Watchful Wednesday

Much weaker than expected housing starts today which I would argue is actually a good thing as we need to work done inventory levels and that's not easy in this deflationary environment so why on earth would you want to add more widgets to the pile.

No EIA Oil Report today due to the holiday.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Earnings Watch - CHK
  4. Odds & Ends

Holdings Watch - No changes yesterday

Commodity Watch:

Crude oil tumbled $2.58 to close at $34.93 yesterday with broadly lower global equity markets a sudden and nearly three month high in the dollar. This morning crude is trading up slightly.

  • Early Read On Oil Inventories (from the Bloomberg Survey):
    • Crude Oil: up 1.8 mm barrels. This would put us at 352.6 mm barrels in storage. The most recent high was set in June 2007 at 354 mm barrels and if you top that, you are looking at decade high levels on storage which will make for crude price depressing headlines.
    • Gasoline: down 0.3 mm barrels.
    • Distillates: down 1.5 mm barrels.
  • Obama Watch: President Obama heads to Calgary today and is expected to pressure the government on carbon emissions from oil sands operations. The President has said that oil sands operations produce 3 times the carbon foot print of traditional oil production. He seems to be auguring for use of carbon sequestration and not reduced production although given the price of oil and the cost of implementing sequestration technology you are likely to see a further limiting of future oil sand production if the Alberta government heeds his call here. 
  • MEND Watch: 4th attack in 3 days, this time it was an Exxon facility, no damage reported but the group is definitely stepping up their activities again.

Natural gas fell $0.25 to close at $4.20 yesterday; same reasons as crude plus mild weather. This morning gas is trading off 5 to 10 cents.

  • Sakhalin 2 LNG Plant Opens. This is part of the fear in gas price this year as one of the bigger LNG plants to hit the market with new volumes. Russia expects to deliver 50 cargoes this year (about 150 Bcf of gas) and as much 450 Bcf next year. Much of the volumes are expected to go to Japan and South Korea but this will displace some gas traditionally sourced from the Middle East. How much is unclear but it should have the effect of lowering gas prices in Asia and Europe and to lessor extent add pressure on gas prices in the U.S. as some volumes that have been diverted to those higher priced markets wind up in the U.S. This impact should be fairly slight. 

Earnings Watch:

CHK Reports 4Q08 Results; No Change To Volume Guidance Other Than Oil Gas Mix in 2010.

  • The 4Q Numbers:
    • Production: 2.316 Bcfepd, 92% natural gas. This was already released with reserves and was just above the high end of guidance. On the surface this is flat sequentially.

      • Adjusted for asset sales and VPPs this represents 2% sequential and 14% YoY growth
      • 4Q08 volumes also omit 65 MMcfepd in voluntary curtailments due to low prices
      • Current production is 2.355 Bcfepd
    • Revenues of $2.981 vs $2.575 B expected
      • hedges improved gas price realization
    • Operating Costs
      • LOE: $1.09 a bit better than expected
    • EPS of $0.73 (ex items) vs $0.74 expected
    • CFPS of $1.76 vs $1.69 expected
  • Operations Update:  Shale bullets, press release is short on details.
    • Haynesville:
      • producing 0.1 Bcfepd gross now (70 MMcfepd net)
      • expect to end '09 at 0.575 Bcfepd gross.
      • 26 rig program in 2009, that's up a rig from the last report
      • No well news in the release
      • Expects Tiger pipeline in service (1 Bcfgpd capacity for CHK) by mid 2011.
      • The Haynesville is probably economic at a gas price of $3.50 or above
      • Targetting $0.75 drill bit F&D costs here
    • Marcellus:
      • Current production of 10 MMcfepd
      • Plans to significantly increase activity here in 2009/2010
      • Sees 14 rig program for 2009 (75% carried by STO) - nothing new in that
      • Marcellus is economic above $2.60.
      • Targetting $0.30 per Mcfe drill bit F&D costs here
    • Barnett:
      • Net production of 0.57 Bcfepd (just under 25% of the quarter's production) was up 10% from 3Q
      • Current net 0.61 Bcfepd, second to (DVN)
      • Target exit for 2009 of 0.725 Bcfepd net
      • Sees 25 rig program for 2009
      • In discussions "with several large international energy companies about a possible Barnett Shale joint venture transaction"
    • Fayetteville:
      • 4Q production of 0.165 Bcfepd, second to (SWN)
      • Current production of 0.180 Bcfepd
      • Sees 20 rig program, nearly 100% carried by BP
      • Sees 2009 exit of 0.235 Bcfepd
  • Reserves:
    • 2008: 12.1 Tcfe (pre-announced)
      • Drillbit only F&D of $2.04 per Mcfe (this should come down much further in 2009 when the impact of their carried interests becomes pronounced). They're targeting $1.25 per Mcfe.
    • 2009: targetting 13.5 to 14 Tcfe
    • 2010: targetting 15 to 16 Tcfe
  • Guidance:
    • 2009:  4.8% volume growth with the year averaging 2.41 Bcfepd, unchanged from last guidance
    • 2010:  13.3% growth to 2.73 Bcfepd, a little gassier than the last estimate but same over all equivalent growth.
    • FCF expectation drops due to lower price assumptions, 
    • EBITDA seen at $4.3 B in 2009 vs Street current estimate of $4.7 B
  • Hedges Update: relatively unchanged from the update at the end of January. Between $5 and $7 natural gas, a $1 change in gas prices has minimal impact on earnings (4 to 5 cents) in 2009. The less hedge 2010 profile is more open with a $1 change shifting EPS by more than $0.60.  
    •  2009:
      • Swaps: 42% of gas at $7.79. Swaps with knockouts amount to only a fraction of 2009 gas production
      • Collars: 40% of gas with $7.30 floors.
    • 2010:
      • Swaps:35% of gas at $9.43. Knockouts here amount to a heftier 226 Bcf of 2010 expected gas production but this is not news.
      • Collars: 13% of expected gas volumes with floors $6.48
  • Balance Sheet:
    • Net debt to total cap of 43% at year end. Ok, not great, a little high for most people's taste during the current troubles in the debt markets although their ability to bring $1.4 B in high yield debt deals in the last month has proven they have the reserves and the track record to swap debt during the worst of markets.
    • Average Senior debt interest rate: 6.1%.
    • Seeking rating agency metric of long term debt to proved reserves of less than $0.75 per Mcfe at worst by year end 2010.
    • Currently at $1.02/Mcfe (debt to reserves), with reserves at the upper end of guidance by 2010 and debt only slightly paid down they would achieve the $0.75/Mcfe debt to reserves target.
  • Gas Macro Comment:
    • Market setting up for a strong rebound by YE09 as falling rig count yields production drop just as the economy is recovering (sound familiar?)
    • Points to first year U.S. gas well decline of 25%
    • "nearly half of U.S. gas production comes from wells drilled in the last 3 years"
    • "25% of production comes from wells drilled in the last year"
    • Sees a 50% decline in the gas rig count yielding a 4 Bcfgpd decline in production by 2010.
  • Nutshell: "In Line" quarter but guidance will take numbers slightly lower (lower realized price thoughts, higher share count).  Expected free cash flow generation is lower than in previous reports due to lower expected price realizations and if you look at the numbers the company is running through their 2009 and 2010 models they are hugging the strip which is probably a bit conservative (CHK is modeling 2009 gas prices to average $5.80 and 2010 to average $7.00).  Stock probably takes a hit on the open and potentially for the rest of the day but with unchanged production guidance, expected operating cost improvements which aren't being modeled yet, and their reserve growth expectations for 2009 I expect it to begin trending less downward and more sideways as Aubrey sets definitive debt to reserves targets and upward prior to gas prices recovering in the second half of the year.
  • Conference Call: Wednesday, 9am EST
  • This section has been added to the Reports page.


APA, DSX, PQ, and XTO report sometime after the close today or before the open tomorrow.


Odds & Ends

Analyst Watch: Zip, nada, none.



127 Responses to “Watchful Wednesday”

  1. 1
    BirdsofpreyRcool Says:

    Eco Data Addition — Let’s start the day on a happier note than yesterday. Adding to z’s comments about housing (it’s GREAT to see housing starts come in low… let’s work off that inventory first!), we also got data on mortgage applications. Bottom Line = positive for the economy.

    U.S. MBA’s Mortgage Applications Index Jumped 46% Last Week
    2009-02-18 12:00:02.0 GMT

    By Timothy R. Homan
    Feb. 18 (Bloomberg) — Mortgage applications in the U.S. rebounded last week from a three-month low, led by a surge in refinancing as borrowing rates dropped.
    The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan increased 46 percent to 875.3 in the week ended Feb. 13, from 600.6 in the prior week. The group’s refinancing measure jumped 64 percent and the purchase index climbed 9.1 percent.
    Homeowners are trying to lock in lower borrowing costs, even as banks limit lending. President Barack Obama’s administration is crafting measures to improve the availability of credit and stem foreclosures, in addition to the $787 billion stimulus plan signed into law yesterday.
    “The housing market is still mired in a deep recession with no indication that a bottom has yet been reached,” Steven Wood, president of Insight Economics LLC in Danville, California, said before the report.
    The mortgage bankers’ purchase index rose to 257.3 last week from an eight-year low of 235.9. The refinancing gauge increased to 4,472.9 from 2,722.7.
    The average rate on a 30-year fixed loan fell to 4.99 percent, the second-lowest level on record, from 5.19 percent the prior week. The rate reached a record low of 4.89 percent in mid- January.
    At the current rate, monthly borrowing costs for each $100,000 of a loan would be $536, compared with $606 a year ago.
    The share of applicants seeking to refinance loans increased to 74 percent of total applications from 66 percent the prior week.

    Rates Drop

    The average rate on a 15-year fixed mortgage fell to 4.66 percent, the lowest in a month, from 5 percent the prior week. The rate on a one-year adjustable mortgage dropped to 6.10 percent from 6.22 percent.
    With purchases still sagging, builder profits are hurting.
    Toll Brothers Inc., the largest U.S. luxury-home builder, said last week that its first-quarter revenue plunged 51 percent.
    “The past five months have been among the most difficult in U.S. economic history,” Chief Executive Officer Robert Toll said on a conference call Feb. 11. Homebuyers are worried they may lose their jobs or won’t be able to sell their existing homes, he said. “We believe that many lack the confidence to commit and are waiting for a sign that home prices have improved.”

  2. 2
    zman Says:

    Seeing some cautiously optimistic notes on the CHK quarter.

  3. 3
    BirdsofpreyRcool Says:

    Credit Market — opened very very quiet… almost “frozen” quiet. Now, a few trades have gone through and have moved levels in a slighly positive direction. Feels like bonds will take their cue from stocks this morning. Futures are positive, but still 30 minutes to open.

    IG 213 -1bps from yesterday’s close

    HY 72.875 +.875 from yesterday’s disappointing close.

  4. 4
    zman Says:

    Thanks for all the color BOP

    CHK call starting now

  5. 5
    elduque Says:

    What did you leave out of your last sentence on CHK?

  6. 6
    elduque Says:

    BDI +91 1986

    TED -2.384 93.87

    Not so bleak today

  7. 7
    zman Says:

    ElD- thanks. Sometimes I edit a section and forget to get back to it.

  8. 8
    zman Says:

    ELD – its updated now.

    CHK Call

    Going through the Shale Haves and Have Nots, not much new but they put a section in their latest presentation on this.

    He comes up with a $42 NAV now through a variety of implied values like the Value of SWN vs CHK’s position in the Fayetteville.

  9. 9
    zman Says:

    CHK Call

    ~ 80% hedged at $7.71 for 2009.

    May lift some or all of their second half 2009 hedges opportunistically.

    Very low maintenance capex requirements for 2009/2010

    The lower prices go the better it is for CHK. He’s never said that before. Basically he’s looking at his carried cost dollars getting stretched further with lower service costs.

    U.S. rig count: likely bottom out 50 to 70% at a 5 year low in the first half of 2009, setting up a rebound in prices in 2010/2011.

  10. 10
    zman Says:

    CHK Call:

    Saw the worst differentials in history for the Barnett and mid-continent.

    Additional pipeline capacity coming on in Fayetteville, Barnett, and Haynesville should improve pricing differentials,

    thinking Rockies gas volumes may have peaked … not sure about that one

  11. 11
    BirdsofpreyRcool Says:

    U.S. Treasury Announces $75 Billion Effort to Stem Foreclosures
    2009-02-18 14:00:08.786 GMT

    By Robert Schmidt
    Feb. 18 (Bloomberg) — The Obama administration is seeking to help as many as 9 million people restructure or refinance their mortgages to avoid foreclosure.
    The program, to be announced later today by President Barack Obama, will use $75 billion to bring down interest rates and encourage loan modifications, the Treasury Department said in a statement. The department also said it would double the amount of stock purchases of Fannie Mae and Freddie Mac to as much as $200 billion of each company.

  12. 12
    zman Says:

    CHK Q&A #1

    LNG Threat:
    its clearly an issue but they don’t see as much gas coming to the U.S. as some people forecast.

    They do see U.S. production down sharply by 4Q09, maybe 3 to 5 Bcfgpd on a YoY basis.

    Points out shales only account for 8 Bcfgpd vs 52 Bcfgpd of conventional gas which is going to be declining hard.

    Thinks that even when prices increase companies will be slow to ramp drilling back up.

  13. 13
    BirdsofpreyRcool Says:

    The market likes what it hears —

    CNBC reports that the Treasury will share the cost of reducing principal on the mortgages. Says there is a $75 bln homeowner stability initiative that will reach at-risk homeowners. Plan will allow lenders to bring down pmt to 38% of income, then the govt would match further reductions down to 31%. Borrowers will receive an incentive for keeping mortgages current.

  14. 14
    zman Says:

    BOP – so they came with a bigger than expected number on foreclosures eh? Everyone thought it would be $50B

  15. 15
    zman Says:

    BOP – thanks for that. I agree, proves Obama is listening to the market too, coming with that bigger number is seen as proactive. Still don’t see how it helps me, the guy who pays his mortgage on time but that’s another ball of wax.

  16. 16
    BirdsofpreyRcool Says:

    z — it doesn’t help you (or me) directly. Aside — Wish I had an underwater mortage on a mansion I can’t afford… I would get to continue to live there on the Taxpayer’s bill… but, I digress.

    If it’s “good” for the market, stocks will go up, and we will benefit. I am trying to keep focused on that.

  17. 17
    zman Says:

    CHK Q&A #2

    Large international company interest in U.S. shale plays. CHK thinks all roads lead to them. Multiple talks ongoing for JVs with big int’l companies. Some are for the Barnett, some for other shales. No comment otherwise.

    See any JV structured like the past ones, with cash up front and carried interest.

    Sees rig count dropping again as much as it already has.

  18. 18
    zman Says:

    Hear ya re 16 BOP. Oh to be a bum these days.

  19. 19
    zman Says:

    CHK Q&A #3

    CHK’s rig count: 158 rigs at peak, 111 today, 105 or so by late Spring.

    Re carried interest: The JV counter parties have NO OUTS. They are confident that BP, STO, and PXP will me their drilling obligations. That’s a big question to get out of the way.

  20. 20
    zman Says:

    CHK Q&A #4

    Call going a bit better from an “analyst sounding pleased” standpoint than I would have guessed having seen some of the stuff written overnight.

    Re that Rockies Comment about peaking: They are seeing empty pipeline capacity which leads them to believe production is rolling over. As you know from the monthly updates on production, Wyoming gas has been a big growth driver. Rigs in the Rockies have fallen faster than in many areas.

  21. 21
    BirdsofpreyRcool Says:

    Credit Market not buying into the “rally scenario” today —

    IG 215 now

    Trading Desk thinks good day to sit on the sidelines and watch the soccer practise. Odds today are 50/50 (coin-toss). Also, with President Obama speaking at 1:15 this afternoon, anything can happen.

  22. 22
    zman Says:

    CHK Q&A #5

    Drilling rates: $11,000 per day for a 1,500 horsepower rig with top drive (what you need to drill nearly 2 miles down and 1 mile across)…cost them $23 to $24,000 per day a year ago.

    Threw out a number of 25% reduction in all service costs but then said that was service costs so they are getting a lot more drilled for the buck.

  23. 23
    zman Says:

    Helicopter Ben speaking later too and also Fed minutes.

  24. 24
    BirdsofpreyRcool Says:

    Wyoming — you got the Rally Monkey tied up? Or, is he still sleeping off his wild weekend in Neuvo Laredo…

  25. 25
    elduque Says:

    What is there not to like about CHK? Only thing I can see is the macro element and they seem to have a good handle on lower prices with JV’s and hedges.

  26. 26
    BirdsofpreyRcool Says:

    EXM: Excel Maritime Carriers: Dahlman Rose discusses dividend su
    2009-02-18 14:57:44.535 GMT

    [ Live In Play]

    EXM: Excel Maritime Carriers: Dahlman Rose discusses dividend suspension

    Dahlman Rose notes that yesterday, EXM suspended its dividend and announced that two of its charterers have unilaterally decided to pay ~half of the charter payments due. They note that while there have been contracts broken during the past few months among these cos, they were due mainly to the charterer becoming insolvent. Excel also disclosed that it has had discussions with other charterers looking to renegotiate contract terms; they believe this could prove problematic as several of its vessels have been secured on long-term time charter at attractive rates. They think EXM needs to restructure its debt obligations; they expect their cash balances and cash flow from operations to suffice through 3Q10, however, afterwards EXM would need to refinance as it could run out of cash.

  27. 27
    zman Says:

    Re 24. No kidding.

    ElD – just the debt level which is pretty easily serviced.

  28. 28
    zman Says:

    CHK Q&A #6

    Question on the previously announced oil shale plays.

    1 did not work, think they still have a shot at a couple of them working but not at these prices, encouraged by results in a couple of them.

  29. 29
    zman Says:

    Re 26… sounds like more reasons not to trust the recent move in the BDI.

    Disgusting looking market, fallen through technical support levels.

  30. 30
    BirdsofpreyRcool Says:

    Credit Market Strategy — Bad news… the Credit Bears have stepped out of their cave. They have decided to put pressure on the market via CDS. Recall, the levels on the credit market imply a much lower level on the SP500… like 650 +/- 500. So, don’t really have to press credit very much… just have to spook equities.

    Credit Bears now view SPX 805 as the level they must defend. For stocks to rally (and pull cash off the sidelines), we need to get back up thru the 805 level and back to 850.

    The last 2 years they have pressed their bearish bets during President’s Week (as Nicky noted yesterday). This year, the gameplan hasn’t changed. Sorry to see this unfolding. Thought the Credit Bears might hibernate until April-May. But, they saw an opening last week and took it.

  31. 31
    BirdsofpreyRcool Says:

    IG 217 now…

  32. 32
    zman Says:

    Dow targeting the November low.

  33. 33
    mahout Says:

    Z #15,

    I conclude from this that maybe life just isn’t fair. Particularly when the Govt. is involved. LOL. But seriously isn’t there a possibility of people in your mortgage situation to refinance at a lower rate after the Govt. has pounded the various types of mortgage rates in general down? It would seem likely that some mortgage generator would be willing to refinanace if they make a profit on it, paying off the old mortgage. We’ve had guys on the radio in phoenix touting refinancing mortgages and say they have got the money.

  34. 34
    VTZ Says:

    Ok, I get pretty agitated when talking about CO2 from the oil sands but here it goes.

    I posted this on my oil sands post but PLEASE look at the barchart on page 17. Canadian synthetic is oil sands production.


    75-85% of the emissions from a barrel of oil come from consumption!

    Yes, oil sands “production” is “3 times” more energy intensive, but if you include transportation, refining, and byproducts in Saudi oil they get a lot closer. In fact then, oil sands are only ~10-15% more intense.

    From my perspective, if we are exporting oil to you, compare the amount of co2 from production to the amount from transportation, refining, byproducts and consumption, then who is the big co2 producer?

    These 3 times numbers are completely ridiculous. If you want us to reduce our emissions, put in place a North American Cap and Trade and we’ll see how the American coal plants do.

  35. 35
    zman Says:

    V – I hear ya. This will agitate you more. Obama likened Canadian oil sands to the U.S. coal industry.

  36. 36
    VTZ Says:

    I watched an interview of Obama by Peter Mansbridge yesterday. Why doesn’t anyone talk about Mexican crudes? It’s almost the same energy intensity.

    Regardless, ultimately it comes down to the consumer.

  37. 37
    mahout Says:

    VTZ #34,

    Thanks for injecting reality into the discussion about emissions.

  38. 38
    zman Says:

    Re the Oil Sands bullet, regardless of reality with respect to emissions, I point it out to illustrate the fact that it may inhibit future growth in oil sands production. If they require sequestration it raises the $/barrel price to be economic. Probably good news in the long run for people like SLB who are working on sequestration.

    CHK still ongoing.

  39. 39
    VTZ Says:

    Re 38 Z – I don’t think it will inhibit growth because oil sands operations have good point sources for carbon capture. It will certainly raise the $/bbl to be economic, but some companies already have co2 offset portfolios in terms of other projects to reduce co2 worldwide.
    I don’t think that the $/bbl impact would be too significant actually, it would certainly be overshadowed by lots of the other costs.

  40. 40
    elduque Says:

    Aubrey made it sound like the Barnett deal is very close.

  41. 41
    zman Says:

    Thanks V. So your are not significantly concerned that Alberta might put further hurdles in place with regard to carbon capture of future oil sands projects that could result in a meaningful increase in costs.

  42. 42
    BirdsofpreyRcool Says:

    IG 215 +1 bps wider

    HY 72.875 +0.875 higher for the day.

    This illustrates what we have been talking about… it doesn’t take much pressure on CDS to add fuel to the stock market fire. While the Investment Grade index is a lot wider over the last two days, the High Yield Index is almost unchanged. Granted, HY did not rally with IG from the start of this year. But, it is the most credit-sensitive part of the bond market… and it’s up today. Credit Bears are pushing on Investment Grade… that fact alone should alert people to the gamemanship going on here.

    If it was really about deteriorating credit, the HY index would be off a lot more than the Investment Grade index. But, that is not so.

  43. 43
    zman Says:

    CHK CC just ended. A little more attitude from analysts towards the end of the call with regard to future asset sale possibilities than early on. Agree with 40. I think all of the analysts will pare back numbers a bit based on price guidance for 2009 but they should ease off some wide differential assumptions as well. Net, net, numbers come off slightly. Stock has already reflected this … going to be up to the Street to see if they give them the benefit of the doubt with regard to getting more deals done as they move towards lower debt/reserves target.

  44. 44
    zman Says:

    Thanks for the insight there BOP, that’s helpful.

    Interesting to see XOM up for the first time in days with the market still red, not sure that’s a technical move as a flight back to safety from other, riskier energy names.

  45. 45
    BirdsofpreyRcool Says:

    KOG presentation at IPAA will be webcast at 2:30. I’ll be listening in. Here’s a link, if you care to join.


  46. 46
    BirdsofpreyRcool Says:

    Here’s a more direct link to the IPAA calls today.


  47. 47
    choices Says:

    Re Canadian Sands, I also saw a very short 10 min interview with Mansbridge/Obama-Obama seemed to imply that technology is the answer the sands and coal-whatever that means but it would probably add to costs-Obama also implied that Mexico was already taking steps in the technology arena. I do not think that Obama will argue for draconian steps but the only question is can he control his demo brethern in Congress-the demos have always been like a herd of cats, ie uncontrollable.

  48. 48
    etswd Says:

    hk taking a terrible whipping, gosh what gives or it just the mkt

  49. 49
    BirdsofpreyRcool Says:

    z — did you know that Deere was in the wind biz? I didn’t. Seeing some headlines hitting the tape about that segment. Sounds pretty perky. They think it will start to turn profitable in 2009. Good thing… b/c their core biz is getting shee-lacked by the credit crunch.

    Yes, the credit crunch is still all “snap, crackle, and pop.” Some thawing for large companies (and companies backed by the US govt)… but, most of the rest of the world still can’t get access to credit capital.

  50. 50
    zman Says:

    Platts survey now expecting a rise in crude stocks of 3.5 mm barrels which would put stocks right at the cusp of decade highs. Not great news unless you are a refiner. We really need to see imports back off now as refiners continue to cut runs for maintenance (and to boost cracks)

  51. 51
    zman Says:

    BOP – I did but I thought it was a very small piece of their pie.

    ETSWD – I know, move is in line with the rest of the Haynesville group (CHK, GMXR, GDP, PXP). Doesn’t make a lot of sense except that it has been strong of late and people are taking what little profits they can get and hitting the exits. Nothing company specific that I’ve heard.

  52. 52
    elduque Says:

    BOP-Why the reluctance to suspend mark to market accounting? In a market that is fractured as this, it just doesn’t take into account the flow of funds off of the assets.

  53. 53
    BirdsofpreyRcool Says:

    elduque — i honestly do not know.

    Except that it is pretty close to “never” that we see govt regulation rolled back. Sarbox is pretty universally understood to be a hideously negative thing to have plastered together and foist upon American Business (all because of ALL the scandal… let’s see, Enron, WorldCom… hmmmm…. anyone else ever mentioned?). But, no peeps from the Regulators about rolling that back.

    Also, the whole Geithner “stress testing the banks” is a giant lie. There is NO WAY that Treasury has enough people (and enough SMART people) to perform what the private sector can not. He (Timmy) will just have to rely on what the banks tell him… dirty little secret of govt… the BEST (smartest) people are in the PRIVATE sector.

  54. 54
    zman Says:

    Good time to sit on hands, if we get a bounce off the November lows we’ll have plenty of time to play it. Otherwise, you’re just bottom fishing based on soundbites. Market has returned to its Fall sentiment levels (at least for equities) where good news is more often than not met with a shrug unless it is of a truly unexpected nature. Market has much more to do with stock performance than story and since we are once again on the cusp I’m content to back off for a little bit, sit on cash and wait it out making only the opportunistic trade here and there.

  55. 55
    etswd Says:

    thanks z, i keep making the same mistake over & over again. when i have a nice profit, i got to take it . friends all sold in 40s, no i wanted 60 when it was 50. whine, whine, whine. this stuff is really old. this is why, i stay glued to this site. sorry for rant, we all have horror stories. past is past

  56. 56
    zman Says:

    Big over-reaction in RIG yesterday as that really was not a bad call or quarter, especially given the valuation (there was certainly no upside surprise built into the stock price so why be disappointed with the kind of in line numbers we saw?). Oh yes, the Dow being off 300 might have something to do with it. Watching for a rally as its been awhile and will be quick to take losses and small gains where possible today, tomorrow and Friday.

  57. 57
    BirdsofpreyRcool Says:

    The High Yield ETF (JNK) is down over a buck today. It is the first time since last October, that I have seen the price of the ETF fall below the NAV of the underlying securities. This is an indication of where “hot money” flows. Hot Money will buy the JNK EFT when they think spreads are going to narrow, but will not buy the individual bonds (as Hot Money is not tradional bond investors). So, while I don’t know where Hot Money is headed today, I can see that it is leaving the High Yield sector right now.

    More evidence that Credit Bears are working their nastly little magic.

  58. 58
    zman Says:

    ETSWD – that’s not whining. I made good money in HK calls last year, lost good money too by not being fast enough. I’m an owner in the $18s in one account and much higher in another. This is undoubtedly a very tough market and I have made those same mistakes if you want to call them that. Feels like a Clinton statement of “feeling your pain” but I’m just saying I know what you are talking about and I have been taking shorter hold times as a result, though often still not short enough as many of my current losers were nice gainers just a couple of days ago.

  59. 59
    zman Says:

    Emailed in question from our friend with an overactive compliance department:

    After you had mentioned GDP and GMXR as undervalued small cap names, I did notice over the weekend that your short squeeze site showed GDP @ 23.23% short and GMXR @ 18.35%. Opportunity?

    My first blush reaction is to say yes and yes. Gassy names with huge growth and good hedge positions. My second blush response is to say to myself “self, you don’t necessarily need to rush in as they are small caps and my get overlooked “even more” as the thoughts in #54 apply to the market now.” I commented on XOM suddenly outperforming this morning and after having seen a number of Schedule 13 filings which show a lack of willingness to stay in the small and mid cap E&Ps on the part of some big name fund managers it seems to me we are seeing another round of flight to big cap safety if not quality.

  60. 60
    zman Says:

    Survey for gas withdrawal tomorrow is 51 Bcf. Another week where there is probably more downside than upside in the numbers for a miss vs a beat.

  61. 61
    VTZ Says:

    Z RE 41: I don’t doubt that Alberta will put in more CO2 regulations, but it will only follow suit with a North American policy.

  62. 62
    elduque Says:

    Why would you want to short GMXR? Stock trades thin.

  63. 63
    zman Says:

    El-d. I personally would not for a number of reasons.

    I think some shorts use it as a bet against gas prices. The thinness of it can also be used to manipulate the name more easily. I’ve seen it open down 5% on a few thousand shares and then have it drop another 5% as lemming join in the selling. That’s a cheap ante for a short willing to drop a couple of $1,000 on a drop from the previous day’s offer to the morning’s bid to start a run down.

  64. 64
    elduque Says:

    BOP – I am sure that if you stress tested all the banks, that there would be a number that would fail. However, most banks would fail even in good times, if there was a run against them. I can see no earthly reason for BAC failing when they have such a huge cash flow. The cash flow gives them the ammunition to wait out the bad loans, as long as they don’t have to sell them tomorrow.

  65. 65
    zman Says:

    Rally monkey has entered the building.

    Got an email that BOP went to lunch.

  66. 66
    elduque Says:

    Why don’t we organize a buying binge in the stock. On the count of 3 we all run and start buying.

  67. 67
    zman Says:

    I think that’s actually illegal, lol.

  68. 68
    choices Says:

    copper getting a bid today after being very weak last few days-FXI (Chinese ETF) also up, PTR up-I guess I’m always trying to find a green number in this deluge of red-maybe an indicator, maybe not

  69. 69
    mahout Says:


    Time for a little good news.

    The local paper is reporting Phoenix area median home price fell to $130,000 in January, equivalent to median price in January 2001 and down from 150 grand last November.

    Translating this to “Affordability”:
    Based on an average interest rate of 6.3% an index of 100 means a household earning the median wage can afford a home at the median price. An index of 125 means a median-wage earner can afford a home priced 25% above the median. Some of these phoenix area cities had the following affordability indexes:

    Phoenix 152, Glendale(my home) 136, Peoria (next to Glendale) 122, Mesa 121, and Chandler 117.

    Prices are still drifting down and perhaps stll have a ways to go, but i see some light at the end of this tunnel.

    In the overcoming of this recession, it seems to me that housing is number one.

  70. 70
    zman Says:

    Mahout – Saw on the news the other day that Phoenix has 1 kidnapping per day, highest in U.S. So, home prices should be doing even better than that in areas where you are less likely to be nabbed, lol.

    Anybody has the time at which Ben speaks at the Press Club?

  71. 71
    zman Says:

    President speaks in 10 minutes.

  72. 72
    zman Says:

    Market not exactly jumping for joy over the foreclosure plan. Dow fell from up 60 to up 6 during the speech. Could also be that Bernanke speaks in another 10 minutes which is always a buzzkill.

  73. 73
    zman Says:

    Ben speaking, Dow up 15 at beginning of speech.

  74. 74
    Nicky Says:

    Good afternoon all.

    Okay broader market count – sitting on the fence a bit here but there are a couple of possibilities. If we are in v down then we are coiling up for a big plunge in iii of iii of v. My target for the end of the move would be around 6550 Dow. Under this count we could still see a minor bounce in this area.

    Personally something about the above doesn’t feel quite right. Maybe its just that so many have seen this count and we are all just waiting for this market to fall off a cliff.

    Another alternative is that we are still in wave iv which is playing out as a triangle and therefore need a further shot to the upside before the market rolls over in wave v.

    Third option is that we make a low somewhere around this morning’s low after a few more chops up and down. This would be the end of A down from the all time highs. We would then stage a B wave bounce which would last several weeks before rolling over in wave C.

    I give these in no particular order as actually I think my preference is for the third count.

  75. 75
    BirdsofpreyRcool Says:

    elduque — re#64… not many people know that (it seems), but that is absolutely the truth.

    z — thx for not saying “out to lunch.”

    Note to self — mrkt rallies when you don’t watch it. Stop watching it.

  76. 76
    BirdsofpreyRcool Says:

    One thing we know today, Hot Money is NOT moving into energy.

  77. 77
    zman Says:

    Oil service up 1.2% led by deepwater. E&Ps off 3%. Aside from deepwater leading those moves make little sense. Again, pointing to continued strength in XOM, feels like flight to safety.

    Thanks Nicky for the count.

    BOP – going to listen to that 2:30 est KOG call as well.

  78. 78
    Fiveanddimer Says:

    Nicky, what does the gold market look like, now that we have decisively (?) punched through 950?

  79. 79
    zman Says:

    If you are watching oil’s little bit of resilience and scratching your head over energy today, note that the rest of the strip is down. March is up 30 cents as I type this but April and beyond down anywhere from 60 cents to $1.70.

  80. 80
    Nicky Says:

    Five – I am not bullish gold. The move up off the lows continues to look corrective and I think is close to a top. Resistance at 980 (here!), 1000 and 1020 (double top?. They may try for 1000. We are seasonably at the time of year when tops are seen in gold, this move is long in the tooth, and the ‘crowd’ is way too bullish to allow much more upside imo.

    We should see a move back to 850 region from there at least.

    Long term I am very bullish gold.

  81. 81
    Fiveanddimer Says:

    Nicky, many thanks

  82. 82
    zman Says:

    Barclays cuts RIG price target…from $129 to $123.

    MacQuarie Research (I don’t know that one) cut their RIG target from $150 to $130.

    Well what do you know, Ben speaks and the market falls back off. Shocking.

  83. 83
    tater Says:

    Did a quick update on HK.


    I’ve been goofy busy with some biz stuff, so not going to be as current with charts as I would like.

  84. 84
    zman Says:

    Tater – thanks for the comments on HK and the XOM chart too.

  85. 85
    zman Says:

    March crude up 80 cents now, contract expires Friday, short covering, out months still all lower.

  86. 86
    tater Says:

    That XOM commentary is a bit strong, but I really dislike any name that is playing below the lower Bollinger Band. Price only does that when people want out badly. Tough to get in the way of that. Obviously I could be very wrong, but TA-wise that is the picture of a stock that is in trouble.

  87. 87
    zman Says:

    Fed saw economy worsening in January, only modest recovery second half expected.


  88. 88
    zman Says:

    Tater – wouldn’t that playing below the bolly band comment be applicable to the DJIA?

  89. 89
    zman Says:

    KOG call about to start.

    Oil just gave up the days gains in a split second.

  90. 90
    Nicky Says:

    Charlie Gasparino saying Goldman Sachs forced to bring margin calls against their own partners.

    I hate the way they wheel him out with all this crap – he acts like he is gonna move the market and now he does!

  91. 91
    Nicky Says:

    Oil – still want to see it dip below the continuous contract low which I think was 32.75. Where it ends is anyone’s guess but I suspect they will have a stab at taking it sub 30.

  92. 92
    zman Says:

    BOP – KOG, 2 wells to be completed in early 2Q, late first due to weather.

    Need $55 wti oil

  93. 93
    Popeye Says:

    Tnx again Tater for the charts. Much appreciated.

  94. 94
    BirdsofpreyRcool Says:

    z — got caught on another call… so only caught the last part of KOG.

    Had heard that weather was slowing things down. Didn’t like to hear that 1st well completion could be pushed into 2Q… but, then Lynn mentioned “mid-March” as possible too. That is closer to my “2nd week in March” timetable.

    First time I’ve heard $55 as the b/e price.

    What i missed was — what did they say about the potential for the TFS under their acreage? That could change the economics a bit.

    Also, sounds like they are going to go ahead and drill the 3rd well to continue to prove up their acreage. Not sure where this is all headed, other than to prove it up and sell out. That would be my recommendation. Glad to hear the “no debt” part.

  95. 95
    tater Says:

    re 88;
    Yes I believe that it does. I am not at all in the camp that believes any of this happy horse poop on TV has anything to do with an economic bounce. I’ll go with my own two eyes and anecdotal info that I see on “main street”. We are not anywhere near a peak in job losses. More government being offered as the solution. Wait, no. It is being offered as the “ONLY” solution.

    We’ve seen this before. It ends badly.

  96. 96
    zman Says:

    BOP – I don’t think at this point that the market (which is really just a small set of funds) will view that delay as unreasonable. Why press hard for a fast completion at these prices? Better to do it right. Just my opinion but they’d be better served with a different speaker. Snoozer tone. Also, lose the Wyoming stuff for now, its not commercial and mentioning you’ve been at it for 5 or 6 years is not a resume builder in my book. I’ll play around St. Patrick’s day. One last thing, they’ve got no debt, I got that. How much cash do they have on hand after the second well? Any idea, just looking at burn rate because if they aren’t immediately valued and bought on the success of the first wells then the fuse will be on as long as oil stays sub $55.

  97. 97
    zman Says:

    Tater – I’m wondering if the markets aren’t trying to hold the November lows based on looking through the crisis into a second half weak rebound. Leading indicators were surprisingly up last month and we get them again tomorrow. If we see two months of that (big if I know) it could serve as a catalyst for a bounce here.

  98. 98
    BirdsofpreyRcool Says:

    z — gonna guess (and it’s just a guess) that with 60% of the costs being picked up by Hunt on well #3, KOG has enough cash to drill and complete 3 wells on the FBIR. After that, it’s decision time… start to go into their bank revolver, raise more equity, sell out.

    I am going to guess that their hope is that the results from the first 2 wells raise the stock price up, so they can issue more equity. I am going to hope that after the results of the first two wells are out, they think about a larger business combination… i.e. sell out.

    That said, if the first two wells are in the 400+ EUR range… what do you think they could get for the acreage?

  99. 99
    zman Says:

    36,000 net acres?

  100. 100
    BirdsofpreyRcool Says:

    KOG — agree with the need for a different spokesman. Lynn sounds like he’s about 250 yrs old with all the enthusiasm of Eeyore on a down day. Hey! It’s tough for EVERYONE out there. Don’t need to be all morose about it. Show a little backbone… that is what the CEO is supposed to do.

  101. 101
    BirdsofpreyRcool Says:

    z — i thought it was 36k… but the slides showed 37k net now.

  102. 102
    zman Says:


    Based on 37,000 net acres, 1 well per 2 sections gets you 28 to 29 wells (basically discounting the acreage by 50% and not assuming you really have to drill a 10,000 foot lateral with each one to get your EUR but that might be the case), and using your 400K barrel EUR, that 11 mm barrels, on a gross valuation you might get $10 per barrel in the ground on it so about $110 mm (again gross), with $50 oil I’d bet they could get $12 so that gets you to about $135mm. I don’t know the royalty rate to get to the NRI. Is there a chance they get a look at the TFS in either well bore because then you are talking another potential multiple of value?

  103. 103
    zman Says:

    BOP – slide 8 is pretty interesting, not sure where those wells are exactly in relation to their acreage but they are close. STR well mentioned has TFS in it close by.

  104. 104
    BirdsofpreyRcool Says:

    z — i thought that “300-600k EUR/well” estimate was with 5,000 ft laterals, fwiw.

    They said something about the TFS, but i missed it. Need to fill in that part. But, sounds like they think it underlies their holdings. Would think they would test it, on the vertical in the 3rd well.

  105. 105
    BirdsofpreyRcool Says:

    KOG — i think NRI is around 15%

  106. 106
    elduque Says:

    So is this the first time in 6 months when we have had government officials talk and the market hasn’t immediately sold off?

  107. 107
    zman Says:

    Just got sent a favorable follow up note to the RIG quarter. Lower costs, deepwater provides safe haven compared to other service, strong buy. Sounds familiar.

    Thanks BOP – they implied there’s a good chance its there, based on the proximity of those two wells on slide 8 where you see the TFS on the log.

  108. 108
    zman Says:

    Eld – I dunno if that’s a fair statment after the drubbing we took yesterday and the fact that the Dow was up 60 before the POTUS spoke on housing and was still positive before Ben spoke and is now down 20.

  109. 109
    zman Says:

    Out months in crude got whacked. July 2009 all the way out to December of 2011 fell $2+ per barrel. Talk about taking those Fed minutes for a slower recovery seriously.

  110. 110
    BirdsofpreyRcool Says:

    z — I didn’t listen to it… but a colleague did… NOG was up following KOG at IPAA. NOG said that their Bakken wells are profitable at current prices.

    You familiar with those guys? Do they breath oxygen? Or some other gas…

  111. 111
    zman Says:

    Re NOG – no, not familiar although I’ve been asked to look at them but haven’t gotten around to it (didn’t see much of a rush).

  112. 112
    zman Says:

    CRK = wow. Glad not to be long, will remember this one when gas prices do come back up.

  113. 113
    BirdsofpreyRcool Says:

    CRK — i’m no chartist… but if i was, i would say stock looks broken down to me. Kinda like a “dead praying mantis” formation. Not a pretty picture.

    tater — i know you’re swamped… but, IF you every get a chance, what would be a good entry price/strategy for CRK? thanks!

  114. 114
    BirdsofpreyRcool Says:

    U.S. Office Vacancy Rate to Climb to 16.7% in 2009, Reis Says
    2009-02-18 21:12:07.358 GMT

    By Hui-yong Yu
    Feb. 18 (Bloomberg) — The vacancy rate at U.S. office buildings will rise to 16.7 percent this year, from 14.5 percent at the end of 2008, as tenants cut jobs and try to sublet space, property research firm Reis Inc. said.
    The net amount of space leased will fall by 47.8 million square feet this year, one of the steepest drops in occupied space on record, excluding the loss of space from the 2001 destruction of New York’s World Trade Center, said Reis in its quarterly outlook. Asking rents will fall 5.4 percent and actual rents will fall 7.4 percent this year, Reis said.
    Demand for commercial real estate of all types — office, retail, apartment and industrial — is weakening as companies slash payrolls and consumers cut spending amid the global recession. The Bloomberg Office REIT index has dropped 55 percent in the past 12 months on concern landlords will see income decline as tenants abandon space.
    “The dramatic deterioration in the fundamentals of the space market, especially over the last three quarters, has been especially swift and severe,” said Lloyd Lynford, chief executive officer of Reis. “Commercial real estate as an asset class has become significantly more volatile in the first decade of this century than it had been in the previous twenty years.”
    Because U.S. economic expansions aren’t lasting as long, “many more individual properties have not had the opportunity to build strong rent rolls characterized by a favorable spread between their average in-place rent and current market rents; as a result, new leases tend to be more dilutive to net operating income than was historically the case,” Lynford said on a conference call.
    Cities such as New York that depend on the financial services industry are seeing larger vacancies and rent declines, said Reis research director Victor Calanog.
    “Sublease space flooding those metropolitan markets will act as a virtual supply glut, holding back rent growth even as jobs are added,” Calanog said on the call.
    From 1999 to 2003, the office sector added 101.5 million square feet of new space per year. From 2004 to 2008 less than half that amount came online at 45.5 million square feet per year, said Calanog.

  115. 115
    tater Says:

    BOP –
    Just logged back in and saw the CRK request. I will be able to get to it in the next hour or so. Check at the link for my charts around 6 eastern time.

  116. 116
    BirdsofpreyRcool Says:

    tater — no hurry… but, I look forward to seeing your recommendation. THANK YOU.

  117. 117
    BirdsofpreyRcool Says:

    Clear-headed list as to why bank stocks are cratering. Until bank stocks stop falling, it will be tough to rally any part of the market with conviction.

    Congress Makes ‘All the Wrong Moves’ on Banking
    2009-02-18 15:56:32.302 GMT

    By David Wilson
    Feb. 18 (Bloomberg) — “How do you invest in bank stocks when the Congress is making all the wrong moves? Answer: you don’t.”
    That’s how Christopher M. Mutascio, an analyst at Stifel Nicolaus & Co., began a report yesterday on the industry. Among other things, he wrote that U.S. legislators’ push for more bank lending is at odds with “a healthy and natural phenomenon,” the adoption of stricter lending criteria in a recession.
    Banks toughened standards on consumer and business borrowing after the economy began shrinking in December 2007. The data come from the Federal Reserve’s quarterly survey of senior loan officers.
    “Forcing banks to make loans they otherwise wouldn’t make during a deep recession is not the answer,” he wrote. “Banks need to take a deep breath and rebuild confidence in their own balance sheets. As this occurs, lending will naturally begin.”
    Mutascio, who has “hold” or “sell” recommendations on every bank he covers, also criticized:
    — Legislation allowing bankruptcy judges to reduce the principal amount of mortgage loans. The plan “is simply a bad idea” that will hurt balance sheets and earnings.
    — Efforts to bar banks from using Troubled Asset Relief Program money for acquisitions. “This is the exact opposite of what we should be doing. We should be encouraging healthy banks to absorb weaker banks with the government’s help.”
    — Compensation limits for executives at banks “that were essentially ‘forced’ to participate in TARP.” The restrictions may backfire as some banks repay the government to avoid having to answer to Congress, the analyst wrote.

  118. 118
    nifkin Says:

    Crude Oil: Built 1.6 MMBbls on the week vs Reuters expectation for 2.6 MMBbl build

    Gasoline: Built 1.6 MMBbls on the week vs Reuters expectation for 0.4 MMBbl draw

    Distillates: Drew 0.9 MMBbls on the week vs Reuters expectation for 1.6 MMBbl draw

  119. 119
    tater Says:

    CRK charts


    I wouldn’t be in a hurry to short it (or buy it). Kind of in a middle ground right now with some fairly obvious lines for taking action. The breakdown yesterday would appear to be a signal to get in and short, but volume hints that the best play may be to look for a bounce to short into.

  120. 120
    BirdsofpreyRcool Says:

    tater — thank you for your time and effort. I think your analysis and conclusions make a lot of sense. CRK is one I want to buy and hold for the long run. But, at the right price. So, your chart is very helpful.

  121. 121
    BirdsofpreyRcool Says:

    tater — voted for ya… again. thx.

  122. 122
    RMD Says:

    CLB: OPCO reduced CLB est. from 6.50 to 5.25 (by quarter 1.31, 1.26, 1.31, 1.37) anf target 95 to 80. Est 743.8mm (vs flat guidance at $781mm) with 191.6 mm opY vs. 216.6 in ’08: 25.8% vs 27.7%.
    They cite Reservoir identified 8% more recoverable in 14B bbl field as reason why margins hold. About 26% of Production’s rev is US shale (10% overall rev.) OPCO cites SuperHero Plus+ frac charge.
    Authorization to repurchase 25.6% of stock complicated; 15.6% to deliver to holders of 0.25% Sr. Notes or for Lehman wts. Apparently Notes strike price is 72.30; to offset dilution co. bot calls on 3.2mm shs for $86.3mm (strike 93.99). To offset cost of hedge sold 3.2mm wts with strike over 126.52 for $56.5mm. How’s that for convoluted? APB 14-1 est. cost in ’09 is 0.11.
    Note ~60% cost is variable.

  123. 123
    choices Says:

    thanks, tater-voted.

  124. 124
    Wyoming Says:

    Trying the MEND thing again. Trying something new.


  125. 125
    Wyoming Says:

    RE 24, Mentioned this weekend that he took off to see his Japanese buddy at the G7. I think he made it there.

  126. 126
    md Says:

    I have not visited you of late and miss you guys.
    Nov 08 NG 462 vs. 07 448.
    Adjusted 10 BCF down. Not a big deal.
    Retail Sales All sectors DN 2.3% YOY
    REs and Comm. unchanged
    IND DN 7.6%
    So NG was slightly up cuz of HDD’s.
    Industrial production DN significantly.
    This should foretell NG Industrial consumption in months ahead.
    I,m looking at HOU and HNU. seems like great upside

  127. 127
    md Says:

    Re: LNG
    If the Sakhalins and Qatar etc. come through we’re looking at LNG increase of 7 BCFPD. Likely a lot spoken for even in this economy with power gen requirements and declining production in UK.

    vs. a decline of 3-5 BCF out of USA.

    Any increased LNG production that comes to US will probably come onstream at same time as US production declines and will at best match the declines of US and not be sufficient to make up the loss. Demand will be slightly lower but a Gustav and high CDD or HDD would nulify the LNG effect. IMVHO

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