Market Sentiment Watch: Sitting on cash in the ZCAT except for a few positions that have been rendered worthless by the market swoon of the last two weeks. In the ZIM I’ve been adding to positions and taking hits on the continued drop in the market. I will be looking to take losses and /or profits today and tomorrow on many of those. This is one of those times just after the end of earnings when the group has little news out, analysts are dreaming of summer vacations and we don’t have a major energy conference for at least a week (we get the UBS Global Oil & Gas conference next week). So it’s a bit slow. During the slow times I knock out data crunching jobs to be prepared for the coming time when the market will trade in a bit more logical fashion and I’ve included the Orange Charts for the Mid Cap E&P group. The Small Caps will be out later this week as well. I planned on adding a new Catalyst today but am trying to pin down a couple of dates and will have it out later this week. In energy land, BP said it’s catheter is collecting about 2,000 bopd from the riser now and that it plans to attempt a top kill of the well by then end of the week. BP called the pressures above and below the wellhead "fairly low" and said they have been dropping, giving them confidence the top kill (pumping heavy mud, then cement into the well) can work.
- PPI of -0.1% vs -0.2% expected (core was 0.2% vs 0.1% expected)
- Housing starts of 672K vs 650K expected; permits fell sharply, down 11.5%
In Today’s Post:
- Holdings Watch
- Commodity Watch
- Crack Spread Update
- Stuff We Care About Today – Mid Cap E&P Orange Charts
- Odds & Ends
- ZCAT (Zman Catalyst portfolio):
- 94% Cash
- The Holdings Tab Is Updated for the Quick View portion.
- Yesterday’s Trades:
- ZIM (Zman Inefficient Markets portfolio)
- 63% Cash
- Yesterday’s Trades:
- Added (100) HAL $29 May calls for $0.16 with the stock at 27.20, down 3% in a weak tape. I expect the name to recover disproportionately on a market bounce but plan to be quick here. See site for comments on the BP spill. Obviously a high risk trade but oil appears oversold and the liability for HAL increasingly appears to be less than for BP and RIG.
Crude oil fell $1.53 to close at $70.08 yesterday, after hitting a low of $69.27. By most appearances oil is now oversold having fallen 20% (peak to trough) in the last 10 trading sessions. This morning crude is trading up $2.20.
- Early Read On Oil Inventories:
- Crude: UP 0.625 mm barrels
- Gasoline: DOWN 1.0 mm barrels
- Distillates: UP 1.0 mm barrels
- Iran Watch: Time For More Sanctions. The White House said yesterday it is moving through the process of at the U.N. of getting more sanctions heaped on Iran. Expect more anti-West rhetoric out of the regime in the near future.
- Refinery Fire Watch: Lyondell’s Houston 270,000 bopd reported a minor fire yesterday and it appears the crude units are already restarting so I would not expect a disruption to gasoline production from the event.
- Drilling Ban Clarification Thoughts Watch: The ban is for all drilling starting from 3 miles offshore. The Shelf &P players and rig names like ESV, RDC, and DO may jump if Department of the Interior allows begins approving new permits on May 28th.
Natural gas rose $0.09 to close at $4.40 yesterday and the prompt month currently looks like this. I would not expect much more near term upside (maybe a trade up to $4.80 on early cooling related demand in the south and heating demand in the northeast and Rockiees) but the stocks have utterly ignored this 10+% move off the recent shoulder season lows. This morning gas is trading up slightly.
- Imports Watch: Not available this week.
Crack Spread Update
- Increasingly it looks like we are going to see the first year over year rise in quarterly margins and earnings for the independent refiners in over a year.
- I’m not looking for a long term turn to higher margins, but a seasonal rally.
- VLO and SUN remain on my radar for adds. I plan to move this week if demand data, especially on the distillate side show another strong week tomorrow.
Stuff We Care About Today
Mid Cap E&P Orange Charts
- First, this is just a reference piece, a good starting place for making comparisons
- Valuations in the mid caps are within normal levels
- Balance sheets are healthier than they have been in quite some time with a few exceptions
- Performance year to date and growth expectations (and even making your numbers) have been far from hand in hand. Reference HK which has one of the fastest growth rate targets for 2010 and which has made it’s targets, is lower cost and I’d add well hedged and yet it is the second worst performer on the list. Natural gas comes to mind along with Street bias against the name.
- Ongoing Bias Against Gas. Aside from HK, XCO, the only name in this cap range with more gas in their production profile is only name to perform worse than HK year to date.
- Balance Sheet Still Matters. The lower the debt to cap and or more oil you have in the production profile, the more love you’ve seen from the Street. The Buy side of the Street I mean, as there are a dozen Buy recommendations out there now for HK but the Buy Side and the Sell Side aren’t seeing eye to eye there or anywhere where gas is such a big factor AND where the balance sheet is even somewhat leveraged.
- This update will be placed on the Mid Cap tab at upper left.
AEZ Reports 1Q Results
- Production of 15,402 BOE vs 12,347 BOE a year ago, with growth coming from a doubling in oil volumes
- Revenue of $860 M vs $790 M expected
- EPS of $0.46 but this includes a gain on the sale of properties and changes in accounting treatments.
- Balance Sheet:
- $73.9 in cash
- No long term debt
- $73.9 in cash
- No operational highlights were included in the release.
- Nutshell: It’s not really about the numbers just yet (other than the strength of the balance sheet and their strong results from their first two Bakken tests). I plan to work these guys up in the near future as a potential position for the ZLT.
Odds & Ends
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