Super Long Tuesday Post


The Fear of the Month Watch: Bank Line Redeterminations. This fear applies to firms big and small but the smaller the firm, the more likely it is to be critical or even entity ending. In a nutshell, the lending group for a bank line of credit (usually more than one and often upwards of 20 banks) determines what amount of money they will lend on a revolving basis, like a charge card, to exploration and production companies based upon the perceived value of the company's Proven Reserves and the company's balance sheet. All other things being equal, the greater the discounted present value of your reserves, the more the banks will lend you.

The discounted value is a reflection of the reserve report based upon commodity prices. Periodically (usually once a year but sometimes more frequently), the banking group conducts a redetermination of the borrowing base. For E&P companies this usually occurs in March or April once the group has had a time to look at the fresh prior year's reserve report. They take a look at:

  1. what changes have occured relative to the reserve report (did the company replace its production or not? how much did it grow?)
  2. commodity prices (are they up or down making some of the reserves more or less or not economic at all?),
  3. the forecasted outlook for commodity prices and costs,
  4. the changes that have occured with the balance sheet  of the firm,
  5. the firm's capital budget for the coming year (what's the plan and is it doable?)
  6. and a host of other lessor variables.

There are  restrictions (covenants) placed on the company like, if you sell more senior debt, your borrowing base will be reduced or you must keep your debt to reserves ratio below a certain level or your debt to equity below 50%, etc. The tricky part occurs when a company has "charged up" its line of credit and the bank reduces the borrowing base below that level.  The company will then need to raise equity capital or sell assets to reduce its borrowing to a level within the banks' allowance. If they can't raise capital or otherwise reduce their bank debt ("borrowings" under their  borrowing base) , its up to the company and the banking group to either work something out ... or not.  If it falls out on the "or not" side, then the bank can move to seize the assets, which the company will pre-empt by declaring a Chapter 11 ("Voluntary") Bankruptcy.  This is how a bank can push a company into a Chapter 11 situation.   This is what is depressing the small names in the E&P sector right  now.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Analyst Estimate Watch
  4. Large Cap E&P Charts
  5. Crack Spread Update
  6. Stuff We Care About Today - ATPG
  7. Odds & Ends

Holdings Watch:

  • $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.

Commodity Watch:

Crude oil traded up $1.55 to close at $47.07 yesterday as thinking about OPEC's next meeting increasingly turned to thoughts that the group will reduce production quotas. Shell also announced force majeure on an unspecified number of barrels from its Forcados terminal in the Niger Delta after a series of explosions crippled a feed line there. No word yet on the volumes affects but I'd guesstimate 100 to 200,000 bopd. They did halt shipments for March and April. This morning crude is trading up between $0.50 and $1.00.

  • Early Read On Crude Inventories: Down 500,000 barrels.
  • EIA STEO Watch:  The EIA will publilsh its latest Short Term Energy Outlook later today.

Natural gas continued to slide on mild weather and no sign of life in the U.S. economy, falling $0.08 to close the day at $3.87.

  • Several analysts have lowered their 2009 forecast for gas prices to below $5 now and the thinking is we trough higher than normal (no kidding, I think between 1.5 and 1.6 Tcf vs a more normal 1.3 Tcf low) and then rapidly refill to some of the highest storage levels ever seen.

  • I would point out that 2007 saw similar inventory conditions with a spring trough of 1.517 Tcf and subsequent peak storage of 3.539 Tcf that November. 

  • At the time the economy was stronger, no doubt, but production was also markedly heading higher and gas prices were still more than double that of current levels.

  • This morning gas is trading flat.


  • Natural Gas Imports: At 8.8 Bcfgpd, imports were down 0.3 Bcfpgd from last week and down 0.9 Bcfgpd from year ago levels.
    • LNG: 1.1 Bcfgpd, flat with last week and up 0.4 Bcfgpd from year ago levels. This will trouble gas prices if it starts to extend about the 1 Bcfpgd level for a few more weeks as more analysts will write pieces about a tidal wave of gas coming to the States.
    • Canada: 7.7 Bcfpgd were down 0.3 Bcfpgd from last week and  of 1.3 Bcfgpd from year ago levels. While many analysts point to a potential glut of gas caused by rising LNG (and event that has yet to occur) most of them fail to notice that Canada is consistently sending less gas across south of the border.

Analyst Estimates Watch: With the recent rally in oil prices, analyst's forecasts for oil are at their closest point to the forward strip so far this year. The opposite can be said about gas prices versus the forward strip and if gas doesn't get propped up soon, which I really don't expect before the summer heat sets in, then I would expect another round of analyst price cuts for the second and third quarters.

Large Cap E&P Charts: Last week I added a number of charts for the small and medium cap E&Ps (the orange ranked charts that now reside on the E&P tab at upper left on the site) and I'm adding those same charts for the big 6 U.S. E&Ps today (APC, APA, CHK, DVN, EOG, and XTO). Again, this is not a silver bullet for stock selection but it is handy to have around.

Crack Spread Update - Crack spreads dove again last week as crude advanced. Obviously a lot of the near term move will depend on OPEC but cracks going into summer appear to be set to improve. Production of gasoline remains sub normal while demand has been picking up. Having gone back and re-read several of the fourth quarter independent refiner conference calls the one thing that stands out is flexibility towards production levels and an unwillingness to watch cracks plummet yet again.


Stuff We Care About Today:

ATP Notes - Stock has fallen from $56 in late 2007 to $3.24 yesterday.

  • Operations: Gulf of Mexico Shelf and Deepwater and North Sea
    • They operate pretty much all their proved reserves

      • that's helpful for cost control
      • and timing of capital expenditures
      • and it gives you flexibility to monetize assets
      • LOE of $9.52 / BOE which is not bad at all for a Gulf player ( the deepwater production helps) and it would have been better without the hurricane (2007 was $8.60 per BOE)
  • 2008 production:
    • 9.578 million BOE,
    • 56% gas
    • 73% US Gulf of Mexico / 23% North Sea.
    • Took a hit to production in 3Q, 4Q08 due to hurricane damage in the Gulf. 
  • 2009 Events: Looks like a back end loaded year:
    • guiding towards $300 to $500 mm capital budget
    • Production guidance: Could not find any. I haven't modeled it up because that would be a pretty time consuming chore and the debt and the beat down the stock has suffered probably make it a pretty moot point. Looking at the estimates out there in the analyst community it's pretty clear they are targeting the low end of the capex range for cash flow and getting to the top end of the range would involve asset sales and /or more debt.
    • End of 2009 - 2 news wells at HI 589-A - Gomex Shelf
      • SMI 190 - on the Shelf - init prod 3Q09, 75% WI
      • Wenlock in North Sea- adding 2 more wells this year, 20% working interest sold this down to pay down debt late last year.
      • Cheviot - 25 m bopd, 50 mm/d 100% wi, this is out a couple of years, may get sold or sold down.
      • Telemark Hub (ATP Titan)  in the Gomex deepwater - Mirage and Morgus wells completed - late 2009/early 2010 on line

        • capacity 25mm bls / 60 mmcfgd
        • 100% wi
        • May sell this
      • Anduin West and Gladden - Deepwater, on late 2009 - 100%WI
  • Finances: Not the strongest balance sheet.

    • 12/31/08 cash: $215 million
    • Debt: $1.35 billion
    • Net Debt to Total Cap of 78% (that's pretty high)
    • EBITDA /  Estimated 2009 Interest of just under 3x (that's kind of low)

In A Nutshell: Good set of assets, especially their positioning in the deepwater Gomex, ripe for monetization if the need arises and it appears to have given their debt load and low gas prices.  They may face a bank line redetermination at some point in the near future but they filed an NT 10K (notice of inability to file their 10K on time so I'm a little uncertain there). They make a comment in their year end press release about being within covenants now and for 2009 but the market is telling you it has its doubts. 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'd like to lay eyes on the 10K before I put odds on the "will they survive" argument but I'd think they are better than 50/50 given their asset value and the fact that deals are getting done, however infrequently in energy land.

APC Investor Conference Today: Webcast at 9 EST. Highlights from the tape this morning bode for another positive day in the name.

Odds & Ends

Analyst Watch: RBC takes (NOV), (FTI), and (CAM) to Outperform, cuts drillers (NBR), (UDRL), (PTEN) to Underperform, and cuts (SLB), (HAL), and (BJS) to Market Perform.

104 Responses to “Super Long Tuesday Post”

  1. 1
    jat Says:


    What’re you thinking on crude inventories for the next week or two? If cracks are weakening (USGC WTI 3:2:1 down $5 over the last week alone) and refiners are unwilling to let them drop further, what’s to prevent some nasty builds derailing this crude price move in the next week or two?

  2. 2
    zman Says:

    House of Representatives cans plan to become carbon neutral:


  3. 3
    zman Says:

    jat – I don’t think they’ll move that quickly (a week or two time frame) to slam refinery inputs lows, I was thinking more along the lines of keeping them below normal in the spring and summer. The thing that keeps a big build off the table (and it may not but its my thinking right now) is continued lowish imports. They have been the big swing factor of late and people are pointing to them and saying OPEC’s cuts are finally helping to reduce consuming country storage levels.

  4. 4
    zman Says:

    Nice broad green open.

  5. 5
    zman Says:

    I hear Doug Kass is reiterating his call for a market bottom this morning.

  6. 6
    elduque Says:

    BDI +36 2298

  7. 7
    zman Says:

    Thanks Elduque…the SEA ETF catching a bid this morning, not as big a move as energy but better than the markets.

  8. 8
    zman Says:

    This move in the markets looks a lot like the one last week, big early up on the Dow led by financials. The XLF is up almost 8% and while energy is up nicely, it looks stalled already on fairly light volumes. I’ll see if I can get BOP’s trading desk comments but its pretty critical we get follow on buying or this will just another bump in the road on the way lower…which is my suspicion.

  9. 9
    choices Says:

    Excellent post this morning, Z. Not sure when you sleep.


    Kass was on CNBC yesterday afternoon also, reiterating his call for market bottom-he does hedge somewhat and it was not clear whether he stated that the bottom was in or it was “bottoming.”

  10. 10
    zman Says:

    Thanks, I’m sleeping now.

    That is very tough work calling a bottom, few people do it successfully. I did see Kass criticize Buffet on CNBC yesterday saying the era of buy and hold investing is dead. Kass may be right on the bottom or not but I think he’s wrong on the Buffet comment. Buy and hold will work over the long term, if you’re in the right stuff. This is a market event and this too shall pass. The idea that everything will be rotational to the point that you can never buy anything again with a multi time frame and if the business does well the stock may not is a bit short sighted to me. Don’t get me wrong, I think Kass is a smart guy and I’d like him to be right about the bottom.

  11. 11
    BirdsofpreyRcool Says:

    Good morning. Massive internal computer problems this morning. Highly irritating.

    Tech Trader comments summarized — go long the morning pullback for a rally through lunch and into the afternoon and last hour. Way above average odds at 65/35.

  12. 12
    BirdsofpreyRcool Says:

    Credit Markets — thank goodness. I don’t think I could take a continuation of what we say yesterday afternoon. You think STOCKS are depressing?! You weren’t watching credit.

    While far far far from “all better now,” at least we made a U-turn from where we were headed yesterday.

    IG 252 -12bps (huge move!!)

    HY 67.8745 +1.125 (even huger move!!!)

  13. 13
    zman Says:

    Thanks BOP, sounds like at better outlook for the day than we’ve had in weeks.

    The problem with bear market rallies (one of the problems anyway) is that they are so sharp and sudden and come when a time no one trusts green to stay that way on their screen that by the time you get the courage to hop on…they’re over.

  14. 14
    BirdsofpreyRcool Says:

    Banks, banks, banks. You may hate ’em… but we all need ’em. So, anything that is good for banks, is good for all of us. Citi’s comments setting the tone… CEO saying Citigroup having best quarter since 2007.

  15. 15
    zman Says:

    APC holding conference today…not listening because I’m lazy. Will read transcript and review slides later. Lots of positives there, don’t care for their debt load if prices stay down here for long but the stock price has really already paid for that prospect and their is no risk they won’t be around in the future due to the debt unless they just get acquired.

    When you look at the charts from last night the big standout from a safety play is as you would expect EOG.

  16. 16
    zman Says:

    FSLR working on that gap fill for a second time.

  17. 17
    tomdavis12 Says:

    Z: Are you disappointed – surprised at NG being at 3.85. Considering the rally in crude. If the fall off in production won’t get rid of the extra 5 Bcf that has been with us for too long until June – July isn’t it hard to make a case for NG stocks with no HF money no M&A money and no uptick rule in place. PS. If you talk about buys puts or shorting stock I believe that will prolong any rally.

  18. 18
    choices Says:

    Yahooo-NG going green.

  19. 19
    zman Says:

    SU sneaking higher with the rally in crude this week. Off all the moves out there in energy land this morning that one I have a little more faith in staying up.

    In the mid cap E&Ps, the moves are not continuing on up with the market rally, performance there was OK yesterday, not suffering as much as the market either.

    Crude up a buck at 48 and natural gas up slightly and thinking about retaking $4. I would imagine it will if oil is able to take and hold $50 prior to the OPEC meeting. A lot will depend on tomorrow’s inventory report where I expect imports to remain on the lowish side of normal.

  20. 20
    zman Says:

    Tom – ha, very funny your last. Several weeks back I said this was going to be a particularly squishy shoulder season. So I’m not that surprised. While crude influences the price of gas that influence can’t overcome the very near term fundamentals. The E&Ps have been beaten down though and will likely rally prior to natural gas. Once the going concern risk is apparently past and we have a working credit market I expect a rather abrupt recovery rally of 20 to 30% from current levels.

  21. 21
    zman Says:

    Got another meeting at the school, back in 30 minutes. Leave your questions here and I’ll get to them upon my return.

  22. 22
    tomdavis12 Says:

    Z: I’m rooting for your vision

  23. 23
    choices Says:

    dollar down but gold also down, just broke 900

  24. 24
    Dman Says:

    Z – I think what Kass means is that the buy & hold “mantra” of the mutual funds is dead. The mantra being that it doesn’t matter *when* you buy and that you never ever sell. Since this is an options site, I’m guessing I don’t have to work too hard to convince anyone that it does matter when (or at what price) you buy and that you are allowed to sell.

    Buffet’s strategy (which is of course much more refined that the mutual fund mantra) worked great during an era of ever expanding credit, cheap energy and thus ever expanding economies. Since we have now crossed over into an era when none of those things will necessarily hold, Buffet’s strategy won’t continue to work.

    Buy and hold can still work in conjunction with correct sector analysis and good timing. But without those two, forget it. For example, is insurance really the place to be now? For the next twenty years?

  25. 25
    zman Says:

    Dman – Ok, I hear ya, roger that on timing. I just think there have been opportunities to buy some names at 20 year lows, and my holding period is not as long as Buffet’s “forever” but its pretty long (say 20 years) and I think that soon is probably a good spot, maybe SP500 at 500 for instance. I don’t get why Kass is calling a bottom now, I understand he looks at multiple models and this is a forward earnings call but I’m not sure why now (this week and last) is the bottom. Bottoms are not meant to be picked and they do need a catalyst.

  26. 26
    zman Says:

    FSLR is through its previous attempt to fill the gap (on 3/4) down following the earnings call.

  27. 27
    zman Says:

    I find it a little odd that PQ didn’t put out one of those “we don’t know of a reason for the trading in our stock ” press releases.

  28. 28
    zman Says:

    Choices – yep, dollar index went up and tapped on 89.50 and then rolled lower, now just under 88. I won’t feel comfortable until I it heading through the mid 80s. Watched a story yesterday that basically said mutual funds and other investors were getting pretty far afield from their normal equity holdings and were taking more of an interest in commodities and one currency of late (the dollar) since the equity markets have basically stunk since last summer.

  29. 29
    cargocult Says:

    It can’t be a bottom. I haven’t sold everything yet.

  30. 30
    zman Says:

    Cargo – right, that’s one of the signs of a bottom. I also figure GE will fire at least one of the CNBC talking heads … that should be a clear signal.

  31. 31
    zman Says:

    Good picture of an industry bleeding cash right now, that is if you are unhedged:


  32. 32
    zman Says:

    FSLR closing on $120, gap closure would be just under $125.

  33. 33
    zman Says:

    From a Ben Bernanke speech this morning:

    If efforts by the Fed and the Obama administration can get the banks back to being reasonably stable, “then I think there is a good chance the recession will end later this year and 2010 will be a period of growth,” he said.

  34. 34
    Popeye Says:

    Cramericans don’t go here:



  35. 35
    zman Says:

    This is the first morning rally in recent memory of size that didn’t immediately sell off. Sentiment has gotten so beaten down we were due a bounce, but usually they don’t last till noon EST. Hmmm.

  36. 36
    BirdsofpreyRcool Says:

    Barney Frank saying he expects teh uptick rule will be back within a month. Mrkt likes that.

  37. 37
    zman Says:

    Popeye – pretty fun clip. Stewart still takes that first clip out of context but oh well. Jim said buy it 7 weeks earlier and that’s that. Knowing him, he said to sell it 3 days later.

  38. 38
    zman Says:

    Thanks BOP – was just wondering what had made the latest charge from SP500 up 25 to up 36, thanks. If they really want to juice it they should go ahead and trash mark to market accounting.

  39. 39
    BirdsofpreyRcool Says:

    According to Bernanke’s comments this morning, don’t think MTM is going the way of the Dodo…. that said, there needs to be some COMMON SENSE applied with those rules. Ben said that. I AGREE. The problem is not MTM, per se, it is how the accountants and auditors applied it. Once again, post-Enron legislation with “unintended consequences.”

  40. 40
    zman Says:

    LINE having a nice day, chart looks odd.

    If you want to see an interesting chart take a look at the base on NFX.

    FSLR making a run on filling the entire gap in one day.

  41. 41
    zman Says:

    BOP – agree completely with 39. Not everything has to be a strict rule or science. If you look at bank lines for instance, covenants agreed to at one point in the cycle are made to be bent, not strictly adhered to during times like this that simply were not foreseen. The people looking at MTM should do the same.

  42. 42
    elduque Says:

    Thoughts on SD and GMXR??

  43. 43
    zman Says:

    SD – Holding a small piece of stock there, I think it turns with gas prices and does not go out of business. They can monetize enough to get by if needs be including their rig fleet. I wrote calls against part of my position there this morning.

    GMXR – still just watching it. Plan to own in early April to catch some more well results. Stock is getting beat down over bank line redetermination fears and people just giving up on the name (piling out) after the big fall which is just exacerbating the move down.

  44. 44
    kiaora Says:

    WASHINGTON (Reuters) – The U.S. Securities and Exchange Commission is not planning to suspend the controversial mark-to-market accounting rule that has forced banks to report billions of dollars in asset write-downs, a source familiar with the matter told Reuters on Tuesday.

  45. 45
    md Says:

    I bought PQ last week at what I thought was a steal. Obviously, fi you were.nt biting that should be a lesson. Any lessons for Investing 101

  46. 46
    zman Says:

    MD – I was tempted then but the small caps, the really small ones, with leveraged balance sheets are a minefield at the moment. The offshore looks worse than the onshore but still, very ugly. I don’t think its a great sign that they have not come out and said something about the stock price activity.

  47. 47
    choices Says:

    Mark to market-I agree with common sense but the auditors are between a rock and a hard place-if they do not have any latitude to interpret, it must be rigorously applied or the lawyers come in and sue the hell out of the auditors. I guess the real question is what is the “market.”

  48. 48
    zman Says:

    I think the energy stocks are enjoying the green day but not nearly as much as you’d guess looking at the market. Oil has backed off to flat and I suspect it will again charge higher into the close of NYMEX like yesterday in about 2 hours. Does the move in crude mean we are less likely to see a cut from OPEC over the weekend? Maybe. I think they give us a 500,000 bopd cut which will would normally put put a little pressure on crude as its seen as too small to be helpful to reduce stockpile but I also think Saudi and others will talk up enhanced compliance which may leave oil around the low $50s next week.

  49. 49
    zman Says:

    Choices – right, I think they need reform, not outright abandonment. Maybe the lattitude to suspend the rules for a time. Much like the NYSE has suspended the $1 rule. Right now that would do a lot more harm than good, booting 10s of firms off the exchange because of a bad market.

  50. 50
    BirdsofpreyRcool Says:

    choices — you bring up a really good point. Auditors are the ones “on the hook” and it is the legal system that causes them to point to (sometimes ridiculous) “market” quotes. It is the only “outside” source of pricing data they have.

    This is the problem with “one size fits all” combined with our rabid legal system. People are scared of being sued… and “common sense” sometimes requires breaking with the pack. But, if you break with the pack, you risk being sued.

    That is going to be a tough do-loop to break. But something has to put “common sense” back into the system.

    Unfortunately, our legal system is going the other way. By “law” more and more has to be spelled out, in excrutiating detail, BEFORE hand. As it is NEVER possible to predict all permutations, the Law of Unintended Consequences will f*ck up any good intentions.

  51. 51
    zman Says:

    BOP – your CRK starting to get a little more respect, talk about great quarter, great outlook, no respect. Wow.

  52. 52
    zman Says:

    HK – up a little over a buck now, starting to finally catch a feeling here that they will drift higher with the market. In my experience, the slight depression in shares following a spot secondary is generally overcome in the two weeks after said secondary.

  53. 53
    zman Says:

    CNBC stat of the day:

    Fund of fund hedge funds lost 1/3 of their value in 2008. Should not be surprising as the market was off in general about that much but it is still a shocking large figure.

  54. 54
    Nicky Says:

    Good afternoon all.

    Z you asked re oil. The count I had last week was clearly not right. That said this move up still looks corrective and so it will roll over. I am also very suspicious of such a strong move into OPEC – likely we buy the rumor and sell the fact whatever it turns out to be. I suspect they will run it to 50 at least.

  55. 55
    BirdsofpreyRcool Says:

    z — or any others… if someone knows why CRK don’t get no repect, could they please tell me? I don’t get it. The ONLY thing i can think of is that they almost got in trouble when they had a lot of debt. But, so did CHK and a lot of others. So… why the Rodney Dangerfield act with CRK?

  56. 56
    zman Says:

    Thanks Nicky – starting to look like that re crude, I bet we go $50 into weekend and then they disappoint some with the cut size, its the compliance talk I’d like to see. After OPEC we will need some demand pickup to support a further run.

  57. 57
    Nicky Says:

    Broader market – will roll over too! We are not done on the downside yet.

  58. 58
    Nicky Says:

    There is a gap on the SPX at 734 which may be filled first but the rally can fail anywhere up here.

  59. 59
    zman Says:

    Regarding CRK. I’ve like them in the past and I like them more now. Four things I think are buggering the stock right now:

    1) the market (insert your “well, duh” here
    2) change of gameplan to more Haynesville and less conventional drilling
    3) Not all Haynesville completions are created equal is the new perception and not all of them look like monsters anymore
    4) small gas hedge position (10% at last)

  60. 60
    zman Says:

    Re 59 – at least that’s my thinking. If you look at the post numbers / pre call trading, CRK was at $40, then it sells off. I was on the call, nothing really new on it to spook people, I just think it cascaded lower with the market, people not on the call paniced, sold, and it tumbled. Lot of that of late.

  61. 61
    BirdsofpreyRcool Says:

    z — thanks for weighing in on CRK. The only logical reason (IMHO) for people to dis them in the current pricing environment, is the low-hedged position. The company has always been a “no hedges for us!” company… which didn’t work so very well for them when they ran with more debt. But less debt now… and mngmt has the scars to remind them.

    No hedges = two-way sword, of course.

  62. 62
    zman Says:

    RE CRK – the positives are low debt, workable capital plan, and a predilection against deals anywhere near this price (they practically laughed at the concept of doing deals near this price). Personally I like it when people treat their shares as precious. Having a strong balance sheet allows you to act that way.

  63. 63
    zman Says:

    VTZ – did you note the delayed response move for CLR today. Seems to move a day or two after oil. SU usually a day delayed as well. I saw no broker comment but up 14% today.

    FBR lowered BEXP price target to $1 today from $5. They will get added to the list of small caps on the charts soon.

  64. 64
    zman Says:

    EIA report tomorrow:

    Couple of interesting things. Analysts are expecting a 500,000 barrel build in crude. If we get it or up to a 1.5 mm barrel build the gap to last year NARROWS. If we get something smaller or a drawdown we get higher crude prices. This will likely be most dependent on imports and I would expect them to stay lowish (Asia is officially crabbing about yet another month of low receipts from the kingdom which is a positive sign for the oil markets as it means demand is balancing out with supply).

    Second interesting thing, people are now expecting a 1 mm barrel dip in the amount of gasoline stocks. This would expand the deficit to last years storage level to 10% below and that’s a pretty big deficit going into the beginning of the time we normally are building stocks for driving season.

    Distillates are pretty uninteresting and I have little to say about them except that there is simply too much diesel sitting around and its probably a good time to buy a TDI Volkswagen or Mercedes as the mileage is good and the prices are going to be cheaper than you remember last year.

  65. 65
    zman Says:

    Natural gas report for Thursday: another big withdrawal of 110 Bcf is expected this week. That will help gas prices if it materializes as it does take some pressure off the ultimate trough in storage and if we can get below the 2007 trough sited in the post I think it will at least inspire a little more short covering.

  66. 66
    zman Says:

    EIA’s Monthly Short Term Energy Outlook Released:

    Global oil consumption: seen falling 1.4 million bopd in 2009 (was seen falling 1.2 mm bopd a month ago). U.S. fuels consumption is now seen down 2.2% for 2009 vs 2.4% from the month ago report.

    The 2010 outlook calls for a rally in consumption of 0.9 mm bopd (vs 1.2 mm bopd last month)

    Non-OPEC supply: seen as flat for next 2 years. Last month, EIA saw this as up 150,000 bopd for 2009 and up another 130,000 bopd for 2010. Hello Mexico, Russia, etc.

    Global inventories at the end of the year were revised up from 2.58 to 2.7 billion barrels.

    This is what is causing the little bit of pressure we are seeing on crude now (off over $0.75 from up a buck earlier). This will also give OPEC more reason to cut production.

  67. 67
    zman Says:

    More EIA STEO Changes: Natural gas

    They now see gas production flat in 2009 vs 2008. In a pig’s eye it will be flat. That’s just lame. Not going to happen. Wrong. Dead wrong.

    They do point to a 9% reduction in Canadian imports and that is probably pretty close and would get you a nearly 1 Bcfgpd drop in supply.

  68. 68
    zman Says:

    Howard Weil cut GMXR to market perform, did not see their price target but that’s what’s hurting the stock today.

  69. 69
    zman Says:

    You can see all the STEO comments here:


  70. 70
    Bob Says:

    SD at 52 week low. Just took out Nov. low.

  71. 71
    1520sbroad Says:

    z – any thoughts on SWN trailing the rally today?

  72. 72
    zman Says:

    Re SWN, it did better yesterday for a time, I think it’s market noise.

  73. 73
    1520sbroad Says:

    gotcha – they have held up remarkably well. was doing my taxes last night and noticed that swn is almost right where it was at end of 2007/ early 2008. Lot of craziness in between…

  74. 74
    zman Says:

    Someone just prodded me to point out that many of these little guys, whose stock prices seem to be in dire shape, have hedges which can be monetized and then rehedged. Food for thought when looking at the depressed guys like SD and PQ and others.

  75. 75
    Jay Reynolds Says:

    Just sent to me by my best friend in the HS… Talk about an exponentially changing world! Shown to Sony’s Executive Committee. Really broadens one’s perspective.

  76. 76
    zman Says:

    Thanks Jay, guess I don’t need to learn Mandarin after all.

  77. 77
    zman Says:

    Also to go along with 75 and the comment about 31 billion google searches per month, try:


  78. 78
    tomdavis12 Says:

    Z: Cluster of insider buying in PQ with largest 350,000 @ .86 a director.

  79. 79
    elduque Says:

    When does OPEC make its announcement?

  80. 80
    zman Says:

    Thanks Tom, just saw an officer and their general counsel buying 5,000 share lots. Thought that looked small, given the price, and what they’ve both made off sales in the last two years. This is an obvious attempt by management to show their confidence in the stock. I say “where’s the CEO’s purchase”. I may just buy a little as its like an option at this point and I don’t think they are going to BK. They still have options (monetize the hedges begin first and foremost) and they (and I) can wait out higher gas prices.

  81. 81
    zman Says:

    Eld- they meet on Sunday, so could be then or Monday.

  82. 82
    Bob Says:

    Centennial Energy sends GMXR letter suggesting sale of company

  83. 83
    zman Says:

    ZTRADE: Fire and forget about for awhile trade.

    PQ – Bought just under $1.04. At the time of the earnings report I saw I thought they had gone into survival mode running a limited capital program to make it through this period of low prices. I’m taking a small slice, not a big swing here. But its a good company, with an excellent track record that has more debt than is currently thought wise by the markets. I think they will make it but of course there is no guarantee of that. Rumors abound that they are having a tough time with their bank line redetermination (see today’s post for comments on that process) and those rumors may or may not be true. But buying it for a buck is likely a perpetual option on again what are a good set of assets and a capable management team.

  84. 84
    zman Says:

    Nothing like a know it all shareholder to tell you to sell your company at the bottom of the commodity price cycle.

  85. 85
    zman Says:

    Back in 20 minutes.

  86. 86
    john11 Says:

    /10/2009 03:25:56 PM GMXR GMX Resources holder Centennial Energy sends letter urging board to review strategic options and possible sale of company(6.64 -0.57)

    In the letter, Centennial requests that the company’s board begin a formal process to review its strategic options, including the potential sale of the company. Centennial disclosed a 15.16% stake in the 13D filing; unchanged from 31-Dec. The company previously filed passive 13G statements.

  87. 87
    zman Says:

    A little birdie sent me this from SMH’s comments on PQ today:

    I know this has been a rollercoaster with several rumors floating around including that the borrowing base is going to get taken away and that the redetermination was not going well (especially since it started Friday). I wanted to at least lay out the facts.

    The company has drawn $130 MM of the $150 MM available.

    The company has $23 MM in cash and growing

    The company has ~$60 MM in hedging gains it could monetize

    PQ is under spending its cash flow

    The company does not seem close to busting any covenants in 2009 on our estimates

    It would be no surprise for the redetermination to result in a decrease in its borrowing base but with $20 MM undrawn and $23 MM in cash, PQ should have ample liquidity. If that is not enough, They could monetize the hedges relatively easily for ~$60 MM profit. The reaction yesterday really looks like an overreaction. The banks borowing amount is not due until March 31st but hopefully, based on the speculation and volatility we have seen in the equity the last couple of days, the redetermination could be fast tracked. PQ is at a conference this week.

    Below is directly from the 10K:

    December 31, 2008, our borrowing base exceeded our outstanding borrowings by $20 million; however, as a result of the declines in commodity prices since the establishment of the borrowing base, we anticipate that our next regularly scheduled borrowing base redetermination, which is scheduled to occur by March 31, 2009, will result in a borrowing base of less than $150 million. As a result of the redetermination, we may be unable to borrow any additional funds under the Credit Agreement, and if the revised borrowing base is less than $130 million, we will be obligated to repay the amount by which our aggregate credit exposure under the Credit Agreement exceeds the revised borrowing base within forty-five days after the revised borrowing base is determined. At December 31, 2008, we had cash and cash equivalents of approximately $24 million that we believe would be sufficient to repay amounts that may be required as a result of the redetermined borrowing base.

  88. 88
    zman Says:

    Nice to see a green day with no big pullback and a close at HOD. 10 more please. Beerthirty.

  89. 89
    reefguy Says:

    z, that is good for a 20% pop!

  90. 90
    zman Says:

    I’ll put a quick and dirty model in the post for PQ tomorrow.

  91. 91
    Dman Says:

    I don’t know why everyone thinks PQ is doing badly. How can they be when their shares are already 40% up from the bottom??

    🙂 🙂

    I really wanna buy my own PQ lottery ticket, but how can I buy up 40% ?? !!

  92. 92
    zman Says:

    Dman – not that I recommend doing anything but you could look at it as buying at 94% off its high from September or 96% off its July 2008 high.

  93. 93
    Dman Says:

    Or another way to put it is: XXX% appreciation potential, where XXX is either -100% or about +2800%

  94. 94
    zman Says:

    Ahhhh, the power of positive thinking.

  95. 95
    BirdsofpreyRcool Says:

    End of Day Summary

    Stocks opened higher, melted higher all day and go out at highs (the S&P had its steepest one-day gain since 11/24) – Equities held their very strong bid from the morning/noon into the bell and actually strengthened into the bell; sp500 up >6% (steepest 1 day gain since Nov 24); financials extending their gains (was up ~9% around noon and now up ~13-14% into the bell) w/most groups higher on the day (you have to try very hard to trade lower in this market). After financials, tech, industrials, discretionary, materials, telecom are strongest. SP500 futures made it above the critical 715 level (was being watched); the Nov lows, which had been support, now looming as resistance (on sp500 cash, that is ~740-750.
    Catalysts for this rally remain same as the morning: 1) optimism around financials (C is just the latest bank to tell investors the current Mar Q is tracking to plan or better – USB, BAC, WFC, COF, PNC, and others, have all made comments to the St in recent wks signaling an on-track Q); 2) some optimism out of Washington (WashPost, NYT, WSJ all had articles discussing how Congressional leaders, both Reps and Dems, were starting to resist certain components of the Obama budget and other White House initiatives, like card check); 3) uptick rule – Barney Frank today said he thought the SEC may bring back the uptick rule soon, something confirmed by the SEC itself (in an email comment to Bloomberg). Nancy Pelosi told reporters that a second stimulus package may be needed (headlines hit the tape late in trading today that “US House speaker leaves door open to second stimulus”). In many ways, investors are looking towards the upcoming Q1 earnings season as a catalyst to the upside (which makes for a more stable rally vs. waiting/hoping for anything out of Washington). SP500 ests quickly dropping to low $40s (vs $88 in ’06, $85 in ’07, mid-$60s in ’08) and some thinking may have finally found a floor (note that the two companies that lowered guidance today, UTX and AVT, actually traded pretty well, UTX esp).
    Treasuries – the auction today (3yr @ 1pmET) was a bit weaker than the Bloomberg preview – Bid/cover 2.26x (vs. last auction 2.67 and average 2.42x); priced @ 1.489% (Bloomberg expectations 1.481%); 10yr yields right at key 3% technical level (i.e. prices right at critical point – if they trade much lower, could signal a technical breakdown in TSY prices). There will be more auctions to watch for the rest of this week: $18 billion in 10-year notes Wed and $11 billion in 30-year bonds March 12.
    Credit – much tighter today, CDX 248 / 250 (in 14bps from wides), tracking equities (recall yesterday we saw bank equities rally while bank CDS was wider – today both are moving together); financials were MUCH tighter
    Calendar – there really isn’t a whole lot important due this week although next week promises to be much more important. The two big “catalysts” for the week (House mark-to-market hearing this Thurs and this weekend’s G20) will prob. end up being non-events (see below for full G20 preview). More important will be headlines next week: 1) credit card mastertrust figures for Feb will hit (recall the Jan #s in mid-Feb helped crush the cards and broader financial tape – if Feb trends track to plan it will help sentiment); 2) GE Capital’s “deep dive” analyst meeting (Mar 19); 3) the FOMC meeting (3/18); 4) TALF (subscriptions for funding in March will be accepted on March 17, 2009. On March 25, 2009, those new securitizations will be funded by the program); 5) more details on the bad bank plan may come out. Also – OPEC meeting 3/15 and short interest hits after the close today. Investors increasingly are looking forward to Q1 earnings (the first really high volume week will be week of Mon Apr 13).

  96. 96
    sane Says:


    Crude down 419k – 345.3M
    Gasoline Up 1.7M – 216.5M
    Distillates Down 279k – 144M

    I saw your post from yesterday. I don’t have a spreadsheet off-hand, I have been contemplating it though.

  97. 97
    VTZ Says:

    Z – I was dealing with problems all day but I did note the move in CLR. Have to see if it holds but it breeds some confidence in me that oil prices are going up.

  98. 98
    PackMan Says:

    PQ … holy cow. Saw your Z Trade today. I got some at 94 pennies.

    Too bad I own some at MUCH higher levels.

    What a disaster.

  99. 99
    PackMan Says:

    Buffett … his buy and hold strategy at this point seems to be based on the view that the dollar will decline over time which will boost the nominal value of his holdings.

    I don’t know how you can make a long term bet on even the best management team, as past performance is no guarantee of future results. So if you thought GE’s mgmt and bench were strong; look what you got now.

  100. 100
    PackMan Says:

    Bottom; I hope 666 was the bottom; not 500. Let me tell you that I have been pretty sick to my stomach about the market and the clowns running the government.

    Today felt good; great oppty to lighten up and hedge a bit better; Not an active buyer; but then again we are mostly traders here anyway right ? Not buying anything w/ a 20 year horizon.

    Who knows how long we’ll have economic problems now given the massive destruction that’s been caused. Had a meeting this afternoon and this one fella was thinking 7-10 years. I told him don’t say that stuff around me; that’s too scary to even contemplate.

    Certainly some of the news / sentiment shift today COULD result in some further upside which we will all welcome.

  101. 101
    mimster90 Says:

    zman, the charts from the last few days have been great, thanks. Is it useful to look at a “normalized” charts of their NG/oil ratio to the various metrics? It seemed to me in the oil spike that NG didn;t move in tandem to oil. For instanance EOG is mostly NG yet APA is mostly oil. It seems to my uneductaed eye that APA is a better oil and EOG is a better NG play. I currently have more NG exposure but would like to add some more oil exposure.

  102. 102
    zman Says:

    Mimster – as to your first question, I’d have to give that some more thought.

    On oil vs gas, yes they generally move in the same direction but right now, the dynamics driving both are quite different. Oil is drifting up on the concept that a cartel will limit supply while no formal cartel exists to do the same for natural gas. I won’t go into the whole BTU equivalence thing as I don’t think it holds water at all. Oil is global, gas is local. It can be argued that LNG makes gas more global and then I can make up some slides showing you what a small slice of the pie LNG really is.

    As to the APA, it is definitely oilier. Oilier still is a name like SU. APA is a very well run company but I no longer actively follow them and they have nearly all the moving pieces of a Major as they are truly a global super E&P. EOG is really just U.S. and Canada with a little Trinidad LNG and ammonia operation thrown in. The juice is U.S. production with some oil angles from the Bakken and from the Northern Barnett (what they now call the combo play)… huge amount of value there and I do follow it actively. CHK gets you more gas but more leverage which these days is shunned. SWN is even gassier and they’ve kept the debt down and have a remarkable resource in the Fayetteville that gets better each quarter. They are expanding quietly and thoughtfully (no gold rush mentality) into other plays like the Marcellus and the Haynesville.

  103. 103
    zman Says:

    Thanks Sane

  104. 104
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