Thursday – Oil Review & Gas Preview Plus

Posted on by zman

Market Sentiment Watch: Equity futures rolled over last night after weaker than expected eco data came out of Europe. Eurozone growth, as measured by their purchasing managers index, showed sharply slowing growth. The decline was exacerbated this morning by a miss on the Jobless Claims data. In energy land, all is mostly quiet. I've included a closer look at the very near term Catalysts and their potential impact in the post.

Ecodata Watch:

  • Jobless claims came in at 465,000 vs 455,000 expected,
  • Existing home sales are expected at 10 am, 4.1 mm expected,
  • Leading indicators are expected at 10 am, 0.2% expected

In today's post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Inventory Preview
  4. Stuff  We Care About Today – Close up catalyst list, a bunch of odds and ends.
  5. Odds & Ends

Holdings Watch: ZCAT (Zman Catalyst portfolio):

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

ZIM (Zman Inefficient Markets portfolio)

  • $3,100
  • 25% Cash
  • Yesterday’s Trades: None
  • Positions (1): The MMR $16 October Calls.

ZLT (Zman Long Term portfolio)

  • SWN – Out half position, down 8% after just over 2 years. Didn’t kill the whole thing as this feels like a low but wanted to diversify a bit here in this taxable ZLT portfolio.
  • GST – Added opening position at an average cost of $3.84.

 

Commodity Watch :

Crude oil eased $0.26 to close at $74.71 yesterday after the EIA reported an unattractive looking set of inventory numbers (see below).  This morning crude is trading off a dollar.

  • Dollar Watch: Ugly chart. Crude has been largely ignoring this of late. OPEC won't if this keeps up by the time of their meeting next month.

Natural gas closed up $0.05 to close at $3.97 as another tropical system threatened to get near the Gulf of Mexico. This morning gas is trading slightly lower.

  • Tropics Watch: Storm getting set to form, moving slowly to the west, still south of Hispaniola.

Natural Gas Preview:

I'm at 70 to 75 Bcf for today's storage number.

  • Last Week: 103 Bcf Injection. The week before last saw the most tepid weather of the season and a holiday. This week saw a pretty strong rally rally in temps
  • Last Year: 66 Bcf Injection
  • 5 Year Average: 65 Bcf Injection
  • 10 year Hi: 100 Bcf Injection
  • 10 year Low: 53 Bcf Injection

The Street is at 80 Bcf.

Oil Inventories Review

ZComment: Probably the least bullish numbers we have seen all summer. Demand fell off as expected and combined with still strong refinery through conspired to produce across the board builds in inventories.  Imports of crude rose producing a small build there as well. Expect a reversal next week but the trend should be lower throughput allows crude inventories to remain above the five year average for the Fall and into Winter. Note that in the chart above and despite the unexpected builds we are making some small progress in whittling down the recent over stocking of gasoline and that we continue to eat away at the still bloated levels of distillates in storage.

Crude:

Gasoline:

Distillates:

Stuff  We Care About Today

Catalyst List Closeup - now through month end: (this expands on the Catalyst List, giving a little more back story as to why it is important and/or what the impact will be.

  • ATPG - Telemark well on stream,
    • have publicly said mid September so this one is in the any day now camp until it actually happens
    • expected initial rate is 7,000 to 10,000 BOEpd net.
    • adding to a rate in June of 23,000 BOEpd
    • The stock has been busily discounting this news as well as anticipating the end of the Deepwater moratorium in November and a potential monetization to help with their high debt load.
    • Impact: the event goes to credibility and ability to make development targets but honestly, development projects coming on stream when they are supposed to is rarely a boom event for the stock. If they are late it is more of an anti-catalyst, causing worry / doubt, much of it probably not fair or founded, around other key dates.  If the well comes in at the high end of the range that  could provide a brief move above the recent highs in a vacuum.  
  • EOG - Guidance
    • To reduce 3Q guidance or not, now until a few days into October
    • Historically, they have seldom reduced guidance but when they did it was shortly before numbers came out if it affected the near quarter.
    • Impact: Probably a $10 rally in the stock if they don't cut numbers.
  • EXXI - More Ultra Deep Pay
    • more pay on the way, any day, now through Christmas
    • Impact: Talk of pay over 100 feet in the well and still drilling would likely drive it to new highs. They are using an LWD tool here so data could literally be released whenever they have enough to warrant a comment. 
  • MMR -
    • same as above, also a test at Blueberry hill, probably next two weeks
    • Impact:  higher near term highs.
  •  
  • SSN - Still halted from yesterday but  ...
    • expect them to own up to having spud another Niobrara well,
    • to get results back on another Bakken well
    • to close their the final portion of their Niobrara acreage sale
    • and maybe, just maybe, announce a joint venture that would help them to begin to derisk and develop their remaining acreage in the play...
    • ... all either later today or tomorrow.
    • Impact: Positive news on the deal should add getting done should add 10 to 20 cents to the current level if it is priced as expected. The other items would have to evaluated at the time they pop up.
  • WLL - Louis & Clarke
    • Results of three new wells in the Louis and Clarke play, all Three Forks Sanish wells
    • WLL has referred to these a number of times as being scheduled for completion and results at month end September
    • Impact: depends on where the stock is at month end but it has discounted quite a bit of good news here. With over 200,000 net acres at Louis and Clark area though, the prospect of a new core area is at stake, one that is bigger than its original one at Sanish/Parshal.

Other Stuff:

Texas reports record onshore lease sale:

  • High bids total $207 mm, about 4x the size of the previous record Texas sale.
  • Hello higher oil prices, burgeoning plays like the Bone Springs, and the offshore Moratorium and fear of its aftermath.

Dividends Going Up

  • This is off topic but about a month ago I wrote that dividend paying stocks would likely raise their dividends this fall, especially big names.
  • The reasons for this would be a combination of coming higher taxes on dividends in 2011 and record cash on the S&P 500's combined balance sheet.
  • We've now seen MSFT, MCD, and several others raise their dividends by significant amounts.
  • Just interesting, my suspicion that we'll see more special dividends prior to year end has not happened yet but there is still time.

Interoil - files $300 mm Shelf

  • No real comment here but have been thinking about taking another look here. 

CRED Operations Update:

  • Drilling its first GW well with CHK
  • 2nd Bakken well completion delay for 3 more weeks due to frac equipment availability, a recurring theme, especially amongst the minnows of the popular plays.
  • I keep an eye on these guys as they are at the tail end of my Bakken market watch and plan to work them up in the somewhat near future.

Voyager Closes Debt Deal; Updates Operations

  • This one is an oddball, Niobrara / Bakken wanna be player - VYOG
  • $15 mm, 12% senior deal closed (ouch) to cover capex in the near term.
  • Their plan seems to be to take non-operated, very small working interests, in wells drilled by experienced operators.
  • They have interests in 2 Bakken wells so far this year with results (1 Slawson, 1 BEXP) with good results so their acreage at least is not all moose pasture. 
  • They are drilling with private E&P Slawson in both plays which is a plus and they do have a relatively large acreage position, for their size in the Williston Bakken (24,000 acres) and the Niobrara (48,000 acres) as well as acreage in two other Montana plays, one oil, one gas.
  • They plan to spud 5 net Bakken wells next year and expect to have 2.5 net Niobrara wells (think these are vertical test wells) down by year end 2010.
  • I would strongly question management's ability to get this done without Slawson, now I'm just dubious. Though they have a long term land man on the team they also have a glitzy gambler type.  Sort of interesting and I may do a bit more digging but am likely to take a pass.

 

Odds & Ends

Analyst Watch:

  • HAL - Jefferies ups target by $2 to $54, rating stays Buy
  • CPE - Global Hunter starts it at Buy with a $7.30 target
  • PTEN - upgraded to Strong Buy, target $22 ... "U.S. land market red hot"

100 thoughts on “Thursday – Oil Review & Gas Preview Plus”

  1. On Vyog..never heard of them
    >Their plan seems to be to take non-operated, very small working interests, in wells drilled by experienced operators
    Kinda like a NOG lite— How do they acquire the small interest?
    I think its a great model..get all of the benefits with non of the overhead

    Reply

  2. TED Spread at +13.4 bps this morning.  TED not showing any near-term worries.
     
    Credit markets firmly in the red, however.  This is a follow-on to the weakness we saw all day y'day.  Part of that is US Treasuries rallying and corporate bonds not keeping up.  Headlines in the bond mrkt this morning are punctuated with "10-Yr UST Yield Below 2.50% For First Time…. Since Sept 1st"… oooooooooooooo.  So, we have to go ALL THE WAY BACK to Sept 1st to feel this good about owning US Treasury bonds (and not corporate bonds).  Yeah… I'm worried.  Not.
     
    IG Index +2.75 bps wider (that is not an insignificant move) at +114.5 bps
     
    HY Index -21/32 points lower (+17bps wider) at 97.625 pts
     
    Might be a good day to let some dust settle.  Keeping an eye on stocks and bonds you want to buy… letting them come to you at your price.

    Reply

  3. Bill – take a acre or a few in each section in the hot part of the play, then you are in when they drill on your section or two section unit. It is like a NOG lite without the management. If you have good operators and they seem to it can work. But I noticed them awhile back scooping Niobrara acreage on the very cheap and I don't know why they picked it off for so little dollars, sense would be it is far from contiguous and maybe back country but I never looked into it. Resume of one of the management guys really turned me off as I recall.

    Thanks for the update their BOP. Suddenly we care about Europe again.

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  4. Maybe I'll get to pick up some more shares of EXXI at a good price over the next few days… something to look forward to. 
     
    Even thinking about adding some MMR… now that their funding source has been solved.  Removes my biggest near-term negative on the name… funding their program with negative cash flow.

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  5. BOP – With the funding source resolved it makes me think that all wells that formerly would have TD'd at 29,950 feet will have Tuscaloosa tails down to 33,000', lol.

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  6. BOP – hear ya on price pullbacks, NBL out with a big gas project sanctioning this morning, stock has been pulling back and I'm starting to like it as an additional large cap in the portfolio….gotta be careful not to snack on too many single digit midgets. They are tasty when they work but can give you indigestion.

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  8. Owning a portfolio of Single Digit Midgits is like trying to teach kindergarten or herd cats.  It can make you smile sometimes, but it comes with a lot of oversight responsibility.  Can't take your eye off the little boogers.

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  10. Robry at 68 today. If it comes in at 70 vs 80 should be bullish for ng
    Also with avg injection, ye number is now below 3.8 tcf with a number below +74
    09/17/10………62.4……..90 BCF…..3357 BCF
    09/24/10………62.5……..86 BCF…..3443 BCF
    10/01/10………64.2……..84 BCF…..3528 BCF
    10/08/10………67.0……..80 BCF…..3607 BCF
    10/15/10………71.9……..79 BCF…..3686 BCF
    10/22/10………79.1……..57 BCF…..3743 BCF
    10/29/10………87.4……..46 BCF…..3789 BCF
    11/05/10………97.9……..25 BCF…..3815 BCF
    11/12/10…….109.7……….1 BCF…..3816 BCF

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  14. BOP – re your comment about TAT yesterday … yes, it lives in a different market world. Up slightly today in a sea of energy red.

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  15. Credit market holding in there, at about the same levels as I quoted this morning.  Not getting worse… might be trying to claw back up a little.  Watching…. feels like some dip-buying going on.

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  17. ATPG trading in it's own universe too… green on a red day.  That makes shorts feel very very uncomfortable.  heh heh heh

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  18. #13 – I spoke to the citi analyst at one point  right after he started – HK has been on their radar for a long time but never added until now.
    Gil Yang was following HK to some degree when he was there too but again never added them.
    Agreed gutsy.

    Reply

  19. Leading indicators a tad more positive than expected at 0.3% vs 0.1% exp
     
    Existing Home Sales also a tad more positive than expected at 7.6% vs 7.1% exp

    Reply

  20. The Credit Market is staging a bit of a rally, post eco-numbers…
     
    IG only +1.5 bps wider on the day now.

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  21. All that said, I do expect the market to slid a bit more here… today… tomorrow… just watching my targets and biding my time….

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  23. HeadTrader says it's "too early to tell"… but, if you put a gun to his head, he would call for a higher close (than here).  SPX holding 1125 was important.

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  24. re 21, feels higher. The little names are trying to drift up, the rest of the name are just drifting, nothing really sticks out. Coal names redder than most, drybulks redish, refiners all red but not a lot, E&Ps a mixed red bag, Service mostly red but trying to turn. Dearth of news really in most spaces. I think the target and the upping of it at jefco on HAL is interesting. Why do that in front of what people expect to be a weak quarter unless you are confident on the international picture and see a 4Q upturn. I think coverage there is Steve Gengaro, smart cookie.

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  25. #22 – saw good explanation of current high pressure system in place over northern GOM and southern US will move out shortly – allowing any potential storm to move due north

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  27. Morning all.  Feels like oil is putting pressure on the broader market.  Oil not reacting to storm like nat gas???
    Anyway we are now seeing resistance at that previous key level of 1131.
    Lots of patterns could play out into the cycle low which is due Monday plus or minus a trading day on either side.  Support at 1120,1114,1108.
    One possible pattern is a flat which could actually see us retest the highs around 1148, and then back down to this mornings lows, before moving hiigher again.

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  32. If you are looking for another little single digit midget I think I'm onto one that could be interest in the near future. Will have a piece out tomorrow.

    Reply

  39. 29,34
    Iran: President Mahmoud Ahmadinejad threatens a war that "would know no boundaries" if the U.S. or Israel bombs his regime's nuclear facilities

    Not reported by mainstream press. (from Tradewinds) today

    Seven tons of highly dangerous explosives were uncovered concealed in a container onboard the 2,878-teu MSC Finland (built 1986) at the port of Gioia Tauro.
    The RDX explosives, feared to have originated in Iran and destined for Syria, were found concealed in a consignment of powdered milk, Italian police said has sparked fears that the huge consignment was destined for terrorists groups
    We know they were behind the IED's in Iraq. Letting these Islamic nutbags into Iran is/was Jimmy Carters legacy and why I view him as the worst president in history.
    We need a regime change in Iran and the sooner the better

    Reply

  42.  
    I have a little time this morning, so I put together a brief expansion of why I would choose CO2 over LNG foam fracs.
    Why foam frac: water is not available, water can be damaging (tight rock sucks up water into the pore throats – imbibe), working in an environmentally sensitive area (by a river for instance), .
    There are 2 ways to foam frac, gas (N2) and liquified gas (CO2 and now LNG).
    Basic principle of the 2 methods;
    N2 is converted at the surface from liquid to gas. The pump unit has the heat either from the engine cooling system or via a diesel burner for higher rates. I will let everyone guess as to which type of unit is used offshore. The pump takes the liquid from low pressure to high pressure. In a high pressure coil is where the liquid is heated / converted to gas. It travels from the pump unit down high pressure treating lines where it comes together with the sand and gels. It travels down the wellbore in some proportion of gas and liquid which is referred to as foam quality. N2 is also used extensively with Coiled Tubing. You pressure test the integrity of the treating line you piece together with the N2 gas discharge.
    Liquid gas. There is no special pump like N2. Basically, the same pumps used in an all liquid frac pump the liquified gas down the well. You just isolate the pulsation dampner of the liquid pump. Somewhere traveling down the well, the liquid gas converts to ideal gas. Here is the rub; The pump units need to be cooled down (same with N2) and the easiest way is to just allow the liquid to vent to the atmosphere. Good luck doing that with LNG, I will be the one standing on top of the hill when they do it on location. They probably use CO2 on the cool down but you get my drift. If you have CO2 to cool down, why not just do the entire job with it? You know you are cooled when all of the treating iron has frost over it, yes it will frost over even in arctic conditions. The other important rub is the issue of ice plugs; with Liquid gas, there is always the concern that an ice plug will form in the lines at surface, the iron is rigged up a lot differently in order to vent the line in case one forms. Not a very happy situation to be in with LNG. BTW, when the job is finished that line will have to be bled down to 0 psi in order to rig off and leave location.
    In summary, fracs involving gas is serious business. Think about how much energy it takes to convert N2, CO2 or Nat Gas into a liquid. When that Tiger is let out of the cage it is awesome. The damage can be incredible if not contained properly.

    Reply

  44. 18 – 1520s Do you like the new Citi guy R Morris? Where is Gil Yang now and do you have access to his thoughts these days. Haven't read the piece on HK yet but it looks like someone put some effort into the piece. That has not always been the case there.

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  46.  
    'No S-300's for you!' 

    President Dmitry Medvedev on Wednesday signed a decree banning supplies of S-300 missiles and other arms to Iran in a long-awaited move after weeks of deliberations by Russian officials.  "Dmitry Medvedev signed a decree 'on Measures to implement the United Nations Security Council resolution 1929 from June 9, 2010'," the Kremlin said in a statement.  The decree published on the Kremlin website forbids supplies of the S-300 air defence missiles to the Islamic republic, among other weapons.
    http://news.yahoo.com/s/afp/20100922/wl_mideast_afp/russiairannuclearweapons

    Reply

  49. #44 – he seems capable.  The Citi HK report was well done – not a whole lot of new news but thorough.  Gil Yang is at BAML now. He and his team is covering HK now too.  There are some good maps in the Citi report.
    In general I don't pay a whole lot of attention to the Wall Street analyst crowd and take everything they say with a big grain of salt.  I would much rather read independent thinkers ideas (like Z) or listen to folks that have real skin in the game.

    Reply

  54. 49 – I agree but I do like to see what is being said because when I am thinking differently than the street, I feel much more comfortable. Especially G Yang.

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  55. GST continuing to trade within the tight support resistance range, things should get going if it can trade out above the daily 100 day SMA….

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  56. Crude and NG up slightly as the Street gets back from lunch. Group has greened fairly nicely but few standouts. Trading is low volume everywhere I look.

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  57. Z-heh-I do not think I'm smart enough to dig into this gas frac issue-GFS says they use LPG (ie propane) so I'm trying to understand the significance if any of Wyoming's discussion with LNG as used in fracing-I certainly take his arguments on the increased risk and maybe increased cost.  I do not know if the differences in composition of LNG vs LPG are of any significance.
    What was the book you cited some weeks ago on drilling technology, transport, production-it sounded like it was a basic reference book which would be helpful.
    Thanks.

    Reply

  58. Choices – it was probably this:

    Nontechnical Guide to Petroleum Geology, Exploration, Drilling and Production (2nd Edition) by Norman Hyne

    Reply

  61. A – man speaking at the UN.
    Panic Stations everyone!!  Hide under the bed!!!  He's gonna get ya!  With  …. WORDS!!  Ouch! He's gonna get ya with impoliteness!! How will the civilized world withstand the brutal assault??
    Bill – they *said* Iran was supplying shaped charge IED's. But as usual with anything the US government tells you about the middle east, it just didn't make any sense. The Iranians were supposedly supplying them to the Sunni militias and that's good enough for the media I guess. Why should they bother keeping track of Sunni, Shia or whatever? I mean who cares? Like when Senators Lieberman and McCain were over there pontificating about the Iranian "meddling" in Iraq. One of them was telling the media that Iran was behind the Sunni militias and the other one was tugging on his sleeve & whispering "no it's the Shia". But I mean, it's such an easy mistake to make, we can't expect Senators sending hundreds of thousand of men and trillions of dollars of equipment over to middle eastern hell-holes to bother keeping track of who is supposed to be the "bad guys.
     
    Why bother asking questions when the US govt tells you Iran is supplying their own (Iran's) worst enemies with weapons?  I particularly remember when one of the PR generals in Iraq was parading the IEDs for the media. Conveniently, all the markings on these "Iranian made" weapons were in English. But like I said, good enough for the media! I mean everyone speaks English don't they?  I'm sure the Iranians do *all* their military documents in English, so that way none of their own personnel can read them.  And if you are manufacturing IEDs for the Iraqis, how thoughtful to mark them in a language they don't read either? I mean it all makes sense.  As long as the *media* can easily read the markings… *that's* the important thing.
     

    Reply

  62. Wyooming,

    The GFS.V website shows Nitrogen Turcks[for cooling) used in conjunction with the LPG trucks…….am confused how this relates to what you wrote?

    Bet they have a lot of ‘NO SMOKING’ signs on the jobsite.

    Reply

  64. The N2 is for testing the lines, we do that sometimes for CO2 jobs. You cannot test the Liquid Gas ine with water, it will freeze and create one of those nice ice plugs. Choices are a glycol (anti-freeze) or N2 (we call it smoke).

    http://doe.wyo.gov/ProductionDocuments/OSHA/2007video.pdf

    Along the same thoughts is

    http://ftvdb.bfi.org.uk/sift/title/783732
    in relation to pressure vessels.

    You can contact any Schlumberger QHSE manager and I am sure they will be happy to loan you a copy etc. This is the one area that SLB are experts in, it is also their anchor.
    Request form for “There are no Clowns” by Dowell Schlumberger.

    Reply

  68. any you guys know anything of Miller Petroleum…MILL…chart looks interesting to me…nothing more I know except Bllomberg says they operate in Tenn. and Kentucky….being a chart monkey I took a smallish position

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  69. FYI HK just hired a new marketing person at SVP level, not sure if announced but she started yesterday, so Dunlap has some competition/help and HK has a more professional representative

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  70. jivey…MILL, that chart really looks good , low vol stock, but recently printed an X box reversal P&F bear trap, holding above the 200 day SMA…

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  72. thx…Z and JB…I just watch some of those midgets and of course they work best if they really got it going on…..will go vote for ‘da man…

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  74. OAS – failed to break out, trading technically lower (it appears), as I see nothing to warrant the pullback and no comments by analysts that I have access to.

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  75. #74, OAS, technically OAS has a tendency to come back at the close, perhaps it trys to pullback into the range late this afternoon…at the moment, OAS is  breaking below the bullish ascending triangle, but longer term $16 is the more significant technical support level…

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  80. #79, It is slow…SPX pulling back into an important near term support zone here at about 1130, lots of eyes on this level…

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  81. KOG…looks like the consolidation bull flag on the daily is holding together, increasing the  probability of a move higher….

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  82. VTZ-most of the activity of GasFrac has been in Alberta-have you heard anything about the results or do you have any opinion on the process.  As far as risk, they claim on their presentation that they have the same insurance rating as conventional water frac companies-
    Mgmt appears to be experienced from Fracmaster, Haliberton, etc
    Thanks.
     

    Reply

  88. MMR…if bullish on MMR, this is technically an easy area to manage a long try,  MMR now pulling back to intraday support on MAcro mkt weakness….

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  90. Z: Some comments re the offshore driller sector. PBR strong today. Looks like equity raise is going well. Stock has underperformed the Brazilian index by over 30+% this year. Gov't involvement part of reason for underperformance ( Where have I seen that recently ). Europe rejects ban on deepwater drilling. RIG -news. SDRL commenced a new ultradeep rig for Total off Angola. Dayrate $445,000/day. Still 9%yield. Biggest negative is that CEO is very Aubrey-like (lets take over the world). Best performer in this space over last 12 mo. Only 1 rig in GOM. NE underperforming in space. Need Pemex to do something. Big revenue impact from GOM spill. Only reason to be overweight space going forward is that you are very bullish on crude prices.  

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  92. I'll keep my ear to the ground and ask explicitly about it to a few people and see if I can find anything out for you. It does sound like an interesting idea.

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  95. Credit market closed about where it was when stocks opened this morning.  Stocks really have no idea what to do with themselves… that said, not displeased with how our Favs (like KOG) are holding in there.  All in all, not that bad a day, for a Dow down 77 day.

    Reply

  99. thx for posting that late…was looking at the news thought it was good, but was unsure what your take would be….great find man; great find! 

    Reply

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