Strong Week For The Energy Complex:
- XOI Closing In On All Time High. Despite refining margin related warnings from Chevron, Valero, and Marathon this week and Conoco last week the XOI is at a two month high and at 1,480 is only a stone's throw away from the record high of 1,522 set in mid July.
- Valuation Table: Given Recent Performance, Are We Getting Pricey? The XOI (Amex Oil Index) is a price weighted index comprised of 13 companies, primarily Big Domestic and Big Foreign Oil but it also includes a couple of independent refiners (VLO and SUN) and one gassy mega cap E&P (APC). To answer the question, only if you think an 11.0x multiple is pricey.
- Selected Performance / Valuation Charts. Seeing as there are 13 components in the XOI I looked at all of them on a trailing and forward PE basis and posted three I thought were relevant. They all look pretty much the same in terms of rising earnings estimates over the last five years and compressing multiples. Although they are not at their absolute cheapest, they are by no means expensive
- XOM -
click to expand. The red line is a running chart of trail earnings, the green line is forward earnings. Not cheap for it but not expensive given their cash cow nature.
- COP -
click to expand. Cheapest of the U.S. Majors but not as cheap as it has been. Conoco suffered some doubters after its purchase of gas super independent Burlington Resources. That prejudice is transitioning to a sense, oh, I see, and the story is the only Major with a shot at generating significant production growth in the domestic arena in the next couple of years. They should also get a boost when the Rockies Express pipeline lifts the bar on Rockies NG prices. I recently added November calls here and will be closing my October calls here this coming week.
- VLO -
click to expand. Not expensive at just over 8x forward numbers I just sold the last of my October calls and will reposition for earnings soon.
click to expand.
click to expand. 
click to expand. - XNG Hits All Time High. ----- TBA
- OIH Hits All Time High. ----- TBA
Positions Liquidated This Month:
Question From Texana on Friday night:
z nfx– doesn’t the much lower rocky mtn gas prices on stone acq hurt btm line on there profits q3 report 10-25 . ru long nfx hk lookin good huge push to get deals done while w still prez. like oil btr than gas ie clr,ard,dnr thx tex
Texana ~ I don't think it has much of an impact on 3Q - timely buy if you ask me with prices in the region depressed.
- The purchased production is simply too small at present to move the needle much either way. Production associated with the SGY Rockies package was 40 Mmcfepd, 70% of which was gas or 28 Mcfgpd. That equates to about 4.5% of NFX's gas production or 3.7% of their total production using 2Q numbers.
- Moreover, just after the acquisition NFX locked in basis differentials between Rockies and Henry Hub for 2008 through 2012 on about half of those volumes, presumably to cover reserves that were most economically sensitive. They also have been putting on some pretty nice hedges.
- Moreover, the purchase brought in 200 Bcf 1P for $578 million so that's just under $3/ mcfe before you look at the probables they list as 175 which would basically cut the number in half. Contrast that to the nearly $9/Mcfe they received for their North Sea ops and you have an excellent example of buy low, sell high portfolio management.
From the BBC:
Oil surges to $84 for first time
There is much debate over whether the oil price will rise or fall
Oil prices have reached another record – surging past $84 a barrel for the first time.
US sweet, light crude jumped as much as 97 cents to trade briefly at $84.05 a barrel in New York on supply fears before falling back to $83.69.
Fears that world energy supplies will reach critical levels this winter rose on low US crude stockpiles and fears that supply from Iraq could be hit.
London Brent Crude jumped 40 cents to trade at $80.55.
There are mounting concerns that Turkey could invade the north of Iraq imminently to target the Kurdistan Workers Party after a number of rebel attacks that have killed 15 Turkish soldiers since Sunday.
Iraq has the world’s third largest oil reserves after Saudi Arabia and Iran and some of its largest oil fields are in the north of the country, near its border with Turkey.
But many analysts doubted that the supply of oil would be affected even if Turkey does get parliamentary approval for a cross-border military operation to hunt down rebels.
Instead, they believed that rising tensions in the region encouraged commodity traders to bid up the oil price, which jumped on Thursday after it emerged that US crude oil stockpiles fell last week.
Supply crunch?
The US department of energy said US crude oil stocks fell by 1.7 million barrels, in contrast to analyst expectations for a rise.
This takes crude inventories in the US to their lowest level since January as the weather turns colder and demand for heating oil increases, a report by the US Energy Information Administration showed.
The Organisation of the Petroleum Exporting Countries (Opec) agreed in September to boost crude supplies by 500,000 barrels a day starting in November.
But there is much debate over whether the increase will be sufficient to cater for demand levels in the winter months.
This has led to huge swings in the oil price this week with US sweet, light crude dropping $2.20 on Monday to $79.02 a barrel, while London Brent fell to $76.58 a barrel, down $2.32.
Both measures have been chased up since then.
The spin for this rally I believe to be completely misleading. We are being led to believe that the rises are due to fears that there is going to be a shortage of oil – either through tropical storms that continue to fail to materialise, or a winter that MAY have some cold weather, or now the latest that Turkey may make an incursion into Northern Iraq. Even the latter is being overblown as this area is not an oil producing region and therefore would not affect the oil supply.
Quite simply the oil rises are due to a speculative bubble at the front end of the market.
Technically it fits perfectly with the blow off top I would expect to see at the end of a rally like this. It feels like insanity and it will be shown to be insanity when they pop the bubble.
V$AGA & CiALLLI$ AT ABSOULLUTIE BE$$T PRICES!!! 888$$$
HAHAHA kidding,
test
Nickey? Do you follow metals andor commodities?
Phil
can someone on here tell me what type of options trading is allowed in American ira accounts? in Canada were only allowed long calls and puts (puts were just recently allowed) , and also to write covered calls
#6 I think it depends on the broker.
Call’em.
Are you a Canuk? Do you follow the miners??? I have my IRA run by BMO-HARRIS. I gave them my IRA to run in Aug 06. IRA up 20% I should have give them my whole account & gone on vacation.
yea im canadian
i worked for bmo harris out of university
It is worth having a bmo acct. just to get the research & having access to Don Coxe’s forcasts.
all i follow is energy. you have to focus on one sector if you trade options or you’ll lose your shirt– more tan enough profits to be made in this arena anyways.
my uncle and his son closely follow miners, base, precious, and uranium guys. he usually hits a 50-100 bagger once a year. theres lots of those on the venture exchange. presonay i wouldent touch it with a 10 foot pole. but theirs lots of money to be made there.
does your harris broker have you in stocks or a managed account? is he putting you in canadian stocks? they have access to great BMO CM research, ask him about the top ten lists, especilly the small cap top tens– all of them are usually average 100% per anum.
Our notes crossed
IRA is Personal Managed Account. Will post holding later. Going to Dinner.
Phil
ive met don coxe many times, cool guy
TTr-Do you know Gordon Young??
he didi our orintation in professional school. snappy dresser.
he startd back with burns fry.
Lets Get off the computer & smell the roses. It is Sat. Take a break from this Crap.
Phil
lol. im waiting for people here , have a good one
Texana – I took a shot at answering your NFX question at the bottom of the weekly wrap post. In a nutshell, the SGY assets shouldn’t have much of an impact just yet either way. Anyway, there’s a little more detail on the post.
Z- Have you run any #’s on the stock price of the mergered RIG/GSF.If not do you know anyone who has and can you provide a link? TIA
z as always thx , i knew nfx had hedged but not the amount. looks like an xcellent play into erngs. any thoughts on playing hk , is 10-6 erngs report date?
Scoop – I rely on Street numbers for the rig company estimates. The combined company numbers I’ve seen are for between $18 and $19 in 2009 which seems to be the year everyone is focused on as the companies will be fully integrated by then, cost synergies taken advantage of etc… That’s a 6 fwd multiple for some pretty strong growth in a segment of the market that’s not likely to slow in the next 3 to 4 years based on current future rig demand expectations.
Texana – I feel like I’ve been caught a little flat footed on earnings this time around as the stocks decided to take right after September expiration. In E&P land I plan on playing NFX, HK, PQ, APC, SWN, and CRK especially for 3Q earnings. There will be others to add to the list but those are ones I’m expecting further “holy cow” type production, cost containment, or other news from. That variety of Holy Cow is probably good for 1 to 3% moves that day on the big ones and as much as 5-10% on the HK and PQ. I’ve been waiting on a big red nasty day for entries and it just never seems to come. Patience is a virtue and a curse.
Z.
Can you post the dates and times of this week’s pertinent earnings announcements?
Thanks.
Q.
Q – Don’t think there are any but will check.
ACI and SLB on Friday. Starts to get busier next week.
Oil screaming early, up $1.15 to $84.85.