03
Jun

Thursday – Natural Gas and Oil Inventory Reports

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Market Sentiment Watch: Thank you sir, may I have another?! Probably not of yesterday's magnitude as this market has had a very difficult stringing together two green days, let alone two strong ones. In energy land, all eyes remain on BP. Fitch downgraded them overnight but the big news for the stock will whether or not they their latest capping solution to work. Hopefully news flow from the sector picks up in the next couple of weeks and I've included an updated Catalyst List in today's post.

Ecodata Watch:

  • ADP data showed an increase of 55,000 jobs, at the low end of the expected range of 55 to 75K.
  • Jobless claims came in at 453K, in line with 455K expected.
  • Productivity rose 2.8% vs an expected 3.2%.
  • We get ISM services and factory orders at 10 am EST, forecasts are 55.2% and 1.9% respectively.
  • Retail sales are trickling out and while they look strong several of them have been below expectations.

 


In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Oil Inventory Preview
  4. Catalyst List
  5. Stuff We Care About Today – LINE plus a Granite Wash update
  6. Odds & Ends

Holdings Watch:

ZCAT (Zman Catalyst portfolio):

  • $7,500
  • 99% Cash
  • Positions for the quick view are updated on the ZCAT, ZIM, ZLT page.
  • Yesterday’s Trades:
    • NONE

 

ZIM (Zman Inefficient Markets portfolio)

  • $6,600
  • 1% Cash
  • Yesterday’s Trades:
    • NONE

 

Commodity Watch:

 

Crude oil rose $0.28 to close at $72.86 yesterday.  After the close, the API released a fairly bullish looking set of data (from a very short term perspective) but it will take a bump in gasoline demand in today's EIA report  to get oil back up into the mid $70s (see below). This morning crude is trading flat.

  • Gasoline Demand Watch: AAA predicts a 5.4% bump in summer travel vs last year.
  • Diesel Demand Watch: Anecdotal evidence from a site that tracks truck load volumes suggest that a recovery in trucking is underway. I'll do more work on this but have consulted with one trucking analyst and he confirms my notes that the the site is tracking 6,500 truckloads today, up from 3,000 during the winter months and only about 2,000 a year ago.

Natural gas rallied $0.18 to close the day at $4.42 yesterday on the back of what should have been an expected bump up in Colorado State's hurricane forecast. CSU is now looking for 18 named storms. The 12 month strip is now trading at $5.02. This morning gas is trading flat.

  • The President May Have Seen The Light Watch: And it's fueled by natural gas! See story here. We'll be watching to see if this comes up again when the President isn't speaking in shale gas country. Call me cynical but I recall him liking coal at campaign stop in coal country and haven't heard that kind of love for the dirty rocks since.

Natural Gas Storage:  I'm looking for 90 Bcf.

  • Last Week: 104 Bcf Injection
  • Last Year: 121 Bcf Injection
  • 5 Year Average: 96 Bcf Injection
  • 10 year Hi: 124 Bcf Injection
  • 10 year Low: 70 Bcf Injection
  • Street is at 95 BCF for tomorrow’s report.

 

Oil Inventory Preview


API Watch: 

  • Crude: DOWN 1.418 mm barrels
  • Gasoline: DOWN 0.962 mm barrels
  • Distillates: UP 0.852 mm barrels

Catalyst List - yellow is new or updated

Stuff We Care About Today

LINE Hits Nice First Granite Wash Well

  • Their first Granite Wash well, the McMahan 22-2H, IP'd at 19.4 MMcfepd (not big, not small for the play), with a high liquids cut.
  • The well cost $6.8 mm which is in line with what we've been seeing at some other operators;
  • EUR not given by the company but competitors in the area have commented on EURs in the range of 6 to 6.8 Bcfe and given that the IP is in the heart of the range of those competitors it's probable that we are close to $1 / Mcfe on finding costs.
  • Second well is at total depths with completion set for early July.
  • LINE has 73,000 net acres that hold GW potential or about 100 potential locations based on current spacing thoughts here but this is a stacked play environment and that number is likely to expand.
  • Granite Wash wells are probably economic below $3 / Mcfe
  • LINE announced moving to a two rig program and added 8 more Granite Wash wells to their 2010 lineup. 
  • Nutshell on LINE: This is not your father's MLP as most don't aim to grow production organically but this relatively new play was on existing acreage and is one of the most economic plays in the U.S. at present. While it's possible that a full on program here could help them boost their distribution it's probably premature for now to guesstimate when that could occur. I continue to hold LINE in the ZLT.

Granite Wash Players Update

Key points:

  • FST, LINE, and SM have the most leverage in terms of reserves upside to the play.
  • FST has been reporting the biggest wells, with NFX not too far behind
  • The granite wash plays contain a number of stacked plays, some dry gas, some with high liquids cuts.
  • All of the names on the list can be moved by well announcements here except for probably APA who is probably too big to have their needle moved, especially by the smaller, Texas panhandle wells they've been drilling.

Other Stuff:

  • SD ups ante for ARD. If anything, this is a small price to pay to insure they get the company. It looks like we are another 30 days from knowing if the deal gets done.
  • APC reaffirming guidance today and declaring force majeure on three rigs today.
    • Drilling at Lucius suspended just short of TD on the third appraisal well (PXP and ME partners here)
    • Keeping one rig under contract in the Gulf for non drilling operations.
  • APA speaks at Sanford conference, today, 9 am EST.
  • KOG's annual stockholder meeting is today.
  • BP to hold conference call with analysts Friday.

 

 

Odds & Ends

Analyst Watch:

  • UBS trimmed price targets on the offshore drillers but kept ratings largely intact.

Interesting Viewing Watch:

 

162 Responses to “Thursday – Natural Gas and Oil Inventory Reports”

  1. 1
    zman Says:

    Things I’ve never seen in the U.S. Gulf before item #2. APC declaring force majeure on 3 rigs. I’d expect to see a lot more of these announcements in coming days.

  2. 2
    jat Says:

    Might want to add James Cameron being brought in to consult on the ROV effort. Abyss on TV last night… coincidence?

  3. 3
    zman Says:

    Jat – saw that, good point, sheesh.

  4. 4
    milepost_43 Says:

    ALL 12 ROVs live….

    http://www.bp.com/genericarticle.do?categoryId=9033572&contentId=7062605

  5. 5
    zman Says:

    Thanks MP, it’s like being in BP’s hive.

  6. 6
    isleworth Says:

    GGS initiated with BUY at Tudor Pickering

  7. 7
    zman Says:

    Moody’s jumps to downgrade BP as well.

  8. 8
    BirdsofpreyRcool Says:

    Credit CDS market continuing yesterday’s rally. Spreads are tighter in Investment Grade land and bond prices are higher in High Yield land. TED isn’t buying it, however. And this is troubling to me.

    The “Cash TED Spread” is trending out further this morning. Now closing in on +40 bps (from it’s tight of 9.5 on March 16th…). CDS can be subject to technical trends and some manipulation in the very short run (as it is a purely institutional market and the playground of hedge funds)… but TED is governed by much larger, more global flows of cash into short-term US Treasuries (still believed to be the safest, most liquid investment on the planet) and US LIBOR, the proxy for private sector or corporate risk on a global basis. As long as TED remains wider than about 25 bps, this is a warning signal… all is not copacetic in the world. But THAT is hardly “news.” Israel, oil gushers, PIIGS, Washington, outta-control-spending, litigation, JOBS (or lack thereof), corruption leaking out from behind closed doors, China slowing?, JOBS… we are still in an economic recovery, but it sure doesn’t feel very good (ref: TED at 39.8 bps)

    IG -1 1/2 bps tighter

    HY +7/16 pts higher

  9. 9
    zman Says:

    Thanks BOP, so yesterday’s presidential leak rally didn’t get the same respect in credit.

  10. 10
    milepost_43 Says:

    looks like they have it on the cut riser

    http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/incident_response/STAGING/local_assets/html/Viking_Poseidon_ROV1.html

  11. 11
    elijahwc Says:

    Pritchard Capital on force majeure clauses

    – Rig update provided force majeure notices for three of its four GOM rigs and plans to utilize the fourth rig to continue completion, workover and other non-drilling activities on existing wells during the moratorium.

    APC’s fleet consists of: (1) NE’s ($28.14-B-$44.00) Noble Amos Runner (a 1999 build 8,000′ 4th gen. moored semi
    contracted to Mar ’11 at $440K/d), (2) DO’s ($60.14-N-$80.00) Ocean Monarch (a 1974 build 10,000′ 5th gen. moored
    semi contracted to Mar ’13 at $440K/d), (3) RIG’s ($48.35-B-$88.00) Discoverer Spirit (a 2000 build 10,000′ DP
    drillship contracted to Nov ’13 at $520K/d), and (4) ESV’s ($36.18-B-$58.00) ENSCO 8500 (a 2008 build 8,500′ 6th gen. DP semi contracted to Jun ’13 @ $297.5K/d).

    Similar to our aforementioned thesis, new contracts hold more stringent force majeure clauses, meaning the ESV rig is likely the unit APC will continue to run, which conveniently is contracted at a dayrate ~36% below the other three rig’s average rate. When clarity improves expect EPS to fall for the
    other three, which likely will have additional rigs subject to force majeure clauses.

  12. 12
    zman Says:

    re 10. I think that is a pincher again, the cut isn’t done yet, or at least not at the original height that got them stuck which was just above those bolts. I did see them moving the cap around early this morning.

    re 11 – yeah, estimates going to be come down as they mobilize those rigs elsewhere and take hits on rates across the system.

  13. 13
    Dman Says:

    Regarding Obama and NG: in the present context, the environmental impacts of shale drilling might be looking a little less dramatic. I.e. “it might affect something” versus “one mistake and you kill the Gulf”.

  14. 14
    zman Says:

    Dman – I was thinking that more offshore drilling was the carrot for getting votes for an energy bill. Now that’s probably out. So give the republicans a big push for natural gas as a transport fuel in an effort to pass cap and trade. Good for gas and uranium, bad for coal.

  15. 15
    BirdsofpreyRcool Says:

    mimster — thank you for pointing out the shallow water permitting last night. You were right. E21 benefitting this morning.

  16. 16
    elijahwc Says:

    And on the flip side Pritchard sees afew potential winners:

    “Yesterday PDE ($23.36-B-$32.00) confirmed BP’s ($37.66-NR) contract
    options for its two GOM newbuild drillships are: (a) relocate the rigs to a different market, (b) pay the contracted standby rate, which is equal to the operating rate (Deep Ocean Ascension $488.6K/d and Deep Ocean Clarion $550.8K/d), or (c) terminate the contract requiring the payment of a make-whole premium. We see minimal downside
    to our $3.55 2011 EPS estimate consensus $3.25) and believe the shares are a strong buy trading at 6.6x 2011 P/E, a
    42% discount to its 5-yr median multiple and below the 7.2x group avg. despite having a modern floater fleet, strong
    contract coverage (80% of deepwater and 66% of midwater contracted through 2011), and upside to SDRL ($20.79-N-$24.00) takeout speculation. While not confirmed, we expect ESV’s ($36.18-B-$58.00) three GOM 8500-series semis and a fourth entering the market in 4Q10 hold similar ironclad maiden contracts, again mitigating downside to our 2011 EPS estimate ($4.85 vs. $4.83 consensus) while others with GOM floater exposure see estimates decline. Falling with the group due to market uncertainty, we recommend both names to outperform peers

  17. 17
    Nicky Says:

    Good morning all. Resistance between 1103 and 1107,then 1110 – 1115. Support at 1090,1085. Notwithstanding some early day strength I still think the market is going to drift lower today. The jobs data was pretty lacklustre.

  18. 18
    zman Says:

    Thanks Nicky, they’re looking for the big payrolls bump tomorrow, now at +540K.

  19. 19
    zman Says:

    We get gas inventories at the usual time, followed 30 minutes later by oil.

  20. 20
    zman Says:

    Good to see HK gaining a bit on the other gas names today.

    LINE responding well to their first hit in the granite wash so news actually mattering again is also nice to see.

  21. 21
    elduque Says:

    RE E21- Can I assume that Davy Jones does not get completed for the foreseeable future and is no longer a catalyst for the company????

  22. 22
    VTZ Says:

    RE 18: The headline number shouldn’t matter because the gain is going to be majority due to census. People should be quoting the number ex-census if they care about the economy instead of the pump.

  23. 23
    zman Says:

    ISM services – 55.4%, forecast 55.2%

  24. 24
    zman Says:

    V – agreed. Have you seen the breakout for what the census component is?

    Eld – DJ should not be affected by what’s going on in the Gulf now.

  25. 25
    VTZ Says:

    I heard this morning 410-420 k census, but I don’t know where that number came from.

  26. 26
    zman Says:

    Coals uniformly red today.

  27. 27
    BirdsofpreyRcool Says:

    elduque — #21 that is the fear. No reason to think DJ doesn’t get completed (as there are wells onshore that deal with the same temperatures, pressures, and depths) and DJ is in shallow water (so BOP is “high and dry”)… but, you never know these days.

    Schiller hasn’t expressed any concerns. But that doesn’t mean the risk is not there.

  28. 28
    Alhambra Says:

    For enumerators, Census door-knockers, Commerce Dept was planning to hire 640k (this is number the Census bureau estimated at the beginning of their hiring). Lots of turnover with that job, as some retired folk came out of the woodwork and then realized they didn’t want dogs chasing them or people answering their doors toting shot guns.

  29. 29
    zman Says:

    BP says successfully cut with shears. To put cap on later today.

  30. 30
    zman Says:

    88 Bcf.

    I was at 90, Street was at 95

  31. 31
    zman Says:

    NG was flat before the report, up 9 cents now.

    Oil inventories in 30 minutes.

  32. 32
    elduque Says:

    That is what I like to see your model being more accurate than the street.

  33. 33
    zman Says:

    Got lucky.

  34. 34
    zman Says:

    Gas storage:

    this takes the YoY surplus from 3.2% to 1.6% and the surplus to the 5 yr avg from 16.3% to 14.9%.

  35. 35
    zman Says:

    Gassy names not getting much of a boost on the number, looks like the group is pulling back with the market ahead of oil.

  36. 36
    elduque Says:

    this mornings lagging stock in the group is KWK.

  37. 37
    zman Says:

    EIA Oil Inventory Quick Look

    Oil before report, $72.97, up a dime.

    Inventories:

    Oil: DOWN 1.9 mm barrels
    Gasoline: DOWN 2.6 mm barrels
    Distillates: UP 0.5 mm barrels

    Oil at Cushing: inched back up to a record high.

    Demand
    Gasoline: 9.174 mm bpd, up but not big up
    Distillates: very strong at 4.031 mm bpd

    …..

  38. 38
    zman Says:

    Oil up 66 cents now.

    Glad to see that trucks are rolling and its making a difference in the distillate numbers. It seems domestic is really picking up as exports remain flat although that number is partly a solve for the EIA math so its possible they just haven’t adjusted it yet.

    All in all a pretty positive report….

  39. 39
    zman Says:

    More EIA …

    There was a large drop in domestic production of 220,000 bopd which is odd, bears watching, I don’t recall hearing of any Gulf shut-ins that would account for this.

    The other big driver of the big crude draw was a nearly 500,000 bopd drop in imports. Been expecting that for awhile.

    Refining utilization remains pretty strong with daily consumption of 15.1 mm bopd.

  40. 40
    elduque Says:

    jb- looks like UNG is at major resistance and if it clears above 7.90, it should run awhile.

  41. 41
    zman Says:

    Eld – agreed, I’m here if anyone has a question, just working through EIA and doing some homework on another project. Onshore reaction to good oil and gas inventory reports is pretty hit or miss today, could be trepidation in front of payrolls tomorrow.

  42. 42
    elijahwc Says:

    TED spread through 40?

    http://preview.bloomberg.com/apps/quote?T=en10/quote.wm&ticker=.TEDSP:IND

  43. 43
    Nicky Says:

    The following is a link for anyone interested in the ‘voodoo’. It is taken from an interview with Arch Crawford. Interestingly there is also a very important Gann date on the 8/9 August.

    http://www.traders-talk.com/mb2/index.php?s=63c59e2ec29b0642c9276f1e5d496396&showtopic=120280

  44. 44
    BirdsofpreyRcool Says:

    So… what is TED telling us? That banks are growing more leary of lending to each other. Putting $$ in govt securities instead.

    Banks’ Overnight Deposits With ECB Increase to Record (Update1)
    2010-06-03 09:29:16.289 GMT

    By Gabi Thesing
    June 3 (Bloomberg) — Overnight deposits with the European Central Bank rose to a record yesterday as the sovereign debt crisis made banks wary of lending to each other.
    Banks lodged 320.4 billion euros ($394 billion) in the ECB’s overnight deposit facility at 0.25 percent, compared with
    316.4 billion euros the previous day, the Frankfurt-based central bank said in a market notice today. That’s the most since the start of the euro currency in 1999. Deposits have exceeded 300 billion euros for the past five days.
    Banks are parking cash with the ECB amid investor concern that a 750 billion-euro European rescue package may not be enough to stop the crisis from spreading and spilling into the banking industry. The ECB said on May 31 that banks will have to write off more loans this year than in 2009 and their ability to sell bonds may be hampered as governments seek to finance fiscal deficits.
    “The banking crisis is back,” said Norbert Aul, an interest-rate strategist at Commerzbank AG in London. “The news flow over the past few weeks has spooked banks and since nobody knows how exposed individual financial institutions are, it’s deemed safer to park cash with the ECB rather than lend it on.”

    Tensions

    Money market tensions are resurfacing even after the ECB started buying government bonds and said it would offer banks as much cash as they want for up to six months. The measures accompanied the European Union rescue package, agreed on May 10, to counter the worsening debt crisis and promises by Greece, Spain and Portugal to rein in their budget gaps.
    Money market rates are rising, with the euro interbank offered rate, or Euribor, for three-month loans yesterday increasing to 0.704 percent, the highest this year. Banks borrowed 9 million euros from the ECB at the marginal rate of
    1.75 percent, the central bank said today.
    The efforts by the EU and the ECB failed to allay investor concerns. Fitch Ratings lowered the credit grade of Spain, the euro area’s fourth largest economy, to AA+ from AAA on May 28.
    Standard & Poor’s in April cut Greece’s debt to junk and lowered the ratings on Portugal and Spain.
    Portuguese 10-year government bonds fell today, increasing the premium investors demand to hold the debt instead of benchmark German bunds.
    The yield on the Portuguese security rose five basis points to 5.08 percent as of 8:56 a.m. in London. The spread over bunds widened six basis points to 231 basis points, according to Bloomberg generic data. Spain’s yield over Germany was unchanged at 177 basis points.

  45. 45
    zman Says:

    Re 44, thanks, makes sense. Wonder what stops it.

  46. 46
    zman Says:

    NG chart, been awhile sense it looked this constructive to me. I still don’t expect much upside from here but the stocks have a long way to go in fully discounting the better strip, now easily over $5.

    http://www.barchart.com/charts/futures/NGN10

  47. 47
    Popeye Says:

    This morning, Petrohawk Energy Corporation (HK) snagged a “buy” recommendation from analysts at Morningstar, Inc. According to Zacks, the brokerage bunch is highly optimistic toward the coal concern, with 22 out of 25 ranking analysts …

  48. 48
    zman Says:

    Sanding with a circular saw a mile below the sea surface.

    http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/incident_response/STAGING/local_assets/html/OceanInterventionROV2.html

  49. 49
    BirdsofpreyRcool Says:

    XAC Strategist’s latest thoughts… always worth reading
    —————————–

    http://www.capmarkets.com/ViewFile.asp?ID1=138054&ID2=419981193&ssid=1&directory=6571&bm=0&filename=06.03.10_Credit_Market_Stability_is_Not_a_Noun.pdf

  50. 50
    TEXWS6 Says:

    Re #48:

    The engineer inside of me thinks, that saw should have plenty of lubrication and cooling media due to the cool water temps and oil…LOL!!!

  51. 51
    tomdavis12 Says:

    BOP: 49 Thanks as always.

  52. 52
    BirdsofpreyRcool Says:

    by the way, “LIBOR-OIS” is just a fancy-schmancy way to read the same tea leaves as the cash TED Spread. But it’s what Greenspan used to like to follow (not surprisingly), instead of the simpler and more easily-followed TED. Hence, it became the New TED.

  53. 53
    zman Says:

    Tex – hear ya on that. He’s actually cutting something like a bracket off the side of the riser, looks like they gave up on the diamond cut. If that’s the case, I saw the hat floating in the staging area which unlike the cap will not have as good a seal.

  54. 54
    TEXWS6 Says:

    I think he’s cutting the flange, but that does not make sense to me…

    Define “irony” I am sitting (right now) in a BP/Chevron Risk Analysis class…LOL!!!

  55. 55
    zman Says:

    TEX – helpful hint. Just take notes when the CVX guy is speaking, lol.

    S&P fading fast into lunch hour, gassy names still outperforming but not by much.

  56. 56
    Nicky Says:

    Wow metals off a cliff. Euro moving lower too. Doesn’t look good for the broader market.

  57. 57
    Nicky Says:

    This move down should hold the lows we saw yesterday at 1068 and then go on to make higher highs next week.

  58. 58
    TEXWS6 Says:

    I don’t get it, it looks like 100% of the flow is coming out of the flange, why don’t they just un-bolt the flange and bolt on a valve???

  59. 59
    zman Says:

    Tex – yeah, my question too.

  60. 60
    TEXWS6 Says:

    That’s why they are a major and don’t make money onshore, or offshore now…Get a cowboy texan up there and that well would have been capped several weeks ago!!

  61. 61
    zman Says:

    grabbing a cup of joe, back in 30

  62. 62
    Jason Says:

    Re 58 – Is there still drill pipe inside? That might make the bolts/flange impossible to move.

  63. 63
    Dman Says:

    #60

    They tried the wrong movie guy (James Cameron) with the wrong movies.

    They shoulda thunk “Armageddon” and sent Steve Buscemi down there.

    I seem to recall his last line was “embrace the horror”

  64. 64
    TEXWS6 Says:

    if there were DP inside, that would, should make the kill operations easier IMO. But no, the DP should NOT pose a problem for removing the flange.

  65. 65
    Hoss Says:

    64

    If the shear ram(s) did not close completely, are they now supporting the drill pipe?

    If they were to release the rams, would the drill pipe drop – then they could close the ram and reduce or stop the flow?

  66. 66
    elduque Says:

    re e21- what is its estimated value? or where do you think the price will be at when and if the cap the well?

  67. 67
    TEXWS6 Says:

    Re#65:

    More than likely, the shear rams are damaged if they didn’t work the first time. I don’t know about the shears supporting the DP.

  68. 68
    Hoss Says:

    67

    Thanks Tex

    I’ll leave it at that – too many variables and unknowns for this layman.

  69. 69
    BirdsofpreyRcool Says:

    #66 — short answer (as i have to run out) = $17/share. That is with NO Davy Jones, only 2011 estimated cash flow from existing wells and development drilling and lowered estimates for EBITDA and EV multiple.

  70. 70
    BirdsofpreyRcool Says:

    #66 — longer run (with DJ) = $30

  71. 71
    zman Says:

    Analyst Watch:

    BMO cuts APC target from $75 to $52, rating mkt perf.

    Eld – 1) they’ll cap the well. 2) EXXI as you know isn’t in this well and Davy Jones is in 10 feet of water, 3) an overwhelming majority of their production comes from the shallow, Gulf of Mexico shelf, 4) with deepwater shut down temporarily, Shelf assets should be worth more, not less, than they were before Macondo. 5) they will probably be hit by some new regulations that if they don’t add to cost, will likely add to time line to get things done. 6) Shelf should not be a problem to drill right now although I’ve seen some public furor over “why is the shelf so safe?” and my answer would be that the people who are asking that know very little about the drilling industry 7) EXXI is extremely cheap vs normal metrics of CFPS.

  72. 72
    RMD Says:

    Some wide-ranging thoughts which got my att’n after meeting with 8 cos. (mostly non-energy) over the last 2 days;
    1. one theory is that oil needs to decline so cos. don’t have to report big profits and get on the G S-list: being on the list is bad, being at the top with GS and BP is horrible.
    2. E&P exec. consensus is BP deserves everything they are getting. Average cos. have 3 mistakes per year in the GOM, BP averaged 700.
    3. Porsche introduced a new electric/gasoline hybrid car which “lets us see the future”. 70-90 mpg, zero to 60 in 2-3 seconds. Which it costs $400-500m, technology will trickle down.
    4. forget CRAY: linking lots of iMacs together is getting supercomputer performance for $100,000.
    5. 8% negative rebate is normal cost for the average stock which is hard to borrow.
    6. TISDZ has a 1.25% royalty interest in the 2 Blackbeard wells and MMR’s Lafitte well (EI 222 & 223). Also the Morgan well on Ship Shoal 235.
    7. energy related stocks mentioned at Stock Picking Dinner (some relaxation is necessary..):
    long: DWSN, AEZ, HEK, LCC (oil unhedged).
    short: ESPH, KSP, CLNE & WPRT, Hal, gold.

  73. 73
    zman Says:

    Thanks RMD

    1) won’t work that way
    2) sure
    3) trickle, trickle, trickle. I find it more than extremely ironic that the U.S. bails out GM and then GM fails to buy a stake in Tesla but Toyota is able to.
    4) used to be short and long that one, wow.
    5) ouch
    6) lottery ticket but it does expire
    7) They are going to eat that HAL short.

  74. 74
    elduque Says:

    rig at 50.31 or hal at 23.39?

  75. 75
    zman Says:

    I’m not touching RIG.

  76. 76
    VTZ Says:

    I love hearing the short gold as a highlight.

  77. 77
    VTZ Says:

    It’s probably a Gartman short. He was pounding the table on his short and then 24 hours later said he was long with a 1280 target.

  78. 78
    VTZ Says:

    The shorts have been on fire with their calls all the way since 650 when it was going back to 400, 860 when it was back to 650, 1044 when it was going back to 880 and now 1200+ when its going back to 880-1044… nice track record. Not to mention the governments and Buffett who basically threw gold away as an asset class at the bottom.

  79. 79
    zman Says:

    Re 77, 78. Too right. As to talking heads and their picks, I know there is some “bashing to buy” going on from time to time.

    HK taking on $20.

  80. 80
    zman Says:

    If you don’t have live oil quotes here’s one:

    http://www.cx-portal.com/wti/oil_en.html

    Sorry, don’t have a live free quote for natural gas.

  81. 81
    zman Says:

    Implied volatility through roof on BP calls.

  82. 82
    tomdavis12 Says:

    V: I am nibbling @ the GGN name I mentioned to you. Last’s nights close it traded at a premium of $.78/sh to NAV. It is not extremely cheap, but with a 10.7% yield I’ll start. Last we chatted it was at a $2.00 premium in the $17.5 to $17.75. That is my lighten up area. Anything you are looking at?

  83. 83
    elduque Says:

    washington post reporting drilling ban on shallow water rigs

  84. 84
    andy Says:

    KOG – must be good meeting. its our leader today!!

  85. 85
    zman Says:

    Wow, yep, here’s the story:

    http://www.washingtonpost.com/wp-dyn/content/article/2010/06/03/AR2010060302738.html

  86. 86
    zman Says:

    If you read 85 though, it’s not official. At least not yet.

  87. 87
    Wyoming Says:

    Wow, service sector will be quick to furlough staff, especially with uncertainty to duration. So much for the LA unemployment rate of about 6%.

  88. 88
    jiveyjr Says:

    I bot 12.5 puts on EXXI at 1.30 this morning…didn’t look good then; better looking now…can’t imagine why it is puking so

  89. 89
    TEXWS6 Says:

    Wyo,

    Is there a country where I can work that is great for kids, low taxes, and the local govt. stays out of the oil/gas business? LOL!

  90. 90
    zman Says:

    re 87:

    http://planecrashinfo.com/

    Over 200 killed in the last half of May, with over 5,500 accidents in their database.

    And we haven’t shut down the airline industry yet?! Unbelievable. Sheesh.

  91. 91
    zman Says:

    Jivey – along those lines, MCF is still up $1.40. If you take away the ability of the shelf drillers to drill they whither up and go away quickly, many have 4 and 5 year reserve lifes, nothing like the onshore boys who are shale ladden and could not drill anything else and still be producing something in 15 years.

    MCF may be up because they are cash rich, no debt and low cost. But if the Washington Post article is true then they are likely to get socked along with the rest.

  92. 92
    zman Says:

    Oil soaring on the Shelf news, now above $74. Bakken names should rip in here shortly.

  93. 93
    PackMan Says:

    EXXI ??

  94. 94
    zman Says:

    Pack – what does 93 mean?

  95. 95
    Dman Says:

    You’d think they will need to clarify this quickly. Do they want to shut down the Gulf or not? Obama has already said that the Gulf will have to be part of the energy mix for a long time. But his MO sees to be to let things slide until enough heat is generated in opposition and then he backpeddles. By which time the industry could have evaporated, but minor issues like that don’t necessarily penetrate the Beltway reality-exclusion force field.

  96. 96
    zman Says:

    Onshore names moving nicely now with oil at 74.40 and natural gas up a quarter.

    HK through $20 and approach its 50 day at 20.50, JB, thoughts?

  97. 97
    tomdavis12 Says:

    Z: CSFB put out a report “Macondo could be a boon for domestic gas” No sh*t Sherlock. Oily names mentioned: OXY, WLL, BEXP, DNR, PXD. NG names: RRC, HK, EQT.

  98. 98
    Dman Says:

    Even slow moving ERF is perking up with this Gulf news.

  99. 99
    zman Says:

    re 95. I think they will have to clarify it before morning. I’ve noticed other administration foibles are generally reversed (thinking of Stephen Chu here) in about 5 hours.

    BP has scheduled a call with analysts tomorrow but I don’t see the number or a way on … anyone have that?

  100. 100
    PackMan Says:

    Z – 94 means $15+ to $13. What happened ?

  101. 101
    zman Says:

    Dman – I am sitting on a pile of domestic oil and gas onshore names. My exposure to the offshore is:
    EXXI
    and a some via NFX
    both of those are stocks.

    Also offshore exposure in the ZIM via HAL but that’s not a really big deal.
    And I have some BP but that’s a special situation and I really don’t see them getting a permit to drill off the U.S. for, um, quite some time. You know they are the largest producer of oil in the United States? Yep, tis true and a large employer as well.

  102. 102
    zman Says:

    Pack – ah, the Washington Post has a blurb out listed in 85. Headline says shelf drilling is now shut down too. No confirmation from a real news source or the government.

  103. 103
    Wyoming Says:

    Tex,

    We are here already (thought you said you were in DFW), best place we will find that I know of to meet all the criteria.

    Knock off effect is that with the tax repeals, maybe this will make stripper wells viable still.

    http://blogs.dallasobserver.com/unfairpark/2010/06/this_is_not_how_youre_supposed.php

  104. 104
    PackMan Says:

    Ah; got it; caught up now.

    This market is crazy wild intraday. My goodness. Some wild swings in various stocks.

    Look at RIG.

  105. 105
    zman Says:

    Now, if you shut down the federal Gulf of Mexico waters entirely, that’s a different ball of wax in two ways:

    1) it’s a much larger piece of U.S. production than the deepwater. For natural gas, the entire Gulf represents 6.7 Bcfgpd or about 11% of U.S. production.

    2) It has trouble staying flat because of the fast decline rates (short reserve lives) mentioned above. So you have to drill more just to replace production than you do in the deepwater where the targets are bigger.

  106. 106
    Dman Says:

    Bizarre market: onshore names lifted by the news. But now EXXI barely down!?

  107. 107
    zman Says:

    and ATPG up.

    My thought is is that some buyers are stepping in, say things like EXXI is oily and will have a lower decline rate and that it’s beat up enough and lastly that the source is the WP, not the most unbiased source of journalistic excellence out there.

  108. 108
    Dman Says:

    #105 – either that official is way out on his own or the admin has no clue … I mean, if this *is* their new policy, it’s a strange way to announce it.

    They should just explain to their base that the Gulf has been full of rigs for so long now, they should be regarded as native sea creatures and protected accordingly.

  109. 109
    zman Says:

    Cramer talking about rigs being up due to the prospect that all wells drilled with have to have a relief well drilled 3/4 of the way down and ready. Now I’ve heard some absurd things but that takes the cake. All finding costs basically doubled? Naah, not going to work, might as well just import all of it.

  110. 110
    Dman Says:

    #107 – markets bottom on bad news I guess. Certainly was some capitulation in EXXI & maybe the shorts think it’s as good as it will get for them, so they quit (?)

  111. 111
    Dman Says:

    #109 … “rigs being up” = rig count or rig stocks?

  112. 112
    ram Says:

    No kidding on EXXI being spastic.

  113. 113
    zman Says:

    re 111 – as in rig stocks rising in price.

  114. 114
    TEXWS6 Says:

    In DFW, just thinking we are turning more and more into Canada as time goes on.

  115. 115
    zman Says:

    Had to go run the numbers because I don’t like to ballpark things but if we extend the exercise in #105 to oil, the Gulf is even more important to the U.S.

    At present, the Gulf brings in 31% of oil produced in the U.S., excluding oil produced in the state waters (TX, LA). If you include them you get 32.5% of production and if you take into account offshore Alaska that takes the numbers up to 34%.

  116. 116
    Hoss Says:

    #101

    RE: BP

    Gulf of Mexico – Oil Production – Rank by Operator – 2009
    http://www.gomr.mms.gov/homepg/pubinfo/repcat/product/pdf/Rank%20File%20Oil%202009.pdf

  117. 117
    zman Says:

    JB – I have to reiterate my call of “nice pick off the bottom” the other day on KOG.

  118. 118
    milepost_43 Says:

    85..maybe this DOI PR is the basis
    http://www.doi.gov/news/pressreleases/Abbey-to-Strengthen-Safety-Requirements-for-Exploration-and-Development-Plans-on-Outer-Continental-Shelf.cfm

    Shallow Water Exploration Plans and Development Plans

    Oil and gas operations in waters less than 500 feet deep may move forward if they satisfy new safety and environmental requirements identified in Secretary Salazar’s report to the President. Director Abbey’s announcement today makes clear that any new drilling in shallow water must be under an exploration plan or development plan that includes information demonstrating compliance with the new safety standards.

  119. 119
    zman Says:

    Hoss – thanks.

  120. 120
    zman Says:

    Jackup laden RDC and ESV taking a hit today, the others have taken more of a hit already so DO, RIG, ATW. NE red but barely.

  121. 121
    Dman Says:

    #113 – one of Cramer’s strange talents is the ability to construct totally fanciful rationales for market movements and then actually making money on the move. Not that it always works of course, but it worked annoyingly often when I used to read his site. It helps that he has no problem changing his fundamental “analysis” 5 times a day. Sometimes 30 times a day.

  122. 122
    john11 Says:

    WP story retracted.
    http://www.washingtonpost.com/wp-dyn/content/article/2010/06/03/AR2010060302738.html?hpid=topnews

  123. 123
    john11 Says:

    Any word from KOG annual meeting?

  124. 124
    elduque Says:

    interior dept says no drilling freeze in shallow waters.

  125. 125
    zman Says:

    re 122/124. I thought it would be quick but man was that quick.

    re 123 – I don’t know anyone who went, so I don’t if they did an operations update or not but we don’t have any press releases out.

  126. 126
    Wyoming Says:

    Shallow water must resubmit

    http://www.bloomberg.com/apps/news?pid=20601087&sid=ajtZnCW4hSh4&pos=9

  127. 127
    zman Says:

    The thing is on the MMS and shelf, someone had to tell that guy that and he just made the mistake of passing it along in his email to the company. It pretty much has to mean they are dragging their feet on new permits on the shelf.

  128. 128
    Wyoming Says:

    Hybrids are ruining everything:

    http://news.yahoo.com/s/ap/20100603/ap_on_sp_ot/cyc_mechanical_doping_1

  129. 129
    zman Says:

    Thanks Wyoming – from what HAL said yesterday, the new rules are open to a lot of interpretation and need clarification.

  130. 130
    Jerome Blank Says:

    #40 eld, UNG, bumping up against 100 day SMA and traditional long term trendline resistance here at $8 as I write this…UNG did finally break out from that daily basing channel on strong vol…this confluence of resistance at the 100 day/trendline has been a hurdle for more than a year, I’m thinking the critcal price to watch here is $8.50, this breaks resistance and reverses UNG back into X’s…then I’d like to see the 100 day act as support, this would be a material technical change, previous visits up here have failed to hold, if this changes that’s huge…

    Re: #117, KOG, Zman, thank you for the kind comments…

    updated UNG chart…

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

  131. 131
    VTZ Says:

    TEX – RE 89: Alberta. The recent foray into messing with the royalty structure won’t happen again in the near future.

  132. 132
    zman Says:

    JB – thanks, any thoughts on HK?

  133. 133
    dij Says:

    I am reading everything, but having trouble putting togther how this news substantially effects the Bakkens in particular, but all the onshore names.

    First no off shore drilling, oil goes up a dollar to where it was June first, then there is no ban, oil stays up. EOG and WLL shoot up and stay up, like oil. And SPX is up .3%.

    Is it a game changer or a mere blip?

  134. 134
    Gtinvest Says:

    Aep ceo talking positively about ng on CNBC. the largest producer of electric power in us.

  135. 135
    zman Says:

    Dij – I think it has the potentially to be a game changer for the onshore guys as they will have a cost comparison advantage in the future, more than they do already. It may make access onshore easier eventually. It may provide the push for the current Administration to get onboard with natural gas, pushing that as a green energy source for moving trucks instead of diesel. Right now, too much is up in the air to say how it will unfold, but the event I think will prove to be a turning point for increased onshore domestic hydrocarbon production. Not saying the Gulf will die off, just that it will be harder and more expensive to get the job done and may lead to some players selling their positions.

  136. 136
    Jerome Blank Says:

    RE: #132, HK…new P&F buy signal with the $20 print which corresponds with P&F trendline resistance, so it’s hard to buy up here, but just a little pullback, HK could easily test daily topside trendline resistance at $22…updated chart

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

  137. 137
    zman Says:

    From a very short terms perspective, many times when gulf production in threatened in the form of a natural storm, you get improvement in commodity prices, the more uncertainty, the more the initial improvement. If it comes to nothing, they collapse back. This is already beyond nothing as the current permit curtailment will lead to declining production from the Gulf as a whole. But if they make it exceedingly difficult to get permits in the future, then you’ll have a premium built into prices for some time.

  138. 138
    zman Says:

    Thanks JB.

    VLO – announcing Aruba restart. They had this one shuttered due to lack of demand. Probably a good thing for them to get it back up now as it has not been sold though it was shopped and also says something about improving demand in the hemisphere.

  139. 139
    zman Says:

    Thanks again JB, I’m overweight there and looking for a point to sell down some calls, looks like it is treading through its 50 day now.

  140. 140
    zman Says:

    AEZ approaching $7. Holding.

  141. 141
    BirdsofpreyRcool Says:

    wow — had to step away for the last 2 hrs… can’t believe what i missed.

    I don’t call our govt the GGG for nothing… but it is sure painful to be reminded why. ouch!

    And James Cameron thinks BP engineers are “idiots”?? Salazar… sheesh.

  142. 142
    elduque Says:

    thanks jb- voted

  143. 143
    zman Says:

    I saw the Cameron story calling them morons for not accepting his help. The balls on that guy. I mean, Avatar was a pretty flick, but the script was a carve up of five other movies he made. Plus, it took the guy 10 years to make … is that really the kind of help we need?

  144. 144
    BirdsofpreyRcool Says:

    This was fairly nauseating…

    http://news.yahoo.com/s/nm/20100603/en_nm/us_oil_spill_cameron

    From the guy who recently said that he luuuuuuved Hugo Chavez. [shaking head now…]

  145. 145
    Jerome Blank Says:

    Re: #142, eld, thank you

  146. 146
    BirdsofpreyRcool Says:

    Parting shot from XAC Strategist today —

    Credit market volatility has remained relatively subdued so far today and the credit and equity markets are trading in parity. However, as we stated in this morning’s note, we continue to believe that a disappointing NFP is more likely to generate a materially stronger and more violent move lower/wider than any rally could hope to muster if the NFP came in better than expected. We expect that this investment/sentiment/ PnL skew could cause investors to increase their short position / cut long exposures going into the close.

  147. 147
    zman Says:

    beerthirty

  148. 148
    milepost_43 Says:

    TGA 2nd C$10 price target plus company update today…… —

    Canaccord goes from C$8.25 to C$10.and
    GMP goes from C$8.25 to C$9

    long June, Sept, and Dec calls here…..

    Capital program:

    * 2010 capital program unchanged at $63.0 million (78% Egypt; 22%Yemen);
    * Planned drilling of 37 wells (25 Development, 12 Exploration) with 24 wells (16 Development, 8 Exploration) planned for Egypt and 13 wells (9 Development, 4 Exploration) planned for Yemen;
    * To date, 10 wells have been drilled in Egypt resulting in 8 oil wells (6 in West Gharib, 2 in East Ghazalat) and 2 dry holes in East Ghazalat;

    The Egypt June frac program includes a four-staged frac in the Arta #12 horizontal well (drilled in Q4-2009) followed by up to four vertical well fracs at Arta #6, Arta #13, Arta #1 and East Arta #2. The Arta #12 frac will be the

    first, multi-stage, horizontal well fracture stimulation in Egypt.

    The specialty packers from Canada arrived in Egypt on June 1. Following the installation of the liner and packer assemblies in the 1,500 foot horizontal section, it is expected the four-stage (600,000 pound) frac will be pumped late next week. The additional four wells are scheduled for the following week. Initial production results from the June frac program are expected in late June/early July.

    The Nukhul producers at Hoshia, North Hoshia and South Rahmy fields are also being evaluated for fracture stimulations and additional Nukhul development drilling.

    https://amazon.e-mediait.com:8443/sitepreview/http/trans-globe.com/news/index.php?id=aHR0cDovL2NucnAu
    bWFya2V0d2lyZS5jb20vY2xpZW50L3RyYW5zLWdsb2JlL3JlbGVhc2VfeG1sLmpzcD95ZWFyPTIwMTAmYWN0aW9uRm9yPTEyNzA0
    MTAmcmVsZWFzZVNlcT0w

  149. 149
    zman Says:

    VNR and BEXP on the tape with credit agreement amendments. VNR borrowing base upped. BEXP reaffirmed, details in the post tomorrow.

  150. 150
    BirdsofpreyRcool Says:

    Bloomberg has a cute new tool… WHIS gives you what the “whisper number” is for monthly NFP and weekly energy storage numbers.

    The official Payroll number for tomorrow is 536k… but the Whisper Number is lower… at 515k.

    fwiw

  151. 151
    dij Says:

    Thanks Z. #135 and 138.

    That was perfectly clear and the kind of analysis that I/we all find so……..helpful and stabilizing!

  152. 152
    BirdsofpreyRcool Says:

    The version of the TED Spread I monitor went out over 40bps today… 40.2bps, to be precise.

    Not good.

  153. 153
    zman Says:

    Dij – great, glad you like the show, I’ll be here all week!

  154. 154
    dij Says:

    Well, that is the other thing, how can you be there all of the weeks but for one and be so steady. I am sure having two interns now balances things out a lot. You will have so much fun with them!

  155. 155
    BirdsofpreyRcool Says:

    gee — wonder how long it will take to get a permit re-permitted (once they figure out what the “new rules” are)… in shallow water… where there have been no problems… these guys are truly a national disaster.
    ————————————

    Shallow-Water Drilling Plans Must Be Resubmitted (Update1)
    2010-06-03 20:03:44.336 GMT

    By Jeff Plungis and Jim Snyder
    June 3 (Bloomberg) — The U.S. suspended shallow-water drilling in the Gulf of Mexico until oil and gas producers resubmit plans to meet revised safety and environmental rules.
    The Obama administration is “pulling back” exploration plans and requiring updated information for waters less than 500 feet deep to “ensure that new safety standards and risk considerations are incorporated,” said Bob Abbey, acting director of the Minerals Management Service, in a statement issued yesterday.
    Exploration in shallow waters can proceed once new permits are approved and won’t be subject to the Obama administration’s previously imposed six-month moratorium on deepwater operations, imposed after a BP Plc well exploded on April 20 in the Gulf of Mexico, administration officials said today.
    “Shallow-water drilling may continue as long as oil and gas operations satisfy the environmental and safety requirements Secretary Salazar outlined in his report to the president and have exploration plans that meet those requirements,” Interior Department spokeswoman Kendra Barkoff said today in an e-mailed statement. “There is no moratorium on shallow-water drilling.”
    President Barack Obama and Interior Secretary Ken Salazar announced the deepwater moratorium on May 27. The administration also delayed planned exploration in the Arctic Ocean near Alaska and canceled plans to search for oil and gas off the Virginia coast.

    Rowan, Ensco

    Shares of oil and gas exploration companies fell initially after a Washington Post report that the moratorium had in effect been extended to shallow-water drilling. Houston-based Rowan Cos., a drilling contractor, fell as much as 12 percent on the New York Stock Exchange, and Ensco Plc, a London-based driller, fell as much as 7 percent. The shares later erased some of the losses.
    Regulators had approved yesterday a permit letting Hercules Offshore Inc. drill a well in 65 feet of water near the mouth of the Mississippi River. It was rescinded today, Jim Noe, the company’s senior vice president and general counsel, said in an interview.
    “The information we are receiving right now from MMS is a little confusing,” Noe said. “At this point, we don’t fully understand what additional information will be required. We expect guidance shortly.”
    Companies with leases will be receiving notices spelling out the new safety requirements within the next few days, Minerals Management Service spokesman Frank Quimby said in an interview.

  156. 156
    Nicky Says:

    I thought the close was surprisingly strong. I would have agreed more with the assessment in # 146. I am finding it hard to see how a good number is not already priced into the market and think it likely that even if the initial reaction is positive we may see a sell off. Its really up in the air. At some stage we need to move up to 1120 and higher and maybe we just go straight there tomorrow before pulling back.

  157. 157
    DrLink Says:

    Is their any advantage to doing the SSN ADS deal. Based on current stock price of .63 seems like a wash or am I missing something? Thanks

  158. 158
    PackMan Says:

    Nicky, why do we need to move to 1120 and higher ?

  159. 159
    zman Says:

    Not that I can see unless it runs higher between now and the deal but honestly, that’s I think on the 10th so it shouldn’t make much difference. I don’t have any kind of handle, and I doubt anyone really does, on how well this deal is going.

  160. 160
    BirdsofpreyRcool Says:

    BedTime Market Strategist

    Situating Employment.

    As one might expect, the S&P 500 spent the session bouncing around marking time in advance of tomorrow’s BLS Employment Situation Report. If the report meets the expected 536,000 jobs added, it will be the largest gain since September 1983. Most market participants are well aware that 80% of those gains are expected to be temporary census worker positions. The government is attempting to be proactive to prevent miscommunication about the big report. Census Director Robert Groves is on record noting that there will be 417,444 census workers in this report and that those positions are not double counted. You have to give the government some credit for being proactive and telling people what to expect, but we can’t wait to see how it is explained when the numbers don’t match up (we all know the government is not that efficient).

    The Unemployment Rate ticked higher to 9.9% last month because unemployed workers are returning to the labor force, which is a good thing. The level of the labor force troughed in December at 153 million people. This April, it was 154.7 million, just short of the all time high of 154.9 million in May of last year. It is fair to expect the labor force to rise again with recent graduates also joining the labor force. Needless to say, the simple math indicates the Unemployment Rate will continue to remain high.

    November of last year was the first month of job gains in the Non Farm Payrolls report since the start of the Great Recession in December of 2007. Since November, the trend has gradually improved. Reports have been volatile with 4 of the 6 months prior to April originally reported as negative. Three of the four were revised to positive in subsequent revisions. On average, the reports have exceed expectations by 17,000 jobs and then been revised higher by 45,000 jobs. These are important trends that need to remain in place for the recovery to progress. The estimate for private sector jobs is 180,000, that in combination with the expected 417,000 census workers created a rash of upward revisions today towards the 600,000 range. The April report beat expectations by 100,000, so not losing those gains to revisions will be impressive. The rule of thumb is that the economy needs to be consistently adding between 150,000 to 200,000 jobs per month in order to start bringing down the Unemployment Rate. We know the rate will continue to be high near term but if the private sector jobs added are in the ballpark of estimates it will be welcomed as a sign that the recovery remains steadily on track.

  161. 161
    zman Says:

    Closer, closer …

    http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/incident_response/STAGING/local_assets/html/Enterprise_ROV_2.html

  162. 162
    zman Says:

    Well they’ve got the hat on.

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