October 10th Free Post

Excerpts from Wednesday's Post :

Chevron Warns 3Q To Be Sharply Lower. Wow, shocker. Exxon better fess up quick.  Just another example of one of the many reasons why the "windfall profits" crowd should be set adrift someplace where cars run on ground up unicorns and rainbows.

How Is This Different From COP's Warning Last Week? Well, in a nutshell it's worse.

  1. Conoco knows how to organize a press release for one thing. CVX starts off by stating that "net income is expected to be significantly below the record $5.4 billion earned in the second quarter 2007." It then continues it's self sabotaging tirade by stating "The lower projected earnings are mainly the result of a sharp decline in refined-product margins for the downstream business and the impact of nonrecurring items." It then launches a lengthy explanation about how their gains were bigger last year than this year and how they have more charges this year.
  1. Note to management: The gains talk can go in the last paragraph for those who care to read about it. They are non-recurring items and should not be a focus here.
  2. 2nd note to mgt and this goes for COP as well: why compare 3Q to 2Q? Seems like YoY makes a little more sense.
  • Refining Margins were worse than I'd have thought
    1. On the west coast they were well below year ago levels
    2. In Europe they were just below $0. For (COP) Europe was worse than year ago levels but still positive.
    3. In Singapore they were up but this is not much of their business
  • Chemicals did not save the day but were referred to as "industry indicator margins for the full third quarter in general were slightly higher than the second quarter."
  • CVX which is also suffering from Majoritus Upstreamus Contractus (a syndrome that is exhibited by companies with Google sized market caps but declining E&P volumes) and trades at 11x current 2008 earnings numbers. (COP) trades at a more reasonable 9x 2008 numbers. Just to round out the picture Mr Exxon trades at 13x. [COP closed up 1%, Xom up 0.5% and CVX fell 0.8%]
  • The funny/sad thing is (COP) will get hit again, however briefly, because one their competitors is going to have a worse third quarter than they will. What's even funnier is that the energy complex will fall back a bit despite the fact that most of the names have nothing whatsoever to do with refining and are actually growing their production lines quite nicely. 
  • One last thing, man these big guys are droll with their updates. Read this and see why 9 out of 10 of the most boring people I ever met were Majors analysts. Just kidding … they were all boring.
  • Similarly Valero warned but again, that's so last quarter's news. In the morning post I wrote: 

    They (Valero) warned today and my thoughts on that are contained in the Stocks We Care About section below but I will not sell into the early panic- the stock should open down $2 to $3 and I'll be monitoring it closely to see how/if it cleans up and where I need to set stops.

    So How Did Yesterday Go? 

    We held our multiple sets of COP calls which opened red with everything else but eventually rallied with the stock closing up 1% and our October and November positions closing up 25% and 14% respectively.

    We held onto our front month contracts through a 2 point dip in the stock and by the close those contracts were up 57% on the day instead of being panic sold at a small loss.

    Oh yeah, we also sold some RIG calls for a 2 day double and we continue to be active in that story. We also added more to a favorite gassy name. You can see all the recent sales at the bottom of this post.


    So Why Else Subscribe?   

    1) First and Foremost, The ZEB Community. The community around here includes a startlingly knowledgeable crew of investors with expertise ranging from exploration and production to nuclear engineering to all modes of shipping, not to mention an active oil and gas trader or two. Got a question? We've generally got more than a few answers for you. And this is not your father's chat board. If that's what your looking for stop reading and check out the yahoo message boards.

    2) Five Daily Columns Per Week… Sent before the market opens these posts detail a wide range of general energy topics as well as company specific issues. Take a look at the monthly archives prior to September 1 to see what we've been up to.

    3) …And A Weekly Wrap. A look back at the numbers and a look ahead at the week to come. Here's a look at last weekend's wrap. You might look at the refiners (TSO and VLO) and the dry bulk shippers (especially DRYS) after reading the post.

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    5) Performance. You can see all my winners and losers.

    6) Randomly Produced Reports. Occasionally I get the urge to write a little more than you might want to read before your third cup of coffee about an individual company (generally a small to medium cap E&P). These seem to come out more often during earnings season but you never know.

    7) Coming Features: Sector specific tabs for E&P, Refining, Coal, Dry Bulk and more. These will go along side our other tabs like the weekly natural gas storage report and outlook as a handy weekly reference source.  

    Here's What I've Sold Since The Site Went Pay:

    September Was A Pretty Good Month:




    October To Date:




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