Meltdown Monday From IPAA

Sentiment Watch: Ugly. Little to no interest in stories on the part of the Street. Asia and Europe got slammed overnight and oil is trading below $90. Libor inched up overnight and credit markets remain frozen. So time to watch, wait, shy away from risks and get the current feel from the companies and the investors. What better place than the Independent Petroleum Association of America's 6th Annual Oil and Gas Investment Symposium? This is a "whose who" of the E&P primarily small cap North American world. Not only will I be looking for new stories, fresh angles and the like but I'll also be trying to gauge the mood of the Buyside (if they show up at all). This will be a short post as  I get ready to run downstairs  and I'll be  intermittently out of pocket much of today and tomorrow.

In Today's Abbreviated Post:

  1. Commodity Watch
  2. IPAA - Names I plan to see.
  3. Odds & Ends

Commodity Watch:

Crude oil fell 12% last week to close at $93.88, one of its worst weekly performances in history. This morning crude is trading down about $4 with the falling equity market futures and a rising dollar (now at a 13 month high on the Euro).

Natural gas fell 4% to close at $7.36 last week. Yes we had bigger that expected injection numbers but we are starting to see the kind of gas-glut-fear-soothing headlines from the E&Ps now that we've been waiting for. Gas is off about 20 cents this morning in early trading but is still withing the range for bottoming.

  • Gas Rig Count: fell 15 to 1,544, the third consecutive decline...expect more of this.


IPAA - Names I Plan To See At The Meeting (all times PST)

8:25am -  Energy XXI (EXXI) - Gulf Coast / Gulf of Mexico minnow.

8:50 - St. Mary Land (MRY)- Haynesville and Bakken potential

9:15 - Ultra Petroleum (UPL)- Wyoming gas player.

10:05 - Swift Energy (SFY) - back to U.S. onshore focus - only will see if I don't go to UPL's breakout session.

10:30 - BPZ Energy - (BZP) - Peru, Ecuador. See report page piece here.

10:55 - Southwestern (SWN) - Fayetteville Shale

11:20 - Penn Virginia (PVA) - diversified U.S. E&P with E.Texas Haynesville/Bossier Shale exposure.

12:05 - 1:20 Petrohawk (HK) - main reason I came, want to hear and see them up close in personal now that the stock has been savaged.

1:25 TXCO Resources - Interesting little Texas E&P, Reef has been trying to get me interested for awhile so I'm going to go see them.

2:15 - Goodrich - GDP - Gulf Coast and now Haynesville name.

2:40 - Canadian Superior Energy - Big gas in Trinidad

3:30 - Ram Energy - (RAME) - stock's been slammed worse than many, had not been interested but will peek in.

3:55 - Gastar - GST - big rate (21 MMcfepd) E. Texas well announced this morning.

4:20 - Petro Resources - (PRC) - buck stock that I don't know squat about, alway good to learn new things.

4:45 - Northern Oil & Gas - decent Bakken position for its size

Odds & Ends:

Analyst Watch: Friedman cuts targets on drillers, most notably, takes (RIG) down from $182 to $154.




81 Responses to “Meltdown Monday From IPAA”

  1. 1
    nifkin Says:

    Devon Energy provides 2008 production updates; expects Q3 company-wide production of 59M Boe vs prior 61M Boe (82.51)
    DVN announced that it has restored approximately 30,000 oil-equivalent barrels per day of offshore oil and natural gas production in the Gulf of Mexico. Devon was producing approximately 50K Boe per day from its Gulf of Mexico properties prior to suspending production in preparation for Hurricanes Gustav and Ike. Devon expects to restore approximately 5K Boe per day of additional offshore production during Q4 as repairs are made to production facilities and transportation systems.
    As previously announced, Hurricane Ike toppled two of Devon’s platforms in the Eugene Island area. As a result, offshore production of about 1,200 Boe per day will be curtailed indefinitely. Devon’s remaining Gulf of Mexico production, about half of which is oil and half of which is natural gas, is expected to be restored in 2009 as third-party facilities are repaired. Onshore, approximately 600K Boe of additional U.S. oil and gas production was curtailed in Q3 as a result of Hurricane Ike. The curtailed onshore production has been restored.
    Devon also revised its third-quarter and fourth-quarter 2008 oil and gas production forecasts. Devon previously forecast company-wide production for Q3 of 2008 at approximately 61M Boe. The company now expects third-quarter 2008 company-wide production to be approximately 59M Boe. About two-thirds of the two million Boe reduction to third-quarter volumes is attributable to the U.S. hurricanes and to typhoons in the South China Sea. The weather-related reduced volumes are roughly 40 percent oil and 60% natural gas. The remaining one-third of the third-quarter forecast reduction is attributable to the ACG field, which produces only oil.
    In Q4 DVN expects to produce between 61M and 62M Boe, depending upon the timing of repairs. This compares with a previous company-wide forecast of 64M Boe. About two-thirds of the reduction to the fourth-quarter forecast is attributable to curtailments caused by the U.S. hurricanes. The hurricane-related reduced volumes in Q4 are roughly 50% oil and 50% natural gas. The remaining one-third of the fourth-quarter forecast reduction is attributable to expected down time at ACG.

  2. 2
    zman Says:

    PQ has budget redux news out as well but just for the end of 2008.

    Opening indications on the E&P and service names look 5 to 10% lower.

  3. 3
    zman Says:

    Oil trying to claw back, stocks at 52 week lows and then some. Ridiculous baby and bathwater action again. No thought process involved other than sell. CHK now down 2/3rds from its high, HK over 75%, XCO touching on single digits. Volumes are pretty high for this time of day. Tempted to bottom fish as these are firesale cheap but feels like stepping in front of a heard of moving trains.

  4. 4
    zman Says:

    DRYS adding 9 more capesize ships and 2 ultra deep capable drillships, Stock and group getting killed with everything else.

  5. 5
    BossmanG Says:

    VIX, 52.xx

  6. 6
    zman Says:

    Boss – the moves are way out of hand. The wise Major picks up a package of E&Ps cheap and tries to get on a gas growth track.

  7. 7
    BossmanG Says:

    agreed, this is ridiculous
    looks like energy sector is going under….argh

  8. 8
    isleworth Says:

    PQ demolished – down 26%

  9. 9
    Fred Says:

    Denise – If Mr. K. went all in last week he must be getting creamed.

  10. 10
    Nicky Says:

    Morning all.

    Head and shoulders target on Dow of 9750 – we are almost there.

    Last week I said 1070 or if that failed we could see 1000 on the SPX. Well I can see clusters of support down here around 1031 but they may go for the round number. I also had a target area of between 9650 and 9870 for the Dow.

    Oil I am thinking could still go to between 84 and 86.

  11. 11
    Bleemus Says:

    Oil and Gas Meltdown….

    (doom and gloom warning!)

  12. 12
    Bleemus Says:

    Ecuador’s President threatens Petrobras, other oil companies – DJ

    DJ reports Ecuadorian President Rafael Correa has threatened to nationalize an Amazon oil field operated by Petrobras (PBR), and expel the company from the country, accusing it of delaying an agreement that would give the government control of the lot. “If they delay too much, I will nationalize this field and have them leave the country,” Correa said in his weekly radio address over the weekend. Correa also threatened to kick out other oil companies if they have low production or low investment in the fields. Correa’s government wants to change all private participation contracts to services contracts, in which the state would control the fields and reimburse companies operating on them.

  13. 13
    jsaun14 Says:

    Can anyone remember (in round numbers) what % of HK’s production is hedged?

  14. 14
    zman Says:

    EXXI – interesting presentation. Knew CEO Shiller from Ocean Energy.

    Has one 0.5 Tcfe target that has good mud log shows, 400 feet of pay, been off from drilling due to the hurricanes, going back on now, could have wireline log soon, would be a big increase to company reserves.

    Blackbeard prospect drilling ahead at 32,850 feet, making about 75 a day and while permitted to 35,000 feet, probably only going down to 33,500 feet. Like what they have seen so far in the well, have seen 4 good sands. This is that high risk, ultradeep prospect that never seems to reach total depth but looks sooner now, say next 2 to 3 weeks based on drilling rate but I would not hold breath on results prior to December.

    Going to have a press release out later today or at latest this week announcing a 2 year contract for a RDC rig to drill deep to ultradeep prospects like BB. The first will not be ultradeep but instead will be a 25,000 lookalike to Flatrock at MMR

    Lots of cash and room on the revolver.

  15. 15
    bill Says:

    4 drys

    the ceo is a crook that owns a private company

    he sold ships from the private company to drys the public company at 130 m per ship when in this market that are worth 65 m.

    drys has to make remaning 1/2 b debt payments on newly bot ships

    avoid drys at all cost

    all other bulkers are in melt down mode some down 50 % in 3 days

  16. 16
    zman Says:

    Jsaun – 62% in 2008, 64% in 2009 on gas. That stuff is on the E&P tab and is pretty up to date.

  17. 17
    bill Says:

    did aubrey buy shares on margin?

    if so could he get a margin call today

    they should cash out of gas hedges and buy back as many shares as they can

    14 b market cap– didnt they just make 6 b on the hedges

  18. 18
    zman Says:

    Thanks Bill – roger that, people been saying Econamau is a crook for years, bad accounting too. This deal looks like a real stinker.

    Aubrey buys with cash as far as I know. He has a working interest in all their wells so gets kicked significant cash flow. Heading back down stairs. Will try to connect up down there.

    Mood from the Buyside at IPAA as you can expect, very somber. Some talking about bottom fishing…others in wait and watch mode.

  19. 19
    bill Says:

    pq hit 8.78 today!

    hk 11.89!

    chk 23.41

    kwk 10.75


  20. 20
    tater Says:

    Nicky ,
    If you could do me a favor. I remember you giving Ddaley a pretty extensive primer on Elliot Wave about a month back. If I could get your book list on EW and especially WD Gann I would really appreciate it. I read a very interesting book by Constance Brown titled Fibonacci Analysis over the weekend. Very interesting introduction to harmonics, makes me want to get up to snuff on Gann theory. Thanks

  21. 21
    elduque Says:


    Listened to PRGN presentations. Only negative I can see is if the party on the other side of the charters, fails. Other than that it seems to be the cheapest stock that I have ever seen. $2 dividend looks secure. What am I missing?

  22. 22
    Fiveanddimer Says:

    Despite gold being up over $30 today, the gold mining stocks are down on average about 5%. Shows the level of panic in the market.

  23. 23
    bill Says:

    on 21


    1. banks will not lend and shipping is a capital intensice business

    2. with world in meltdown mode, no shipping is required

    3. shipping rates are falling and if they stay low, they cant repay their debts.

    4. If they do fail, the stock goes to 0 and the banks problems are magnified

    5 cash is king and people with cash will enjoy the spoils

  24. 24
    bill Says:

    where is everybody? Anybody still alive?

  25. 25
    md Says:

    Keepin the powder dry

  26. 26
    elduque Says:

    ON 23
    I guess that is why I like PRGN. Positive cash flow- med term charters and untapped line of credit. Commerce will start to flow again, when we get through the credit crisis. (if we do).

    Thanks for your comment.

  27. 27
    BirdsofpreyRcool Says:

    it’s a great time to be sitting on a pile of cash. but, until we see some thawing in credit, the stock mrkt is toast.

    do your homework and note any companies with little debt, some cash, and availability on their lines. those will be the winners.

    i would think we should see some consolidation taking place. check out KOG today… traded at 75 cents. they have 40k bakken acres, no debt, and enough $$ to drill about 4 wells. but, who cares? someone could step in and buy the entire company right now… would be less than what XTO paid for acreage in the bakken.

  28. 28
    Nicky Says:

    If SPX is gonna hit 1000 then Dow target is around 9480.

  29. 29
    zman Says:

    You know its bad when E&P company CEO’s joke about shorting energy stocks

  30. 30
    zman Says:

    LINE – interesting yeild play – MLP with about a 20% yield as of today, no need to go to capital markets, good debt coverage ratios, good coverage ratio on that distribution so it looks unlikely to fall just yet. Grow normally via organic mid single digits and also via acquisitons (nothing now as there’s no financing available now…duh). Anyway, don’t know them very much at all, liked what I heard, statistically it looks very good. 20% yield with natural gas and oil prices not affecting them for a while on the distribution side…it beats a t-bill.

  31. 31
    Nicky Says:

    If the above areas or thereabouts fail then look for SPX support at 923 – 945, Dow 8700 – 8900.

    Ed Forst an old GS crony of Paulson hired to head the Office of Financial Stability – they have got to be kidding with that name????

  32. 32
    zman Says:

    Listened to SWN – did not learn a lot new. Talked about the More shale just below the Fayetteville as being prospective on the east side of the play which is not really news nor is the Chatanooga (Woodford Shale) on the west side of the play. Still keeping on keeping on. They are one of the ones with such low finding and development costs and operating costs that they will be economic for quite some time (probably down to $5 gas but that’s a guess on my part). Anyway, interesting, bargain basement price.

  33. 33
    BirdsofpreyRcool Says:

    it’s right up there with “Homeland Security” and “No Child Left Behind”…

  34. 34
    BirdsofpreyRcool Says:

    z – does SWN have to do any kind of capital raise to continue at their current drilling pace?

  35. 35
    zman Says:

    BZP looked very good. I’ve like that story since I first wrote it up and I have no experience with the management but the CEO presented the company well. Not just an oil story either. Lot of stranded gas in those parts….old wells, drilled in the 50s and 60s found gas and at that time you immediately plugged and abandoned them. Just no need for gas. That was then…Now Peru has been growing 8 to 10% per year and needs gas-fired electricity to fuel the economy. They have so far not suffered the world down turn so maybe that idea gets a bit spanked soon. Anyway, they are receiving financing from GE finance and it is coming this week (confirmed) for the initial phase on some electricity capacity they are putting in place onshore. Prices are nice, not your usual stranded gas $2 to $3/ per Mcf but more like $6 which out in the middle of no where is welcome. Anyway, work up is on the reports tab and I’ll be doing an addendum to that one.

  36. 36
    BirdsofpreyRcool Says:

    rumor that the Plunge Protection Team is jumping into action.

    does that really exist?

  37. 37
    hermanmar1e Says:

    Re #30

    wife used to work for Linn, what do you want to know?

    SWN is hurting for capital, putting data rooms together for capital generation…

  38. 38
    zman Says:

    Bird – That’s the Question of the Day to every company!

    Their debt load is about 25% net debt to total cap and they have revolved. With them having sold the permian and gulf coast and focusing on the Fayetteville almost entirely, (a little on E. Texas) they should be close to cash flow neutral at $8 to $9 gas for 2009 (my back of envelope) assuming they pull back on drilling by 10% or so. Just a guess but they won’t be wildly outspending.

  39. 39
    zman Says:

    Herman – they’ve already punted just about everything outside the Fayetteville and E. Tx. And they sold Fayetteville non-core assets already. Don’t see them punting any more of that. They leaves the Haynesville potential. Planning to drill 2 wells there soon. Maybe they get results and then sell.

  40. 40
    BirdsofpreyRcool Says:

    re#37 – sounds like SWN has some more assets they are trying to sell…? 25% debt to cap sounds high, but it’s not bad as long as you can keep the production on line.

  41. 41
    zman Says:

    Bird – PPT does exit.

    Herman – what do you think of LINE management? That’s one heck of a yield if they can keep the distribution up. He said coverage on the distribution was 1.6x which is pretty comfortable but they are lightly hedged on gas, around 25%

  42. 42
    hermanmar1e Says:

    re #39:

    I don’t know where they’ll get the rigs to drill a Haynesville test, although the bigger rigs might become more available with this market. I know their rigs (DeSoto) are too small to get the job done. So it might be awhile before they get the wells drilled. Just worthless logistic talk from an engineer, I could go on forever.

  43. 43
    zman Says:

    SWN – 25% debt down from 37% last year. Fast grower.

  44. 44
    Nicky Says:

    Okay we also have some support at the 980 level on spx and then 940.

  45. 45
    Nicky Says:

    I sense a rate cut coming – what else can they do??

  46. 46
    zman Says:

    Herman – they said 2 wells with a private so maybe the private has access to the rigs

  47. 47
    hermanmar1e Says:

    RE #41:

    Purchased all of Dominion’s Mid-Con assets last year and got a HECK of a deal on them, and since then they have spun off various assets within that package for up to 3x the value they paid for them, so they know what they are doing. I worked for one of the VP’s back at his Burlington days, speakign of BR, if you liked this company, Linn has 95% of their top management at the helm. Do we get free memberships for all this info? LOL!

  48. 48
    zman Says:

    Nicky – did you catch the assistant treasury secretary on CNBC this morning. Sounds like they are days or even weeks away from making purchases to free up this market. I thought they’d hit the ground running but this guy was cagey and acted like they had a lot of planning to do bringing in outside experts to help. Ugh. A cut may be ineffective just yet.

  49. 49
    zman Says:

    Does it have Bobby Shackhouls? Probably good if answer is no.

  50. 50
    Dman Says:

    I’m late to the play & what a day for that.

    VXO just hit 69.4 …pretty close to the 70 level that Todd Harrison has been looking for in a melt of this magnitude.

  51. 51
    BirdsofpreyRcool Says:

    debt mrkts talking about a 100% chance of a 50bp cut this month. but, they are also saying: “Guess what happens after the Fed cuts? Nothing!”

    sounds about right. it’s gonna take something coordinated on a global basis to stop what is essentially a run on the global banking system

    how do you get banks back into the business of being banks? that is the question here.

  52. 52
    Nicky Says:

    re #48 Yes Z I saw him and thought him to be totally ineffectual. In fact my thoughts were God help us if he is in charge!

  53. 53
    Nicky Says:

    Nikkei apparently is already limit down!!

  54. 54
    zman Says:

    About to go to lunch with HK.

    Wow look at SEA (shipping) down 15%, oh but then look at XOI, XNG, OIH all down 10 to 12%. This is what you call capitulation. Unreal. Banks not only lending but the managers here are talking about forced liquidations at the hedge funds cascading as one sector after another gets dragged lower. People here are just doing some homework…there is no intent to buy soon.

  55. 55
    BossmanG Says:

    birdospreyrcool, question about your debt mrkts comment…just interested in how you can tell or what indicator in the debt markets do you look at to judge if there is a rate cut like that?
    i’m guessing your not talking about fed funds futures…

  56. 56
    Bleemus Says:

    Nikkei isn’t open yet. Nikkei futs are getting pummeled though.

  57. 57
    Nicky Says:

    The sell off is far too orderly. No real sign of fear. We need to see capitulation, blood on the streets, whatever you want to call it. Art Cashin said we may get it tomorrow. I hope he is right….bring on some volume guys….

  58. 58
    antrimshale74 Says:

    Toronto Stock Exchange looking quite ugly all day. Speaks to sentiment in oil, gas, metals, and other commodity stocks.

  59. 59
    Nicky Says:

    It was the futures I was talking about Bleemus….

  60. 60
    BirdsofpreyRcool Says:

    #55… i was quoting some comments i saw coming off debt trading desks. but, there is also a bloomberg function (FFIP) that shows the probablities of a fed funds rate cut, based on where futures are trading. the screen currently has a 60% chance of a 75bp cut and a 40% of a 50bps cut. So, 100% of at least 50bps, according to FF futures.

  61. 61
    Nicky Says:

    UK Stock market had its biggest one day sell off since the crash of 1987, Russian market halted down 19%, Brazil halted down 20%.

  62. 62
    tater Says:

    Hey Nicky,
    Could I get your email later if you have time. I am at nwember@gmail.com. Wanted to speak later about #20 above. Thanks.

  63. 63
    Nicky Says:

    Hi Tater,

    Sorry hadn’t seen your number 20. Will take a look in my bookcase and come back to you.

  64. 64
    tater Says:

    Thanks very much.

  65. 65
    zman Says:

    Not much new from HK. He said that people (hedge fund managers) had recently said they were worried about how “real” a play the Haynesville Shale is since no one is talking about it. His response was “why talk when no one cares right now…play very real”.

    Went on to say that acreage that was going for 25,000 to 30,000 per acre three months ago is now trading hands for $7,500 to $8,000. They are still buying.

    Also said they could further cut their budget by 50% for next year (just cut by a third the other day) and would still grow 20% in 2009.

    He said there is upside without additional dollars to their 30% estimate for 2009 as the budget stands now. He is not planning to cut more at this time.

  66. 66
    zman Says:

    Big late day rally huh? Any catalyst or was it just enough was enough for today?

  67. 67
    zman Says:

    Reef – About to go see TXCO.

  68. 68
    zman Says:

    CLR going to end the day green…yippee-skippee.

    Hey Tater, when you get a change, can you give me some basic thoughts on the broken chart land in which we currently reside. Any of our favorite names in better shape than others, any in worse?

  69. 69
    Bleemus Says:

    Rally is due to rumor that G8 is scheduling an emergency meeting.

  70. 70
    zman Says:

    Thanks Bleemus, E&P and other energy losses cut in half.

  71. 71
    Dman Says:

    Z – radical thought: broken charts may finally lead to an end to technical trading and the fundies will hafta matter ’cause the chart’s all smashed up and unreadable (!)

  72. 72
    tater Says:

    Just off -hand HK made a little bottoming candle formation. Has to be confirmed by tomorrow’s open though. I am going to get on the charts now. Much to do.

  73. 73
    Dman Says:

    #71 overstated: technicals will still matter but won’t be the “only” thing, as a function of the hedgies having finally blown out of things they don’t think are “real” because they don’t hear anyone “talking” about them. Yeesh.

  74. 74
    Nicky Says:

    Dman – charts are working just fine. or at least Elliott Wave theory is.

    As to whether that was THE low? Volume came in heavier today which implies lower lows ahead. Its possible that we saw 3 complete at the lows today, are currently in 4 up with another shot to the downside needed for 5.

    The next pullback is going to give us the answer to that. As its also possible that the downside did complete today and we have started the correction to the upside.

    I suspect the late day rally takes the heat off the Fed – technically I really didn’t think we saw the capitulation that was needed for a meaningful low…

  75. 75
    isleworth Says:

    Z- what were your thoughts overall on the PQ news today?

  76. 76
    arodeen Says:

    I can’t believe Cramer has called for oil to bottom at $50! On what basis? He also apparently said on the Today Show this morning: “Whatever money you may need for the next five years, please take it out of the stock market right now, this week.”

    It sounds like panic-mongering.

  77. 77
    zman Says:

    Isle – I saw it too late for today’s post. In a nutshell I think it was positive. Fayetteville Shale volumes are right were they should be, continuing to slowly mount. Woodford too although I wish they would do a better job of saying what kind of test rate those 4 wells were. Was that 24 hour or 7 day or something else. My guess is it was short since they did not say. On the Capex cut back, I have to say about time. On Weekly prospect I have to ask where the rate is on that oil well…sounds like lower end if you don’t say. Still, they are so beat up just saying you are going to get within cash flow and not get any further in debt at this time may take some pressure off the stock.

  78. 78
    zman Says:

    Cramer – don’t get me started. He’s irrational.

  79. 79
    bill Says:

    paragon re 21


  80. 80
    bill Says:

    Here is a plan for chk

    cash in on the hedges
    buyback shares
    and halt 100 % of the production until gas prices go up
    then put on the hedges again

    sorry im losing my mind

  81. 81
    jiveyjr Says:

    is Aubrey still buying CHK, or does he only avg. up? LOL

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