T.G.I.F.

Posted on by zman

 

I sort of miss October. At least the last week of it anyway. All eyes on the October Jobs data today.

Jobs Watch:

  • October Jobs: 240,000 vs Down 200,000 expected
  • Unemployment Rate: 6.5% vs 6.3% expected and 6.1% at last count

Interesting Chart Watch: Sometimes if something is repeated often enough it becomes truth. Well, truth enough. Sometimes someone bothers to check the numbers behind a relationship and comes up with, well, a different truth. Here's a chart of U.S. employment vs gasoline demand. I went back to 1990 with monthly data so I could catch a couple of past swoons in employment. A couple of takeaways are that while jobs may fall more this recession than in past recessions, that does not necessarily mean people stock driving and that a slowdown in gasoline demand preceded the biggest portion of the job cuts. Anyway, food for thought.


Things that will put on a nice run if we can get the broad market out of V-Fib: GDP, SWN, HK. Here's some wrap up thoughts on the GDP call:

  • GDP -
    • Good quarter;
    • More solid balance sheet than most of its peers;
    • 30 to 40% production growth target next year;
    • falling operating costs;
    • first Haynesville news (4 wells) by next conference call

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Inventory Wrap
  4. Stuff We Care About Today
  5. Odds & Ends

Holdings Watch: The wiki tab is updated. The $10KP is now at $16,400 with 46% in cash.

SWN - $10KP TRADE - Added (5) DEC SWN $40 Calls (SWNLH) for $1.55 with the stock down 15% on no news and despite a better than expected gas storage number. The possibility exists that listeners on the HK conference call heard that differentials to Henry Hub had recently widened in the Fayetteville Shale and this led to some panic selling. My sense is that this is generally old news and that infrastructure build out will increase takeaway capacity from the region prior to year end and return differentials to something operators are more accustomed to.

FSLR - $10KP TRADE - Added (2) FSLR Nov $170 calls (HJQKN) for $4.10 with the stock down about $10 on the day.

Commodity Watch:

Crude oil was docked for another $4.53 yesterday to close at $60.77. Everyone is now talking $50 oil and the December contract tipped into five-handle land early last night before bouncing. I think OPEC will take increasingly vigorous action in coming days to boost oil as their recent comments don't suggest they feel responsible for the global economic backdrop nor do they think that their decision to cut production will have a significant impact on world economies saying the "financial markets will do what they will do". This morning crude is trading up slightly.

  • Nigeria Watch: Militants attacked a (CVX) pumping statinon in Nigeria today; doesn't sound like flows were affected but it is the first attack of note in the last few weeks.

  • OPEC Watch: Iran cut production by 200,000 bopd from 4.04 mm bopd in line with its recently downwardly revised quota.

Natural Gas initially plummeted with oil yesterday but was somewhat buoyed by a half-sized injection to storage (see next section). Gas ended the day off $0.27 at $6.98 but against a better market backdrop would likely have ended significantly higher. This morning gas is trading off about a dime.

Natural Gas Storage Wrap: EIA reports a 12 Bcf injection to storage, half the size the Street was expecting. There are probably one or two more injections left in the season. Based upon preliminary weather data we should see at least one larger injection next week followed by what may be the first withdrawal of the 2008/09 winter season.

Another Interesting Chart: Industrial Gas Demand Vs U.S. Industrial Capacity Utilization. I'm hearing/reading more chatter about U.S. industrial capacity leading to a slowdown in natural gas demand from the industrial segment. Here are the quick facts:

  • Industrial demand accounts for roughly 30% of annual gas consumption
  • Industrial activity has a lot less influence on industrial natural gas consumption than does winter heating demand (gotta heat factories somehow)
  • Gas prices have a lot more influence on demand than activity as seen in the following chart. Note the big drop in U.S. capacity utilization during the last recession and the lack of response in industrial gas demand. So the next time someone says "natural gas demand destruction" just show them the following chart.

 

Stuff We Care About Today Watch:

Shifting Wind Watch: BP canceling European wind projects in favor of U.S. blows. According to a BP spokesman, "The best place to get a strong rate of return for wind is the US." Interesting more than from a play on BP is what it says about the alt-energy sector in the U.S. under the new administration. 

CLR 3Q Wrap Thoughts:

  • remain 100% unhedged
  • prices have just returned to 3Q07 levels, projects still viable at current prices
  • stand ready to growth capex if prices warrant
  • 604,000 net acres in the Bakken (largest holder in play)
  • production from Bakken was up 14% sequentially, 9, 631 net bopd.
  • TFS wells in the quarter (100 miles north to south along the Neeson Anticline) 5 wells > 1,000 bopd, 2 at > 650 bopd
  • Nutshell: Cheap, unhedged, flexible way to play oil with growing sense that its acreage is prospective for TFS as well as Bakken.

SD Reports Solid Quarter; Reiterates Guidance

No change in guidance after recent reduction of capital budget. Not a lot of meat in the PR from an operations standpoint that is new but we really don’t need that at the moment. They are chopping rigs swiftly in their primary play, the WTO (West Texas Overthrust) and the rigs they do keep busy will focus more on the Frog Creek  play (east side of Pinon Play in the WTO) where the gas found is mostly methane, unlike the original two plays which are CO2 rich, (which requires treatment and for which capacity is currently constrained).

  • Production: 3Q was strong despite shut ins due to capacity curtailments attributable to a previously announced facility fire and to Ike and Gustav disruptions. Despite this, they are reiterating their 100 Bcfe total 2008 production target.
  • Revenue: Came up short of expectations: $259.1 mm vs $281mm expected (this is the differential issue I’ve been harping on as volumes looked as expected (flat with 2Q due to shut ins) so the analysts were a lazy, sloppy fellows here). Notably, the company is not increasing their differential to Henry Hub guidance ($0.90) so maybe they see a re-tightening from recent drastically crappy levels.
  • EPS: $0.17 (clean) vs $0.16 expectations. Lease Operating Expense (LOE) per Mcfe came in at the low end of guidance allowing for the bottom line beat. In my book, a high quality beat as I would rather see a company outperform due to cost control than due to higher than expected prices.
  • CFPS: $0.83 vs $0.86 expectations. Missed on cash flow, but its close and some people may be calculating that differently. With the revenue so far off its a wonder they didn’t miss analyst’s EPS and CFPS estimates by a wide margin.

Guidance:

  • Production guide remains 120 Bcfe for 2009 so 20% growth, same as Oct 2 view.
  • Costs look the same as prior with GA inching lower and LOE inching just a touch higher, probably a wash to most analyst models.

Reserves: up 12% from mid-year to 2.143 Tcfe. At yesterday's closing stock price and debt level, this give SD an in the ground value of $1.49 per Mcfe, way too low by normal metrics. In my book they should get at least $2.50 per Mcfe for the proved and then have a smaller value placed upon their 2P and 3P reserves and other assets.

Conference Call:  Today, 9 EST.

Odds & Ends

Analyst Watch: Citi is raising ratings on gassy stocks EOG, KWK, and SWN from Hold to Buy.

136 thoughts on “T.G.I.F.”

  1. RL – I have not forgotten your question still going to find that map or something similar.

    SD call in 2 minutes.

    The citi call on to raise EOG, KWK, and SWN this morning is a short term trade on natural gas and while I think the stocks deserve to be higher, the analysts reasoning is fairly lame and I’m not sure will carry any weight beyond the morning hours. Certainly nothing groundbreaking or unique about the stocks or natural gas prices.

  2. The credit market opened slightly better this morning, even after the worse-than-expected Employment Report. Consensus appears to be that the horrible number was priced in with the movements over the last two days. The desk is recommending buying bonds.

    However, the credit desk is also recommending selling/shorting stocks at the same time. This divergence will likely increase what is already setting up to be a volatile day.

    IG 193 -4 from yesterday’s close (so better)

  3. SD CC #1

    Frog Creek – not much individual production history but very encouraged. Frog Creek sits on top of their Warwick thrust so they have lots of penetrations of it and are just not targeting it (less CO2).

    305 MMcfepd current production grows to 525 MMcfepd by 2011 when their processing plant comes on line (if they do nothing else).

    Long range step out well in progress – 30 miles away they are drilling at 15,000 feet and think based on logs they are in the Warwick thrust, results by year end. This would be a game changer as it could indicate gas over a much bigger than expected area. This is well outside the traditional boundary of their cornerstone Pinon field.

  4. Z: The people that I read that talk about $40 – $50 crude oil usually point to oil @ $10 a barrel. What they don’t say is that when oil was at $10 you had an unusual combination of supply starting from the North Sea, the North Slope and Mexico’s Canterell. There is NO such supply coming today. Rigzone just had an article that said 10 of the 30 rigs that PBR is counting on from locals may be victim to the credit crunch. Good for NE, DO and RIG

  5. SD Q&A Started

    Frog Creek – south of Warwick (I said east before so forgive that). They are not getting specific on these other than to say they are bigger than their normal PUD type curve and that all have been sweet gas.

    Looking at monetizing some assets. Maybe midstream.

    Stepout – “Big Canyon” – encouraged, more to say at year end.

  6. Tom – very good points. I’d add that Russia was in the middle of a process that doubled its production to levels rivaling Saudi Arabia over a 10 year period. They are now declining. The character of the global supply of oil changed as well, it became heavier and more sour (both more costly to refine) over that period which would put more of a premium on the price of light sweet oil in which prices are quoted. And then you have the emerging markets demand component to consider. People who quote $10 oil in their argument are naive, perhaps deliberately, but, well, there you have it.

    Still on SD call, little new, just keeping on keeping on.

  7. Z – Regard #1…no worries..i’m actually new to the energy sector, so i thought it might have been a dumb request…glad to see that you think it is not!..

  8. RL – apologies for the delay, I get derailed by conference calls from time to time. Continue to ask away, I’ll get around to answering sooner or later.

  10. SD Q&A#2

    Frog Creek – drilling plans. Trying to decide if its better to just drill new wells down to Frog Creek which overlies their biggest producing formation, the Warwhick Thrust. Its not a problem to penetrate both and commingle production but they cannot produce more CO2 until 2Q10 so they are thinking of just drilling to the shallower zone (Frog Creek) which is sweet to get that gas in the interim. They could always re-enter and deepen the wells later I suppose, not the most efficient plan but its where they are until the gas plant is completed in 2010.

    Any slowdown on service side? They think there “will be a very impressive roll off in rigs in the 4Q… 300 to 800 rigs!!!!!!!!”

  11. Jobs? Who needs jobs? Green open.

    If you missed it in #10. SD thinks rig count falls 300 to 800 rigs in 2009. Holy cow!

  13. So far cost drops have been small for rigs and tubulars. They are talking about pressure pumping really coming off next year. Hello HAL, BJS!

  15. Market yawning a bit here, think we rally into the afternoon. I think Obama speaks pre close which could make for an interesting close.

    SD call over. I saw some say it was a neutral quarter as far as results go, I think it was a bit more positive than that and they handled all the financial/couterparty questions well… as many of those as there were on the geo which is a first and sign of the tough times. No indication there is anything strange going on here as some suggest but I guess there wouldn’t be until its on the front page of the journal. Given managements street cred, I just don’t see them doing anything slippery…they certainly didn’t give Ward a “premium” price on the well interest buyback deal.

  17. Bird, in these crazy times, if it pops 20% in one day I’ll sell. Just now I think I’ll hold because the report (as interpreted by Z) seems good and they are still barely off their lows from the Crash of 2008, which in their case involved margin selling by the CEO. If the broad market looks like it is going to fall into another cosmic black hole, I’ll also sell just as a precaution and look to get back in.

  18. #17 Actually I’m not sure if Ward was in fact selling stock but he did have a margin call (news/rumors of which hit the stock) & he sold back his well interest to cover it.

  19. Dman – totally agree. I don’t think we’ve seen the lows of the mrkt yet. The Bears are still in control.

    Bank index still red. Tough to sustain a rally these days unless the BKX goes green.

  20. Dman – yes. you are right… Tom Ward did not sell his stock, but his well participation rights and accumulated properties back to the company. At a fab price for the company, by the way.

    I think he gets about 200 brownie points for that move. Instead of crushing the stock, he gave up a lot of value to keep from selling stock. I admire him and his team for making that tough decision.

  21. wholesale Inventories come in down 0.1% vs an expected increase of 0.3%. So, this is a good eco-number. Mrkt wants to rally on something… this gives it the excuse for now.

  22. Bird – as of last night’s close, SD was being valued at the same price as they bought out Tom’s well interests, about $1.50 /Mcfe proved. That’s just stupid low.

  23. z – wow. great point. SD is cheap. By any measure.

    IG 191… so credit rallying with stocks.

  24. Bird, considering #22, maybe the right question is whether I ought to think about adding more calls.

    Z – wondering about UNG calls here. Last dip before winter?

  25. Z: Strength in nat gas until last two days mostly weather related? Inventory number did not move needle.

  26. Dman – I think we see one more injection, maybe two. Next week’s bigger than this one. I’ve seen others write that this is the last of the season but I don’t get that looking at this week’s mild weather. There is not strict cut off date after which you must withdraw gas from storage, it generally happens around now, but only if Mother Nature cooperates.

  27. Tom – agreed. Storage really does not matter at the moment as it peaked about where expected by most. If injections string out for another 2 weeks or longer (its possible) then I think we see a bit more weakness and then a snap up to higher levels.

    Go market go! The unemployed can always heat their homes by burning stock certificates. Especially that 2008 Lehman secondary…what a deal that was!

  28. Interesting that the gassy stocks seem to believe crude and the broad market instead of believing NG.

  29. Re pxp ie chk partner in haynesville

    They except their carry will cost 460 m next yr

    At 7 ng, they will have a net outflow due to Haynesville of 150 m per year

    I found that intersting as the operation doesnt cover the cash outlays for the first 3 years

    They also mentioned that chk will have 25 rigs working which will complete 6 wells at a cost 7 m per well for the year

  30. Dman – my sense is that the gassy stocks have already discounted a $5 to $6 gas strip for the next 12 months. So, unless gas goes much lower, they key off the markets.

  31. Good morning all. Been taking a break as had family visiting.

    Also most markets have big triangles playing out so lots of choppiness.

    IMO –

    Broader market – spx has resistance at 924 – 928, support at 900 – 906, then 880. Still looks choppy ahead unfortunately. We have a minor cycle low due anytime between yesterday and Monday and then a higher cycle into the end of next week.
    My preference is still to see a 5 wave down once this triangle plays out.

  32. Re PXP – It’s a sweet deal for CHK. I would expect the wells to drop closer to the $5 to $6 mm range over the course of the year, combination of increased efficiencies and reduced service costs, tubular costs etc.

    FSLR marking a small rally, up $8 to $151. TAN not yet moving. May add a little there next week.

    Thanks to the Citi analyst Gil Yang for upgrading a couple of my stocks, not impressed with his reasoning on natural gas but I’ll take it.

  34. If we need a lower low on this swing then likely the market stalls in this area in the next couple of hours.

  37. seeing a nice move in credit… it’s actually outperforming stocks here.

    IG 188 -9bps

  39. I will add that the two counts I have for the indices are bearish! Either we have already started wave 5 down and likely just completed 1 of 5 and are in the process of a wave 2 retrace.
    Second option is the triangle which says we are in D of an ABCDE. If in D we are likely in B of D with C down still to come before we see E to the upside. D may have a target around 880 and E a target of 980 (ish) before we see 5 down which will be a huge move to the downside.

  41. Hi Dman,

    Yes re gold and silver – also in triangles! Not sure whether we have yet started E up but if so should stall below 770 area gold and silver below the 10.80 area. Then a move back to the lows imo.

  42. Credit desk commenting that there is zero volume going through this rally. And when there is no volume, it goes the other way just as fast. Street is short right now, buyside is buying risk and dumping shorts. Everyone (investors) is expecting a rally… unfortunately, with very little volume behind it, a bear mrkt rally exists to cause the most amount of pain.

    Credit desk recommending fading the rally.

    I don’t have a lot of feel for the mrkt here, but don’t like the fact that there is no volume backing up the move. Just my 1 cent.

  43. Hey Nicky, do you still think that there will be a low target for gold around 680 then 625 if it fails to hold ~720-725?

  45. Hi VTZ. Well we saw 680 so I think we are likely to see a lower target out there. 600- 650 maybe. Yes you are right support is important at the 720 area and it just can’t seem to get above 775. E ‘should’ stall in the 760 area. Not sure whether D is done yet – may see 720 tested again.

  49. Market coming off like GM results are a surprise or really matter as there is little question of a bailout. I mean, is anyone surprised their Q stunk up the room.

  51. Weird volume query:

    a few days ago I saw huge volume for the day in USO. Now when I look at the chart, it ain’t there.

    Several other times I’ve seen notable volume, only to check 10 minutes later & find the daily volume bar has shrunk back to normal.

    Z seemed to have a similar thing happen (yesterday I think) & I’m wondering if anyone else has noticed weird disappearing volume bars on charts…

  53. GM has 100B in inventory on lots and they are burning through cash – seems they better drop their prices a little to get cash coming in.

  54. yeah, it’s like “What, you mean GM isn’t doing great? Who knew… apart from, well, everybody?”

  55. Ram – I hear ya. I just hate the fact that they are sending out incentive checks to buy cars that will ultimately be payable on the tax payer. Of course, the alternative is to restructure the industry completely and to let 500,000+ go.

  57. Z…that is a great map if we could overlay the use of energy across the country…so then we could see what commodities would be used up.

  58. Food for thought, not getting political but think the timing of Obama’s speech today (during market hours) is no accident. My thought would be that he will be frank on the economy but offer some hope and will shy away from market tanking comments as he probably would not care to see the words “Elected” linked with “1,000 Point Loss” in the same weekend headlines. I’m guessing we’re in for a press conference filled with name dropping (Rubin, Volker, Buffet) and a stimulus package.

  59. The reason for that sell off is simple. GM implied in their press release that they will have to file for bankruptcy by the end of next month if they don’t get new cash. Because of the complexity of the auto industry, this will destroy suppliers and make it impossible for Ford and Chrsyler and even foreign plants in the US from operating. Chrysler would then file for bankruptcy too and you’d have a rapid vaporization of over 2 million jobs. This is no joke. You want national unemployment over 10% in a heartbeat? This is really scary stuff for GDP, the economy and the country.

  60. antrim – #74 All true but none of it surprising at this point. Our friend Cramer has been screaming for months that the auto-makers will soon be bankrupt. Hence all the bail-out plans.

  63. Agreed antri. I had mentioned the same yesterday regarding overall manufacturing. What does a lame duck President do?

  64. Don’t get me wrong – who wants to see massive job losses if they let GM go. However, surely they bail them out you are just putting off the inevitable which is that they are going at some stage. Why would you throw more tax payer dollars at GM? First person that should go is Waggoner but oh no he just continues to take massive amounts of money in salary. What a joke.

  65. Antrim – I think Bird pointed out that Bankruptcy does not necessarily mean shuttered factories although they obviously need to curtail capacity more.

    RL – Going back to your original question:

    “Z- is there a map of the US that shows the regions/states and what type of power there use? for example, is the Northeast more of a Natural Gas region or coal or something else..just trying to get a sense of regional impact to those types of commodities based on weather…i know in Indiana the last 2 weeks have been 70s and beautiful, but will get cold this weekend..i believe Indiana is mostly a coal using state, but not sure about the rest of the country. Thanks”

    In general, in the winter we are concerned with how homes are heated so we aren’t really looking at electricity, although there is a higher degree of electrically heated homes in the west, you are mostly looking at natural gas (all over the south, midwest, southeast, and creeping all over the northeast now) and heating oil (mostly northeast and shrinking a bit each year). I have not found the regional breakout map but here are the stats on what heats U.S. homes. The data is from 2005 as they only do this survey every few years:

    http://www.eia.doe.gov/emeu/aer/pdf/pages/sec2_20.pdf

    As you can see, the gassification of the U.S. has led to natural gas being the key fuel followed by electricity (which on average is 20% gas based)

  67. Nicky – they have so many problems, pensions in terrible disarray, healthcare costs higher than the cost of steel per car, cars coming in from foreign lands that people in the U.S. actually want to buy. Very hard to solve with a bailout but like you said, what do you with all these people? I heard something like 800 car dealerships to close by Christmas.

  69. It seems like Obama wants to think big, which is right for the times. Is it too much to expect Obama’s people to see a connection between the automakers and the energy problem? Not much point keeping GM running producing cars that just make the problem worse.

    They need to reach out to TBP for some ideas. Hope that’s not asking too much.

  70. Believe it or not I have some thoughts on that. GM builds cars that get 70 mpg. In Europe. It sells them. In Europe. They need about $300 mm to build/retool a plant to make those cars in the U.S. If you are going to hand out checks, make sure you have control over what they build in the future. Muzzle Dingle (MI representative) re CAFE standards and TELL GM this is what your fleet average is going to be and that number is north of 40 MPG in 2010.

    Sure I’m for increased access to drill but I believe its like pushing on a string if you don’t attack the consumption efficiency as well.

  71. The Detroit 3 have never cleaned their own house. Instead, any of the productivity or profitability gains have been off the backs (and income statements) of their suppliers. What Antrim is saying is true: D-3 Ch 11 means thousands of suppliers will go under. But, I don’t know how we (as tax payers) can continue to support the kind of decisions that the D-3 has made over the years.

    Detroit is the only place i know of, in the country, where 100% of employee healthcare insurance is paid for… and it’s top-of-the-line stuff. Even viagra is available, cost-free, on demand. (I am not making this up.) What other business/industry in the US hands out those kind of perks these days? Do we really want our tax dollars to support that?

    Tough call. So much pain in a D-3 Ch11 for the suppliers… But, Wagoner and Friends and predecessors have so completely messed up the Michigan/Ohio automotive business model… it’s no wonder that no foreign auto manufacturer will locate operations in these states. Something has to change. The D-3 have proved themselves incapable of it… instead, taking out their mistakes on the backs of their suppliers.

    Very sad stuff.

    You want to see “greed”? The CEO of American Axle would shame even a Wall Street Banker. It’s amazing the greed in Detroit… just amazing.

  72. Daughter appears to have the flu. 11:40 CST pediatric appointment so I should be back by about next Wednesday if history is a guide. Someone please update markets occasionally as I’ll be wired to the Blackberry. Thanks. Oh, and keep the market up.

  74. The implication that bankruptcy for the auto makers is not such a bad thing is completely wrong. If any automaker goes bankrupt, it will bring down the entire supplier industry. There is absolutely no room for error. This whole thing is a real house of cards. We had a fairly significant supplier go bankrupt last year (Plastech) and that nearly brought down the big three. If there is bankruptcy for an automaker, then they’re dead because who wants to buy a car if you’re not sure if you can get parts for it. GM conference call going on now and Rick Wagoner will be on CNBC in fifteen minutes. I agree with you that these guys are way overpaid, by the way.

  75. No way the government lets any one of the Big 3 go under. That’s Main Street, not Wall Street or Oil Street. So no way I see it happening, that’s all I’m saying. Ok, really gotta run, keep the updates coming.

  76. The closing of car dealerships is a positive. It is one of the weights around the automakers neck. Bankruptcy is short term positive since they can continue to operate without debt payments. Shareholders lose, workers lose but may keep jobs, bondholders end up with what is left of company. A longer term issue is wether the American automakers can actually make products people need and can get excited about. They are still wandering in the desert as far as I am concerned. My vote is for Bankruptcy not Bailout.

    We finally have a President coming along who can actually speak English. This is a positive. One of the President’s main jobs is to sell the administration’s ideas to the world. GW was miserable at that.

  77. Off to the chiropractor. Notre Dame at Boston College tomorrow evening. If you don’t know who I am routing for, check my bio.
    Have a great weekend all.
    apbd

  78. Zman, any thought on SUN? Had a good quarter, I’ve heard some rumors that they’re cutting back on retail (station upgrades etc).

  79. Orion, welcome to the site.

    I’ve been warming to the name for a little bit yet but frankly would like to see aggregate utilization fall back more to boost products or, in the case of SUN, would like to see much colder weather prompt some secondary (distributor) and primary (end user) heating oil demand in the north east. The margins are in the distillates and not in gasoline for the moment. Hearing stories that the heating oil distributors can’t buy oil due to credit crunch plus an unreal number of consumers have no utilities as we head into winter. Pretty dicey on the group right this second as every time cracks seem to get some traction products fall off on demand fears.

  80. Consumer environment color.

    I just set a landspeed record for getting in and out of a pediatric clinic. Less than 1 hour door to door. Place was empty. In the South, this is the time of year when everyone gets sick with the first blast of cold. Place was empty. I have a theory called “heating, treating and eating”. Basically this is the order in which people abandon the necessities. A little shocking to see step 2 already suffering to the point of people not bringing in their kids.

  81. Z, Thanks
    (I’ve been a subscriber before) This is still the best energy trading site on the net.

  82. Thought I recognized your name on the checkout…thanks much for the kind comment.

    Tough market, slow Friday on the site. Stocks are range bound pre-Obama press conference (about 45 minutes away). What I wouldn’t give for him to mention natural gas (in a favorable way that is) and solar.

  83. SD sell off to even. They obviously still have some weak hands holding the stock, just nothing new to justify pulling back on those results or that call…unless you have to have the cash. Going to be a supercharged long term growth story in 2010 as they get to turn on the new processing station and immediately unlock enough gas to warrant double digit growth on the methane side, not to mention the value of the CO2 for tertiary floods in the Permian.

  85. RL – Maybe next week but with this caveat in mind. The market seems to be fluctuating in terms of the narrowness of the energy names. It is, in effect, capping up…more of a like for XOM and less for the newer, smaller names, despite the fundies. Very frustrating to buy into these non-household names and find out that they are still being sold by funds who use good news from the name to hit them like they are an ATM. GDP falls into that category too (size wise) although its balance sheet is better and growth rate is higher. So as I prioritize I have to put value up against what works now. Despite the cheap factor, that puts SD further down the list.

  86. RL – also, I still have a nagging feeling about them given their recent failure to launch with the rest of the group. Their rally came but it was smaller and very short lived. How much fun is that?

  89. RL – I sincerely believe that this is the time to be looking, more than trading. I’m not trading as much as I usually do.

    Also, there are a lot of stones going unturned in energy right now. Energy specific fund managers felt chewed up two months ago so now they are either unemployed or delirious. This is no time to be a gunslinger but if you are talking stock and not options, then I think SD is a steal for someone with a 12 to 24 month time frame.

    As for now, energy continue to consolidate into bigger capitalization, lower debt, capex within cash flow names. Growth is secondary. On the poppy days when everything is green that is not so apparent. But on the bad days, the sea of red days, the conservative balance sheets move with the market (most of the time).

  91. Hi Z, any thoughts regarding the infamous CHK in particular for playing the NOV expiry. Your call to exit on wednesday was perfect. It seems to me that they will benefit if there is any mention of NG or CNG from Obama. Thanks in advance

  92. On SD, re #85:

    maybe more of a case now for buying stock than options, since value is the motive & the catalyst is …oh we just had the catalyst. Oops. Next catalyst: probably a move up in NG or a big move in the group.

  93. Re CHK – they fall into the high debt category. Cheap, cheap, cheap on assets and on forward cash flow which is safe if they don’t slow production further given their hedges and the fact that I think analysts have now gotten their 2009 gas price decks on the conservative side. CHK has cash, CHK has no debt coming due until 2013 so unless things stay frozen for five years in the credit markets it’s probably ok for term worries and they have plenty of cash flow for interest coverage. The issue that hangs over their head right now like the Sword of Damacles is the asset monetization issue. If they can’t farmout 25% of the Marcellus or get another VPP done in the near term (before year end) they will get marked down for it. Rumors going around they will have some news next week on the VPP or a midstream MLP. There’s probably more credibility to those than the BP buyout rumor which I still don’t buy. November has an extra week in so you have two weeks til expiry and I’d expect the stock to mostly mark the market during that period unless they get a deal done and then you’re probably testing $30.

  95. Dman – I should have just said what you did in 92. Good summation. I may play them for a near term move if gas moves, all the other gassy stocks move and they don’t, but otherwise I’d prefer stock or maybe leaps although those spreads / premiums are sick.

  96. Actually, LEAPS on SD are not too bad right now and the spreads aren’t much worse than the near month calls. Hmmm.

  97. Z – do you think CLR has now been punished enough for its sins (I’m not all that clear on just how bad they were).

  99. Thoughts from a good friend of mine, smart guy, and former bond desk big wheel. I can’t post the charts he refers to but you can get the gist from the numbers.

    Ouch! The death spiral of Wed and Thurs was the worst 2 days down
    since the 1987 crash:

    The first chart goes back 57 yrs on a monthly basis and reflects a market
    which has broken its 200 day avg (red) and appears to still be heading down
    toward 7200-7500 (blue). The MACD is still pointing lower, while the RSI
    is oversold.

    The second chart is a weekly reflection which looks a little better, as the
    MACD is trying to find support and the RSI has bounced but appears to have
    lost its momentum.

    The daily chart has had a couple of nice bounces but also appears to be
    heading lower, unfortunately.

    The 1987 crash lasted only two months when the DJIA fell 40.35%. The last
    big market sell-off began in Jan 2000 and fell 38.74% until Oct 2002.
    Today’s market made its peak in Oct 2007 and declined 44.46% to Oct 2008. A
    further decline is possible to the 7200-7500 area in the next few months.

  101. RL – those are the ones I was looking at. Probably can’t get it on the mid as there is no volume but $4 for 13 months at $12.50 isn’t horrible. For a $2/Mcfe valuation they would be around $20. Hmmm. Still see no rush.

  102. z – bond traders have decided to call it quits early this week, it seems. volume is pretty close to zippo. I think people are too tired to really care, one way or the other right now.

    but, the Big Picture remains the same… there is NO THAW out there. Sure, a few debt deals are getting done. But here’s a stat that Talking Heads point to, erroneously saying credit is thawing: They characterized the commercial paper market (hunting ground of the money market funds) as having surged for the second week in a row. Growing by $50 billion on top of last week’s $100 billion. The knee jerk response is “oh boy, companies are finally able to get working capital!!” Digging deeper, we see that the Fed purchased $99B of commercial paper this week and $145B last week.

    So, in the last two weeks commercial paper outstanding has increased by $151B. Meanwhile, the Fed has purchased $245B of it. The Fed now owns 15% (!!) of the commercial paper market. Fed was buying while everyone else was selling.

    To be fair, this is preventing a collapse… but the Fed needs real investors to help pick up the slack. Until real investors start buying (more than they are selling), the Great Thaw has not yet arrived.

  104. Dow putting on a bet on Obama speech. Disappoint and we see a 500 point swing. Interesting next 30 minutes of trading coming. Market has acted since very early this morning like it wants to rally.

  106. Let’s get through the Q&A. Market seemed to want a magic bullet and of course there isn’t one. Could still be a pretty good rally to new HOD after he stops answering questions.

  110. I wish someone would school the owner of GM that if he lowers his margins in the near term, he might have a positive cash flow. I’ll buy an Acadia for a couple of grand less than current pricing.

  111. Z,
    If oil makes a long term bottom of $60.00 would you expect it to rally till it finds a trading range?

  112. ram – good idea. but, can you pay cash for that? financiang options are drying up.

  113. Yes. I’ll finance it myself. Have money in a credit union that pays a 4.25% yld and pay a 5% interest on the loan.

  117. Bird – oh yea of little faith in hope, lol.

    Pete – if it holds I’d say a rally to as much as $70 could happen, probably more like a lower low into the upper $60s. That’s without OPEC’s own brand of “stimulus” occurring.

    From what I hear, M&A in refining is just not in the offing.

  118. re #109 – that’s ok… just for the record, i’m cool with being a contra indicator!

  119. ram – you are one of the smart, old-fashioned Americans that I hope there are more of. God Bless you for saving!

    That said, who would turn down zero financing?

  120. We’re not closed yet, still the reaction is just what he wanted.

    Ram – Have a friend, money manager on this site, with an Accadia and he hates it.

  122. (actually, I hate being a contra-indicator… but, whatcha gonna do?)

    Happy Weekend to all. It’s gonna be cold here in the NE this weekend. Should be a nice kick for NG!

  124. Don’t know, will ask. He had a toureg before that, lots of mechanical troubles there. Range rovers before that…same.

  128. Beerthirty gang. If you have ?s you want answered drop them here and I’ll get to them in the weekend wrap. As always, thanks for playing and have a good weekend!

  129. Ram #110,

    If you wait a little longer they may half give you one to get the almighty dollars. That’s one reason i’m waiting. When 600 (or whatever) dealerships close by the end of the year (some are already folding up in Phoenix) don’t you think there will be some desperate deals on those vehicles just sitting there on the lot?
    Blood in the streets kind of thing. I have a friend who knows his stuff watching for me for crazy oportunities on a new Suburban. Good luck.

  130. Accadia feedback:

    Hi

    Actually I’m liking it more each day. Early on I missed the zippiness of the Toureg. My only complaint now is that everyone saw mine and bought one!

  132. CHK just filed an 8K indicating the voluntary conversion of about $395 million of convertible notes into common stock.

  133. Z,

    I thot i would get a response on that.
    I feel kinda guilty to have a gas guzzler, but not much! In defense of Suburban, they have it so that one cylinder cuts out now when you don’t need it. Must really help but i never check gas milage, too discouraging.
    A guy passed me the other day as i was coming to a light. He was on a standup scooter with a little engine on the back. Must have been making 30 MPH. I hope this isn’t a trend, we need to get that Cl price up, not down. Looked like fun tho.

    Back to car prices:
    Basic economics: If they are sitting there and NOBODY will buy them (whether no financing, or too expensive, or drink too much gas or whatever) the price WILL certainly come down. If no other way, when they go to auction.
    Everyone of them costs money every day to carry the inventory.

    As to GM, honestly i don’t think much of these chief execs. As i see it, all they have to do is pay all salaries and labor payrolls with 50% cash and 50% IOUs. That gets their cash costs down to the foreign competion. Next they go to the FEDS and say pick ’em up (the IOUs) or we declare bankruptcy. Problem solved. GM saved. Country saved.

  134. Ram – After coming back to the states i looked around for a 7 seat suv and ended up with the Toyota highlander. I couldn’t pass up the 0% and no one is going to call me unpatriotic. I liked the Acadia, but the toyota fit and finish was excellent, the engine was powerful and relatively frugal (i got 24 mpg going 70 on the penn turnpike). Also in the early days of the war we drove toyotas in Afghanistan and they were bulletproof – well not really bullet proof – but we drove the heck out of them with little problem. We also had some Ford export versions of the ranger and we had nothing but problems.

  135. Thanks guys! I can wait for desparate dealer/mfg. discounting! I will also look at the Highlander. Have a nice weekend guys and gals.

  136. chk

    retired 396,174,000.00 conv bonds for 12,502,764.00 shares at an avg price of 31.69

    will help debt equity ratios a tad

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