill job at surface was doomed from the get go with out the plugging action from the junk working. Yes we have pumped golf balls, burlap bags, feminine hygene products anything to stop lost circulation. One of our guys was even telling me about an inverted telephone pole. How does lost circulation correlate to this scenario? Fluid will take the path of least resistance. In this case, the fluid left right out the kill line and looped right back up to the sea bed and out. They needed the junk slugs to bridge off and seal in order to force the path of least resistance down the wellbore and replace the .3 psi/ft gradient oil and gas with a .8 psi/ft heavy mud (fresh water is about .43 psi/ft). BTW, 0.43 psi/ft pore pressure in the reservoir is what we refer to as “normal” pressure. Over pressure is where the reservoir is higher. I don’t know about this reservoir as they have not said what fluid was in which section of wellbore.

    I also made a comment about the relief well being too difficult to intercept shallow as it would be harder to drill, sticking, sidetracking not enough weight on bit.

    In case no this has not been posted;

  138. 138
    ratberto Says:

    What obligates BP to stop the leak?

  139. 139
    zman Says:

    BP striking oil as they cut that pipe.

    They have plugging and abandonment liability on anything they would drill in the Gulf.

    Thanks Wyo.

  140. 140
    elijahwc Says:

    ATPG Sr Secured 11.875% new issue trading at 75% of par: In truth they saved their hide getting this deal done when they did.

    http://www.bloomberg.com/apps/news?pid=20601110&sid=a3Z7VDF2i1HM

  141. 141
    AAA Says:

    Re 137, I suspect that is how Jack Bauer would plug it.

  142. 142
    zman Says:

    Pipe severed, oil flowing directly from the top of a short stub of riser atop the BOP.

    http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/homepage/STAGING/local_assets/bp_homepage/html/rov_stream.html

  143. 143
    zman Says:

    BOP – BP confirms it gave up on stacking the BOP’s. Will try a lower marine riser package cap in the next few days.

  144. 144
    ram Says:

    Is there a point where the service guys get beaten down to a must own for a double?

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