Friday Morning

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Market Sentiment Watch: Strike 2 For The Administration.  The appeals court wasted little time in rejecting the White House's request to continue it's moratorium. For it's part, the White House had already vowed to issue another, slightly altered, moratorium in an effort to circumvent the U.S. justice system. So really little has changed except that at some point judges are going to have to get tough with Interior. I wonder if they can hold Salazar in contempt to force him to issue permits.


In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Storage Review
  4. Oil Inventory Review
  5. Stuff We Care About Today - SSN
  6. Odds & Ends

Holdings Watch ZCAT (Zman Catalyst portfolio)

  • $6,600
  • 79% Cash
  • Positions for the quick view are updated on the ZCAT, ZIM, ZLT page.
  • Yesterday’s Trades: None

ZIM (Zman Inefficient Markets portfolio)

  • $7,600
  • 2% Cash
  • Positions updated on the ZCAT, ZIM, ZLT page.
  • Yesterday’s Trades: None

Commodity Watch Crude oil rallied $1.37 to close at $75.44 yesterday. The EIA's report was largely bullish (see below). This morning crude is trading off slightly.

Natural gas fell 3.6% ($0.17) to close at $4.40 yesterday after the EIA reported a number that was reasonable in my way of thinking but too big for the Street (see below). This morning gas is trading down 3 cents.

  • Tropics Watch:  All quiet at the moment.

Natural Gas Storage Review

ZComments: Not much to say, the Street blew the call on this number, sending gas prices lower. I couldn't get down to where the Street was at in my model and neither could EIA. Oh well. Little change from prior weeks as the delta to year ago and 5 year average levels remain close to where they have been. This week's heat will help next week's numbers but be cognizant of the holiday impact before looking for a really small number.

Oil Inventory Review





Stuff We Care About Today

SSN Announces 75% Allotment:

  • Shareholders receive 75% of their subscriptions. Expect to see shares and refund checks for the 25% in accounts next week.
  • After the deal, SSN should have 82.7 mm ADS outstanding following the deal giving them a market cap of $71 mm.
  • Proceeds of the deal are $6.2 mm to their cash reserves for this deal.
  • Use of proceeds will be to tide them over on their programs and cash needs until the asset sale in the Niobrara closes in late July.
  • I would not be surprised to see some very volatile swings in the shares, now that people know what they have in their possession. The acreage sale after all is not yet a done deal and between now and then, I'm sure many holders will take the easily flip, myself possibly included.
  • My valuation thoughts in a table:


Odds & Ends

Analyst Watch:

  • Nada

68 Responses to “Friday Morning”

  1. 1
    BirdsofpreyRcool Says:

    Thank you for walking us through your valuation model on SSN.  So helpful to see how you value the parts.

  2. 2
    zman Says:

    Thanks BOP.

    Market still boring, went back to usual summer directionless trading pattern until near the end yesterday. How's credit?

  3. 3
    BirdsofpreyRcool Says:

    Credit levels indicate that stocks should be might higher than they are.  But, so much uncertainty flying loose around the room, that people aren't sure what to think (and who's head will be pooped on next).  Congress back in session next week.  Expect FinReg to pass.  Not good legislation… adds lots and lots of stuff, but doesn't do what it is supposed to do.  Oh well.  Same old, same old.
    TED hanging in there around +37.7 bps.  But up a tad in the last two days (which is not nice).
    Credit indices green… but showing some signs of rally fatigue, after a huge run.

  4. 4
    zman Says:

    Coast Guard says BP within 15 feet of target. I assume they mean vertically.

  5. 5
    zman Says:

    Reddish open but not disastrously so.

    A little profit taking in BP this am but I would expect that to reverse later in the day.

    SSN down 3 cents on no volume, again, not surprising.

    ECA holding green …. that one just feels higher t me.

    OAS hanging out above $15, Street coverage comes next week, should be all warm and fuzzy as it's the underwriters but they should be able to paint pretty strong growth and asset value cases.

  6. 6
    BirdsofpreyRcool Says:

    Last Night's BedTime Market Strategist
    Extreme Dream.
    In Monday night’s note we stated that we believed “the S&P 500 is setting up an important intermediate bottom sometime over the next two weeks.”  After seeing today’s AAII Sentiment reading for the past week, it now looks as if that statement is incorrect.  As it turns out, we now believe that intermediate low we were looking for was reached July 1st when the S&P 500 traded at 1010.  Considering that the S&P 500 has already rallied 5+%, that is not necessarily a bold statement.  The important statement we would add is that we believe there is a very high likelihood that the July 1st low will be the 2010 low for the year. 
    Most readers of this note are aware that we believe the AAII Sentiment survey is the best sentiment indicator out there.  No indicator is perfect and all indicators have hits and misses, but from our work over the 23 year history of this data, it has far more hits.  This week’s reading of 26.8% Bullish  (Bulls/(Bulls+Bears)) is the lowest reading since March 5th of last year.  The way we apply this indicator is in a typical market environment.  We use 40% as a buy threshold, and in a bear tape we tighten the parameters and use 30%.  We consider the move since the April peak a correction within a bull market.  Therefore, a 26.8% bullish reading is something we believe is worth being excited about.  As the table below illustrates, the forward returns on readings below 30% Bullish healthily outpace typical returns. The caveat as well as potential positive is that the ugly readings registered in 2008 are included and 2008 also posted some very ugly returns.  We were bearish throughout the first 3 quarters of 2008, and mostly saw those readings as opportunities to cover or play for a bounce.
    We would note that this does not change our overall Neutral stance on the Equity market.  This sentiment washout does firm up positives on the Behavioral/Volatility front which continue to improve.  We still want to see Initial Jobless Claims resume their downtrend.  To place our view in context, when we went to Neutral on May 3rd we stated we believed upside was capped around the 1200 level.  Here we are noting that we believe downside is limited to the 1000 level.  We are aware that is a large range, but the S&P 500 did hit both bookends in the span of two months.  Barring an all out downturn in economic data (as  opposed to the recent softness), we believe investors should feel confident in buying in the lower end of the range, but also not be afraid to make ticks or incrementally hedge during the  rallies.  In the weekly Jobless data today, Continuing Claims registered a cycle low.  We still believe the final piece of the puzzle for the rally to resume and lift that 1200 cap is a resumption in the downtrend of Initial Claims.

  7. 7
    crysball Says:

    LEI  fans may find  the attached   Reuters articleof  interest on Eagleford  and Bakken  shale  acreage  valuations.

  8. 8
    zman Says:

    WHX update:

    Since the last time I issued a model here:

    Prices were better for the 2Q than I estimated.

    Oil was $78.05 avg vs my $72.50

    NG was $4.35 avg vs my $4

    The effect of that price hike takes my 2Q distribution from $0.56 to $0.59 (hedges mute the impact). I kept some very conservative differentials for both commodities in place, especially for gas which was not the case last quarter so if anything my numbers will be low. I also kept the decline rate from quarter to quarter high (5% per quarter or roughly 20% per year) so again, I should be low. This $0.59 number takes 2010 distribution to $2.45 giving a current yield of 13.8%. Not too shabby.

  9. 9
    zman Says:

    JB – ECA printing $33. Where do you have resistance?  Looks to me like we are at it now.

  10. 10
    Jerome Blank Says:

    Re:  #9, ECA, just reversed back into X's on the current buy signal with the $33 print, added a 30 min chart for a closer look, ECA could pull back a bit with the X box reversal, but next support is close at $32.50, the 30 min suggests ECA could consolidate and flag, so I'm thinkning that  unless a trader is holding very short term, if bullish, consider holding, the ECA charts really look good right now…

  11. 11
    zman Says:

    Thanks JB, will go have a look.

  12. 12
    zman Says:

    Saw the Administration pushing for an additional $5 billion in green energy credits. A spokesman for the White House said that if U.S. companies want to create jobs than the White House plans to help them.  He forgot to add the part about "unless they want to drill for oil". Sheesh. Ugh. Blah, blah, blah.

  13. 13
    zman Says:


  14. 14
    zman Says:

    Analyst Watch:

    APC – Citi reiterates Buy, sees exceptional risk / reward.

  15. 15
    Jerome Blank Says:

    RE: #13, Zman, thank you…

  16. 16
    zman Says:

    Offshore rigs look directionless today. The get the fact that the Admin is doing an end around on those Louisiana judges.

    ESV falling sharply again today, that is becoming increasingly interesting again.

  17. 17
    zman Says:

    JB – I’m just happy that I happened to pick the technically strongest name (whcih you confirmed) amongst my four gassy thoughts the other day. Gas instead fell but ECA has pushed ahead in anticipation of earnings and the next short term move in gas.

  18. 18
    zman Says:

    SSN – still down 2 pennies. No “punt the current holdings and receive the rights next week” play in motion yet. I would not be surprised to see a wave of that either now or when we actually get our shares.

  19. 19
    elduque Says:

    baltic still sliding.

  20. 20
    choices Says:

    #6-BOP-thanks for posting-interesting-have you seen any correlation of the AAII number to VIX.

  21. 21
    Jerome Blank Says:

    RE:#18 SSN, updated the SSN daily chart…there is an interesting ascending triangle forming, even more interesting, the technical structure suggests that a break above topside trendline resistance would target a price of $1.38, close to the low end valuation in this morning’s post, the lower trendline support right now is at about .60, close to the subscription price…

  22. 22
    zman Says:

    JB – thanks for that. I’d point out that the deal is not yet done and without out it, I have not doubt that the subscription price would be the first target and this would fail as disappointed rights holders vomit new stock. If the deal does get done, you can see from the tables the high percentage of the current price under the different scenarios that would be cash per share.

  23. 23
    Dman Says:

    One gold stock that acts well (understatement): NEM

  24. 24
    choices Says:

    definitely in the FWIW column-Gold seems to be bouncing here, but more importantly (at least to me),some of the juniors which I watch and many of the larger gold stks are gaining some strength-could be early but worth watching.

  25. 25
    choices Says:

    Dman-did not see your post-we seem to be watching the same sphere.

  26. 26
    elijahwc Says:

    Normally I wouldn’t put up a “pooled product” idea. Much less one that comes from a stock tout sheet but this one (SRV) works for those hunting yield without adverse tax events in tax-free accounts. Also, my oldest worked for these folks while in grad school and they are pretty good so here goes:

    “Cushing MLP Total Return: ‘Cash Machine’ by Bryan Perry, editor The Cash Machine

    It looks like we have a golden opportunity to take advantage of the macro natural gas theme, involve some professional management, diversify risk, collect a double-digit yield in the form of quarterly distributions and have a security that’s appropriate for IRAs and self-directed retirement plans.

    I’m speaking of the Cushing MLP Total Return Fund (SRV) , an NYSE listed closed-end fund that owns most of the leading Master Limited Partnerships.

    The objective of the Cushing MLP Total Return Fund is to obtain a high after-tax total return from a combination of capital appreciation and current income. The fund will try to accomplish this by investing at least 80% of its net assets in MLPs.

    In addition to own MLPs, the fund also leverages up about 30% to generate an 11% yield.

    The fund went public Aug. 27, 2007, at $20 per unit when natural gas prices were north of $6–$7 per mcf. It has traded as low as $4 when natural gas prices got down to the low $2 level and as high as $10 this past December during the height of the record winter storm conditions across the United States.

    At the current price of $8.25 the shares are, in my view, attractively priced both from a fundamental and technical standpoint.

    The average MLP, within the top 30 or so that make up the majority of market capitalization, pay-out roughly a 7%–8% yield. The fund manager, Swank Energy Income Advisors, L.P., leverages the fund by a third to generate that extra 3% that juices the yield to 11%.

    No magic here, just pure sharing of cash flow from well-managed master limited partnerships. The fund issues a Form -1099 instead of a K-1 that makes placing it in your IRA or 401K fully compliant with the tax code.

    Unlike direct holdings in MLPs, SRV does not generate unrelated business taxable income (UBTI) that limits MLP income to $1,500 for retirement accounts. As a closed-end fund, there is no limit to how much income can be generated in retirement accounts.

    Sounds like a core retirement holding to me. This feature is a real bonus to retail investors where the lion’s share of their liquid net worth is usually in retirement plans.

    Natural gas prices crossed above the psychological $5 per mcf level this week, displaying excellent relative strength for a commodity that has been so out of favor for the past two years.

    A move back up toward $8 per mcf and shares of SRV will rally to at least the $12 level and maybe $15. Either way, I believe that there is 50% upside to SRV if natural gas prices trend higher to $6–$7.

    The energy sector has been leading the market this past week or so, as both crude and natural gas prices are pushing higher, natty gas putting in a new high for 2010.

    Buy Cushing MLP Total Return Fund (SRV) up to $9, so we can at least lock in a 10% yield. Try to use big down days in the market to acquire shares. “

  27. 27
    Jerome Blank Says:

    PETD seems strong, multiple test of topside trendline resistance, on a buy signal in X’s, key resistanceat $28….

  28. 28
    Popeye Says:

    Voted and very happy with the SSN news so far. Let’s get that deal done. 🙂

  29. 29
    Jerome Blank Says:

    RE: #28, Popeye, thank you…

  30. 30
    1520sbroad Says:

    #26 – careful getting into and out of those closed end vehicles – use limit orders and eyeball the bid/ask spread when buying and selling.

    Another feature to look at with CEF’s that use leverage is how they achieve the leverage. Fixed rate? Floating rate? Preferred shares? They have an impact on the cost of the leverage to the fund and therefore the overall returns to investors. cefconnect.com is a decent site to get info on them.

    Some of the MLP cef’s also invest in the debt of mlp’s – again worth looking at before pulling the trigger.

  31. 31
    milepost_43 Says:

    Tudor Pickering report on NG fracing

    Link from http://tudor.na.bdvision.ipreo.com/NSightWeb_v2.00/Handlers/Document.ashx?i=a1cacfc2fe5741c186c31b370287bb0d BRY MB
    1. Hydraulic fracturing is unlikely to be banned. Shale gas drilling is here to stay.
    2. The threat of new federal oversight is more serious in the wake of the BP oil spill disaster.
    3. Whether or not the federal government regulates hydraulic fracturing, compliance costs will
    increase in states that are ramping up their oversight of fracing.
    4. Increased costs are not an economic game changer. A $500k/well increase in costs on a Marcellus
    well reduces IRR from 36% to 29%. The impact will be less significant in higher costs region (i.e.
    Haynesville) as “new costs” are a smaller % of total well capex.
    5. An EPA study, just underway, could slow down the push for federal legislation, as any meaningful
    changes will likely be based on the results of this study…due out likely in 2012 or 2013.
    6. Underground hydraulic fracturing itself hasn’t been proven to contaminate groundwater. However,
    any time a fresh water aquifer is penetrated (with gas well, water well, or mine shaft) the potential
    exists to harm aquifers. We believe the conversation will shift away from fracturing to focus on bestpractice
    well design (gas wells and water wells) to address valid landowner concerns.
    7. Ingenuity will prevail. Already, new businesses/technologies are emerging to deal with produced
    water discharge in the Marcellus.

  32. 32
    zman Says:

    re 31. Agreed on points 1,2

    point 3, yes but it will likely be a non-noticed number

    Point 4, again, don’t think it will be that high.

    Point 5, agreed
    Point 6, the most important point for your weekend cocktail parties.
    Point 7 – true but they are expensive and ask Wyoming if he likes them.

  33. 33
    zman Says:

    BP – says may switch collection caps Sat. This combined with the 3rd ship would take capacity to 80,000 bopd. If they get that on line AND start reporting collected volumes that high AND you still see oil billowing around the cap ….lookout below on the stock until the relief well is finished.

  34. 34
    zman Says:

    GMXR getting a little more bounce out of their second press release of the week. I’m not going to chase that one either.

  35. 35
    zman Says:

    DO signs deal for Ocean Endeavor to leave the Gulf for Egypt. Last operator paid $31 mm early termination fee to kill the contract. Bye bye jobs.

  36. 36
    zman Says:

    Re 20. She sent me a chart, working to find a way to post it.

  37. 37
    BirdsofpreyRcool Says:

    Intraday note from XACS#1

    We have written about and discussed our concerns regarding political risk reaching its crescendo between November to January as outgoing congressmen and senators attempt to sell their votes to lobbyists and their chosen political parties in order to get their next job. Even the WSJ is writing opinions about the lame duck congressional session and its implications on the way the government will approach deficit reduction.

    This is an important consideration; however, we are more concerned about Congress using this “lame duck” opportunity to force ideologically driven changes at the GSEs…Changes that they are likely to try and pay for by assessing fees and taxes on the US Financial System….or to implement changes that add additional structural inequalities into the mortgage market or further restrict credit formation.

    Add this possibility to deficit reduction strategies (Use IMF recommendations as a starting point) and market uncertainty would certainly increase.

    Treasury Secretary Geithner’s comments suggesting that the administration will be presenting sweeping changes to how the GSEs operate in the near term furthers our concern…… In our opinion, headlines and leaks surrounding GSE “fixes” could have an even bigger impact on bank equities then the recent FIN REG debate and legislature has had….


    We do not expect these events to push the US back into a doubt dip recession or cause another financial crisis. However, if this political theater plays out according to script, we would expect periods of increased volatility and financial sector underperformance as we approach the November elections. The CDS credit markets seemed to sense the impact of FINREG reform before the equity market this spring…therefore we expect BANK CDS watching to remain a popular sport and that bank CDS widening is likely to precede an equity market correction….

  38. 38
    Wyoming Says:


  39. 39
    zman Says:

    re 38. Thanks, that’s the answer to 20.

  40. 40
    zman Says:

    Crude holding over $76 in slow trading. Can’t really tell the group cares but that is a perfectly decent price for crude now and the Bakken names, which are almost all in growth mode, should really start sitting up and noticing soon.

  41. 41
    BirdsofpreyRcool Says:

    thanks for posting, z and Wyoming.

    choices — that only partially answers your question. BedTime Mrkt Strategist takes the diff between the BEAR (which i plotted against the VIX) and the BULL AAII indices. I only plotted the one graph against the VIX. I’ll see if i can plot the difference between the two indices and get back to you. Meanwhile, the recent divergence between the BEAR and the VIX is what caught my attention. Thought you might find that interesting.

  42. 42
    zman Says:

    Bored, going for a quick run, back in 45.

  43. 43
    zman Says:

    Wow, didn’t miss much. Looks like BP tried to rally on a Coast Guard comment regarding the new cap essentially containing the well.

    Also, Gasparino, now on Fox Biz, saying BP is “fielding heavy takeover interest”

  44. 44
    zman Says:

    Gasparino saying that bankers close to BP are saying that with the well capped, people will have a better idea of the liability going forward. I’d say dub but also that a better idea will still mean a very wide range. I’m going to swap my July calls for some Augusts.

  45. 45
    elduque Says:

    What is the weather forecast like for the next week.

  46. 46
    zman Says:

    Eld – Not as hot.

    We may get a lower number next Thursday on this week’s weather but I think it is going to be close due to the holiday.

  47. 47
    zman Says:


    Sold half of my BP $31 July calls for $2.75, up 346%.

    Added (10) BP August $37.50 Calls for $1.38.

    Both done with the stock at $33.40.

  48. 48
    zman Says:

    Rig Count Watch – they just can’t get enough

    Oil up 5 to 592 vs 234 a year ago

    NG up 4 to 964 vs 672

    Horizontals – another new high, up 14 to 863 vs 390 a year ago.

  49. 49
    zman Says:

    re 48 – makes me want to buy NBR, BRNC, HP etc.

  50. 50
    zman Says:

    Hoss – if you are out there, I never got hooked up with the North Dakota folks. Can you or West take a look at Oasis’ Angell well and confirm that it recently came off confidential with an IP over 3,400 BOEPpd. Thanks. This is only 3 sections to the east of BEXP’s Abelman well which IP’d at 3,300 BOEpd from the m. Bakken in south central Rough Rider.

    If you missed my initial piece on OAS, here ya go,

    and note that my model was using IPs averaging 1,200 BOEpd.

  51. 51
    jat Says:

    Anyone know anyone at Marbob Petroleum?

  52. 52
    zman Says:

    Jat – we’re the only people here, will shoot reef a note.

  53. 53
    zman Says:

    BP trying to go green on all the chatter.

  54. 54
    zman Says:

    OK, busy talking to myself I realize but nice to see the group and market trending higher into the last hour. BP pulling HAL green now. OAS working as expected, ECA too, especially relative to SWN which I also have a piece of. Next week should be pretty interesting.

  55. 55
    1520sbroad Says:

    GMXR – finally getting some attention. My guess is shorts finally had enough.

  56. 56
    BirdsofpreyRcool Says:

    back… did i miss anything?


  57. 57
    BirdsofpreyRcool Says:

    (i mean the mrkt in general… not YOU, z!) 😉

  58. 58
    zman Says:

    1520 – better second press release last night… not trusting it.

    BOP – yes, my amazing trade in BP and two more potentially amazing trades on the way. Frankly I don’t know how you could possibly have stayed away so long.

  59. 59
    zman Says:

    heh, heh, that’s more like it. 😎

  60. 60
    BirdsofpreyRcool Says:

    actually, HeadTrader correcting me (as HeadTrader so often does)… “the mrkt is nicely UP, since you left.”

  61. 61
    zman Says:

    re 60. True, but thankfully the two don’t correlate.

  62. 62
    zman Says:

    BOP – OAS may be worth your time to peruse.

  63. 63
    BirdsofpreyRcool Says:

    Thanks, z. Would love to meet with mngt there….

  64. 64
    BirdsofpreyRcool Says:

    musing to self… probably gonna kick myself next week for not buying the VIX here. hmmmmmmmmmmmmmmm…..

  65. 65
    zman Says:

    Beerthirty, have a great weekend.

  66. 66
    mimster90 Says:

    Does nicky have any updates to her levels?

  67. 67
    crysball Says:

    [Beijing] BEIJING (AP) — China’s customs agency on Saturday said exports were up 35 percent in June from a year ago, while imports rose almost 53 percent. The figures showed the largest monthly trade surplus so far this year, $20 billion, despite the debt problems of China’s largest trading partner, the European Union.

    That should keep international pressure on China to further allow the value of its currency to rise, after China last month relaxed the yuan’s two-year peg to the dollar.

    The report said exports rose 35.2 percent in June, higher than expected, while imports were up 52.7 percent. That’s compared with the same period a year ago.

    “Data for June shows China’s trade account continuing to defy gravity, with exports strong despite mounting evidence of a faltering global recovery, and imports strong despite expectations of slowing domestic investment growth,” said a research note from Tom Orlik, an analyst in Beijing for Stone & McCarthy Research Associates.

    Export growth slowed from its May level of 48.5 percent, while import growth speeded up from its May level of 48.3 percent. The figures were posted on the customs agency’s website.

    Beijing is closely following the debt problems of its largest trading partner, the 27-nation European Union. The debt problems are expected to hurt consumer spending and overall demand, and analysts continue to worry that Europe’s debt crisis is likely to hurt the recovery in trade.

    IMHO, while China is a ‘PLANNED ECONOMY’………they seem how to know how to do it right [listening Barak]……..and continue to be the GROWTH ENGINE of Asia……….. should help keep the demand for Oil & the Metals HUMMMING.

  68. 68
    TEXWS6 Says:

    i know about marbob, small independent based out of Artesia, NM.

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