Wednesday – Oil Preview Plus WLL & Other Comments

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Market Sentiment Watch:  In Energy Land, the Deutsche Bank Energy Conference referenced in yesterday's post is actual a 2 day session of 1 on 1 's with management. It does seem to be having the effecting of increasing news flow and we should see more of that with next week's Johnson Rice Energy Conference as well. 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Oil Inventory Preview
  4. Stuff We Care About Today – WLL Operations Update
  5. Odds & Ends

Holdings Watch: ZCAT (Zman Catalyst portfolio):

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

ZIM (Zman Inefficient Markets portfolio)

  • $4,000
  • 75% Cash
  • Positions are updated on the ZCAT, ZIM, ZLT page.
  • Yesterday’s Trades:
    • MMR – Added (15) MMR October $17 Calls for $0.63, on the mid, with the stock at $16.30. I continue to expect the name to discount the recent increased exposure to the deep shelf in a positive manner. I also expect the market to trend the stock higher with the anticipation of near term news. The news could be further out than this the option expiration and I will likely roll this if the stock moves… just an “any day” kind of thing but at last report they were drilling ahead swiftly on the second Davy Jones well.

ZLT (Zman Long Term portfolio)

  • BSIC – Took a very small opening position at $1.14. See Tuesday post for further details. Next catalyst likely to be results from a SM Bakken well on their 3Q call. This trades very thinly with a wide spread. Plan to add more slowly but may not, plan to be patient here. Again, see today’s post as this is a truly tiny name, but interesting in several ways.
  • WLT – Out on a small piece at $81.10, up 17%. Still getting to know this volatile trader, will rebuy most likely lower.

Commodity Watch: Crude oil eased $0.34 to close at $76.18 yesterday. This is noise. We are range bound. After the close, the API released a bullish looking report (see below). This morning crude is trading flat with equity futures despite a fresh 8 month low for the dollar.

Natural gas jumped up $0.04 to close the day at $3.95 yesterday after Tropical Depression 16 formed south of Cuba and is headed to Florida. This morning gas is trading flat.

Early Read On Natural Gas Storage:

The Street is at 67 BCF for tomorrow’s report.

  • Last Week: 73 Bcf Injection
  • Last Year: 65  Bcf Injection
  • 5 Year Average: 66 Bcf Injection
  • 10 year Hi: 101 Bcf Injection
  • 10 year Low: 44 Bcf Injection

Oil Inventory Preview

API Watch: Somewhat bullish.

  • Crude: DOWN 2.415 mm barrels. Last year we saw a large build in crude stocks so this number would, like last week, be welcome in reducing the recent build up in YoY and 5 year average surpluses. I suspect we will see a number closer to the API's number than the estimate in the table above as imports from Mexico should show some curtailment due to the passage of Karl which did not show in the previous set of data. Note also that again API showed a withdrawal from Cushing crude stocks, this time of 0.4 mm barrels.
  • Gasoline: UP 3.018 mm barrels. Possible but not likely we see a number this big.
  • Distillates: DOWN 2.814 mm barrels. This time of year we start to see a shift to more consumption and stock piling demand, again doubting the size of API's number but would expect a smallish draw. 

    Stuff We Care About Today

    WLL Updates Lewis & Clark Area Operations

    • Nice Initial Rates From Two More Lewis & Clark Area Three Forks Completions:
      • The Froehlich 44-9TFH came in at 2,090 BOEpd while the Kubas 11-13TFH came in at 1,953 BOEpd, WLL has a net revenue interest of 73% in each of these wells. 
      • This compares to the Federal 32-4TFH well which IP'd at 1,970 BOEpd back in November 2009 from the Three Forks (the Bakken is pinched out in this part of North Dakota) and had cumulative production of over 66,000 BOE in its first 6 months (that would be gross revenue of just under $5 mm at $75 oil). After 8 months on stream, the production curve is showing a surprisingly flat tail, holding above 230 BOEpd.
      • These two new wells are located 32 miles southeast of the Federal well, basically at the far end of WLL's position as they attempt to systematically prove up the position. Having neighboring wells come in with good results is not nearly as good as having ones on the far end of the play come in like this.
    • A third well is completing now, the Ellis Creek 1-1TFH well, located near the Federal well but I suspect they wanted to get as much news out as possible for one on one meetings this week and also because they had told the Street to expect news by the end of September.
    • More Wells In November. WLL plans to announce four more wells in mid November, including the Ellis well, along a line between the Federal well and the two wells listed above, again, trying to systematically prove up the position.
    • Rig Count Still Set To Rise. They are running 4 rigs now, not 5 as previously indicated, a mistake or slip of the lips on their part in their last presentation. They plan to go to 5 rigs mid November. No mention of the 9 that has been talked about but I would expect them to announce they will go to 9 rigs when they announce the next set of wells.
    • Size Matters ... At last mention WLL had built a 225,685 net acre position in the Lewis & Clark play. WLL probably has 500 locations here, having now drilled 4 with modern completion methods. This is large when compared to their two core Bakken/TFS areas, Parshall and Sanish, in which they hold 18,188 and 68,000 net acres respectively. Of note is the rapid growth we have seen out of those two areas, up 76% in the last year to a combined 27.4 MBOEpd or just north of 40% of total company production. Notably, an overwhelming majority of this growth has come from Sanish where they operate and where the position is far less developed than the  prolific Parshall field. At Lewis and Clark, WLL operates with a high working interest in all of the acreage, has more room to run, and is just getting started. 
    • ... As Do Economics.  These are $6 mm wells with a pre this release recoverable reserve range of 350 to 500,000 BOE. They hope to get costs here slightly lower but at $75 oil, these should yield an IRR in the high double digits to 100%.
    • The Next Big Thing: Starbuck. 112,000 largely untested acres in the Montana Bakken; expect to hear more about this in 2011.  
    • The Next Next Big Thing: Niobrara -They have it, they just aren't talking about as the wells have not yet been permitted but expect this to get more press in 2011 as well. 
    • Valuation: At $96.50 the stock is approaching full valuation on 2010 CFPS of $15.77. Luckily, the Street is looking on to 2011 and 2012 and its cheaper on that basis at a 2011 multiple of 5.1x ($19.01) and a 2012 multiple of 4.8x ($20.25 ... a number which will be going higher soon). I continue to own the shares in the ZLT.

    Other Stuff:

    • CRZO Operations Update - comments on Eagle Ford Shale, Niobrara activity about to kick off and Marcellus. No actual numbers in the press release on these but the company did point to a rapid rise in Barnett production.

    Odds & Ends

    Analyst Watch:

    • Jefferies cuts GMXR, SM, RRC to Hold, cuts CPE to Underperform as it cuts its long term gas price estimate from $6 to $5.

    142 Responses to “Wednesday – Oil Preview Plus WLL & Other Comments”

    1. 1
      zman Says:

      Analyst Watch:

      WLL – Stifel raises target by $10 to $120.

    2. 2
      zman Says:

      Front and Center Watch:

      WLL – see above

      SSN should have news by Friday

      BSIC – I plan to have more comments on them in tomorrow's post

    3. 3
      elijahwc Says:

      EXXI – BOP guess what.  You just caught a big wink from none other than Seth Klarman's Baupost Group. 

    4. 4
      elijahwc Says:

      From briefing.com:

      MKM Partners is initiating coverage of Exploration & Production sector

      MKM Partners says consistent with the general theme of oil and gas investing
      over the last few quarters, they believe liquids-rich E&P companies will
      continue to dominate investment returns on average through 2011. Overall, they
      like shares of Brigham Exploration (BEXP), BPZ Energy (BPZ) and SandRidge
      (SD). While they expect this liquids-rich generality to hold through 1H11,
      they do believe several natural gas-weighted E&P companies provide secular
      values as a result of their low operating cost structures and resulting high
      margins. Firm believes Range Resources (RRC), Chesapeake Energy (CHK) and
      Petrohawk Energy (HK) fall under this high-margin umbrella. The firm initiates
      ATP Oil and Gas (ATPG) tgt $18, BPZ Energy (BPZ) tgt $12, Brigham Exploration
      (BEXP) tgt $24, Chesapeake Energy (CHK) tgt $30, Continental Resources (CLR)
      tgt $60, GMX Resources (GMXR) tgt $7, Goodrich Petroleum (GDP) tgt $22,
      Petrohawk Energy (HK) tgt $25, Pioneer Natural Resources (PXD) tgt $88, Range
      Resources (RRC) tgt $50, Rex Energy (REXX) tgt $16, and SandRidge Energy (SD)
      tgt $8 with Buys. The firm initiates EOG Resources (EOG) with a Sell and an
      $85 tgt. Firm also initiates Anadarko Petroleum (APC), Carrizo Oil and Gas
      (CRZO), FV Energy XXI (EXXI), Gastar Exploration (GST), InterOil Corp (IOC),
      and Swift Energy (SFY) with Neutrals.

    5. 5
      zman Says:

      Analyst Watch

      PQ initiates with a Buy

      Thanks Eli … who are those guys?

    6. 6
      elijahwc Says:

      Pritchard summary on WLL:

      “Announced yesterday the completion of 2 solid Three Forks (TF) wells in its L&C prospect in southwestern ND. The Kubas 11-13TFH and the Froehlich 44-9TFH IP’d at 1,953 Boe/d and 2,090 Boe/d and were completed with 29 and 28 frac stages on 46/64” and 42/64”chokes, respectively. These choke sizes are in line with recent WLL TF completions in the Sanish Field. The Kubas and Froehlich tested the southern portion of WLL’s L&C acreage in Stark County, ND, ~32 miles SE of the Federal discovery well, and were drilled in wildcat fields vs. the Federal which was drilled in the Bicentennial Field which has been producing since the 1980s. Based on its proximity to the initial discovery (~3 miles east) we believe the Ellison Creek 11-TFH which is currently being completed (30 frac stages) could yield an even higher IP rate. It is important to note the recently completed wells were very good for TF wells; both wells IP’d higher then WLL’s latest TF well in the Sanish Field–1,768 Boe/d with 22 frac stages. Also, TF wells on par tend to have lower IP rates then Bakken wells. WLL plans to announce the results of the Ellison and 3 other L&C wells in mid-November. The company is currently operating 4 rigs in the prospect with plans to be at 5 by mid-November. With the success of these wells, we expect WLL to go ahead with its development plan and increase the rig count to 9 in 2011, which would yield ~80-90 wells being drilled in 2011 and possibly position the company to exceed our 12% production growth forecast. While some investors might have been hoping for higher IP rates, we believe that this announcement adds further proof that L&C will be highly commercial, thus providing WLL with future growth opportunities in the Williston Basin outside of the Sanish Field. Reiterate ‘Buy’ (Berman) “

    7. 7
      elijahwc Says:

      MKM Ptnrs PR

      MKM Partners hires energy research analyst Trimble

      Published: Aug 4, 2010
      STAMFORD, Conn. – MKM Partners has hired Curtis Trimble as managing director in its equity research department to cover oil and gas exploration and production companies. He will be based in Houston, Texas.

      Trimble has covered the energy sector for seven years. He previously covered US E&P companies for Natixis Bleichroeder, ranking #2 in the 2010 Wall Street Journal analyst survey for that sector. He also followed the oilfield services sector for Canaccord Adams and Sterne Agee, ranking #4 in that space in 2006. Trimble holds a bachelor’s degree from Swarthmore College and an MBA from Rice University.

      MKM Partners is an institutional equity research, sales, and trading firm. The firm is based in Stamford, Connecticut.

    8. 8
      zman Says:

      OK Thanks Eli.

      Futures bending mildly higher this morning.

    9. 9
      john11 Says:

      Eli, where did you see that info re Seth Klarman and EXXI? Thanks.

    10. 10
      elijahwc Says:

      #9 http://www.j3sg.com

      You will need to register. Its free. Type in symbol, then institutions, scroll down and click Baupost Grp.

      Its his only addition in the quarter. Great site.

    11. 11
      zman Says:

      Analyst Watch:

      WLL – RBC ups their target $5 to $100, rating stays Outperform. Really? Outperform for a 5% move? That’s rather tepid of them on the PT.

    12. 12
      BirdsofpreyRcool Says:

      Baupost = smart people

      MKM = not-as-smart-people

    13. 13
      BirdsofpreyRcool Says:

      Eli — what was just fascinating about EXXI is that almost 100% of the largest, smartest owners ADDED to their position during the Macondo Maelstrom. Ya gotta love the “buy when there’s blood in the streets” crowd… it’s not an easy thing to do.

    14. 14
      BirdsofpreyRcool Says:

      on the other hand… MKM likes ATPG and slapped an 18 PT on the stock. THAT’s gonna p*ss off the shorts this morning. heh heh heh

    15. 15
      tomdavis12 Says:

      Z: A director at TAT exercised 100K shares @ .90 that were scheduled to expire. Is holding the shares.

    16. 16
      tomdavis12 Says:

      Z: Any gist as to why MKM put only EOG as a sell?

    17. 17
      zman Says:

      Re 15 – yeah, not a hard decision to make given the price and he can always punt them down the road.

      Re 16 – See BOP’s 12

    18. 18
      ram Says:

      ZMAN – With the JR energy conf. next week, is it too close to 3rd qrtr earnings to really expect any surprises?

    19. 19
      zman Says:

      re 18. I think we’ll get some news, there are a number of items on the Cat List that are end of Sept/Oct that could crop…. they still have about a month to go to earnings.

    20. 20
      zman Says:

      ZTRADE – ZIM – WLL

      WLL – Added (5) WLL October $100 Calls for $1.70 with the stock just over $97. Plan to add a second set if the EIA numbers cause weakness in the group. See today’s post for details on well results here.

    21. 21
      BirdsofpreyRcool Says:

      smell that??

      ATPG shorts running around, hair on fire. 🙂

    22. 22
      elijahwc Says:

      SD pops another 5%. They are offering an exchange into registered form on the 8.75% seniors they issued last Dec.

    23. 23
      zman Says:

      Good call both of you.

    24. 24
      zman Says:

      MMR approaching $17

    25. 25
      zman Says:

      Analyst Watch:

      NFX – Southcoast initiates with an Add rating and $67 PT.

      EQT running on Marcellus results.

    26. 26
      zman Says:

      Re 6 – I basically agree. However, without putting the discoveries in better context it’s basically just a recut press release. The well count comment sort of helps but he missed pointing out the size of the new play (a whole new core bigger than the their combined other two) and the comment about the next well being bigger is a duh type thing, know the area, second well in general should be better yes, but the point that they stepped out 32 miles from the original 2 wells and are drilling a fairway in between is far more important to proving up the play.

    27. 27
      BirdsofpreyRcool Says:

      Eli — great call on SD… up huge from where you were pointing it out.

    28. 28
      elduque Says:

      RE SD- I agree with the call. However, I unfortunately loaded up at $6. Anybody on this board been early like me before??? Oh, well now that I am back to being able to breathe again with this stock, I wonder how much potential it has. After being so far underwater, it is tempting just to flatten the position. Location, location, location.

    29. 29
      DrLink Says:

      SSN at 20 moving average, seems yesterday someone was just impatient and wanted out, wondering if this is a gift…or perhaps I should wait to see if we hit 1.27….before backing up the truck for more

    30. 30
      elijahwc Says:

      # 27 THX BOP

      On ATPG I seem to recall some commentary out there to the effect that ATPG has on overriding royalty interest out there (GOM next to NXY’s Appomattox discovery)that could be worth as much $400 c/f.

      Don’t know if there is any “nearby research” yet from folks who cover NXY/ATPG on this yet?????

    31. 31
      zman Says:

      Oil numbers in 4 minutes. S&P falling on lack of anything better to do at the moment, energy largely green. Crude down 28 cts, NG off 2 pennies.

    32. 32
      zman Says:

      EIA Oil Inventories:

      Crude DOWN 0.5 mm barrels
      Gasoline DOWN 3.5 mm barrels
      Distillates DOWN 1.3 mm barresl

      …. bullish so far …

    33. 33
      john11 Says:

      Eli, this Seeking Alpha article discusses ATPG’s interest in the Appomattox discovery.

    34. 34
      zman Says:

      More EIA

      Cushing down 300,000 barrels, in line with API yet again. Good for crude prices.

      Gasoline demand – very big jump, odd. up over 500,000 barrels week to week, could be some post holiday driving restock, not sure,

      Distillate demand – stronger as well.

      Crude imports did fall 300,000 bopd to 9 mm bopd as expected, most likely due to Karl’s influence a couple of weeks back.

    35. 35
      zman Says:

      Crude back up over $76 in a flash.

    36. 36
      zman Says:

      EIA – bullish. Two big up demand figures and two big draws on those products.

    37. 37
      zman Says:

      Crude was down to 75.60 pre #s, now 76.35 and rising. I don’t think it shoots the moon or anything as one week’s numbers aren’t going to break us out of the range we are in but it is a definite plus to work off the large overhang in inventories of finished products.

    38. 38
      elijahwc Says:

      #30 this is a could be / maybe type of thing but 400 mil is indeed significant when your a 685 mkt cap.

      Also, I could be wrong on this but I don’t think anyone on the sellside has referenced this yet.

      Wishin and dreamin and hoping

    39. 39
      zman Says:

      ZTRADE – ZIM – WLL

      WLL – Add (2) WLL October $95 Calls for $4.10 with the stock at $97. Oil inventory numbers were strong and the stock had retreated from the day’s highs. I continue to own the $100s in the ZIM and the common in the ZLT.

    40. 40
      Nicky Says:

      Morning all. Tedious markets however I am still viewing the consolidation as bullish. If we take out 1138 we could move back to 1123 otherwise holding here is good for a move back above 1150. Cycles are looking for a high in this timeframe but it could extend into early next week.

    41. 41
      zman Says:

      Thanks much Nicky, agree tedious.

    42. 42
      jiveyjr Says:

      some solars are getting a little run this morning…an old issue we used to follow is breaking out a bit on good volume …YGE as is CSIQ; the latter one not one we paid attn. to as I recall

    43. 43
      zman Says:

      Thanks Jivey. I sort of lost interest as the global economy faltered and Germany, Spain, and California talked of eliminating some subsidies. Also, the President got interested and the green energy stocks did nothing and it all seems to have been, well, talk. Have noted some big $ contracts of late out of China though.

    44. 44
      elijahwc Says:


      WLL – Lazard Capital Markets: WLL: Lewis & Clark find a gusher; raising PT to $120 from $105; BUY

    45. 45
      zman Says:

      LINE apparently in “sell the news” mode, don’t think that lasts too long.

    46. 46
      zman Says:

      If you make it by Austin, my buddy Sam runs this wine shop.


    47. 47
      zman Says:

      Thanks Eli – had not seen that one. Battle between the brokers taking it up today and the folks who were just in the name in expectation of this announcement coming back out. Long term the value of this acreage playing out is not in the stock.

    48. 48
      zman Says:

      TAT doing a good job so far of brushing off the deal and the dry hole, up 4% today, holding above the placement price of $2.80. Saw a reiteration of a $5.00 target out of Global Hunter.

    49. 49
      zman Says:

      MCF – continues to walk higher, broke out clearly above its 200 day yesterday.

      KOG – just keeps getting stronger.

      BEXP inching up, not expecting any catalytic events there super near term.

    50. 50
      zman Says:

      SSN trading erratically today, news between tonight and Friday. Not a lot of volume on the recent small pull back or today.

    51. 51
      bill Says:

      eqt had nice marcellus wells

      One well averaged 22 MMcfe/d over a month’s time

    52. 52
      zman Says:

      Bill – Saw that. Nightmare on gas street if that becomes common place.

    53. 53
      VTZ Says:

      Nicky – Now that I have my breakout, what technical levels would you consider as potential short term tops?

    54. 54
      bill Says:

      and as if we dont have enough


    55. 55
      bill Says:

      interesting article


    56. 56
      bill Says:

      >”Consider these comments from Aubrey McClendon, CEO of Chesapeake Energy (NYSE: CHK) at Bentek Energy LLC’s Benposium earlier this summer: “If I had my druthers we’d be running no more than a couple [rigs]…You’d be surprised how much drilling is not voluntary today.”


    57. 57
      zman Says:

      Re 54. Given where prices are either that one will be empty or it will offset imports to others. As LNG, the company found out, just because you build, it does not follow that the gas will come.

    58. 58
      zman Says:

      OAS breaking out now.

    59. 59
      zman Says:

      Re 56 – he will get his something closer to his wish by mid next year.

    60. 60
      zman Says:

      Oil over 77

    61. 61
      elijahwc Says:

      #57 but will it? CQP / LNG Are they the only storage and terminaling that is set up for LNG export? The export function just happened this year and if I’m not mistaken Morgan Stanley Energy just enter a JV to supply.

    62. 62
      zman Says:

      re 61. LNG applied for a pass along permit first, the export thing is a political hot button, don’t know if they have received permission yet to actually export domestically produced volumes.

    63. 63
      elijahwc Says:

      Z, just happened sept 9th.

    64. 64
      zman Says:

      OK thanks. If we see significant volumes move out of there I will be surprised. Congress hates drilling. Congress hates exporting energy even more. Maybe there will be a moratorium on using brain cells next.

    65. 65
      zman Says:

      MMR popped out of JB’s trouble spot today, thanks in part due to Cramer last night, and mostly due to hard work, sweat, etc and the market. Having trouble getting through $17 now. Still holding the $17 calls but thinking this is a very hit and run market for options.

    66. 66
      skimo Says:

      Bill, thanks for 55. Good read for us amateurs.

    67. 67
      choices Says:

      So much for the effect of MKM’s sell reco on EOG-it is trading @ hod, close to $93.

      BOP-I think you nailed it.

    68. 68
      BirdsofpreyRcool Says:

      OT… just got back from meeting with AINV (only b/c this was mentioned a week or so ago). Liked what I heard… would REALLY love it if they do their next capital raise in the fixed debt market… very accretive to equity, methinks.

      GLAD to see EXXI sluff off the MKM diss. Pfffftttt, I say.

    69. 69
      zman Says:

      Oil at 77.70

      Even HK up today.

      WLL still suffering from BTRSTN action.

    70. 70
      zman Says:

      MMR breaking on up through $17.

    71. 71
      zman Says:

      LINE back up to $32. Leading the pack of energy yield names I watch: $AMZ, DOM, ECT, EVEP, LINE, MVO, PSE, SJT, VNR, WHX.

    72. 72
      bill Says:

      pxp with a rally OMG I dont believe it

    73. 73
      elduque Says:

      CHK having a big day. Any reason???

    74. 74
      bill Says:

      wow been away for an hour, exxi soaring

      maybe all ep rising

    75. 75
      zman Says:

      Re 73. Probably the fact that EQT announced that big fat well and CHK has the most acres in the Marcellus.

    76. 76
      zman Says:

      NOG running again, I took shares here after the 2Q, top 3 in my list of interesting Bakken names.

    77. 77
      skimo Says:

      Z, thanks for MMR, it was indeed a treat!

    78. 78
      ram Says:

      ZMAN – I saw the reasoning above for WLL, but it’s still odd because of how you defined that they are very close to proving out L&C.

    79. 79
      zman Says:

      re 78. How do you mean?

    80. 80
      zman Says:

      Skimo – your welcome, I just felt that in the near term the name had not taken the magnitude of the new upped WI%’s into account nor the potential surround MMR and EXXI’s comments in the DJ 2 well.

    81. 81
      skimo Says:

      Z, you were spot on as usual. We all appreciate your hard work and insight into this segment.

    82. 82
      zman Says:

      CNBC banging the bull gong. Thank goodness we have the Fast Money oily haired Terranova to tell us that now is the time to get long energy.

    83. 83
      ram Says:

      Size Matters … At last mention WLL had built a 225,685 net acre position in the Lewis & Clark play. WLL probably has 500 locations here, having now drilled 4 with modern completion methods. This is large when compared to their two core Bakken/TFS areas, Parshall and Sanish, in which they hold 18,188 and 68,000 net acres respectively. Of note is the rapid growth we have seen out of those two areas, up 76% in the last year to a combined 27.4 MBOEpd or just north of 40% of total company production. Notably, an overwhelming majority of this growth has come from Sanish where they operate and where the position is far less developed than the prolific Parshall field. At Lewis and Clark, WLL operates with a high working interest in all of the acreage, has more room to run, and is just getting started.

    84. 84
      zman Says:

      Thanks much Ski, too kind.

      Missed the BRY yesterday on my own brand of distractedness, running today but to be fair to myself, that one is a bad options trader and I don’t want to be long the common there. Waiting to be right on WLL.

    85. 85
      ram Says:

      Sorry to restate in 83, but I see that as a long term game changer for someone who wants to own an energy stock long term with very good upside potential.

      See, I do read the details – sometimes.

    86. 86
      bill Says:

      story on sd


      cpe up 15 %

    87. 87
      zman Says:

      re 85. As do I. My point was that it is big and that they are not just doing what some companies do with a large acreage tract which is to drill a bunch of wells on a small portion of it in close proximity to one another. They are in fact stepping way out and finding good results on the other side of the acreage. Now they are drilling in between. Suddenly the land goes from nice looking moose pasture to a TFS rich resource. The cores on the original well flouresced like nobodies business.

    88. 88
      zman Says:

      EXXI above $23. MMR handily above $17

      Offshores jumping.

    89. 89
      zman Says:

      OAS at all time high. Volume however is not encouraging on today’s 5% rise.

    90. 90
      zman Says:

      EIA Natural Gas 914 Data Out

      Lower 48 production was up 0.3% from June to July.

      On a year over year basis this up 2 Bcfgpd.

      Louisiana was flat month to month, bee a long long time since I could write that … function of a shift from the Haynesville to the EFS, also restricted production, and a big backlog of wells (heard 300),

      The rest of the changes are fairly benign and this is the gross withdrawals report, still waiting on the marketed production numbers.

    91. 91
      skimo Says:

      Z, with the newly online LNG storage and the apparent storage increases in the ND, WY and CO required for the new production out there, it appears that year over year  storage can't help but increase. Is there a publication that gives us anticipated consumption and LNG export forecasts to determine what the increase in storage really means? Kind of a different way of asking an earlier question, but I'm curious. TIA

    92. 92
      zman Says:

      Skimo – nothing from me on that, you mean from the govt? Sort of in the STEO but not really. Let me noodle on a better answer.

    93. 93
      zman Says:

      Question. Why no Payrolls for September on Friday, Oct 1? Too soon?

    94. 94
      BirdsofpreyRcool Says:

      Anybody know these guys??

    95. 95
      BirdsofpreyRcool Says:

      93 — yes

    96. 96
      zman Says:

      Thanks BOP. Nice to see EXXI way up here.

    97. 97
      1520sbroad Says:

      #93 – i think labor day throws the bls off  in the survey period.

    98. 98
      BirdsofpreyRcool Says:

      I know you're not supposed to "fall in love" with a stock… but, comes pretty close with EXXI.  It has all the stuff I look for in an equity investment… the only negative (for me) is the geographic concentration of their assets.  But, hurricane season is almost over… so don't have to worry about any Big Weather Event until next June. 
      "How do I love thee?  Let me count the ways…"

    99. 99
      zman Says:

      TS Nicole formed, doesn't appear to be a threat to the Gulf.


    100. 100
      skimo Says:

      z, 92 yes from gov't, you'd think they would have demand forecasts for 5 to 10 year horizons someplace. I'd also think there would be a world wide production/demand forecast someplace as well, but I can't get into CIA computers. 🙂 
      Well the CIA fact book did tell me that 2009 estimates were 646.6 billion cubic meters consumed with 30.35 billion cubic meters exported- production was 593.4 billion cubic meters and imports were 106.1 billion cubic meters for a net implied increase in storage of around 23 billion cubic meters if my math is right. That though is history and I don't know how to find forecasts.

    101. 101
      zman Says:

      Ski – yeah, I have all the latest available history, will see if they gas annual keeps any forecasts, I keep some in my head of where we need to be to get gas back over into more economic territory for more plays >$5. I can tell you the short term numbers they put out are almost pure math and subject to frequent, radical altering.

      Crude approaching $78.

    102. 102
      1520sbroad Says:

      #94 – i think they were involved with Linn at some point.  I think i have also seen them in some Calgary based stuff too.  I vaguely remember them at some IPAA meeting i went to in NY.

    103. 103
      BirdsofpreyRcool Says:

      thank you, 1520s.  I've heard of 'em… but that's about it. 

    104. 104
      zman Says:

      Natural gas monthly out

      Lower 48 marketed production was 60.38 Bcfgpd in July, up almost 0.2 Bcfgpd from June and up 1.8 Bcfgpd YoY. These are not numbers that are probably going to shake the gas market.

      Louisiana was flat month to month and up 1.9 Bcfpgd YoY

      The Other States Category (which includes the Fayetteville and Marcellus shales) was up 1.8 Bcfpgd YoY but flat month to month.

      The YoY growth of these two was partially offset by declines in the other big producing states (especially TX down 0.5 Bcfgpd YoY) and s was offset by declining in the Gulf of Mexico (down 1.4 Bcfgpd).

    105. 105
      ram Says:

      Maybe MKM Partners should down grade EOG more often. 🙂

    106. 106
      Dman Says:

      V – #53  which breakout are you looking at?

    107. 107
      zman Says:

      grabbing lunch, back in 30

    108. 108
      cargocult Says:

      Any current thoughts on AEZ at this price?

    109. 109
      zman Says:

      AEZ is more a call on HES than it is on its own prospects at this point, might be a slight arbitrage spread there but I have not checked. I moved on when the deal was announced.

    110. 110
      RMD Says:


      Given all of the rhetoric out of Governor Ed Rendell and the finger pointing by the Republicans and Democrats, the latest rumblings by the Pennsylvania legislative leaders have sounded more like Charlie Brown’s teacher than real cognitive thought.
      This GHS comment on PA's severance tax debate gets my Award for Clever Writing.

    111. 111
      zman Says:

      110 = LOL.

    112. 112
      Paul in Kansas City Says:

      I don't know about you but the upward bias of all of these nat gas names baffles me;

    113. 113
      BirdsofpreyRcool Says:

      For the MMR/EXXI guys…

    114. 114
      zman Says:

      BOP – u r 2 funny.

      ZTRADE – ZIM – MMR

      MMR – Sold the (15) MMR $17 October Calls taken yesterday for $1.25, up 94%. I'm sure I will revisit the name on a pullback.

    115. 115
      VTZ Says:

      RE 106: Gold. Was just looking for another perspective but it's not important…  Just thought I'd catch Nicky while she was around. The other thing I wanted to know was whether she thought the dollar would bounce on the news once more QE is announced. I just wanted to hear the technical picture from her perspective.
      It appears as though the recent run in all commodites/equities/markets was due to the Fed statement and the increasing expectation for another $500B to $1T.
      From my perspective the dollar could fall as low as 75 and is due for 72 eventually now that it has broken decisively lower but, then again, what do I know.

    116. 116
      zman Says:

      Agreed re dollar.


    117. 117
      BirdsofpreyRcool Says:

      Big Oil’s Spill Fleet May Lag Deep-Water Drilling by 3 Months
      2010-09-29 17:25:23.684 GMT
      By Joe Carroll
      Sept. 29 (Bloomberg) — The biggest U.S. and European oil companies may not assemble a fleet of spill-response vessels that can handle a disaster like BP Plc’s Macondo blowout until March, three months after the deep-water drilling ban in the Gulf of Mexico is scheduled to expire.
      Marine Well Containment Co., founded by Exxon Mobil Corp., Royal Dutch Shell Plc, Chevron Corp. and ConocoPhillips, will need as many as six months to create a temporary network of tankers, pipes and pressure-control devices for future offshore spills, said Margaret Ross, a spokeswoman for Irving, Texas- based Exxon. Building a fleet from scratch will take up to 18 months, Ross said today.
      The delay may leave the Gulf and coastal beaches and fisheries vulnerable to another spill for months after the federal government allows deep-water oil exploration to resume, said Nick Berning, a spokesman for Friends of the Earth.
      Drilling in Gulf waters deeper than 500 feet (152 meters) was prohibited after the April 20 Macondo eruption that killed 11 rig workers and spewed enough crude to fill two supertankers.
      "It’s alarming because obviously if drilling is going to be occurring you want to have the tools in place to respond to a spill," Berning said in a telephone interview from the environmental group’s Washington headquarters. "The moratorium should not be lifted."
      Exxon, Shell, Chevron and ConocoPhillips in July announced plans to invest $250 million each to establish Marine Well, a non-profit company that will be able to halt spills of 100,000 barrels a day in seas as deep as 10,000 feet.
      Macondo Blowout
      Macondo, located 40 miles off the Louisiana coast in about
      5,067 feet of water, gushed as much as 62,000 barrels a day according to government estimates. The well leaked for 87 days before a sealing cap was successfully installed. The U.S.
      Justice Department, Coast Guard, Interior Department and several House and Senate committees are investigating the catastrophe.
      The disaster injured 17 workers, sank the $365 million Deepwater Horizon drilling rig and closed fishing across a section of the Gulf equal in surface area to the state of Nebraska. BP, based in London, announced the formation of a new safety division today and said exploration chief Andrew Inglis will leave the company by the end of the year.
      The moratorium, which idled 33 rigs, is likely to end before it’s set to expire Nov. 30, William K. Reilly, co- chairman of President Barack Obama’s commission on the spill and offshore drilling, said in a Sept. 27 interview.
      Exxon Briefings
      Exxon, the lead sponsor of Marine Well, scheduled briefings for other offshore oil and natural-gas producers today and Oct.
      14 in Houston to explain the containment system and ask them to join the group, Leslie Huselton, an outside spokeswoman for Marine Well, said in an e-mailed statement.
      Lawmakers and Interior Secretary Kenneth Salazar criticized the oil industry in the aftermath of the disaster for being ill- prepared to deal with a spill of that magnitude.
      The incident "laid bare shortcomings in offshore drilling safety, spill-response capabilities and blowout-containment practices," Salazar said during a Sept. 22 panel discussion that included BP’s Inglis, Energy Secretary Steven Chu and Exxon Chief Executive Officer Rex Tillerson.
      BP, the largest oil and gas producer in the U.S. Gulf, on Sept. 20 said it plans to join the Marine Well group and make available the equipment and some employees involved in bringing the Macondo well under control.
      ‘Already in Place’
      Some of the BP equipment may need to be inspected and repaired after months of use in the Macondo effort, said Erik Milito, director of upstream and industry operations at the American Petroleum Institute, a Washington-based trade group for more than 400 oil and gas companies.
      "We believe a lot is already in place" to respond to spills in the Gulf, said Milito, a former Interior Department lawyer. "Some of it may have to be refurbished and prepared for another blowout. We have seen some success from what BP deployed."
      The time it will take Marine Well to build its spill- response capability isn’t reason enough to prolong the moratorium, said Brian Youngberg, an analyst at Edward Jones & Co. in St. Louis.
      "I don’t think it’s a legitimate reason to worry,"
      Youngberg said today in a telephone interview. "These companies have been operating in deep water for many, many years.
      Obviously, Macondo was a devastating accident but I don’t think any of us envision that happening again. It’ll take time for them to get this response mechanism in place."
      Meeting the Deadline
      Ross, the Exxon spokeswoman, said BP’s contribution of equipment and personnel will help the group meet the six-month deadline.
      "It demonstrates the commitment outlined in the containment system announced on July 21 that existing equipment will be secured and available within six months, with the new system targeted for completion within 18 months," Ross said in an e-mailed statement.
      Conceptual engineering for the spill-response system has been completed, according to a fact sheet published on Exxon’s website.
      Once assembled, the fleet will be "maintained in a state of continuous operational readiness," according to the sheet.
      "In the event of a future incident, mobilization to the field will start within days and the system will be fully operational within weeks."
      An illustration of the system shows vessels that would capture and store crude on the sea’s surface connected to underwater pipes, manifolds, pressure valves and other equipment used to separate oil and gas. Oil from a leaking well would be hauled away for sale, while gas would be burned off.

    118. 118
      Dman Says:

      Z – why do you prefer  MMR to EXXI for calls?

    119. 119
      zman Says:

      Trading characteristics are better. The underlying trades like water, there are more frequent strikes, the options themselves trade more so the spreads are much narrower and I've had luck with them in the past.

    120. 120
      ram Says:

      ZMAN – Was it a print of 93 for EOG to confirm breakout?

    121. 121
      milepost_43 Says:

      TGA on Blue Light Special today….with Brent +$80………

    122. 122
      zman Says:

      Quote from JB yesterday

      "EOG, I agree would like to see EOG get above $93, this would break the P&F bear trendline, although its low vol, the daily chart pattern still looks promising…updated the chart"

    123. 123
      crysball Says:

      LEI  is showing  some life.
      Z, the President of LEI   [Sawyer] is  fairly  easy  to reach and  has always answered my questions……..[though, afterward always  felt  I did not  ask the right questions.]  
      Hill will start drilling  2 Eagleford  wells  in Gonzalez County [oily window]  from the LEI /Hill   JV   in  November/December. 
      Like BSIC in the Bakken  if  these  LEI Eaglford wells wells come  in it will  be a large increment to their  total production…..even with just a 15% WI.

    124. 124
      elijahwc Says:

      TRGL up 12% and exploding out of the upper trading range.  Must be pouring some wine in Paris.  Any reason for the move?

    125. 125
      zman Says:

      Eli – they are set to for their first test with HES in the Paris Basin, can't be down yet, but it may have spud sending the champagne flowing. 

      Crys – thanks, its on the short list.

    126. 126
      ram Says:

      Thank you JB, you too ZMAN.

    127. 127
      Dman Says:

      I think EOG is now being helped by its gassy component. That would be a change.

    128. 128
      zman Says:

      Dman – nah, it's just guilt by association (with a rising group), 😉

    129. 129
      zman Says:


    130. 130
      crysball Says:

      LEI  Cancels Secondary Offereing:
      Lucas Energy issues Notice of Termination to sell 4M shares of common stock
      On March 26, Lucas Energy entered into a Placement Agent Agreement with WR Hambrecht + Co., under which the company could sell up to 4M shares of common stock from time to time in an at-the-market public equity offering program. On September 28, the company provided WRH+Co. a Notice of Termination of the Placement Agent Agreement. As such, the company does not anticipate any other sales being made pursuant to the company’s Rule 424b(5) Prospectus supplement filed with the Commission on March 26. :theflyonthewall.com

    131. 131
      zman Says:

      Govt. to unveil new drilling rules tomorrow.

    132. 132
      mimster90 Says:

      zman, Any particular reason you don't follow tiny LGCY as a high yield MLP?

    133. 133
      Jerome Blank Says:

      BEXP…interesting longer term bullish ascending triangle on the daily, you can also see it on the weekly, resistance at $19, the third test since June,  the problem is that pullbacks, which should be anticipated in this zone,  can be quite deep but the patterns would still be technically valid….charts updated. 

    134. 134
      Jerome Blank Says:

      CIGX…monster triangle forming, an upside break projects a $4 target…chart updated
      BP daily also looks interesting…chart updated

    135. 135
      Jerome Blank Says:

      HK…I really like the double bottom formation in HK, the confirming print above $16.50 would also put HK back on a P&F buy signal, not exactly the same patten, but CHK also looks promising, but I think I like the pattern a bit better in HK…HK has resistance confluence at $18, P&F bear trendline and daily topside channel line….charts updated   

    136. 136
      zman Says:

      Mim – They are on a long list of yield names, don't recall anything there that I didn't find at LINE, will have a look.

    137. 137
      Jerome Blank Says:

      UNG…something to keep an eye on….interesting divergence, price went to a new low at $6.18 this week but RSI and especially OBV did not…

    138. 138
      zman Says:

      SSN on the tape regarding its Bakken program

      The Gary #1-24H  well (their 4th) produced 2,780 BOEpd (6 hour avg) from a short lateral.  I think this was completed last week but am not sure. For the last 24 hours it produced 1,636 BOEpd.

      The next well, Earl, spud yesterday and they expect to be at TD in about 2 more weeks.

    139. 139
      mimster90 Says:

      zman, LGCY is almost all oil and very little gas. I was just curious if you had an opinion of them off the top of your head, it sounds like you don't, thats fine. I just wondered if you had any particular reservations about them and it sounds like you don't. You are busy enough:-) with all the names we follow already.
      I am not looking to buy any more.
      LINE is where my heart is if they can come in a bit.

    140. 140
      zman Says:

      Mim, thanks.


      GST on the tape with their Streater middle Bossier well, details on impact in the Thursday post.

    141. 141
      BirdsofpreyRcool Says:

      BedTime Market Strategist — Crude… the Missing Link
      The Missing Link.
      These days, the theme on the minds of traders and investors is the return of the reflation trade that was so dominant throughout 2009 as the Fed executed its large scale quantitative easing program. Since August 10th when the FOMC put the brakes on the exit strategy but then subsequently indicated it would reverse course and open the door for a second round of quantitative easing (QE2), signs of the reflation trade materialized. We have been hesitant to look at the market from a reflation perspective because we anticipate that QE2 will look very different from QE1. The key way we have described QE2 is that the Fed would use asset purchases and sales in the same manner as it has historically used the Fed Funds rate. For example, if the economic data were to weaken notably, the Fed would pick up the pace of asset purchases. Likewise, if the economic data were to ramp up (although nobody believes that is about to happen in the near future), the Fed would start making asset sales. Due to the obvious soft patch in the economy over the past several months, the market is widely focused upon the potential for asset purchases. Whether or not purchases are made is conditional upon the severity of developments within the economy. The greater the weakness, the more assets will be purchased. The more mild the weakness, the less the Fed will do. It will be notably different than the process during QE1 where purchases were consistent over a set time period with few adjustments.
      The market's expectations for QE2 are currently fairly large due to the weak expectations about prospects for the economy. We are in a data dependent environment. There are only signs of the reflation trade because only certain asset classes are responding. Theoretically, assets like Equities, Gold and Crude should rise. Bonds will have a bid near term, pushing yields lower as players try to get ahead of the Fed. The Dollar should suffer as the monetary base is expanded in hopes of an expanding money supply. Since the August 10th course reversal, Gold has rallied 8.5%, the 10 year yield has dropped 25 basis points and the Dollar index has lost 2.5%. Those are all acting as one might expect in a reflationary environment. Equities have gained 2.1%, they are up but not even enough to offset the losses of the Dollar. Finally, the missing link is Crude. Even after today's rally, Crude is down 3% since August 10th. Additionally, the solid performance from Crude today was the result of a fundamental catalyst in the form of DOE inventory data, not reflation. Even if we expect the reflation today, the process should be different than the approach of consistent asset purchases over the span of just over a year. We will describe what we suspect is going on. We know others will have a different view so please take this as simply one opinion. We are of the view that the comfortable reflation trades are being put on in a speculative manner. In this environment, it is easy to justify buying Gold and Treasuries and selling the Dollar, so that is where the speculative momentum is headed. Those are positions that managers can sleep with and are likely getting a little crowded, at least until we see what QE2 really looks like. Stepping into Equities and Crude does not feel as easy or comfortable, therefore, they are not getting the attention. If reflation is the true catalyst behind the action, than Equities and Crude should participate as well. The divergence illustrates that either the three that are working need to consolidate their recent moves or the other two should join the party.

    142. 142
      Jerome Blank Says:

      SU….forgot to mention last night, but, based on the current technicals, SU appears to be winding up for a break higher, currently on a P&F buy signal, SU is trading at the lower end of a wide consolidation triangle, the weekly is really looks good, but the move higher is on steadly decreasing vol, which is a caution, however, if the mkt holds up, I'm thinkning that SU may test the $34 level which is an area of major resistance then pull back before going higher….charts updated

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