Monday Morning

Sentiment Watch: Still negative sentiment for E&P and oil service. The refiners are trying to make a turn. All three groups closely tied to the minute to minute price of oil and not fundamentals and stories. As such, I'll be looking at slow, opportunistic additions to equity and not option positions except in the refiners where I may add a little more call exposure as margins once again find traction with the fall in oil prices. This Wednesday's gasoline demand number will be key to that decision.

HK Announces Another Secondary. For repayment of debt and to fund further leasehold acquisitions. This reminds me of past cycles where the E&P companies lost site of capital discipline ... not saying we are there yet but repeatedly increased capital budgets funded out of investor pockets and not cash flow don't make me happy.

  • 25 million shares + 3.875 shares for the overallotment. Another 12% dilution.
  • Probably raises about $700 mm.
  • I went back and reviewed my 2Q notes and their transcript and there was no hint of this as they talked about what they'd already raised this year ($1.5 billion) and the fact that they had $500 million in cash and an undrawn bank revolver so I think people are going to feel pretty sandbagged by this deal.
  • I'd be asking "why now, when your shares have been pounded do you want to sell more of them?"
  • I assume the rush rush rush of the Haynesville shale land grab is the answer to the preceding bullet, maybe they have a deal in mind but the seeming lack of capital discipline here is a worry.
  • It's true that the finding costs here, even with the high price of acreage, are low to historic levels and while 1 well per section puts you into HBP status, you have to wonder if the rigs and steel will be available, given the larger players appetite in the same play, to get a majority of their current acreage drilled up before leases begin rolling off or in need of extension.
  • I won't be adding on the coming dip and I may sell some of my (HK) common shares bought at $18 some time ago and reallocate until this has settled into a more friendly pattern and management has satisfied its taste for acreage and deals.

In Today's Post

  1. Commodity Watch
  2. Stuff We Care About Today
  3. Odds & Ends

Commodity Watch:

Crude Oil fell 8% last week to close at $115.20; that's off $32 per barrel since its peak on July 11. The decline has been brought about by fears of global demand destruction, a lack of geopolitical new news (other than an all out war brewing between Georgia and Russia- see first bullet below), and a recent rally in the dollar (see second bullet below). This morning crude is trading up a buck which is a pretty insignificant bounce given the $5 crude fell last Friday alone.

  • Hot Spot Watch: Russia responded to Georgia's attacks in South Ossetia with overwhelming force and what looks like a push into Georgian territory. Not a lot of production here but there are some big pipelines that criss cross the area including the BTC pipeline that was extinguished today after saboteurs set the 1.2 mm bopd line ablaze late last week.

  • Dollar Watch: It seems things are getting tough all over and the dollar has strengthened in response to this relative weakness. The Dollar looks to be entering resistance after last week's run but with the EU and Asia showing more signs of softening further near term strengthening (putting pressure on oil) could be in the offing.

Natural Gas tumbled 25% last week or $1.14 per MMBTU to close Friday at $8.25, the lowest level since the beginning of the 2008 run up in prices in early February. Gas is now up 6% on the year and is in line with year ago levels which seems a bit overkill as then gas was putting in record highs on storage and more supply was seen looming around the corner in terms of both domestic production and LNG. This morning gas is trading up slightly due to the small bounce in oil.

  • Weather Watch: Heat wave replaced by at least a week of cooler than normal weather over much of the U.S. Cooling degree days fell to 74 last week vs a prior expectation of 83 which is in line with normal temps but well below year ago levels. This should yield a bigger injection this week but I'll know a little more later in the day when the generation stats are released.
  • Tropics Watch: A tropical wave in the central Atlantic and another behind it off the coast of Africa are expected by global models to develop into cyclones over the next 3 to 5 days.

Stuff We Care About Today

Enercom Oil & Gas Conference - August 10-14. Conference Schedule. About 80 exploration and production and oil service firms tell their story in 20 minute rapid fire succession. All times listed on the schedule are in Denver time. Today I plan to listen to:

  • (BBG) - Rockies E&P Bill Barret at 10 EST
  • (CLB) - Core evaluation company Core Labs at 10:25 EST
  • (WLL) - E&P Whiting Petroleum at 12:30 EST
  • (TXCO) 3:55 - E&P TXCO Resources at 3:55 EST

A note on earnings so far this quarter. We are wrapping up the announcement and so far little has mattered in the way of either quarterly outperformance or lofty guidance. Investors have simply run for the exits as oil and gas have fallen. Until this changes I see no reason to add additional capital to the group, no matter how cheap it looks. This selling has applied to E&P, Service and Coal stocks. Refiners have been the one exception as there were no expectations for that group.

(SM) Ups Budget and Production Guidance.

  • St Mary upped their budget by 15% targeting increased activity in the Bakken, Woodford, and Haynesville Shales and their Cotton Valley conventional gas and Wolfberry tight oil program. Preponderance of the dough goes to the North Dakota and the Haynesville (2 horizontal wells included) regions.
  • Targeting 10% growth
  • Outlining in the field inflation with LOE in $/Mcfe rising quickly.
  • Too expensive for my blood at 8.3x 2009 CFPS with "only" low double digit growth registered this year.

Brazil May Breakout The Subsalt. Brazil is considering separating (PBR)'s subsalt (they call it pre-salt) offshore discoveries into a separate company that would be 100% government controlled and responsible for the development of these reserves. That would likely unburden (PBR) from the current fear of needing to come up with  the quarter to half a trillion  USD needed to develop these reserves over the next decade or two. (PBR) valuation is pretty uncertain as it depends on the compensation allotted to take these discoveries off their books if the deal happens at all.


Blackrock Capital Saying It Is Adding Energy Names In This Market. On CNBC this morning the trillion dollar fund's vice chairman says they are increasing energy exposure now saying the group is cheap and citing a Baron's article along the same lines this weekend.

Odds & Ends

Analyst Watch: Lehman trims (SD) price target by $2 to $58, maintains overweight, (BRNC) upped to buy at Jefferies.


136 Responses to “Monday Morning”

  1. 1
    Sambone Says:

    8:19 am EST

    Crude Climbs On Deeper Georgian Conflict

    By Nick Heath

    LONDON — Crude oil futures traded higher in London Monday after intense weekend fighting between Russian and Georgian forces steeled fears that regional oil supplies could be further disrupted by the violence.

    A slight pullback in the dollar after it surged against most major currencies Friday also relieved some downwards pressure on prices, but crude values nonetheless struggled to extend Monday’s early advance with the market continuing to face headwinds from increasingly entrenched bearish sentiment.

    “To me the news flow is bullish, but sentiment in the market is very poor,” said Jim Rintoul, analyst at London-based trade advisory TheOilTrader.com. “Until we can break back above the steep downtrend from the highs, shorts will be emboldened.”

    At 1143 GMT, the front-month September Brent contract on London’s ICE futures exchange was up 91 cents at $114.24 a barrel.

    The front-month September light, sweet, crude contract on the New York Mercantile Exchange was trading $1.02 higher at $116.22 a barrel.

    The ICE’s gasoil contract for August delivery was up $15.50 at $1035.25 a metric ton, while Nymex gasoline for September delivery was up 216 points at 290.90 cents a gallon.

    While initial confrontation between Russian and Georgian forces in the disputed territory of South Ossetia had little impact on the crude markets Friday, a weekend of bitter conflict between both sides heightened market concerns that the violence could spillover to affect oil market infrastructure in Georgia, an important transit point for crude shipments from central Asia to Europe.

    The outage of the Baku-Tbilisi-Ceyhan pipeline — which ships Azeri crude from Azerbaijan via Georgia to the Turkish Mediterranean coast — following a separate fire last week may have limited some of the impact of the weekend’s events, some suggested, although the market’s increasingly bearish sentiment also helped keep price moves capped.

    “I don’t think the goings-on in Georgia are having as much impact they would have had if market was in an uptrend or if the fire on the pipeline hadn’t already happened. With market being so weak it doesn’t react so much to the upside,” said Christopher Bellew, broker at Bache Commodities in London.

    BP PLC (BP), operator of the BTC pipeline, said Monday that the fire has now been extinguished and that the alternative routes it uses to transport crude continue to operate despite the conflict in Georgia.

    Concerns that economic slowdown is spreading elsewhere around the globe helped boost the dollar Friday, as expectations gathered that other economies will have to adjust to weather the storm, in turn hurting the outlook for their currencies. The fall weighed heavily on crude prices, and also bolstered concerns that demand for crude will fall amid wider economic slowdown. The greenback retreated slightly against most major currencies early Monday.

    “While the effect of the dollar strengthening on oil is limited currently, the fundamentals driving forces for both at the moment are identical. There is a real concern that sluggish global growth globally will reduce oil demand, especially at the prices experienced last month,” said Nimit Khamar, analyst at Sucden Research in London.

    In addition to demand concerns, the technical outlook for crude has turned increasingly bearish since prices hit their records above $147 a barrel last month. The liquidation of some large investors has removed a tranche of support for prices while others are looking to increase their bets on further falls by selling short. Latest data from the U.S. Commodities Futures Trading Commission published last week revealed that speculative investors in Nymex crude oil futures increased their net short position for the week ended Aug. 5, boosting expectations that further falls may be in store.

    “Many participants went net short in crude last week just before the bottom fell out from under the market on Thursday and Friday; we suspect that other shorts have joined their ranks since then,” said Edward Meir, analyst at MF Global in New York.

    With the Atlantic hurricane season well underway, market participants eyed two developing weather patterns Monday. According to the U.S National Hurricane Center, the closest, a broad area of low pressure located about 900 miles east of the Windward Islands, has the potential to become a tropical depression during the next couple of days as it moves westward.

    “The calculated path on the first tropical formation (the most westward of the two) could put it on a directional threat for Mississippi and Louisiana; hence any development could become a greater market input as the week advances,” said Olivier Jakob of Swiss consultancy Petromatrix.

    —By Nick Heath, Dow Jones Newswire

  2. 2
    zman Says:

    CDDs forecast fall to 65 this week, no help their for NG.

    Azer stops flows through Georgia.


  3. 3
    zman Says:

    Tudor Pickering takes SD target up $4 to $75.

  4. 4
    Sambone Says:

    Oil Market Eyes Russia-Georgia Violence

    Crude oil markets are eyeing ongoing violence between Georgian and Russian forces in South Ossetia and its potential impact on key oil infrastructure and flows in the Caucasus region.

    Russia intensified attacks on Georgia Monday after taking control of South Ossetia, ignoring appeals for a ceasefire and U.S. diplomatic warnings, the Tbilisi government said.

    Meanwhile, Georgian President Mikhail Saakashvili has signed a ceasefire deal put forward by European Union envoys, French Foreign Minister Bernard Kouchner told BBC television Monday.

    Envoys would now go on to Moscow to try to persuade the Russian government to sign the agreement, Kouchner said. French President Nicolas Sarkozy will travel to Georgia Tuesday.

    Estimates of the amount of people killed or injured in the conflict vary.

    Crude oil prices rose nearly $2 a barrel earlier Monday on concerns that the violence would disrupt the movement of oil and gas through the region.

    Market participants are concerned the clash could threaten the Baku-Tbilisi-Ceyhan pipeline, operated by BP PLC (BP), which has had an average throughput of over 850,000 barrels a day in recent months, and other oil transporting infrastructure in Georgia.

    While Georgia doesn’t produce oil itself, it has become an important transit country for crude and oil products from Central Asia heading mainly for Europe in the last decade.

    Moscow-based brokerage Troika Dialog estimates that supply of 1.6 million barrels of oil daily could be disrupted due to the conflict.

    Analysts believe a prolonged conflict could potentially impact significant oil flows from Central Asia to Europe and other Western markets.

    The Azeri light, sweet crude oil grade which flows through the BTC pipeline is a high-quality feedstock with high yields of naphtha, kerosene and fuel oil.

    Kazakhstan halted oil exports via Georgia Monday, the government said. On Saturday, Azerbaijan’s state oil firm SOCAR also halted oil exports via Georgian ports Batumi and Kulevi.

    Europe is leading diplomatic efforts to end the conflict, which has sparked concerns over Russia’s increasingly assertive foreign policy.

    French and Finnish foreign ministers are holding talks in Tbilisi Monday ahead of a meeting with Russia’s President Dmitry Medvedev in Moscow Tuesday. Georgian Foreign Minister Ekaterine Tkeshelashvili will also meet North Atlantic Treaty Organization officials in Brussels Tuesday.

    Oil is shipped through Georgia by the following routes, all of which are at stake should hostilities intensify:

    The 1,767 km Baku-Tbilisi-Ceyhan, or BTC, pipeline — the main international oil route carrying oil from Azerbaijan to European markets. It runs from Baku in Azerbaijan, via Tbilisi, the Georgian capital, to the Turkish Mediterranean port of Ceyhan. The pipeline has a capacity of 1 million barrels a day and crosses 267 kilometers of Georgian territory. It runs about 100 kilometers south of the South Ossetian capital, Tskhinvali.

    The BTC line was shut down early Wednesday last week following a fire unrelated to the current conflict. BP, which holds a 30% stake in the BTC pipe, and its partners are presently pumping all crude through a supplement pipeline running from Baku to Supsa where it is being stored;

    The 530 km Baku-Supsa oil pipeline on Georgia’s Black Sea coast was recently reopened following 19 months of repair work and has started shipments at 10,000 barrels a day. The pipeline carries 145,000 barrels a day mainly from Azerbaijan’s Azeri-Chirag-Guneshli field;

    Georgia’s largest oil port Batumi, which last year shipped 190,000 barrels of crude a day from Azerbaijan and Kazakhstan. Crude is shipped to the port via rail;

    The Kulevi port, which is located on Georgia’s Black Sea coast and has a current capacity of 200,000 barrels a day. It handles crude, diesel and fuel oil shipped by rail from Azerbaijan, Turkmenistan and Kazakhstan. BP says it can increase exports by rail through Batumi and Kulevi, should BTC not work;

    The Baku-Tbilisi-Erzurum gas pipeline, which links Azerbaijan to Turkey. The pipeline can ship around 6.6 billion cubic meters of gas a year.

    “Tskhinvali has been taken under the control of a strengthened Russian peacekeeping contingent.” -Russian President Dmitry Medvedev speaking about the capital of the South Ossetia region Monday.

    “Georgia expresses its readiness to immediately start negotiations with the Russian Federation on a ceasefire and termination of hostilities.” -official Georgian statement Sunday.

    “I said this violence is unacceptable…I expressed my grave concern about the disproportionate response of Russia and that we strongly condemn bombing outside of South Ossetia.” -U.S. President George Bush speaking Monday about an exchange with Russian Prime Minister Vladimir Putin Friday in Beijing.

    “Oil prices are surely going to be impacted by the ongoing fighting…The safety of oil that passes through the Baku-Tbilisi-Ceyhan pipeline is a matter of concern.” -a Gulf OPEC official.

    “The longer the conflict continues the greater the chances that the BTC pipeline gets damaged.” -Olivier Jakob, managing director of Swiss-based consultancy Petromatrix.

    “Prices (are higher) because of the events spinning out of control in Georgia.” -Peter Beutel, analyst at Cameron Hanover.

    —By Lananh Nguyen, Dow Jones Newswires

  5. 5
    BirdsofpreyRcool Says:

    HK… guess if you’re “building a company to sell it” then the focus is on grabbing as many assets as possible. And not on Balance Sheet/equity diultion management.

    Still, lack of capital-raising dicipline (and timing/pricing) is very distressing.

  6. 6
    zman Says:

    WSJ online article saying prices below $8 will yield producer curtailments of natural gas production.

    “It’ll be essentially a self-correcting mechanism,” EOG Chief Executive Mark Papa said.

    Bird – on their 2Q call, they said the build it to sell it concept was on hold for a bit.

  7. 7
    calvo Says:

    ..RAM, regarding your #80 comment from last Friday about a market service monitoring big money flows: I’ve come across this website (http://www.stocktiming.com/background.htm). They seem to use quite sophisticated TA to monitor broad market behavior, apparently including big institutions (they have an “Institutional Accumulation/Distribution Monitor” – whatever that means). I’m not subscribed myself. However I’m playing with the idea but don’t really have any knowledge/skills to judge the quality of their work. All I can say is that they sound genuine to me. Could this be a useful early alert for baby-with-the-bathwater situations in the future?? …good night from Down-Under

  8. 8
    zman Says:

    Thanks Calvo, appreciate the thought as having been looking for a baby and bathwater sensor for quite some time.

  9. 9
    BirdsofpreyRcool Says:

    z – agreed. but so did GMXR, right?

  10. 10
    Nicky Says:

    The downtrend line mentioned in #1 comes in around 118.00 today. I actually think 120.50 is a more important level to get above.
    I mentioned late Friday there is support at the 112 level.

  11. 11
    zman Says:

    Bird- yes I thought so but those guys may not get to decide.

    Morning Nicky – talking heads continue to talk lower oil, lower demand, permanent change in driving habits (they must have been born yesterday on that last one).

  12. 12
    Nicky Says:

    Broader market – its looking liking an ending diagonal in which case from around here we should move down to 11400 – 11500 area on the Dow and 1260 – 1275 on SPX before another move higher.

  13. 13
    Nicky Says:

    Z – was listening to the same this morning – how can they really think people will not be back to their same old driving habits in a heartbeat? Market feels a bit too short and a bit too bearish to me. Not that it can’t go lower but I am still expecting a correction of the move down…

  14. 14
    zman Says:

    Despite what the Street says, SD getting crunked again, down 5+%. I thought I really must have missed something on the call Friday but given the price targets, ratings, and the comments of some pretty smart guys I’d say I didn’t. Unreal and not will to step in front and maybe that’s the reaction of everyone else. Once it decides to trade sideways for a bit maybe we get a wild bounce.

  15. 15
    zman Says:

    SD, make that down 8% on top of a 17% decline on Friday.

  16. 16
    zman Says:

    A wildz would be to take the SD $35 calls here at $1.30 on the August contract as the thing should bounce from support and due to broker calls (if they have any sway in this market).

  17. 17
    zman Says:

    Agreed Nicky, the guy also said lots of supply coming on from Saudi while neglecting continuing declines in Mexico, Russia, and the grade of crude. I should be more than used to this “one side of the picture view from the Street and CNBC” but it still galls me that no one body checks these jokers who are obviously touting their book.

  18. 18
    Sambone Says:

    ” August is historically a quiet time for oil, the so-called “shoulder season” when vacationing climaxes, but before deliveries of heating oil get underway in earnest. We have no real prospects of overcoming any of the structural problems now built-in to our oil supply, starting with the grim central fact that we import at least 70 percent of the oil we use. Add to this the fact that world production of conventional crude has not exceeded the 2005 rates; that export rates from our Number 3 and 4 sources of oil, Mexico and Venezuela, are down a combined 30 percent this year; that discoveries of new oil are meager to the degree that they fail by a long shot to offset current world-wide depletion; that the oil available on global markets is proportionately more sour and heavy crude than the light and sweet our refineries are designed for. And so on….”

    James Howard Kunster, August 11, 2008


  19. 19
    BirdsofpreyRcool Says:

    TPH was one of the last shops to adjust their energy price deck upwards this summer. They are currently keeping their oil price forcast for 2009 at $100/bbl. With $100 oil, LNG going elsewhere, rig/equipment/manpower availability tight, and infrastructure requirements in many of the new shale plays, how low can north american nat gas prices really go? It doesn’t make sense (given constraints listed above) to see $7 nat gas under the Christmas tree. does it?

  20. 20
    BirdsofpreyRcool Says:

    (P.s. I don’t think so.)

  21. 21
    VTZ Says:

    With gas prices right now lots of western canadian nat gas is off the table again.

  22. 22
    zman Says:

    BOP – no but gas is worse than oil for the pendulum effect and that’s where we are now. Plus, it’s cold in August so you might wonder way Sept. NG is up 15 cents and all I can say is dead cat bounce and I don’t trust it. CNN is doing a good job of talking up hurricane season though as their ratings are in the shoulder season as well.

  23. 23
    Nicky Says:


  24. 24
    zman Says:

    GDP raised to neutral from reduce at SunTrust.

    SD, down another 10%

  25. 25
    zman Says:

    No oil comment out of GS this morning that I saw. You’d think they’d be responding to all the calls for sub $100 oil by year end which fly in the face of their $149 New Year’s Eve target.

  26. 26
    BirdsofpreyRcool Says:

    z – any observations/comments on why SD is getting particularly pounded? Clearly, sellers are more agressive than buyers here. Perhaps SD found it’s way into too many hot-money hands. That’s about all i can come up with.

  27. 27
    zman Says:

    BOP – agree your thought and that it has a higher P/CF multiple (and higher growth) given its run … for the longest time that didn’t matter now it seems to. Embarrassed to say I took a little of my thought in #16, totally irresponsible of me.

  28. 28
    Nicky Says:

    I feel sure GS will comment Z – and you can get it coincides with the expected bounce!

    Can you also explain to me what PD is saying about price of oil in post no 23 ie i don’t understand what he is implying with regards options expiry.

  29. 29
    Nicky Says:

    sorry that should have said bet and not get…

  30. 30
    zman Says:

    Nicky – re 23, nope. But it has to do with oil speculators and oil companies being evil I’m sure.

  31. 31
    BirdsofpreyRcool Says:

    August is a tough month to trade. Low liquidity, senior people on vacation, shoulder month for nat gas. Also, to the extent that energy was overweighted in HFs, Aug 15th will be redemption notification date for exits at the end of Sept. All this means “no buying” and “possible selling.” None of this is really fundatmentally-driven, IMHO. The one thing that can really drive August, however (other than continued political uncertainty, abroad and here) is the occurrance of a GoM hurricane. That is where light-mrkts can turn into price spikes in a hurry.

    Tough to bet on Mother Nature. But, if you are going to, August/early Sept is the best time to do it.

    Other than that, stupid-low valuations means pick stocks you want to own at the price you want to own them. Then go to the beach.

  32. 32
    Nicky Says:

    BOP – you are very right re hurricanes and natural gas. Having fallen so far it is just ripe for one of these spikes! I see two waves in the Atlantic that our local weather is saying may form into ‘something’ later this week…

  33. 33
    zman Says:

    Worthless analyst watch: As of this moring Goldman has a $75 price target on SD and rates the stock a neutral. So a 134% gain is not worth a Buy rating over there. Way to go out on a limb fellas.

  34. 34
    Bleemus Says:

    Earlier this morning this animation showed hurricane-like swell pattern for that wave in the Atlantic. They updated it and now it doesn’t show so I am guessing the models are backing off on their earlier big storm forecasts. Let the page load fully and it will run.


  35. 35
    Bleemus Says:

    I should have said “hurricane-like swell pattern for that wave in the Atlantic developing on coming Saturday north of Venezuela.”

  36. 36
    zman Says:

    Thanks Bleemus, saw it start to look a little less organized overnight but the guys at Crown Weather say it should re-intensify in the next 2 to 3 days.

  37. 37
    Fred Says:

    Clive thinks crude stocks have bottomed here:


  38. 38
    Bleemus Says:


  39. 39
    zman Says:

    Thanks Fred. I’ve been thinking about going long COP and XOM for a refining margins improvement and share buy back related bounce that I suspect is around the corner.

    SD now down 16%.

  40. 40
    arodeen Says:

    Anyone heard or read any details on this study: Study: U.S. Has 118 Year Supply of Natural Gas

    Give any weight to it?

  41. 41
    Nicky Says:

    Crude going down is again moving the indices up. SPX now at major resistance…

  42. 42
    arodeen Says:

    Sorry, link:

  43. 43
    zman Says:

    It was in the Journal today. The gas looks to be there with over 800 Tcfe in shale reserves alone according to some estimates with the Haynesville being almost one-third of that. That’s the energy equivalent of half the reserves of Saudi. It’s probably only economic at a price around $8 based on current costs. If prices drop much lower many of the E&P names, especially the unhedged ones will need to bring their capital budgets down.

  44. 44
    zman Says:

    Oil looks like it’s dead set on 110 now.

  45. 45
    zman Says:

    Refiners should be yelling buy me here as oil tanks worse than product prices again. Crack spreads were up again across all regions last week.

  46. 46
    zman Says:

    I think energy analysts as a whole are stepping back and letting the names fall with very little attempt at supporting them here, saying take profits now and sit on your hands instead of trying to fish. Until an event hits the commodity market to stabilize it I have to agree. All mini-rallies in crude are being sold.

  47. 47
    zman Says:

    SD down 19.5% or another $7+.

  48. 48
    zman Says:

    Dollar contributing again to crude weakness, reversed earlier losses and no above Friday highs on the dollar index.

    Crude down 1.30 at 113.90 and so far NG up a dime but that’s a pretty tentative move not supported by electrical generation demand as it was a pretty cool week and this week looks to be cooler.

  49. 49
    Bleemus Says:

    Barron’s cites buying opportunity in energy names

    Barron’s reports the sharp drop in oil and natural gas prices has produced an even sharper pullback in energy stocks, creating what may be one of the best buying opportunities in the sector in several years. Exxon (XOM), Chevron (CVX), BP (BP), and ConocoPhillips (COP) now trade at 5x to 7x next year’s projected profits. The majors have rarely had such lower P/Es. “This has been one of the sharpest corrections ever in E&P,” says David Kistler, an energy analyst at Simmons & Co. “Nearly every stock screens with tremendous valuation upside.” Simmons estimates that major independents like Anadarko Petroleum (APC), Devon Energy (DVN) and XTO Energy (XTO) now trade at little more than half their net asset values. Kistler views the independents’ risk/reward ratio as excellent. Kistler says the stocks should rally if oil and gas prices hold at current levels. Paul Cheng, Lehman Brothers’ energy analyst, is a fan of Chevron because of its low valuation. It recently was trading at 6.6x projected 2008 profits of $12.70 a share. Cheng expects the co to be able to boost output by 4% in 2009 and 2010, according to a recent note.

  50. 50
    Nicky Says:

    Gold breaks major support now

  51. 51
    zman Says:

    Thanks Bleemus … I guess nobody reads Baron’s anymore or listens to one of the best energy firms (Simmons) on the Street.

  52. 52
    antrimshale74 Says:

    All right! I found an energy stock moving up today. Nice move in GEOI after earnings report. I’m sure this little move will not last long either, though.

  53. 53
    VTZ Says:

    gold to 820 imo now.

  54. 54
    ddaley Says:

    SD, “capitulation selling” at the IPO price. One would think one could make money with this somehow, but maybe not if the USD continues up.
    Z, what is the argument for being long energy of the dollar is in a clear uptrend?

  55. 55
    Fred Says:

    PDC up 5%

  56. 56
    tater Says:

    Nice to see that my dollars are now a good investment. What a joke. So now the small guy can’t even buy the GLD for a safe haven, has to learn to short, or just give the money to Bear Ster….er…I mean…

    Gold looks like it will see $800 then $680 unless we get a pretty big bounce. That will might put even more pressure on WTIC.

  57. 57
    VTZ Says:

    ddaley, the dollar hasn’t broken bear market trend yet. If you look at the dollar index the bear trend can still be intact with this rally.

  58. 58
    zman Says:

    DD – depends on how much more there is to it but a lot more influenced the price of oil than the dollar on the way up. This looks like a broad commodity capitulation so my argument for long energy in general would be that supply is outstripped by demand at current prices in the long term. But in the short term, with the hugely negative sentiment on the group there is no reason to be long the names outside of service and refiners on fundamentals. But why is the dollar really going up…I don’t see the situation in the U.S. as wildly improved but if it has, would that not mean oil demand too would be improving? As I wrote this morning, I’m not adding to positions until things calm down and the day after day bashing really stops.

  59. 59
    zman Says:

    NG back to even …knew that could not last. Still think we are near a bottom but you can’t escape the pull of oil being slammed every day without a catalyst and cool weather and a clear Gomex (for now) don’t provide one.

  60. 60
    Nicky Says:

    Next area of resistance for SPX is 1316 – 1320.

  61. 61
    zman Says:

    Parker drilling call about to wrap, WLL about to start:


  62. 62
    zman Says:

    SD trying to put a bounce on.

  63. 63
    Sambone Says:

    TBILISI, Georgia (AFP)–Georgian forces on Monday retreated from the advancing
    Russian army to defend the capital Tbilisi, the Georgian government said in a
    “At this hour, the invading army of the Russian Federation has entered
    Georgian territory outside the conflict zones of Abkhazia and South Ossetia,”
    the statement said.
    “The Georgian army is retreating to defend the capital. The government is
    urgently seeking international intervention to prevent the fall of Georgia and
    the further loss of life.”

    Dow Jones Newswires
    08-11-08 1233ET

  64. 64
    ddaley Says:

    Thanks VTZ, and Z.
    I admire your discipline and continually fielding these questions.

    Strategy in this period seems more important than fundamental analysis.
    I have taken SD SEPT 35 @2.20. I suspect it will close out there on Friday

  65. 65
    zman Says:

    SD – yep, bottom fish is in, looks like a couple of quick points about to happen as volume on the day peaked at the lower around $30.

  66. 66
    zman Says:

    Refiners starting to move now. Go VLO.

  67. 67
    zman Says:

    DD – Its what I do and while the last month has been less fun than a bris and an alcohol bath it happens from time to time. I get my head in the game and sometimes miss the turn in sentiment which I definitely did this time making July and August so far pretty costly. Am working to improve that via a network of pretty smart chaps from other disciplines including you guys.

    On SD I got in those for $1.30. Gotta think the Street comes to the rescue shortly, maybe tomorrow. I didn’t ztrade that one b/c while I disagree with the drop I think the risk is akin to gambling.

  68. 68
    Nicky Says:

    FWIW(not much I know!) I think we are in the latter stages of this decline for oil. 112 and then 110 are support but once the low is in we will see a very strong bounce. Hard to believe right now I know!

  69. 69
    zman Says:

    Nicky I think so too but I can only say so many times before I feel the need to slap myself.

    Is gold down $30, wow!

  70. 70
    Nicky Says:

    Gold VTZ target area hit – whatever happens we should see the 850 level tested again…

  71. 71
    Nicky Says:

    Z – we are 10 points up off the low of gold now too…

  72. 72
    zman Says:

    When oil settles in I’ll be going headlong into WLL and CLR oily plays. Sounds like the takeaway capacity from the Williston is getting worked out for the second half, still have some questions about capacity out of the Bakken in 2009.

  73. 73
    VTZ Says:

    I think consolidation in gold around 820-840 and then if it fails its a LONG way down.

  74. 74
    rseidman Says:

    Z: Are you still considering what you wrote on July 29th:

    I have 3 choices. 1) continue to do what and I do and wait out a more normal environment where fundamentals and stories matter 2) punt my holdings and then wait for that normal environment or 3) gamble that the “bubble” is over for oil and gas and go into put country on these names. I’ll do a combination of the first two starting Friday if we don’t start to see more sideways action and more importantly, more positive reaction to positive news.

    July 29th, 2008 at 2:22 pm

  75. 75
    Nicky Says:

    Yep V agree. That said I think we could see a 1 – 2 week bounce in energy market when it puts in its low and likely gold will be the same. Only once the low is in can we work on likely retracement levels.

  76. 76
    Nicky Says:

    At this stage we would need to see a move about todays high in oil for some indication of a low being in place.

  77. 77
    zman Says:

    RS – Absolutely. Still thinking 1 and 2. Been punting the near worthless stuff and still waiting to get longer.

  78. 78
    elduque Says:

    Z I bt some pwe today, looking for some Cdn. trusts to add some yield to portfolio. Do you have any other names to look at?


  79. 79
    BirdsofpreyRcool Says:

    one comment about the US dollar… while the U.S. economic fundamentals are at the worst “very bad” and at ths least “uncertain,” currency trading is all about relative value. Perhaps it’s not so much that the dollar is rebounding because the U.S. is in such great shape (compared to Europe)… but that the euro at $1.60 was overvalued.

    Europe is behind the US in this economic slowdown. And while we are moving toward nat gas independence, they import something like 1/3rd of their nat gas needs from Gazprom.

    just a thought.

  80. 80
    zman Says:

    I don’t own any right now and I don’t know the Canroys well. In the states EVEP was pretty interesting as a yield play a couple of months ago but I don’t own it either right now. They depend on their ability to acquire which probably just got better and they’re yielding almost 11%.

  81. 81
    zman Says:

    BOP – agreed, this rally started after comments from the ECB last Thursday.

    On the NG front, weight to mother Russia cuts off the flows of gas to Europe again during the dead of winter and see how much NG makes it to the states. Ukraine, through which a lot of gas moves to Europe has been threatening Russia with naval action if they don’t leave Georgia alone. Bet we see Vlad/Medeyev up the rates and shut off the gas this winter more than ever.

  82. 82
    BirdsofpreyRcool Says:

    lol. yeah… and Ukraine steals a lot of the gas from the pipeline too. volatile situation, for sure.

  83. 83
    BirdsofpreyRcool Says:

    (or, should i say, “unathorized syphoning…”)

  84. 84
    BirdsofpreyRcool Says:

    for those looking for an unhedged nat gas player, WLL just said they do not have any hedges on nat gas presently… and their oil hedges (on about 35% of production) are set to end by the end of 2008.

    this one should really rebound with any uptick in energy.

  85. 85
    VTZ Says:

    elduque – BTE (baytex) is good. They have heavy oil exposure. They have gone up a lot lately though.

    IPL (interpipeline) is a decent pipeline trust with heavy oil exposure.

    PEY is gassy and has gotten killed (with nat gas) but has good management. They are mostly tight gas.

    Make sure the payout ratios are reasonable and also realize that the tax structure for them changes in 2011 I think but this has mostly been priced into the stocks. But, the tax structure will reduce their cash flows substantially from where they are now so keep that in mind. Some of the trusts are less affected because the taxes are only on canadian production so canadian based trusts with foreign assets are less affected by the tax change.

  86. 86
    Sambone Says:

    Oil patch = Wow!

  87. 87
    zman Says:

    Sam – no buyers.

  88. 88
    zman Says:

    Thanks V, not really my area.

    BOP – agreed, good presentation by those guys, doesn’t matter until it matters in this environment.

  89. 89
    Sambone Says:

    Headline, 1:37 pm EST
    DJ Georgian Pres: Russian Forces Control Most Of Georgia.

  90. 90
    Nicky Says:

    Broader market keying off oil and oil keying off a weak economy…something not quite right here somewhere…

  91. 91
    Sambone Says:

    Z – Didn’t Georgia send troops to Iraq after the US asked?

  92. 92
    zman Says:

    U.S. said to be flying them back today.

  93. 93
    Sambone Says:

    Maybe to late.

  94. 94
    zman Says:

    I hear your point Sam but these days, it seems that if you can pull off a blitzkrieg and you are a big boy on the block, you can generally get away with it. Italyinvestor knows better but I would not think you’d see U.S. boots on the ground going against the Ruskies.

    Has the U.N. had time to notice this thing yet?

  95. 95
    zman Says:

    actually, just saw pictures of the Georgian troops arriving in Tbilisi.

  96. 96
    ram Says:

    Re #70 – Thanks CALVO.

    Zman – I was hoping more cheer as your 1 year anniv. approaches.

  97. 97
    tomdavis12 Says:

    Nicky: Any numbers you can throw out on the US$ where the supports and resis are? Anyone else want to take the long side of the US$ and why it is going higher and keep going higher.

  98. 98
    zman Says:

    Ram – yeah, you and me both. ug.

  99. 99
    zman Says:

    Oil down a buck, NG up a dime again. BRU and XTO green, all the refiners green. Feels like a tease.

  100. 100
    Sambone Says:

    Hmmm, maybe Cramer called a bottom, LOL

  101. 101
    Fred Says:

    Uncle Phil Flynn:


  102. 102
    zman Says:

    Sam – no joke, if we get a reversal in the energy equities mid day that is one of the guy’s favorite things.

  103. 103
    ram Says:

    There sure is a lot of interest in SD’s AUG 35’s.

  104. 104
    zman Says:

    Re SD, yes the 1/3 off sale inspired a little gambling today. I imagine the Aug $30s would be busy if they existed but no one saw it falling this far.

  105. 105
    zman Says:

    Amazing how sensitive the groups are right now, this tiny recovery in oil has cut the days gains in the refiners by 2/3rds. Very tough.

  106. 106
    Bleemus Says:

    NYMEX Energy Closing Prices

    Crude closed lower by $0.55 to $114.65, natural gas settled off 9.6 cents to $8.344, heating oil ended lower by 0.50 cents to $3.123 and RBOB gasoline finished down 1.54 cents to $2.872.

  107. 107
    Sambone Says:

    MOSCOW (AFP)–Russia’s defense ministry on Monday said Russia had no plans for
    its forces to advance on Georgia’s capital, Tbilisi, Interfax news agency
    “We do not have and have never had any plans to advance on Tbilisi,” the news
    agency quoted an unnamed defense ministry official as saying.
    “Clearly the Georgian leadership is gripped by panic.”

    Dow Jones Newswires
    08-11-08 1437ET

  108. 108
    antrimshale74 Says:

    Russia’s Defense Ministry is full of people who would toss their mothers under a bus if they had to. I wouldn’t trust anything they have to say.

  109. 109
    Garyinhou Says:

    CLR back to even after cozying up to $41.. wonder whats really behind these sell offs and rallies.. Maybe Ollie Stone can come out with Wall Street II.. “Blue Oyster loves Petrohawk Energy”

  110. 110
    italyinvestor Says:

    Z – I sat in a brief this morning on Georgia. Georgia has three autonomous zones and the Russians pushed into a second one last night/today. Clearly an expansion of the conflict on their part. The recent report of them taking Gori is significant and bad. Today the russians were hitting key infrastructure in Georgian territory and that is how we start our big ground moves – going after radar, telecom nodes, power plants, etc. That said, as of this morning, no one here at the mid level was getting spun up. Now I think the planners at higher eschelon are working overtime on courses of action. I’d be watching the carriers now for a signal. If something moves to the eastern med, we’re turning up the volume with our buddies. If my phone rings over the next few days, we’re screwed.

  111. 111
    zman Says:

    Italy – thanks for the update. Keep head down, powder dry. Or maybe eyes open, finger on trigger.

  112. 112
    antrimshale74 Says:

    Actually, Abkhazia and South Ossetia were autonomous zones, but a group from each declared unilateral independence some time ago. There are actually two governments in Abkhazia, for instance. The official government (de jure) only controls about 1/6 of the territory. The de facto government controls the rest. Indeed, if you want to read some horrific stuff, look up what the Abkazians (de facto) did in 1993. The Russians have been there every step of the way, initially as “peacekeepers”. Hogwash!

  113. 113
    italyinvestor Says:

    A short follow up – I’d also think we may push some additional fighters/tankers to our bases in Turkey, to increase flights to the north without pulling support away from the N Iraq sorties. If Tiblisi is in danger, we’ll see some kind of non-combatant evacuation of expats as well.

  114. 114
    Nicky Says:

    Tom Davis re 97. $ has support at 74.75 (I also have a gap that needs to be filled there!). Yes I think we are ultimately going higher but I also think we are very close to a short term top and likely to see a retracement of some sort. Resistance at 78.00.

  115. 115
    italyinvestor Says:

    Z – We’ll be the last to go. We’re all on leave after doing 15 months in AFG. Otherwise I’d be getting spun-up. This whole thing is a mess.

  116. 116
    Sambone Says:

    Georgia claims Russians have cut country in half
    44 minutes ago

    MOSCOW (AP) — Georgia’s president says Russia’s troops have effectively cut the country in half by seizing a strategic city that straddles the country’s main east-west highway.

    President Mikhail Saakashvili made the statement in a national security council meeting on Monday, about an hour after officials claimed Russian troops had captured Gori, about 60 miles west of the capital Tbilisi.

    The news agency Interfax cited a Russian Defense Ministry official as denying the reports of the seizure.

    But a top official at the Georgian embassy in Moscow, Givi Shugarov, said Russian troops appeared to be moving toward Tbilisi and he alleged Russia’s goal was “complete liquidation” of the Georgian government.

  117. 117
    Nicky Says:

    I will also add that under either of my counts for oil both of which are intermediate term bearish, the bounce we WILL see could be very big! It will either be a wave ii bounce (which are favored to retrace 61.8% of the move!!) or it will be b(which is likely to retrace 38.2% – 50% of the move down).

  118. 118
    VTZ Says:

    Nicky – Did you say that you think the USD is going higher? Do you mean short term or with a 1-year+ horizon?

    I would argue that for the next few years the USD has no where to go but down.

  119. 119
    Sambone Says:

    By Brian Baskin

    NEW YORK (Dow Jones)–Crude oil futures fell for the fifth time on Monday in
    the last six sessions despite an escalating conflict in Georgia, home to a key
    Light, sweet crude for September delivery settled $75 cents, or 0.7%, lower at
    $114.45 a barrel on the New York Mercantile Exchange. September Brent crude on
    the ICE futures exchange closed down $66 cents at $112.67 a barrel.
    Futures continued a month-long slide based on concerns about sinking U.S.
    gasoline demand. Oil prices dropped 8% last week, and ended Monday at a
    settlement low not seen since May 1. The dollar also gained against the euro,
    nearing a six-month high and helping to send crude futures lower. Investors
    bought oil and other commodities as the dollar weakened earlier in the year,
    and have begun to exit their positions now that the U.S. currency has begun to
    reverse course.
    “If the dollar continues to rebound, we’ll see even more of a drop-off in
    commodities, including crude,” said Matt Zeman, head of trading at LaSalle
    Futures Group.
    Gasoline demand and the dollar proved strong enough to counter a Russian
    offensive into neighboring Georgia. Fighting over two breakaway Georgian
    provinces has spread to other parts of the country, according to media reports.
    Georgia is home to a leg of the Baku-Tbilisi-Ceyhan pipeline, which carries an
    average 850,000 barrels a day from the Caspian Sea to the Mediterranean. The
    pipeline was already shut down due to a fire on the Turkish portion last week,
    and isn’t expected to return to service for up to two weeks.
    The fighting largely steered clear of the pipeline over the weekend, and the
    market saw the odds of a Russian attack on Georgia’s oil infrastructure as
    “The bar is very high in terms of physical supply disruption or political risk
    in order for the market to take it seriously, said Robert Johnston, an analyst
    with Eurasia Group. “Unless the military situation gets a lot worse and extends
    broader throughout Georgia … I don’t think the market impact here is going to
    be very great.”
    Johnston said the fight could have bigger long-term implications for oil
    prices, as it potentially ended Georgia’s viability as a safe alternative to
    Russia as an oil transport route.
    Front-month September reformulated gasoline blendstock, or RBOB, settled 2.08
    cents, or 0.7%, lower at $2.8666 a gallon. September heating oil settled 85
    points, or 0.3%, lower at $3.1195 a gallon.

    -By Brian Baskin, Dow Jones Newswires
    Dow Jones Newswires
    08-11-08 1528ET

  120. 120
    zman Says:

    From the EEI ~ Electricity generation for the week ending Aug. 2 was 2.1% higher than the previous week and 0.4% lower than a year ago. Year-to-date electricity generation is 0.7 percent higher than last year.

  121. 121
    ddaley Says:

    Those SD AUG 35 may be part of a spread.
    Lots of volume on the SEPT 40’s as well.

  122. 122
    Nicky Says:

    VTZ – no absolutely not do I think it is going higher on anything other than a fairly short term time horizon!

    From around these levels I expect to see it correct the move up we have just seen, and then yes I do expect higher highs ahead but the trend is firmly DOWN and the move up is nothing more than countertrend. Same with metals imo. Yes we are going to see a sharp retrace of the move we have seen higher but likely after that we head much higher…

  123. 123
    zman Says:

    SD – right, pretty likely. Think that one will pop when it gets a little support from prices. A flattish open on oil and gas a broker call could easily get you 10% there.

  124. 124
    Nicky Says:

    Our local weather is starting to give those two ‘disturbances’ in the Atlantic some close attention and highlighting the chance for strengthening etc. The spaghetti path for the closer of the two (very technical I know)is definetely showing it coming our way!!

  125. 125
    Bleemus Says:

    Computer model shows projected track of storm…


  126. 126
    zman Says:

    Accuweather’s latest text on Nicky’s potential storm:


  127. 127
    Sambone Says:

    Question, Does Georgia have enough money to hire Blackwater?

  128. 128
    VTZ Says:

    Ok Nicky! Sorry, just checking to make sure we were on the same page.

  129. 129
    md Says:

    The games has kicked off in Beijing and
    The Cold War has kicked off in Georgia as it about to get colder in Europe this winter and The energy markets are about to heat up.
    Russia has officilly enjoyed the CAMP.
    Members of the illustrious tag team include
    C havez
    A hmedenijad
    M END veded
    P Utin

  130. 130
    BirdsofpreyRcool Says:

    as off-base as this sounds, I think the reporting on this latest move by Russia is a little one-sided. after all, Georgia started the whole thing with the invasion of South Ossetia and targeted (killed) Russian citizens. the argument is mainly that the Russian response was several orders of magnitude greater than the initial Georgian foray. (not unlike the US invading Grenada in 1983… but, i digress… as usual)

  131. 131
    Nicky Says:

    Gold tanks yet another 20 plus dollars as the Asian markets open…

  132. 132
    VTZ Says:

    Gold could retrace 100% of its move back to the 700 level but to me that would be extremely excessive and an amazing buying opportunity.

  133. 133
    zman Says:

    down $15 now to $813.50.

  134. 134
    texana Says:

    A TALL TALE FOR LATE NITE READERS…………….fact or ficition , day 1 buy 500k shares @ avg price 44, day 1,2 &3 short same stock for 4x original long or 2mil shares @ avg price 45; day 4, earning release insiders cannot trade; sell original long 500k shares @ market avg 42, this overcomes any buying support & triggers market order stop loss selling that continues to cascade down. day 5 market order selling continues; cover 2mil short @ avg price of 32 and go long an additional 2 mil long position @ 33. day 6 island reversal. Is this a tall tale or an excellent computer program? Theory says use 12 accounts with 4 different brokers with 3 pcs and 1 mainframe. Wonder if I should post this, since some people don’t like the light shined in their eyes

  135. 135
    BossmanG Says:

    texana, can you provide more information on this “theory”? interesting…

  136. 136
    click through the following article Says:

    click through the following article

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