Wrap – Week Ended 12/7/12

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Just a few quick notes as most will be covered in the The Week That Was section of the Monday post:

Last week was another post election, much ado about waiting week and our groups fared pretty well through the political noise as the much awaited period of sideways trading starts to curl names higher. We had one core ZLT position (MMR) taken out for > 70% premium and while we don't often gripe about that kind of move the longer term potential of the Ultra Deep play is diluted (for us at least) as we won't be long FCX (just not our bag), leaving us with lower working interest UD partner EXXI and the soon to be formed Jim Bob Royalty Trust (we''ll call it something else when they file the S4 but we do suggest they go with the ticker JBRT).  We did add to the MMR position in the previous week as more delays at the Davy Jones 1 wellbore and a really negative set of comments of out JPM's zero dollar joe sent the stock screaming south (see our Zman's Stuff link at lower right to commemorate the event).   

Some stuff circled in the table below:

Yield Worry. Sentiment returned to wearing down the yield names as can be seen by the relative under-performance of the AMLP ETF as more fears arise over D.C.'s possible treatment of dividends.  While dividend tax rates are set to go up we have not had conversations with any trust or MLP that points to actual legislation moving through the channels that would hurt the names (much the same can be said about passing changes to kill off IDC's as well, it's fear over fantasy at this point).

Natural Gas Prices Holding Their Own. We had been expecting a modest retreat in prices in the prior week and last week. Prior week check, last week not so much.  For those keeping score we have temporarily ducked out of record storage levels with this week's slightly bigger than expected 73 Bcf withdrawal.   We'll get one last anemic withdrawal next Thursday putting us backing into record territory but after that the withdrawal season will kick off in earnest and as natural gas demand has remained stickier than most expected at today's somewhat rebounded prices for both the industrial and electrical consumption components we expect a re-acceleration of the erosion of the storage overhang relative to five year averages pushing us into deficit territory over the course of the winter. 

Drybulk Rates Remain Beyond Thunderdome Volatile. We've been asked why they have been moving higher of late and with the recent modestly improved news out of China its not hard to fathom that higher demand is behind the move.  We've avoided the space for several years now, and may do a little work in the future but year to date rates have been crushed and rallies like the recent one for the bigger ships are clearly easily collapsible at a moment's notice (down 24% this week, down 56% on the year? Ugh, no thanks). 

Notable stuff in the posts last week watch:

  • The full Bakken players update
  • A Wattenberg player cheat sheet
  • MMR / JBRT valuation thoughts and more 

Otherwise, have a good weekend. 

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20 Responses to “Wrap – Week Ended 12/7/12”

  1. 1
    Baylor Says:

    With 23% of mmr's float being short, do we see a massive short squeeze soon?

  2. 2
    zman Says:

    re 1 – I'm not expecting a big rally due to a squeeze and I'd suggest that short interest  is now a lot lower.  Some shorts will hold out hoping the deal will collapse but I would think the majority have covered, The JBRT angle complicates things for valuation and also discourages shorts who can't short something that doesn't exist yet but which has value. We ran through our expectations in the near term as well as some valuation scenarios for the RT here:  


  3. 3
    nrgyman Says:

    Barron's has a Wunderlich outlook for oilfield service names.  They see a trough in capex currently, extending through Q1 of 2013 due to further likely declines in utilization and pricing.  Pick-up then more likely in the spring.  Noted that they see signs of improved seismic activity now, suggesting this may be an early leader in future improvements.  They like DWSN and TTI.  
    Also noted that they think oil stays above $85 on WTI and natgas pricing will steadily improve.  

  4. 4
    Zorgnak Says:

    S&P 500 Futures Weekly Notes/Thoughts
    Notes..  Last week the market worked off the preceding week’s extremes and rejected 1406.50 CHVN as too low on Friday. Balanced trading around 1406.50 CHVN with brief price spikes below 1401 and above 1422. 1417.50 . Market building value above 1406.50. Demand volume is now positive. Breadth is positive.. POMO supportive 12/10-12. A Euro break below 1.288 would be headwind. Risk sectors mixed. S&P Put buying diminishing/price volatility abating. There is still  intact longer term underlying demand  on the monthly/weekly and daily time frames with global mkts breaking higher last week.
    Thoughts…..In the face of the ongoing political/media theater the market starts the week with a short term upside bias and demand volume/breadth/sector rotation/POMO showing improvement after last week’s dip recovery from previous upside extremes. Too soon to say the increased demand volume was much more than burned shorts. If the market follows through beyond 1417.50 on Monday AM  I'd look for shorts to reload between 1422 – 1428.  Down side areas of interest for possible reversals at 1401 CLVN and 1395.75 CLVN.  1406.50 CHVN remains the magnet… looking for rips sold and dips bought back to that area until political news flow changes appreciably. A break beyond the 1395.75-1428.25 levels would change those expectations. 
    CLVN=Low Volume Rejection Zone – CHVN= High Volume Price Acceptance and Congestion Zone-VPOC=Daily Most Accepted Price

    1428.50 CHVN-Heavy intermediate supply begins at 1422
    1222.25 Minor CHVN
    1417.50 Major CLVN/Low volume area. High volatility in either direction.
    1406.50  CHVN, Short term volume pivot /Magnet
    1401       Minor CLVN /Prior Short term acceptance
    1395.75 Key Minor CLVN support
    1379.50  Major CHVN

  5. 5
    Zorgnak Says:

    $USD Quickly rejected at 80.57..expecting sideways trading with major acceptance lower
    Euro..Expecting sideways trading. A break of 1.288 would change the expectation for the Euro and DXY ($USD)

  6. 6
    Zorgnak Says:

    Crude Oil Futures trading around long and short term acceptance. Low volume area below subject to short quick air pocket move, likely quickly reversed as vast majority of acceptance is above. Demand volume is weak but moving easier on up volume than down volume…a muddle to me. A down close on Monday would trigger a DeMark (TD13) exhaustion buy setup for a longer term reversal. Signal has a 5 day window for reversal. 

  7. 7
    zman Says:

    Good stuff today Zorg, appreciate the insight. 

  8. 8
    tomdavis12 Says:

    Z: Now that Canada has approved the CNOOC deal and Harper is taking a tough line for future deals, What is the status of the Keystone Pipeline and does STO type companies look toward more Bakken companies as more likely to go thru without a fight?

  9. 9
    tomdavis12 Says:

    Z: Does the % increase in ebitda in '12 for the E&P sector surprise you if you go back 18 months in time. I know the numbers for the offshore space in '12 was much less than was projected from 6/10. Mostly downtime the culprit. Do you think the ebitda growth in '13 might make this sector a strong relative performer? '12 has not worked that well with the exception of a few deals. Level of optimism? 

  10. 10
    crysball Says:

    China  reports   growth  in  both  Industrial  Output  and  Retail  Sales:
    Good  for  Global Growth.

  11. 11
    zman Says:

    re 9 – I don't track the overall % change for the space but it doesn't surprise me given volume growth. In my names its a bit less than I expected but still quite strong due to unit volume growth and in general level to falling unit costs.  If you go back and look at my 2012 thoughts here


    you'll see I was touch high on oil for the year and a bit higher than a touch high on natural gas.

    The names have gotten cheaper all year long. If they remain here they will get cheaper in 2013 on flat or even lower oil prices as again they are growing quite rapidly.  I don't look at things on a calendar year but 2012 has been a year of rest for the group if you look at the XOP, OIH, XOI, XLE etc. Meanwhile while the stocks have as a group not done much, they've gotten cheaper from a trailing and forward multiples perspective. As you know, I'm looking for higher gas prices in 2013 and I'm certain not in the RayJay/BofA the sky is falling camp for oil prices. So given the growth we expect and the relative cheapness that has come about as the quarterly results walked higher which the stocks largely (with a number of exceptions) didn't really react that much to you can put in the optimistic camp.

  12. 12
    zman Says:

    re 8 – just saw, gotta run out, will address Monday. 

  13. 13
    Zorgnak Says:

    Nat Gas Futs.. Retest of recent lows at 3.50 CLVN.  

  14. 14
    Zorgnak Says:

    OT Rumor Mill……….fwiw

    Rumor is that Clinton’s State Department is about to recommend approval of the Keystone XL Pipeline as a parting gesture. She's long been a supporter. Bill Clinton already on record supporting it. Still O's call though….

  15. 15
    Zorgnak Says:

    XOP    Moving above long term acceptance with positive demand volume on the daily. Near resistance at 55, far at 57. See weekly chart for long term acceptance and ranges.
    Weekly chart…re Z's commments "not done much" .

  16. 16
    Zorgnak Says:

    FCG….Weekly chart. Tested long term support at 15 .Minor resistance at 17.16  Major upside target/acceptance  at 17.66 with 20 as  upside resistance. Demand volume improving intra-day after recent test of support.
    Daily chart

  17. 17
    nrgyman Says:

    MIssed this on Friday:  EEP to expand light oil take-away capacity for the Bakken and Western Canada.  Note that this will NOT be for oil sands or Canadian heavy oil transport.  Also, it won't be ready for service until 2016.  Still, a long-term positive for the Bakken producers.

  18. 18
    nrgyman Says:

    RE 14:  Who will be the immediate beneficiaries of the XL approval?  
    TRP is the pipeline operator, so it should help them.  Canadian oil sands producers should be beneficiaries once the pipe is completed.  What about the US refiners?  They will get reliable higher-volume access to cheaper Canadian heavy oil from the oil sands.  Don't know which names would benefit most, but those with locations at the end of the pipe that can process the heavy oil would seem likely.  Also, wondering if US crude prices will be affected due to competition for refining capacity from the Canadian oil?  Perhaps not if refiners are inflexible in processing light oil vs heavy oil.  For certain, it would appear that Brent-priced non-Canadian imports will be reduced in favor of lower-priced Canadian heavy oil, which would improve refiner margins.  Which refiners will benefit the most?

  19. 19
    zman Says:

    China data ramps


    add to that story record refinery throughput. 

  20. 20
    zman Says:

    TPLM = nice quarter, Monday post up in 5 minutes. 

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