Monday Morning, First 3Q Earnings + Bakken Update Part 1

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Market Sentiment Watch: Market looks tired. In energy land, we have the first earnings of the 3Q10 reporting season today with HAL and MMR. In today's post I've included Part 1 of a Bakken update piece. 

The Week Ahead:

  • Monday 10/11: Industrial production (F = -0.1%), Home builder's index (F = 13)
  • Tuesday 10/12: Housing starts (F = 600,000)
  • Wednesday 10/13:  EIA Oil Inventory Report, Beige book
  • Thursday 10/14: EIA Natural Storage Report, jobless claims, leading indicators (F = 0.2%), Philly Fed
  • Friday 10/15:  No economic data release.

In Today's Post:

  • Holdings Watch
  • Commodity  Watch
  • Stuff We Care About Today – MMR, HAL, Bakken players update
  • Odds & Ends

Holdings Watch: ZCAT (Zman Catalyst portfolio):

  • $5,200
  • 100% Cash 

ZIM (Zman Inefficient Markets portfolio)

  • $6,200
    • 2 positions (MMR Nov $18 calls and MMR January $22.50 calls)
  • 62% Cash 

Commodity  Watch:

Crude oil ended last week 2% lower at $81.25. As has been the case with so many trips above the $80 mark this year, I continue to expect a rapid retreat and was a bit surprised it didn't occur last week to coincide with the non-event that was the OPEC meeting. The 12 month crude strip is trading at $84.07.  This morning crude is trading flat. 


Natural gas fell 3% last week to close at $3.54 and is now at the bottom of its recent range.  The 12 month strip is now trading at a paltry $4.16. This price is not sufficient to produce gas economically from even the Haynesville Shale. That leave very few U.S. plays that are currently economic. Next year the we should see the gas rig count plummet in the second quarter. This morning gas is trading off five cents.

Tropics Watch: Cloud pile near central America may turn into something but otherwise pretty quiet. 

Stuff We Care About Today

Earnings Calendar

HAL Reports Strong 3Q10 Results

The 3Q Numbers:

  • Revenue of $4.7 B vs $4.63 B expected
  • EPS of $0.58 (ex one time items) vs $0.55 expected


  • Record quarter in North America - onshore activity more than offset moratorium in the Gulf
  • North American revenue was up 13% sequentially vs a 7% increase in the U.S. rig count.  More "touches" per well.
  • International revenue was sequentially flat. 
  • “Going forward we expect steady, incremental increases in activity internationally will generate volume-led margin improvements as we move into 2011."

Conference Call: Today, 9 am EST. 

Nutshell: Strong quarter, hinting at stronger quarters to come but recent run results in it being "not enough" early this morning.  With the end of the U.S. Gulf of Mexico drilling moratorium I would expect a gradual return of business there and a ramp in international results to yield rising results (and before that analyst estimates) into next year.  If the weakness persists into the open and the call goes as expected I'll dip a toe in the ZIM and maybe in the ZLT. 

MMR Reports OK Quarter, Look For More Color On Their Call

The 3Q Numbers

  • Revenues of $94.8 mm vs $99.7 mm expected
  • Production of 146 MMcfepd, down from 160 MMcfepd and slightly below guidance of about 150 MMcfepd for the quarter. They had given a 2H10 target of 145 MMcfped and are now saying 4Q will be 140 MMcfepd, so it's a slight underperformance. 
  • EPS of ($0.26) vs ($0.25)
  • EBITDAX of $40.352 mm vs $39.367 mm expected


  • Blackbeard East drilling below 26,000 feet on way to 29,950'
    • So far they have seen hydrocarbons in good rock with good porosity and permeability, no pay totals given in the release. 
    • Pressure and temperatures in the well so far indicate it could be completed with conventional equipment. 
    • After completion of the PXP acquisition, their working interest jumps to 70% here. 
  • Davy Jones 2 at 19,900' on way to TD at 29,950' (so not in section yet so nothing to report yet)
  • Lafitte is drilling below 3,300 feet on way to 29,950'.
  • Guidance: 2010 average production is expected to be 160 MMcfepd ... not going to wow anyone with those numbers but they are the same as last quarters estimates.  
  • Capex for 2010 now seen at $220 mm, down from a prior $240 mm. 
  • Cash was $180 mm at the end of the quarter. 

Conference Call: Today, 10 am EST

Nutshell: The shares are trading off in pre market action on the results and maybe on the lack of definitive color for the BBE well in the press release. These are the lean times prior to the ultra deep water production taking off in 2011 and no one should have been looking for a bump up in production for this quarter.  Look for more color on what they've seen so far at the Blackbeard East and Blueberry Hill wells on the call. 


Bakken Update - Part 1 - where the rig counts are soaring weekly and the play is expanding west and south.  This update does not include all the players in the Bakken, only the 6 names on the U.S. side of the border where the Bakken is key. So I left out some of the big boys who play there (notably EOG and HES) as well as the smallest of the single digit midgets. This is simply a statistical update with a few comments thrown in for extra color.  

First, The Most Basic Metric, The Forward CFPS Multiples - Note that at this time of year the buyside generally begins to care less about the current year (it's 3/4s toast at this point anyway) and steps their thinking out to the next out year. So no more 2010/2011, instead 2011/12.  The clear winners (cheap guys) here are WLL and KOG (highlighted numbers are the 2012 multiples).  Note the great number of names here that are moving to what I'd call "traditionally expensive" to bargain basement. As the market gains more faith in the out year numbers, and that in most cases will be up to oil prices and not up to the players as much themselves, look for the discounts to erode (prices to rise).  

Who's Oily?  In short, all of the them. Note that WLL and CLR have big pieces of production that are not derived from the Williston but their growth is largely coming from the Bakken and to a much lesser extent the Three Forks ... and as a result even their production (and they're the two biggest guys in this little study) is moving up and to the right in terms of oiliness. 

(Is this first chart narrow enough to be seen on the right margin???)

And Since No One Seems To Care About Natural Gas These Days, Just How Fast Is That Oil Production Rising.  In short this chart shows kind of what you'd expect. Oil is growing but at a much bigger pace for the smaller guys. At points in their life cycle, some of the smaller guys take a pause before ramping back up (reference KOG now and then check back in a few quarters). The big jumps of late have been with BEXP, NOG, and OAS. NOG almost cavalierly talks about sequential growth on the order of 30 to 35% through next year and while their non-operated model is somewhat unique among Bakken players, it is the nature of the play and that ramping rig count and the price of oil that is making that kind of growth not uncommon. 

Production per Share ... Growing?  All things are relative so it's good to see how these guys have managed to finance their growth.  Here you see what the impacts of being a serial equity offering offender are (hello BEXP, I'm talking about you here), or are not, as in the case of KOG who simply is blowing away numbers on the production per share metric, albeit, they're just getting started.  See the notes at the bottom of these charts as each chart is custom tailored.   In general, all the of the names are moving in the right direction (fingers crossed on BEXP) but you have to applaud the amount of production behind each WLL share. 

Market Value / Williston Acre - this is probably not that useful other for a quick sanity check. As you get names like WLL in the mix that have other non Bakken play assets, things become skewed. Obviously not all of the value in Whiting is attributable to the Bakken (they'got two waterfloods and some other assets including Rockies gas and maybe Niobrara) which helps to skew the $/ Acre numbers. The same goes for CLR and even BEXP who still has other non Bakken assets. The other three names are almost entirely Williston focused however and when you consider recent North Dakota announced deals lease sales well north of $5,000, current acreage metrics are still not out of line despite the runs we've seen.

Ownership.  CLR is the hands down winner with the president Harold Hamm owning the lions share of the shares. Part of OAS' ownership is in conjunction with Encap. -

Short Interest. Not a highly shorted group. Shorts are frequently after WLL due it's outperformance and possibly due to the companies higher $/ BOE lifting cost (due to the waterflood component of production. They're frequently in pain as well. 

Balance Sheets. Clean as a whistle. Note all those blank columns in the first chart below, that's negative net debt. 


Nutshell: This group looks to be in good shape financially, is growing at a phenomenal clip and has room to grow. The stocks have performed well but each in its own way seems to be growing into the higher valuation ... "rising while getting cheap" I like to say. I should also note that in the ZLT I currently hold BEXP, WLL, NOG, OAS, and KOG.  Tomorrow, part 2, with a few more group charts and bullets on each.  

Odds & Ends

Analyst Watch:

  • OAS - cut to Neutral at UBS

170 Responses to “Monday Morning, First 3Q Earnings + Bakken Update Part 1”

  1. 1
    zman Says:

    HAL call starting. 

  2. 2
    bill Says:

    kwk in play

  3. 3
    zman Says:

    The big family there wants the stock to move. 

  4. 4
    zman Says:

    HAL Notes:

    Fracturing revenue per well continues to rise due to more complex fracs.

    Shift to oil and liquids rich drilling has been persistent and believe it will remain so as evidenced by the acreage acquisitions of the E&Ps.

    In dry gas basins, they are helping customers by keeping pricing increases small, and by keeping equipment in the basins. Defending market position. 



  5. 5
    zman Says:

    HAL Notes

    NAM margins stable through 2011

    Oil and liquids rich plays support 60% of current US rig count – helps to kill volatility

    Completions complexity has increased markedly in last 12 to 24 months

    Horizontal drilling and completions used in unconventional plays now being transferred to conventional oil plays

    Backlog of wells should be 2,500 to 3,000 wells by year end due to commitments to hold acreage, thinking that could increase for some time. 

    International unconventional resources are highly undercapitalized despite having estimated reserves that are 3x U.S. unconventional (shales) reserves. 

    Gulf of Mexico was off sharply in 3Q. In the 4Q, despite lifting of the moratorium, we anticipate further weakness … will remain strained until E&Ps adjust to the new rules. Have transferred 400 GOMex workers out of the Gulf.

    Also higher 6,000 workers in the US this year … not a lot of people going to be able to make that claim in any industry this year.


  6. 6
    zman Says:

    HAL Notes

    International – Brazil and VZ

    Mexico remains weak, bad weather a factor. Have taken equipment out of the country. 

    This continued weakness in Mexico spells higher oil prices, make no mistake (that's me, not them saying that). 

    Flooding has kept 4Q activity in Mexico low, along with policy issues over Chicontepec.

    They do not see Latin America, as a whole, improving meaningfully in the 4Q

    Asia – delays in Algeria, lower activity in Norway offset good activity levels in Russia.


  7. 7
    zman Says:

    HAL Notes:

    Expecting activity increases across the broader international segment, which should help absorb some excess capacity.

    They see global oil demand exceeding its prior peak in 2012.  This will be the driver of eating away that excess capacity in a more meaningful way. 

  8. 8
    jat Says:

    posted this on the wrap:
    based on the HAL call so far I think consensus raises 2011 estimates.  not making a call on the stock, just my quick thoughts on estimates.
    was a miss relative to whisper, obviously, but that's international driven (could be Iraq start-ups, if so that's a positive given the size of the eventual market) and non-ops. 
    given the confidence around NAM here and simple 2010 exit rates vs. current 2011 NAM estimates, it seems like the bulk of 2011 needs to rise, NAM offsetting whatever recalibration comes as a result of the international.

  9. 9
    zman Says:

     HAL Q&A in a few minutes.

    JAT – you called this quarter correctly from the 2Q call, back when everyone was worried about them missing due to the moratorium, then they rallied the estimates and the stock. Finally the whisper numbers went too high and now this is a "disappointment". I'm almost certainly a buyer before lunch. 

  10. 10
    zman Says:

    HAL getting hit for $2 just before the open. It legged down again when they started talking about Mexico. 

  11. 11
    BirdsofpreyRcool Says:

    Good morning.  JPMo's Morning Note had a great bulleted-section on the mortgage situation… Can I post it here?
    People think it's sort of a non-event (assuming it doesn't hang around and keep the level of uncertainty in housing higher than it should be), but that doesn't mean it doesn't impact market psychology.  Credit Bears and Short Sellers are hoping to escallate the anxiety into another sell off…. akin to the PiiGS Fear of last Spring/Summer.  Perhpas they can.  If so, it's a buying oppy. 
    MMR "disappointed" on current quarter production.  We mentioned this possibility on Friday… saying MMR has been (and will continue) to decline until some of the Ultra-Deep stuff is hooked up.  This is not a surprise to anyone who follows the company… but, as predicted, it "surprised" the stock price.  Conf call at 10 am.

  12. 12
    BirdsofpreyRcool Says:

    z — thankyouthankyouthankyou for all your hard Bakken work!  Will be perusing throughout the day.  Some of the charts are a bit cut off… can that be fixed?  But this is great stuff.  Thanks!

  13. 13
    zman Says:


    HAL – Added (20) HAL November $36 calls for $0.71 with the stock opening down pretty hard on a good quarter which missed the "whisper" number. Conference call ongoing, see site for details so far. 

  14. 14
    zman Says:

    Re 12 – thanks, will look into it. Not sure, are they missing the right margin?

  15. 15
    zman Says:

    Industrial production was -0.2% vs -0.1% expected

    Q&A ongoing at HAL

    Tone is confident, analysts sound pretty pleased as a group. 

    Iraq question – thinks their first mover status will serve them well

    Mexico – cautious. We like the market long term, but are cautious on the integrated projects due to their on again off again nature. 


  16. 16
    snuhart Says:

    re 12 and 14—-yes

  17. 17
    zman Says:

    Snuhart – thanks, can you say which ones? On my screen which is a widescreen they all look fine. Will adjust the ones that seem to be the trouble. 

  18. 18
    bill Says:

    mmr slides

  19. 19
    BirdsofpreyRcool Says:

    Been busy, picking off a few more MMR shares down here…. no production suprises for me.

  20. 20
    zman Says:

    Thanks Bill, will jump over there when the call starts. My sense is that people wanted more BBE data, the small bottom line miss if you want to call it that should not be driving a drop here. I may be adding shares in the ZLT here. I've not owned them, just the options up until this point. 

  21. 21
    tomdavis12 Says:

    Z: Great work on the Bakken Boys. You own all 6?

  22. 22
    crysball Says:

    Z, Right Margin cuts off ……..at first thoucht  it  was a peculiarity of  the Ipad, but also happens  or  regular  P Screens.

  23. 23
    zman Says:

    Ha, was typing 20 while you were posting 19. 

  24. 24
    zman Says:

    re 31 – all but CLR – sold that several months back, before adding NOG and OAS. 

  25. 25
    zman Says:

    OK, will sort it out after the MMR call. Looks great on the widescreens but will try to fix for all. 

  26. 26
    zman Says:

    HAL call ending, positive tone, waiting on MMR to start.  


    Homebuilder # out, came in at 16, expected 13.

  27. 27
    zman Says:

    MMR call – nothing new so far. 

  28. 28
    zman Says:

    S&P liking the homebuilder number, breaking up through 1180.  Nicky, any new thoughts there?

  29. 29
    BirdsofpreyRcool Says:

    ATPG is acting like there is some accumulation going on.  SELL THE NEWS of the "lifting" of the moratorium appears to be over. 

  30. 30
    tomdavis12 Says:

    Bill: The KWK bonds can still be bot below par. 7 1/8 4/1/16 cusip 74837rac8. If merger happens with bigger fish, may smell opportunity. Warning prior to today these bonds were acting like all NG names (six day old fish).

  31. 31
    zman Says:


    MMR – Added an initial common share position at $17.77. As I view this now, I'm expecting a 1 to 2 year hold and I plan to add trading shares here as well. 

  32. 32
    BirdsofpreyRcool Says:

    Can almost see the lightbulbs going on… "Gee… this Ultra-Deep play could be HUGE."
    uhhhhh.  yeah.  right.  did you forget about that?

  33. 33
    BirdsofpreyRcool Says:

    z — ha!  that was NOT aimed at you… 😉
    But, agreed… this is a buy-and-hold-and-forgeddaboutit for a coupla yrs.  Until FCM tenders for the rest of the shares…

  34. 34
    bill Says:

    mmr at 17.70 before jim bob speaks

  35. 35
    zman Says:

    EOG drifting up.

    MMR Q&A starting. 

  36. 36
    BirdsofpreyRcool Says:

    FCX… not FCM.  Monday-Morning-itis

  37. 37
    zman Says:

    MMR Q&A

    2011 – see slide 20 for prospects

    BBEast – 5 or 6 zones with hydrocarbons, sidewall cores and bottle test – all of these zones can be completed with standard equipment in the Miocene (from 19,500 to 26,000'). But for now, focused on the deeper zones. Anything they find deeper hill JB says they will find at BBWest, Calico, DJ, Lafitte, others. 

    Lafitte – believe they will see  the same Miocene sands plus the deeper stuff > 26,000'. So another well to watch closely for in early 2011. 

    DJ 2 – bigger diameter hole, hoping to get better data there. 

  38. 38
    zman Says:

    MMR Notes

    Since we've seen hydrocarbons in the shallower zones, it gives them greater confidence in the deeper section as the 4way closure is working on the BBEast structure. 

  39. 39
    zman Says:

    MMR Notes:

    In BBEast. Sands at 19,500 19,600 and 19,700, then two major sands over 100 feet thick.  Didn't release pay totals today because they are mapping the shape of the sands (think about the irregular shape of a mountain underground, from the well bore it will vary in distance to the edge as you turn 360 degrees and then also you have the varying slope. But they are working to describe it and then book reserves from these sands by year end.  

  40. 40
    BirdsofpreyRcool Says:

    Huge statement… the Unconformity associated with the Salt Weld is a sealing surface.  You don't need the physical presence of the salt to seal. 
    This undermines one of the better short-arguments I've heard.  Yippee.

  41. 41
    zman Says:

    re 40 – yep. He's saying that if the salt was squeezed out that's just as good. 

  42. 42
    zman Says:

    From Nicky:

    As long as 1163 holds I am still looking for higher highs.

  43. 43
    zman Says:

    At DJ 2

    They are drilling through RobL and CibOb sections (productive at 11 to 16,000 feet in lots of parts of the Gulf). Encountered a zone at 15,000 feet that had big mud log shows and took a month to get the large volume of gas under control (couple of hundred feet thick), saw a 10' stringer sand at about 18K' that they have not logged but looked like hydrocarbons. So you've get a totally unrelated structure, above the salt, sitting on top of the DJ structure. Saying it's not small, could be 300 to 400 Bcfe (sounds like its an up hole bailout at worst and a later completions years down the road at best). 

  44. 44
    BirdsofpreyRcool Says:

    #43… or, could produce the uphole section while waiting on more heavy-duty completion stack to produce the ultra-deep…

  45. 45
    zman Says:

    re 44 – hmmm, hadn't thought about that, I guess so. 

  46. 46
    BirdsofpreyRcool Says:

    … accelerates the cash flow… increases PV of the reserves.  Just a thought.

  47. 47
    zman Says:

    Yeah, definitely a PV enhancer. Sounds like a big structure, so you'd produce for a bit, then shut it in for the ultradeep, deplete that, and come back again years later to tap it again. When you think about this is just something extra along the way, like tripping over a Flat Rock on your way to the big prize, well that's pretty cool, especially when you consider that all of their current production comes from stuff like this now. 

  48. 48
    zman Says:

    We could see another 400 to 1,000 feet of Miocene sand before they get to TD. Sheesh. 

  49. 49
    BirdsofpreyRcool Says:

    Boone Pickens asking questions now… for someone who is older than JimBob… he sounds like he has smoked fewer ceeee-gars. 

  50. 50
    bill Says:

    on davy jones,
    200 bcf per well 100 k per day,20kacres

  51. 51
    crysball Says:

    Fascinating discussion between JimBob & Boone………….100 millioncfd!

  52. 52
    zman Says:

    Yeah, these are generally thought to be multi Tcf structures where the individual wells will produce 200+ Bcfe, rates vary on diameter. The DJ1 probably does closer to 60 to 80 MM/d if capable with the wider (more costly holes) doing closer to 100 MM/d 

    DJ may be quite a bit bigger than a 20,000 acre structure too, depends on how deep he decides to take it. 

  53. 53
    zman Says:

    We have several other prospects that look like they cover 20,000 or more acres. 

  54. 54
    bill Says:

    someone said water in well and down mmr goes …

  55. 55
    zman Says:

    MMR Notes:

    Joe Almon at JPM assuming the worst as his nature. Question on Blackbeard East – 200 to 300 feet of sands, 4,000 feet of sands, do you have too much water? Jim Bob had mentioned water in some of the sands. Some of the sands have water levels, some of them do not.  Do not presume that because one sand has water in it that ones below it will have water in them. 

  56. 56
    BirdsofpreyRcool Says:

    keep asking questions, Joe… getting cheaper and cheaper shares here.

  57. 57
    zman Says:

    re 54. It was a fair question based on what JB said. But JB answered it. Now Almon is pushing ahead saying but is this well going to be commercial based on the results to date. Asked and answered toolbag, move on. He's showing his ignorance now and I really don't care for that glass is always 3/4 empty. He also doesn't understand how reserve modeling is done as he proved a couple of years back on a CHK conf call. 

  58. 58
    zman Says:

    He's a numbskull. Knows enough to be dangerous but not enough to be helpful.

  59. 59
    zman Says:

    And with one fell swoop he cast major doubt on the BB East well. Stupid but true. 

  60. 60
    zman Says:

    See EXXI punching lower now. The shorts will jump on that like rats on cheese. 

  61. 61
    bill Says:

    its dropped a buck with the market unchanged …momentum guys playing both sides

  62. 62
    bill Says:

    dropped as low as 16.68, buys coming back in
    fascinating just watching the trading

  63. 63
    BirdsofpreyRcool Says:

    keep talking, Joe… i just might get to add to EXXI at 22.50….

  64. 64
    elijahwc Says:

    ERF — Another Bakken compareable comes in at +/- 10,000 acre

    Enerplus Closes Purchase of Bakken Oil Assets in North Dakota

    CALGARY, Oct. 18 /CNW/ – Enerplus Resources Fund ("Enerplus") is pleased to announce the closing of the previously disclosed purchase of 46,500 net acres of land in North Dakota prospective for Bakken crude oil for US$456 million before closing adjustments.

    This acquisition materially expands Enerplus' current land position to over 70,000 net acres (109 sections) in the Fort Berthold area, the majority of which is now operated by Enerplus with a greater than 90% working interest. Current production from this project is approximately 4,000 bbls/day. As drilling plans are executed over the next five years, production is expected to grow to over 20,000 BOE/day.


    All amounts in this news release are stated in Canadian dollars unless otherwise specified. Where applicable, natural gas has been converted to barrels of oil equivalent ("BOE") based on 6 Mcf:1 BOE. The BOE rate is based on an energy equivalent conversion method primarily applicable at the burner tip and does not represent a value equivalent at the wellhead. Use of BOE in isolation may be misleading.

    In accordance with Canadian practice, production volumes and revenues are reported on a gross basis, before deduction of Crown and other royalties, unless otherwise stated. Unless otherwise specified, all reserves volumes in this news release (and all information derived therefrom) are based on "company interest reserves" using forecast prices and costs. "Company interest reserves" consist of "gross reserves" (as defined in National Instrument 51-101 adopted by the Canadian securities regulators ("NI 51-101")) plus Enerplus' royalty interests in reserves. "Company interest reserves" are not a measure defined in NI 51-101 and do not have a standardized meaning under NI 51-101. Accordingly, our company interest reserves may not be comparable to reserves presented or disclosed by other issuers.


  65. 65
    BirdsofpreyRcool Says:

    ERF bought private Peak… i was hoping KOG would snag those acres.  Didn't get out-bid by ERF, but ERF has more scale… so seller more comfortable in being able to close deal.  Oh well…

  66. 66
    zman Says:

    MMR Notes

    At BBEast, we'll be down below 30,000 feet (another 4,000 of potential sands).

    Good question: This should be pressure depletion reservoir?

    Answer: Yes, Water level won't move in a pressure depletion (non water drive) reservoir.  This is what I was saying Joe didn't seem to get (or didn't want to get).  

  67. 67
    zman Says:

    re 66 – that answer is key. Joe basically tried to imply this well would be non-commercial due to water present in some of the shallower Miocene zones seen so far. You just can't make that leap. 

  68. 68
    zman Says:

    Call should wrap up soon, going on 2 hours. 

    DJ 2 – there's a chance this could be oily, not sure yet, oil based mud contaminated the sample. But given the lower heat and pressure, it could be that the kitchen didn't cook the oil all the way into gas, could be condensate in there.

  69. 69
    zman Says:

    Call still going….

    Anyone around who can verify a quick test for width of the charts above? I'll put a test graph in to see if you can see the right hand side.

  70. 70
    zman Says:

    OK – I replaced the % from Oil graph – is that narrow enough?

  71. 71
    cargocult Says:

    I made the full charts appear by widening my window.
    As between EXXI and MMR are these similar or what?

  72. 72
    crysball Says:

    MMR…………………….JB  spins a great  story  on how  they are taking this from  an Exploration  to a Development Stage.

  73. 73
    elijahwc Says:

    KWK Story;  Q, does anybody have any valuation thoughts?

  74. 74
    zman Says:

    MMR call over at 2:04 mark. Stock off 8.8% at 16.83.

  75. 75
    zman Says:

    Cargo – EXXI is a bigger, oilier story, with good but smaller exposure to these ultradeep wells that MMR is operating. I've been around MMR since pre Flat Rock and Shiller at EXXI since he headed deepwater exploration for Ocean Energy. Both very smart, both not risk averse. EXXI is the safer, cash flower of the two in my opinion. MMR probably has more risk but somewhat more upside potential.  

  76. 76
    zman Says:

    CNBC talking about the structure problem with natural gas now, too many wells being drilled at a loss. Add your own "well duh" here. 

  77. 77
    zman Says:

    Eli – I'd think on a serious takeout it would go for $20. They are the original liquids rich gas play.  That would put it close to $3.00 /Mcfe which given the liquids would put them at a good but not outrageous premium. 

  78. 78
    zman Says:

    Cargo – thanks much, my window is always all the way across my screen, didn't think of that. 

  79. 79
    zman Says:

    MMR – not going to buy more today, will wait to see how it trades next few days. Not that I think it should go lower but that it could based upon sheeple action. 

  80. 80
    elijahwc Says:

    Thanks Z:  I wonder if the KWK going private transaction is going after this as well " 130,000+ net acres in the southern Alberta Bakken in northwest Montana".

  81. 81
    RobBanks Says:

    Z –  Is the idea with MMR that enormous potential quantities of NG will overpower low NG pricing? Or is it also a play based on NG price being at or close to a bottom here, so you get quantity and pricing potential in one shot?

  82. 82
    BirdsofpreyRcool Says:

    MMR… just love inefficient markets.  If people want to sell/short on Joe A's comments, just makes the stock more and more attractive.  It sucks for short-term trading, but if your goal is to establish a position and hold for a coupla of years (now that funding risk is much diminished), this is a great time to pick your price and wait in the weeds.  If/when stock goes to $50+, will it really matter if you bought at 17 or 16?  More important to claim a seat on the train… than to be picky about exactly what you have to pay for the ticket.  JMHO.
    Agree with your EXXI vs MMR comments, z.  I am about 7x more weighted to EXXI than MMR.  But, grabbed a seat, nonetheless.  They are two different companies with two different risk profiles, production mixes, cash flow trajectories.  That said, biggest risk at EXXI here is some sort of "deal."  But if Schiller can do something that is anywhere near the same zip code as his Mitsui acqtn, I don't want to risk being out of my shares.

  83. 83
    zman Says:

    Rob – Combo of the two. By the time they are producing gas, it should be priced better with a strong economy (?). Also, their may be a higher BTU content in some of the less ultra deep of the ultra deep wells. Spread over the big rate of production, lifting costs become negligible so you can endure lower prices as well. 

  84. 84
    zman Says:

    HAL trying for a comback, MMR sinking to the LOD.

    Anyone still having trouble viewing the morning graphs, I understand widening your browser will do it if you have room to do that. 

  85. 85
    zman Says:

    OK ZLT is not adding more for the day but the ZIM will be, this is pretty silly. 

  86. 86
    zman Says:


    MMR trading off on erroneous analyst comments on the call, see site for details. 

    Added (20) MMR November $17 calls for $0.82 with the stock at 16.14. 

  87. 87
    RobBanks Says:

    re 83, thanks. Wow, is MMR getting crushed.

  88. 88
    zman Says:

    re 87. Yep. Smells like an opportunity to me but could obviously go lower. Fear feeding off ignorance at the moment. 

  89. 89
    cargocult Says:

    Would you say there is high call volume on MMR this morning?

  90. 90
    AAA Says:

    Is the EXXI weakness just a sympathy play off MMT?

  91. 91
    AAA Says:

    Sorry, MMT=MMR.

  92. 92
    zman Says:

    Cargo – Saw that, off the chart. 

  93. 93
    zman Says:

    re 90 – Absolutely. 

  94. 94
    AAA Says:

    Not to beat a dead horse, but if the analyst's point is so absurd, why wasn't management able to rebut it to the market's satsifaction?

  95. 95
    blackgold39 Says:

    Time to take a bite of EXXI?

  96. 96
    cargocult Says:

    5000 contracts for Dec MMR 21's? Those are some high expectations.

  97. 97
    cargocult Says:

    Correction=Nov 21's

  98. 98
    zman Says:

    Probably because there are people who don't understand the difference between pressure depletion and water drive reservoirs, and who hear water in a well and immediately punt. Joe went out of his way to cast doubt on the well. After the question was answered he persisted in following a line of attach that said, OK, I understand this doesn't ruin the whole, prospect, but just that this well won't be economic, as if it hadn't been answered. These guys can't say, you're wrong, the well is economic as wells aren't economic until they are flowing, so it was a cheap shot in my book. Joe didn't like BEXP at about $12 as I recall. 

  99. 99
    BirdsofpreyRcool Says:

    Next catalyst for MMR is Blueberry Hill production test in two weeks…

  100. 100
    zman Says:

    Cargo – yeah, I can't get there. People playing that are making a delta belt, hoping it rises enough to move their bid up enough to get out, I doubt they really think it can get to $21 in the next 4 weeks. 

  101. 101
    zman Says:

    re 99, I missed that, thanks. 

  102. 102
    zman Says:

    WHX trying to make a move on $23 again. We should get results around Nov 6. 

  103. 103
    Dman Says:

    BTW, crude quite bouncy today. Any theories?

  104. 104
    zman Says:

    D – Dollar a little weaker, stock market up small, and home builder's up. Not sure why it is up as much as it is … probably something I haven't seen on the refining front. Could comments from the US that they won't "rubber stamp" deepwater permits. Really? Shocking. By the way, no one was before. Although there was some lax oversight in some arenas, it was on the whole quite a safe endeavor. Maybe it's the comments that HAL made on their call which said they see oil demand returning to peak (all time record) levels by 2012.  

  105. 105
    zman Says:

    If anyone gets a copy of the JPM first call note on MMR please forward it to zmanalpha@gmail.com

  106. 106
    BirdsofpreyRcool Says:

    MMR/EXXI… it's like someone jumped up in the theater and yelled "FIRE!"  People are scrambling for the exits without confirming if it's true or not.  Gives cooler heads the chance to move up to better seats, I guess.  Silly stuff.

  107. 107
    zman Says:

    BG – re EXXI – I think I'm done for today, the two are sort of joined at the hip and I have some EXXI already (cut in half awhile back but still bigger that the MMR).

  108. 108
    zman Says:

    re 106 – and they get to keep shouting while management goes back to work and works to produce more results. 

  109. 109
    jiveyjr Says:

    re:106…so many of us are just chart players, who assume the technical action tells us all we need to know…been good for me to have this affiliation so that I get some positions using insights I wouldn't otherwise know in a million years….thx much to all who contribute such great knowlegge here…

  110. 110
    elduque Says:

    re 109- I second that

  111. 111
    AAA Says:

    Re 109, same here.

  112. 112
    BirdsofpreyRcool Says:

    jivey — wish i could say it would stop at this level and go straight back up… but i have no idea.  I can't control people's reaction… I can only do what I think is right.  If they want to run for the exits today, tomorrow, next week… oh well.  So be it.  I'm not leaving the theater until the show is over.  MMR just fireproofed the structure, with the recent financing.  And EXXI has more than one show going on. 
    I have a few friends who just bought cheaper tickets and have joined us today… but if other people want to stampede, guess I just have to step outta the way until they are gone.

  113. 113
    BirdsofpreyRcool Says:

    I've got HeadTrader standing at the entrance, looking to buy tickets for $22.50 today.  We shall see… have to admit, I do like inefficient markets!

  114. 114
    jiveyjr Says:

    e: 112..Understood and I know we are buying into panic…so I bought a few shares and will add a dribble along as we go…please don't feel responsible for me or the others…just share what you believe and that's more than good enuff by me

  115. 115
    Dman Says:

    re. 109  Excellent real-time analysis during the MMR call. Don't know anywhere else I could get that.

  116. 116
    zman Says:

    Thanks for 109 to 113, glad to be a part. Grabbing some lunch. 

  117. 117
    zman Says:

    thanks for 115 too.

  118. 118
    elduque Says:

    To add a little different perspective. I know that a lot of the comments are about adding positions for a couple of years hold. However, it seems to me that Crude has the potential to go test the 60-70  area again. There is a lot of supply floating around in the ocean. One of the reasons is the commodity buying as a hedge against the falling dollar. To my way thinking, it just be a little over done in the short run (one to two months). I guess what I am really saying is that crude isn't necessarily a given to hold 80.

  119. 119
    zman Says:

    Jat – thanks for the note on HAL. Morgan cut their rating to equal from overweight …. while raising their EPS from $2.50 to $2.85 for 2011. Street is at $2.50 so nothing like being out ahead of the pack on numbers, with a forward multiple that is none too expensive based on historical standards and basically adopting a "do nothing" rating. Sometimes the lack of sack on the part of the Street is just …. ok, really grabbing some lunch now. 

  120. 120
    zman Says:

    Eld – absolutely agree. Of course, MMR is mostly natural gas and I do think that is closer to a low than to a high. 

  121. 121
    Dman Says:

    BOP – CIGX having one of its happy days.
    In the metals area, SSRI seems to have gone a little nutty today, given the run up already. Take over rumors anyone? 
    El-D: on an hourly chart, crude is in a gentle consolidation triangle. It managed to hit both boundaries of it today. To me it looks like it wants to go up… I realize that's just chart-gazing & there are downside risks (eg China) that will be realized at some point. 

  122. 122
    BirdsofpreyRcool Says:

    CIGX — someone said that James Altucher (who occassionally writes for the WSJ) mentioned CigRx.  But haven't seen it, if he has.

  123. 123
    choices Says:

    Thanks much, Z, BOP, for excellent commentary on MMR-took a fairly good sized chunk @~16.16-also picked up some EXXI @22.93-could not wait for the 22.50 level.

  124. 124
    bill Says:

    exxi closing in on 22.50

  125. 125
    choices Says:

    BTW, agree with Dman's comment #115

  126. 126
    zman Says:

    MMR just getting cracked now. 

    Reuters keeps running a story that says MMR cut their 2010 production target. 

    The 2Q10 pr says 2010 target is 160 mmcfepd.


    Today's pr says 160 MMcfepd also


    The story goes on to mention this is the 3rd time they've cut production. It would be I guess if they had done it. It's pretty irrelevant anyway but there you have it. There's also mention of them cutting spending which JB said on the call was a function of timing. 

  127. 127
    BirdsofpreyRcool Says:

    EXXI/MMR… it's not "fundamental" at this point… just momentum sellers.  Fundies no matter, today.  Tomorrow, maybe.  Today, ziltch.

  128. 128
    andy Says:

    ELD –  thot i read somewhere that the floating oil supply had been greatly reduced because of the falling contango in oil prices, thus creating a reduction in oil tanker rates.

  129. 129
    zman Says:

    re 127. True, got a note from one of my technically oriented buddies who said basically, hope it works for ya but that it is in the danger zone, approaching the 50 day rapidly on the MMR.

  130. 130
    zman Says:

    Spreads on MMR options are ripped wide open at the moment and mids are not that easy to pull off unless it really comes off while you are looking. ZLT may take that second piece as I didn't think I'd see a $15 handle for a long long time. I may also take another shot at options but will likely wait until morning. 

  131. 131
    zman Says:

    Getting filled on some more MMR calls on the bid side now. 

  132. 132
    RobBanks Says:

    Any chance analysts that are positive on MMR/EXXI will say something about this sell-off in a note to clients today or tomorrow ?

  133. 133
    zman Says:


    MMR – Partially fill at $0.70 on MMR $17 November Calls for $0.70 with the stock at $15.85. Added 4 more, tried to get 10, will try to fill around here. The 13 to 14% sell off seems unjustified based on the conference call and quarter. 

  134. 134
    zman Says:

    re 132. I would assume they would tomorrow. The notes I've seen today have only mentioned it as a factual comment. As in, "they said there is water, then explained this does not mean the well is no good". I'd expect, given the fall, that it will get more attention in overnight writing.  

  135. 135
    PackMan Says:

    well Z, I've been buying MMR at several levels today (stock and calls).  The best buy was at 15.71.  The worst at 16.83 (then sold covered calls against that).

  136. 136
    blackgold39 Says:


  137. 137
    zman Says:

    Hear ya on that Pack. The last leg down wasn't on big volume, not like the one during the call. Anyway, in the next several weeks we should have more data points so for the stock, I'm not concerned. 

  138. 138
    zman Says:

    re 136. Well they are aptly named aren't they. Maybe replacing "motley" with "clueless" would be better though. 

  139. 139
    Dman Says:

    They call themselves Motley Fool and I tend to take them at their word on that point at least.  I think they came to fame during the dotcom bubble, when their strategy of "buy anything and hold" worked brilliantly. But still, they were being outperformed by 13 year old kids whose strategy was "buy one share of something and hold until, like, forever".

  140. 140
    zman Says:

    The title of the UBS downgrade of OAS today : The Party Isn't Over But Its Start To Get Late. Man, that's just naive. 

  141. 141
    jiveyjr Says:

    re: 140…not that I tout the point, but Chris Martenson's blog recently wrote about him attending a Peak Oil conference where they thought we might be short something like 10 million bbls a day by 2012 or so….if the economy picks up again, which it will, crude will be short and prices will be high be it 2012 or a little later than that…anyhow that's what I believe so it sounds stupid to think it's late in the Bakken or anywhere  oil can be produced in my view.

  142. 142
    apbd Says:

    CNBC headline: " Oil Surges Above $ 82 on French Strike."
    The French are helping us?  lol

  143. 143
    zman Says:

    Analyst Watch 

    HAL – Stern Agee just went to $3.00 for 2011 and $3.61 for 2012

    Street is at $2.50 for 2011. 

    Their target goes up by $5 to $42. 

  144. 144
    BirdsofpreyRcool Says:

    Annoying day. 
    Duane Grubert, if you are in hearing distance, use your background as a Petroleum Engineer and come out with a statement tomorrow on MMR/EXXI that defuses the Stupid Bomb that Joe Allman lit today.  Clearly, people are shell-shocked and need a good dose of some Anti-Stupid Serum.

  145. 145
    zman Says:

    re 141 – yeah, especially given that not all places will find you economic at $40 per barrel like in the Bakken. 

    re 142 – thanks, French striking over plan to raise pension age from 60 to 62. Since I plan to never retire and prefer California and South American labels to French ones most of the time I really don't understand them.  

  146. 146
    BirdsofpreyRcool Says:

    TED Spread hasn't budged from last week.  BAC rallying.  The Mortgage Foreclosure Mess is more sound and fury than it is real damage (that said, amazing how AGs are now so concerned about the letter of contract law… where were they when Chrysler and GM senior noteholders — many of whom were GM retirees — were getting illegally screwed?)  That's the problem with today's business/legal climate… what is illegal one day is legal the next and vice versa.  Who can make plans in the face of all this legal and political activism?  UGH.
    And yet, our President thinks it's important to go on discovery channel's "Myth Busters."  I love that show… but, I'd sure like to bust some of HIS myths!!  (mini-rant over)

  147. 147
    zman Says:

    In other news ….

    OAS doing a good job of fighting off that downgrade.

    WLL holding above $105 near the highs… if they think the party is getting long in the tooth or whatever at OAS I have to wonder how they feel about the up, up, and away action at WLL.

    BEXP – after falling for no good reason on Friday but expiry it is moving OK today …. more news there on the quarterly call

    NOG down 3% today, no news I see

    KOG – holding $4. Cheap on acreage. The recent rally calls into question, at least for me, whether or not they might be next in line to be snapped up. AES went to young and that leaves KOG as a likely morsel.  

    If you haven't looked at HAL in 15 minutes, it's started to follow the S&P again. 



  148. 148
    zman Says:

    re 146. They should immunize themselves from this sort of thing by unionizing, lol. 

  149. 149
    jiveyjr Says:

    re: 144 you tickle me…you must have all you want at this point…I'm still holding my tiny bag open at lower prices and hoping it gets lower

  150. 150
    BirdsofpreyRcool Says:

    jivey — i can always make room to accomodate Major League Stupid.  I put my little paw out today at $22.50 and haven't moved it.  Low trade was $22.55… so glad to see i could provide the floor on today's EXXI slide.  So far, anyway.
    If you scratch me, I bleed EXXI shares… that said, it's not every day one gets an opportunity to buy something with the potential and ability to do what EXXI/MMR are trying to do.  When you see an oppy like that, one backs up the truck and prepares to be patient.

  151. 151
    occam Says:

    In Firefox, I go to View->Page Style and choose No Style.  The center column then is as wide as the window, and charts are not a problem.  Makes the site much easier to read during the day.

  152. 152
    zman Says:

    re 151, wow, thanks much, had not heard about that fix. 

  153. 153
    zman Says:

    although it is not very attractive, that seems to work as well. 

  154. 154
    crysball Says:

    EGY  continiue  creeping  [UP to $6.15   or  up 2.6%  or 13 cents]  on low volume and  NO  news.
    All  potential catalysts  still appear   viable
    Most volume appears retail.

  155. 155
    zman Says:

    BAC to resume foreclosures in 23 states on Oct 25. 

  156. 156
    zman Says:

    OAS going green. That leaves only KOG and NOG red of the Bakkens on the day. I left SSN out of the study as they are just too small to compare to others for the time being. Same for BSIC. I have notes in with those guys, so far no call back. Plan to call this week. 

  157. 157
    Popeye Says:

    Thank you occam!!!

  158. 158
    zman Says:

    WFT and BTU reporting tomorrow, no play by me on either one. WFT was surprisingly strong last quarter. Thinking Mexico hurts them more this quarter and for the outlook but am unsure what steps they've taken to separate themselves from the PEMEX problems. Jat, any thoughts. 

    On coal, I'm sitting this quarter out until each one posts results. Paying more attention but I took my WLT shares off the table a couple of weeks back after a good run. 

  159. 159
    zman Says:

    Reporter Watch: MMR – Reuters out with a corrected update, now says the company maintained, not lowered its 2010 production guidance. 

  160. 160
    cargocult Says:

    Bill- you following EXM?

  161. 161
    zman Says:


  162. 162
    jat Says:

    I have WFT beating for the quarter, but I'm uninvolved.  Also don't know how big the whisper is.  You gotta figure the seasonal spring back in Canada and NAM will be huge.
    They're down to maybe 10 rigs in Mexico from 50 at the peak of their activity in 09 so the hurt there should be less from a purely conceptual standpoint.  Lat Am EBIT margins down to 9% from 18% in Q209. How much lower can they go? 
    So I have them beating and taking next quarter's guidance above consensus, but don't love the stock at $18.50. I have a bet with a friend at Diamondback; if WFT gets above $24.00 at any point before the end of the year I owe about seven beers, and vice versa.
    I'm not as close to the estimates here as others, so caveat empor.

  163. 163
    Dman Says:

    French refineries on strike. So prices for refined products go up. Why would crude follow them up? The strike will reduce demand for crude.

  164. 164
    bill Says:

    160 from a distance , anything specific of interest

  165. 165
    cargocult Says:

    Just wondering if EXM looked like a buy at this price/

  166. 166
    PackMan Says:

    146 — you go, BOP !
    Those myths will be busted !

  167. 167
    zman Says:

    Re 163. Oh, I see the problem. You are thinking logically. The answer is that at some point, less refined product will be exported from Europe as a whole, to meet internal (French) demand. This translates into higher product prices on a global basis which would cause the prices of that from which they come (crude oil) to rise as well. Until they forget that France is a sliver of demand in the big scheme of things and reverse the price. 

  168. 168
    ram Says:

    Morgan Stanley downgrades HAL because of dissappointing results from Overweight to Equalweight.  I thought the quarter was good.  Is MS just down on the energy space in general?

  169. 169
    zman Says:

    re 168. They are the ones that raised their estimates for 2011 from $2.50 to $2.85. Go figure. 

  170. 170
    zman Says:

    Tuesday post is up

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