Friday Morning



Market Sentiment Watch: Should be a quiet day with no economic data releases and option expiry. Energy group sentiment remains bifurcated: positive for low debt Permian centric names, negative for the more leveraged names and gassy names. We continue to sit on our hands in terms of capital adds to the ZLT.   In today's post please find the natural gas inventory review (another smaller than expected injection as the season winds to a close and gas storage hits the fear inducing headline number of 4 Tcf on the button plus a breakout of the EAI's new 5 regions of storage - mostly in good shape with only the former Producing Region significantly over stored for gas), an updated cheat sheet and some comments for MTDR, comments on an HK debt exchange, and some other odds and ends.


Ecodata Watch: 

  • No economic release today. 

In Today’s Post:

  1. Holdings Watch
  2. Commodity Watch 
  3. Natural Gas Review
  4. Stuff We Care About Today - MTDR, HK 
  5. Odds & Ends

Please click the link right below this to

Holdings Watch:

ZMT (Zman Medium Term portfolio):

Yesterday’s Trades:

  • We added SWN December $11 calls for $0.52 with the stock at $10.20 after another smaller than expected but record for this time of year storage injection. We are likely at peak or 1 small report away from peak and anticipate better pricing in the near term to move unhedged names. Please see Wednesday's post for an updated cheat sheet for SWN, RRC, and COG.
  • WILDZ – RRC – Reload of (20) $32.50 Nov Calls at $0.40. High risk trade as it expires tomorrow. 

ZLT (Zman Long Term portfolio)

Yesterday’s Trades: None

The Blotter is updated.


Commodity Watch:

Crude oil eased $0.21 to close at $40.54 yesterday in light trading in front of the roll to the January contract. January closed off $0.23 at $41.72. The January contract now looks like this and the Strip is trading at $45.02 (down $0.06 yesterday) and looks like this. This morning crude is trading close to $40 on the December contract. 

Natural gas closed down $0.07 (3%) at $2.28 yesterday despite EIA reporting another smaller than expected injection.  Natural gas appears range bound and will likely stay that way until we see more substantial seasonal weather.    This morning gas is trading down 5 cents.  

Bentek Data Watch:

  • Dry Gas Production Watch: Down 0.2% from the prior week to 70.9 Bcfpgd (production was 72.5 Bcfgpd in September and just over 73 Bcfgpd in April.
  • Imports Watch: Bentek noted imports declined again as well with Canadian volumes down 3% week to week. They put overall supply at up 0.8% YoY. 
  • Exports Watch: Volumes export to Mexico increased 2% week to week to 2.7 Bcfpgd, up 39% vs year ago levels

October Watch:  October goes down as hottest month on record. Interesting that in October 2014 we injected 472 Bcf while in October 2015 the injection was 394 Bcf. People are missing the value of the electrical sector's contribution to demand. 


Natural Gas Storage Review

gas table 111315


gas graphs 111315

New Storage Area Classifications - EIA had previously announced a move from 3 regions to 5 to provide more transparency. We have taken there data and parsed it to arrive at five year ranges and averages for each area.  The former producing region is out of it's normal band now by the largest degree due to gas volumes associated with oily plays. This should improve as the region's oil production moderates in 2016. 

gas graphs 111315 b

Stuff We Care About Today  

MTDR cheat sheet update - just a few brief comments here to update this other Eagle Ford/Permian name

  • In case you missed it, we updated CRZO here yesterday 
  • MTDR is much further along in the transition from Eagle Ford only to Eagle Ford base with Permian growth
  • We continue to like the for its combination of oily Permian success combined with a very tame-compared-to-peer-group balance sheet (1.0x TTM EBITDA).
  • But we don't see MTDR as currently on the cheap side (2016 TEV/EBITDA of ~ 12x) due to lower realized oil price expectations in 2016 on a more modest hedge book and on the (in fact, we see CRZO as garnering more elevated multiples over the next 6 months (all other factors like oil prices being equal) as their Permian program begins to slowly unfold).
  • Even so, we have no plans to reduce exposure to MTDR  and will likely add during periods of group related weakness as we see ownership of strong balance sheets as increasingly desirable in 2016 and expect the name to perform in line with peers including RSPP and PE.


MTDR 111915


Other Stuff:

HK Announces Another Debt Exchange

  • HK  announced another senior for new issue Second Lien exchange of $150 mm. Offered at $0.37 to $0.39 on the dollar for holders of  the 2020, 2021, and 2022 notes.  The are the same 3 sets of notes they targeted with the last exchange. 
  • Basically takes a net $240 mm off  the balance sheet.
  • Assuming the exchange is accepted, this would take them to net debt of ~ $2.85 B. HK's debt at the end of 1Q15 was $3.9 B.
  • Annual interest expense is still a whopping $294 mm and this puts them, using 3Q15 EBITDA to interest at a fairly low 2.8x,
  • This puts them at 4.3x net debt to 3Q15 annualized EBITDA.

Nutshell: They continue to chip away at debt as promised.  Given that:

  1. they remain highly hedged for 2016  (80% of expected oil volumes hedges via a mix of swaps and collars at an average $80.59 with upside from the collars kicking at $60)
  2. they will likely reduce capex by 25% in 2016 to roughly $250 mm and that this should hold volumes roughly flat,
  3. and that production profile combined with the hedges should produce EBITDA that roughly covers capex and interest so it remains a waiting game that should not be forced out of business as the stock suggests.

Continued Nutshell: It's not for everyone. It's still a high risk situation as noted by their debt load. But they do produce about 40,000 BOEpd and their well results are improving in both the Bakken and the Eagle Ford.  Their operating and capital costs are falling as well.  The stock is in danger of being de-listed and clearly they are waiting as long as possible to reverse split the shares (knowing that all too often reverse splits are then forced back lower).  They have three more months to get the stock price back over a buck or conduct a reverse to remain listed on the NYSE.  No doubt they would like to wait until oil prices are more stable for this but may not be able to. 

Odds & Ends

Analyst Watch:

TBA in comments. 

71 Responses to “Friday Morning”

  1. 1
    zman Says:

    January contract takes over front month duty Monday, of about $0.50 this morning


  2. 2
    Zorgnak Says:

    S&P 500 Futures Short Term Levels Of Interest

    Notes –    Two days of consolidation at 2078.50, now the major CHVN from 2090.75-2084.25, resistance. 2074 CLVN near support. 2060 CLVN far support.  Demamd volume positive with negative diversion. Ease of Movment weak. Sentiment neutral. Breadth neutral.  NR7 day Thurs.

    Thoughts –  Market trading in narrow balance at major long term acceptance at 2078.50-2084.25. Watch 2074.25 and 2090.75 as break levels. Market testing 2090.75 in the overnight session.

    2000      CHVN/Supply

    2090      CLVN/Near Resistance

    2078.50-2084.25   Major CHVN/NR7Thursday

    2074.25   CLVN/Near Support

    2060.75    CLVN/Far Support

    2049.75     Major CLVN/Key Support

    SP500 Futures  (ES)


  3. 3
    zman Says:

    Typical pile on article citing Goldman and $20 oil, but some interesting and unsustainable aspects after the US  rig count chart (global decline approaching 4%, $650 B investment needed each year to hold flat, Iraq forced to IMF for loan, and even GS noting that the deeper the fall, the sharper the rise. But if you just read the headline (see link) you miss that stuff. 

    On the topic of floating storage, oil at sea was broadly unchanged in the first 9 months of 2015 ~ OPEC.   Their tally of Oil-on-Water was 954 mm barrls in 1Q14, 864 mm barrels in 1Q15 and 924 mm in 3Q15 (vs 952 a year earlier). 


  4. 4
    Zorgnak Says:

    Crude Oil Futures- Well defined levels of interest.  Trading in balance below 42.50, near resistance.


  5. 5
    zman Says:

    Thanks Zorg. 

  6. 6
    Zorgnak Says:

    XOP- Continues to trade in balance at major acceptance waiting catalyst. Relative strength vs crude still holding. Levels of interest well defined.


  7. 7
    zman Says:

    Zorg – interesting to compare daily chart XNG vs natural gas.  XNG pre fell, now trending in tightening wedge as gas holds near lows. I'm not selling my natural gas names. 

  8. 8
    Zorgnak Says:

    #7 Here's the NG volume profile with XNG overlay.  XNG is a pretty wild thing! Never followed it




  9. 9
    zman Says:

    Natural Gas Watch

    Injections Season – Injections in BCF last five years

    2011 2012 2013 2014 2015
    2,275 1,548 2,160 2,787 2,539

    2014 saw a large surge in production, demand took time to catch up. 

    Withdrawals in BCF

    2010-11 2011-12 2012-13 2013-14 2014-15
    2,256 1,475 2,252 3,010 2,150

    Despite all the snow in the New England last year, that's not necessarily where you want all your cold weather. You want it in Chicago, the MidAtlantic (PA/NY), also in TX and parts of the South Atlantic. You can see the withdrawals last winter were not record despite all that snow.  The preceding winter was colder in the East North and West North Central regions and that drove a lot of demand from OH and IL.  Those are set for warmer than normal due to El Nino. TX, which typically ranks in the top 10 gas consuming states is forecast to be colder than normal. 



  10. 10
    zman Says:

    re 8 – thanks – Fairly gassy (for a natural gas index), some midstream as well but gassier than not. 


  11. 11
    tomdavis12 Says:

    CS put out a report re: Oil and the Chinese consumer. They are projecting 4% growth yoy. They are 2 – 3x greater than IEA forecast (consensus). Booming auto sales #1 reason. 

  12. 12
    zman Says:

    Analyst Watch

    Johnson Rice out saying buy crude storage builders – CBI and MTRX

    re 11 – thanks. 

  13. 13
    zman Says:

    Bifurcated market:  Low debt + Permian … vs … everyone else. 

  14. 14
    Zorgnak Says:

    FCG (natural gas stock ETF)…coming into najor support on the profile at 5.65. The white overlay is XNG.


  15. 15
    zman Says:

    Other than my now smaller options account, and some gassy names, we continue to waffle sideways. 

  16. 16
    zman Says:

    CPE – at very tip top of range

  17. 17
    tomdavis12 Says:

    CHK down 10% yesterday and their bonds are signaling a problem. Z I know you don't own but I do not like to see these things. My guess is that a number of NG names need a firmer price more quickly than even some of the crude players. If the bond market closes to companies like this and all they can do is liquidate non-core assets, I would expect other higher quality names in space to be hurt as well (asset mark down). 

  18. 18
    zman Says:

    re 17 –  Understood. Re CHK – How hedged are they are what's the leverage picture look like now?

  19. 19
    ctb14 Says:


  20. 20
    nrgyman Says:

    Natgas at $2.18 now.

  21. 21
    tomdavis12 Says:

    18  I have not checked closely because I am not long the name either. Aubrey was able to get me out of the stock but I thought they had good assets even if I am not familiar with new mgmt. My concern is we can afford a few one off situations with maybe poor mgmt decisions. Just don't want the quality names to be dragged down because more and more hedges come off into still weak pricing. Guess I am also hopeful to see some price firmness to accompany lower rigs and all other fundamentals. I would have expected the trend change to be a little more obvious by now.

  22. 22
    zman Says:

    re 19 – yeah, agree with him… and sigh, this Goldman one sided tale of doom is tiresome. 

    From near the end of the Kemp artice, the key stuff:

    But the problem with quoting the 3 billion figure is that that without proper context it gives the impression the world is drowning in surplus oil, which is grossly misleading.

    The stock of crude and refined products in commercial storage in September 2015 was 241 million barrels higher than in 2014, 274 million higher than 2013 and 239 million higher than 2012.

    OECD crude and products stocks are 340 million barrels, 13 percent, higher than in July 2008, when many commentators were worried about oil shortages and crude prices were peaking at more than $140 per barrel.

    Current OECD stocks cover 98 days of consumption, up from 93 days at the same point in 2014, and 86 days in June 2008.

    Oil prices are set at the margin, so the 240 million barrel increase in commercial stocks over the last 12 months has significantly depressed prices.

    But it is much more useful to focus on the rate of change rather than the absolute level of stocks.

    The 3 billion figure should be banished from serious analysis, or at least put into a proper context.

  23. 23
    zman Says:

    re 21 – not sure I follow your point but let me attempt a response.  CHK is a gassy name (72% NG, 11% NGLs), last I checked with a lot of debt ($10.7 B, on EBITDA last quarter of $560 mm or 4.0x annualized after backing out cash) and operations that are quite scattered in my view. They do have a lot of liquidity and an uptapped revolver.  They appear to be unhedged for 2016 (Q is oddly arranged but no mention there, nothing in the last presentation re hedges). They've oscillated back and forth between focusing on gas and liquids over the years (oil is 17%). I'm not sure if you are asking me a question or not, just trying to decipher if you see CHK as a canary of some sort as I completely do not.  Not sure what you mean by trend change … in natural gas ?  

  24. 24
    RMD Says:

    18 I think CHK is still way outspending capx vs Eda.  And who knows how many underwater VPPs and other Aubrey-treats still hang around?

  25. 25
    zman Says:

    re 24 Re CHK (unowned)


      Capex $524 mm plus capitalized interest taking them to $623 mm

      Cash Interest: $83 mm


      EBITDA of $560 mm

  26. 26
    zman Says:

    Crude flat on day


    NG off 3%


  27. 27
    macguyver Says:

    re 19 and 22…I love facts

  28. 28
    tomdavis12 Says:

    23  Truth be told my comments reflect a lack of patience from me at times. I am not expecting CHK to be canary. I know the trend change in NG will come from cold weather. Just get a little shaky when one week the whole energy complex looks terrible and the next week looks great. Not a big fan of a bifurcated market either.  

  29. 29
    zman Says:

    re 27 – I know, right?

    re 28 – understood. And no expecting winter to be the trend change. The trend change comes from slowing and then rolling production, higher structural demand from electricity, lower net imports, in my view. Street expectation now is that winter will be warm and storage will trough at a high level at the end of April. We've seen that before too, spring 2012 at 2,378 Bcf, normally closer to 1,600 Bcf.  Even then prices were $2.50 average 1Q12 and $2.43 average 2Q12 before rising to $3.54 by 4Q12 avg.  At current prices, NG is going to fly off the shelves for electricity generation.    


  30. 30
    zman Says:

    I'm doing two things at once and am lazy, how have the SWN bonds been trading? Anyone?

  31. 31
    zman Says:

    re 30 – Thanks for the SWN Bond Summary page. 

  32. 32
    zman Says:

    High yield enegry yield premiums over HY have been rising all week. 

  33. 33
    zman Says:

    NFX to low end of recent elevated base, day after GS downgrade. 

  34. 34
    zman Says:

    More Saudi chatter yesterday regarding rising demand, peddling fear of a lack of investment, and markets that are going to balance down the road.  Al Naimi is going to need to do more to support oil prices as the talk is not working as well as it did last spring.  

  35. 35
    tomdavis12 Says:

    NBL – Is now thinking of developing their NG discovery @ Leviathan. Is it easy to keep track of NG prices overseas? I notice that they have just pulled the plug on IPOing their midstream partners. Z – I know you are not an MLP kinda guy but do you have an opinion as to what has to happen for that sector to bottom out?  

  36. 36
    zman Says:

    re 35 – You can track the NBP, that's the UK and surrounding area natural gas price (widely viewed as the bench mark for international gas prices), so there would be a premium or discount to that, not sure which. That's been falling. 

    Re MLP's for the upstream I could venture a few thoughts, but for the midstream sorry, not my pond. 

  37. 37
    zman Says:

    Here's the NPB in Pence per therm 



  38. 38
    Baylor Says:

    SWN getting crushed again.  Any reason this may not be a good trading opportunity over the next couple of months at this price?

  39. 39
    nrgyman Says:

    RE 35:  Midstream sector hit its low at the end of Sept in what looks like a capitulatory bottom.  This is now the third attempt to test those lows with the second one lower than the first, but this third attempt is still higher than the second one (so far).  This is despite natgas at $2.19 and crude at $40–at/near lows currently–a notable positive divergence.  All of this suggests that the midstream sector may have already hit the cycle lows but is still in the 'bottoming' process.  When will the trend turn?  Likely around the time natgas and crude turn up–could be any time soon.  A Fed rate hike and tax loss selling could play a role as well, but I don't see either driving new lows–though they could slow an advance into year end.  I think a significant amount of HF and PM tax selling occurred in Sept–giving them an opportunity to be buyers from now until year end to take advantage of late tax loss sellers and shoulder/maintenance season price drops.  A rate hike is already priced in.  

  40. 40
    zman Says:

    re 38 – no new reasons.  Just the same old reasons.  Record storage, El Nino, elevated but not too high debt, no hedges, natural gas focus.  I think from a stock perspective for the long term it's very much at gift levels.  Obviously I can't trade the thing to save my neck so I barely try, via the occasional ill fated (of late) call position.  No plans to add here as we own a good chunk but still, gift levels. 

  41. 41
    zman Says:

    re 39 – agreed re rate hike, it may cause a blip down for the yield cos in general but not a big deal … guessing Fed is one and done for some time. Thanks for fielding the midstream. I still see quite a few sales bringing in quite a bit of cash to the upstream parents of late.  The BCEI one being the latest interesting one but also WPX and more will come with deals like the Bonanza one where both parties stake out the economics, which is good for both in terms of predictable cash flow. 

  42. 42
    james T Says:

    The large players liked SWN until recently:  Daily timeframe looks bad,  Hoping weather finally turns colder.   lack of hedges ?  


  43. 43
    Baylor Says:

    re 42 swn is unhedged


  44. 44
    zman Says:

    re 42 – yes, they have no hedges for 2016, neither does COG. 

  45. 45
    zman Says:

    Rig count anticipatory move


  46. 46
    james T Says:

    Yesterdays news confirmed

     Russia destroyed 15 oil production and storage facilities and 525 oil trucks that belonged to ISIS, according to MoD.


  47. 47
    zman Says:

    re 46 – wow.    Saw that Russia was upset because France hit Syrian oil fields that Russian didn't want them to yesterday as well. Wonder when China starts making bombing runs over there. 


  48. 48
    zman Says:

    Rig Count Watch

    Oil rigs down 10 to 564 vs 1,574 a year ago

    NG flat at 193 vs 355 a year ago 

    US Land rigs down 6 to 725 vs 1,864 a year ago

    Horizontal rigs down 6 to 581 vs 1,372 a year ago

    Permian los 4 to 225 vs 565 a year ago

  49. 49
    zman Says:

    Oil reaction (popped up to mid $42s on the January contract)


  50. 50
    zman Says:

    NG down 11 cents after the rig count, LOD

    Marcellus flat at 43 rigs, down from 83 a year ago

    Utica down 1 to 20, vs 49 a year ago (at lows)

  51. 51
    zman Says:

    CPE breaking on out. 

  52. 52
    Zorgnak Says:

    Crude Oil – Pushing near support at 42.50…break there works to 45.71….


  53. 53
    zman Says:

    re 52 – seems unlikely but so did our little move up and into the prior base range. Even seemed to have legs there for several weeks before failing on API from the week before this one. 

    Stocks looking pretty pinned now. 

  54. 54
    Zorgnak Says:

    #53….Yeah, agreed..that's the the theory, but with crude and nat gas in particular reality is another matter.  I don't trade either commodity.

  55. 55
    zman Says:

    PDCE falling all the way back to the 200 day and out the bottom of the base range at the moment, $5 off in 2 days. 

  56. 56
    james T Says:

    re54- I like UGA etf alot  (RBOB)  low of 27.66 the other day back to almost $30.00 today.  

  57. 57
    zman Says:

    re 56 – that quick bounce is AAA saying highest level of demand since 2007 expected for Turkey Day travel.  Just an FYI, that can be pretty fleeting.  Expecting a big bounce in demand with next Thursday's number on pre stocking for travel demand and then back off from the highs in subsequent weeks.  

  58. 58
    james T Says:

    re57 I hear there are 39 tankers loaded with oil compared to approx 30 in may timeframe.  

  59. 59
    james T Says:

    re58 in Houston ship channel

  60. 60
    zman Says:

    re 58/59 – it varies, recent reports have it elevated. Imports were low last few weeks and there were reports of fog which can back things up a bit but there is some storage at sea that likely won't come ashore until the contango flattens a bit. 

  61. 61
    zman Says:

    January crude closed about $41.85, started the week $43.58


  62. 62
    zman Says:

    Natural gas ended close to $2.14, off 10% on the week, despite the 4th better than expected injection. Absolute storage levels and El Nino trumping any thoughts of improving fundamentals. We started at a higher trough than the prior year and injected less gas over the injection season than the prior year. 

  63. 63
    zman Says:

    Have seen parts of this elsewhere (the bits about what Saudi could do to raise money) but worth a read:


  64. 64
    zman Says:

    Beerthirty – sideways trade this week, in line with flattish performance for the XOP, other than the options stuff, which again is always small.  The Wrap will be out on Sunday afternoon. 

  65. 65
    james T Says:

    Fed Expedited closed meeting next monday announced today ?  



  66. 66
    mattlee Says:

    TPLM now in penny territory.

  67. 67
    zman Says:

    re 65 – apparently so. Everyone assumes they are hiking next month anyway. 

    re 66 – yeah, no drilling now, no new guidance. Have noted this before but will say again, the more leveraged names are rallying on when crude does, but falling over more when it retreats, stair step new lows. No plans to sell there, no rush to add. They've said they won't guide until early next year. They announced 3Q results on December 8th, would expect the same defiant tone as production continues to hold up to beat strong guidance but with high yield energy debt being punished, it pushes these kinds of names lower. 

  68. 68
    RB Says:

    Interesting read in Barron's this weekend.  They interview The Institutional Strategist editor Larry Jeddeloh.  His perspectives that would be of interest to us:

    1) Appears to be Saudi/Russian co-operation forthcoming.

    2) Saudis are in dialogue with Russia over a defense agreement.

    3) Saudis fear a Iranian backed Houthi attack of their oil fields.

    4) Both Russia and Saudis need higher oil and perhaps a protection deal brokered by the Russians that would make the Saudis less fearful of the Houthis and Iran would cause them to agree to pull back on the 10+ million per barrel per day production threshold they have been putting on the markets.

    5) thinks US influence of Saudis is virtually nil.  Contrary to the Russians/Saudis…we want stable to lower oil…they don't.  Change of protector would change oil objectives.

    6) thinks we could have lower oil prices into year end, but thinks Russian/Saudi cooperation is likely to push oil much higher in 2016. $70-80.

    7) the obvious beneficiaries there would be the more levered names….

    interesting read……

  69. 69
    zman Says:

    Thanks RB, agree that most of those thoughts make sense. Just got back in town, The Wrap will be out in about an hour. 

  70. 70
    yuri manga Says:

    yuri manga

  71. 71
    windows 7 loader activator version 2.1.9 Says:

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