T.G.I.F. Oil & Gas Inventory Previews Plus SLB Kicks Off Earnings


In Today's Post:

  1. Sentiment Watch
  2. Holdings Watch
  3. Commodity Watch
  4. Stuff We Care About Today - CHK, SLB
  5. Oil and Natural Gas Inventory Reviews - big oil inventory builds, inline to small injection for natural gas.
  6. Odds & Ends

Sentiment Watch: Guarded, most definitely subject to whim, rumor, hysteria. Caution is the buzzword of the month.

Holdings Watch: Slowly wading into a smallish handful of positions scattered across the energy sub industries. Premiums remain high. 

Commodity Watch

Crude oil fell again (I should just copy and past those first four words at this point into all future posts), ending the day down $4.69 at $69.85 yesterday. Much of the decline was equity market trading related although crude and gasoline inventory builds exceeded expectations due to a combination of higher than expected imports and production respectively. Gasoline demand ticked up ever so slightly and I expect it to do better this week (next week's report) as prices crack $3 at the pump in many places. This morning crude is up slightly on the OPEC meeting news but is still closely tied to the equities market fortunes.

  • OPEC Watch: Emergency Meeting Moved Up. The emergency OPEC meeting because that had been set for November 18 was moved up by one month yesterday as the emergency deepened. Qatar's oil minister said he expects a 1 mm bopd cut Friday, next week.
  • CNBC Anti Oil Pump. The cheered oil higher in the spring and now the network otherwise known as Criminally Negligent Boosters of Crude are now Booers of Crude. Morning after morning using big bear Peter Beutel to get responses from host Joe Kernon like "I can't agree with you more" and " I love you too" when he says oil should have caused a recession last year at $80,"when it was four times higher than it should have been". Wow, Joe, ever think he's making a fortune off talking his book? Normally, I like Joe but all the "oil companies are evil, the middle east needs to suffer" talk is inappropriate, misguided, and ill-informed. Hey Joe, do you like driving to work and heating your home?

Natural gas rallied $0.11 to close at $6.70 yesterday on a slightly smaller than expected storage build (see review below). This morning gas is trading up a couple of percent in the early market after doing a good job of noticing winter and ignoring crude yesterday.

Stuff We Care About Today Watch:

CHK Meeting Wrap Thoughts:

  • They are attempting to selling assets as planned.
  • Their hedges seem to be safe.
  • Their debt is not due for 4 years on the revolver and 5 years on the first tranche of senior.
  • They have good interest coverage.
  • They are not in violation of loan covenants.
  • They are reducing the debt to cap ratio by year end as those mark to market hedge losses are reversed to gains and roll through the income statement to the balance sheet boosting stockholder equity.
  • They are improving efficiencies in drilling and transitioning rigs to higher IRR plays from lower ones in the current environment.
  • The land rush capex run is over. That's a big one since they won't we be torn between leasehold acquisition and drilling and therefore will have an easier decision if capital expenditures need to be reigned in further to match unhedged gas prices.
  • Spending will no longer outstrip cash flow by billions per year and may actually match it.
  • Drilling will transition to more complex but higher return plays during this low gas price time

SLB 3Q08 Top Line Beat But Caution Reigns.

  • Revenue of $7.3 billion vs $7.0 B expected
  • EPS of $1.25 vs $1.25 expected
  • Outlook a lot more guarded citing credit market troubles and a quicker swing to less activity in N. America than they would have thought. With the stock off from $100 to $50 in the last couple of months I have to wonder if this isn't priced in already.
  • There's a tidbit in their highlighting how they helped lower costs and improve production for a (PQ) well in the Woodford and that's the kind of thing (complex but money saving solution) that will be in demand. The simpler wells don't need as many touches or involvement at all by SLB so it will be interesting to 1) guage whether or not revenues and margins will be impacted enough by a slowdown to justify this price move and 2) if not, whether and when this market will care.
  • Conf Call Today, 8 am EST
  • Next Monday we get results from HAL, NBR, and WFT and I'll have the first week of earnings out on the calendar tab of the site over the weekend.

EIA Inventory Reviews

Oil Report Shows Bigger Than Expected Oil and Gasoline Builds.

CRUDE OIL - Bigger than expected build as imports remain high...Good time for OPEC to act.



GASOLINE - Also a big build as production runs higher than I would have thought and imports the U.S. invited in following Gustav and Ike continue to show up.





Gasoline Stocks Stage Rapid Rebound....Demand will need to see a price based resurgence to stem this advance and lend support to prices in the face of the drop in crude prices. At some point, refiners have to regain their sense of what is the optimum level of production in this weaker economic environment (less than here) and stabilize crack spreads. Given the time of year and weak demand, I'm a bit perplexed about the high production levels. There is no law that refineries must make product at a loss.

DISTILLATE - Much bigger than expected build, gotta wonder if the global slowdown is taking its toll on foreign orders.




EIA Natural Gas Storage Report Review

The EIA reported a gas build of 79 Bcf for last week. It was colder than the prior year and imports were down and still injections managed to swamp year ago levels. The injection was smaller than the Street was looking for and slightly bigger than my guesstimate but the fact of the matter is, production is pretty heady and its still showing up in the numbers, limiting the upside I see in prices. Some of the build can also be attributed to winter arbitrage with buyers socking gas into storage expecting to sell it for more later, above the cost of carry for the next couple of months. This always happens at the end of the season but given the recent quick drop in prices their may be a greater instance of this this year.

End of Season Storage With 3.4 Tcf.  With nearly 3.3 Tcf in storage now and colder weather invading the country I think there is a good chance for peak storage to arrive on time (3 mor injections) and on target at 3.4 Tcf. Fears have been running high that 3.5 Tcf is in the cards which would be seen as supress prices further into winter but honestly, that's just a 100 Bcf and while it could happen, the more important story is going to be told by the rig count. We'll know people are paying attention if at 3:30 EST when Baker Hughes releases numbers each Friday the service and E&P stocks and potential late trading gas react to those counts. So far not yet but I think people will start to key into it in coming weeks. Speaking of rig counts, I saw another 300 rig drop expected by Merrill in a piece I read last night.

Odds & Ends

Analyst Watch: Nada.




85 Responses to “T.G.I.F. Oil & Gas Inventory Previews Plus SLB Kicks Off Earnings”

  1. 1
    zman Says:

    SLB 3Q08 conference call starting now.

  2. 2
    zman Says:

    Saw a couple of talking heads on CNBC last night comment that opex today may drive a higher market by the close, fwiw.

  3. 3
    Sambone Says:

    By Joseph Schuman

    The overly reactive nature of oil trading can mask how much long-term crude
    prices really do depend on supply and demand. But now it’s just those
    fundamentals that are so obviously behind the plunge in oil prices from the
    vertiginous heights they reached three months ago.
    A barrel of light sweet crude was fetching about $147 in futures trading on
    the Nymex last July. Thursday, oil settled at $69.85 a barrel, down $4.69 a
    barrel for the day. The immediate cause was an Energy Department report showing
    that “in the last month, domestic oil demand has fallen to its lowest level
    since June 1999, at 18.6 million barrels a day,” as the New York Times reports.
    The sharp drop in demand in the U.S., where oil prices are down about 9% from a
    year ago – “shows how deep the economic malaise is across much of the
    industrialized world now,” The Wall Street Journal says. “As the U.S.
    unemployment rate rises and retail sales and manufacturing orders slump, the
    world’s largest consumer of oil needs less crude to move goods, fly passenger
    jets, and transport workers to the office.”
    But oil’s drop in turn could help U.S. consumers weather the economic
    downturn, adding up to what economists describe to the Los Angeles Times as “a
    new economic stimulus package.” Similarly, winter heating bills are likely to
    be lower as the prices of natural gas and heating oil diminish. In addition to
    the immediate effects for consumers, the change of trajectory for energy prices
    – one of the biggest contributors to overall inflation in the past year –
    diminishes the inflation threat and could thus give the Federal Reserve more
    leeway to cut interest rates if needed, as the Journal notes.
    But not everyone is pleased with the cheaper oil. OPEC member states Thursday
    “agreed to meet next week in Vienna to weigh a production cut, in a bid to firm
    up prices,” as the Journal reports. “The cartel, supplier of nearly 40% of the
    world’s oil, had planned to hold an emergency session in mid-November, but the
    plunge in prices has spread alarm among countries like Nigeria and Venezuela
    that have grown heavily dependent on rising crude revenues.”

  4. 4
    Sambone Says:

    As Market Slides, OPEC Seeks Pricing Power


    NEW YORK — Thirty-five years ago, against the backdrop of the Yom Kippur War, OPEC’s Gulf members announced a unilateral jump in crude oil prices to $5.12 a barrel, shattering traditional relationships with multi-national oil companies.

    “It was the first move by member countries to exercise their sovereign right to determine the price of the natural resources,” according to an official chronology published by the Organization of Petroleum Exporting Countries. “From this point on, OPEC assumed the power to consider and set prices unilaterally for its oil.”

    The group’s hard-line stance and the Arab Oil Embargo triggered the first oil price shock. But even OPEC doesn’t believe it has unilateral price setting power now.

    OPEC had little time for anniversary celebrations. Instead, officials were burning up the telephone lines to rush forward talks on how to halt a precipitous slide in prices, which have fallen by more than half since the record highs of early July, and 31% in October alone.

    Ministers, who often admonished journalists for short-handing OPEC’s “extraordinary” meetings — those outside the two-a-year scheduled sessions — as “emergency” meetings, sounded the sirens and sent up flares Thursday, bringing the talks forward to Oct. 24 from the Nov. 18 date set just days ago.

    Price Now 20% Below Year Ago
    Crude oil futures in the U.S. slid by nearly the value of OPEC’s inflated prices back in 1973. November delivery Nymex crude lost $4.69 a barrel, or 6.3%, to $69.85 a barrel, the lowest price since Aug. 23, 2007. Prices lag the year-ago level by nearly $18 a barrel, or more than 20%, the biggest percentage gap since late June 2007.

    The wheels have come off the gravy train for OPEC as prolonged high prices have slashed global oil demand. And the slide has been greased by the credit crunch tsunami that started in the U.S. housing market and has now sent tremors through the global banking and finance sector.

    Global oil demand in 2009 is expected to inch higher amid recession fears and sluggish economic growth. It’s not farfetched to consider global demand could decline for the first time on an annual basis since 1983.

    Instead of talking of boosting oil prices, which could compound problems and cause further shrinkage in demand, OPEC officials speak of the need to balance the market. OPEC knows that fast-building inventories in consumer countries, teamed with slower growth, is a sure-fire recipe for sustained price weakness.

    But the code words belie the fact that many in OPEC are desperate for oil revenue. Iran and Venezuela need prices closing in on $100 for their budgets, while the Saudis can get by on half that level.

    In the U.S., the world’s largest oil consumer, oil demand in the latest four weeks is down 8.9%, or 1.82 million barrels a day, to 18.6 million barrels a day, the lowest level since June 4, 1999, according to the Energy Information Administration. Through Oct. 10, demand this year is off 5%, or 1.1 million barrels a day. On an annual basis, that would be the biggest drop since 1981.

    1 Mln B/D Minimum Cut
    Despite continued recovery of Gulf Coast refineries from hurricanes Gustav and Ike, U.S. crude stocks rose 5.6 million barrels in the latest week and are near year-ago levels. Measured against refinery demand, stocks are up slightly against the five-year average.

    EIA’s report of the sizable stock build deepened the sell-off. The value of all that oil in tank, marked-to-market at last Friday’s prices, was just under $24 billion. At Thursday’s settlement, the value of the stockpile was about $21.5 billion — a loss of 10%, caused mostly by simple knowledge of its existence.

    Analysts are ratcheting up estimates of how big an ax OPEC will have swing next Friday at its Vienna talks. The 1 million barrel-a-day level from current output floated in recent weeks is now thought of as a minimum level.

    Still, the question of who in the group actually will cut output comes to the fore.

    After OPEC’s talks just five weeks ago, the Saudis made it clear they didn’t intend to cut output as implied by the OPEC pledge to stick to production quotas, seized upon by price hawks as an effective cut of half a million barrels a day.

    The Saudis made clear they would continue to meet customer demand, the term used to justify a rise to a 25-year high of near 9.7 million barrels a day this summer, on direct order of King Abdullah. But customer demand surely has fallen since September, allowing the Saudis the fig leaf to trim supplies somewhat and come to the table next week as a good OPEC citizen.

    Still, if actions don’t take, and prices fall to $60 a barrel, the level where companies start rethinking projects, OPEC could still find itself at a November meeting to take another crack at the market emergency ahead of scheduled December talks.

    (David Bird, senior energy correspondent for Dow Jones Newswires, has covered global oil markets for more than 20 years.)

  5. 5
    BirdsofpreyRcool Says:

    Bond market opened much weaker this morning. But, not a lot of volume trading, so not particularly meaningful.

    The debt market seems to be holding it’s breath, ahead of next Tuesday’s Lehman CDS settlement. There are wildly-varying views on that the impact and dollar amount of the CDS settlement will entail. No one knows who holds what. No one knows who will be able to settle their obligations and who is going to be in trouble. Banks don’t want to lend to each other ahead of that settlement date.

    So, if we get through next Tuesday without any major credit blow-ups, it could set up for a heck of a rally in the bond markets on Wednesday. Or, maybe Tuesday… not sure exactly when the market will get to see the results from the Lehman CDS settlement (as they are all private market transactions).

  6. 6
    Sambone Says:

    Nymex Crude Pares Gains As US Stock Futures Down

    [Dow Jones] An early bounce in Nymex crude loses momentum, but expectations of an OPEC oil output cut at an emergency meeting next week still support prices. US stock futures have slumped, with Dow Jones Industrial Average futures declining 88 points to 8878 — a negative portent in an oil market that’s been tracking equities of late. Nymex Nov crude +67c at $70.52/bbl.

    Crude Up On Equities, But Demand Weighs
    By Lananh Nguyen

    Dow Jones Newswires

    LONDON — Crude oil futures traded higher Friday in London, propped up by rebounding equity markets and on expectations that the Organization of the Exporting Countries will cut production at its meeting next week.

    Gains were trimmed after prices rose over $3 earlier in the session, and many participants suggested the bounce wouldn’t last.

    “The general sentiment remains negative, as investors are still haunted by fears of a sharp slowdown in demand for energy due to cooling of the global economy,” said Nimit Khamar at Sucden Research in London.

    At 1044 GMT, the front-month December Brent contract on London’s ICE futures exchange was up $0.75 at $68.59 a barrel.

    The front-month November contract on the New York Mercantile Exchange was trading $1.09 higher at $70.94 a barrel.

    The ICE’s gasoil contract for November delivery was up $0.50 at $675 a metric ton, while Nymex gasoline for November delivery was up 368 points at 165.88 cents a gallon.

    Crude oil futures strengthened in line with European equity markets, which were cheered by a late-Thursday Wall Street bounce.

    Prices were also buoyed in the short term by OPEC’s decision to move forward its emergency meeting to Oct. 24 from Nov. 18. — a move many market participants interpreted as a signal that OPEC would trim production in an effort to shore up falling oil prices.

    “Volatility is still high, but with OPEC moving its meeting ahead, I think we are getting closer to the bottom,” said Olivier Jakob, managing director of Swiss-based consultancy Petromatrix.

    If OPEC confirms an output cut next week, prices would become less overvalued and move closer to a fair level between $60 to $70 a barrel, Jakob said.

    “Economic activity is slow but commodities have now fallen to multi-year lows and with the prospect of imminent OPEC cuts we could start to see the consumer (airlines etc.) starting to be a bit more aggressive on the hedging programs.”

    But further downside for oil could return soon, participants said, with negative sentiment, recession fears and uncertain equity markets likely to keep oil markets on their toes.

    “Weaker (macroeconomic) data is negative for commodities and growth expectations — Nymex WTI crude oil is homing in on its upward trend line from 2002,” said Naeem Wahid, currency strategist at the Bank of Scotland. He said Nymex crude futures would likely test their weekly support trend line at $62 a barrel in the coming days.

    However, any potential output cuts by OPEC might not be enough to end the recent selloff in oil prices, said Stephen Schork, editor of the Schork Report in Pennsylvania. Nymex crude oil futures dropped to a 16-month low on Thursday.

    “One gets the sense OPEC is beginning to panic,” and the earlier meeting date demonstrates the group’s fear that prices will “tank” below $50 a barrel, Schork said.

    Sluggish global demand may continue to outweigh any production cuts by OPEC, said Glen Ward, a broker at ODL Securities in London.

    “Although this (early meeting) will obviously lift prices in the short term we must remember that they are considering cuts because of the huge fall in demand and they do not have a good record of sticking to their limits,” Ward said. Technical charts also painted a bleak picture for prices, he said.

    –By Lananh Nguyen, Dow Jones Newswires

  7. 7
    BirdsofpreyRcool Says:

    IG bouncing between 200 and 202 without a lot of volume. Last night, the index closed around 197 1/2.

  8. 8
    BirdsofpreyRcool Says:

    IG 205 ahead of stock market open

  9. 9
    bill Says:

    Someone mentioned PRGN yesterday. Their charters are not with Cosco and Bunge. also, they have 2 ships coming back this qtr. Buulker rates are abysmal.

    Again I repeat, avoid all bulker stocks.

    A company today filed chap 11..more to come

    he Ukrainian, recently an emerging capesize charterer, also came to rue huge losses it racked up in the derivatives market.

    In the end the plunging dry-bulk market has affected the charterer as it took huge hits on subletting capesizes it had fixed for vastly higher sums.

    Constantin Voinarovskiy confirmed that the company filed for bankruptcy in Greece on Wednesday and is “close to being finished”.

    Asked why the company hit the rocks Voinarovskiy said: “Many people are suffering problems right now. Today shipping is experiencing big problems.”

    When it was put to him that many dry-bulk owners are affected by the current bad market but have so far staved off bankruptcy, Voinarovskiy said of ICI’s case: “It was all a question of timing. Everybody has got their own level of resistance, certain amounts of cash that they can spend during this period [of low freight rates].”

    The ICI employee said disastrous sublets were also one of the reasons behind the bankruptcy declaration, exclaiming: “The markets are too bad”.

    He said ICI this year fixed some capesizes for in excess of $100,000 a day but has lost out in today’s market.

    Voinarovskiy also confirmed that the company had made big losses in the dry-bulk derivatives market but was not at liberty to divulge the exact amounts.

    Appearing remarkably upbeat despite the recent development, Voinarovskiy said of his ICI colleagues: “People are free to go whenever they want. I think I will soon begin to look for a job.”

    He also confirmed that ICI was the charterer of the 149,500-dwt suezmax Olinda which has been handed back to OceanFreight of Greece prematurely by mutual consent.

    OceanFreight said in Thursday’s announcement to the Nasdaq that the charterer, which it did not name, will pay it $1.2m in compensation for the early redelivery. Whereas Voinarovskiy could not confirm whether this amount has already been paid he added: “Most of the positions we try to close amicably. Something is better than nothing.”

  10. 10
    zman Says:

    SLB pretty cautious. Not answering a lot of questions as usual but it would help to be a little help in this environment. No interest from me on the stock for now.

  11. 11
    zman Says:

    Delay on the BPZ, then down 14% this morning. Huge well the other day and conf call I was not aware of last night. No rush to get long but I will listen to the replay and get on top of an update here over the weekend.

    Bird thanks for the update. On the IG relative to the indexes, I assume you are seeing a lag in the response of the equity indexes, seem to track awfully close.

  12. 12
    zman Says:

    CHK only green stock in energy land I see. Look fast.

  13. 13
    zman Says:

    SLB just getting crushed now. Too cautious. Obviously glad I did not play with it off 10%+. There’s not going to be a coordinated effort on the analyst community to move the stock. The guys who are negative are going to stay that way based on what I’m hearing. The optimists probably stay that way too. Could see some bottom fishing later but it will pretty stressful. Not going to play and this does not make me think I want to own the other plays for Monday. I’d probably take puts on WFT as their margins have got to be under real pressure but that train left the building awhile back (stocks are already been slammed).

  14. 14
    zman Says:

    Bill – thanks for 9. I think I need to look at the balance sheets and cash flow for the group and see if we can gauge who will survive. The winners may pick up ships on the cheap later and emerge much stronger.

  15. 15
    BirdsofpreyRcool Says:

    z – the bond market will typically be a step ahead of the stock market in a downturn. Bonds called this crash a year ago last July… and as stocks rallied to their high in October 2007, the bond market continued to head south.

    On an intra-day basis, I usually see bonds leading stocks by a little. Doesn’t always work, of course. But if i can’t confirm a rally or decline in stocks with a similar move in bonds, the stock move is suspect.

    Although bonds lead stocks to the downside, historically a sustained stock market rally will eventually pull bonds up. That is one way this current credit crisis can end… if real investors start to pile back into stocks and defend against the lows, the bond market will come around.

    Absent an optimistic stock market, look for an increase in companies able to issue debt. We saw a little sliver of sunshine in the muni market over the last two days. Investors figured out that the yields were way too compelling and several issuers were able to sell some fairly large amounts into that optimism.

    Lots of moving parts. The one thing we do know is that someday, this market will turn around. Probably 6 months before housing bottoms out.

  16. 16
    zman Says:

    ZTRADE: $10KP Trade

    Added EOG November $75 Calls (2) (EOGKO) for $6. This is one of the low debt, large cap E&Ps I’ve been stalking. So far they have not officially reduced their capital budget but I expect them to shortly. Production growth will likely remain double digit on a year over year basis and this long lived big cap just about never trades at this kind of forward discount. While a lot of things are trading at record low forward multiples and you can’t simply take the estimates at face value as prices will cause them to come in somewhat their strong balance sheet and ability to high grade their drilling portfolio may put them high on the list of select names that investors will be looking for when interest returns to the sector.

  17. 17
    BirdsofpreyRcool Says:

    Pretty awful consumer sentiment index just printed. 57.5 (vs 65, expected)

  18. 18
    tomdavis12 Says:

    Z: Nice call yesterday on EOG. What is their gas – oil mix?

  19. 19
    Fiveanddimer Says:

    BOP re 15: again my experience confirms what you are saying about the muni market. I was able to get some respectable bids yesterday, much to my surprise.

  20. 20
    BirdsofpreyRcool Says:

    Not a lot of conviction and flow in the bond market today… except for the homebuilders, which are a lot lower, of course. As this is Friday and we have the Lehman CDS settlement next week, I don’t think volume will pick up. So, stocks are a random walk today (if looking to credit for direction). I’ll stay quiet, unless something worth mentioning occurs.

  21. 21
    zman Says:

    Re EOG

    86% natural gas (if you count the NGL’s as gas which I do and think you should). But they are getting a little oilier each quarter with the Bakken and a few other named and un-named plays.

  22. 22
    zman Says:

    CHK at $20. Hmmm…

  23. 23
    elduque Says:

    Any news on CHK, or just a short covering rally or ???

  24. 24
    BirdsofpreyRcool Says:

    Thanks, fiveanddimer. Munis are not really my area, so your comments are helpful.

  25. 25
    zman Says:

    El-D – nothing I see, a little further faith in management over the last 2 days has potentially been established.

    ZTRADE: $10KP Trade

    Out of the 5 October $20 Calls for $0.65, bought at $0.40 on Wednesday. Still holding the January $25s.

  26. 26
    zman Says:

    Five and Bird. Thanks much for the ongoing debt market comments. Not my world but it obviously influences it.

  27. 27
    zman Says:

    Energy wants to move higher today, market willing. Little different sentiment seems to be getting established this week.

  28. 28
    BirdsofpreyRcool Says:

    Typically, the equity market doesn’t have to bother with watching the debt market. Much like a person doesn’t have to worry about whether his backbone is there when he wants to stand up.

    However, about every 10 yrs, or so, the debt market does something that can really mess up the equity market (and give everyone a heck of a pain in the back). This time around, it’s the Mother of All Backaches. Not only is it extremely painful, but we have to worry about whether the backbone of the market is actually broken (this is a new twist for those of us who follow bond mrkts).

    To continue with the analogy, until we can fix what is currently a broken back, the entire market is paralyzed.

  29. 29
    Dman Says:

    Z – any particular view on XCO or KWK here?

  30. 30
    zman Says:

    Thanks Bird, I find that surrounding myself with other disciplinarians is immensely helpful to my trading.

    Dman – re XCO I think the debt burden will act like a cap on the stock until the debt markets free up so this may be early. For the common I have no problem buying it here but I am not.

    Re KWK – no change from the other day…its cheap for it but with oil this low and NGL’s trading off oil I would highly suspect they will see substantial field margin compression (over all $/Mcfe on the top line falling harder than you would think than just attributable to just the drop in gas prices vs a no reduction in opex per Mcfe just yet). Again, for the common, I like a lot, just not ready to buy common yet. Hedges I recall are around half of expected production and I don’t know what their 3Q, 4Q hedge was/is so maybe I’m overestimating the near term slide in top line.

  31. 31
    Jay Reynolds Says:

    Two new presentations from Matt Simmons


  32. 32
    zman Says:

    Re service names. We what know:

    North America will slow down on the natural gas side.

    The wells that do get drilled will likely be more complex, higher return wells.

    This means, in general terms, less work for rig companies. NBR, HP, UNT, BRNC, PKD…

    There is probably a little less work for SLB, HAL too as things get shelved and delayed.

    Less bits, less mud (SII)

    But the market is forward looking and will begin to anticipate a bottom sometime after the top has formed but well before the trough is reached. This brings into focus names like NBR and UNT who have high horsepower, horizontal rigs capable of drilling the complex wells. I think my strategy will be to wait through Monday’s service calls and then take a small position in one or both (most likely NBR). They have been beat up rather badly.

    I’m also looking offshore at RIG pretty hard. All indications are deepwater rates and contracting are holding up very well. Jackups less certain. May put negative spin on likes of ESV and maybe RDC.

    Thanks Jay, will have a look.

  33. 33
    zman Says:

    Nice move in the group compared to the now green market. Tossed by Oct CHK a little early but that’s a problem to have and I still have those Jans.

    EOG doing better than I would have thought.

    CVX continuing to perform despite a lag on XOM today.

  34. 34
    BirdsofpreyRcool Says:

    The IG index has settled back to +202.

    The debt market appears to be done for the week. It will neither confirm (nor deny) any further moves in the stock mrkt. So, equities won’t fall off a cliff today (and might even rally). It’s a ramdon walk. But, we don’t appear to be headed for the edge today.

    Good trading, all.

  35. 35
    elduque Says:

    TED spread dropping. Tbill rates rising.

    CHK got financing. Panic and fear is subsiding in the credit markets.

    Chearleaders on TV must have been long a lot stocks, as they sure are nervous.

    This morning news on housing starts is actually good news in the long run. We had to quit building before the housing market can stabalize.

    Highly recommend reading John Hussman at http://www.hussman.com, latest weekly. He has bearish for the last 10 years and now thinks market represents value.

  36. 36
    rlogan1301 Says:

    z – your timing on cvx and eog is amazing…

  37. 37
    zman Says:

    RL – feels like luck. This market needs a prozac.

  38. 38
    zman Says:

    Coal = nice pop today.

    ZTRADE: $10KP

    Added (1) FSLR $210 January 2009 Call for $10.

  39. 39
    BirdsofpreyRcool Says:

    Great article, highlighting some key differences between how Aubrey McClendon and Tom Ward chose to deal with margins calls. (Guess which one picked the better option for shareholders…)

  40. 40
    BirdsofpreyRcool Says:


    here’s the article.

  41. 41
    zman Says:

    Thanks Bird. I’m not normally one for more controls but it would be nice to see margin buys disclosed by insiders. If you pledge it for something else, do you really own it? The buys were pretty public, the details of what paid for them was less transparent and I had assumed they were from the well program cash flows before all this came out. You can argue that the well program more strongly aligns Aubrey with the company or that its a conflict of interest all day long.

  42. 42
    BirdsofpreyRcool Says:

    IMHO, no officer (Form 4 reporting entity) should be allow to margin his stock. That’s not really “buying” the stock, it’s gambling with your company’s equity. At the same time, you’re misleading the market about what you have at stake. Frankly, I’m surprised it’s allowed. And I’m a free-mrkts person.

    With the CEO paycheck comes responsibilities to protect the company and it’s owners at the highest possible level. What’s “ok” for other people to do, is not ok for officers of a company.

    JMHO, of course.

  43. 43
    zman Says:

    Cupet, Cuba’s E&P company, claims offshore reserves in excess of 20 billion barrels. This is more than double prior estimates. Not that I buy the estimate and I’d say that it is in fact outlandish to make the claim given the lack of significant drilling to date but it is a shame the U.S. can’t participate there.

  44. 44
    elduque Says:

    Z I wonder if it would be possible to have a recap of the MLP’s

    It would be really helpful to be able to add some of the better ones in my portfolio. I really don’t know how long the market is going stay down here and I certainly can use the cash flow.

  45. 45
    zman Says:

    El = plan to do that soon.

  46. 46
    zman Says:

    Other stuff to think about on a Friday:

    Army Worms:



    It would seem to me if this becomes a real problem MON and ADM stand to sell more seeds to cover the anticipated crop losses. Could eventually factor into gasoline prices via ethanol as well so I’m not completely off topic.

  47. 47
    zman Says:

    SLB now the only thing of size down in energy land as the Dow heads up 100.

    What’s that IG at now?

  48. 48
    BirdsofpreyRcool Says:

    IG 199

    not enough flow in bonds to take much away… except they don’t appear to be fighting the stock rally. so, we should hold onto green today.

  49. 49
    zman Says:

    Oil up $4 per barrel.

  50. 50
    BirdsofpreyRcool Says:

    z – didn’t you buy short-dated CHK calls the other day? the ones that, like, expire today?

  51. 51
    Jay Reynolds Says:


    Oil Field Investment Steadier Than Service Stock Rout Implies

  52. 52
    zman Says:

    Bird – yes, that was #25 above. Punted a little early, still holding the Jan 25s there.

  53. 53
    BirdsofpreyRcool Says:

    it was just pointed out that JPMo seems to be lending heavily in the term inter-bank market. this is pushing the cash TED down to 358… more than 100 points from it’s closing hi of 463, just 1 week ago. it’s widely thought that inter-bank lending is where the credit market starts to thaw. so, perhaps we are seeing the first crack in the ice.

  54. 54
    BirdsofpreyRcool Says:

    IG 196 !!

  55. 55
    cargocult Says:

    what is IG?

  56. 56
    BirdsofpreyRcool Says:

    IG = shorthand for the current Investment Grade Credit Default Swap Index. We are using it as a bond market indicator. Lower = better, as that means bond spreads are tigher. Bond spreads tighten when more people want to buy than sell. It’s also an indication of “risk” in the fixed income market. Before all this started, the IG index traded around 60. It will take years to get back to 60. But anything tighter (lower) than 150 is an indication that some of the fear is leaking out of the bond market.

    This down-cycle started with fixed income dropping through the floor. It will have to end with buyers returning to the fixed income market. That’s the only reason to watch the IG index. (In normal times and normal markets, equities could care less about the bond market. As it should be.)

  57. 57
    cargocult Says:

    Can you trade the IG?

  58. 58
    zman Says:

    Thanks Jay

    Pinning action setting in, looks to set hard against late to the game put holders.

  59. 59
    BirdsofpreyRcool Says:

    cargocult — absolutely. it’s what fixed income portfolio managers buy (or sell) to hedge their bond portfolio or take outright “bets” on the direction of the BBB-rated bond market. So, it’s used like the options market (i.e. buy a put to protect a long-position, a hedge; buy a call to bet on the upside of a stock).

    But, it’s the playground of institutional investors. And it is a privately-negotiated transaction, handled off the fixed income trading desks of the major banks. You can not pull up a reliable “quote” on the index. You have to see the bid/offers coming directly off the trading desks.

    The Treasury is trying to “fix” that by requiring CDS to trade on exchanges. That will make the trading more transparent and allow regulators to (for the first time) actually see how many CDS are outstanding. The CDS market represents several multiples of the underlying bond market. So, it is yet another way that “leverage” crept into our financial markets over the last 10 years.

  60. 60
    ram Says:

    ZMAN – Unfortunately I have been shying away from the recent trades because of the flood of scuds in the last three months. I have asked you before about your comfort level and it appears you seem to be more positive in E&P land. I hope to join you soon before the train pulls away from the station.

  61. 61
    BirdsofpreyRcool Says:

    IG 194 1/2

  62. 62
    zman Says:

    Ram – so you inquired about the CHK $20’s yesterday for my health? LOL.

  63. 63
    ram Says:

    No – that was the only one because it had minimal risk. I did buy at 0.30 and sold at 0.70. I hope you are healthy as well.

  64. 64
    bill Says:

    on bulkers-another one handed back-oldenoff is a solid charteror but they are reneging too………….

    Star Bulk Carriers has been left holding the bag on a capesize fixture as Industrial Carriers Inc (ICI) heads for bankruptcy.

    The Nasdaq-listed bulker owner says that ICI has assigned the subcharter of the 175,000-dwt Star Beta (built 1993) to Star Bulk, the vessel’s owner.

    But the subcharterer, Germany’s Oldendorff, is calling the assignment “an effective repudiation,” Athens-based Star Bulk says.

    As TradeWinds reported Thursday, Ukraine’s ICI filed for bankruptcy as disputes erupted in US courts over unpaid charters and as it suffered in the derivatives market. (Click here for the story.)

    Star Bulk is the second Greek owner that has acknowledged seeing a chartered vessel handed back amidst ICI’s troubles.

    Athens-based OceanFreight, also listed on the Nasdaq, said Thursday that it and ICI agreed to terminate the charter of the 149,500-dwt suezmax Olinda (built 1996).

    ICI had chartered the Star Beta for two years at $106,500 per day. The Ukrainian company then relet the ship to Oldendorff for $130,000 until February 2009.

    Star Bulk says it agreed to the reassignment of the subcharter in exchange for releasing ICI from its charter of the vessel.

    “Star Bulk believes that the assignment is valid and that its position will prevail in this dispute,” the company said in a statement.

    An Oldendorff spokesman was not immediately available for comment.

  65. 65
    zman Says:

    I will be if I don’t hear flood of scuds. I know it rhymes but really squadron of scuds is more imports as they do fly until they crash and then there’s the alliteration. It has been a tough market.

  66. 66
    cargocult Says:

    Bill, I appreciate the updates on dry bulk shipping. I own DSX and NM. Any thoughts?

  67. 67
    zman Says:

    KOL, the coal ETF has options now. Its kind of an oddly composed ETF with both coal producers and coal consumers in it but it trades with great volatility of late and has been crushed as the miners have tumbled.

  68. 68
    zman Says:

    KOL fell from $60 to 16, now 19.5.

  69. 69
    zman Says:

    Huge swings on the day today. Very head fakey

  70. 70
    mahout Says:

    Z #65,

    How about “a flood of scuds that land with thuds”? “Squadron” makes me think of World War I biplanes in dogfights and going down in flames. Hmmmmmm, maybe you’ve got it right after all.

  71. 71
    BirdsofpreyRcool Says:

    crazy day. anyone care to bet on where the Dow closes today? I think +85.

  72. 72
    bill Says:

    i like both companies dsx and nm

    the sector really stinks right now but those are 2 good names

    im worried about defaults on the long term charters and resets

    id sell into strength

  73. 73
    tater Says:

    Had to go spend a couple days in the woods to get my head clear. Too wound up about politics to trade properly. This volatility is heaven for what I do, and I should be more aggressive as the trading is back to technicals. Time to shut up and just get back to making money.
    That said, looks like the defense of oil at $68ish could lead to a bounce into the end of the year, followed by further weakness. If that happens (big if) you’ve got yourself a nasty head and shoulders on the weekly WTIC chart come 1st qtr ’09.

  74. 74
    ram Says:

    ZMAN – Do you still think CHK might move up in the short run?

  75. 75
    mahout Says:

    BOP #59,

    Great info and explanations and you touched on one feature of the great CDS dilemma and tragedy that people don’t generally talk about. That is,”The CDS market represents several multiples of the underlying bond market”. This is an unnecessary tragedy with far reaching and undeterminable consequences. That the Federal and State governments would stand by and let banks change themselves by a wave of the wand into unregulated insurance companies is mind-boggling to me. As you well know, insurance companies are regulated sixteen ways from Sunday by State insurance departments, with all sorts of capital and investment requirements, including what products they can sell and qualifications for being allowed to sell insurance in the first place. The Feds should have called a halt to it. The States should have called a halt to it. And here we are in this fearful mess. Needless to say, I am for the outlawing of all the cursed CDS’s issued by anyone other than a properly regulated insurance company.

  76. 76
    zman Says:

    Re CHK. Depends on your definition of short term. I have no idea next week or two. But out a month or more I would suspect it rallies.

  77. 77
    ram Says:


  78. 78
    BirdsofpreyRcool Says:

    mahout — agree.

    one thing to point out, tho, AIG was almost brought down by writing CDS too. And they are (obviously) an insurance company. So, it’s not “regulation” per se, that is missing here. But the right regulation (driven by even the smallest amount of common sense).

    it’s the total lack of common sense here that is so disturbing.

  79. 79
    zman Says:

    EOG was up $7 an hour ago, now down. Lousy, whim stricken market.

  80. 80
    zman Says:

    beer thirty

  81. 81
    zman Says:

    Have a good weekend gang!

  82. 82
    BirdsofpreyRcool Says:

    At best, today was a random walk. But, who’d of thought that walk would actually lurch around like a drunken sailor on the deck of a heaving ship.

    Yo ho ho and a bottle of rum!

  83. 83
    BossmanG Says:

    thanks again for all the great work this week z & all! enjoy the weekend

  84. 84
    mahout Says:

    BOP #78,

    You are so right about AIG and it is the RIGHT regulation with common sense that must be applied. That is why in my #75 I said a PROPERLY regulated insurance company. AIG was definitely not properly regulated. Of course, there is no hope at all if duly constituted regulators whether State or Federal do not do their jobs, which is what happened here. They had the authority and the power to step in and stop the banks and rein in AIG but they did not do it.

  85. 85
    BirdsofpreyRcool Says:

    mahout – yep. the wrong regs are worse than no regs. sad thing is, i don’t want the gov’t to look over the shoulder of every private business, every second of the day. the CDS market is fairly new, having really taken off in 2003. but someone should have seen the red flags.

    it’s not just one thing. it’s a whole bunch of things… but, it comes down to too much debt. at every level. CDS, banks, i-banks, gov’ts, individuals.

    we are seeing a massive, global movement to pay down debt. all at once. it’s never pretty (to say the least) when everyone tries to hit the doorway at once. but slapping on regulations after the lesson was learned gets us really bad stuff, like Sarbanes-Oxley.

    now, let’s go drink !!

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