19
Nov

T.G.I.Expiry

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Market Sentiment Watch:  GM IPO sizzled yesterday while Ireland appeared to knuckle under to the EU and IMF. My sense is that the market will, for a few days at least, pay close attention to GM, like on a tick by tick basis. When it falls below the offering price (and note that it's below Thursday's opening trade now) analysts and traders and other talking heads will be quick to jump on the bloated cow that is the old and not that different General Motors. In energy land, the euphoria went further yesterday than I expected and I'd point out that even the small cap E&Ps were launched into 52 week high land, many of them at the end of the day, just two days after the Street was convinced that China was on the path to all things negative for commodities (China did up their reserve ratio again overnight as they seek to combat inflation). Just musing but the runs we've seen are pretty heady and it's often not a great sign when the smallest boats in the group start to jump entirely out of the water. Some of them deserve it no doubt while others are just moving with the group and will likely pop off secondary offerings upon there new found fortune.  

Ecodata Watch:

  • No data release scheduled. 

Housekeeping Watch: We may be on the new server by early next week. In the meantime, please bookmark the backup site. If I'm not here I'm there:

 

www.zmanbackup.wordpress.com

 

In today's post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Inventory Preview
  4. Stuff  We Care About Today – Two more SDM's
  5. Odds & Ends

Holdings WatchZCAT (Zman Catalyst portfolio):

  • $5,000
  • 99% Cash
  • Yesterday’s Trades: None

ZIM (Zman Inefficient Markets portfolio)

  • $9,300
  • 54% Cash
  • Positions (2 November positions in MMR that look destined to be scuds, four December Calls positions (WLL $110 and $115s, KOG $5s and $7.50 (accidental trade here), and HAL $40 calls) and one January in the MMR $22.50 strike calls.   
  • Yesterday’s Trades:

    • HAL – Sold the 80 HAL November $36 Calls for $0.50, up 121% to my average cost with the stock at 36.20. I continue to own the 25 December $40 calls.

    • NFX – Sold the remaining (5) NFX November $65 calls for $2.25 (on the mid and easily), up 483%, with the stock at 67.15. 

    • WLL- Added (10) WLL December $115 Calls for $1.40, on the mid and pretty quickly with the stock trading at $107.25. Thinking is that they are going to release an operations update fairly soon with further details on their drilling in the fairway of their Lewis and Clark play in SW North Dakota. Also, the market is buzzing with new speculation about the Tyler Formation, some 2,000 shallow to the middle Bakken and extending south into South Dakota. If history is a guide, market participants will look for names with potential exposure and WLL should be in that category.   I continue to own the DEC $110 calls and the common in the ZLT. 
    • HAL - Sold the (25) HAL December calls taken earlier this week for $0.56, up 59% with the stock at $37.33. Feels a bit quick to me and these are far enough out of the money that any significant pullback would result in me round tripping the trade. No sense in doing that. So, waiting on a pull back to buy these back or a lower strike, probably next week. 

Commodity Watch

Crude oil bounced $1.41 to close at $81.85 yesterday. This morning crude is trading flat.

Natural gas closed off 2 cents to close at $4 after EIA reported another late season injection that was slightly smaller than expected (see next section).  This morning gas is trading flat. 

  • Tropics Watch: A small cloud pile just east of Honduras, 20% chance of development. 

Natural Gas Review


ZComment:  Peak storage for the year reached at 3,843 Bcf ... a new record peak. Weather, as usual, is going to have a lot to do with the next several weeks of gas pricing as it will determine how quickly we pull away from these highs. With the obvious statements out of the way let me add that industrial demand has been improving (evidence from chemical and steel makes but also from the fact that given how strong supply is we would have peaked higher than here).  As we move into the cooler months, industrial demand should accelerate as additional demand for heating kicks in on more occupied square footage. Nothing to write home about but it may help to keep withdrawals near year ago levels despite more than 2 Bcfgpd of additional supply. 


Stuff  We Care About Today

GST - Gastar Exploration 

  • Gassy onshore only small cap with East Texas core position in the deep Bossier and potentially in other horizons and a growing position in the Marcellus.
  • In Texas we are awaiting a number of catalysts:
    • Results from their two Glen Rose formation oil wells (by year end)
    • One of their infrequent but highly meaningful from a production standpoint deep Bossier tests (also by year end) 
    • And their first Eagle Ford shale well due in the first quarter of 2011.
  • In Appalachia they are building a new core area:
    • Now has 93,000 net acres in the Marcellus in PA, while you can't base the valuation of this leasehold on recent deal pricing (CVX for ATLS and NFX for EOG) they are still probably sorely undervalued.
    • Looking at the newly acquired 59,000 net acres, it's largely in Preston County, WV but also in Tucker and Pendleton Counties. Recent results near Preston have been from verticals, with some IPs as high as 3,000 Mcfgpd. Operators in the county are CHK, Dominion, EQT, XCO, MRO and a number of privates. I have not seen data on any horizontal wellbores but Enerplus Resources Fund ERF) who also has a position here is moving horizontals along trend towards the county.   ERF is an interesting Canadian by the way. 
    • GST probably paid less than $1,000 per acre for the deal ... it appears given their liquidity that they must have.
    • Given that the majority of this acreage lies in the path of the migration of the play to the south and west you can start to see that valuation march higher as well. If you take the acreage to $4,500 (half the price of the two deals down to the northeast in the play in the last 2 weeks) you get a stock price, based on this acreage alone of nearly double the current one.  
    • We'll know soon if their current JV partner comes in on this deal or not and I'll be able to have a fresh look at the balance sheet and that TEV to EBITDA calculation listed below. Either way, the acreage has shown respectable results with vertical wells and if successful with horizontals will force a whole reexamining of the old GST name. I continue to be long in the ZLT. Thanks to Reef for bringing this one back into the limelight. 



VYOG - Voyager Oil & Gas

  • The next NOG wannabe, but possibly targeting the Niobrara before the Bakken so perhaps this will be the non-operated go to name in that play. I'd call that a riskier venture as the Niobrara is not a resource play and production results are not going to be a homogeneous as they have been in the Williston.  
  • Good sized acreage positions in:

    • the Williston (Bakken) - 24,000 net acres
    • and the DJ Basin (Niobrara) - 14,500 net acres
  • Running the non-operated model, acquiring more land and getting in the way of the experienced operators in the plays.
  • Notably private Slawson is their partner in the Niobrara, the same operator who has drilled some of the best wells NOG has reported. 
  • Also notable that the president of VYOG and the president of NOG are brothers. So NOG gives the roadmap for VYOG. 
  • Production here is an almost non-existent 46 BOEpd coming from a couple of Bakken wells so this story is "very early days". However, they are in as many as 22 gross wells (not sure on the net but it will be small) with Slawson in the Niobrara in a program that began last month. 
  • Nutshell: You'll note that from a Back of the Envelop perspective I can't get there. If the Street's projection of CFPS next year is right the name is fairly valued. But on non-operated assets, and given the small size of the shares involved, it seems that a someone wanting this land could replicate the company for less money by doing a little a little leasing. That's not to say the stock won't rally as the goto non-operated miniature NOG of the Niobrara and it's not to say that I won't play along (have not yet) but I'll need to see some results out of Slawson for that to happen.

 

 


Other Stuff:

SSN - new presentation

  • Nothing new in the latest presentation for their annual meeting. 

LINE - new presentation

  • Essentially same presentation as before but 2010 exit rate climbs to 320 MMcfepd, from a recent 310 and 300 about 2 months ago. This is the result of the Granite Wash 4th rig kicking in.
  • We should get results on 4 more Granite Wash wells prior to the end of the year. 

Odds & Ends 

Analyst Watch:

  • COG - Jefferies took their target from $35 to $42, rating Buy
  • WLT - FBR reiterates outperform

154 Responses to “T.G.I.Expiry”

  1. 1
    bill Says:

    Looks like a total loss on the mmr 17's. With news due anyday, should one reload on the decembers or move farther out or just buy the common

  2. 2
    zman Says:

    I hold the $22.50 Jans and the common. I may add some Decembers late today. 

  3. 3
    RMD Says:

    GST was 4.90 premarket, is now at 4.60.  Any reason why , other than your insightful writeup?

  4. 4
    bill Says:

    Yes, it looks like gst will be the star of the day

  5. 5
    elijahwc Says:

     
    http://www.forbes.com/forbes/2010/1206/features-bp-john-schiller-energy-xxi-mexico-deep-man.html
     
    Posted up late by Bill last night.  A really excellent EXXI MMR FCX article from Forbes

  6. 6
    snuhart Says:

    Z –
    As usual, thanx for the comments. Please clear this up  for me:  in the case of GST you show working cap in  parenthesis- Usually reserved for debit items, yet it s added to mkt cap to calcu;ate TEV . In the case of vyog working cap shown as a cr yet deducted to determine TEV.
    I know I m dull – what did I miss here ?
     

  7. 7
    john11 Says:

    Seeking Alpha publishes interview with Neil Dingman, EXXI MMR NOG among others mentioned..
    http://seekingalpha.com/article/237648-finding-value-in-e-ps-neal-dingmann?source=yahoo

  8. 8
    zman Says:

    re 3 – well its not the writeup, lol. It was up late yesterday on similar volumes … could just be someone attempting to get it noticed by not caring what they offer for it. Or there could be news leaking out on their JV partner coming into the next 59,000 acres. I searched through 552 well records in Preston county last night. Many of them are old storage wells, many are verticals drilled in the 80s and 90s by CHK and others. When you look  at the more recent wells they have been shallow convention wells so they are not worth talking about. But there have been a number of verticals drilled in the 90s and some in the 2000's in the central and northwest portion of the county that had IPs anywhere from 1 to 3,000 Mcfgpd. Lots of well control, not sure how much of it goes down to the Marcellus. But those good verticals are the kind of thing that makes one think they are onto something. Doing a little more digging from non-state sources today. This acreage is also very much on trend with the way the play is moving and Enerplus has drilled about 10 wells just to the north west over the county line with good results.  

  9. 9
    john11 Says:

    NOG priced at $20.25 size upped to 8.95 mil

  10. 10
    RMD Says:

    Meredith Whitney is setting up a credit rating agency with the smae biz model as Moody's, S&P, and Fitch.  You go, girl.

  11. 11
    zman Says:

    re 6 – GST working cap was negative. TEV = Mkt Cap + Debt – Working Cap. 

  12. 12
    bill Says:

    9 wow good news

  13. 13
    zman Says:

    re 9 – thanks, just popped up.  Assuming the shoe goes too (and I have no doubt it will) they just raised about a cool 198 mm net of  fees. This along with cash flow more than takes care of planned 2011 capex on the drillbit side and most of their talked about leasehold acquisition plan for the year as well. 

  14. 14
    elduque Says:

    . Baltic freight index is down 24 at 2164.  Since Oct. 27th, this index has fallen every single day including today and is now down 22.5%.

    Picked the above off Busch Update. However, what seems to me the reason for not getting too concerned, is the index is a measure of supply and demand for ships. They forget that demand can be flat or rising and that the index could still decline because of the large number of newships into the market.

  15. 15
    RMD Says:

    Prichard starts WRES Buy, target 6.

  16. 16
    bill Says:

    elduque–correct
     
    cape rates have slightly upticked last 2 days
     

    http://www.tradewinds.no/drycargo/article571138.ece

  17. 17
    snuhart Says:

    11
     
    thanx

  18. 18
    zman Says:

    Snu – thanks for the question, made me go check to see if my math was right. 

  19. 19
    john11 Says:

    Heard a newsletter had a rec on GST still don't know who.

  20. 20
    zman Says:

    GM flippers showing up. I wonder if the stock and the S&P will overlay. Hmmm. Yep, like a $20 B canary. 

  21. 21
    ram Says:

    zman – Do you have any idea where max pain is on MMR?

  22. 22
    zman Says:

    There is a link to the Max Pain site at upper right. Doesn't seem to be working for MMR today for the November options. December shows 12. 

  23. 23
    zman Says:

    If I was GST I would have to see $5 or thereabouts as a good place to do an offering. 

  24. 24
    john11 Says:

    GST rec came from Stansberry, buy up to $4.50.

  25. 25
    RMD Says:

    Societe Generale starts E&P with 191 pp report.  Basically neg on gassy cos due to gas prices and the old barriers to competition (capital and proprietary tech)  are both widely available in equity, bond, and PE/JV markets.

  26. 26
    RMD Says:

    john, who is Stansberry?

  27. 27
    zman Says:

    WLT – closed up yesterday after announcing a $4.3 B acquisition, up again today. Waiting, watching. 

    WLL – pulling back with markets, group, oil. May add a little more near the close. 

  28. 28
    john11 Says:

    They are a reasonably well thought of newsletter publisher that has a pretty broad circulation. I am not a subscriber.  Here is a link.
    http://www.stansberryresearch.com/

  29. 29
    RMD Says:

    28 thanks

  30. 30
    jy Says:

    To answer BOP's query about whether there are LWD tools on MMR's wells the Forbes article referenced in #5 above states "….It's a live feed of data from a well being drilled off Louisiana in the Gulf of Mexico. Lines and squiggles mark the depth of the drill bit (now at around 22,000 feet), as well as the resistivity and porosity of the rock that it's cutting through…."
    This would be LWD data since it is "live".  The well being referenced is the 2nd Davy Jones well in SM Blk 234.

  31. 31
    ram Says:

    Thanks.

  32. 32
    BirdsofpreyRcool Says:

    jy — thank you for filling in the details on the LWD question.  I thought they were doing that, but couldn't do a deep dive into explaining it.  What i don't know is why they are mum on the results so far.  Being told MMR wants to wait to run a full logging run before giving an update.  So, guess LWD isn't giving as full a picture as they would like, in order to update the mrkt.  Does that make sense to you?  Thanks!!

  33. 33
    BirdsofpreyRcool Says:

    EXXI back up over 25… nice recovery from the 20.75 secondary.  Also, "nice buy!" to anyone who stuck a paw out around that level.

  34. 34
    elijahwc Says:

     

     

    2007-05-23
    33,908,836

  35. 35
    BirdsofpreyRcool Says:

    Munis have been in the spotlight over the last week… everyone has been trying to 'splain the sudden Cliff Dive.  A note from a colleague this morning appears to get to the bottom of the "why."
    ==========================================================
     
    This is interesting too – from this morning:    Bottom line:  You can make 2.85% per yr buying a 5-yr IL muni, or you can sell a 5-yr IL CDS at 2.91%, & then roll the proceeds into a 5-yr Treasury, risk free at 1.53%, for a gross yield of 4.44% for the same transaction…guess which one the hedge fund community is doing in size?
    Friday, November 19, 2010
    The Problem With Munis: CDS
    Big dump in Muni world of late. As previously noted there are many factors influencing pricing. Declining credit quality and increasing supply are the big issues. But there is more at play in this story than just the traditional fundamentals. The wild card is our old friend CDS.

    There are today two ways to play the long side of Munis. The easy and old-fashioned way is to simply buy them. Once you own them you get a semi –annual yield; in return you assume the risk of default of the issuer.

    Alternatively one could just buy a Treasury bond and write a CDS contract on the municipality in question. In this transaction you would get (A) the yield on the Treasuries and (B) a stream of income from writing the CDS contract. The risk parameters are similar to actual ownership of the muni bond. If there is a default, the CDS writer assumes the loss.

    Now consider the current pricing for Illinois GO bonds. (example from Bond Buyer)

    Five year yield on IL Muni=2.85%
    Five year yield on Treasuries=1.53%
    Five year return on writing IL CDS=2.91%

    Do the math. You could either invest your money at 2.85%, or you could concoct the same economic result through a CDS contract and get a net yield of 4.44%. Not hard to figure out which one make more sense.

    Of course it is not so easy to write CDS. You must be a big player to do something like this. Warren Buffet and Goldman can do it. So can a bunch of others. But the list is still pretty short.

    Market makers are not investors. They are arbs. When powerful street players see market holes like this they just try to exploit it until it is gone. The question at hand is, “What side of the market is wrong?” Either (I) Muni yields will rise to eliminate the spread, (II) CDS pricing will fall, or (III) both sides of the equation will move toward the center and a more efficient price will be established.

    My bet on the outcome? Muni yields are set to go higher. Demand for Muni CDS protection will remain firm. When a street player writes a CDS contract for a Muni what do they do to lock in a gain and offset the risk? Simple, they just short the underlying Muni bond.  The net result of the CDS demand is that bond prices fall and yields rise.

  36. 36
    zman Says:

    BOP – Nice work on the EXXI. 

  37. 37
    elijahwc Says:

    Sorry about the above: 33,908,836 shares this is CHK's ownership of GST acquired 05 '07.  If I'm not mistaken and if they still hold it then they have quite a large say in which direction to steer the ship.

  38. 38
    zman Says:

    WLT breaking triple digits, unfortunately never got my pullback there.

  39. 39
    zman Says:

    Last I heard they held it but for some reason could not add to the position. 

  40. 40
    BirdsofpreyRcool Says:

    elijah — CHK still owns those GST shares…. and for the "right price," they'd sell 'em all to you.  According to Reef, CHK is just a passive holder here… so not directing traffic flow at the BoD meetings.  Can't recall why CHK bought those shares to begin with… and probably neither does Aubrey.

  41. 41
    cargocult Says:

    john11-thanks for posting the Neil Dingmann seeking alpha interview. It is confirmation that we are in the right place at the right time(other than the increasing value of our portfolio of course). I have to laugh at the disclosures following the article. NO POSITIONS in any of the companies mentioned. What a pity.

  42. 42
    zman Says:

    I think Aubrey had thought those expensive but highly prolific deep Bossier wells were going to be the next big thing and then the shales hit. 

  43. 43
    elijahwc Says:

    BOP since it was struck at $2.00 ish its not a bad deal for CHK.  Perhaps he should sell them back to GST.  Or, include himself as a selling shareholder in the next financing.

  44. 44
    Zorgnak Says:

    WPRT catching a bid…anybody follow this one?

  45. 45
    zman Says:

    Missed a couple of attempts to buy more WLL calls on weakness. 

  46. 46
    zman Says:

    Zorg – only in passing along with CLNE … doesn't look to be going gangbusters to me, maybe something technical going on I don't see. 

  47. 47
    zman Says:

    Eli – I recall a comment that it was a passive stake after the point they could not add more … and GST has better uses for their money (and doesn't have the balance sheet to buy in that stake). 

  48. 48
    tomdavis12 Says:

    Z: Symbol for GM cv pfrd is GM.B. Issued at $50. 4 3/4% 17.29% premium. conv into 1.2626 shares

  49. 49
    Zorgnak Says:

    Re 46
    k..thanks…
    long WPRT

  50. 50
    BirdsofpreyRcool Says:

    EXXI — Schiller apparently meeting with some institutionals… and making Happy Talk, it appears.  Think the next PR we see from EXXI will be about an asset acqtn.  That's the Word On the Street, anyway. 

  51. 51
    jiveyjr Says:

    re: 27 and the coals…per the IBD industry group rankings that I looked at Tues.  Coal had moved from 55th 4 weeks ago, to 14 last week, to 10 as of Tues.  Don't know why with gas this cheap that the coals are showing such relative strength, but they are…I didn't buy any…wuz too busy thinking worthless thoughts as usual I suppose.

  52. 52
    zman Says:

    ZTRADE – ZIM – MMR

    MMR – Added (10) December $18 calls for $1.04 with the stock at $16.75 on the day. Partner in the ultra-deep EXXI is running and they generally give chase to those moves soon or later. The stock is still stuck, waiting on an operations update that could come any day through year end. 

    WLT – OK that's just irritating. 

  53. 53
    zman Says:

    Deal done, NOG now $21. 

  54. 54
    tomdavis12 Says:

    BOP: Did you ever get any slow moving EXIXF antelope meat?

  55. 55
    BirdsofpreyRcool Says:

    TomDavis — the Paw got too greedy… bid too low… on both the pref and the common.  Bad Paw.  Still, got lots to chew on as it is… still have the "trading shares" that I can't seem to bring myself to sell. 

  56. 56
    zman Says:

    MMR starting to play nice to expiring November calls now. Little late and not enough in most cases but better than nothing. It's somewhat rare to see two companies so joined at the hip diverge for more than a couple of days. 

  57. 57
    tomdavis12 Says:

    BOP: Maybe we can cook the EXXI meat at the next Zman cookout.

  58. 58
    BirdsofpreyRcool Says:

    HT wanted to pick up some trading shares in MMR when it was around 16.78, as EXXI was up so much and MMR was just flopping around like a gasping fish outta water.  However, pesky unscheduled dentist appt got in the way.  Insult to injury, in my book!

  59. 59
    elijahwc Says:

    Re #48 to add to #48 the GMpB is also a "mandatory" with a "PIK option" .  Mandatory means that it automaticaly converts into common stock of GM if owned on 12/31/13.  So no par protection as with a cash redemption.  PIK stand for 'pay in kind' which allows the company to pay the divi with common stock instead of cash (which it won't do unles it gets in trouble). 
    Also mandatory cvts have two strike prices and two conversion ratios.  In this case the upper strike is 1.2626 shares if the common stock is above  $39.60 on 12/31/13 and the lower strike is 1.5152  shares if the stock is lower than $33.

  60. 60
    zman Says:

    32% in 10 minutes. Gotta love MMR when it does decide to move, lol. 

  61. 61
    BirdsofpreyRcool Says:

    z — you don't wanna hear what HT is mumbling right now.  You don't often get juicy — almost predictable — moves like that…

  62. 62
    BirdsofpreyRcool Says:

    UBS out with a report from Day 1 of their 1-on-1 conf.  EXXI was up to bat y'day.  Apparently, the light bulb came on for a few investors that EXXI was gonna use the recently-raised capital to do a property acqtn. 
     
    Talk about Slow Moving Deer!  We knew that AGES ago.  Oh, well… nice someone else finally connected the dots.

  63. 63
    Pati Says:

    FTK very strong today.  Heard in NYC next week with institutional investors.

  64. 64
    zman Says:

    re 61. Tell him to feel better since I did take more calls before the pop but that I too am grumbling over the lack of sell down on a big acquisition at WLT. 

  65. 65
    jiveyjr Says:

    voted…great chart book JB…thx buddy

  66. 66
    zman Says:

    WLL – 60 cents off the 52 week high. Expecting an operations update there, probably next week. 

  67. 67
    jat Says:

    re 64, if it's any consolation, you're not alone.  I bailed out of that one at the same time and have been gnashing teeth for weeks!

  68. 68
    bill Says:

    40, lol

  69. 69
    bill Says:

    mmr nov 17 calls :low .05 cents high.75

  70. 70
    elijahwc Says:

    Pati – you long FTK?  If so take in the conference call especially the Q&A.  Pretty much lays out fundie turnaround.  Also a smart guy (not me) who tunes in here is on the call and pretty much connects the HAL dots.  I've heard some pretty aggresive thinking on forward EPS.

  71. 71
    kaman Says:

    ICO (International CoalGroup) on a tear today (8% to 52wk hi)…on strength as met coal play methinks.

  72. 72
    zman Says:

    WLL at new 52 week high, break out of that short-lived flag (pendant) formation.  I'm not a TA guy but I play one on Fridays.

     

  73. 73
    zman Says:

    Kaman – no doubt, same thinking on ANR although they have been in the rumor mill as an acquiror, not as an acquiree. 

  74. 74
    zman Says:

    Movie Quote Friday Watch:

    "Here's a question. Was it morally wrong for me to exploit my knowledge of the future for personal financial gain? Perhaps. Here's another question. Do I give a fuck?"

  75. 75
    kaman Says:

    re: 74…TTW?

  76. 76
    bill Says:

    The Forbes article is online, hits the newstands on 12/6
     
    The theory is that they are drilling into "source rock," as Schiller calls it, a 10,000-foot-thick layer of sand and stone eroded from the Rockies and Appalachians (along with a half-continent's worth of dead vegetation) and washed down the Mississippi 60 million years ago. Over millennia the organic matter transformed into vast reservoirs of oil and gas, some trickling up to be trapped in smaller fields already discovered. In recent years oil companies have drilled into the zone both onshore and out in the deep water (BP's record-setting 35,055-foot-deep Tiber discovery in 2009, for instance). If reservoirs exist to the north and the south, they should also sit under the shelf.
    Success at Blackbeard spurred McMoRan and XXI to drill Davy Jones, which involved reentering an existing bore hole that had been abandoned at 20,000 feet. They started drilling in September 2009; on Jan. 19, when the well reached 28,600 feet, Schiller was sitting in a Florida hotel room in the middle of the night watching the live data on his screen. With Moffett on the phone they figured out what they had: a 200-foot-thick pay zone of sand brimming with hydrocarbons. "I screamed so loud I thought they were going to throw me out."

    The second, nearly complete wells into Blackbeard and Davy Jones will hopefully validate the finds. The real celebration will be a year from now when Davy Jones is hooked up and cranking out 100 million cubic feet a day. A limiting factor: how quickly supplier Cameron International can build and deliver the first of a new generation of blowout preventers robust enough to handle 30,000 psi. They'll need a bunch; the partners envision more than 20 production wells at Davy Jones alone. Each new ultradeep well brought online will net XXI the equivalent of 2,100 barrels of oil per day. Current output is 26,000 bpd.
    McMoRan and XXI have 12 more untested ultradeep prospects they plan to drill in the years to come, as well as some even deeper targets in Blackbeard that could set the record for deepest well in the world. But growing through the drill bit isn't enough for Schiller. With $500 million in freshly raised cash, he makes no secret of his plans to buy at least one shallow operator by the end of 2010 and continue his initial strategy of redrilling big old fields and milking their cash. Rumored targets include publicly traded Stone Energy (he declined to comment). Someday, when Moffett finally retires, say observers close to the company, we could even see a merger of XXI and McMoRan, with Schiller taking the helm. (Schiller won't comment on that, either.)

  77. 77
    zman Says:

    No, what's TTW?

  78. 78
    zman Says:

    Amazing lack of pinning action in this expiry Friday.

  79. 79
    elijahwc Says:

    "Someday, when Moffett finally retires, say observers close to the company, we could even see a merger of XXI and McMoRan, with Schiller taking the helm. (Schiller won't comment on that, either.)"

    But Jim Bob will.

    When ask the question on earlier FCX call: "We didn't go from being the number 100 resource company in the world to #1 by passing on smart acquisitions.

  80. 80
    zman Says:

    Analyst Watch:

    NFX – $72 target gets bumped to $85 at FBR

  81. 81
    zman Says:

    Eli – I think that's the ultimate plan. In the quote you are mentioning he was speaking of FCX's investment in MMR.

  82. 82
    elijahwc Says:

    "Rumored targets include publicly traded Stone Energy (he declined to comment). "
    BOP et al: What is the thinking? SGY or XOM inventory or what else?

  83. 83
    BirdsofpreyRcool Says:

    elijah — i vote for XOM properties.  Could know as soon as Monday….

  84. 84
    BirdsofpreyRcool Says:

    And if EXXI gets the XOM properties for anything less than $23/boe, I will be happy.

  85. 85
    Pati Says:

    #70, Eli, thank you.  Yes, long.  Not enough! 

  86. 86
    zman Says:

    Agreed. I used to cover SGY. Real treadmill there, 5 year RP, balanced on reserves but slightly more gassy which would be counter to Schiller's goal I think. There are plenty of exploitation operations but they are mostly conventional Shelf. SGY is trading just over $16 / BOE on 2009 reserves so a decent premium could be paid …but they'd also get Marcellus and some Rockies with that and I don't think JS really wants that stuff. Could be wrong, but it doesn't seem to fit and isn't exactly a steal. 

  87. 87
    zman Says:

    Fair warning, MMR $17s to be punted shortly. 

  88. 88
    choices Says:

    http://www.publicintegrity.org/articles/entry/2566/
    heh

  89. 89
    BirdsofpreyRcool Says:

    choices #88 — ah, jeeeeez, man…. did you hafta post that?  It's right after my LUNCH, man!  sheesh.

  90. 90
    PackMan Says:

    35 – Muni's … doesn't seem to take into account taxes.
    If you buy a Muni, its got some tax benefit … state tax free ?  triple tax free ?
    If you sell a CDS, presumably there is no tax benefit on that.  So the 4.44% rate is not apples to apples, i don't think.

  91. 91
    elijahwc Says:

    Good stuff on XOM vs SGY.  Keeps me from throwing $ the wrong way….thanks

    Patty, on FTK, it's never enough when they go up but this is still a speculation, so a reasonable "research position" is in order until we know enough to press it.  And, I think the mention of "we hope to be able to clarify our international opportunities in the near future" might happen shortly.  If it is what I think hope then FTK will be a lot less risky and I'll follow up here.

  92. 92
    elijahwc Says:

    MHRpC is now Bid 24.96 Offer 24.98.  Just in case anyone wants to inventory <25.00
     
    Pays to wait

  93. 93
    elijahwc Says:

    Z – Lije and V.F. asked me to opin on GMXR.  I know Nadda.  Do you have any thoughts anywhere on the site?

  94. 94
    zman Says:

    Eli – latest thoughts are in the parade of midgets post from yesterday:

    http://zmansenergybrain.com/2010/11/18/thursday-oil-review-plus-natural-gas-preview-plus-parade-of-midgets/

  95. 95
    BirdsofpreyRcool Says:

    PackMan — #90 superb point.  However, there are probably some other behind-the-scenes moves that a HF will make to enhance that trade.  e.g.  if you go long treasuries with the proceeds, that makes for a wonderful collateral account against which you can buy more stuff.  But your point is well made… and well taken!

  96. 96
    bill Says:

    mmr at hod 17.85– I wonder how high it goes if it punches through
     
    avg vol 2.0 m  today so far 3.0 m

  97. 97
    elijahwc Says:

    Wow ……..talk about short term memory loss I read it yesterday.  Thx….off to down some Omega 3's

  98. 98
    Jerome Blank Says:

    BEXP….intraday channel forming on 30 min, framing  near term support /resistance, 30 min . chart updated… 

  99. 99
    Pati Says:

    #88 — It is back again.  In California there used to be referrals between docs/chiropractors and attorneys.  Big $.  The insurance companies finally broke some rings and sent them to jail.  Unfortunately not all. 

    We HAVE to get tort reform!

  100. 100
    kaman Says:

    re: 77…Time Traveler's Wife…could've sworn that line was in there…now I'm outed for watching a chick flick with the spouse.

  101. 101
    BirdsofpreyRcool Says:

    Pati #88 — hear, HEAR!!

  102. 102
    zman Says:

     

    Re 91. Doesn't mean it won't happen. Maybe they have deeper potential on more of their lease holdings than they current see (its pretty limited in their presentations). I went down to their HQ once for an analyst day and beside being uncommonly hot and humid which caused me to sweat off a few pounds I got little out of that. Treadmill. Typical for the Shelf. This may explain why they went into the Rockies and then Appalachia. Anyway, I had looked at SGY again early this year and shelved the idea pre Macondo which was a combination of apathy and luck. I had revisited it mid year thinking, heck, they will all bounce when Obama finds some other fish to fry and that has happened, though without me being involved. They were, when I met them them, bright spot drillers and there are certainly exploitation opportunities on their lease blocks in the deep (not ultra deep) and more conventional depths (think 16,000' feet on the deep and shallow on the conventional) so maybe it happens.

    But a EPL would be more interesting nugget for them to chew on. Longer reserve life at 6.5 years, same balanced mix (48% oil), it has lots exploitational opportunities and oh yes, it's about have the asking price of SGY, at about $515mm with no debt and some cash vs SGYs $1.1 B TEV with a good slug of debt. 

  103. 103
    zman Says:

    Kaman – wow, good guess, it does involve time travel. 

  104. 104
    Popeye Says:

    "For the first time, life has been found in the gabbroic layer of the crust. The new biosphere is all bacteria, as you might expect, but they are different from the bacteria in the layers above; they mostly feed on hydrocarbons that are produced by abiotic reactions deep in the crust. It could mean that similar microbes are living even deeper, perhaps even in the mantle."

  105. 105
    zman Says:

    Movie Quote Friday Watch #2 – Just for Eli

    "Son"

    "Yes?"

    "If you want to keep working here, stay off the drugs. "

  106. 106
    zman Says:

    Thanks JB, much appreciated. 

  107. 107
    Jerome Blank Says:

    #96 MMR…very bullish weekly, just posted…the P&F chart and weekly suggest that longer term, MMR is worth >$30

  108. 108
    zman Says:

    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID3724280

    Voted

  109. 109
    zman Says:

    NOG looking to take out the highs in the near term. 

  110. 110
    Jerome Blank Says:

    NOG, wow, v-reversal off the 50 day, near term resistance at $21.75-$22

  111. 111
    bill Says:

    voted

  112. 112
    zman Says:

    Watching MMR vacillate here, tick for tick with the $17s, think it closes higher but a crap shoot at this point. 

  113. 113
    zman Says:

    Missing the point watch

    Press criticize Obama for showing up at NATO summit in Lisbon where they hoped to promote green cars. Other presidents showed up in matchbox sized electrics. He rolled in in his 8 ton diesel powered limo.

    http://news.yahoo.com/s/afp/20101119/pl_afp/natosummitobamatransportenvironmentoffbeat

    The limo is normally flown ahead of the president to locations to ferry him to and from the airport.

    These guys are poking the president over the use of his diesel powered beast when the real story is the costs. 

    A presidential limo costs $300K.

    The round trip fuel only ticket on the C17 Globemaster III used to fly it over there (DC to Liston is 2,400 NM) assuming the gas costs $3 per gallon (I suspect that is low) is $276K.  That's before counting the guys involved. 

    Want to be green? Buy  several dozen US built limos and stick them at each embassy. You don't risk a $200 mm plane and you don't put out all the carbon flying a car around the globe.  It's good for jobs and its good for the planet.  You could be even more green by equipping each embassy with its own heard of matching black window tinted SUVs. LOL.

  114. 114
    ram Says:

    113 – Pretty funny!

  115. 115
    irongate Says:

    somebody getting hot for the KOG Dec 5 calls.  
    And who opened  the Nov 7.5 strike  at a dime?  even the 5's traded for nov.   seems like a few fat finger errors going on.

  116. 116
    zman Says:

    re 115. This time it was not me. 

  117. 117
    ram Says:

    At least you gave yourself time to recover from that accident.  Hopefully the 7.50's work for you.

  118. 118
    elijahwc Says:

    Stephens the off Wall Street IB is launching E&P coverage next week.  The new analyst is William Butler who spent a good number of years at XTO as Asst Treasurer.  Stephens just finished it's Energy Confab and MHR was prominent there.  While I don't know that Stephens will start them, I am hopeful as they have a following.

    Z, do you know this guy?

  119. 119
    zman Says:

    I don't think it will be enough but at least it wasn't a big piece of cash. 

  120. 120
    irongate Says:

    #115 lol Zman

    coal trades like there is some deal over the weekend.   and i am not even sure it matters who is aquiring who..   WLT for example trying to spend 3Bln for western coal… is now up 14 points in 3 days.   long ANR cheap cheap… evne though they may acquire MEE.   I understand MEE board meets from sunday thr Tues next week to evaluate bids

  121. 121
    zman Says:

    Eli – Had lunch with him about 4 weeks ago. I like the way he looks at stocks and the macro. Guessing BEXP and MHR and others at their NYC conference this week (never got the full list) will be the first initiations. He has 2 associates so I think they roll out with 10 names soon and then another 10 or so in several weeks. Sounded like he'd cover a few of the large caps, several mid caps and a few small names (where they can corner the banking).

  122. 122
    zman Says:

    IG – yeah, a lot of people think MEE is toast. I personally would not want to inherit their legal troubles but I guess you could low bid it. Simmons loves ANR last time I checked. WLT I've been sitting on my hands since I sold it several weeks back. The sector is not my first love so I trade somewhat timidly there. 

  123. 123
    elijahwc Says:

    Thx – hope he corners some banking from MHR

  124. 124
    jiveyjr Says:

    if I only traded my first love it would limit me to horses….thinking of going home and taking my old mare for a spin…wife always thinks I'm drunk when I do that…

  125. 125
    mimster90 Says:

    I opened a small Kog $5/$7.5 March 2011 spread the other day

  126. 126
    zman Says:

    ZTRADE – ZIM – MMR

    Sold the November $17 calls for an average cost of $0.67, down 17%. The $18s will be scuds. I continue to own the $18 Decembers taken earlier today and the common in the ZLT. 

  127. 127
    zman Says:

    Jivey – lemme know if you need a red healer to go with those horses. 

  128. 128
    elijahwc Says:

    jjevyjr the old mare deserves a sugar cube and carrot.  My wife wants a carrot but the type thats hard on dental work

  129. 129
    zman Says:

    NOG up 5.7%, tapping the 52 week and all time highs now. My thought is that it continues to work higher, with oil over $75 being the guiding factor. 160 rigs now in the basin, North Dakota now has 139 rigs running, up from 65 at the end of last year. NOG is the biggest non-operated entity in this so more rigs = more wells drilled that they are a part = higher production, cfps, etc. 

  130. 130
    elijahwc Says:

    This is the reason for GMXR inquiry earlier today.  Question from a friend below:


    "is this math correct?
     
    On the cap structure:
     
    They have a $65mm revolver then $211mm in Sr Uns of which are convertibles
     
    GMXR 5% 2/13 converts traded at 82 for 14.93% yld – the 4.50% 5/15 converts traded at 72.50 for 12.82%
     
    Behind that is a 9.25% perpetual pfd 
     
    With 355mcf of proved reserves (and using .80 discount on the debt for a round number) you are buying the converts at roughly .65/mcf"




    My response: If true the GMXR converts are obscenely cheap and and really should be at 140 and we should be hoping for GMXR to go toes up.


    Thoughts anyone??  Is GMXR really that cheap?  You are first in line behind the revolver.  Help

  131. 131
    choices Says:

    #89-sorry BOP-I had to step out for a while-appears that ambulance chasers hooking up with "vulture" funds as in THEVULTURES from your youtube a couple of days ago, which,BTW, was a classic;
    Pati makes the point very well-tort reform very much needed.

  132. 132
    elijahwc Says:

    FTK – unrequited affection.  #11 on NYSE % gainers.  Again

  133. 133
    choices Says:

    Eli, are the converts registered-IB does not show them-do you have CUSIPs-what is symbol of pfd?
    Thanks for the info.

  134. 134
    jy Says:

    Re #32 MMR's evaluation of their currently drilling deep holes:
     
      They are probably waiting for wireline porosity data to confirm/deny reservoir quality rocks in areas where LWD (logging while drilling) tools may not have porosity devices included.  I know the Forbes article says "porosity" but porosity tools typically have radioactive sources in them and require multiple fishing attempts and ~$1MM tool loss when you plant them in a well, not to mention the # of days spent fishing, sidetracking, etc.  On wells w/unknown drilling factors radioactive porosity tools are often left out of an LWD tool string.
     
    My guess.
    jy

  135. 135
    jiveyjr Says:

    will do on that dog…man this week has sure turned around $$$$ wise since Tues….I bought just a tad into that blitz krieg…you been on fire with these SDM's z…bought just a trickle of GST…didn't like it; too gassy…shows WTF I know

  136. 136
    zman Says:

    Credit goes to Reef on the GST, he gave me the push. 

  137. 137
    elijahwc Says:

    choices – yes
    5% 0f 2/13 = GMA.GB  CUSIP: 38011MAB4
    4.5% of 5/15 = GMX.GB  CUSIP: 38011MAJ7
    9.25% Cum Pfd  = GMXRp  CUSIP: 38011M405 

  138. 138
    zman Says:

    Eli – Not sure I follow the "355 mcf comment on reserves" comment above. 

  139. 139
    RobBanks Says:

    ELI – can we expect the MHR-C to have no cap. appreciation, with the company always willing to sell more @$25, but a very nice, not-too-risky income stream from owning them?

  140. 140
    zman Says:

    Good week. Beerthirty. Have a good weekend. 

  141. 141
    Zorgnak Says:

    Thanks Z

  142. 142
    elijahwc Says:

    I'll ask as on second blush one should be million and sum should be thousand, correct?

  143. 143
    elijahwc Says:

    #139 Exactly as you stated it.  They will always ask for additional preferred to issue.  Just got an increase in fact.  Risk is twofold, interest rate and credit.  If the credit fails then all of the risk is on the downside.  If prime goes to 20% then this long dated paper will trade for 50 cents on the dollar.  Unlike a convert, upside potential is extremely limited, if any.

  144. 144
    RobBanks Says:

    OK, thanks!. Please let us know if/when the time comes that you don't like the odds for holding it.

  145. 145
    RMD Says:

    Hoping for a follow-on like MMR followed EXXI, I bot some TISDZ as that sometimes works also.

  146. 146
    zman Says:

    re 142. Not sure I follow still. They had proved reserves of 442 Bcfe as of the 3Q10 report. The numbers are highly dependent on gas prices. These are also guys that I would expect to book PUDs on a more liberal basis than some of the bigger boys. That being said they are cheap on reserves, less than a buck an Mcfe. 

    RMD – TISDZ = the ultimate raffle ticket. I have not kept up with how their leases are expiring, you?

  147. 147
    elijahwc Says:

    RB I own lots of it.  I'm not worried about the credit side but they rate side always requires attention for every fixed coupon instrument.

  148. 148
    choices Says:

    Article on Eli's GMXR thought:  (couple of months old)
    http://seekingalpha.com/article/222975-trade-idea-gmx-resources-betting-on-bond

  149. 149
    elijahwc Says:

    #148 Most excellent find.  Thank you. 

  150. 150
    West Says:

    MHR………. http://www.investorvillage.com/smbd.asp?mb=9810&mn=315&pt=msg&mid=9758798

  151. 151
    crysball Says:

    FRAC  help in the Bakken!
    Calfrac Well Services  [CFW-TSX]   has   just opened an office  in  Williston ND  and moved one  Frac  Crew  on location.
    This  is  a serious well established  player  with  strong  presence  in W. Canada  and USA [also  Russia, Argentina, Mexico]
    Here  is  their  latest  presentation:
    http://jetslides.tv/lobby/296
    Calfrac  is growing rapidly [both organically & by acquisition], they do not trade  on  US Pinksheets.

  152. 152
    crysball Says:

    KOG
    According  to the  KOG Yahoo Message Board   the   BIT  IS  NOW TURNING  ON DRILL RIG #3.

  153. 153
    RMD Says:

    146 I think all of TISDZ's leases that will expire , have by this time.  They are still in on Laffite. (And I will attempt to overlook the disparaging comment about my high grade, growth, yield investment: woof woof.)

  154. 154
    skimo Says:

    Well, EXXI is up to something!
    http://finance.yahoo.com/news/Energy-XXI-Announces-pz-865343583.html?x=0&amp;.v=2

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