Tuesday Morning

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Market Sentiment Watch:  Greece Again? Sheesh. TED spread continued to run high yesterday and true to recent history the market pulled back in the afternoon when TED wouldn't cooperate. Furthermore, volumes on the "rally" yesterday looked weak. Still not a lot of news aside from the oil spill in energy land but am planning to listen to a number of presentations from the Macquarie conference today. And finally, I have to again throw a kudo to Nicky who keeps calling the S&P spot on.

Ecodata Watch:

  • Empire state index came in at 19.57 vs 19.1 last reading
  • We get the home builder's index at 10 am EST, forecast 21 vs 22 last month.


In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stuff We Care About Today – WIOWIO for the ZLT (Part I)
  4. Odds & Ends

Holdings Watch:

  • ZCAT (Zman Catalyst portfolio):

    • $6,000
    • 97% Cash
    • Yesterday’s Trades:

      • None


  • ZIM (Zman Inefficient Markets portfolio)
    • $5,300
    • 15% Cash
    • Yesterday’s Trades:
      • None

Commodity Watch

Crude oil increased $1.34 to close at $75.12 yesterday.  Crude seems to be stabilizing here and the weak dollar and increased potential for storms impacting Gulf Coast refining capacity will help this cause. This morning crude is trading up 60 cents.


  •  Early Read on Oil Inventories:

    • Crude: DOWN 1.75 mm barrels
    • Gasoline: UP 0.625 mm barrels
    • Distillate: UP 1.0 mm barrels

Natural gas jumped $0.23 or 4.7% to close at $5.006 yesterday on hurricane fears. This is the first close above the five dollar mark for this contract since the end of February. This morning gas is trading up a dime+.

  • Tropics Watch: Invest 92L still moving across the Atlantic, chance of development inched back up to 50%, storm tracks almost uniformly pointing to Caribbean/Gulf of Mexico.



Stuff We Care About Today

WIOWIO - ZLT Edition (part I. part II tomorrow). These are the long term holding of the site and while they are not held as catalyst driven plays, some of the catalyst will provide an opportunity for the next leg up. Note the preference in the portfolio for oilier than not plays. 

BEXP - Oily, growth, and a Bakken leader

  • Small to mid sized Bakken player, fastest grower in the play, transitioning to an oilier profile rapidly and drilling some of the biggest if not the biggest (based on IP) wells in the play.
  • Production growth:
    • 2010: Oil volumes increase 125%; total volumes forecast up 42%.
    • 2011: Oil volumes forecast to double again.
  • Balance Sheet:
    • 37% debt to cap
  • Management was early to see potential for high frac stage count, long lateral wells targeting the Bakken and Three Forks Sanish on either side of the Neeson Anticline in the Williston Basin of North Dakota.
  • Two established areas of operations: Ross (both Bakken and TFS) and Rough Rider (Bakken so far for them but other operators have scored TFS successes recently)
  • BEXP has 164,400 net acres between the two plays.
  • Near future catalysts:
    • a Three Forks test in Rough Rider - end of June/ early July
    • a Bakken test in a new area in southeast Montana, "Pale Rider" which would add another 83,600 net acres and would open up a third core area for them if successful.

HK - Gassy, growthy, heading to cash flow breakeven in 2012

  • One of my longest term holds, through thick and thin
  • Profile remains 92% gassy but they, like many of their gassy peers are making the move to a more liquids rich profile given the BTU disconnect from natural gas to oil.
  • Growth rate here is 31% for 2010, 36% for 2011, which is top notch in the names I follow and especially so in the E&P universe given that they are no longer in what I'd call the small player camp.
  • Haynesville - still driving a majority of the growth
  • Eagle Ford Shale - seeing capital transition here due to the liquids rich nature of the play including two regions that are oilier than not.
  • Balance Sheet:
    • 46% debt to equity
    • living within cash flow this year and ostensibly next (at least that's their stated plan) as drilling to hold acreage decelerates in mid 2011 in the Haynesville and there are no pressing acreage holding issues in the Eagle Ford.
    • Potential for monetizations as they may sell the Eagle Ford Shale gathering system (or half of it) next year, similar to their partial sale of their Haynesville system to Kinder earlier this year. 
  • Management: transitioning away from the gunslinger days of the Floyd to a more disciplined approach to investment and return on investment.
  • Wall Street has been slow to believe in management's discipline.

WLL - Cheap, Bakken player with running room to the south...

  • Results to date have been some of the best in the Williston Basin
  • And it is perpetually cheap:

    • 2010 at 5.6x CFPS
    • 2011 at 4.6x
  • Growth is there (12% for 2010) with a decidedly oily mix (80% of 1Q10 volumes)
  • Their east of the Nesson Anticline activity has captured most of the attention for the story due to big rates, some in excess of 4,000 BOEpd and with an average of over 2,300 BOEpd. They have 87,000 net acres in this area.
  • However, they have about 200,000 net acres in their nascent Lewis & Clark play (Three Forks Sanish) further to the southwest where preliminary results have been better than expected ... we should see activity accelerate in this new play, which WLL has largely to themselves, as the year progresses
  • Outside the Bakken, their enhanced oil recovery projects continue to perform better than expected.
  • They speak at Macquarie today at 9:30 EST by the way.


WHX - Oilier than not high yield royalty trust 

  • Depleting asset with a terminal date around 2017.
  • 58% of production from oil
  • Smooth decline rate and hedges yield predictable disribution
  • My forward 12 month distribution estimate (paid in quarterly installments) is $2.40 to $2.50, providing a yield to current of about 13.4%.

LINE -My gassier yield play, run more like a traditional E&P than your usual MLP

  • 52% of production from natural gas
  • But almost all expected production volumes hedged through 2013 at favorable prices to the current long term strip.
  • Management has done an exceptional job of buying low and selling high in the asset market
  • Granite Wash position gives them both catalysts and the possibility of another increase to the distribution.
  • Coverage ratio has been moving back up with recent acquired volumes and better than expected cost control, also giving rise to the possibility of a distribution hike late this year.
  • Current annual distribution is $2.52 leaving a current yield of 10%.


AEZ -  Bakken midget, not as far as long but more running room

  • > 76,000 net acres, roughly in the northeast corner of Rough Rider
  • Their first two wells were impressive entries to the play (around 2,800 BOEpd each)

    • #3 is expected late this month and will be a longer lateral, high stage count well
    • #4 is the same, expected mid July
  • Balance Sheet:

    • No debt
    • > $76 mm cash

This section will be added to the Long Term Names page. Tomorrow we'll include the rest of the names on the table above including one I am thinking of killing off ...

Other Stuff:

  • TGA piece not yet ready, will be in Wednesday post. 
  • Eagleford Energy (EFRDF) -acquiring lease in Zavala county, TX .... Sounds like a Toronto based wanna be Eagle Ford player sort of five cent wild card name to me. One of the signs of an overheated play is when you have companies cropping up with 0 to very little acreage in a play that they are suddenly named after.
  • BP Spill Watch:
    • President speaks from the Oval Office tonight on the spill
    • It looks like BP will create a Gulf relief fund to be administered by a third party
    • No word yet on the dividend suspension issue but expect that tomorrow.
    • BP said to to cut corners in the drilling process.
    • SLB rumored to have been hired to run the cement bond log. Also rumored to have been told it wasn't necessary by the BP company man (man in charge on the Deep Water Horizon). After that they are further rumored to have asked for a chopper to leave the ship.
    • XOM said after the close that BP violated industry practice on drilling.
    • HAL said to have requested more casing centralizers, but were turned down by the company man due to time/cost. That's good for HAL and bad for BP. Although, again, BP is already pretty beat down at this point.
    • BP meanwhile is martialing more capacity for Macondo, contracting one FPSO from Petrobras and another from Helix Energy Solutions (HLX) which will cause them to push back the date of first oil from their Phoenix field but should get them sort of good citizen's pass from the public and Administration.
    • Fitch lowered BP's debt 6 notches this morning.


Odds & Ends

Analyst Watch:

  • ROSE - Cut to Neutral at SunTrust


155 Responses to “Tuesday Morning”

  1. 1
    crysball Says:

    Anyone following LEI {Lucas Ennergy Inc.} a tiny, but interesting E&P in the Austin Chalk, which holds approx 5,000 acres in the Oily window of the Eagleford(primarily Gonzalez County)? They just recently signed a JV with Hilcorp to develop the Eagleford asset, and now Hilcoprp is cutting a $400 million deal with KKR for the Eagleford.
    Interesting play.

  2. 2
    Gtinvest Says:

    AEZ annual meeting today 9:00 am mtn. time.

  3. 3
    1520sbroad Says:

    Z – great post this morning – I always enjoy the WIOWIO.

  4. 4
    AAA Says:

    Wonder which Obama cronies he will want to run the BP escrow fund?

  5. 5
    zman Says:

    Crys – I know someone in that name, will try to get them to comment.

    Thanks GT, thanks 1520

  6. 6
    zman Says:

    AEZ looking at a strong opening, should see same from the rest of the Bakkens today, noting KOG looking back over $3.50 again, BEXP inching up but no update yet, maybe they save it until next week or Enercom on Thursday.

  7. 7
    zman Says:

    XOM and CVX on the tape disassociating themselves from BP. Saying the job was not up to industry standard practice and that the accident was preventable. Still surprised at the basic lack of money flow from BP to XOM.

  8. 8
    ram Says:

    Maybe XOM and their peers will be seen as evil in the short term with BP. Two weeks until end of second quarter and maybe money will stay away through June 30.

  9. 9
    zman Says:

    Ram – you could be right, it could be an avoid the sector call and wait to see what comes down from congress in terms of new regs.

  10. 10
    zman Says:

    Listening to WLL at Macq. conference.

  11. 11
    zman Says:

    Will keep you apprised on WLL if they say something new but I’m doubting it as they have been speaking a lot at conferences of late.

    Nice to see the HK resilience.

    HAL too. I’ve noted Obama has started to focus more on BP and less on other associated parties in the last couple of days.

    WLL – expect more results in Lewis and Clark at the end of the second quarter (so either that means end of this month or on the 2Q call for the next well).

  12. 12
    tomdavis12 Says:

    Z: You saw that Qatar was making a big cut to their LNG production. The PXD deal in EFS. Was a price/acre established for that deal? If the price for EFS acres keeps rising, do you expect that to be reflected in HK or EOG? Or do you see this market as still “I don’t care about anything” type market?

  13. 13
    Jerome Blank Says:

    HK, looks like $21 was the restest sweet spot yesterday…larger ascending triangle forming on the 30 min…updated the 30 min chart for perspective…

  14. 14
    zman Says:

    Tom – saw your email on that, yes, also saw Korea and one other asian country upping their intake of LNG (and coal). On PXD, don’t know will check but agree with your last statement, I don’t think acreage price inflation translates into rising stock prices at the present time.

    Thanks much JB.

  15. 15
    zman Says:

    BP just can’t get any respite. Reporters saying the Gulf Fund may be in the $15 to $20 B range.

  16. 16
    zman Says:

    S&P back to 1,100 which is driving oil back to $76.

    Nicky – any more comments on levels?

  17. 17
    Jerome Blank Says:

    For folks in CIGX, nice higher low bounce off the 200 day SMA, CIGX has been performing well the last week, would like to see it get back above $1.70 to help turn the trend…

  18. 18
    zman Says:

    WLL Q&A

    – we do not anticipate having difficulties with service prices and availability of tubulars, rigs through at least 2011. They attribute this to their past treatment of vendors. They didn’t drop vendors or push them hard during the last downturn and that’s helping them going forward.

    – looking at M&A opps every week, but going to to be very selective. Pretty standard stuff … I don’t get the feeling they are really on the hunt at the current time, especially given the running room they now have at L&C.

  19. 19
    tomdavis12 Says:

    Z: Here is a little wrinkle on your WIOWIO. Since you are one of the hardest working energy guys and we all know it(especially during the quarterly CCs), how about after the CCs you make a small list of those companies that most impressed you (good mgmt moves, good fiscal discipline, big upside, biggest surprises) and maybe a few that are losing you and your respect. Call it the quarterly good, bad and ugly. Just a thought.

  20. 20
    zman Says:

    Tom – that’s a good idea.

  21. 21
    zman Says:

    HAL looking exceedingly resilient today. I only say it because it is scoring new highs despite the fact that the market pulled back. I think the news (rumor) that SLB could not/did not run the cement bond log because the well was kicking and BP refused to kill it with heavy fluids, combined with the fact that HAL wanted to make sure the casing was better centered in the wellbore and BP refused to pay for it really helps them on the potential liability front.

  22. 22
    zman Says:

    HAL – Added (10) HAL June $25 calls for $0.41 with the stock at $24.70. See today’s post and comment #21 today for reasoning.

  23. 23
    Nicky Says:

    Morning all. My preference is that we have an abc playing out for wave 2 and that this is the b leg up which should stall here. On the other hand if we go higher and take out yesterdays high I will switch to yesterday’s move down being wave iv and we are still working on the final wave v up before a deeper pullback.

  24. 24
    zman Says:

    Thanks much Nicky

  25. 25
    DrLink Says:

    Since the late May market sell off and this May presentation VQ has been on a tear. Wanted to buy more but it’s running away.

    Presentaion is touting massive amounts of OOIP. I guess the question is…can they get a big chunk of it out of the ground?

  26. 26
    wcoaster Says:

    Little is RAME shooting up – they say they are exploring strategic alternatives. Not sure if anyone would want to buy them, but at least management is awake.

  27. 27
    wcoaster Says:

    I meant – Little RAME is shooting up…

  28. 28
    tomdavis12 Says:

    Z: Next week CHK is redeeming some of their bonds. If anyone has a replacement that they feel is attractive, please share. Thanks.

  29. 29
    zman Says:

    RAME – saw that, still not for me, history there bugs me. Doesn’t mean it can’t run because that one can’t.

    VQ – yeah, missed that again.

  30. 30
    zman Says:

    Eli and BOP, can you field Tom’s question? BOP is traveling until tonight but I’ll remind her tomorrow if she doesn’t see this.

  31. 31
    zman Says:

    HAL acting well, over $25 now. I continue to hold the $26 calls in addition to the $25s I just took.

  32. 32
    zman Says:

    NFX – Owned in the ZLT, moving nicely again. Surprised they haven’t caught more downside movement on the Gulf moratorium.

  33. 33
    zman Says:

    HK, SWN, RRC all performing well on natural gas moving easily about $5. UPL lagging a bit.

  34. 34
    zman Says:

    92L – rotation, can’t be an eye yet but looks sort of like one. Bad news for Haiti.

  35. 35
    zman Says:

    By the way, 92L has been downgraded for chance of development this morning from 50 to 30%.

  36. 36
    zman Says:

    …which could mean gas pulls back as some of the hype comes out of it. Watch that very closely for the June calls this week.

  37. 37
    zman Says:

    Anyone have the bloomberg.com link for the TED spread?

  38. 38
    isleworth Says:

    GMXR short covering may be happening…..up 11% now

  39. 39
    zman Says:

    Herold published it’s 2010 E&P spending estimate today. Sees E&P spending up 8% this year and they have taken the GOM deep water moratorium into account… this is probably driving HAL more than what I’ve been talking about.

  40. 40
    elduque Says:


  41. 41
    zman Says:

    Watching Waxman grill BP along with XOM and CVX.

  42. 42
    zman Says:

    Thanks ElD, still well into BOPs uncomfort zone.

  43. 43
    zman Says:

    Waxman bus rolling along on questions of well design. XOM’s Tillerson throwing BP under that bus. “We would have used a totally different well design”.

  44. 44
    ratberto Says:

    Piece today on back page WSJ discussing APC, that it has been beat down perhaps too much. If APC could get out of its share because of BP gross negligence… seems to me APC will fight BP hard on this point… APC attractive here?

  45. 45
    zman Says:

    Nicky – Have been resisting the urge to ask, “are we there yet?” in terms of here thoughts on yesterday being the wave down. Also, would the new move up still be to about the 1130 level, I think you mentioned that level about 2 weeks ago as the next high.

    S&P at 1104.

  46. 46
    zman Says:

    ratberto – on a valuation basis P/CF, P/reserves, yes, APC is attractive. I saw another piece saying the same thing this morning, that APC is overdone. I have been concerned about the magnitude of liability here but if you go for negligence, which seems to be where we are pointing then I need to consult a lawyer to get an idea of where their liability (if any) is capped. I have not seen them say that they have paid anything so far.

  47. 47
    zman Says:

    Market so green even BP coming even to green on the day. I’ve got an email in with Nicky.

    V – dollar getting dropped pretty sharply again. http://www.barchart.com/charts/stocks/DXY00

  48. 48
    AAA Says:


    I think you could be on to something there. I haven;t seen the WSJ article, but I would think they have a cross claim against BP for any liability incurred as a result of BP’s gross negligence.

  49. 49
    AAA Says:

    Big spike in BP.

  50. 50
    ratberto Says:

    46 thanks.
    The only winners will be the lawyers. I think the greatest concern of the attorneys is: “What interior should I pick for the new G5?”

  51. 51
    zman Says:

    BP jumping up 80 cents now, down see the reason.

  52. 52
    zman Says:

    re 50. I have a number of lawyer friends (they washed out of B school or just didn’t want to face life at the time I guess so more school was a nice diversion) but only one of them is a self described ambulance chaser. I told him as much as I like his company that if he didn’t jump ship and move south that he’d never forgive himself. This will be going on long after we’re all flying around in hover cars.

  53. 53
    Jerome Blank Says:

    SPX…the 200 day moving avg resistance at 1105, right here, is a widely watched critical juncture…if there is a break above this, things begin to look much better for a continued move higher, SPX prints a new P&F buy signal at 1110….

  54. 54
    VTZ Says:

    RE 47: Yeah, gold responding to the USD now that it breached 1224 and 1228 to the upside again. Gold is really building a good base around these levels. I like this consolidation.

    To me the euro and USD are both in a race to the bottom (much to the dismay of the strong USD Kudlow bulls) so it doesn’t surprise me to see wild gyrations like this. In fact, I’m sure it will actually get worse at some point.

    Moves like this are the least you can expect after the euro has been brutalized as bad as it has been although im pretty sure the euro drop will resume shortly to at least retest the bottom but more than likely fall further.

  55. 55
    zman Says:

    Stupak grilling XOM and CVX over their spill response plans (200K bopd and 166 K bopd respectively is what they say they can handle).

    I wonder why they don’t have names like NFX and ATPG there. Congress should be thankful it was a “big oil” name that did this and not one of the little names, given that the government’s plan so far has been to leave capping, containment, and cleanup large to the company. There are a lot of little companies who this could have happened to and they have no where near the resources of BP to deal with it, and if you think BP is doing a poor job, having spent over $1.6 B in less than 2 months on this then imagine how a smaller, much less cash rich name would be coping.

  56. 56
    AAA Says:

    No kidding, Z. Any news on BP re that spike?

  57. 57
    ram Says:

    I wonder if there will be a “stress test” for all shelf and deep water players? Can you imagine if the Feds would say you are too small, we now own the well because you couldn’t contain an accident?

  58. 58
    zman Says:

    AAA – nothing I see on the tape except stuff that would make it fall, not rise. There was a 10 minute period of higher than normal buying, had to be a big fund of a few of them as we saw 2 mm shares per minute during that time. Still watching the testimony on CSPAN 3 but nothing there has been good for BP yet.

    XOM just said big oil companies are not well equipped to handle big offshore oil spills. Hmmm, kind of makes me think those spill response plans are a solve for an MMS and EPA requirement and not meant to be actually used.

  59. 59
    zman Says:

    Ram – there will be a stress test by default if they raise that liability cap or take it away altogether. As MCF’s CEO said something like, “you’d be asking me to risk the future of the company each time I drill a well.” That’ll push some out of the Gulf entirely. Should be a modest push on acreage prices onshore in the EFS.

  60. 60
    ram Says:

    You would think most of the land acreage in the U.S. will get a bump, especially the “hot” spots.

  61. 61
    zman Says:

    Ram – by the way, BP gave all proceeds of the collected oil to a wildlife fund. They didn’t say for how long, I’m guessing forever.

  62. 62
    zman Says:

    re 60. Exactly. DVN looks smarter by the day, lucky though that may be or not.

  63. 63
    zman Says:

    Reuters story saying BP shares spike unexpectedly during testimony. Gives no reason.

  64. 64
    ram Says:

    Has anybody done a “break up” value of BP to get an understanding of how undervalued BP might be?

  65. 65
    Paul in Kansas City Says:

    Does anyone have an opinion on XEC versus DVN? Talk about a tale of two stocks!

  66. 66
    zman Says:

    re 64. I have not seen a detailed one but I’m sure they’ve been done. Largely depends on the size of the liabilities. I did a quick sketch two weeks ago and the reserves are trading for a little over $5/ BOE which is really cheap.

    They have 18.3 billion barrels of proved reserves and produce a whopping 4 mm boepd. That’s about 57% liquids on the reserves.

    Then you have all the other assets (refining, chemicals, gathering systems, etc). That’s worth $26 at book, not sure if book is fair or if it should be a bit lower. The majors as a whole trade at a fraction of book but if you look at indie refiners (who don’t have the upstream segment but do have retail marketing, like a VLO or a TSO) you get them trading at 0.5 to 0.7x so maybe BP’s refining segment is worth $15 to $20 B.

    Debt is about $32 B with cash probably down to $5 plus some for the coming dividend.

    So at $31.50, you’ve got TEV less refining of about $120. Add to that $40 B just to throw out a liability number for the Gulf and that takes TEV applicable to the reserves of $160 B which values the reserves at $7.50/BOE … still darn cheap.

  67. 67
    zman Says:

    Paul – West is the axe on XEC so I’ll defer to him on that. I have tried in the past to play DVN and the stock has had trouble getting to what I’d call a fair valuation. Am planning to watch DVN and XEC more closely now. XEC is a much more interesting name to me at the moment from a story perspective but I only played quickly for a small gain awhile back and have missed this big move of late.

  68. 68
    zman Says:

    BP says some employees have been put on administrative leave but no one has been fired yet.

  69. 69
    ram Says:

    Thanks ZMAN. I still don’t have what it takes to buy BP because it’s to cheap – yet.

  70. 70
    zman Says:

    Ram – Hey, good on you, I’m in and higher and poorer for it. Sometimes back of the envelop is dangerous and sometimes its just early.

  71. 71
    zman Says:

    S&P minute chart looks like a telephone pole suddenly Nicky.

  72. 72
    BirdsofpreyRcool Says:

    Good afternoon. Back, but multiplexing…. just got this IM from XACS1 that is worth sharing.

    Also, HT pointing out SPX right on 200 day MA right now….


    Credit is now trading in line with the equity markets- intraday. It appears as if the investment grade credit markets were underperforming the SPX this morning due a pricing discrepancy between the CDX Index and its underlying members….this difference is commonly referred to as SKEW. We expect this difference to collapse with individual member spreads tighthening. What is MORE IMPORTANT is that this is the fourth trading day in which SPX point volatility has been increasing relative to CDX spread volatility. The recent reduction in absolute and relative credit spread volatility materially reduces that likelihood that the credit markets will spark another massive equity market sell-off, in our opinion. The steepening and stabilizing of bank CDS spreads – if it continues – would also likely cause equities to rise and VIX volatility to trend lower.

  73. 73
    zman Says:

    Welcome back BOP and thanks.

  74. 74
    zman Says:

    FYI – today is quarterly estimated tax day.

  75. 75
    zman Says:

    HT makes a very good point, we’re just below the 200 day sma on the S&P.

    Oil at 76.61 … drifting comfortably.
    NG up a dime all day. If that potential storm fades tomorrow or overnight, I’d expect a test of $5 support.

  76. 76
    BirdsofpreyRcool Says:

    Interesting comment on why TED is so wide… there’s some truth in it… but still think the majority of the spread widening is due to global investor jitters. TED headed a tad south today… for the first time in a looooong time.

    ED Spread Widening on Bill Demand, Not on Risks

    By Liz Capo McCormick
    June 15 (Bloomberg) — The difference between what banks and the government pay to borrow money for three months is widening because of demand for Treasury bills, not risk aversion, according to JPMorgan Chase & Co.
    The CHART OF THE DAY shows the TED spread, or difference between the three-month dollar London interbank offered rate, or Libor, and the bill rate, which has widened 56 percent since May
    7 to 0.48 percentage point yesterday. Libor has increased 25 percent, while the bill rate has fallen 55 percent. The TED spread, which averaged 0.32 percentage point in the decade before mid-2007, is often seen as gauge of perceived credit risk in the banking system.
    The “widening in TED spreads is not an indicator of heightened risk aversion; rather it is simply due to the increased demand for T-bills from a variety of institutional investors,” wrote New York-based Alex Roever, head of short- term debt strategy at JPMorgan, and Teresa Ho, a strategist, in a research note on June 11. “Coming into this quarter-end, there is a heightened demand for bills as a place for cash to rest. Potential for heightened shareholder redemptions” is part of the reason why money-market funds are also increasing short- dated bill positions, according to the analysts.
    An elevated amount of cash in the hands of institutional investors and on corporate balance sheets is contributing to the rise in demand for Treasury bills and the fall in rates, according to Roever and Ho.
    The three-month Treasury bill rate dropped yesterday to as low as 0.0487 percent, the least since Jan. 26, from 0.1552 percent at the end of last month.
    The rate fell below zero for the first time in December
    2008 as investors sought the relative safety of short-term U.S.
    government securities after the collapse of Lehman Brothers Holdings Inc. Negative bill rates mean investors are willing to pay the government to hold their money, protecting them from the potential losses of other investments.

  77. 77
    zman Says:

    Thanks again BOP, makes sense.

    I’m listening to the hearings, doing a little work on a new name but here if anyone’s got anything.

  78. 78
    BirdsofpreyRcool Says:

    HT pointing out that this is NOT a mrkt for day traders. Most of the action takes place in pre-mrkt open. He is spending his days lobbing insults at me over the IM system. HT is totally bored.

    So guess it’s like that KOG trade a week back. Bought at 3.22 and watched it go much lower. But liked the price, outlook, story, and direction of oil prices… just have to be willing to hold thru some pain… can take a week or two or three. Not a marktet for ADD-Traders.

  79. 79
    BirdsofpreyRcool Says:

    wcoaster …. you lookin’ at LEI?

  80. 80
    zman Says:

    Volumes in the E&P area look very light to me.

  81. 81
    BirdsofpreyRcool Says:

    HT saying volumes in general are very light… last Thursday was the last time he had any fun.

  82. 82
    zman Says:

    BOP – re 78. It’s the pathetic closes we’ve been seeing that are so hard to take when one is having trouble staying awake anyway.

  83. 83
    BirdsofpreyRcool Says:

    tomdavis — you are looking for some bonds to replace your CHKs? What about some DNRs? Double-B rated and all onshore… what kind of yield/rating you looking for?

  84. 84
    zman Says:

    That wave in the Atlantic has been downed to a 20% chance of development. The water is more than warm enough but it’s encountering blocking winds and shear depending on which forecaster you believe. The evaporation of the potential storm can be very hard on gas prices, especially if they spike up on the storm. My one gas play in this expiry is HK and I’m coming out now.

  85. 85
    BirdsofpreyRcool Says:

    think traders are watching TED… if TED can’t Go Happy during the day, then sell into close.

    FWIW, HT thinks we go lower here, then close at around HOD. So, we shall see….

  86. 86
    crysball Says:

    Regarding Decline Curves in Hot Plays:

    Had a wide ranging discussion with CFO of KOG, after HK had published their new study on choking wells down and the resultant change in Decline curve and INCREASE IN EUR.

    KOG is doing something very similar in all their wells.

    The net effect not only increases EUR’s, it gets you off the treadmill of having to increase your drilling of wells to maintain growthand offset the effects of rapid declines……and of course it decreases IP rates, as well as chaneing the decline curve shape.

    The important TAKEAWAYS from the discussion was:
    1) The pricipal of choking wells down seems to apply to both Gas fields like Haynesville, and Oiy fields like the Bakken/TFS.
    2) Neither HK or KOG can explain the exact dyinamics of how & why this works….but they can QUANTIFY THE RESULTS of doing so, and their Consulting Reserve Engineers are giving them EUR credits for doing so.
    3) those who MAIXIMIZE IP rates, and try to take the profit out early [BEXP, AEZ] and use the the high IR rates PR to hype the share price are locking themselves into a business model, which requires ever more drilling [Capex] to overcome the decline curves…….which may be OK early in the life of field and with rising prices, but will eat your lunch as the filed matures and/or commodity prices decline.
    4) HK has data on both new wells and reentering old wells which supports the chokedown approach.

  87. 87
    zman Says:


    Sold (75) June HK $21 calls for $0.75, up 186%.

  88. 88
    BirdsofpreyRcool Says:

    crysball — great info and chat notes. The KOG CFO is repeating what the CEO has been saying for a while (duh). KOG is the turtle to BEXP and AEZ’s hare. It’s not as exciting, but it builds more production in the long run.

    Didn’t know about the HK study. Thank you for pointing that out.

  89. 89
    Jerome Blank Says:

    HK testing intraday topside ascending triangle trendline resistance now, support at $21.40…

  90. 90
    BirdsofpreyRcool Says:

    oops… the “duh” was aimed at the CFO… not crysball!

  91. 91
    tomdavis12 Says:

    BOP: I am looking for BB or better, par or better, better company fundamentals and not concerned about yield just return of principal. I looked today at the TSO 6.625 11/1/15. Have some KWK also.

  92. 92
    BirdsofpreyRcool Says:

    tomdavis — i would take e&p assets over refinery assets any day. But that is just my bias. What about some of the bonds that HK has o/s?

    I can send you the latest Relative Value Bond Shopping List, if you wish.

  93. 93
    tomdavis12 Says:

    BOP: 92 Sure. That would be great.

  94. 94
    BirdsofpreyRcool Says:

    (HK is not BB, so probably not what you are looking for)

  95. 95
    zman Says:

    Crys – I agree to a certain extent although I have heard fewer companies of respectable size say it applies yet on the oil side. If oil prices are high now and I think they are at least fairly valued if not high then maximizing liquids production makes more sense relative to gas. But I hear what you are saying. BEXP is already running into the problem with press releasing every well with higher and higher IPs. It keeps setting it’s own bar higher. The stock has been going sideways as cash flow catches up to the past appreciation in the shares.

    But as to KOG, I don’t think they have done things to choke back the wells and therefore have intentionally kept the initial rates low. I just don’t buy it and if that’s the story they are now selling I’d very much like to hear that confirmed. Is that what KOG is saying?

    I have heard one comment from EOG on this and it was pretty tentative re the Bakken.

  96. 96
    zman Says:

    On my screen and to my squinty eye, the S&P looks to be just through the 200 day sma.

  97. 97
    zman Says:

    Still holding the HAL calls from earlier. The higher strike $26s are starting to wake up as well.

    Bakken list moving nicely again.

    Crude up through $77.

  98. 98
    elijahwc Says:

    #28 & 30 TD question on CHK bond replacement. Yes CHKprD @ <85. Par is 100, conversion ratio of 2.2639 & divi of 4.50. Sorry it took so long. Been away.

  99. 99
    BirdsofpreyRcool Says:

    KOG — don’t think it’s so much that they “choke back” as they don’t maximize their PRs with reporting high IP rates. KOG keeps saying that even “24-hr tests” can be apples-and-oranges, when different companies report them. But KOG won’t elaborate further. They just say to watch for their decline curves and EURs. That is what KOG is more focused on. Thing is, you need a yr to pass to get that data. So, still collecting data.

  100. 100
    BirdsofpreyRcool Says:

    Nat gas over $5…. oh what a diff 3 wks makes.

  101. 101
    zman Says:

    I won’t belabor this but HK said the cross over on cumulative production comes pretty quickly on their choked back and wider choke wells. So I think you can tell things from the 30 and 60 day rates. WLL also reports big IPs, a number around 4,000 boepd and while I don’t consider BEXP to be conservative, I do think the guys at WLL are. I’ll put together a list of the available 30 and 60 day rates and the declines from IP on a company to company to company basis.

  102. 102
    zman Says:

    re 100. Potential spinner mid Atlantic drove it there. It’s early and that wave is losing cohesion.

  103. 103
    BirdsofpreyRcool Says:

    Also, have to compare the IP to the lateral and frac stage length…

  104. 104
    BirdsofpreyRcool Says:

    #103… go ahead… say it…. “DUH”

  105. 105
    zman Says:

    Missed you BOP!

  106. 106
    zman Says:

    TGA in the hopper for Thursday. I know, I know, I’m slow.

  107. 107
    zman Says:

    BOP – EXXI spoke at Macquarie today and will be at Enercom in London I think on Thursday.

  108. 108
    guru Says:

    Z: When is the presentation scheduled for that BEXP is participating in? Also, any target (time and price) for exiting BEXP?

  109. 109
    Nicky Says:

    Z – not checked to see if you have relayed my email on here. If not – then I basically said that everything about this rally makes me nervous! The volume is lousy, the move is wedgie,ending diagonal and therefore corrective.

    Its going to be very difficult to try and spot the top. The astro does not turn negative until after the close TOMORROW so we are therefore looking at another up day tomorrow although not likely to be as big as a move as today.
    Cycles point to the same timeframe for a top and then at least a 3 – 5 day pullback.

    The astro for next week looks awful and points to a large move to the downside. There is the risk of another debt crisis or bank crisis plus earthquakes. I know people in LA who are actually moving out next week as they are so concerned about this!

    Okay so where is the likely area for a high tomorrow. We are into my target area already so likely we are looking to test higher levels. 1122 is a number I am looking at and if you want to really push it then yes 1130 although that seems on the high side to me.

  110. 110
    Garyinhou Says:

    eog hardly participating, PA hangover?

  111. 111
    ram Says:

    Earthquakes? Who or what is predicting an earthquake – and specifically in Southern California?

  112. 112
    zman Says:

    Guru – Re the calls, hopefully Thursday. Re the stock no time frame. I was more concerned about the P/CF multiple earlier this year but the stock went side ways allowing the denominator to catch up and they have done enough deals for this year I think.

  113. 113
    Nicky Says:

    Ram – many astrologers are extremely worried about it in the time period of the 25th – 30th June. Last night in LA there was a 5.7 quake..was centered 80 miles east of san diego.
    Now that is not to say its gonna happen just that the voodoo is aligned!

  114. 114
    Gtinvest Says:

    Z according to your list from enercom, Bexp speaks 10:50 thursday BST which equals 5:50 am est.

  115. 115
    guru Says:

    Z and GT: Thanks for the BEXP info and targets.

  116. 116
    ram Says:

    Thanks Nicky.

  117. 117
    zman Says:

    Gary – maybe, dunno. It had a good little bounce following that well so relative position wise it’s probably on par with the other big caps.

  118. 118
    guru Says:


    One more quesion: For someone who is not so conversant with the terms in oil exploration, what does EUR stand for? What does it signify? I did not see this term in your Dictionary.

  119. 119
    BirdsofpreyRcool Says:

    #105 [blushing…] thx.

  120. 120
    Geno Says:

    Re 118 Estimated Ultimate Recovery, how much gas or oil a well will make in is life

  121. 121
    BirdsofpreyRcool Says:

    guru — while you’re at it…. ask him how EUR relates to OOIP. (one of my fave acronyms)

  122. 122
    zman Says:

    Gotta go grab an intern, back in 20.

  123. 123
    BirdsofpreyRcool Says:

    (sorry… OOIP is just fun to say…)

  124. 124
    zman Says:

    Estimated ultimate recovery is what they think they’ll get out of the Original Oil in Place. Varies from play type to play type and has generally increased over time with technology but is often surprisingly low.

  125. 125
    zman Says:

    …also depends on prices which is why some call it economic instead of estimated for the E in EUR. Gotta run, back in 20.

  126. 126
    Geno Says:

    OOIP is easier to calculate with the EUR being an educated guess. Mature plays giving historical curves to refine the percentage and frontier plays being an educated guess.

  127. 127
    Popeye Says:

    “Lightning Strike and Fire on Ship Halts Containment of Leaking Oil in Gulf”

  128. 128
    Popeye Says:


  129. 129
    BirdsofpreyRcool Says:

    #127 — that is just plain weird !

  130. 130
    zman Says:

    It sounds like a very dangerous business. I understand they have been spraying water around the ships near the site to keep the fumes down. Those guys need combat pay.

  131. 131
    Popeye Says:

    Sounds like pretty much a non-event but “stuff” does happen.

  132. 132
    zman Says:

    Yeah, except that containment is shut down at the moment.

  133. 133
    zman Says:

    20 minutes to go and so far no fade in the broad market in site.

  134. 134
    West Says:

    # 65 , Paul finished moving to the side today in XEC. Hoping for pullback to the bottom of flag formation around 75. It is hard for me to me out of the name but I think either tomorrow or thursday we may get a little pullback. I’m assuming a large holder has being selling all day at around 80 so it will probably pop when they get thru. They just got another well in South Texas and this play is now over 20% of their total company production. The Cana is terrific and they have a huge position in the Avalon shale play in New Mexico which are 1 year payout wells according to local coffee shop talk. The Bone Springs is a good looking play also. The have just posted a new presentation for their show this week.

  135. 135
    zman Says:

    Brazil schooling North Korea in world cup action despite the low score so far.

    Elsewhere, most of our names looking to close at HOD.

    Nice 8% move in KOG.

  136. 136
    zman Says:

    Here’s to a good API report tonight, would expect to see the imports figure come off along with another down week for Cushing stocks. Demand should also keep inching up. Normally we get smallish builds in crude and both products this week of the year but last year, we saw a very large build in gasoline so we should be able to eat away at the recent year over year surplus we’ve been slowly adding to over the last month. Distillates I expect to hold just above last week’s levels.

  137. 137
    zman Says:

    Congrats West, nice run.

    I have to ask, anything new on the EOG well in se Montana.

    Also, are you hearing anything on the Collingwood shale?

  138. 138
    zman Says:

    Volumes have doubled for many names since I said they were weak earlier, but they are still very low in E&P and in some service names as well like HAL.


  139. 139
    BirdsofpreyRcool Says:

    Wow. HT called it. Closed at HOD. Also closed at XACS#2’s key level of 1115. If we can hold this level for a week or so, then the Credit Bears will start to cover. Then it’s Katy Bar the Door!

  140. 140
    zman Says:

    BOP – yep, he got that one right for sure. Has TT dropped off the radar?


  141. 141
    BirdsofpreyRcool Says:

    Nicky — based partly on your comments from over a week ago, I swapped from some low-beta stuff into higher-beta stuff before I left on vacay. Just want to say “thanks.” The Evil Plan is working.

  142. 142
    BirdsofpreyRcool Says:

    TT made too much $$. He is off in his own world right now. Might hear from him again… but, he’s flying under the radar for now (sadly for us).

  143. 143
    zman Says:

    Obama Oval Office = 8 pm EST tonight. Look for some BP bashing and pushing of an alternative energy agenda.

    The next hot deal:


  144. 144
    BirdsofpreyRcool Says:

    TED Spread made a (relatively) large move tighter today. Still far from my “All Clear” level of around 25bps… but, nice to see the tightening move hold. It hasn’t, of late. And Mr. Market has been paying attention to that.

  145. 145
    West Says:

    # 137, I think that EOG is working the science project on this area to get the correct formula for max ROR. BEXP has the acreage across the lease line to the south and southwest which will be productive imo . The question here is EUR amounts and probably Bakken Lite #s is what I am thinking. BEXP’s well that they are completing now in Montana is further west than the Carat, so the big question where does the formation pinchout or thermal mature playout to the west in this play? The pink line as BOP likes to call it, as we saw on the Eastern side of the Parshall and KOG’s acreage on the east side of the Missouri River. I think BEXP has the reserves and the tech to move the stock price much higher, but they also have to deal with the hot money running in and out of the name constantly……EOG side note, their Niobrara wells in Wyoming look to be successful with additional locations and rigs on the way.

  146. 146
    Nicky Says:

    BOP – re 141 – wow I am pleased to hear that. Hope you had a great vacation too.

  147. 147
    Nicky Says:

    Govt have revised estimates for the BP leak up from 35k to 60k.

  148. 148
    zman Says:

    Thanks Nicky, I’m sure big O’s speech tonight and the timing of this increase in the flow are purely coincidental, lol.

    B of A has issued orders to its traders to limit the duration of oil traders with BP as a counterparty.

  149. 149
    Paul in Kansas City Says:

    West; thank you for the helpful comments!

  150. 150
    zman Says:

    Fitch just lowered APC outlook to Negative.

  151. 151
    mimster90 Says:

    Welcome Back BOP, missed your commentary.

    JB voted.

    Nicky #23 any range for a deeper pullbak?

    VTZ any thoughts on best unhedged gold producers with options available? GLD options too pricey.

    zman nice play on HK which I happened to join you on.

  152. 152
    BirdsofpreyRcool Says:

    BedTime Market Strategist… good one!

    Taking Stock.

    In our June 8th Bedtime, we noted that we were not believers in the bear arguments that sparked the May sell off and we highlighted the three factors we were watching that would shift us from Neutral to Bullish on the S&P 500. The factors were: Valuation, Behavior/Volatility and Economic. Valuation, which we described as “very attractive,” was the only one of the three that was correctly aligned. It appears this week is on pace for the Behavior/Volatility category to fall into place. As we explained, “If it [the Vix] can finally break and stay below 30 for approximately a week, it will be as close as you can get to a ‘coast is clear’ signal.” We noted that it would mean turning bullish higher, but we were comfortable taking that stance because we believed the reduced risk would be ample compensation. The final category in which we are looking for improvement is the economy. We continue to remain focused upon weekly Initial Jobless Claims. As we noted a week ago, new cycle lows are achievable from current levels but we would like to see them materialize.

    There is a plethora of May economic data that will be released over the next few days which has the potential to move the dial in either direction. It is a positive sign to see the S&P 500 clear the 200 day moving average and post its highest close since May 17th. Today there were very positive anecdotal comments out of a number of industrial and transport companies. For example, we heard that business travelers are back. Then there was also Best Buy who attributed its Q1 earnings miss to the misalignment of its internal SG&A forecast with street estimates. Although they reaffirmed their full year earnings guidance, they talked about a choppier consumer.

    We believe it is important for investors to be price sensitive and exercise discipline. While the pendulum is shifting in the right direction, investors should try to ensure they don’t get caught chasing prices created by dual short squeezes. The short squeeze in the Euro has helped fuel a short squeeze in U.S. equities. The anecdotal company commentary added fuel to the fire. We are confident that the fundamentals of the Euro have not magically improved overnight. In addition, the negative headlines also have not miraculously disappeared, rather, the market finally had some positive news and price action on which to focus.

    Click here for PDF.

  153. 153
    BirdsofpreyRcool Says:

    [PDF link did not come through… but it is that same thing I just posted]

    thanks, mimster! 🙂

  154. 154
    Jerome Blank Says:

    RE: #151, mimster, thank you for the vote…

  155. 155
    zman Says:

    Wednesday post is up.

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