Tuesday Morning


Happy St. Patrick's Day. Here's to a little green on your screen.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Long Term Top 10
  4. Crack Spread Update
  5. Odds & Ends

Holdings Watch:

  • ZTRADE: $10KP - Out (SWN) March $30 calls for $0.50, up 100% since entry last Friday with the stock at $29.12. I continue to hold the April $30 calls.


  • ZTRADE: $10KP Added 3 more HK $17.50 March Calls for $0.60. Obviously a little risky as they have 4 days of life left but the stock has been resting since the secondary and is just getting back to the $17.50 level despite a much stronger rally in the group. I plan this to be another quick trade, like the SWN. Normally I’d shy away from the short hold times but in this market we are left with few chances with options to buy and ride for long.

Commodity Watch

Crude oil rose $1.10 to close at $47.35 yesterday. Traders saw increasing compliance with previous cuts as more believable/credible than further quota cuts. This morning crude is trading close to $47.

  • MEND Watch: MEND attacked a Chevron pipeline last Friday shutting in 11,500 bopd. They also attacked a Shell flow station on Monday but no damage was done. The group continues to get more active in the Niger Delta after military attacks on group encampments and the refusal by the government to allow an independent medical assessment of ailig and captive former MEND leader Henry Okah. It's going to be a long hot summer in the delta. 


  • Early read on crude inventories for Wednesday:
    • Crude: UP 0.6 MM barrels
    • Gasoline: DOWN 1.5 MM barrels
    • Distillate: UP 0.5 MM barrels
    • ZComments: 

      • Normally this time of year we are at or swiftly approachig the nadir of the Spring refinery maintenance season. That being said, looking back in history at this week crude generally builds and gasoline generally falls as refiners require less crude to make less mogas.
      • This year utilization is at record lows (for the season) keeping demand suppressed by about 500,000 bopd to both 2008 levels and to the five year average (that's 3.5 mm barrels per week of reduced demand that must be absorbed relative to average levels).
      • The only way to offset this suprressed demand is via imports (U.S. production has been edging up due to a couple of factors - incremental Gulf of Mexico deepwater production and a recovery of production from the Gulf of Mexico shelf following last Fall's storms). After remaining high for the prerequisite number of weeks from the December OPEC production cuts, imports have started to show consistent, bottom of the normal range levels. OPEC and others have taken this as a sign that their production cuts are working as U.S. inventories are the most easily watched of all the developing countries and if they have stopped rising without an increase in demand while the barrels coming into port have declined, well, they must be having an impact.


  • Salazar Watch: Quotes from the Interior Secretary on Monday, three days before he meets with the American Petroleum Institute to discuss the Administration's desire to remove marginal well tax credits and the enhanced recovery credit and to establish fees on non-productive federal leases. He wants to open a dialogue but said:
    • "I think they are being taken away from the oil and gas industry for a very simple reason and that is that they are not needed," 

    • "we have a responsibility to the American taxpayer. The oil and gas resources that are both offshore and onshore are owned by the American citizens and just like any private landowner you would want to maximise your return of a very important and treasured resource."


  • Dollar Watch: With China talking about not buying as much in the way of U.S. treasuries as they have in the past and spending in the U.S. accelerating, the dollar looks due for a retracement.

Natural gas largely ignored the positive equity and commodity markets of yesterday closing off $0.08 at $3.85 on a warm near term forecast and higher LNG imports reported for last week. This morning gas is trading flat.

  • Imports: 9.4 Bcfgpd, up 0.6 Bcfgpd from the prior week and flat with year ago levels.
    • LNG moved up to 1.4 Bcfgpd, double the volumes entering the U.S. last year and the highest level seen since August of 2007. As winter demand subsides in Europe and Asian industrial demand remains weak we should see a resumption of the normal seasonal uptick in LNG volumes that was absent in 2008.
    • Canada: volumes remain light at 8 Bcfgpd vs 8.7 Bcfgpd last year. Canada should have an increasingly difficult time fighting increasing decline rates with an already depressed and falling rig count.

Long Term Top 10. Last week I was asked for a list of names I'd thing about investing in for the long term  via their common shares. The following is in no particular order ... broken down by sector, time limit three to five years. Note their are more than 10 names here as it gets hard to pin down what you like when everything looks so cheap. These are names that will very, very, very likely survive the current malaise in the industry and will likely see higher share prices than the 2008 cycle peak by 2011.

Exploration & Production: I'd pick EOG and any three of the other E&P names. .

  • CHK - U.S. Natural Gas Pure Play
    • Aggressive growth management style,
    • 92% natural gas, all U.S. onshore
    • 1st or 2nd largest U.S. natural gas producer,
    • Production largely from shales, so it can be quickly adjusted down (and somewhat less quickly up) with price
    • Arguably the largest drilling inventory in the U.S., of any independent or major.
    • The stock stands to benefit more than the other big cap names from new revisions to SEC reserve rules set to be in place for 2009. 


  • SWN -  Smaller U.S. Natural Gas Play
    • Strong, seasoned management team, conservative with new plays then does a good job of systematizing.
    • 96% gas, all U.S. onshore
    • Leader in the Fayetteville shale
    • Good balance sheet (21% debt to cap), large drilling inventory, new ventures include low cost looks at the Marcellus and Haynesville shales via small acreage positions.
    • Valuation: typically trades at premium due to continued improvement of its core asset and an under-promise, over deliver mentality. Current P/CF of 5.7x 2010 cash flow is on the cheap end of a decade long range.
  • EOG - Large Cap Diversified U.S. natural gas and emerging oil play
    • Conservative management style
    • 17% debt o cap, plan to go to $0 debt over the long terms (hold flat this year)
    • Targets high single to low double digit long term production growth
    • Large drilling inventory
    • Gassy at 79% of production but oil weighting in the portfolio is increasing with their best in class Bakken wells (not the single largest) but the largest grouping of big wells in the eastern side of the play
    • Valuation: Another premium trader, currently at a low P/CF of 4.7x on 2010 CFPS (vs a normal range of 5 to 11x forward numbers), lots of growth opportunities both oily and gassy in the U.S. and Canada when prices recover.


  • APC - Diversified global super independent.
    • Diversified growth player, gassier in the states, big deepwater and international divisions
    • Management is seasoned and from time to time will make big acquisitions
    • Valuation: 3.4x 2010 CFPS.


  • HK- U.S. onshore gas player
    • Gassy (92%), aggressive growth management
    • Second large positions in the Haynesville Shale; has been drilling the biggest wells in the play.
    • One of the lowest cost operators out there so they benefit when other producers get choked off and prices rise.
    • I've written extensively about so for more information you can hit the reports tab.
    • Valuation - not cheap, never really is. Can deliver high growth for its size almost with the flip of the sw


  • CLR - Oily U.S. Player
    • Biggest Bakken acreage holder
    • Lot of debt to think about near term but the interest is more than easily managed
    • No oil hedges
    • Large potential in the Bakken but also in the Woodford (Midcontinent gas)
    • Valuation: 6x 2010 CFPS is not exactly cheap but you'll be hard pressed to find a more pure oil mid cap play with the same growth potential and the lack of hedges can mean that that multiple can shrink if the stock price is advancing with oil instead of just with the market.


  • NFX- diversified mid-cap global E&P, focused U.S. but with interest international and deepwater components that make it a takeout candidate.
    • seasoned, conservative management
    • more diversified than your typical mid cap E&P, sort of like a mini- Anadarko
    • finding costs should fall precipitously for them this year
    • deepwater and international oil development portfolios along with leading position in the Woodford and perpetually sub-group multiple likely makes them a takeout candidate.
    • Valuation: perennially cheap, strong growth potential in a rising gas market.

  • LINE - Largest U.S. upstream MLP
    • hedge 100% next three years
    • long lived assets so declines will be modest
    • application of additional capital can yield high returns in select parts of a diversified property portfolio so they can ramp the distribution beyond hedge levels.
    • current yield of 17.5%

Green Stuff:

  • FSLR - Leading, lowest cost U.S. solar provider
    • Management continually sets high targets and meets/exceeds
    • Holy grail of $1 per watt cost achieved last quarter
    • Capacity in place to give significant economies of scale as economy likes
    • Signing deals with U.S. utilities who will increasingly be required to green their generation portfolios
    • Solar high on the current administration's list of priorites
    • Valuation: perpetually trades at premium forward multiples
  • Wind name: Have not found a play I'm content with to hold long term yet in the States.


  • CLNE - natural gas powered vehicle fleet play



  • BTU - Leading U.S. coal company, strongly positioned 
    • Demand will continue from the U.S. where 50 to 51% of generation is coal-fired
    • Capacity is quick to adjust to periods of softness, forestalling a crash in coal prices
    • International demand shows no sign of slowing (recession aside)
    • Potential negatives: current administration does not like coal

Oil Service Names:

  • HAL or SLB - Big Cap Service
    • Diversified main line oil service, both will take severe hits to 2009 earnings relative to the past couple of years as service pricing has fallen to first half 2006 levels and is probably going to fall another 20% for most of their product lines.
    • I expect  modestly higher oil and natural gas prices later this year and into the next several years


  • RIG / DO - over the long term I think they are pretty interchangeable although they'd argue about that.
    • Demand for Deepwater drilling has held up well through the current financial malaise
    • Rigs on order have been delayed and some have been canceled leaving more work for the deep and ultra deep fleets. 
    • Deepwater demand will accelerate as new regions of drilling open up and easier, onshore sources become depleted.



Other Names 

  • SU - Oil Sands
    • Pure play on oil.
    • Demand for Canadian crude in the U.S. is bound to only increase as less friendly, politically unstable and unfriendly sources become heavier and more sour to boot.
  •   XOM 
    • No real debt, lots of cash
    • Seen as a safety name and the name of first resort when people want to own energy again
    • Growth not forecast or expected in North America ...exposure to U.S
    • Nutshell: I think it does well due to the above and not because it does anything interesting, at least not in the Western Hemisphere


  • PBR, CEO
    • Two international names with big reserves, and strong government support.
    • Asset value at both is extremely depressed but both have the ability to outgrow their U.S., European, and Russian counterparts over the next decade.

Crack Spread Update: Reversal of fortunes. Last year the saving grace for refiners was distillates. But distillate production has far outstripped demand in recent months and the only thing keep differentials out of the gutter is gasoline. I suspect we see a stabilization in cracks soon as gasoline moves up in importance with the driving season and refiners makes the make the switch to producing less distillates.


Odds & Ends

Analyst Watch: Deutsche raises (ESV) to Hold.

ENER Warns.

  • Thin film solar module maker reducing 3Q estimates,
  • Plans 2 week production hiatus due to sluggish demand
  • This is going to take all the solars down today.


99 Responses to “Tuesday Morning”

  1. 1
    zman Says:

    From the Shreveporttimes, HK Haynesville well boasts 0.7 Bcf of production or 23 MMcfgpd for the month of December.


  2. 2
    elduque Says:

    BDI -84 1974

    TED 107.52

    Thanks for all your hard work

  3. 3
    zman Says:

    Anytime Eld, can’t recall who asked for the long term looks and those are just some quick bullets.

  4. 4
    kiaora Says:

    I did and thanks for your efforts

  5. 5
    zman Says:

    Ok K, let me know if you want anything expanded upon.

  6. 6
    zman Says:

    FSLR getting clubbed like a baby seal over the ENER comments. The reduction in production is actually good news for FSLR as taking any supply off the market is good news. FLSR thin film is lower cost so you would expect demand to slacken there last.

  7. 7
    zman Says:

    Some one in the market has noticed that Shreveport article on HK, as it is the only green on my screen today.

    IP, or initial production rates, are one thing that really don’t matter a whole lot as you can’t necessarily compare them from company to company. One company may be quoting a 1 hour test, another a 7 day average. One might use a choked back flow rate while another might be talking about an open whole blasting full out. Then there are differences in completion methodologies.

    But you can’t very well raise questions about a 23 MMcfepd one month average. That’s a big well. Offshore or on. Repeated success of that kind is going to be tough on the Shelf. And from what I can tell, HK is the name that’s putting forth that kind of performance, well above the other players in the Haynesville.

  8. 8
    BirdsofpreyRcool Says:

    More running around today… but, here’s a good morning summary, published b/f mrkt open.

    Today’s Top Stories

    · SP futures up a couple pts; Europe is lower while Asian was broadly higher. Comments by Standard Charter’s CEO helped Asian Financial stocks rally. The Nikkei rose 3% as the BoJ said it would buy up to 1 trillion yen of subordinated debt issued by banks and the Japan Tertiary Index rose for the first time in 3 months.

    · Europe is lower (breaking a 5 day streak) as credit-card default concerns and Alcoa’s dividend cut weight on the market.

    · US equities opened strong on Monday but failed to hold onto gains, closing in the red in large part due to a negative AXP Feb mastertrust report. Aside from COF, most of the card reports (they hit throughout trading on Mon) were pretty sluggish (esp. AXP and C), giving the financial bulls pause.

    · Another bank tells the market it is having a strong start to ’09 – Asia’s Standard Chartered today said its results from Jan & Feb have been strong, although investors are starting to shrug off these bank updates (recall they have been occurring since back in Feb – JPM said on 2/24 that the Q was tracking to St expectations….since then, PNC, WFC, C, COF, Barclays, and others, have said similar).

    · Elsewhere in banks, a Moody’s report yesterday said senior bond holders in the nation’s largest banks were unlikely to suffer losses due to substantial gov’t backing (there has been some concern of late that bank bond holders may be forced to absorb some losses in future bailouts).

    · In autos, the WSJ has an interview w/Steve Rattner, the head of the White House auto task force, who says Obama is seeking to avoid bankruptcy for GM and Chrysler.

    · Bloomberg speculates that Bernanke will have to substantially ramp up the growth of the Fed’s balance sheet after allowing it to fall from $2.35T back in Dec to $1.9T last week – an increase in its MBS program could be announced at this week’s FOMC meeting as a result.

    · There continues to be a lot of pressure on AIG over bonus payments paid out to employees of its financial products unit – Obama on Mon tasked the Treasury w/inserting language into the latest AIG bailout to prevent further such payments (its not clear if the Treasury will demand already paid bonuses to be rescinded).

    · Credit: IG bonds tightened 4bp to 548bp over Treasuries, 505bp over swaps. The index YTM rose by 4bp to 7.66%. Financials tightened by 15bp, Industrials widened by 1bp and Utilities widened by 2bp on the day. There was $2B in new issuance yesterday across three issuers. In prefereds, Focus is on Citi preferreds given the rise in the common stock price.

  9. 9
    BirdsofpreyRcool Says:

    Tech Trader has NO COMMENTS this morning.

    Head Trader thinks the mrkt is “wishy-washy” all day and closes red.

    I think it’s “wishy-washy” all day and closes green. That is my St. Patty’s Day hope, anyway.

  10. 10
    BirdsofpreyRcool Says:

    IG 242 — ugh. Liked the 220’s-handle much much better.

    HY 68.875 — back to a 60’s-handle.

  11. 11
    zman Says:

    Up 50% on yesterday’s HK trade, eyeing pretty closely.

  12. 12
    zman Says:

    Thanks for playing BOP, appreciate the time. Otherwise I would have just gone off on a rant on Salazar.

  13. 13
    BirdsofpreyRcool Says:

    z — couldn’t remember if it was HK or SWN you played yesterday. Was hoping it was HK, but didn’t want to ask in front of the board. That said, WELL DONE. Now, take profits when you get them.

    Gotta protect the nuts !!

  14. 14
    Bob Says:

    Z-Thanks for #1…tentative open allowed for good entry point. Wonder if the news will be picked up by DJ and create a further pop on the headline?

  15. 15
    BirdsofpreyRcool Says:

    The President is on TV, talking about his budget and its goals. Should be good for FSLR.

  16. 16
    zman Says:

    Re 13. Right, it would help if I had remembered to add it into the holdings watch section today, just amended that to include. The SWN was a Friday to Monday trade and I added the HK $17.50s after that. Considering adding a few more. I flubbed the percenatage on that as well, only up 33% right now, not 50%. Still feels like a Monday.

  17. 17
    zman Says:

    Bob – My sense is it builds into the day as long as the market doesn’t fall apart (which is always the caveat). Anyway, that’s differentially improved news and I’m filtering through the DNR site scout tickets to see what else they might have in store for us. Recall from the HK 4Q conference call that management stated it would have an operations update in early April, back when I thought surely they would not do an equity deal until at least that point….

  18. 18
    zman Says:

    Dunno BOP – he’s been kryptonite for the alt energy crowd since no one believes the targets that have been set, especially for wind. Also, lots of strings attached to the “incentives”.

  19. 19
    zman Says:

    …but I’d like to think you are correct.

  20. 20
    Bob Says:

    Nice pop in BTU on announcement of 90 million ton deal

  21. 21
    zman Says:

    Thanks Bob will look, that one’s been all over the map of late.

  22. 22
    zman Says:

    PQ getting a pretty good pullback today. I sold my first half lower so I’m not ready to add back yet.

  23. 23
    zman Says:

    Oil up another buck…closing on the $50 test. Ah rounded bottoms, fun to watch, dangerous to pick.

  24. 24
    zman Says:

    Aye, what a lovely shade of green the screen is taking on.

    Confirmed that HK story with the DNR of La. November HK production in Red River Parish = 0; December = 0.7 Bcfe, all one well = 23 MMcfepd. Looks like a 3,600 foot lateral completed at the end of November. The IP was 22,857 Mcfgpd with a trace of condensate. Now that’s a strong first month.

  25. 25
    zman Says:

    HK: Now that we are back up through the deal price at $17.50 we have a gap to fill up to $18.46.

  26. 26
    reefguy Says:

    TXCO- down 54% on going concern statement

  27. 27
    zman Says:

    Reef – yeah, saw that last night, covenants going to be tough to rearrange. Didn’t comment because I never got involved. Stinks to be them though. Wonder if HK or COP will take a look at their acreage in SW Texas.

  28. 28
    zman Says:

    I agree, don’t see how TXCO makes it now.

    BEXP will get a lot smaller but will most likely survive.

    CPE sort of iffy. No debt but dwindling cash flow.

    KOG all depends on 3 wells

    Pretty confident PQ makes it, drifts back up with oil and gas prices

    XCO interesting

  29. 29
    BirdsofpreyRcool Says:

    CPE has debt. The Credit facility is non-recourse, tied to Entrada… but those pesky $200mm of 9.75% Senior Notes are not going to be easy to deal with. They are the equity right now… so, offering them equity in return for a forebearance agreement only offers them what they already own. The only playing chip management has is that a Chapter 11 process is a costly endeavor.

  30. 30
    zman Says:

    Re CPE – meant no bank debt. The non-recourse goes away mid year. The seniors are due late 2010.

  31. 31
    tater Says:

    Still running around attempting to do battle with the government’s false propping up of commercial real estate lease pricing. Oh well, it just wouldn’t be any fun if true market forces were allowed to play out. I mean, why use a capitalist structure for a market? That makes no sense.
    Anyway, hope everyone is doing well. I updated the HK chart.


  32. 32
    BirdsofpreyRcool Says:

    sorry… jumped into the middle of a conversation, it seems

    No bank debt is good. However, what kind of cash flow can CPE generate in 2009? They have about $19.5mm in interest payments on the Senior Notes… can they pay that out of cash flow?

  33. 33
    zman Says:

    Tater – thanks for the flyby, will check the chart. One of my best friends is a commercial real estate lawyer. He’s stopped reading the paper and watching the news over the same kind of issues.

  34. 34
    elduque Says:

    Any new on SD to cause the pop?

    I thought you would have had it in your top 10. I do think it will be, just a year away.

  35. 35
    zman Says:

    Yes, under 3x EBITDA / Interest which is smelly but they have $0 for drilling this year. When you look at EBITDA vs the Interest + cap interest + cap G&A + plugging and abandonment it gets pretty tight at strip pricing. I’m not a buyer by any means but I plan to be ready when the redetermination is handed down.

  36. 36
    zman Says:

    Eld – I own that one in several accounts and its only not on the list due to space limitations (10 names asked for and I probably put 14 on that list) and their debt load which could cause them to sell something and change the story. I’m long and wrong there now.

  37. 37
    Nicky Says:

    Good morning all. Larry Summers being interviewed on CNBC. Mentioned how they need to avoid the Japan type scenario. He must have missed something ie Japan and ten stimulus plans later and look where they are???

  38. 38
    Bob Says:

    Z- Re: SD. Last I checked they are using $573 million of $1.1 billion senior credit facility, and they plan to sell Pinion Field midstream assets in second quarter. Do you know when the debt needs to be re-negotiated?

  39. 39
    zman Says:

    Bob – April for the bank line would be normal, will check as they do things a little differently than most on their reserves.

  40. 40
    zman Says:

    Gap filled on HK, climbing with the market now.

  41. 41
    zman Says:

    Bob – the SD redetermination will be in April.

  42. 42
    BirdsofpreyRcool Says:

    Midday Update

    – SPX up 6pts to 760 / DJIA up 30pts to 7247
    – Credit – Credit is underperforming equities today – CDX is ~238.5-240.5, out ~4bp on the day (off the wides though – was out 241-243 at one point).

    – VIX dropping 2% on the day (has acted unusually well over the past couple sessions)..
    – Crude up a buck to $48.40/bbl (the ~48 level has acted as stiff resistance over the past month and a half)
    – Spot Gold dn six bucks to $917/oz. trading relatively quiet compared to last week’s rollercoaster ride..
    – Baltic Dry Index fell 4.1% (fifth straight decline) w/ Panamax rates seeing their largest decline since Nov..


    Equities continue to have a decent underlying bid to them, aided this morning by benign housing data, while yesterday’s (relatively mild) reaction to the (pretty weak) mastertrust #s is emboldening bulls who are viewing the tape as increasingly resilient. The upside risks are getting more attention at the moment (than downside scenarios), inc: 1) the FOMC tomorrow (a lot of talk about the Fed raising its agency debt/MBS buyback program); 2) bad bank details are due this week; 3) more bank updates (there is some genuine optimism on the banks heading into the upcoming earnings season); 4) an autos resolution (the White House is due to make a decision by Mar 31; the head of the Auto Task Force downplayed the potential for a bankruptcy in today’s WSJ); 5) continued healthy debt markets (a lot of the volume has been from FDIC-wrapped banks or only very IG credits, but the numbers are impressive nonetheless – Europe could see YTD sales top EU100B today while a bunch of large issues are in the US now pricing). That’s not to say all news is good (NUE issued a steep profit warning today) and stocks still feel “tired” coming off of last week’s ramp, but the tone of the tape is improving just a bit from the Armageddon outlook of late Feb/early Mar and confidence is starting to improve.
    Technicals: S&P Cash looks be creating formidable support at the ~750 level (recall the Nov closing lows of 751 was the key breakout level last week); in terms of resistance, 775 served as yesterday’s peak as well as late Feb reaction highs, next to watch would be ~800..
    Tech & consumer discretionary are helping on the upside today; financials continue to have a decent underlying bid to them; materials, industrials, health care are laggards. Materials being pressured by neg. earnings updates out of AA and ITW. Transports are up 0.9% ahead of FDX earnings this Thurs.
    Washington – a bunch of big catalysts on the calendar this week. Some of the bigger ones: 1) FOMC (decision due 2:15pmET Wed) – there is increased speculation (inc on Bloomberg today) that the Fed may raise its MBS/agency debt buyback program (which now stands at $600B) given how its balance sheet has been on the decline since Dec (people think the Fed needs to start growing its B/S again); 2) TALF – subscription for the Mar funding are due this Thurs….reports indicate that funds and Washington continue to haggle over contract terms w/certain private sector participants reluctant to jump into bed w/the gov’t at the moment; it will be interesting to see how many people eventually come on board; 3) insurers & the TARP – the market is still waiting to hear whether certain insurers will be allowed to access the TARP; 4) bank stress tests – the Treasury has said this process could be wrapped up by the end of Apr. 5) noise surrounding cramdown legislation, Washington Independent article says the bill may be pushed back at least another month..
    Other catalysts to keep an eye on: MBA mortgage application data and Architectural Billings Index (non-res) both hit tomorrow.. On the corporate front, DRI reports tonight, ORCL and NKE earnings will hit Weds after the close.. GE will host its much-anticipated financial unit analyst meeting on Thurs, same day as FDX and DFS earnings..

    SP500 Performance Breakdown (source: Bloomberg)

    Top Gainers: AIG, IP, AMD, CEPH, XL, ETFC, AIV, LEN, CBS, GNW
    Top Decliners: NUE, LNC, AA, HBAN, CA, X, AKS, S, MS, CEG, GCI
    Stocks helping sp500 most:: T, XOM, MSFT, AAPL, JPM, WMT, INTC, HD, PM, CSCO
    Stocks hurting sp500 most: JNJ, NUE, WFC, BAC, PFE, MS, ORCL, KO, NEM, FCX

  43. 43
    BirdsofpreyRcool Says:

    Credit Update — still way underperforming the green in the stock market.

    IG 242 bps

    HY 69.625

  44. 44
    Nicky Says:

    Barney Frank on AIG ‘I don’t see why the people that caused the problem should be retained’. Perhaps he better look at his own position!

    Sorry these Senators and their flip flop cover their backsides attitude is one of my pet hates.

  45. 45
    zman Says:

    ZTRADE: Out Half $17.50 position for $1.25. Up 58% on the whole position or 105% on the calls acquired yesterday. Am likely to roll to April here on a pull back and/or may uprisk and add to March 20 position.

  46. 46
    BirdsofpreyRcool Says:

    Nicky — I’m right beside you on that one. When are people going to wake up and figure out that govt was smack-dab in the middle of creating this problem?

    Who talks about congressional pay raises and private jets and exclusive pension plans. Who talks about bad legislation, the law of unintended consequences, the cronyism. Congress makes the laws, for heaven’s sake. Not business.

    Until the American People figure out exactly who was behind this, Congress (and Barney Frank) are playing us for the fools we are.

    rant over.

  47. 47
    zman Says:

    Hear ya Nicky. Its everybody’s fault but theirs.

    ZTRADE: Added 10 more of the HKCD, March 20 calls, (high, high risk trade).

  48. 48
    BirdsofpreyRcool Says:

    z — great trade. very nice trigger-pulling, on both sides.

  49. 49
    zman Says:

    Thanks, just trying to stay awake on this slow, pre March madness week.

  50. 50
    zman Says:

    Does anyone here subscribe to OptionMonster? I saw they mentioned the FTO activity yesterday and activity rose further following Pete Najarian’s comment. Today option activity is pretty light there. That seems to happen a lot. Increasing the activity of the market while saying, “hmmm, I wonder if this call activity we are seeing means there is a deal brewing.” That would make for a better market to sell in in a normally thin option trading stock. Hmmm…

  51. 51
    zman Says:

    What’s got the market out of the gate so hard all of a sudden?

    Oil is cresting $49.

  52. 52
    Nicky Says:

    Front month options expire today I think Z so likely distorting things a bit. I bet people are lining up to hit the sell button at $50.

  53. 53
    Dman Says:

    Not that I’m complaining, but do we know why crude is up 4% ?

  54. 54
    zman Says:

    S&P cut BEXP’s corporate credit rating to CCC+ from B- and its senior notes from CCC+ to CCC.

    S&P cited a fully drawn line of credit of $145 mm and the coming redetermination of the borrowing base in April as reasons for the downgrade. BEXP had $33 mm in cash.

  55. 55
    zman Says:

    Agreed re 52. Options today and then the April future on Friday.

    Dman – OPEC stance (no bigger cut needed says something about the balance they see), but more what Nicky said in 52 and a strong stock market.

  56. 56
    zman Says:

    HK bumping up to $19.

  57. 57
    BirdsofpreyRcool Says:

    From Head Trader —

    this from the pit “the pit is slow and empty only a few kids working. and following the cash rally from the few kids working in NY and boston. that is normally dangerous, but today the big locals are all out drunk and could care less. just follow the cash and tighten stops.”

  58. 58
    Nicky Says:

    If the rally in the indices can’t hold today it looks very bearish to me as this looks like a ii up.

  59. 59
    zman Says:

    Bob – found no news on SD, guess would be its part of the “it’s not the end of the world as we know it” small-and-mid-cap-redetermination-rally.

    Not a big fan of hearing about big bonuses going to AIG people now but can the Senate really do this or are we just throwing out all the old rules now?


  60. 60
    BirdsofpreyRcool Says:

    z — sadly, they can probably do it. Congress writes the laws. It’s how we got the Alternative Minimum Tax years ago… “outrage” over rich people taking tax deductions and “not payint their fair share.” This stuff has a way of backfiring, badly.

  61. 61
    Bob Says:

    Z-Thanks for 41 and 59

  62. 62
    zman Says:

    BOP – probably so, probably can make it apply to all bonuses to TARP recipients.

  63. 63
    zman Says:

    Bob – In the near future I’ll be taking a better look at SD in the near future like the PQ and CPE looks last week.

  64. 64
    BirdsofpreyRcool Says:

    A little history lesson. The last time the govt stepped in to limit wages, we got employer-sponsored health care insurance… which never was a good idea.

    From a Heathcare Information website —

    Employers are not bad. They just have no rational place in the healthcare market. They are simply unnecessary middlemen.

    Largely as a result of wage and price controls that were imposed during World War II, instead of paying higher wages, employers figured out that, by providing healthcare, which was not included in the wage caps, they could attract and keep the workers they needed. The fact is that “healthcare benefits” was just another name for the “wages” they couldn’t call “wages”. Once it gained momentum, this pretense developed a life of its own and continues today, long after the wage and price controls ended.

    Let employers put the money they are already paying for “healthcare benefits”, i.e. “wages” into a common pool to let us (i.e. the consumers) buy directly from providers and, BINGO, we save the sums they waste as middlemen and they are happier because they can concentrate on building and selling widgets again, instead of “healthcare benefits”.

    Disputes over “healthcare benefits” have been the leading issue in labor disputes for more than a decade – and it’s gonna get worse. What sane employer wants this?

  65. 65
    zman Says:

    Emailed in question:

    Z: Do you think there are any April drilling results that might light a fire under GMXR? If you are looking for a $10/sh move isn’t HK the company with large discoveries that everyone else is looking for. Why not just go there? When supply looks like more of a problem HK should be a crowd favorite. S PS my compliance filter is back on. I was away a few days will make sure you get anything important from my research sources.

  66. 66
    Dman Says:

    Z – what did yo pay for the HKCDs?

  67. 67
    zman Says:

    My response to 65:

    50/50 on well news, 3 wells in the Haynesville should have news sometime in April sometime and the stock is certainly beaten down. Everything hinges on the size of the redetermination and what that means for 2009 Capex. I think the early wells have been very misunderstood here and that this one has big potential. However, there’s that redetermination waiting out there. I will play it closer to month end.

    In the meantime I am playing HK more actively. See site first comment today. That is really big news on the declines…hard to fathom one month flat at the IP, think they probably opened it up to see what it could do and got a first day over 30 MMcfgpd. Either way, its a truly “monster well” and they seem to be in monster well territory as opposed to many others here who have encountered mechanical difficulties and/or lower pressures that have resulted in less monsterish results.

  68. 68
    zman Says:

    re 66: 15 cents.

  69. 69
    zman Says:

    ZTRADE: $10KP

    Swapped HK $17.50s for HK $20s. Sold the remaining HK $17.50s for $1.25 and added more the HK $20s, for $0.15, obviously pretty risky with 3 days left on them and the stock at $18.70.

  70. 70
    BirdsofpreyRcool Says:

    Anyone want to hear a little “trading desk humor”? It’s politically-based, but non partisan. However, being trading desk humor, it’s a little off-colour (riske’)… so I thought I would ask first…

  71. 71
    zman Says:

    BOP – how can I say no on St. Patrick’s Day?!

    Natural gas expected draw: 40 Bcf. That’s ugly but, it sets the bar pretty low for Thursday and gas is not paying attention to anything but this balmy weather, not the market and not oil up $2+ now.

  72. 72
    BirdsofpreyRcool Says:

    z — only ’cause it’s St. Patrick’s Day… and most of the pit has been out drinking beer since 10am… here ya go —

    For a while now I have been confused when I heard these terms with reference to the word ‘service’.
    Internal Revenue ‘Service’
    U.S. Postal ‘Service’
    Telephone ‘Service’
    Cable ‘Service’
    Civil ‘Service’
    Customer ‘Service’
    State, City & County Public ‘Service’

    This is not what I thought ‘service’ meant. But today, I overheard two farmers talking, and one of them said he had hired a bull to ‘service’ a few of his cows. BAM ! ! ! It all came into focus. Now I understand what all those ‘service’ agencies are doing to us.

  73. 73
    BirdsofpreyRcool Says:

    from Head Trader

  74. 74
    zman Says:

    In my layman’s view of charts, it looks like the SP500 needs to take out and then hold 780 before we can get a bigger rally.

  75. 75
    zman Says:

    72, that’s funny.

    Oil going for $50 in the last 10 minutes of trading.

  76. 76
    zman Says:

    Oil closed close to $49, if futures in the equity markets are not tanking in the morning on CPI (doubt it), FOMC pre game (doubt that too), or stock specific news (who knows), then oil probably takes a shot at $50 pre
    inventory numbers.

  77. 77
    occam Says:

    re 67: HK … really big news on the declines..

    I may have missed the news,can you elaborate?

  78. 78
    zman Says:

    Russia orders large scale nuclear rearmament


  79. 79
    Dman Says:

    Z – BRY announced on March 3 they are selling $154m in non-core assets. Since then they are up substantially and technically have popped out of a narrow descending wedge. Any thoughts ?

  80. 80
    zman Says:


    There was a story in the Shreveport times this morning detailing the largest well to date in the Haynesville.

    This one has already been announced by the company as a 23 MMcfepd IP rate but it held that for the month of December produce 0.7 Bcfe or 700 MMcfe. Normally, you would expect these wells to produce the most on the 1st day out of the gate and then begin a rapid hyperbolic decline (down 80% the first year). The link to that story is in the first comment today. I went to the Louisiana data site, Sonris, found the well which commenced production in Red River parish at the end of November just to confirm the story was correct. IP is one thing as per all the different things that can affect it as listed in #7 above, but a one month average of that rate is truly impressive on shore, certain bodes for a better than 6.5 Bcfe EUR, if we see a lot of that it will mean more reserves, bigger credit line, and lower finding costs. As long as everyone else in the play does not start showing up with those kind of numbers…as that would be depressive for ng prices.

  81. 81
    zman Says:

    Tater showed the next point of resistance on HK to be the $19.10 level.

  82. 82
    zman Says:

    Dman – will have a look for tomorrow’s post, first thought is that I back burnered them when they started talking about amending debt covenants.

  83. 83
    zman Says:

    Stepping out for 20 minutes.

  84. 84
    Dman Says:

    Z – here’s a transcript of Q4 if that helps..


  85. 85
    zman Says:

    Thanks D

  86. 86
    Dman Says:

    Page 9 of that transcript discusses the April redet. It seems they are pretty extensively hedged for ’09-10. Their reseves are 69% crude and with crude prices firming and NG still falling, that would explain their selling of NG assets. Maybe to get in front of the redet. I’m just guessing though, since I only understand half of the jargon there.

  87. 87
    Nicky Says:

    So not bearish yet…likely b of an abc for wave 2 in which case we should top in the region of yesterday’s high.

  88. 88
    Dman Says:

    Z – your St Patrick’s day green-screen gambit seems to have worked. And some last minute short covering at the bell, by the looks of it.

  89. 89
    zman Says:

    Dman – keep in mind their crude is not all light sweet but lower value Kern county crude which is lower than the prices you see for WTI. They have some Haynesville exposure but nothing really active so its an oil price dependent play. Debt to cap of 58% is high but interest coverage is good so that’s ok. Thankfully they are very hedged 2009/10. Bank debt is $957 out of $1.21 B available, also high and depending on their redetermination that might give them a pinch. Will look into more for tomorrow.

    What jargon is troubling?

  90. 90
    Nicky Says:

    Back at resistance. You are right regarding the 780 level Z.

  91. 91
    zman Says:

    Green beer thirty!!! I’ve got a soccer practice but will be back in the shop in a few hours. Dman, let me know what jargon and I’ll get on with dejargonizing it. Have a safe night.

  92. 92
    Dman Says:

    Z – I think the list of terms that are partly or fully mysterious to me would be rather lengthy 🙂 Maybe I’ll start with a short, selective list…

  93. 93
    zman Says:

    I assume they are not located on the definitions page at upper left?

  94. 94
    sane Says:

    API Data

    Crude Up 4.1MMbls
    Gasoline Up 383Mbls
    Distillates Up 327Mbls

  95. 95
    zman Says:

    Thanks Sane…not great numbers.

  96. 96
    zman Says:

    “The API numbers on crude inventories are very bearish and reflect poor demand at the refineries,” said Phil Flynn, analyst for Alaron Trading in Chicago.

    You can tell he’s short.

    The numbers show a 1.3 mm bopd decline in imports as well. It’s not clear from the story I saw if that’s vs year ago or last week. You can’t attribute the build to lower refinery demand with lower imports of that size; this set of numbers not making a heck of a lot of sense.

  97. 97
    zman Says:

    Oil pretty much unchanged at 48.70 to 48.80 following API.

  98. 98
    sane Says:

    I saw that the API reported gasoline demand last week was only 8.4MMbls/day. I am wondering if gasoline demand is lower than being reported by the EIA or the API numbers are just dead wrong.

  99. 99
    sane Says:

    Correction on 98 that demand number was on las weeks report for 2 weeks ago. I have not seen the total report for this week on last weeks demand numbers.

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