01
Jul
Job Less Friday
Market Sentiment Watch: Payrolls showed a 125,000 job decline in June, pretty much in line with expectations. Unemployment eased to 9.5% which is better than expected but partially a function of workers falling out of the ranks of those who still get counted. Private payrolls increased 83,000 which was well short of the 125,000 pickup economists expected. Equity futures bounced initially but looked doubtful within minutes of the numbers. Notably hours worked fell 0.1% ... not good if you want to talk about jobs momentum.
In Today's Post:
- Holdings Watch
- Commodity Watch
- Natural Gas Storage Review
- Stuff We Care About Today - SD / ARD "Go Shop" period comes to an end.
- Odds & Ends
Holdings Watch
ZCAT (Zman Catalyst portfolio)
- $6,000
- 99% Cash
- Positions for the quick view are updated on the ZCAT, ZIM, ZLT page.
- Yesterday’s Trades: None, still too early.
ZIM (Zman Inefficient Markets portfolio)
- $3,000
- 5% Cash
- Yesterday’s Trades: None
Commodity Watch
Crude oil fell $2.68 to close at $72.95 yesterday on further slowdown worries and despite a weaker dollar. This morning crude is trading down slightly.
- Iran Watch: U.S. passes new, "toughest ever", sanctions. Ya know, the definition of insanity is repeating the same process over and over and expecting a different outcome.
Natural gas jumped $0.24 (5%) to close at $4.85 yesterday after the EIA reported a smaller than expected storage injection (see below). This morning gas is trading flattish.
- Toxic Cow Watch: Pennsylvania has quarantined 28 cows that may have drunk waste water from a drill site. The well is owned by East Resources. Other farmers are claiming that frac waste water is causing birth defects in their herds. With BP and Gasland on investor's minds, the last thing people want to hear about is toxic beef.
- Tropics Watch: There is a 10% chance of "pop up" development for a cloud pile off Pensacola over the weekend. Otherwise the tropics are quiet according to the weather service. I see a couple of areas (south of Cuba and just off Venezuela) that look threatening as well.
Natural Gas Storage Review
ZComments: Heat forces an abnormally low injection, look for one about 15 to 20 Bs higher next week as the heat retreats. We are now down 1% versus year ago inventories but bloated to the 5 year average and if we cool, either weather or economy-wise, we still stand a decent chance of building storage to a new record by the end of October. We did hear that one shallow water permit was granted this week but if drilling doesn't resume there and in the deepwater soon, look for a production declines to set in by early Fall in the Gulf.
Stuff We Care About Today
SD / ARD Combo's "Go Shop" Period Ended Yesterday; ARD Board Recommends Taking The Deal
- ARD says time's up on "go shop" period.
- 24 parties were contacted, no deal is seen out of those
- Board of ARD likes the SD deal and recommends investors vote in favor of the deal at the special meeting July 16th.
- Separately, SD is selling certain deep rights to Cana shale acreage in Oklahoma for $140 mm cash, proceeds to target debt reduction.
- Nutshell: Pretty good deal for SD. Some metrics:
- Balance Sheet improved though still highly leverage:
- Debt to Cap at present for SD is not meaningful as the equity component of the calculation is negative due to asset writedowns due to low gas prices.
- Combining the two entities gets it down to 87%
- The ability to service this debt load is enhanced.
- Debt to Cap at present for SD is not meaningful as the equity component of the calculation is negative due to asset writedowns due to low gas prices.
- Production profile of the combined is oilier than it was pre deal:
- SD goes from 28% oil to 36% oil
- SD goes from 28% oil to 36% oil
- Reserves per share falls on a proved basis per share
- Per share reserves fall from 6.25 Mcfe / share to pre deal to 4.34 Mcfe / share following it. This is on the low end of the scale but would be improved by higher prices, especially higher natural gas prices.
- Per share reserves fall from 6.25 Mcfe / share to pre deal to 4.34 Mcfe / share following it. This is on the low end of the scale but would be improved by higher prices, especially higher natural gas prices.
- Nutshell of the nutshell: I'm not thinking it is a screaming buy. But it could intrigue some investors who think now is the time, following all of the uncertainty of the past, to begin fishing again here. I'm concerned about recent comments of further asset purchases by SD management and the implications that has for capital discipline going forward. SD strangely reminds me of the gung-ho days of CHK but with a much more damaged balance sheet. I'll watch and be patient here.
- Balance Sheet improved though still highly leverage:
Odds & Ends
Analyst Watch:
- SWN - Barclays cuts to Equal Weight.
- LINE - UBS starts at BUY, target $31.
- BP - Target at Benchmark Co. cut from $49 to $41, Buy reiterated.
Interesting Article Watch:
Housekeeping Watch: I'll be in the office until around noon. Have a great, safe 4th of July.
Ram – you around? Spoke with my broker re the SSN rights offering, timing and allocation. They told me to watch the news on that ticker. Now that's what I call wow-helpful. I suspect we will have our allocations in the next 5 to 10 days.
July 2nd, 2010 at 7:56 amSD also selling some deep rights to Cana acreage
July 2nd, 2010 at 8:00 amJat – got that $140 mm in my calc for the debt/equity of the combined.
July 2nd, 2010 at 8:01 amJat – you like SD down here? I like it better with than without ARD by a long shot but I'm not convinced it will play well in this market. It's oilier but not that much and it's balance sheet is better but again, not by much. Any thoughts?
July 2nd, 2010 at 8:09 amWall Street taking the day off:
http://www.briefing.com/Investor/Public/Calendars/UpgradesDowngrades.htm
July 2nd, 2010 at 8:13 amRe 4, I haven't followed for a while, but I agree with all your comments. I was in the common for a while with you, but I really didn't like what was going on vis a vis acquisitions before ARD and felt I wasn't sure where the story was going. So I did an SD/EOG swap in late '09 and haven't regretted since. Today, there are a lot of names I'd buy before SD so I'm not even bothering.
July 2nd, 2010 at 8:15 amThanks.
July 2nd, 2010 at 8:16 amJat – yeah, that's kind of how I feel about it …. pass.
Same goes for the ECT royalty trust that came public yesterday. 10% yield but I have to worry about PA doing something silly in the Marcellus and potentially stalling the drilling timeline that would keep the distributions flowing. Still sounds like a very good deal for ECA and if I had to take a gas only fund, I'd normally like to see prices based on the eastern corridor, but not at the moment, not in this market. Maybe at $15.
July 2nd, 2010 at 8:19 amWhose the most resilient and hated name in the group at present? BP. Still thinking higher through the close and then probable disappointment next week when they don't have the well capped by the unreasonable deadline of some analyst at Pritchard whose trying to make a bigger name for himself. If they don't do it he can say "well, ya know it is BP" and if they do, he's a hero. What's the guy got to lose?
July 2nd, 2010 at 8:21 amDollar not like the payrolls data:
http://www.barchart.com/charts/stocks/DXY00
July 2nd, 2010 at 8:28 amWFT – Opco making the good point that only 5% of sales comes from GOM…move down with group is overdone. I'd say same about HAL.
July 2nd, 2010 at 8:39 amBarclays really miss-timed their downgrade of SWN. Anyone have a copy of their reasoning for the cut?
July 2nd, 2010 at 8:41 amLanguage included in the draft of the Blowout Prevention Act of 2010 that the House is going to take up soon.
The applicant has the capability to begin drilling of a relief well within 15 days, and complete such drilling of a relief well to control a blowout within 90 days of the well control event that causes such blowout.
This is probably impossible for little guys to meet.
July 2nd, 2010 at 8:47 amAdd to 13, if this is applied to the deep shelf and ultra deep targets, you can forget the 90 day part, just not possible.
July 2nd, 2010 at 8:48 amjust tried to short ECT – not available
July 2nd, 2010 at 8:57 amAndy – probably not until sometime next week. Same for TSLA I'd imagine. Flippers jumping ship there.
July 2nd, 2010 at 8:59 amHK noticing that gas was up 6% yesterday and that oil isn't fallling out of bed any longer. Still, light volumes, could be a single fund adding a few shares or a careless trader.
SSN giving a bit back, still pondering decision there.
July 2nd, 2010 at 9:00 amFactory orders down 1.4%, expected down 1.0%. Data stream is just not happy at the moment.
July 2nd, 2010 at 9:03 amFrom Nicky:
we really need to get above 1035 – until then we are vulnerable to new lows….
July 2nd, 2010 at 9:19 am13 – crazy, would basically have to have 2 rigs contracted. No way to hammer out a contract in 15 days, assuming there was even a rig in the neighborhood.
July 2nd, 2010 at 9:27 amWyoming – yeah, my thoughts exactly. But these aren't guys who deal in reality.
July 2nd, 2010 at 9:32 amAnalyst Watch:
Deutsche out with their 2Q mark to market revisions to estimates for E&Ps. They characterize the changes as benign.
July 2nd, 2010 at 9:39 amConsidering valuation thoughts and likelihood of only 10 to 20% of rights submittal being filled, am a buyer her in low .80's.
July 2nd, 2010 at 9:45 amhere
July 2nd, 2010 at 9:46 amIt seems to me that Oil Industry needs to ramp up a campaign to educate the public as to just what they are doing in the Gulf and what their past track record is. 1000's of jobs are at stake in the drilling industry, and this disaster actually underscores that this has been an exception rather than the rule. Also points out how one company's behavior affects everyone else, so the industry would do well to police itself.
July 2nd, 2010 at 10:06 amGood morning. Choppy is all I see today. I am wondering if we are just looking at a wave iv with a lower low needed before we can climb back to the 1075 area. The astro is much more positive for the early part of next week so I still expect to see us rally into 7/8th July.
July 2nd, 2010 at 10:10 amCan't disagree with that. API has done a good job of talking about the jobs but frankly I think it falls on deaf ears. People in the U.S. fall into two camps. Either you drive a car and you hate oil companies or you drive a car and understand how things work in the real world. Either way, you consume energy, but in the first case, you're a hypocrite and just don't care. The jobs are already going. RDC just this week moving jackups (yeah, that's shallow water) out of the Gulf. Even the French group IEA saying that if the moratorium extends beyond 6 months the owners should pull the rigs to Africa, Brazil, Middle East. I say take the short boat ride to Cuba instead.
July 2nd, 2010 at 10:11 amThanks Nicky.
July 2nd, 2010 at 10:12 amoil looks ready for a move up but no sign at the moment. Anyone think we see some covering ahead of the weekend as thats what the chart looks like should happen
July 2nd, 2010 at 10:17 am13: So any well that takes longer than 90 days to drill(deep wildcats) cannot be drilled because the "relief" well could not be drilled in less than 90. That means the Ultradeep shelf MMR/EXXI) cannot be drilled……
July 2nd, 2010 at 10:24 amSSN getting pushed lower on light volume. If a $1 print had SSN going to a buy wih X's, then are we experiencing a bull trap?
July 2nd, 2010 at 10:25 amhttp://www.reuters.com/article/idUSTRE6611RF20100702
July 2nd, 2010 at 10:27 amUna cerveza, por favor
Emailed From BOP – She's talking about another rule in the BOP Act of 2010 – $1.5 B in insurance must be carried.
how can any small company continue to operate offshor under these “rules”? I thought some of the lease payments and royalties were supposed to cover this… that is why there are lease costs and royalties.
This will KILL companies like EXXI and MMR, i would think. Who can afford the “insurance”?
Any thoughts here?
Our govt is so outta control and not making adult decisions that I just want to sit down and cry.
July 2nd, 2010 at 10:28 amReef – Yeah. Don't know if they plan on applying this to the Shelf or just the deepwater. I imagine they think everywhere.
July 2nd, 2010 at 10:29 amWyoming – and people think that sonar survey's hurt whale ears … how about a nuke?
Nicky – good question, no idea on the cover thought as this is very sloppy trading. NG giving back most of yesterday due to cool weather this week.
July 2nd, 2010 at 10:32 amHow much is EXXI worth without Davey Jone's?
July 2nd, 2010 at 10:35 amNo way to really gauge that. DJ and the other 13 or 14 prospects going away would probably take the stock to $10.
July 2nd, 2010 at 10:37 amThe flip side is, a bigger and bigger piece of GOM gas production has been coming from a combination of deep shelf wells (sub 16,000 feet) and the deepwater. Nobody is going to want to drill those if any one of them could be a company ender.
July 2nd, 2010 at 10:38 amrelentless. how many down days now?
July 2nd, 2010 at 10:40 am… as such, 11% of U.S. natural gas production is in jeopardy and it is very short reserve life stuff (say 3 to 5 years and dead). They don't call the Shelf a treadmill for nothing.
July 2nd, 2010 at 10:40 am9 with a pause in the middle.
July 2nd, 2010 at 10:41 amS&P in that 9 day period down 9%
July 2nd, 2010 at 10:42 amDow retesting yesterdays lows, spx nowhere near yet
July 2nd, 2010 at 10:51 amI know this is a sloppy market but this kind of bill…
http://energycommerce.house.gov/documents/20100630/HR5626.introduced.pdf
… should send money running ashore.
July 2nd, 2010 at 10:52 amThanks Z for everything you do. Enjoy the weekend.
July 2nd, 2010 at 10:53 ammahalo
July 2nd, 2010 at 10:56 amIn trying to 'fit' a count to the cycles and astro forces I am thinking we may now be working on v of the first wave down. Its possible under this scenario the spx may only retest yesterdays lows or even fall slightly short.
July 2nd, 2010 at 11:26 amThanks Nicky, will continue to monitor but go silent now. Everyone have a great long weekend. Italy, be safe and thanks for everything.
July 2nd, 2010 at 11:34 amSee ya. Let freedom ring.
July 2nd, 2010 at 11:44 amBaylor – are you able to get to the comment window but then unable to type?
July 2nd, 2010 at 11:48 amDisabled FCKeditor
July 2nd, 2010 at 11:49 amTest from iPhone 3GS software version 4
July 2nd, 2010 at 11:49 amThat worked, its the comment editor software, just disabled, should work fine now.
July 2nd, 2010 at 11:50 amOK, now I’m outta here, have a great one.
July 2nd, 2010 at 11:51 amRE: #31 ram…a bull trap would occur only if SSN reverses back into o's after printing the buy signal…
July 2nd, 2010 at 11:54 amThe name for that editor is appropos.
July 2nd, 2010 at 11:58 amvoted, JB. Would just like to say (again) that JB and Nicki add tremendous value to Z’s website. Thank you.
July 2nd, 2010 at 12:05 pmRe: #57, Pati…thank you for the vote and kind comments…
July 2nd, 2010 at 12:10 pmHave a great weekend Z….I think we are all ready for a long weekend now. I know I am!
July 2nd, 2010 at 12:34 pmSo far this looks to be about the 10th straight down day…it’s really odd to me that the $NYMO is not lower than it is, very strange, something is holding it up more than I would have expected…very interested to see where it closes today, which might have something to do with it, being an end of day indicator…
July 2nd, 2010 at 12:56 pmI know this is not a popular viewpoint here,but it is just an impossible political sell to say, “Accidents happen once in a while and if one does happen, it might require letting a big well spew oil into the gulf for several months, maybe longer.” Adopt that position and you will be known as the former congressman in most districts.
Inevitably, this will require some revised form of the liability cap and cleanup fund. Even the former cap had an exemption for gross negligence. On the one hand, that can be a slippery standard, but on the other, if a company is clearly grossly negligent in something this dangerous, they deserve a severe sanction. Perhaps the industry should develop a series of best practices, use of which would be presumptive evidence of absence of negligence.
July 2nd, 2010 at 1:12 pmZ, what do you think of averaging down on the BEXP options?
July 2nd, 2010 at 1:14 pmZ – I can type now since it appears the new feature was disabled.
Thanks!
July 2nd, 2010 at 1:20 pmI added some BEXP 15’s here today for what it’s worth. It’s approaching the 200 day which is around 14.34
July 2nd, 2010 at 1:22 pmNicky, if I may, what are “astro forces” ?
July 2nd, 2010 at 1:44 pmKOG…adding a little here, holding up off the lows and above the 200 day…
July 2nd, 2010 at 2:04 pm64, thank you.
July 2nd, 2010 at 2:05 pmPati, BEXP, support level to watch today is $14.37…
July 2nd, 2010 at 2:08 pmjp where do i go to vote for you
July 2nd, 2010 at 2:13 pmeld, if you go to the page, scroll down to the bottom and there is a area to vote…thank you much…
July 2nd, 2010 at 2:16 pmEl scroll up to JB’s excellent charts on the right side. Visit and vote.
July 2nd, 2010 at 2:21 pmAccording to this week’s RMOJ it looks like EOG has made a well at it’s first horizontal location in the Wyoming Niobrara and is drlg ahead on the second horizontal. The have also completed an offset vertical monitor well when they frac for monitoring seismic.
July 2nd, 2010 at 2:59 pm