Wrap – Week Ended 3/2/12

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Wrap comments along with the "The Week That Was" Watch will be in the Monday post. 


Performance Watch: (YTD - through end of February)

  • ZLT A: up 14.5%

  • ZLT B: up 13.9%

  • ZLT C: up  21% (these are the fully invested 4 stock, lower turnover ESA accounts) 

  • ZMT: up 10% 

  • S&P500: up 8.6%

  • XLE: up 8.2%

34 Responses to “Wrap – Week Ended 3/2/12”

  1. 1
    zman Says:

    Free articles last week:

    SWN & The Brown Dense So Far


  2. 2
    zman Says:

    Rolling Stone Vs CHK


  3. 3
    BirdsofpreyRcool Says:

    SWN Seeking Alpha — great summary of where we stand and what we are looking for in the LSBD play. 
    I know it's not in SWN's nature (and they repeated that on the recent conf call), but if they see significant results from the next well, I hope they report that in March.  Would be a stick-in-the-eye of the early downgraders.  I have nothing against a good stock downgrade, but for for heaven's sake, fellas, get the facts straight first!  You article goes a long way to straightening out those facts.  Thank you.

  4. 4
    zman Says:

    Thanks BOP, here's to COG announcing their well pre or on 1Q results as well. 

  5. 5
    BirdsofpreyRcool Says:

    The short-interest on SWN is up from it's December low of 7mm shares to a last reported 12.6mm shares.  They would be really bummed if COG announced good LSBD well results…. heh heh heh.

  6. 6
    Zorgnak Says:

    Weekly Homework..I've been tracking the stocks in the Zman E&P Index (21 E&P stocks from Zman's Portfolios) for about a year now and have data going back a number of years. A couple of  things I've noticed that seem to have value in determining  extreme moves in the group is the spread between the % of volume going into the advancing stocks or declining stocks and the % of declining stocks relative to the total number of stocks in the index. In my opinion each  has stand alone value but when used in conjunction will often signal important inflection points in the E&P stocks we trade,in advance. I don't use it as a system so much as a way to curb my enthusiasm and fear when  the E&P group is at extremes.

    Chart #1 This is a 5 year view of the Up/Down Volume Spread. The extremes are when the ratio of volume going into either advancing or declining stocks exceeds a three day average of 50 million or more.

  7. 7
    Zorgnak Says:

    Chart # 2 Shows the relationship of volume extremes to the Zman E&P Index.
    When the extreme is exceeded and then reverses the index is likely to follow more often than not. The vertical black and red lines shown on the ZMan E&P Index are when the Up/Down Volume Spread has reached an extreme. The latest cycle occurred with an upside volume extreme on 2/17. (Yellow vertical line shows big price/volume divergence on 2/22.)Downside volume increased for three days starting last Monday and a downside extreme was reached on Wednesday. Downside volume is abating but the 3 day average is still below the extreme low threshold not confirming the low is over yet.

  8. 8
    Zorgnak Says:

    Chart #3 This is a 5 year view of the extremes of the % of declining ZMan E&P Index stocks. The extremes are at 20% and 80% with 90% as an extreme in
     volatile markets. The oscillator between the extremes is a 3 day moving average of the % of declining stocks in the index.
    Chart #4 Shows the relationship of declining stocks to the swings in the index. When the 3 day average of declining stocks reaches 20% it suggests an over bought extreme is approaching. When the 3 day average of declining stocks reaches 80% an oversold extreme is occurring.

  9. 9
    Zorgnak Says:

    Finally for those of you that I haven't put into a coma…Here's a shot of the relationship between breadth, volume and the Zman E&P stocks we trade.
    When % Decliners and the Up/Dn volume spread align it is a helpful signal that an extreme is at hand and a reversal is likely soon. On Thursday we reached an
    extreme of volume and breadth that suggests an extreme is in process.  We're still waiting for the Up/Down Volume Spread to reverse.
    Taken in context with the general market in mind I've found these ideas to be useful. I'll post it at times when the index breadth and volume reaches extremes if anyone thinks it might be helpful to their process.


  10. 10
    nrgyman Says:

    RE 6-9:  Zorg, I love this type of analysis.  Thank you for sharing it.  Did the ZMan stock index set a lower low Friday?  If so, that is a divergence from both of the indicators which do not confirm that extreme.  It also looks like the stock index has pulled back into a support area.  
    I'm curious how the ZMan index correlates with the WTI crude index, the XLE and the Russell 2000 index.  My theory is that, since many of the stocks in the index are small caps that pay no dividends, the movements in the Russell 2000 index will have a strong correlation to movements in the ZMan index.  Certainly, the XLE has held up better recently than the ZMan index, just as the SPY has held up better than the IWM.  If this theory holds, then paying close attention to the Russell 2000 index should be fruitful for making decisions about the ZMan index stocks.  From a different perspective, trading the ZMan stocks would be like trading a higher-beta version of the Russell 2000 index.  The Russell 2000 index (IWM) trades like a commodity in the futures market and, as such, is subject to many more forces than what we commonly focus on in energy E&Ps.  At the moment the Russell 2000 has been acting very poorly.  Hard for me to imagine the ZMan stocks doing well when that condition exists.  On the other hand, when the Russell 2000 turns positive we can anticipate above average upside movement from the ZMan index.  At any rate, these are just some thoughts I've been pondering.  Again, thanks for your analysis work.

  11. 11
    skimo Says:

    Brown Dense tv spot from Arkansas:
    that rock does look dense by the way.

  12. 12
    skibbi9 Says:

    @2  thnx… good read

  13. 13
    Zorgnak Says:

    re#10 nrgyman..

    Yes, the index made a lower low on Friday.The day's Up_Down_Volume_Spread was – 67million preventing the the reversal from the extreme reading.
    I try to resist the impulse to read into every ripple and just try to position around the bigger waves.
    I've looked at some of the other related index products and find that XOP comes the closest in price correlation and volatility.
    Your thoughts on the Russell 2000 and the ZMan stocks are thought provoking..thanks. So many ideas…sooo little time.

  14. 14
    brodway Says:

    Short interest in NOG drops. 17 million shares from 17.7 shares last month.
    The trend is indicating the shorts are covering as the short position has been reduced from a high of 25 million shares last summer down to the current 17 million  shares.  http://www.nasdaq.com/symbol/nog/short-interest
    Oddly enough the stock price action is not indicative of this continued short covering effort. Either the shorts are just skillfully shaking out the longs with continuous volatile price drops from time to time or there's just not enough patience among the long term holders and they are just giving up and moving elsewhere. 

  15. 15
    nrgyman Says:

    Interesting read on the hidden battle between banks and the Fed on physical commodity storage and trading.  This could have a big effect on commodity markets (and certainly the big banks):
    Some quotes:
    "The truth of it is that having access to the physical markets is about optimization and knowledge – it gives you the visibility of the market to make far more successful proprietary trading decisions in both physical and financial markets," said Jason Schenker, President and Chief Economist at Prestige Economics in Austin, Texas.
    "That's why for many years the most successful traders had access to both markets, and why we've seen little sign they're moving quickly to divest these assets now. It's trading with material non-public information – the difference compared with equity markets is that it's perfectly legal."

  16. 16
    crysball Says:

    YOUR  GOVENRMENT  AT  WORK……………another  Green  Energy  company  bites  the  dust………this  time thanks  to  none  other  than  the US  Energy Department…….which  told  Bright Automotive  some 18 months ago  they  were  just  weeks  away  from  gettting a  $400 million loan  approved………….and  then  started  impoSING  ever more hurdles, and drug out the loan  approval  process   until BRIGHT  RAN  OUT  OF  MONEY.
    Picking WINNERS & LOSERS   VIA  SUBSIDIZATION  reveals the Underlying  problem.
    It is truly IRONIC    Steven Chu and  his  band of Bureaucrats   who are  supposed to   stimulate   GREEN  ENERGY,  casued  another  one  of ther  'SHINING STARS'……..to go under.

  17. 17
    milepost_43 Says:

    Just what XL pl did NOT need…Enbridge fire do to late night drag racing…….

    Don't think I ever heard of this type of accident in my 30yrs in pipeline business. Will be "fuel" for the XL pipeline debate especially since Enbridge is involved..

    A Ford Mustang with two people inside and an SUV with three occupants were apparently side by side when they went through a chain link fence and traveled approximately 125 feet onto the property before striking the pipeline, igniting the crude oil inside.

    The Canadian company said it was forced to shut down the 318,000 barrel-a-day "14/64" line between Superior, Wisconsin, and Griffith, Indiana, after the early-morning collision, which caused a blaze and a spill of crude near New Lenox, Illinois. That's equivalent to about 3 percent of total U.S. imports.

  18. 18
    RMD Says:

    Z, I was suprised on the Bakken update that CLR and WLL's capx would be down, and NOG's ~ flat.  I had not really thought about when 'maturity" would happen in the Basin, but flattening capx caught my antenna.  Similarily, the EV/boed valuations peaked ~ 1Q11 and have been generally trending down since then (so far).
    My assumption here is that at some point valuations in the Basin will start declining to the industry average of ~$100/000boed and the stock's valuations  may underperform expectations, even for the Basin that keeps on giving.  Just musing.

  19. 19
    BirdsofpreyRcool Says:

    RMD — interesting thoughts and observations.  Thanks for sharing. 
    One thing about the valuations, tho, is that the wells are more of an industrial production effort than traditional field development and exploration.  So maybe that keeps the value per BOE (or acreage + flowing barrels) higher than industry average of $100k. 

  20. 20
    zman Says:

    RMD – yes, the valuations have been coming down from levels in the 400 to 500,000 per flowing barrel range as they go from discovery to development stage companies. I would expect those valuations to continue to come down.   We talked about this over a year ago and that continues to happen as the play matures. Part of the flattish capex is the result of a move to pad drilling on the part of the bigger names and an expected flattening and eventual decline later this year in per well CWC. 

  21. 21
    choices Says:

    #17-milepost, you obviously been following XL fairly closely:
    I read an article over the weekend that IF the XL is completed and Canadian crude flows, it is destined for Port Arthur, a trade-free zone, and then on to Asia-it would not add to crude supply in the US-is this accurate?
    Disclosure:  the author of article and the Congressional sources were clearly Demo opponents of XL but the question is whether it is accurate-makes no sense if it is but I have long ago given up on accuracy in the news or from the Govt.

  22. 22
    choices Says:

    #10-good point on $RUT, nrgyman-another service I read picked up on the divergence between $RUT and $SPX=bearish for general mkt but not hysterically so.

  23. 23
    choices Says:

    Thanks Zorg-very perceptive thinking-definitely did not put me in a coma but I have to admit I had to read it all a couple of times-as they say, I've lost a couple of steps.  Thanks for the analysis.

  24. 24
    nrgyman Says:

    RE 20:  Another factor to consider:  The impact  WTI pricing and related differentials has on valuations.  The massive increase in Bakken production and the lagging take-away capacity has resulted in reduced price realizations for producers.  This should have an effect on multiples and valuation.  Over the next year or so, as pipeline capacity to the Gulf increases significantly (increasing realized prices for production), perhaps valuation declines will slow (or reverse).  I can envision a shift in portfolio allocations towards the mid-continent producers as the Brent/WTI differential decreases over the next year or so, to capitalize on the 'catch-up' these producers will have due to increasing price realizations.  

  25. 25
    choices Says:

    JB-are you still on Stockcharts Public list-they have a new Beta version, did not see you.  Could not get in via your link here upper right.

  26. 26
    zman Says:

    re 24 –  I disagree. I don't think the names on 2013 out of the Bakken need multiple compression over a short lived phenomenon and consider that WTI was lower before the differential expansion began.   WTI at year end was about $100. The differential was about $10. Now WTI is $106 and the differential is $15. Both = $90. And Clearbrook pricing is not pricing for the whole basin. The "lagging" takeaway capacity is not as big of an issue as people are making it out to be. Rail capacity is set to increase by 200 to 300,000 bopd before the end of the first half (estimates vary). Pipeline capacity is set to add about 40,000 bopd in 2H12 and more rail comes on then as well and pipes add 200,000 bopd in early 2013. With many of the "Bakkens" trading close to 4x 2013 I'd be hard pressed to understand why they would need to be cheaper given their high growth rates at the present time. 

  27. 27
    nrgyman Says:

    RE 21:  The refiners purchase the crude coming through pipeline, refine it into finished products and then sell it wherever they can make the greatest margins/profits.  The refiners control the where the sales are made, not the pipelines or producers.  As suppliers of finished product, the refiners look to where the demand is greatest to obtain the highest margins/profits.  Z's charts have done a great job of showing how US demand has slowed and export demand (mainly to non-OECD countries with voracious refined product appetites) has soared.  If US demand stays relatively weak, expect the refiners to continue to export their finished product.  The XL pipeline will make no difference in this respect.
    The XL pipeline's value to the US is that it will provide a reliable, secure source of Canadian crude to US refineries.  Canadian crude, all other things being equal, will substitute for the less reliable OPEC crude.  The risks to the US economy, US refineries and US military of OPEC supply disruptions and economic leverage will be reduced.  The XL pipeline will also pick up some production from the Bakken, which will help Bakken producers achieve higher price realizations for their crude.  

  28. 28
    nrgyman Says:

    RE 26:  "With many of the "Bakkens" trading close to 4x 2013 I'd be hard pressed to understand why they would need to be cheaper given their high growth rates at the present time."  
    Exactly my point.  They should not be cheaper and PMs will recognize this and increase their allocations toward the Bakken names in anticipation of the coming pricing improvement.  How long do you anticipate it will be before WTI comes close to parity with Brent?

  29. 29
    choices Says:

    #27-article and Congressional sources were completely misleading-no surprise-thanks.
    article on same topic:

  30. 30
    RMD Says:

    Thanks for Bakken thoughts.  
    Curious, I looked up a few quickly available production ests. for '13 from the St.for NOG.  They were 48%, 35%, 35%, and 27%.  Maybe it's just a comment on St. models, but the Eda ests for the high and lows were similar: $343mm and $330mm.  Any way, one conclusion is there's a fairly wide range on NOG's '13;  (none of them have attempted to throw in the MLP.)

  31. 31
    elduque Says:

    Just received another Samson update.

  32. 32
    zman Says:

    re 28 – I must have misunderstood the use of the "should" … I talked about WTI vs Brent in my beginning of year comments but honestly not that concerned with spread as far as a timing issue. I think WTI should stay discounted to Brent long term but not by $20+ as many have suggested (some as high as $40+)

    re 30 – not surprising to see wide spread on 2013 so early in 2012. Are you suggesting other names are largely seeing narrrower spreads on 2013 volumes? I'd have to guess some of the lighter volume guys on 2013 have higher crude decks and vice versa.

    re 31 – agree with their statement that the news is not diagnostic in the Australia II as the fish is still in the hole. Since they frac from toe to heal, this means that the furthest out perforations are flowing around a plug and a 40 foot or so long perf gun. All the 70 bopd number tells them is that its flowing oil. Also note Defender is back on line and flowing and the oil cut continues to increase.  

  33. 33
    Dillon Says:

    re 31 – really liking the increasing Defender results, it will be very telling to see if Halliburton opts in the second well. Z, do you know when their deadline is? I kinda remember it being somewhat soon like a month or two away.

  34. 34
    zman Says:

    re 33 – I believe it is March 31, will confirm. 

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