Wrap – Week Ended 08/29/08 – In Progress

Posted on by zman

I'll be adding bits and pieces as the long weekend progresses.

 

Holdings Watch: Closed positions for the week. We took on some new refiner positions and a service name during the week as well. The Holdings Wiki tab has been updated.

  • Sold the FRO $50 Puts, down 63% and will likely re-position soon
  • Sold the HK $35 September calls, up 24%.

HK's CEO Floyd Wilson Selling Shares. Why I don't think it is a sell signal but something to watch.

First, thoughts on insider transactions:

  1. CEO's and other executives sell their own stock for a variety of reasons: diversification and new or additional house being chief among them. Approaching retirement, illness, mistress, yachts, and approaching bad news for the stock fall further down the reason list.
  2. CEO's and other executives buy their own stock chiefly for two reasons: either they think it is going to go up or they want you to think it is going to go up.
  3. In looking at insider selling key considerations I look at are as follows:
    1. How much was sold as a percentage of holdings. If they sell out, especially top management this is obviously a red flag. As a general rule, the larger the company, the more I get uncomfortable with large percentage transactions by top management but I don't have a strict level since it depends on how people are paid (cash vs stock).
    2. What was paid for those shares or what level were they acquired at.
    3. Is the sale part of a planned diversification program or 10b5-1 program?
    4. Percentage of compensation from shares vs cash. If they are paid entirely in shares than you should expect to see more in share sales.
    5. Is there a continual outflow with no purchases or is the sale more one-time in nature.
    6. Is it just one member of management or is everyone jumping ship?
    7. What has the stock been doing and what is the current and long term business outlook?

Looking at Floyd's Sale:

  1. Reason for the sale - unknown so no help with #1 above.
  2. How much was sold: 250,000 shares for proceeds of $8.9 mm. This does not appear to be part of a planned program sale.
  3. How much does he still hold:  2.6 mm shares which at Friday's close of $34.61 equals $90 million.
  4. So he sold 9% of his holdings from the start to the end of last week.
  5. Is there a pattern of selling? No, the last transaction was a purchase made back in March of 2007. He has not sold shares in the last 2 years.
  6. How's he get paid. $600,000 salary + $1 mm bonus last year plus 142,000 restricted shares and 53,000 stock options. So its a nice living but not world beater. His net worth would appear to be tied up in the shares.
  7. What are the other members of management doing? Almost entirely buying shares.
  8. As to what the stock has been doing, its off its recent highs with the group but by no means tanking and is up strong for the last 52 week period. The business outlook is strong and the stock stands at the forefront of a new large shale play that should help ensure double digit unit volume growth and a large prospect inventory for the next several years. In conclusion I'd bet he's diversifying his holdings and I'd say he is still quite aligned with shareholders.
  9. From a practical standpoint, the filings for sales from the 27th, 28th, and 29th hit the SEC website on the 29th and the market probably did not notice them so their may be a negative reaction when the market opens on Tuesday but I would think it would be relatively short lived.

The Wrap

Rig counts continue to blow out. Look for an updated natural gas procution summary in Tuesday post.

Have A Great Weekend!

35 thoughts on “Wrap – Week Ended 08/29/08 – In Progress”

  3. http://www.bloomberg.com/apps/news?pid=20601087&sid=a12j5Q2MlMJE&refer=home

    So how much do they spike the energy futures on the open tomorrow?

    Do they really need to open the market early? Surely just causes a panic and are traders actually going to be buying barrels of oil or just speculating??

    I am just praying this hurricane doesn’t become the worst case scenario which certainly looks very likely right now. No amount of profit from an energy trade is worth it at the expensive of the thousands of people’s lives and properties that are at stake. It makes me feel sick to think of what people are facing. If anyone from this blog is in that region then please stay safe.

  5. WSJ Storm Tracker shows refinery locations on same map as projected course. You can also flip between Gustav, Katrina and Rita to see why Bloomberg is saying this could have worse effect on energy than Katrina/Rita (at least in terms of hitting refineries).

    http://blogs.wsj.com/stormtracker/

  7. Baron’s reporting small E&P companies may be takeout candidates. They mention KWK, PXP, RRC, and SM being down by a third or more from their highs. They cite new SEC rules allowing companies to book shale assets as making them more appealing. I would say that you would want to acquire them before the SEC rules takes affect. Baron’s said it will be in place before year end. I think they pulled the names out of a bag and there is nothing specific to them as takeouts relative to other names.

  9. Z – I can’t get a live Nymex feed as of now. Do you mind updating the price every so often. I wouldn’t have been surprised to see a $10 spike at the open and far bigger than 0.15 in ng to be honest…

  10. Hey Nicky, I think the storm having slowed down a bit has curbed their enthusiasm.

    Right now oil up $2.75 to $2.90 ($118 to $118.50 range last few minutes), NG up $0.13.

    Gotta step out for potluck ingredients, back in an hour.

  11. Hey Z – thanks for that. I am getting now what I presume to be live prices although hard to believe with crude now only up 1.80 and natural gas was negative a few minutes ago – that is totally unreal to me!

  13. Oil up $1.70 (+1.5%) at 4:45 EST, volume is light, small trades, lots of 1 to 5 contracts, biggest I see was 38 contracts early on.

    Natural gas is lighter and up a penny.

    Next weather forecast probably moves it a little if the restrengthening occurs or is still forecast. The idea that it is cruising through the deepwater platforms as a Cat 3 which probably won’t do much damage at all is the reason prices aren’t more motivated. If it is a 4 as projected and strikes towards the left of NOLA that will probably cause a rise in gasoline. Gasoline by the way is up double the move of oil, up 7 cents to 2.93 (or +2.7%). Heating oil is up 6 cents (+2.1%).

  18. Z – Is the current oversupply of Nat Gas the reason why we’re not seeing much of a bounce in the futures? With the almost certain loss of Gulf production due to the storm, it doesn’t make much sense to me that it’s up only a penny or two, or maybe even down a bit….

  19. Z:
    The latest I’ve seen makes me think it will come in to the right of the projected track and hit NOLA right on the nose. Previously I was sure it would hit Lake Charles on the nose (close to where I took my basic, good old Fort Polk – those were the days).

  22. Ed – I think the lack of bounce in the futures is simply the failure of Gustav to develop into a stronger storm combined with the fact that while it did plow through the heart of offshore platform country it did so at a very quick pace. You’ll get some offshore damage but you’d get a lot more were a stronger storm pass more slowly through the area. So traders are now saying, “ok, what else have you got”. Generally, it takes days to access the damage with some reports coming in probably later today and the bulk later this week.

    15% of U.S. refining capacity (2.4 mm bpd throughput) has been shut in according to Platts. If you look at what gets the refiners it is power outages and flooding. With Gustav forecast to come ashore in the next few hours as a Cat 3 near a bunch of refiners and then to park itself over mid Louisiana and dump rain throughout the week, you can see why Gasoline futures are off much less than crude which is off a buck at $114.40 as I type this.

    Here’s a story about the refineries and also about the LOOP closure:

    http://biz.yahoo.com/ap/080831/gustav_energy.html

  24. Flip flop Kilduff now saying Gustav is a total bust and the refineries are strong enough to withstand what is now a downgraded storm.

    Expect support at 111.16 which is 200 dma. More important support at the 109 area.

  26. … re 24 and the companies are out saying it will take a couple of days to tell if there is damage. Gasoline off a dime, oil off $4 at $111.50. NG off $0.40. Amazing how they just assume they know what’s what and also what season we are in. Maybe we get that lower low on oil tomorrow.

  28. HOS will present at the LEH Conference.

    Todd M. Hornbeck, Chairman, President and Chief Executive Officer, and James O. Harp, Jr., Executive Vice President and Chief Financial Officer, will be participating in the Lehman Brothers CEO Energy/Power Conference being held September 2-4, 2008 at the Sheraton New York Hotel and Towers in New York City.

    The Company’s presentation at the conference will be webcast live with an accompanying slideshow on Thursday, September 4, 2008 at 8:25 a.m. Eastern Time. To listen to the live audio webcast and to view Hornbeck’s slideshow, visit the Company’s website at http://www.hornbeckoffshore.com.

  29. Z: Re 7. I assume you still like your names PQ, GMXR and HK better than the names mentioned in Barron’s this weekend.

  30. Looks like the Lehman conference will be a pretty somber occasion for the E&P’s …

    Tom – I think the KWK is interesting since they will definitely benefit from new SEC reserve rules. The SM I would not really think it would be first on people’s gotta have list. The GMXR would benefit great from those rules as well and is in good position for the Haynesville/Bossier and is cheap.

  31. How would GMXR classify it’s 40000+- acres under upcoming SEC regulations. What $ value would be placed.

    Do you expect bounce of sorts for oil service for GOMEX repairs considering that path inc. LOOP

  32. I’m not sure of the lease itself, don’t think it is an asset until reserves are booked or terms met as to drilling etc.

    As to the reserves, basically you have proven and unproven. Wikipedia does a decent job detailing the different categories.

    The new deal, I am not up on.

    Reserves are a funny thing, change porosity or other variable (perm, Height) in the calcs slightly and you get a whole different number. Can’t assume that the reservoir for miles has the same properties, but they did in the past, thus a lot write downs. OPEC did this when they changed quotas based on reserves. Overnight, everyone doubled their reserves, earth keeps giving.

  34. Don’t you think UNG, it always bottoms in Sept. You think at $34 / $35, it’s a buy? I think once the winter stories start hitting the headlines, UNG should reach $45 again, imo.

  35. Elwo, no kidding, oil down $9 from Friday this morning seems a bit much given the extended outage.

    Zstock – there is a lot of fear of a gas glut in prices right now. I’m not going to try to call a specific bottom here as we are entering the choppy second should season of the year with crude diving. Very iffy right now. I don’t see the glut nor do a lot of people but the perception is there and when it stops nobody knows. Winter is still 2 months away from having a possible impact on storage and the mood at present is very negative. I think fund managers will at some point come back in buying/covering but not sure from what level.

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