Wednesday – Hello $75 Oil + Plus CHK Pre-Game


Sentiment Watch: Big up Monday. Schizophrenic Tuesday with a downer of a closer. Hmmmm. Still sitting on hands and waiting for an opportunity to make select purchases in the group. Could be as early as today but the credit markets are key to any chance of a sustained equity market recovery...and its early on that front.

In Today's Post:

  1. Housekeeping Watches
  2. Holdings Watch
  3. Commodity Watch
  4. Earnings Watch
  5. Stuff We Care About Today - CHK Meeting Begins, plus, HK, PBR...
  6. Odds & Ends

Housekeeping Watches #1: $10,000 Portfolio Begins Today. I plan to start making purchases for the $10K Portfolio today (market and opportunity willing).

  • These trades will be designated “ZTRADE - 10KP” and I will have a separate spreadsheet that tracks positions, cash and total value on the new 10KP .
  • I’ve had a lot of requests for this and have balked in the past as I felt that giving positions was more like advice than I wanted to be.
  • Let me be clear. There’s no advice here. I'm just passing along what I’m doing and in this case how many contracts and how much cash I’m holding (in the 10KP).
  • I feel that it will represent an improvement to the site.

Housekeeping Watches #2: ZBlasts Update. We sent out notice of the start of the $10K Portfolio in a ZBLAST yesterday. If you didn't get it, please contact zmanadmin@gmail.com with your username and email where you want to receive blasts. As a reminder, sharing on ZBLASTs or passing them along to non-subscribers is strictly prohibited. In the first place, daddy need will need another pair of shoes soon and secondly, its not wise to invite competition when bidding some of the wider spreads.

Housekeeping Watch #3: No EIA Inventory Report  report today due to the Columbus day holiday. Look for both the oil and natural gas reports tomorrow.

Holdings Watch: No trades yesterday.

Commodity Watch:

Crude oil fell $2.56 to close at $78.63 yesterday, with most of the loss coming late in the session and tied to the movement in the equity markets. Crude has just fallen out of bed as the question turns from "recession?" to "RECESSION???".  It has fallen through all the levels that pundits and members of OPEC alike had determined to be lines in the sand for the Cartel to defend and further deterioration is likely to prompt some sort of response from the group, perhaps a more stealthy, easing of volumes than official statement between no and their next meeting on November 18. This morning crude is off another $3+, toying with $75.

Natural gas inched up 4 cents to $6.73 yesterday and is giving it back this morning with the dip in oil.

  • Canadian Terrorist??? Watch: Unknown saboteurs attempted to destroy a 12 inch Encana natural gas pipeline in British Columbia on Saturday (just hit the press). The line was damaged by a bomb but not destroyed. Authorities received a threat letter a week ago. Thousands and thousands of miles of unguarded pipelines running along the forest floor...surprised it has not occurred to the kind of jerks who like to blow things up that shutting down exports to the U.S. would present a serious hardship to the U.S. economy during the dead of winter. This line was only a sour gas line headed to a treatment plan but the police believe it may be part of a broader plot against oil companies in the area.

Earnings Watch: 3Q08 energy land earnings kick off Friday, as usual, with (SLB). Here's the near term schedule:

  • Friday - (SLB)
  • Monday - (HAL), (NBR), (WFT)


Stuff We Care About Today:

Chesapeake Investor & Analyst Meeting: Today, Wednesday from 1:30 pm to 5:00-- EST and Tomorrow, Thursday from 7:00 am to  12:30.

Highlights and Thoughts From The Presentation Released Last Night:

First, I'm not going to cover every aspect of the presentation but will instead focus on what's different from normal and what I see as important right now during this credit crunch, ounce of trust environment. There have been those that claim that (CHK) is the least transparent of the E&P companies. To them I say, "buckle up, get out the Ritlan--- or whatever it takes to get you through the 94 page presentation and prepare to be wrong."

Important First Words: "We are here to answer all of your questions about anything you have heard or imagined about (CHK) in the past few days and weeks"


Current Finances:

  • Cash on hand $1.1 billion as of 10/9/08. This comes from stripping the revolved at the end of the quarter and buying T-bills.
  • Counter Party Exposure: At $80 million in receivables to CHK,  Morgan Stanley ranks 4th, not first, on the counter party list. Some analysts have suggested Morgan was in the drivers seat and that if it goes belly up CHK would be in a hard way. That's a bit of an overstatement.

Hedges: Relatively unchanged from last notice:

  • 2009: 69% of expected gas volumes @ $9.56
  • 2010: 42% @ $9.81
  • This morning CHK said they may elect to settle a hedge early but provided no details.

Implications of SEC Reserve Changes On CHK Reserves:

  • In a nutshell, they think the new SEC reserve rules that removes restrictions on number of offset locations allowed for each shale well drilled will result in a 5x increase in CHK's shale play reserves. 
  • CHK has 12.1 Tcfe as of 9/30/08.
  • They expect the SEC to revise the rules by year end 2008
  • They see the impact of further drilling and this rule change boosting year end 2009 reserves to 20 Tcfe.
  • At 20 Tcfe this would obviously move those NAV's in the previous chart north handsomely.

Other stuff today:

HK Adopts Shareholder Rights Plan. 15% accumulation by a single entity triggers preferred stock grant to existing stockholders of record on October 25, 2008 and is valid through October 14, 2009. These plans can have a somewhat depressing effect on share price in the near term as they are anti-suitor but the underlying implication is is that the common is too cheap and that they are worried about getting picked off.

EGY and BPZ - small reviews in the next couple of days on the way.

ECA Split looks to be on hold. Just keeping track, not all that interested.

PBR Hits 3 more. Few details provided. There have been a string of recent sub-salt and conventional deepwater oil discoveries here of late and the market is no more focused on how much it will cost to develop them than they are in finding in new reserves. When the stocks turn this one should outperform.

Odds & Ends

Analyst Watch: Merrill cuts (BBG) to Hold, raises (BRY) to Hold, (CPE) upped to Buy at Dahlman, (WTI) cut to Hold at Dahlman

196 Responses to “Wednesday – Hello $75 Oil + Plus CHK Pre-Game”

  1. 1
    Sambone Says:

    By Nick Heath

    LONDON (Dow Jones)– Crude oil futures fell more than $3 to new 13-month lows
    in European trade Wednesday as fears over the impact of slowing economic growth
    on crude demand pressured prices.
    Nymex light, sweet crude dropped just over $3 to below $76 a barrel for the
    first time since Sept. 10 last year, on its way to an intra-day low of $75.17 a
    barrel, its cheapest since Sept. 5, 2007. ICE Brent dropped more than $3 to
    $71.23 a barrel, its lowest level since Aug. 28 last year.
    With the oil price bounce that followed a series of governmental banking
    sector relief packages deflating Tuesday, market participants were braced for
    further falls to come with the outlook for global economies and associated oil
    consumption remaining bleak.
    “The honeymoon relief package reaction now appears to be giving way to
    uncertainty over its impact on global demand,” said Mark Pervan, senior
    commodity strategist at Australia and New Zealand Banking Corporation in
    At 1218 GMT, the front-month November Brent contract on London’s ICE futures
    exchange was down $3.32 at $71.21 a barrel.
    The front-month November light, sweet, crude contract on the New York
    Mercantile Exchange was trading $3.47 lower at $75.16 a barrel.
    The ICE’s gasoil contract for November delivery was down $38.25 at $706 a
    metric ton, while Nymex gasoline for November delivery was down 897 points at
    179.51 cents a gallon, its lowest since Feb. 28 last year.
    Stock markets again provided some direction for crude prices, with European
    equity indexes all heading lower on expectations that economic conditions will
    prove challenging for businesses, a scenario likely to be reflected in the
    upcoming earnings season. Such an environment augurs ill for crude consumption,
    analysts said.
    “The focus of the energy sector must now concentrate on the forward picture as
    to the demand scenario. Most global economies accept that recession is now a
    probability and even China’s growth prospects remain the focus of constant
    debate,” says Rob Laughlin, energy analyst at MF Global.
    Meanwhile, traders were faced with an extra day’s wait for a weekly update on
    U.S. oil and products inventories, delayed until Thursday this week due to
    Monday’s Columbus Day holiday in the U.S.
    Many are braced for another climb in crude and products stocks, and further
    indications that the world’s largest consumer market’s appetite for oil
    continues to weaken.
    Nine of 13 analysts surveyed by Dow Jones Newswires expect U.S. crude stocks
    rose last week, with forecasts ranging from a build of 5.4 million barrels, to
    a draw of 1.25 million barrels. Analysts were unanimous in predicting a build
    in gasoline stocks, their average forecast pointing to a build of 2.9 million
    With the market’s spotlight once again more firmly trained on macroeconomic
    fundamentals following the release of this week’s governmental rescue packages,
    demand is expected to remain the key driver in shaping oil prices, market
    participants said, and may numb any decision by the Organization of Petroleum
    Exporting Countries to reduce output – as it is increasingly expected to do –
    when it convenes for an extraordinary meeting Nov. 18.
    “I don’t really know if that’s enough to hold the market because the market
    now is only looking at the demand figures, not the supply side,” said Andy
    Sommer, analyst at HSH Nordbank in Hamburg.
    In its October monthly oil market report out Wednesday, OPEC cut its global
    oil demand estimate by 330,000 barrels a day for 2008 and by 100,000 barrels
    for 2009 as the global financial turmoil worsened this month.
    -By Nick Heath; Dow Jones Newswires; (Benoit Faucon in London contributed to this item)

    Dow Jones Newswires
    10-15-08 0821ET

  2. 2
    Nicky Says:

    Morning all.

    Broader market seems to be in some sort of wave iv correction. I think we retest yesterdays highs and higher but obviously if this starts to fall apart then iv is done and we are headed to the lows again. 839 absolutely has to hold on the spx or we are going to see 740 – 770. SPX may test the 950 region nearterm before turning higher again. Would be good to see that area hold. Resistance is at 1000 and 1021.

    Oil support areas are 72.80, 70.40 and 68.40.

  3. 3
    Nicky Says:

    Sam – been meaning to say for days to you great call on the overall market. You have been bearish for months and spot on.

  4. 4
    zman Says:

    Morning Nicky. Thanks for the levels. Oil may see those lower levels as while I believe they will defend price, it will be a quiet defense in front of the election. Three weeks and then I think they get more aggressive.

  5. 5
    BirdsofpreyRcool Says:

    Summarizing my favorite Macro Market Strategist this morning, it doesn’t look very good.

    It looks like the Credit Bears have decided to fight the stock market rally. This was what happened in May, when stock mrkt bulls and credit bears went head-to-head. If stocks can climb above SPX 1070 and hold it for a week or so while credit is bought, then the Credit Bears will stand aside until after the election. If the bears can keep a lid on 1070, then a retest of the lows (or worse) becomes more likely.

  6. 6
    zman Says:

    CNBC talking heads this morning were pointing out that the Treasury would only need to spend about $5 billion buying select assets in different asset classes to allow everyone to reprise their asset portfolios and get things moving again. Said that could take time though (sounded like 2 or 3 weeks).

  7. 7
    BirdsofpreyRcool Says:

    Credit markets opened weak this morning and promptly got weaker. IG at 187 1/2 (off the wides of 190), but much wider than yesterday’s 178 close.

    We’ll see how badly the stock market bulls want to fight this battle today.

    So, another volatile day in the marketplace.

  8. 8
    zman Says:

    Empire State index at record low:


  9. 9
    Sambone Says:

    N – Well thk U! I just had a discussion on the overall market. My read is that the fat lady hasn’t sung yet. The consumer is the steam that drives our economic engine. Consumers are pulling back in a big way. That means to me that earnings are coming down. When the Dow and S&P get in the single p/e range, then we will see the bottom. Right now, I’m taking advantage of some prices such as RIG under 80, etc. I have been successful buying bank preferreds lately. It just takes research and confidence, which the overall market lacks.

  10. 10
    tomdavis12 Says:

    Z: With the 50 million writedown from Lehman and the potential for the knockout hedge below $6.28 this month, do you have a rough guess as to what type of cent per share problem that is for CHK

  11. 11
    BirdsofpreyRcool Says:

    IG 188

  12. 12
    zman Says:

    Sam – agreed re consumer. On RIG, sentiment has shifted from deepwater capable rig orders that are now going to be delayed to the prospect of dayrates coming down and the potential for NOC’s and big oil pulling in the horns and even canceling some rig contracts. With their debt load, its easy for fund managers to pull the plug with plans to buy lower. I think the cancellation talk is premature but if oil continues to dip you will see some of the weaker hands pull a contract or two in hopes of starting a downward trend in price. These contracts have done nothing but go up for the last 3 years with intermittent plateaus. The old high bar (a year or so ago), was 500,000, and 600,000 and now $700,000 per day have been seen since then. I like the value there and NE and maybe more so at DO … for the common I would not worry, for the options…I defer to those pms and will wait until oil stops falling.

  13. 13
    zman Says:

    Tom – I thought the Lehman writedown for CHK was $11. Either way its very small on the writedown with 596 mm fully diluted shares. As to the knockout its one month and it would then depend on where gas was. I can run through it in a very ballpark sense and get back to you later in the day. I think the quote that knockouts have been triggered 4 times in the past is pretty telling of how far gas has fallen and how unique an even that is. The $3.5 billion in asset sales number I heard was not correct given their cash on hand. Also, they said this morning there is the possibility they will kill some hedges off. Didn’t see which ones but it could be the October knockouts.

  14. 14
    Sambone Says:

    Tech talk that makes sense to me.

    Commodities Corner

    Of course we have a greater exposure to equities and bonds in our portfolios, but getting the direction of the commodity markets right is still very important. Just as stocks have had major declines in recent months, so too have grains, energy, softs (sugar, cocoa, coffee…), and metals. Below are two longer-term views of the Reuters/Jefferies CRB Index which show that the entire 2007-2008 rally has been retraced. While some analysts are forecasting deflation in the months or quarters ahead, we anticipate that the secular bull market in natural resources (a.k.a. commodities) will eventually reassert itself due to renewed dollar weakness, new production projects getting postponed or shelved (think of OPEC cutting production), and perhaps some farmers not getting credit to purchase fertilizer and other inputs and thus yields declining, in our opinion.

    Note – Can’t post chart

  15. 15
    zman Says:

    NOV looks like it had a 4 for 1 stock split, pricing in a depression in the oil service industry.

  16. 16
    zman Says:

    patience pays, lot of late buyers Monday getting burned on this down 7% (average energy name) day.

  17. 17
    zman Says:

    Coal continues to get slaughtered. Names like PCX now trading below 4x 2009 projected earnings. Part of this is a recent reduction in volumes (one time), part of this is anti-coal sentiment going into an election, and part is slowing global economy pulling down coal prices in relation to oil. These names are very interesting to me down here…not yet ready to buy but soon (next few weeks). In particular, PCX is eastern Appalachian coal, which is used for power generation. 1/2 of U.S. electricity comes from coal, has for a long time and will for a long time. The U.S. has a 300 or so year supply of coal. Renewable resources may be get increased funding next year but they are still sub 10% of generation and cannot quickly replace coal fired generation. Anyway, just watching them fall for now but some serious value is being created in the space.

  18. 18
    BirdsofpreyRcool Says:

    IG 190 – back to wides of the day

  19. 19
    zman Says:

    MRO announces another deepwater discovery. Yesterday, deepwater Gomex, today deepwater off Angola. The second one is not big in relation to MRO’s size (10% of 5,000 bopd) but they are in the right direction, something you can’t see in the stock price. Getting down to sub 5x 2008 and 2009 earnings.

  20. 20
    zman Says:

    Bird – is there a non-bloom tracking ticker for that. Would like to have on my market watch as your comments and the broad market seem to overlay exactly.

  21. 21
    zman Says:

    Energy stocks not back to Friday lows but in many case are now through the Monday lows. Charts have that nothing but air under them quality. Just can’t see a rally without broad market support.

  22. 22
    BirdsofpreyRcool Says:

    z – i’ll check around. but, i don’t know if it’s even a bloomberg-quoted index. i am getting it from private market quotes off the CDS bond desk at a major bank. that is why i can only update it every so often. it usually has to trade on the bond desk to print a level.

  23. 23
    Dman Says:

    Hi Z,

    what do you think of KWK at these levels? It seems to be copping more than most today (along with CHK).

  24. 24
    reefguy Says:

    FWIW- Waha opened at $3.14

  25. 25
    zman Says:

    Solar stocks – performing absolutely craptastic as well. This is one area where an Obama win with a democrat led congress is a no brainer for subsidies and increased usage. Not saying McCain bad for alt-energy case at all but Obama seems more likely to push through alt-energy favorable initiatives sooner, especially with a friendly legislature.

    FSLR to be the obvious turn name when the broad market comes back. $300 in May, $130 today. $7 EPS seen in 2009, estimates not tumbling and this is nearly a 100% gain over 2008 results. 2010 pegged at $10 per share. So its not exactly cheap but when are the solar names?

  26. 26
    reefguy Says:

    Barnett=WAHA=no drilling. What is KWK hedge position and who is their counterparty?

  27. 27
    Sambone Says:

    By Gregory Meyer

    NEW YORK (Dow Jones)–Crude oil futures fell below $75 a barrel in early
    trading Wednesday, caught up in mounting expectations of weaker demand.
    Light, sweet crude for November delivery was recently down $2.31, or 2.9%, at
    $76.32 a barrel on the New York Mercantile Exchange. Earlier it dipped to
    $74.97, the lowest price for benchmark crude since Sept. 5, 2007.
    November Brent crude on the ICE Futures exchange, which expires Thursday, fell
    $2.32 to $72.21 a barrel.
    Crude’s decline comes despite governments’ historic intervention into the
    world’s banking sector, including a U.S. plan to inject $250 billion into
    domestic financial institutions. Analysts said the bailouts are unlikely to
    prevent a pullback in the world economy or global oil demand growth.
    “It’s clearly a reflection of wider worries of an economic slowdown,” said
    Rick Mueller, director of oil markets at Energy Security Analysis Inc. in
    Wakefield, Mass. “Perceptions are moving more towards the bearish side.”
    In the U.S., the world’s top energy consumer, retail sales last month fell by
    1.2%, the sharpest drop in three years during September as the job market
    softens and the credit crunch scared consumers.
    JPMorgan Chase & Co. became the latest bank to aggressively ratchet down its
    oil price forecast amid expectations of weak demand and now sees crude
    averaging $74.75 in 2009. In contrast with most government forecasts, the Wall
    Street firm sees global demand shrinking next year.
    “The market is in effect caught in the eddies of a four-way oil tsunami:
    financial, economic, refining and supply,” JPMorgan’s analysts said in a
    monthly energy report. “Only a very cold winter or some significant unforeseen
    supply disruptions will prevent a significant market supply surplus building
    Risks of surplus will keep pressure on prices and may force the Organization
    of Petroleum Exporting Countries to cut production even before an emergency
    meeting planned Nov. 18, JPMorgan said.
    For its part, OPEC on Wednesday cut estimates for oil demand for 2008 and
    2009. The producer group now sees growth of 800,000 barrels a day next year, to
    an average of 87.2 million barrels a day.
    If world oil demand does expand, the bulk of gains are expected to come from
    China. But the Xinhua News Agency reported the country’s oil demand growth will
    slow by the end of this year to an annual rate of 4% amid weakening economic
    growth and declining growth of energy-intensive product output. The news
    service cited researchers at China National Petroleum Corp.
    Xinhua earlier forecast China’s oil demand growth between 5% and 6% in the
    first three quarters of this year.
    Following crude, Nymex gasoline futures fell to their lowest price since
    February 2007.
    Front-month November reformulated gasoline blendstock, or RBOB, fell 6.38
    cents, or 3.4% to $1.8210 a gallon, after earlier dropping to $1.7941. November
    heating oil fell 2.51 cents, or 1.1%, to $2.2346 a gallon.

    -By Gregory Meyer, Dow Jones Newswires

    Dow Jones Newswires
    10-15-08 0943ET

  28. 28
    zman Says:

    Thanks Reef – I honestly can’t believe EOG and other big caps are more than two weeks away from slashed budgets…I guess they want to do it with their 3Q calls. EOG had said below 12 month strip of $8 equals low end of growth range. We are well below $8 now. Average gassy E&P off about 12% now…the market gets used to big numbers and I’m pretty sure some serious value is getting created here as technical analysis is 110% of price at this point.

  29. 29
    Dman Says:

    Similar question to #21: is there a ticker for the US dollar index?

  30. 30
    zman Says:

    Reef – re KWK, 47% of exp gas production hedged for 2009 at last notice but that’s a pretty stale number and I would assume higher now. Have not seen disclosure on their counterparties (assume more than one) but can look about if you’d like.

  31. 31
    zman Says:

    Dman – on Thomson I use DX/Y for that. In a yahoo finance screen try DX-Y.NYB

  32. 32
    Sambone Says:

    Weather update
    Omar not expected to hit US. TD 16 not expected to get up to Cane status

  33. 33
    zman Says:

    Thanks for #27 Sam. The market will anticipate the light at the end of the tunnel, train or not, before things actually get better for oil. Down almost 50% from the recent high is an unprecedented move and the unexpected shift he’s looking for will not just come from OPEC but from choked off supplies from Canada and other onshore, higher cost projects.

    I would imagine stripper well activity in the U.S. is going to slow to a crawl if it hasn’t already.

  34. 34
    BirdsofpreyRcool Says:

    z – as expected. the CDS indices are based on swaps, which are privately-traded.

    As an analogy, it’s like a real estate transaction. With a little effort, you can look up what your neighbor’s house sold for, but it’s not easy and it’s not quoted in real time. To get the reall scoop, you have to ask the real estate agent who sold the buyer the house (and hope he/she doesn’t lie). The IG (cdx11, in this case) is made up of the private transactions of about 40 houses (to continue with the real estate analogy), that keep trading hands on a daily basis. But, even the index can be off, vis-a-vis the underlying house prices. The index is used to go long (or short) the underlyng securities. In that way, it trades like a closed-end mutual fund. It’s tied to the underlying securities, but can trade rich or cheap to the sum of the individual values.

    Am i making any sense here?

  35. 35
    zman Says:

    Absolutely Bird, sounds like how they price the Baltic dry index for the bulkers. Let me try a different tack, is there something, like a spread that shadows it?

  36. 36
    Sambone Says:

    Broke 9000

  37. 37
    jsaun14 Says:

    I priced some CDS yesterday for some hedging. Rite Aid was 66% of notional value. Toys R Us was 16%.

    Might want to move your mail order RX scripts…

  38. 38
    zman Says:

    Anyone see news or a comment on APA, down 14% or $11+ all of a sudden?

  39. 39
    zman Says:

    DIG and DUG options on a silly string, the ETF’s down 21% and up 21% respectively…today. That 900 point bounce the other day killed DUG for 36%. This market has no idea how to price anything right now. Probably a nimble trader’s dream.

  40. 40
    BirdsofpreyRcool Says:

    Anyway, bloomberg does have a generic quote on the various CDS indices, but it’s not real-time and it’s not real accurate. For example, the bloomberg quote shows the IG (cdx11) at 163… when i can see it offered at 189 currently.

    All of this stuff is why the current situation is so difficult to explain to the American Public. We can all relate to the stock market, but the credit/bond market is huge, mainly private, comes in many different flavors (whereas there is only one flavor of stock… unless you count “preferreds”), and has no one, central place to look up prices.

    It’s difficult to actually “see” the problem. Unless, like (i think it was) 5-and-dimer yesterday, you actually try to buy or sell your bond. Price discovery is not transparent.

    This is also why I think it would be a huge positive if/when CDS are required to trade on a recognized exchange. Greater transparency, greater control, less manipulation.

  41. 41
    BirdsofpreyRcool Says:

    #35 – nope.

  42. 42
    zman Says:

    No way to track the TED spread without a bloom?

  43. 43
    zman Says:

    RIG and EOG off another $9. Get ready, get set, wait.

  44. 44
    BirdsofpreyRcool Says:

    How the credit and shipping markets intersect:

    Ship Rates Plunge as Credit Freeze Strands Cargo, Demand Slumps
    2008-10-15 14:30:31.970 GMT

    By Alaric Nightingale and Chan Sue Ling
    Oct. 15 (Bloomberg) — Commodity shipping rates plunged to the lowest in more than five years as a lack of trade finance left cargoes stranded and the global economic slowdown limited raw material demand.
    Traders are finding it harder to get letters of credit that guarantee payments for goods, shipping executives said. Together with a slowdown in trade, that has contributed to this year’s 82 percent drop in shipping costs for grain, coal and other commodities. Rates are so low that Zodiac Maritime Agencies Ltd., the line managed by Israel’s billionaire Ofer family, announced today it may idle 20 of its largest ships.
    “Letters of credit and the credit lines for trade currently are frozen,” Khalid Hashim, managing director of Precious Shipping Pcl, Thailand’s second-largest shipping company, said in Singapore yesterday. “Nothing is moving because the trader doesn’t want to take the risk of putting cargo on the boat and finding that nobody can pay.”
    The Baltic Dry Index fell 11 percent today to 1,615, the lowest since February 2003. Rates for larger ships of the type Zodiac intends to idle fell 17 percent today, taking this year’s plunge to 85 percent, according to the London-based Baltic Exchange.
    Banks are leery of financing commodities and shipping transactions. Rio Tinto Group, the world’s second-largest aluminum producer, may delay the planned sale of $10 billion of assets and Sterlite Industries (India) Ltd. shelved its $2.6 billion purchase of Asarco LLC. Ship owners can’t find cash to finance the construction of new ships.

    Oil, Metals

    Crude oil, industrial metals and grains have all slumped since reaching records in July on concern the worst financial crisis since the 1930s will cause a global recession. The Standard & Poor’s Goldman Sachs Commodity Index has dropped 45 percent from its all-time high of 890.28 on July 3.
    “Our customers are facing hard challenges,” Isabella Loh, chief executive officer of Shell Marine Products, a unit of Royal Dutch Shell Plc, said at a conference in Singapore today.
    “The credit crunch has affected liquidity and is having an impact on shipyards with cancellations and postponed orders, and expansion may be on hold.”
    Precious Shipping took as long as 15 months to secure financing for the 18 vessels it has on order, Hashim said.
    American Shipping Co. ASA can’t get financing for two shuttle tankers that are part of its program to build 12 vessels.

    Timetable Review

    Rio said today it’s reviewing its spending timetable and project costs. Sterlite, a unit of London-based Vedanta Resources Plc, told bankrupt U.S. copper producer Asarco to cut its price by “hundreds of millions” of dollars.
    Rio Tinto’s share price fell as much as 18 percent to 2,334 percent in London trading today.
    “Acquirers will find it harder to source funds and even if they can source funds, they’ll have to pay more,” said Steve Robinson, a senior investment manager with Alleron Investment Management in Sydney, which manages A$1.2 billion ($839 million). “Given what’s happened with commodity markets, they may not find buyers prepared to pay a premium.”
    Zodiac will instruct the captains of its capesize vessels, which typically carry iron ore and coal, to deliver their current cargoes and then weigh anchor, said two hedge fund managers who saw an e-mail from the company outlining the plan.
    The credit crisis may prompt a wave of “consolidation” in the shipping industry, Clyde Michael Bandy, chief executive officer of Chemoil Energy Ltd., said at the conference in Singapore.

  45. 45
    zman Says:

    Oil sub $75

  46. 46
    BirdsofpreyRcool Says:

    #42 – sorry, z, thought you were asking about the IG index. The TED Spread should be do-able, as it’s calculated from the once-daily 3-month LIBOR posting minus the 3-month US treasury bond yield. I don’t know how to do that w/o BB, but I am sure there are several people out there smarter than I who do.

  47. 47
    BirdsofpreyRcool Says:

    unfortunately, TED is only indicative of the sympton and is not the problem. So, TED can actually get better and the credit market worse.

    It’s like the fever going down, but the patient is still headed downhill… that is what we are seeing today.

    Until investors come back to the credit market, the bottom has not been reached.

  48. 48
    Dman Says:

    Baltic Dry Freight Index looks like it was hit by an asteroid. Unclear if the market has priced in the economic weakness that this implies & I think today is part of that “ugh” of recognition. In this market, “unclear” = “sell”, but given the huge declines, buying things down 16% seems to be a good strategy for short term trading. OK, maybe down 20%. After a previous day of down 16%. And then only with small trades. Hmmm…

  49. 49
    Coug1984 Says:

    #42 – Believe you can track the ted spread on the public bloomburg site using:


  50. 50
    zman Says:

    Dman – yep, like walking on extremely thin ice with sharks below. Reason why bottoms should be watched and not picked. I may take some small positions but valuations, fundy’s don’t matter at all right now.

    Thanks for the assist Coug.

  51. 51
    BirdsofpreyRcool Says:

    hearing from the CDS desk that they:

    “think u buy risk here…. for a short and quick trade. IG can’t break through 190… and stocks finally look like they want to rest here. 950 is key lvl… but credit feels strong now… also, watch high yield. think it’s abt to catch a bid as well. its too low here… down 2 pts on thin air. fear all around… cant control stocks… [stocks] are the weakest hands right now.”

    will be interesting to see if they are right. yesterday, credit followed stocks. if credit rallys (or at least holds in here), that might pull up stocks. lots to watch today.

  52. 52
    zman Says:

    Ben speaks in a bit plus Beige Book later.

  53. 53
    Sambone Says:

    Better B52 Ben than “W”.

  54. 54
    zman Says:

    I wonder if the market vs speech aspect is in the new Ollie Stone flick.

  55. 55
    Sambone Says:

    I would say yes

  56. 56
    BirdsofpreyRcool Says:

    IG 189

  57. 57
    BirdsofpreyRcool Says:

    IG 191…

  58. 58
    zman Says:

    Dman – KWK has very liquids rich gas. Natural gas liquid pricing is related to crude price. They have been receiving a much high price on an equivalent basis than many of their gassy peers as they strip BTU’s from the gas stream and sell them at the higher NGL price. That is coming down now. Also, the value of Reef’s Waha comment cannot be underestimated. In other words, I need to noodle about it more.

  59. 59
    zman Says:

    CHK down 20%

  60. 60
    bill Says:

    re 10

    knock out swaps

    if chk bot futures to unwind hedges they would

    1. generate a profit
    2. generate cash (in the short term)
    3. support the price of ng (short erm)
    4. Perhaps support it enough to ensure that knock out doesnt happen


    do you remember what happened to oil last month on last day of trading? a helluva lot of short covering

    I think chk should unwind some hedges

    Z comments please– could chk buying/unwinding hedges affect ng prices?

  61. 61
    zman Says:

    Bill, yes, they could affect gas prices but not sure to what degree as I don’t see them backing out of a ton of hedges that are $2+ north of current levels. The knockout positions alone are not that big when you look at the market as a whole.

  62. 62
    bill Says:

    sell any and all bulker stocks imho

  63. 63
    kyleandy Says:

    bill had same thoughts about chk – but how does buyng them back(hedges) generate cash. i think it does opposite.

  64. 64
    zman Says:

    re 62, their earnings power seems to be evaporating daily. Why not throw the tankers in their as well?

  65. 65
    zman Says:

    kyle, they would take a cash charge for buying them and then it would be an accounting task of where prices end up to see if it generates income.

  66. 66
    zman Says:

    Nicky’s 950 level so far proving to hold today. I ignore her market way points at my own peril.

  67. 67
    BirdsofpreyRcool Says:

    Bernanke on the tape: Economic recovery will not happen right away.

    uhhh…. Roger that, Ben!

  68. 68
    BirdsofpreyRcool Says:

    even better: credit markets will take some time to unfreeze.

  69. 69
    bill Says:

    tanker rates have held up reasonably well but i wouldnt argue to unload those as well

    on chk hedges–why is that a cash charge. buying them back would release any collateral they put up to enter the hedge

    ie if i shorted 1 contract id have to put up about 10 k

    since its marked to market no cash is spent..it just releases the margin requirement. NO???

  70. 70
    BirdsofpreyRcool Says:

    IG back down to 188… good.

  71. 71
    BirdsofpreyRcool Says:

    IG 189. oh well…

  72. 72
    zman Says:

    Bill – on the regular hedges that’s true as they are well in the money. But it’s unknown what the terms are to buy back a knockout swap is closer to the knockout than the hedge price. I am thinking that if they try to reverse those out it will be costly, but not as much as having them trigger the knock or kick.

  73. 73
    bill Says:

    on coal

    prices were up yesterday and today

  74. 74
    BirdsofpreyRcool Says:

    Ben tanks the markets… again.

  75. 75
    bill Says:

    on 72 chk hedges

    yes, i wouldnt try to buyback knockouts as i think ng will stay above knock out prices but i would buy back nymex futures.

    one other benefit, eliminates counterparty risk

    some think there is a q4 cash crunch at chk

  76. 76
    zman Says:

    Ben now speaking, down down 400. Interesting to see how, if it turns.

    Tristone issued sell rating on CHK

  77. 77
    bill Says:

    gas is down 1 % today yet the stocks are getting slaughtered

    Im going to reposition bulker money into this sector

    i dont know how you can wrong at these prices

    z i liked your work on debt levels of ep companies yesterday..thanks

  78. 78
    bill Says:

    who is tristone and why did they issue a sell

  79. 79
    BirdsofpreyRcool Says:

    CHK 5-yr CDS about 5 points wider. Debt investors not warming up to the updated presentation, it looks like.

  80. 80
    Nicky Says:

    Z – now that 950 and below (!) has been tested I would not want to see us sell off much more than 10 spx points below this level otherwise a test of Friday’s lows is on the cards imo.

  81. 81
    Sambone Says:

    12:35 10/15 *WSJ: BP Interested In Some Chesapeake Gas Assets, But Not Co

  82. 82
    zman Says:

    Ya gotta love the way Ben dispassionately tells the public that its dog was run over and that while he opened the gate, could have grabbed the leash or flagged down the driver, well, he didn’t.

    I wonder if I can issue my own commercial paper and have the government buy it.

    Bill – re 75. Aubrey is going to need to clarify which hedge he plans on taking out. I assume it will be small. I agree you could make a buck kill off the regular ones but the “what if” prices collapse further would make his bankers freak out on him. Debt like that these days with no hedge…wow.

    Nicky – thanks, still hanging tough around the 950 mark. Ben will be buying S&P futures before he’s done talking. I could see a big rally from your levels if he can get through the Q&A unscathed.

  83. 83
    Sambone Says:

    12:34 10/15 *WSJ: BP Plc Exploring Deal To Buy Gas Assets From Chesapeake Energy

  84. 84
    Nicky Says:

    FWIW I think oil maybe getting close to a low. We may need one more low but I can now count 5 down from the highs…

  85. 85
    zman Says:

    Tristone not dummies. I think they are a little late here but maybe they want to see those 4Q sales. Nothing in the presentation was a downer.

  86. 86
    Nicky Says:

    Z – did you hear any more on T Boone and his possible chapter 13?

  87. 87
    zman Says:

    Sam – that would be 3 in a row. I figure given the lack of appetite from guys like XOM to grow in the States it makes sense that BP will be a buyer. The question now turns to price. The Chinese are also sniffing around CHK.

  88. 88
    zman Says:

    Nicky – I have not heard any more re TBP…he seems to be 100% focused on the Pickens Plan stuff and the debates. Talk about “eye off ball, head unexpectedly ripped off shoulders”

    Re oil, thanks for that comment.

    Sam’s news on BP may put a low in CHK for the day. Hmmm…

  89. 89
    Sambone Says:

    Z – Looks like they are going to carve up CHK like a Thanksgiving Turkey. Sad

  90. 90
    Sambone Says:

    By Russell Gold and Guy Chazan

    Oil giant BP PLC (BP) is exploring a potential deal to buy choice natural-gas
    assets from once high-flying Chesapeake Energy Corp. (CHK), according to people
    close to the British company’s strategic thinking.
    Such a deal would be an early sign that cash-rich global oil companies are
    prepared to embark on a spending spree as smaller natural gas producers
    scramble to raise cash amid lower energy prices and tight capital markets. What
    isn’t clear is if BP is willing to pay something comparable to the price these
    assets were fetching in September, before the credit crunch and a 13% drop in
    gas prices, or whether Chesapeake is willing to accept less.
    (This story and related background material will be available on The Wall
    Street Journal Web site, WSJ.com.)
    BP is under pressure to expand its portfolio of energy projects as concerns
    mount about its ability to grow its production. The company has relied heavily
    on its Russian operations, but its conflict with the billionaire co-owners of
    TNK-BP, its Russian subsidiary, have put that strategy in question.
    While future growth is an issue, BP’s balance sheet isn’t. The company
    reported $3.6 billion in cash and short-term liquid investments at the end of
    June, according to energy research firm John S. Herold, giving it financial
    strength to pursue deals even in the current climate.
    Following its Russian troubles, BP is focusing on the North American natural
    gas markets, where a host of smaller independent companies has pioneered new
    techniques to extract gas from rock that had long been considered a lost cause.
    Chesapeake was a leader in this effort, leasing up thousands of acres over the
    past few years. But this strategy required frequent access to the debt and
    equity markets, both of which are now effectively closed due to the global
    credit freeze. It has cut $4.7 billion from its capital budget over the next
    two years and is seeking buyers for assets to raise cash. Chesapeake said it
    hopes to raise between $2.5 billion and $3 billion by the end of the year
    through asset sales and other financial deals.
    A person close to BP indicated the company was interested in acquiring some of
    Chesapeake’s natural gas assets, though not the whole company. The Oklahoma
    City-based Chesapeake, the largest producer of natural gas in the U.S., has
    said it is in talks to sell a minority stake in its Marcellus Shale gas field,
    located mostly in Pennsylvania, as well as other assets.
    BP has already done two deals with Chesapeake this year, spending a combined
    $3.65 billion to acquire gas fields in Oklahoma and a 25% stake in another
    field in Arkansas. A Chesapeake spokesman said the company wants to sell a
    stake in its Marcellus assets in a deal similar to the Arkansas sale. The
    spokesman declined to discuss BP’s interest in acquiring additional assets. A
    BP spokesman also declined comment.
    It’s not clear whether BP is interested in the Marcellus assets or prefers
    other assets Chesapeake has assembled over the years. The company is one of the
    top two leaseholders in four of the largest emerging gas fields in the U.S.
    Chesapeake might not be in a position to be choosy. Its share price is down
    20% in recent trading, steeper than the broader Amex Oil Index, which is down
    The company has had a hard week. Chesapeake Chairman and Chief Executive
    Aubrey McClendon was forced to sell 94% of his shares in the company to meet a
    margin call. The company also drew down the remaining $1.5 billion available
    under its credit facility to shore up its cash position.
    -By Russell Gold, The Wall Street Journal -By Guy Chazan, The Wall Street Journal

    Dow Jones Newswires
    10-15-08 1246ET

  91. 91
    Nicky Says:

    Fib levels from the 837 low to the 1067 high are:

    50% is 952

    61.8% is 924

    78.6 iz 866

  92. 92
    zman Says:

    Sam – I don’t see it that way at all. CHK has been on the road to selling 25% in each of their major shale plays for some time now, well before the financial crisis ensued. They get a carried interest on drilling in the region while retaining operatorship. As far as the Woodford goes which they sold to BP for just under $2 billion a couple of months ago, that was planned as Aubrey never liked the asset. He commented at least 4 quarters ago that he did not think it was all that special like some did (NFX) and was planning to sell it to them or someone else. He likes being #1 or #2 and not just big but early to a play so he can be in the fairway. With the Woodford that was not possible. With these other plays he is staying in the core or fairway, retaining operatorship, monetizing some of the acreage and getting a carry. Sweet deal if you can swing it.

  93. 93
    Sambone Says:

    Z – Rough times to try to swing it. Credit is frozen and it won’t get any better for awhile.

  94. 94
    Bleemus Says:

    Chesapeake Energy: BP exploring deal to buy gas assets from Chesapeake Energy; not interested in buying co – WSJ

    Probably old news for you guys.

  95. 95
    zman Says:

    Ben done with speech, market at LOD.

    Beighbook at top of hour.

    CHK presentation to begin at 2:30 EST, not 1:30 as I had in the post.

    Looking at this market I am having less trouble sitting on hands as to new trades.

  96. 96
    Sambone Says:

    By Jason Womack

    HOUSTON (Dow Jones)–Chesapeake Energy Corp. (CHK) lost around a fifth of its
    market value Wednesday amid a broader market slide and after the company cut
    its cash-flow forecast amid falling natural gas prices and tightening credit
    The company said it expects cash inflows of $7.8 billion to $9 billion, down
    from its earlier forecast for $9.9 billion to $11.5 billion, according to a
    filing with the Securities and Exchange Commission.
    The revised projection is the latest in a series of steps the independent
    natural gas producer has made to adjust to waning gas prices and troubled
    financial markets. Last week, shares of Chesapeake plummeted — leading the
    company to rein in spending and forcing its chief executive to sell nearly all
    of his company stock to meet margin calls.
    Shares of Chesapeake, the largest producer of U.S. natural gas, fell as much
    as 24% Wednesday and were recently down $4.53, or 20%, at $17.05 apiece.
    In slides posted on its Web site ahead of a presentation to investors
    Wednesday afternoon, Chesapeake said it expects natural gas prices to be
    rangebound between $7 and $9 a million British thermal units for a “few years,”
    resulting in a diminished rig count.
    The Oklahoma City-based natural gas producer said the industry needs prices
    between $9 and $10/MMBtu to support the number of rigs drilling for natural
    Natural gas prices, which tend to decline in the fall, have lost more than 50%
    of their value since July.
    Chesapeake said the credit crunch will reduce the number of rigs and bring
    balance to the natural gas markets faster than lower gas prices.
    The company also said proposed rules by the U.S. Securities and Exchange
    Commission on recognizing reserves could lead to Chesapeake’s proved reserves
    exceeding 20 trillion cubic feet by 2009. By comparison, the U.S. consumed
    about 23 trillion cubic feet of gas last year, according to the Department of
    Those proposals would change how oil and gas companies report their resources.
    Reserves are among the most important assets for oil and gas companies, and
    current SEC rules limit companies to reporting only proved reserves from
    conventional sources, an approach that excludes oil shale, tar sands and other
    potentially rich sources of oil and gas.

    -By Jason Womack, Dow Jones Newswires

    Dow Jones Newswires
    10-15-08 1330ET

  97. 97
    zman Says:

    Ugly. Going to grab lunch, back for the CHK call at 1:30 CST.

  98. 98
    BirdsofpreyRcool Says:

    IG 192

  99. 99
    BossmanG Says:

    Birds, how significant is the change from 191 to 192? (for example)…

  100. 100
    BirdsofpreyRcool Says:

    it’s significant in that it indicates a direction. as the index doesn’t trade constantly (like the Dow, for example), i look to every move as an indicator of credit investor’s perception of “risk.”

    when the IG index was formed a 2-3 bps move in 1 day was considered huge. now, 10 point swings are common. also, an account can buy (or sell) the index faster than he can buy (or sell) an individual company’s bond. so, any directional move in the index gives info on whether money is flowing into (or out of) non-gov’t bonds.

    IG now 191.5, a 13.5 point move today. That falls into the “not good” camp.

    Wide in IG last week was 230 (briefly). But, anything approaching 200 indicates panic.

  101. 101
    BirdsofpreyRcool Says:

    Think of an iceberg: the part you can see is the stock mrkt, the part you can’t is the bond/credit market. The top (by definition) floats on the bottom. Without the bottom, you don’t even HAVE a top.

    So, bond/credit investing is like the submerged part of an iceberg. You know it’s there but you can’t see it. But it’s several times the size of the visible part of the iceberg. In normal times, you don’t have to worry about how big the submerged part is, as you can see the floating part. But, if the ship steers too close to the iceberg, the submerged part can tear a hole in the side of the ship quickly. The bigger the hole, the harder it is to repair, the faster the boat sinks.

    I am just trying to give a feeling the size of the iceberg below the surface and how close our economic ship is.

    Since it’s not possible for the economy to get better until money flows back into credit (people invest in money market funds again, banks start lending again, corporate bonds get issued again), watching the bond market is something we all need to do.

  102. 102
    jsaun14 Says:

    We’ve seen the banks both I- and commercial take the monster hits (essentially going broke) as they marked down their inventories of product.

    My question is what happens when their customers like the pension funds, endowments and insurance companies can’t meet obligations?

  103. 103
    bill Says:

    swn down 23 %

  104. 104
    bill Says:

    chk page 16 on hedges

    sometimes its prudent to take some chips off the table


  105. 105
    bill Says:

    chk page 19 is humorous

  106. 106
    Dman Says:

    KWK at $8.82 vs. Friday’s low of $834

  107. 107
    BirdsofpreyRcool Says:

    #102 jsaun

    I think those are valid questions/concerns, but have not yet fallen into the category of valid problems. But if the world falls into a long economic depression, then a couple of things happen. Returns on assets fall, asset prices fall, and expectations about future payouts fall. This is why I am more worried about deflation, than inflation at this point.

    Endowments, no. But pensions and insurance are backed by gov’t mandated backstops. Like the Pension Benefit Guaranty Corp (or PBGC) backs defined benefit retirement plans (now 100%, but a good portion). On the other hand, all our 401(k)s are taking a tremendous beating…

    We have lived through economic slowdowns worse than this before. What is different this time is this global run on the banks. That, and the fact that the American Lifestyle far exceeded the American cashflow, with credit cards and home equity loans making up the difference. If the run on the debt markets continue, regular businesses won’t be able to fund their operations and jobs will be the next to go. Combined with zero (or negative) individual savings rates, that is not an outcome anyone wishes to see.

    That is why our gov’t (and everyone else) needs to get corporate credit flowing again. Our jobs depend on it.

    Personally, I think we can break the credit logjam. But, it’s clear the economy is going to take several years to find an equilibrium. At the most basic level, the value of our homes needs to find a bottom (and not be artificially propped up, by the way… that only prolongs the hurt).

    Sorry to ramble… but it’s better than watching all the red (lows) and purple (LOD) on my screen right now.

  108. 108
    BirdsofpreyRcool Says:

    IG 192.5 – 14.5 bps from yesterday’s close

  109. 109
    BirdsofpreyRcool Says:

    IG back to 192

  110. 110
    bill Says:

    what does IG mean

  111. 111
    Nicky Says:

    SPX hit the 61.8% retracement exactly and bounced. Resistance is now at 937 – 940.

  112. 112
    Dman Says:

    oops #106 shoulda been “Friday’s low of $8.34”.

  113. 113
    BirdsofpreyRcool Says:

    IG = Investment Grade bond index. In this case, higher numbers are bad, lower numbers good. This index used to be around 45-60. It is now almost 200. That falls into the category of “really bad.”

    This index will fall (i.e. the spread will narrow) when investors more actively buy bonds (credit) again. So it is an indication we can all see that banks/investors/funds are lending again. Until then, credit is pretty close to frozen solid.

    No credit market, no economy, no stock market.

  114. 114
    bill Says:

    chk climbing out from lod

    call me nuts but i like these guys

  115. 115
    BirdsofpreyRcool Says:

    IG coming off the wides. at 189.5 now. That could be signal the end of today’s crisis.

  116. 116
    zman Says:

    Bill – I would not call you crazy for liking these guys. Aubrey is making lots of good points…the analysts view of this company is so “flat” its unreal and he is pointing that out. The company is flexible, the analysis is not.

  117. 117
    zman Says:

    Good point on the debt to cap ratio is that the mark to market hit on earnings rolls through to the balance sheet reducing equity….when they mark the current ones up for gains then equity is boosted and debt to cap % falls.

  118. 118
    zman Says:

    A buy here on CHK with a 1 to 3 year horizon will likely be a heck of an investment.

  119. 119
    zman Says:

    CHK regarding the coming changes in SEC reserve rules.

    Right now when you drill a horizontal well in a shale reservoir the SEC only allows you to book reserves on the PUDS (proven undeveloped reserves) on 2 sides of the lateral. This ignores PUDS all around the lateral. As they pointed out and I highlighted this morning, the rule change goes into affect for 2009 and they think they will be at 20 Tcfe from 12.1 at present.

  120. 120
    zman Says:

    CHK – revolver not due until Nov 2012. LT debt first maturity in 2013.

  121. 121
    Nicky Says:

    Broader market – 945, 948, 952 – cluster of resistance here which we need to get through…

  122. 122
    zman Says:

    ZTRADE – 10KP (CHK)

    Bought 5 Oct 20 Calls (CHKJD) for $0.40

    Bought 5 January 25 Calls (CHKAE) for $2.20

    Obviously the first trade with less than 3 days relies on a quick bounce and I’m not looking for $20 on the stock in that time frame but just a bounce. This will be largely relying on a market bounce. The Januaries are more of an investment taken as I listen to the investor call.

  123. 123
    Fiveanddimer Says:

    Today’s muni bond market confirms BOP’s bleak reports on the credit markets. Tried to sell some more muni’s today and got bids that were ludicrously low — worse than yesterday. Muni bond prices are also falling. For example, Washington (DC) Airport Authority bonds are now priced 20% below par, implying that there is growing concern that Dulles and Reagan National could default. This is surreal. Think about it — if there is any place in the country that is insulated from the dangers of recession, it is the DC area. The Federal Government just keeps growing, regardless of which party is in power. I’ve never seen a negative situation anything close to this.

  124. 124
    arodeen Says:

    Sentiment Snapshot: Chesapeake Energy Corporation (CHK)

    Value Investing in long term NFX calls

    Rumor Watch: Apache may be looking to buy some CHK holdings in Western OK. Rumor from some Apache drilling consultants.

  125. 125
    zman Says:

    1 hour CHK Q&A starting now.

  126. 126
    BirdsofpreyRcool Says:

    IG bonds 192 … this is considered “jumping around a lot” in the bond world.

  127. 127
    BirdsofpreyRcool Says:

    IG 193, +15pbs to the wide of the day.

  128. 128
    zman Says:

    CHK Q&A:

    1) Knock out swaps removed for Nov and December for low cost.

    2) If things improve in the financial and gas markets, they will bring rigs back first and not restart buying acreage quickly. They are pretty much done buying acreage for now. Much more likely to add rigs than acreage these days.

    3) Saw the shales as such a sea change in the way gas is discovered they simply could not pass up developing them. They don’t foresee new shale plays after the current big ones that will force them to go through the same financial cycle to get on top of them.

    4) Plan for the cash raised from the revolver: leave it on that balance sheet. There is no facility for the banks to reduce their facility. That’s kind of an odd statement as usually you can get redetermined lower. Hmmm. That’s good news if I understood that right.

    5) what if one or more of the asset sales don’t occur? They will close on one property sale next week. They have 5 other projects (VPPS and asset packages) that are in progress. They think most get done and highly unlikely none get done.

  129. 129
    BirdsofpreyRcool Says:

    IG 194… only 6 points away from bond-panic

  130. 130
    zman Says:

    Dow down 605

  131. 131
    antrimshale74 Says:

    Gruesome intra-day chart.

  132. 132
    zman Says:

    RIG down $16.

  133. 133
    antrimshale74 Says:

    Lots of selling on the close again.

  134. 134
    reefguy Says:

    chk at lod 15.96

  135. 135
    zman Says:

    CHK – the game plan right now is to produce 1 Tcfe of gas each year and find another 2 Tcfe (3 in total) AND live within cash flow.

  136. 136
    zman Says:

    Dow at lod down 717, CHK in lockstep

  137. 137
    BirdsofpreyRcool Says:

    IG 196

  138. 138
    antrimshale74 Says:

    XLE off over 16%.

  139. 139
    antrimshale74 Says:

    Monday’s gains are all gone.

  140. 140
    zman Says:

    Here’s one for ya, XOM has lost 55 billion in mkt cap today. That’s like 2.5 CHK’s (the largest gas producer in the U.S.) disappearing.

  141. 141
    reefguy Says:

    waha up to $4.025

  142. 142
    reefguy Says:

    xom, hey z if it loses 323 more than the 39B in cash can be distributed to the homeless

  143. 143
    zman Says:

    Reef – the $39 B will be certainly be nationalized in the name of hot air, um, wind power.

  144. 144
    zman Says:

    CHK Q&A – 1 hour alloted. Who does this kind of transparent info flow?!

    Marcellus sounds like a done deal.

  145. 145
    reefguy Says:

    Those 5.1 B shares held by fat cats like my mom and dad(oh, sorry their passed)need to have their wealth redistributed.

  146. 146
    zman Says:

    Sorry, that was a bit cryptic, the 25% sale of their large Marcellus position sounds like its down to i’s and t’s.

  147. 147
    zman Says:

    CHK back of the envelope maintenance capex vs cash flow:

    if they produce 975 Bcfe (the 1 Tcfe noted above) it will cost them $2 billion to drill and add half a billion $ for the lease hold. Put that up against the $6 billion cash flow from that production. So they could hack back drilling and not grow and generate free cash flow of $3.5 billion at these low prices per year. They could easily replace reserves and still generate free cash flow. The analysts need to wake up to the fact that they are flexible and that they will pull capex down as much as needed as dictated by prices and they don’t need to repay either the revolver or the longer term debt until 2012 and 2013 respectively.

  148. 148
    BirdsofpreyRcool Says:

    IG going out at 198, +20 bps. Massive move… just like stocks.

  149. 149
    Nicky Says:

    Well we are back to another 8 days of this and the market will be no more!

  150. 150
    zman Says:

    Bird – thanks for the updates today. Helpful to me.

  151. 151
    Nicky Says:

    BOP – they are talking about something happening to the credit markets tomorrow (didn’t pick up what!) that could show up in a positive way Friday? Do you know anything about this and is it likely?

  152. 152
    zman Says:

    Aubrey is throwing out the old pre-Haynesville pitch. It goes something like “this was a unique time we had to lock down leading positions and now we will focus on drilling it up.” This was well accepted by the Street last time and then they found the Haynesville and ticked everyone off with their buying frenzy. This time I would suspect its welcome news again but it will take a little longer to believe.

  153. 153
    zman Says:

    He’s reminding people that the Haynesville 1st year decline is 81%, Barnett is above 70%, and their conventional wells are declining faster which anybody can tell you is true.

  154. 154
    elduque Says:

    Still listening to the conference call, but sure looks like there is absolutely nothing wrong with the company financially.

  155. 155
    zman Says:

    EL-D, me too and how. The analysts sound snake bit and dubious. But the fact of the matter is, the capex can be matched to the cash flow and I think, were they to slow down the drill bit, gas prices would move higher. Either way, the debt is totally manageable.

  156. 156
    zman Says:

    Aubrey just said Arkansas natural gas selling for $3, Barnett $3, Oklahoma mid-continent for $2.50. As I like to say, price will take care of price. Watch those rig counts tumble baby.

  157. 157
    zman Says:

    I heard Cramer hedged on his end of the world forecast yesterday saying that the action of the treasury regarding buy in’s made it less of an issue and that the market was not headed to 5,000. Heard this on a bad cell phone call, do I have that right? Just trying to figure out when they cancel his show.

  158. 158
    BirdsofpreyRcool Says:

    Nicky – I don’t know off hand. I’ll check. It might be another one of Ben’s brilliant “targeted auction facilities” again. They haven’t worked for a year… so, you gotta give him a “P” for persistance!

    (The TAFs are, were, and always will be, a joke. They actually do more harm than good, as the Fed THINKS they are actually DOING something. When, in fact, the mrkt has been telling them it’s doesn’t work.)

  159. 159
    antrimshale74 Says:

    Zman- I think that is true regarding Cramer about end of the world. He didn’t make any commitments about where the market was heading other than his opinion that Monday was a head fake and that it should be sold.

  160. 160
    BirdsofpreyRcool Says:

    Nicky – oh yeah… saw the headlines scroll by this morning. It’s not a TAF, it’s a TSLF this time. Term Securities Lending Facility. It lends cash to primary borker/dealers and holds debt securities as collateral. This one is different in that the Fed will accept a wider range of stuff as collateral. It’s another way to — at least temporarily — take illiquid securities off the private sector balance sheet and replace it with cash. These loans have to be repaid at some pre-determined date. So, it’s just a temporary use of the cash.

    It’s really just an expanded program of what the Fed usually does to inject cash into the B/D system (via repos). But, the B/Ds get more time to use the cash and can use a broader range of securities. The securities still have to be AAA-rated, tho. So, it’s not a bin for toxic waste. Frankly, it’s not really a big deal.

  161. 161
    Jay Reynolds Says:

    Low prices not fun for us stripper well operators, especially when avg BOPD $35/bbl to <$5/bbl for the oil that we produce that way.

  162. 162
    zman Says:

    Jay – I had you in mind when I wrote #33. I would guess that your product would be a positive economic benefit if you can get people to make the initial purchase. Might be tough but in a few months if oil levels off I would imagine biz will pick up if you have a good powerpoint presentation showing the benefits.

  163. 163
    Nicky Says:

    Thanks BOP.

  164. 164
    BirdsofpreyRcool Says:

    #160…. slip of the keyboard. Actually, the securities are NOT “illiquid,” as they are AAA-rated. But, you can’t “spend” securities, you can only spend cash. Basically just injecting cash into the broker/dealer system to try to get someone — anyone — to lend money again.

  165. 165
    zman Says:

    Regarding trying to get banks to lend again, I see an awful lot of carrot and no stick. Since we have abandoned the free market it seems fair that we impose some “lend or else” considerations. I would say get things moving or we’ll replace management…desperate times….

  166. 166
    zman Says:

    CHK conference starting back up now.

  167. 167
    Nicky Says:

    Agree Z re 165 – the banks are obviously now just hoarding the cash. But how do you make them lend and quickly?

  168. 168
    zman Says:

    Nicky – you punish management.

  169. 169
    zman Says:

    Oil at 73.59 post close.

    Operating update portion of the CHK conf call pretty much nothing new so far.

  170. 170
    BirdsofpreyRcool Says:

    z – as long as your assets keep getting written down, and/or your bad debt reserves keep rising, no bank manager can lend. It would bank banking regulations.

    To call our financial markets “unregulated” is the cruelest joke around. We (the US) have the MOST regulated stock and banking mrkts in the world! but, just b/c laws are on the book does not make them “good.”

    It makes my blood boil to hear all this blamed on “deregulation.” It was government interferrance (coupled with a heck of a lot of cash flowing into the US from abroad) that got us INTO this mess. Forcing banks to lend to unqualified buyers. Then expanding the mandate — by law — allowing Fannie and Freddie to buy those subprime mortgages. When F&F couldn’t even balance their own INTERNAL books.

    “Free mkrts,” my @ss.

  171. 171
    Nicky Says:

    Futures tanking.

    Joe Terranova on Fast Money saying now the market wants to see accountability from those that got us into this before the market rallies. Get real!

    Markets feel totally out of control right now.

  172. 172
    BirdsofpreyRcool Says:

    #170 correction: “It would break bank lending regulations.”

  173. 173
    BirdsofpreyRcool Says:

    Nicky – that is what got the French Revolution really going… and all those heads rolling. The French never regained their intellectual position in the world. You kill all the rich and educated, you sow the seeds of your own downfall.

    Recrimination has no purpose at this point.

  174. 174
    zman Says:

    CHK gives a financial overview and allows 1 hour for Q&A.

    Then they give an ops update and allow 15 minutes for Q&A.

    Sign of the times.

  175. 175
    BirdsofpreyRcool Says:

    i meant to post this in the morning. it’s a good explanation of where the banks stand and what Paulson is trying to do. any why banks won’t (can’t) lend right now.


  176. 176
    Nicky Says:

    Looks like Dow futures are 200 off give or take a couple of points.

  177. 177
    zman Says:

    Bird – you know #165 was at least half in jest.

  178. 178
    zman Says:

    Nicky – sets up the potential for a real downturn into the weekend.

  179. 179
    BirdsofpreyRcool Says:

    sorry z. when i’m on a rant, i rarely let humor slow me down. too bad… it’s not healthy to be a “crazy old bird” !!

  180. 180
    zman Says:

    CHK has released 20 rigs that are all still on their last well (not in the rig counts yet)

  181. 181
    Nicky Says:

    Z – it feels absolutely out of control to me now…they say they have other bullets to fire but does the market really care?

  182. 182
    zman Says:

    Sobering comment. Our postman just asked me how I’m doing. “fine”, I say.

    “how’s the day trading”, he asks

    “for the last time, I’m not a daytrader, only my mother calls me a daytrader… but if you must know, the market was down 700 today so if that’s any indication…”

    “I lost a third of my thrift savings plan”, he says.

    Government employees have 5 options in which to invest. Hist plan has stocks and bonds in it and he’s down a third. Wow.

  183. 183
    BirdsofpreyRcool Says:

    some nice insider buying showing up for LINE.

    z – weren’t you going to take a look there are see if the payout was sustainable? 20+% looks pretty awesome.

  184. 184
    Dman Says:

    Z – I sympathise with the “daytrading” label thing. Most people who think I’m a “daytrader” wouldn’t be able to say what it means … and I’ve given up trying to explain. Especially the bit about how I’m not actually a “daytrader” even though I occasionally daytrade and my account is flagged accordingly. I wouldn’t want to try to explain that to the postman. It’s hard enough with the tax advisor 🙂

    But the postman’s comment is sobering and I suspect there are/will be many who are even harder hit.

  185. 185
    zman Says:

    Nikkei down 10%. Ugh.

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