Monday Morning And All Is Cautious

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Before the open this morning the major indexes are down about 25% year to date, with the various energy sectors off anywhere from 9% (oil service) to 20% for the E&Ps and Majors. Oil is down 10% while natural gas is off by a third. See the wrap table for all the numbers here. OPEC meets next Sunday and I would expect oil to trade with greater volatility and an upward bias early this week. If you feel the need to save energy while waiting on the OPEC decision to cut or not to cut try this.

The Week Ahead:

  • Monday 3/9: No economic releases
  • Tuesday 3/10:  Wholesale inventories, EIA's monthly short term energy outlook (STEO) - everyone expects the EIA to cut their target for global oil demand further with the report. I'm more interested to see their assessment of non-OPEC supply growth (bet they trim it some given the goings on in Mexico)
  • Wednesday 3/11: Oil inventories (10:30 EST), Federal budget
  • Thursday 3/12:
    • Natural Gas Inventories (10:30 EST),
    • initial jobless claims
    • retail sales (this is the big set of numbers for the week with expectations running high that we return to negative sales growth after a brief stint in positive territory last month (forecast is negative 0.4%; up 0.3% ex autos)
  • Friday 3/13: March consumer sentiment (forecast to fall to 55 vs 56.3 last month). I think the monthly OPEC bulletin comes out this day but have not yet gotten confirmation.
  • Sunday 3/15: OPEC meeting begins.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Rig Count Review
  4. Stuff We Care About Today - GMXR
  5. Odds & Ends


Holdings Watch: The wiki tab and $10KP tabs are up to date.

Commodity Watch:

Crude oil ended last week up 2% close at $45.67, a one month high. The 12 month strip ended last week at $50.53 and the April 2010 contract is at $53.62, and is the smallest contango I've seen in quite some time.

  • The smaller contango ($8 is less than half the size of the year out price increase seen just 2 months ago) will disincentivize speculators from buying and holding crude which in turn will lead to greater supply on the market. While this may seem bearish for crude, it is the overhang of this "storing effect" which has help prevent crude from turning the corner after a more than $100 drop.
  • The next and more lasting suppression for crude will be OPEC's large spare capacity however I would expect oil to trade back into the $60 to $70 range by 3Q09.  This week, I would expect tentative but positive trading in crude barring a (further) meltdown in global equity markets.  
  • This morning oil is trading up slightly despite lower U.S. equity markets having been up about a buck through the overnight session


  • OPEC Watch: Iran is called for Non-OPEC producers (helllloooo Russia) to cooperate with production cuts to help stabilize oil prices.

Natural gas ended last week at $3.93, off almost 7%. This was the first close for the front month contract below $4 since last 2002. Note from the wrap this past weekend that the natural gas short position continues to evaporate. This morning gas is trading off 6 cents.


  • Weather Watch:
    • Last week: HDDs were expected to come in at 174 vs 183 in the prior week. The Climate Prediction Center has not yet released final numbers for last week yet.
    • The forecast for this week: balmy 144 HDDs for the early read from the CPC.
    • Looking at the Accuweather Temperature maps, the back half of March is still expected to be colder than normal.

Rig Count Review:

  • Last Week - Another Big Drop In Activity
    • Gas Rigs: down 54, or 6%
    • Oil Rigs: down 19, or 7%
    • Horizontals:  down 9%, or 2%
    • U.S. rigs are now down 861 from the highs set last September.

Rigs Drilling For Natural Gas Are Now Down 540 From Year Ago Levels And Are Down 690 (43%) From The September 2008 Peak.

  • Texas Rigs Down 50% From 2008 Peak; Down 473 Rigs. The state counts aren't broken out by oil and gas but you get the picture. 
  • All other major gas producting states continue to fall off at a good clip.

The Drop In Rigs Is Unprecendented in Recent Times But It Will Have Similarities To The Current Down Activity Cycle.

  • The last big drop in rigs drilling for gas occurred in July 2001 and troughed in March of 2002. During that slump rig counts fell 44%.
  • Gas production in that time frame peaked by October (3 months after the slide in rigs started) 
  • Production was down 4 Bcfgpd (7%) from the peak a year later. 
  • Our last good data for this cycle is December (3 months after the September 2008 rig count peak)


Stuff We Care About Today:

GMXR Cuts 2009 Budget & Growth Guidance

  • Budget drops $70 mm to $150 mm.
    • This takes the Haynesville program from 25 wells for the year down to a range of 14 to 16 including the 2 wells already drilled this year.
    • 4 wells are currently drilling and will be completed in April. After that they will lay down their 2 company owned rigs and the 2 industry rigs on hire in favor of 2 HP flex rigs .
  • Production cut as a result of lower spending:
    • 1Q09 unchanged at 2.8 Bcfe
    • FY09 goes from 24 Bcfe to 14.6 Bcfe (or from 86% growth to 13%)
  • Valuation:
    • Given their hedge position and lower growth they now see EBITDA of $62 mm
    • Street is at $100 mm of EBITDA
    • The new lower EBITDA puts the company at 4.8x which is not pricey
  • Haynesville update:
    • the three horizontal Haynesvile wells put on production so far have exhibited decent first month decline rates, maybe slightly better than you'd expect.
    • Reserve growth comment may be seen as a little conservative/worrisome in that they say 80 Bcfe for 16 wells which works out to 5 Bcfe per well and they have previously stated 6.5 Bcfe was their thinking. The difference may lie in the "proved developed producing" label they've assigned to those reserves. They did not indicate what Proved undeveloped reserves are associated with each well
  • Nutushell:
    • They said they would ratchet production lower if prices stayed low
    • They are responding to the drop in the stock price as investors wondered why you would keep drilling so rapidly in this low price environment
    • They will have results on 4 additional Haynesville wells in April.
    • Hedges now cover about 67% of expected production, up from 41% this year
    • Reserve growth will very likely outstrip production growth this year, exceeding 20%
      • this will allow for expansion of their current $190 mm credit line
    • I still don't own the shares but I think slowing down is the right move with gas at $4 and plan to take a position before they release their next set of well results.

SGY Unwinds Hedge Position:

  • $113 mm proceeds to partially pay down debt and/or repurchase shares.
  • Stone has been hammered from the $70s to under $2 over the last few months ... the result of too much debt, a high decline rate, and high lifting costs.
  • This move gives them a little breathing room but this is a reminder of why I don't care for the Gulf of Mexico shelf players...life just always seems to be on the edge.

Odds & Ends

Analyst Watch: Jefferies cuts (GMXR) price target from $54 to $18; maintains Buy rating. (HAL) and (RIG) upped to Outperform at FBR. FBR also trimmed price targets by 10 to 15% on all of the coals.

84 Responses to “Monday Morning And All Is Cautious”

  1. 1
    zman Says:

    For BOP: International buyers scooping up Detroit homes by the 1,000s


  2. 2
    BirdsofpreyRcool Says:

    ha! that is “good news…” and “bad news.” If the current monetization of the US Taxpayer Base doesn’t work, this presages the next step “we” will have to take… selling off this country’s hard asset base.

    Imagine how depressing it will be to pay for your Mount Rushmore admission in renminbi. Oh well… credit comments follow.

  3. 3
    BirdsofpreyRcool Says:

    Europe weak… not giving us a good start to the credit markets this morning.

    Front page of the WSJ talked about how credit is freezing up again…. no surprise to anyone who has been following the credit spread data here. Kudos to any company that accessed the capital markets (HK comes to mind), as we have no idea where it will go from here in the near term. Pre-emptive fundraising is a sign of good management.

    Although the entire high yield universe is not back to it’s wide spreads of last December, the High Yield Index (100 companies) is trading at all time lows. Investment Grade is still tighter (better) than last December, but keep in mind that our Govt is backing a lot of investment grade issuers.

    IG 256 +4bps from Friday, following Europe wider (anything wider than 200 bps is just plain unworkable, so the longer it stays this wide, the more it causes the economy to spiral downward)

    HY 67.125 -.625pts from Friday. If this keeps up, we are going any issuer forced to raise $$ pay the hefty premiums we say in December. Remember those KSU 13% bonds, priced to yield 16.5%?

  4. 4
    zman Says:

    NG fall below $4 is getting pretty overdone now. People forget the last time we saw a big decline in rigs was followed by an immediate response in supply reduction and this time, growth has come from higher decline rate sources. If you look at those GMXR wells its easy to see just how high of a decline we are talking about, even in the first month. 7 to 8 MMcfepd initial production averages only 4 MMcfepd for the first month. That’s pretty sharp. Take away the rigs and lookout below on aggregate supply.

  5. 5
    BirdsofpreyRcool Says:

    Citi strategist Tobias Levkovich raised energy shares to “overweight” and cut the drug and biotech industry to “underweight.”

  6. 6
    BirdsofpreyRcool Says:

    Bank stocks trying to rally. Warren Buffet on CNBC this morning, talking about most banks getting through this. Also, Ken Lewis (BAC CEO) on WSJ OpEd section, trying to dispell 5 (or so) popular negative notions about banks.

    Think there has been some “behind the scenes” efforts to get some positive PR out there. Warren’s economic “shambles” comment didn’t help the mrkt last week.

  7. 7
    BirdsofpreyRcool Says:

    Credit still feeling the “Daylight Savings Blues” this morning…

    IG 256 +4bps… still at wide of day

  8. 8
    BirdsofpreyRcool Says:

    (the US bond mrkt “opens” about 1.5 hours before the stock market… the switch to Daylight Savings always makes those guys grouchy than they usually are)

  9. 9
    elduque Says:

    BDI +37 2262

    TED 109.64

  10. 10
    kiaora Says:

    Z-BOP—Any credibility in this? “On march 12th the house financial services subcommittee plans a hearing on mark-to-market accounting rules, which have been blamed for forcing banks to report billions of dollars in write-downs. Karen Finerman has long been an advocate of putting these rules on hiatus for a while and “letting the banks breathe.”
    If that meeting results in the government relaxing mark-to-market rules, optionMonster Jon Najarian thinks the stock market could explode. On Wednesday he told us, “if the government relaxes mark-to-market for 12 to 18 months you could see financials move 100% in a matter of hours.”

  11. 11
    zman Says:

    Thanks for your thoughts BOP, I stepped out to support the local starbucks. Can’t have those guys shut down.

    Wow = Oil. I left just before the open and it was flat. Here we have it up $2.50 at $48. It was up in Asia all night by about a buck. Curious. Nice open for the group compared to what I expected but a 6% move on oil will do that. Also, stocks managed to recover from down 100 plus on the Dow futures to green.

    Getting close to buying some GMXR.

  12. 12
    zman Says:

    K – I had heard last week they might take it up this week but then read nothing about it on the weekend. I agree with Najarian that we could see a monster pop were we to re-write the rule book on MTM.

  13. 13
    BirdsofpreyRcool Says:

    kiora — it is the MTM rules, implemented as part of the post-Enron assault on US business, that has allowed the Credit Bears to be so influential. I am all for “asset transparency,” but the implementation of MTM along with the explosion of CDS allowed the Credit Bears to wreek havoc with banking assets in a market terrified of its own shadow.

    While the spirit of MTM accounting is to be applauded, the implementation can be footnoted as another example of the “Law of Unintended Consequences” run amok. Relaxing that law is like giving a “time out” to a market gripped by terror and uncertainty.

    So, yes, I think it would have a postive effect. It doesn’t change any economic reality of asset quality deterioration, but anything that takes a weapon out of the hand of the Global Macro Credit Bears has got to have a positive effect, on the margin.

  14. 14
    zman Says:

    Got this comment in email from Nicky this morning after I inquired about a move over $50 and a subsequent run to $60 for oil:

    “Yes huge turnaround for front month crude compared to Brent as opposed to a week or two back. As to how high it could go – well… I still think we are in wave iv rather than the start of something bigger to the upside and yes 60 I guess is possible although I personally would be surprised, 50 has to be a given I think. OPEC cut is priced in at these levels I feel so heaven help the oil market should they decide not to cut!”

  15. 15
    zman Says:

    Stone getting a huge boost (up 30%) from their decision to unlock the value of their hedges. This will be an option for many a mid-cap E&P as you can still re-lock in your pricing for 2009 at substantially better than current prices looking at the 12 month strip.

  16. 16
    zman Says:

    SWN trying to break back through $30. This is now my core gas price recovery position, followed by HK. I may add CRK due to their greater unhedged exposure.

  17. 17
    john11 Says:

    It would seem that the GMXR budget and production cut would take an equity raise off the table for the time being. Am nibbling here.

  18. 18
    zman Says:

    ZTRADE: $10KP Trade

    Added 5 HK $20 March calls for $0.15 (with the stock at $16.30) to the 10 I already hold. Technically the stock looks a little better now, we don’t have risk of an equity of debt deal (at least not in March) and they will put out an operations update, likely with more big Haynesville completion results in early April. The Street has had adequate time following the secondary to judge the stock and most of the price targets remain in double digit percentage territory above here with several in the $30 range. As the Haynesville player list bifurcates into “monster well” vs “just another decent Haynesville well” territory, I think I want to be with the higher IRR, “monster well” name and that’s HK, although GMXR is looking interesting at these levels.

  19. 19
    zman Says:

    John – Right. It gives them a little breathing room. Looking at their acreage, if they can accelerate into 2010/2011 they should not have trouble getting most of into HBP (held by production) status and if not, they too are nibbling on new acreage, at much lower prices than people were adding land for in 2008.

  20. 20
    zman Says:

    Today’s move took April crude (or you can use USO) through the top bollinger band for the first time since July 2008.

  21. 21
    hoggzilla Says:

    Z – new subscriber here. Really learning quite a bit. Any thoughts on ATPG as a long term play. I understand the debt load is the main concern but I think the upside potential is significant.

  22. 22
    zman Says:

    Hogzilla – In the past I’ve referred to them as a bottom feeder, they would acquire and exploit the leavings of bigger players and grow essentially via that strategy. But I’m no longer up date there so let me take a fresh look and get back to you in a couple of hours.

  23. 23
    hoggzilla Says:

    That is generally still their strategy and they have been fairly successful. I think the main concern has been their debt burden. They have recently structured some deals for some infrastructure and sold some of their reserves and are in a much better position but there is still some risk they might fail their debt covenants at some point although they would still be cash flow positive. The company has said they will comply with all of the debt covenants for all of 2009 and from my look it seems realistic. The will be in a much better position in 2010 as they are scheduled to have more production come on line at the end of 2009 or early 2010. Thanks

  24. 24
    isleworth Says:

    PQ getting killed. 61 cents last Anything new?

  25. 25
    zman Says:

    Isle – nothing that I see since an office bought a small piece on the 5th. That’s unreal. If I had to guess I’d say someone is questioning their debt covenant compliance. Their interest coverage is high so that’s good but the current fear among the small and mid cap players is bank line redeterminations, many of which are in April. At these gas prices, if your bank group decides to pull your line you can find yourself quickly in receivership. This is why HK and CHK and others have taken the added expense of new high cost senior debt on to kill off their revolvers. They don’t want to be in a position where the beaten bank may force them to make reserve portfolio decisions.

  26. 26
    zman Says:

    Hogz – check your email.

  27. 27
    zman Says:

    I’ll be adding the same charts for the big caps in tomorrows post and then will add hedge positions for the large, mid and small cap E&Ps on Wednesday.

  28. 28
    zman Says:

    Ok, CPC finally got their HDD file for last week unbuggered.

    Gas weighted HDDs of 179 vs 183 in the prior week so we probably have a shot of something close to a triple digit withdrawal this Thursday, especially since much of last week’s cold was concentrated on the East Consuming region which has been putting up some big numbers.

    Down here in the south the only thing gas is being used for until the end of the week is heating water…very mild, almost AC using weather.

  29. 29
    zman Says:

    Sane – is it possible to obtain API historic data in an excel file?

  30. 30
    zman Says:

    Adding to #11, oil also punched up through its 50 day moving average today which is likely to be inspiring some short covering, no danger of running into the 200 day however, which now sits at $68.

  31. 31
    zman Says:

    BOP – any comments from the trading desk?

  32. 32
    BirdsofpreyRcool Says:

    Tech Trader comments this morning had no conviction and bad odds. So, didn’t post them. Will only post on “good odds” days… don’t want to confuse people.

    Historically, the day after the switch to daylight savings is very hard on traders. They are cranky from lack of sleep and don’t have much good to say.

  33. 33
    zman Says:

    Energy stocks really look like a coiled spring this morning. If we could just get a sideways market…

  34. 34
    zman Says:

    This is cheery:


  35. 35
    BirdsofpreyRcool Says:

    Marc Faber Says Government Actions Will Boost Stocks (Update1)
    2009-03-09 13:25:38.312 GMT

    By Eric Martin and Deirdre Bolton
    March 9 (Bloomberg) — Government spending will spur gains in the Standard & Poor’s 500 Index after it fell 56 percent from an October 2007 record, investor Marc Faber said.
    “Equities could rally between here and the end of April,”
    Faber said in an interview with Bloomberg Television. “The government’s efforts will fail to boost economic activity. They can boost stocks. Stocks have adjusted meaningfully.”
    Faber said that although the S&P 500 may drop 27 percent to below 500 before the bear market ends, investors will make money over the next 10 years.
    Congress last month enacted President Barack Obama’s $787 billion package of tax cuts and spending on roads, bridges and public buildings. His 2010 budget indicated the government may devote another $750 billion to a financial rescue after an initial $700 billion.
    The S&P 500 dropped 56 percent from an Oct. 9, 2007, record, dragged down by $1.2 trillion in losses at financial firms worldwide from the collapse of the subprime mortgage market. The benchmark for American equities lost 38 percent last year, its biggest annual decline since 1937.
    Industrial commodities are more attractive than gold, Faber said, after bullion rallied 6.3 percent this year, compared with a 9.1 percent decline for the Reuters/Jefferies CRB Index of 19 materials.
    Faber, the publisher of the Gloom, Boom & Doom report, advised buying gold at the start of its eight-year rally, when it traded for less than $300 an ounce. The metal topped $1,000 last year and traded at $932.78 an ounce today. He also told investors to bail out of U.S. stocks a week before the so-called Black Monday crash in 1987, according to his Web site.

  36. 36
    zman Says:

    Thanks BOP, just doing a little DD on ATPG.

    Lots of people talking about “500 for the 500” … very hard to get traction with everyone scared to make a move before we see another big spike down to 500 with the thought that any rally, for any reason, is a reason to raise cash. Ugh.

  37. 37
    BirdsofpreyRcool Says:

    z — my thoughts exactly. You have all these people, calling for a rally in the near-term, but then turning around and saying the SPX is going to go lower. So, exaclty who is going to get the rally started? How does that work? Does everyone think someone else is stupid and they will get to sell shares higher just b/c the mrkt will bounce? Again, how does that work?

  38. 38
    zman Says:

    BOP – not me. Fool me once, shame on you, fool me 57 times in the last 6 months, shame on me living under a bridge.

  39. 39
    BirdsofpreyRcool Says:

    Guess with the shorts having made so much money, they have tightened their buy-stops. Still, any short-covering rally would be met with longs getting out. So, maybe a 1-2 day bounce…? Or, are investors really that schizo… depressed one day, happy and buying the next.

    Guess we shall see. But, unless credit follows any stock market rally, there is no way it can last past a day or two. No matter how over-sold the mrkt might be, IMHO.

    On the other hand, stocks are really weird animals. (as said by a bond-mrkt-person)

  40. 40
    zman Says:

    Re 39 – I think all the “rallies” of recent months have been limited to 1 or 2 days with the occasional 3 day run. The bad news for shorts on that is that they are classic bear market rallies, huge percentage moves in a short time, not great volume and they fold in on themselves intraday. I find myself wishing I had better short term trading skills but that’s really not my bag.

  41. 41
    BirdsofpreyRcool Says:

    Until banks stabilize and housing prices stop falling (when the economy is done shedding jobs at a 650k/month pace), there can be no sustainable rally.

    The investing game is — of course — who can call this economic bottom, 6 months before it happens. But, anything that tries to artifically boost housing prices will only prolong the downturn.

    Also, until we can come in to our desks in the morning and not question whether GE will be around, there is no reason to buy stocks.

    Will be very interesting to hear bank earnings reports after March 31st. There is a chance they will be better than feared… that might get the Animal Spirits pumped back into the market. Again, we shall see. So many moving parts. Especially with the US Govt so heavily involved in this downturn this time around.

  42. 42
    BirdsofpreyRcool Says:

    z — the best short-term (swing trader) I know (who has a 20-yr string of success at it), gave up trying to make money trading last October.

  43. 43
    BirdsofpreyRcool Says:

    z — he is just picking his stocks, picking his points, and holding. Has about 50% stocks and 50% cash right now.

  44. 44
    BirdsofpreyRcool Says:

    Noonday Overview

    · Equities hovering around the flatline as noon passes, SPX +3pts, after stocks were squeezed higher early in the session. Safety bid unwinds as gold (-$14 to $925) and treasuries come for sale (lower across the curve – see below) and the USD moves off highs (DXY +0.5%). Flow are very quiet on the equities desk as investors look ahead to this Thurs’ Mark-To-Market hearing in the House and this weekend’s G20 meeting. Stocks shrugged off a very weak Asia and Europe tape this morning to rally at the open, but they quickly came off best levels into noon (Dow, Nazz, SP500 all went into negative territory following a nice open). Best acting sectors of SP500 are Financials, Energy and Industrials while Telecom Services, Utilities and Tech lag.

    · Sectors-In-Focus: Financials saw a nice short covering bounce on the open, but on no real volume (a lot of the activity in ETF land) and CDS in the space has been wider for most of the day. Energy putting in an impressive rally (crude is up near $50) ahead of the OPEC meeting later this week. Tech continues to lag, extending the move from Friday (GOOG off >3% and standout to downside). Telecom carriers among the weakest groups in the whole market.

    · From the Treasury Desk – Treasuries are lower across the curve although flows are relatively quiet and have been a littler better for sale since NY session started. Curve is steeper (2/10 spread) by about +2bps to ~194 on a quiet news-flow day. Group will get busier through the week as auctions start – Treasury will sell $63B, composed of $34 billion of three-year notes on March 10, $18 billion in 10-year notes the next day and $11 billion in 30-year bonds March 12.

  45. 45
    zman Says:

    Thanks BOP

  46. 46
    zman Says:

    Dow traded down through 6,600 and that was pretty much it for good old round numbered support. Next look, 6,500.

    XOI, XNG, OIH remain positive despite the 1% down move on the broad markets.

  47. 47
    VTZ Says:

    Does anyone have any clue why on earth the dollar is stil rallying?

  48. 48
    zman Says:

    V – I keep seeing as reasoning that Europe and Asia (non-China) are worse off than the U.S. and dollars once invested abroad keep coming home to the safety of treasuries. I’ve also read that China is still buying but may not continue to do so in favor of commodities. On a chart it looks to be about out of steam, maybe a point away from a top at 90.

  49. 49
    BirdsofpreyRcool Says:

    VIX Uncouples From S&P 500 as Stocks Keep Falling
    2009-03-09 15:08:53.379 GMT

    By David Wilson
    March 9 (Bloomberg) — The VIX index, a gauge of stock investors’ fear, has yet to exhibit the kind of distress that sent share prices plunging in the past month.
    The VIX, also known as the Chicago Board Options Exchange Standard & Poor’s 500 Volatility Index, stayed well below its fourth-quarter highs last week as the S&P 500 set a new low for the current bear market. In the past, the VIX tended to rise when stocks fell and vice versa.
    “We have seen an uncoupling” of the inverse relationship between the two indexes in the past few weeks, Scott Fullman, a derivatives strategist at WJB Capital Group Inc., wrote in a March 5 report.
    Fullman cited reduced demand for S&P 500 options, whose prices determine the VIX’s value, to explain the breakdown. This year’s average daily trading in the contracts dropped 14 percent from the same period of 2008, by his calculations.
    Many investors seeking to hedge against falling stock prices found an alternative in options on SPDRs, which cost less to buy and also track the S&P 500, he wrote. The SPDR Trust is the most active exchange-traded fund linked to the index.
    Trading in SPDR put options, which rise in value as the index drops, exceeded 1 million contracts four times last week.
    For the quarter, there have been 10 days when more than a million puts changed hands. There were none in last year’s first quarter, according to data compiled by Bloomberg.
    Others hedging with S&P 500 puts were able to “wait out the market and not pay up” as they moved into new contracts, Fullman wrote. The strategy held down the price of so-called in-the-money options, the report said.
    Last week’s close for the VIX was 49.33. While the reading far exceeded the year-ago figure of 24.60, it was well below the Nov. 20 close of 80.86, the highest since calculations started in 1990. The index reached 89.53, an intraday record, on Oct. 24.

  50. 50
    VTZ Says:

    I hope so, the strong dollar sure isn’t helping anything.

    I’ve seen some calls for a top in the 90-92 range.

  51. 51
    zman Says:

    V – agreed. I’ve seen some write that the strong dollar may put a little pause in OPEC’s plans but I doubt it. I think they see the future better than most people and organizations that look at oil trends give them credit for.

  52. 52
    VTZ Says:

    Is the rally in SU just because people are starting to see their margin/bbl as safe going forward?

  53. 53
    VTZ Says:

    CLR as well?

  54. 54
    BirdsofpreyRcool Says:

    vtz – z-berry msg says he had to step out for a lunch… he’ll have to get back to you.

  55. 55
    VTZ Says:

    What do you think about the dollar BOP?

  56. 56
    BirdsofpreyRcool Says:

    Best looking leper in the colony.

  57. 57
    BirdsofpreyRcool Says:

    European banks = potentially worse shape than US banks. Getting the banks back together is the #1 thing that needs to happen before an economy can even think about recovering. The US dropped interests rates first and farthest and our banks (as screwed up as they are) are probably ahead of Europe’s.

    I’ve heard it described that the relative strength of a currency is a report card on that country’s health outlook. The US is still the largest, most diverse economy and North America has a lot of natural resources lacking in other countries/economies. So, our particular hemisphere still has the “most degrees of freedom,” so to speak. From a call-option perspective, the US $ has more going for it, relative to the other lepers in the colony.

  58. 58
    elduque Says:

    vtz -I would welcome any thoughts you have on the following:

    AAV, PWE, ERF and PVX

  59. 59
    BirdsofpreyRcool Says:

    what do you think, VTZ?

  60. 60
    choices Says:

    V-all major currencies are down today except the dollar-Euro constitutes major portion of dollar index and has been weak as CAD, AUD, and JPY. JPY has been off over 10% since late Jan. BOP summed it up IMO-they are all trash but gold has been weak as well, off $26 today, inversely to USD. Everyone is expecting a top approx 90 but that is usually when everyone is wrong.

  61. 61
    zman Says:

    56 = LOL, too true.

  62. 62
    VTZ Says:

    elduque – I don’t know AAV well and can’t say much constructive about ERF and PVX other than all the yields in the sector are in jeopardy if prices stay this low for much longer. PWE has a took on a lot of debt last year but operating wise are a good company. Keep in mind that all of their operating costs are in CADs which are 35% cheaper relative to what they were not long ago.

    My favorite trusts now are CPG, COS and IPL. Crescent point, Canadian oil sands, Inter Pipeline.

  63. 63
    VTZ Says:

    The reason I’m concerned with the dollar is I’m long CADs obviously by living here and I’ve also shorted USDs because I don’t understand how, in anything other than the immediate term, the USD is worth anything.

    I think that the Canadian and Australian currency is getting absolutely annihilated for no reason especially considering the Canadian banks are well funded and have been rated #1 in the world by the World Economic Forum, Volcker, etc. It just makes no sense to me even considering the oil and risk arguments.

    Ag, Gold, Oil, uranium and safe banks but somehow the currency is destroyed even with oil moving back up.

  64. 64
    zman Says:

    I worked up a short ATPG piece for tomorrow but in a nutshell:

    Good assets, rip for monetization. The bugaboo as Hogz point out is debt. Not a little one either but a lot with year end debt to total cap of 81%…that’s just too high, and pretty irresponsible. Their EBITDA to interest coverage looks ok but they may be looking at a redetermination of their bank line down, the road, about to dig that up. They make a comment about being within covenants now and for 2009 but the market is telling you it doubts that highly given the stock price pullback from $56 to $3 and change. Part of their problem stemmed from a production/cash flow hit due to Ike/Gomez and part is that they are just around the corner from a pretty good uptick in volumes. Anyway, if they make it, they are far undervalued, like many of their offshore only peers. I do like their lower lifting costs, lower than I would have expected having known them long ago but then I saw they have transitioned to be more of a deepwater player than a shelf player. That comes however with its own set of difficulties including a need for quite a bit of capital prior to facility start up. Anyway, will have more formalized thoughts for the Tuesday post.

  65. 65
    BirdsofpreyRcool Says:

    PQ — heard rumor that a disorderly seller killed this one this morning. Don’t know the company well enough to opine… but PQ had their bank redetermination on Friday (JPMo = lead) and heard it went OK (whatever that means). But, think some fund is either blowing up or in get-me-out-at-I-don’t-care-what-price mode.

    z, any comments here?

  66. 66
    zman Says:

    Thanks BOP – nothing really to add to my comments above re PQ, did not see anything on the redetermination but that’s usually not a PR event. This year it should be and I’d expect them to at least file an 8K soon. Sounds right on the blowing out of the stock for a fund and then follow on selling by others.

    V – apologies for late response re SU, that one I think is still just playing the proxy for oil, yes. On CLR, that one has had its good days and bad, not moving as tightly with crude. Obviously anything that approaches $50 or higher is better than lower for all of these guys. CLR remains 100% unhedged on crude volumes. Same goes for EOG, and they are still set to increase oil as a % of production this year.

  67. 67
    reefguy Says:

    PQ- I think the redetermination did not go well…

  68. 68
    zman Says:

    Shell saying those explosions last week have shut in the Forcados terminal in Nigeria. They declared force majeure on Forcados oil for March and April, which has a capacity of 380,000 bopd but was probably producing somewhere between 100,000 and 200,000 bopd.

  69. 69
    zman Says:

    Reef – the way its acting that’s surely the rumor. But if it happened on Friday they surely would have press released it by now. That’s what I would call “material” yet their is no press release and no 8K filed.

  70. 70
    reefguy Says:

    PQ- That is a knife that cuts both ways. Any redetermination, good, bad or neutral is material and needs to be filed. No filing…no formal redetermination.

  71. 71
    zman Says:

    EOG getting into the land of absurdly cheap, given that they are hedged for gas, getting oilier and oil is getting a bit of a floor, and debt of only 17% to total cap with no worries on interest or bank lines and no writedowns on assets to speak, it seems a bit more than strange they should be dwindling with the market today and not paying a bit more attention to oil and the fact that they don’t have the same issues facing many of their peers and a lot of the smaller, debt laden names.

    At some point, we reach the land of the last men standing. Many names are going to be off the board, and the remaining names, with strong balance sheets will be able to pick and choose properties, acreage or companies in br. This will definitely be one of them.

  72. 72
    reefguy Says:

    TONTINE- The public E and P equities are now headed for a tight gate.

  73. 73
    zman Says:

    Reef – yep, its not like they can skip it. Sounds like a false rumor.

    GMXR just getting thrashed again on today’s cut the capex. Some of the analysts I suspect are surprised by the amount of the capex vs production guidance cut. I sometimes wonder if some analysts can do simple math. Many of the wanted the firm to spend less so here ya go, they’re spending less to drill fewer wells and production gets whacked back to reflect an even more backend loaded program. GMXR also said they expect the remaining wells to be at least as good as the first three drilled which would equate to higher guidance than their current 13% growth but they are erring on the side of caution/beatability. Instead of saying, “ok, they’ve dropped the hatchet on spending and the stock has been crushed, it’s time to get on board”, the analysts seem to be taking a more “oh, my, the production growth isn’t going to be as high” stance.

  74. 74
    choices Says:


    Perhaps you already have this presentation, 5 Mar.

    Any comments when you get a chance would be appreciated.


  75. 75
    zman Says:

    Choice – I looked through it on Friday, nothing really new, just reiterates the point they are underleveraged, still growing, lots of asset value for when things turn and still unhedged on oil.

  76. 76
    zman Says:

    ETSWD – check your email.

  77. 77
    zman Says:

    This market just can’t get out of its own way.

  78. 78
    zman Says:

    I learn something new everyday. Asked Reef what a Tontine is in email and got this response:

    What is a “tontine”- A type of insurance policy written in the late 1800’s where a syndicate of individuals would pool their policies and only the last man standing would collect the spoils. Outlawed in 1906 I think.

    Here’s the longer definition from wiki:

  79. 79
    zman Says:

    SU accelerating to the upside as the markets deteriorate.

  80. 80
    ram Says:

    ZMAN – Isn’t PQ selling around .4X book value? Isn’t their net enterprise value worth more than $50M?

  81. 81
    choices Says:

    NG down into $3.80’s

  82. 82
    zman Says:

    Ram – at $0.95 and last known debt and working capital levels their TEV is $286 million. Are they worth that much with 185 Bcfe in the ground of prove and a larger look when you go out to 2P and 3P reserves? Sure. No problem. But if they are in the midst of a redetermination on their borrowing line (a leaky one at that as the news may be already coming out) then they could be forced to sell assets or have the banks take them. So no one wants to be on them. Best thing they could do is get a pr out after the close telling people what’s up. If the redetermination is lower and large (as in they didn’t add enough reserves at year end to justify the size of the revolver at current and prospective gas prices) then they would be in a bad spot trying to sell something (assets or stock) in this market. If I were the banks I’d think long and hard about forcing their covenants on them at this point but I’ve seen many banks go to town on their clients when the chips are down on energy prices. Very much like 2008 again. BOP, any thoughts?

  83. 83
    hoggzilla Says:

    Re 64
    Thanks for looking at ATPG. Looking forward to your thoughts tomorrow. I think, with their leverage you can almost play them as an option on oil and gas prices. Even if oil and gas prices remain where they are, there is good chance they will survive and you will still have excellent returns if you hold for 2-3 years.

  84. 84
    BirdsofpreyRcool Says:

    Just to put a bookend to the day… the Investment Grade Credit Index followed Warren Buffet’s comments about the economy this morning and “fell off a cliff.”

    IG closed at 262/264 +12bps for the day. Widest close since the dark days of early December.

    The Credit Market is starting to reach for the Panic Button again.

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