Tuesday Morning

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 The Big 3 car makers head back to the Hill to beg for their lives today; should be good drama for the market to watch. Speaking of the market, we're set to get a good sized bounce on the open following yesterday's "news" that the economy has been in recession for nearly a year. Glad to see someone acknowledged it officially and glad that its been going on that long as that puts us just that much closer to the end. That we suffered  the 4th largest point drop in  the history of the Dow can only be attributed to the extreme fragility of the financial markets at this point (that and the tag team speeches by Ben and Hank which left everyone with feeling like they just got very bad news from their doctor, who, oh by the way, is retiring).

In Today's Post:

  1. Holdings Watch
  2. Commodities Watch
  3. Crack Spread Update with refiner multiples
  4. Stuff We Care About Today - Analyst's Estimates; Airlines vs Oil
  5. Odds & Ends

Holdings Watch: No changes yesterday

Commodities Watch:

Crude oil fell $5.15 to close at $49.28 yesterday. Crude sold off initially over the lack of a move by OPEC on Saturday but the real drop came as the equity markets sold off heavily into the afternoon. Crude overcame a big drop overnight as the equity futures rallied this morning and I continue to expect it to mark the equity markets which in turn are marking global economic sentiment.

  • Less Crude From Russia. Exports fell 12% from October to November to 3.7 mm bopd, their lowest level of the year. Total Russina oil production sagged slightly to 9.82 mm bopd; this still ranks the country as the first or second largest oil producer on the globe depending on the month. Production in Russia appears to be stalled near term. after a decade of activity that brought a 60% increase in volumes. Saudi Arabia and OPEC are again making the case to Medeyev  that Russia should reign in oil production with the Cartel to help support prices. In the past this has not been acceptable to Russia.   



  • Early read on this week's oil inventory report:
    • crude oil: up 850,000 barrels. I'm actually looking for a reduction in imports from last week's near record levels. Combine that with an expectation that refiners increased utilization last week (and it appears they did although what exactly their incentive is to crank up production given current pathetic margins is beyond logic) ---
    • gasoline: up 1.5 mm barrels
    • distillate: up 1 mm barrels. This is the only number I have an issue with this week

Natural gas ignored everything else on the planet and rallied 9 whole cents to close at $6.60. Gas looks to be attempting a bottom here. This morning gas is trading flat with oil. 

  • Imports Watch:
    • LNG: 0.7 Bcfgpd, in line with year ago levels. The concern du jour has been LNG imports will rally as the rest of the world rejects NG and it heads to the destination of last resort, the U.S. So far, this has not happened as LNG shipments remain lifeless at current levels.
    • Pipeline: 8.0 Bcfgpd, down 0.6 Bcfgpd from year ago levels and in line with the prior week. Not much direction here, just drifting for sideways for now. Lower gas prices are going to result in a decline in the Canadian rig count like they will in the U.S. which will lead to further declines in Canada's power house provider, the Western Canadian Sedimentary Basin (WCSB). New coalbed methane and even newer shale projects are likely to be put on perma-hold at current weak gas prices.

Crack Spread Update....Um, well, ouch.

Refiner Multiple: All are cheap but estimates continue to drop. If I were forced to own one or two names here I'd probably go with SUN, who is exposed to better margins than most and then maybe VLO. But I don't see much call to get excited before year end unless we get some persistent cold to help out HO inventories and a pickup in driving (still expected, still disappointed so far).

Stuff We Care About Today

 Price Decks Not Coming Down Fast Enough for current and future commodity prices. This is largely factored into the E&P group but we can expect some more, potentially large negative revisions to 2009 estimates in the next few weeks. For crude, $50 has become the new black with analysts as more of them gravitate to this number every week. Looking at the forward strip they are taking a pretty conservative tack with the hopes of bumping numbers due to higher prices next year.


Airlines vs Oil. The completely imperfect hedge. Occasionally I get asked why not buy airlines as a hedge against falling oil. There are some obvious reasons not to including 1) my first boss in the business told me never to buy an airline, 2) I did anyway on his watch and found out why he was right, 3) their business model in general is poor, 4) travel is depressed by the economy. There are others but why get belabor the point. Airlines stink.

On the flipside for a hedge trade right now you have: 1) the cost of aviation gasoline has tumbled nearly 60% from its summer peak, 2) bag fees added over the summer have not come off 3) nor have fuel surcharges (which are now being lumped in with the base flight fees so while it looks like they are going away, they are instead being "transitioned") and 4) airlines have been busy slashing costs and putting price tags on everything from earphones to blankets and they are not removing these fees.

So how to play a reduced the potential extended reduced price oil play via airlines. On thought is to buy the Amex Airline Index, or XAL, which contains 13 names in a non-equal-weighted portfolio. The problem with this is that the airlines have vastly different cost structures and have hedged fuel prices at differing levels so at least to date, the index has not performed well vs falling oil as the weaker players are hurt by the sagging global economy offsetting the gains made by the better positioned names as you can see here:

As Oil Tanked, The Airlines Failed To Launch

Taking A Closer Look At The XAL Components:

Taking a look at the valuations they all look pretty cheap going forward. Cheap for a reason has been the mantra in the airline space for a long time however and estimates continue to move around although the downward momentum seems to be slowing. The charts all pretty much look the same from the financially solid names to the brink of bankruptcy stories. One common theme is extreme volatility and with liquid names like (CAL) the options trade well. Anyway, just thinking out loud and starting to wonder if there's a quick play, on occasion, when oil is facing tough numbers distinct from the market's usual turmoil (like following a big build in stocks or further evidence of weak product demand).

Odds & Ends

Analyst Watch: Zip, nada, nothing. All quiet on the energy analyst front.

140 Responses to “Tuesday Morning”

  1. 1
    Sambone Says:

    Your early today.

  2. 2
    Sambone Says:

    By Nick Heath

    LONDON (Dow Jones)–Crude oil futures traded at their lowest levels in more
    than three-and-a-half years Tuesday, before a bounce across European equity
    markets helped push prices back higher.
    Follow through from Monday’s sell-off – sponsored by a welter of bleak
    economic readings and the Organization of Petroleum Exporting Countries’
    weekend decision to not cut output further – helped ICE Brent crude to its
    lowest levels since February 2005, while Nymex crude ducked below $48 a barrel
    for the first time since May 2005.
    However, data revealing euro zone producer prices posted their sharpest drop
    since 1990 in October – opening the door for the European Central Bank to cut
    interest rates again this week – helped reverse the decline in equity markets,
    propelling oil futures from intraday lows.
    At 1232 GMT, the front-month January Brent contract on London’s ICE futures
    exchange was up 53 cents at $48.50 a barrel, having earlier fallen as low as
    $46.02 a barrel.
    The front-month January light, sweet, crude contract on the New York
    Mercantile Exchange was trading 42 cents higher at $49.70 a barrel, up from an
    intraday low of $47.36 a barrel.
    The ICE’s gasoil contract for December delivery was down 75 cents at $504.50 a
    metric ton, while Nymex gasoline for January delivery was up 141 points at
    112.53 cents a gallon.
    With the U.S., the world’s largest consumer of crude, declared to have been in
    recession since December last year, and bleak economic readings continuing to
    emerge from other developed and emerging economies, shrinking demand linked to
    economic slowdown is likely to remain the key input shaping crude prices
    analysts said.
    “The demand side is where the focus is. The supply side could help the
    situation, but OPEC doesn’t seem to be in any hurry to do anything dramatic –
    and their compliance with previous production cuts has not been good,” said Ole
    Hansen, manager of futures and fixed income trading at Saxo Bank in Copenhagen.
    “The feeling is that as soon as something negative happens, we’re off to the
    races. Any positive data only seems to be able to hold it sideways.”
    With the producer group’s meeting in Cairo concluding without any fresh
    announcement on output, attention now turns to OPEC’s scheduled meeting on Dec.
    17 in Algeria, where news of a supply cut is firmly anticipated. However,
    announcement of the cut alone won’t be enough to help check the fall in crude
    prices, analysts said.
    “We continue to believe that prices will stabilize once OPEC is perceived to
    have reduced output enough to catch up with falling demand,” said Societe
    Generale analysts Michael Wittner and Remy Perrin. “This will happen when OPEC
    cuts another 1-1.5 (million barrels a day) and the market clearly sees good
    compliance reflected in falling crude imports and crude inventories for OECD
    In the interim, oil prices will be subject to downward pressure from “sporadic
    waves of deleveraging and risk aversion,” they said.
    The oil market’s demand concerns – and the heavy influence exerted upon it by
    activity in other financial markets – suggest the ECB’s interest rate
    announcement Thursday will be closely watched, as will U.S. monthly non-farm
    payroll figures out Friday.

    -By Nick Heath, Dow Jones Newswires

    Dow Jones Newswires
    12-02-08 0742ET

  3. 3
    zman Says:

    Like any airline names Sam? Just in general, long term. We own a little LUV which has not fared well. Personally I don’t like the space but from time to time some names seem to work opposite oil like CAL in a short time frame.

  4. 4
    Sambone Says:

    Z – I’ve never made $ on airlines or autos. On airlines, I could never figure out how you can lose $ year over year (Look at “U”) and stay in business. My buddy tells me it’s cash flow. I know I’m not the brigthest star in the heavens, but when you lose you book value every year (What book value?), how can you stay afloat? Basically I don’t buy what I don’t understand. Having said that, if you beat me, I’d buy LUV. They know how to hedge fuel costs, take care of their labor and basically don’t do anything stupid. They will survive. I now find it funny that the airlines are running specials since the flying public is feed up with being fee’d to death, packed into planes like sardines, and surly crews. I havn’t flown in two years and don’t plan on it anytime soon.

  5. 5
    Sambone Says:

    What I do like is AAPL at 85. Look at what they do. If earnings slow, so what. No debt, and 20 Billion in cash.

  6. 6
    Sambone Says:

    Z, their are three ways to make money in this sideways market. 1) Income, I am looking at Converts and straight corps. 2) In special situations. I mentioned the MERprF last week. Buy when the crowd exits after doing your homework. look for yield. 3) Stock picking. Do homework, buy a stock, put a stop under it at 7%, and a sell 20% above. You have to be nimble. Don’t marry anything.

  7. 7
    nifkin Says:

    2 conferences today- FBR and Merrill- presenters include: ME, CNQ, CRK, PWR, ESV,EOG, PXD, SWN, MTRX, BEXP, TESO. BP, CVX, EOG, WFT, MUR, XOM, HAL, NBR, BHI, NE, PBR.

  8. 8
    zman Says:

    Thanks Sam, appreciate the thoughts and they echo mine on the group. Wonder if everyone has Ipods and crox though.

    Nifkin, thanks, forgot to put that in post. Worth a listen in these slow news end of year days.

  9. 9
    BirdsofpreyRcool Says:

    Sambone – great comments this morning. Love (LUV?) your and z’s comments on airlines. I typically buy an airline stock once every 8 years… just to prove I can still lose money on them (do it in my personal account). I owned ValuJet bonds on the day the plane went nose-first into Florida. ‘Nuff said.

    I am very interested in any converts you come across. Especially, the deeply busted-ones. As a matter of fact, “busted converts” are my favorite asset class… they only come around once every 5-6 years, but never fail to please. Also, your suggestion on bank preferreds was spot-on. Thanks.

  10. 10
    BirdsofpreyRcool Says:

    Shipping Question: The Jefferies high yield desk was out this morning with a buy recommendation on Ship Finance Intl 8.5% Senior Notes due 12/13 at 72 (YTW 17%). Jefferies cited strong cash flow from their bare boat leases with interest rate escalation clauses in all their new build projects. I know nothing about this shipper… wondered if anyone on the board knows it and cares to comment.

  11. 11
    zman Says:

    BOP – I bought the same that Friday, recall it was an oxygen cannister over the weekend. Worse for the passengers but learned my lesson.

  12. 12
    BirdsofpreyRcool Says:

    z – yes. an oxygen cannister. will never forget that.

    weird feeling, owning an airline. when you hear about the crash, the first thing you think about is “sh*t, I just lost money.” The second thing you think about is “sh*t, I’m a terrible person for thinking about money when all those people…”

    Anyway, I don’t need the self-loathing. So, no more airlines for me.

  13. 13
    zman Says:

    Hear ya re airlines, I was just thinking outside of my normal box. If a stock or group doesn’t reverse into news that drove it down in the first place…well… that’s bad. May I short them when crude begins to catch a bid. I actually was thinking of it due to your emailed comments last night and then this morning I see CNN running a piece on consumer backlash over fee surcharges that didn’t go away when the high fuel prices they were implemented for went away. Reminds me of other poorly run entities like the autos or some of the despot ruled NOCs.

  14. 14
    zman Says:

    BOP – I owned the Vjet stock. Broker had been on me to buy it for my LP’s for months and I finally threw him a bone after watching them rally and rally more. Then I got boned. Boss was not pleased as it was a Friday buy, I think a Sunday crash, and then a Monday crash in the market.

  15. 15
    zman Says:

    Note how quickly that GDP wants to rally at the first sight of green in the group. That’s what a good balance sheet, strong growth, and being in the right play do for you.

    EOG call at Merril starting.

  16. 16
    Sambone Says:

    Dec 2 (Reuters) – Newfield Exploration Co NFX:
    * Says made deepwater Gulf of Mexico discovery at Sargent prospect – SEC filing

    * Says well encountered 45′ of net gas pay, to be developed through sub sea
    completion to existing infrastructure
    * Says first production expected in H1 2010; co has 25 percent interest in new

    Bangalore Equities Newsroom
    Tue Dec 2 14:26:30 2008

  17. 17
    zman Says:

    Can’t seem to get EOG Merrill Lynch audio.

    I think the 10 to 80 mm barrels of North Park oil (Colorado) in their presentation is a new reserve estimate.

  18. 18
    BirdsofpreyRcool Says:

    IG index not very active this morning. I think there is more active trading in individual bonds (that is a good thing). We went out last night at the wides of the day, +265… then rallied a bit in the after-market.

    Opened this morning tighter (good) at +260bps, then widened a bit, then tightened a bit. Haven’t seen a trade/quote since stock mrkt open, but last seen at:

    IG 261 1/2 bps

    BofA got off a HUGE bond issue last night. $9B of bonds backed by the FDIC (officially called “Bair Bonds” under that program). $6.75B of yjer $9B bonds were fixed rate, 3 yr notes issued at +201bps to underlying treasuries. The rest were floating rate notes, at various spreads to LIBOR of +50 to +82 bps… for US Govt backed notes. Wow.

  19. 19
    BirdsofpreyRcool Says:

    Treasuries yields backing up a bit, for the first time in 5 days.

  20. 20
    zman Says:

    Thanks Sam, not a world beater discovery but nice. They put out some other operations updates in an 8K without a pr which I guess says “why bother”. Will update when EOG call is over.

  21. 21
    zman Says:

    NFX used to have converts, don’t recall if they called them in or not for those of you interested.

  22. 22
    zman Says:

    EOG just mentioned in passing they have 115,000 acres in the Haynesville, last figure I had was from this summer at 60,000 so they have doubled up in the play on the cheap.

  23. 23
    zman Says:

    EOG – outside their core Parshall see lower IP and lower reserves per well but these wells are economic at current levels with a “nice” return.

    Says they now have “over” 80 mm barrels in aggregate…talking a considerable field extension in the Bakken.

  24. 24
    md Says:

    Do the various commodity based stocks reflect their futures.
    The coals (and propanes) on barchart are flat from Jan 09 to Dec.11. When compared to CL which is Jan 09 $50
    vs. Dec.11 $75.
    Any opportunity to short the oils and long the coal index.

  25. 25
    Jay Reynolds Says:

    Saw this but have not seen source document.

    “The recently released Chesapeake report included Haynesville Shale decline curve data from the initial wells. I was surprised to see a steeper curve than the Barnett Shale data. I am interested in the reasons for the steepness of the HS production decline and feel that those who are about to be first time recipients of royalty income should be aware of the affect. It does appear that though the initial years’ decline is greater, the HS curve is flatter over the productive life of a well. What formation conditions and/or production methods explain the difference and does the decline percentage correlate directly to royalty income?
    Decline By Year:

    1- Barnett – 56% HS – 81%
    2 – ” – 27% ” – 34%
    3 – ” – 18% ” – 22%
    4 – ” – 12% ” – 17%
    5 – ” – 8% ” – 13% ”


  26. 26
    zman Says:

    Back to you in a bit MD but I’m not looking to short the oils. Think that boat sailed awhile back and that we are much closer to a low than a high.

  27. 27
    BirdsofpreyRcool Says:

    z – thanks for the NFX. Looks like those bonds either matured or were converted. Can’t find ’em anymore.

  28. 28
    md Says:

    I’m speaking strictly as a spread

  29. 29
    zman Says:

    Jay – I’ve seen those numbers for some time now. Will leave the delta between the two to Wyoming or other engineer types.

  30. 30
    nifkin Says:

    RE #15- GDP has one of the highest short interests in E&P- 21% of float

  31. 31
    zman Says:

    BOP – yea, I thought they took em out.

    MD – maybe a spread between NG and coal.

  32. 32
    zman Says:

    Nifkin – all the better.

  33. 33
    zman Says:

    Still listening to EOG re gas presentation. Does not see a supply glut in 2009/10.

    1) horn river not contributing
    2) Rockies not got a lot of incremental room
    3) Haynesville constrained by pipeline for 2 years
    4) Gulf of Mexico – falling.

  34. 34
    zman Says:

    Opec president Chakib Khelil said he wished independent oil exporters Russia, Norway and Mexico would become members of the group to help bolster oil market stability

  35. 35
    BirdsofpreyRcool Says:

    NFX has some amazing bond yields, for a Ba3 rated company. The 7 1/8 Senior Subs due 5/18 are offered at 71. That’s a yield to worst of 12.4%. The current spread to treasuries is 1,072 bps. These bonds were issued last May at a spread of 329 bps.

    Credit crunch up close and personal.

  36. 36
    zman Says:

    May take another more near the money position in EOG in a bit. Safety pays.

  37. 37
    zman Says:

    EOG just said non-core Bakken wells are still after tax ROR of 15 to 20% at $50 oil held flat in perpetuity. Everyone up there is dropping rigs.

  38. 38
    zman Says:

    ZTRADE: $10KP

    Added EOG $85 December Calls (EOGLQ) for $3.70 with the stock up $3 after a sharp sell down yesterday. Listening to their presentation at Merrill now, story remains the same with a few interesting data point additions (see comments section).

  39. 39
    BirdsofpreyRcool Says:

    z – thanks for the running commentary on EOG. Need to take a closer look at that one. All the other producers in the Bakken say that EOG has the best acreage position overall.

  40. 40
    md Says:

    BOp or Anyone know if these type bonds incur witholding taxes if held by foreigners.

  41. 41
    zman Says:

    That was 3 calls for the 10 KP in 38 by the way.

    BOP – nothing real new although they are going to be boosting their long stated 80 mm barrels in the Bakken soon, just said they over it. What’s exciting is the non-Parshal (non core stuff) where they are doing very well and economic at these levels. Rig costs going to be coming down hard for them Jan 1.

  42. 42
    BirdsofpreyRcool Says:

    z – CLR is benefitting from EOG… stock is up 10.8%.

  43. 43
    BirdsofpreyRcool Says:

    md – if you hold the bonds in an offshore account, there shouldn’t be any withholding taxes taken out. But, I’m not a tax atty.

  44. 44
    zman Says:

    Nifkin – thanks again for the headsup on those analyst meets. Saw them last week and forgot them this week. Probably nothing earth shattering to come out but sometimes people need to be hit over the head repeatedly to wake up to the fact that not everything is toast at these commodity prices.

  45. 45
    Dman Says:

    # 34 – NoRMexPEC?
    – MexRNoOPEC?

  46. 46
    zman Says:

    Dman – I was wondering why he didn’t invite Canada too.

  47. 47
    BirdsofpreyRcool Says:

    md – if you decide to buy any bonds… let me know. I’ll try to get a fresh quote for you. Retail bond brokers are known for their ability to rip the face off their retail clients. So, helps to go in and tell them what you will pay for the bonds.

  48. 48
    zman Says:

    Probably non-sense but I’ll take it. Obama speaks, the market rallies. Sure its a coincidence but until Ben and Hank speak saying they quit and will never speak again, I really don’t want to see them on TV.

  49. 49
    Dman Says:


  50. 50
    Dman Says:



    there, that’s got a nice ring to it.

  51. 51
    Dman Says:

    UPL in doghouse. Any clues on that?

  52. 52
    zman Says:

    Dman – don’t know will look. About to listen to PXD which is a very interesting little (big) company that I’m working up.

  53. 53
    zman Says:

    Re UPL – don’t see any news or comments, ugly chart man.

  54. 54
    BirdsofpreyRcool Says:

    Dman – what hub does UPL sell gas into? The Rocky Mnt nat gas price differentials are still pretty bad…

  55. 55
    nifkin Says:

    I know its nothing new, but could it be the rockies comments by EOG?

  56. 56
    zman Says:

    BOP – UPL is all Green River gas, pinedale anticline so yea, the differentials stink.

  57. 57
    zman Says:

    Nifkin – I would not think so. NG coiming off pretty good now which is probably just noise/profit taking. EOG’s comments on natural gas in general were pretty bullish.

  58. 58
    Dman Says:

    Hmmm … in view of the ugly UPL chart & the time of year, could just be funds that don’t need any more excuses to blow out.

  59. 59
    zman Says:

    PXD Service Cost Comments:

    Rigs: saying private companies seeing 5 to 20% cost reduction. Public companies want to see more rigs fall off before they cut dayrates more.

    Well Stimulation: private company cut prices by 30%. 1 Public company cut #s by 30% and one public cut prices by 0%

    Steel: 8% drop in tubular costs, despite the fact that steel prices are off by half. Think it takes 6 months to work off tubular goods costs.

    Other 35% of well costs off 20%.

    Seeing Spraberry well costs off 20% in total.

  60. 60
    zman Says:

    Dman – probably it. Chart breaks a level and they figure, sell it now, buy it $10 lower. Not a chance a deal kills the short either, not until the markets start working again.

  61. 61
    BirdsofpreyRcool Says:

    IG 262 bps… bond markets not buying the stock market rally

  62. 62
    zman Says:

    BOP – you should listen to that PXD call, all kinds of Sprayberry/Wolfberry thoughts.

  63. 63
    zman Says:

    PXD – Pierre Shale horizontals. Fracced first, very encouraged. Going to watch it for a week or two before disclosing rate. Nice and conservative.

    Eagle Ford Shale – they think they have a better area in terms of porosity (if not permeability) than what HK has there. They noted HK is already on their 3rd well now.

  64. 64
    Dman Says:

    BTW, on the OPEC thing, I can’t see how public bleating & pleading is going to get them any respect in the commodity markets!

    I mean, if they get some new countries to sign on, fine they have to announce it.

    Short of that they need to keep quiet or else those mean oil traders will gang up on poor whiny little OPEC 🙂

  65. 65
    Sambone Says:

    Dumping RIG, just heard once they move to Switzerland they will come off the S&P. Also that they are going to issue 45 million new shares. taken my $ and running.

  66. 66
    zman Says:

    PXD in Q&A. Saying he thinks gas could bounce to $8 or $8.50 when the rig count falls the expected 600 to 800 rigs.

    Re LNG, LNG priced at $10/Mcf into Europe now.

  67. 67
    zman Says:

    Sam – there’s always the better yielding DO.

  68. 68
    BirdsofpreyRcool Says:

    z – based on PXD’s comments, the worst is yet to come in North American e&p. Bank lending bases to come down, properties for sale 1Q09… suggests we will sit in a trading range for awhile. And the slope of that range could still be to the right, and down. What do you think?

  69. 69
    zman Says:

    BOP – Sort of but also I heard prices for services have not come down enough yet but will. Was talking with Wyoming about this the other day. When Jan 1 rolls around and the new E&P budgets hit, service will be in for another leg down.

  70. 70
    rlogan1301 Says:

    Services = OIH?

  71. 71
    zman Says:

    My pop out of my OIH puts and do them again on a bounce.

  72. 72
    zman Says:

    RL – yes

  73. 73
    BirdsofpreyRcool Says:

    CHK – someone appears to be throwing in the towel there today.

  74. 74
    Popeye Says:

    Z, time to punt the HK Dec 17.50’s and reposition?

  75. 75
    tomdavis12 Says:

    Z: Any level you HAVE to own CHK at?

  76. 76
    zman Says:

    Popeye – Not me, not yet.

    Tom – I own it now. I assume you mean more so I’d say the October low.

  77. 77
    mnt Says:

    Regarding CHK, I read that Cramer said sell last night. I am looking at the Dec 20 calls for a gamble.

  78. 78
    zman Says:

    Cramer is a real piece of work on these names. The guy loved it over $60, hates it at $14. Funny, the commodities aren’t even off that kind of percentage. December 20s are a pretty good stretch but they will give you leverage on a move into the mid-high teens.

  79. 79
    BirdsofpreyRcool Says:

    oh-no… Hank is going to speak later today. Hang on to your gains.

  80. 80
    zman Says:

    Thanks Bird, think I’ll hang on to my OIH puts through his speech at least. OIH bucking the market and other energy stocks today, down 1 to 2%.

  81. 81
    md Says:

    It’s not too late to short the Hank.

  82. 82
    zman Says:

    Of course, sooner or later the market will do the opposite just to get you, lol.

  83. 83
    Dman Says:

    AP headline:

    Stocks advance on reassuring comments from Ford CEO; investors await November sales

    NEW YORK (AP) — A stock market reassured by Ford Motor Co.’s assessment of its financial health bounced back Tuesday, regaining some of the ground lost in the previous session’s huge drop.


    That’s gotta be a joke, right? Ford says X so we all just assume X is true because … er… Ford has always seen the future so clearly… ??

  84. 84
    BirdsofpreyRcool Says:

    IG 259… bonds rallying somewhat… automotive bonds up.

  85. 85
    BirdsofpreyRcool Says:

    cold weather hitting NYC by the end of this week. Snowing in parts of the midcontinent now.

  86. 86
    mahout Says:

    Dman #49, #50, #64,

    Friend, may i try?
    In this order, Norway, OPEC, Russia, Mexico(last of course). No Canada yet.
    How about this: NOPECRMEX
    And when Mexico shortly becomes an importer of oil it will be NOPECR.
    Seems appropriate to me, at least. It may not catch on, but that’s the way i’ll think of them.

    On courting Russia and others to join them in their production cutbacks it gives them covenient scapegoats if they don’t go along. So much of this is jawboning anyway.

    Sam #65,

    Horrible news on my beloved RIG. The way the price has shriveled maybe it’s already priced in, as in a lot of my stocks that have “going out of business” priced in. Any chance of that?

    On AAPL. I’m pretty sure the cash is up to 24B and growing fast. And a key thing is earnings are substantially understated by the 24 month amortization of profits on all the Iphone sales. True profits are a good bit higher than reported.

  87. 87
    BirdsofpreyRcool Says:

    FBR webcast presentations:


  88. 88
    zman Says:

    Thanks Bird, listening to XOM at Merrill now. Nothing beyond the vaguest of big picture stuff…waiting on Q&A.

  89. 89
    BirdsofpreyRcool Says:

    listening to CRK. stock seems to be a fav of the fast money crowd. that’s good… and bad, of course.

  90. 90
    BirdsofpreyRcool Says:

    Fixed income sector update:

    Energy bonds off avg 1 pt today
    Industrials mixed to off 1 pt
    Aero/Defense holding up
    Coal weaker tone… BTU holding up, ACI flat, MEE softer

  91. 91
    rseidman Says:

    Z: Speaking of XOM, your OTM Dec
    85 calls for XOM, are you waiting for an event to punt, or
    a price? Premiums tend to decay from now to expiration.
    I’m still hanging in but getting nervous with the market’s volatility.



  92. 92
    rseidman Says:

    I meant to say that premiums tend to decay more quickly than longer term calls.

  93. 93
    zman Says:

    RS – not an event driven position. Continue to believe that they benefit from a tightening in the energy investing arena. Have taken a position in the Aprils for a longer position and will take these off the table some time next week, 85s out first, then the 80s.

  94. 94
    Sambone Says:

    “Don’t poke tha bear!!!” Hank “Bazooka” Paulson

    By Tom Barkley

    WASHINGTON (Dow Jones)–U.S. Treasury Secretary Henry Paulson played down the
    risk that the Chinese government may reduce its holdings of U.S. government
    debt Tuesday, saying the country has stood by the U.S. throughout the global
    financial crisis.
    “The Chinese have been very responsible partners and stakeholders, and have
    continued to stand by us and stand by our debt,” Paulson Tuesday in answering
    questions before traveling to China for the fifth round of the Strategic
    Economic Dialogue being held in Beijing. He leads a U.S. delegation to the
    semiannual talks, known as the SED, to be held Thursday and Friday.
    Paulson said the Chinese government has recognized that the U.S. is taking the
    steps necessary to deal with the problems in its financial system, and that
    maintaining market stability is in everyone’s interest.
    When asked whether one of the Big Three Detroit automakers should be allowed
    to fail, Paulson said no one in the Bush administration believes that a
    bankruptcy would be a good idea given the “fragile” state of the economy. But
    he said the companies must come up with a viable survival plan to warrant
    government help.
    “Viability has got to be the key here,” said Paulson.

    -By Tom Barkley, Dow Jones Newswires

    Dow Jones Newswires
    12-02-08 1310ET

  95. 95
    zman Says:

    Sam – I think Hank’s memory is going. The US has been trying to get the Chinese to float the Yuan for years. Now they are going to devalue it to save their economy (exporting their way out of an impending slump). Some partners they are.

  96. 96
    Sambone Says:


    * Oil is getting drilled
    * Oil isn’t looking too slick
    * Nat gas is getting burned
    * Gold has lost its luster
    * Silver’s looking tarnished
    * Copper’s getting smelted
    * Wheat’s getting scythed down
    * Sugar ain’t looking too sweet
    * Coffee’s getting roasted
    * Cotton’s getting put through the mill
    * Soybeans have been crushed
    * Cocoa isn’t too hot

  97. 97
    zman Says:

    HAL presentation in 10 minutes at M.L.

    The XOM call was completely uneventful. They sounded cautious (as always) on acquisitions/deals, maybe more so than usual given the environment so it was pretty much what you would expect. They are looking at lots of things but did not get specific and I’d expect smallish premiums if they do anything at all.

  98. 98
    zman Says:

    BOP – re CRK – I like those guys, anything interesting, have not gotten an update since 1Q.

  99. 99
    BirdsofpreyRcool Says:

    CRK presentation… paused it… will get back to you with comments.

  100. 100
    zman Says:

    HAL guy sounds depressed.

  101. 101
    zman Says:

    HAL, “we feel like there are challenges coming.”

    How HAL plans to address the coming tough times:

    Four areas:
    1) service portfolio: 8 different service lines addressing all aspects of reservoir performance.
    2) customer alignment: want to be with customers who have strong balance sheets (duh). Pursue those customers who have staying power and long term perspective.
    3) differentiating tech.
    4) geographic diversity. N. America is less than half their revenues. That’s ok if the rest of the world doesn’t slow. Hmmm.

  102. 102
    Sambone Says:

    By Brian Baskin

    NEW YORK (Dow Jones)–Oil and gas producers are worried about the credit
    crunch and falling prices, but are sticking to budgets set in happier economic
    times, according to a survey of chief financial officers.
    Of the CFOs surveyed, 57% said they expect the tight credit market to be their
    top financial challenge in 2009, while an additional 26% cited low oil and gas
    prices, according to the survey conducted by BDO Seidman LLP. The Chicago-based
    accounting and consulting firm questioned CFOs at 100 oil and gas companies,
    ranging from regional producers to international energy giants.
    The survey was conducted in October and November, when oil prices plunged 46%,
    hitting their lowest point since May 2005 toward the end of the period. The
    rapid drop came as lenders dealt with the fallout from a series of bank
    failures and mergers starting in September. Producers who relied on borrowed
    cash and the expectation of high prices to finance projects suddenly found it
    difficult to obtain new credit lines. Oil futures recently traded at $49.10 a
    barrel, while natural gas traded at $6.460 a million British thermal units.
    Both are down more than 50% from summer highs.
    BDO Seidman’s survey showed a widespread belief that difficulty in raising
    cash will persist into next year, said Charles Dewhurst, head of the firm’s
    energy practice. “The less well-managed smaller companies are going to have
    some real working capital constraints and profitability constraints,” Dewhurst
    For most energy companies, however, cheaper oil and tighter credit won’t
    result in major adjustments, the survey found. Only 8% of CFOs admitted that
    staff cuts are likely, and most companies said they plan to hold spending on
    oilfield services steady, with some even looking to increase their budgets,
    Dewhurst said.
    That’s particularly the case for the largest producers, he said. These
    sprawling multinationals, such as Exxon Mobil Corp. (XOM), tend to have healthy
    cash flows and conservative oil price forecasts. Their projects are mostly
    financed without borrowing and are expected to be profitable even at oil prices
    below $40 a barrel. It would, therefore, take a prolonged downturn to force the
    industry to scale back in any meaningful way, Dewhurst said.
    “We won’t see the full repercussions of the economic crisis for a couple of
    years in the oil industry,” he said.

    -By Brian Baskin, Dow Jones Newswires
    Dow Jones Newswires
    12-02-08 1300ET

  103. 103
    Sambone Says:

    Any other time this would boost crude.


  104. 104
    Sambone Says:

    Uncle Phil


  105. 105
    zman Says:

    Bob Pisani on CNBC saying what we all know. Ever time they rally this market in an all green fashion, they pull it back shortly thereafter. Market doing that right now.

    HAL Q&A – pretty downbeat near term/2009.

  106. 106
    BirdsofpreyRcool Says:

    IG wider at 265 bps… but no real volume behind it

  107. 107
    BirdsofpreyRcool Says:

    Just scrolled past: Crude drops to $47.27/bbl… down $100 from July record high (they have been dying to use that headline)

  108. 108
    zman Says:

    NXY up on TOT takeout rumor. Group would likely catch only a small 1 or 2 day boost if that deal, which makes some sense goes through.

  109. 109
    ram Says:

    From a closing basis, is CL close to meeting a fib level?

  110. 110
    zman Says:

    Re 107. No doubt! Saw another earlier that said retail gasoline fell for 76th consecutive day. Very bearish out there.

  111. 111
    zman Says:

    Ram – Its not on Tater’s page today, I’ll see if I can find him.

  112. 112
    tater Says:

    hey ram,
    Just looking in and I saw your question about Fib levels for crude. I really don’t understand what your question is exactly. Fib retracements occur at different places depending on where you start from. The best way I can guess at an answer would be to say that WTIC has retraced 100% of the move from Spring of ’05 at $48.07
    Let me know if you want something other than that.

  113. 113
    Bob Says:

    CPE still making all time lows. With the cancellation of the Entrada field drilling, isn’t there some book value left? $1.51/share would be a cheap option with no expiration

  114. 114
    zman Says:

    Bob – I was staying away after nearly stepping on that land mine but you do have a good point. Unless it dies under the weight of its debt it does have other assets and Entrada can still be sold (eventually). Will have a look at that.

  115. 115
    tater Says:

    I put a chart of Fib levels for crude at the link. That might help more than me trying to say what the levels are. The point of the chart is to see where the retracements might over-lap should there be a bounce someday.


  116. 116
    ram Says:

    Tater – Gracias amigo! Since the current levels have blown through the 61.8% retracement, what is the next level of support? What point in time can you go back to and say it has to hold this point before it will try and find support at a different lower level?

  117. 117
    tater Says:

    Short answer is you can’t. Price can do what it wants. I know that doesn’t help anybody, but that is how it works.
    Long answer; I look to what I would consider to be a “reasonable” level of support in the near term. That’s why I am on this site, Zman and all you guys give a good answer as to what the present climate of trading reasonability is. King of Saud, Vlad the Putin, Hugo, Canada sands, etc. All provide the climate.
    Long answer for TA? The $40 price range seems like an absolute low barring the armageddon lifestyle (matches the high of ’00 and early ’03). And that should probably prove to be a short term (one month) low, meant to scare out the weak hands.
    I am not saying we actually do see $40, just that it is a number that jumps out from the chart.

  118. 118
    zman Says:

    ZTRADE: $10KP

    Sold the OIH $70 December puts (OIDXN) for $5.65, up 69%. Will reposition after the next rally.

  119. 119
    zman Says:

    CNBC says gasoline demand at lowest YoY drop since April at down 0.3%, I think that was the MasterCard survey she was citing.

  120. 120
    ram Says:

    ZMAN – CPE being a $35M company now, what would be the reserves needed to break even?

  121. 121
    zman Says:

    Ram – No problem, will have it for tomorrow.

  122. 122
    BirdsofpreyRcool Says:

    z – CPE… wasn’t there a HW note that put an asset floor value on CPE after the Entrada suspension? I can’t find it… may have deleted it…

  123. 123
    ram Says:

    Tater, I can’t imagine anyone on this board predicting oil would fall $100 in 5 months. Therefore, forgot where I was going with this, I am going to order another Samuel Adams!

  124. 124
    mahout Says:


    Bot CHK at 13.91 a few minutes ago.
    Had missed it a few days ago on a day order when it shot up. Have no idea where the bottom is on: Cl, NG, the economy, the stock market, the financial freeze-up, fear in the general population, unemployment levels or anything else, but i do think that’s a great price on CHK for the long pull if they don’t go broke.


    Yesterday you were thinking about nibbling a little on CHK. How do you view it now?

  125. 125
    VTZ Says:

    I was just looking at it for the first time today and man it’s just getting mauled.

  126. 126
    zman Says:

    BOP – I looked but can’t find, may have hard copy and will incorporate in the bit for tomorrow on CPE.

    Mahout – I think you are fine medium and long term. Don’t see them going broke, lol.

  127. 127
    zman Says:

    V – did you see the TOT for NXY rumor?

  128. 128
    zman Says:

    CHK on the tape with EGN saying Alabama shale tests were inconclusive. CHK to no longer participate there. This was a new small play for them and I say good riddance, who needs the distraction. I don’t think they spent much at all on acreage here.

  129. 129
    VTZ Says:

    I’ve seen TOT for NXY rumours for a long time… could happen and would make sense considering TOT has bought Synenco and Deer Creek already. They clearly want to be an oil sands powerhouse.

    I’ve also heard RDS.A for NXY because their technology is licensed in the NXY/OPC upgrader.

  130. 130
    VTZ Says:

    I would consider the TOT one viable considering I’ve heard it for a long time and this is an extremely oportunistic time.

  131. 131
    VTZ Says:

    I would consider OPC a takeout candidate by TOT if they take nexen.

  132. 132
    zman Says:

    Song remains the same from a couple of weeks ago. Other than when we enter the red zone of hating everything (the sea of hate for you old timers), the trades moving well are in the low debt, low risk, double digit growth (organic only) with low cost structures. Cash on the balance sheet a major like as well.

  133. 133
    zman Says:

    Beer thirty!!!

  134. 134
    tomdavis12 Says:

    Z: Not sure you mentioned that Cramer said to sell CHK last night. Usually a good time to do the opposite.

  135. 135
    VTZ Says:

    One more reason why TOT would take NXY is they have a lot of quality international assets and it would fit with their strategy. They are a true international E&P.

  136. 136
    mnt Says:

    Here is where I read about Cramer and CHK.


  137. 137
    jsaun14 Says:

    Whoa…Little Vaalco (EGY) traded over 2.8mm shares today.

  138. 138
    Dman Says:

    mahout –

    #86 I think NOPECRMEX is good. It has the feel of a kind of James Bond bad-guy organization that I was looking for.

    #124 – I passed on the CHK yesterday. Probably because Z mentioned waiting for it to get back to its lows (from the time of the great Aubrey sell-down) and I figured “yeah, what a good idea”.

    As for today, I was looking at it but I got distracted by some other fish in the energy sea & so no CHK for me.

  139. 139
    mahout Says:


    My desire to buy CHK was given additional energy by Kramer totally turning against it. I knew his lemmings would immediately sell, sell, sell and drive it back down. I would have loved to wait for the October low to appear again, an attractive price per Zman’s post, however it MAY never get back to that panic low. If it does, i will say hot dog and buy some more.

  140. 140
    PackMan Says:

    CHK … unreal … the Cramer effect in this kind of illiquid market is magnified I guess, particularly on a sell call.

    He’s wrong of course, but that didn’t help CHK today.

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