03
Nov
TGI November Plus Good GMXR Results
Sentiment Watch: Cautiously optimistic as we enter a new month but the financial market's problems are far from over and opening day has a decidely lackluster tone to it.
Housekeeping Watch: I'll be out from 9 to Noon CST for a funeral.
In Today's Post
- Holdings Watch
- Commodity Watch
- Earnings Week 3
- Stuff We Care About Today
- Odds & Ends
Holdings Watch:
- The Wiki Tab is updated.
- $10KP Watch: The $10,000 portfolio started on October 15th finished the month valued at $19,200 with $10,200 in cash.
Commodity Watch
Crude oil rose nearly 6% last week as further signs of OPEC's willingness to cut production to defend a price close to $70 became more evident, The dollar showing some small sign of not going to the moon this week didn't hurt the small rally either. It feels like we are forming a bottom. Any lower and we'll be seeing more than just major project delays. This morning oil is trading off about 1% towards $67.
Natural gas rose 5% last week despite a somewhat largish injection to gas storage. Here too, a bottom appears to be forming but any milder than normal late Fall weather will result in a longer injection season and further softness in prices. This morning gas is trading of $0.10 to $0.15 back towards the mid $6s.
- Weather Watch: HDDs of 99 vs 93 expected and 92 last week which should prompt an injection in the 25 to 30 Bcf range. Looking to this week however, a warming trend has taken hold and degree days are expected to fall back to 71, not a great near term move for gas prices
- Gas directed rigs rallied 23 last week. Probably not to worry as rig counts can contain a bit of noise in them but I'd rather see them falling quickly as it is going to take some time for the high growth and
Earnings Week 3. This week get more results from the mid and small cap E&Ps as well as RIG and a few of the dry bulks which have been absolutely smashed. 1Q results set off a massive rally in the E&P group, 2Q did quite the opposite despite (or perhaps because of increasing production growth rates) and so far 3Q08 has yield a mixture of results with a focus on the balance sheet outweighing in double digit growth mania of yore. I'll be treading lightly and taking profits in these as they come as this is no time to be a hero. I will likely listen to most of these calls but only take new positions in (PQ - small pre call if at all) and (PXD - pre call as that story is strong and the stock, well, too cheap for words).
Stuff We Care About Today
Shell To Put Screws To Oil Service.Shell commented that it's time for longer term service contracts to be negotiated at lower prices in this weaker service demand environment. I've been shy about service as activity slows due to prices and this will add to my caution.
(GMXR) Reports Strong 3Q08 Results
- The 3Q Numbers:
- Production 38.2 MMcfepd (3.5 Bcfe for the quarter), 91% gas
- Revenues of $36.4 mm vs $33.1mm expected
- EPS of $0.53 vs $0.50 expected
- CFPS of $1.33 vs $1.31 expected
- LOE per Mcfe of $1.17...good.
- Balance Sheet:
- Revolver: added $50 mm to bring its borrowing base to $190 mm and sees having $160mm of this untapped at year end.
- Debt: 36% net debt to total cap, very manageable, good coverage (over 10x EBITDA to Interest)
- Haynesville Activity Update: Horizontal program kicked off.
- They've drilled but not yet completed their first horizontal Haynseville/Bossier well. It's a 2,250 foot lateral well, expected to be completed in late November with an 8 stage frac (with as much as 4 mm pounds ceramic proppant so not a cheap first well but they are obviously going for full potential on their first outing).
- The next wells are permitted for longer laterals (3,700 feet) and will see 12 stage fracs)
- 2 more hortizontals are drilling here (reach TD in late December) and another 2 will spud during November.
- Plan to keep 4 rigs drilling horizontal Haynesville wells in 2009 (already contracted the rigs for 3 years).
- 38,455 acres in the Haynesville/Bossier play, up from the 27,500 I last showed.
- If half of the acreage turns out to be prospective and making the assumptions that a bit general but safe probably safe given the results to date this would expose them to nearly 1.2 Tcfe of net reserves, vs their year end 2007 proved reserves of $437.
- Guidance:
- Production: 30 Bcfe, or 100% over 2008 expected levels.
- $400 million capital budget which is just a little higher than the past quarter's run rate.
- For this they expect to drill 45 Haynesville/Bossier horizontals and the assumptions on those wells are conservative (3.4 MMcfepd IP!)
- Valuation: Cheap. 5x 2009 estimate cash flow per share for a company that's growing unit volumes 100%. I know I wrote last week (partly tongue in cheek) that production growth doesn't matter but this is a cash flow machine and the production estimate assumptions seem awfully conservative. If you just look at their enterprise value of $918 mm vs 2007 proved it makes little sense (2.11 per Mcfe ???!!!), and these reserves had no book Haynevilles potential. Start looking at those numbers and this one would be taken off the table were it not for the current financial markets
- Conference Call: today, 12 EST.
Other Stuff: I may put on a (TAN) call position today as an election play.
Odds & Ends
Analyst Watch: (RDS) upped to outperform at HBSC, (CVX) price target cut from $108 to $100 at Barclays, still outperform with the stock at $75. Goldman cut (HAL) and raised its rating on (SLB)
Housekeeping Watch: The Solar Multiples table from Friday's post has been added to the Odds and Ends tab at upper right.
Natural gas is also off today with some brokerage comments on the fact that there is still a lot of domestic onshore gas production growth. Well no kidding. E&P companies did not start considering budget cuts until Septembers, the data is for August, and back then they were drilling like there was no tomorrow. The growth is on trend with what we have seen in the preceding 12 months so there’s not really any surprise here. Maybe they’ll be shocked by September data too when it comes out at the end of November and shows down production due to Ike and Gustav.
November 3rd, 2008 at 9:16 amAs far as oil’s weakness goes this morning you have a couple of stories impacting price. Russia lowered its export duties to help local producers and this is seen as adding supply to the system although the cuts were pretty minimal and PBR announced Brazilian production reached a new high. That’s a legitimate downer on price but we are below the band OPEC wishes to enforce (oil now off $2.30 this morning back into the $65s) and I think another cut in production is likely this month if oil does not quickly regain and stabilize above $70.
November 3rd, 2008 at 9:19 amGoldman cut DO to neutral. That may provide me with a re-entry point.
November 3rd, 2008 at 9:20 amZ- what is your take on the recent Obama comments about Coal and that if a company wants to build a coal plant they will go bankrupt.
November 3rd, 2008 at 9:24 amRlogan – I think its vote getting without basis in reality. Which is really the chief role of any politician. Tell your base what they want to hear.
Coal provides 50% of U.S. generation. We have a 300 year supply of it. It has become much cleaner over the last couple of decades with the attention to removal of SOx, NOx, and particulates and some of the clean coal technologies greatly reduce the amount of mercury produced when it is burned. The fact of the matter is there is no quick replacement for it. And the U.S. demand for generation grows year after year after year. Something like 2 to 3% per annum is not out of line with reality during more normal economic times.
November 3rd, 2008 at 9:30 amTAN opening up 5%, will look for an entry in a bit.
SEA opening up 8% on the back of happiness over the DRYS numbers. I don’t see playing that name but EGLE reports later in the week and they have been impressive in the past.
Otherwise, small scale sea of red open.
November 3rd, 2008 at 9:33 amKOG – this one might be worth picking up for a short-term trade. After promising to spud theer first Bakken well this summer, KOG has become a waiting game to get their first rig. Promised in August, Sept, end of Oct… it will get there some time in the next two weeks, i would guess. The stock is basically a call option on the company’s ability to just DO SOMETHING. KOG has enough cash and equipment to drill about 3 Bakken wells, before they have to worry about funding again. Clearly, this is not a market you want to depend on for external funding… but it’s tough to see how the stock doesn’t move off it’s lows, once the new Unit rig actually gets to North Dakota.
Anyone else follow this one?
November 3rd, 2008 at 9:37 amBOP – I do loosely, agree with the call option comment and the thought. Looked like it wanted to move last on the WLL and BEXP news releases.
November 3rd, 2008 at 9:42 amFSLR approaching that first bit of resistance at $150. I’ll continue to hold for a bit. Electoral math looks decidedly in their favor, lol.
November 3rd, 2008 at 9:49 amKOG – SAC and NorthPointe have both been sellers since this summer. It’s not very liquid… so it crushed the stock price. From what I hear, SAC still has more to go. I will not argue that this mngt team is the brightest string of lights on the Christmas tree… but, they are honest and fair. Heck, given the weakness in the services sector, they could have reneged on the Unit deal. But, playing hardball is not their style.
Anyway, it’s not something you want to buy and forget. But, it’s tough to see much downside from here… and you’re buying a ticket to a ringside seat to well-watching in the Bakken. If their first well hits, the stock should be $2.50 or so. As this is their first well in the Bakken with a new rig, they will be extra careful (and slow). That said, i think the stock price will climb on anticipation, as the well is drilled. So, you don’t even have to wait around for actual results.
Just a thought.
November 3rd, 2008 at 9:51 amFSLR… looks like it cut through the $150 resistance like a hot knife through butter. Gutsy call, z.
November 3rd, 2008 at 10:13 amBidding some TAN, thin trader with very wide spreads, up 9% now on the back of FSLR.
Gotta run, hope to be back by the GMXR call. In the meantime, turn this red screen into green.
November 3rd, 2008 at 10:26 amend of an era… looks like the ethanol craze is over. too much capacity came on line at the same time that corn prices spiked. it was a hideous idea from the start… but, i digress.
Goldman Sachs just threw in the towel on the entire group. They just announced they are abandoning coverage of the entire US ethanol sector. Who wants to follow a bankrupt industry anyway?
November 3rd, 2008 at 10:36 amDid VSE go bankrupt?
November 3rd, 2008 at 10:37 amGotta run but watching EOG for an add today with earnings tomorrow.
November 3rd, 2008 at 10:39 amVSE (the 2nd largest ethanol producer) filed for Ch 11 on Oct 31st.
Blamed it on bad bets on derivative contracts…
The US govt spent $20 billion over the last 10 years to promote and subsidize the ethanol industry. That speaks volumes about gov’ts abilitiy to pick winning strategies. But, i digress again…
November 3rd, 2008 at 10:44 amBird-when you say “government” do you mean the Bush Administration? There is a difference.
November 3rd, 2008 at 10:51 amRe movement in DRYS. The fact that VALE has dropped its demand for a price increase on iron ore (Bloomberg) probably has something to do with it as well.
November 3rd, 2008 at 10:53 amcargocult — “govt” is govt.
Subsidizing the ethanol industry has been around since Jimmy Carter. GWB just spent it faster.
November 3rd, 2008 at 10:59 amEthanol is fine so long as it uses agricultural waste and not agricultural products.
November 3rd, 2008 at 11:00 amThe $10KP has a call position listed as HK Dec $20, but the symbol given (HKLW) is actually the $17.50 call.
Anyone know which is the actual position taken?
November 3rd, 2008 at 11:00 amVTZ – agreed. there is a place for biofuels. and the mrkt will figure out the best way to incorporate it.
November 3rd, 2008 at 11:02 amAnyone have any news/views on XCO?
(Ram, you out there?)
November 3rd, 2008 at 11:28 amHere!
November 3rd, 2008 at 11:34 amdman-$17.50
November 3rd, 2008 at 11:36 amHK DEC 20’s.
November 3rd, 2008 at 11:38 amZman or others. It looks like oil usually bottoms in January or February. Any thoughts about on oil going below 60, say mid 50’s. I also heard many commodity traders are no coming back in the market until after first of the year. Any thoughts about how this will effect oil price. Others welcome to comment also.
November 3rd, 2008 at 11:46 amSorry, on Tuesday, October 21, 2008 8:07 AM, the HK DEC 17.50’s calls (HKLW) were added for $3.10 in the 10KP.
November 3rd, 2008 at 11:54 amThanks cargo & ram …
November 3rd, 2008 at 11:59 amThe $10KP has the HKLW, December $17.50 calls in it. The Wiki is right and I will make the change to the $10KP spreadsheet tonight.
The regular account holds Nov $15 and Dec $20 calls.
November 3rd, 2008 at 12:34 pmBOP
In todays paper
http://www.theglobeandmail.com/servlet/story/GAM.20081103.IBREGULY03/TPStory/TPComment
On Fri. I wrote
November 3rd, 2008 at 12:35 pmEthanol climbed In July to .650 which is 45% higher than last year but still a small contributor overall.
Agreed that it’s a poor use of resources. But Considering that it contributed about 6% to gasoline production and reduced your reliance and import bill by $20Bn per annum I could see the argument for. LOng term, I don;t see this helping the farmers and shake out seems likely.
FSLR up $15 (10%) and I did not get the TAN calls off with the Solar ETF now up 15%. Given the spreads, I’m not going to chase it.
November 3rd, 2008 at 12:37 pmmd – thanks for the ethanol link. great article. scientifically, environmentally, and cost-effectively, corn-based fuel does not make sense. it doesn’t mean that bio-fuels don’t make sense… just food-based fuels.
we’ll get it all figured out, tho. I think the US is still the most innovative nation on earth. lots of smart people looking for lots of different paths toward energy independence.
November 3rd, 2008 at 12:47 pmZTRADE: $10KP Trade
Bought (5) EOG November $85 Calls (EOGKQ) for $2.15 with the stock off $5.80 on a weak day for the group. Earnings tomorrow. I expect them to reign in their capital budget forecast for 2009 based on where gas prices are now which will bring growth down to the lower end of their longer term growth range of 13 to 15%. Should be able to talk about some more big Bakken wells, their first Haynesville horizontal, and maybe some talk of the new oil shale plays.
November 3rd, 2008 at 1:01 pmI edited this from Friday
Looking through the monthly NG.
Supply and Consumption have been giving each other a good fight YTD. August cool weather allowed supply to catch up.
What domestic supply giveth, Canada and LNG taketh. SO it’s been a mild summer weather story.
Monthly Product supplied was 19262 from weekly of say 20200.
Inventory was 1,710 Up say 13 M.
November 3rd, 2008 at 1:08 pmThe variance is from “Other Oils 11 Mb and Unfinished Oils 2Mb”
Revised
Monthly CL
Monthly Product supplied was 19262 from weekly of say 20200.
Inventory was 1,710 Up say 13 M.
November 3rd, 2008 at 1:09 pmThe variance is from “Other Oils 11 Mb and Unfinished Oils 2Mb”
XOM trying to edge green.
November 3rd, 2008 at 1:13 pmBigJim – apologies for the late response to #27. My thought is oil will throw a lot of resistance at sub $60 prices and that while we could see $50 for a day, its not going to stay there long as OPEC and Non-OPEC sources will announce curtailments. On the traders not coming back until Jan 1, I heard the same but beginning of October last week as October is the FY end for many funds. Very hard to say but in my experience the talking heads are usually wrong.
November 3rd, 2008 at 1:31 pmI was asked via email why I chose the EOG $85s and not the $90s for less (giving more apparent leverage).
My response:
Good question, mostly gut. The $90s seem “too far out there” and when the 3Q results come out, the implied volatility on the calls so far out of the money will crash more than the closer ones so the two may not trade proportionally. But again, mostly gut and what I think the stock can do. I have a couple of sets of calls here now ($80s also).
Often going “too far out there” can burn you badly even if you turn out to be right. My just out of the money (at the time of purchase) FSLR calls are up about 200% now and I’m tempted to sell them just to lock profits. My $210 calls bought much lower than here but pre the big dip are still off about 40% despite all the extra time in them. They were hanging out there “too far” and once the quarter was out of the way, the potential premium shrank more than is explicable by the few days that passed.
November 3rd, 2008 at 1:40 pmXOM green. I will likely take my positions off the table here early this week.
November 3rd, 2008 at 1:41 pmAnyone know anything about FSYS? made a significant move today.
November 3rd, 2008 at 1:46 pmFSYS – rings a bell somewhere, will have a look.
November 3rd, 2008 at 1:48 pmFSYS will be big winners if the CNG conversion gets more momentum – probably more election noise.
November 3rd, 2008 at 1:55 pmNatural gas actually up again.
November 3rd, 2008 at 2:21 pmas you said ng up again.in fact up 30 cents off their lows and all the ng stocks ar at or neal ows on the days
i added more to chk and bot hk and chk calls
November 3rd, 2008 at 2:25 pmZman thanks for your response to #27. Have a good day.
November 3rd, 2008 at 2:26 pmoil down $4 now, OPEC not just going to sit by and watch it fall.
November 3rd, 2008 at 2:27 pmclr down 12 % …arent they reporting this week?
hnr reports tomorrow and stock is down 47 cents
chavez and obama will be great friends..cant hurt hnr lol (i hope)
November 3rd, 2008 at 2:29 pmYep, Nov 6, knew I was missing a couple of names (GMXR, CLR). I will likely trade them again as an unhedged, high growth, huge prospect inventory play into earnings. Still own some OOTM calls in the regular account but may add it for a trade to the 10 KP as oil looks overdone in the $60 to $70 range.
November 3rd, 2008 at 2:33 pmWaha day spot up to $2.9416 from $2.48 over weekend…looks like rockies pricing!
November 3rd, 2008 at 2:46 pmI’m waiting for the big cap gassy boys to say enough is enough. I don’t think there is any shame in rather loudly stating that there is no law requiring them to produce below their cost.
November 3rd, 2008 at 2:48 pmAnyone here think we will get a pop in the market no matter who wins? Slow day
November 3rd, 2008 at 3:17 pmZ: Do you have any opinion on the Canadian energy trusts?
Dividends high, if they stay there.
November 3rd, 2008 at 3:18 pmPopeye – slow day indeed. I think tomorrow will be volatile. I think we get a rally if the White House and Senate don’t go the same way (in other words, the market may not like a fillibuster proof senate).
RS – no, not really, I like the US MLP’s a little better as I understand their plays better since they play around in the same areas as many of my names too. The key consideration is distribution coverage ratios…the higher the better. I suspect the Canroys suffered the same fate as the master limited partnerships, that is, being sold by hedge funds who needed cash to meet redemptions.
November 3rd, 2008 at 3:21 pmI agree, thanks
November 3rd, 2008 at 3:25 pmWhere’s SAMB? I look forward to his wisdom in these difficult times.
November 3rd, 2008 at 3:26 pmRam – I suspect he’s on vacation, me too. I don’t mind the quiet though as the lack of news and sell down days create opportunities. The other day I joked that we only need 15 minute sessions in the morning and afternoon as it seems the goings on in the middle look very little like the start and finish. The sense of panic seems to be at bay but at the same time, optimism is confined to short lived spurts. Note the bigger cap names still seem to be the way to go in energy.
November 3rd, 2008 at 3:33 pmVolume looks to be super low today. Hopefully there won’t be any large sellers at the close to really tank this thing.
November 3rd, 2008 at 3:33 pmZMAN – WEO(World Energy Outlook) 2008 will be released on 12th. Could this give major e&p’s a boost?
November 3rd, 2008 at 3:41 pmFSLR at $160. Fair warning on those regular account $125 Nov calls. Not saying I will sell but damn.
November 3rd, 2008 at 3:42 pmZ – which PXD calls would you be looking at?
November 3rd, 2008 at 3:42 pmRam – I would think it could give oil and the bigger cap E&P names a boost yes as it will spell out another year of bigger than anticipated global reservoir declines.
November 3rd, 2008 at 3:43 pmDecember $30s, maybe Nov 25s.
November 3rd, 2008 at 3:44 pmng is up 35 cents from lows of day
next year strip up a nickel
November 3rd, 2008 at 3:44 pmRam – one additional thought to that. Not a big boost. The reason being, everyone who trades oil/oil equities is focused on the much more allusive demand figures and nothing good is expected there soon, so that puts a lid on the rally. OPEC will need to shift the ball back into their court (supply).
November 3rd, 2008 at 3:52 pmZMAN – Right to caveat with anticipated demand contraction. With manufacturing activity at 26-year low, people driving and flying less, being conservative with home heating, I can see global declines in oil reserves not being a major booster right now.
November 3rd, 2008 at 4:02 pmAny comments on EOG results just reported?
November 3rd, 2008 at 4:40 pmWill have them out in the next hour or so.
November 3rd, 2008 at 4:44 pmCRK results look very strong.
November 3rd, 2008 at 4:58 pmThe CRK results were due to some pretty nicely high nat gas prices during the 3Q. That is not likely to be repeated in 4Q.
November 3rd, 2008 at 5:38 pmEOG Quick Thoughts:
3Q Numbers:
Revenue: $3.2B mm vs $1.738 B expected. This would have exceeded estimates without a large mark to market hedge gain.
EPS: $2.34 excluding the big MTM gain vs $2.23 expected.
CFPS of $4.55 vs $4.88 expected. Estimates for cash flow were all over the place ranging from $4.12 to $5.49.
Production: In line with target. 82% natural gas but liquids continue to inch higher, mostly due to the Bakken.
Operations update: 3 nice wells announced in the Bakken, (2 of them north of 3,000 bopd), nice well in the Barnett, and the first rates announced out of Horn River, British Columbia. Very nice rates there. No update on oil shale projects will leave analysts wanting more.
Guidance:
2008: on target for 15% goal.
2009: 10 to 14% with the upper end focused on higher gas prices and the lower focused on the possibility that gas will be $7 next year and therefore includes an expectation that they slow drilling. This is in line with past estimates although 10% may be seen as a little low ball compared to past thoughts.
Balance Sheet: 10% net debt to cap, down from 12% last quarter. Nice and they remain on target to be net debt free (cash above their long term debt) sometime in late next year or early 2010, also, depending on commodity prices.
Conference Call: Tuesday, 9 EST
November 3rd, 2008 at 5:45 pm