Yesterday was a pretty good day. Ya know, the more things go up, the more we get accustomed to big numbers. In the mid 1990s, a 10 point move up in the Nasdaq Composite was a monster day. Now 50 point swings get barely a raised eyebrow. And just two years ago, a $1 move in crude was a news headline. Yesterday crude scored its largest ever one-day dollar gain … after the chorus of traders calling for a top in crude prices reached a deafening crescendo on CNBC.
This is all noise. But it did lead to large gains in the E&P and Oil Service names (sorry, refiners, but it wasn't your day). As you know I don't give advice, but I'll tell you what I remind myself when my portfolio hits record high after record high and the Robb Report starts looking interesting. I tell myself, "self, don't get used to these gains, and moreover, don't become complacent about them. You speculate in energy related equity options, and those are wasting assets; take profits, and buy them back lower … later."
Holdings Watch
- (NFX) - Bought the NFX $65 September calls (NFXIM) for $5.40. I'll hold them for Mancos and Bakken well news. I also hold the July $70 calls here which may or may not go out the door before I leave town later this month.
- (NBR) - Bought the NBR $42.50 June Calls (NBRFV) for $1.45 for a quick trade as the stock was breaking out. Will not hold onto these for long but am likely to continue to play in and out of the name around a core position in July and soon to be longer dated calls.
- (CLR) - Sold the CLR July $65 Calls (CLRGM for $7.10, up 87%
- (HAL) - Sold the HAL June $47.50 Calls (HALFW) for $2.30, up 28%. I continue to hold the June $50 (not for long) and July $50 calls here.
Commodity Watch:
- Crude Oil closed up $5.49 at $127.79 yesterday. A weaker dollar and renewed rumors of U.S. plans to attack Iran fueled prices at first and then technicals and short covering rode the rally higher. This morning oil is trading up $2 to $3 and above the $130 mark and I would bet the broader market will take notice (fall) if these prices prove sustainable through the day.
- Saudi Watch: Saudiaramco says it plans to expand its refined product capacity by 80% in the next five years via a string of JV's with IOC's. I don't know what their current capacity is other than "large" but they do plan to focus on processing heavier and more sour grades of crude, something the globe desperately needs. Expect even more demand for steel and expect delays in getting this done.
- Dollar Watch: ECB President Jean-Claude Trichet said yesterday the bank could raise rates thereby further punishing the dollar. This morning the jobs report is further depressing the dollar.
- Morgan Stanley Eyes $150 Oil…Soon. The I-bank said oil may hit $150 a barrel "within a month" as demand from Asia increases and inventories there decline.
- Nigeria Watch: Another labor strike is reportedly near at hand.
- Natural Gas closed up $0.19 at $12.57 after the EIA reported an injection into gas storage of 105 Bcf. I was at 100 Bcf and so was the Street and the delta is rounding error. Stocks remain low to last year and in line with the five year average. Gas price momentum remains to the upside despite rising production … same story different week. This morning gas is trading up another dime.
- Link to last night's gas storage report review.
- Weather Watch: All quiet on the tropical front, forecast for the States remains blistering.
Stocks We Care About Today
How-To-Be-Coy Watch: Chesapeake Energy (CHK) Updates Its Haynesville Activities (Sort Of)
- 500,000 acre leasehold goal achieved,
- 2 more horizontal wells completed at rates comparable to those of the first 4 wells bringing them to 6 successful wells to date (not that they have ever said what the first 4 did),
- 2 more Hz wells expected to be completed by end June,
- They have 5 rigs running now, will be at 12 by year end and 30 in 2009
- They are not done leasing, saying they continue to add (no size offered) due to the drilling success (again no size offered),
- Well results are simply deemed "impressive". Rumors for IPs on these wells range from 10 to 30 MMcfepd.
- Penn Virginia (PVA) holds the mark for highest rate in the play announced to date with their Fogle well which is producing at a pipeline capacity constrained 8 MM/d and which the company believes could do 10 - 15 MM/d. We should know by the end of June when they get a bigger pipe installed and open her up.
- As best I can tell, all of CHK's wells to date are in the Johnson Branch area of Caddo Parish, about 20 miles east of the PVA wells where the Haynesville is thought to be about 200 feet thick vs the 300 foot thickness for PVA.
- The implication here continues to be that results are so good they can't risk telling us about them and increasing the competition for acres in the play, a play which may extend across 3,000 square miles (1.9 million acres).
CHK Shareholders Meeting: Today at 11 EST available via webcast from their site. We continue to hold the stocks
Acquisition Watch: Concho Buys Henry. Concho (CXO) paying $565 million in cash for Permian Basin private E&P Henry Petroleum. 1P reserves of 163 Bcfe yield an acquisition price of $3.47 / Mcfe but they have identified an additional 283 Bcfe of probable and possible reserves. Hair cut those by 50% and the F&D cost drops to a more palatable $1.86/Mcfe. These are Sprayberry/Wolfberry assets in the Permian of W. Texas, Concho's backyard, and the stock should rally strongly on the purchase.
- Based on CXO's TEV prior to the acquisition the market had been valuing Concho's reserves (546 Bcfe, 99% Permian) at $5 / Mcfe so they got these assets cheap.
- They've id'd 1,650 drilling locations, greatly bolstering the 2,500 location CXO had in inventory.
- They are hedging an undisclosed amount of the production from the acquisition, wise.
- They are a low cost producer with LOE at about $1 per Mcfe this year. Yields a high cash margin business.
- They trade at just under 7x 2009 CFPS estimates which is not high given the 26% production growth (prior to the acquisition) guidance for 2008 and an 18 year reserve life.
- They have plans for the Bakken (42,000 acres)
Apache Corp. (APA) Says 2 Months To Restore Partial Gas Flow In Australia After Accident. I continue to watch this unfold and while the market helped me to miss the dip buying opportunity on the initial news there are cost ramifications for producers of ore in the region including Alcoa (AA) and BHP Billiton (BHP).
Odds & Ends
Analyst Watch: Ensco (ESV) price target increased from $74 to $86 by FBR (seeing an upgraded trend in the name), Peabody Energy (BTU) upgraded from neutral to buy at Merrill.
