18
Nov

E&P Update Tuesday

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In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Analyst Forecast Watch
  4. Crack Spread Update
  5. Odds & Ends

Holdings Watch: The wiki tab is updated

  • SWN - $10KP Trade - Bought (1) SWN December $25 Call (SWNLE) for $7.60. Its been overly beat up and should benefit from natural gas prices as they bounce due to colder weather and approaching withdrawals from storage.
  • EOG - ZTRADE: $10KP - Added (1) EOG December $80 Calls (EOGLP) for $9.

 

Commodity Watch:

Crude oil fell $2.09 to close at $54.95 in volatile but thin trading yesterday. Oil continues to suffer tick for tick with the U.S. broader markets despite indications that further production cut backs from OPEC will be enacted in December, if not later this month. This morning crude is trading flat.

Natural gas rallied $0.22 to close at 6.53 on cold weather last week and a forecast for more cold this week. This morning natural gas is also trading pretty flat.

  • HDD Graph:

  • Imports Watch: Big drop week to week. Last week saw imports fall to 7.8 Bcfgpd from the previous week's 9.4 level. LNG returned to its low for the year of 0.6 Bcfgpd while volumes from Canada fell to their second lowest level of 2008 at 7.2 Bcfgpd as cold weather siphoned off available supply. Imports are 1.5 Bcfgpd from year ago levels. 

 

Analyst Forecast Watch: Oil and gas price decks (the numbers the analysts run through their models to come up with their CFPS estimates for the E&Ps and Majors are high to quarter to date numbers for the final quarter of 2008 and well above the 2009 futures strip. So either prices need to advance smartly in the remainder of 2008 or estimates for the unhedged players are going to be falling. Due to analysts recently high flying estimates for oil prices the situation is more grave there for 2009 with the 2009 average analyst price at $83.93 vs the 2009 strip of $59.24 (a 29% deficit). Natual gas prices by contrast are only 11% higher than  the strip. Even so, analysts are normally on the other side of the coin with estimates that are too low on the price side of the equation. As prices force capital budget curtailments, the falling volume projections will only be exacerbated by the drop accompanying forecast drop in prices. Much of this is already accounted for in the valuations of the companies when viewed from a $ per reserve basis but know that CFPS and EPS estimates are going to be falling over the next 2 months.

 

Additional thoughts on the E&Ps:

1) Stocks are cheap, but only 10 of the 20 included below (which are a pretty good cross sample of the group and contain all of the big caps) show CFPS growth in 2009 due to lower prices and despite strong and in many cases double digit unit volume growth. The positive growers are outlined in red for quick reference. Note high growth CHK and RRC are positive but just barely despite strong growth and big hedges...prices are just down that much. 

If we just look at the offshore names, the beat down has been simply absurd. True, these names are on a steep treadmill but stories vary, new developments are coming on stream as can be seen by some of the names which will double in bottom line results next year (CPE)-- despite lower prices and yet valuations are rock bottom. I generally don't care for the Gomex shelf players as you can get into the habit of well watching which is a rumor mongers business but I'm going to be doing a little more digging as these names are not all going to go away.

2) $ per Mcfe Starting To Matter More. I'll be adding a chart here later in the day but honestly, the implied reserve valuations are hitting rock bottom for the group.

3) Conservative Balance Sheets Rule, For Now. Low debt to cap with room on the revolver beats greater amount of leverage, even if the capital structure is not overly aggressive. Hence, the current predilection for the growthy, long reserve life, prospect rich but sub 15% debt to cap EOG pick. Sure CHK will grow faster and potentially bring more reserves to the table more quickly (which will play into the previous point), but now their ability to get more asset deals done in short order is of more import than their proficiency with the drill bit. However, when the credit market unlock, names like CHK should race. 

 

4) Hedges Have Not Mattered Much In The Downturn, But They Will Make For Some Cheap Forward Multiples Soon. Hedge positions for several of our frequently trafficked names can be found on the E&P tab and I'll be updating and augmenting that tab further this week.

Crack Spread Update

Refiner Multiple - Cheap but estimates still falling here as well.

Refiner Chart Commentary. Now, I'm no TA guru as you know but the refiners look to be trying to form a bottom with (SUN) actually having put on a pretty good rally in the last month. Just making note of it, think these guys will get tax loss sold into year end.

Odds & Ends

Analyst Watch: JPM starts (FSLR) with Overweight rating.(BJS) upped to Outperform at Wachovia. (ESLR) and (ASTI) cut to Underperform at JPM. (NBR) started at Hold at Jessup.

152 Responses to “E&P Update Tuesday”

  1. 1
    zman Says:

    Nifkin posted this earlier:

    Kodiak today announced that its Horseshoe Basin Unit well, HSB #5-3 (non-
    operated, 50% WI; 41.7% NRI), was recently connected to sales. During the
    first 6.5 days of production, the well produced 3,836 barrels of
    condensate and 21.7 million cubic feet of natural gas (MMcf). Currently
    the well is producing 412 barrels of condensate and 2.19 MMcf of natural
    gas equivalents per day on a 24/64″ choke with 850 psi flowing casing
    pressure. The well was initially drilled and completed by Kodiak in
    November 2007. Devon Energy now operates the well as part of the first
    quarter 2008 Vermillion Basin Exploration Agreement. Drilling activity
    continues as noted in the Company’s last operations update, with drilling
    operations continuing on two horizontal wells.

  2. 2
    bill Says:

    BRIEF-Barclays cuts price targets on several oil service & drilling cos

    Nov 18 (Reuters) – Oil Service & Drilling: * Barclays cuts Basic Energy Services Inc price target to $16 from $21 * Barclays cuts Chart Industries Inc price target to $29 from $32 * Barclays cuts BJ Services Co price target to $16 from $19 * Barclays cuts Dresser Rand Group Inc -price target to $34 from $37 * Barclays cuts Dril Quip -price target to $48 from $52 * Barclays cuts Halliburton Co price target to $31 from $38 * Barclays cuts Key Energy Services Inc price target to $11 from $12 * Barclays cuts ION Geophysical price target to $14 from $16 * Barclays cuts Oceaneering International Inc price target to $59 from

    $63 * Barclays cuts National Oilwell Varco price target to $50 from $58 * Barclays cuts Smith International Inc price target to $40 from $54 * Barclays cuts Schlumberger Ltd price target to $74 from $95 * Barclays cuts Superior Energy Services price target to $38 from $41 * Barclays cuts Tetra Technologies price target to $17 from $18 * Barclays cuts Weatherford International Ltd price target to $26 from

    $33 * Barclays cuts Global Industries Ltd price target to $6 from $7 * Barclays cuts GulfMark Offshore Inc price target to $45 from $47 * Barclays cuts Hornbeck Offshore Services Inc price target to $30 from

    $33 * Barclays cuts Diamond Offshore Drilling Inc price target to $121 from

    $134 * Barclays cuts Ensco International price target to $56 from $59 * Barclays cuts Hercules Offshore Inc price target to $6 from $10 * Barclays cuts Pride International Inc price target to $30 from $32 * Barclays cuts Noble Corp price target to $55 from $59 * Barclays cuts Rowan Companies Inc price target to $32 from $35 * Barclays cuts Transocean Inc price target to $129 from $144 * Barclays cuts Grey Wolf Inc price target to $6 from $7 * Barclays cuts Helmerich & Payne Inc price target to $39 from $53 * Barclays cuts Nabors Industries Ltd price target to $21 from $26 * Barclays cuts Parker Drilling Co price target to $7 from $8 * Barclays cuts Patterson UTI Energy Inc -price target to $15 from $20 ((Bangalore Equities Newsroom; +91 80 4135 5800; within U.S. +1 646 223 8780))

  3. 3
    sane Says:

    Well I guess winter is here. Woke up to a foot of snow this morning.

  4. 4
    zman Says:

    Thanks bill, good to know Sane. Oil and gas catching a little bid with the Hewlitt results this morning.

    Also potentially helping oil this morning:

    Russia’s energy minister, Sergei Shmatko, said on Tuesday that the world is heading toward a sharp deficit of oil-production capacity and Russian companies could reduce output and exports if they become unprofitable, Reuters reported.

  5. 5
    BirdsofpreyRcool Says:

    Credit market not happy this morning (who is?).

    IG 219…

    The “trading range” for IG has shifted to 195-215. So this falls out on the wrong side of the credit indicator range. We are in “oh-sh*t” territory to start. The next few trades (after stock market open) will hopefully indicate a direction. (As I don’t like the direction we are currently headed.)

  6. 6
    BirdsofpreyRcool Says:

    IG 220 now. Not happy with this…

  7. 7
    BirdsofpreyRcool Says:

    Bernanke on the tape saying he sees “some signs that credit markets are improving.” Well, i guess he has to say that… wonder what he’s looking at though.

  8. 8
    Fiveanddimer Says:

    BOP — I think Paul Volker agrees with your assessment of the credit markets: http://www.telegraph.co.uk/finance/economics/3474683/Volcker-issues-dire-warning-on-slump.html

  9. 9
    zman Says:

    Bird – today its the Barney Frank show on CNBC. Grilling time for Ben and Henry so maybe he’ll tell us what he sees in terms of an unlocking of credit.

  10. 10
    BirdsofpreyRcool Says:

    Thanks fiveanddimer… i think if Obama appoints Volker as Treasury Secy, the mrkts would rally on that.

  11. 11
    BirdsofpreyRcool Says:

    #9 – oh boy, Cartoon Time!

  12. 12
    zman Says:

    BOP – its on CNN. Frank basically opened with “you sold us on the bill based on mortgage reductions and we’re a little disappointed that none of the funds went that way”. Ben and Henry going to have a long day.

  13. 13
    BirdsofpreyRcool Says:

    I think Henry has already mentally checked out. He is picturing that trout stream in Wyoming while thinking “what the h*ll am i doing here?”

  14. 14
    bill Says:

    anr deal is off which is no suprise as the stock was trading at a 45 % discount to the acquisition price with 1 month to go.

    Anr is debt free, producing a ton of cash and down today on the deal with clf not happening.

    I took advantage and bot some shares today

    Coal stocks are very cheap just like other names in the energy sector

  15. 15
    bill Says:

    when i say debt free– im refering to net debt

  16. 16
    BirdsofpreyRcool Says:

    IG 219… directionally positive… still on the wrong side of 215, tho.

  17. 17
    BirdsofpreyRcool Says:

    KOG – they actually DID something… and it’s POSITIVE. That must be a new feeling for this management team.

    Stock still just a call option on their 36k acreas of untested Bakken on the indian reservation. Won’t have real results from that until next March or so.

  18. 18
    zman Says:

    Thanks Bill – re coal. I’ve tried to pick a couple of bottoms in coal in the last few months, good news = down stocks at least so far. Stocks probably better than options except for quick pops.

  19. 19
    zman Says:

    Paulson basically just said the economy is damaged so badly spending the rest of the TARP would not matter, better to conserve it for later.

  20. 20
    BirdsofpreyRcool Says:

    Paulson really knows how to choke all the fun out of things. He’s usually good for about 300 points on the Dow… to the red side.

    Maybe it will be different this time??

  21. 21
    BirdsofpreyRcool Says:

    To reiterate: there is not enough money in the WORLD to bail out everyone with their hands out. The TARP was not originally intended as a bailout (although the press characterized it that way). But as a way of monitizing illiquid and low-priced securities on bank balance sheets (thereby allowing banks to use that money to lend).

    Well… the reality of the situation is so badly morphed from the original intent, that “saving” the TARP money is the kindest thing they can do to those of us who actually pay taxes (and that is a smaller and smaller pool everyday).

  22. 22
    bill Says:

    energy and market are giving up early gains

  23. 23
    sane Says:

    Re 19

    Welcome to 90’s Japan

  24. 24
    zman Says:

    Ben says he sees interbank borrowing rates falling, stabilized money market and commercial paper markets.

  25. 25
    BirdsofpreyRcool Says:

    The commercial paper mrkt has been “stablized” because the Govt has been buying more than sellers have been selling. Sellers haven’t stopped unloading tho.

  26. 26
    zman Says:

    Bird – exactly. Packaged as asset back securities that money markets can borrow, non recourse, against from the Fed.

  27. 27
    zman Says:

    FDIC head says we are clearly falling behind the curve on home foreclosures. Its like listening to three coroners calmly discussing a corpse with the plague.

  28. 28
    BirdsofpreyRcool Says:

    Barney Frank as Elmer Fudd??

  29. 29
    BirdsofpreyRcool Says:

    “that waskally housing market…”

  30. 30
    zman Says:

    Ok, FDIC head Blair through some confidence into her opening speech along with a statement of what’s needed going forward with foreclosures.

    There was an acquisition last night in Canada by the way, one of the trusts got gobbled. No action in the U.S. worth mentioning but once the credit markets do free up we are going to see consolidation in the U.S. E&Ps, probably 1Q09. Could see several of them.

  31. 31
    BirdsofpreyRcool Says:

    Hank Paulson has NO IDEA how to explain why saving a financial institution is different than saving a homeowner who can no longer afford their house. Two different arguments. One is like saving the electrical grid… the other is like paying someone’s personal electric bill. Two entirely different economic decisions.

  32. 32
    cargocult Says:

    How do you guys feel about Kurt Wulff and his valuations?

  33. 33
    BirdsofpreyRcool Says:

    IG 216… almost back to the “normal” range.

  34. 34
    BirdsofpreyRcool Says:

    IG 218 sorry… that didn’t last long.

  35. 35
    zman Says:

    Cargo – I don’t have an opinion on him…not sure what McDepp ratio is and I don’t know what his background is in energy.

  36. 36
    antrimshale74 Says:

    Don’t blink… you might miss the fact that the NYSE Financial Index actually went positive.

  37. 37
    antrimshale74 Says:

    Gone.

  38. 38
    zman Says:

    AAA sees slight decline in thanksgiving travel for first time since 2002. About 41 mm Americans will travel 50 miles or more from home, down 1.4% from last year.

    Market is mesmerized by Fed, Treasury, FDIC.

    Majors outperforming E&P which is outperforming Oil Service.

  39. 39
    BirdsofpreyRcool Says:

    IG 220… credit mrkt not feeling the love.

  40. 40
    zman Says:

    CVX reports 90,000 bopd of Nigeria crude shut in due to that pipeline attack last Friday.

  41. 41
    Jay Reynolds Says:

    Re the Saudi VLCC hijacking.

    Worth reading if things are slow.

    http://www.fool.com/investing/general/2008/11/18/fool-blog-an-open-letter-to-somali-pirates.aspx

  42. 42
    zman Says:

    Thanks Jay, just reading its off the coast of Somalia now.

  43. 43
    md Says:

    As per todays EIA August Electricty update
    NG consumption for electricity revised
    to 735 BCF . A 167 BCF downward adjustment from initial 902 BCF. vs. 934 BCF in 8/07.
    As discussed on these pages, the high YOY injections particularly in Aug. was due to a lowly 30 BCF increased net supply and a whopping 267 BCF lower demand. Likely all weather related.

  44. 44
    BirdsofpreyRcool Says:

    the more the members of the banking committee speak, the wider credit is going…

    IG 222 now.

  45. 45
    zman Says:

    md – yep, modeling corrected for weather. Those monthly numbers will get revised for the next 2 years but they are useful for trending. The more recent months are subject to the wildest revisions and in some cases, they, the EIA, force things closer to a balance and so you see those swings. Note also that they never balance supply and demand in the energy monthly vs storage. There is always a “balancing item” which has grown quite large. Even more problematic in terms of accuracy than electricity is industrial consumption. At least with electricity you can eventually get a good MwH number, apply a heat rate to it and come up with gas consumed. For industrial, you have a survey and lots of modeling. Pretty tough.

    Bird – yep, just listening to the inquisition. Lots of grandstanding and drama. Not a lot of answers and planning. Credit market can’t like that.

  46. 46
    douglas51 Says:

    Raymond James has a strong buy on PXP today. Target of $38 in 2009 based on 4.5x 2009 EBITDA. Said traditional valuations of E&P are 4-6x…FYI

  47. 47
    zman Says:

    Thanks Douglas. Can’t argue with their traditional valuation range of 4 to 6 for TEV/EBITDA. Would add that longer reserve life also pushes the upper end of the range higher. Right now, almost every name I follow is going to be close to 4x because investors don’t believe the denominator (EBITDA) is going to be what the current estimates show.

  48. 48
    Bob Says:

    Coal getting hammered again, even though NG is up. WLT another 52 week low breaking into the teens. BTU pennies above 52 week low. Seems like a near term oversold bounce is overdue??

  49. 49
    Pete Says:

    Hank Paulson cries “fire” in crowded theaters.

  50. 50
    BirdsofpreyRcool Says:

    IG 220… wider, but strangely calm right now.

  51. 51
    zman Says:

    Bob – I keep trying to call it and I keep losing those toes that I’ve dipped into the water, most recently WLT. I’m likely to try again soon but I’ve been looking for a source for met coal pricing. As of 3Q met coal pricing was not only not down but was continuing to rally. Based on that and the growth expectations for them beginning in 1Q09 I took a little on and got my head promptly handed to me. Just no interest from investors now but it has to come soon.

    I have not kept track of how much production is exiting the market but eastern coal prices have come way off their highs and you have to think more production curtailments are going to occur, especially if China, a big and recent source of demand growth, is slowing.

  52. 52
    zman Says:

    Bird – odd how its not being tracked by the broad markets today. Could mean the equity “rally” should be sold.

  53. 53
    tomdavis12 Says:

    Z: Thanks Z and MD. I thought the increase in inventory was more a supply issue than demand. Thanks for straightening that out.

  54. 54
    zman Says:

    GDP continues to outperform, not going to chase but someone remind on the next bloodbath red day to watch for an entry.

    EOG starting to tick up again nicely along with SWN and XOM.

  55. 55
    zman Says:

    Tom – normally it is but August was mild making for light cooling load and allowing that big build in natural gas. I saw the building gas production and should have paid more heed to the weather.

  56. 56
    md Says:

    Z
    To confirm your thoughts I jst compared Aug. 07 from todays report at 934 to the NG based which still shows an unadjsuted 1000. Or who knows.
    The Apr. and May 08 seem adjusted on NG pages to match the elect.

    The Aug balancing showed 135 which can be attributed to the 167 BCF revision in electric.
    How accurate is the draw.The draw is showing as 350 BCF vs. Supply – consum. of 377. Which of these numbers is the cart and which is the horse. From what you’re telling me if industrial is modelled does it change the draw or the draw will not get adjusted.
    So what’s the cart and whats the horse.

  57. 57
    Bob Says:

    Re: 51 Thanks, Z

  58. 58
    md Says:

    from EIA Electricity

    Executive Summary

    Generation: Data from the National Oceanic and Atmospheric Administration (NOAA) show that the population-weighted Residential Energy Demand Temperature Index (REDTI) for August 2008 was 3.5 percent “below average consumption.” August 2007, in contrast, was the second warmest on record and the REDTI was about “eight percent higher than what would have occurred” under normal climatic conditions. Additionally, the Commerce Department reported that real gross domestic product decreased from the second quarter to the third quarter of 2008. The manufacturing component of the Federal Reserve’s Industrial Production Index was down 1.9 percent compared to the August 2007 value. The relatively normal 2008 weather compared to the hot August 2007 and the decline in economic activity contributed to an August 2008 net generation level that was 8.4 percent lower than it had been a year earlier.

  59. 59
    BirdsofpreyRcool Says:

    z – either stocks will fall… or credit has to rally. You’re right, this divergence is not sustainable. I’d guess… but my intra-day guesses have not been correct lately. There are just so many cross-currents in the mrkt on a daily basis. But, overall, the direction still points down. Still no credit market and the open issue of the Auto Industry (to bail, or not to bail)… tough to rally in the face of that.

    No confidence in credit markets, no confidence in company earnings, no confidence in the fiasco we hear every time we make the march to a congressional committee inquisition… tough to sustain a rally here, I would think.

  60. 60
    zman Says:

    The draw is taken from the weekly numbers which are also a survey, but fairly accurate (I think 2 to 3% margin of error over time).

  61. 61
    BirdsofpreyRcool Says:

    z – you’ve been pretty good at calling intraday moves in the mrkt… what do you think today?

  62. 62
    zman Says:

    Bird, I would just prefer that you say it’s going to fall, lol.

    Am watching the November EOG calls for an exit today.

  63. 63
    douglas51 Says:

    My best guess is that the Australian benchmark coal settlement, which will be contracted during 1Q09, will fall in the range of $150 to $200 /mt, with appropriate discounts for location and/or quality differentials into consideration.

    This is a lower number than I earlier thought this year, but coal stocks are attractively priced here. Once the economic crisis subsides, which it will eventually, I think these stocks will owrk toward the next up-cycle in demand and pricing, which is only one supply crisis away.

    WLT…target of $52…12 month target.

  64. 64
    BirdsofpreyRcool Says:

    z – ok. I think it ends the day lower. There, I said it.

  65. 65
    BirdsofpreyRcool Says:

    IG 221.. 1 tick wider

  66. 66
    md Says:

    On NG Supply

    Was this what you reported on last week re: Cheniere
    It has good info on LNG mkts.

    http://library.corporate-ir.net/library/10/101/101667/items/316041/BankofAmerica_2008.pdf

    The way I understand their circuitous logic is that the worlds going to be awash in surplus LNG by latest 2010. Therefore the demand will be created in USA which will drive prices of NG down and keep domestic supply down, which will drive prices back up and make it profitable for LNG suppliers to ship to USA (at which time domestic will ramp up drilling and drive prices down.)

  67. 67
    BirdsofpreyRcool Says:

    IG 223… bonds just not following stocks higher. Wonder who blinks first.

  68. 68
    ellwodo Says:

    CHK – No idea what it means, if anything, but Jan 10 leaps show 5000 contracts for the 30s and 5000 for the 45s. There doesn’t appea to be any offsetting put transactions. I guess someone could be buying one of them and selling the other.

  69. 69
    zman Says:

    Elwo – yep, very likely buying the low calls and selling the higher ones.

  70. 70
    BirdsofpreyRcool Says:

    IG 224… the credit mrkt is starting to contemplate panicking… it’s been a fairly calm move wider, so far. but this level is getting just plain scary. Somebody is going to be crying at the end of today. Bonds are betting it will be stocks.

  71. 71
    BirdsofpreyRcool Says:

    IG 225 1/2…

  72. 72
    zman Says:

    CNBC actually commenting on lower oil prices around the world hurting the prospects for investment in development projects and for oil sands expansions. You can feel the turn in sentiment starting. The traders essentially spoon feed Sharon Epperson with commentary. It was nothing but bullish until about the peak, and has been nothing but bearish through hurricane season (remember the mid $100-teens were just 2 months ago) and now tid bits of bullishness are rearing their head instead of the too-oft repeated fear and demand destruction mantra.

  73. 73
    md Says:

    BOP
    How do you short the S&P and go long the IG

  74. 74
    BirdsofpreyRcool Says:

    md – you have to be an institutional player in the IG mrkt and have a relationship with the trading desk of a major investment bank. So, it’s something your bond fund mngr can do… not something you and i as individuals can.

    Looking at the DXD here, as the short leg of your trade. It’s based on 2x inverse Dow, tho.

    sorry. I’m not much help.

  75. 75
    BirdsofpreyRcool Says:

    is there an ETF for corporate bonds? I would think there is… just have never looked.

  76. 76
    BirdsofpreyRcool Says:

    seeing new “all time lows” on the high yield bond index.

    again, i have NO CALL on the stock market in the short run… but, based on what I am seeing in credit, it shouldn’t be green.

    Either stocks will come down, or bonds will turn up… the divergence just keeps getting wider.

  77. 77
    Bob Says:

    BOP: I use the SDS for double inverse the S&P…more liquid then DXD.

    LQD is Investment Grade Bond ETF from ishares

  78. 78
    BirdsofpreyRcool Says:

    thanks, Bob. Knew there were some savvy people out there.

  79. 79
    zman Says:

    Back to the late October lows for the S&P 500. This would be a new closing low for the year. In March 2003, the S&P was at this level and it took 4.5 years for it to peak around 1,550. At the beginning of September 2008, the index was still at 1,300. Now, 2 months later, 844 and falling.

  80. 80
    BirdsofpreyRcool Says:

    IG 226… +10 bps from yesterday’s close. This used to be the “we’re f*d” level… but, the mrkt got used to the pain. Guessing that level is now 240.

  81. 81
    BirdsofpreyRcool Says:

    IG 228

  82. 82
    BirdsofpreyRcool Says:

    IG 227… pulling back from the lows, a bit

  83. 83
    ram Says:

    Since we’re approaching the end of the year, where is the year end rally? Nicky, where’s Nicky?

  84. 84
    zman Says:

    ZTRADE: $10KP Trade

    Added (5) more EOG November $85 calls (EOGKQ) added for $1.25 and was able, with patience to split the bid the ask. This is pretty risky as the stock is at $80.44 at the time of the trade, the strike is 85 and we have 3 days until expiry. I expect it to recover to around $83 or $84 with a bounce in the market and this is a go along play with the safer Decembers I already hold.

  85. 85
    mahout Says:

    Z,

    Do you think it’s possible that those rascals(see how kind i am)in D.C. will actually let GM and the Auto industry fail!!! Just because people back home in their pain and fear are hollering let ’em fail, serves ’em right?
    I don’t believe it. But if so, in a short time those same people will be saying, Why did you let that happen- now i’ve lost my job too? And the Dumocrats can say goodby to Michigan and Ohio and maybe more States in the future.
    Is there something i don’t see here? Can we be so stupid as to allow the auto industry to shut up shop at the same time and on top of the Housing, Finance, and Retail collapse? Sure GM will fail eventually because they are terribly uncompetitive and need to go thru the wringer. But not just at this time of widespread fear and uncertainty.

    Does anyone think that bankruptcy for GM and many others as a result is a good thing for all of us? That’s what a lot of people I know are saying. If so, please tell me why.

  86. 86
    zman Says:

    Mahout – just a guess but I’d bet they get bridged. I don’t get political as I don’t see value in that here. I would say that any life line should have strings attached regarding fuel efficiency.

  87. 87
    mahout Says:

    Z,

    Agree. Plenty of strings.

    The fact is that the future of the Auto industry is a big fat lead weight on the whole market. I don’t see how we can make any headway in the energy patch or any other patch until we get some assurance we won’t have the collapse of that huge industry to deal with.

  88. 88
    zman Says:

    M – agreed, big lead weight. Just when I think the market has that already factored in, I’m proven wrong.

  89. 89
    BirdsofpreyRcool Says:

    New low (again) in the high yield bond index. Just can’t seem to find anything cheery to say.

    also, IG 229

  90. 90
    BirdsofpreyRcool Says:

    IG 230… that was fast….

  91. 91
    Jay Reynolds Says:

    I liked the suggestion on Fast Money last night via Finerman’s Trophy Husband.

    Put the heads of the Big 3 in a room and say, “There is too much excess capacity in the market and we have the money to help one of you. Go back to your unions and suppliers and wring out every concession you can get and the entity with a PLAN that is good enough may get some help.”

    The union business of getting nearly full pay when laid off is a gagging point for just about everyone.

  92. 92
    mahout Says:

    BOP,

    Say it isn’t so, IG 230! Looks like bond traders will need a new “normal” bad news range again. All i see is gloom in every direction and i don’t like to be this way. Somebody cheer me up please.

    How about this one: Support bacteria, it’s the only culture some people have.

    Z,

    On looking back i noticed i spelled Democrats wrong. Sorry.

  93. 93
    BirdsofpreyRcool Says:

    mahout… all you have to do is ask. bonds backing away from the edge again…

    IG 227 1/2

  94. 94
    BirdsofpreyRcool Says:

    bought a little GEOI on that downdraft. Extremely well run micro-mini with a little bit spread over a lot of different plays. CEO is a master of Balance Sheet management. Tragically illiquid stock, tho.

  95. 95
    mahout Says:

    BOP,

    Well to top it off now i have to go to the dentist and he’s going to drill.

    See you tomorrow.

  96. 96
    zman Says:

    mahout – He may be the only one drilling if prices fall much further.

  97. 97
    BirdsofpreyRcool Says:

    mahout — ouch! (bettern watching a Congressional Banking Committee meeting, however.)

  98. 98
    ram Says:

    The auto execs have to think about gaining cash flow. There is no magic in dropping prices to create cash flow. All they have to look at is how homes are increasing sales yoy by virtue of dropping prices. Lower the price of the Acadia, come on!

  99. 99
    BirdsofpreyRcool Says:

    IG 228 again.

  100. 100
    BirdsofpreyRcool Says:

    IG 230… just gapped wider. sorry about that.

  101. 101
    zman Says:

    Bird – procedural question for you? IG spread only trades sporadically, correct, so if you are quoting it more frequently does that mean greater activity, albeit at uglier levels than in the last few days?

  102. 102
    BirdsofpreyRcool Says:

    z – spot on. yes. you are correct.

  103. 103
    BirdsofpreyRcool Says:

    z – the credit market was downright sleepy yesterday. It made up for it today. Unfortunately, there was a rush for the door today. Spreads gapped wider pretty much across the board. “gapped” is a key word here.

  104. 104
    zman Says:

    You don’t often hear me talk about contango and backwardation but I did mention the steep contango a few days ago. Guy on CNBC now saying oil bottomed in the past when the contango was this steep. Then he goes on to talk about DO in a nice way so he just made the Christmas card list.

  105. 105
    ram Says:

    ZMAN – How many E&P companies have you known to have a market cap of $1.7B and $45B+ in liabilities?

  106. 106
    zman Says:

    Thanks Bird, volumes completely lame in the equity markets.

  107. 107
    zman Says:

    None that I know of. Who is that?

  108. 108
    zman Says:

    Is it a car company? The suspense is killing me.

  109. 109
    ram Says:

    GM

  110. 110
    BirdsofpreyRcool Says:

    z – it’s all relative. volume has been completely lame in the credit markets since August 2007. just a little less lame today, than yesterday. unfortunately, volume picked up to the downside.

    we really are in mrkt limbo land until we get some resolution (one way or the other) on some pretty major issues. So, can’t imagine volumes tick up much from here.

  111. 111
    zman Says:

    Bird – agreed, all of Ben and Henry’s efforts to get banks to lend seem to be pushing on a string. So far you are spot on with the down call from near the day’s high.

  112. 112
    BirdsofpreyRcool Says:

    IG 233… rats. This is pretty bad now.

  113. 113
    zman Says:

    Cramer making note of the majors, specifically XOM, specifically have stopped going down.

    It’ll be interesting to see if we are still in a pattern of first and last 15 minutes matter and everything in between is just noise. If we are still in that pattern it might argue for a late day rally.

  114. 114
    ram Says:

    How does a company with a debt to equity ratio approaching 30 to 1 manage to stay in business?

  115. 115
    BirdsofpreyRcool Says:

    SKF back to 200. I think I want to go to the dentist too. It’s more fun than watching this market.

  116. 116
    zman Says:

    Ram – good question, I have no idea. Its pathetic really. It’s not like that debt load occurred in the blink of an eye either. They had to work at it to get it up there. Wonder what their TIE ratio is.

  117. 117
    VTZ Says:

    Whats a TIE ratio?

  118. 118
    BirdsofpreyRcool Says:

    IG 230. Sure would like to see this close sub-225…

  119. 119
    zman Says:

    DJIA went from down 160 to down 10 in 10 minutes. This market has no idea what it wants to do. Very light volume in energy.

    TIE = times interest earned. Measure of how much EBIT or EBITDA you have compared to your interest payment. Bet their is scary.

  120. 120
    VTZ Says:

    Ahhhh, a measure of being able to service your debt. I suppose I couldve googled it.

  121. 121
    BirdsofpreyRcool Says:

    z – GM’s LTM EBITDA is -7,741 million. So, interest coverage is not applicable here.

    In normal times, it would be a crime against taxpayers to even think about keeping this dead man walking.

  122. 122
    ram Says:

    Paulson To Automakers: No TARP For You!

  123. 123
    reefguy Says:

    LLOG is going to file…

  124. 124
    zman Says:

    Ram – lol, paulson’s the tarpnazi

    Reef – thanks. You still headed to Shreveport Friday?

  125. 125
    zman Says:

    Reef – its got to be hard on the mom’s and pops right now. Rig rates and services have not really come off that much. Not anything like oil and gas prices.

  126. 126
    zman Says:

    Volumes remaining pathetic through the close. Majors only place with any feeling of stability in energy land. The E&Ps appear to be taking 1 step forward and 1 step back here on declining volume. Note a terrible thing in an undecided market.

  127. 127
    apbd Says:

    IMHO
    What America needs is the Big Two not the Big Three with a new business model,
    new fuel efficient models, new Management, and new Union contracts.
    This can only be accomplished by a federal judge in a Chapter 11 reorganization. As a taxpayer, I wouldn’t mind my tax dollars being used during the reorg. but not as the plan is now being proffered.
    apbd

  128. 128
    zman Says:

    A – I hear ya. There is no reason you can’t have smaller car companies producing fewer, more efficient models. I was on the GM site last night, wow, like 80 something different cars, average selling price had to be north of $30K. Good luck selling those right now. I saw get the efficiency up and the electrics second priority to CNG and the U.S. can really start exporting cars in the next cycle.

  129. 129
    zman Says:

    Bird – thanks for the input today.

  130. 130
    zman Says:

    If I were smart I’d drop those Nov EOG calls from earlier and the ones from yesterday into the close for a wash but I typed this instead.

    XOM closing at its HOD.

  131. 131
    VTZ Says:

    I forgot to mention Z, at work we had town hall with the following outtakes:
    -expects to see lower price structure for some time
    -expects to see the cost structure fall much more slowly
    -expects tightening supply of products in Canada (NG and refined products)
    -expects selective M&A activity
    -expects to see continued development of low risk plays and low cost areas

  132. 132
    VTZ Says:

    Lots of the stuff is what you say and I think lots is apparent to most.

  133. 133
    zman Says:

    Taking a time out to watch some tunes with the kid. Back on your comments in a bit with questions V.

  134. 134
    zman Says:

    V – any talk of letting workers go from the Majors in oil sands.

    An operational question. On the surface minds, do you run those flat out 24/7 when oil prices fall this far or is there any point to scaling refining of the sands back? I assume if you have it, you run it full out.

  135. 135
    VTZ Says:

    What do kids watch these days anyways?

    Nobody is going anywhere. There is still a labour shortage, although some tradesworkers and contractors are becoming available due to some of the project cancelations.

    In oil sands, you wouldn’t cut back because it would make your cost structure worse and also people would leave and go next door.

    If the prices did get down to 25-35 people might consider taking an outage to turnaround facilities and do any necessary work.

    If prices got extremely low then some might get shut-in.

  136. 136
    VTZ Says:

    Keep in mind that the total production out of the mine facilities is ~700,000 bbl/day and the amount out of wells is probably similar although in much smaller tranches and those tranches have much more varying cost structures.

  137. 137
    BirdsofpreyRcool Says:

    GM just announcing they are cutting “overtime” at 5 US plants and 2 in Mexico.

    Gee… guess they finally realized there’s a problem.

  138. 138
    zman Says:

    PBR cuts lose 28 deepwater newbuild rigs. In one way its bad for the deepwater guys as the this a major customer, delaying projects. But on the other hand, less inventory coming on in the next 3 to 4 years means higher utilization of the existing fleet. These were all contracts with Brazilian companies/shipyards.

  139. 139
    VTZ Says:

    OMG… GM cutting overtime is an issue… I hate the CAW and UAW unions. They are major contributors to the US auto downfall.

  140. 140
    md Says:

    who’s LLOG

  141. 141
    md Says:

    PBR- that seems like big news. Can you comment on it tomorrows update.

  142. 142
    zman Says:

    LLOG is a private E&P

    md – you can be it’ll be in there with some numbers to give you a little sense of scale.

  143. 143
    ram Says:

    Whatever happened to the “Obama” factor that would push solar stocks higher?

  144. 144
    bill Says:

    Obama said he would bring change

    He is appointing all the clinton hacks..the latest for atty general was involved in the marc rich pardon

    This inspires confidence??

    Maybe elliot spizer will be on his short list for sec position

    I heard someone say today he wants a windfall profit tax on energy companies and will cut drilling.

    These policies will cut supply in the long run

  145. 145
    Wyoming Says:

    Bill,

    Thanks for the lead in, I have been setting this up since this morning.

    Quick conclusion:

    The Dems are already working on slowing gas drilling down.

    The Blab:

    Here are two links to the front. BTW legislation is already in the House;

    http:/
    http://www.earthworksaction.org

    http://www.govtrack.us/congress/bill.xpd?
    bill=h110-7231&tab=analysis

    What does this mean, basically, our junk gas reservoirs that fall off the production curve even with much stimulation just got more expensive, time delayed, put another adjective here.

    We have been using frac fluids for decades without any issues to ground water. Some of the chemicals are found in hot dogs/yogurt it is guar. There is a reason why we set surface pipe in a well (producers and disposal). Ah, fuck the bozos let ’em burn cow shit, I’m getting another glass of wine. Apologies to mama Z in advance.

  146. 146
    VTZ Says:

    Hahaha from that earthworksaction website:

    “Oil derived from tar sands can have serious impacts on climate even before it is burned — estimates show that extraction and processing of tar sands generates between 5 to 10 times more carbon dioxide emissions than conventional oil.”

    I would like to punch whoever can claim that he intelligently made that estimate… try 10-15% more than oil shipped from the middle east.

  147. 147
    zman Says:

    Wyoming & VTZ,

    The problem with you guys is that you expect people to use facts and data in making their case. These guys have no interest in honesty. They simply don’t like the industry and want to put it out of business.

    Their mantra should be “If it turns to the right, it’s a blight” or some such crap.

    And the part about talking nice about natural gas before the election and already sowing the seeds to shut some of it down is called bait and switch, or BS for short.

  148. 148
    Wyoming Says:

    4 more years? … Starting in January. Any chance of amending for time served?

  149. 149
    Wyoming Says:

    And what the hell is the BP commercial with Bob and Jane bozo saying that all energy companies need to explore for alternative sources of energy … I’m done, wheres the Tylenol.

  150. 150
    ram Says:

    The solar guys are alt energy and they are falling hard. So how come the demmy’s aren’t screaming solar?

  151. 151
    zman Says:

    Ram

    Because the economy is taking a front seat and oil prices fell. We don’t do anything with regard to energy policy in this country without a crisis.

  152. 152
    Wyoming Says:

    Calmed down a little. Scuttle from WFT and HAL is basically they will keep staffing and capex for 2009 and sacrifice for the come in 2010. Sound like two to short to me but these guys are looking for anything to talk about when their is no activity.

    They have started to see the pain in Q4 … finally. Both said their activity has been clipped. February will be the true tell of the service sector.

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