Monday Morning And All Is Dire

GM says goodbye to Wagoner....reportedly at the request of the President. Anybody else want government aid? Markets set for a lower open .


The Week Ahead

  • Monday: 3/30.  No U.S. economic data. President to release details of Auto bailout plan at 11 EST.
  • Tuesday: 3/31. Natural Gas Supply data for January; home prices, Chicago PMI, Consumer Confidence (forecast 28 vs 25 last month)
  • Wednesday: 4/1. EIA Oil Inventories; ADP employment, car sales, pending home sales
  • Thursday: 4/2. EIA Natural Gas Inventories; Initial jobless claims, factory orders, G20 summit
  • Friday: 4/3. Non-farm payrolls (March) forecast at -688,000, Unemployment rate (forecast at 8.5%)


In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Rig Count Update
  4. Stuff We Care About Today - RRC, CLNE, Deepwater Rig Update
  5. Odds & Ends

Holdings Watch:  The Wiki tab is updated. 

Commodity Watch:

Crude oil rose just under 1% last week to close at $52.38. The 12 month strip rose 2% to $58.21. This morning crude is trading down another $1.50 to $2 as equity market futures tumble and traders take into account the following bullets.

  • OPEC Watch: Kuwait says capacity now 3 mm bopd, up 200,000 bopd from last year's level. Their current quota is 2.2 mm bopd.
  • OPEC Watch 2: Tanker tracker Petrologistics pegged OPEC March crude oil production at 25.9 mm bopd, vs the Cartel's quota of 24.845 mm bopd, implying somewhat lower compliance than had recently been prognositcated.

Natural gas gave back the prior week's gains falling 13% last week to close at $3.74 on Friday after an unexpected and somewhat early return to storage builds. The 12 month strip fell 9% last week to end at $4.64. Looking at last week's weather it is likely we will see a small withdrawal from storage this Thursday. This morning gas is trading just under the lows from last week.

  • LNG Watch: Russia's Sakahalin II LNG facility shipped its first cargo to Japan over the weekend. Ultimate capacity of 1.3 Bcfgpd will be reached later this year when the second train comes on stream. Nearly all volumes are contracted to Japan and Korea.
  • Weather Watch
    • Last week HDDs rose to 125 from 116 in the prior week (we may see some small gas storage withdrawal this week). The forecast for this was was originally 108.
    • Forecast for this week: 108 HDDs.

Rig Count Update:

Gas rig count continues its strong downward trend falling 47 to 810, down 796 or 50% from its peak level in September 2008. Gas rigs are now down as much as anyone had predicted last Fall and are lower than most analysts and company spokesman predicted as of the fourth quarter calls in February. As you can see from the chart, there does not appear to be a deceleration in the rig count slide forming just yet. I'll have state specific rig counts out with the Gas Supply Update in the Wednesday post.  This is just more crushing news for the U.S. focused oil service names as few rigs drilling obviously means less of everything well drilling and completion related from proppant (CRR) to pressure pumping (BJS).

Horizontal Rig Count resumes downward motion. Many analysts and some traders have point to the horizontal rig count and essentially said even if the gas rig count continues to plummet the horizontal rig count is sufficiently high to offset declines from conventional wells.

Stuff We Care About Today

RRC Sees Borrowing Line Re-affirmed.

  • Borrowing based of $1.5 billion
  • The company opted to leave the commitment amount at $1.25 billion
  • If you look at the orange charts on the E&P link at upper left you'll see these guys fall in the middle of the pack on leverage and interest coverage so this would normally (market not withstanding) provide a small sigh of relief in the stock.

CLNE To Build And Operate Compressed Natural Gas Fueling Station at Oklahoma State University

  • to supply CNG to OSU bus and vehicle fleet
  • part of the University's green initiation to replace their diesel fleet with natural gas
  • it will be open to the public
  • My sense is that this will serve as something for other universities to point to as something they can do to "get green" while also allowing for another point of access for the public for CNG cars.
  • I continue to believe that this is a story that will improve as we move towards 2010

Offshore Rig Group Thoughts: Preference continues to be deepwater.

Barron's Article over the weekend. Link here.

  1. Will likely create a quick bounce in the group with DO and RIG receiving the early attention
  2. The article contains nothing beyond the obvious but is nonetheless true.


  1. Deepwater, Ultradeepwater capable ships remain in high demand
  2. Jackups which target the shallow waters have being to feel the pinch of lower prices.
  3. Operators like PBR have a long list of drilling locations in the subsalt in deepwater to drill up over the next five years as they seek to alter the country's status from net importer to exporter of crude (and then join OPEC).

Company Vessel Portfolio Thoughts:

  1. I have trouble getting excited about NE and PDE in this low price environment due to the high number of Jack-up rigs as a percentage of their fleet. 
  2. Contracts expiration risk: ATW and DO have the least amount of risk in the group to contracts coming off over the next 12 months however ATW, operating the smallest portfolio on the list can have a bad day quickly should they lose a single contract.More on ATW below.
  3. Good link for seeing where rig utilization by type is now and where it has been last month, six months, and a year ago. Jackups are the clear slider here.

Valuation: Cheap.

  1. RIG is at trough cycle valuations and I don't expect much further slippage in the E side of the equation.
  2. I'm not showing 2011 and beyond on the table above but I'd point out that ATW has two newbuilds on order arriving early 2011 and early to mid 2012 that should add at a minimum of $1.20 apiece, which is the most significant incremental earnings forecast out there.


Balance Sheets: For The Most Part Very Solid.

  1. None of the names have an issue with regard to interest coverage.
  2. RIG on the high end of Debt / Cap range due to the newbuild deep capable drill ship inventory


  1. I like DO/RIG at current levels or a little lower but it is harder for me to warm to NE, PDE.
  2. ATW I like quite a bit here due to a combination of how they have run their business through the cycle to date and rising earnings potential over the next three years.
  3. The group will likely trade with oil prices but should outperform the OIH.
  4. The group has increasing catalysts both from newbuild delays and cancellation and from new orders from the likes of PBR.


Odds & Ends

Analyst Watch: Nada.

153 Responses to “Monday Morning And All Is Dire”

  1. 1
    BirdsofpreyRcool Says:

    You’d think by now, everyone would be used to Govt Bailout headlines… but the credit desks are using words like “fear” and “everyone too scared” this morning, to describe early trading. While tough to envision going back to the Black Hole of last Fall, frankly, the levels in credit are not far off those lows. Too much uncertainty, most of which these days seems to be coming from the govt, and not the economy.

    We have now officially rolled into the new indices for both Investment Grade and High Yield debt. As these new indices toss out some bad names and add some good ones, the levels are naturally higher from the old indices (we got used to looking at). This happens every 6 months. So, welcome to Index Series 12.

    IG12 190 bps +5bps from Friday’s 185 close

    HY12 71.875 -0.75 points from Friday’s close

    Maybe we climb a Wall of Worry today in credit. Too early to tell, as most buy-siders are looking to the stock market open to gauge the fear level.

  2. 2
    zman Says:

    Hear ya BOP, always amazed to see what the market is amazed by. Makes you want to yell, “what, you didn’t see this coming?!”

    The good news is it will give me an opportunity to close the oil service puts in the green and reposition them after the next run.

  3. 3
    BirdsofpreyRcool Says:

    Head Trader is negative… and acknowledges that only a couple of days ago, he was feeling optomistic. He regrets the inconsistancy, but thinks the market goes higher from the open, but then closes lower.

    No word from Tech Trader this morning.

  4. 4
    BirdsofpreyRcool Says:

    z — yeah… amazed by amazed. Was just talking to Head Trader about that. Maybe it’s because the average age on Trading Desks is 26? I don’t know.

  5. 5
    BirdsofpreyRcool Says:

    PVA — I don’t actively follow this one… but hearing that they expect to announce the results of their bank redetermination today… expecting the bank line to be increased. If that is true, it will be interesting to see if that moves the needle, in a scared market. But, will be nice to know that all news isn’t bad, these days, if true.

  6. 6
    zman Says:

    BOP – Watching RRC for same effect, they announced this morning, bank line stayed same.

  7. 7
    BirdsofpreyRcool Says:

    z — maybe banks just like the Marcellus better than other plays… who knows. But, good point on RRC.

  8. 8
    BirdsofpreyRcool Says:

    IG12 190.5 +5.5 bps for day. This equates to around 232 for the IG index we followed for the last 5 months.

  9. 9
    zman Says:

    Now that’s an ugly open.

  10. 10
    zman Says:

    indiscriminate, nearly volume-less in many cases double digit % lower opens.

  11. 11
    kyleandy Says:

    z – have often seen the terms buy-side and sell-side used (bop used this morn)cud u tell me what they mean? thks

  12. 12
    zman Says:

    Buy-side is your hedge fund or portfolio manager, sell-side would be the brokerages, selling them the ideas.

  13. 13
    BirdsofpreyRcool Says:

    Well… look at the bright side… maybe the ousting of Wagoner and most of the GM board will stop CEOs from using the “Taxpayer Scenario” as their downside case in their Long-Range Plan.

  14. 14
    zman Says:

    BOP – true, although I had thought GM was thought previously by the administration to be too big to fail so this seems like a shift in thinking.

  15. 15
    BirdsofpreyRcool Says:

    z — the things they are trying to doat the autos, can only really be done in a Chapter 11 process. It has been interesting to see them tie themselves up in pretzel-knots, trying to avoid the one solution that the US offers companies that NO OTHER country does… the ability to reorganize as a stand-alone, going-concern under Chapter 11.

    With the autos, there are some funky things that the Unions can do in a Chapter 11… but, the Unions can do funky things outside of the 11 process too. So, don’t know if this the real reason they fought it for so long. But, everything GM (and now the Govt) is trying to do can be accomplished in a more organized way in a Ch 11. We have been saying this since last fall.

  16. 16
    isleworth Says:

    GMXR close to 5 yr low, but RSI improving a bit off its low.

  17. 17
    elduque Says:

    BDI -32 1646

    TED 108.78

  18. 18
    zman Says:

    Isle – thanks, considering doubling that position on this weakness. Should get a redetermination there soon, expect it to be flat. Gas numbers out tomorrow afternoon could prove a boost to gas prices.

  19. 19
    zman Says:

    Market back into what have you done for me lately mode: PQ getting hit hard.

  20. 20
    reefguy Says:

    Change of Energy- Does anyone know the largest single wind lease(in acres) ever taken in the US?

  21. 21
    zman Says:

    NG holding just under the previous lows as traders should be looking for a small withdrawal or small build this week.

  22. 22
    zman Says:

    Reef – going to guess Tx as I saw some headlines early on a Tx windpower report.

  23. 23
    reefguy Says:

    LNG- In a conversation with someone who thinks he might know, suggets 8 BCFD of LNG is lining up for deliveries to US. I told him as someone who does know dirt, that I thought that was horse manure! Thoughts?

  24. 24
    Hoss Says:

    Reef – TBP?

    Mesa Power Places World’s Largest Single-Site Wind Turbine Purchase Order


  25. 25
    reefguy Says:

    Z- How big was it? I would like to know.

  26. 26
    reefguy Says:

    Hoss, thanks. 667 tubines with 8 per section(640 ac)= 53,360 acres

  27. 27
    zman Says:

    Reef – LNG thought, way too high. We did about 1 Bcfgpd last year, going back we see peak months of 3 and approaching 4 Bcfgpd. Capacity for regas is probably 9 to 10 by year end. There is incremental supply to be sure but there was last year as well and that growth would be more than all of it for this year. Sounds like some “propaganda” put out by LNG (the company).

    Will see if I can find that wind story to see if it has details.

  28. 28
    reefguy Says:

    Z- I had a major argument with this guy. I propouded the same facts, yet he says the majors are ready to land it at $2 in the US. Is not the cost of liquifation/transport/gasification more than $2? I guess the guys don’t have to pay for their plants…oh yea, and the gas is free…

  29. 29
    Dman Says:

    At risk of trying to talk in credit-speak that I barely comprehend: if GM bondholders are wiped out, could this be the beginning of actual debt destruction? (instead of what we have seen up until now: endless piling up of even more debt)

  30. 30
    zman Says:

    Reef. That international natural gas price point was $4 ish was last time I checked. You probably have access on Bloom to that price under Heren NBP or UK NBP.

  31. 31
    sportlock Says:

    Z, I think the entire analyst community is missing the boat on NA NG. With the rig count down already 50% and (in my opinion) likely to drop until we see $7.00 gas I think we will see massive declines in production in the second half and all of 2010. I think there is a train wreck coming and one that is going to last a long time. Am I nuts or does this make any sense to you?



  32. 32
    zman Says:

    Bill – Yes, what you say does make sense to me.

    1) E&P analysts are pretty burned up right now. They would rather take the worst case scenario in hand and then be able to raise estimates later. They have not gotten their estimates down enough, especially in the back half of the year so we are going to see more CFPS reductions in 2H09, especially for the poorly hedged.

    2) Oil service analysts are fighting for a reason to exist. They continually cut numbers and then defend higher target prices by saying the worst is over, but this forces the stocks to trade at a higher forward multiple and is confusing/frustrating to your sales force (the brokers) who have to pitch the whole “yep, we’re cutting numbers for the 12th time this year and yes you should buy the stock because its cheap” song and dance.

    3) The difference between this time and previous times is not just the magnitude/quickness of the fall in rigs working but also in the production makeup of the country and the recession. The production is higher decline rate and once the drilled but uncompleted inventory is worked through we will see rapid declines. Moreover, this inventory of uncompleted wells will serve to depress rig counts for longer this time. Normally they snap back fairly quickly but not this time, at least not in my book.

  33. 33
    Allen060 Says:

    Rig count: The horizontal rig count is down only 66 from one year ago. That is only a 13% yoy decrease.The vertical rig count is down well over 50%. It seems to me that, since the large production increases have come from the shale plays where the horizontal rigs are used, the only number that really counts is the horizontal rig count. Does it make sense that there will not be meaningful production decreases until that number begins to seriously drop?

  34. 34
    zman Says:

    Allen – I think that’s a big thought on the mind of gas traders. The horizontal count was delayed in coming off, first due to a movement of rigs from lower IRR to higher IRR basins (Haynesville) but has since begun slipping slow. I don’t have access to a breakout of the horizontals by oil vs gas but many of those rigs are/were drilling for oil in the Bakken so that somewhat clouds the read there. When you go to the operators who were busy in the Barnett and who planned to be busy in Haynesville with horizontals though, the reduction in planned wells is pretty dramatic.

  35. 35
    zman Says:

    NG fighting off that low level, up 5 cents on the May contract on the prospect of a small draw this week. Also, gas may be front running the EIA’s supply report tomorrow.

  36. 36
    Dman Says:

    FWIW: LNG the stock has been on a modest recovery path, still down 90% from its high, but carving out a scoopy-looking recovery on the daily chart if you look at the last 2 years or so. Going back to 2001, the chart takes the idea of “cyclical” to new levels. What does it mean? I have no idea but am interested in the global supply-demand situation.

    But supposing that someone like Kuwait finds themselves with excess LNG capacity just now, is there someone with a gun pointed at them to make them sell it for $4 in NA when they could just hang onto it for maybe a year & sell it for $20 elsewhere?

  37. 37
    BirdsofpreyRcool Says:

    Dman — Chapter 11 is like a “Time Out” for companies. Instead of a company trying to fight a lot of battles on multiple fronts all at once (for example, GM = bondholders, banks, unions, suppliers, customers, dealerships, pension obligations, legal claims ann vyying for attention and money), the Chapter 11 stops all the clammoring and works in an organized, thoughtful (hopefully) manner to restructure the company’s operations and balance sheet. Then, the company is either sold, or re-emerges from Chapter 11 as a stand-alone business.

    But, what almost always happens in a Chapter 11 is that all equity value (stock) is wiped out. Stock goes to zero, then is legally extinguished by the court.

    In good times, equity gets to run a company (by voting for a board). In a chapter 11, whoever the lowest “impaired class” is, gets to run the reorganization process. An “impaired class” is the lowest level on the balance sheet that is still perceived to have value. In this case, it will be the bondholders. The banks won’t be the impaired class, as they will get paid in full. The equity won’t be the impaired class because they are wiped out (“zero” value claims have almost no voice in the bankruptcy process). So, bondholders will probably emerge as the new owners (or equity holders) of GM. Bondholder debt will be wiped out. Banks will redo their loans. New bondholders will invest. And the company will emerge from Chapter 11 as a “reorganized” entity with less debt and more efficient operations.

    If operations are not the problem, then no people lose their jobs. But, if effectively revamping operations has been impossible to accomplish (with all else going on), then the Chapter 11 process allows for an orderly reorganization of the business at the same times the capital structure is being reorganized.

    Please, ask any questions you wish. This is only a very high-level explanation of the Chapter 11 process. But, bottom line, it is NOT the end of GM and it’s operations! The company continues to make cars and employ people. You just have a judge overseeing lawyers and advisors and bondholders, unions, and all the other constituencies duking it out in court. The Judge gets to be the grown-up in the room and work through all the issues, in an orderly fashion.

  38. 38
    Dman Says:

    Holy cow! That’s the solution! Judges and lawyers running the economy!


    Well, on one hand it’s a terrifying idea but on the other hand they could hardly do a worse job than GM management & the Congress.

  39. 39
    md Says:

    what’s your thinking on NG Monthly to the bullish side. You were saying that production reduction won’t show up until the next months report. I’m inclined to think that consumption is slightly lower HDD’s vs. lower indust and elec.
    and production remains the same.

  40. 40
    kiaora Says:

    BOP- what do your traders see(?) after lunch today?

  41. 41
    zman Says:

    re 39:

    Best case for gas will be a slight reduction in lower 48 state production. Tx flat, Wyoming down, oklahoma down, other states flat to slightly down, Gulf of Mexico up. On the demand side definitely lower although from a gas price perspective they won’t pay much attention to those numbers.

  42. 42
    reefguy Says:

    z- Heren thanks. What is the conversion from GBp/therm to GBp/mcf; then I can convert GBp to $/MCF?

  43. 43
    BirdsofpreyRcool Says:

    Dman — no. Lawyers and Judges don’t run the company. Management runs the company. Lawyers and Judges just oversee the orderly arguments of all involved. I’m not saying this is “good.” But, there is really no other legal way to get all the players in the room to negotiate in order of their importance (claims).

    When a company issues debt, debtholders have a claim on the company’s assets, if the company defaults. Bondholders don’t want to own the company, they just want to get paid what they are owed. The problem with GM is that the Union expected the bondholders to voluntarily give up part of their claim, before the Union would consider making consessions. It doesn’t work that way. It’s like your kid telling you how he is going to schedule the use of YOUR car. It ain’t the kids car, it’s yours. You don’t have to do what the kid demands.

    Anyway you look at it, it’s sad, all around. But, Ch11 at least tries to sort through the mess in an orderly manner, while the company is still being run. What is totally unusual about this stituation, is that our Govt has basically fired the CEO and Board. That is not something that usually happens in the first innings of a bankruptcy/restructuring situation.

  44. 44
    zman Says:

    1 Mcf = 10 Therms.

    1 dollar = 143 pence right now.

  45. 45
    reefguy Says:

    z- I see the conversion. pence/therm to $/MMBTU is GBP/10. Current price is 32.425/10 equals $3.425/MMBTU

  46. 46
    md Says:

    Is there an element of OBama’s green vision clouding his objectivity in Big 2 restructuring

  47. 47
    BirdsofpreyRcool Says:

    kiaora — Head Trader is sticking to his “close lower” position. He points out that if the SPX can’t close over 790, then we “consoliate” (go lower) over the next few days.

    This GM thing — while talk of Chapter 11 makes sense — is just another example of the unpredictability of this (our) govt. People don’t know what to think, how to plan, what to look for, where to invest, or what we will look like when we come out of the other side of this tunnel. THAT is the problem right now. And given all that uncertainty, why put money to work? So, thin buyers means the credit-bears and other short-sellers get to bully the mrkt around. The longs are back to the sidelines… trying to figure out the rules of the game.

  48. 48
    Dman Says:

    BOP – conversion of debt to equity would still count as debt destruction in the overall scheme of things. Just not good for – ahem – anyone crazy enough to still own GM stock. Actually, I know someone who worked at Ford and was getting company stock as part of her deal. This was a decade ago but I told her the company was giving her funny money that would be worthless. Just hope she bailed out of it… but suspect otherwise.

  49. 49
    zman Says:

    Reef – it had been dipping last I check (couple of weeks ago). That’s a virtual price so you’ve still got to ship and insure it across the Atlantic. I don’t think that’s enough of a deficit to current prices cause an onslaught but I could be wrong. Day rates are in the mid $40K range which off a bit from last years levels. I haven’t done the math on how much that adds on a per Mcf basis but recall from some reading a while back that with insurance is what a noticeable piece of the puzzle.

  50. 50
    zman Says:

    Oil failed $50 as the DJIA failed 7,500.

  51. 51
    BirdsofpreyRcool Says:

    md – #46 yes. absolutely.

  52. 52
    reefguy Says:

    49- You gotta think then delivered is more like $4/mcf?

  53. 53
    zman Says:

    52 not sure exactly how high it is. One thing I would note is that the NBP price is a virtual price in Europe, it does not reflect Asian pricing and if you look at charts through last summer, I don’t see a time when it was trading at the $16/Mcf equivalent in England nor the $20 / Mcf of Japan we heard about last Summer.

  54. 54
    zman Says:

    Reef – I’d add that charter rates are mid $30Ks per day for spot cargoes and that rates have been falling. Just read 35 LNG tankers are idle at present as the ships have arrived prior to the startup of many delayed liquefaction projects.

    Thanks for sending that scan via email Reef. See what I mean about never showing the $16 Europe price last year?

  55. 55
    reefguy Says:

    z- yea high price well below $16…

  56. 56
    md Says:

    The difference between “LNG” and AIG is that one has Gov’t backup. It’s at the mercy of HS, marcellus producers while they bide their time.

  57. 57
    zman Says:

    Part of that’s currency but surely not all of it. Something doesn’t quite add up on that but I’ve had some emails about in the last 2 weeks saying analysts are saying how cheap NBP has become to H Hub as a point in their claims that cheap LNG will flood the U.S.

  58. 58
    reefguy Says:

    Speaking of LNG- see IOC

  59. 59
    jat Says:

    DOE spokesperson says EIA Monthly is to be released at 12pm tomorrow.

  60. 60
    md Says:

    Which EIA monthly

  61. 61
    zman Says:

    Last week’s numbers:

    LNG volumes totaled 1.1 Billion cubic feet of gas per day (Bcfgpd), which was 0.4 Bcfgpd more than a year ago.

    Canadian imports last week were 7.1 Bcfd, which was 1.6 Bcfd less than last year.

    Funny how none of these LNG Gas bears talk much about Canada.

  62. 62
    zman Says:

    The natural gas monthly would be the one with January data.

  63. 63
    zman Says:

    NG and the dollar the only 2 green things on my screen.

  64. 64
    rseidman Says:

    Z: Could you please post the link for live quotes on oil again. I’m on my laptop and don’t have the link easily available.

  65. 65
    reefguy Says:

    IOC up $1.37

  66. 66
    jat Says:

    Yes, was talking about EIA 914 with nat gas data

  67. 67
    zman Says:



    They are also in the blogroll at upper right under live WTI charts.

  68. 68
    zman Says:

    Reef – trillions and trillions …

  69. 69
    tater Says:

    BOP: Your #47 comment; Exactly!!!

  70. 70
    reefguy Says:

    IOC- the last E and P dream. LOL

  71. 71
    md Says:

    The uncertainty of Big 2 esp Chry makes CH 11 a certainty. The sooner the better so that they can retain whatever customer base they still have. It’s death by a thousand rumours.

  72. 72
    BirdsofpreyRcool Says:

    Chrysler and Fiat have reached a global alliance.

    Not surprising, but positive, net-net, I would think.

  73. 73
    zman Says:

    Reef – I thought the last dream was MMR/EXXI at Blackbeard.

  74. 74
    md Says:

    Quite a transformation from Benz to Fiat. Talk about bipolar.

  75. 75
    BirdsofpreyRcool Says:

    md — any port in a storm, i guess…

  76. 76
    reefguy Says:

    Last Dream- your right. Now I have three dreams. My new dream is 2011 when NG goes to $15. How low do you think the rig count goes? Your charts indicate less than 600 to me..

  77. 77
    zman Says:

    Md – great point, heard the technology transfer from Fiat to Chrysler billed as a key point. So Fiat has better tech than Mercedes? Hmmm.

  78. 78
    reefguy Says:

    z-am I going to drive an einocento 63?

  79. 79
    BirdsofpreyRcool Says:

    From JPMorgan’s M Krauss – The first leg of the S+P 500 “mini-bull market” rally is likely over at 833; High confidence that 666 is the major low (likely the low for this year); High confidence that the S+P 500 will reach our 950-1000 primary targets in 2H; Favor a correction to 760-730 over the next 4 to 6 weeks

  80. 80
    zman Says:

    Reef – I’d just be guessing but 600 is a fair target for 2Q if prices don’t pick up. I saw a piece the other day from a brokerage firm with lots of little research minions that said they had added up all the big and mid and small E&P players plans and come to the conclusion that rigs had bottomed since rig levels were at the levels they tallied them to looking at the current capex plans. That was at 900 gas rigs two weeks ago. The moms and pops are hurting bad and shut or shutting down, some were able to hold on a little longer than I thought but now are capitulating to price. Also, you’ve still got rigs coming off contract.

    As I see it, E&Ps will benefit from rising prices and lower costs in the back half of the year and I find it improbably with the current capital markets that they will simply jump back to drilling as usual this time. I see drilling to hold acreage as a priority but drilling for growth to be back burnered through 2010. We have to go through a period where the E&P CEO mantra is “capital discipline”. When the first thing people flip to in the quarterly release is the balance sheet and not the production numbers. We had this mentality for quite some time after 1998. Then, shale mania and rising budgets into rising production and rising prices due to domestic and foreign sources of new demand broke that discipline.

    Oil service names are going to be on the losing end of that falling cost and sustained low activity stick.

  81. 81
    zman Says:

    Thanks for 79

    Reef – re 78, not familiar with that one.

  82. 82
    reefguy Says:

    E-63, 6.3 liters Einocento 1.0 liters

  83. 83
    zman Says:

    NBR finally falling into the single digits, HAL looking to fall through today’s lows.

    BOP – thanks 79.

  84. 84
    zman Says:

    Baron’s unable to offset the GM / financials effect with its master of the obvious column on deepwater. ATW getting hit for twice the % drop of the other names …on not too small volume. Will look at adding later this week.

  85. 85
    choices Says:

    Chap 11-not sure I understand the distinction between the banks and the automakers-why not take the zombie banks into Chap 11 as well-not sure the people in Detroit understand the distinction either. The Gov certainly leaves open the charge that Summers, Geithner, et al are too close to Wall Street, Rubin influence, etc.

  86. 86
    Dman Says:

    NBP trades at around 30 pence per therm, i.e. about 3GBP per MCF, which is about $4.20 per MCF.

    The add liquification, regas, shipping, insurance …

    Am I missing something?

  87. 87
    BirdsofpreyRcool Says:

    for anyone interested in PQ… meant to mention the other day. The company has $150mm of 10.375% bonds due 5/12, currently offered around 64. That’s almost a 30% yield to worst. A 3-yr bond yielding 30%… even if PQ goes Chapter 11 after a coupon or two (which is not in the cards, I think), between the income and the recovery on the bonds, seems like a decent risk-reward trade off.

    Bonds are rated Caa1/B-. Cusip 71674PAB6. Can anyone get a retail quote on these? I see a very wide 60-64 institutional market quote today.

  88. 88
    reefguy Says:

    BN screen shows pence/therm to us dollar/mmbtu: GBP/10. Current price is 32.45/10 = $3.245/MMBTU

  89. 89
    jat Says:

    Anyone notice that, for the first time in forever, SLB will not be kicking off earnings season this quarter? It doesn’t change my short OIH components strategy over the short-term but am wondering how HAL/WFT going first changes the dynamic. HAL wasn’t at Weil but was taking meetings and guiding down as you’d expect.

  90. 90
    zman Says:

    Dman – I just did the math and I get 32 pence per therm at NBP X 10 to get 320 pence per Mcf / 1.43 Dollar/Pound = $4.58 per Mcf equivalent price.

  91. 91
    zman Says:

    Thanks Jat, that is odd. SLB is ALWAYS the first day, usually a Friday, and then HAL, BHI etc to follow. Interesting. HAL often has a less conservative tone to them. I’m planning on killing those puts soon and repositioning on a bounce.

  92. 92
    reefguy Says:

    So I should then multiple the 32.45/10 by the currency exchange rate($1.42)?

  93. 93
    Dman Says:

    OK, next question: who exports LNG from Europe?

  94. 94
    zman Says:

    92 – yes, brain working a little slow earlier. Hopefully I’ve got it squared now. It was a long 1 day Spring Break.

  95. 95
    BirdsofpreyRcool Says:

    choices — we can all live without buying cars for a while. There is no business, public or private, that can live without the banking system… even for a month or two. A series of Ch11 filings from banks would create a run on all the banks and we would all be hurt.

    GM = hurts, but continues to make cars b/c they still have their own assets (plants, machinery, parts).

    Banking = merely the perception of problems can bring the system crashing down… people will yank their assets out of the bank. The bank doesn’t own the assets, the depositors do. If that happens, no one gets funded, no monies get lent. Commerce comes to a grinding halt.

    It’s not that they want to “save the banks” but “let GM go boom.” GM could disappear tomorrow and a lot of people would be hurt, but most of the country would still function. Can’t say the same if the banking system disappears. Our govt does not have enough money to replace what depositors would pull out of the system.

    Does that make sense?

  96. 96
    reefguy Says:

    OK, my bad. Then LNG landed is more like $5!!

  97. 97
    zman Says:


    See link re 93:

    Exporters are listed along the top.

    Importers are the left column.


  98. 98
    Eagle Says:

    BOP Fidelity is showing a third party price on those bonds at 61.5.

  99. 99
    BirdsofpreyRcool Says:

    choices — to finish the thought, something like 20 or 30 banks have been taken over by the FDIC since this began. So, weak banks are closed (a banking form of Ch11). If JPMorgan or Bank of America are not strong enough to survive on their own, they will be taken over and dismantled/sold. What the govt has been trying to do is to get in front of a run on the banks… not prop up the banks for their buddies on wall street. Although, it does seem like that.

    To say that this has been “poorly explained” to the American Public is the understatment of the decade.

  100. 100
    choices Says:

    BOP-thanks-I guess the real question is whether the gov plan for the banks is the right one-Krugman, far left, does not think so.

  101. 101
    BirdsofpreyRcool Says:

    Eagle — thanks. Wow!! That is a 30.25% yield to worst on those PQ bonds.

  102. 102
    zman Says:

    Reef – my bad too for not doing the math sooner. I had done it the other day and it was close to $4 and low change pre costs and when I saw your number I just thought, yep it fell some more. Anyway, not a lot of incentive to drive it to the States based on those prices. Still some more will come due to new contracts but I don’t see some flood of gas finding a home in the U.S. on price.

  103. 103
    zman Says:

    Here’s one for the “I should have listened to Wyoming more file”. Take a look at the CRR chart. Probably gets worse. Didn’t care for those option spreads but the news out of everyone now is “Haynesville may not need ceramic proppant for a good completion”

  104. 104
    Dman Says:

    1 Mcf = 1 MMBTU is a very weird fact, given that neither feet nor BTU were invented to measure natural gas. But seems to be true to a good approximation. (Someone tell me if I’m wrong about this. I think I need more caffeine).

  105. 105
    zman Says:

    TA Folks: What is the crucial closing level today for the S&P, above which we see a bit of a short term bounce back and below which we see at least a few days more weakness.? Is it 780 or is below 800 enough to inspire that “few days of selling”?

  106. 106
    reefguy Says:

    1 unit of CH4(methane) has 1000 BTU’s of energy. 1000×1000 = MMBTU

  107. 107
    zman Says:

    It’s generally accepted to use 1.035 which is pretty close to 1. You are going to have richness of gas issues (wetter = more btus in the gas stream) and press issues but everyone pretty much uses 1.035 at the number for converting Mcf to MMBTU.

  108. 108
    zman Says:

    I should have added in the U.S. to 107…its has changed over time (gotten richer) but 1 to 1 works just fine.

  109. 109
    AAA Says:


    I agree with your views re Ch. 11 for automakers. We have a lot of experience with large industrial operations going through Ch. 11. We have none with government taking them over and effectively running them. Without getting political, I would also observe the current administration is light on business experience.

    It seems to me that it will be very difficult for Gm to avoid Ch. 11 if the government sticks to its conditions re bondholders and unions. The bondholders clearly think they will fare better in Ch. 11, plus they feel they are being asked to give up too much vis-a-vis the union. The UAW no doubt sees the administration as in its corner, if not its pocket, and has little incentive to negotiate. At this point more taxpayer money is just going to be used to minimize the pain one of these groups suffers.

  110. 110
    BirdsofpreyRcool Says:

    z — kinda feels like we’ve broken the back of the rally for right now, doesn’t it? Would think we probably flop around until earnings start coming out, week of April 13th.

    Or, Friday’s Non-Farm Payroll Report could rock or roll the mrkt. And, at some point, the bank “stress-test” reports are supposed to be made public.

    Just thinking out loud…

  111. 111
    BirdsofpreyRcool Says:

    AAA — perfectly put. The Unions think the govt is going to blink (because the govt blinked in the GMAC negotiations with bondholders).

    The bondholders are not contractually obligated to give the UAW the keys to the car here. Unless contract law is turned on it’s head, bondholders have a right to their coupon and principal at maturity, or they get to seize the assets (believe me, bondholders never WANT to seize assets). The UAW does NOT have that same right. But, the UAW is trying to hold the bondholders hostage.

    Bondholders only care about getting as much of their money back as possible. They do not care about the quality and costs of the UAW healthcare package. Bondholders are only doing their job for their investors.

  112. 112
    zman Says:

    Oil off $4

    NG up 2 cents

    Re 110 – that’s how it feels to me too.

  113. 113
    Dman Says:

    BOP – there was a big rush to buy winners before end of Q for markup purposes. Can’t do that today to keep out of legal troubles, so rally-chasing performance anxiety now gets replaced with “OMG I went and bought all that stuff” anxiety.

    The pattern still feels different to me than say 6 weeks ago. A reasonably orderly ascent followed by quick selloff is bull-market action. I’m basing that on the energy/commodity sector that I actually pay attention to. But underlying fundamentals for most sectors outside commodities are anything but bullish, so for those sectors, the recent rally was a selling opportunity. If it rallies again, yet another opportunity to dump non energy/commodity names. Not that I have any. If it really rallies hard into June, that would be a shorting opportunity for the broad markets. That’s my 2 cents anyways.

  114. 114
    BirdsofpreyRcool Says:

    AAA — another distinction… we talk about the UAW as if all it’s members had come to a consensus and were fighting this thing out. But, that’s not true. The UAW is represented by elected officials. Those officials really have little incentive to face the reality of the situation. If they did, and capitulated and GM stayed out of BK, the members would probably vote those guys out. But, this way, the UAW elected officials get to keep their jobs… even if GM is in BK.

    It’s a cynical view, but it’s also naive to think that there are “no politics” in Union representation too.

  115. 115
    BirdsofpreyRcool Says:

    dman — #113. Good points… especially the one about feeling different than early March.

  116. 116
    zman Says:

    EOG reversal underway…maybe later in the week for a bounce.

  117. 117
    BirdsofpreyRcool Says:

    I have noticed, that when I’m not around, the mrkt tends to rally. So, I am going to take one for the team (as z says) and step out for a while.

    Buy calls now! 😉

  118. 118
    zman Says:


    Sold 20 HAL $15 April Puts for $0.73, up 89%.
    Sold 10 NBR $10 April Puts for 0.80, up 30%.

    I by no means think the estimates of have caught with the downside reality in many of the oil service names yet. Will reposition on the next bounce.

  119. 119
    PackMan Says:

    VLO, TSO getting crushed. This can’t be a reaction to GM can it ?? Is this overdone ?

  120. 120
    zman Says:

    Pack – I wouldn’t think any more so than any other sector. Cracks are staying about the same today as products are falling with oil (now down about 7%) each. The smaller refiners are down big as well, could be a broker downgrade.

  121. 121
    PackMan Says:

    To me, the bigger market moving news is not GM, rather, Big Banks coming out of White House meeting saying March not a good month & Geithner comments over the weekend about banks needing lots more money. So today reaction not surprising to me in terms of killing off rally,

  122. 122
    zman Says:

    Pack did you see the link Wyoming posted last night regarding AIG and the Banks and Jan/Feb. Its the first comment on the weekend wrap.

  123. 123
    tater Says:

    Z, re your #107 –
    Your question supposes that there is such a level. I personally don’t see it that way. The large triangle in the SPX from Oct to the middle of Feb that broke to the downside created the resistance at the 840ish area that we just tested last Thurs (apex extended out to the right).
    I don’t have a good answer for you, but judging from a couple of the indicators, it seems like even if we continue up a bit, it isn’t likely to last.
    I remain in the sky is falling camp. At least until I actually get a please AND thank you from the local McDonalds. Then I’ll know that people actually respect the fallen economy and the need to hold a job. Won’t have a bottom until we get that.

  124. 124
    Dman Says:

    Pack, the idea that Geithner’s mood swings are moving market is scary, but probably right. He seems to me to be a complete nonentity, but Obama put him in charge of the world economy. Or something.

    The banks need more money: well, I guess a bank without money is like a pub without beer.

  125. 125
    kyleandy Says:

    eagle – re 98 did u find those on fidelity’s web site or u talk to them? thks

  126. 126
    benbobby Says:

    Zman,what is the near term refinery utilization outlook?tks

  127. 127
    zman Says:

    ZTRADE: $10KP

    Added 10 GMXR $7.50 April Calls (GUFDU) for $0.45 with the stock off about 17% at $6.40. This is another bank redetermination fear play in the E&P sector.

  128. 128
    zman Says:

    re 126. It should move up seasonally into at least the mid 80%s from the current 82%. Timeline on that is probably 4 to 6 weeks, 8 if they drag their feet which isn’t out of the question; we’re seeing some West and East Coast restarts following the maintenance turn season now.

  129. 129
    john11 Says:

    kyleandy, re 125/98 called fidelity, they can’t get any of those bonds, too thin, also basically an institutional availability only, quite illiquid is what they said.

  130. 130
    john11 Says:

    btw..nothing at etrade either.

  131. 131
    kyleandy Says:

    john – ty

  132. 132
    kyleandy Says:

    john – just called bank of amer they will call me back if they can find.

  133. 133
    zman Says:

    ZTRADE: $10KP

    Added (3) SWN $30 April Calls (SWNDF) for $2.15 with the stock at $30.40. I continue to hold the $35 calls as well.

  134. 134
    zman Says:

    KRU files Bk

  135. 135
    zman Says:


  136. 136
    BirdsofpreyRcool Says:

    Back for close… still rather ugly.

    PQ bonds. There are only $150mm bonds outstanding… so, a pretty small issue. But they do trade. I see Knight Libertas LLC quoting a two-sided market today at 60-64. Of the brokers mentioned (and checked) above, I would think BAC has the best shot at coming up with some. Their fixed income desk is pretty active.

    Also, give the sheeelacking the banks are taking today, agree that it’s not just GM that is driving the mrkt today. Geithner needs to be more careful with what he says… unless this is what he intended. Mrkt is too fragile.

  137. 137
    zman Says:

    BOP – agreed re G-man speaking. He’s had to back peddle a couple of times now after speaking off the cuff to a world that examines i’s and t’s.

  138. 138
    BirdsofpreyRcool Says:

    z — Timmy’s learning curve is proving to be very painful to me. I wish he would hurry up and graduate from Kindergarten. First Grade is going to feel like a Grown Up, comparitively.

  139. 139
    zman Says:

    Call me an optimist but I think he understands the problem. He’s not a delivery guy though and should maybe be the deputy crafting the plans in the shadows.

  140. 140
    BirdsofpreyRcool Says:

    z — oh, yes. Timmy does indeed get it. You don’t get to be the Fed Gov. of NY without having some financial smarts (unlike the Dallas and St Louis governors, but I digress). But, as so much of “financial services/banking” is based on confidence in the system, Timmy should know better. He is showing himself to be a much more of a newbie at this, than I thought he would be.

  141. 141
    isleworth Says:

    Z – What do you make of 3/10 GMXR Press Release re letter from Centennial Energy Partners asking them to evaluate strategic alternatives?

  142. 142
    zman Says:

    Isle – Not much. Its their biggest shareholder, he’s not pleased with the stock being down so much. They said they’d look into it. Happens every time we have a down cycle: fund managers who think they can do a better job than the management that was at least good enough to get them to make it their largest position.

  143. 143
    zman Says:


    Centenial does this for a living:


  144. 144
    Dman Says:

    Discussion of NG supply-demand based on Johnson Rice & Co analysis:


  145. 145
    PackMan Says:

    Z – 122 — no did not see that; will go and look.

  146. 146
    PackMan Says:

    DMan – I guess I have learned to listen for what I view as important nuggets of info.

    I remember in 2007 Paulson first talking about how the economy can withstand stress events. That was a statement where one should have sold everything and went short.

    Same when Ben testified before Congress and volunteered that “banks will fail” the first time he uttered those words.

    And then Geithner’s non plan in Feb.

    So, I view the Friday and weekend revelations to be possibly in the same mode.

    The market doesn’t often react immediately; but it does react, and we saw that today, even though we didn’t see it on Friday.

  147. 147
    PackMan Says:

    BOP, I have to assume that Timmy knew what he was saying and why. We will find out eventually.

  148. 148
    PackMan Says:

    Z – re: wyoming/zero hedge thing.

    I saw that over the weekend; don’t know what to make of it frankly.

  149. 149
    zman Says:

    Packman – I hear ya, sounds scary but its really not my game. I stick closer to the energy patch where we all burned the last black box (Enron) at the stake. The banks and insurance companies it turns out are all black boxes. Saw ABC nightly news point the finger at the one guy who they say buried AIG. Guy made something like a trillion worth of bad bets, said that he could not imagine a scenario where AIG would lose a buck on any of the junk he was buying…so he gets forced out but walks with $300 mm personally.

  150. 150
    PackMan Says:

    Here is another example Z, just on the wires today; When guys like Mack say things like this, you just have to say to yourself “uh oh”.

    March 30 (Bloomberg) — Morgan Stanley Chief Executive Officer John Mack told employees at Morgan Stanley and Citigroup Inc.’s Smith Barney unit that 2009 will be a “difficult year” and that profitability isn’t near the bank’s long-term targets.

    This year, “even though flows of business are good, is nowhere near what we need on a long-term basis,” Mack, 64, said on an internal conference call today with the brokers. The year “will be a difficult year for all of our firms, mainly because of some of the legacy positions that we continue to have, and they drag on all of us.”

    Mack, among bank chief executive officers who met with President Barack Obama last week, said he told people at the White House meeting that now isn’t the time to return money the banks got in October from the Treasury. New York-based Morgan Stanley received $10 billion from the U.S. Troubled Asset Relief Program.

    “As much as we’d like to give the money back and just focus on not having government involvement, being totally a public entity, we think and I think that it’s the wrong time to do it now,” he said on the call. “The reason that money was put in the hands of these banks is to help get us through this very difficult time in financial markets and a very difficult time in the economy.”

  151. 151
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