Monday Morning

 Want to create 1.2 million jobs and raise $1.7 trillion in federal taxes? The American Energy Alliance says that's what opening most of the rest of  the OCS to drilling would provide. Hmmm, don't desperate times call for obvious desperate measures?

If you missed the wrap post click here.

The Week Ahead:

  • Monday - 2/23 - No economic data scheduled
  • Tuesday - 2/24 - Home prices, consumer confidence (forecast at 35), President Obama addresses both houses of congress.
  • Wednesday - 2/25 - EIA Oil Inventory Report (10:30EST), existing home sales (forecast 4.8 mm)
  • Thursday - 2/26 - EIA Natural Gas Inventory Report (10:30 EST), Natural Gas Supply for December released, jobless claims, durable goods (forecast -3.5%), new home sales (forecast 320,000).
  • Friday - 2/27 - 4Q08 GDP (forecast 5.5%), consumer sentiment (forecast 56.2)

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Earnings Calendar
  4. Stuff We Care About Today - Weekend Mailbag
  5. Odds & Ends


Holdings Watch: The Wiki tab has been updated.

Commodity Watch:

Crude oil fell 4.6% last week to close at $40.03. The 12 month strip ended off 6% at $45.40. This morning crude is trading up slightly on the general but fleeting sense of market relief this morning.

  • OPEC Watch:Algeria's OPEC minister said over the weekend that the Cartel is "very likely" to enact new production quotas at the March meeting. Also, Kuwait told two crude buyers in Asia that it will keep curbs of 5% below contracted volumes for April to June crude oil supplies.
  • MEND Watch: Another day, another attack. This time the group target an AGIP platform and was repelled by Nigerian government forces. It's going to be a long hot summer.

Natural gas fell 10% to close at $4.00. The 12 month striped fell 8% to close at $4.78. This morning gas is trading up 4 cents with crude.

  • Weather Watch:

    • Last Week: Gas-weighted heating degree days rose to 205 from the tropically warm 158 in the prior week (which produced a 24 Bcf withdrawal last week). This was colder than previously forecast by about 5%.
    • This Week's Forecast: A balmier 179 HDDs which is actually normal for this time of year.
    • Next Week: the 6 to 10 day forecast shows a return to cooler than normal temps in the west but continued warmth for the producing region.
  • Rig Count Watch:
    • Gas directed rigs dropped 36 last week, and they off 412 rigs from year ago levels.
    • Horizontal rigs slipped by 22 last week, but are still up 2% from year ago levels. This has become the most watched indicator for the coming rollover in U.S. gas production.

Earnings Calendar - still not over as the fourth quarter earnings season typically drags on longer than the others due to year end accounting. This week we have a plethora of mid cap E&P names which normally get a lot of attention from me and I'll have a run down of the bolded ones in the table below in pre note calls.

Stuff We Care About Today

TSO Post Quarter Comments:

  • The sell down was not the results for the 4Q as that was within the pre announced range, I think it related more to the day, and to the crude numbers from the prior day suggesting a shift may be in the making.
  • Their January results, if taken alone are more than the consensus EPS estimate of $0.91 for 1Q09; they didn't say how much and you can't necessarily assume a beat of the 1Q numbers because March could show a reversal but given the operational metric guidance they are seeing a stronger than expected 1Q from 4Q relationship than is typical.
  • They continue to reduce their cost per barrel by enabling the processing of heavier grades of crude
  • They've expanded the number of crudes from 14 in 2007 to I think he said 25 last year which gives them a lot of flexibility in sourcing crudes to get the low input cost.
  • See analyst changes below - obviously some of them viewed it from differing perspectives than I did

DO Fleet Status Update: In a nutshell, continued modest positives on prices but not a lot of changes in aggregate which is a good thing as the fear has been contract cancellations.

Odds & Ends

Analyst Watch: Deutsche Bank ups (XOM) to Buy and (COP) to Hold. (DRYS) upped to Perform at Opco (Gutsy move), (STO) cut to Neutral at JPM, Barclays picks up the foreign Majors with mostly Underweights for (BP) and (RDS.A) and Overweights for (E) and (TOT), Collins & Stewart cut their (FSLR) target from $210 to $175. BMO raises (TSO) target to $16, Barclays cuts it to $11.


103 Responses to “Monday Morning”

  1. 1
    BirdsofpreyRcool Says:

    Godd morning.

    Credit Market has no idea what to do today. Little is trading and levels are suspect.

    Some good news for the High Yield sector, NCX (a chemical producer) received an unsolicited bid over the weekend for $6/share. Stock closed Friday at $1.34… so, some happy campers this morning. NCX has almost $2B of high yields bonds outstanding (rated B3/CCC+) and is in all the high yield indices. Bonds were around 60 on Friday… trading close to 120 this morning on the news. So, “good things” can still happen.

    IG 215 +3bps

    HY 72.625 +$0.25

  2. 2
    BirdsofpreyRcool Says:

    make that “GOOD” Morning…

  3. 3
    zman Says:

    Godd morning to you and thanks for the update. Not a lot of energy news out this morning but its going to be a busy week. Reid, Dorgan on CNBC talking about energy policy not being a democrat or republican thing. I would point them to the opening of today’s post.

  4. 4
    BirdsofpreyRcool Says:

    Shipping Sector News (this looks like bad news… but, I am not familiar with the CEO here. Perhaps someone can add some colour here)

    2009-02-23 13:30:03.557 GMT

    Excel Maritime Announces Resignation of CEO

    ATHENS, GREECE — (MARKET WIRE) — 02/23/09 — Excel Maritime Carriers Ltd (NYSE: EXM), an owner and operator of dry bulk carriers and a leading international provider of worldwide seaborne transportation services for dry bulk cargoes, announces the resignation of its CEO, Mr. Stamatis Molaris, effective as of today.
    Mr. Molaris also resigned from his positions as President and Director of the Company’s Board of Directors.

    The Chairman of the Board, G. Panayotides along with the remaining members of the Board of Directors thank Mr. Molaris for his valuable service and assistance towards the successful integration of the Company and Quintana Maritime Ltd. and wish him all the best in his future endeavors.

    About Excel Maritime Carriers Ltd

    Excel is an owner and operator of dry bulk carriers and a provider of worldwide seaborne transportation services for dry bulk cargoes, such as iron ore, coal and grains, as well as bauxite, fertilizers and steel products. After the acquisition of Quintana, Excel owns a fleet of 41 vessels and, together with 7 Panamax vessels under bareboat charters, operates 48 vessels (5 Capesize, 14 Kamsarmax, 21 Panamax, 2 Supramax and 6 Handymax vessels) with a total carrying capacity of approximately 3.9 million DWT. Excel Class A common shares have been listed since September 15, 2005 on the New York Stock Exchange (NYSE) under the symbol EXM and, prior to that date, were listed on the American Stock Exchange (AMEX) since 1998. For more information about the Company, please go to our corporate website http://www.excelmaritime.com.

  5. 5
    nifkin Says:

    BP says to restart Ultraformer unit at 475,000/bpd Texas city, Texas, refinery
    The unit has previously been closed for three years

  6. 6
    zman Says:

    Thanks BOP, had not seen.

    Uh oh for nuclear: Obama doesn’t like Yucca mountain.


    Thanks Nifkin, they’ve been in the process of getting that restarted for awhile, could pressure Gulf Coast margins a bit. Still think the overall trend for Spring for the refiners will be towards better cracks as deferred maintenance projects come off the shelf resulting in lower utilization in March.

  7. 7
    BirdsofpreyRcool Says:

    Banks are better… they were not all “nationalized” over the weekend, as the stock market feared the most on Friday.

    Treasury on the tape this morning saying that they “stand firmly behind the US banks”…. and that “stress testing will begin on Wed.” They also said “Major banks are more than well capitalized.”

    Headline driven market… watch the banks, the Treasury, the Fed, Barney, Dodd, Obama, Bove, and Whitney… and anyone else who has shown a williness to stand up in a crowded theater and shout “FIRE.”

    So far, comments this morning fall out on the positive side of the ledger. Kudos to anyone who bought BAC on Friday. But, bank stocks are trading vehicles, only. You never know who is going to say what and kill any forward progress you made.

  8. 8
    kiaora Says:

    Z- In your opening post….Why do you feel that offshore drilling is “desperate measures”?

  9. 9
    zman Says:

    Agree with 7 as go the banks, so go the markets and energy stocks. I’m as light as far as option positions as I have been in 2 years. I’ll tread lightly until politicians become more camera shy (probably after this week), which means more quick positions for a time. We don’t necessarily have a positive near term catalyst for gas with the supply numbers this week or for the next 4 to 5 weeks (until the January supply numbers hit and I expect those to be only modestly bullish). On the other hand, the stocks have fully discount $4 gas into their performance and the numbers for 2009 are within about 15% of the strip which may actually prove conservative in the second half.

  10. 10
    zman Says:

    K – that was sarcasm. I don’t but for those who dread seeing a rig off their beach front property vs seeing more job losses and headlines of a spiraling federal measure, this could represent a “necessary evil”.

  11. 11
    BirdsofpreyRcool Says:

    Reading the details of the Joint Statement (Fed, Treasury, FDIC, OCC, OTS) on the banks, this morning… it states that the govt will provide capital to banks that need it in the form of mandatory convertible preferred shares.

    While is sounds “good,” this is actually a bad thing… and is getting the juices of the Credit Bears flowing. Any propping up of the Zombie Banks that gradually increases the level of govt assistance (ownership) will lead to hopeful rallies in debt and equities. However, this continues to ignore that many banks will need to be closed and merged/sold off to healthy banks. So, any rally in the bank bonds/CDS will just give the Credit Bears better levels to short.

    Stay nimble. Take profits when you get them. The cycle of falling stock prices, interrupted by hopeful rallies, seems likely to continue.

  12. 12
    BirdsofpreyRcool Says:

    Trading Desk Colour — no good trading colour today… bad odds and too many headlines. Can only recommend to “follow the trend.”

    But Head Trader’s gut thinks you play this from the short side, until proven wrong.

  13. 13
    elduque Says:

    BDI -15 2084

  14. 14
    BirdsofpreyRcool Says:

    Credit Market Indices —

    IG 213 +1bps

    HY 72.5 +.125

  15. 15
    Garyinhou Says:

    Morning Z.. CLR also 2/26

  16. 16
    Dman Says:

    China prepares to buy up foreign oil companies


  17. 17
    zman Says:

    Thanks Gary, did not see, will add shortly and repost.

    Fading green open. I find it good to step back to something close to cash on options positions from time to time. Just sitting on hands now and doing a little last minute reading. My inclination this week with earnings is to play numbers for the most part post release. The reaction to E&P earnings has been pretty 50/50 and while that is better than the 3Q reception its not great. Better to have in mind which ones are going to be really interesting and why, read the press release and then play or not as the situation warrants.

  18. 18
    BirdsofpreyRcool Says:

    Dman — The Chinese Govt has a practical, long-term energy plan. They are not going to waste a perfectly good crisis.

  19. 19
    zman Says:

    Thanks Dman – I find it more likely they buy a STO or even take a share in BP than coming to Wall Street to add reserves. There is A LOT of natural gas in the Sichuan Basin. Some of it is in shales. BP and STO made no mistake when partnering up with CHK as they plan to take the shale gas extraction knowledge back to Europe. China is likely thinking the same thing. China does want foreign oil reserves however and has been not too discreetly gobbling up territory in Africa. I could see them picking off someone like Addax or someone a little bigger to get W. Africa offshore volumes up in places outside of Nigeria.

  20. 20
    zman Says:

    BOP – I agree with 18. I just think they will find the shopping easier outside the U.S., even in Canada. I remember the Unocal attempt well. I doubt sentiment has changed much and U.S. companies (ones of the size the Chinese would look at) are stronger than before so as not to need to really examine that kind of a deal than in past oil price down turns.

  21. 21
    BirdsofpreyRcool Says:

    z — agreed. Chinese will not make a run at a US-based company. Even Canada might have a tough time, if the Chinese went after SU, for example. But, a project/reserves like SU are exactly the sort of thing they are comfortable with, scooping up at the bottom.

  22. 22
    zman Says:

    Hear ya BOP – agreed on type of reserves.

    CLR has been added to the table in the post and the table has been added to the calendar link for reference this week.

  23. 23
    zman Says:

    The markets continue to fade, oil now negative, nat gas up 7 cents but that faces pretty strong weather headwinds, especially as traders look to next week’s number. If we don’t get colder weather soon we may see storage trough extremely high.

  24. 24
    BirdsofpreyRcool Says:

    There goes the Love… bond market never bought into the stock market rally this morning. We still have way too many questions, and no good answers.

    Headline driven.

  25. 25
    etswd Says:

    z whats your take on hk earnings wed? seems like it whats to hang at 17-18.also seen sell off after earnings & guidance before in this mkt. mkt has hammered everything. just hate to see double wham -oh

  26. 26
    zman Says:

    BOP – yep, I’m content to watch it fall for awhile. I think the White House Press Secretary’s late Friday rally will fade away completely yielding a test of the “what did Dodd say???!!!” Friday noon lows.

    From the Hartford Courant:

    Dodd made his remarks to Bloomberg News and, later, in an interview with The Courant, appeared surprised that they had such a dramatic effect on the financial markets. Veteran observers of the banking scene said that the reaction showed how skittish the markets are when it comes to the U.S. financial system — and how deeply the government has intervened already.

  27. 27
    zman Says:

    ETSWD – I’m content to take a wait and see on them for now. I felt they stole their own thunder for the 4Q press release with the big 3 well announcement in the Haynesville and then an operations update after that early this month. They should have 2 to 3 more H.S. wells to talk about which may provide a small pop but the market has not been as wowed of late by big IPs so they will need to be either exceptional (all well above 20 MMcfepd) or have at least 1 step well out from their current patch and I don’t recall any of the currently drilling wells being that far afield but will check and get back to you. If we do get that kind of news (a far reaching stepout) then I think it takes time for the stock to really notice the importance of it.

  28. 28
    zman Says:

    27A) and they’ve already announced reserves for 2008 and with that you have 4Q08 production so no surprise there. So no upside potential from the numbers. However, the analysts have been getting some of the 4Q differentials to Henry Hub wrong and that provides a little downside risk to the EPS and CFPS numbers. Again, happy to wait and see. I own the stock, just not any options now.

  29. 29
    zman Says:

    27B) and if it gets pounded down to $15 between now and then I will take some $15 or $17.50 March calls on it.

  30. 30
    zman Says:

    Oh what a lovely market. Glad I’m mostly on the sidelines.

  31. 31
    zman Says:

    I watch the XLF to gauge the banks’ reaction to headlines, anyone have a better indicator aside from BAC or C?

    A little flight to size/safety underway this morning in energy looking at XOM and CVX.

  32. 32
    Dman Says:

    #26 Politicians love the limelight & then get shocked that anyone was actually listening to them. Poor old Sen. Dodd is used to being ignored I guess.

    Trading tax update: Todd Harrison is hearing from 2 sources that it is DOA.

  33. 33
    tater Says:

    Anything new out of LINE? TA looks like it wants to go down and close the gap at $12 but it is already paying 18%. I’m beginning to collect some as it falls, just want to know if you are aware of anything.

  34. 34
    zman Says:

    Dman – hear ya on that. I think Cabinet level positions fall into that position as well after time but new appointments say things and get listened to. The Transportation Secretary talking about the VMT last week got rejected by the President …no tax per miles plan will be instituted on my watch ~ Obama.

  35. 35
    zman Says:

    Tater – nope, nothing. They report this week, could be concern over the distribution is rising with weak natural gas prices.

    POTUS talking about his appointment of a Stimulus Watchdog (suddenly czar is out I guess).

  36. 36
    Dman Says:

    tater, the Canadian trusts were clobbered last week as they had to cut distributions due to continuing NG weakness. So some of that (or at least fear of that) is probably rubbing off on LINE. Shoot first etc.

  37. 37
    etswd Says:

    ung still moving up/ maybe this floored hk @ 17.50

  38. 38
    zman Says:

    Dman – re 36. Good point. Also, anything yieldy is getting hit…look at GE sub $9. Not a lot of faith that distributions will be paid. LINE has over-reserved in the past for this low gas price eventuality and has pretty recently said that they will only be able to make small increases in their distribution this year. That’s a far cry from some other MLPS or high yielders like the shippers who have, pardon the pun, abandoned ship on their dividends.

  39. 39
    zman Says:

    ETSWD – I would not expect a big rally in UNG given the forecast. The one near term catalyst you have is the supply report due out Thursday and I don’t think that’s going to be of much help. It will show December numbers for gas production and if we had been rolling over then, we would not have seen the sub par number, even with poor industrial demand, that we saw in December and early January and last week. Its just a little early to see the numbers come off due to the rig count in the major growth driving regions.

  40. 40
    zman Says:

    CNBC talking about the next oil price shock now.

  41. 41
    zman Says:

    Interview with TOT CEO; basically said we may have to live with low prices for 2 years but need a slow rise in prices or we will be back to a price shock scenario again like last summer. I basically agree, I think we see a pretty strong rally later this year into the $70 to $80 region as OPEC holds quotas fairly tight all year. Then a flatter but higher (on average) 2010 as OPEC excess capacity comes back into play. Meanwhile, lack of investment will drive areas like the U.S. back lower (after the brief surge from a couple of deepwater projects this year).

  42. 42
    tater Says:

    Thanks guys. I’m a bit in the woods on news. Tough market to play part-time, even from the short side.

  43. 43
    zman Says:

    Got a emailed request for a relook at QBC, will do and will put in the post tomorrow.

  44. 44
    zman Says:

    Tater – everything being dictated by the broad markets. DJIA hanging out down 87 or about 30 points over Friday’s lows now. S&P abouvt 4 point over Friday’s lows at 758 with its eyes set on the November 741 level.

  45. 45
    zman Says:

    I’m hear today so if anyone has a question feel free. My lack of activity is not laziness but an over-abundance of caution due to the current market backdrop. Besides, there really wasn’t a lot of energy related news out there today.

  46. 46
    choices Says:

    Re Chinese acquisitions, they are very adept at operating in any jurisdiction-I worked for a Canadian oil company in Kazakhstan acquired in 05 by Chinese state-owned company. Kaz Govt took a run at them and then the Russians via its JV and the Chinese continued their focus and development-very cost conscious but plenty of money -doubt very much they would want to come into US market with its restrictions, political complexities, and Unocal experience.

  47. 47
    choices Says:

    I’ve read over the weekend that general market could go to S & P 600 or even 400, based upon $40 earnings for S & P and P/e of 15 or bear mkt low P/e of 10-prognostications by “experts” Barbera and Gary Schilling.Maybe time to get into the bunker or find a cave if they have any idea of what they are taling about.

  48. 48
    choices Says:

    Z-I take it from your comments that the LINE distribution is “reasonably” secure-do you know what its payout ratio is relative to cash flow?


  49. 49
    zman Says:

    Choices – agreed. I think they look to Africa or Latin America before U.S. / Canada / Europe. I’d say Normway would be a prospect but that’s getting greener by the month and they may find the restrictions too restrictive.

    DJIA below Friday lows now.

    47 – seems dire but I would assume a lot of stops will be triggered in the S&P breaches the November 741 low.

    48 – Re LINE – They were the most over-reserved of the upstream MLPs through the 3Q. Almost 1.6x cash flow to distribution. They are 100% hedged for expected production for the next 3 years as well.

  50. 50
    zman Says:

    49A) by the way, that move up to 100% hedged for LINE’s expected production is recent, they were at around 90% at year end. Their gas prices quite strong at about $8 in 2009, 2010, and 2011.

  51. 51
    BirdsofpreyRcool Says:

    z — i am going to go out on a limb here… and say that our market does not like the “creeping socialism” we see/hear coming out of Washington. I, for one, am just about ready to pull everything out of the stock market and stick solely to bonds. I know it sounds like a political statement… but, our “Two Americas” are just too far apart.

    I don’t trust Washington’s ability to “run” an economy.

    I think that, more than any thing else, is what this market action is telling us.

  52. 52
    zman Says:

    BOP – I hear ya. Its hard to argue with the markets hatred for uncertainty, for plans about future plans with few details etc. I think we are in 3 days down for each 1 day up with a day of waffling per week mode. That won’t last for ever but for now I can sit back, wait for it to get to the point where it feels like its fallen too far too fast, take a call position, wait a few hours or a day and a half and get back out. I think that’s probably the pattern for the rest of Feb and half of March, maybe a little longer, then more waffly bottoming action. The market will discount a real recovery by 6 months or so.

  53. 53
    john11 Says:

    re 51..BOP..comming to similiar conclusion..little exposure to bonds over the 30yrs of my investing/trading career, might you direct me to some resources to begin my bond education? TIA

  54. 54
    zman Says:

    Obama speaking to fiscal discipline summit.

  55. 55
    BirdsofpreyRcool Says:

    john11 — fixed income (bonds) investing is all about understanding a company’s cash flows, debt levels and repayment schedules, fixed expenses (vs discretionary), asset quality and estimated “value” in a fire sale, and priority of claims (where you stand in the capital structure). I apologize in that I do not have a good source to send you to to educate yourself. I learned on the job, over the last 20 yrs on bond desks.

    In bond investing, it’s not about the “upside,” it’s about downside protection. If you buy a bond at par (100) the most it will ever go up is to 120… but, it can go to zero. So, that is assymetric payoff risk. That is where the coupon comes in. It pays investors to take that assymetrical price risk.

    If you have a Fidelity account, you might start with them. Visit their office and see if they have any literature. I can help answer questions, but buying a bond is like buying a house… takes a lot of looking and comparing and figuring out if you can afford the payment.

    I do not like fixed income mutual funds. I worked at one. They always buy and sell at the wrong time. That said, you need to own 5-8 different company bonds, to diversify against unique default risk. So, most people just go the mutual fund route.

    Please, ask questions… I will try to help where I can.

  56. 56
    tater Says:

    Fiscal discipline.

    That word you keep using…

  57. 57
    zman Says:

    Thanks a lot Tater, now I have to get a new cup of coffee and change my trousers.

  58. 58
    john11 Says:

    Thank you, good advice, will do.

  59. 59
    tater Says:

    It’s almost like somebody should pen The Princess Bride Method to Stock Trading or something like that. It would be a big joke if it weren’t so appropriate.

  60. 60
    BirdsofpreyRcool Says:

    john11 — it’s popular to rag on the Rating Agencies these days. But Moody’s isn’t all that bad, when it comes to plain vanilla, corporate bond ratings (they had their collective heads up their collective *sses when “rating” mortgage-backed-securities, but that’s different… that’s “structured finance”). So, look at Baa1 to Ba3 rated bonds of corporate issuers.

    Two things to keep in mind when looking at a bond: 1) you want a simple structure, issued by a company that generates real cash; and 2) if a yield looks “too good to be true” relative to “similar” securities… then there is definitely something wrong.

    You don’t buy “stories” in fixed income, you buy cash flows that are sustainable in downside scenarios.

    I think the CHK and HK bonds have enough cash flow behind them to make it through the downturn. I think GE bonds are also a great risk/return here.

    Caveat: HK is B3 rated… just about the lowest rating you can go and still be considered a high probability of not defaulting. But, the rating agencies have always been very conservative with the “small” e&p’s.

  61. 61
    john11 Says:

    an FCX 8.375 sr nt due 4/1/2017 caught my eye, ytm is in the 10.6 range, any thoughts?

  62. 62
    zman Says:

    BOP – very true regarding your last sentence in 60. Ends up being more costly for the large, medium, and small cap E&Ps to borrow than it should. Those are extremely long lived reserves with low LOE. So if the company does nothing and production, in aggregate, begins to decline, it will be quite some time before they miss an interest payment, even at $4 gas. Then you put the hedges and it becomes even longer before there is a problem. Really not a reason to have them down at this level given the 1P reserves, and when you take into account the reserve pickup they will see with next year’s reserve report, there are a lot more Mcfe’s underlying the debt.

  63. 63
    VTZ Says:

    Z – I would just like to comment on the NCX story that BOP mentioned briefly.

    Nova Chemicals is a big player in Alberta and the unsolicited offer from Abu Dhabi was well received by the Alberta government so this could be a signal to other countries that foreign investment in Alberta is fair game.

    Their plant is big part of the Alberta petro-chemicals industry.

  64. 64
    zman Says:

    FCX – not my area, anyone?

    Re 62 addendum. I also think some of the bias on the part of the rating agencies against the smaller names is due to long held patterns of higher risk taking in those firms. The explorational nature of small cap E&Ps of the past may have warranted this. The era of the resource play, where exploration risk is minimal, warrants a change in evaluation methodology. In an exploration well you spend money going after a target that may or may not be there at total depth or the hydrocarbons may have long migrated out of the trap or you may have bad data on your seismic…lots of things can go wrong.

    With the resource plays, like coalbed methane or shales, it is much more of a economics game. Spend a certain amount to drill and complete a well, generally with success rates of 98% or more and you can add a pretty identifiable range of reserves to your reserve report at TD. So well cost and the price of gas have a lot more to do with the rating than exploration talent. And rating agency analysts have frequently assumed the worst case for prices often holding them flat into the future.

  65. 65
    nifkin Says:

    any story around in EGY – down 12%

  66. 66
    zman Says:

    Re EGY – nothing that I see, ops update was last week, could be a broker comment that I don’t get. Often for the smaller names you see the analyst get a little lazy on the first call note and not wanting it to be wasted on a tepid Friday market, he’ll hold it for the next Monday. Again, I didn’t see anything, just guessing.

  67. 67
    BirdsofpreyRcool Says:

    z — re#64. Awesomely important point. Used to be, you had a 1-in-10 chance of a wildcat well being economic… but, you had to drill enough wildcats if you wanted to appreciably grow your asset base. With the shales, that has changed.

    At some point, the fixed income mrkt will latch on to that… the fact that they risk-vs-return in the shale-based E&Ps is being priced on the “very cheap” side.

  68. 68
    BirdsofpreyRcool Says:

    The NCX story —

    Nova Jumps After Agreeing to $499 Million Buyout by Abu Dhabi
    2009-02-23 17:30:26.216 GMT

    By Jack Kaskey
    Feb. 23 (Bloomberg) — Nova Chemicals Corp., Canada’s largest chemical maker, soared in New York trading after the company agreed to be acquired by Abu Dhabi’s International Petroleum Investment Co. for about $499 million in cash.
    Nova climbed $3.98, more than tripling, to $5.32 as of
    12:14 p.m. in New York Stock Exchange composite trading. The shares had dropped 96 percent in the year before today.
    Nova Chief Executive Officer Jeffrey Lipton is seeking to raise cash amid concern weak chemical demand and tight credit markets would prevent the company from meeting lending requirements. In addition to the cash, IPIC will provide a $250 million credit facility and allow Nova to operate independently.
    “It’s a very smart move for Nova and a good deal for bondholders,” Carl Blake, a senior analyst at Gimme Credit, said by telephone from Washington. “If they didn’t make it through the liquidity crisis, it would have been disastrous for equity holders.”
    Nova’s investors would receive $6 per common share, and the transaction requires the approval of at least two-thirds of voting shareholders at a special meeting to be held in April, Nova said today in a statement. Including the assumption of Nova’s debt, the deal is valued at about $2.3 billion.
    Nova, which is incorporated in Calgary and run from Pittsburgh, said its board approves the transaction.
    Nova’s bonds rose. The company’s $400 million of 6.5 percent notes due in 2012 climbed 49 cents to 86.5 cents on the dollar at 12:02 p.m. in New York, according to Trace, the bond- price reporting system of the Financial Industry Regulatory Authority. The debt yields 12.2 percent, Trace data show.

    New Financing

    Nova yesterday said it received $150 million in new financing from Export Development Canada and three Canadian banks. Nova needed to secure $100 million in additional financing by Feb. 28 and $100 million more by June 1 under relaxed credit terms negotiated last month.
    “Liquidity was a real issue, and for them to sell out at such a discount to their replacement value attests to the fact that they saw difficult market conditions ahead,” Blake said.
    “With the backing of two governments, I think they will be OK.”
    Nova’s facilities in Joffre, Alberta, would cost about $5 billion to replace, Lipton said on a call with investors and analysts. The company’s board considered “a score” of options, including private and public equity transactions and additional borrowing before agreeing to the IPIC offer, Lipton said.

    ‘Best Alternative’

    “It was pretty clear that this was the best alternative,”
    Lipton said. “You have to deal with today, and that’s what they did,” he said, referring to company directors.
    Nova lost $214 million in the fourth quarter as sales tumbled 36 percent, the biggest decline in eight years, because of weak demand and plunging prices for plastic resins such as polyethylene, used in bags, bottles and packaging.
    Nova’s credit rating was reduced this month by Moody’s Investors Service and Standard & Poor’s amid concern the company wouldn’t be able to obtain the financing required by lenders.
    S&P rates Nova corporate debt CCC+, seven levels below investment grade, and Moody’s rates the company B2, five levels below investment grade.
    Nova’s facilities, which are mostly in North America, complement IPIC’s factories in Europe, the Middle East and Asia, IPIC said.
    “This acquisition will provide enhanced balance sheet strength for Nova Chemicals and facilitate Nova Chemicals’
    growth internationally,” Khadem Al Qubaisi, managing director of Abu Dhabi government-owned IPIC, said in the statement. “We can provide stability and allow Nova Chemicals to meet its operational and financial requirements while continuing to expand and invest in its business.”

    Chemical Deals

    The sale price is 4.7 times last year’s earnings before interest, taxes, depreciation and amortization, and it’s 5.4 times Nova’s normal ebitda, said Hassan Ahmed, a New York-based analyst at HSBC Holdings Plc’s securities unit in the U.S. The average selling price of 150 recent commodity chemical deals is
    6.6 times ebitda, he said.
    “They got a reasonable price,” Ahmed said. “It’s a bit on the lower side, but keeping in mind the current economic environment and their debt situation, I think this was the right thing to do.”
    Ahmed rates the shares “neutral.” HSBC is acting as financial adviser to IPIC.
    Chief Operating Officer Chris Pappas will remain with Nova and become chief executive officer as planned with the May 1 retirement of Lipton, Nova said.
    Torys LLP and Clifford Chance are acting as legal advisers to IPIC. UBS Investment Bank and RBC Capital Markets are acting as financial advisers to Nova, and legal advisers are Osler, Hoskin & Harcourt LLP and Wachtell Lipton, Rosen & Katz.

  69. 69
    VTZ Says:

    I’m just pointing it out because the Alberta govt has it’s own sovereign wealth fund type thing and it chose not to bail out or loan to Nova and favored a takeout by Abu Dhabi. Along with the UTS buyout by Total I think this has implications for bigger acquisitions like SU like you were referencing.

  70. 70
    zman Says:

    Not trusting this late day mini-bounce and have little desire to play WLL pre earnings tonight. Grabbing lunch, back before close.

  71. 71
    choices Says:

    bkx (bank index) controlling mkt, mkt moves in lockstep with bkx

    CRK, RIG, EOG also being crushed.

  72. 72
    choices Says:

    I cannot believe some of these prices-I MUST KEEP MY FINGER OFF THE BUY BUTTON!!!!

  73. 73
    Bob Says:

    #38-LINE; Since the Linn Energy IPO at $21 in 2005, it has earned a total of $4.24 per share, and paid out $6.48 per share in dividends. Aren’t they just returning capital? The 2008 estimated earnings are $1.62, while they paid out $2.52. The earnings estimate for 2009 is $2.04 (unrealistic?). The Barron’s pump story 2 months ago pushed the stock from around $12 to $16.

  74. 74
    zman Says:

    Wow 70 turned out to be correct. Yikes

    Choices – no kidding, better to wait it out. RIG getting hit is tempting but it can open lower in the morning on no news.

    Bob – Re LINE. The way I look at them its a measure of cash flow and of that how much is distributable and of that, how much they distribute. In 2008 they will put up CFPS of about $2.84 (that’s consensus). In 2009 the number is $3.02 (strong hedges). These guys have done a good job selling assets during high prices and buying at times of low prices. Right now the markets are pretty dried up for equity deals which is how they fund acquisitions in large part and people want a lot more for reserves than you would guess judging by the distance between buyers and sellers at NAPE a couple of weeks ago. So deals aren’t getting done yet. So they wait. They won’t grow much or at all in 2009 and 2010 they start to roll lower on volumes but they are long lived volumes so its a slow steady decline. Just what you want for an annuity. Anyway, they will be able to keep their distribution up as they have “under-distributed” for some time now.

  75. 75
    BirdsofpreyRcool Says:

    AIG… back to the tough… and about to report the largest corporate loss in the history of corporate losses.

  76. 76
    BirdsofpreyRcool Says:

    Technical Trader’s comments —

    There have been 9 times since the inception of the S&P 500 futures that they were down 5% or more during an option expiration week. The Monday following an expiry has a fairly consistent tendency to be negative, and it was mixed after these occurrences. But buying the S&P on Monday’s close and holding for three days led to 8 winners out of the 9 occurrences, averaging a return of +3.9% and a nearly 2-to-1 reward-to-risk ratio (+6.4% versus -3.8%). The one loser’s losses were all made up over the following three days”

  77. 77
    choices Says:

    Bob, the difference between cash flow and earnings as you probably know is the non-cash expenses such as amortization, depreciation, and depletion which are expensed in the earnings calc but not subtracted in the cash flow calc.

  78. 78
    BirdsofpreyRcool Says:

    So, technically, buy now and should be up in 3 days.

    However, Head Trader says, if mrkt’s up tomorrow, don’t bother waiting for the next two days. Take profits when you get them!!!

  79. 79
    Bob Says:

    Thanks for 74 and 77. Reaction to Thursday’s report should be interesting

  80. 80
    zman Says:

    BOP – looks like we get a 6 handle on the DJIA tomorrow or Wednesday.

    Thanks for that BOP, kind of plays into my thinking on 3 down, 1 up type market as well.

    TSO the only thing up, I thought the call wasn’t so bad as per the post.

    Choices – right and for a reinvestment based businesses like in the E&P industry, where some guys use full cost accounting and others use successful efforts accounting it puts people on not only a more even footing for comparison but I feel much more useful one. DD&A and deferred taxes will vary widely from firm to firm and skew earnings whereas, cash flow is cash flow.

  81. 81
    choices Says:

    BOP-how much credence do your traders place in the Dow Theory-I read a numbwe id comments over the weekend that the Dow closing below Nov low last week confirms the Dow Transport low and therefore is a confirmed sell signal from Dow Theory FWIW


  82. 82
    zman Says:

    Story of the day…sometimes the best trade you make is the one you don’t.

  83. 83
    Nicky Says:

    Good afternoon all. 6 down days in the broader market. Agree with everything said above regarding bounces being brief and should be sold for now. Cycles are pointing towards a market low in the April timeframe – of course we will get some rallies but they will be brief. Four year cycle low does not come in until 2010 – 2011 so we could be considerably lower by then – I would say 500 in the SPX or lower is a given. After that we should see a 2 year bounce – likely 100 – 150% (but from where!) before the market rolls over again.

    It seems the market trusts this Administration even less than the previous one if that is even possible. Tim Geithner is a disaster in my opinion and they need to get rid of him and quickly.

  84. 84
    zman Says:

    Re Geithner, agreed, break glass only if squelching of irrational exuberance is needed.

    Nicky, do you have any S&P technical levels you see as brief-bounce-worthy?

  85. 85
    Nicky Says:

    Z – 738 needs to hold on the SPX or we will be at 650 very quickly. If this area can hold we could see a bounce back to this morning’s highs.

  86. 86
    BirdsofpreyRcool Says:

    choices — i have never heard the traders talk about the Dow Theory… doesn’t mean they do (or don’t) subscribe to it. They look at one-day patterns and credit spreads to make short-term and long-term calls.

    There is nothing, right now, that suggests putting capital at risk in this market is a good plan. We have no idea what the rules will be. We have no idea what kind of “managed economy” we are headed for. We are spending like drunken sailors on social programs and borrowing like Somalian Pirates to pay for it. The next move will be to tax anything that is actually “productive” to pay for all this waste.

    But, I could be too optimistic!

  87. 87
    zman Says:

    Art Cashin on CNBC was talking about DT Friday, said he saw much lower lows soon if we didn’t hold the levels around Friday’s open.

    Thanks Nicky. Sound like I may get to do a little shopping in the morning.

  88. 88
    Nicky Says:

    Tuesdays are often a turnaround but there is zero information coming out to turn this around. It strikes me they just don’t have a plan or have a clue what they are doing which is the really frightening part of all this.

  89. 89
    Nicky Says:

    We actually had a Dow Theory sell signal months ago ie last Fall.

  90. 90
    zman Says:

    Nicky – I think we are down about 1,100 Dow points since Timmy’s unveiling of the plan to have a plan.

  91. 91
    zman Says:

    Maybe I’ll do a WIWOWIDO – why I would own what I don’t own tomorrow. Some stories could use dusting off but the general market in the very near term precludes the use of logic.

  92. 92
    Nicky Says:

    Z – I saw someone say that at Friday’s close we were down 2500 on the Dow since Obama won in November. Nearly 9% this month alone. Its really staggering and you just know we are going to get a bounce sometime soon.

  93. 93
    BirdsofpreyRcool Says:

    There is a basic problem in thinking the Govt has a silver bullet. They don’t.

    This would be over much faster if the govt just stepped aside at this point. Closed bad banks, let weak companies reorganize in Ch11 (GM, AIG). We are falling into the same trap that got us The Great Depression. It’s not like we don’t have the history to figure out that govt inntervention in the economy doesn’t work. We have numerous examples… all throughout history.

    That said, what Paulson did last Fall was absolutely necessary. We were on the verge of a banking collapse. But, what we are doing now is different.

    end of rant… lots more to say, but who cares.

  94. 94
    zman Says:

    I hear ya Nicky but I don’t see Washington being the answer. Just reading the Interior Secretaries thoughts on royalty “reform”. Unreal. Talks about abandoning royalty relief in the deepwater, re-writing the 1990s leases in the Gomex, and getting rid of RIK (royalty in kind) so that the oil companies would have to pay in cash. This is written by people who want to get the U.S. off foreign oil?

  95. 95
    choices Says:

    Nicky, I respectfully disagree-I may be a minority of one here on this web site and I’m certainly not a Democrat but I think we need to give this some time-the mkt is certainly impatient and the AIG news of $40 bil loss does not help. Geithner, I’m not sure about, but the problems are HUGE and were all developed in the last eight years to be the present mountain of s____it is now. I’m just watching Obama preside over the meeting on fiscal responsibility-He SEEMS to be trying to grapple with all of the problems and I cannot imagine the previous president presiding over anything in this manner-are we moving to socialism-I do not know-The buffoon Glen Beck thinks we are already in socialism on the way to communism and then fascism (sic) ie national socialism-he conducted a War Room recently that indicated we will have class warfare, food riots, race riots, etc etc. It is this type of crises (plural) which brings these buffoons out from under their rocks.

    We need to pull together and not listen to the shock jocks on cable and radio, from either extreme of the political spectrum.


  96. 96
    BirdsofpreyRcool Says:

    Just saw this, from Bill Fleckenstein… the famous Bear Fund investor (who actually went “constructive” on the market Feb 9th, closed his 13-yr-old bear mrkt fund, and bought shares of MSFT). I’m going to post it b/c I agree with it, FWIW —

    Necessary vs. Baseless Intervention

    Lastly, I’d like to make a comment concerning all of the rescue efforts. The lead editorial of yesterday’s New York Times began: “The anti-foreclosure plan announced by President Obama on Wednesday is a decisive break from the Bush administration’s disastrous protect-the-banks-but-not-the-homeowners policy. The president has promised that it will help as many as nine million American families refinance their mortgages or avoid foreclosure.”
    They (the New York Times and the administration) are wrong on two accounts: First of all, there is a focus in this country on stopping foreclosures in an attempt to keep home prices high. This is a terrible idea. Median home prices continue to be too high relative to median salaries, even as salaries are under pressure because jobs are under pressure. So, it is madness to try to hold home prices at a place that makes no sense. I am sympathetic to any sensible plan for helping out people who, simply because of bad luck, need assistance and have a legitimate shot at paying back their loans. On the other hand, we cannot ask the prudent to bail out the reckless, a point I have made many times, because there are too many of the latter and not enough of the former.
    As to the Times’ second point, that Paulson’s policies were disastrous while the new administration’s are sound, I disagree. I think that at this juncture, it would be incorrect to say that the new administration is doing a much better job than the prior administration.
    Philosophically, I am opposed to government intervention. But we were faced with financial Armageddon, precipitated in essence by (a) the Greenspan Fed’s insane meddling in the market for two decades, combined with its failure to do its regulatory job generically, and (b) the abdication of responsibility on the part of all the regulators, including Congress. If Henry Paulson hadn’t been as clever and imaginative as he was (and even Bernanke, though obviously he helped get us into the muck), I shudder to think about what the world would look like — as the financial system would have completely collapsed!
    Bottom line: Even those of us who were against government intervention owe a debt of thanks to Hank Paulson. (On that note, I thought that a recent Frontline special on the mortgage mess was actually quite good and suggest it’s worth watching.)

  97. 97
    zman Says:

    95 – I agree with all of that although I do fault Geithner for having few details (at least few that I heard or later read about) in his press conference. Since then he’s disappeared which is not what I think a Treasury Secretary should do at a time like this but more appearances, without details if they are not yet available, would probably result in even worse equity markets. Can’t stand GB and as such don’t watch him. Shock jocks are just that although I don’t think the recent debate about limiting what they say is wise. This is why I avoid name calling, political bashing and other forms of buffoonary as I really don’t want to be mistaken for one of those and could honestly care less. Plus I’m a nice guy. But right now I see how the market is reacting to the administration’s plans and it does not seem to be a reaction of confidence. I think this will pass, like I was saying above, and that maybe a couple of weeks into March we will have a little more clarity on the positions or the market is a lot lower and it will be a little more ripe for bottom picking. I can tell one thing for certain, that good well news or a bottom line beat are of very fleeting interest to a market addicted to CSPAN.

  98. 98
    zman Says:

    Reef – good call EPL, on the tape hiring FA to seek alternatives, restructuring board.

  99. 99
    zman Says:

    JPM on the tape hacking dividend from $0.38 to $0.05. Says quarter is in line with consensus. That may help out tomorrow.

  100. 100
    Nicky Says:

    Choices – I am not sure whether you disagree with my thoughts on Geithner or the market having a bounce at some stage.

    With regards Geithner as Z say it was a major miscalculation to come out last week and basically say nothing and expect the market to take comfort in that. Now don’t get me wrong I agree this is going to take time and in fact I agree with much you have said in your email except from what I can see this goes way beyond the last 8 years. Bill Fleckenstein has written a book on the Greenspan bubbles and he is on air repeatedly blaming this on Greenspan. For me it comes back to some comments I made on here last week – its ultimately about greed on every level – when its all going well nobody wants it to end and nobody wanted to be the one to pop the bubble.
    I never did think the new Administration (Geithner was involved in all this with the last Administration so why anyone would think he would have a silver bullet I am not sure) would be able to provide immediate solutions but the market is getting impatient and I think it was the final straw when he promised to deliver something momentous and then delivered nothing. He should never have built us all up to believe he had a plan when he didn’t.
    It is actually very likely that the stock market and the housing market are still way overvalued. I agree with BOP that the Government should not have interfered. Let the free market work because ultimately its going to anyway. They can prop it up, slow it down but until these markets reach fair value, and most likely overshoot on the downside as they did on the upside then any rally is just a selling opportunity. Fair value for the Dow is likely between 3000 and 4000.

    As far as a bounce goes – nothing goes down in a straight line forever – at some stage I am sure everyone on here knows we are going to get a knock your socks off rally.

  101. 101
    Nicky Says:

    BOP – I think that paragraph you posted from Fleckenstein regarding stopping foreclosures in an attempt to stem the fall in home prices is spot on.

    Somebody said on here earlier that history has proved that Government intervention does not work – why they choose to ignore this is beyond me.

  102. 102
    zman Says:

    Re your last in 101. Ego.

  103. 103
    PackMan Says:

    Dow Theory – confirmed sell signal on Dow at 7350 ?

    The drop from 14,000 to 7,350 didn’t count ?

    Sounds like an analyst downgrade at the bottom.

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