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Market Sentiment Watch: It was just too boring bearish out there. Today may see a return to the doldrums of summer as there is no economic data to key off of and the news on the tape is decidedly mixed (TGT in line, BJ's lowering its outlook but Deere seeing surging North American sales). Energy land remains quiet before expiry and the first of the Fall conferences next week with only the odd analyst poking his nose into the group's affairs.

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Oil Inventory Preview
  4. Stuff We Care About Today – The Orange Charts (updated for the Large Caps for 2Q10), VWSYF
  5. Odds & Ends

Holdings Watch: ZCAT (Zman Catalyst portfolio):

  • $5,800
  • 89% Cash
  • Yesterday’s Trades:
    • Sold the EOG $95 Calls for 1.11, down 77%. Will stick with the EOG September calls over in the ZIM for now.

ZIM (Zman Inefficient Markets portfolio)

  • $5,000
  • 46% Cash
  • Yesterday’s Trades:
    • WLL – Sold the (10) August $90 calls for $2.15, up 42% with the stock at 91.60. I continue to hold the common in the ZLT.

Commodity Watch: Crude oil inched up $0.53 yesterday, $75.77. After the close, the API released an absolutely bearish report (see below) and this morning crude is trading off $0.50 plus in front of the EIA's report.

Natural gas rose $0.04 to close the day at $4.28 yesterday in quiet trading. This morning gas is trading flat.

  • Tropics Watch: Comments on the wire about a potential pop up storm in the Gulf but I see nothing worthy of that comment on satellite at the moment. There is still a small cloud pile with a 10% chance of development north of Venezuela.

Early Read On Natural Gas Storage: Street is at 31 BCF for tomorrow’s report. My preliminary estimate is 25 Bcf.

  • Last Week: 37 Bcf Injection
  • Last Year:  54 Bcf Injection
  • 5 Year Average: 60 Bcf Injection
  • 10 year Hi: 89 Bcf Injection
  • 10 year Low: 22 Bcf Injection

Oil Inventory Preview

API Watch:  Gasoline build of the magnitude shown below seems unlikely. We should see one last hurrah for gasoline demand between now and September 1. Normally we see abnormally large draws in gasoline during this time of the year before the last bit of pre school year traveling hits. The premature decline in refinery utilization should only exacerbate the seasonal trend there.

  • Crude: UP 5.866 mm barrels
  • Gasoline: UP 2.026 mm barrels
  • Distillates: UP 2.051 mm barrels

Stuff We Care About Today

The Orange Charts - Large Cap E&P

  • Balance sheets on the whole are in a bit better shape than they were at the end of last quarter.
  • Spending is up in a few cases but not dramatically.
  • Most interesting is NBL where guidance was slightly lowered on the top end due to asset sales but also where spending was reduced from their prior estimate ... we haven't seen a lot of that his year.
  • In coming quarters you should see EOG shoot towards a more 50/50 oil/gas profile.
  • SWN and ECA remain your "large caps most leveraged to natural gas" and SWN takes the cake for being the least hedged as well. Given the recent fall in SWN, it should more closely play with any swings in gas prices. You can see some of the reasoning behind SWN's decision not to hedge if you skip down to the bottom of the charts and note their low cash costs.
  • Sidebar: Noting RMD's comments yesterday on gas and would say that the rate of growth has slowed but that there are still A LOT of natural gas directed rigs turning to the right at the moment, the most in 18 months actually, and so while I think the month end data at the end of August will be highly scrutinized for a role, a combination of higher rig activity and an increase in the the number of frac crews later this year will keep a lid on big rallies in gas prices this year.
  • Valuations ... cheap. Not often do we see all of the large caps under 6.0x TEV to EBITDA.

Other Stuff:

Food For Yield Thoughts: I have been getting a lot of requests for yield bearing stuff. I dabble in LINE and WHX as you know but with rates falling as much as they have and expected to fall further, I am suddenly seeing a lot of MSM regarding people bailing on bonds and looking for equity dividends. Helps with my yield stuff as people buy in but also should help things like the S&P 500 Aristocrat Index, which only holds those names in the S&P with a history of dividend increases over the last 25 years. Here's where it gets more interesting. People are thinking that with the "tax cuts" likely coming to an end there will be a number of special dividends prior to year end. We've already seen a few where management owns lots of shares and wants the divie in this tax year. Anyway, just thinking that the herd will glom onto these yield names before year end and then maybe pummel them in the week before New Year's as they the taxable equivalent yield fades. ETFs that come close to matching the Aristocrat are VIG and SDY. You gotta like the ticker of the first one.  Anyway, just thinking out loud and understand that there about a dozen of these ETFs to choose from.

Vestas Wind (VWSFY)  Get's Wind Knocked Out Of It.

  • Missed numbers on lower revenues, higher costs
  • Outlook cut on the top and bottom line. Said outlook was trimmed due to order delays shipping to the U.S., Spain, and Germany.
  • Hiring will be 3,000 for the year instead of 3,400
  • Note however that orders hit a record in 2Q10
  • This is the big name in wind so worth watching

Other stuff on my plate:

  • GST - tying up lose ends on an updated profile piece
  • EGY - ditto
  • MCF - officially mulling how much to buy and when. I've always like the story, the BP incident has made it cheaper. Look for a short profile piece here soon but maybe a buy first.


Odds & Ends Analyst Watch:

  • WFT - Bernstein upgraded last night to Outperform, target $22.
  • LINE - RBC ups target $4 to $34, resumes coverage at Outperform
  • RBC also resumed coverage on the rest of upstream MLPs. Upped target on BBEP (my least favorite) by $6 to to $21

151 Responses to “Wednesday”

  1. 1
    bill Says:

    I think q4 will have dda adjustment, exploration expense, and lower production for pipeline issue and qtr might be a loss
    This qtr will be better as they are not drilling and producing over 100 mcf a day but with lower ng prices
    Wild card might be large dividend to offset bad news in q4 .
    Peak was selling 200 k shares a year about 9 or 10 m. He owns 20 % or 3 .m shares. He can get his 9 m with a 3 dollar divy and be taxed at 15 %

  2. 2
    zman Says:

    Bill – yeah, I want at least a year hold or 25% out of it. Given the BP spill related drop that looks easily doable upon their next success. His most recent presentation does a good job of explaining why they still like the Gulf. Note the rig costs down by half comment. I don't have a feel for a special dividend but all the chatter about special dividends pre end of "Bush tax cuts" makes some degree of sense for other names, like the S&P 500 names that are sitting on a record cash pile.

  3. 3
    Nicky Says:

    Morning all.  For the more bullish count we should hold 1084 and ideally 1087 before moving up to 1103 – 1106.  The bearish count will not get above yesterdays high.  Working in favor of the bullish count are the cycles which indicate more upside into today/tomorrow before consolidating/down into Monday.

  4. 4
    zman Says:

    Thanks Nicky

  5. 5
    zman Says:

    No BP Spill watch today because no decision has been made, at least it has not been released yet. At this rate, the govt. will decide to resume drilling just in time for the next storm to push them off the well.

  6. 6
    BirdsofpreyRcool Says:

    Can't resist… had to look… TED!  wow.  +18.7 bps.  If we drop below +15, that's just TOO tight.
    Credit rallying quite nicely.  But, with the C Team at the reigns, will probably just follow stocks.
    HeadTrader is very quiet this morning.

  7. 7
    zman Says:

    That VWSYF opening off 20%

  8. 8
    BirdsofpreyRcool Says:

    Interesting conversation with XACS this morning….
    Based on bill's comments, I took a look at SD's bonds.  They have a lot of bond issues outstanding.  Most of which are not registered (so only insitutionals can own them).  Anyway, these bonds, for the most part, are trading around par.  Thought I'd take a look at SD's CDS curve… but — shocking !! — there are NO CDS OUTSTANDING for SD.  hmmmm….. what does that mean?
    XACS something pretty interesting… "companies normally get pushed into the CDS market because bankers are scared about what they hear management talking about behind closed doors." 
    Wow.  Interesting comment, eh?  Thing is, it makes sense.

  9. 9
    BirdsofpreyRcool Says:

    CDS is "insurance" on bonds.  At least, that is what it is supposed to be.  If you're not worried about your house burning down, you don't load up on insurance.  Once you start to worry about something, tho… you buy insurance.
    Keep that in mind, when anybody talks about a company's CDS.

  10. 10
    zman Says:

    BOP – interesting enough to nibble?

  11. 11
    zman Says:

    Pathetic opening volumes. NOG and OAS down about all of yesterday's move for instanced, each on less than 10,000 shares. Nobody is playing.

  12. 12
    zman Says:

    Story on MLP's with an interview with the CSFB analyst:


  13. 13
    RMD Says:

    bill, in case you missed late night post, keep up the good work on SD.

  14. 14
    BirdsofpreyRcool Says:

    z — comments i've heard on SD involve concern about the CO2 obligations.  Is that conract and plant finalized?  Haven't followed SD close enough… but since the bonds are showing any panic, probably worth drilling down into the stock.

  15. 15
    BirdsofpreyRcool Says:

    should read "bonds AREN'T showing any panic…"

  16. 16
    BirdsofpreyRcool Says:

    More on SD bonds… since they are almost exclusively held by institutionals, that means holders own them in fairly large chunks.  Those are the type of bonds — once someone gets a case of the nervous nellies — that get CDS written on them.  I am just amazed that SD has no CDS.  But, that says a lot.
    Of course, if SD CDS do pop up over the next month or two, then i would start to worry…

  17. 17
    zman Says:

    re 14. With OXY, yes. As I understand it, there is some question of whether or not they will be able to meet their obligations. On the 1Q call I think I remember them reassuring the crowd that they would make it, but don't know re 2Q call. Bill indicated last night they are not going to make enough CO2 for the plant and will therefore incur penalties.

  18. 18
    zman Says:

    Home refi demand highest in 15 months. No kidding. At Schwab Bank, the wait time is 50 minutes to talk to their mortgage dept.

  19. 19
    zman Says:

    For big cap yield ETF's, does anyone have better names than SDY and VIG mentioned in the post? Maybe a 2x or 3x ETF along those lines. Also, does anyone know if the Alerian MLP index have the same tax consequences as regular MLP's?

  20. 20
    BirdsofpreyRcool Says:

    Penalties are pretty tough on your bottom line… would like to know more about that.
    Also, building that $100mm Campus is just wrong.  It's one of those "red flag" things.  When a company puts it's name on a stadium… or builds itself a new headquarters, it's usually the start of a downward slide.   Can't TELL you the number of times that red flag has proved to be correct (especially the stadium name….).

  21. 21
    zman Says:

    Gap filled on MCF

  22. 22
    bill Says:


  23. 23
    zman Says:

    BOP – that flag was definitely correct when CHK did their branch office in Appalachia and the boat racing deal in OKC.

  24. 24
    bill Says:

    13. Thanks for your comments rmd, saw them..

  25. 25
    RMD Says:

    Thank you for the New Zealand travel comments. Very helpful.  Please add to them also.

  26. 26
    zman Says:

    Oil inventory stats in 30 minutes.

    Noting BALT holding it's recent gains, EGLE still at 5. Still mulling.

  27. 27
    choices Says:

    EOG knocked down again but volume is almost non-existent-240000 shares-100 lot shares being traded.

  28. 28
    bill Says:

    Penalties: re Century Plant

    They are supposed to deliver 3.5 tcf over 30 years thats 117 bcf per year if you use straight line
    Ward said they have been delevering co2 already and they have a credit. The operating officer said its more a 2011 issue and estimate 10 m but ward chimed in to say the new plant is more efficient and will save them 30 m per year. So they get more unprofitable 4 dollar methane to offset the 10 m penalty
    This years outlook for all their production is 20 bcf a qtr or 80 per year. I think they only have 4 or 5 rigs running to maintain current rate
    Its  more of an issue for 2012 and beyond
    On aside, OXY paying the construction costs but sd is building it and billing oxy, apparently milestone based, as sd is sitting on 46.5 m in unbilled cost.
    Thats costing sd 4 . m per year
    If sd had its act together, they wouldnt have negoitiated milestones/payments which required them to finance the construction

  29. 29
    zman Says:

    Bill – happen to know the date of the MCF 4Q release? Should be any day now I would think.

  30. 30
    BirdsofpreyRcool Says:

    #23 Yeah… as I recall, the new baseball stadium in Houston didn't say "Enron" for very long….

  31. 31
    BirdsofpreyRcool Says:

    Of course, Enron had the double-whammy… putting their name on a stadium AND building a new headquarters at the same time.
    I'm not kidding.  Those red flags work.

  32. 32
    1520sbroad Says:

    #19 — MLP ETF's/ETN's/Closed end funds do not typically have the same tax quirks as owning the individual names.  You get a 1099 instead of K-1's. 
    The funds do have their own quirks though – some structured as exchange traded notes, closed end funds – some run leverage. 
    In my opinion they are cleaner at tax time.

  33. 33
    zman Says:

    Thanks 1520, my tax accountant already barely takes my calls as it is, that would probably help.


  34. 34
    choices Says:

    #31-I believe the Board took a lot of heat after the fact.

  35. 35
    bill Says:

    last year mcf reported on 9/14
    They have 75 days right???

  36. 36
    bill Says:

    Century Plant
    If you were OXY and just spent a billion building a plant to get co2 and werent getting it , what would you do?
    The economics work better for oxy than sd with current pricing.

  37. 37
    BirdsofpreyRcool Says:

    MCF FYE = 6/30… don't they have 90 days to report FYE?

  38. 38
    1520sbroad Says:

    #33 – there are now several funds to pick from in the MLP universe – it used to be just the closed end funds.  admittedly i don't know the newer funds as well but they all own the same top 5-6 positions.  Kinder Morgan, Enterprise, Enbridge, Magellan, Plains, Energy Transfer Ptnrs.

  39. 39
    zman Says:

    re 35, yes right, not on a calendar quarter so this is their year end.

  40. 40
    zman Says:

    Make that 28.75 mm newly minted KOG shares as the shoe was exercised, bringing the new FD share count to 149mm.  Adds $74.1 mm to cash (net of fees) and takes TEV to $343mm

  41. 41
    BirdsofpreyRcool Says:

    choices #34 — not enough heat, apparently… Enron… that was one Spectacular Blow Up. 

  42. 42
    zman Says:

    EIA Oil Report:


    Crude:  down 0.8 mm barrels on slight  up imports

    Gasoline:  gasoline unchanged

    Distillates: up 1.1 mm barrels

  43. 43
    zman Says:

    More EIA

    Gasoline demand jumped back up as expected to 9.459 mm bpd

    Distillate demand bounced too but still at bottom of range there.

    Stocks at Cushing fell 0.7 mm barrels to 37.0 which is good for crude.

    All in all, not a bad report, nothing like API last night.




  44. 44
    zman Says:

    Crude was off about $1.70 at $74 before the report

  45. 45
    zman Says:

    Utilization came back up 90% last week after the premature dip in the prior week, so this draw is a good quality draw (not driven by imports) as refinery throughput rose by almost 200,000 bopd even as imports were up about 100,000.

  46. 46
    bill Says:

    re sd & oxy
    Here is an interesting presentartion by oxy
    Shows the importance of co2 for their permian oil production  100 bcf of co2 = 20 m barrels of oil
    They need 5 tcf of co2 to get the next 1 billion bbls of oil
    They have 100 % margins with 75 dollar oil

  47. 47
    bill Says:

    actual margin of roughly 50 %on sales

  48. 48
    bill Says:

    37 yes 90 days ..thats right  they usually report mid sept

  49. 49
    jat Says:

    Crude continues to crater; I thought the DOE wasn't so bad?

  50. 50
    zman Says:

    Interesting to see WLL going green here.

    Crude up 50 cents on the oil report, I continue to think we are due for a range bound spell in the $70s.


    On KOG, that new share count puts them at about $0.60 per share of cash and pre paid expenses. The rest of the valuation can go to acreage and reserves.

    Reserves at last year were 4.485 mm BOE but that should be up a couple of million barrels this year due to drilling, that may be conservative.

    If you call that 6.5 mm BOE and put $15/ barrel on it that's another $0.65 per share so we're up to $1.25 of value.

    If you put $4,000 / ac on both their east and west of Nesson acreage and give them $100 / ac on the stuff in Wyoming and add it to the above you get their current stock price.

  51. 51
    zman Says:

    Jat – it rolled back over with the S&P just now but really it is where it was before the report, maybe a dime low. The report was not bad, especially compared to the API which is what sent it lower in the first place. Good to see Cushing come off but it probably won't last. Looking for imports to have peaked for the year now and to decline as we enter fall. I think below $70 with a re-weakened dollar in mind, you see OPEC actually do something at their meeting next month.

  52. 52
    Nicky Says:

    I am surprised to see oil continuing to be see weak.  That data did not look bad.  Is it expiry today?  Wondering if that is having an effect.

  53. 53
    zman Says:

    Bill – wildcard for MCF year end would be: did the recent negative revision at Mary Rose and Dutch take enough reserves into account or not. My sense is that there will not be a further negative revision based on a barrels in the ground estimate. There will be no new offshore wells to report on as they don't plan to spud another well until at least November (thank you Mr. President). Onshore, they could talk about the Rexer, not sure what that one is other than a cheapish S. Texas exploration well.

  54. 54
    PackMan Says:

    EOG getting a complete beatdown today…. volume seems pretty good.  Just a relentless push down; very little options or put volume

  55. 55
    zman Says:

    Nicky – last day for Sept crude contract to trade is Aug 20

  56. 56
    zman Says:

    Pack – yeah, I'll be adding to September positions soon.

    BP – No news from the govt. is bad news for the name.

    And Nicky, I sort of think oil being flat to post numbers is more a function of malaise than anything else. A team in Hampton deliberately with phones on mute.

  57. 57
    RMD Says:

    SD: I seem to remember on  past conf. calls mgt saying they had the CO2 under control and noo problemo.  Corporate strategy has been FUBAR since the IPO.

  58. 58
    zman Says:

    WildZtrade – ZIM – EOG

    EOG – Added (20) August $95 calls for $0.39 with the stock down another 3%. High risk/potential trade as this seems overdone, on light volume.

  59. 59
    tomdavis12 Says:

    Z: EOG has had an unusual amount of earnings adjustments lower over the last 3 months. Do you think that has been the reaction to their lumpiness comment?

  60. 60
    RMD Says:

    EOG: Ticonderoga's initiation worries about EOG's premium valuation overlooking the cost of achieving growth targets;  thought debt  doubled by yr.end '11.

  61. 61
    zman Says:

    RMD – Oh it worked fine until gas prices peaked and rolled over … then FUBAR became SNAFU

  62. 62
    zman Says:

    Tom – probably but the comment was made in prior quarters. If you batch drill a bunch of wells in a quarter and batch complete them as well in that quarter then you don't see the oil until subsequent quarters. I have been actively modeling these guys since the late 1990s. One camp they are not is is the over promise and under-deliver camp. Re debt doubling, that simply is not at all their style either.

  63. 63
    bill Says:

    what would ye ng inventories have to be to be considered "bullish"
    would 3750 do it?

  64. 64
    bill Says:

    >did the recent negative revision at Mary Rose and Dutch take enough reserves into account or not. My sense is that there will not be a further negative revision based on a barrels in the ground estimate.
    Id be shocked if it went lower. They never declared what nautilus 263 was

  65. 65
    zman Says:

    Bill – in the old days I would have said sub 3 T's. This year I would say that 3.75 would be supportive of gas, not really bullish. I think the bullish angle comes from supply rolling over. Something short of that level in storage would be fleetingly bullish. Note how fast gas retreated as the heat started to lose its hold. With 2+ Bcfpgd more supply vs just last year at present (my estimate) you are going to pack gas into storage in the should at a very good clip. Thankfully, LNG loads which should be at a record if you listened last year to the folks over at LNG (the company) are actually at their lows, busy going to different parts of Asia where gas is getting better prices. Europe also has been helping with that demand. And Canada has eaten away at it's own sotrage surplus keeping their numbers headed south lowish. But without a storm to knock out some Gomex production for a time this year, my sense is that we get to your level +/-150 Bcf depending on the weather and that gas goes into year end on cold but not really cold weather at around $5.

  66. 66
    zman Says:

    re 64. Judging Peak, and I don't know the guy but have read his stuff and listened to him for quite awhile now, I'd say he had that reserve company of theirs take the low end or be as conservative as possible with the hit so they don't have to do it again. Like that they immediately went "no bonus, no options" on that. That is how you treat your shareholders.   Did notice that re Nautilus, would think it would be a 10 to 15 Bcf type well gross. Any idea what Rexer is targeting? Think that's in Lavaca county.

  67. 67
    zman Says:

    Oil at 74.87, about a buck off the lows now.


    WLT = onward and upward.

  68. 68
    apbd Says:

    Another Red Flag:  Receiving a Nobel when only in office for a few months!

  69. 69
    zman Says:

    re 68 = Thanks for the chuckle.

  70. 70
    redjack Says:

    BOP…did you get a shipping confirmation from CIGX?

  71. 71
    BirdsofpreyRcool Says:

    Redjack — NOOOOOOOOOO.
    Expecting the shipment today or tomorrow, based on Bob's comments.  Will rattle the cage if I don't see product on my doorstep by tomorrow afternoon.
    Bob's Cage Rattling was very impressive, by the way.  Well done!  Went right to the Point Source.

  72. 72
    BirdsofpreyRcool Says:

    apbd — #68 occupies a "special category" all it's own.  Not sure we see that "red flag" again….
    but it's a Crazy World out there, for sure!

  73. 73
    zman Says:

    BOP – If you have anything to add to my back of the envelope comments on KOG above please do.

  74. 74
    BirdsofpreyRcool Says:

    Little fact… more CEO's are named "Bob" (or Robert) than any other name. 
    Guess Bobs know how to "get the job done," eh?  🙂

  75. 75
    BirdsofpreyRcool Says:

    z — saw your KOG comments.  Agree with them.  But still pondering the situation there (as I still own a few shares)…

  76. 76
    redjack Says:

    "BOp…I rec'd mine last night…it reads like it came from a 5th grader:




    /* Style Definitions */
    {mso-style-name:”Table Normal”;
    mso-padding-alt:0in 5.4pt 0in 5.4pt;
    mso-bidi-font-family:”Times New Roman”;

    Thank you for your recent Cigrx order. Your order ROCK00001130 has been shipped. Please expect to receive it in 7-10 days, unless your order was being rushed to you in which case you will receive it sooner."

  77. 77
    redjack Says:

    once again:




    /* Style Definitions */
    {mso-style-name:”Table Normal”;
    mso-padding-alt:0in 5.4pt 0in 5.4pt;
    mso-bidi-font-family:”Times New Roman”;

    Thank you for your recent Cigrx order. Your order ROCK00001130 has been shipped. Please expect to receive it in 7-10 days, unless your order was being rushed to you in which case you will receive it sooner

  78. 78
    Bob Says:

    BOP – you can email
    Sara Troy Machir
    Vice President, Communications & Investor Relations
    at smachir@starscientific.com
    I got my confirmation email shortly after "rattling her cage" 

  79. 79
    BirdsofpreyRcool Says:

    thanks for that, redjack.
    In all honesty, I think marketing firms these days word everything that is directed at the public in terms a 5th grader would understand.  Move to any higher level (like, for example, 8th grade) and you lose a large part of the U.S. population.  Sad beyond words… but it is, what it is.
    The average IQ on this board is Oceans-Eleven-Away from the average IQ of the Purchasing Public.  Tough nut to chew on, sometimes. 

  80. 80
    BirdsofpreyRcool Says:

    Thank you, Bob.  I think I will let the process play out… I want to know how they treat the average person and will report back.
    Star management did, however, get an earful of our comments from the board.  They are not unaware of the situation.  Still… wow.  There were some bush-league mistakes by some highly-compensated (and supposedly seasoned) players here.

  81. 81
    BirdsofpreyRcool Says:

    Bob —  to follow on… I will contact Ms. Sara when I get my order.  So, thanks again for your help on this.
    All other Star-Players should do the same.  Feedback is helpful, as we are just at the start of this game.

  82. 82
    Dman Says:

    Z – I've been out of it for a while. Why is EOG down here ?

  83. 83
    sunshine Says:

    ZMAN, RE 50, is KOG then fully valued with their challenges of getting crews for production?

  84. 84
    zman Says:

    D – Simply put, they missed on EPS due to lumpy production and they raised their capital budget. They are down about 10% since then. They also announced a number of good things like a new oil shale play for them and the continued successful westward expansion of the Bakken lite into Montana. 

  85. 85
    zman Says:

    Re 83. Trying to decide that. If you put $5,000/acre on the numbers then no or if reserve replacement is better than I expect then no. I'm going to put some BOE math on the site tomorrow with them vs NOG, OAS and maybe another name. I don't plan to sit on it long. Either going to add or punt soon.

  86. 86
    BirdsofpreyRcool Says:

    The return of "SUNSHINE" to the board. 
    What does that mean????
    you feeling perky today, ram?  🙂

  87. 87
    zman Says:

    Grabbing a quick bite, back in a bit.

  88. 88
    BirdsofpreyRcool Says:

    KOG — the large holders participated in the 2ndary.  But i think most of the large holders also trade their position.  Institutionals (who aren't HFs) don't usually trade their positions, in my experience.  So this is just another reason why KOG is probably a trading vehicle now (and not a buy-and-fuggitaboudit position).

  89. 89
    crysball Says:

    BOP:   CEO of   EGY  is Robert 'Bobby' Gerry….is that a good sign?????
    Incidentally, had a follow-up with Vaalco yesterday,  and  they will be drilling a 4th  well in the Ebuori  field [next year  subject to partner approval]….It turns out the   Gamba Sands there are  thicker   and they will need a 4th well to develop the field EUR.     The  production platform  only has 3 slots (all currently used), but they can do a bolt-on  and add a fourth slot.  Stres analysis  has already been complpeted  and  they material ordered.     
    One  item which did not make sense during the Q2 CC  was  that  the Ebouri field current production was  only  7,400 b/d (no water cut).   Based on previous statements by Vaalco  (with three wells operating   it  should have been producing   sligthly over 9,000 b/d.     Was  advised  they   are having electrical issues  on the platform:
    1) they have two generators  and are  having period problems with  both of them…………they have someone  from the supplier  to fix this yet this month.
    2) they have a switchgear problem………..and did  not  pu enough switchgear capacity   on the platform  to handle  6 submersible pumps  simultaneously (two for each well)……..this  issue  won't be resolved until late in Q4.     so  late  in Q4 they will get  a 2,600 b/d  upward  bump in production…………..irrespective of what happens  with  Etame-7H  development well (supposed to add  3,200 b/d net )  and   South Tchibala Development welll (supposed to add about 2,000 b/d).
    The above   total out  to  a net increase of 7,800 b/d  addition to daily production…………..which gets them above 25,000 b/d  even allowing for  well  declines ………25,000 b/d of oil  is  the current FPSO  limit [it can process  35,000 b/d  fluids but only 25,000 b/d oil  unless and until it is modified.
    Was  advised partners are   'PRESSING'   Vaalco to suck  hard  on all the straws  in the various  reservoirs………..but Vaalco  wants  to maximize  EUR's.   Per Bobby,  the estimate  they  have  produced about 50%  of the current   reservoir potential  in the Etame concession  (total production to date  is sligly over 53 milion barrles).  Historically, some of the Etame consourtium  PSA partners  have  drug their  feet ………..not so now…they all want  to  'PUMP BABY BUMP & DRILL BABY DRILL'.
    Of course  all the events in Gabon (on-shore and offshore) are  merely prelim's  to  the   upcoming  events  in Angola Block 5………..but   it adds  cashflow  to the already existing  $97 million cash- in the bank (includes escrow  for Angola).

  90. 90
    bill Says:

    recall when ard had production problems when in gets hot in texas
    Producer Reports East Texas Shut-Ins Due to Plant Outage

    Processing facility may be down through the end of September
    I cant see who it is
    Any guesses
    who is in east texas  swn??

  91. 91
    bill Says:

    i found it

  92. 92
    zman Says:

    Back, re 90/91. SWN would be very small. Eroc should be very small as well. ECA, APC, EOG would have been bigger names there depending on how ar each. But eroc = no impact on market.

  93. 93
    BirdsofpreyRcool Says:

    crys — Bobby seems to be ok (being a "Bob"… and in SPITE of having been a banker).  Kinda cool that he still goes by "Bobby," actually.  As he is no Spring Chicken.
    Thank you for your detailed follow-up report on EGY.  Good catch on that electrical issue.  Gotta say, however, the Gamba is one sweet reservoir.  But I don't see any reason to try to run all out there… taxes and additional capital requirements are constraints.  Which is why I think finding ANYthing in the OnShore Concession would just be so huge.  Plus, partner Total already has some infrastructure nearby-ish.
    So, at $5.75… buy, sell, or just hold onto current shares?  I'm leaning toward adding… but want to do that on a down day.  Maybe the stock drops to $5.50 again.

  94. 94
    zman Says:

    BALT making a move towards a breakout. Nice call there Bill. I still have not done the homework that would let me get long.

  95. 95
    Nicky Says:

    This is more like it.  Still looking for the 1103 – 1106 area by tomorrow.

  96. 96
    crysball Says:

    Concur with Z on   your BALT call………..voted last week, and got in near (but not the bottom).

  97. 97
    zman Says:

    APC pressure probably undue today… attributable to their partner off Ghana, Kosmos, not being able to sell their stake in Jubilee to Exxon, due to government objection.  Great name, interesting chart, and will probably be in court with BP for years.

  98. 98
    crysball Says:

    Weather Underground  Guru says  Atlantic Hurricanes  about to pick-up…interesting analysis:

  99. 99
    zman Says:

    BOP's favorite guy, Barney Frank, saying we should abolish Fannie and Freddie. For once I agree with him. Guessing that  would mean much higher mortgage rates.

  100. 100
    BirdsofpreyRcool Says:

    Barney Frank is not stupid.  He just sounds like Elmer Fudd.  Sometimes he says the right things.  Much more often he does the wrong things.
    The govt takeover of wide swaths of the economy (in the name of a "crisis") was NOT the right thing.  Stealing from rightful owners in the "auto-bailout" was NOT the right thing.  Barney spewed some great rhetoric, in support of all that sh*t.  But, Barney is not stupid.
    Ken Salazar, on the other hand…

  101. 101
    zman Says:

    Oil only off a quarter now

  102. 102
    zman Says:

    Question in with SSN for about 4 days now regarding whether or not the lack of creation of an exploration unit bulloxes up the potential for the high end of the deal range or not remains unanswered by them. Their presentation next week at Enercom should contain data on the deal so we will know if the top end of the range is no longer the target. In the last presentation they said they expected to get the top end of the range. $10 mm difference is not that big a deal but takes my valuation to around $1.40, away from the top end of the range closer to $1.75.

  103. 103
    Bob Says:

    ECT Conference Call @PM ET Today:
    I like their distribution projections :
                       Subordination       Target        Incentive
                                    Threshold      Distribution     Threshold
                                   (per unit)       (per unit)      (per unit)
                Second Quarter     $       0.181    $      0.227    $     0.272
                Third Quarter              0.334           0.417          0.501
                Fourth Quarter             0.478           0.597          0.716
                First Quarter              0.446           0.558          0.669
                Second Quarter             0.451           0.564          0.676
                Third Quarter              0.550           0.688          0.825
                Fourth Quarter             0.565           0.706          0.847
                First Quarter              0.574           0.717          0.861
                Second Quarter             0.602           0.752          0.903
                Third Quarter              0.624           0.780          0.937
                Fourth Quarter             0.701           0.876          1.051
                First Quarter              0.756           0.945          1.135
                Second Quarter             0.754           0.942          1.131
                Third Quarter              0.701           0.876          1.052
                Fourth Quarter             0.659           0.824          0.989
                First Quarter              0.610           0.763          0.915
                Second Quarter             0.589           0.736          0.883
                Third Quarter              0.571           0.713          0.856
                Fourth Quarter             0.549           0.687          0.824
                First Quarter              0.519           0.649          0.779


  104. 104
    Bob Says:


  105. 105
    zman Says:

    OK, just noticed TPH rolled halfway out on coal with a modestly positive report on the sector today. Calling for flat prices going forward. Tomorrow they roll out on the names but it sounds like the Met-coal leveraged will get the best recommendations (WLT, ANR (a Simmons favorite), PCX ). They also like PRB coal (the low btu but clean stuff) which would put BTU in their sites for a Buy rec.

  106. 106
    zman Says:

    Thanks BOB – forgot that was today. So far no move by them, do want to listen, link not working for me.

  107. 107
    zman Says:

    Got on the ECT call

  108. 108
    zman Says:


    Production is exceeding expectations.

    Regulatory issues: only 1 other operator out of 25 in the Marcellus has a better safety / environmental record than ECA

    Rumor is that a severance tax will be enacted of 5% during the 4th quarter.

  109. 109
    Bob Says:

    ECT cc: 14 producing wells, 5 more completed, 6 partially drilled, avg lateral 3,606 feet. 17 additional permitted

  110. 110
    zman Says:


    Q&A – wow 2 questions, both asked by kids with zits. did not even know what questions to ask.

    Plans to drill longer laterals than they are now, will look at longer wells, up to and beyond 3,500 feet.

    Commenting that the expensive part of the well is getting down 8,000 feet, so moving from 2,500 to 3,500 foot laterals makes sense.


  111. 111
    zman Says:

    Bob – green light for better than expected results next couple of quarters. Call was so short and I missed the beginning. Did they go over the incentive structure vs actual results?  so 19 wells on by quarter end, is two higher than plan.

  112. 112
    Bob Says:

    They mentioned that production was 40% higher than planned.  The incentive is capped at 20%, therefore the 0.272 distribution vs 0.227 target.  Said the NG price price received was exactly as planned for last qtr

  113. 113
    Bob Says:

    ECT said pipeline infrastructure for all current and future wells will be completed by Sept

  114. 114
    zman Says:

    Bob – thinking that if people do make a natural gas bet with a trust, this one is going to make good sense to them, as they will benefit from the combination of premium to NYMEX gas pricing and the sub $1 operating costs. Going to relisten to the call when it is available. Market not paying any attention to this kind of stuff today.

  115. 115
    Bob Says:

    CFO words: "The operating costs are well, well below $1"

  116. 116
    zman Says:

    Bob – this is from my post last week. Do you think I got the part about subordination correct?  I'm still not sure I've got my arms around what the yield will be going forward on their model. I built a model by the way and 4Q10 and 1Q11 point to some significantly large distributions. They have some nice swaps in place at $6.75.

    • 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.
  117. 117
    sunshine Says:

    Is ECT structured like LINE or WHX?

  118. 118
    zman Says:


  119. 119
    zman Says:

    It's a trust but it has some different features. Listening to the replay now. 

  120. 120
    BirdsofpreyRcool Says:

    This is a totally off-topic technical (engineering) question… but working on something that I could use a little help with. 
    If one was to drill a well in the NE of the US (basically, into bedrock), what would one expect the bottom hole temperature to be at 5,000, 10,000, and 20,000 ft? 

  121. 121
    zman Says:

    I'll relay that to Wyoming but if it helps, I bet it would be hot enough to boil water, lol.

  122. 122
    BirdsofpreyRcool Says:

    z — you just snagged the top place odds for winning the "Number ONE Biggest UNDERSTATEMENT of the Year." 

  123. 123
    zman Says:

    I try

  124. 124
    zman Says:

    ECT – this will be a bit redundant to the above

    20% above plan on the distribution due to better than expected production

    2 drilling rigs , 1 to drill the verticals, and then a larger well to drill the laterals

    Drilling results

    4.22 net wells completed in addition to the 14 wells on now.

    Trust gets 5.46 net wells credit due to the longer than expected lateral.

    Need a flow chart on the how they get credit for wells

    3 of the 5 wells will be on in September with the 2  others in October

    AC Nielson pipe completed in September, no delays anticipated for production.

    In the quarter they only had 7 wells on instead of the 8 as per plan. This was due to production being above plan from the 7, more than the gathering system could handle, (1 well on a 3 well pad was basically unable to produce into the line). Production from these 7 wells was 43% above the plan for 8 wells. 

    Current Production is 21 MMcfgpd.

    I don't have production that high two quarters from now.

  125. 125
    Bob Says:

    116: The prospectus has target distributions for each quarter through March, 2032.  They only spell ot the subordinated and incentive thresholds through 2015, but the sub is 20% under the target and the incentive is 20% over the target.  The target distribution for 2013 is $3.59, or 18% at the $20 IPO

  126. 126
    cargocult Says:

    You thinking geothermal, BOP?

  127. 127
    zman Says:

    BOB – right, I read that too. So as I understand it, they get the incentive level if they beat target by 20%?

  128. 128
    Bob Says:

    Z- that is what i got out of it (from an amateur perspective)

  129. 129
    zman Says:

    WLT – Betting TPH comes with a Buy in the morning there and at ANR and BTU. Not sure they are big enough to really move the needle on the names and they are a bit late to the party in terms of tracking coal. However, the coals have pulled back significantly from highs earlier this year while coal really hasn't . And you have to initiate some time. WLT trying to break. High risk play would be to tap the August $80s. I'm not going to do that for now (we also get payrolls and other data tomorrow). I continue to hold the WLT common.

  130. 130
    zman Says:

    re 128 – Well that's just massive.

  131. 131
    BirdsofpreyRcool Says:

    cargo — 126 yes.
    involved with some cutting edge stuff… just mind-blowing, really.  But, think some of the parameters and claims being made just look bizarre to me. 

  132. 132
    zman Says:

    BOP – it's a red flag if the guy does air quotes with his fingers while saying the word "LASERS"

  133. 133
    BirdsofpreyRcool Says:

    ooooo… one of my FAVE movie lines… "sharks with frickin' LASER BEAMS attached to their heads"  bwwwwaaahh haaa haaaa.

  134. 134
    zman Says:

    BP says it's selling its Tuscaloosa trend onshore LA stuff.

    Also says it is prepping the well to drill ahead.

  135. 135
    zman Says:

    Just reading the ECT Q at the moment. It doesn't look like I had that right above about the incentive comment.

  136. 136
    zman Says:

    Bob – it looks to be like the incentive threshold is the max distribution but have sent the question into a guy who used to work on this stuff regularly.

    Ram – LINE and WHX does not have this type of subordinated/target/incentive format. Just want to make sure I understand exactly what's what here. The model otherwise points to some nice distributions.

  137. 137
    zman Says:


  138. 138
    Geno Says:

    BOP – #120 got an email to one of my frac experts in PA. I'll have your answer as fast as you can say "bwwwwaaahh haaa haaaa"!.

  139. 139
    ram Says:

    Thanks.  I can't get a handle on the different E&P yielders.  Is there a way to spreadsheet what you have talked about and possible advantages and disadvantages.  I hope you can put them in your posts above the comments.  Shame on anyone who doesn't take the time to read the posts, such valuable information – not advice.

  140. 140
    zman Says:

    Re 139. Absolutely correct … not advice.

  141. 141
    zman Says:

    Bob, Ram, all, – got the ECT deal sorted. They get the distribution, up to the incentive level on good results. Over that and ECA starts taking half. So it's not capped at that level, it is just slowed. Will work the new numbers through the model. Probably falls into the 13+% yield camp.

  142. 142
    BirdsofpreyRcool Says:

    Geno — thanks much-o, sir!!

  143. 143
    zman Says:

    Off to soccer, the emailbag is kind of empty so if you have anything send it along.

  144. 144
    elijahwc Says:

    More potential bad news for SD (and maybe good). 
    Stanley Druckenmiller saying he was tired of the stress of managing money for others and frustrated by his failure in the past three years to match returns of previous years is throwing in the towel at Duquesne Capital and closing his legendary shop early next year.  Among his new positions are about 1.5 shares of SD which positions him as the 25th largest institutional holder.  Sport on the Street is to shoot at the positions of a fund in liquidation.  With this one, I bet he defends it. 
    I also note that Oamha's other Buffett, Wally Weitz decided to start a small inital position at a little over 4.5 million shares which makes Wally the 7th largest institutional holder.  For those unfamilar, Wally is part of the deep value, private market valuation (and if I'm wrong I'll just buy more and more and get loud) gang.  I've watched he and his running buddies Mason Hawkins (Southeastern Asset), Ian Cummings (lLUK) and yes Buffett all get together finance their holdings out of the toilet plenty of times in the past.  WMB and LVLT come to mind.
    And, as mentioned yesterday, Fairfax Financial is already there with about 4 million shares of common and thats before all the converts of which SD is a serial issuer and of which Fairfax has been a serial buyer.
    T Ward may not like the terms when and if he comes calling for a rescue, but rescue team is slowly showing up and on that note I'm going to inventory a little more just for drill (or maybe to get drilled?).

  145. 145
    BirdsofpreyRcool Says:

    elijah — good poop.  Great musings.  Thank you for sharing!

  146. 146
    Jerome Blank Says:

    Couple of names that are looking technically good…WLL, NOG, ESV, WLT, EXXI, SSN, HAL  

  147. 147
    ram Says:

    ZMAN, thanks. JB, what do you see in EOG’s near future – please?

  148. 148
    West Says:

    SD…..From a shark's perspective… First SD has actually done what they had to do,become OILY. To accomplish this task they also  had to take on a huge amount of debt. The "smart'" money has being beating them up with a huge amount of success . This has lead to more beating and more weakness and the cycle continues………Now survival mode kicks in and non-essential assets are put up for sale, i.e. recent presentation…………Bone Springs / Avalon acreage probably goes for at least $ 4k/ac, but probably more,  with about 40k ac so 160 to 250 mil……..Strawberry (Sprayberry, Dean, Wolfcamp, Strawn) with 20k ac with some in the heart of the play on Midland / Upton County line, 80 to 120 mil and anything else they have that isn't in the WTO or Central Basin Uplift area.  So maybe 240 to  400 million $ … Respectable but probably not enough to keep the the wolves at bay long………………. So a JV on their WTO acreage…..SD is resisting this at all cost because they know that this asset is much greater than any present number and probably one of the top 10 gas fields in the lower 48 states. This asset of 550,000 contigous acres is easily worth $ 5 / share and with recovery in the price of natural gas to $6/mcf  probably more than $ 10/share. It is on the table but probably in the current enviroment no one willing to match SD's internal model price. Most suitors would see SD as weak and probably low ball and wait. WTO is seen as dead money at least at current prices………………..So your reading along here and your saying where is this going…………………Thesis: The Permian Basin (PB) is the among the hottest basins in the US with over $ 6 billion in deals in the last month including the SD/ARD deal, companies need to get oily , the PB is an older legacy area and vast amounts of the acreage are hbp,  most ARD shareholders would like to see a change in Management and reversal in share price direction, quality assets are in demand, new completion techniques are making many additional formations economically viable and this should continue to accelerate into the future……………………….Plan: Buying the common , no options , no margin which gives you unlimited time for the play to materialize…..DVN recently lost out on the Marbob deal to CXO and has being acquring Delaware Basin ( Bone Springs and Avalon) acreage aggressively. They are the prime company , especially in their aggressive move to get oily, to acquire SD outright. If a hostile bid was made for the company , we can expect other companies to participate as well.  If APA were to acquire SD along with their recent BP and Mariner acquistions , they would have one of the premier portfolios of properties in the PB comparable to OXY or possibly better.  APC is also aggressively pursuing large acreage tracts and has recently made several large purchases in Lea and Eddy Counties in New Mexico. The Leonard/ Avalon shale is all the buzz and underlies almost the entire basin and is said to have the potentional to be as productive as any shale play in the US with new completion techniques and horizontal drilling. We are still early in this play , but EOG is saying they have 65mmboe potentional from just 35k acres. Anticipation goes a long way…………………………..Bottom line , looking for SD to get taken out for at least $ 7.00 / share, which would be steal………You can take this Thesis and $ 5.00 and buy yourself a cup of coffee………………..Do not trade this stock if you cannot stand extreme swings in price and have a long term prespective for the trade to work out………..I am long the stock.

  149. 149
    Jerome Blank Says:

    Re: #147, ram…EOG, nice "tweezer" candle formation holding support at $92 on the daily , near term, if the mkt rallies I can see EOG three box reversing to $95, then testing 200 day SMA resistance at $98, $92 is the support level to watch, near term… 

  150. 150
    bill Says:

    NM OUT

  151. 151
    zman Says:

    Thanks West, JB, bill, Thursday post is up

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