Monday Morning And All Is Greener

Posted on by zman

In the beginning, we smiled at the gassiness of things. Then we learned to flip over, followed by crawling and walking and then running, sometimes with sharp objects in our hands called options. But mostly with seeming safer implements called stocks. And this month we turned 4 years old. Thanks to all for making ZEB a constructive idea generator. Please click here if you missed the weekend post and graphs. If you know of anyone who should see that feel free to direct them to the site. Thanks again, Z

Market Sentiment Watch. For once, not dazed and confuse. China's industrial output jumped more than expected late Friday and new banking regulations regarding capital requirements under Basil III provided more certainty which is what market participants have been craving. In energy land, the week should be dominated first by the Rodman Renshaw conference (smaller names) and then the Barclays Capital Energy Conference (small and big names alike). These conferences should provide plenty of opportunities for operational updates in several owned names.  Peters & Co. is also holding a conference this week but I haven't tracked down the schedule yet. I plan to be on conference calls most of the week. 


The Week Ahead:

  • Monday 9/13: Federal Budget at 2 pm EST
  • Tuesday 9/14: Retail Sales (F = 0.3%, F ex autos = 0.5%), Inventories
  • Wednesday 9/15:  EIA Oil Inventory Report, Empire State Index (F 7.5, last read was 7.1), Industrial Production (F = 0.1%)
  • Thursday 9/16: EIA Natural Storage Report, Jobless Claims (F = 458,000), PPI (F = 0.8, Core = 0.1%), Philly Fed (F = 0.0, last reading was -7.7)
  • Friday 9/17: CPI (F = 0.3%, Core F = 0.1%), Consumer Sentiment for September (F = 69.5, last read 68.9)

In Today's Post:

  • Holdings Watch
  • Commodity  Watch
  • Stuff We Care About Today –
  • Odds & Ends

Holdings Watch: ZCAT (Zman Catalyst portfolio):

  • $5200
  • 100% Cash - waiting in the weeds until the market starts to pay attention to catalysts again.

ZIM (Zman Inefficient Markets portfolio)

  • $5,700
  • 11% Cash

Commodity  Watch:

Crude oil ended last week 2% higher at $76.45. The 12 month crude strip is trading at $80.08.  This morning crude is trading $0.50 to $0.75.

Natural gas eased a percent last week to close at $3.89 but near term, the damage to gas appears to be largely done. Thinking a new trading range of $3.50 to $4.25 is forming for the next 8 weeks.   The 12 month strip is now trading at $4.47. This morning gas is trading off slightly with milder weather and a continue lack of imminent  tropical threats to the Gulf.

  • Tropics Watch:
    • Hurricane Igor - no threat to land
    • Tropical Storm Julia, probably also no threat
    • Remnants of Gaston, may be a threat to the Gulf later this week
  • Weather Watch: Cooling Off
    • Week before last: Cooling Degree Days of 72 which, yielded an injection of 58 Bcf.
    • Last Week: CDDs of only 41 which was cooler than the original forecast of 48 and just below normal and last year's reading, both at 44. We also had a holiday last week so look for a significantly larger injection this week.
    • This Week's Forecast: 39 CDDs, in line with normal and last year.



Stuff We Care About Today

Rodman Renshaw Conference:



Other Stuff

  • Seeing lots of debt deals - CLR and BEXP today alone, WLL last week.
  • APC - Another successful well off Africa, the Owo-1 sidetrack sees additional oil pay off Ghana, 225 net feet of pay over a 655 foot interval. APC is dispatching another drillship and will spud another of their exploration targets in the area in 3Q.  
  • EGLE opens trading operation

Odds & Ends

Analyst Watch:

  • HAL - UBS raises target $4 to $43, rating Buy. I continue to think analysts are still waking up to the fact that estimates are too low on the coming quarters.
  • PCX - target cut $5 to $21, stays Buy at Brean Murray

Interesting Reading Watch:

132 thoughts on “Monday Morning And All Is Greener”

  1. Keystone XL looking for Bakken crude
    BILLINGS, Mont. — TransCanada Corp. and Montana Gov. Brian Schweitzer have scheduled an official announcement Monday on the company's 1,980-mile Keystone XL pipeline. The company said Friday it will hold a so-called open season to offer pipeline access to oil producers in Montana and North Dakota.
    Calgary-based TransCanada had faced political pressure to let U.S. oil companies tap into the project.
    The company's primary aim is to carry oil sands crude from Canada to Gulf Coast refineries – following a route through several major oil fields along the Montana-North Dakota border.
    Industry representatives say interest in developing Montana and North Dakota oil has been hampered in part by a lack of pipelines.

    Reply

  2. Good morning.  China's continued economic growth + the resolution of Tier 1 and Tier 2 capital requirements from Basel III have put a bid to the market this morning.  Europe and Asia were strong last night and there is no reason to think the strength will not spill over into the US market open. 
     
    As far as Basel's new (higher) capital requirements go (phased in from 2013 – 2019), US banks are "95% of the way there" with every one of our major banks already meeting or exceeding the targets.  Nice to know.  Basel III thinks the new reserve mandatates will reduce the chance of a financial panic to less than 2% (I don't know how they cam up with that number, but it's nice to see it's pretty darn low).  Richard Bove is on the tape calling the new Basel requirements "excellent."  When Richard talks about banks, I listen.
     
    TED Spread is responding positively.  Settling back into this comfortable armchair range of 15.2 bps.  Any lower (tigher) and I start to worry we are getting TOO comfy.
     
    Blackrock filed a form notifying EXXI that they now own over 10% of EXXI's common stock as of August 31st.  The guys at Blackrock are smart… 'nuff said.

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  5. RE 2 BOP on Friday late I read your post on the credit cycle which was great.One quick question can you explain what you mean by Equity Premium?My guess its the Dividend Yield compared to Bond Yield?Just a guess thanks…

    Reply

  7. re 2. Agree with all of that. Am a bit concerned about the argument that if regulators regulate to a common, world wide requirement, that it could lead to a worse, systemic problem down the road. After all, banks were encouraged to have the "safe" asset class of mortgage backed securities on their balance sheets once upon time…

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  8. ilikericky — "equity premium" can mean different things in different cycles.  For example, during the Tech Rally, "Sales-to-price" was a common ratio (which was just ridiculous, we all know now in hindsight).  During the last run-up, EV/EBITDA got way outta whack…. as did PE.  But, "equity premium" by the book is the company's "cost of equity" as compared to the 10 or 30 yr treasury yields.  Coming up with the "cost of equity" is not easy… it's not something one can look up on Bloomberg (as a corporate treasury colleage famously asked, yrs ago)… but it's something every company treasurer and CFO should have a current handle on.  When that premium gets too low, companies should be issuing equity to pay down debt… b/c the next credit cycle leg down, she is a-coming.
     
    Bottom line — no freeway billboard on that one.  But looking at a large company (like GE) and estimating their YoY after-tax growth rate + dividend yield and comparing that to 10-yr US treasury yield will give you a pretty good metric, I would think.  Key is your assumptions (isn't it always).
     
    Glad you found the credit cycle post helpful.  Thank you for saying so!

    Reply

  12. Helping oil this morning, along with equities is the continued closure of Enbridge's 760,000 bopd pipeline from Canada. EPA says workers still have not found the source of the leak.

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  16. TAT has been selling itself on NMM the 3rd's resume for a long time.  At some point, Cowboys on Camels need to show us the money (and not just NMM 3rds).  Any comments on timeline there will be helpful.  thanks.

    Reply

  19. Morning all.  Did not see the weakness I was expecting Friday into today.  So now looking for a top in the Wednesday timeframe (plus or minus a day) and then weakness into 21st/22nd September.
    We have resistance here (and a gap fill) and then 1129 – 31.  Support at 1115, then 1109.

    Reply

  20. TAT Notes

    Getting $7.25 to $7.50/ MMBtu for gas now

    Thrace Basin – 10 mm/d net, 10 mm/d awaiting pipe (same as last time) , most of the 2nd 10 will be on by year end

    Thrace Basin deeper potential – tight gas sands, going to be fraccing stuff that is "new" in completions in Turkey but would be run o the mill in the States

    Plan is to take old "show wells" that were uneconomic, 600 m/d wells long ago, to high rate wells via fraccing.

    Selmo  – 2000 bopd net now … this has been the real disappointment relative to my initial look here, was forecast by them to be much higher.  Added a 2nd rig in August.

    Arpatepe – 250 bopd (this is where they've been doing acid jobs, and seeing strong results. (30 bopd, acid, 500 bopd in March, now 350 bopd (gross))

    Bakuk Anticline – gas discovery, "tremendous gas show", very large structure, not news, thinking it could be 10 mm/d open, but produce at 6 mm/d, now looking for an oil leg.

    Exploration on Block 4175 (southeastern Turkey) – end of month for results, this would be a game changer if they hit a big one as it is an analogue to structures seen in nearby Iraq. No comments other than they have set intermediate casing and are drilling ahead.

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  27. JB – WLT trying for another breakout of this range. Thanks for all your chart work.  What's your thinking on the McClellan at present?

    Reply

  29. Raymond james …

    Chevron (CVX) downgraded to outperform from strong buy
    Forest Oil (FST) downgraded to outperform from strong buy
    Chesapeake Energy (CHK) downgraded to market perform from outperform
    Goodrich Petroleum (GDP) downgraded to market perform from outperform
    Petrohawk Energy (HK) downgraded to market perform from outperform
    Range Resources (RRC) downgraded to market perform from outperform
    Swift Energy (SFY) downgraded to market perform from outperform
    SM Energy (SM) downgraded to market perform from outperform
    Ultra Petroleum (UPL) downgraded to market perform from outperform
    Exxon Mobil (XOM) downgraded to market perform from outperform

    Reply

  30. z — thanks for the bullet points on TAT.  So, could be an "end of Sept" sort of event.  Not long to wait.  Good to hear.  Thanks.

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  31. #27 $NYMO = 43.43 at the close Friday, not overbought enough to be of much help at the moment…  

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  32. BOP – yeah, that's what they said too. If it is big, then it will be really big. If it is dry, it didn't take long to find that out either. Not a lot of color but there you have it. Those structures across the border are obviously massive. Some single wells IP at as much as 5x BEXP total co production (> 30,000 bopd). Hit one of those and Malone has resume 4 to talk about. 

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  36. Just to straighten out the record, I like AREX, not AXAS.  I can't figure out why AXAS is scattered in so many areas without any scale in a core.  Also get the impression mgt is full of it.

    Reply

  37. JB – thanks, will go vote.

    RMD – my bad, but you mentioned it more than once so it is your burden to bear. Re management, agreed, surprised they haven't changed the name.

    Reply

  44. PETD Notes

    60,000 Marcellus acres

    but 97% of company is in the Wattenberg (CO) in terms of reserves

    getting oilier, have been gassy but going to 65/35 oil / gas mix in 5 years as a target

    Identified potential reserves to double current reserves, can do almost within cash flow.

    …

    Reply

  45. PETD Notes 2

    Wattenberg Field

    70,500 net acres, they are 30 miles from EOGs wells

    The 10 NBL wells are all around PETD's land

    NBL thinking these are 300,000 barrel EUR wells

    One of NBL's wells was a horizontal in amongst verticals and it has been NBL's best well to date

    'PETD things their whole acreage block is prospective, no rush to drill all HBP, letting others do the early heavy lifting, but will spud their first horizontal Niobrara in October.

    Vertical Wattenberg – $600K cost, 43 boepd IP

    Horizontal Watt – $3.5 mm, IP of 289 BOEpd… better returns

     

    Reply

  47. PETD Notes 3

    Wolfberry – 120 location

    $1.25 mm a pop

    Starting 1 rig program in 4Q, will flesh this out more in tomorrow's wrap post of this.

    Targeting 70% 3 yr growth

    Marcellus – 3 wells so far, thinking they are at least 3 Bcfe wells, maybe as much as 5 Bcfe.

    3D done, no problems on their acreage identified, add another 3D shoot this fall to get complete coverage

    1 well program restarts late Q (after drilling the first 3 they wanted to step back and see what they had)

    Hedges – big piece hedged (78%) above $6.17 for 2010; 2011 @ 74% @ 74%. 

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  50. ATPG = all about the Telemark development well… supposed to add 7-10k b/d of production from the Titan platform.  Mngmt has said the well would be completed by the end of September.  It is important that Mngmt do what they say they will here.  Very important.

    Reply

  52. why is Telemark so important?  Well… company's 2Q production was 21.3k b/d… Telemark = 7-10k add… fingers crossed.

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  54. ATPG "valuation" is compelling ONLY if they Telemark hits within the targeted production and if they can get Titan monetized.  Asset's don't pay interest to banks and bondholders unless they are flowing cash.

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  56. RAJA cuts nat gas "11 guess from $4.75 to 4.25 as "gas fundamentals should get even worse in 2011". Oil short term outlook hazy, long term intact.  Lower '11 guess from $90 to $80.
    Gas stocks near high of range at 6.5X foreward Eda.
    Thinks gas cos will increase '11 hedges, even at today's strip.

    Reply

  57. Re WLL – was just mulling pulling the $95s as that's a real long shot at this point and reloading with Octobers for end of month-ish report on 3 more L&C wells in the Three Forks.

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  58. BOP – I heard nothing new in the Telemark segment, well on by end Sept/early October. Platform loaded for capacity by 3rd well or at least by the fourth and final well at the 25,000 bopd design, sounds like maybe not getting to the gas limit of 50 mm/d but not really caring about that.

    Reply

  59. ATPG — was thinking that they would (could) get the Titan Platform monetization completed at "any time."  Pondering… now thinking that it makes more sense for GE to do a sale/leaseback after the Telemark #3 results are in.  And that sounds like a Sept 30th (plus or minus) event.

    Reply

  60. ATPG – addressing the shorts. We have 3 large catalysts that are going to occur near term, 1) production ramp due to Telemark, plus 2 other wells, 2) Titan monetization (almost closed in April). working to close, met with them yesterday, it will happen, don't know, 3) 2 more re entry permits at Telemark will be granted.

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  61. ATPG… sheesh… HATE the back-peddling from the Sept 30th date as a hard deadline.  These guys have a reputation for overpromise/underdeliver… so, don't SAY "Sept 30th" unless you know you can HIT Sept 30th.  Sheesh. 

    Reply

  66. Re 63. Thanks much!

    BOP – do you know energy partners?  Oily, offshore, I haven't paid much attention to them in years and years.  Listening now.

    Reply

  70. EPL — haven't followed them.
     
    Off to a lunch with the few energy people who are NOT at R&R, it sounds like.

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  77. Z; Dixie -DX/Y is at 50 day MA on a weekly basis. The 200 day MA is at 80. If Dollar index goes below 80 and continues to 75 -74, you could have the envoirnment of the second half of '09. Good for energy & commodities. FWIW 

    Reply

  79. Tom – thanks, exactly.

    Reef – right, and 4 mm shares. I used to follow these guys but then they sort of fell apart. Sort of interesting, sounds like they are gearing up for a deep (but not ultra deep) shelf push. Reminds me of Spinnaker a bit, a lot of 3D they are reprocessing, behind AVO, on to widened band width (gotta go look that one up) but it makes the brights spots even more crystal clear apparently. They have a big lease area with only a handful of penetrations below 14,000 feet but in a prolific area at shallower depths. That concept has worked well for others in the past as you know.

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  81. Choices – They closed the majority of the Niobrara transaction last week, on time. The rest is set to close on September 20th. The stock has recovered from the smallish dip it took on the "sell the news" event. We should get more Bakken data this week and they do present on Wednesday. 

    Reply

  82. Z,
    AVO acronym refers to what  in reprocessing  3-D seismic?
    Is  this  an image  subtraction[fast fourier transfrom]   method   enhance  the bright spots?

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  84. Grabbing some lunch, lull for me in the Rodman schedule. Market looking pretty apathetic about chasing gains here.  Oil up 50 cents, NG up 5 cents, tropics look same as this morning.

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  85. ZMAN – It feels that SSN is now selling at a deep discount with the additional funds.  I thought SSN had a NAV with cash flow that supported a $1.20 area.  I am waiting for the run to commence.

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  88. 40 – jat – yeah, wasted my whole morning; I left and am not going back ….
     
    HAL — meant to mention, coming back from vacation a week or so ago, I was on the Hertz bus to the airport terminal in Denver, and there were 4-5 HAL people chatting right next to me; I think they were HR people from a couple of different locations; the only thing I caught of note was that they seemed to be saying that they were doing a lot of hiring … noteworthy enough to pass along here; no other coleor.

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  90. OAS call in 1 hour, market trying to hold onto gains. Energy stocks not pacing gains, probably due to downgrades last week and this week in the sector.

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  91. Z: NFX up 2.5% today. I see they are at Barclay's 9/16. Did not see any catalyst for this name. Any tradeable event that might be tied into today's action?

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  93. Tom – yeah saw that, I don't have anything from a catalyst standpoint that would move the company needle here, it's all good from their last update but nothing that I'd call pop worthy. Wondering if Barclays isn't running this one in advance of the presentation as they did with EOG on Friday (and no follow through today).

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  94. "I am a hugh bull on this country. We will not have a double-dip recession at all. I see our business coming back across the board" so said Warren Buffett today at the Montana Economic Development Summit. I guess BOP is not the only one talking her book. 

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  98. #94… as Warren gets older and richer, he becomes more and more of a redistributionist.  He and I have not seen eye to eye in a long time.  That said, I 100% agree with his comments today. 

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  99. New Zealand biz tickets: Thank you everyone who commented, we are going on Air NZ.
    Info point if you never redeem those American Express points (1 pt per dollar spent), they are worth 1 cent toward a purchase (1,000 points is $10 of goods).

    Reply

  101. Seeing a little strength out of refiners today, midwest refiners should be enjoying those soaring midwest cracks for a bit longer with no fix to Enbridge's pipeline at present. MW cracks last 4 weeks

    8/20: $8.81

    8/27: 10.16

    9/3: 11.43

    9/10: 13.06

     

    This PADD II – Illinois, Indiana, Iowa, Kansas, Kentucky, Michigan, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, Ohio, Oklahoma, Tennessee, Wisconsin.

     

    MRO/VLO may be most exposed at quick glance. I'm not trusting it although 3Q is shaping up better than many people thought now, could be some upward moves to numbers soon.

    Reply

  103. hearing that it's probably more buzz on BBhill… that is why PXP is up too.  hearing that not only is it gonna be a "great well" but that it further proves up JimBob's geologic model…. which means it is repeatable.

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  108. OK, can't hear the OAS, tooled through their presentation, I see nothing new. This is still very oily (about 93%), with almost 300,000 net acres in the Bakken, a 4 rig program, going to 5 rigs this month, with massive triple digit production but off of a small base, and no debt and enough cash and cash flow to fun the next 18 to 24 months of Capex if they don't go all land crazy.

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  109. Getting back to my theory that the market is still not entirely paying attention to catalysts, that APC well mentioned in the post should be worth a bit more to the stock than a quarter.

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  111. Z: How would you try to follow up with the gigantor discovery of NBL in the Mediterraen? Is this real or not?

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  115. mid day on a Monday, one day they will surprise me and do something according to convention. Good cash balance still, production at 105 mm/d is strong. Don't see mention of a CC, you?

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  116. MSFT on the tape… it is said they are planning a debt sale to pay dividends and do buybacks.  This is exactly what is supposed to happen at this point in the credit cycle… debt is so cheap, relative to equity, that companies issue debt and buy their own stock (or other companies; i.e. M&A).  If investors are scared of buying stocks… companies will buy stocks.  Using cheap debt.  Until investors wake up.

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  117. No, they never have a cc

    They didnt release a balance sheet with year end results. On the surface, better than I expected as i thought they would have a q4 loss

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  121. Since i can't call timing, i'm buying stocks and not options.  But I think it's time to move some more cash into buy-and-hold (for 6 mos, then evaluate) positions.  We might still have a sell off (not saying it's straight up and to the right from here).  But if companies increasily buy their own stock or do M&A, eventually, investors will get the msg. 
     
    Besides, natty gassy kids usually rally between now and Nov.  Not saying they will "fore shore"… but if history is any guide, that is usually the case.

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  122. re #1 XL could take 100000bpd by 2013
    BILLINGS, Mont. — A Canadian company would ship 100,000 barrels of oil daily from Montana and North Dakota under a proposal to allow U.S. crude onto a pipeline bound for refineries in Oklahoma and Texas.
    Calgary-based TransCanada on Monday announced a two-month "open season" to solicit bids from companies that want to tap into its Keystone XL pipeline as it passes through Baker, Mont.
    The announcement followed complaints from producers in the Bakken oil field of Montana and North Dakota that they were being bypassed by the new pipeline.
    TransCanada vice president Paul Miller says the company will invest $140 million in the Bakken Marketlink — the so-called onramp that would allow domestic oil onto Keystone XL. Miller says Bakken Marketlink could be in service by early 2013.

    Reply

  129. Belated congratualtions on 4 years zman. I have learned and profited a lot from you and the community you have created.

    Reply

  130. Thanks very much mimster90!

    EGY – song remains the same and it is a very good one. I will do a book report for the morning but look for a better report in the near future. On my like list are simple stories, oily stories, stories with a pile of cash and no debt and a hunger on the part of management to earn a better return on that cash than money markets or treasuries currently pay. And they have stable cash flow.

    Reply

  131. Legacy Reserves LP Announces Acquisitions of Permian Basin and Wyoming Assets

    MIDLAND, Texas, Sept. 14, 2010 (GLOBE NEWSWIRE) — Legacy Reserves LP (Nasdaq:LGCY) today announced that it has closed three acquisitions of oil and natural gas properties located in the Permian Basin and Wyoming during August 2010, and has recently entered into an agreement to purchase additional Permian Basin oil and natural gas properties, for a total of $14.9 million. Legacy has funded or will fund these acquisitions with cash on hand and borrowings from its revolving credit facility.

    These properties produce approximately 220 Boe per day, of which 79% is oil and natural gas liquids. Legacy estimates that these properties contain approximately 1.0 MMBoe of proved reserves, of which an estimated 76% are located in the Permian Basin and 93% are classified as proved developed producing. Upon the closing of all of the aforementioned acquisitions, Legacy will have acquired approximately $173 million of oil and natural gas properties during 2010.

    http://www.legacylp.com/releasedetail.cfm?ReleaseID=507577

    Reply

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