10
Nov

Monday – Beijing Surprise

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Not to be left outdone, China passed a sizable stimulus package over the weekend. This is likely to change the near term sentiment for the better as it will likely buoy infrastructure and commodity stocks. Unlike in other parts of the world where a recession is manifested by negative growth, 5% growth is more the threshold of pain level there. Look for bounces in all fossil fuel, steel, and shipping names (see the Stuff We Care About Today section of the post for more details). Lastly, we are two weeks out from November expiry so win or lose most of the remaining Novembers will walk the plank this week (although I may take a November or two for a quick trade as it relates to those China plays).  

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Earnings Watch - down to the dribs and drabs of 3Q08
  4. Stuff We Care About Today
  5. Odds& Ends

Holdings Watch: The Wiki & $10KP tabs are updated.


Commodity Watch:

Crude oil closed off 10% last week at $61.33. The 12 month strip, a measure frequently referred to for planning purposes closed at $64.91, not low enough for cancellations of most projects that have already gotten off the drawing board but potentially stalling for some of those still on it. This morning oil is trading up $3 to $4.

  • OPEC Watch: The Cartel said Saturday it would show how much progress has been made in cutting the agreed upon 1.5 mm bopd of production at the end of November. The Cartel said it stands ready to cut production further if the slide in crude prices is not halted by those cuts. Iran also commented that Russia will cooperate in efforts to boost prices.

Natural gas closed essentially flat last week at $6.76. This morning gas is trading up sharply (into the low $7's) due to oil and current colder weather forecasts.

  • Weather Watch: Gas-weighted heating degree days fell to 77 last vs 99 in the preceding week (the season's high (coldest) so far). 71 HDDs had been forecast. This week shows temps dipping back closer to "normal" territory with a forecast of 120.

Earnings Watch. The season is pretty much done. I will be listening to an eclectic bunch of names, and not many of them from the E&P space this week including BPZ (10am EST) and FTEK (9 EST) on Monday, CXO and CDTI on Tuesday, DSX and JASO on Wednesday and BIOF and CLNE on Thursday.


Stuff We Care About Today

Coal Multiple: Cheap + China Stimulus = Bounce.

Key observations:

  1. China is known to be low on inventories of coal for both smelting and generation
  2. The coal stocks have been whaled on as hard or harder than most energy names since mid summer despite the fact that coal prices are off less from their  highs that oil or natural gas
  3. The names are historically cheap
  4. The smaller names are hard to trade with options as this group is much less frequented its common stock than traditional energy names, let alone in its options.  Spreads are therefore ungainly and for options trading that limits the list of candidates to the bigger boys like ACI and BTU. or otherwise you have to adopt a more "buy and bear it" strategy.
  5. I'll be looking at those bigger names early today and also (WLT) (metallurgical coal).

Other observations - Steel

  1. Prices have been falling sharply - as of 2Q some types of oil country tubular goods had become scarce. As of conference calls last week that seems to be loosening up a bit and prices are definitely down.
  2. The stocks are well off their highs with names like (X) trading in the lower $30s having touch $190 in June. In effect, a six for one stock split without the press release. 
  3. I'll looking at a bottom fish of (X) this morning as well with my eye on December somewhat out of the money calls. The stock is trading at just over 4x 2009 EPS of $8.83.

Other observations - Shipping

  1. Shipping rates are rock bottom, below many carrier's costs. See link here; real cliff diver stuff.
  2. I've been avoiding the group for a couple of quarters now but will probably take a quick position in (DSX) later today...they report on Wednesday.

 

Bank of America's Energy Conference is this week. So far I've not tracked down a schedule so if you get their research please send me a link to one.

Odds& Ends:

Analyst Watch: (STP) cut from Hold to Sell at Deutsche; (SPWRA), (FSLR) and (CSIQ) cut from Buy to Hold at Deutshce

 

 

108 Responses to “Monday – Beijing Surprise”

  1. 1
    BirdsofpreyRcool Says:

    Good morning. Didn’t someone buy SD on Thurs or Friday? TPH had a great comment out this morning about the stock:

    SD Q3 follow-up ($10.29 – B) – Easy 50% upside on proved reserves alone assuming $8/mcf long-term gas. We’re big fans of SD, but understand investor hesitance given uncertainty regarding 2009 budget / growth rate and its current dependence on price/timing of East TX asset sale. SD seems confident sale will occur…we estimate value is ~$600mm ($2.50/mcfe for 240bcfe proved). If deal closes, SD should have $1BB budget and beat 20% ’09 growth.

  2. 2
    crysball Says:

    Vaalco Energy [EGY]reported Q3 this AM .38/share diluted earnings [stock closed Friday @ $4.71. They have a little over $100 million cash and virtually no debt.

    The are at the start of a 7 well Drilling Program [some development, some exploratory of which 5 are in Gabn [4 shallow offshore & 2 onshore] and 1 shallow offshore in Angola. Finally they have a Farm-in [25% WI] in the North Sea for a Gas Well.

    Currently producing 20,500 B/D and expect that to increase to just under 25,000 B/D by Jan. 08 when they bring on line a development well @ 4,000 B/D. All current production is shallow offshore Gabon being delivered to their FPSO. They just completed uprgrades on the FPSO to handle higher production.

    Conference call @ 11AM today for anyone interested.

    They have an interesting business model of walking in the footsteps of and buying up concessions which they found below their threshold [making lemonade from the Major’s lemons].

  3. 3
    zman Says:

    Thanks Crys, is that EST on the conf call?

  4. 4
    zman Says:

    On the China plays, I think I’m going to wait for the morning pullback as almost everything launched on the open before options started trading.

  5. 5
    zman Says:

    Natural gas up 51 cents at 7.27

    Chart continues to look constructive:

    http://charts3.barchart.com/chart.asp?sym=NGZ8&data=A&jav=adv&vol=Y&divd=Y&evnt=adv&grid=Y&code=BSTK&org=stk&fix=

  6. 6
    BirdsofpreyRcool Says:

    Support for the stock market rally being seen in the credit market. Mainly in the credit indeces, tho, and not buying of individual bonds. Street still short and not showing an inclination to cover here (supporting z’s wait for a pullback).

    IG tighter at 185 1/2

  7. 7
    BirdsofpreyRcool Says:

    Deutsche Bank just cut GM price target to zero. Pretty round number…

  8. 8
    zman Says:

    Hot Site Tip of the Day:

    If you are having trouble viewing charts on this site, you can adjust your monitor, send me a note about it and I’ll try to resize them for you, or head to CC which just filed bankruptcy to get a wide screen monitor.

  9. 9
    teomax Says:

    crysball,
    another interesting deepwater player could be ATPG, current PE just around 3.5 as market is afraid of high debt ratio and ability of ATPG to repay its debt.
    They have some great hedges since the start of next year (oil for 100) and monetization program is in the work.

  10. 10
    Jay Reynolds Says:

    test

  11. 11
    zman Says:

    See ya Jay, what’s up?

  12. 12
    kyleandy Says:

    z – EVEP conf call tomorrow 9am est. earnings tonite.

  13. 13
    Jay Reynolds Says:

    May be an anomaly but yesterday’s Shreveport Times listed 13 deep gas well completions, Cotton Valley and/or Cotton Valley/Hosston. All were in HS trend, none were shown as horizontal completions but all were sufficient to hold the acreage. Most rates were around 500 MFCGPD.

    Thought: If the thinking of the shrinking (non-existent) “gas bubble” is based upon slowing the drilling of new wells then added to that perhaps should be additional shrinking due to the delay in completing vertical wells as horizontals, if I’m surmising correctly.

  14. 14
    crysball Says:

    Z,
    The Vaalco Energy Q3 CC is at 11AM Eastern Time The call in # is 800-533-0272 and the Confirmation # is 968433.

  15. 15
    BirdsofpreyRcool Says:

    IG 186 a tad wider

  16. 16
    apbd Says:

    FREE due to announce Thursday 13th. Could they possibly hold their dividend
    (37%)? $ 2.25 stock. Bill? Anyone?
    apbd

  17. 17
    zman Says:

    Thanks Kyle – missed that. Will watch for them.

    Market in limbo

    JR – roger that, sounds like a lot of folks are going to go into the end of the year with a lot of completed but not hooked up wells in E. Tx. Some due to logistics but a lot due to price. SWN in Fayetteville same, CHK in Barnett same, SD in WTO same.

    Thanks Crys.

    Getting on BPZ call. These guys are fascinating.

    MCF eps out, anyone see time of call there?

  18. 18
    BirdsofpreyRcool Says:

    IG 187 -4 from Friday’s close… so, stil better. But moving the wrong direction.

  19. 19
    zman Says:

    Just saw the reasoning for the Deutsche downgrade of the Solar industry.

    They admit there are no new issues that are not already known for the downgrade but basically say now is the time to reset the bar on those stocks.

    They site 1) deteriorating fundamentals, 2) an industry shakeout due to falling average selling prices, 3) a strengthening dollar and 4) limited access to capital for their decision.

    Pretty broad stroke stuff, sounds like the analyst was told to cut the industry. Falling average selling prices and a “shakeout” would actually be good for low cost producer FSLR.

  20. 20
    antrimshale74 Says:

    Financial sector a real lead weight on the market today.

  21. 21
    VTZ Says:

    Lots of profit taking early morning in energy it seems.

  22. 22
    antrimshale74 Says:

    Too many headwinds in the market… GM, Circuit City, AIG, etc. It’s not like anything has substantively improved since Friday. Quite the contrary.

  23. 23
    tomdavis12 Says:

    Z: Any aware of a 2x or 3x long corporates or treas bond ETF? Thanks

  24. 24
    zman Says:

    BPZ CC Operations Update: good call, everything on track, should have a good reserve report out prior to year end from Netherland Sewell showing a good upgrade of reserves. However, their guidance is a bit low and analysts sound somewhat troubled by it. Lot of spoonfeeding on income statement guidance going on which tells me the analysts are somewhat detached from the story here.

    Antrim – agreed absolutely re 22 for the market but for energy things are looking up for oil and coal. Russia cooperating with OPEC boosts their collective production to around 50% of world consumption. Its been rumored before. Also, this alleviates some of the “China is falling off the demand map” talk that has help oil lower of late. But agreed, all else gloomy.

  25. 25
    Dman Says:

    Z – regarding the EPS for X (that it is trading 4x at)

    Has this estimate been already poleaxed enough by analysts so that any China good news *isn’t* in it, or at least the bad news “is* in it?

  26. 26
    zman Says:

    Dman – estimates are off 50% or so from this year’s numbers. Is that enough? Can’t tell, looks like its due a bounce but I’m not falling in love or anything. Still not buying into this rally yet as all the people who did this morning are now probably wishing they’d waited. Antrim’s points are a little close to home than $500 billion being spent in China.

  27. 27
    Dman Says:

    gap fillage in SWN

  28. 28
    Dman Says:

    Z # 26, on X

    Don’t know either way if is enough but looking at the chart, agree that it’s gotta be good for a trade. Gotta be!! Clearly the stock is discounting more than the 50% EPS cut, so that gives some margin for error & it is still at levels caused by liquidation blowups.

    X now with new gap-fillage goodness

  29. 29
    zman Says:

    Still waiting and watching, big give back yet almost everything, save for the solars which caught that ill-advised downgrade, green.

    gap-fillage goodness. Sounds like some kind of cinnamon roll stuffing from Pillsbury.

    about to get on the EGY call

  30. 30
    crysball Says:

    EGY call # is 800-553-0272 sorry about typo

  31. 31
    zman Says:

    EGY – first thought, “nice call, too small”. I hate to be like that but right now its going to be hard for me to get interested again here. Long term I think they do great but this is so far off the radar and if it is held by any funds that need cash it could be in for year end selling that would just be punishing. They do have $2 per share in cash, did not see a balance sheet, income or cash flow statements yet, but they have no debt. So interesting but I’m not going to jump on a work up yet or the stock.

    Oil about to go negative from up $4+ BMO. I have very little doubt OPEC will be cutting production prior to year end.

  32. 32
    zman Says:

    Crys- I’m on the call now. They are talking some big numbers for exploration, need to do more background work again before I have a real solid thought here.

  33. 33
    antrimshale74 Says:

    Financials and tech getting hammered today.

  34. 34
    bill Says:

    z- thanks for the HDD data and coal write up

    they look very cheap as you say.. i knew they were cheap but 3 x cash flow..wow

    Obama said something that he wanted or will bankrupt the coal industry and stocks were hammered last week and i think over done despite Obama comments

    WLT is the star of the day up 10.2%

    anr has a buyout on the table (40 ish) but i like it even without the buyout..stock at 27

  35. 35
    BirdsofpreyRcool Says:

    Healthcare and energy still green…

    what was z’ hierarchy of needs? energy, healthcare, food? or heathcare, energy, food.

  36. 36
    bill Says:

    chk conv debt exchange

    50,000,000.00 1,814,234.00 27.56
    105,000,000.00 3,840,277.00 27.34
    115,000,000.00 3,619,069.00 31.78
    2,150,000.00 65,405.00 32.87
    13,000,000.00 324,155.00 40.10
    108,897,000.00 2,786,937.00 39.07
    2,127,000.00 52,687.00 40.37
    396,174,000.00 12,502,764.00 31.69

    looks like a 100 m gain in q4 for debt eztinguishment

  37. 37
    zman Says:

    Bird:

    “heating, treating, and eating” … that’s trademarked by the way, lol.

    EGY call almost done. A lot of buyside (hedge fund) guys on the call, all looking for timelines and why they are not buying stock back. I stick with my original assessment that these characters (the buysiders) will likely use this name as a source of small cash. Could be wrong but does feel that way.

  38. 38
    Dman Says:

    #31 “year-end selling”. Doh! How did I manage to forget about that?

    … about when do you think that tends to kick in?

  39. 39
    BirdsofpreyRcool Says:

    From what I am seeing in HF results for Oct… I think there is going to be another wave of redepmtion notices on Nov15th. I would be careful of buying anything that has a large HF equity holder base. I mean, I know this is a blinding statement of the obvious… but, just thought I’d mention it anyway.

    Jeff Gendell (who is one of the Best) was down 76.8% YTD. However, 65.7% of that happened in just October. He is not alone.

  40. 40
    zman Says:

    Re #38. Back in June. Just a slow spiral for those hedgie names now.

  41. 41
    Dman Says:

    BOP – If I ever think you are stating things that are too obvious, I’ll let ya know!

    🙂

  42. 42
    BirdsofpreyRcool Says:

    Dman – it’s a deal! thx

  43. 43
    bill Says:

    free re 16

    i still own it but i will probably sell some or all this week as the sector is affected by banks liquidity crisis and NO DEMAND for ships and prospects of more bankrupcies in the sector. I saw a report today that someone was forced to sell a ship at 30 cents on the dollar. GNK walked away from its purchase committment and took a 50 m write down

    they have most of their fleet locked in for 2008 and a good portion of 2009 on lt charters

    the issue is will their charterors default??
    the 2nd issue is loan covenants tied to asset values. assets values have fallen 50 % or more

    regarding the dividend they say they have coverage 42 % for 2009 even with today extreme low rates– i think they pay it

    NM and NMM paid their’s

    Other say the bulker companies should retain every dollar of cash flow to service debt and i wouldnt fault them if they did that

    I think q3 earnings will be good. analyst estimate 40 cents vs last year -.02 cents

    q1 was .05 and q2 was .19

    free had a good presentation which you can access here and its only a month old

    http://library.corporate-ir.net/library/18/182/182261/items/309434/OppenheimerPresOctober08.pdf

  44. 44
    zman Says:

    Guy on CNBC correctly pointing out that retail sales for October due out Friday will stink. If WMT takes a hit so could market he says. I’m wondering if that’s already priced in. Does the market really need to be told sales stink when the “also rans” like Linens N Things and Circuit City are filing Chapter 11.

    As a sidebar, a buddy sent me a note saying CC cited WMT, BBY, and the internet as reasons they are going under. How ya gonna fix those things in a re-org, LOL?

  45. 45
    bill Says:

    i think chk will be held back as the hedge funds dispose of the 12.5 m shares they just picked up

  46. 46
    BirdsofpreyRcool Says:

    z – I’m not sure the fugliness is priced in yet. Stocks are up nicely, from their Oct 10th low, but the credit market hasn’t budged (except for the positive effects of the Fed’s commercial paper program). Companies are not getting access to dependable funding, so stuff is getting put on hold, big time.

    Re: CC (et al.) … A major major issue to keep in mind, when looking at any industry these days is: how much excess capacity is there out there?

    In the presence of excess capacity, throwing money at it, or re-organizing it, or trying to sell it doesn’t work. It’s like trying to save water by pouring it into a sieve. That is the fundamental problem with banking, retail, automotive, and housing. We are seeing a lot of the excess capacity in banking going away (77 banks have already been seized/closed by teh FDIC)… but excess capacity needs to go away in a lot of industries. Trying to “save” an industry without dealing with the excess capacity merely prolongs the pain.

    Just another, macro thought to keep in mind as we continue to work through this market.

  47. 47
    zman Says:

    Bird – normally I’d agree with you and the macro comments all work for me but CC was a case of pure piss poor execution. Grey, dingy, low light level interior staffed by commissioned yet ill informed troglodytes hawking last year’s merchandise. I say good riddance.

  48. 48
    BirdsofpreyRcool Says:

    z – no argument on CC. Actually, I’m surprised they lasted this long.

    Guess I just took the oppy to spout off about another macro thing I worry about. The list is long. But, we will get through it. Just not quickly.

  49. 49
    BirdsofpreyRcool Says:

    “ill informed troglodytes hawking last year’s merch”…. great visual!!

  50. 50
    zman Says:

    No problem, just can’t stand that place; they didn’t even serve the purpose of keeping BBY honest on price.

    Do let us know when the credit market unfreezes as I plan on scooping some of the shipping companies up for cents on the dollar as yes, things will once again get shipped and rates can only go so much lower.

  51. 51
    BirdsofpreyRcool Says:

    watching the Investment Grade Index (IG) just gives us some cross-reference to any short-term, or inta-day market moves. But, in the Big Picture, real corporate credit has not thawed one bit. We are seeing the positive effects of what the Fed is doing, but the market is not following through… yet.

    I’ll let you know what I’m seeing. But (one more thought), just like the bond market typically shuts down in mid-July through the end of August, it also closes from mid-Nov through the end of the year. So, I don’t really expect any appreciable thaw until we get a look at what January brings us. Last year, we expected bond issuance and a rally in Jan… when we didn’t get it… well, I don’t have to remind people what the 1st quarter looked like. I don’t think we will see a repeat of that this year. But, that is what to watch for… the ability of new bonds to be issued in January.

    Sorry to say, it’s gonna (continue to) be a long wait.

  52. 52
    apbd Says:

    Bill:
    Re: # 43
    Thanks as always.
    apbd

  53. 53
    Dman Says:

    Excess capacity… I’ve seen it pointed out various places, so might as well say it here:

    Modern cars are more reliable than 20 years ago & most consumer purchases lately have really been driven by fashion/fad/status along with “free money”. In a serious downturn (yep, that would be now) a lot of that demand will simply go away and furthermore, if your car actually dies on you, there are plenty of good, cheap used cars around from the “free money” era. When people don’t know how long their job will last, are they really going to insist on a new car?

  54. 54
    john11 Says:

    Anybody think we go through $60 on oil today..feels like it.

  55. 55
    BirdsofpreyRcool Says:

    Dman – yep.

    There is a piece in the OpEd section of the WSJ today that pretty much sums up why a taxpayer bailout of GM (absent major structural changes to go along with it) won’t work:

    “GM is structured for its glory days of the 1960s, when it had half of the US car market… [now] it has just over 20% of the market.”

    There is just way too much North American automotive manufucturing capacity. Even given the strong demand of the last couple of years, GM, F, and C could not make money. If they couldn’t make money in 2005 and 2006 (when auto sales were north of 17mm units/yr), the problem is much deeper than just an “economic downturn.”

    Like pouring water into a sieve…

  56. 56
    antrimshale74 Says:

    WTI LOD is 59.60 so we’ll see what happens at the close.

  57. 57
    cargocult Says:

    Do we ever buy puts?

  58. 58
    zman Says:

    Cargo – now you ask? I do but only on valuation (not a problem at present) or on bad management. From time to time I take calls on DUG but am not willing to do that now. Its Monday, the market has quite a bit of bad news in the U.S. to digest. Not feeling like panic. Just watching. The stocks are for the most part not below Friday’s open other than solar and that’s a broker call dragging the sector so not too concerned. From a market pysch standpoint, people often read the market as good or bad by the color on their screen. Red begets more red. Right now green is still seen as an opportunity to sell but it feels like we are getting some broader market traction here.

    As to oil falling off it did so in lock step with the market turning red. It has nothing to do with numbers for demand or supply but perception that real world demand will get worse. Via China’s stimulus package, real world demand just got better. Supply is going to be coming down via OPEC /Russia in short order.

  59. 59
    zman Says:

    ZTRADE:

    WLT December $40 calls (WLTLH) added for $1.75 to the regular account with the stock up just under $2 on the day at $32. This is a met coal supplier play on the China stimulus package.

  60. 60
    zman Says:

    One other thing on the market vs the energy stocks. Market down about a hundred (Dow) right now, and the group is largely green with the Majors off slightly and the OIH off a little more. This is pretty obvious.

  61. 61
    BirdsofpreyRcool Says:

    And don’t forget, we got SNOW in the NE this morning!

  62. 62
    zman Says:

    Housekeeping items:

    1) is the blurb explaining the ZBLAST enough if I refer back to the post? I try to get them out as they are done so they are brief. Sometimes I take weeks to buy something but I’ve generally been talking about it.

    2) is the level of the stock at the time of purchase of the option helpful?

  63. 63
    zman Says:

    Very nice bounce underway.

    I’m starting a file for Obama speeches and market reactions. So far he’s 1 for 1. Bush for the last 7 years has meant sell off in the markets 3 out of 4 times. Just curious if the honey moon effect will lead to a tradeable event (only half joking).

    Re Snow – yep, 120 HDDs is nothing to sneeze. One more injection this week and then we should be good to go for withdrawals.

  64. 64
    ram Says:

    Yes and yes.

  65. 65
    rlogan1301 Says:

    #62 – i think #2 is important.

  66. 66
    kyleandy Says:

    z – yes stock price good!!!

  67. 67
    zman Says:

    Thanks Ram and RL. Any other suggestions aside from stocks that go up and not down (I try to keep that one in mind)?

  68. 68
    zman Says:

    http://www.youtube.com/watch?v=lWDdcD-1xoo

    If you need a laugh.

  69. 69
    Pete Says:

    #62 ditto

  70. 70
    ram Says:

    However, it would be nice if the ZBLAST occurs when prices are falling vs. rising.

  71. 71
    zman Says:

    Sometimes they do.

  72. 72
    antrimshale74 Says:

    Zman, I’m not sure I agree with you about the Obama speech. The thing dropped like a brick when he was speaking, then basically came back a little bit past where it was to begin with after the speech. The question I would have is whether or not the entire day’s rally on Friday had anything at all to do with Obama. I personally think it was a technical bounce after dropping almost 10% in two days.

  73. 73
    zman Says:

    Antrim – dunno, it ran up into the pre speech, sold off on lack of actual specifics but then closed higher as the press digested the speech for us. How do you not put that in the win camp, lol?

  74. 74
    zman Says:

    Oil up $2+ again.

    Energy stocks (non-solar) pretty much all green

    NG up 50 cents

    Just when it looks darkest… patience pays.

  75. 75
    VTZ Says:

    I put Obama’s first speech in the win camp for sure.

  76. 76
    rlogan1301 Says:

    Z- any reason on WLT vs. other coal companies?

  77. 77
    rlogan1301 Says:

    never mind..just read the above…

  78. 78
    antrimshale74 Says:

    I’m thinking it was beginners luck on his part,LOL! You do have a point, though. Nevertheless, we were due for a bounce on Friday, especially with the anticipation built into market going into the unemployment report.

  79. 79
    zman Says:

    Yep, they are more focused on metallurgical coal than their counterparts and if China is gearing up to boost infrastructure that means steel. Plus, I listened to their call the other day and their prices have not come down nearly like power coal have and they seemed confident prices would remain strong despite the falloff in steel demand. At the time, I thought it was odd they really didn’t explain why they were so confidence.

  80. 80
    zman Says:

    Antrim – you are right, we were due for a bounce. Just passing time while things make little sense.

    Here’s the second half of #68:

  81. 81
    cargocult Says:

    Z-regarding your Z Blasts. I really appreciate it when you give us warning of upcoming moves, both buy and sell. More info is better from my point of view.

  82. 82
    ram Says:

    I’m still confused about solar not rallying despite downgrades. Obama and the Pelosicrats are going to throw money at that industry.

  83. 83
    zman Says:

    Re Solars – only thing I can think of is that the leadership in the group were favorites of the hedge funds and they can’t wait for all the government goodness to flow. I think today’s broker call was late and ill timed. Alternative energy stocks aside for solar not working either yet.

  84. 84
    ram Says:

    ZMAN – I should have asked if making a somewhat sensitive comment regarding politics is against the ZMANENERGYBRAIN code of conduct.

  85. 85
    zman Says:

    Not if it is constructive. Yours clearly pertains to an industry where the new administrations stated goals will have a clear and significant impact. I do try to keep the inflammatory language to a minimum as this is a bipartisan site, lol.

  86. 86
    ram Says:

    Thank you. I have emailed both U.S. Senators that represent CA regarding aid to the auto industry: Don’t give them a nickle until they drop their prices and move their $100B plus inventory!

  87. 87
    VTZ Says:

    Why are we giving money to an industry that refuses to change and has done nothing but try to make new crossovers and SUVs because they have a higher margin… whatever happened to making a car that people want and can afford to drive?

    Where they went wrong is thinking that they can turn a niche into a mass market because the margins were higher.

  88. 88
    zman Says:

    CNBC saying gold and metals did much better than energy today. I don’t really see that as oil is up more than gold at up 2% and NG is up almost 7% on the day. Hmmm. CNBC has completely shifted from bull to bear. When oil sold off after the morning rally, one talking head said it “returned to sanity”. The bias is unreal yet they only drive in the fog with their rear view mirrors.

    On the whole, very pleased with the action in the energy groups today…greenish despite the sell off in the broads.

    Out for 20 minutes.

  89. 89
    tomdavis12 Says:

    Z: Bot RIO Brazilian iron ore as a way to play the China stimulation game. I know not your area. Just a thought.

  90. 90
    zman Says:

    Glad to see energy not get crushed, other than that pretty useless day.

  91. 91
    VTZ Says:

    It’s still a terrible way to start the week considering the bullishness in the morning.

  92. 92
    zman Says:

    V – could be a lot worse. All big cap E&P green including EOg. XOM green to flat. Mid cap E&P up mostly, including HK and SWN. NE flat but most service names off. Refiners up nicely (don’t own any now). I think energy moves much more green in a greener market so nice to see it not selling down in a down market.

  93. 93
    ram Says:

    NBR relatively strong – any news?

  94. 94
    kyleandy Says:

    ram re NBR news is i sold 1/2 my position last week!!!!

  95. 95
    zman Says:

    Ram – nothing I saw. I’m trying to get on board with the idea that a huge drop in the rig count is already factored in there. The stock has fallen dramatically and yet rig counts remain lofty and rig rates have only fallen slightly. So maybe some analysts are sniffing around the name fishing for a bounce. But I see no news.

  96. 96
    bill Says:

    obama is said to reverse geprge bush drill drill drill strategy

    baffles me why dem’s are against

    nuclear
    coal
    offshore drilling
    onshore drilling

    then whines about 4 gas

  97. 97
    occam Says:

    I am trying to understand what will happen with NG over the next few years. I am interested in opinions about the correctness of the following views:

    The picture has changed due to 2 major events, the improved horizontal drilling and fracing techniques, and the continued discovery of major new NG fields based on these techniques. Examples include the Haynesville, Fayetteville and Marcellus fields in the U.S. and major new fields being developed in Canada. There may be major reservoirs of NG trapped under basalt in the Columbia river basin.

    The estimates of NG reserves in North America appear to have tripled over the last 3 or 4 years due to the new discoveries. It seems quite possible that there are more major NG areas to be discovered. The new resources include both shale formations and coal bed methane sources. The new drilling technology is making it cheaper and faster, on a per mcf basis, to bring on new production.

    Consequently, short term it will be easy for producers to satisfy demand, leading to consistently low NG prices. Long term, NG may assume an even bigger share of the U.S. energy supply as low prices and abundance over at least the next decade make this a better and better choice to supply energy needs. As confidence in this story builds, options such as widespread use of CNG in vehicles will increase, and real work on the needed infrastructure may begin. Already we are seeing changes such as the revival of fertilizer production in the U.S.

    At this point, the idea of a NG pipeline from Alaska makes no sense. Given the North America reserves picture described above, we should think about LNG gasification for export.

    The market has consistently priced oil at twice NG on a btu basis for some time now. It is likely that we are at or past the peak of production of oil worldwide (not counting NG liquids), and that before 5 years have passed the price of oil will be much higher than $150/barrel. This will intensify the pressure to use more NG. But actual use will wait until the expenditures on vehicles that can use it, infrastructure to support that and other uses, and other capital outlays to increase the use of NG have occurred.

  98. 98
    Wyoming Says:

    Occam,

    Some comments to consider (A bulls argument):

    1. It is cheaper to drill on Wall St. than in the reservoirs.
    2. This leads to stacking rigs, erosion of infrastructure as services release crews. Easy to tear apart difficult to build.
    3. Mergers reduce investment in reservoirs. Where 2 partners spread the risk, now 1 operator is risk adverse and pull the plug. CVX and Texaco did this with Caltex for instance.
    4. Off #1, these reservoirs in most shales suck/stink. They are nothing like reservoirs of old that produce high recoveries. A Barnett well will drop initial production in half in roughly a month or two.

    The Bear retort, DEMAND DESTRUCTION ….

  99. 99
    zman Says:

    Occam – that about sums up what has changed lately. Tight gas sands and CBM led to similar “supply scares” in the 1990s. Shale plays are going to be large and will serve to keep somewhat of a lid on prices but I would point out that the average decline rate of shale wells is about 81% in the first year. Depending on where the wells are located breakeven ranges from $4 to $7.50 per Mcfe (that’s local, not Henry Hub). So while you may have a new lower regime of finding and development costs (many at or below $2 per Mcfe now) and operating costs of another $2 to $3 you simply can’t punch the high productivity wells ad infinitum unless local prices warrant doing so. If you don’t continue to punch those wells, the 16 MMcfepd first day producer is squeaking out 3 MMcfepd at year end. And that’s at the high end of the opening range. Another factor that enters into puzzle is the abandonment of the conventional play. As plays like the Haynesville come to the forefront of capital budgets due to their high IRRs at modest gas prices, dollars flow away from the Gulf of Mexico shelf which is in rapid decline and from other non-resource style plays. The average gas well in the U.S. at last study from EOG declines about 38% per year. So in just under three years, production from those wells must be replaced. I think LNG export is interesting and may be a source of price stabilization in the U.S. I do think the U.S. should delve into CNG it would be a win win for jobs and consumers.

  100. 100
    zman Says:

    Wyoming – you just beat me to the enter key.

  101. 101
    Wyoming Says:

    I like your detail much better. All those numbers and fundamental …. what is the word the Bears would use?

    Seriously, this was actually just on Bloomberg. Talked about Shells $12 FnD and the last go around XOM plus BP (Amoco is silent) mergers …

  102. 102
    zman Says:

    If Amoco is silent what does that make Vastar? Oh yeh, the deepwater prospect inventory of BP now.

  103. 103
    Wyoming Says:

    What about Arco since you go down that lineage? Slight breach of etiquette, Zman went straight for the triple dog dare ….

    At least Phillips managed to keep their name alive.

  104. 104
    bill Says:

    the 2009 natural gas price outlook is “still very ugly” and given the current over supply, even a colder-than-normal winter is unlikely to prevent a gas price collapse in 2009, Raymond James & Associates Inc. said Monday

    i hope they are wrong

  105. 105
    bill Says:

    seems like the collapse already happened, lol

  106. 106
    Wyoming Says:

    bill,

    Inventories will guide us on the impact of the stacked rigs/ weather/ LNG imports/ North of the border imports.

    I’m actually bullish on the E&P. Looking around the other companies, who else has positive cash flow? Auto? Financial? Retailers?

    Which direction will oil go when we see hoe much $ have been printed? or that maybe we have inflation?

  107. 107
    Coug1984 Says:

    Occam – #97 re the Columbia Basin, that gas is under several thousand feet of basalt. Shell drilled an exploratory well in the 1980’s north of Yakima. I worked for the company at the time and if memory serves, it took over a year to reach TD at about 10-11,000. Very difficult to drill at shallow depths in such hard rock, which is also so full of wide fractures that it’s tough to keep mud in the hole. Washington state isn’t exactly friendly to the oil and gas industry and, of course, there’s no infrastructure here. Anyway, that’s a long way of saying that, although there may be alot of gas in place, you can rest assured that the Columbia Basin won’t be developed at $8/mcf or even $15 I’d venture to say.

  108. 108
    antrimshale74 Says:

    How about this 2am press release from CHK announcing a JV with Statoil in the Marcellus.

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