19
Dec

Friday

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In Today's Post:

  1. Holdings Watch - mea culpa
  2. Commodity Watch
  3. Natural Gas Storage Review
  4. Stuff We Care About Today - SWN
  5. Odds & Ends

Holdings Watch: No changes. The $10KP is in sad shape after two days of post OPEC backlash.  I'll take whatever I can get on remaining December calls which will be very little as the market has not been kind to say the least since the close on Tuesday. Heck of a time to go MIA I know but life has a way of doing that and I should have taken my smaller lumps sooner and gone into OPEC Wednesday flat. I'll be recapitalizing the $10KP for the beginning of the new year.

Commodity Watch:

Crude oil got hammered for a second straight day, ending off $3.84 at $36.22. Today is the last of trading for the January contract so look for another wild one. February crude is currently trading at $42.38, nearly unchanged despite another sharp drop for January crude which fell as far as $33.44 over night. 

  • OPEC Watch: From Reuters ~ Opec president Chakib Khelil said he believed oil prices had found a floor around current levels. "I don't believe there is any reason for it to fall any further. I don't see it going lower,"
  • Thunderhorse Ramps Up: The platform formally known as Crazy Horse has ramped production to 200,000 BOEpd on its way to capacity of 283,000 BOEpd (88% oil). This is the largest project in the deepwater Gulf of Mexico to date and was the first of the so-called "billion barrel" discoveries in the Gomex. I recall people scoffing in 1999 when it was declared as such after only 1 well was drilled. After numerous multi-month delays, the project is finally coming to fruition and the EIA had a good piece on the ramp up here. My point in highlighting this is the time and expense it takes to get these projects of significant size off the ground (nine years! though to be fair Katrina did the platform no favors) relative to the current  investing environment. BP operates with a 75% interest here with (XOM) holding the remaing 25%.

 

Natural Gas fell 7 cents to close at $5.55. The drop was more in relation to oil's move into the middle $30s than it was to the slightly larger than expected gas storage number (see storage next section). For you BTU parity fans, oil is now trading at 6.5x natural gas, very close to the 6.0x used to equalize the two in equivalent units like BOEpd (which is 1 barrel of oil or 6 Mcf of gas - see definitions tab for more on conversions). Over the summer as oil approached $150 and natural gas was around 13 this ratio had expanded to 11x and guys like Cramer were yelling for BTU parity....well there ya go... except I don't think that his calling this year of natural gas meant that parity would be reached by a collapse in both commodity prices. Not to cast stones but price and the heat equivalent value of the two fuels have little to do with one another. Anyone who says otherwise is selling something. Oil is global, and gas is locat (despite all the LNG out there) and the laws of supply and demand still set, at least loosely, the prices of each. 

Natural Gas Storage Review

Little change in terms of relative position of storage to last week. The deficit to last year remains at 1.3% (chart B below) and the surplus to the five year average (chart C) inched up slightly. In short, absolute storage remains high for this time of year. That's a given and not likely to change quickly as the season progresses unless the weather strays significantly into extended cold and then we may see a little more improvement towards five year norms by late January or early February. The latest forecasts do not call for a strong middle to winter and gas prices are likely to languish in neutral without extensive and extended cold snaps.

Of more interest was the size of the withdrawal relative to weather and what it tells us about industrial demand as of last week. Last week's weather saw 200 HDDs and from that alone I would have expected a withdrawal number north of 120 Bcf. However, the last few weeks have shown a de-linking of cold weather and storage, most likely attributable to soft Industrial demand and higher supply. While yesterday's number wasn't a barn burner you can see it fell back to well within the usual range for withdrawals for this week of the year (chart D). Did demand snap back? Unlikely. Did space heating demand inch up in more of the country? Probably. Probably that and some regional shut ins due to ice and/or price. 

This week's HDD forecast had looked for a slightly warm temps and the end of the week is agreeing with that trend after ice reached more of the country than it had so far season to date. Ideally, the final HDD tally will be revised northward which will give us more of chance of really denting storage.

Regional Storage: Note the West's season to date lack of participation in withdrawals. That is starting to change as record cold covers many parts of the region. (click on the graph if it doesn't show fully on your screen).

Stuff We Care About Today

SWN Outlines Budget, Growth

  • Capex of $2 billion, $1.78 B on E&P and of that $1.5 B on the Fayetteville Shale vs $1.4 B this year.
    • This will be one of the few E&Ps you see with up capex 2009 vs 2008 (total capex of $1.7B)
    • 20 to 21 rigs in the Fayettevile, not down from prior number.
    • Higher well count at 620 horizontals in 2009  vs 520 this year as per well drill times contract.
    • Not quite staying within cash flow next year but almost (gas price deck for that is $6).
    • Debt to total cap seen at 24 to 26% at YE09 vs 25% as of the 3Q08. This is a very manageable amount of debt with pre-capitalized interest at about $68 million and EBITDA generation close to $1.5 B next year.
    • Outside of the Fayetteville they will be slowing down with about 100 wells in other plays (Arkoma, E. Texas (they are in a JV to drill a couple of Haynesville tests I think soon),  and 2 wells wells in Marcellus)
    • Funding to come from cash flow, cash on balance sheet of "over $200 million" (which looks light by the way so they must have been spending pretty heavily in the fourth quarter) and from their undrawn $1 billion credit facility.
  • Production Growth Guidance: 48% at 280 to 284 Bcfe for 2009.  That's slower than the 69% growth this year and the 57% growth seen in 2007 but normal as we the law of large numbers starts to enter into play.
  • Well costs rising slightly with longer laterals and bigger fracs but that should not be a problem. They should be able to get another 2 years of declining F&D costs in the Fayetteville.
    • as they have nearly doubled the lateral length over the past two years, they have more than doubled the average IP and probably proportionately increased per well reserves.
    • 2006 F&D: $2.72 / Mcfe
    • 2007 F&D:  $2.55 / Mcfe
    • 2008: ? but wells costs close to $3 million and production profiles in the extended laterals approaching 2.5 BCFE type curves augers for a significnat reduction in finding costs.
  • Hedges
    • 2009 is 48% hedged with average floor price of $8.48 which helps to explain the up capex.
  • Gas Price Sensitivity:
    • A $1 change in natural gas yields roughly a $0.40 CFPS change or about 10%.
    • At present, SWN's $5 gas case matches Street consensus for CFPS in 2009 of $4.08 ...
    • ...and their $6 case comes in just ahead of EPS Consensus while the $5 gas comes up 20 cents light at $1.40 vs $1.60. As usual, I would argue, at length if necessary, that CFPS is by far the better measure of an E&P company.
  • Cost Guidance: good (low) LOE, consistent with historic leve at the low end of their peer group.
  • In a nutshell, good guidance, could be cause for the Street to inch up some numbers but since most of their acreage is now HBP I have to wonder a bit about where the fire is relative to capital discipline here. I think in the present financial markets and gas macro setting it might have been better to ease growth a touch more, getting to say "only 35%" growth while leaving cash balances alone and whittling debt down slightly. Still, I'm not complaining with this outlook.

Chesapeake Concerns Emailed In By A Smart Money Guy I Know. I'll do this as a separate piece or as part of the weekend wrap as they were good questions.

ETP Prices Senior Deal:

  • $600 mm
  • 9.7% due 2019
  • Just throwing this out there for BOP

Odds & Ends

Analyst Watch: (FSLR) started at Jerfco with a Buy rating and $180 target. (OXY) cut to Hold at Argus, (FLR) cut to Sell at Citi,

132 Responses to “Friday”

  1. 1
    Sambone Says:

    Oil Down More Than $2, Below $34/Bbl

    By Sherry Su
    Of DOW JONES NEWSWIRES

    LONDON — Nymex crude futures fell more than $2 to below $34 a barrel Friday, their lowest level since April, 2004, as lingering concerns over global demand continued to dominate the market.

    However, the steep decline was restricted to the January Nymex contract, in trading that was seen to be associated with the contract’s expiry later Friday. Other crude contracts pared earlier gains to trade back near unchanged, as the market continued to wind down ahead of the Christmas holiday season.

    At 1202 GMT, the front-month January light, sweet, crude contract on the New York Mercantile Exchange was trading $2.19 lower at $34.03 a barrel, after dropping as low as $33.44 a barrel. The February contract was down 27 cents at $41.40 a barrel.

    The front-month January Brent contract on London’s ICE futures exchange was up 13 cents at $43.49 a barrel.

    —By Sherry Su, Dow Jones Newswires

  2. 2
    Sambone Says:

    Welcome back Big guy, gettin any sleep?

  3. 3
    Sambone Says:

    Oil’s Crash Stirs Unrest In Russia

    By Andrew Osborn and Alan Cullison
    OF THE WALL STREET JOURNAL

    BARNAUL, Russia — Russia’s oil-fired economic miracle is unraveling as industry shrinks and job losses mount. Now the first stirrings of social unrest have the Kremlin groping for a response.

    Gloom deepened over the outlook for oil-export revenue, Russia’s main earner, as prices plunged Thursday despite OPEC’s move this week to deeply cut production. Oil hit a 4 1/2 year low on anxiety about falling global demand, with crude closing at $36.22 a barrel in New York, down $3.84. This could spell trouble for Russia, which has pegged its 2009 budget on much higher oil prices, meaning it will have to trim spending.

    The drop in oil prices is eroding the Kremlin’s ability to replenish its gold and foreign-currency reserves just when it needs them most. Although the country’s reserves are the world’s third-largest behind China and Japan, it has been spending tens of billions of dollars in an attempt to prop up its falling ruble and stave off public panic.

    The central bank let the currency slide more quickly Thursday, the third small devaluation in four days. The currency has lost more than 11% against the government’s dollar-euro basket since August, when it hit its historic peak.

    Prime Minister Vladimir Putin on Thursday painted a bleak picture of the economy. Since October, more than 7,500 firms have informed the government they intended to lay off people, and 207,000 workers have had their working hours reduced, he said, calling these “worrying signals.”

    The government is drawing up a list of the most significant enterprises that might need a bailout, Mr. Putin added. That would come on top of the more than $200 billion the Kremlin has already pledged to shore up the economy, and will cover a minimum of 1,500 firms. Deputy Economy Minister Andrei Klepach said on Thursday that the economy wouldn’t grow again until the middle of next year.

    The Kremlin has tried in state media to downplay the impact of the global financial crisis. Yet popular discontent is growing.

    Last weekend, thousands of angry residents in the far eastern city of Vladivostok took to the streets and blocked traffic to protest government plans to raise tariffs on secondhand foreign cars, which are one of the impoverished region’s biggest moneymakers. Similar protests have been attempted in Moscow, St. Petersburg and Kaliningrad, and further demonstrations are planned for Sunday in Vladivostok.

    Public anger also spilled onto the streets this fall in the Siberian town of Barnaul, as thousands of pensioners who had lost their right to discounted public-transport tickets staged noisy protests.

    The government’s response says a lot about the Kremlin’s growing angst over the financial crisis. After several tense days, the pensioners got their discount tickets back, police detained younger protesters who had joined the demonstrations, and state media made little mention of the events.

    The prospect of further unrest poses what could be the biggest challenge yet to the authoritarian system built by Mr. Putin. It also foists a stark choice on the Kremlin: to stifle dissent, or to placate protesters to provide some kind of pressure outlet. For now, the Kremlin has decided on a mixture of both. But the government’s options may narrow as its financial reserves shrink.

    “They’re incredibly scared of this,” says Yevgeny Gontmakher, an economic adviser to the Kremlin. “They don’t know how to operate in this environment.”

    Previous periods of low oil prices in the 1980s and 1990s contributed to the downfall of two Kremlin administrations — those of Mikhail Gorbachev and Boris Yeltsin. Often, social discontent has begun in Russia’s far-flung regions, where Kremlin control is comparatively tenuous.

    Russia is just beginning to feel the impact of a slowdown that economists say could take the economy from nearly 8% growth earlier this year to near recession in the next few months. Wage delays have already led to a strike by migrant workers on a construction site in the Ural Mountains city of Yekaterinburg. Such social protest has been rare in recent years amid widespread political apathy and fear of government retribution.

    Russia posted its first monthly budget deficit in November as falling oil prices and slowing production battered the economy. Meanwhile, Standard & Poor’s has downgraded Russia’s sovereign debt for the first time in 10 years.

    Public panic is one of the Kremlin’s greatest fears. “I’ve already seen how things get worse as the result of an oil-price collapse,” says Yegor Gaidar, who was acting prime minister in 1992. “It’s dangerous — but people who have not governed a nuclear-armed country don’t quite understand that.”

    Mr. Putin’s party has told lawmakers to report layoffs in their regions, and a draft law would oblige employers to warn the government of problems that might trigger job or salary cuts.

    The Kremlin has recently begun to talk publicly about the financial crisis. Before, it was seldom mentioned on state TV. Members of a Kremlin advisory body that monitors the media say officials told journalists not to use the word “crisis.” Last month, regulators chastised Moscow’s daily Vedomosti newspaper after it printed an article examining the potential for social unrest, the editor, Elizaveta Osetinskaya, says.

    The Kremlin has accused the West and homegrown economic liberals of using the crisis to fan discontent. In a recent question-and-answer session with voters aired on Russia’s two main state television channels, Mr. Putin blamed Russia’s problems on “financial and economic authorities’ in the U.S. They had “infected” the global economy, he said.

    Meanwhile, lawmakers in his party have turned on liberal Finance Minister Alexei Kudrin, complaining about the speed at which Russia’s foreign-currency reserves are being spent on anti-crisis measures. Mr. Kudrin has said the money is being spent “accurately.”

    This fall, Barnaul, an ailing Siberian industrial hub some 2,000 miles south of Moscow and one of the last regions to benefit from the oil boom, became one of the first to feel the crisis.

    As the credit crunch poisoned Russia’s economy, supply chains broke down on a lack of cash and trust, and orders dried up at the town’s factories, which churn out diesel engines, heavy machinery and tires.

    Three months ago, workers say, several factories sent workers home on reduced salaries until better times. Government data show over 1,000 workers in the region are in the process of being laid off; opposition lawmakers say hundreds more layoffs are likely.

    In late October, when authorities revoked subsidized transport tickets for more than 200,000 pensioners in Barnaul, they gave no warning or explanation. When the pensioners — among the poorest groups in Russian society — learned the tickets were being axed, they panicked.

    On Oct. 26, about 1,500 gathered in front of the regional government building to protest, according to people who attended. The pensioners blocked the town’s main thoroughfare, Lenin Avenue, for three hours, and only dispersed after a local government official invited a few of the leaders inside for a chat, promising the tickets would be reinstated.

    Still, protesters came back the next day. This time, they numbered only a few hundred but demanded the resignation of the local Kremlin-appointed governor, Alexander Karlin.

    In a third protest, a crowd of 2,000 again blocked Lenin Avenue as regional lawmakers debated the decision to do away with the discount. Some demonstrators tried to storm the government building, but police lines held. The governor tried to calm the crowd, but was forced to retreat.

    Eventually, the government decided pensioners could keep their discounted transport tickets, while a new system allowing them to choose between cash payments and free transport passes is introduced.

    Spokesmen for the local parliament and regional government said that the unrest came about because of a “misunderstanding” and a government failure to adequately explain the reforms to welfare benefits.

    Alexander Romanenko, a pro-Kremlin lawmaker in Barnaul,says the protests fizzled out after pensioners realized the government recognized their needs.

    But political opponents believe remote regions and towns like Barnaul are the Kremlin’s Achilles’ heel. “They can only control what’s within the Moscow ring road,” says Vitaly Boldakov, a left-wing activist in Barnaul. “But beyond that road, their control collapses.”

  4. 4
    Sambone Says:

    Interesting chart

    http://greeninc.blogs.nytimes.com/2008/12/18/mapping-the-history-of-oil-imports/

  5. 5
    VTZ Says:

    Good link Sambone

  6. 6
    zman Says:

    Re 1: games being played today, much better to watch the Feb contract for now, actually up 20 cents

    Re 2: no less than usual, thanks

    Re 3: Russia really blew a chance do a coordinated strike on the slide in oil prices on Wednesday. Just halting prices where they were would have been better than a 20% slide in terms of daily revenues, they could have cut over 500,000 bopd and come out ahead.

  7. 7
    BirdsofpreyRcool Says:

    GM Bailout… an opportunity to learn a lesson in bond covenants (contracts). The move by the US Govt to put money in that is senior to existing debt, violates existing contracts. This is worth taking a little time to understand as it will be helpful in listening to the follow on dialogue on the “bailout.”

    Limitation on Liens Language in GM Bond Indenture (debt contract)

    (Capitalization ours)

    For the benefit of the Debt Securities, the Corporation will not, nor will it permit any Manufacturing Subsidiary to issue or assume any Debt secured by a Mortgage upon any Principal Domestic Manufacturing Property of the Corporation or any Manufacturing Subsidiary or upon any shares of stock or indebtednesss of any Manufacturing Subsidiary (whether such Principal Domestic Manufacturing Property, shares of stock or indebtedness are now owned or hereafter acquired) without in any such case effectively providing concurrently with the issuance or assumption of any such Debt that the Debt Securities( together with, if the Corporation shall so determine, any other indebtedness of the Corporation or such Manufacturing Subsidiary ranking equally with the Debt Securities and then existing or thereafter created) SHALL BE SECURED EQUALLY AND RATABLY WITH SUCH DEBT, UNLESS THE AGGREGATE AMOUNT OF DEBT ISSUED OR ASSUMED AND SO SECURED BY MORTGAGES, TOGETHER WITH ALL OTHER DEBT OF THE CORPORATION AND ITS MANUFACTURING SUBSIDIARIES WHICH (IF ORIGINALLY ISSUED OR ASSUMED AT SUCH TIME) WOULD OTHERWISE BE SUBJECT TO THE FOREGOING RESTRICTIONS, BUT NOT INCLUDING DEBT PERMITTED TO BE SECURED UNDER CLAUSE (i) through (vi) of the immediately following paragraph, does not at the time exceed 20% of the stockholders’ equity of the Corporation and its consolidated Subsidiaries, as determined in accordance with generally accepted accounting principles and shown on the audited consolidated balance sheet contained in the latest published annual report to the stockholders of the Corporation.

  8. 8
    BirdsofpreyRcool Says:

    z – as this is also an educational website, i thought it would be helpful to post a little something about debt indenture (contract) law. As with most else these days, that the US Govt is doing is unprecedented (in the US). Worth taking a little time to understand some of the structure of debt markets, through the vehicle of the GM bailout.

  9. 9
    zman Says:

    Seriously, having a baby while having all you guys send best wishes which were relayed almost to point my wife began pushing was a big plus. Thanks much.

    Feb crude now up 60 cents, out months up a little better than that. I’ll wait a little bit to see if we can get a rally in the group going to salvage some of the Decembers.

    I think Mahout’s comments late in the day yesterday re the fall in oil so far vs the remaining fall were pretty spot on.

    I think the SWN, EOG, GMXR, GDP, HK are great bargains down here.

  10. 10
    zman Says:

    Thanks BOP – did you see the ETP Senior deal referenced in the post?

  11. 11
    Sambone Says:

    Z – I liked your comment about TD. Total Depth?

  12. 12
    zman Says:

    Re 11 – yes, thankfully we had initial production without much trouble. No frac job needed. Still, on days like that, its good to be a guy.

  13. 13
    Dman Says:

    Z – congrats on the new intern. Maybe he’ll get fusion energy to work & then we can forget about the black gooey stuff.

    Meanwhile, in black-gooey-stuff-land:

    Amazing incompetence from the producing countries. They have all the cards but refuse to cooperate for long enough to actually play them.

    Still, they will end up benefiting from their cluelessness as the seeds are being sown for a supply crisis. I mentioned yesterday that Matt Simmons was giving it no more than a few weeks before these low prices guaranteed an imminent crisis. That podcast was about a week ago and now crude is lower still. Price will indeed take care of itself.

  14. 14
    Sambone Says:

    You betcha

  15. 15
    BirdsofpreyRcool Says:

    z – gee. thanks. you care!

    The ETP deal is one of those kinds of deals that we shouldn’t even have to point out — as in “yay, it got done” — any more than we have to worry whether there will be air to breath when we step out the front door.

    ETP 9.7% Senior Notes issued at a 99.928, non-call, due 3/19 are rated Baa3/BBB-. The lowest investment-grade… but investment grade, nonetheless.

    But, hey! Good news is that the bonds have traded up over a point this morning. Confirms that the street thinks these are cheap bonds. Almost 10% for Senior Notes!! That means, the returns on equity have to be about 20%+ for the capital structure to make sense. No wonder MLPs are getting smashed.

  16. 16
    BirdsofpreyRcool Says:

    IG 222 unch’d from yesterday. B-Team on the trading desk and no volume. Very very quiet in CDS/bond land.

  17. 17
    zman Says:

    Dman – re Simmons. Ya know I like the guy, he’s very smart. He’s right about a crisis as capex will be slower to climb once prices do this time than at other times in history due to a combination of dysfunctional financial markets (people are having trouble with getting their revolvers extended and with high yield deals) and you can just about forget equity offerings for now unless you really hate your stock price. It may take awhile for crude or the markets to care about said crisis though as the elusive demand destruction can take crude down 10 to 20% in a week without a scrap of supporting data. We know things are bad and will likely get worse although I keep reading comments about the global economy reaching its nadir in 4Q or 1Q. If you look at refining inputs in the States, they are not much lower (400 to 700,000 bodp) than year ago levels at 14.6 to 15 mm bopd.

  18. 18
    BirdsofpreyRcool Says:

    GM and Chrysler are able to “issue” debt at +300 bps to the taxpayer. ETP had to pay almost +900bps. But, hey, ETP debt is 10 yrs and expected to be paid back. So, big difference, i guess.

  19. 19
    zman Says:

    Feb crude up 90 cents, March up 1.07.

    BOP – thanks for the chuckle, unreal.

  20. 20
    zman Says:

    Epperson making a good point re the refiners curtailing production (finally) due to weak cracks. Also points at fog at Houston Ship Channel has halted crude imports.

    Watching the tick chart on CHK, will likely punt 2 sets of remaining in the money calls there soon in the 10KP, also going to lock in losses on HK calls in the regular account probably pre lunch, definitely first sign of weakness.

    Ram – yes, going to be a very scud filled report as XOM and COP calls going off at 0 which I did not expect as of Tuesday as well as the expected 0s at DO, NE, BEXP, TAN, some of the SWN, UNG, EOG.

  21. 21
    BirdsofpreyRcool Says:

    z – as it’s nice to see green, I’ll stop raining on the Market Parade today… and just go with the flow. People wanted this to happen and if it results in a voluntarily-restructured GM/C auto manufacturing. Then, thank goodness.

    I’ll just keep quiet about it (I promise!). But, here’s the prediction: people still won’t buy their cars and we will be pouring more taxpayer money down this black hole until the inevitable happens anyway.

    Meanwhile, I’ll just sit back and enjoy the rally!

  22. 22
    zman Says:

    BOP – never stay quiet on this site. It is what it is…pretty damn gloomy. Going with flow can see you over the edge and onto the rocks – that’s mine so if you use it I get a royalty.

  23. 23
    1520sbroad Says:

    frac job? i want no part of that.

    ny/nj/ct – snowing, sleeting, raining, crappy. Maybe some of those nymex traders will get inspired as they shovel out over the weekend.

  24. 24
    zman Says:

    SWN picked the right day for that pr but also threaded the capex / production / balance sheet needle. Impressive move there up 12%.

  25. 25
    zman Says:

    1520. agreed, re the traders but the south weather is spotty, going to 70 today, then a high of 25 on sunday. Would rather not see one day this time of year when people are tempted to turn their heat off.

  26. 26
    zman Says:

    Wow, even January crude likes the car deal, up 33 cents to 36.50.

    Feb crude at 42.91 up 1.25

  27. 27
    1520sbroad Says:

    re: refiners – VLO has made a very nice move in the last 2 weeks. Wish i had bought some in the 15’s…

    BOP – given that ETP debt issue and the likely dozens of MLP’s out there that have funding needs in the near future for projects that don’t have big (20+%) returns built in – what are the options for them? Do you think we will see some of these gwet swallowed by their parent companies/GP’s or bought up by bigger fish (that happen to have a bunch of cash – whoever they are??)

  28. 28
    pearl1301 Says:

    Mish had an interesting take on it in his blog which I quote below.

    “The Fed is looking at the “benefits” of purchasing longer-term Treasury securities. The benefit is to banks who are front running the trade. Banks can now borrow from the Fed at the discount rate of .5% and invest somewhere out on the yield curve at a higher rate.

    And as long as the Fed is not going to contract credit, banks can hold to maturity and pocket “free money”. The odds of Bernanke contracting credit any time soon are essentially zero.
    Banks have two reasons to buy as many treasuries as they can.

    Free Money (as long as Bernanke does not contract money supply).
    Drive yields down to stop foreclosures.”

  29. 29
    mahout Says:

    Z,

    Bot EOG @65.33

    Bot GDP @32.23

  30. 30
    zman Says:

    ZTRADE: $10KP Trade. Sold the remain CHK December $10 call (1) for $6.20, up 190%. More trades to follow shortly locking in some December losses.

  31. 31
    zman Says:

    ZTRADE: $10KP

    SWN – Sold the December $25 SWN Call for $3.30, down 59%.

  32. 32
    BirdsofpreyRcool Says:

    IG 219 -3bps… credit rally grinding up.

  33. 33
    pearl1301 Says:

    Z – quick question about when to sell options..do you normally wait until expiration to take profits/losses or is it on a per options basis…just wondering because i have left alot of money on the table not holding long enough and visa versa.

  34. 34
    zman Says:

    ZTRADE: $10KP

    CHK $15 December calls (3) sold for 1.30, down 50%.

  35. 35
    zman Says:

    For you new guys on the site, those Ztrades were accompanied by emailed ZBLASTs. If you did not receive them please send an email to zmanadmin@gmail.com with the address you would like to receive blasts at.

  36. 36
    BirdsofpreyRcool Says:

    1520 – on MLPs… no. There is such a benefit for the parent company/GP to have an MLP subsidiary that it doesn’t make sense to me that they would reverse the structure.

    The best MPLs are structured around assets that throw off cash flow, consistantly, in good times and bad, irrespective of energy prices (like some of the pipeline guys). As a trade off to that stability, you don’t get organic growth. So, growth in the MLP payout (and unit price) are generated by asset acquisitions, funded by simultanious debt and equity offerings. In this environment, you will see that M&A activity curtailed, of course. Except for the biggest, most stable guys. Like KinderMorgan (KMP), who was able to place $900mm of capital ($500mm debt + ~$200mm in interest rate swaps + ~200mm equity) yesterday. These guys will grow (at the expense of the little guys??).

  37. 37
    zman Says:

    Pearl – its on a per stock basis. One thing I try very hard not to do is to play the “waiting to get even” game. That’s a losing bet. This month I got flat footed by OPEC on Wednesday and looking back I should have taken a more conservative tack going into their announcement but that’s 20/20 hindsight. I have a whole piece on my trading strategy written up and ready to go for the new year and I’ll try to get that posted during the slow time of next week.

  38. 38
    zman Says:

    Pearl – I’d also add that looking back over the last several years, my biggest winners are often half to nearly complete losses sometime during the holding phase. Its gotten a little more dicey as of late with the market in the condition its in which has gotten everyone in the habit of trading on shorter horizons. This market remains highly irrational and so I’ve shortened my holds in many cases to match that but some days you just get caught (like when EOG, which had been outperforming is still cheap, yada, yada, yada) tanks $10 twice during my hold on no news.

  39. 39
    Sambone Says:

    10:39 (Dow Jones) Oil’s precipitous fall from its July peak is similar in
    scope to the bursting of the Nasdaq and homebuilder bubbles, Bespoke Investment
    Group says. “The only difference is that it took years for the Nasdaq to reach
    its lows, while oil has declined by almost as much in just a few months,” blog says, noting it took oil 1,600 trading days to reach its highs but a little more than 100 days to drop 76% and
    approach its lows. “Oil’s fall, like the
    drop in the Baltic Dry Index, is one of the most extreme bubble bursts in history.” (SMR)

  40. 40
    1520sbroad Says:

    BOP – #36 – gotcha.

  41. 41
    choices Says:

    Re post on unrest in Russia, not that the political situation is the same but I saw a brief post on one of the stations that Dubai is in serious trouble as well. They planned all of these grandiose projects, highest building, ski areas, etc, etc, with financing and now serious pressure comes because of the loss of projected revenue.

  42. 42
    Dman Says:

    Speaking of the Baltic Dry Index: it does seem to have turned up recently… even if only because it would have gone negative otherwise …

  43. 43
    BirdsofpreyRcool Says:

    IG 220 now

    HY 77 1/8

  44. 44
    zman Says:

    So we know we get light volume trading next week, could make for some big, odd moves. Also could see rebound in crude as Sam’s piece points out this has been an unprecedented, drastic drop in crude. I’m probably going to take NTM calls near the close in HK (which could have an X-mas week pr out) and which is still lagging as well as in COP and XOM. May also add back the EOG.

  45. 45
    Sambone Says:

    Off subject

    When beer is better than a AK47

    http://www.timesonline.co.uk/tol/news/world/africa/article5368675.ece

  46. 46
    BirdsofpreyRcool Says:

    z – you think HK could put out recent well results or capex or something next week?

  47. 47
    zman Says:

    Bird – I was thinking the timing would be ok on wells 2 and 3 in the Eagle Ford. Slow week so they may just hold it for the new year but I think they may be completed on 3 and if those look as good or better which has been hinted as #1 which was 9.5 mm/d IP than I’d think they’d want to show it off.

  48. 48
    ram Says:

    ZMAN – HK’s, JAN or MAR?

  49. 49
    zman Says:

    Ram – was thinking Jan for a quick in and out. I’m not starting a rumor here on a pr, ya never know with E&Ps as one week away often means one month but it could happen…I’d put the odds at 1 in 4. Still, the stock is not reflecting the new play or the big new wells announced at the Haynesville…recall they said they’d have another 5 completed by year end so it may be that we see another well or maybe two from the Eagle Ford and one or two more wells in the Haynesville prior to year end.

  50. 50
    BirdsofpreyRcool Says:

    OK… since you told me not to stop… i can’t stand it. Gotta post:

    Cerberus Capital said it will “contribute” its equity in Chrysler to labor and creditors as “currency to facilitate teh accomodations needed for restructuring.”

    Uhhhhh…. can you call it a “contribution” if it’s not worth anything?

    IG 220 -2 bps

  51. 51
    ram Says:

    Thanks. Hows “little burrito boy”? It’s amazing how the nurses can wrap those little ones so tight the first time.

  52. 52
    elduque Says:

    Wachovia put a 100 page dissertation on MLP’s in July. I will be happy to email to Z and anybody who wants it can get it from him.

  53. 53
    zman Says:

    Ram – great, seems to be a real breast man. Typing with one hand now as this little guy has more gas than the Haynesville.

    El- d – good idea. I’d suggest if anyone wants it I’ll hook you guys up via email.

  54. 54
    BossmanG Says:

    El-d/Z, definitely would be interested…weekend reading

  55. 55
    BirdsofpreyRcool Says:

    elduque – thanks! Wachovia seems to be pretty good at that sector. Any top line conclusions you can share?

  56. 56
    zman Says:

    Boss – if its ok with you, we’ll send your email address along to El-d.

  57. 57
    BossmanG Says:

    Z, i’m changing my email address this weekend…let me make the change first if thats ok and i’ll send you an update.

  58. 58
    zman Says:

    Sounds good, that goes for anyone else as well. Just send and email to zmanadmin@gmail.com and we’ll forward your address to elduque. He also had the idea to let people swap research and if you guys want to do that its ok with me as long as I don’t send it out myself (lawyers no like that idea).

    Pinning action appears to be setting in but I would not rule out a move higher into the close. Either way, I’m pretty set on taking the aforementioned calls into the close.

  59. 59
    tater Says:

    I’m getting a bunch of anecdotal evidence that businesses are very comfortable with the idea of locking in oil (actually gasoline) prices at this level. Have a couple of biz acquaintances who have actually called me to learn about how they can go about accomplishing a hedging strategy (golf course owner, liquor distributor). As that is not my line of work, I give them a quick over-view of options and an awareness of USO and UGA and send them to a specialist. But for our purposes here, I guess I just want to give my two cents that the real world does still use oil products and unless everybody wants to join BOP and me in the cave, there will eventually be a floor price. Where it is, I don’t know, but I am putting my money into play again as I believe it is getting near.

  60. 60
    zman Says:
  61. 61
    BirdsofpreyRcool Says:

    hey tater! if you don’t mind. let me know what you buy and when. i don’t want to be sittin’ in the cave eatin’ beans all by myself.

    I bought some UYG a bit ago, just for a short-term swing… my traders says — barring any negative headlines — we surge higher into close. just passing this along…

  62. 62
    1520sbroad Says:

    re: rest of the day from the guys i used to work with – lots of trades set up around 50 day moving averages in various sectors and the S&P 500 @ 900. might be another interesting last hour or so.

    i’m in for research swapping – z – feel free to ping me if you get requests from folks looking for stuff.

    #49 – i just bought a few more HK shares. I’ll put in my request now to Santa for a PR from them.

  63. 63
    zman Says:

    Tater – agreed, demand is down due to the economy. The word “destroyed is always used” but that sounds like something more permanent than what we are seeing here. I’d again point to those refining numbers which are off but not by that much and demand for gasoline, which is down 2 to 5%, doesn’t sound like the end of the world as we know it. Perhaps when the dust settles even you will be a gas powered generator for your cave, lol.

    HK and crew definitely getting pinned. Missed my morning op to sell the $15s in the regular account and am going to see if we get one last push in the afternoon before dumping but I have my doubts. Will probably wait for NYMEX close to see if out months put on one last move. Jan down 70 cents, Feb and the out months all up 70 to a buck.

  64. 64
    zman Says:

    $20 contango between Jan 2009 contract and Jan 2010. I don’t recall one that steep in the next twelve months before. period. When you consider the percentage increase over that time frame its even more shocking. The futures market simply does not believe things will always be this bad. One effect that will have is the willingness to buy barrels and sock them away for a small monthly fee with a big payoff down the road.

  65. 65
    zman Says:

    Lots of throwing in the towel this week by the sell side. When names like DO go from Outperform to Underperform despite the high degree of confidence you get from a having most of your business locked in with seemingly iron clad contracts and a current forward PE for 5x next year’s numbers. Saw that it fell $8 yesterday but did not see anything other than the market to explain it. Throw that one in the list of potential Jan call buys pre close.

  66. 66
    tater Says:

    BOP,
    I have to say that due to your credit market school (thank you very much by the way!), my undies are in a real bind when it comes to buying into actual companies, at least for now. I just feel that the coming regulation of everything business is going to have a much more severe result on the bottom line than what the analysts acknowledge. I don’t want to go off on a political rant, but I was less than thrilled at the recent choice of a career military man and a life long politician as our next president. Maybe sometime in the future we can actually have somebody who has punched a clock at least once in their life. It tends to lend a life experience that I perceive as valuable when attempting to reorganize billion dollar companies. (Sorry, but I don’t really appreciate people with zero biz experience telling me how business should run, and believe me, I encounter it ALL the time).
    Anyway, I’m sticking to commodities for now, USO DXO (though DXO scares me because it is an ETN, so I will play that one with an eye on the door).

  67. 67
    BirdsofpreyRcool Says:

    tater – i do hope i haven’t scared anyone. Just pointing out facts, where the talking heads like to generate… well… headlines. Anyway, I hope I’ve helped.

    Actually, I like one of the ETF’s that pearl pointed out the other day: JNK. Although I wish they had a few more energy bonds in the portfolio, the 15.5% current yield is a nice downside cushion. But it really comes down to a binary outcome: corporate credit markets unfreeze the 1st two weeks in January, or they don’t. We are near a market bottom, or we go down futher. So, just a guessing game right now. Still, the fact that more people are willing to think about corporate bonds (instead of those pesky, near-zero yielding treasuries) is a very good step in the right direction.

  68. 68
    Sambone Says:

    For BOP

    On the first day of Christmas, the market sent to me,
    A huge loan from Ben Bernanke.

    On the second day of Christmas, the market sent to me,
    Two year swap spreads and
    A huge loan from Ben Bernanke.

    On the third day of Christmas, the market sent to me,
    Three French banks,
    Two year swap spreads, and
    A huge loan from Ben Bernanke.

    On the fourth day of Christmas, the market sent to me,
    Four margin calls,
    Three French banks,
    Two year swap spreads, and
    A huge loan from Ben Bernanke.

    On the fifth day of Christmas, the market sent to me,
    FIVE YEAR GOLDMAN CDS!
    Four margin calls,
    Three French banks,
    Two year swap spreads, and
    A huge loan from Ben Bernanke.

    On the sixth day of Christmas, the market sent to me,
    Six banking bailouts,
    FIVE YEAR GOLDMAN CDS!
    Four margin calls,
    Three French banks,
    Two year swap spreads, and
    A huge loan from Ben Bernanke.

    On the seventh day of Christmas, the market sent to me,
    Seven day workweeks,
    Six banking bailouts,
    FIVE YEAR GOLDMAN CDS!
    Four margin calls,
    Three French banks,
    Two year swap spreads, and
    A huge loan from Ben Bernanke.

    On the eighth day of Christmas, the market sent to me,
    Eight percent sell-offs,
    Seven day workweeks,
    Six banking bailouts,
    FIVE YEAR GOLDMAN CDS!
    Four margin calls,
    Three French banks,
    Two year swap spreads, and
    A huge loan from Ben Bernanke.

    On the ninth day of Christmas, the market sent to me,
    Nine dancing ladies (until the entertainment budget was canceled),
    Eight percent sell-offs,
    Seven day workweeks,
    Six banking bailouts,
    FIVE YEAR GOLDMAN CDS!
    Four margin calls,
    Three French banks,
    Two year swap spreads, and
    A huge loan from Ben Bernanke.

    On the tenth day of Christmas, the market sent to me,
    Ten bp T-bill yields,
    Nine dancing ladies,
    Eight percent sell-offs,
    Seven day workweeks,
    Six banking bailouts,
    FIVE YEAR GOLDMAN CDS!
    Four margin calls,
    Three French banks,
    Two year swap spreads, and
    A huge loan from Ben Bernanke.

    On the eleventh day of Christmas, the market sent to me,
    Eleven ABX marks,
    Ten bp T-bill yields,
    Nine dancing ladies,
    Eight percent sell-offs,
    Seven day workweeks,
    Six banking bailouts,
    FIVE YEAR GOLDMAN CDS!
    Four margin calls,
    Three French banks,
    Two year swap spreads, and
    A huge loan from Ben Bernanke.

    On the twelfth day of Christmas, the market sent to me,
    Twelve hedge funds closing,
    Eleven ABX marks,
    Ten bp T-bill yields,
    Nine dancing ladies,
    Eight percent sell-offs,
    Seven day workweeks,
    Six banking bailouts,
    FIVE YEAR GOLDMAN CDS!
    Four margin calls,
    Three French banks,
    Two year swap spreads, and….

    A huge loan from Ben Bernanke.

  69. 69
    Jay Reynolds Says:

    Bought 10,000 DXO (double long crude) @ $2.67

    Thesis: If I’m hurting this bad the guys who have the “new” BBLS @ approx $65 must really be suffering.

  70. 70
    BirdsofpreyRcool Says:

    tater – you and i are on the same page with respect to career military/politicians too. If you’ve never been in business, how can you possibly have any idea how to make sensible decisions? You can’t be a good driver, just reading the driver’s ed book.

  71. 71
    zman Says:

    ZTRADEs: $10KP

    XOM – Added (5) XOM January $85 calls (XOMAQ) for $1.07 with the stock trading essentially flat on the day.

    HK – Added (3) HK January $17.50 calls (HKAW) for $1.30 with the stock at $15.90.

  72. 72
    BirdsofpreyRcool Says:

    sam – !! that is WAY PAST FUNNY. That is coffee-out-the-nose-snorting FUNNY!

  73. 73
    tater Says:

    I like the chef analogy as well. Everybody knows how to eat, so they think that means they can cook.

  74. 74
    elduque Says:

    email me at elduque@hawaiiantel.net and I will send it off to you.

    BOP- no real conclusions other than I had bought some in my IRA and that is a no no.

  75. 75
    zman Says:

    Not to get political and believe, I could care less if you guys do today, but I’m not thrilled with the choice of Secretary of the Interior. Sounds like an enviro guy who’s been long against Rockies oil shale development while zealously protecting the blind albino slime beetle. He did have a hand in the recent offshore drilling expiration but that was a pathetic document which didn’t open up the eastern Gulf of Mexico. I’m not an enemy of the environment but I bet if I set him down in the middle of 1,000 gas wells in the Raton basin in his home state he would not know they were there. This is not your grandfather’s oil industry and its time some people in DC woke up to that fact. You want to protect the coast of Florida from oil slicks? The let U.S. firms drill the oil off Cuba before the Chinese and Iranians do.

  76. 76
    zman Says:

    I noted in some of the stuff I was reading last night (maybe it was something Sam posted) that people were pointing to China’s decision to cut fuel prices and taxes on fuel as further sign of weak demand. Maybe so. But also, why charge as much with oil this cheap? CNBC just re-pointed this out and it jogged my memory that I did not include a bullet on this under crude oil today. It’s worth noting that the Chinese have begun to export large amounts of distillates and that this was seen as a falling demand environment locally. But I would point out that much of China’s refining capacity has been offline for the last 2 to 3 years, the so called “teapot” refineries, small in size but vast in numbers. Those guys are up and turning crude into diesel and gasoline. Combine that with the Chinese stimulus package and its very possible Chinese oil demand will be increasing soon or already is.

  77. 77
    Sambone Says:

    Z – FYI, I’ve been buying BGR. Energy, selling at a discount and pays me to wait.

  78. 78
    zman Says:

    JR – good luck, think its due a bounce myself. Good point on the little guys last night by the way.

    Sam – thanks, what are their top holdings?

  79. 79
    Sambone Says:

    By Benoit Faucon
    Of DOW JONES NEWSWIRES
    LONDON (Dow Jones)–Strong crude inventories can help markets stabilize as
    they provide a buffer of oil supply, the head of the International Energy
    Agency said Friday.
    In an interview with Dow Jones, Nobuo Tanaka, executive director of the IEA,
    said with strong “inventories, (the market) has a certain buffer and then can
    stabilize.”
    With this buffer, “the market would behave better,” he said.
    The statements contrast with those from the Organization of Petroleum
    Exporting Countries that high inventories are depressing oil prices.
    -By Benoit Faucon, Dow Jones Newswires

  80. 80
    Sambone Says:

    Uncle Phil, where’s Nicky?

    http://www.321energy.com/reports/flynn/current.html

  81. 81
    Sambone Says:

    http://solutions.standardandpoors.com/NASApp/WS/EntryServlet?pc=IVS&tracking=IVSBLACKROCK_GLOBAL_ENERGY&auth=user&pagename=encrStockReportPDF&company=130172112011063250114236122250210081071098039190

  82. 82
    elduque Says:

    I always like to ignore what is happening when it is working against my position. However, If we don’t have the USO collapse
    in the next 30 minutes, it would be different than the last two days.

  83. 83
    md Says:

    Tater
    Maybe you can explain.Re: DXO
    Being that it’s a leveraged fund started at the peak of oil would this ETN be a victim of a ” constant leverage trap” situation.

  84. 84
    BirdsofpreyRcool Says:

    Brazil Energy Minister on the tape saying “Oil Must Rise to $75…”

    Is that like Moses saying “the Red Sea Must Part…” ??

    I hope so.

  85. 85
    md Says:

    Z who was following KOG. It’s .34

  86. 86
    zman Says:

    Lot of coal that BGR, at least at mid year.

    BOP – re Brazil. Probably what they need to get much of the sub salt barrels into the black. I’m firmly in Mahout’s camp on oil and think the group is prime for long term buying. Options are to be traded on the long side and written against covered positions while we wait for calmer waters.

  87. 87
    BirdsofpreyRcool Says:

    md – me. it’s .35 actually. don’t make it sound worse than it is.

    😉

  88. 88
    zman Says:

    Problem for KOG will be that probably only the sweetest spots in the Bakken are economic sub $50. EOG commented they were economic in the Parshall field at $50 but did not say how far down that goes. CLR is probably economic around that level too and is still unhedged and will likely trade with oil only a slightly delayed basis to someone like SU who is a proxy for it or a DXO. WLL and BEXP are in some of the same areas as EOG and I’d guess they are economic in the $50s but no lower. KOG is “on the reservation” and unproven as of yet and the timing is a ways out I think, closer to Feb or so for results if I recall, is that right BOP. I would expect the stock to rally into the announcement date. How are they are debt coverage BOP?

  89. 89
    md Says:

    There was a 17M writedown. What happened. Is it still on your radar.
    BTW – how did Dubya get to the head of the GM line.

  90. 90
    tater Says:

    md,
    I’m not business school trained, and the TA that I’ve picked up has been from books and personal experience. I am not really familiar with “constant leverage trap” and because you put quotes around it as a term of art, I am reluctant to guess.
    That said, I do not like the ETN’s all that much due to the blow up in one of them a couple months back where the whole thing went belly-up. It shows that some of these things can, and do, trade all the way down to zero.

  91. 91
    md Says:

    z
    do you have an opinion on dxo

    Here’s the article on constant leverage trap. My particular concern was that it was issues at the highs.

    http://seekingalpha.com?article/35789-the-case-against-leveraged-etfs

  92. 92
    md Says:

    http://seekingalpha.com/article/35789-the-case-against-leveraged-etfs

  93. 93
    zman Says:

    md – I think they had a ceiling test writedown of other assets and are now essentially seen as a Bakken player in the making on unitized Indian land (area untested so far).

    We are going to see a lot of ceiling test writedowns in the 4Q reports this year, especially from the smaller players. They are more nuisance than reality based as long as commodity prices don’t stay this low forever. They can however result in the reduced borrowing bases for some names. In KOG’s case, I don’t think they anything else booked so at least its not a problem for them going forward.

    Ceiling test write downs are an accounting mechanism by which reserves deemed uneconomic are written off the books when prices reach a certain point. It archaic and arbitrary in its GAAP based rule but something E&P companies must do by SEC mandate. Another fun fact is that once written down, reserves are not allowed to be written back up if prices rise. Its a snap shot in time for price so if at 12/31 the oil and gas prices at the close would make some reserves uneconomic (if held at that level in perpetuity) then the reserves are taken off the books. Anyway, these are non-cash charges (another reason to favor CFPS over EPS when looking at E&P companies) but they will elevate finding costs when they occur as you spent the money to find the reserves and then poof, the reserves are gone (at least on paper).

  94. 94
    md Says:

    Whats stopping the producers from hedging futures at $50 plus in 2nd half of 09 if they’re really concerned that prices are going lower.

  95. 95
    zman Says:

    md – thanks for 92, very educational article. I think I may have suffered from something similar these last few months.

    On the DXO, no I don’t have an opinion. I’ve not be impressed with the performance of the USO relative to crude as it has seemed an expensive way to track the commodity, same for UNG.

  96. 96
    zman Says:

    Wow, look at the games being played in crude. From down $2.50 to up a buck in 1 minute.

  97. 97
    Sambone Says:

    HOUSTON, Dec 19 (Reuters) – Ships resumed moving in the
    Houston Ship Channel early on Friday afternoon after dense sea
    fog thinned to allow safe navigation of the 60-mile waterway to
    the busiest U.S. petrochemical port, the U.S. Coast Guard
    said.
    (Reporting by Erwin Seba)

  98. 98
    md Says:

    What happens next 12/31 when oil is at $50. Also how does the snapshot account for future prices that reflect $50 when the stuff will come out of the ground.

    What was the new regulation about restating certain reserves that would boost CHK reserves. So what the SEC giveth they taketh.

  99. 99
    Sambone Says:

    Z – From #39, the more I study this, the more I believe some type of manipulation is going on. I can’t put my finger on it, but something doesn’t smell right.

  100. 100
    tater Says:

    Thanks md on the article. Makes great sense. Just like to add the idea that the use of leverage has costs, whatever the vehicle of choice. Options can have rather large bid/ask spreads. Nice to see the article actually making it clear about the ETF’s. Appreciate you posting it.

  101. 101
    md Says:

    If I understand it right- now would be a good time to start a leveraged LONG ETF when prices are in the doldrums and vice versa for shorts.

  102. 102
    zman Says:

    Md – the rising forward curve will provide a little less sense of panic for E&Ps planning the 2009 budgets. It’s also what they will hedge against so if you want to lock in your crude production in the low 50s for 4Q09 you can do that now.

    On the new regulation, the SEC is taking a new look at how reserves in the gas shales are accounted. It moves some things that one would normal call probable or even possibles (the 2 and 3P) into the proved (1P) category. So it would most benefit it the shale leveraged guys like CKH, SWN, XCO, HK and not so much guys like APC who have more in the way of traditional reserves.

  103. 103
    BirdsofpreyRcool Says:

    z – re: KOG. At least they don’t have any debt, have enough cash and prefunded capex (pipe et al.) to drill 3-4 wells with their partner in the Bakken, Hunt. In all, they have 13 approved drilling permits on the Rez, so far.

    md – their massive write down basically took to zero anything they had done in the past. This means that all their efforts and holdings in the Vermillion (where they are partnered with Devon now) have been written to zero. Their acreage there is probably worth more than zero, and it’s in Devon’s capable hands to prove it.

    The first KOG Bakken well on the Rez is currently drilling. If they can keep to their schedule, we might hear some initial results (“we found oil shows”) from the first well around Dec 31st. They then plan to skid the rig a bit and drill the 2nd well. After the 2nd TDs, they will move a production rig on to case, frac, and test well #1 then #2. Again, assuming they stick to the schedule, the results of that first test should be released around the 1st week in March 2009. The results from that well will make or break the stock. Downside is probably 10 cents, upside probably $3.50… assuming oil doesn’t stay at $35.

    Also, hear they are trying to sell the 2nd Unit Rig they bought (at the top of the mrkt). That can’t be helping the stock here. And I can’t imagine they like any bids they see for it.

    There is a $5mm credit facility at the company, but it won’t (shouldn’t) be drawn on unless the first 2 Bakken wells prove economic enough to further prove up their FBIR acreage.

    There are several high initial production wells within a few miles of KOG’s FBIR acreage. But, not close enough to deem KOG’s well as anything but a Rank Wildcat, in my opinion.

  104. 104
    1520sbroad Says:

    Z – what is your read on volumes thus far today? Seem light in E&P space with the exception of SWN? Granted we have a little over an hour to go. Everyone at a long pre-holiday lunch? surprising to me on an options expiration day.

  105. 105
    tater Says:

    Personal example: Bought USO at 32.05 about an hour ago. Also bought DXO at 2.63. USO is now at 32.60 and DXO was at 2.63 as I just sold it. Whether that is a function of liquidity or not, I don’t know. Not the performance I want though.
    Thanks again md

  106. 106
    choices Says:

    Z-What happened to nat gas the last few hours-I left computer and it fell off a cliff.

    Thanks for your perspective.

  107. 107
    md Says:

    While I’m at it
    How does a little guy take advantage of the contangos . Cost being .90 a barrel storage per month plus .30 insurance (a month?) or maybe shiptanker storage is even cheaper.

    ELectricity Demand Oct0ber 08 preliminary numbers indicate an avg. cool month and compared to Oct. 2007 very warm month (high CDD’s in Oct. 07??)
    Res. Electricity was 6.8% lower and ind. was 5% lower.
    NG 13.8% It doesnt break it down for the ElectricPower sector.

  108. 108
    zman Says:

    Thanks BOP – that’s what I was thinking of. That they will drill 1 but not complete, then skid and drill a second and then complete both so we know little for a few months. What’s the acreage # on the rez (sorry, feeling lazy but can’t remember it). This thing is a pure option at this point with no expiry. Worth doing more work on for me. I’ve gotten close to working it up 3 or 4 times. Will do so and include in the extreme end of the Single Digit Midgets for 2009 portfolio.

  109. 109
    elduque Says:

    z- RE SD. Re the OXY plant. Is it going to be as good for SD as it management makes it out to be. Seems like if you have the patience that 16 months from now it should be worth 4 or 5 times more than today.

  110. 110
    zman Says:

    Choices – I think its just oil. Lot of games there into the close which pulled the Strip down pretty hard. Gas went with it. Gas rigs fell another 13 to 1366 and the horizontal came off 8 so that should have been a positive but some analyst or another may be impatient and saying negative things b/c the rigs aren’t falling fast enough. That will change after new year’s when the new budget hit. The drillers can hear the jackboots coming but they are in for a real kick in the pants in 2009.

  111. 111
    zman Says:

    It allows them to produce more of the CO2 rich gas so yes. I’ll bet SD is one of the ones that takes a big writedown at year end, and that’s when I add there.

  112. 112
    zman Says:

    md – I’m sure there’s a storage MLP out there for crude that would work, also, take a look at FRO, with all the tankering at sea, getting paid to not drive around burning fuel is a good deal.

  113. 113
    BirdsofpreyRcool Says:

    KOG = 36,000 net acres in the Bakken (includes the affect of their JV with Hunt Oil)

    13 well locations already approved

    $18.1mm of cash + pre-paid capex (as of 9/30)

    102mm FD shares and about $2.2mm/qtr in G&A.

    Last time i did the math to value KOG on the Bakken acreage alone (ignoring the DVN cash commitment in the VB), i came up with about $1,200/acre.

    At the peak, i think Bakken acreage (as measured by Hunt’s sale to XTO) went for around $5,000/acre. And I think it’s a positive that Hunt is in there with them, drillin’ on the Rez.

  114. 114
    PackMan Says:

    WTF is going on w/ nat gas UNG ??

  115. 115
    zman Says:

    Packman – see 110 + we are having a brief warm snap at the end of the week in the South. Shorts and T shirt weather here now, 25 for a high on Sunday.

  116. 116
    md Says:

    Have a great weekend all

    Z Best to Curran Grey and to Mrs. Z

  117. 117
    BirdsofpreyRcool Says:

    S&P on the tape saying “longer global recession more probable.”

    Longer than what?

  118. 118
    PackMan Says:

    well, its snowing here in NYC

  119. 119
    zman Says:

    Packman – this map doesn’t help since its the producing region and the west that have lagged in terms of withdrawals.

    http://www.accuweather.com/news-story.asp?partner=accuweather&traveler=0&article=8

  120. 120
    zman Says:

    Still, I think the HDD forecast will prove to be wrong again and that at least in next week’s report, the West will see a large drawdown of inventories.

  121. 121
    md Says:

    Before I sign off. Errata #107
    s/b NG -13.8%

  122. 122
    etswd Says:

    zman

    in regard to swn, what is HBP term

    etswd

  123. 123
    zman Says:

    hbp = held by production. once the lease is in hbp status you don’t have to worry about it expiring. In the Haynesville for instance, 1 well will put 640 acres (1 section or 1 square mile) into HBP status. Later on, as they get the science down, they will downspace the play probably all the way to 80 acres. But for now, with more limited capital budgets, people like CHK will spend the dollars to drill just enough to keep their leased acreage from expiring (3 years down there). With SWN, they don’t have as big of an HBP need so I wonder a little bit at the upped capex. Growth for the sake of growth or something I’m missing.

  124. 124
    zman Says:

    md – what’s s/b?

  125. 125
    BirdsofpreyRcool Says:

    IG 212 1/2 wow!! i like it.

  126. 126
    BirdsofpreyRcool Says:

    One for Sam…

    ‘Twas the Bailout Before Christmas
    By Murray Arenson
    With apologies to Clement Moore

    ‘Twas some time before Christmas, when all through our nation,
    The economy buzzed, amidst new wealth creation;
    New loans were extended to the people with glee,
    And the GDP rose; there was money for free.

    The masses were nestled all snug in their homes,
    While derivatives danced on the backs of their loans.
    And Congress in its wisdom, and the Fed as its friend,
    Had just shown the world it is joyful to lend,

    But out in the market, a problem was growing;
    Late payments and defaults had just started showing.
    To the media we turned to make sense of the mess,
    They said it was fine . . .well kind of, they guess.

    There were standards in place, and the risks were assessed
    And the government oversights all passed the test.
    Yet, in front of our eyes, it began to unglue
    There were dozens of chieftains but hardly a clue.

    Then each TV anchor, with startling perspective
    Unraveled the problems, with a dose of invective.
    There were agencies, companies, big financiers,
    Who misjudged and entangled, and now they had fears.

    AIG, Lehman . . . Fannie, Freddie, and Bear!
    Plus Merrill, Wachovia, and WaMu all there!
    So, the richest of rich, the elite of elites,
    All had nothing, just nothing, on their poor balance sheets!

    ‘Cuz the CDO market was just mirrors and smoke,
    And the credit default swaps left everyone broke.
    But the giants of finance — they can handle these things,
    So, they strode into Washington, in the manner of kings,

    And they laid the news squarely at Hank Paulsen’s feet:
    We need billions and billions! And we need it toot sweet!
    So then Paulsen, Bernanke, and the whole sober lot,
    Drew a simple conclusion: Give ‘em all that we’ve got!

    Still, the stock market swooned, seeing no end in sight,
    With hedge fund redemptions coming in, left and right.
    Banks were marking to market, and investors were shorting,
    The Fed was opining; CEO’s were exhorting.

    The TARP – it had heft, if not any direction,
    So, we looked to the future, with Obama’s election.
    Hope to believe in — we heard what he said
    So we hoped his charisma would narrow “the spread��.

    But the economic data hit us right in the teeth
    As we scrambled to find the support underneath.
    Unemployment was up and sentiment down,
    Only gas prices kept us from wearing a frown.

    We were numb to the data and rhetorical fare,
    When the automakers came to look for their share.
    They all jetted on up to the Capitol Hill
    And asked the poor taxpayers to foot one more bill.

    Well, we don’t really know how this whole saga ends,
    Still, we gather this holiday with our family and friends.
    Of one thing we are certain, in this season of elves:
    We have love for our country and faith in ourselves.

    Whether we look to the heavens or look deep within,
    We should do it with loved ones – it’s the place to begin.
    In this season, find joy; in this season, find cheer,

    Merry Christmas, America, and let’s have a great year!

  127. 127
    BirdsofpreyRcool Says:

    for anyone still wondering about the importance of the debt market during the first two weeks in January… Abitibi lays it out for you:

    AbitibiBowater Aims to Refinance Debt in Early 2009 (Update2)
    2008-12-19 19:53:12.866 GMT

    By Christopher Donville and Sarah Rabil
    Dec. 19 (Bloomberg) — AbitibiBowater Inc., the world’s largest newsprint maker, aims to refinance a $347 million term loan in early January, before the debt comes due in March.
    “We can’t wait until March to solve the problem because every day that goes by, the pressure will get greater and the speculation will get greater,” Chief Executive Officer David J.
    Paterson said today in an interview in New York. “We’re ready to go to the market.”
    AbitibiBowater is trying to sell a mill in Korea, North American timberlands and hydroelectric generating capacity in Canada to raise cash amid looming debt maturities and declining newsprint demand. The company, which has $6.2 billion in total debt, is “considering all options,” Paterson said.
    AbitibiBowater is less than halfway toward achieving its goal of selling $750 million of assets by the end of 2009, though Paterson said it may reap “more than people anticipate” from sales.
    Still, a global credit crisis has worsened since September, stalling AbitibiBowater’s efforts to sell assets and may thwart efforts to refinance debt.
    “Credit markets are still jammed solid,” said Paul Quinn, a paper and forest products analyst at RBC Capital Markets in Vancouver. “Even really solid companies have to pay high rates”
    to refinance, he said.

    Share Price Jumps

    AbitibiBowater, based in Montreal, rose 24 cents, almost doubling, to 50 cents, at 2:31 p.m. in New York Stock Exchange composite trading. Before today, the shares fell 99 percent this year.
    Paterson acknowledged that the cost to refinance is “going to be very expensive” and said he may repay some of the debt maturing in March. “We’re aggressively exploring every avenue to fix the balance sheet,” he said.
    Paterson said he will work to refinance debt maturing in
    2009 and 2010. The company has more than $700 million of debt maturing next year, Standard & Poor’s said.
    “We’ve got to get out of this cycle of trying to do annual refinancing,” Paterson said. “On the bond maturities, we’re looking at trying to get out of every year we hit a wall of maturities and have to go back to the well.”
    The company has to pay almost $700 million in annual interest expense, according to Standard & Poor’s. AbitibiBowater may have difficulty making progress in reducing debt next year as tight credit markets limit buyers for its assets, Standard & Poor’s said in a Dec. 3 report.
    AbitibiBowater was formed by the October 2007 merger of Montreal-based Abitibi-Consolidated Inc. and Greenville, South Carolina-based Bowater Inc.

  128. 128
    zman Says:

    Nice trade on XOM Z.

  129. 129
    Sambone Says:

    By Matt Daily
    NEW YORK, Dec 19 (Reuters) – Global spending on oil and gas
    exploration and production will shrink 12 percent to $400
    billion in 2009 as the steep slide in energy prices and tight
    credit markets reverse a six-year trend of rising budgets,
    analysts at Barclays Capital said on Friday.
    Those spending cuts are likely to curtail growth in oil and
    gas output, potentially supporting energy prices that have been
    in a freefall since hitting peaks in July.
    A steady stream of energy companies have been announcing
    budget cuts for 2009 as the price of oil slumped this week to
    its lowest levels in 4 1/2 years, and Barclays said that could
    pushing spending even lower than its report showed.
    Another analyst agreed, saying companies were being prudent
    during the economic crunch to protect cash reserves they had
    built up during the four-year run-up in energy prices.
    “My guess is the (report) is probably overstating what is
    going to be spent,” said analyst James Halloran of National
    City Private Client Group, which manages $26 billon in assets.
    OPEC has also responded to weakening prices, announcing
    three rounds of cuts that would trim 4.2 million barrels of oil
    production, or 5 percent of world supply.
    Spending in the United States is expected to show the
    sharpest drop, falling 26 percent to $79 billion from the 2008
    mark of $106 billion, Barclays analysts James Crandell and
    James West said in their semiannual report based on a survey of
    oil and gas companies. nN19339432
    In the United States, Chesapeake Energy CHK, the
    largest U.S. natural gas producer, is expected to cut spending
    by 51 percent, the analysts said, while Devon Energy DVN is
    likely to cut by 44 percent, EOG Resources EOG by 34
    percent and SandRidge Energy SD by 78 percent.
    Oil prices peaked above $147 a barrel in July, but have
    tumbled more than 75 percent since then to trade near $35.75 a
    barrel on the New York Mercantile Exchange as the struggling
    global economy has eased demand for energy.
    Shares of oilfield service companies face the greatest
    risks from the cuts in spending, since it is their drilling
    rigs, maintenance operations and other activities that energy
    producers reduce when budgets are slashed.
    But those stocks have already been battered, Halloran said,
    and may see only a limited impact from new reports of spending
    cuts. The Philadelphia Oil Service index, which includes
    companies such as Schlumberger Ltd SLB, Halliburton Co
    HAL and Transocean Ltd RIG, has fallen 68 percent since
    July.
    Still, the Barclays analysts said they recommended shares
    of Weatherford International WFT, Halliburton, Cameron
    International CAM, Oceaneering International OII,
    Tidewater TDW, Dril-Quip DRQ, Core Laboratories NV
    CLB as the best sector bets.

    REGIONS UNDER PRESSURE
    Overall, companies’ Canadian spending budgets will fall 23
    percent to $22 billion, the lowest level since 1999.
    Husky Energy HSE.TO is likely to cut its spending 47
    percent in Canada, while Devon’s budget there will fall 71
    percent, Talisman Energy TLM.TO by 47 percent and EnCana Corp
    ECA.TO by 16 percent.
    Spending in the United States by Exxon Mobil XOM, the
    world’s largest publicly traded oil company, is likely to drop
    17 percent, or $450 million, to $2.15 billion, while its
    Canadian budget will shrink 14 percent to $375 million. Its
    spending outside North America will rise 14 percent to $14.98
    billion.
    The overall drop in spending outside North America is
    expected to be a more moderate 6 percent to $300 billion.
    Russia, the UK North Sea, Saudi Arabia and Venezuela were
    expected to see some of the sharpest spending declines, while
    the rest of the Middle East, North Africa and Mexico were
    likely to post increases.
    The drop in Russian spending could hurt Schlumberger, which
    has the large presence there, Crandell said in a conference
    call.
    In 2008, spending rose about 22 percent globally, the
    analysts said, slightly above their midyear survey forecast of
    357 companies.
    The analysts said the budget forecasts were based on
    average prices of $58 per barrel for oil and $6.35 per thousand
    cubic feet for natural gas.
    (Reporting by Matt Daily; Editing by Lisa Von Ahn)

    Fri Dec 19 16:42:28 2008

  130. 130
    1520sbroad Says:

    # 128 – i bought HK at the HOD if it is any consolation.

  131. 131
    BirdsofpreyRcool Says:

    I will be traveling for the next two weeks, but will check in when I can.

    The IG index rallied quite a bit today, on light, holiday-trading volumes. The HY index rallied a bit in the morning. Then took the rest of the day off.

    The high yield market is now pretty much shut down through the end of the year. Might see a few deals done, here and there, almost all in investment-grade land. But, for the most part, if you hafta issue debt (other than commercial paper, in a normal year) during the last two weeks of the year, your financial planning department screwed up.

    Enjoy the weekend!

  132. 132
    Jay Reynolds Says:

    E&P Slashed

    Oil City, LA
    Parker Oil Company.

    Sayeth Parker’s Field Man. “Can’t make no money, shut these @#$%’s off!”

    ***

    For us marginal producers, even with totally paid for leaseholds and equipment, NOT ONLY aren’t we buying any equipment (I have about 200 additional wellbores I could be equipping with decent oil prices), redeveloping uphole, attending to potential casing leaks, etc. BUT WE CAN’T EVEN PAY THE ELECTRIC BILL!

    I don’t suppose it has ever occurred to the tree hugging crowd that there are tens of thousands of abandoned wellbores slowly rotting away ready to bring hydrocarbons and groundwater into contact unless prices are good enough for some entrepeneur to be willing to accept the liability to maintain said wellbores!

    It’s such a different world here.. we are SO PRO O&G. One guy said, when approached for a new lease and talking to the landman about where on his land a location might be made, “I don’t give a damn if you want to melt whales in my front yard just bring money!”

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