Monday, September 17, 2012

What Some Of Us Will Be Talking About On Tuesday; LNG Export Permitorium; Wells Coming Off the Confidential List; OXY USA Reports Another "OXY" Well

Maybe it's just the music I'm listening to, but I'm in a pretty good mood about the stock market.

Disclaimer: this is not an investment site; do not make any investment decisions based on what you read at this blog.

There are hints and early reports that "we" may be in for some earning surprises on the "up" side.

Exhibit #1 (as District Attorney Hamilton Burger, Perry Mason, would say): FedEx In-Play:
FedEx beats by $0.05, beats on revs; guides Q2 EPS below consensus; lowers FY13 EPS below consensus: Reports Q1 (Aug) earnings of $1.45 per share, five centers better than the Capital IQ Consensus Estimate of $1.40; co cut Q1 guidance to $1.37-1.43 from $1.45-1.60 on Sept 4; revenues rose 2.6% year/year to $10.79 bln vs the $10.68 bln consensus. FedEx Express will increase shipping rates by a net average of 3.9% for U.S. domestic, U.S. export and U.S. import services effective January 7, 2013. The full average rate increase of 5.9% will be partially offset by adjusting the fuel price threshold at which the fuel surcharge begins, reducing the fuel surcharge by two percentage points. FedEx Express rev +1% YoY to $6.6 bln as volume fell 5%; constrained by global economic conditions. FedEx Ground +8% as volume grew 5%. FedEx Freight rev +5%.
But the company is very, very downbeat about the full year. Very downbeat. So, we'll see.

So, if the outlook is so downbeat, why am I in a good mood about the stock market? A buying opportunity. And where do I find best buying opportunities? What do I like? High-dividend payers. Energy. Railroads. I think one of the bigger surprises will be the earnings coming out of Bakken-centric companies. Lots of talk about cutting costs. We'll see. The recent reports of Bakken premium to WTI is very, very interesting.
Amazon vs Wal-Mart

Update to Amazon story below, September 20, 2012: I thought I was more explicit in the post below, but I don't see it now; maybe it was in a comment. Whatever. When I wrote the note below, one of the main points was this: Amazon is now targeting Wal-Mart head-on. In today's WSJ, there's a long article, p B4, that says exactly that: Amazon will no longer sell Amazon's Kindle; the story explains why. Growing up, my dad and I saw the "demise" of Sears. Dad often said, and I agreed, no one was going to be able to take down Wal-Mart. I'm not so sure any more.

I like this: now that Amazon agrees to pay state sales tax to California, the company will feel free to place distribution centers in California. They already have one 85 miles outside of San Francisco. Order your Amazon product before you go to work in the morning, and find it on your doorstep when you get home. (By the way, I don't know if you know this: UPS and FedEx deliver items addressed to businesses during normal business hours; to home addresses after 4:00 p.m. if they have the volume to make the choice. Also the "left turn" rule is in effect whenever possible.)

From its website: note the CSC I put in red bold:

Amazon in North America

United States
Corporate Headquarters:
Seattle, WA

Shared Services Center:
Las Vegas, NV

Amazon Web Services:
Herndon, VA
Fulfillment Centers:
South Carolina
Customer Service Centers:
North Dakota
West Virginia

Minnesota, Iowa, the Dakotas, Montana, Nebraska, served by Kansas, I suppose. It would be interesting to see if Amazon puts in a "northern tier" fulfillment center.

I agree with analysts at the linked site: short term, state taxes will affect Amazon's bottom line, but in a very short time, this will end up causing even more competition for local brick and mortar, as Amazon puts in more distribution centers. Think Wal-Mart. The tax break was a nice "gimme" for customers, but it wasn't the primary reason consumers shopped at Amazon. Cost of gasoline, parking, unrewarding shopping experiences, etc., are the reasons folks shop at Amazon. Same day delivery will more than offset the sales tax nuisance. Interestingly, over time, has also morphed into a social networking site. "Amazon" is truly an apt name for this monster retailer.


It never quits: any opportunity to destroy the oil and gas industry and jobs.  A reader sent me this link. I would have missed it. The Energy Department again delays release of the liquid natural gas export report.

Data points:
  • looks like this report will be released after the election; sort of about the same time a decision is made on the Keystone XL; I'm not holding my breath; it's just a report, after all; they can kick this can downt the road for years
  • the US won't allow any export of LNG until the report is released
  • originally promised the report to be released by late summer
  • picking winners and losers: Cheniere Energy's Sabine Pass terminal has been approved; Dominion Resources and Sempra Energy are on hold (as in permitorium)
Go to the link: it's all about the re-election of incumbents. The only jobs incumbents are concerned about are their own.

Random thought: laying down rigs to cut costs. Lay down ALL your rigs and costs will drop significantly. I don't think NOG has any rigs.


Oil futures: up slightly today. After today's precipitous drop in a few short minutes that analysts cannot explain, not much recovery today. This suggests that there was a legitimate trading reason for the price of oil to drop. And the only thing that could explain it: the decision to release oil from the SPR. Look for the announcement at the close of the news cycle Friday. [Update: I'm wrong. The Wall Street Journal blames it on the Jewish holiday -- at the very end of the article. Google crude oil's quick fall leaves trail of queries. Or the October WTI option contracts that expired Monday. No talk about the SPR. We'll see.] [Update: about four hours later: now we have the SPR story. You can say you read it here first.]

Why does this not surprise me? French court wants to see all digital photos of topless Duchess of Cambridge. So do a lot of other folks. I can't make this stuff up.

RBN Energy: outstanding article on the Permian.

Wells coming off the confidential list on Tuesday:
  • 20173, 836, Petro-Hunt, Fort Berthold 148-95-26A-35-1H, Eagle Nest; t6/12; cum 20K 7/12;
  • 21816, 188, OXY USA, State Joe Loh 1-20-17H-143-98, Little Knife, t3/12; cum 7K 7/12; the Little Knife is a nice field; an Anschutz well in this field had an IP of 1,556 in 2010; 
  • 21982, drl, CLR, Florida 2-11H, Camp, 
  • 22031, 819, CLR, McClintock 1-1H, Pleasant Valley, t6/12; cum 26K 7/12; 
  • 22130, TA, WPX/Dakota-3 E&P, Mason 2-11HW, Van Hook, temporarily abandoned while WPX decides what to do with it; probably convert it to a SWD well; the formation was unstable; 
  • 22249, drl, Slawson, Magnum 2-36-25H, Baker, 

Now There Are Three

1) Delta Connection partner Skywest: twice-daily Minneapolis - Williston, starting November 12, 50-seat a/c; jet service;  Delta will charge $550 to $700 to fly from Minneapolis to Williston.

2) United Airlines: thrice-daily Denver - Williston; jet service;

3) Great Lakes Airlines: Denver - Williston (5 non-stops daily); Minneapolis - Williston (2 daily): 30-seat prop

[A big "thank you" to a reader providing a comment that allowed me to update the above.]


This reminds me of two stories about flying back to North Dakota; one time to Williston; one time to Grand Forks.

The first story:

I was flying from Los Angeles to Williston via Minneapolis. Due to a winter storm somewhere over the Grand Forks-Minot area, the commercial aircraft was forced to put down in Grand Forks. While standing in line to re-book a flight from Grand Forks to Williston on the commercial airliner for a flight the next day, a "cowboy" -- blue jeans, boots, cowboy hat, no six-shooter as far as I recall -- came up to us and said he would fly us in his four/six seater Cessna (or whatever it was) to points west if we gave him our commercial tickets in exchange. And that's what three or four of us did. We gave him our commercial tickets, and he flew us "under" the storm to Minot, Williston, and Billings (?). A little rough, but it was a hoot to see farm houses just a few hundred feet below; assuming a storm was above us. Looking back, he reminded me of the original Indiana Jones.

Second story:

My wife, two very young daughters, and I were flying back from Los Angeles to Grand Forks via Sioux Falls. At Sioux Falls, we were sitting at the end-of-runway for quite some time before we finally began our roll-out. We had reached, I assume, take-off speed, when all of a sudden, we came to a fast, but nicely controlled stop at opposite end of runway. We taxied back to the original starting point and sat there for some time. Finally, we took off. Once airborne, the pilot, over the public address system, suggested that we were probably wondering why we were at the end-of-runway for quite some time after the first abort, before finally taking off. It turns out that the oil gauge needles would not move, suggesting there was no oil pressure. But tapping on the little glass window of the gauges, and surmising that the needles were frozen due to the extreme cold, and not due to lack of oil pressure, the pilot / co-pilot decided to try taking off again. And take-off was fine. Just short of halfway to Grand Forks, we had to turn back anyway and return to Sioux Falls. It was not so much the 100 degrees below zero wind chill factor (actual temperature was 60 degrees below zero) that forced us to turn back; it was the forty mile-an-hour cross winds, or whatever they were, that made it too hazardous to try to land. So, back it was to Sioux Falls, where they put us up in a nice motel and our two daughters enjoyed a great evening in the indoor pool.

If you've heard these stories before, I apologize. I tell them every chance I get.

I guess that's two of nine lives. Someday I will tell you the third story -- the third of nine lives. That one involved flying, but not in an airplane.

Ten (10) New Permits; BEXP, Whiting With Nice Wells

New permits:
  • Operators:  CLR (4), Petro-Hunt (2), MRO (2), Oasis, American Eagle
  • Fields: North Tioga (Burke), McGregory Buttes (Dunn), Charlson (McKenzie), Cottonwood (Mountrail), Upland (Divide), Brooklyn (Williams), Colgan (Divide), Stoneview (Divide)
Wells released from confidential status were reported earlier; see sidebar at the right.

In addition, seven producing wells were completed:
  • 22240, 603, ERF, Net 149-92-30B-31H,
  • 22238, 878, ERF, Knuckle 149-92-19C-18H, 
  • 20766, 502, EOG, Round Prairie 4-0805H,
  • 19856, 130, BR, CCU Meriwether 44-19MBH,
  • 21792, 2,982, BEXP, Sax 25-36 1H, 
  • 21260, 1,461, Whiting, Chitwood 34-36H,
  • 22157, 1,110, Whiting, Theresa TTT 41-30TFX, 
Four permits were canceled:
  • 17760, PNC,  CLR, Craig 1-20H,
  • 20704, PNC,  BR, Jerome 31-15MBH-3SH,
  • 20703, PNC,  BR, Merton 31-15MBH-2NH,
  • 20706, PNC, BR, Jerome 31-15TFH-2SH,

Even Analysts Perplexed By Sudden Drop in Oil Price Today


Later, 8:40 pm: someone has suggested it was an algorithm gone wrong; one possibility: someone was testing the effects of an SPR release -- putting numbers into the algorithm to see what would happen; by accident, one of the tests went live;
Later, 6:40 pm: This will make it very, very difficult for the administration to announce release of oil from the SPR this week. CME denies technical glitch; won't cancel oil trades during plunge.

Original Post

Link here to
Traders were unsure of the cause of Monday’s price drop. Some questioned whether an errant trade or another rumor about a release of oil from the Strategic Petroleum Reserve was to blame.
Brent fell similarly.

The fact that analysts don't know and that Brent fell also suggests to me that it involves a decision regarding the SPR.

Remember, tongue-in-cheek, MDW had predicted that there would an announcement to release oil from the SPR would occur at the end of the weekly news cycle, last Friday evening, following the Fed's action that pushed oil up significantly.

Someone knows something; I doubt an errant trade explains this. Peace did not break out in the Mideast. Conspiracy theories point to an SPR decision. And if that announcement is made, there are going to be a lot of "who know what when" questions about the announcement/decision.

Bakken Selling At Premium to WTI at East/West Coast Refineries Due to Rail

I missed this story; a reader sent me the link at Bloomberg. The record production is of secondary importance; everyone now knows that. The important nugget in this story:
Bakken oil on the spot market rose $1.25 to $103.81 a barrel at 11:03 a.m. New York time, according to data compiled by Bloomberg. Its premium to West Texas Intermediate, the benchmark U.S. crude, surged to $6.50 a barrel on Sept. 10, the highest level in almost a year, as refineries on the East and West coasts gained more access to it through rail shipments.
This is the second time that I am aware of that Bakken has sold at a premium to WTI.

On a related note: I get a kick out of this story. Someone recently wrote that crude-by-rail was the last resort; the reader stated that pipeline was the preferred way to ship. We are seeing the benefits of flexibility that rail offers.

A huge "thank you" to the reader for alerting me to this article.

Explosives Cut Power to Iranian Nuke Plant

It looks like there are more ways than one to attack a nuclear plant.

For Investors Only -- Miscellaneous Links

From Yahoo!Finance:
Robert W. Baird expects QE to be positive for oil-based, beta E&P companies. The firm identifies Kodiak Oil & Gas (KOG), Oasis Petroleum (OAS), Denbury Resources (DNR), and Pioneer Natural (PXD) as its top ideas, in roughly that order.
The usual disclaimer: this is not an investment. Make no investment decision based on what you read at blog. This blog is for education, entertainment, and information-sharing.


CVX leads the Dow higher. Why? And The Street continues to rate it as a buy. I remember not many years ago it was considered the worst of the three (XOM, COP, and CVX). How times change. And CVX has a number of international lawsuits to deal with.  The number? Two (2). That I know of. At least I think they are lawsuits. Whatever.

Is this why? -- Wall Street Cheat Sheet
Chevron Corporation and Argentina’s government-run YPF Sociedad Anonima have reached an arrangement through which shale in the latter’s Vaca Muerta region will be developed. The region is thought to contain massive amounts of shale oil and shale gas resources. Currently, YPF is searching for partners and funding with which to conduct an ambitious exploration and production plan during the next five years.
MDW blogged about EOG and the Vaca Muerta almost a year ago.


From Motley Fool, this is kind of interesting: the five best places for oil and gas to invest
5. Manitoba
4. North Dakota
3. Texas
2. Mississipppi
1. Oklahoma
Yes, this is a global list. But Motley Fool says the geopolitical risk in North America is low, these give rank highest, worldwide.  


Peggy Noonan, as usual had a great op-ed in the Saturday edition of the Wall Street Journal. Near the end of that op-ed, she had a long piece on Mike Fussell's The Great War and Modern Memory, c. 1975, one of the best books ever written on war, this one about WWI. Perhaps MDW will come back to it later.

Coincidentally, I was reading Michael Gorra's new biography of Henry James, a particularly excellent book, and highly recommended for readers. Almost at the same time I was reading Peggy Noonan's most recent op-ed, I happened to read the following written by Michael Gorra:
That buoyancy could not last. In that same year the lights went out across Europe, and he saw the proud tower of his seemingly stable civilization topple. The guns began to flame on the Continent, their report heard across the Channel in Rye, and in August 1914 he wrote that the start of the Great War seemed to "undo everything ... in the most horrible retroactive way." The long peace had made him believe that such a wreckage had become impossible, but that faith now lay in ruins, and this sink of blood stood revealed as "what the treacherous years were all the while really making for and meaning." -- Portrait of a Novel, Michael Gorra; hardcover, 2012; p. 322
Without much editing:
That buoyancy could not last. In that same year the lights went out across the Mideast, and he saw the proud tower of his seemingly stable civilization topple. The guns began to flame on the embassies, their report heard around the globe, back to Washington, and in September, 2012, I wrote that the start of the Great War seemed to "undo everything ... in the most horrible retroactive way." The long peace had made me believe that such a wreckage had become impossible, but my faith in hope and change now lay in ruins, and this sink of blood stood revealed as "what the treacherous years were all the while really making for and meaning." -- Portrait of a Presidency, Barack Obama, soft cover, 2022; p. 322.
After perhaps the four worst years for any US president in recent history in the minds of some (certainly not me), or at least since George Bush, the war breaking out across the Mideast seems a fitting capstone.

Monday Morning WSJ Links -- From the Print Edition with Links to On-Line Edition

Wells coming off confidential list today and over the weekend have been posted; see sidebar at the right for the link.


Headline: google H-P tries on a sleeker look. The first/second paragraph says it all:
When Meg Whitman took over as chief executive of Hewlett-Packard Co. HPQ -0.39% a year ago, she got a company-issued laptop. 
"They gave me a brick," she said, referring to the device's weight and chunky appearance.
And they really are. Check them out at any big box store.

I remember when Apple was given grief for all their color clamshells. They were called "toys." Even though they had more computing power than almost anything else out their for the retail consumer. Regardless, Apple was innovating.



Headline: google US balks at GM plan. GM wants out.
Privately, executives are also irked at the continued curbs on corporate jet use.
And no conventions in Las Vegas, I suppose.

Buyout Candidates in the Bakken -- Filloon; Other Monday Morning Links; ATT iPhone Breaks Records; Shell Gives Up

Shell Gives Up: Won't Hit the Arctic in 2012
The Permitorium Was Just Too Much

For those interested, the article is linked here. I'm not (interested). I'm tired of reading about the permitorium.

From Bloomberg: 
Oil Trades Near Four-Month High on Signs of Improving Economy 

That is the headline, as incredible as it sounds: "oil trades near four-month high on signs of improving economy."

We all know the price of oil jumped this past week due to the US printing more money with no collateral to back that money up; the printing is referred to as QE3. The jump in the price of oil had nothing to do with signs of an improving economy as suggested by the headline.

The article itself reflected a bit more reality. In addition, the article said that it was likely that oil would continue to move up in the near future. 

Bakken Buyout Candidates

This is part IV in a Mike Filloon series on Bakken buyout candidates.

ATT/iPhone Break Records

Apple noted on Friday that it was "blown away" by demand for the iPhone 5, and today AT&T tells MacRumors that the iPhone 5 broke sales records over the weekend. AT&T customers ordered more iPhone 5 models than any previous iPhone, breaking records both for first day preorders and for the whole weekend. Apple pre-orders top 2 million; doubling record -- Bloomberg. Similar story at the WSJ.

Meanwhile: Apple will be opening five (5) new stores during the week of the iPhone 5 roll-out.

Future of Refining

RBN Energy: summarizes a new 100+ page report on the future of refining.
The article is another impressive primer on explaining the nuances of refining the current Bakken light and Canadian heavy oil: one takeaway -- the future holds too little diesel and too much gasoline.

This was noted by those writing the original report:
Increased crude production in North Dakota and increased imports of Canadian crude have accumulated a growing stockpile of crude in the Midwest at the Cushing storage hub. More crude is being produced than can be consumed by Midwest refiners and the infrastructure to carry this crude to the Gulf Coast where sufficient refining capacity is located, has yet to be built out.
Without the whole report, one does not see what they wrote about CBR. But RBN Energy always does a great job putting the story together, so my hunch is the report completely missed the fact that BNSF now has the capacity to ship 1 million bopd, far in excess of the 670,000 bopd currently being produced. Pipeline capacity is around 460,000 bopd if I remember correctly, and growing, even without the Keystone XL. In addition to BNSF's 1 million bopd shipping capacity, CBR also provides for flexibility that pipelines don't.