Thursday – Natural Gas Preview and Oil Review

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Market Sentiment Watch: Well that was ugly. Markets looking for more of the same "baby and bathwater" action at the open today. Oil has pulled back out of the $80s into a more comfortable position given demand and inventory levels.

Ecodata Watch:

  • Jobless claims: 484,000 vs 463,000 expected

BP Spill Watch:

  • BP said to need 4 more days to complete the bottom kill procedure but now government officials, and not just BP, are questioning the need for the procedure. Tests are planned on the cement job from the top kill to see if further work is needed.

In today's post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Inventory Preview
  4. Stuff  We Care About Today – OAS earnings, ECT thoughts
  5. Odds & Ends

Holdings Watch: ZCAT (Zman Catalyst portfolio):

  • $7,200
  • 81% Cash
  • Yesterday’s Trades: None

ZIM (Zman Inefficient Markets portfolio)

  • $4,700
  • 14% Cash
  • Yesterday’s Trades:
    • WLL – Added (10) August $90 Calls for $1.50.

Commodity Watch Crude oil tumbled $2.23 to close at $78.02 yesterday with the weak market. The EIA reported a neutral to slightly negative report (see below). This morning crude is trading down $1.20.

Natural gas closed up $0.03 to close at $4.33, probably due to the persistent heat more than any tropical threat to gas supplies. This morning gas is trading up 2 pennies.

  • Tropics Watch: Pretty quiet with only one cloud pile in the Atlantic posing any threat at the moment.

Natural Gas Preview:

  • My estimate is 25 to 30 Bcf.
    • Weather: 86 HDDs, slightly improved over the prior week. Forecast calls for a season high 101 this week.
    • Imports: Down 0.4 Bcfgpd from the prior with LNG hanging out at the lows of the year at 0.7 Bcfgpd. 
    • Last Week: 29 Bcf Injection
    • Last Year: 63 Bcf Injection
    • 5 Year Average: 48 Bcf Injection
    • 10 year Hi: 84 Bcf Injection
    • 10 year Low: 27 Bcf Injection
  • The Street is looking for a 36 BCF injection.

Oil Inventory Review

ZComment: Refinery runs slipped back beneath the 90% utilization level last week but lower imports allowed a better than expected draw on stocks to be reported. Cushing remains too high for comfort and with seasonally slipping utilization oil could continue to feel pressure. Gasoline demand has come off but I expect one last hoorah before the season comes down. Distillates remain bloated and seasonally should get more so. This should be increasingly problematic as we move deeper into the second half for the refining crowd. I would expect cracks to fall back fairly harshly soon. Distillate demand can only be described as abysmal in aggregate although jet fuel is seeing some signs of life. I've included in the charts today a look at domestic production because it has been a great recovery story but not appears set to stagnate as onshore gains only balance offshore declines.

Crude oil






Distillates --



Stuff  We Care About Today

OAS Reports Better Than Expected 2Q Results; Guidance for Volumes but also for Spending Going Up

The 2Q Numbers

  • Production of 4,461 BOEpd was higher than my initial modeling of 4,263 BOEpd,
    • up 240% YoY - a number that gets discounted pretty quickly given their small size
    • and up 35% sequentially
    • 94% of production was from oil, up from 91% last quarter, with 98% of production coming from the Williston Basin
  • Revenue of $26.7 vs $23.5 mm Street consensus
  • LOE and G&A were better than expected,
  • non cash expenses including DD&A and impairments were higher than expected
  • EPS of $0.05 (net of an impairment) vs $0.05 expected
  • EBITDA of $17.4 mm vs $14.05 mm expected by the Street and $14.02 mm by me.


  • Volume Guidance:
    • 3Q now 4.5 to 5.5 MBOEpd
    • 4Q now 5.5 to 6.5 MBOEpd
    • 2010 Volumes upped by 12% to 135% YoY to a range of 4,200 to 5,000
  • Spending Guidance: Also going up
    • 2010 budget grows $50mm to $270mm
      • drilling is the lion's share of the increase, goes from $179 to $240 mm (up 34%).
    • More wells, slightly more lease acquisition.
    • Old plan net wells of 30, new program is 36.5 net wells (up only 21% so there it looks like there is some cost creep assumed in there as well ... not at all surprising).
    • This would put the cost per well up 11% from the prior estimate, however not all of this would be service inflation as the trend with this play has been to drill longer laterals with more stages. Look for greater clarity on this on the call.
  • Program for the Bakken:

    • 3 rigs running west of the Nesson, 1 east
    • Adding a 5th rig later this year.
  • Hedges: 
    • 2010: 38% of 2Q volumes hedged at about $90
    • 2011: 30% of 2Q levels (so much less given their growth rate, maybe 20%, hedged at just under $90.
  • Taxes will be an issue for the call, as in when do they start paying cash taxes, having converted from an LLC to a corporation as of the IPO.
  • Balance sheet:

    • No debt,
    • Cash of $326 mm
    • Credit facility has been upped from $70 mm at the time of the IPO to $120 as of 8/11
  • Operational Update: None in the earnings pr, assume press release is forthcoming --- or presentation -----

Nutshell: Estimates will be going up. Current Street EBITDA for OAS is $68mm for 2010 while I was at a more conservative $62 mm. Working their actuals into my model and taking their new volumes guidance into account I get a number close to $77 mm and I kept my cost modeling pretty conservative.  At 16.4 x TEV to 2010 estimated EBITDA the name is not what I'd call cheap but it is also a little name growing in excess of 100% this year and next and as such, will carry a higher multiple until starts to mature. That's all good news but they also raised their spending level and while they are debt free now, the market has not warmed to names that have boosted spending of late so that may mute what otherwise was a quarterly beat and upward guidance situation. That and the market today. I continue to own the common in the ZLT. 

Conference Call: Today,11 am EST.  

ECA Marcellus Trust I (ECT) Thoughts

  • Background:

    • 9300 acres in Green County, PA, prospective for the Marcellus
    • The royalty trust pays distributions off of royalty interests (net of expenses) in 14 currently producing Marcellus horizontal wells and 52 planned wells to be drilled by ECA
    • The first dividend was announced at $0.27 per share for the second quarter
      • Note that at the end of the June quarter only 8 wells were hooked to sales
      • Plan is to have 17 on by the end of 3Q and then to add 3 to 6 wells per quarter going forward.
  • Yield of 5% based on extrapolated recent dividend and closing price last night
  • However,  4.5 mm of the 18 mm outstanding are subordinated units held by ECA. The company has established target distributions (essentially what they expect to pay out) through 1Q15. They have also set forth subordination thresholds and incentive thresholds that can dramatically affect the ultimate payout to non-subordinated unit holders.
  • If I understand the scheme correctly, if actual results vary over target distributions by more than 20% the higher incentive thresholds kick in.
  • On a next twelve months basis, the current forward yield is a much loftier 12%.
  • So the trick here becomes one of calculating the trust's actual dividend and seeing if that triggers the higher payment.
  • I have to point out that I'm not a buyer here.  While you do get the benefits of Marcellus based natural pricing related to premiums in the east you also have the potential to be shut down, at least as far as new drilling goes, due to an overzealous Pennsylvania regulator who has questioned whether there should be greater restraints on fraccing. 

  • Conference call here middle of next week, will report back with anything interesting ... especially since next week should prove to be very slow. I've built a simple model here and will likely publish it after the call.

Other Stuff:

  • SSN - rights offering refund hit my account last night.

Odds & Ends

Analyst Watch:

  • Nada.

Interesting Reading Watch:

119 Responses to “Thursday – Natural Gas Preview and Oil Review”

  1. 1
    zman Says:

    Opening indications on individual stocks are ugly, specialists feeling free to abandon the bids on days like today.


    HAL saying they have performed the first frac ever in Poland. Why care besides the obvious how many Poles did it take to frac the well joke? I probably don't but little FXEN which is has been over there forever could benefit greatly. The HAL press release however only gave a well name and did not outline results of the well.

  2. 2
    ram Says:


  3. 3
    zman Says:

    TPH coming out bullish on the OAS the quarter.

  4. 4
    zman Says:

    Oil fut down $1.80, should have listened to my own comments last week about not being comfortable with it above $80. That didn’t take long.

    Dow fut off 100, S&P off 8.5

  5. 5
    Bob Says:

    Z-Thanks for ECT thoughts. If they can meet thier target distributions, the yield in 2013 will be about 18%, before starting to tail off. Agree one wild card is PA. regulators

  6. 6
    zman Says:

    Bob – have to say it is more interesting than I initially gave it credit for. Will be on that call next week as I want to make sure I understand a couple of things about it better.

  7. 7
    BirdsofpreyRcool Says:

    More of the Fuglies in store for us today, it seems. A “Buyer’s Strike” means anything can happen. Dog Day of August. No fun.

    That said, TED is sliding down the inflatable escape hatch of the market. He is winging his way to freedom and about to do the Happy Dance on the tarmac. Go figure. TED is telling us that “things are not blowing up”… at least in the banking system. TED clocking in at +22.6 bps this morning.

    Credit indices following stocks. But no where near as “spooked.”

    IG back up to +113 bps, +2 1/2 bps this morning. I will be watching this one today, for signs of where the “risk money” is headed.

    HY off almost 1/2 pt to 96 13/16 pts (that’s about 14 bps wider this morning)

    Don’t really expect today to turn around and make us look like geniuses. But, don’t think we repeat y’days sell off.

    We shall see… opening now…..

  8. 8
    1520sbroad Says:

    Saw Range posted frac ingredients on their site this morning. http://www.rangeresources.com/CRI.asp

    A good step given the gasland induced freakout.

  9. 9
    zman Says:

    Thanks for the update on TED.

  10. 10
    crysball Says:

    For those interested in EGY following is a list of upcoming catalyst events and a timetable through December 2010.

    Anticipate accelerated, but steady MILESTONE progress toward the Goal Posts of > production, >cash flow >reserves.


    ~August 12 or 13 Joint Venture Announcement for Mutamba [On-Shore Gabon Concession] with a ‘MAJOR’ expect some definition of the arrangement and development plan for 1st JV exploration well to be drilled in 1H2011**.

    ~Early October Announce outcome of Drilling of Horizontal OHGP* Development well Etame 7-H including flow rate and tieback [subsea] to the FPSO and production start date. Note: well was spud Aug. 9 estimated time to drill and complete 43 days. Some additional time will be required to install the subsea tree and tie it back to the FPSO……expecting around 3200 b/d net increase [note when ET-7H is tied back to FPSO ET-1V well will be shut down, it is currently flowing 800 b/d and is ‘waxed up’].

    Early November Announce outcome of Drilling of OHGP* S. Tchibala Development Well [flow rate and tieback to the FPSO]. Estimated well spud date approximately Sept. 25 will use slot #3 on the existing production platform……….which is already tied back to the FPSO……….expect to add about 2,200 B/D to proudcution.

    ~December 1 -30 (not necessarily in sequence and some may occur together)
    • Declare SE Etame Field Discovery Commercial
    • Announce results of :
    o Analysis of the link between Etame 7-H & SE Etame (is it one field or 2 separate fields?)
    o Tradeoff Study on the alternate development plans for SE Etame field
     Co-develop with North Tchibala Field using a single Production Platform……….which will allow them to claim both the reserves for SE Etame and North Tchibala. [Note if co-developed they will also claim the reserves for N. Tchibala~18 million barrels].
     Develop SE Etame as a stand alone using a Horizontal OHGP* Development Well and a subsea completion back to the FPSO and reverse existing flow line used for Etame 1-V (which will be taken off production when Etame 7-H comes on production in Q4.

    • Announce Reserve estimates for SE Etame,
    • Announce Reserve Estimate Increase for the Etame 7-H fault block {note: If SE Etame and Etame 7-H are determined to be one field then the announcement would likely be combined}.
    • Announce outcome of Exploration drilling the Omangou offshore Exploration Well [estimate well spud date of October 25] this will be a vertical well.`
    • Announce Partner for Angola Block #5 and drilling timetable [1st half of 2011] ………also possible [but not likely] what Semissubmersible Rig will be contracted as the drilling contract cannot be executed until new partner is accepted by Sonongal and in-place.
    • Announce drilling Plan & timetable for Elilli Exploration [Vertical] well in Offshore Gabon [requires Semi-Sub due to depth]…..this will follow the two Angola Wells, and use the same Semisubmersible Rig.

    • Announce plan to Modify FPSO and increase topside production above 25,000 b/d to probably 35,000 b/d of oil ……….may also modify the Avouma/S. Tchibala Production Platform to do water processing on the platform…..included will be the Capex and timetable.

    *Open Hole Gravel Pack……no frac’ing required, no swell packers required, completion is done as a single stage (Vaalco has successfully used this technique in the Gamba Sands for several well with good success [given the Gamba Sands formation porosity, permeability, and pressure]…….ref 2002 SPE article

    ** One of the hidden benefits of this J-V is Vaalco has obtained from its partner new seismic processing software which significantly improves their ability to visualize salt walls………am hearing terms like ……..WOW……which should improve their hit rate in both onshore & offshore Gabon and offshore Angola.

    Sorry about the long post, but wanted to be accurate.

  11. 11
    zman Says:

    1520 – thanks, they said they were going to do it, thanks for posting the link.

    Note that if you go into one of the completion reports here:


    you see just what we are talking about. Of the frac fluid, 0.14% is chemicals. The rest is water and sand. Pumped 6,500 feet down (way way way below the water that people get well water from) and pumped down a steel cased well. Sheesh. Ugh. Double Ugh on the frac worry folks. Good for RRC for laying it all out there.

  12. 12
    BirdsofpreyRcool Says:

    crys — bless you. Great list.

    Any guesses as to who the “Major” in the JV partnership will be?

  13. 13
    zman Says:

    Thanks Crys. I’ll have an updated catalyst list out next week, with a few points for them on it.

  14. 14
    1520sbroad Says:

    #11 – agreed good pr move by RRC.

  15. 15
    BirdsofpreyRcool Says:

    Ummm… IG Index making a positive move here…. now only 1 3/4 bps wider. Interesting. Maybe this is a bottom.

    HeadTrader pointing out that there might be a “buyer’s strike” going on right now… but for the last two weeks there was a “seller’s strike.” He also reminds us that “markets go up and markets go down.” THANK YOU FOR THAT NUGGET OF WISDOM, HeadTrader!

  16. 16
    zman Says:

    Talk about a buyers strike. Extremely low volumes in names with actual good news (OAS).

    Anyone see a note on TAT? Up 4%

    Also WLT positive now.

  17. 17
    crysball Says:

    Re:13 [EGY new J-V partner On-Shore Gabon] Am not a good ‘guesser’, but from conversations with Vaalco Mgmt. am inclined to beleive it will be ‘pleasant surprise’, however, doubt it will move the stock in the current environment.

  18. 18
    blackgold39 Says:

    re 11 – FR, Biocides, and scale inhibitors….nothing uncommon there, those are the only 3 or 4 chemicals most use in slickwater fracs…..

  19. 19
    BirdsofpreyRcool Says:

    Even the HighYield Index is feeling better about itself now… only 5 bps wider and up at 97 1/8 pts. Interesting.

    Could we be range-bound? Caught in the Twilight Zone of HeadTrader’s 1080 to 1120 on the SPX? Guess we would have to ask the Cyber Traders who are in control of this mrkt right now….

  20. 20
    BirdsofpreyRcool Says:

    crys — whoever it is… are they the ones with the old seismic in the area? Or is that in-house seismic at EGY? Did they say when that seimic would be done reprocessing?

  21. 21
    crysball Says:

    Re: Marcellus Frac’ing and the state of PA.

    Beside common sense prevailing …..the ‘TAX REVENUE HUNGRY’ Politicians of Penssylvania will not allow the huge ptotential TAX REVENUE STREAM of the Marcellus revenue to slip thourgh their fingers, otherwise they might have to actually control their spending.

  22. 22
    1520sbroad Says:

    #21 – not to mention land owners that are more than willing to sign leases.

  23. 23
    zman Says:


    OAS – Added (2) OAS August $15 calls for $2.20, with the stock just over $17, on the high side of the mid and after experimenting with a number of strikes this morning. The 2Q was better than expected (see site for details) and the conference call is later this morning. It is probably still early to play options here as they are about as illiquid at the moment as you get, even for a new issue. So I’m only dipping a toe. I continue to own a full position in the common in the ZLT.

  24. 24
    crysball Says:

    Re 20: BOP, my understanding is:
    1) they are not the folks with the oll seismic data…..which Vaalco acquired when they obtained the Etame Marin concession [Gulf et al].
    2) the new JV partner brought their proprietary software to Vaalco and they reprocessed the Vaalco seismic data [some is new 3-D Valco ran in the last couple of years]. They did the reprocessiong run with Vaalco in attendatce and did a side-by-side comparison of old vs. new………which resulted in the….’WOW’ comments by Vaalco’s Chief of exploration and Russ….also heard comments like ‘NIGHT VS. DAY’ difference in the viualization of Salt Walls.

    All the above IMHO.

    p.s. Luigi Cafliche, a board member of Vaalco was formerly a Chief Exploration Geologist for Gulf in W. Africa…….he truly knows the ‘lay of the land’ in Gabon and Angola…..he is one ‘sharp cookie’.

  25. 25
    VTZ Says:

    For anyone keeping track in gold: Any closes above ~1220 will probably reignite serious buying to new highs.

  26. 26
    zman Says:

    Thanks V – Still looking for weak spells to get long for the kids.

  27. 27
    BirdsofpreyRcool Says:

    crys — excellent info. There is a lot contained in seismic data… if you go back to the original unprocessed tapes and hit them with new techniques. It’s all in the stacking, filtering, migration, and color presentation. So I believe what they are saying. Also, didn’t know a thing about Cafliche… so thank you very much for that. Bobby Gerry seems like a very sharp guy, for an ex-banker. That said, he thinks Flores is a genius. Flores has been more of an Idiot, than a Savant, the last couple of years… gives me a bit of a pause, when thinking about Mr. Gerry’s mngmt judgement. So, glad to hear Mr. Gerry chas surrounded himself with savvy board members.

  28. 28
    elduque Says:

    Another up day for the BDI –

  29. 29
    rseidman Says:

    VTZ: Thanks for your gold thoughts, past and present. I’m in gold a bunch!

  30. 30
    BirdsofpreyRcool Says:

    Hearing KOG 2ndary will price tonight. They were thinking around 2.75… we shall see, of course. At least one of the largest holders (that I know) is participating down there. Also hearing that KOG is upping the EURs for their long laterals from 750 to 850kboe and lowering their spacing on the Rez. Means more wells than originally thought.

    Didn’t hear how KOG is gonna attract the attention of more timely completion crews, however. If you drill ’em, but can’t complete ’em, you can’t get cash flow from ’em.

    KOG looking at OAS valuation and saying “we should be that.” …Thought they were pretty close already… and this 25+mm share dilution doesn’t help. But it does keep KOG from digging into their revolver. Guess KOG doesn’t feel confident enuf in their cash flow projections to risk taking on debt. THAT is smart.

    Bottom line continues to be — Sucks to be micro-mini, in the land of scarce completion crews.

    Also, hearing that KOG has reached a stand-off with the private equity group behind Peak. Makes sense. Never knew a private equity group to sell anything I wanted to buy, at the price they wanted to sell. So, at least Lynn is maintaining his (famous) discipline and understated manner.

    KOG probably worth buying down here… just remember to do the “rinse” part of the cycle… sell when it hits your target. JB can probably help with that.

  31. 31
    zman Says:

    Thanks much for the KOG feedback BOP. Didn’t Lynn last do a deal when he thought oil looked toppy?

  32. 32
    BirdsofpreyRcool Says:

    Lynn last did a deal when he needed the money. Was supposed to be “last deal until stock reached 5 or 6″…. so, don’t think it was (necessarily) an oil call. Maybe the bankers scared him, tho.

  33. 33
    zman Says:

    37 Bcf, not great.

  34. 34
    zman Says:

    Storage now at 2,985 Bcf

    Down 5% to last year, up 7.9% to the 5 year average.

  35. 35
    zman Says:

    Not great for my estimate, in line with the Street which was at 36 Bcf I should add.

    NG off 5 cents from flat just prior to the release.

    OAS call in 30 minutes.

  36. 36
    Nicky Says:

    Morning all. Well we got to that 1075 lower level a great deal quicker than I expected. Unless we can get up and out of here then we may need to fill the gap at the 1070 level which also happens to be a 50% retracement of the rally.
    Resistance is at the 1088 – 1090 level.

  37. 37
    cargocult Says:

    If the BDI keeps climbing, why don’t my shipping stocks.(DSX,NM,SFL) I guess they will play catch up when I least expect it. Actually SFL is paying increased dividends and has had a nice run of late.

  38. 38
    West Says:

    Backed up and load truck on SD at average price 4.63. That is one ugly chart.

  39. 39
    DrLink Says:

    Looks like some SSN holders who had not sold their cheap shares are doing so today….capitulation?

  40. 40
    zman Says:

    DR – guess so, watching, it.

    OAS call in 5 minutes

    Re 38. Gutsy move Maverick. Actually, for a long hold its not that gutsy. It has to be getting close to being a target at this point on a TEV / Mcfe basis.

  41. 41
    VTZ Says:

    RE 40 – I was going to ask about SD as a TEV/EBITDA candidate although their pile of debt looks pretty big.

  42. 42
    zman Says:

    Will do a little back of the envelope on SD for the post tomorrow.

  43. 43
    zman Says:

    OAS 2Q web link


  44. 44
    zman Says:

    OAS Notes:

    As this is their first call they are going over the basics, acreage, locations, wells drilled this year, so far no comments on recent well rates.

    5th rig adding end of this quarter

    They have 1 dedicated frac crew, and have a backlog of drilled but not completed wells to work through

  45. 45
    zman Says:

    BP says relief well work resumes.

  46. 46
    zman Says:

    OAS Notes:

    Bakken wells have all been within their EUR target range but one which was above.

    Watching the Zenergy/Luke Sweetman well … need to track that down.

    Now saying another well of their to the north is underperforming their EUR targets. Lot of comments here, not a lot of numbers on anything so far.

  47. 47
    zman Says:

    OAS Notes

    $6.8 to $7.2 mm est CWC, wells have been averaging $6.5 mm so they may be overestimating costs a bit.

    Says ceramic prop has been one of the most quickly rising costs.

    They have agreements in placed to get their wells fracced in a more timely manner, talking about 4 slots per month.

  48. 48
    zman Says:

    Group starting to green up a bit. Thanks much Nicky for the levels.

  49. 49
    BirdsofpreyRcool Says:

    Let’s see…. it takes, what, 30-35 days to drill a long lateral + 2-3 days to move to the next location (unless you’re drilling 4 wells/pad)? And, what, 5-7 days to frac and complete? So, the “optimum” number of frac crews to drilling rigs = 33(midpoint) + 3/2 (days to move, assuming only 2 wells/pad) / 6 (midpoint days to frac) = need a frac crew for every 5 – 6 drilling rigs.

    Does that sound about right?

  50. 50
    zman Says:

    BOP – I’m going to table that one to TEXW, Wyoming, Gino, BG, etc.

  51. 51
    bill Says:

    bdi up 5 days in a row and capes 6

    coming off recent bottoms


  52. 52
    zman Says:

    OAS Q&A

    Capex breakout ?

    6 net wells @ $7 mm = $42 mm

    Then $7 mm for land, gets you to the $50.

    Simmons analyst liked the answer, I thought it was less specific than it could have been since he didn’t talk about the changing well characteristics. Nothing to be concerned about but these guys are less granular/specific/etc than I’d like them to be.

    60 wells planned in 2011.

    Spud to sales time is about 86 days. They plan to drive the numbers down to the 70 to 75 days.

    They are using a 90 day spud to sales rate for their 2011 guidance (so geared to beat slightly next year).

  53. 53
    BirdsofpreyRcool Says:

    Astonishing… Credit back to about even on the day. Outperforming stocks here.

  54. 54
    Nicky Says:

    If we can move and hold above 1085/86 the low could be in.
    But we aren’t out of the woods. It may just be the first part of the move down which would argue for a move back to about 1100 (maybe a touch higher) and then another shot to the downside.
    The bullish count says we are up and out of here shortly on our way to 1150.

  55. 55
    zman Says:

    OAS Q&A

    Average 7 day rate on the west side is 1,134 BOEpd for the first 4 wells. Just too early there.

    Frac question: are you guaranteed to get that number of wells completed?

    Not a minimum of 3 or 4 wells per month but more that the crew is dedicated to them and that they will be able to do 4 wells per month. They are adding capacity to get the 5th rig handled.

    Ok, backpeddling on my “they’re not granular enough” … they are warming to the Q&A now.

    They have drilled two sets of 2 well pads so far, going forward, 25% of wells will be pad until they get more acreage held, then that will move higher.

    Prop ? They’ve seen a “pretty good bump in ceramic” Says white sand has been 10 cents to pound, ceramic was 35 cents, their avg is now 50 to 55 cents per pound … have not had trouble getting proppant to date, saying CRR is bumping capacity in 4Q (known) but guess that’s who they are using.

  56. 56
    Nicky Says:

    By the way the minor cycles should still bottom between now and the 16/17th so you can see why we still have time for another move down.

  57. 57
    zman Says:

    OAS – Q&A

    The Luke Sweetman well looks very good but won’t give details, and the Amazing Grace well on the Montana state line is being completed now, and then the operator ZEnergy will spud the Bulla well. They said the Rogney well (BEXP) looks very interesting.

  58. 58
    zman Says:

    OAS Call

    Individual investors ask the most interesting question.

    Question re early choke size and its impact on Bakken ultimate recovery.

    They said to early to tell but it’s not a bad question to ask. Probably gets more attention in the event oil prices fall out of bed.

    They do not have official guidance out yet but everyone is thinking they will double in size, at least, again in 2011 based on a near doubling in well count.

    Call kind of winding down. My sense is that the analysts are please with the numbers, will be able to lift estimates and stay with their buy ratings. Probably no table pounding due to the capex boost.

  59. 59
    skimo Says:

    Z, fyi filled 5 OAS sept 15’s at 2.50 w stock at 17.09. Ask showed as 2.80.

  60. 60
    zman Says:

    Ski – yeah, it’s just to think to really play well at the moment. Time and a higher stock price will help that. Call went well and I look forward to being around to break the options in on this name.

  61. 61
    zman Says:

    CNBC reporting USDA cutting global wheat forecast, POT bouncing.

  62. 62
    zman Says:

    EGLE and other shippers took it in the shorts yesterday along with everything else and despite the rate rise.

    Bill – would DSX, BALT, EGLE be in your top names now?

  63. 63
    elijahwc Says:

    New comp in the EFS

    PVA announced today that it acquired 6,800 net acres in Gonzales County, Texas, for $31.1 million or $4,575 per acre.

  64. 64
    choices Says:

    #61-Wheat futures have been very volatile, tied to Russian/Ukraine problems with wheat crop

  65. 65
    PackMan Says:

    Had a great trading buy on BEXP earlier (almost ticked the low of day) but flipped it out too quickly. Can’t buy/hold anything right now. Still a bit peeved at myself.

    Scalp ’em if you can !

  66. 66
    zman Says:

    Thanks Eli – as you can see here on Reef’s map:


    that’s on the north side of the play, probably all oil window, price is not high at all from what I’ve heard on the calls.

  67. 67
    zman Says:

    re 64, yeah, should have acted on that earlier in the week when I noted that Russia had halted all exports and then someone pointed out POT. Fire is apparently bad for fields of tall yellow grass.

  68. 68
    RMD Says:

    Eli 63: just for fun, LEI’s 15,000 acres(gross, but I assume net) @ $4,575 =$68mm. EV = $25mm.

  69. 69
    1520sbroad Says:

    #67 & 64 – K&S (biggest European Potash producer) raised their potash forecast for the rest of this year today as well. This echos POT’s thoughts for worldwide demand from their conference call a couple of weeks ago.

    POT still has spare capacity where many other producers worldwide are running at or very close to full capacity.

  70. 70
    andy Says:

    rmd – how close are LEIs acres to PVA’s??

  71. 71
    elijahwc Says:

    RMD 68: In the boys just wana have even more fun dept, Wunderlich is out with a note this am that says that just based on acreage alone MHR is $6 plus. They cite the PVA deal and see more value to come once the three EFS wells are in. But, then again, as a MHR shareholder, I fear being valued upon either reserves or cash flow from actual production

  72. 72
    zman Says:

    U.S. says BP to pay record fine for the Texas City Refinery fire. Says will announce it on a CC this afternoon.

  73. 73
    VTZ Says:

    RE 69 – In my mind the ags have a long way to go in their secular bull. People have still got to eat! I'm long AGU POT a small phosphate development company.

  74. 74
    RMD Says:

    71 yesterday's commentary on ROSE from the St. had a couple of mentions about value/acre in MT, and one informed-soundling analyst who said, no, no, their acres are away from recently traded acres so would be worth a fraction of recent transactions:  location, location, location.

  75. 75
    bill Says:

    Im long Balt and NM at the moment.

    I like dsx for its long term charters and balance sheet. Balt is oversold at the moment. They are buying cheap assets and need/want to raise 100 m. Ships will be on spot market. Nm is a little more complicated, but they tie their ships up on long term charters, picked up assets on the cheap and their avg tce rate will grow next year. They own a logistics business in south america and own a piece of nmm and tanker company nna.
    Egle's on my watch list. I like the segment but mgt fees/ga is too high so i am way from the name at the moment

  76. 76
    RMD Says:

    bored math while market declines Dep't:
    neither LINE or VNR has shown any production/share growth on a yearly basis, and EVEP's #s are all over the place, but are down from '08 to '10.  Distributions and leverage got ahead of cash flow in the heady times of '08.  Now with high strike hedges running off and the strip flatter, must make it up by acquiring production.
    Todays share price per m/d of production: EVEP $12.37, LINE $15.56, VNR $17.42.

  77. 77
    elijahwc Says:

    BOP – given that KOG is trading 2.90 is it still anticipated to price in the hole at 2.75? 

  78. 78
    zman Says:

    Thanks Bill

    Bored. Toying with refi-ing the homestead.

  79. 79
    blackgold39 Says:

    re 49 – BOP, that number checks out about right. 
    I'd say offhand that your days considered for rig mob will be more like 3-5, and time to actually frac will be less, but you included complete, which I am assuming means other ops like drilling plugs, etc.
    Some things to consider….depth to formation (TVD) will affect your drill time, along with lateral length.  This changes by area and what formation are encountered, with the numbers you provided sounding like a 7,000' TVD type play area.   With a certain depth in shale wells, intermediate casing is also going to be required unless you're just aggressive, which is an extra $1MM.
    5000' lateral takes 1.5-2 days to frac, 10,000' takes 3-3.5 depending on whether or not problems are encountered, and assuming 18-22 stages for the latter.
    5-6 rigs could keep one crew pretty well booked up, and depending on the average lateral length and number of stages, this would vary.  I have seen 15-17 rigs drilling a mix of wells w/ 5,000-12,000' TVD & mile long laterals being followed by 2.5 crews with little to no issue.
    One other thing to consider is the availability of coiled tubing units and workover rigs.  Typically, the former is both pricier, and less available, and depending on the wellbore geometry and completion technique, might not even be necessary.

  80. 80
    Jason Says:

    Z – What a great time to refi.  You may do this already, but I get rate quotes from several brokers based on a no-cost closing.  It makes everyone's quote apples-to-apples so you can get them to compete.  Also, if rates go down, you can refi again and again since you didn't pay anything to do it.

  81. 81
    cargocult Says:

    Bill- any views on PRGN?

  82. 82
    zman Says:

    BG – thanks for following up with your answer in 79. Those are about 7,500 TVD in the shallower north eastern Bakken, transitioning to 10 to 11,000 west of Nesson.

    J – yeah, I'm a 1.125% in the good at the moment and have been resisting calls from my mortgage banker/friend for 12 months now.

  83. 83
    BirdsofpreyRcool Says:

    BG — what a wealth of information.  Thank you.
    Tell me how the coiled tubing units play into the drilling and completion scenario.  I get "geology, geophysics, and some drilling and logging engineering…" but most of the completion stuff is outta my ken.  Thank you for the education!

  84. 84
    zman Says:

    Oil decline looks to be slowing. Remind me to listen to my comments about oil getting to heady when I make them.


  85. 85
    BirdsofpreyRcool Says:

    elijah — KOG — you know how the game goes.  Company wants best possible price to maximize proceeds.  Investors want minimum price to maximize number of shares.  I-bankers want maximum number of "interested accounts."  Desks want to find "patient holders" (not flippers).  Analysts want to make sure their models are correct before recommending to PMs.  And then you have Mr. Market, coloring everyone's opinion. 
    It's a balancing act.  Overweight any one of those parameters and you get a sense of where it will be priced.  I don't have any color today, on how many accounts, where, for how much, are interested.  But it appears SOMEone is trying to rock-and-roll the stock, prior to pricing.
    Given that KOG is trying to price 25mm shares (+3.8mm Shoe)… it's the marginal buyer that will set the price … unless WILDLY oversubscribed.  Me-thinks I would be surprised, if this was a WILDLY oversubscribed deal.  Helps that OAS is out there, setting some pretty high valuation comps… but KOG is a fraction of their size (with no dedicated completion crew).  So, methinks it will price at $2.75, in order to get all 25+mm shares placed into strong hands.
    Just my thoughts.

  86. 86
    Geno Says:

    I was looking on that Reef map does anyone know about that Apache Butard well in Grimes Co. If that is true it really pushes the trend

  87. 87
    zman Says:

    Geno – that was confirmed by a good source but I never saw a comment from the company on it, it's pretty dated now, I think maybe 6 months back.

  88. 88
    blackgold39 Says:

    re 83 – BOP, depends on how you complete.
    Generally, the toe stage has to be perforated before the frac can begin, so this is a separate operations also, and can be run on CT (abrasive perforators, etc) or workover as well via TCP (charges).
    In the Bakken, most operators (to my understanding) are using what they call "swell packers" that are run with the production casing to TD.  This liner is uncemented, and the packers simply isolate each zone.  They drop varying sized balls to move sleeves and enable them to frac out of the production liner. Operators seems to trust this more than the dominant method in some other plays, plug-and-perf.
    Plug and perf involves running and cementing the liner in place, and sequentially fraccing while plugging off each interval and using that as an isolation tool, rather than the swell packers.  This is used widely in the Barnett and Woodford, although I am unsure in some of the newer plays like EFS, I am sure they are trying both.
    If you plug-and perf the well to complete it, you must then drill these plugs out to get the well to flowback, either with a workover rig, or with a coiled tubing unit.  There are some alternatives, but these seem to be the dominant ways to perform this task. 
    Coiled tubing and workover rig ops generally are less manpower intensive than the frac itself, but each does require some equipment and some amount of time to complete, generally 1 day for the cleanout and toe perf prior to frac, and 1.5-2 days for the plug drilling after frac, depending on length of lateral.

  89. 89
    blackgold39 Says:

    re 82 – Z, yeah, I didn't read up the page as far as I should have, but good to know I got the TVD about right based on the well cost 😉

  90. 90
    BirdsofpreyRcool Says:

    BG — thank you for the engineering education.  I can almost picture it, as you describe.  You are a good writier.
    z — can you bookmark (or copy and paste) those comments under Bakken Completion Engineering, or something?  I generally have to read something about 20x before it begins to sink in.  thanks!

  91. 91
    elijahwc Says:

    BOP thanks & agree that sheer size will put it in the whole.  If it goes a single tick down and then back up through the pricing I'm going to be motivated to make a meaningful addition.  Signed, the IBankers best friend.

  92. 92
    BirdsofpreyRcool Says:

    Elijah — yes-indeedy… you would have bankers and traders and salesmen all doing the KOG Happy Dance, fore shore!  😉

  93. 93
    PackMan Says:

    Group getting pounded since about Noon. 
    Z – how do you like EOG here @ 95.65 ?  Is it a buy yet ?

  94. 94
    blackgold39 Says:

    re 90 – I'm not an expert, but this is what I've seen in the shale thus far.  Most of my experience is with slickwater fracs, which are predominating right now in several plays.

  95. 95
    zman Says:

    BOP – if you type bakken completion engineering in the search bar it will come up.

    Pack – I'm long higher, oil needs to stop going down for EOG and WLL to stop going down, they are tied more to it than they are to the S&P.



  96. 96
    RMD Says:

    bg :good background, thanks.

  97. 97
    zman Says:

    Dept of Labor fines BP $50.6 mm for 2005 explosion at Texas City refinery. In terms of $ that is a non event.

  98. 98
    BirdsofpreyRcool Says:

    For any of those still stubbornly holding onto their EXXI shares (i'm sure i'm just a crowd of 1 here)… Leon Cooperman (Omega Advisors) just filed his 13F for the 2Q and — guess what — he ADDED a few shares during the quarter.  Go, Lee!  He is bullish long term on oil and thinks EXXI is a great way to participate in that rodeo.
    Been looking forward to seeing what he did, during the Macondo Disaster.  Over the next few days, will get an update from all the top holders (who have to file with the SEC)… but so far, ALL of them appear to have added to their positions, as of March 2010.

  99. 99
    blackgold39 Says:

    re 97 – Z, that figure pales in comparison to what the ambulance-chaser Buzbee is taking out of their a$$ in compensation claims for that negligence.

  100. 100
    zman Says:

    BOP – I'm still long a half of a position there.

  101. 101
    blackgold39 Says:

    Z, action yesterday in NFX might have been spurred a bit by Boothby offloading 13.5k in stock, although the figure is somewhat immaterial, I know what it usually does to the common…

  102. 102
    BirdsofpreyRcool Says:

    z —  I know you made that magnificent swap outta 1/2 your EXXI into OAS.  That has worked well.  Forgot you held onto your other 1/2 tho.  Thanks for the reminder. 

  103. 103
    zman Says:

    re 101. Agreed. Post quarter share sale of that size means nothing about what he thinks about the prospects for the company.

  104. 104
    zman Says:

    BOP – so its you and me there kid.

  105. 105
    zman Says:

    I continue to think that the offshore group will trade sideways until we get some clarity on the liability cap and new drilling procedures (costs). I think they move up into Oct or Nov though as the end of the moratorium approaches and ultimately I think they lift the moratorium early, um, before the elections.

  106. 106
    ram Says:

    Still sitting on lots of EXXI.

  107. 107
    crysball Says:

    voted BALT   ………. thanks bill, cargocult for  analysis.

  108. 108
    Jerome Blank Says:

    RE: #104, EXXI…I'm still with it….

  109. 109
    BirdsofpreyRcool Says:

    EXXI is still the cheapest way to have exposure to oily-production + upside from the Ultra-Deeps.  Unlike MMR, EXXI doesn't have to worry about where the gap-cash will come from to drill the Ultra-Deep Projects.  It's just that all their acreage happens to be located under a few feet of water on the shelf in the GoM.  Something that Mr. Salazar wishes would just magically disappear.
    I think Mr. Salazar will disappear before production in the GoM will… but, have to wait a while for that Happy Day.

  110. 110
    BirdsofpreyRcool Says:

    Thanks for 'fessing up, guys.  Nice to know I'm not alone.  Guess I'm headed for LONG-TERM capital gains on EXXI.  (But I think it will be worth it.)

  111. 111
    zman Says:

    OAS – getting a little more late day attention but volume is weak.

  112. 112
    rseidman Says:

    EXXI:  I'm still holding!  Keep the faith!

  113. 113
    zman Says:


  114. 114
    Geno Says:

    BOP I am still in EXXI once  the spill overhang goes away it will be fine

  115. 115
    BirdsofpreyRcool Says:

    Thanks, Geno.  I think so too!!

  116. 116
    zman Says:

    SD – good sized insider buying

  117. 117
    BirdsofpreyRcool Says:

    BedTime Market Strategist
    Seasonal Beatings.
    Today, the market received a second consecutive surprisingly weak weekly Initial jobless Claims number. The numbers are disappointing, especially considering how important we believe them to be. Although we are not happy with the situation, we think anyone interpreting them as a sign of new deterioration may be getting ahead of themselves. The seasonal adjustment factors that influence these numbers are consistent year in and year out for each respective week of the year. For example, the seasonal multiplier for the week of August 6, 2010 was the same as the week of August 7, 2009, and so on. In the data we received today, there were 484,000 seasonally adjusted claims for the week of August 6th, the prior week was 482,000. They are the worst two readings since February. These seasonal adjustments are based upon historic trends in "normal" environments. As we know, we have not been operating in a "normal" environment since September 2008. Looking at last week's Initial Claims Report, those 482,000 seasonally adjusted claims were derived from 402,000 Non-Seasonally Adjusted (NSA) claims. What is easily lost as a result of the seasonal adjustment was the fact that the 402,000 NSA claims was the third lowest claims number since September 2008. In looking at the chart of NSA claims, one can see we are still not where we need to be and we may have stalled, but we are not deteriorating. Most market participants are well aware that nobody has expectations that this economy has recovered to its pre-crisis "normal" environment (if so the S&P 500 would be 30% higher), yet we still use "normal" seasonal adjustments. The challenge is that for slower time periods like the summer, the multiplier factor is greater and in a "not normal" environment like today, the adjustments create a greater distortion.
    We reiterate that we are not trying to spin these as good numbers, they are not, but we also think that they are not as bad as they appeared. With last week's NSA reading being the 3rd lowest in almost 2 years, we would say that is consistent with what has been occurring all along and what the market is well aware of. The jobs situation is gradually improving, but at a pace that does not satisfy anyone. Investors need to be aware that the next 8 weeks through the first week of October are the toughest stretch of seasonal adjustments for this data for the year. On average, the adjustment will add 24% per week. The adjustments will continue to add to claims throughout October, but at a much less onerous level.

  118. 118
    zman Says:

    Re 117. Well said.  I'm not sure if I understand that "the jobs situation is gradually improving" bit though. I see that as pretty mixed. Government jobs maybe should be stripped from the payrolls number so that at least the swings will be smaller, LOL,

  119. 119
    zman Says:

    BP running those tests to see if further work on Macondo is necessary. Decision expected Friday.

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