Thursday – Oil Inventory Preview Plus

137 thoughts on “Thursday – Oil Inventory Preview Plus”

1. By Lananh Nguyen
   Of DOW JONES NEWSWIRES

   LONDON (Dow Jones)–Crude oil futures rose in London, piggybacking gains in
   the equity markets.
   “We suspect that energy markets will continue to shadow the U.S. equities over
   the next few days, as the state of the U.S. banking system will be front and
   center in terms of market attention,” said Edward Meir, an analyst at MF Global
   in New York.
   At 1231 GMT, the front-month March Brent contract on London’s ICE futures
   exchange was up $0.38 at $45.40 a barrel.
   The front-month March light, sweet crude contract on the New York Mercantile
   Exchange was trading $0.32 higher at $43.87 a barrel.
   The ICE’s gasoil contract for February delivery was up $5.25 at $434.50 a
   metric ton, while Nymex gasoline for February delivery was down 118 points at
   116.20 cents a gallon.
   Resurgent stock markets – cheered by the inauguration of U.S. President Barack
   Obama – gave oil prices a lift early in the session. Buying was also spurred by
   traders covering short positions, or bets that the market would fall.
   Market participants were now turning their attention to a key U.S. oil
   inventory snapshot due at 1600 GMT, delayed by a day by the Martin Luther King
   Jr. holiday Monday.
   Analysts surveyed by Dow Jones Newswires forecast crude inventories for the
   week ended Jan. 16 would rise by 1 million barrels, while gasoline stocks were
   seen up 1.6 million barrels. Distillate inventories were predicted to decline
   by 600,000 barrels.
   The oil market will also keep a close eye on stock levels at Cushing, Okla.,
   the delivery point for Nymex’s light, sweet crude oil contract. The difference
   between front-month Nymex crude futures and later contract months has narrowed
   sharply after widening to unprecedented levels in recent weeks due to a supply
   glut at Cushing.
   “The recent relative strength in crude will probably require some support from
   today’s…stats, but if the inventory builds are bigger than expected that
   could pressure the oil prices back down,” said Marius Paun, a broker at ODL
   Securities in London.
   Some participants and commentators suggested the narrowing contango – where
   front-month futures contracts are cheaper than deferred months – could be the
   beginning of a turnaround for oil prices.
   “I see the strengthening of the timespreads as the first signal that the
   fundamentals are starting to improve here,” said Torbjorn Kjus of DnB NOR in
   Oslo.
   Latest production cuts by the Organization of Petroleum Exporting Countries
   are starting to tighten the market and counteract a stark decline in demand,
   but it will take months before fundamentals balance out, Kjus added.
   Separately, data emerged from China Thursday showing the country’s demand for
   diesel, which is largely consumed by the industrial and power sectors, may have
   been particularly sluggish due to the sharply slowing economy.
   China’s diesel output in December declined 9.5% on year, according to data
   from the National Bureau of Statistics. Some of the nation’s refiners are
   expecting refining activity to remain slow at least through February, industry
   sources said.
   -By Lananh Nguyen, Dow Jones Newswires (Jing Yang in Shanghai contributed to this report.)

   Dow Jones Newswires
   01-22-09 0750ET

2. Things We Care About in the Credit Market: HK announced they plan to sell $300mm of 5-yr senior notes.

   I have no doubt that HK will be able to raise the $$. Only question will be what price. So, good news for HK, I would thing. The proceeds will be used to pay down senior bank debt and to fund a portion of its 2009 capital budget.

   Oh… bad news is that HK took a $1.1B impairment on high-cost assets. But, this was not unexpected.

   Will update with progress as I see it.

3. Thanks BOP – I had just sent you an email along those lines. I don’t know the structure of their current debt but the impact of the impairment upon stockholders equity and the new added debt will likely push them north of 40% debt to cap. I honestly don’t like them commenting that some of the debt will be used to fund capex. If prices don’t warrant drilling, don’t drill. Don’t grow as fast. It can’t all be for getting acreage into HBP status. I saw, cut what’s not.

4. http://www.epmag.com/WebOnly2009/item28239.php

   Uh yea, need more land open to drilling …

5. HK – also, there will be a conference call… just not for the equity market. Watching the stock will give us a sense of how the debt road show is going. Again, I think they have no problem placing this debt… just comes down to price (yield). Guessing 11.5%… a far cry from the 7 7/8% they paid on their last trip to the debt market. But, not out of line with the New Normal.

6. HK – as of 9/30/08, HK had nothing drawn on their bank facility. This must have changed, as they will be using part of the new $300mm of Sr Notes to repay the bank. At the time, HK had about $1,830mm of Senior Notes (including debt assumed with the KSC and Mission acqtns). Also at the time, HK’s bank agreement was $1.5B with a borrowing base of $1.1B. The only bank covenant mentioned is a 2.5x interest coverage floor.

   The equity market may dislike this offering, for a bit, but it gives HK more financial flexibility at a time when nat gas prices are tough to predict. Financial flex is a good thing to have these days.

7. By Christine Buurma
   Of DOW JONES NEWSWIRES

   NEW YORK (Dow Jones)–Natural gas futures slipped Thursday, reaching a fresh
   two-year low on weak economic data and ample supplies.
   Natural gas for February delivery on the New York Mercantile Exchange was
   trading 24.7 cents, or 5.17%, lower, at $4.533 a million British thermal units
   after reaching a low of $4.529/MMBtu in combined electronic and floor trade.
   Gas futures last fell below that level on Sept. 27, 2006.
   Dismal economic data were pressuring natural gas prices lower Thursday. Home
   groundbreakings fell 15.5% to 550,000 in December, according to the Commerce
   Department. Meanwhile, Labor Department data showed that initial claims for
   jobless benefits jumped 62,000 to 589,000, the highest level since November
   1982.
   Economic woes have driven gas prices down amid concerns about waning demand as
   factories shut and industrial consumers scale back gas usage.
   “Poor housing and job claims data won’t help the cause,” wrote Drew Wozniak,
   vice president of market research and analysis with ICAP Energy in Louisville,
   Ky., in a note to clients Thursday.
   An abundance of gas in storage was also sending prices lower. Total gas in
   U.S. storage as of Jan. 9 was 2.736 trillion cubic feet, 3.1% above the
   five-year average and 1% above last year’s level.
   “Even the cold weather couldn’t hold gas prices,” said Mike Fitzpatrick, a
   broker with MF Global in New York. “The ample storage really hasn’t been put to
   the test this year.”
   Physical natural gas for next-day delivery was trading 12 cents lower at
   $4.74/MMBtu at the benchmark Henry Hub, compared with early Wednesday, while
   gas at Transcontinental Zone 6 in New York was down $1.15 at $6.50/MMBtu,
   according to the IntercontinentalExchange.

   -By Christine Buurma, Dow Jones Newswires

   Dow Jones Newswires
   01-22-09 0931ET

8. By Brian Baskin
   Of DOW JONES NEWSWIRES

   NEW YORK (Dow Jones)–Crude futures traded lower on new signs of weakening
   demand, which is seen adding to already high oil inventories.
   Light, sweet crude for March delivery traded $1.35, or 3.1%, lower at $42.20 a
   barrel on the New York Mercantile Exchange. Brent crude on the ICE futures
   exchange traded 58 cents lower at $44.44 a barrel.
   Both the U.S. and China reported disappointing economic indicators, the latest
   confirmation that a recovery in demand from the world’s largest oil consumers
   is likely still far off. China said its gross domestic product grew by 6.8% in
   the fourth quarter, down from 9% in the previous quarter. U.S. housing starts
   fell 15.5% in December from the previous month, more than the 4% decline
   expected by analysts.
   The latest data helped to halt a rally that had seen oil rise by $8 since Jan.
   15.
   “What hasn’t changed are the fundamentals, and the fundamentals [show] the
   market’s a mess,” said Stephen Schork, editor of the Schork Report, an energy
   newsletter. “The economy is a mess and therefore demand is going to follow
   suit.”
   Refineries often undergo maintenance in February and March, which could reduce
   demand even further, Schork said.
   The Organization of Petroleum Exporting Countries is attempting to reduce
   production in response, but global oil inventories are still rising. A record
   amount of oil is being stored at Cushing, Okla., the Nymex contract’s delivery
   point, and other storage centers are reporting historically high inventory
   levels.
   Oil inventories are expected to rise by another 1 million barrels in the week
   ended Jan. 16, according to a Dow Jones survey of analysts. Gasoline stocks are
   seen increasing by 1.6 million barrels, while distillate inventories, including
   heating oil and diesel, are expected to fall by 600,000 barrels.
   The data is due out at 11 a.m. EST from the U.S. Energy Information
   Administration.
   Front-month February reformulated gasoline blendstock, or RBOB, recently
   traded down 4.77 cents, or 4.1%, at $1.1261 a gallon. February heating oil
   traded 3.52 cents, or 2.5%, lower at $1.3508 a gallon.

   -By Brian Baskin, Dow Jones Newswires
   Dow Jones Newswires
   01-22-09 0933ET

9. Z, Quake coming?????????

   Scientist: New fault could mean major Ark. temblor

   – Haydar Al-Shukri, director of the Arkansas Earthquake Center at the University of Arkansas at Little … LITTLE ROCK, Ark. – A previously unknown fault in eastern Arkansas could trigger a magnitude 7 earthquake with an epicenter near a major natural gas pipeline, a scientist said Wednesday. Haydar Al-Shukri, the director of the Arkansas Earthquake Center at the University of Arkansas at Little Rock, said the fault is separate from the New Madrid fault responsible for a series of quakes in 1811-12 that caused the Mississippi River to flow backward.

   Acres of cotton fields cover the fault west of Marianna, about 100 miles east of Little Rock, but stretches of fine sand mixed with fertile soil gave away the fault’s location, Al-Shukri said. Liquefied sand bubbled up through cracks in the earth, while ground radar and digs showed vents that let the sand reach the surface, he said.

   The fault, likely created in the last 5,000 years, sparked at least one magnitude 7 earthquake in its history. Such temblors cause massive destruction in their wake.

   “This is a very, very dangerous (area) at risk of earthquake,” Al-Shukri said. “When you talk about (magnitude) 7 and plus, this is going to be a major disaster.”

10. BOP – good points in 5 and 6. We shall wait and see. I just would have liked to see an ops update and more detailed plan for the funds at this time. Feels like they are still spending faster than they would like us to know about. Let me know if you hear anything.

    Crys – zoiks, my house is 100 years old, unlikely to withstand that kind of movement.

11. I’m not doing anything pre numbers today unless the broad market just falls apart taking everything back to yesterday’s lows which I kind of doubt will happen. I liked the NE quarter and may take a little of one of the offshore drillers but have not looked at the options this morning. Just for a trade most likely.

12. BDI +45 945
    TED +.039 1.05 Slightly weaker

13. Trading Desk says: buy in the 1st hr for a rally thru lunch and into the afternoon and final hour.

    Caveat: MSFT may have thrown a wrench into that. So watch that stock.

14. One thing I forgot to mention in the post on HK is that year end exit rate of 400 MMcfepd listed in the press release is equal to their 2009 volume number which means that if they just hold flat all year they will attain their 30% growth target.

15. ZTRADE: $10KP

    Bought (2) RIG February $50 Calls (RKJBJ)for $3.30 with the stock off $1.20 on the day and after the better than expected results at NE. See post for details.

16. DRYS on the tape cutting capex, suspending dividend.

17. HK doing a good job of shrugging off the debt deal so far, again outperforming the group early. Need to get benign numbers out of the EIA before I add more to my trading position here.

18. z any comments on Nat Gas drop

19. BOP – Re SD conv. Where do I find it, so I can buy it.

    Thank you

20. El-d. Hmmm. Just saw it myself. Seems there is a warm forecast out somewhere. Maybe people are just selling into what they think will be another disappointing set of numbers tomorrow. Hard to say. The stocks seem to be paying more attention to the broad market by a good measure.

    More on HK. So far so good. Not to beat a dead shale well but if this is how the market is going to treat price related impairments this year I’m going to be a happier guy than I thought at the end of February. The stocks have discounted a lot including weak prices and their impact on reserves. F&D costs will be distorted by all the writedowns and since most people are in the same ocean, all the boats will continue to move in the same direction. The one caveat would be those overleveraged players with high lifting costs (especially the oily ones). Those guys may have some debt troubles soon. I’ll come up with a list.

21. BOP – nice cool headed comments on HK this am. Perhaps I was a little harsh in my critique. I still say this was not the press release I was looking for but that does not mean its not around the corner.

22. elduque – it’s the only 8.5% SD convertable preferred out there. I don’t see a price for it on Bloomberg… so don’t know how it’s trading (and not much help on how to buy it).

    Anyone else out there better at looking up preferreds?

23. BOP – got a cusip on it?

24. z – let’s hope… i bot it back…

25. SD convert pref’d CUSIP = 80007P406

26. Thanks BOP – no fruitcake for you if you own it again.

27. file under news flash: “Blind Squirrel Finds Nut”

28. Free live oil quote link sent in by one of the friends of the site:

    http://www.cx-portal.com/wti/oil_en.html

    Looks to be accurate to my live quotes that for some reason I pay for each month. Hmmm…

    Will add this link to the links at upper right of site.

    Thanks EC for sending!

29. Thoughts for one of our email in guys who can’t comment on the site due to a pesky compliance department:

    I bought some RIG a few minutes ago, think they will do well, same DO. Less sure on the shallow guys but it might be time for a reprieve there too. But on the deepwater, the damage done to the stocks makes little sense given how locked in 2009 and 2010 are for contracts and how well rates continue to hold up. RIG was a $150 stock last summer. Seems odd its at $50 and will still print $16 of EPS if not more this year.

30. Faber on CNBC reporting Dr. Doom commenting that China’s GDP report is misleading in that it is YoY and Quarter on Quarter like other countries report. He says that if the number were adjusted to match standard reporting China’s 4Q number would not be 6.8% but closer to 0.

31. “RIG was a $150 stock last summer. Seems odd its at $50 and will still print $16 of EPS if not more this year.”

    Remember DRYS….the numbers are almost identical

32. Gaamblor – right, the stock numbers. But the denominator (the E in P/E) is quite different. DRYS benefited from the spot dry bulk market during the run up but its EPS estimates have collapsed with carrier rates. RIG has much of 2009 and 2010 already locked down with contracts.

    DRYS:
    2008 EPS: 12.30
    2009 EPS: 5.54 (3.55 to 8.32)

    RIG
    2008 EPS: 14.34
    2009 EPS: 14.90 (range of 12.85 top 18.04)

    DRYS is doing what they need to do to survive so maybe we are at the low point there.

33. SD 8.5% not for public consumption

34. Market and energy selling off in advance of the oil numbers which we get in another 20 minutes.

    Interesting factoid on HK. Implied volatility up as I’m now up 12% on my 17.50 Feb Hk’s despite the fact that I never broke above break even yesterday on them at these same levels in the stock. Market seems to be anticipating more news.

35. Z-re your comment on China growth in the discussion section above and #30, PetroChina PTR, the huge state-owned petro company, is off from $101 on Jan 6 to a close of $77 yesterday-not a good sign about China growth.

    Tom

36. Financials dragging the mrkt down… again.

37. El-d – How so?

    EC – have you looked at those SD converts. They didn’t start out as busted, just discounted but that’s a good firm, not about to go under, just stressed with prices where they are.

38. HK now more than four bucks over CHK PPS.

39. El-D … I see what you mean. The SD convert pref’d was not listed as a 144a Private Placement… but I see it described as “private” on the description page. I haven’t seen it put that way before (usually see 144a issuance). An issue that size, I would expect to be registered at some point. I’ll ask.

40. Choices – I have not been keeping my eye on them. Hard to tell with all the subsidies and pricing machinations over there how their profits will come out.

    Re Financials. I took a look at the top half of the XLF the other day and suffice it to say they all look cheap on forward numbers. But does anyone have any clue if those numbers are anywhere close to the mark. I still here/read people who say its time to bottom fish that group but I’ve got to ask why, when things are less clear now than they were a year ago when those same voices said to make that trade. At least with energy you can make your best guestimates on commodity price, multiply that by a volumes range and come up with a number that will be within a hand grenade of the truth, and, oh yes, they are just as cheap or cheaper than those financials, and have much to the power of 10 better looking balance sheets.

41. Why couldn’t those microtard guys be more like IBM or AAPL? Really crimping the market today.

42. Z – RE: Oil sands water consumption from the post.

    Alberta Environment (AENV) licenses the companies to remove a max flow and a normal flow from the rivers (Athabasca near Fort McMurray and North Saskatchewan near Fort Saskatchewan). The licensed volumes if ALL the “proposed” (but now cancelled) projects went through is something in the 3-5% of annual flow. The problem is in the winter when the water flow is naturally reduced and there is a large amount of ice. Many rivers in the US have licenses for ~10% of annual flow.

    AENV has the right to ask the producers to reduce consumption in periods of low flow (NOTE 1: the only “consumption” is evaporation off of cooling towers, the rest of the water is recycled or cleaned in the wastewater treatment plant and returned to the river)

    It has been a risk before and could happen in the future. All the companies have large river water ponds to accomodate periods of low flow. I suppose that if this is an ongoing problem it could be a problem for growth.

43. HK positioning to yet again be a winner in the event of a rally in the broad market. I like to see repeated strength from names, especially in this environment.

    Thanks for checking BOP.

44. Thanks V. Does not sound like a major impediment. Wonder if they could source from elsewhere (like a water bearing zone) or just increase the size of their ponds.

45. crude: up 6.1 mm
    gasoline: up 6.5
    distillate: up 0.8 mm barrels

    bad numbers on the surface

46. “Current water license allocations totals about 1.8% of the Athabasca river flow. Actual use in 2006 was about 0.4%. In addition, the Alberta government sets strict limits on how much water oil sands companies can remove from the Athabasca River. According to the Water Management Framework for the Lower Athabasca River, during periods of low river flow water consumption from the Athabasca River is limited to 1.3% of annual average flow. The province of Alberta is also looking into cooperative withdrawal agreements between oil sands operators.” – Wikipedia

47. No help on the crude imports which came in at 9.9 mm bopd.

    Utilization at refiners did fall, which explains part of the rise in stocks.

    Cushing only up 0.2 mm barrels which is the only bright spot I see so far.

48. Gasoline demand fell again but distillate demand rebounded (slightly) with the cold weather.

49. Thanks EC for the crude site, and thanks VTZ for the oil sands info (as always).

50. ZTRADE: $10KP

    TSO – Entered (5) TSO February $12.50 PUTS (TSONV) for $0.65.

51. OTTAWA (Dow Jones)–U.S. crude and oil products inventories soared past
    analyst forecasts in the week ended Jan. 16, according to data released
    Thursday by the the U.S. Department of Energy.
    Crude oil stocks jumped 6.1 million barrels to 332.7 million barrels, the
    department’s Energy Information Administration said in its weekly report. That
    compared with an average forecast of a 1 million-barrel build in a Dow Jones
    Newswires survey of 13 analysts.
    Gasoline stockpiles rose 6.5 million barrels to 220 million barrels, compared
    with an average survey estimate of a 1.6 million-barrel gain.
    Distillate stockpiles were up 790,000 barrels to 145 million barrels, compared
    with analysts’ forecasts of a 600,000-barrel draw.
    Refining capacity fell 1.9 percentage points to 83.3%. Analysts had expected a
    1 percentage point drop.

    U.S. Oil Inventories:
    For week ended Jan. 16.
    Crude Gasoline Distillates Refinery Use
    EIA data: +6.1 +6.5 +0.8 -1.9
    Forecast: +1 +1.6 -0.6 -1

    Figures in millions of barrels, except for refining capacity, which is
    reported in percentage points. Forecasts are the average of expectations in a
    Dow Jones Newswires survey of analysts earlier in the week.
    -By Hyun Young Lee, Dow Jones Newswires
    Dow Jones Newswires
    01-22-09 1115ET

52. API

    Crude UP 9.8M
    Gasoline DOWN 43K
    Distillates UP 73K

53. Thanks Sane. Traders ignoring that API gasoline number, RBOB is getting hosed.

54. I’ll probably take a look at SLB puts in here.

55. HK – debt conf call deets: will be held at 11:30 am (EST) today with slides, for QIBs only. I would be very surprised if the debt presentation doesn’t help the stock.

56. Tim Geithner approved… that should help the financials… and the mrkt, i would think.

57. Agree BOP. I know you know some of these guys including the Jefco HY analyst. If you look at this presentation:

    http://library.corporate-ir.net/library/10/105/105858/items/320259/543047E9-FE62-4B31-9F90-B30535631D5E_BMO%20Unconventional%20Gas%20without%20McSpirit.pdf

    Slide #9. I would like to know if they update it. Could be 3 more wells on it.

58. RBOB – down 8%. Oil not cracking lower. Demand poor. All bad for refiners.

59. Any opinion on Opti from Z or V

60. I’ll leave that to V

61. Another 52 week low for SLB in front of earnings

62. Tim Geithner yet to be approved by full Senate.

63. bop – trading desk position same as before?

64. Give me a bit md, I’m kind of busy.

65. This is funny, John Thain got pulled into old Ken Lewis’s office and it took 19 minutes to fire him. I wonder if he got his bonus like all the other Merrill folks before the deal with Bank of America was sealed.

66. sam i thot gasparino said he went into thain’s 1.2 million redecorated office and fired him

67. Wow, don’t ya just love being a BAC shareholder? K, either way short man with bulging eyes took a axe to him, LOL. Ya gotta give Thain an “attaboy”. He sold MER to Ken for $29.00 ashare when it was trading at $13.

68. kyleandy – trading desk backed off from thinking it will be a green day. they are still thinking we will close higher than the lunch-time lows. their caveat today was that their algorithm was run prior to MSFT’s earnings announcement. They said that “might throw a wrench in it.”

    Will check if there is any update.

    HK at 17.75 seems attractive… but, no technicals behind that thought.

69. #62 – was relaying a bloomberg headline on Geithner. guess it was a little early. seems it was only the Committee that approved at this point.

70. Trading Desk now stands at 50/50 for a rally, with a 70% chance we close in the red. They pointed out that closing red does not mean we go lower, we could bounce a lot higher from here and still close red.

71. El-D – you were right, sadly, on those SD convert pref’ds. They were issued in response to an inverse inquiry from an institutional holder, done quite quickly, and placed in private hands. So, put away and out of sight.

    Too bad. Great piece of paper.

72. Waiting to close to take puts on SLB, pretty sure I’ll do it. Not expecting a miss, just pessimistic go forward.

73. md,

    6 months ago I thought OPC was one of the best buys available because of their ability to pay back their debt quickly at those prices and potentially pay out dividends or do something else with their capital.

    Now it looks inreasingly likely that they will be unable to pay back or roll over their debt without dilution (2.4 billion with production of ~20 kbpd of light sweet crude).

    Having sold 15% of their stake to Nexen as a requirement to meet short term cash obligations they took a book value loss. They also look vulnerable to a complete buyout if Nexen decided it was favorable.

    Bottom line is the world for them has changed, reduction in oil price and credit availability leaves a grim outlook. If oil snapped back to 60 I would say they are worth something again but as it stands now, they will either be diluted or taken out by Nexen at a not-so-favorable price. Considering Nexen just bought 15% of their JV project for 730 million, they could buy out the rest 1.7 billion and call it a day.

74. Oil down 5%, gasoline down 9%. Refiners starting to back off a little more than earlier as oil hovers above $41 off its lows. VLO looks to be leading the charge lower but the stocks are not willing to crack just yet. If you right the ship in terms of crack spreads by lowering utilization but without seeing increased demand, it won’t last. Inventories are simply too high for those cracks to keep the recent gains without demand. Lower utilization does however mean lower throughput and therefore the volume part of your revenue is down … tough position to be in.

75. NXY was talking up the idea of making oil sands acquisitions last week at the Goldman conference.

76. Good morning and ugh!

    Broader market – lots of possibilities (a lot of help I know!) but my preferred has us in a wave iv triangle with us currently in wave d down.

    Crude – at some stage we are going to need to test or undercut the feb contract lows….

77. I would say that udner the current circumstances its almost a given that NXY finishes off OPC soon, question is at what price?

78. V – would that eventuality raise BQI up the snack list? Or are they not far enough along?

79. NE trying to go green. I like them and RIG for a trade into their call in an hour and a half.

    HK as well trying to go green with Dow down 220. Setting up nicely. Option premiums inching up with the stock doing so. I will probably take Feb 20 calls if I can nab them under a buck.

80. TBT doing well. Geithner’s comments about China manipulating it’s currency is causing a sell-off in longer-dated treasuries. Not really sure you want to pound the table on that issue right now, Tim. Especially in front of some new Treasury issuance next week…

81. Nicky – from a fundamentals standpoint on oil, the refiners are doing what they need to do to help themselves and its causing crude to pile up in the U.S. There is, in technical terms, a lot of crude in storage now. The big build OPEC saw coming is here. The unwinding or at least flattening of the contango is likely to make that worse. While I think natural gas is close to its lows (maybe 50 cents lowers at some point for a short span), its hard to see with the data we keep getting and imports still showing up despite OPEC’s cuts (and yes, we should have seen some impact by now so thanks a lot Canada for the U.S.) how oil does not retest those lows. The only thing that can save it from that is a bounce in the equity markets with financial buyers coming in for a short cover.

82. trading desk pointing out: GS, MS, and JPM turn positive. Usually preceeds a positive bounce.

83. They are towards the bottom of my list until price is way higher 🙂 Someone with a lot of research dollars and cash might be interested but it would be a tough acquisition… They are at least 5 years out of meaningful commercial

    First takeouts, UTS by PCA/PCZ, CLL.

84. Anyone seen a broker comment on the NE quarter? The one I saw just after the open was positive but I am not seeing any shifts in recommendations or targets just yet as they are all waiting on the call. Just wondering if anyone is hearing any preliminary thoughts there. I thought the quarter and outlook/positioning was good.

85. I meant to say meaningful full-scale commercial production.

86. “Noble Cut To Neutral From Add By Cap One” is all I see

87. Thanks V. SU sounds like they are not going to be one of the acquirers, I wonder if they might partner up more given their debt load and long range plans vs their cash flow. Saw another bit player oil sands project got hung up yesterday – Habanero.

88. I think Suncor will try to live within their means. So long as they still have Voyageur as an expansion opportunity, there is no reason to acquire anything.

89. If mid $40’s is a sweet spot for buying RIG, what is your take on selling the Feb $45 PUT for $2.60?

90. Right. The master move would be for XOM to buy SU for cash. $38 B on the balance sheet, TEV of SU, $28 B. They probably won’t do it but it makes a lot of sense and I don’t think there will come a time when Canada will nationalize the assets of a foreign oil company. REP facing that in Libya now.

91. Cargo – Its not a bad idea, could go either way right now. The $45 is my read on the technicals and I think Tater would tell you it goes lower than that before it goes higher from a TA basis as well. I was buying for a bounce on the NE news and may be indeed a bit early.

92. Z- That would certainly be the master move… Some day XOM is going to surprise us all with something.

93. TSO starting to roll off now.

94. wow… price talk on the HK’s wider than I expected. Talk is deal to be priced at a discount to yield 12.75 to 13%. But there is a lot of interest. $300mm size upped to $500-600mm face amount.

    Books will close at 2 pm, with pricing shortly thereafter.

    Could see a bounce in the stock once the deal is pronounced “priced and done.” It’s a 144a issue, at this point, so only insitutional investors can buy it. Another nice piece of paper, tho.

95. V txs
    TD Newcrest had a speculative buy recomendation on Opti 1 yr target of $4

96. V – you mean like volume growth, lol. Or a real North American acquisition. I guess they will have flat to up N. American volumes from a full year of Thunder Horse but then what? More offshore Africa where everyone is going to put the bite on your production sharing contracts and threaten you with nationalization. Come home to N. America XOM.

97. BOP – whose running the book?

98. JPMorgan

99. but, lots of banks on this deal: JPM//BAS/BMO/BNP/Wach/Barc/Fortis/RBC/Natixis/Piper/Wedbush.

    rather odd to see BNP there, as they shut their high yield desk down last week, I heard. interesting who’s not on the list: GS, MS, MER, CS… well, guess BAS is MER now. no Jefferies, either.

100. [Dow Jones] Cash flow for major oil companies is expected to decline on
     average by 33% this year from the 2008 record, says Fadel Gheit, analyst at
     Oppenheimer & CO. Inc. in a note to clients released Thursday. Exxon Mobil
     Corp. (XOM) and Chevron Corp. (CVX) have sufficient cash to make up for any
     shortfall to fund higher capital programs and even raise their cash dividend,
     he says. However, BP PLC (BP) and Royal Dutch Shell (RDSA) could have up to a
     $10 billion cash flow shortfall each and may have to reduce their capital
     spending or increase debt to maintain their dividends, Gheit added.

     Contact us in New York at 201-938-2030 or anna.raff@dowjones.com.

     Dow Jones Newswires
     01-22-09 1325ET

101. No Jefco is surprising. Very proficient in the spot secondary market. Glad to see a large syndicate, hate to think Joe Alman at JPM would be fielding all those fund manager calls…his lack of faith in the past on shale play economics/reserves has been most disconcerting.

102. ZTRADE: Added HK Feb $20 calls (HKBD) with the stock even on the day for $1.

103. Gregg Brody is the energy high yield analyst at JPMo. I haven’t worked with him, so can’t say… but, maybe he’s more rah-rah on the shales than Joe.

     That said, at 13%, my GRANDMOTHER should be able to place that paper!

104. BOP – good point.

     Oil retaking 42 level. Odd bit of strength. What is they say about a market which is able to take bad news and go up anyway?

105. “climbing the wall of worry”

     either that or, “short-covering”

     or, “Max pain trading”

     they all work.

106. HK, RIG, DO all acting well in here-I think wall of worry or max pain works for me.

107. I was thinking “oversold” but those others work too. If this day trading of HK thing doesn’t work out for you you always can write headlines for Bloomberg ya know, ;-).

108. z – I’m not a day trader!!

     Just tossing the nut back and forth a few times today. Blind Squirrel Amusement.

109. Sorry, that was low of me. That sting you feel at the back of your neck is pride messing you, lol.

     NE call starting.

110. DO / RIG suddenly green on the day. Its more fun not to be an original thinker.

111. SZ re: #75, 77 & 78. The only place NXY can go is so TOT here.

     PARIS (Dow Jones)–French oil major Total SA (TOT) can keep up an “aggressive” investment strategy despite low oil prices, Chief Executive Christophe de Margerie told France 24 television, according to a transcript distributed by the channel.

     “We are going through a period where the cash will be strongly limited but, thanks to the policy we’ve had in the past, thanks to all the actions we’ve taken to get a good balance sheet, to have our investment strategy based on 15-20 years and not on two years, we have the capacity to continue this, I would say extremely aggressive strategy – which means keeping our investments at least, at least in volume,” de Margerie said according to the transcript.

     The interview will be broadcast late Friday, France 24 said.

     -By Adam Mitchell, Dow Jones Newswires; +33 1 40171756; adam.mitchell@dowjones.com

112. z – no worries. You’re funny when you stoop.

113. Oil could give two figs about the inventory numbers, rising with Dow.

114. z – good call on scooping up those add’l HK calls. The stock should go up, when they announce that the bond deal closed. That will probably be after mrkt close, but should make for a nice day tomorrow, assuming no Micro-squish-like announcement.

115. NE CC

     1) they are not in a panic.
     2) no seeing bidding activity stop
     3) not seeing wholesale cancellations, saw one competitor see a contract get cancelled.
     4) only a fraction of their business is with smaller companies.
     5) how ya going to look in 12 months. If oil rebounds to $50 to $60 their share price will rebound with it. If not some of their customers will have some trouble.
     6) M&A: they are not in a hurry to do a deal, not yet seeing the kind of value they are looking for yet compared to newbuild opportunities. Don’t have to do anything.

     Fantastic opening statement by CEO.

116. Tater – At what level would the move in HK satisfy you as per your statement that it needs to get up soon?

117. The Jan 6th high at 19.30 (I have conflicting data, might have that high at 19.29) is the line in the sand for me. Now that doesn’t take into account the billionaires who love to run stops. But the line is at 19.30.
     Don’t forget you’ve got gap problems at 22.69.

     SPY chart shows that 83.72 is the resistance on this last downswing since Jan 6th.

     SPY 15 Min chart
     http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2933882

118. Analysts trying to poke holes in the 2009 NE story, so far no joy. Stock backed off with the broad market and everything else but the sentiment on the call is pretty positive.

119. Maybe day trading is the answer in this casino but unfortunately I have no skills in that area.

120. Wyoming – thanks for #4.

     Choice – nor do I.

121. I know it has become a cliche to talk about what a beast this market has become in terms of trading, but …
     I think your use of the term casino is exactly right. If NY is looking for a recipe to get more IRA and hedge fund withdrawals, this seems to be the ticket.

122. Well, it looks like we will still be able to go to Red Lobster and Starbuck

123. Moody’s takes HK to Negative. I despise the mechanical nature of the rating agencies and think that if anything should be tossed out as we regulate everything, it should be them.

124. Moody’s says they would return HK to Stable outlook if they raise equity and continue to report sequential production growth (which would prove to them that the company’s 2009 spending is “productive”. If only Google or some other tech company could invent a way for me to slap someone through their monitor.

125. Re 123, the rating agencies are a joke, albeit a grim joke, after their performance in the credit markets over the past few years. I believe it was Frontline on PBS did a special not long ago and surprise surprise it was all about money doing the ratings on credit products-they themselves did not understand their models as recounted by employees (former)-CEO’s of rating agencies were paid enormous sums and walk away free and clear. They do not need to look back at the shambles and they continue to issue reports on legitimate businesses-sorry I just realized that I was ranting.

126. By Kate Haywood
     Of DOW JONES NEWSWIRES

     NEW YORK (Dow Jones)–Speculative-grade companies are selling more than $1
     billion of junk bonds Thursday as they seize the opportunity to raise cash to
     repay debt and fund their operations.
     The biggest deal is from wireless infrastructure provider Crown Castle
     International Corp. (CCI), which is in the market with $900 million in notes.
     This is larger than the initial target of $600 million, according to one person
     familiar with the situation. Petrohawk Energy Corp. (HK) also plans to sell
     $500 million-$600 million in bonds – more than the originally planned $300
     million – and gas transmission and distribution company Tennessee Gas is
     looking for $250 million in what are known as drive-by offerings.
     A drive-by offering means there is enough demand for a deal without borrowers
     having to do a long investor roadshow. Drive-bys used to be fairly common in
     the junk bond market, but they have been few and far between since the credit
     crisis began. The drive-bys are yet further indication of a reopening of the
     new-issuance market for lower-rated companies and follow Nielsen Co. BV’s $330
     million junk-bond sale Wednesday.
     “As time goes by, the pace of issuance is picking up and more and more deals
     are getting done,” said Martin Fridson, chief executive of investment firm
     Fridson Advisors in New York.
     This is excellent news for companies that need to raise cash and have been
     locked out of the market for months. Investors caution, however, not to get too
     excited, saying that well-known companies with strong credit profiles will
     continue to find it easier to sell debt but lesser-known firms that are
     vulnerable to the weak economy will still face difficulties.
     “[Crown Castle, Petrohawk and Tennessee Gas] are well-known, good-quality
     companies that would normally have access to the market,” said Kenneth
     Monaghan, head of high-yield credit and portfolio manager at Rogge Global
     Partners in New York.
     Investors have turned their attention back to corporate bonds over the last
     few weeks, as yields on risk-free assets, such as Treasurys, are so low that
     buyers get very little return.
     “High yield is catching part of this, where people are looking for limited
     downside with very high yields,” said Gary Sullivan, head of high-yield bond
     portfolio management at DB Advisors, the institutional asset management arm of
     Deutsche Bank, on a call with journalists last week.
     This renewed interest has allowed speculative grade borrowers to sell $1.428
     billion of bonds already in January, making it the busiest month for high-yield
     issuance since July 2008 when companies raised over $3.8 billion in the market,
     according to data provider Dealogic.
     “It doesn’t say that the market has turned around, but to see three companies
     coming to market simultaneously after months of very little issuance is
     striking,” Fridson said.
     A revival of the junk bond market, which is a vital source of financing for
     some of the world’s major companies, is becoming more and more important as the
     default rate increases and the number of borrowers being downgraded to
     sub-investment grade rises. Speculative-grade borrowers made up the majority of
     U.S. corporate debtors for the first time in 2007, according to Standard &
     Poor’s.
     Crown Castle is expected to price its bonds to yield 11.25%-11.5%, according
     to a person familiar with the deal. The bonds are expected to come at a
     discount to par value to give a coupon of 9%. The yield on Petrohawk’s 5
     1/2-year bonds is expected to be 12.75%-13% and the coupon is seen in the
     mid-10% area. Tennessee Gas, a unit of El Paso Corp. (EP), is expected to sell
     its seven-year senior notes at a discount of around 95 cents on the dollar to
     yield 9%-9.25% for a coupon of 8%-8.25%.
     The yields are less than what the companies could have ended up paying had
     they tapped the market last year. But the cost of borrowing is still at record
     highs.
     U.S. junk bonds have returned 4.71% year-to-date after having fallen over 30%
     since the start of last year, Merrill Lynch Master II High Yield Index. Risk
     premiums, or spreads over risk-free Treasurys for high-yield bonds, meanwhile
     stood at 16.71 percentage points Wednesday, according to Merrill. That’s nearly
     twice what they were at the start of 2008 but well below the peak of 21.82
     percentage points in mid-December.
     Average yields are around 18%. This is down from highs of more than 20% last
     year, but it’s still more than double the yields junk bond issuers have
     traditionally been used to.
     Successful deals from Crown Castle, Petrohawk and Tennessee Gas won’t
     necessarily mean that fallen angels – companies that have had their credit
     ratings cut to junk from investment-grade – will find it easy to raise
     financing in the bond market, Rogge’s Monaghan said.
     “There is money coming into the market and people are looking to buy new
     deals. But it doesn’t mean that it’s going to be a walk in the park for every
     company that wants to tap the market,” Monaghan said.
     All three deals are expected to price later Thursday, according to people
     familiar with the situation.
     -By Kate Haywood, Dow Jones Newswires
     Dow Jones Newswires
     01-22-09 1500ET

127. Z- Did NE say anything about whether they exercised or extended the options for the three additional globetrotter drillships? I think those options were supposed to expire at the end of ’08. Thanks.

128. Coug – I didn’t hear it but I took a call during the Q&A for a couple of minutes. Will get back to you when the transcript is published later today.

129. Coug – They renegotiated the options during the fourth quarter for globetrotters 2, 3, and 4 at better prices, expires March now but they said the shipyards really want the work.

     #1 is $585 mm, the next ones will be closer to $550 mm. That’s everything in the price from ship to crew training to spares.

130. Nothing done on my SLB puts.

     Beerthirty.

131. #42, #46 …thanks for you insights, VTZ

132. HK – deal priced and closed. Low end of price talk and high end of amount raised. $600mm of Senior notes due in 5.5 yrs. 10.5% coupon priced at 91.3 to yield 12.75%.

     For a B3/B junk bond credit, it was a pretty good deal. Bonds are already trading up in the aftermarket to 92.75 from 91.3.

     Given that they originally set out to raise only $300mm, no surprise that Moody’s felt they had to say something about the debt load. Still, adds lots of nice-to-have-around cash and bank availability to HK’s balance sheet.

133. Thanks BOP. Was there any indication what their cash balance would be post deal?

134. GOOG beats, jumps AH

135. BOP … how about you get us all a copy of that trading algorithm ?

     That would be nice ….

     LOL.

136. Gas rigs down 50, down 237 YoY. Big drops in Colorado and Texas, Louisiana and OK down 5 apiece.

     Horizontal rigs up 10 which won’t help sentiment on gas, the commodity forgotten in today’s rally.

137. Don’t see doing anything today including taking profits. I’m going to go watch the kid grow and will be on my blackberry if anyone has anything pressing but I can’t imagine what that would be. Here’s to a green day in energy land, I think we got two of those this week. Wow. Beer thirty called early, have a great weekend!

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