Job Less Friday

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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:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Storage Review
  4. Stuff We Care About Today - SD / ARD "Go Shop" period comes to an end.
  5. 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.
    • Production profile of the combined is oilier than it was pre deal:

      • 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.
    • 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. 


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.

72 Responses to “Job Less Friday”

  1. 1
    zman Says:

    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.

  2. 2
    jat Says:

    SD also selling some deep rights to Cana acreage

  3. 3
    zman Says:

    Jat – got that $140 mm in my calc for the debt/equity of the combined.

  4. 4
    zman Says:

    Jat – 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?

  5. 5
    zman Says:

    Wall Street taking the day off:


  6. 6
    jat Says:

    Re 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.

  7. 7
    ram Says:


  8. 8
    zman Says:

    Jat – 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.

  9. 9
    zman Says:

    Whose 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?

  10. 10
    zman Says:

    Dollar not like the payrolls data:


  11. 11
    zman Says:

    WFT – 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.

  12. 12
    zman Says:

    Barclays really miss-timed their downgrade of SWN. Anyone have a copy of their reasoning for the cut?

  13. 13
    zman Says:

    Language 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.

  14. 14
    zman Says:

    Add to 13, if this is applied to the deep shelf and ultra deep targets, you can forget the 90 day part, just not possible.

  15. 15
    andy Says:

    just tried to short ECT  – not available

  16. 16
    zman Says:

    Andy – probably not until sometime next week. Same for TSLA I'd imagine. Flippers jumping ship there.

  17. 17
    zman Says:

    HK 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.

  18. 18
    zman Says:

    Factory orders down 1.4%, expected down 1.0%. Data stream is just not happy at the moment.

  19. 19
    zman Says:

    From Nicky:

       we really need to get above 1035 – until then we are vulnerable to new lows….

  20. 20
    Wyoming Says:

    13 – 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.

  21. 21
    zman Says:

    Wyoming – yeah, my thoughts exactly. But these aren't guys who deal in reality.

  22. 22
    zman Says:

    Analyst Watch:

    Deutsche out with their 2Q mark to market revisions to estimates for E&Ps. They characterize the changes as benign.

  23. 23
    john11 Says:

    Considering  valuation thoughts and likelihood of  only 10 to 20% of  rights submittal being filled, am a buyer her in low .80's.

  24. 24
    john11 Says:


  25. 25
    cargocult Says:

    It 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.

  26. 26
    Nicky Says:

    Good 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.

  27. 27
    zman Says:

    Can'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.

  28. 28
    zman Says:

    Thanks Nicky.

  29. 29
    Nicky Says:

    oil 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

  30. 30
    reefguy Says:

    13: 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……

  31. 31
    ram Says:

    SSN 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?

  32. 32
    Wyoming Says:

    Una cerveza, por favor

  33. 33
    zman Says:

    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.

  34. 34
    zman Says:

    Reef – Yeah. Don't know if they plan on applying this to the Shelf or just the deepwater. I imagine they think everywhere.

  35. 35
    zman Says:

    Wyoming – 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.

  36. 36
    ram Says:

    How much is EXXI worth without Davey Jone's?

  37. 37
    zman Says:

    No way to really gauge that. DJ and the other 13 or 14 prospects going away would probably take the stock to $10.

  38. 38
    zman Says:

    The 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.

  39. 39
    Nicky Says:

    relentless.  how many down days now?

  40. 40
    zman Says:

    … 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.

  41. 41
    zman Says:

    9 with a pause in the middle.

  42. 42
    zman Says:

    S&P in that 9 day period down 9%

  43. 43
    Nicky Says:

    Dow retesting yesterdays lows, spx nowhere near yet

  44. 44
    zman Says:

    I know this is a sloppy market but this kind of bill…


    … should send money running ashore.

  45. 45
    elduque Says:

    Thanks Z for everything you do. Enjoy the weekend.

  46. 46
    zman Says:


  47. 47
    Nicky Says:

    In 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.

  48. 48
    zman Says:

    Thanks Nicky, will continue to monitor but go silent now. Everyone have a great long weekend. Italy, be safe and thanks for everything.

  49. 49
    ram Says:

    See ya.  Let freedom ring.

  50. 50
    zman Says:

    Baylor – are you able to get to the comment window but then unable to type?

  51. 51
    zman Says:

    Disabled FCKeditor

  52. 52
    petra Says:

    Test from iPhone 3GS software version 4

  53. 53
    zman Says:

    That worked, its the comment editor software, just disabled, should work fine now.

  54. 54
    zman Says:

    OK, now I’m outta here, have a great one.

  55. 55
    Jerome Blank Says:

    RE: #31 ram…a bull trap would occur only if SSN reverses back into o's after printing the buy signal…

  56. 56
    Popeye Says:

    The name for that editor is appropos.

  57. 57
    Pati Says:

    voted, JB. Would just like to say (again) that JB and Nicki add tremendous value to Z’s website. Thank you.

  58. 58
    Jerome Blank Says:

    Re: #57, Pati…thank you for the vote and kind comments…

  59. 59
    Nicky Says:

    Have a great weekend Z….I think we are all ready for a long weekend now. I know I am!

  60. 60
    Jerome Blank Says:

    So 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…

  61. 61
    AAA Says:

    I 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.

  62. 62
    Pati Says:

    Z, what do you think of averaging down on the BEXP options?

  63. 63
    baylor3217 Says:

    Z – I can type now since it appears the new feature was disabled.


  64. 64
    baylor3217 Says:

    I added some BEXP 15’s here today for what it’s worth. It’s approaching the 200 day which is around 14.34

  65. 65
    PackMan Says:

    Nicky, if I may, what are “astro forces” ?

  66. 66
    Jerome Blank Says:

    KOG…adding a little here, holding up off the lows and above the 200 day…

  67. 67
    Pati Says:

    64, thank you.

  68. 68
    Jerome Blank Says:

    Pati, BEXP, support level to watch today is $14.37…

  69. 69
    elduque Says:

    jp where do i go to vote for you

  70. 70
    Jerome Blank Says:

    eld, if you go to the page, scroll down to the bottom and there is a area to vote…thank you much…

  71. 71
    Popeye Says:

    El scroll up to JB’s excellent charts on the right side. Visit and vote.

  72. 72
    West Says:

    According 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.

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