Stimulating Friday

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Ecodata Watch: Worst job losses in 34 years as jobs fall a worse than expected 598,000 (forecast was 525,000). Unemployment reached 7.6% vs a 7.5% estimate. The average workweek was steady at a record low 33.3 hours. Meanwhile, the Senate, who seem to work more hours than most citizens but to less effect, is expected to vote on the stimulus bill today.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Natural Gas Storage Review
  4. Stuff We Care About Today - Drybulk Update
  5. Earnings Watch  - NFX
  6. Odds & Ends


Holdings Watch

  • ATW - $10KP trade - Out ATW Calls, Sold ATWCS Feb $17.50s for $1.90, up 36%. Solid quarterly report but a little more uncertainty with regard to unbooked days in remainder 2009 with lower re contracting rates seen and higher than expected operating costs. Will revisit if it drops post analyst comments tomorrow but I’ll probably just gravitate back RIG on next weakness.
  • HK - Sold HK Feb $20s out of the regular account for $2.40 up 65%. Pretty active stock and very active options.
  • HK - $10KP trade - Sold half of the HK February $20 Calls (HKBD) in the $10KP for $2.50 up 108% (lower entry point than the regular account). Time to play with house money.


Commodity Watch

Crude oil closed up $0.85 to end the day at $41.17, moving in line with the equity markets again. Notably crude made yet another foray into sub $40 land before, more notably, rebounding yet again. Playing on trader's sentiment towards crude:

  • We seem to be bouncing or at least bottoming on a technical basis but today will be a key test of the $40 level
  • There’s a good chance oil workers in Nigeria go on strike on Monday, reducing a good source of light sweet imports to the U.S. The world's crude is becoming heavier with the passage of time and disruptions to lighter crudes have more impact that from some middle and heavier grade production interruptions. 
  • The "market" seems to like the stimulus bill and may rally into President Obama's press conference scheduled for Monday night.


  • OPEC Watch - Saudi compliance: According to Bloomberg, Saudi Arabia has shifted its production from 110% of quota in October 2008 to 99.7% of their new, lower quota in January 2009.
  • MEND Watch. MEND attacked a supply boat killing one oil service worker in a raid yesterday. 

This morning crude is trading off $1.50 or so with the unemployment numbers. Nifkin sent in a story about the USO ETF which now holds 20% of the outstanding contracts being responsible for weakness as it rolls to the next month which may also be contributing to the slide as they sell March and buy April contracts.

Natural gas yawned at the news of an "in line" storage withdrawal inching up a whopping five pennies to close the day at $4.64.  This was my suspicion yesterday when I wrote the bit about need to see a 200+ Bcf number to get people into buying mode. This morning gas is trading off  6 cents.


Natural Gas Storage Review - "In Line" Withdrawal

ZComment: March gas now looks like this which looks suspiciously like another bottom. My first inclination is to not trust that chart. My second inclination is also not to trust that chart. Traders on CNBC yesterday said people are thinking it will bottom but it could go lower (helpful, I know). I continue to think the arrival of Spring-like weather will yield a earlier than normal end to the withdrawal season, and be a constraining factor on prices. I do expect prices to rebound later in the second quarter as production rolloevers filter into the EIA data. Several analysts are looking for gas to reach the $3s by late Spring with at least one calling for $2 by summer. That last is a bit nutty as it is below the cash operating costs for a majority of gas plays in the U.S. well below what will be this years finding and devlopment cost average. If gas prices in the $5 to $7 price range disincentivzed drilling, wait until you see $3 or $2.  


Stuff We Care About Today - Drybulk Update

Following The Sharpest Drop In Its History The Baltic Dry Index Is On A Two Week Run. The reasons for the fall were the global slump (pretty obvious I know) juxtaposed against a large number of new ships flooding the market. As things ground to a halt, commodity buyers started to renege on contracts signed in 2008 before prices for everything rolled over). 

It All Looks Like China. The reason for the rally is thought to be Chinese demand for iron ore to make steel, and coal to smelt this ore as China's stimulus plan kicks into high gear.We have independent corroboration from U.S. coal producers who are seeing firm metallurgical coal prices in the last few weeks. Chinese steel mills are in negotiations for a 40% reduction in iron ore prices which will mean even more steel for purchase and concurrently, met coal prices which have fallen from a peak of $250 last summer seem to be stabilizing in the 125 to 150 per ton range and that is a level that should see more buying. We are also hearing extreme drought conditions are setting up healthier than expected wheat imports. From Reuters ~ National Bureau of Statistics (NBS) said in a report on Thursday that 92 percent of the economists polled believed China's economy will recover from the global financial crisis in 2009, backed by the government's four-trillion-yuan stimulus plan.


Dry Bulk Operator Budgets Slashed, Dividends Whacked, and Loan Covenants Violated. Its been an ugly couple of months. As shipping rates plummeted well below daily operating costs, vessel values tumbled, pushing bankers to cry fowl, rating agencies to downgrade debt levels, and operators to cancel many new vessel orders. Meanwhile, many of the smaller ship yards have been unable to complete orders due to an inability to obtain project financing. Those last two items are a good thing. However, it is estimated there are 65+ Capesize vessels sitting empty at anchor

Dry Bulk Multiples - Everyone looks exceedingly cheap. There's cheap and there's cheap for a reason. Analysts and investors are casting an extremely conservative eye towards the group as a whole.

In this environment I'm going to prefer the lower debt, more capital structure flexible names. Many of the more indebted names below got that way by buying new vessels recently and at inflated prices. I prefer who have the ability to buy ships now.

Am I playing? No, not yet but I plan to dip a toe in drybulk waters in the next week.This is a momentum group that is trying to get its momentum back, so the swings can be higher percentage and quick to reverse. Many of the charts look the same with DSX being the poster child. The name on the top of my list is DSX - Low debt, suspended dividend to preserve options, buying back stock, looking to bulk up their fleet size on the cheap, and reports next week. By the way you can click on the Transports tab to find dry bulk resources and a table (a little dated but still useful) showing which company has what assets in the space.

Earnings Watch:

NFX Misses 4Q Estimates Due To Lower Prices; Updates Operations

  • The 4Q Numbers
    • Production:62.3 Bcfe, in the middle of guidance
    • Revenues: $338mm vs $450mm expected
    • CFPS of $1.87 vs $2.04 expected
    • EPS of $0.20 (ex a plethora of end of year items) vs $0.45 expected.
  • Reserve - Nothing really new, we reviewed their reserves on Jan. 30 here.
  • 1Q09 Guidance:
    • Production: 59 to 65.1 Bcfe, mid point yields flat  sequential growth
    • Costs: LOE/Mcfe seen in line with 4Q levels at $1.30 per Mcfe; G&A per Mcfe seen in line with 4Q as well.
  • 2009 Guidance:
    • production was 250 to 260 Bcfe or 6 to 10% annual growth as of January. No change in the press release
  • Operations Update:
    • Woodford Shale:
      • Exceeded 250 MMcfepd gross year end target
      • rig count dipping to 11 from 12 last year, drilling has continued to become more efficient/faster
      • 90% of acreage is held by production, shifting everything to pad drilling extended laterals
      • First dual lateral completed for an IP of 13 MMcfepd which is a good rate although they have had some longer reach single lateral wells best that....would like to hear on conference call how many are planned for 2009 as the idea was to double the reserves with only one vertical wellbore so not quite double the price.
    • Gulf of Mexico -early 2010 shaping up to be a confluence of new deepwater development production.

  • In A Nuthshell: They missed the quarter, I don't own the options now but am will listen to the call and decide how to play. Management here is smart and their finding costs will come down further next year. Right now I think they are overly discounted and probably worth a quick trade with the thought of owning the stock after the Spring shoulder season.
  • Conference Call: 9 EST


Odds & Ends

Analyst Watch: Rodman cut (BPZ) target from $15 to $10, UBS trims price target on (NFX) by $2 to $40, maintains Buy.

Housekeeping Watch: Suggestions for site improvements (more picks that don't suck you dolt) can be submitted to zmanadmin@gmail.com. Thanks. 

114 Responses to “Stimulating Friday”

  1. 1
    Nicky Says:

    Morning all.

    Z – oil was tanking long before the unemployment numbers came out and has in fact detatched from the indices this morning which look quite strong.

  2. 2
    elduque Says:

    BDI +144 1642

    TED 96.73

  3. 3
    zman Says:

    Thanks Nicky, saw it trade lower at 1 am and then again at 7 pre the numbers. Once it broke $40 it shot a bit lower, don’t know if down $1.50 is really considered tanking anymore. Don’t see any reason for the drop people could point to other than anticipation of weaker jobs and then weaker jobs, do you? Either way, I’d expect it to firm if the market can hold onto gains.

  4. 4
    BirdsofpreyRcool Says:

    Eco Data — even though the loss of 598,000 jobs (!!) was more than “expected,” wall street privately decided to rally any number that was less than 700,000. So, the jobs number — while worse than expected — is better than feared.

    Market will be looking to Washington, to say the least, for more reasons to take stocks one way, or the other.

    Ken Lewis (BAC CEO) giving an interview sometime between 11 – 11:15 EST on CNBC today. This could be a mrkt-mover as banking stocks continue to be a total drag on the market. Banks as a group are down, something like, 43% in 2009 alone. Fear is, if banks don’t heal up soon, the rest of the market will drop to join them. So, keep your eye on this space (which is usually a space I prefer to ignore… things change).

  5. 5
    elduque Says:

    Z – I wonder if I could start the dialogue about Mkt Cap and Ent. Value again. From a fundamental standpoint I don’t see the value in mkt. cap. and EV. This makes the assumption that the market knows the value best. Which I think takes away from the fundamental value of a company. A company can have far greater value than what the market views it at, and if I my logic is correct, then it’s true debt would be lower.

    I am not trying to make you wrong, I am trying to get a handle around a a concept that seems completely foreign to me.

  6. 6
    zman Says:

    NFX CC

    Oklahoma going to vote on doubling the size of Woodford shale units, has been limited by set backs on single section (640 acres). They are now drilling on some stand up units (2 miles long by half mile wide). See potential for some multi square mile units which would allow for more optimal drilling.

    Pad drilling, 80% this year vs 70% of last year.

    Will get the over 10% of non HBP acreage into HBP status.

  7. 7
    zman Says:

    El D – be happy to take it up later this morning, on NFX call now.

  8. 8
    Nicky Says:

    Z – well its nearing the end of the move which as I said earlier in the week can complete anywhere between here and $32. Miss Efferson just said something about pressure due to a roll in the USO. Not sure how that would affect crude futures.

  9. 9
    zman Says:

    Nifkin posted a story on this at the end of yesterday’s post, I included a though on it in the crude section above. If that were the case or a big part of the case I would have thought that the April contract would be rising as they sell the March but April, May, June down 1.82, down 1.76, down 1.68 respectively.

  10. 10
    zman Says:

    On crude, $38.00 is the low for the front month contract, set on December 24.

  11. 11
    zman Says:

    Pretty flat open as compared to the initial surge in futures. Maybe crude has the right of it. Its backing to that fast trading between whole numbers I mentioned earlier in the week.

    NFX flat on the open despite the pricing based miss. Good story, I think it goes higher, have not heard the singular catalyst that makes me feel like jumping in right now but there are a lot of operational improvements and I think a management change here is going to be very well received. I have to run to a meeting in 20 minutes so I’ll look at it when I get back.

    El -d . I’ll response on the mkt/EV thing near lunch time.

  12. 12
    zman Says:

    NFX call went well, stock up 6%, won’t chase.

    I’ll be back in an hour.

  13. 13
    crysball Says:

    BAC is up on very high volume…..Daytraders jumping in/out.

  14. 14
    BirdsofpreyRcool Says:

    BAC will be very interesting to watch at two point today: 1) when CEO is interviewed around 11-11:15, and 2) during the last 1/2 hr.

    I wouldn’t want to be short BAC going into the weekend… on the other hand, tough to argue from the long-side either. Doesn’t sound like Timmy has all the banking answers yet.

  15. 15
    choices Says:

    Thanks, Z, for dry bulk summary-excellent!

    A couple of items in the FWIW column:

    Copper (and copper stks) up strong today-stks have been fairly strong all week-IMO, indicator that industrial demand firming up.

    PTR (state owned Chinese Oil Co) up strong again today as it has been all week-IMO, indicator that Chinese demand (and industrial activity) firming up.

  16. 16
    Nicky Says:

    There has been a lot of talk this week about Chinese economy already showing signs of picking up (not sure I personally believe it!) but I am surprised that in itself hasn’t put a bit more of a floor under oil.

  17. 17
    Nicky Says:

    Harry Reid confident that Senate will vote on stimulus today and vote will take place between 5 and 7pm.

  18. 18
    reefguy Says:

    Bakken-Oil produced is trucked to rail, sent to Cushing. Recently the diffential has grown to more than $20 and an number of operators have choked back or shut-in production( EOG among them)

  19. 19
    Nicky Says:

    I think we could see an explosive move to the upside in crude oil shortly.

  20. 20
    zman Says:

    Ok, I’m back. Nice green, looks like FSLR taking some profits. Energy tentatively up.

    Coals continuing to run.

    Choices, I plan to expand on it a little in coming days, pretty sure I take some DSX pre call but probably not today.

    Nicky – why re 19? Technicals?

    Reef – its a good thought that record levels at Cushing ease with falling Bakken. If EOG is curtailing and has the best economics in the play (and it sounds like they do) then its hard to imagine others won’t follow as well in cutting back. Just need to get the mid-con refiners taking more crude.

    BOP – any credit market comments.

  21. 21
    zman Says:

    El-d. Let me know when you see this as I can discuss MC and TEV but may need to go back and forth with you on it.

  22. 22
    BirdsofpreyRcool Says:

    Credit Market — it’s pretty quiet in bond and CDS land this morning. Nothing traded, but spreads were a tad wider. Then the stock mrkt started to rally, and pulled some bonds up with it. Still not much trading going on. Think everyone has already positioned himself to go into the weekend. People taling about beer-thirty early in bonds.

    That said, rallied bonds off their opening lows now:

    IG 194 1/2 tightened from the wide of 201

    HY 73 7/8 +7/8, but off a pathetically low price of 73

  23. 23
    BirdsofpreyRcool Says:

    amusing headline on the tape:

    “Weight Watchers cut to ‘Underweight’ by Barclays”

    For some reason, I think that’s funny. May be beer-thirty early here too.

  24. 24
    BirdsofpreyRcool Says:

    It’s not energy… but BAC is a bellweather stock for the rest of the mrkt today. So, following closely.

    Bank of America Gains as Bove Praises Chief, Cites U.S. Backing
    2009-02-06 15:46:03.195 GMT

    By David Mildenberg
    Feb. 6 (Bloomberg) — Bank of America Corp., the largest U.S. bank, climbed as much as 19 percent in New York trading after analyst Richard Bove called the bank a “strong buy”
    because of its positive cash flow and government support.
    Bank of America shares jumped 80 cents, or 17 percent, to
    $5.64 at 10:43 a.m. in New York Stock Exchange trading after yesterday touching its lowest level since 1984. Chief Executive Officer Kenneth Lewis bought 200,000 shares on Feb. 4, and four directors bought a combined 150,000 shares this week.
    Bank of America on Jan. 16 accepted a $138 billion package of U.S. loan guarantees and additional capital. The U.S. last year committed $25 billion to the bank and Merrill Lynch & Co., which was acquired this year.
    “I have always believed Ken Lewis may be the best operating manager of any bank in the United States,” Bove said in his report. “I continue to think that this company has $5 per share in earnings power.”
    Bank of America had ratings on its preferred shares lowered to non-investment grade by Fitch Ratings, which cited rising losses from credit card, home equity and commercial loans.
    Fitch lowered its rating to “BB” from “BBB” and the ratings could be cut further with the outlook deemed negative, analysts David Spring and Sharon Haas said today in a report.
    Fitch didn’t change its overall “A+” rating on Bank of America, citing its “systemic importance and the magnitude of support provided by the U.S. government.”

  25. 25
    zman Says:

    Funny BOP

    Market holding breath waiting for Obama speech

  26. 26
    BirdsofpreyRcool Says:

    What time is the POTUS on?

  27. 27
    Nicky Says:

    # 23 – made me laugh too!

    Z – technicals maybe but no confirmation yet. Need to see a move above 41.20 and for greater confirmation 45 for confirmation of a bottom being in.

    Fundamentally – you have put many reasons on today’s post why we could rally. I am not sure the oil market will want to go home short oil if there is signs of stimulus being passed.

    So call it more a gut feeling!

  28. 28
    zman Says:

    Hear ya Nicky, I’m big on guts.

    Thinking I will punt BTU soon, wait for a drop and reposition. Its running on the market and the whole previously discussed China resurgence angle.

    Also tempted to stage into some March NFX calls (a third of total desired position at a time over today / Monday)

    BOP – any minute now – economic advisory board.

  29. 29
    BirdsofpreyRcool Says:

    thoughts on KOG…

    at the current price — and given what reef is saying about differentials — there is no way that KOG can grow their company. They have a great acreage position, and they think their first two wells will IP in the neighborhood of 1mbpd with 400m EUR each. But, that’s not enough to grow on.

    Here’s what I think: when Lynn Peterson proves up his acreage, he should sell to his partners (Hunt or XTO).

    if he sells, he will be remembered as a hero… and will be able to raise money again.

    if he doesn’t, he will be remembered as a fool…

    better to “live to play another day”… both in markets…. and in the energy sector.

    If KOG starts to draw on their bank line in order to push it past the first 2 wells in this environment, that will be a very bad sign. JMHO.

    That said, I think Lynn could get a nice premium to the current stock price… even in this environment. Let’s hope he is thinking clearly. It’s a defensive environment… no reason to try for the Hail Mary Pass on this one.

  30. 30
    BirdsofpreyRcool Says:

    (That last thought was directed at Lynn. If he does prove up the first well site, he will be able to sell for a nice premium. Personally, i think the stock is worth taking the risk on here. But, it is very much relying on mngmt to “do the right thing.” More so than usual with companies.)

  31. 31
    BirdsofpreyRcool Says:

    BAC – Ken Lewis on CNBC saying very lovely things. Like “Jan was good for loan originations, especially investment grade,” and “Countrywide is seeing a lot of re-fi business… and is on fire, in a good way.”

  32. 32
    zman Says:

    ZTRADE: $10KP – added Feb and March calls with the stock up about 8% on the day, just under $22.

    NFX – (5) FEB $22.50 Calls (NFXBX) for $0.85
    NFX – (5) MAR $25 Calls (NFXCE) for $0.65

    Probably add more March calls if it cools later today.

    NFX – re-entering the name after a long hiatus. Incremental to the data in the post (they actually missed the quarter due to prices) are strong (8 to 13%) production guidance for 2009 and 2010 (this had been lower as of last quarter) despite spending staying within cash flow , another quarter of improved drilling efficiency and more of the same for the outlook in the Woodford. The Street also likes Boothby, the new CEO here. Longer term, their deepwater program, will start to garner more attention and provides a meaningful growth wedge in early 2010 that will help analysts to firm their out year estimates.

  33. 33
    zman Says:

    Obama speech on CNBC. Dow was up 170 when he started.

  34. 34
    elduque Says:

    Ok Z I am ready for enlightenment.

  35. 35
    RMD Says:

    KOG :today’s question on geology is : if you drill to 10,350 ft with a 5,175 ft lateral, why on earth drill another well 50 ft away? Could it be the lateral went the wrong direction and seismic points out they should have gone north instead of south, so they missed?

  36. 36
    zman Says:

    El-d. Don’t know if I’d characterize it as enlightenment but its what I do and one way the Street guys look at. I’m going to start very basic for those who may not have all the terms down and then expand on why I think TEV is important, especially now, for some groups.

    Market Cap = price x fully diluted share count

    Add Debt and you have Enterprise Value.

    Substract any working capital (current assets less current liabilities) from Enterprise Value and you have what I call Total Enterprise Value.

    This is the market’s overall perception of the worth of the company.

    As companies have differing capital structures TEV is more leveling when making comparisons. For instance, two companies, one leveraged and one unleveraged may have very different earnings power based on their interest payments.

    So when comparing those companies, I use TEV for the numerator and EBITDA (earnings before interest, taxes, depreciation and amortization) for the denominator. This puts everyone on a leveling playing field. The TEV, which is net of their cash on the books, is telling you what the world thinks of their assets. The EBITDA can be compared against their Revenues to see what kind of margins they maintain.

    P/E is just too simple a measure but its the standard so I show it. Different tax regimes, different depreciation rates due to past acquisitions etc can impact net income. But for companies that reinvest capital, cash flow or EBITDA is a better measure.

    Looking at the shippers, the EV I included today just to see who has financial flexibility. Less debt is a good thing if earnings are depressed and a better thing if the assets that you want to acquire (ships) are trading at 25% of peak levels just last year. If you have the firepower to buy ships now, that’s something I want to know…and so the EV.

    Knowing the debt is also important from the standpoint of asset value (those ships) and loan covenants. Many have gotten into trouble of late because their loans are securitized by assets with dwindling, if only temporarily, asset values.

    On the debt value being lower, that’s only true if they are willing to sell assets. They borrowed the money and they have to pay it back.

  37. 37
    reefguy Says:

    KOG- Drilling another lateral well from same pad location. Lateral azimuth will be different from first and more than 50′ away drom first

  38. 38
    zman Says:

    RMD – no. The meant to drill both, from a pad location, to test to adjacent sections. It is cheaper to drill, drill and complete than drill, complete, drill complete.

    In some basins you see:
    drill, drill, drill, drill, drill
    comp, comp, comp, comp, comp

  39. 39
    elduque Says:

    BOP – re BAC – with Lewis saying that they didn’t need any more TARP money, that would take Nationalization out of the question. Wouldn’t it??

  40. 40
    RMD Says:

    Thank you, I feel better.

  41. 41
    elduque Says:

    I understand your logic, but doesn’t cash flow or some measurement that doesn’t reflect what the market thinks a company is worth have more relative value.

    In discussing this once before with you, I never pursued what I think is the flaw of using market value. I guess the question I really should ask is what would give you a better measurement of a company’s true worth than market value.

    BOP and anybody else feel free to jump in the discussion.

  42. 42
    elduque Says:

    I really do appreciate your willing to explore this with me.

  43. 43
    zman Says:

    BOP – on KOG. What’s latest read on cash balance and burn rate by quarter. On the next wells are they the operator?

  44. 44
    zman Says:

    Re 41. Seriously happy to.

    Cash flow would be one of the denominators of choice and the market would have to sort out what kind of multiple is appropriate based on its expectations of future cash flow.

    Another value is the transaction market for ships. That has plummeted but its like a light volume market too as there have been fewer than normal ships swapping hands. I think that analysis is only useful for breakup value or other M&A activity. For E&Ps, this would be akin to the NAV or the $/reserves. E&Ps don’t trade there, they trade at a hefty discount to this value at all times as the market is applying a discount rate to the future cash flows from those reserves.

  45. 45
    elduque Says:

    In the case of CHK we know that on cash flow basis it is cheap relative to its peer group. Which is another way of saying that its
    EV may be flawed. Is that a correct statement?

  46. 46
    cargocult Says:

    Tater-Any quick thoughts re the chart for (NM) Navios Maritime?

  47. 47
    zman Says:

    Re CHK – It is cheap on P/CF relative to its peers because it has better hedges than they did so the denominator did not fall as much as the peers CF did when gas prices fell. But the P side of the equation did fall a lot more. So yes, I’d say its undervalued on that basis. But then you have to turn to look at the debt. CHK has about $13 B. When you compare its TEV/EBITDA to that of its peers its suddenly back in line with the gang.

  48. 48
    zman Says:

    That NM chart looks interesting to me too.

  49. 49
    zman Says:

    Stocks look incredibly bored. Most names trading either flat to where they were 2 hours ago before that speech or if up or down trending more in that direction.

    ATW backing off a bit the day after earnings. RIG flat. DO up. Go figure. I went back over the DO transcript and I’m happy to go with them or RIG long again next week.

  50. 50
    Dman Says:

    GMXR moving

  51. 51
    zman Says:

    Dman – yep, grudgingly. Natural gas reversed losses on the day.

    Here is why, this just out

    Gas rigs down 46
    Horizontal rigs down 30 (that’s a pretty wowish number)

  52. 52
    zman Says:

    Bidding SWN calls for a quick trade.

  53. 53
    cargocult Says:

    Z-should I but mor ACI calls?

  54. 54
    zman Says:

    Cargo – I don’t give advice as I’m as my licenses have happily expired to do that. I will tell you I’m not and I wish I was out of my call there.


    $10KP (5) SWN FEB $35 Calls (SWNBG) for $0.65 with the stock off $0.40 on the day vs a green group. Just a quick trade following another sharp drop in rig counts just released from Baker Hughes. Importantly the Horizontal rig count fell 30 which is putting a bid under the natural gas market.

  55. 55
    Dman Says:

    Last week horizontals were still increasing, if I recall (?). Now down 30.

    Z – in the context of NG getting to prices below costs, I was going to mention a quote from Jim Rogers about the metals (I think it was copper but not sure). He said that prices were currently below cost and could stay that way for some time because although miners were losing money, they didn’t close mines immediately because that is itself a costly process. But if prices stay down, eventually the miners start closing money-losing mines and prices must then recover above the marginal cost.

    OK, well in NG you said that operators were avoiding shut-ins, perhaps for political reasons. That would keep the price lower than it otherwise would be, but the effect will be to accelerate the decline in new drilling, since canceling something that isn’t there yet is politically not a problem (politician can’t see a future well, so delaying/cancelling it is OK).

    Question: if service costs are being halved & the E&Ps can get more wells for their $$, are they going to fully spend their newly reduced budgets & thus exceed growth targets, or just work to the growth targets & hang onto the remaining $$ ??

  56. 56
    zman Says:

    Dman – the horizontal count has been waffling around the 550 level for the last 4 weeks, peak was 650 on 10/31 and we are now at 518.

  57. 57
    zman Says:

    On your question my sense is that most will go for a small beat, having set the bar pretty low. They are putting the screws to the service companies now. Service companies still outperforming on the broad market up days but I don’t think the coming level of pain is fully reflected in the EPS estimates for this year yet. Wyoming can give you real life examples of arm twisting.

  58. 58
    zman Says:

    Oil green.

  59. 59
    elduque Says:

    CHK breaking above trend line down from the top.

  60. 60
    BirdsofpreyRcool Says:

    Sorry… had a lunch mtg. Back. Will try to pick up the threads.

    First, on BAC:

    Bank of America’s CEO Rejects Idea of Nationalization (Update2)
    2009-02-06 18:03:54.301 GMT

    By David Mildenberg
    Feb. 6 (Bloomberg) — Bank of America Corp. Chief Executive Officer Kenneth Lewis said the lender won’t be nationalized and doesn’t need more capital support from the government.
    The idea of nationalizing the bank wasn’t even a “remote possibility,” Lewis said in an interview today on CNBC television. He said “categorically” that the company won’t go back a third time for U.S. aid and that he “has the leeway” to manage the bank independently of the government.
    Bank of America has slumped about 58 percent this year, with the descent gaining momentum this week on speculation that the U.S. government might seize the company. The U.S. already agreed to inject $45 billion into the company and protect the Charlotte, North Carolina-based bank from losses on $118 billion of loans and securities after it bought Merrill Lynch & Co.
    Investors have pressed the board to replace Lewis, the CEO since 2001, after his acquisitions of Countrywide Financial Corp.
    and Merrill Lynch, with some saying he agreed to pay too much.
    Lewis said it’s possible to “make a case” that a company overpaid for any acquisition done in the past 18 months.
    The stock rose 27 percent to $6.17 at 12:51 p.m. in New York Stock Exchange composite trading.
    Buying Merrill Lynch makes strategic sense for Bank of America even after the securities firm lost $15.3 billion in the fourth quarter, Lewis said. “It’s going to be a good acquisition,” he said.

    Thain Firing

    While the bank considered backing out of the Merrill purchase in mid-December when it realized the extent of the fourth-quarter losses, federal regulators pressed for the deal’s completion, Lewis said. Scuttling the transaction would have caused too much harm to the company and the country, Lewis said.
    Lewis, 61, defended Bank of America’s review of Merrill’s finances, noting its mistake was underestimating the credit- market meltdown during the fourth quarter.
    Firing former Merrill Lynch CEO John Thain is “ancient history,” Lewis said. Thain, 53, left his post as head of Bank of America’s investment banking and wealth-management units on Jan. 22. “I’m sorry it happened. It’s never pleasant.”
    With much of Merrill’s senior leadership departed, Lewis said it’s better for officials of acquired companies to leave sooner rather than later. “Nobody executes better than we do.
    This plays to our strength,” he said.
    Lewis urged Congress to expand its efforts to boost the economy with more money aimed at actions providing immediate impact. “I’d expect the first quarter to be worse than the fourth quarter,” he said, with little improvement likely until August or later.
    Lower interest rates are boosting the company’s mortgage business as more borrowers refinance their homes, he said. While the bank is cutting more than 35,000 jobs because of the weaker economy and redundancies from its Merrill purchase, about 3,000 jobs have been added in mortgage operations to handle soaring demand, Lewis said.

  61. 61
    choices Says:

    Re: NM, financial info and interview with CEO on YAHOO NM quote site-they seem to be doing ok financially when others were getting hammered-increased cash distribution for Q4. These boys ARE volitile, however.

  62. 62
    BirdsofpreyRcool Says:

    BAC – of course, this is kinda obvious now… considering the stock is up 32%. However, it was yesterday’s comment by Senator Chris Dodd that changed the risk/reward there, when he came out and said that he opposed nationalizing BAC. That took the largest near-term fear off the table.

  63. 63
    BirdsofpreyRcool Says:

    KOG – I can make a stab at calculating the cash on the BS… I can tell you that the next well (3rd) they only have to pay 20% of the operating costs to earn 60% of the WI. But, none of that really matters. If they prove up the FBIR acreage with the first well, the stock will move up. If they don’t, then the stock is worth 10-15 cents. Truly a binary outcome here.

  64. 64
    zman Says:

    I hear ya BOP, thanks.

  65. 65
    BirdsofpreyRcool Says:

    KOG – by the way, i don’t mind the questions at all !!!! Just coming back with what i think and how i’m looking at the stock/company.

  66. 66
    BirdsofpreyRcool Says:

    High Yield Index finally moving up…

    HY 74 1/16

  67. 67
    MMarkkk Says:

    This A.M.’s Tudor Pickering newsblast had a paragraph on CRR and proppants. Long and Short of it: may see some substitution as cost difference is significant enough in today’s cost cutting environment. They think it probably doesn’t make that much difference in first year as stresses/strains aren’t that overwhelming. But it will have most impact in years 2+. Now we all know most stock analysts don’t look out 6 months let alone 2 years, but that’s their take. I’m guessing it came from Dan Pickering but it doesn’t say. All comments were ceramics vs resin coated sands.

    If you aren’t a subscriber, go to their website and sign up for the morning blast. Its free I believe and always has a good word or two.

  68. 68
    elduque Says:

    Choices – that was for NMM. Same CEO but different but related company.

  69. 69
    MMarkkk Says:

    Oops, looked at TPH’s website; their morning note is for private/corporate clients but you can try and sign up.

    Can’t forward and copywrite laws are picky to so I’ll stick with summary above.

  70. 70
    zman Says:

    Those SU Feb Calls giving a chance to get out only down a third. I’m hanging on there until Monday.

  71. 71
    rseidman Says:

    Z: I’m with you

  72. 72
    1520sbroad Says:

    z- interesting piece on the shippers today. i had never really looked at them – i have spent most of the day so far trying to learn some more.

    Also been following your discussion on TEV vs. cap. I have always felt that market cap (equity shs out x price) and therefore P/E ratios were misleading. The debt/leverage has to figure into a valuation of a company. There are dozens of ways to do this but i think it is also important to consider earnings stability – debt payments are stable, in that they are due at regular periods (for the most part – depends on what type of financing), A key question for me in looking at new ideas/sectors/companies does the stability of earnings justify the level of debt being used.

  73. 73
    BirdsofpreyRcool Says:

    1520s – now you’re thinking like a Credit Analyst. Way to go!!

  74. 74
    sportlock Says:

    Z, What is your take on Mark Papa saying Barnett is peaking in Q1 at 4.9 bcfd and will be down 600 mmcfd by end of year. Will this 600 mmcfd be made up by the Haynesville this year? Also, got to like the hz well decline this week going into the weekend.


  75. 75
    1520sbroad Says:

    BOP – i take that as a compliment.

  76. 76
    choices Says:

    Thanks, El-sorry for the confusion.

  77. 77
    zman Says:

    On call, back in a few minutes

  78. 78
    BirdsofpreyRcool Says:

    1520s – and it was meant as a compliment.

  79. 79
    kyleandy Says:

    bop = EP has 7.75 of 6/2010 at 100.50. any doubt that EP will last 16 months? looks ok to me what u think?

  80. 80
    1520sbroad Says:

    BOP – thanks.

    I meant to ask you earlier this week but i got off onto other things –

    Is there any truth to bond desks running low on supply? Spoke to a buddy of mine that works for BAC and he said that with the lack of new issuance in Oct, Nov, Dec 08 there is now a struggle for bond managers to find the bonds they want. Is this part of the reason we have seen folks (HK comes to mind) able to place bonds “easily”?

  81. 81
    zman Says:


    Got a lot of respect for Papa’s prowess on natural gas although I have to say he, like me and many others, just didn’t see the growth coming on so fast from the Barnett. I agree it peaks 2009, I think he’s rushing it a bit but that just a feel and little more. I think Aubrey would tell you its later in the year and the decline from peak will be less. His conference call isn’t for another couple of weeks so we have to wait. On the 600 being offset by the Haynesville, I have not tallied it up but the trajectory looks good for that, yes. Handful of names with double and triple digit production from 0 a year ago.

    Wow NFX

  82. 82
    elduque Says:

    Re the shippers. There are a number of them that have long term charters, which you would think would have insulated them from the market downdraft. In the case of NMM and NM they have the charters insured as well. With the credit crisis and no financing available, commerce froze and I think you are seeing the unwinding of it as the BDI continues to go up.

    Mr. Market did not differentiate between those shippers that had long term contracts and those that didn’t. It just said if you have debt you could potentially go into bankruptcy. With out looking at the backing of the debt.

    The shipper that I like the best is PRGN. They have been using their extra cash to buy their stock back at these levels. I am pretty sure that the dividend will probably be cut back a little, probably to a dollar (just my assumption).

    NMM looks very secure and is probably a good bet.

  83. 83
    Nicky Says:

    Awful close for crude I would say.

  84. 84
    zman Says:

    Nicky – I dunno, it did manage to close over $40 after going through it hard early.

  85. 85
    choices Says:

    Mar CL very strange day-reversed up in a spike to over 42 and now down in the red near 40.

  86. 86
    zman Says:

    Re Crude, the rest of the strip is up. Perhaps Nifkin’s story regarding the USO holding 20% of the outstanding Nymex contracts and rolling them today is playing out in the close.

  87. 87
    zman Says:

    Lot of profit taking late in energy. Fast money playing around and selling when crude went from green back to red (again, despite the rest of the 12 month strip being up $0.40 to $0.50 and the 2010 crude months up 60 to 70 cents.

  88. 88
    BirdsofpreyRcool Says:

    elduque – reading some of the earlier comments re: ways to value a company and Enterprive Value. Let me add my 2 cents.

    Instead of looking at a company, let’s get personal. It illustrates the point.

    Think of your own “net worth.” Assuming someone would pay you 100% on the dollar for your worth. How much would it be?

    A simple way to look at it is — your Total Worth = the value of all your assets. Cash, home, car, valuables, etc. You used a variety of methods to amass this Total Worth. You saved income, invested and grew through capital gains, you used some debt to buy a car and a house, you inherited some. Your Total Worth is your Total Asset base, put together using both debt (mortage) and equity (savings, excess cash flow, inheritance).

    Your Net Assets might be thought of as your Total Assets less the amount of cash you need to live on for a year. That is your “working capital.” The larger your asset base, the more you can generate in income. So, if someone was just to look at your equity, they would underestimate what your asset base is.

    This is the same with companies. If you only look at their equity (either book value or market value), you are missing the big picture. Companies use their entire asset base to generate revenues… not just the assets that are financed with equity.

    There’s more to this explanation… but, I’ll stop and see if you have any questions before rambling on more.

  89. 89
    elduque Says:

    I understand but if my neighbor thought I was only worth $100000 when my Total Assets were really worth $200000 then my EV would clearly be understating my true value. Correct or not?

  90. 90
    Nicky Says:

    Maybe Z – unfortunately the move up off the low this morning looks like an abc and we look to have started another leg down.

  91. 91
    BirdsofpreyRcool Says:

    1520s – I think what your bond desk guy is really saying is that there are not many bonds trading. People don’t want to sell at these (low, cheap) levels. Buyers are too scared to buy… which pushes bond pricing down.

    If you really want to come to market, like HK or KSU or LNY, then you really have to pay up to get the Scared Buyers off the bench.

    Two years ago, “risk” was under-priced (expensive)…. a consequence of everyone running to invest in risky assets. And buyers of risk got clocked.

    Perversely, now “risk” is OVER-priced (cheap). This means that “risk seekers” are actually being paid well to buy risky (non-US govt) assets.

    Of course, it all depends on your time horizon and ability to stomach the volatility. But, you really are being well paid to take risks here. Just don’t confuse stupid investing with risk-taking. You have to pick-and-chose. But, you’re being well-paid to do the research and take the risk.

    Does this make sense?

  92. 92
    zman Says:

    Have to step out for 20 minutes. If I didn’t get your question answered today please prod me by referencing the number.

  93. 93
    BirdsofpreyRcool Says:

    El-D — exactly!! And you would be stupid to sell your Net Assets to your neighbor as you probably wouldn’t get enough to cover your debt obligations.

    But, if your neighbor only looked at your equity, he would be missing a large number of your assets.

  94. 94
    1520sbroad Says:

    BOP – gotcha.

  95. 95
    BirdsofpreyRcool Says:

    kyleandy – #79. lemme take a look. been a long time since i’ve looked at EP… but i tend to agree with your statement.

  96. 96
    BirdsofpreyRcool Says:

    1520s – only the first paragraph was aimed at answering your question. The rest was a bona fide rant on my part.

  97. 97
    elduque Says:

    So I go back to my original question, why use EV to value a stk.

  98. 98
    BirdsofpreyRcool Says:

    El-D — perfect follow-up question!

    Because a stock is the beneficiary of the earnings power of the assets !!

  99. 99
    BirdsofpreyRcool Says:

    If you only look at equity values, you miss the size of the assets. And, since a stock is (supposedly) the present value of the FUTURE earnings that a company makes on it’s asset base, you have to look at the Total Enterprise Value.

  100. 100
    BirdsofpreyRcool Says:

    Debt gets serviced with fixed cash flows… so, it doesn’t “grow.” But equity gets to claim all the cash flows that don’t have to be used to pay for supplies, overhead, employees, debt. This can grow over time. The larger your asset base, relative to your equity, the more “earnings leverage” you have.

    Of course, if you go overboard with this idea and borrow too much to try to control a larger asset base, and your revenues turn down and you can’t service your debt, equity gets shut out of the game and debt takes the keys to the car (asset base). So, a company has to set a careful balance between earnings leverage and the amout of debt it can safely afford to carry — during good times and bad.

  101. 101
    BirdsofpreyRcool Says:

    Just like if someone buys a house (asset) and takes out a mortage (debt) that is very large compared to their savings (equity) plus income (cash flows). If that person gets laid off and they don’t have enough savings, the bank takes the house.

    But, as long as that person keeps up his cash flow and services the mortage, he gets to live in a bigger, nicer house than he would have, if he had to buy a house with only savings (equity).

  102. 102
    BirdsofpreyRcool Says:

    i’ll shut up now. promise.

  103. 103
    1520sbroad Says:

    To the experienced shipping analysts out there – I have looked thru a couple of the shippers more recent presentations (most were from Q3 08 or late last year). There were several comments in these presentations that there is a lot more shipping supply (ships) projected to come on line in the next 2 years. PRGN commented that they felt that the order book for new ships would need to thin out in order for supply to come more in balance with demand. (See page 9 of their Q3 presentation on their site.)

    Has this order book thin out started to happen? Have there been cancellations?

  104. 104
    elduque Says:

    yes there has and there has been an acceleration of junking older ships. I think in the NMM presentation the CEO addressed that question.

    A good site to go get info is http://www.hellenicshippingnews.com/.

  105. 105
    1520sbroad Says:

    elduque – thanks for that link. Super deep info there – i could be there all weekend.

  106. 106
    zman Says:

    In the name of all things unbelievably stupid watch: I lost my car keys.

    Price to replace: $1,800.

    I’m speechless.

  107. 107
    Nicky Says:

    You have to be kidding – would be cheaper to go and buy a new car!

  108. 108
    BirdsofpreyRcool Says:

    z – what are those car keys made of? pure platinum??

  109. 109
    elduque Says:

    Thank you one and all for your help.

    Have a great weekend.

  110. 110
    zman Says:

    I wish I were kidding. They are electronic. No key. Must replace entire security system. The car is GM. Go figure they are toast.

  111. 111
    zman Says:

    Found them. Absconded by intern #1 for teatime with stuffed animals.

  112. 112
    1520sbroad Says:

    Hmmm – my wife won’t let me fire my interns. Fortunately for them – for every key stealing type incident there are a lot more wonderful moments.

  113. 113
    zman Says:

    Roger that, besides, I plan to hide her WII remotes.

  114. 114
    zman Says:

    Gang have a great weekend. Wrap will be out tomorrow. Thanks for the questions El -D and all!

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