What a miserable month. Thankfully the last week didn’t completely fall out of bed or everyone would be competing for ledge real estate. Today we have CHK and SWN, a tale of two gas companies, the natural gas storage wrap, and few comments on the solar complex.
In Today’s Post:
- Holdings Watch
- Commodity Watch
- Natural Gas Storage Review – Ugh, a bigger than expected build
- Stuff We Care About Today – CHK, SWN, OII
- Odds & Ends
Holdings Watch: The 10KP and Wiki Holdings tabs are updated. Yesterday’s trades:
- (CLR) – $10KP TRADE CLR – Bought (10) November $35 Calls (CLRKG) for $1.10 (with the stock up $1.90 on the day) for a relatively quick trade on the back of the strength in fellow Bakken player WLL. CLR reports next week. This is the first half of a trade here as I will likely add more soon.
(XOM) – $10KP TRADE Added (5) XOM November $80 calls (XOMKP) for $2.07 for a quicker trade than the Decembers I already hold. The stock is weak following good earnings and I think its a combination of profit taking and lack of upstream growth. I won’t hold this long but think the conference call could shed positive light on the name. The more important influence in the very near term will be crude which is off nearly $2 now and I think likely to rally again soon after a bout of profit taking (see comments on OPEC/Russia in today’s post as well as comments on XOM’s quarter).
- (XOM) – Added XOM $75 November calls (XOMKO) added for $3.45 (pretty tight spreads) with the stock off $2.50.
- (CLR) – $10KP Trade – Sold the CLR $35 November Calls (CLRKG) for $2.30, up 109% since entry this morning. I continue to hold the December calls in the regular account.
So all in all, not a bad day. The $10KP ended the day valued at $18,700, with $10,800 (58%) in cash.
FSLR Rally. Now what? FSLR traded up $28 (24%) yesterday as 2009 target revenue concerns were alleviated following their 3Q release. The move set off a rally in other solar names boosting (TAN), the solar ETF, by 10%. Not all solars are created anything like equal but, the group has been crushed with other energy sectors and the same factors that are still favorable for (FSLR) however do apply to many of the other names and I think alternative energy will shine brighter in coming months no matter the outcome of the coming election. So I’m thinking about (TAN). Besides, the following group of solar stocks, which were the "it" names last spring have lost $35 billion in market cap (63%) since April (near their peak) and the solar movement looks far from stalled.
Crude oil closed down $1.54 at $64.96 yesterday, a function, I think of profit taking after Wednesday’s six point rally. Perhaps traders felt that the one day boost mid week was enough to quell OPEC’s (and their new Kremlin friends’) concerns. I doubt it. This morning crude is trading of about $2 as the dollar bounces 1.4% in early trading.
Natural gas got bludgeoned for $0.35 to close at $6.43 yesterday after the EIA reported a larger than expected gas storage injection prompting fears that elevated production levels could mean a delay in the beginning of the traditional withdrawal season (usually begins in the next week or two). This morning gas is trading slightly lower.
Natural Gas Storage Review:
ZComment: Storage is essentially full and now we need to see the transition to withdrawals either next week or the following. Simple as that we need sustained colder weather to get gas off the floor, that and a falling natural gas directed rig count.
Stuff We Care About Today:
SWN Reports White Hot 3Q08 Results. See my pre call note here. In a nuthshell: very strong. I’m holding what I’ve got in the regular account but will consider adding if they get into discussions of 2009 volumes (which they left out of the press release). Conference call at 10 EST.
CHK Reports 3Q08 Numbers; Details On The Call
The 3Q Numbers:
- Production: 2.3 Bcfepd In Line With Guidance
- EPS of $0.85 vs $0.88 expected
- CFPS of $2.38 vs $2.23 expected
- LOE of $1.12 per Mcfe, a bit elevatedl
Reserve Valuation: PV10 of their 1P reserves are $24.4B which I normally don’t care about but asset valuation has come sharply into focus of late. That’s valued at a $6.48 / Mcfe price deck unescalated. You can add $440 mm to the value for each 10 cent increase in gas prices so $7 gas would add another $2 + billion. Enterprise value is $26 (mkt cap + debt) so its trading on reserves and not giving anything to the acreage, rigs, gathering systems, core center, hq, etc…
- Q4 hedges: 62% of gas hedged at $9.15 (who’s looking smart now)
- 2009: 38% at $9.33
- 2010: 40% at $9.58
Balance Sheet: net debt to book cap at 43%, improved from 57% at end 2Q
Conference Call: Today, 9 EST
OII Reports In Line Results
- Revenue of $516mm vs $527mm expected
- EPS of $0.99 vs $0.96 expected
- Growth was due to ROV activity (record days on hire again, add 9 new ROVs in the quarter which is about 3x average quarterly add, expect that to slow going forward)
- Falling backlog for umbilicals is probably a bit of a downer
- 24% debt to cap
- Buyback finished, no mention of continuance.
- No reduction in demand seen so far (confirms what the deepwater guys are saying)
- Sees 2008 EPS of $3.53 to $3.61 with the Street at $3.59. Not great.
- See $4 + EPS for 2009, Street is at $4.25 with a range of $3.91 to $4.50 so its not clear if analysts will be wild about that number either. I would add that even at $4, current prices put OII at an extreme discount to its usual forward earnings multiple.
- Reigning in capital spending and only adding ROV’s to meet firm demand (contract in hand as opposed to spec builds). This will probably be welcomed in the current environment.
- Conference Call: Today, 11 EST.
Odds & Ends
Analyst Watch: Jefco cuts a plethora of oil service and driller names from Buy to Hold. (seems a little late and it homogeneous for them which is odd). Morgan Keegan initiates (RRC) with an Outperform.
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