Thursday – Oil Review, Gas Preview + Coal Thoughts

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Market Sentiment Watch: China comments overnight Tuesday and a stronger than expected ISM reading in the morning drove the S&P to a 3% gain yesterday, right back to its 50 and 200 day moving averages.  Oil marked that gain. Natural gas however traded on storm related news, not of a Gulf hit, but of the dampening effect on cooling load a storm brushing along the East Coast will have. Natural gas notwithstanding, I think people simply got tired of selling and used the start of a new month and the for-once-not-so bad economic data to go on a buying spree. Volumes were not all that impressive as year to date levels go but they were strong if you just look at the last three months or so. Today, the jobless claims and productivity numbers were in line with expectations but we still have a dour looking Payrolls report tomorrow.  One bright spot, pessimism is incredibly high and inflows

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Moratorium Watch: Last night, a federal judge gives Obama the stiff arm on the deep water drilling moratorium by refusing to dismiss the Hornbeck Offshore lawsuit. The Administration had wanted the suit, which dated from the time of Moratorium #1, to be dismissed after it replaced the drilling ban with Moratorium #2. The judge said the Moratorium's are not materially dissimilar and allowed the suit to proceed. Not that it helps the unemployed rig workers today but it should push the Administration to reconsider all types of drilling in the deep water Gulf of Mexico from being banned. Specifically this should play well for ATPG.

Ecodata Watch:

  • Jobless claims came in at 472,000 vs the Street's 473,000 estimate
  • Productivity for 2Q10 was 1.8% vs expectations of -1.9%
  • We get July Factory Orders at 10 am EST, forecast is 0.2% vs 1.2% in the preceding month
  • We get July Pending Home Sales at 10 am EST, forecast is for -1.5% vs -2.6% in the preceding month

In today's post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Inventory Preview
  4. Stuff  We Care About Today - Coal / WLT Thoughts
  5. Odds & Ends

Holdings Watch: ZCAT (Zman Catalyst portfolio):

  • $5,200
  • 100% Cash
  • Yesterday’s Trades: None

ZIM (Zman Inefficient Markets portfolio)

  • $7,700
  • 20% Cash
  • Yesterday’s Trades:
    • Sold (50) MMR September $15 calls for $0.57, up 103% to my average cost, with the stock hovering at $14.66. Lightening up on risky positions in front of the rest of the week’s economic data. May go back in on a dip tomorrow or Friday in the markets. I continue to hold the $14 strikes.
    • NOG – Added (2) more NOG September $10 Calls for $4.90, on the mid and easily with the stock at $14.92. This brings my average cost in the $10s to $5.30. They should trade almost dollar to dollar with the stock from here.

Commodity Watch Crude oil rebounded $1.99 to close at $73.91 yesterday and was fairly unaffected by the EIA's weekly report on inventories. In a nutshell the numbers were not too bad and a draw down on distillates was a welcome surprise (see details below). This morning crude is trading off slightly.

  • China Watch: The Anti-Moratorium. China plans to spend $37 to $41 billion over the next five years on offshore oil production. This is China's 12th 5 year plan. Hmmm. I don't recall seeing an any year plan ever for the U.S. asset base.

Natural gas closed $0.05 to close at $3.76. This morning gas is trading flat.

  • Tropics Watch: One after another after another. And now we have Tropical Storm Gaston that formed off of Africa and is tracking a little further east than those other storms, and possibly for a collision with the islands and then the Gulf. Bears close watching.

Natural Gas Preview: I'm at 50 Bcf for today's storage number

  • Last Week:  40 Bcf Injection
  • Last Year:  64 Bcf Injection
  • 5 Year Average: 62 Bcf Injection
  • 10 year Hi: 92 Bcf Injection
  • 10 year Low: 34 Bcf Injection

The Street is at 55 Bcf

Oil Inventory Review

ZComment: Not too bad. Gasoline demand has either peaked or will peak this week (next week's report) for the year and if you look at the chart in the gasoline section below you can see that as demand levels go, it was a very respectable season, especially in light of unemployment. Less people flying = more people driving. On the distillate side, we saw a nice but probably short lived (2 or 3 weeks) pop in demand. This could be the north east heating oil retailers getting an early start or it could be a bounce in exports. The data for demand isn't that granular so its impossible to say without several more weeks of numbers. I still expect distillate stocks to move further into record territory before real heating related demand pulls them back and this will not be supportive of crude prices much in excess of the current trading band.  As for oil stocks, I would expect them to erode into fall more slowly than in recent years with refinery utilization falling faster than imports. Again, this augers for range bound crude in the near term.




Stuff  We Care About Today

Coal Watch:

  • Coal prices are up year to date. Click here for a link to EIA prices.
  • Coal production is falling: rail car loadings are off 5.9% YoY.  This is largely due to mine closures in 2009 which were largely driven by economics.
  • Coal demand is up in the U.S. due to the hot summer. Should moderate some this winter as a) natural gas is cheap on a heat rate basis, and b) this winter is expected to be milder.
  • Coal imports are falling - diverted to Asia
  • Coal exports are rising
    • Exports for generation are rising.
    • Exports of metallurgical coal are up in excess of 250% YoY - due largely to demand from China, India, Japan.
  • This leads to lower domestic stocks and statements like those from WLT who says they are selling everything they can get out of the ground.
  • But coal producers' earnings estimates have for the most part been slightly trimmed since the last time I was looking at their numbers just prior to the end of the second quarter.

Table of Coal Producers

  • As you can see from the table above, the group is not trading at exorbitant multiples and it has certainly not kept pace with the rise in coal prices. Many estimates are simply down from earlier this year due to overzealous modeling assumptions for prices on the part of the sellside. 
  • Fundamental outlook remains solid for both generation and met coal.
    • Global steel production up big this year, up 18% in June (Latin America, Europe, China, India, and Japan all up)
    • Steel production is expected to grow about 5% per annum through 2020.
    • Met coal market was balanced in 2009, falling well short of demand in 2010.
    • Walter projects this imbalance will last through at least 2013
      , with demand growing 7% per annum 2011 to 2013. Supply is projected to grow slightly more but is starting from a lower level and simply will not catch up.
    • Recall that the U.S. is not the only economy and that Latin America (Brazil specifically) is expanding steel capacity after a brief respite.
    • China in the meantime is growing both thermal and met coal demand and has rapidly transitioned from being one of the biggest exporters in the early 2000s to a size importer in 2009 and 2010.
    • India's demand is simply soaring, due to both steel production and a rapid increase in the amount of coal fired generation now under construction (88 GW) - (perfect for BTU to take advantage of from Australia) 
    • By the way, a good sized nuke in the U.S. (with 2 to 3 reactors) is about a gigawatt and the U.S. has about 100 of those. India's 88 GW are set to come on line in the next five years. This will more than triple India's thermal coal consumption.
    • Second by the way, the U.S. has 337 GW of coal fired capacity at present. And half of the U.S.'s electricity comes from coal. So you can see what I'm getting at here.
    • Third by the way and I'll cut it out, China will add 55 GW of new capacity in 2010 alone.
    • BTU estimates their current pace puts them on par for adding 1 billion tons of new coal demand every 3 years. These guys are going green? Yeah, right.
  • WLT - Walter Energy
    • presently my only coal investment, held in the ZLT, average price of $69
    • high quality, low cost producer of  coking (metallurgical) coal
    • Coking coal contract settlements for second half 2010 average $237 per ton (premium product gets premium price). Peabody also has rising coking coal prices with 3Q at $225 per ton
    • Expanding coking operations, can't keep up with international demand
    • Part of the reduction in earnings estimates here is an assumption of lower gas prices by the coal analysts following the company.   WLT produces an increasing amount of gas from the Black Warrior Basin in Alabama, a coal bed methane conducive area. This is a minor piece of the Walter puzzle at this point ... nothing but upside here.
    • At present, half of their coking coal goes to Europe, with the rest mostly landing in Brazil, then Asia and finally about 3% stays in the U.S.
    • Production capacity is growing:
      • 2010: about 7.75 million tons
      • 2011: 8.5 to 9 mm tons
      • 2012: 9 to 9.5 mm tons
      • all without additional capex.
    • 3Q should be substantially better than 2Q on the bottom line. Street now at $2.87 for 3Q vs the 2QA of $2.16 due in large part to a 20+% expected jump in the top line.  Low operating costs let pricing advantages fall through to the bottom line.
    • The company continues to buy back shares and the balance sheet remains strong.
  • BTU - Peabody
    • This one I have been in and out of in calls in the last three years.
    • I find the story now to be one that will likely suit calls but also a position in the ZLT and I am actively looking to prune something to give it space in the portfolio.
    • They are actively expanding their Australian operations to capture more of the growing demand from China and India outlined above.
    • BTU on the domestic front positioned to take advantage of the few new plants that do get built in the States with it's low sulfur, low BTU content coal from the Powder River Basin. 
    • Mulling more active trading around China news here, also mulling the ZLT add.

Odds & Ends Analyst Watch:

  • None that I see so far, will add in comments.

177 Responses to “Thursday – Oil Review, Gas Preview + Coal Thoughts”

  1. 1
    ram Says:

    Hello.  Up, but very slow.

  2. 2
    bill Says:

    robry and enercast both at + 53
    sd with a new presentation
    they threw in the towel on 2011 ng hedges
    hedging 47 bcf at 4.73 for 2011 and another 10 in 2012 about 60 % coverage for 2011
    Interestingly , they cashed in 2013 oil hedges on 1.5 m bbls, i figure they made 7 per bbl so 10 m will come into the pl as realized gains in q3
    the other oil hedges are about 110m in the money

  3. 3
    bill Says:

    speed seems ok
    do you think there will be consolidation in offshore rigs?

  4. 4
    zman Says:

    Bill – yes, there have been rumblings for awhile now that consolidation is coming. I had thought ESV would take out RDC to beef up. Then there were the SDRL comments yesterday along the lines that they see challenging RIG in coming years.

  5. 5
    RMD Says:

    # 2 SD just can't get it right.  Reminds me of when you buy a stock wrong, the position never seems to right itself.
    site seems slow to me.

  6. 6
    elduque Says:

    Baltic up today. Very slow for me as well.

  7. 7
    zman Says:

    Site is slow. It is out of my hands but should resolved itself today. Always happens after a server issue of significant magnitude. Feel free to use the backup site today, it is hosted elsewhere and is fast.


  8. 8
    skimo Says:

    site speed seems fine using firefox

  9. 9
    zman Says:

    It's intermittent. Sometimes fast, sometimes slow.

  10. 10
    zman Says:

    Was at an investor meeting last night, talked with a bond guy, he was very interested in trading SD debt.

  11. 11
    bill Says:

    here are the average actual monthly spot rates for supramax ships




    qtr 1





    qtr 2





    qtr 3

    q3 earnings wont be as good as q2 was for spot players as you can see q2 avgd 27 k per day, q3 is about 20 k

  12. 12
    BirdsofpreyRcool Says:

    Burger King being taken out by a global private equity group.  Why?  Because the stock market is cheap and borrowers have access to very low-priced money. 
    Private investors may be shunning the stock market.  But smart predators are picking off juicy prey.  This will continue….

  13. 13
    zman Says:

    Re This will continue …

    Agreed. And in the energy space. It is cheaper to drill on Wall Street than in the field. I expect to see some gas assets get bought on the cheap in the next few months. Perhaps by India and China, and perhaps by some locals like DVN.

  14. 14
    zman Says:

    Dodged a bullet with the market this morning, was thinking a miss on this mornings' numbers would bring a down market so got lucky that didn't happen as I did not get my HAL calls out the door yesterday largely due to site related distractions. I did punt all of the MMR $15s and will watch those for re-entry tomorrow. Stocks look to be in standby mode.

  15. 15
    zman Says:

    No one making a big deal of the Hornbeck suit, probably because it won't matter … by the time it is settled, it will be the end of November and the Administration will have gotten its way despite the court's ruling. Still thinking ATPG good for a quick trade around any moratorium news that indicates an early softening of the Admin's stance or, at the very least, around the end of November.

  16. 16
    1520sbroad Says:

    #13 – I think this is a real possibility near term.  Z – what do you think are the catalysts for this type of thing?  In my mind you already have some of the key bits in place –
    cheap funding – check
    beat up valuations – check
    some big acreage holders that have proven acreage but current pricing doesn't support upsizing drilling budgets – check

  17. 17
    BirdsofpreyRcool Says:

    Every time I think about spending some quality time with SD, I recall that they are building their own "business campus."  How much are they planning to spend on that?  Just read thru the 2Q10 Q and can't find it.

  18. 18
    zman Says:

    1520 – I think gas production showing chinks in the armor. We’ve had a definite slowing of the growth rate. If we start to see evidence that conventional production declines are offsetting gains from the resources plays AND drilling schedules remains forecast to slow further, two events that will lead to the eventual return of higher gas prices (not to mention increased demand) then I think you see some money get off the sidelines. I think everyone is an oil company now (except HK and MCF) because that’s what you need to be to please the Street. But the bargains will be on the gas side. LINE said it and I think they are correct. Buy low, sell high. Anyway, I mentioned DVN because of their new found love of the onshore U.S. and because some gassy players in good positions are currently distressed. They could eat an HK with very little stress to the balance sheet. I have not heard any rumors there in the slightest, just musing.

  19. 19
    jat Says:

    Re DVN, I still don’t think they buy anyone soon. They’ve ramped up leasing already in a lot of Permian/Cana etc and spent a good chunk of their asset sale dough on share repurchases in July. Based on my conversations with them I think they continue to do that and get the $3.5bln buyback done.

  20. 20
    bill Says:

    I read somewhere that they will spend 100 m on it

  21. 21
    1520sbroad Says:

    #18,19 – agree on gas price stability as a key point. I have no idea who the acquirers line up would include but i think overseas participants are a legit possibility.

  22. 22
    BirdsofpreyRcool Says:

    bill — thank you. That is what I thought I heard. Did Tom Ward learn NOTHING from watching the excesses of Aubrey? I am just speechless, at that glaring example of bad judgement.

  23. 23
    zman Says:

    BOP – $100 mm rings a bell on that.

  24. 24
    zman Says:

    Jat – thanks, was just thinking out loud. Probably ought to give it some thought but I rarely care who is buying … at least not as much as the buyee.

  25. 25
    BirdsofpreyRcool Says:

    ATPG acting very well today.

  26. 26
    zman Says:

    HAL inching through yesterday’s highs. Still has a gap to fill above $30.34. And I still plan to take my $31s off the table before payrolls tomorrow.

    Does anyone know where Goldman is on the payroll numbers (total and private)?

  27. 27
    zman Says:

    NBL in complete breakout mode, JB had that on a new PF buy signal on yesterday’s breakout above $71.

  28. 28
    zman Says:

    re 25. Yeah, would like it to hang back for a bit.

  29. 29
    bill Says:

    No one expects Obama to extend the moratorium into November.

    When do you think he will lift it?

    Two week before the elections seems too late, so earlier than mid october

    When will he cancel detention?

    Thinking out loud.. late on a friday afternoon 9/10, 9/17, 9/24

  30. 30
    zman Says:

    By the way, in cased you didn’t get the email and didn’t read the post, I doubled up on my deep in the money NOG calls yesterday. The company appears to be doing everything right but has been soft (until yesterday) since earnings, along with the rest of the Bakken players. My sense is they have moved a little further out of the backwings and into the lime light with their latest quarter. Think of it as the MCF of the Bakken. 7 employees, a strong balance sheet and drilling alongside the best of the best players in the Bakken.

    NG storage in 15 minutes.

  31. 31
    zman Says:

    Bill – I think he lifts it in 2 stages. Development drilling where temp, pressure data are known goes first, then exploratory wells second. I think to just flip and say we’ve got data and the new rules are in place are too much for ego and recent comments from Salazar to take.

  32. 32
    elduque Says:

    APC could be on BHP’s acquisition list according to Australian reports. Just came over Reuters.

  33. 33
    BirdsofpreyRcool Says:

    Official (bloomberg) ests are for a loss of 100k non-farm jobs tomorrow. Goldman is reporting a prediction of -125k. Don’t know what the whisper number is yet.

    No one is around. Just us chickens. Everyone is out. Gone. On vacay.

    And their cell phones/blackberries have been turned off. NO one wants to even THINK about what this summer has been. It’s just too damn depressing.

  34. 34
    zman Says:

    OAS also snapped a losing streak yesterday.

    WLL shot back close to its 2010 high. Just need a little positive news from the market to give crude a move towards $75 /$76.

  35. 35
    zman Says:

    Someone said August was the worst month in 9 years. Maybe that makes for a better Sept/Oct, I don’t know. But good to have it behind us. I’m overweight in SSN again and the ZLT is near its high so I feel good about that. On options it was very tough and with a little recent day trading, I’ve managed to do a little better than tread water. But nothing to write home about. Looking forward to the day when the market resolves itself to go in one direction or another and not just flop about like a dying fish.

    Another thing the speaker at the meeting I was at last night (former bond guy at Lehman and on this site but rarely speaks) talked about was the massive flows to bond funds and away from stocks. Combine that with the inflows to inversely correlated ETFs and you probably have an overly pessimistic stock market at least in the short term. His comment was “you can lose money in bonds just as fast as you can in the stock market … most people just don’t know or believe that”. He was basically pointing out what a CNBC article this morning was saying that at some point in the not too distant future there will be a rush to the exits for bonds and that will be good for stocks. “Do you want to be buying into bonds at their all time, all time, all time high” he asked?

  36. 36
    elduque Says:

    Bop has been right for some time that there is a lot of money floating around, which allows the BHP’s of the world to go after cos that offer irreplaceable assets. Think Potash.

    Doesn’t CHK with all its assets and being relatively cheap make a good candidate for a takeover?

    Who would you put on the top 5 list of candidates?

  37. 37
    BirdsofpreyRcool Says:

    #35 = exactly the reason i don’t like bond funds. You want fixed income… buy the actual bond. But when you buy into a bond fund, your NAV jumps around with money flows.

  38. 38
    zman Says:

    54 Bcf, in line with consensus, a touch high to me.

  39. 39
    VTZ Says:

    RE 35 – I still stand by my statement that the US treasury is the biggest bubble of all. Trillions of $ of overvalued debt will not end well. It’s a well know fact except people continue to pile in.

  40. 40
    bill Says:

    sd 100 m bldg


    and pictures and artist renderings


    i want to work there..looks very nice!

    Ward is living in another world. He needs to go, imho

  41. 41
    elduque Says:

    re 39, I agree. Bt some TBT yesterday for insurance.

  42. 42
    zman Says:

    Eld – just for grins

    Bigs and Mids

    * PXD – cheap on reserves, oily, in the right plays now.

    * BRY – oily and cheap on reserves

    * FST – cheap

    * NOG – I can make that an accretive deal for a lot of folks.

    * ROSE – if they get good results in the Montana vertical Bakken/Logdepole play

    * NFX – I always think they are going to be taken out, at any minute. Never happens and I don’t want it to but it probably should until they get some respect.

    *CHK – cheap, cheaper than usual, but still a big bite for most buyers. They’d really have to be convinced on gas long term.

    In the smalls – who knows,

    *GDP – cheap and small enough to be hedged out in a slightly better gas price strip than this to be accretive

    * SSN – but now I’m just talking my book, there is value to unlock there, and quite a number of plays outside the Niobrara and Bakken but it may be a function of “nice call, too small” for most buyers.

    * SD – at some point someone has to take a look. Lot ‘o assets here.

  43. 43
    zman Says:

    V – Funny/sad but those piling in see it as a “risk free” trade.

  44. 44
    bill Says:

    if ward slows down on the bldg. he is admitting to the world hard times coming

    It would be very embarrassing to him in the community

    he also needs to slow down on phase 2 on the oxy plant

  45. 45
    VTZ Says:

    RE 43 – Watch, they’ll blame the ratings agencies again… “What? We didn’t see it coming”

  46. 46
    VTZ Says:

    RE 45 – You and I both know that the first company to downgrade American debt is going to be place in front of the firing squad.

  47. 47
    zman Says:

    Bill – I could almost swear Aubrey’s stock peaked in 2008 at around the same time that he put pix of the planned Appalachian division HQ on the internet. Of course, now the damage is done and what’s a $100 mm these days anyway? If they get bought it will be just another asset to divest at a loss as they clean this puppy up. Or maybe they keep it and use it, I’m sure it will be state of the art. DVN is right there, would make a lot of sense to … nope, going with Jat on this one.

  48. 48
    bill Says:

    Robry at 53 this week has next week at +46

  49. 49
    zman Says:

    VTZ – You can easily envision the Senate panels now. Gheitner has repeatedly stated U.S. debt will not be downgraded. Almost like an edict.

  50. 50
    zman Says:

    Bill – thanks, there was a warm bump assumed for this week so the smaller number makes sense. Although Earl could put a kink in that. Next week we have the holiday so two week’s from today expect a ballooned out number.

    I put us in the 3.7 to 3.8 Tcf range for peak.

  51. 51
    zman Says:

    MMR was quick to rebound off the lows today. I think EXXI will do the same and given the better valuation there, and the oiliness of the name, I really do see them taking out the 2010 highs in the next couple of weeks to months as the Gulf shelf and then deepwater free up in terms of knowing what regulatory environment they are operating in.

  52. 52
    zman Says:

    ElD – when I say cheap in 42 above, I’m talking about how the market, in terms of TEV/ MCFE of reserves is currently valuing the companies. Some of these guys are oily and under $2/Mcfe now. That’s just silly.

  53. 53
    zman Says:

    Don’t know about you guys but the site is running fast for me last 30 minutes or so.

  54. 54
    zman Says:

    HAL punching higher now, $31 strikes alive and kicking.

  55. 55
    bill Says:

    Does Ward & Mclendon get along?

    CHK likes to own the best reservoirs and then finds jv partners. Maybe they could move into the sd territory and find a partner to develop it. SD/OXY/chk and a 4th int’l partner

    Sitting on idle assets makes no sense

  56. 56
    VTZ Says:

    Site has been fine for me all morning.

  57. 57
    zman Says:

    V – thanks, things seem to be running more smoothly in Canada these days. How’s gas storage up there? Read the other day it had come off substantially but I have not run the numbers there in quite some time.

  58. 58
    zman Says:

    4 months ago I would have said partner 4 would be obviously BP. Now I’d say OIL (India) or PTR (China). Of course, people will likely try to block a deal with China in the U.S. which is why they will send their petrodollars on the hunt just about everywhere else, including Canada.

  59. 59
    ram Says:


  60. 60
    zman Says:

    After 5 and 7+% up moves yesterday for WLL and WLT, the end of the alphabet team is marking the market today. I went through a bit of EIA data and quite a few presentations from the coals in coming up with today’s posts and I find the arguments for growth compelling. The growth of the Indian and Chinese electricity market is staggering.

  61. 61
    zman Says:

    ATPG through $12 and not looking back. Maybe tomorrow brings an oppy to get long some. Not willing to chase in front of payrolls.

    NOG nudging over $15.

    Ram – slower than usual?

  62. 62
    zman Says:

    JB – can we get a read on ATPG when you have time? Thanks.

  63. 63
    zman Says:

    NG price essentially unched post number. Market could care less, just wants to know where E,F,G etc are headed.

  64. 64
    choices Says:

    Site speed is fine with Firefox as Skimo noted-Explorer rarely works for me consistently and I believe I have the latest version.

  65. 65
    zman Says:

    HAL spiked down, weirdly, just as headline hit saying BP has begun removing cap from well.

  66. 66
    choices Says:


    Summary of why UNG is poor investment, even when NG is in the toilet-nothing new to anyone here.

  67. 67
    zman Says:

    Thanks choices. I write in Firefox and rarely look at it in anything else but Safari.

  68. 68
    john11 Says:

    ME Mariner Energy trading lower on Bloomberg headlines indicating a rig explosion in the GOM ($22.57 -$0.78)

  69. 69
    ram Says:

    Yes. Several E&P’s spiked down.

  70. 70
    choices Says:

    Uptick in consumer confidence seems to have been an anomaly:


  71. 71
    BirdsofpreyRcool Says:

    ME rig explosion just sucked all the air outta the room.

    ATPG bounces more than Pam Anderson, running to save some poor drowning actor! wow.

  72. 72
    zman Says:

    I see news of ME rig explosion on CBS radio news.

    Coming out of MMR, HAL now, will rebuy when dust settles.

  73. 73
    BirdsofpreyRcool Says:

    Odd. Mrkt is not necessarily “afraid” of what a rig explosion will do, per se. The FEAR is how our Govt will respond to it.

    If that doesn’t make you feel sad… well…

  74. 74
    john11 Says:

    Absolutely correct Bop!

  75. 75
    zman Says:


    HAL – Sold (25) September $31 for for $0.36, up 12%. Selling due to news of another rig explosion in the Gulf, rig operated by ME.

    MMR – Sold (25) September $14 calls for $0.80, up 70%. Same reason.

    I look forward to buying both sets back lower in the near future but better safe than sorry for now.

  76. 76
    bill Says:

    71, lol

    i was wondering why things were selling off

  77. 77
    zman Says:

    Sounds like a barge rig on CNN.

  78. 78
    zman Says:

    Stocks trying the early bounce, I’d rather let the dust settle, if I left a little on the table, so be it.

  79. 79
    zman Says:


    That’s shallow water. So much for the early end to the moratorium. Thoughts and prayers to the missing man.

  80. 80
    cargocult Says:

    Sorry to ask this dumb question but what is the deal with SD? I mean what is the nature of their huge reported losses? I’m wondering if we are seeing a bottom in this stock? Any good news coming?

  81. 81
    zman Says:

    Looking at the map on CNN, that’s not even shallow water, that’s transition zone or a bay.

  82. 82
    Nicky Says:

    Morning all. I was looking for 1086 area. After that resistance is at 1088. Should see consolidation/pullback to the 1070 area.

  83. 83
    zman Says:

    Re SD – It’s gassy and they have too much debt. Maybe a bottom, hard to say, they keep changing their mission, now they are an oil company, lol. Don’t know about good news coming soon. I’m mulling it for a bottom fish trade.

    Re the new explosion, sounds like they had 13 guys on it, either a rig or a platform, not sure.

    Probably gives a bit of a wind to the Bakken players as money exits one side of energy and goes back to the other.

    ATPG now off as much as it was up. The quick bounce is proving fleeting in the names like MMR. EXXI getting hit harder, not close to fair but there you have it.

  84. 84
    jy Says:

    Mariner operated Vermilion Blk 380 (GOM Shelf)from CNN:

    “An oil rig has exploded 80 miles off the coast of Louisiana, with 12 people overboard and one missing, the Coast Guard said Thursday morning.

    Rescue attempts are underway for at least 12 people, Coast Guard spokesman John Edwards told CNN. 13 people were on board the rig total, Edwards said, noting 12 have been accounted for, but one person was missing.

    The accident took place 80 miles off the coast of Louisiana on the Vermilion Oil rig 380, which is owned by Houston-based Mariner Energy.

    The Coast Guard has multiple helicopters, an airplane and several Coast Guard cutters en route. It’s unknown if there are any injuries”

  85. 85
    zman Says:

    Thanks much Nicky.

  86. 86
    bill Says:

    whats a barge rig?

  87. 87
    BirdsofpreyRcool Says:

    phew… all 13 workers accounted for… bought ATPG at 11.30

  88. 88
    jy Says:

    VR Block 380 is in 320′ water depth

  89. 89
    BirdsofpreyRcool Says:

    bill — just what it sounds like. A drilling rig, mounted on a barge, for use in shallow water or transition zones (think swampland with alligators).

  90. 90
    zman Says:

    Barge rig is a barge

    JY – thanks, getting differing information, yeah, that’s probably a jackup, that’s shallow water, not a barge rig, is in the Gulf, will have a bad impact on GOMEX sentiment and a big “I told you so” from the president. Look for a shallow water moratorium now. Damn, they are going to unemploy the entire Gulf Coast.

  91. 91
    bill Says:

    sd actually reported earnings in q2.

    1 it was how they got them, cashed in hedges

    2. Production flat and cap ex up with arena added to the mix ( very disappointing)

    3. Low ng prices and no ng hedges in 2011

    Sd tried to remove that issue by hedging 60 % of 2011 at a low price

    4. Hi level of debt
    5. Idle assets not earning anything
    6. ward the ceo has no clue, bldg a taj mahal and trying to keep up with his old boss aubry mcclendon
    7. every analyst downgrading them including tudor pickering who asked in a piece

    “something amiss at sandridge” then down graded them to 3 dollar target just weeks after they told the world that sd was worth 7 in a fairness opinion

    As an aside, I pizzed off TPH when i questioned them on this. their response was to ban me from their daily newsletter

    thank you Dan Pickering

    Some one should sue them for their sd fairness opinion. Best case it paints the firm in a bad light

  92. 92
    jy Says:

    Verm Blk 380 addn’l info:

    Mariner has a 14 well (slot), 2 deck, manned platform that was built in 1980. The platform is 102 miles offshore in 340′ of water. The earlier 319′ depth is the NE corner of the 3 mile x 3 mile block. Oil scout data from 8-27-10 shows no rig at that location. Likely some sort of rigless well work underway (slick line, or wireline, or coil tbg, etc)

  93. 93
    bill Says:

    87, why buy with this now. Helluva a contrarian buy

    How the hell can Obama lift things now

  94. 94
    BirdsofpreyRcool Says:

    jy — sounds like it was (is) a production platform. Must have had a lift boat/work boat tied up, doing some workover stuff?

  95. 95
    zman Says:

    Bill – onshore names moving up as the offshore names cower.

    APA (who just bought ME) starting to get hit, nothing like BP though, 1) it’s a legacy asset and 2) it should be easy to get under control.

  96. 96
    tomdavis12 Says:

    46 – VTZ I believe there are already foreign rating agencies that have USA as less than AAA. There are now only 4 corporate AAA ratings. JNJ, MSFT, XOM & ADP.

  97. 97
    RMD Says:

    GS piece today: E&P risk/reward improved after pullback, need supply/demand clarity….(now isn’t that insightful?).
    Esp. like NFX and EOG.

  98. 98
    BirdsofpreyRcool Says:

    ME spokesman tells CNBC that as far as they can tell, there is “no spill, no sheen, no nothing.”

    HT points out “no nothing” = like a kid. Funny, HT.

  99. 99
    zman Says:

    RMD – thanks, funny how they liked EOG at $100 but had no goal line defense of it when it tumbled. Man, they just aren’t the big hitters in this group that they used to be. Still, I very much agree and was just thinking to do a trade there in the ZIM as I looked at the onshores.

  100. 100
    BirdsofpreyRcool Says:

    ATPG doing it’s PA thing again…

  101. 101
    BirdsofpreyRcool Says:


  102. 102
    bill Says:

    nog is getting a benefit like you said

  103. 103
    zman Says:


    WLL – Added (10) September $95 Calls for $1.00 with the stock at $90.75. My sense is that the onshore names will see increasing money flows in coming days and this is my cheap name in the Bakken with a solid story and a liquid options market. I continue to own WLL in the ZLT.

  104. 104
    jy Says:

    VR 380 last month of reported production by BOE = May 2010 (BOE usually 4-5 months behind on production reporting)

    73,493 bbl condensate
    317,642 Mcf gas
    19,211 Bbl water

    Total block Production:
    6,037,256 BO
    33 Bcf gas

  105. 105
    Dman Says:

    Just unloaded my SD trade on hearing about the $100m Taj Mahal. I’ll take the small profit and not argue with it.

    It looks like it could run on the chart, but … I don’t want to be thinking about an investment in building commercial real estate. Right now you could just buy any amount of the stuff for very little… and then watch it lose what little value it had.

  106. 106
    zman Says:

    Thanks JY, so max they’d be worried about from a production standpoint is 2,370 bopd (not caring about the gas).

  107. 107
    BirdsofpreyRcool Says:

    Dman — i want to like SD down here… but have to agree with you. The $100mm Pantheon to Pride is just too much to overlook.

    Next, they will be putting their name on a basketball arena, or the like.

    That story just never ends well….

  108. 108
    zman Says:

    OAS chasing $18 now, total change of trend in 2 days.

    NOG trying same.

    SSN treading water by the way which is interesting in front of next Tuesday when they get a big suit case full of cash. The size of suitcase can range a bit – by about $18 mm or $22 per share.

  109. 109
    crysball Says:

    Is there decimal missing in the SSN post as you call out $18/$22 per share ?

  110. 110
    choices Says:

    RE: Flash Crash-article may be of interest-understand that SEC is looking into high frequency trading to determine if individual trades are getting screwed-duh


  111. 111
    zman Says:

    Crys – meant to write:
    $18 million
    $0.22 per share
    (about 83 mm shares)

  112. 112
    zman Says:

    Let me know if anyone sees a Coast Guard press conference on the platform fire.

    I will rebuy HAL tomorrow post numbers.

  113. 113
    crysball Says:

    Gaston looking very much like a Gulf
    Hurricane in the making as it’s current consensus track is S. of Purerto Rico

  114. 114
    Dman Says:

    EOG can’t get out of its own way

    My basket of small Canadian gold/silver stocks, many of which I know hardly anything about, is getting very jiggy.

  115. 115
    choices Says:

    Dman-heh-have to ask-jiggy as in good or as in bad.

  116. 116
    Dman Says:

    Z – media not exactly going crazy about the rig explosion. Maybe it’s “rig-explosion fatigue”.

    i.e. “if it isn’t more spectacular than the last one, then we’ve got other things to obsess about.” Eg Obama vacation etc.

  117. 117
    zman Says:

    Crys – my Hurricane app on the iphone shows it bending for the east coast after brushing the islands. There is already another cloud pile behind it and each one of these has pushed further east so I would expect one to go Gulfward soon. The Coast Guard really ought to get out of BP’s way on this plugging operation.

  118. 118
    Dman Says:

    choices, jiggy = good 🙂

  119. 119
    zman Says:

    Although I just checked and several models now having it skirting just south of Cuba as well which would put it on course for trouble.

  120. 120
    zman Says:

    Offshores not being more punted now. Interesting. No immediate shut down of all production in the Gulf? Somebody get the President off the 9th hole.

  121. 121
    choices Says:

    Do not know the reputation of the guy being quoted but prob no surprise as to the negative opinion on NG-somewhat surprised as to extent in time-Z,any opinion about the “King” or his opinion.


  122. 122
    zman Says:

    Choices – not really. I don’t know the analyst he is referring to. I scanned it and I’m not surprised of the opinion and I have to say I think we will be range bound, other than seasonally influences for the next 6 months. 18 months is probably a stretch as both demand should rise and supply should being to come off more rapidly in 9 to 12 months and the market will generally start discounting that via a rising price a bit earlier. Low prices cure low prices.

    I would like to know what the author’s easy to read newsletter looks like and why he has 25000 followers, I guess achieved by mostly cut in paste if this article is deemed to be representative, vs my whopping 250 followers over on SA. I just feel so cold and alone now after having seen all the love that he gets and I do not. It makes me just want to say BE CAREFUL WHERE YOU GET YOUR NEWS AND ANALYSIS, LOLOLOLOL!!! Man, someone must have slipped one of BOP’s “supplements” in my coffee.

  123. 123
    zman Says:

    NBL at $72, argh.

  124. 124
    zman Says:

    Tropics watch:


  125. 125
    Wyoming Says:

    Could be a platform rig out for ME. 13 people is nowhere near the amount of hands for a J/U.

  126. 126
    zman Says:

    CNN is now calling it a platform.

  127. 127
    BirdsofpreyRcool Says:

    … inner peace …. inner peace ….

  128. 128
    occam Says:

    The Crown Weather image on its first page is simply a copy of the National Hurricane Center’s Atlantic storm map.
    The difference is that you can click on the storms on the NHC site and see projections of future positions, so I prefer it.

    What names are likely to move if Gaston swings into the Gulf?

  129. 129
    zman Says:

    Occam – yes, I use several sites, was just showing the string of storms.

    Depends on where in the Gulf. Central shallow water would do good things for gas prices more than oil, especially if there is infrastructural damage. That would take you to the hedged and unhedged players. Easiest name there is SWN for a storm related gas bounce play. If it were to come onshore in Texas or Texas/La border and do damage, then I’d be looking for pops in SUN, TSO, HOC, FTO, and watching for VLO damages.

  130. 130
    zman Says:


    EOG – Added (5) September $90 calls for $2.01 with the stock at $89.05. A bit risky in front of tomorrow’s payroll number but I will likely double this and the WLL from earlier if the numbers are bad or good (depending on how bad of course tomorrow). The recent route of EOG shares seems overdone. I continue to own higher strike calls here and the common in the ZLT.

  131. 131
    Dman Says:

    Z – #122 I can tell you about Keith Schaefer’s newsletter because I subscribe to it 🙂

    He has a lot of followers because his entry into newslettering was very well timed – basically the middle of the mega-crash of 08-09. He specializes in Canadian oil & gas juniors and his portfolio did *very* well coming out of the crash.

    Most of what he sends subscribers is his own analysis, but he also sends along interviews with assorted other people, of which the NG price piece was an example.

    Schaefer has his own view on NG but given the arcane and let’s be honest, difficult nature of the NG beast, he looks for input from those with a track record.

    For most of the time I’ve been paying attention, Schaefer has been leaning heavily to the oily names.

    As for the newsletter being “easy to read”, well it is if you just want to read the bit that says “buy 5000 shares of an obscure stock you never heard of”.

    But actually I find the sheer amount of information he provides is a bit overwhelming. I could manage it if that was all I was doing, i.e. I think getting a handle on Canadian juniors is a full time job.

    However I’ve been reading him long enough to conclude that he is expert in this stuff and is also very sharp on the investment/psychology aspect. He spends a lot of time talking to analysts and management, so he is about as plugged in to that sector as you can be.

  132. 132
    zman Says:

    Then I guess I am just 1/100th as expert and plugged in as he is.

  133. 133
    Geno Says:

    z #131 – say it ain’t so

  134. 134
    West Says:

    Z, What was the knock on REXX, was it a management issue? They are at TD on their Niobrara test the Peacekeeper #1-29H and hope to frac this month. This well is approximately 2.5 miles NE of SM’s Silo Field well that tested at 500 boepd during July. SM has already scheduled the offset well about a mile southeast. Any thoughts anyone?

  135. 135
    zman Says:

    Wst – It was valuation, have it on my list of things to take a closer look at near term along with GST.

  136. 136
    zman Says:

    Mile long sheen:


  137. 137
    West Says:


  138. 138
    zman Says:

    I’ll do something on it very soon.

  139. 139
    Dman Says:

    Z – #132 you had me stumped there until I realized you were comparing the size of the adoring hordes.

    Options players are a smaller crowd.

  140. 140
    zman Says:

    VQ walking higher. Onshore, oily focus.

    Dman – Then maybe I should publish the full history on the ZLT. Lawyer gave me a bill the other day just to let me know I could so I might as well get some use out of that.

  141. 141
    Dman Says:

    #136 Oh crap. Cue media frenzy and WH spokesperson. BTW, isn’t it time they dumped that guy? I thought you were supposed to burn thru the press secretaries every year or so.

  142. 142
    zman Says:

    West – Rodman sure likes REXX, $20 target today.

  143. 143
    ram Says:

    ZMAN – I was thinking, those NOG 10’s have an open interest of 53. If, for some unknown reason, the rats all jump ship at the same time, can the MM force a low bid/below stock price offer only?

  144. 144
    Dman Says:

    Z – I notice you are much more cautious about the legal stuff than most people.

    As for Schaefer, well you could say that he’s gotten by so far with exactly one market timing call. It was a good one, but he remains untested in that department.

  145. 145
    zman Says:

    Ram – yes. They can and do do that, more on the ASE than on NYSE listings, generally by keeping a wide spread and widening it if they see supply they were not prepared for on the bid. If you are watching it now, they are trading shallow to intrinsic this deep in the money call by about 4%. Sometimes if the stock is moving down rapidly or the market is you will see the bid soft to intrinsic by 10%. I generally don’t care for deep in the money options but here, I felt that it would uptick more than it has and I doubled the position when it didn’t and could probably with a little patience bag $5.20 in the next little bit or $5.10 right now. To me this is relatively conservative way of “owning the stock move” over the next few days at 1/3 of the stock price (more leverage for me) while obtaining 100% of the delta and if carefully bought, paying little to no premium. The higher strikes would have offered more leverage to be sure but the premiums struck me as excessive, meaning the stock would really need to get up and move. Generally on ones like these, if you want out, you can tap the mid a hair under or in line with intrinsic, regardless of where the bid is at and get filled in a minute or two.

  146. 146
    zman Says:

    D – apologies for that but I have found it to be a litigious little world we live in.

  147. 147
    zman Says:

    Oil closing at $75, up a $1.10. Stocks sure aren’t reflecting that.

  148. 148
    zman Says:

    Gaston tracks looking more ominous:


  149. 149
    zman Says:

    Gaston called a Cat 1 by Monday morning, should still be headed due west at that point.


  150. 150
    BirdsofpreyRcool Says:

    bill — #91… TPH… unbelievable. Maybe it has something to do with #146….

  151. 151
    BirdsofpreyRcool Says:

    Thoughts on the latest offshore oil spill (slick)?…. Please God, someone hide Ken Salazar’s boot.

    Stuff happens. That’s life.

  152. 152
    BirdsofpreyRcool Says:

    to add to #151 — just grateful and happy they found everyone!

  153. 153
    BirdsofpreyRcool Says:

    asking HT for some insights and guidance on tomorrow’s action…

    he thinkgs that after open (and whatever action goes with the Jobs number), then it will be a slow cash grind higher. Just like today.

    Sounds about right to me. z?

  154. 154
    BirdsofpreyRcool Says:

    Not to sound “Presidential,” or anything but… “tap, tap, tap… helloooooo…. is this thing on??” heh heh heh

  155. 155
    zman Says:

    153 – yeah, sounds right, actually hoping for a small miss to give us a dip entry on a few things. I got bagged on my HAL sales but better to miss some and make a little than get hit hard in out of the money calls. I plan to add that one back after the open.

  156. 156
    zman Says:

    BOP – hold down the fort, gotta go round up a stray intern, back in 30 min.

  157. 157
    1520sbroad Says:

    #143/145 – they can and do do that. Limit orders only, split the spread as close to intrinsic as possible. options mm’s will steal pennies from their grandmothers

  158. 158
    BirdsofpreyRcool Says:

    Guess the ME platform fire is contained. Good.

  159. 159
    Dman Says:

    Marc Faber quote:

    “Investing has a lot to do with common sense and personal observations. The man on the street frequently knows far more about the state of the economy than politicians, university professors and financial analysts who seldom travel, or if they do so, only from one first class hotel to another first class hotel and from one golf course to another. The pulse and vibrancy of an economy is, however, nowhere more visible than in a country’s entertainment venues such as bars, restaurants, nightclubs and shopping centres.

    So that’s his excuse for constantly sampling the “nightlife” that he’s always talking about (causing much squeamishness by assorted TV bauble-heads)

  160. 160
    Nicky Says:

    So what’s with the oil sheen seen near the burning platform? I thought they said no oil spill??

  161. 161
    ram Says:

    Thanks ZMAN, 1520. Poor grandmothers.

  162. 162
    zman Says:

    Interesting reaction in the service names to the platform fire today. Basically, a quick dip and back to the highs. I still like the HAL, sort of linking WFT in here as well.

  163. 163
    BirdsofpreyRcool Says:

    guess “no nothing” was a premature comment…

  164. 164
    zman Says:

    End of day uptick in the market is a bit more than I expected.

  165. 165
    BirdsofpreyRcool Says:

    Not a fan of the end-of-day uptick, going into the Job’s number… would rather do the opposite. Raises the bar for tomorrow.

    That said, unless it’s a loss of like, 200k jobs, what do people expect? We all know employment sucks. But, stocks have rallied in the past, well before the economy has provided jobs growth.


  166. 166
    zman Says:

    Oil sheen again reported but Gov. Jindal says production now shut.

  167. 167
    BirdsofpreyRcool Says:

    oil sheen will evaporate overnight… unless i miss my bet.

  168. 168
    BirdsofpreyRcool Says:

    So far, no word yet from Ken Salazar’s boots??

  169. 169
    zman Says:

    After what we have seen from BP, it’s a tiny drop in a very big bucket. Just don’t go say that on TV. Salazar just about to step off the back nine I’d bet.

  170. 170
    BirdsofpreyRcool Says:

    Interesting day. Thought I’d pick up some ATPG, if the mrkt let me today or tomorrow. Mission Accomplished. My work for the week is done (i’m out tomorrow… so have a great Labor Day weekend, y’all!).

  171. 171
    choices Says:

    #122-Z, had to step out so did not respond immediately-I do not subscribe to the newsletter but did try it in Aug 09 and then cancelled w/i 30 days-he focuses on Canadian stks, mostly unknown, but I did not have the time to really dig down-as Dman noted, he also brings in third party “experts,” which were unknown to me as well-newsletter contains a lot of information but takes a lot of time to wade thru-I did not have the time at that time-I prefer your analysis (which also includes lessons on patience) and knowledgeable comments from those on the board.

  172. 172
    Jerome Blank Says:

    #62 ATPG, inside “spinning top” candle close, testing short term resistance at $12 today, still looks good here, support at $11, resistance at $12, if it breaks out above $12 tomorrow, the 100 day SMA at $13 is the next near term target..

  173. 173
    VTZ Says:

    Sorry stepped out for the day. I’m not up to date with the storage situation but the differentials are still bad.


    Can be used for daily AECO/Henry Hub spot closes and differentials. The differential tightended by 0.21 yesterday which is quite a large one day move. I guess it will be something to track.

    You’ll also note that the WCS to Synthetic differential is 19$/bbl which is bigger than what was forecasted in my caution to those owning companies who have a large portion of heavy production. Pipeline apportionment was also worse than expected although now that the Enrbidge line is restarted, the light:heavy differential should begin to tighten rather than expand through Sept and Oct.

    RE 96 – There is a Chinese rating agency that has US debt rated at AA with a negative outlook. “Dagong Credit Rating Agency”.

    Moody’s and S&P are behind the ball anyways. Look at how they rated and currently rate California and the other states that are in trouble.

  174. 174
    zman Says:

    SD option exercise insider for $0. I have to say, given the performance, the insiders should hold off. You want shares, you buy them in the open market. That kind of guidance should come from the top down.

  175. 175
    choices Says:

    FWIW:  AAII weekly count
    Bullish: 30.8%, up 10.1 points
      Neutral: 27.0%, down 2.8 points
      Bearish: 42.2%, down 7.3 points

  176. 176
    Jerome Blank Says:

    A few technical thoughts on the macro picture…I posted two S&P charts…the S&P broke out and closed above the 50 day SMA today, so traders will be looking to 1079 as support if the mkt goes lower tomorrow on the report, but given the better than expected economic reports, so far this week, the macro picture has technically improved…, the S&P goes back on a P&F buy signal with the print of 1110, which is below the 200 day SMA currently at 1115,  if the employment report is considered good, perhaps the 200 day is tested, the $NYMO at 25.30 is starting to get a bit more elevated than it has been recently, still no way overbought, but worth keeping a eye on now….

  177. 177
    zman Says:

    JB – thanks much for that.

    I've been working on some charts of my own to show ZLT performance, which is comprised of a bunch of my families accounts. Interesting.

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