GM says goodbye to Wagoner….reportedly at the request of the President. Anybody else want government aid? Markets set for a lower open .
The Week Ahead
- Monday: 3/30. No U.S. economic data. President to release details of Auto bailout plan at 11 EST.
- Tuesday: 3/31. Natural Gas Supply data for January; home prices, Chicago PMI, Consumer Confidence (forecast 28 vs 25 last month)
- Wednesday: 4/1. EIA Oil Inventories; ADP employment, car sales, pending home sales
- Thursday: 4/2. EIA Natural Gas Inventories; Initial jobless claims, factory orders, G20 summit
- Friday: 4/3. Non-farm payrolls (March) forecast at -688,000, Unemployment rate (forecast at 8.5%)
In Today’s Post:
- Holdings Watch
- Commodity Watch
- Rig Count Update
- Stuff We Care About Today – RRC, CLNE, Deepwater Rig Update
- Odds & Ends
Holdings Watch: The Wiki tab is updated.
Crude oil rose just under 1% last week to close at $52.38. The 12 month strip rose 2% to $58.21. This morning crude is trading down another $1.50 to $2 as equity market futures tumble and traders take into account the following bullets.
- OPEC Watch: Kuwait says capacity now 3 mm bopd, up 200,000 bopd from last year’s level. Their current quota is 2.2 mm bopd.
- OPEC Watch 2: Tanker tracker Petrologistics pegged OPEC March crude oil production at 25.9 mm bopd, vs the Cartel’s quota of 24.845 mm bopd, implying somewhat lower compliance than had recently been prognositcated.
Natural gas gave back the prior week’s gains falling 13% last week to close at $3.74 on Friday after an unexpected and somewhat early return to storage builds. The 12 month strip fell 9% last week to end at $4.64. Looking at last week’s weather it is likely we will see a small withdrawal from storage this Thursday. This morning gas is trading just under the lows from last week.
- LNG Watch: Russia’s Sakahalin II LNG facility shipped its first cargo to Japan over the weekend. Ultimate capacity of 1.3 Bcfgpd will be reached later this year when the second train comes on stream. Nearly all volumes are contracted to Japan and Korea.
- Weather Watch
- Last week HDDs rose to 125 from 116 in the prior week (we may see some small gas storage withdrawal this week). The forecast for this was was originally 108.
- Forecast for this week: 108 HDDs.
Rig Count Update:
Gas rig count continues its strong downward trend falling 47 to 810, down 796 or 50% from its peak level in September 2008. Gas rigs are now down as much as anyone had predicted last Fall and are lower than most analysts and company spokesman predicted as of the fourth quarter calls in February. As you can see from the chart, there does not appear to be a deceleration in the rig count slide forming just yet. I’ll have state specific rig counts out with the Gas Supply Update in the Wednesday post. This is just more crushing news for the U.S. focused oil service names as few rigs drilling obviously means less of everything well drilling and completion related from proppant (CRR) to pressure pumping (BJS).
Horizontal Rig Count resumes downward motion. Many analysts and some traders have point to the horizontal rig count and essentially said even if the gas rig count continues to plummet the horizontal rig count is sufficiently high to offset declines from conventional wells.
Stuff We Care About Today
RRC Sees Borrowing Line Re-affirmed.
- Borrowing based of $1.5 billion
- The company opted to leave the commitment amount at $1.25 billion
- If you look at the orange charts on the E&P link at upper left you’ll see these guys fall in the middle of the pack on leverage and interest coverage so this would normally (market not withstanding) provide a small sigh of relief in the stock.
CLNE To Build And Operate Compressed Natural Gas Fueling Station at Oklahoma State University
- to supply CNG to OSU bus and vehicle fleet
- part of the University’s green initiation to replace their diesel fleet with natural gas
- it will be open to the public
- My sense is that this will serve as something for other universities to point to as something they can do to "get green" while also allowing for another point of access for the public for CNG cars.
- I continue to believe that this is a story that will improve as we move towards 2010
Offshore Rig Group Thoughts: Preference continues to be deepwater.
Barron’s Article over the weekend. Link here.
- Will likely create a quick bounce in the group with DO and RIG receiving the early attention
- The article contains nothing beyond the obvious but is nonetheless true.
- Deepwater, Ultradeepwater capable ships remain in high demand
- Jackups which target the shallow waters have being to feel the pinch of lower prices.
- Operators like PBR have a long list of drilling locations in the subsalt in deepwater to drill up over the next five years as they seek to alter the country’s status from net importer to exporter of crude (and then join OPEC).
Company Vessel Portfolio Thoughts:
- I have trouble getting excited about NE and PDE in this low price environment due to the high number of Jack-up rigs as a percentage of their fleet.
- Contracts expiration risk: ATW and DO have the least amount of risk in the group to contracts coming off over the next 12 months however ATW, operating the smallest portfolio on the list can have a bad day quickly should they lose a single contract.More on ATW below.
- Good link for seeing where rig utilization by type is now and where it has been last month, six months, and a year ago. Jackups are the clear slider here.
- RIG is at trough cycle valuations and I don’t expect much further slippage in the E side of the equation.
- I’m not showing 2011 and beyond on the table above but I’d point out that ATW has two newbuilds on order arriving early 2011 and early to mid 2012 that should add at a minimum of $1.20 apiece, which is the most significant incremental earnings forecast out there.
Balance Sheets: For The Most Part Very Solid.
- None of the names have an issue with regard to interest coverage.
- RIG on the high end of Debt / Cap range due to the newbuild deep capable drill ship inventory
- I like DO/RIG at current levels or a little lower but it is harder for me to warm to NE, PDE.
- ATW I like quite a bit here due to a combination of how they have run their business through the cycle to date and rising earnings potential over the next three years.
- The group will likely trade with oil prices but should outperform the OIH.
- The group has increasing catalysts both from newbuild delays and cancellation and from new orders from the likes of PBR.
Odds & Ends
Analyst Watch: Nada.
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