T.G.I.F. and Welcome To February

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Market Sentiment Watch: Chinese official PMI retreated slightly from December levels overnight but continued to show slight expansion. Payrolls came in light on the near month and were revised up in the preceding months. Futures are waiting on CNBC to explain the miss away. Very long post so grab two cups of coffee.  In today's post please find the natural gas inventory review and the Natural Gas Supply (with imports) and Demand Slide shows along with comments for a couple of names of interest. Natural gas demand notched a record month for the month of November, driven by strong Industrial demand and by record November demand in the other segments (Electrical, Residential and Commercial) as well. Today's post is a free one, the last for awhile, so feel to send the link to friends and family.  

Ecodata Watch: 

  • Nonfarm payrolls came in at 157,000 vs 170,000 expected and an upwardly revised from 155,000 to 196,000 last month (includes year end modeling stuff),
  • Unemployment came in at 7.9 vs 7.7% expected and 7.8% last month,
  • We get Consumer Sentiment at 9:55 am EST (F = 71.5, last read 71.3),
  • We get ISM at 10 am EST, (F= 51, last read was 50.2),
  • We construction spending at 10 am EST (F = +0.8%, last read was -0.3%),
  • We get car sales over the course of the day (F = 15.2 mm, last read 15.3mm).

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Inventory Review
  4. Natural Gas Supply Slide Show - Data for November
  5. Natural Gas Demand Slide Show - Data for November
  6. Stuff We Care About Today -  OAS,  PVA
  7. Odds & Ends

Please click the link right below this to

Holdings Watch:

ZMT (Zman Medium Term portfolio):

  • Yesterday’s Trades:

    • VLO - Out on half (5 of 10) of the remaining March $45 calls for $1.35, up 103%,
    • Yesterday's opened trades are listed on the Positions tab. 

ZLT (Zman Long Term portfolio)

  • Yesterday’s Trades: 
    • PVA – Added to the trading position with an average cost of just under $4.32. See comment on today's post and look for more comments in the Friday post. I think the name remains misunderstood/overlooked but a good value,
    • The Blotter is updated here

Commodity Watch:

Crude oil eased $0.45 to close at $97.49 yesterday but still up on the week and apparently set for longest weekly green streak since 2004. This morning crude is trading off slightly. 

Natural gas edged higher by $0.004 to close at $3.339. Natural gas first retreated after the weekly storage number fell short of expectations but later reversed as EIA released data for November on natural gas production that showed only modest growth. The more important marketed supply and demand figures are outlined below.  This morning gas is trading up slightly. 

  • Supply Watch: Supply was up 0.3 Bcfgpd over October levels to another new high but the rate of growth has slowed down and on a YoY basis supply was up only 1.2 Bcfgpd.  See slide show below the weekly storage graphs. 
  • Demand Watch:  Record demand for a November. By all demand segments but led by really strong Industrial demand (November Industrial was bigger than all Decembers on record ... that obviously doesn't happen). Demand was 71.8 Bcfgpd, up 4.9 Bcfgpd over year ago levels.  See the slide show near the bottom of the post. 
  • Imports Watch: And now for the numbers least talked about in the natural gas debate, the net imports numbers. Pretty self explanatory. The rest of the world needs gas and pays up for it. The U.S. doesn't need anything like the import volumes it used to consume. Net imports were down 1.06 Bcfgpd in November from year ago levels and hit a new low.  See below. 


Natural Gas Storage Review:



Natural Gas Supply Slide Show



Natural Gas Demand Slide Show

Stuff We Care About Today

OAS Updates 2012 Reserves; Guides for 2013

  • 2012 Reserves:

    • 143.3 MMBOE (89% oil), up 82% from last year
    • This gives an RP of 17 years
    • and puts them at a fairly cheap (historically speaking the cheapest for them and cheap for the group) TEV to proved BOE in the ground of roughly $31 per BOE.
  • 2012 Production:

    • Full year 2012 of 22,469 BOEpd (up 110% over 2011), 
    • 4Q12 levels of 27,556 BOEpd, 91% oil, up 14% sequentially  .... this was versus company guidance of 26 to 28,000 BOEpd for 4Q12 ------
      • Trading at $160,000 per flowing BOE using the 4Q number which is again cheap on a relative basis to where the group has been trading do to a combination of the rapid growth and the likelihood of substantial as of yet unlocked value in via downspacing and in the deeper benches.
  • Guidance:
    • 2013 Capex of $1.02 B ($897 mm for drilling),  (about $40 mm light to 2012's planned budget)
      • The drilling component is down $110 mm over 2012 and will drilled the same number of wells (about 103 net Williston Basin horizontal wells),
      • Savings are now showing up with them quoting a $8.8 mm CWC at year end, down from $10.5 mm in 1H12, 
      • 60 to 70% of drilling will be from pads, so look for additional savings on average completed well costs as the year progresses
      • Note liquidity here is now $987 mm, 24% cash.  Noting the borrowing base was bumped from $500 mm to $750 mm. 
    • 2013 volumes:

      • 1Q13: 27 to 29,000 BOEpd
      • 2013 Full Year: 30 to 34,000 BOEpd, up 42% on the mid over 2012 ... we would have said this was conservative but the well count is a little lower than expected.  The Street had recently bumped up the consensus for 2013 production to 33,875 BOEpd.
      • Should be about 90% oil,
      • Says to expect a backend loaded year .... should not be a surprise, pretty typical and they more than pulled off similar type guidance in 2012
    • Other:
      • they guided to a 4Q12 differential of 1.5 to 2.5% off WTI vs a full year 2012 differential of 8.7 to 9% .... this is the results of the squashed differential we often show as the link to Clearbrook and which has of late been showing "Bakken" crude only $3 under WTI. We expect Bakken crude to trade on par with an eventually at a premium to WTI as the oil is sought by more refiners.
      • Cost guidance metrics for 4Q improved over last guidance from August 2012,
      • Acreage edged higher to 335,000 net acres, 79% of it held by production.
    • Nutshell: Pleased, but given the recent (last two months) aggressive ramp of Street volume estimates I'm sure some will be disappointed (although several are taking numbers up this morning, see bottom of post). I'm not here for short term moves (in since the IPO) and like how the story continues to unfold (rising production has been a given, now we have the promised fall in CWC as well and operating costs that auger for new highs in EBITDA per BOE this year). The production guidance leaves room for increases as the year plays out and I'd expect them to start tightening the bottom end of the range by the 2Q13 report, weather permitting.   We continue to own the name in the ZLT as an overweight position with trading positions on top. 

PVA - just thinking out loud ...

  • Liquids in 3Q12 were 52% (38% of total volumes were oil) but liquids were 84% of 3Q12 revenues and oil averaged $99 per barrel as they get tied to Gulf Coast oil pricing. WTI in 3Q averaged only $92.20. 
  • The 4Q12 period saw revenues advance to 56% of production,
  • Balance Sheet: 
    • High leverage but plenty of liquidity, no senior debt due until 2016
    • Liquidity of ~ $350 mm, due to borrowing base expansion, recent preferred and common stock sales, asset sale, and tax refund. 
    • The 2013 budget is likely to be $300 to $350 mm, going to drill 35 to 40 net Eagle Ford wells, plus maybe a little for acreage and at least one well to test the deeper Pearsall shale (news there soonish). Like last year, the natural gas assets see very little capital and while they''ve seen the gassy side of the reserves report written down to prices and their decision not to keep drilling those reserves are still in the ground and HBP'd to a high degree, awaiting the day when gas prices push back up through $5 to $6. 
    • 2.2x Debt / LTM EBITDA (convenant is 4.5x)
    • LTM EBITDA / LTM Interest = 4.2x which is adequate. 
  • Acreage recently bumped higher.
  • Valuation:
    • Trades at TEV to 2013 Street EBITDA of 3.7x, 
    • Trades at TEV to proved of $8.30 / BOE which is low even considering the natural gas in the mix. 
  • What's wrong with it?  The stock can't seem to get out of its own way. 

    • Gripes from the past about management and natural gas
    • Management only owns 1% (OK, that's a fair gripe),
    • No production growth. Essentially true, maybe minor growth but not more than 10% in 2013. However this one is misleading as they are growing  likely to grow liquids from 56% of 4Q12 production to close to as much as 65% of production this year based on the nature of what they are drilling. This mix change is on the back of the Eagle Ford acreage which has seen production rise from 0 two years ago to 6,900 BOEpd in 4Q12, or 45% of total company production. Consisten 
    • Shorts: 15% short interest now and while the old story was low natural gas prices and too much debt we have not seen anything that warrants the shorts sticking around. 
  • Nutshell: We added a little more yesterday after the recent weakness. They have the assets and balance sheet (no need for external financing this year) to turn the corner and w have a call in with management to fill in some thoughts along these lines and will circle back when we have had a chance to chat. 

Other Stuff:

  • BCEI priced 11.5 mm shares (upsized from 10 mm) of its selling shareholder secondary at $29.50 overnight. Nice deal done in the hole but only slightly due to post deal announcement strength, time for a bounce.  As a reminder, this deal does not add to the share count and they receive no proceeds from the sale, just puts the shares in the hands of more shareholders. Look for them to sell shares at a higher price later this year. 
  • Look for next week's calendar over the weekend on the Calendar tab. 

Odds & Ends

Analyst Watch:

  • EXXI - Global Hunter cuts target from $33 to $30, rating Neutral,
  • EXXI - Canaccord cuts target by $4 to $38, rating Buy,
  • CRR - Barclays cuts target from $106 to $100, rating stays Equal Weight,
  • CRR - BMO raises target by $5 to $90, rating stays Outperform,
  • OAS - SunTrust ups target by $2 to $44, rating Buy
  • OAS - Jeffco ups target by $6 to '$50, rating Buy
  • OAS - Wunderlich ups target by $20 to $60, rating Buy. 

127 Responses to “T.G.I.F. and Welcome To February”

  1. 1
    Zorgnak Says:

    Crude Oil
    Extended. Near support 97. Far support 95.25. Demand volume remains positive on the daily. weekly and monthly time frames

  2. 2
    Zorgnak Says:

    Nat Gas
    Volume spike yesterday/highest volume since October. Some follow through today. Long term acceptance above at 3.47. Demand volume flat, ease of movement heavy.

  3. 3
    Zorgnak Says:

    Overnight short squeeze profile after NFP testing recent highs.

  4. 4
    john11 Says:

    Northland Capital Markets raised SYRG target from $7 to $10.

  5. 5
    zman Says:

    PVA adding members of management to change of control provisions


  6. 6
    Zorgnak Says:

    S&P Short Term Areas of Interest  2/1 9:11 AM  ES 1502.50 Notes/Thoughts
    Notes….  Overnight short squeeze profile after NFP, testing recent highs at 1505.50. Tentative balance area at 1496.25. Demand volume positive in all time frames/extended on the daily. DeMark exhaustion sell setups on the daily and weekly still active. Breadth rolling over from extremes.  Risk sectors leading. Currencies and overnight markets supportive. POMO supportive throughout Feb.
    Thoughts …. Consolidation underway.  1496.25 tentative volume pivot with 1505 and 1487 as range extremes.  Longer term up trend intact.
    CLVN=Low Volume Rejection Zone – CHVN= High Volume Price Acceptance and Congestion Zone-VPOC=Daily Most Accepted Price
    1505           Minor CHVN, Little Historical Volume Data Higher
    1496.25      Current short term volume pivot
    1487            Minor CHVN
    1481.50 Minor CLVN/Minor market structure above to 1505

  7. 7
    snuhart Says:

    Re OAS
    The three analyst upgrades cited above set price targets between 44 – 60 dollars/share.
    Do you believe this is a realistic intermediate  (6-18 month) expectation ?

  8. 8
    Mark Wetzler Says:

    That change of control severance agreement hints at a sale of company as exit sometime in future.

  9. 9
    nrgyman Says:

    CNBC just reported that the Seaway pipeline may continue at a reduced capacity until Q4.  More turmoil in ME.  Brent/WTI spreads widening.  Refiners loving this.  VLO's best margins were in the mid-continent, which is the heart of MPO, HFC and CVI (CVRR) operations.  They've had a big run and downtime for maintenance is approaching, but the margin fundamentals are still strong for them.

  10. 10
    zman Says:

    re 7 – to me the $40s range targets are easy gets from here. The $60 is probably an attempt at a takeout NAV. 

    re 8 – yeah, just added one more guy to the list. I'd really like to see management step up and buy more shares than the trickle so far. 

  11. 11
    elijahwc Says:

    PVA:  "Shorts: 15% short interest now and while the old story was low natural gas prices and too much debt we have not seen anything that warrants the shorts sticking around."
    Perhaps the converts they issued last year when they omitted on the common.  They are illiquid and a natural arb
    Symbol PVAYY

  12. 12
    zman Says:

    re 9 – thanks, noted last night Enterprise is building a line from the tail of Seaway to Houston, should help with bottlenecks, on in 2H13.  

  13. 13
    zman Says:

    Thank you Eli

  14. 14
    zman Says:

    Crude not buying the equity rally today.. Blame that on the Seaway comment and the fact that WTI is extended and has been discounting a rapid reduction at Cushing and better product demand than we are yet seeing. 


  15. 15
    zman Says:

    EXXI – not following through on further declines in the wake of falling estimates. 

  16. 16
    zman Says:

    Iran Yada Yada Yada Watch:


  17. 17
    zman Says:

    CRR breaking out.  Watching. 

  18. 18
    Zorgnak Says:

    Energy volumes light at 25 of 82 above average at the open…

  19. 19
    zman Says:

    re 18 – yeah, noted. Consumer sentiment nd ISM in a few. 

    Watching some little ones trickle higher, OEDV, SDCJF. 

  20. 20
    RB Says:

    FWIW, somebody is taking a few shares off me in SJT at 15.58…will be done with me soon…interesting to see if they nibble higher

  21. 21
    zman Says:

    Summed up EXXI for someone who couldn't make the call yesterday:

    Lowered production guidance for 3Q and 4Q, pretty substantially, upped capex for the year slightly. Talked about old infrastructure breaking and needing to be replaced not fixed. Expecting oil voluems ramp from here. Nothing to really say about Davy, Pendragon drilling ahead, strong horizontal early response, wells not seeming to care how hard they pull on them early.  Basically set themselves back a couple of quarters from where the Street modeled them. No worry by me longer term but estimates will be coming down so it got a bit less cheap even with the fall, but again, in my view, not a big deal, just unfortunate too aggressive early year guidance.

  22. 22
    zman Says:

    re 20 – was just going to say the rest of mine will come off the table soonish. 

  23. 23
    zman Says:

    Consumer sentiment at 73.8, much better than the 71.5 consensus

  24. 24
    zman Says:

    ISM = 53.1% vs consensus 51%

  25. 25
    zman Says:

    CRR – such a momo name. Mo'ing in the wrong direction for me at present. 

  26. 26
    zman Says:

    Zorg – got resistance levels on the S&P now?

  27. 27
    Zorgnak Says:

    HK  Watching/waiting for a move here. Demand volume positive on daily and weekly
    HK  supply at 7.82…breakout pt around 8.14

  28. 28
    Zorgnak Says:

    #26 Nope….not much market structure anymore….

  29. 29
    zman Says:

    re 28 – hear ya steam train. 

  30. 30
    Zorgnak Says:

    TPLM  Demand volume continues to support higher prices,

  31. 31
    Zorgnak Says:

    Rotation into finance, transports and tech

  32. 32
    Zorgnak Says:

    RRC support at 67

  33. 33
    1520sbroad Says:

    completition reports on SONRIS for a couple of the SWN BD wells.  See link:
    I believe this is well #4, #5 is also on SONRIS.  the Dean well – #6 has not been reported yet.  Still shows allowables though.

  34. 34
    Alhambra Says:

    Z, nice write up on NG. Last year you brilliantly pounded the drum of flatter slope for the supply graph; how does that slope look to you this upcoming year?  You note the lower rig count going forward and increasing demand, so is it safe to assume the slope will be even flatter?  At what price level do the suppliers open the spigot on HBP or will new production be enough to meet demand?  Thanks

  35. 35
    Zorgnak Says:

    CRR approaching area of interest

  36. 36
    Zorgnak Says:

    HK pushing through the early sellers this morning

  37. 37
    Zorgnak Says:

    #36..average volume so far

  38. 38
    nrgyman Says:

    BCEI:  Was waiting for a sell-off under 30.  Thought it would be for an equity raise, but this secondary did the trick.  Added some under 30 this morning.

  39. 39
    zman Says:

    re 34 

    1) thanks much, I think the imports decline wedge should get more play with traders and the press

    2) brilliant, ha far from it, ask my wife, but yeah, the flatter slope theory played out pretty much as expected

    3) Re slope even flatter. I think so as long as we stay sub $4 through summer as per my price deck. Go over that and you get switching and its a tougher call. However, getting away from that and from weather entirely, the baseline in Industrial Demand is clearly higher (the Residential and Commercial segments have never looked better either for the off season but they won't be big adds). I expect dry gas to increasingly mute growth from the liquids plays and the Marcellus. We had a piece breaking down the rigs in Other States and then the production wedges and will update that one soon but the Marcellus will have a hard time growing the whole thing rapidly with AR and CO retreating to flat.

    4) Price re HBP?  Three parts:

    –  1)and minor, some could open chokes and flow a bit more and there is likely some curtailed gas out there now but have not seen recent figures … I don't think its a big deal (think machination from time to time of CHK, ECA),

    – 2) drilled but not completed well inventory. At $3.00 to $4.50 depending on the play I would guessitmate you see some operators with an inability to run faster  in their new found oily plays allocated a wedge of their capital to completing and flowing wells drilling in 2010 or 2011 (GDP is doing a few) to help their production volume picture (if not really their EBITDA lline)., and

    – 3) when do rigs move back into the gas plays in force? $5+.  In almost all cases the gas plays will have to compete on an economic basis with the oil plays to grab rigs back from them.  We noted many big league gassy management teams claim $7, $8, $9 before they shifted rigs away from their new plays citing the spread to oil on a $/BOE basis. The not 6 to1 but instead 20 to 1 argument by these guys holds some but not a lot of water with me. This is a boom bust business. When NG is trading $3.50 on the 12 month strip it's easy (and helpful to your stock) to say "looking at where oil prices are relative to gas prices we don't see moving rigs back to drill dry gas wells until gas prices are 2x or 3x current levels" but in reality, when they see a two year high on gas at $4.50 plus I think the temptation will be great to start up the program in a highest realized price first fashion. Throw in that as time goes by and more processing is built you have guys who were putting ethane in the line now able to pull it out and get pad (OK, maybe 2 years before that market looks better but you get my point that these guys won't be able to help themselves).


  40. 40
    BirdsofpreyRcool Says:

    #21 — thank you for that, z.  Was traveling all day y'day and missed the call.  Watching the stock price action, i assumed Schiller was stomping small puppies on the call.  Glad to hear it's just Hot Money looking for catalysts elsewhere.  Funny thing is, when no one expects anything to happen, oft times that is exactly when something does.  Holding my EXXI shares on oiliness and production growth, relationship with Exxon, FCF, Schiller's ability to buy good stuff for decent prices, and the lingering upside from the UD program (it's not dead yet!).

  41. 41
    zman Says:

    ZTRADE- ZMT – Out rest of VLO Calls

    VLO – Sold the remaining VLO March $45 calls for $1.40, with the stock at $44.35,  up 109%  since entry upon earnings earlier this week. We are continuing to work on our thoughts on the sector but are now unexposed to it 

  42. 42
    DaveH Says:

    PER announced their 2/12/13 dividend at $0.603032.   That is 12.8%/year if you assume they maintain the same dividend.   Their five previous dividends have averaged in that area.

  43. 43
    BirdsofpreyRcool Says:

    European debt market summary… we may be getting near the top of all the bond-frenzy… may flatten out… then watch treasury rates begin to climb a bit.  That is gonna take a chunk more of interest payments to fund the Redistribution via Borrowing Vast Amounts Strategy that has taken hold in the US for the last decade.  Homeowners may have learned the lesson the hard way (ARMs come to mind)… but Uncle Ben and His Band of Merries have yet to deal with the affect of having to roll over Massive Amounts at higher levels.  This will happen.  Sure as housing prices didn't grow to the sky.
    Junk bonds in Europe headed for the lowest monthly gains since May, and high-grade debt was poised for its first loss in seven months, amid signs the market is getting indigestion after a surge in sales.

  44. 44
    zman Says:

    re 40 – had he only tried ground up puppies as proppant at Davy Jones that might have bettered the trading action.  Last question on the call asked about the latest HZ well and he answered that it IP'd at 1,700 bopd and has been flat at that level for a month. More of those please. πŸ˜‰ 

  45. 45
    tomdavis12 Says:

    EXXI – Summary of some comments from Duane G prior to CC. He is still positive. 1. High oil prices. 2. Horizontal well results. 3. Exxon JV upsides. 4. FCX (MMR) project upsides should support stock into their year end. I would not add to now until there is a technical reason to. May be in penalty box for awhile. Looks like they do a better job of buying properties than executing on the production of these properties.  BOP when not traveling will be able to add her color I am sure. 

  46. 46
    1520sbroad Says:

    I think I am incorrect in #33 – one of the wells on SONRIS is well #6 for SWN in the Brown Dense. Well # 245093

  47. 47
    PackMan Says:

    Z – any knowledge / thoughts concerning  SDR, SDT  ?

  48. 48
    zman Says:

    re 35 – thanks, stepped on a bit of a landmine there. Add more but not ZBLASTing as I'm in the anti-momo minority with this call and it has that look TA types are looking for even if they completely failed to address margins and even if their volumes based beat was accomplished by selling 3rd party low priced, low margin prop.  But I digress. 

  49. 49
    zman Says:

    re 46 – will go have a look

    re 47 – I passed on those after what seemed like a bit convoluted read through of the S1, apologies but no thoughts there at present. 

  50. 50
    Justin Says:

    See any metrics the upgrading analysts are using on their OAS targets that offers implications for NOG upside (or proves a dislocation in the current price)?

  51. 51
    Zorgnak Says:


  52. 52
    nrgyman Says:

    Good article on economics of the Marcellus.  Sweet spots still very profitable.  

  53. 53
    mimster90 Says:

    Still trying to get my head around XCO. I saw in the blotter [which is fantastic] you added recently. Any catalysts for them coming up?

  54. 54
    zman Says:

    re 50 – haven't seen anything in print, just the headlines, but the multiple of EBTIDA and of  production on those targets would imply a higher price NOG.  Even discounted for being a non-operator. Right and for quite some time the market really has not /is not linking them up as a swiftly growing Bakken player, not sure what will cause them too. For the impatient there are obviously "easier" names to play in the space. I'd also note that for nearly two years, if you look at the OAS chart, it did nothing having pre-run the coming production growth which is what I wrote about in that SA piece just before Christmas. At some point, the market takes notice and production growth and high EBITDA margins get rewarded. OAS is a Bakken leadership name as are CLR and I guess KOG. As they all start to move I expect people to sniff around and rediscover cheaper names like NOG. 

  55. 55
    BirdsofpreyRcool Says:

    EXXI Iberia comments (summary):
    With yesterday’s negative reaction to the quarterly release, EXXI trades at 3.1x our forward
    CFPS estimate, in-line with its trailing 12-month average.  The next catalyst on the horizon for EXXI is the result at
    Pendragon, expected in mid-to-late February.  As mentioned, the prospect could add meaningful reserves to EXXI and
    increase our NAV by ~$3.50/share.  As important, success at Pendragon would likely bode well for Merlin, an even bigger
    target.  The updated guidance appears achievable; and with significant potential catalysts on the horizon, we maintain our
    Outperform rating.

  56. 56
    zman Says:

    re 53 – they are a leveraged balance sheet almost pure natural gas play. So that one is a play on my 2013 gradually improving price deck. That and the fact that they've really hacked back their cost structure so that the rally in gas prices won't need to be of size to be as significant to EBITDA as one would think. They could do a JV with China (rumored but that's somewhat stale now) and there is likely to be an activist shareholder angle here. And a short squeeze but as far as well catalysts? No, not really (wow, they're not even listed on the catalyst list which is rare). So the next thing is speaking opportunities and then 4Q results and while they will take a writedown for reserves (non cash) due to trailing low natural gas prices that is, in my view, already in the shares. They may also do a deal in a liquids play but they, unlike some others, don't want to overpay.   But the big one for them will be higher natural gas prices.  . 

  57. 57
    zman Says:

    re 55 – thanks.  Wonder if that's 3.1x (our downwardly revised numbers) or not. On Pendragon, best looking one in Exxon JV at Vermillion, I think 11 zones between 7,000 and 16,000' and they are new 12K' now and setting casing.   If it works it derisks Merline which is a 3x on reserves.   These are 10's of mmBOE type prospects so nice. Pendragon if succesful will flow back via existing infrastructure, said 3 to 6 months to have it on depending on permits and some tieback work. Merlin probably longer from TD to first sales. But Pendragon if successful definitely the next catalyst and would I'd think at least take them back up into the mid $35s. 

    One other thing, Schiller said to expect upon closing of the FCX deal, for newsflow out of the UD to all but dry up unless they have major news, they just are not going to talk about it. 

  58. 58
    zman Says:

    Re this this morning:

    CRR – BMO raises target by $5 to $90, rating stays Outperform,

    Guessing now its going to be a Hold. 

  59. 59
    BirdsofpreyRcool Says:

    FCX = not talking about UD on a continuous basis is consistant with long-term, large project buildout mentality.  Make sense.

  60. 60
    zman Says:

    re 59 – right and the other operator is Chevron so again, they don't chatter about plugged perforations and skin damage, they announce big play discoveries. 

  61. 61
    zman Says:

    Interesting that MMR hugging back up to $16, some analysts out there put $3 on the coming UD RT. 

  62. 62
    tomdavis12 Says:

    Z: What is your guess on the time frame for some of these drills for EXXI. I am guessing that good discoveries will be the catalyst for good performance. I was hearing that with both West Delta and Pendragon you may have to wait til fiscal year end or first '13q. July '13. Would you agree?   

  63. 63
    Zorgnak Says:

    Volume spikes on the daily time frames today

  64. 64
    zman Says:

    re 62 – with luck they could have Pendragon on sales by mid year 2013 (so the end of their FY13) or a touch sooner, no real contribution. I think he said 13 horizontal wells between now and then as wells but with I think 4 of those in June so again, not much impact this year. I think the reduced guidance was a bit of a kitchen sinking so they may slide over it.  

  65. 65
    tomdavis12 Says:

    SDRL: Weaker on 2 more JU newbuilds announced. Street nervous about how agressive they have been with newbuilds.

  66. 66
    nrgyman Says:

    Energy Sec Chu stepping down

  67. 67
    zman Says:

    TPLM trying, last buy there was:

    1/8/13 TPLM – Added a trading position at $6.04 after a broker comment knocked the name down 5+%. The comment refers to an apparently poor IP of a well to the north of TPLM Montana Station Prospect. 1) We don't know if the result is bad or just a  piece of data taken out of context as the well has not been press released and the data comes from a state site that provides no backstory on the well. The operator of the well is SWN and they had previously said they are encouraged by what they have seen in the well. 2) Furthermore, TPLM is focused on Willaims and McKenzie Counties, ND. Not Montana. TPLM holds acreage in Montana but they are not drilling wells there this year. The idea that one well to the north of their main prospect area in an area that they are not focusing on for at least the next year is not to put too fine a point on it, silly and an irresponsible comment on the part of the analyst. The tiny blurb was picked up by Bloomberg and TPLM sold off in knee jerk fashion. 

    Their fiscal year is a month lagged to most so not expecting news until March/April here unless they decide to press release the exit and give guidance for the year before that. 

  68. 68
    zman Says:

    re 66 – will be interested to see the bent of the replacement. 

  69. 69
    snoles Says:

    Z – In reading the PVA report in this morning's post, were 3Q12 liquids 52% of total volume?  Did 4Q12 see liquids volume rise to 56% of total production?
      Sorry for my confusion.

  70. 70
    zman Says:

    Analyst Watch

    CRR – upgraded to Buy, $98 target based on 8x EBITDA ….  On those margins and on down expected revenue you go with 8x CF ?  Wow, that's bold. They note they were at Hold for 21 months which falls after our maring call here in the $140s. 

  71. 71
    zman Says:

    Gas for my friends bill


  72. 72
    zman Says:

    re 69 – apologies for being confusing, yes, you have it right. 

  73. 73
    nrgyman Says:

    Jon Najarian says CRR is off to the races.  Says to own it as energy names are going higher.

  74. 74
    zman Says:

    re 73 – ah, thanks, that's deep, wondered what the pop was. Nice to have calls on it and a megaphone called CNBC. All the prior comments still apply, bet he doesn't know margins,  rig activity,  supply or ASP direction but hey, wear a ponytail win a prize. 

  75. 75
    Zorgnak Says:

    KOG  Volume picking up here around 9.16  VPOC…….added a tad

  76. 76
    Geno Says:

    Re:68  Aubrey's unemployeed maybe he should interview

  77. 77
    Zorgnak Says:

    OAS  nearly 4X average volume for time of day so far

  78. 78
    zman Says:

    re 76 – Hey Geno –  got any recent thoughts on the quality of Chinese proppant? Thanks. 

    re 77 – about time, πŸ˜‰

    SJT back to $16, they can have the rest of mine soon. 

  79. 79
    zman Says:

    Offtopicthiirty, grabbing lunch, back in a bit. 

  80. 80
    DaveH Says:

    RE: 67, thanks I bought some for a trade 1/8/13 around that price after you posted  and sold it a few minutes ago for $6.39.   Made some money on that one.

  81. 81
    1520sbroad Says:

    Z – any thoughts on those brown dense well numbers?

  82. 82
    Zorgnak Says:

    energy stock volume expanding all day….50 of 82  higher than average for time of day

  83. 83
    zman Says:

    re 81 – back in, will check in and circle back, listening to the HCLP replay (HiCrush)

  84. 84
    zman Says:

    #6 well – no new report. I have the #6 here:


  85. 85
    zman Says:

    HCLP Ntes

    – citing the CLB comments from yesterday and saying we see proppant sales doing nothing but going up. Will be interesting to see if higher volumes 1) happens this year in NAM and 2) at what price. 

    – 4Q volume shortfall to be made up over the course of 2013.  Hmm. so much demand it'll take a year to make up the lack of 4Q E&P spending on proppant. 

    –  saying lots of barriers to entry in white sand,

    CRR – MOMO in charge, when music stops it can move hard the other way. Take a look at the daily chart for past trading action. Trying to fade now. 

  86. 86
    Zorgnak Says:

    TPLM  coming into an area of interest..6.65 or so

  87. 87
    crysball Says:

    Secret  internal  Hedge  Fund  @ CHK   started  by  Tom  Ward  and  run  by  Aubrey McClendon:

  88. 88
    zman Says:

    BCEI goes green on the upsized seller secondary … well placed deal = easy to place deal. 

  89. 89
    Stewart Says:

    HCLP comments bode well for FTK or SLCA?
    Great call with OAS.

  90. 90
    zman Says:

    CRR Call Transcript as it related to Margins:

    Travis Bartlett – Simmons & Co.


    Okay. And then second of all, I even follow-up on the margin front, it looks like operating margins compressed along the lines of 700 basis points year-over-year in 2012. So first of all, is it reasonable to assume that Q4 marks the trough for margins? And then secondly, can you walk us through how you are thinking about margin progression in 2013, and may be highlight some of the factors that we should be taking into consideration. And then to what extent we should expect the margin recovery from recent trough levels?

    Gary Kolstad – President and Chief Executive Officer

    I think I’ll make one comment and turn it over to Ernesto on that. But as I mentioned, we were very pleased with the pricing of our CARBO manufactured ceramic proppant and the pricing really didn’t change materially from the third quarter. So I think that addresses the first part of your question, I’ll let Ernesto talk about the rest of it.

    Ernesto Bautista – Vice President and Chief Financial Officer

    So with respect to fourth quarter, what you saw was an increase in products, from a product mix standpoint, our margins not as great as they are in internally produced ceramic. We had an increase in ISP or that’s the third-party product. We had previously said that we would be opportunistic in the sale of that product. We try to monetize this in terms and inventory into cash. So we did some of that during the quarter.

    We also had an increase in resin-coated sand sales quarter-on-quarter, which was obviously important to us because we want to continue to grow that business but from a margin standpoint it does compress margins. As we look forward, I think we mentioned in our press release that 2013 will be similar to 2012, and perhaps the better way of describing it is a mirror image if you will of 2012, where things may be are close to if not at bottom and we move up from here.

    To say specifically when margins start to turn that’s difficult, but I think our expectation anyway is that volumes will come first. And then as volumes increase and we get to higher utilized state, then obviously what should follow would be price. Again, timing on that would be difficult to state though.

    Travis Bartlett – Simmons & Co.

    Okay. And so you are saying 2013 activity levels should somewhat mere 2012. Does the same apply for margins there?

    Gary Kolstad – President and Chief Executive Officer

    Let me step in there. We see the activity levels – we’re talking about the industry drilling activity levels, we expect completion activity to actually increase and you might think through that and probably deduce but we think our volumes will probably increase as the year goes on. If you want to add something on the margins, I think is Ernesto’s comment about mirror image makes a lot of sense, when you look at how 2012 progress from Q1 through Q4 and then little bit of a slow start in January due to the slowdown in last two weeks of December, the industry really slowdown last couple of weeks of December as you’ve heard from all the other companies that we like the trend at which its going now. I think you captured.



    Trey Stolz – Iberia Capital Partners

    And then digging into the cost of good sold little more and trying to understand distribution and has been asked a couple of times in the call here. In manufacturing cost and distribution cost going forward, can you give us any more guidance on how to think about that or really struggling on those line items in particular. How can you help us in modeling there?

    Ernesto Bautista – Vice President and Chief Financial Officer

    So I think maybe there is more to it than just these three items, but maybe this will help a little better and (inaudible) things little bit. We had a component of third-party product that we sold, that cost is higher than our internally manufactured product. Margins are lower for that region. We don’t anticipate the same volume of sales in 2013, anywhere near 2012 and 2013, so that’s a benefit if you will from a margin standpoint.

    Offsetting that to some degree is going to be the fact that we do anticipate increased sales and resin-coated sand. We have said from the very beginning that business is going to have good margins, but they are not going to be the same as ceramic margins and in this environment, still compressed even further. So that somewhat offsets the reduced amount of third-party product we sell.

    And then finally, I think over the course of the year, it’s still our goal and intention to reduce the distribution costs. We don’t anticipate really seeing the impact of the benefit is adding larger distribution centers strategically placed whether it’s the Bakken or South Texas until second half of the year. So I think that is things might be a little bit variable up – for the first half of the year and potentially getting better as we exit the year.

    Trey Stolz – Iberia Capital Partners

    Okay. And when you talk about lower distribution costs, I assume you are talking on an average per pound basis?

    Ernesto Bautista – Vice President and Chief Financial Officer

    That’s correct.

    Gary Kolstad – President and Chief Executive Officer


    Ernesto Bautista – Vice President and Chief Financial Officer

    Exactly, yeah.

    Trey Stolz – Iberia Capital Partners

    And as you add capacity how should we think about the factory overhead line?

    Ernesto Bautista – Vice President and Chief Financial Officer

    Really less, that will be 2014 impact and it’s not really – historically it’s not been material, as far as impact on a per pound basis. This is not a labor intensives business.


    Blake Hutchinson – Howard Weil

    Just to be clear around the margin line of questioning for 4Q, as we think about it going forward, good volume quarter, but it doesn’t necessarily suggests that you sequentially got much in terms of absorption relief, newer with the Eagle Ford facility being operational. No benefit in 4Q – to 4Q margins for that and in fact may be a little bit more spend, when it went to completing the facility. Is that the correct way to think about kind of where we are in terms of baseline?

    Gary Kolstad – President and Chief Executive Officer

    I think that's right. Generally, that's right.

    Blake Hutchinson – Howard Weil

    Okay. And then looking at RCS and thinking about your strategy here going forward, you say you want to grow the business, but clearly the way it worked into the model – maybe not clearly, the way it worked in the model maybe the timing is less than optimum, is this just something that you maintain volumes at a steady-state until the market improves or where we see a more pronounced ramp up in that business and its influence on financials over the year?

    Gary Kolstad – President and Chief Executive Officer

    So let me start with that. So we have resin-coating capability in New Iberia, we did not – we have held off on developing the rest of it in Marshfield, because we said there is overcapacity in the industry. So we decided to wait until the market cut better.

    And when we entered the market here, one of the worst times of course with the collapse in natural gas, we are entering it on a spot market basis, spot market pricing. So the fourth quarter was difficult. What we believe will happen over the year is that we will increase our sales volumes to get up closer to our manufacturing capacity, and that has a benefit on utilization as you might imagine spreading the fixed cost et cetera.

    And Q4 for us might have likely been the lowest pricing and I don't say that because of resin-coated sand overall, because people that have contractual relationships as those expire, the pricing is going to be lower from them versus us working in the spot pricing world. I think we’ve likely seen the worst for ourselves. So we will increase the volume during the year and we have some expectations that the pricing will increase during the year.

    Blake Hutchinson – Howard Weil

    Could we end up in a situation that if you go to acquiring a plan that you actually get back to RCS being accretive to margins?

    Gary Kolstad – President and Chief Executive Officer

    Yeah, you can get there. Don’t come on the next quarter.


    Our next question comes from Trey Stolz from Iberia Capital Partners. Please go ahead with your question.

    Trey Stolz – Iberia Capital Partners

    Just in the follow-up on the pricing outlook you gave earlier, I guess with the lot of additional capacity coming on domestically, you’ve got Paramax out there and £500 million Saint-Gobain potentially another £250 million – yourselves adding £250 million. And then maybe on the outside you got certain Chinese producers they could turn their production back up. What is your outlook I guess with additional potential capacity out there, and how that factors into your pricing outlook in 2013 and beyond?

    Gary Kolstad – President and Chief Executive Officer

    I would say in 2013 we expect our volumes to be higher. We don’t like to comment on pricing in the future, we’ve given the indications there. But various people have asked various questions this morning about that and we kind of said, we had very minimal price reduction in our ceramic in Q4 versus Q3. And some of these throughout the world drops and things like that, so we’ll kind of stick by that. Regarding new competition, since nothing new for us, I think new competition will probably displace this low quality, low conductivity Chinese just like we are. But also this isn’t easy step to make. For those of you pay attention right, it some times takes some of these new comers a long, long time to get a product that meet specs. And sometimes that’s months, sometimes it’s more than a year. So for us it happens pretty rapidly.

    Trey Stolz – Iberia Capital Partners

    All right well and I guess, I guess, if could any further comment on future outlook…

    Gary Kolstad – President and Chief Executive Officer

    Volumes to be higher.

    Trey Stolz – Iberia Capital Partners


    All right, thanks.

  91. 91
    zman Says:

    re 89 – would probably bode well for CRR and I don't really pay much attention … just thinking there's a lot of discounting of a future turnaround in margins going on in a non revenue growth year by people who "play" charts and tickers and who don't do a lot of actual math and reading. 

    Re FTK – a little bit of its own animal, have been fairly insulated from the down turn others with NAM focus have suffered,  and rumored to have some International sales to talk about this coming quarter. 

  92. 92
    skibbi9 Says:

    MPO at all attractive?  still off about 55% of IPO
    Been up about 15% on my PBF starter since mentioning last week… its my spec play on east coast refining/exploiting the brent spread.
    Appreciating the TPLM rise today.

  93. 93
    zman Says:

    PVA trying to wake up, nothing to write home about yet. 

  94. 94
    zman Says:

    re 92 – I'm waiting to do anything (or not)  there again until I hear the next CC.  I'm not in now. 

  95. 95
    zman Says:

    CRR – only weak point in my day, so to speak. High risk trade indeed.   When the momentum music stops it could get interesting. 

  96. 96
    501xx Says:

    re: 65  SDRL dip.  According to a late night report yesterday (Calif. time) they had some "downtime" and their stock on the Oslo exchange dipped a chunk.  Probably a factor in todays weakness. I own it for the long haul.

  97. 97
    1520sbroad Says:

    #84 – I thought this was new info on SONRIS – dated 1/31/13 —
    COMPLETED 11/29/12, OIL, L SMK RA, 186 BOPD, 1995 MCFD, GOR 10725/1, CK 22/64, 59 GVTY, BWD-0, BS&W 1/10 %, FP 1510, CP 113, PERFS 10248'-10245', 14605'-14602'.

  98. 98
    zman Says:

    re 97 – true enough and that is well #6. I was looking down under the effective section where there is no update. Hard to say what they mean with that as the date back aways, early production and we have numbers as recent as earlier this week, so maybe that's the official IP date but it was still cleaning up at that point. .

  99. 99
    zman Says:

    Doing some reading, here if anyone needs anything. 

  100. 100
    1520sbroad Says:

    #98 – that is what I thought in terms of the well still cleaning up in late November.  Maybe they had to post before a certain date?  Similar type report for well #245093.  
    Hoping we get some clear details on this idea from SWN in February…

  101. 101
    Stewart Says:

    re 91 thank you

  102. 102
    tomdavis12 Says:

    96 501xx  SDRL. Thanks for pointing out that operational update. Company last night did go from 41 to 100 days downtime as well as additional costs to move their corporate HQ to London. Better reason for weakness than what I said earlier.

  103. 103
    zman Says:

    re 100 – me too. 

    Was on a call, getting on another, back in a bit. 

  104. 104
    zman Says:

    SJT – well that's an interesting move for a 5% type yield name. 

  105. 105
    Zorgnak Says:

    S&P 500 21 consecutive days > 10 Day MA, closing in top 10% of it's 10 day range today = good short setup for a swing trade.
    Night all. Have a good weekend.

  106. 106
    zman Says:

    Thanks much Zorg, have a good one. 

  107. 107
    mimster90 Says:

    SJT too the moon since I sold the rest of mine this morning;-)

  108. 108
    RB Says:

    re: SJT…I done sold 'em all I had…nice to have a buyer when you want outta these RT's….it can be really illiquid…but I got an avg. well below current quote…..

  109. 109
    zman Says:

    re 107/108 – weird, can't wait market. Unless they think natural gas is going a lot higher soon, not sure what the rush to get in is. 

  110. 110
    zman Says:

    EOG working on a 4 year high. 

    The Wrap will be out tomorrow morning. 

    Next week's calendar will be on the Calendar tab on Sunday.

  111. 111
    Jason Says:

    Z – Any thoughts of selling calls into this froth?

  112. 112
    zman Says:

    re 111 – yeah, I'd like to see it settle down. I don't generally announce call writing but on long held positions I sometimes stick some out there. I'd like to see it slow a bit before I start accidentally punting things. OAS going from cheap to a better valuation in a heartbeat, not expensive, just less cheap over the last two months. These kind of moves force me to actually consider taking trading positions off, much prefer a more gradual, sensible incline, and not one prompted by late to the party crashers with desperate looking wallets.   On the flipside, we are seeing the leadership names in plays and by mix type lead which, if the rally persists, will lift the boats of some of the non household name type holdings in the portfolio. 

  113. 113
    zman Says:

    MMR – interesting, through $16 to best level since deal was announced.  This is the action we expected following the deal announcement, drifting up into fully valuing the UD RT (at least initially). 

  114. 114
    Jason Says:

    re 112 – I see..more orderly rather than too far, too fast kind of day.  I was unable to join you on the original CRR put trade, but got a chance near its high today.  Thanks for that idea as well as everything else.  Day 1, highly satisfied subscriber here.

  115. 115
    nrgyman Says:

    RE 109:  Unless there is news that only insiders know about (doubtful) this smells like a short cover.  Could be shorts betting on a natgas price drop backing out, or using this lower yielding trust as a hedge against longs in higher yielding trusts that is reversing.  Just some thoughts.  The move doesn't appear natural.  

  116. 116
    zman Says:

    As a reminder, our site will temporarily be unavailable following the close for maintenance. Hopefully a very short period. 

  117. 117
    zman Says:

    re 115 – agreed. 

    Beerthirty, have a great weekend. 

  118. 118
    zman Says:


  119. 119
    Geno Says:

    RE: 78 not really a frac guy so don't know enough to comment on the quality.  On another note looks like my son is going to go to University of Arkansas. 

  120. 120
    zman Says:

    re 119 – thanks, just rounding up feedback. So far I have some very senior type feedback from a mid / large cap E&P going to all white sand from RCS

  121. 121
    zman Says:

    And Re UA – Nice. Hopefully a quarterback, we need a new one. 

  122. 122
    zman Says:

    If you are visiting today make sure to follow us on Twitter, keyword: ZmansEnrgyBrain

    and on Seeking Alpha here:


  123. 123
    zman Says:

    Software upgrade complete – thanks much Scott

  124. 124
    501xx Says:

    EXXI news just came across Bloomberg. I didn't catch all of the scroll.

  125. 125
    Zman’s Energy Brain ~ oil, gas, stocks, etc… » Blog Archive » Wrap – Week Ended 2/1/13 Says:

    […] 501xx on T.G.I.F. and Welcome To February […]

  126. 126
    PackMan Says:

    Boy this NOG is on frustrating hold …
    Bought stock today at 14.54, sold March 14 puts; and bought long dated calls …

  127. 127
    stretch film Says:

    stretch film

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