Wrap – Week Ended 2/6/09


Wrap Notes

1) Energy Stocks Outperformed The Broad Market Again. Energy outperformed the broad market for the third week in a row. E&P's are cheap on an assets basis and in general have the best looking balance sheets they've had in years. The "get within cash flow" mantra has finally reached all parties but (DVN). Ok, that's not entirely fair as a few others may or may not be living up to their word of entirely living within cash flow but for the most part discipline is back.  Several players made the Cartelish "why go gangbusters drilling with prices this low" comment which I could not agree more with. In oil service, the resilience outside of the deepwater drillers, feels like a continually refreshing short and short cover cycle. The level of pain in that space that the reduced activity will spawn in terms of volume and price has yet to be seen.

2) Natural Gas Finds A Temporary Floor. Only worth commenting on the move because its been so long since you could say natural gas caught a bid. We saw an "in line" storage withdrawal having been saved by a cold end to a cold January. See comments in the Friday post regarding natural gas prices and capital budgets as we near the Spring shoulder season. Gas continues to be the worst performing of the major hydrocarbons year to date and I would not expect much help there until we get a little more anecdotal and actual evidence that the slope of the supply chart is slowing and rolling over in more areas (again, towards the end of the shoulder season).

3) Rigs Show Bigger Dip, Even The Horizontals. Another week, another 50+ rigs get stacked (down 74 onshore U.S. rigs with this report. With Texas alone dropping another 50 rigs there should be some good bargains on duck trucks, bass boats, and shotguns around. Actually this past week saw what has become the usual drop in gas rigs but also a pronounced decline in oil directed drilling and most notably a drop in horizontals (likely as much oil as gas and watched as a sign that even the higher rate wells are being deferred due to capital contraints). Notably, (EOG) voluntarily curtailed production in the Bakken due to low oil prices and high operating costs ... if the best financially and geographically/geologically positioned player in the play is shutting in wells those with lessor (to date) well returns and less flexible balance sheets are either doing the same or will be shortly. This  trend could also lend support to oil in the form of reduced shipments to Cushing.

4) Coal Holding Up Nicely As Big Producers Report. In a nutshell, production curtailments are not quite offsetting slackening global demand but are coming close enough, along with the sense that Asia's stimulus plan is already prompting recovery in the Steel industry, to firm prices after the second half fall. Recall that coal prices nearly round-tripped their big gains last year but did close out the 12 month period on the plus side (about 8%) while the stocks fell sharply (down 64%). After listening to several of the producer calls last week its obvious that this isn't the end of the world as we know it.

5) Shipping Continues To Catch A Wave. See the updated thinking in the Friday post and how I plan to play earnings in the space in next Monday's post. If you're not entitled to read Friday's post I'd suggest subscribing (here's how) or checking out this stuff so that you can have a constant reminder of what you're missing.


Holdings Watch:  Closed trades for the week ended 2/6:

  • Sold the remaining RIG Feb $50 calls for $5.20, up 55%,
  • 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.
  • HK - Sold HK Feb $20s out of the regular account for $2.40 up 65%.
  • 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.

Have a great weekend!

6 Responses to “Wrap – Week Ended 2/6/09”

  1. 1
    crysball Says:

    Investors Business Daily has
    EGY is in its daily publication under the heading: “Top-Ranked Low Priced Stocks”. The “SmartSelect(R) Composite Rating is 97, EPS rating is 91, Relative Strength 99 and ACC/DIS is A. IMHO EGYis among the best stocks in the entire stock market universe. As the broad market turns bullish and an uptrend begins, EGY should run.

    EGY has significant [for them] drill bit activity underway [results have far exceeded their own expectatations to date in 2009] and more drill bit activity about to begin [on-shore Gabon and a North Sea Farmi-in will spud within 2 weeks]. They are currently drilling a Horizontal completion [Ebouri North] and a Vertical Exploration [Etame North] both in shallow water offshore Gabon.

    Production will increase from 20,000b/d to 25,000 b/d to their offshore FPSO this month or next month in their Etame block as they just brought on one new Horizontal gravel pack completion [Ebouri] and will bring on another [Ebouri North] in March.

    Last Quarterly report had $137 million in the bank,………no debt and doing all the above with just 30 employees….and NYSE listed.

  2. 2
    mimster90 Says:


    This article is saying a bunch of LNG will be coming to the US as its profitale to sell in the US at $3 and the rest of the world doesn’t have the capacity to abosorb all the LNG that is becoming available in 2009.

    Some of Qatar’s natural gas fields produce other valuable liquids that are stripped out and sold at prices that essentially cover all production costs before the gas even makes it to market, Douglas said.

    The 43-day round trip from the huge export terminal in Qatar to the Lake Charles, La., LNG terminal costs $2.09 per million British thermal units.
    As many as seven massive natural gas export terminals are expected to start up overseas this year, expanding worldwide capacity by 20 percent and flooding markets with new supplies of the key power plant and heating fuel. Dozens of new tankers capable of carrying natural gas in a liquefied form are slated to hit the seas.


    In a nutshell. Does this article really make sense and will importing LNG affect US Gas prices in 2009 and going forward?

  3. 3
    Wyoming Says:


    Someone thinks that is the case:


  4. 4
    crysball Says:

    Regarding your question on the decline in BPZ share price….I do not follow BPZ any longer, however some quick reserarch indicates there were at least 3 troubling items in the most recent [2/5/09/ press release, #1 the drilling report on CX15…a disappointment, #2 the restatement of reserves based on a different standard [SEC versus SPE] than prior to this, and #3 the uncertainty of financing. There are other factors such as low Natural Gas and oil prices, general tight credit and low stock prices all around.

    BPZ maintains a very aggressive drilling schedule……….and lacks the cashflow to support it without increasing debt………basiciallly ‘it’s eyes are bigger than it’s stomach’…and it can’t seem to the new reality of maintaning Capex within cashflow…….and it being punished by Mr. Market accordingly.

    They do have a creative deal where they are buying a Gas Turbine /generator
    to generate power from stranded gas wells which are shut-in thereby creating a market …but of course this requires capital.

  5. 5
    crysball Says:

    Watch rain prices…….especially Rice & Wheat:
    BEIJING (AFP) – China will divert water from its two longest rivers to help farmers hit by the country’s worst drought in decades, state media said Sunday.

    Water from the Yangtze River, the country’s longest, will be diverted to the northern areas of eastern Jiangsu Province, the Xinhua news agency reported, citing Zhang Zhitong, a senior Ministry of Water Resources emergency official.

    The announcement came after Beijing last week raised its drought emergency to the highest level for the first time and sent relief supplies and technical specialists to eight major drought-hit regions.

    Floodgates will also be opened in Inner Mongolia along the Yellow River, the country’s second longest river, to increase water supply for central Henan and eastern Shandong provinces, Zhang according to the report.

    China has released more than five billion cubic meters (177 cubic feet) of water from the Yellow River to fight the drought that has hit most of its north since November, Xinhua said.

    The drought is also affecting central and southwestern rice-growing provinces.

  6. 6
    zman Says:

    Thanks for the ?s and comments guys, will address in a weekend mailbag section along with some emailed in questions in the Monday post.

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