21
Apr

Tuesday Morning – MLP Recap + HK Operations Update + More …

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In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Stuff We Care About Today - MLP Recap, HK 1Q09 Operations Update
  4. Overnight Mailbag - Gas vs Coal
  5. Earnings Watch - BJS
  6. Odds & Ends

Holdings Watch:

  • Added HK May $24 Calls (HKEO) for $0.85 with the stock at $21.75. I think they are going to have an operations update with new Haynesville and Eagle Ford Shale completions any day now. They speak at IPAA today.

Commodity Watch:

Crude oil tumbled $4.45 or 10% to close at $45.88 yesterday finding no support from a weak equity market and the dollar which broke out of a three week long range to close up nearly a percent on the day. The May crude contract expires today and June closed at $48.51 yesterday. This morning oil is trading close to $45.

Natural gas fell $0.19 to close at $3.54 yesterday, importantly holding the $3.50 level. This morning gas is trading just under $3.50.

  • Imports watch:
    • LNG at 1.4 Bcfgpd, that's the highest we've seen in over a year, up from 1.1 last week. This does not really seem to be impact gas much today as oil is off 8% vs NG off 4%. Still, it may be the beginning of the expected ramp in LNG imports.
    • Canadian piped volumes increased to 7.4 Bcfgpd from 6.7 last week but were still of 0.9 Bcfgpd shy of year ago levels.

 

Stuff We Care About Today:

MLP Review and Current Thinking:

Often it's helpful to go back and see what we were thinking months ago when thinking about what to do now about a name. It's also helpful when I'm feeling lazy and don't want to write a lot. I wrote the following stuff in blue italics abot the Upstream MLPs back on October 21, 2008, but its worth repeating and plus, we can go back and see how I did. I've inserted new comments in bold red.

Ok, I put together some thoughts on a group of MLP’s (Master Limited Partnerships) at the request of a number of subscribers. There are 50 or so U.S. MLP’s out there in various parts of the energy business but I limited myself to the upstream (E&P) variety as pipelines and midstream (processing) operations are not my normal ballywick. I’m very comfortable dissecting E&Ps and I took a list of 10 and weeded that down to six I might see investing in for the long term. [since I wrote the original article I went long LINE at $13.52 on March 5, 2009].

Where we are in the cycle. The MLP’s have been to hedge funds what money markets are to you and me, a place to deposit cash, only with a much better yield and a fairly predictable and safe one as long as commodity prices are flat or rising. Recently, hedge fund redemptions have pounded the shares. There is actually a MLP index, the Alerian MLP Index, ticker AMZ, which peaked at about 342 in mid July 2008 and hit a low of 151 on October 10 before closing at 220 yesterday. [ as of 4/20 the AMZ was at 200.64] So its volatile. Look at how the index performed during and following the last few market implosions relative to the S&P500: (the index is blue and the S&P is yellow if you can’t make it out in the chart’s legend)

 

The names are beaten down and yields appear high. One thing I think many investors do when the sector is beaten down is pick the names with the highest yields. I like to say sometimes things are "cheap for a reason." Take QELP, which is not in following tables despite having the highest current yield at 30%. They’ve got lawsuits, they got financial irregularities, a complex structure to begin with and a CEO who quit when people started asking questions. But that’s the highest yield I could find. [QELP closed at $6.50 on October 21st and at $1.24 yesterday (4/20) and their yield is now 0% so I stand by my thinking there].

Other metrics are helpful. The industry employs a few metrics in addtion to the ones normally looked at by E&P investors.

  • Total Debt / Adjusted EBITDA. You want this one to be low as its essentially a measure of debt in relation to your annual cash flow.
  • Adjusted EBITDA /  Cash Interest Expense. This one you want to be high as its basically a coverage ratio for your ability to make your interest payments. Everyone in the group below can easily make their interest payments but there are some MLP’s in the non-upstream names which come closer to having interest coverage problems.
  • Yield…This Is Not Your Father’s Rate of Return. With the stocks pounded down by 1/3 to 1/2 from their peak cycle highs yields are still high. But the next ratio is most important in determining whether or not that distribution (like a dividend but different for tax purposes), and therefore their yield remains in place.
  • Distribution Coverage Ratio. This is the ratio of distributable cash flow vs the company’s actual distribution. The higher the ratio the more room the company has if things turn temporarily lower to keep the distribution up. 
  • LOE. Ok, lease operating expense is standard for E&Ps and I think of high importance when looking at upstream MLP’s. The lower the better.
  • Reserve Life: Also standard for the E&P, this is a measure of reserves to production (measured in years). The higher this is, the lower your decline rate. Most upstream MLP’s focus on cash cow type properties so a reserve life of 20 is not uncommon. Shorter reserve life properties would mean the firm would need not only maintenance capital but acquisition capital shortly just to remain in business. All of the firms in the tables below have long reserve lives.

If I had to pick favorites, I’d go with size. Probably (LINE) first, which operates a majority of its properties and has a strong management team which impressed at IPAA despite the downtrodden environment, then (ATN) who is largely Marcellus focused and then (EVEP). Even after  the modest recovery of the last few days these names are yielding 17%, 13%, 17% respectively with some of the better distribution coverage ratios in the business ahd better than average operating expesenes, especially (ATN). [I dodged two of three bullets on the list as you can see below].

Uncertain times at least call for certainty on your yield.

  • BBEP "temporarily" canned their distribution yesterday. Too much debt, not enough hedges.
  • My preference has been and continues to be Linn Energy (LINE) -

    • the largest upstream MLP and one of the largest E&Ps by production in the U.S.
    • 100% hedged for gas and oil volumes 2009 through 2011
    • Peers average 79% of 2009 and 68% of 2010 hedged.
    • Distribution is "safe" for the next 2 years if they keep their hedges in place, with a minimalist capital program consisting primarily of workovers, not designed to grow production at current prices but instead to help stave off declines from their long lived asset base.

HK 1Q09 Operations Update:

  • 1Q09 Production Released:
    • 412 MMcfepd vs guidance of 400 to 410 MMcfepd. Under promise, Over deliver.
    • This is up 14% from the 361 MMcfepd of 4Q08 which itself was up 15% from 3Q08 ...
    • ... and up a whopping 58% from1Q08.
  • Haynesville Shale Update:
    • 8 rigs running (down from 11 operated at year end); dropping spudder rigs to keep activity from ramping
    • Spud to first sales of 80 days, expected to go to 75 average for 2009
    • 28 operated wells completed to date in the play
    • Average production of 18 MMcfepd gross excluding to mechanically limited wells
    • Plan for 2009 is to step out from early hunting grounds with wells out 40 miles east-west and north-south in Louisiana (Caddo, Bossier, Red River, DeSoto parishes targetted).
    • In east Texas they are JV'd with (EOG), very encouraged by first well - not yet completed.
    • Expect takeaway capacity of 850 MMcfepd in 2009.
    • "quietly, surgically acquiring leasehold" - not a big program right now.
  • Eagle Ford Shale Update:
    • 2 rigs running
    • 2 wells completed during the (4 so far to date)
      • rates of 6.1 MMcfepd and 9.3 MMcfepd - not out of line with the first wells, condensate rich(getting better than expected realizations here)
    • declines appear shallower than modeled or seen in other shale plays
    • high gas content, porosity, permeability in at least part of the play (still only a handful of wells drilled)
    • bigger EUR than originally thought - bumping it to 5.5 Bcfe with a range 4 to 7 Bcfe
    • quicker to drill - a five well has been drilled but not yet completed - 22 days, down from 53 day average for the first 3 wells (no pilot hole, no intermediate casing string). Past comment here was that they expected the wells to take 50 days to drill. This is a pretty remarkable change as opposed to the usual learning curve and cost reduction regime (don't think they will do all of them in 20 days but still, far less than 50 can be expected). Assumption is now 30 to 35 days spud to spud.
    • current well cost of $4.5 to $5.5 mm (sub $1/Mcfe finding costs on the average well...nice)
    • Leasing continues with 160,000 acres now held
  • Fayetteville Shale Update:
    •  Operating 2 rigs
    • 27 well backlog due to delay of the Boardwalk pipeline completion. So they beat the top end of guidance without these wells ....
    • ... and now get to take advantage of frac costs to complete the wells that have fallen 60%. Nice.
  • Capex Updated:
    • Budget maintained at $1 B. Thanks HK for not raising this due to the Eagle success.
      • they do see increased activity in the Eagle Ford but that cost reductions will stretch their dollars.
  • Guidance:
    • 2Q09 of 420 to 430 MMcfepd. Exit rate for 1Q09 not provided but may get at IPAA this afternnoon.
    • 2009: reiterated at 40% growth which equates roughly to 428 MMcfepd.
    • No plan to curtail production. Would require a $3 to $4 two year strip
  • Conference Call: they held one early this morning.

 

Overnight Emailbag:

What is average breakeven these days for most NG producers? ~ Tough to put an average on it as you have different economics in each major basin. But at a $3.50 per MMBtu Henry Hub gas price suffice it to say that most places are not economic given the differential to the wellhead. Parts of the Haynesville are as are areas in the Marcellus. Most everywhere else new wells are marginal at current prices without further declines in operating costs.

Also at what price level would you expect the electric utilities make a switch to NG? Good question. Short answer, higher than here. Utilities with coal and gas-fired generation in the portfolio have been substituting some gas for coal in the last two months as gas became cheap on the Btu basis in some areas. Like with refining and the mix of gasoline vs distillates where it is not simply a switch they tthrow to produce gasoline in the summer and heating oil in the winter but more of a gradual shift with more focus on one than the other, so too is the generation landscape, with more gas being used as gas becomes cheap to coal.

Taking a look at the following table and notes will help illustrate my point:

  • The prices listed are close to current levels for 1 MMBtu of natural gas and for 1 ton of eastern bituminous coal converted into MMBTU.
  • The newer gas fired plants use less heat content to produce a kilowatt hour (KWh) as indicated by their more efficient (lower) heat rates. The newest of these plants can approach 7,000 Btu/KWh with some doing below that level. To keep it simple, I've shown values for 7,000 and 7,500 which is sort of the benchmark for gas fired turbines installed in the last 10 years.
  • The older coal fired population of generation facilities are less efficience, with the average plant running between 10,500 and 11,500 Btu/KWh (so it takes more BTUs of coal to produce a KWh).
  • We'll forget transportation costs and the cost to the coal fired operator of purchasing SOx and NOx credits to keep it simple, to just reflect the price of the fuel. Note the cost per KWh in the boxed areas of the table are lower for gas than coal. 
  • Note also that something close to 20% of the U.S. coal fired population (where 50% of our generation comes from) has heat rates in excess fo 12,500 BTU/Kwh.
  • This is why I don't cringe, given where prices are now, when I hear the forecasts calling for a warmer summer. There is plenty of installed, gas-fired capacity which will take generation share from coal hand over fist at these prices.

Earnings Watch:

BJS Misses Lowered Expectations

  • Revenues of $1.05 vs $1.14 B expected
  • EPS of $0.15 vs $0.22 expected
  • Comments: says international customers cut rigs faster than expected during the quarter,
  • Conference Call: 10 am est

Revised Earnings Calendar:

 

Odds & Ends

Analyst Watch: Goldman raises the U.S. Oil Service group to Attractive from Neutral. JPM cut HAL to Neutral but I think they were the only ones. Citi raised HAL target to $23 from $20. Goldman cut (DO) to sell and (SLB) and (RIG) to Neutral.

145 Responses to “Tuesday Morning – MLP Recap + HK Operations Update + More …”

  1. 1
    Bob Says:

    Z-NBR website still says earnings AMC today with cc Wed 10 CDT

  2. 2
    zman Says:

    Ok thanks.

  3. 3
    zman Says:

    Good conference call this morning from HK regarding their operations update. Notes are incorporated in the post. They did add that its early in the year to be talking about raising production targets but that the 40% growth target is probably conservative.

  4. 4
    bill Says:

    links to taodays ipaa webxasts

    http://www.vcall.com/CustomEvent/conferences/IPAA/20090420/agenda.html

  5. 5
    Sambone Says:

    By Lananh Nguyen
    Of DOW JONES NEWSWIRES

    LONDON (Dow Jones)–Crude oil futures were slightly higher in London Tuesday,
    supported by modest gains for European equities and a weaker dollar.
    “We are seeing a retracement of (Monday’s downward) move…it’s mainly a
    recovery from being hit so hard,” an oil broker in London said.
    At 1128 GMT, the front-month June Brent contract on London’s ICE futures
    exchange was up $0.45 at $50.31 a barrel.
    The front-month May contract on the New York Mercantile Exchange was trading
    $0.11 higher at $45.99 a barrel ahead of its expiry later Tuesday. The more
    actively traded June contract was up $0.12 at $48.63 a barrel.
    The ICE’s gasoil contract for May delivery was up $2.75 at $433.75 a metric
    ton, while Nymex gasoline for May delivery was down 94 points at 140.25 cents a
    gallon.
    The market remained cautious Tuesday after earlier price gains dissipated,
    with sentiment shaken by Monday’s sharp decline triggered by equities losses
    and a surging dollar.
    “We suspect the path of least resistance to be somewhat lower still,” said
    Edward Meir, an analyst at MF Global in New York.
    Monday’s selloff, during which the outgoing May Nymex contract shed nearly
    10%, refocused market attention on the sluggish global economy and its negative
    implications for oil demand.
    “Fundamentals have been overwhelmingly and consistently bearish,” London-based
    brokerage PVM Oil Associates said in a note. Recent price action also indicated
    the market couldn’t sustain a rally given ample supplies and weak demand, some
    analysts said.
    “Oil fundamentals are not tight enough to carry crude above $55 a barrel and
    as soon as the combined support of strong equities and weak dollar goes missing
    then crude oil starts to move back to the lower band of the trading range,”
    said Olivier Jakob, managing director of Switzerland-based consultancy
    Petromatrix.
    In the absence of fresh fundamental data, crude markets will continue to track
    the dollar and equities, said Andrey Kryuchenkov, vice president of commodities
    research at VTB Capital in London. He expects Brent crude to stay stuck in the
    lower end of the range between $48 to $54 a barrel.
    Technical charts were also cited as another bearish influence on crude prices.
    “We’ve made the move lower, and the odds are that the correction isn’t over
    yet,” PVM said, citing near-term moving averages and stochastic indicators for
    oil and gasoline as negative signals.
    Meanwhile, technical analysts at Barclays Capital pointed to a “double top”
    chart pattern for June Nymex crude, which suggests a move lower towards $42 a
    barrel.
    If prices don’t break above $52.02 a barrel, “bounces should be seen as an
    opportunity to go short,” Barclays said.

    -By Lananh Nguyen, Dow Jones Newswires
    Dow Jones Newswires
    04-21-09 0743ET

  6. 6
    Sambone Says:

    8:56 am EST

    Nymex Crude Down On Economic Fears, Inventories

    Dow Jones Newswires
    From MARKET TALK:
    [Dow Jones] Nymex crude is down further following Monday’s near-10% slide, as concerns about the health of the US economy come to the fore. Expectations for yet another build in crude oil inventories — currently at 18-year highs — continues to weigh on prices. Also, the expiry of the front-month May contract today could add further selling pressure. Nymex May crude -57c at $45.31/bbl.

  7. 7
    zman Says:

    RBC raises HAL target to 22 from 17, stays sector perf.

    JPM cuts HAL to neutral

    Citi raises target to 23 from 20, stays Buy

    Goldman raises HAL to Buy

  8. 8
    zman Says:

    Goldman also raising ESV to Buy due to its jackup exposure. This same exposure is why Goldman and others are lowering numbers and ratings on the deepwater drillers. Lots of contrarian calls being made in oil service these days.

  9. 9
    zman Says:

    Thanks Bill for #4, very helpful one stop shop for the IPAA webcasts.

    Welcome back Sam.

  10. 10
    Sambone Says:

    Uncle Phil is bullish on crude, bearish on NG.

    http://www.321energy.com/reports/flynn/current.html

  11. 11
    elduque Says:

    And now for some good news!!

    BDI +60 1797

  12. 12
    BirdsofpreyRcool Says:

    Back to more bad news — Head Trader suggests being “nimble” this morning and selling any rallies.

    Investement Grade debt index backed up to 196 (it tightened to 176 just last friday)

    High Yield debt index down to 74 (it was as high as 76+ on friday)

    Bank statements have certainly added to the economic uncertainty (but who didn’t know that the consumer and commercial real estate were bad and getting worse). However, the govt’s treatment of the results of the “bank stress test” has really gotten the market tied up in knots (who is going to release the info? how? what will it mean?).

    Almost feels like one should step to the curb, with Congress back in town and the bank stress test results pending.

  13. 13
    choices Says:

    I am not a big fan of Kitco “charts” but this link does give a summary of what is occurring at any given time-altho no energy-related charts. Look at the Canadian dollar-not good at all.

    http://www.nowandfutures.com/current.html

  14. 14
    isleworth Says:

    Thanks Z for the very thorough and thoughtful answers 🙂

  15. 15
    BirdsofpreyRcool Says:

    Credit trying to rally a bit, off the low open.

    IG 194.5 bps

  16. 16
    PackMan Says:

    Looks like Goldman trumps JP Morgan on HAL this morning (Buy vs Hold).

  17. 17
    BirdsofpreyRcool Says:

    Remarks by Geithner seem to be calming the financials. He doesn’t think he will need any more TARP money. Market likes this. Going green now.

    Head Trader still thinks you sell this rally… but no technical analysis to back him up this morning.

  18. 18
    zman Says:

    Pack – yep, the love in with service continues. Its early though.

    HK off with the group as if no update had been provided. Thinking people wanted bigger Eagle Ford wells…its early there too.

  19. 19
    BirdsofpreyRcool Says:

    KOG — stock keeps acting like someone is consistantly accumulating. Still no firm date for operational update. But, KOG presented at IPAA yesterday and it looks like they did a goo job this time around.

    Also, pretty widely known that KOG is going to have to “do something” here. Too small to continue to stand on it’s own… will either partner or sell out to someone larger. KOG was wise not to take on debt, tho. So, it’s not a fire-sale. But as KOG is checking out potential dance partners, seems like more and more people are getting an inside look at the assets… and liking what they see. Without knowing what the prospect for the Bakken/TFS is under the company’s acreage yet, the stock is fully-valued here. But, if their recent wells prove productive + Peak Energy’s well in the middle of KOG’s acreage is productive for TFS, expect KOG to sell-out/merge at $1.25+

    Choices, was it you who bought those shares at 27 cents?

  20. 20
    choices Says:

    BOP-KOG-unfortunately, no.

  21. 21
    BirdsofpreyRcool Says:

    Sorry, choices… didn’t mean to put you on the spot. I thought it was you. Can’t recall who did then. Just wondering if they still held on. It’s been a rough ride.

  22. 22
    zman Says:

    Nice trade there BOP!

  23. 23
    zman Says:

    Isle – re 14, that coal vs gas question took a little more thought/math than I could put in a comment. You’ll notice I didn’t quantify the amount of gas demand such a shift would yield. It is a “significant” amount but that kind of modeling is tedious and would only yield a wide range of possibilities.

  24. 24
    BirdsofpreyRcool Says:

    z — it ain’t over til it’s over. And the ride has been a lot rougher than I imagined… so, don’t deserve kudos. But thanks.

    If Lynn follows through and sells the company (would expect a stock-for-stock deal, as he wants to hold onto the upside) and the wells on the Rez IP at 1k+, then I will consider it a qualitifed success. So, ain’t over yet.

  25. 25
    BirdsofpreyRcool Says:

    yikes… make that “qualified success.”

  26. 26
    bill Says:

    a telephonic replay of petrohawks update can be heard at

    800-642-1687

    id 99699880

  27. 27
    zman Says:

    … and they will be speaking at IPAA in about 15 minutes.

  28. 28
    zman Says:

    Service only part of energy and one of the few parts of the market up today. I figure it runs for a little longer, being driven by brokerage houses trying to call a bottom. My quick and obviously mistaken thoughts:

    Prices flat to down mean less activity. HAL said as much.

    2Q – 4Q will be worse than 1Q for the industry as pricing declines impact full quarter results.

    Late year to see cost saving impact (this is the one bright spot).

    Wells being drilled continue to see delayed completions due to prices (see HK today in the Fayetteville for instance).

    SLB caught a downgrade by Goldman today and is still up. That’s not normal.

  29. 29
    zman Says:

    HK call about to start:

    http://www.vcall.com/CustomEvent/conferences/IPAA/20090420/agenda.html

  30. 30
    zman Says:

    BJS – that was an ugly quarter…stock trading green.

  31. 31
    zman Says:

    HK IPAA Presentation (just the adds to my notes this morning)

    – Haynesville lease operating expense is less than a dime. Total company was $0.43 for 4Q08 which is very low for their peer group. Guidance today was unchanged on operating costs from the 4Q release.

    – Haynesville – gross operated production of 240 MMcfepd as of 4/15. This was 160 MMcfepd in early February.

    – Average well 18 MMcfepd

    – Expect to drill 6 wells per month (75 to 80 gross wells in 2009 – unchanged)

    – probably drill as many non-operated wells

    Eagle Ford:

    -economics of the play “challenge the Haynesville or any other play in the U.S.”

    – dry gas in the SW to high condensate in the NE; high BTU gas = good realizations.

    – 2 rigs in program, 2 wells drilling now

  32. 32
    choices Says:

    Z-What is your of SU-not sure yet why crude was so weak yesterday and somewhat weak today but IF crude stabilizes, SU may benefit.

  33. 33
    zman Says:

    Will listen to PXD next at 10:55 est, very interesting story, not drilling a lot this year due to prices, they also have Eagle Ford, as well as their w. Texas oil, rockies gas plays and more.

  34. 34
    reefguy Says:

    31- Eagleford notes will result in a TXCO transaction

  35. 35
    zman Says:

    SU is a bit muddled with the recent acquisition, they announce on Thursday, probably not going to step in front of that but the stock probably moves with crude.

    Speaking of crude, we have contract expiry today which makes for exaggerated swings in the days before, dollar broke out which didn’t help yesterday but is backfilling a bit today. TA people all see crude down to 42 to 40 on this move now that it has fallen through $50. Amazing how that works. I think crude will get a bounce the first time API reports a smaller than expected build. Opportunity for that tonight.

  36. 36
    zman Says:

    Reef – agreed, they gotta sell. Wonder if APC just gobbles them up to boost working interest.

  37. 37
    zman Says:

    Choices – I’d probably be more inclined to take a Bakken player on right now for an oil move. EOG, CLR, WLL. Lot of odd-ish moves with names like BRY up 3x in last month, not willing to chase stuff like that.

  38. 38
    zman Says:

    PXD – about to frac first Eagle Ford shale well.

    $500 to $1000 per acre now. HK got their position for under $150 per acre.

    PXD says 15 to 20 companies now drilling here.

  39. 39
    zman Says:

    Another small one that will be drilling in the Eagle Ford is ROSE, speaks later at IPAA today.

  40. 40
    bill Says:

    55 minutes until chk

    i can hardly wait

  41. 41
    zman Says:

    ROSE also picked up a strong buy from Tristone today. Horrible options trader, stock probably worth a nibble, went over them briefly a few days back in the Eagle Ford piece.

  42. 42
    BirdsofpreyRcool Says:

    Head Trader is scratching his head over this rally. But, he says “don’t look a gift horse in the mouth.” Not really sure what he means by that…

    Anyway, this all seems to have started with Tim Geithner’s comments about the banks not needing any additional TARP money from Congress. Good thing. Don’t think they would get it.

    HT still thinks one should sell this rally… but he also points out that “stocks are crazy.” Not a lot of helpful trading info in that message, I am afraid.

    Just passing along comments.

  43. 43
    zman Says:

    HK now green, market lifting them. Maybe they were more impressive during their breakout session.

  44. 44
    BirdsofpreyRcool Says:

    CAT CEO saying “banking industry stablizing.”

  45. 45
    bill Says:

    DMAN WHERES DMAN???

    Scientist Says Too Much Sex Leads to Global Warming

    By Wesley J. Smith , Senior Fellow in Bioethics

    A famous global warming scientist issued an alarming study today finding that too much sex is a major cause of global warming. “All that heavy breathing releases tons of carbon dioxide into the atmosphere,” Dr. Raymond Sunburn, the head of the Aspen/Davos Collective’s think tank, Keep Earth Cool, said today. Sunburn, who earned the world’s first Ph.D. in biospheric computer modeling studies, added, “Our computer models show that if people don’t reduce their rate of intercourse and heavy petting to, at most, once a month, the polar bears will become extinct by 2050.”

    When asked what people should do who get “pent up,” the ironically named Dr. Sunburn said, “Take a cold shower. In that way, you both avoid using more than your fair share of exhales and you save the earth by heating less water. There’s no question about it. Adopting a monastic lifestyle is good for the planet.”

    That yarn could get me an anti-global warming government study grant. Besides, it is about as sensible as the real scientists who claim that fat people are endangering the planet. From the story:

    Scientists warned that the increase in big-eaters means more food production–a major cause of CO2 gas emissions warming the planet. Overweight people are also more likely to drive, adding to environmental damage. Dr Phil Edwards, of the London School of Hygiene and Tropical Medicine, said: “Moving about in a heavy body is like driving in a gas guzzler.” Each fat person is said to be responsible for emitting a tonne more of climate-warming carbon dioxide per year than a thin one.

  46. 46
    zman Says:

    BOP – sounds like he means sell it.

    I mentioned ROSE to you the other day in reference to the Eagle Ford, they also have Alberta Bakken acreage. Interesting little name. Cheap on reserves, balance sheet not out of whack, don’t know management but I’ll be taking a harder look for a stock purchase.

  47. 47
    BirdsofpreyRcool Says:

    KOG — hmmmm…. must of been looking at an old IPAA schedule. Turns out, they present today at 3:45. Right before GMXR. Should be worth a listen.

    http://www.vcall.com/CustomEvent/conferences/IPAA/20090420/agenda.html

  48. 48
    BirdsofpreyRcool Says:

    z — re 46… yes. That is what he means. But, he seems to lack conviction about it. Head scratching and all….

  49. 49
    zman Says:

    I hear ya, Gman mis-speaks in front of the TARP oversight panel and you can have 100 to 200 point swings.

  50. 50
    jat Says:

    Z,

    Looking back at Goldman’s note, the last time I remember them being this bullish was when they increased SLB to a Conviction Buy on February 9th. Stock closed at $48.00 then, the OIH at $88.00. Stocks were also going to look through a tough then as well. It’s always helpful to put it in perspective.

  51. 51
    Sambone Says:

    By Steve Gelsi

    A Halliburton Co. downgrade and a steep earnings drop reported by BJ Services
    provided little cheer for beaten-down oil-service shares Tuesday.
    After energy stocks suffered through one of the worst sell-offs all year on
    Monday, J.P. Morgan cut its rating on Halliburton (HAL) to neutral from
    overweight, saying a recent run-up in its stock price wasn’t justified based on
    the company’s latest quarterly results.
    Adding to the gloom, Goldman Sachs downgraded Transocean (RIG), Pride
    International (PDE) and Schlumberger (SLB) to neutral from buy. However,
    Goldman also raised ratings on Halliburton and Weatherford International (WFT)
    to buy from neutral.
    While weekly rig counts from drill-bit maker Baker Hughes (BHI) have heralded
    a weak quarter for oil-service shares, the results coming in this week from
    major players have managed to match or surpass analysts’ diminished outlook.
    While most of the energy sector traded into the red, losses were less severe
    than on Monday amid flat trading both in commodities markets and in the broader
    equities market.
    Against this backdrop, the Amex Oil Index (XOI) fell 0.3% to 831.
    Components Exxon Mobil Corp. (XOM) and Chevron Corp. (CVX) lost 0.4% and 1%,
    respectively. Both oil majors are part of the 30-stock Dow Jones Industrial
    Average (DJI), which moved mostly in a narrow range in the early action.
    Meanwhile, the Amex Natural Gas Index (XNG) fell 0.9% to 363.
    Among major oil-service names, Schlumberger fell 0.7% ahead of its earnings
    update on Thursday. Nabors Industries (NBR) rose 4 cents to $13.46 ahead of its
    earnings update after the closing bell on Tuesday.
    J.P. Morgan analyst Michael LaMotte said Halliburton’s valuation remains
    “toppy” in light of its profit update given Monday.
    “Though Halliburton’s asset value multiples are still cyclically depressed, we
    believe they will not begin to re-expand meaningfully until earnings
    reaccelerate,” LaMotte said. “The timing of Halliburton’s earnings improvement
    … is likely to be hindered by the severity of pricing erosion in the North
    American pressure-pumping market and by the excess capacity overhang implied by
    a trough rig count of (about) 800 rigs.”
    Shares of Halliburton rose 20 cents to $18.99.
    Meanwhile, BJ Services (BJS) saw its shares fall 4% to $11.50.
    The company said its profit fell by two-thirds. “Lower demand for energy
    triggered by the global economic recession led to a precipitous decline in
    drilling activity this quarter, particularly in North America,” BJ Services
    said.
    Among energy stocks in the spotlight, Petrohawk Energy Corp. (HK) said
    first-quarter production increased 58% from a year earlier to 412 million cubic
    feet of natural gas equivalent per day. Shares fell 3% to $19.80.
    Petrohawk also said it will maintain its previously stated $1 billion capital
    budget for this year and reiterated its target of generating 40% year-over-year
    production growth for 2009.

    -Steve Gelsi
    Dow Jones Newswires
    04-21-09 1037ET

  52. 52
    zman Says:

    Jat – thanks, their axe got dull sometime in 2008.

  53. 53
    zman Says:

    Re 51 – something must be wrong with screens. Green must mean red. Gloom in the service space? What gloom? Not in the stocks? Maybe he means the fundamentals? But who cares about those?

  54. 54
    john11 Says:

    VNR responded very well to their dividend declaration today, LINE might do so as well when they announce theirs anyday now.

  55. 55
    zman Says:

    Thanks J

    Missed the NFX call as I’d like to see them pull back a little more, will go back and listen as they caught an immediate rally from the beginning of their presentation. Stock remains cheap.

  56. 56
    BirdsofpreyRcool Says:

    U.S. Stocks Advance as Geithner Says Banks Have Enough Cash
    2009-04-21 15:30:11.227 GMT

    By Rita Nazareth
    April 21 (Bloomberg) — U.S. stocks advanced, erasing an earlier slide, after Treasury Secretary Timothy Geithner said the “vast majority” of the nation’s banks have more capital than needed.
    JPMorgan Chase & Co. and Wells Fargo & Co. rallied more than 5 percent, helping financial shares in the Standard & Poor’s 500 Index reverse a 4.1 percent drop and lead the market higher. Yahoo! Inc. added 5.7 percent, leading an advance in technology companies, on a Wall Street Journal report that it’s in talks about an advertising partnership with Microsoft Corp.
    The Standard & Poor’s 500 Index rose 0.9 percent to 840.1 at 11:26 a.m. in New York after dropping as much as 0.7 percent earlier. The Dow Jones Industrial Average increased 58.54 points, or 0.8 percent, to 7,900.27. The Nasdaq Composite Index climbed 1.4 percent to 1,631.02.
    “It’s coming directly out of Washington, Geithner’s testimony,” said Peter Kenny, a managing director of institutional sales at Knight Equity Markets in Jersey City, New Jersey. “He’s made clear that most of these banks have more than adequate capital. It means that we’re moving further down the road here, with healing the financial system and getting it back on track.”
    The market’s earlier retreat came as companies from Bank of New York Mellon Corp. to Caterpillar Inc. posted earnings or forecasts that trailed analysts’ estimates.
    Renewed concern that credit losses may worsen sent the S&P 500 tumbling the most in seven weeks yesterday. The index surged
    29 percent from a 12-year low on March 9 through the end of last week as government efforts to fix the financial system and revive economic growth fueled speculation the first global recession since World War II will end.

    Yahoo Rallies

    Yahoo surged 78 cents to $14.44. The owner of the second- ranked U.S. search engine and Microsoft Corp. are in talks about a possible search and advertising partnership are being described as “hot and heavy”, the Wall Street Journal’s Boomtown reported, citing a person close to the situation.
    Emulex Corp. surged 45 percent to $9.57. Broadcom Corp.
    offered to purchase the maker of components for data storage devices for $9.25 a share, or about $764 million, to add components that help computers store data.

  57. 57
    zman Says:

    Listening to PQ – nothing new so far.

  58. 58
    choices Says:

    Bill, re: #45 I am not taking any sides on this debate because frankly I do not know but the attached link may “add” to the discussion heh (you need sound)

    http://www.washingtonpost.com/wp-dyn/content/opinions/anntelnaes/?hpid=opinionsbox1

  59. 59
    zman Says:

    Oil up 30 cents front month, less so out months. Expiration volatility, some Nigerian influence and Iran talking OPEC cuts next month again.

  60. 60
    bill Says:

    choices lol ty for that

    some eu countries are already taxing cow flatuences and it was brought up a few months ago

    $75 per cow– naturally the farm states didnt like it

    http://westinstenv.org/news/2008/11/20/epa-proposes-cow-fart-tax/

  61. 61
    zman Says:

    Aubrey speech starting, says no breakout for CHK as they have to leave the conference early.

  62. 62
    bill Says:

    no slides either

  63. 63
    choices Says:

    Funny, Bill-I will send that up to my brother-he has a lot of cows/steers up in Montana-he has a fairly cynical view of the Goobermnt anyway.

  64. 64
    bill Says:

    chk hedges are worth 1.5 billion

  65. 65
    bill Says:

    sounds like he is briefing the old slides ie the haves and have nots

  66. 66
    choices Says:

    CRK getting a bid today-up over 6%.

  67. 67
    zman Says:

    Bill – yep, pretty standard stuff. Good macro view of why gas has to go back up. Basically rig count to low to maintain the conventional production which few talk about but which comprises about 85% of current U.S. production vs the 15% that come from the big shale plays and other non-conventional plays. Also, like his comment on an extra Bcfgpd of LNG being offset, not a lot of people talking that way.

  68. 68
    zman Says:

    Says steady state for production probably comes in the 1,200 to 1,400 gas rig activity level, certainly not 800 or 700 or 600 rigs.

  69. 69
    bill Says:

    am of chk skipped his cash flow projections and most of the financial stuff and went into a startegic discussion of the role ng plays for americas future

    when he broke in there was huge demand and no resources, now there is huge supply and not enough demand

    nothing new but it tells me his numbers will be coming down and they are still working on the “story”

  70. 70
    zman Says:

    Aubrey summed up with a Buy American feel good speech.

    Cars should be run on natural gas, produced from U.S. wells creating U.S. jobs. Says to ask you policy maker what their plan is for getting the U.S. off foreign oil, and if they don’t have one, that amounts to the status quo, which is continuing to run cars on foreign oil. Last 3 minutes of his time sounded like an ad for the Pickens Plan.

  71. 71
    zman Says:

    Aubrey said 6 to 9 months for a balanced gas market. That sounds about right. Its going to depend on the weather and the economy and how much of a delayed reaction there is in production as drilled but not yet completed wells are added to supply.

  72. 72
    zman Says:

    His numbers should be coming down some to account for the curtailments, usually takes consensus about a week to really reflect news like that. Then you’ve got the fact that analyst’s 2Q and 3Q gas price decks are probably going to be too high, which impacts the unhedged portion of his gas and may also be reflected in higher basis in some areas where their is regionally too much gas.

  73. 73
    zman Says:

    KOG up another 35%

  74. 74
    zman Says:

    SWN still down on day. Guessing the negative sentiment there is boardwalk pipeline comments from HK which will likely mean their realizations will be softer than expected for 1Q and into 2Q now.

  75. 75
    ram Says:

    My US Senators can’t get beyond the evil empire of XOM+CVX+COP+etc. because that what the prevailing thinking is of the lemmings. Therefore, if you increase energy output in the U.S., you expand the evil empire – jobs are not the issue. Although, since jobs are contracting by 500,000 per month, you would think it would be a good idea. But, it has to be “their” idea, so the politicians can be the hero.

  76. 76
    bill Says:

    spot prices

    http://intelligencepress.com/features/intcx/gas/

  77. 77
    zman Says:

    Ram – hear ya on that. Better to employ roughnecks hanging solar panels.

  78. 78
    zman Says:

    Current consensus on oil inventories

    crude up 2 mm barrels (this is in line with the five year average)
    gasoline down 0.5 mm
    distillates down 1.0 mm

  79. 79
    bill Says:

    kog volume lifting off too

    what the heck is going on

  80. 80
    zman Says:

    They’re probably talking about oil shows in their first two Bakken tests at IPAA.

  81. 81
    BirdsofpreyRcool Says:

    KOG — they talked about “oil over the shaker” on the pad #2 wells about 2 weeks ago. I hope this move is due to some sort of production news… either pending from KOG’s first well and/or the Peak Energy well drilled in the middle of KOG’s acreage. Also, everyone “knows” KOG has to “do something” with someone. They had better, anyway. Too small to stand on their own in current oil price environment.

  82. 82
    elduque Says:

    Z any thoughts re GMXR movement. Or is it just anticipation re the conference this afternoon.

  83. 83
    zman Says:

    Eld – I’m just watching it for now, no news out, could be news on two of their three recently drilled wells in the H.S. but I’ve been expecting them to hold off until early May on that. Maybe they are chatting with folks at the conference about their borrowing line. I expect that to be held flat (no reduction).

  84. 84
    bill Says:

    z

    who do you like better in bahken

    bexp or kog at todays prices

  85. 85
    zman Says:

    I’m told the HK presentation was attended by 200 to 300 , can’t tell that by the stock reaction to their operations update. I think patience pays there…they have removed catalyst for upside, true, but they have just “made their quarter” with the topline numbers, intact cost guidance and hedges, and numbers should go up around mid year when they boost full year production guidance. Apathy in the shares stems from the 4th E.F.S. well’s seemingly low gas production on the eastern side of the play. Those wells are stretched across a large distance, fact that they are willing to boost the EURs already should be telling, thick shale, high gas content, high BTU gas all good things.

  86. 86
    zman Says:

    Re 84

    EOG, CLR, WLL in that order.

    BEXP has balance sheet issues and needs to sell acreage.

    KOG is interesting as science projects go, valuation is probably fair given current oil prices. They are pretty much down to this and a Devonian play which is on hold. Its basically a two well show right now, waiting on completion, not sure if its is in buy the rumor sell the news with successful wells or not. Will be volatile for sure, just not sure which direction once the news is out.

  87. 87
    tater Says:

    Added SLB and CLR. SLB not much that I can see, I think CLR has a couple points of interest.
    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2933882&cmd=show%5Bs164941396%5D&disp=O

    Any particular reason that CRK has to trade back to $34, I’m thinking of going into biz longing/shorting it back to 34.

  88. 88
    zman Says:

    Aubrey on CNBC

  89. 89
    zman Says:

    Well, there’s 1 minute of my life I’ll never get back. The 2 CNBC people kept asking Aubrey about retail gasoline prices. My five year old knows more about natural gas than those CNBC clowns.

  90. 90
    zman Says:

    Tater – re CRK – they have well news to report, long anticipated Haynesville Bossier news, word is some better rates, looks like they hold it for the Q.

  91. 91
    ram Says:

    Re #89 Retail gas is rising because of evil empire. How can evil empire sleep at night when millions and millions of people are losing their jobs and they are making billions and billions and billions. That’s what people want to here.

  92. 92
    ram Says:

    Sorry ZMAN – I .. am… trying…. to…..resist…..the……media…..brainwashinggg

  93. 93
    bill Says:

    ram , lol

    i liked it last yr q3, the press was reporting that the evil oil companies were making billions when gas was over 4 bucks

    i dont hear them saying they lost billions with q4 write downs

  94. 94
    bill Says:

    profits are evil and some say corporations can put profits off for a while, lol

  95. 95
    zman Says:

    Movie quote on Tuesday…oh well, its a bit slow, just waiting on the next presentation I care about.

    This one’s for Ram

    “we’ve got one here who can SEE”

  96. 96
    zman Says:

    I wonder how long the whole “we all know its going to be a lousy quarter and the outlooks will stink so let’s buy the service stocks” trend will last. I’m guessing shorter than those pushing it will like.

    That same kind of think should apply to the refiners as well.

  97. 97
    zman Says:

    Oil up 76 cents on May, flat on the out months.

  98. 98
    zman Says:

    ROSE about to speak at IPAA.

  99. 99
    BirdsofpreyRcool Says:

    Credit Desk says “sun is out… everyone is positive again.”

    Sheesh.

    IG 189

  100. 100
    zman Says:

    and away ROSE goes…

    my notes:

    ROSE – back story, much changed company, Calpine litigation now behind them,

    Offshore focus has gone away in favor of an onshore unconventional resource player.

    Inventory building process – acquisitions, and studies of their assets, drillable projects total 300 Bcfe vs reserves of 398 Bcfe.

    40% – S. Texas

    28% Sacramento

    20% Rockies

    Increased exposure to organics

    * DJ Basin – think infill represents 350 Bcfe opportunity, at 40 acre spacing now, thinking go to 20s.
    * Sacramento Basin -“Tight Capay” looking to go into deeper tight gas sequences, see 100 Bcfe potential (have done 6 there, not yet optimized, only 1 of the deeper zones tested, cheap, 650 to 1mmcfepd)
    * Eagle Ford Shale – had 25,000 acres at beg 09, lot of acreage on strike with HK wells, drilled 2 vert wells, designing horizontals, will take these horizontal later this year. 300 Bcfe exposure on all acreage.
    * Alberta Basin – Bakken – 230K acres —, only 20 penetrations into the Bakken in this acreages, all 50 years ago, nothing modern, old data shows there is oil in this….It is a lot shallower than around Neeson, so do they have pressure regime to make it work, do they have the micro fractures to let it flow. Infrastructure to move crude out of the region still exists —60 to 300 mm boe potential reserves

    Borrowing base has been reaffirmed

    $75 mm second lien extended to 2012

    They have liquidity of over $200 mm

    Hedges for 2009, not much in 2010 – see hedge page

    How to act now:

    * live within cash flow
    * not worried about top line growth
    * content to keep activity low and build cash
    * keep reducing costs
    * evaluate new plays

  101. 101
    zman Says:

    About to listening to END as I still own some.

  102. 102
    bill Says:

    cpno talked about processing very rich eagle ford shale liquid gas

    eagle ford might be more intriguing than haynesville

  103. 103
    zman Says:

    HK mentioned as much this morning. Better declines, richer gas, and lower cost entry and drilling.

  104. 104
    john11 Says:

    SD SandRidge Energy announces reaffirmation of $1.095B borrowing base.

    SD announced that its bank group recently reaffirmed its $1.095B borrowing base and $1.75B commitment amount as part of the regularly scheduled semi-annual redetermination. The company remains in compliance with all debt covenants and there were no changes in covenant ratios. The next redetermination of the borrowing base is scheduled to be in Q3 of 2009.

  105. 105
    zman Says:

    Thanks John, had not seen, positive.

  106. 106
    tater Says:

    Started reloading some of my shorts at 849. I think this feels a bit too snap-back to just sit and watch into the close. I figure the leveraged ETF’s will come into play here any second, but it seems like you have to make your move into it to get the position on. Either that or just start trading the Emini after hours.

  107. 107
    zman Says:

    KOG presentation starting

  108. 108
    zman Says:

    So KOG has 3 wells at TD now. Thought it was 2, looks like complete first end of April, second early may, third late May, 4th well with long lateral (9000 feet) drilling at 9200′.

  109. 109
    BirdsofpreyRcool Says:

    KOG = on 4th well… 25-35 days to drill. This is down from 45 days estimated last year. Nice learning curve.

  110. 110
    zman Says:

    That is impressive. Wondering where they get cash to complete these.

    Always hate to see big gas flares at the beginning or end or presentations but I’ll let it slide.

  111. 111
    BirdsofpreyRcool Says:

    KOG = sounds like they have TFS potential under their acreage. Can up to double the reserve potential.

  112. 112
    BirdsofpreyRcool Says:

    z — they have enough cash and pipe to complete the first 6 wells… assuming Unit doesn’t execute on their take-or-pay fee on the 2nd rig.

  113. 113
    zman Says:

    Completion work starts tomorrow. Second well 10 days later.

  114. 114
    BirdsofpreyRcool Says:

    z — was that May 4th for the completion of the 1st well?

  115. 115
    BirdsofpreyRcool Says:

    the “private group” is Hunt Petroleum… who sold out to XTO in 2008.

  116. 116
    zman Says:

    Hmmm, thought cash on hand 12/31 was $7.5 mm, I know they have the pipe, just didn’t think $7.5 was enough to get this many done, even without worry about 2nd rig cancellation.

  117. 117
    zman Says:

    May 4th was begin date on the second well, 1st well begins tomorrow.

  118. 118
    zman Says:

    Says differentials to NYMEX are back down to $7 to $9, see 30% IRR at $40 net oil…that’s better than I would have thought but the costs are coming down a lot.

  119. 119
    BirdsofpreyRcool Says:

    that is huge. last time they spoke, $50 was about b/e

  120. 120
    BirdsofpreyRcool Says:

    it’s all about the acreage in the Bakken… no more available acreage on the Rez. No debt. So, in an OK-place to find a dance partner.

  121. 121
    zman Says:

    Yep, thank EOG for that. They shut in some Bakken production two months ago when differentials were approaching $20. You can see that also showing up in the oil price as less oil has been heading to Cushing from the region.

    By the way, Lynn sounds a lot better on this presentation than he has in the last few calls I’ve been on. Also sounds like there was a bit of a crowd in the room.

  122. 122
    zman Says:

    Beerthirty.

  123. 123
    zman Says:

    Sane or anyone, let me know when you see API, here’s to a smaller oil build.

  124. 124
    BirdsofpreyRcool Says:

    z — agreed. Lynn has been so hang-dog, you could just about estimate the amount of cash on the balance sheet from his tone. I have heard that they have at least 3 different interested parties they are pretty far down the aisle with. First is a partnership, 2nd 2 are mergers. If Lynn wants my opinion, I would tell him to go with the merger and sell out.

  125. 125
    zman Says:

    People not happy with Cap One results. Shocker.

  126. 126
    bill Says:

    gmx up now

  127. 127
    BirdsofpreyRcool Says:

    their commercials got kinda stupid…

  128. 128
    choices Says:

    tater-#106 I believed the same, bought SRS 10 minutes from close but it was waaay too early as it fell about 2 points in a matter of minutes-we’ll see what happens in globex overnight.

  129. 129
    BirdsofpreyRcool Says:

    financial indices trading up a tad in a/h. don’t think anyone is too surprised at COF results… even though they way-under performed expectations. I mean, these are credit card guys to the supprime mrkt, right?

  130. 130
    BirdsofpreyRcool Says:

    PXP to offer 10mm shares…

  131. 131
    zman Says:

    Eli just sent me a piece saying Chrysler bond holders told U.S. govt to take their plan and shove it.

    GMXR – saying its bankers want to expand their credit line. They are also saying they want to monetize some hard assets.

  132. 132
    bill Says:

    pxp wasnt at ipaa

    i dont know what they are going to do with the cash. they paid off 100% of their bank line and monetized 1.3 b in hedges

    just 6 months ago they were buying back shares at 40 plus

  133. 133
    zman Says:

    Bill – I’m glad, this gives them ammo to pay for their share of CHK’s capital budget, lol.

  134. 134
    zman Says:

    Nice to see PXP commenting they don’t see a 1Q09 impairment charge, should bode well for several of their gassy peers.

    GMXR saying they are seeing 67% reduction from peak in frac costs.

  135. 135
    bill Says:

    pxp update

    http://investor.plainsxp.com/phoenix.zhtml?c=132091&p=irol-newsArticle&ID=1278952&highlight=

  136. 136
    tater Says:

    Choices,
    Just looking at SRS and the $DJUSRE. I think I will take a look at $DJUSCY and SCC, and $DJUSEN with DUG tonight, put up a chart for tomorrow if I see something. Bull or bear, this last 6 week run combined with yesterday and today seems to me like nothing but big money playing games. They always leave a wake, so hopefully if I can get my work done there should be some TA to trade on. At least that’s the theory.

    I tell you what though, if I were in my late 50’s or older, I wouldn’t have a nickel in the market, not one cent (in terms of retirement money). I’m wondering how long before some of these people get fed up and start (continue?) to pull their cash. Just too many games being played.

  137. 137
    elijahwc Says:

    OT but worth it: BIG BAD BREAKING NEWS: CHRYSLER BONDHOLDERS COMMITTEE TO OUR GOVERNMENT = PUT IT WHERE THE SUN DOES NOT SHINE!

    ABOUT TIME AND WAY TO GO.

    From te WSJ:

    By NEIL KING JR. and JEFFREY MCCRACKEN
    A group of the U.S.’s biggest banks and other lenders rebuffed a Treasury Department request that they slash 85% of Chrysler LLC’s secured debt, proposing instead to eliminate about 35% in exchange for a minority stake in the restructured auto maker.

    The lenders’ counteroffer marks a significant act of brinksmanship as the banks and the Obama administration’s auto task force duel over concessions to avoid liquidating the country’s third-largest car company.

    Chrysler faces an April 30 Treasury deadline to seal an alliance with Italy’s Fiat SpA that also requires concessions from lenders, as well as from the United Auto Workers union.

    Chrysler owes the lenders, which include banks such as Citigroup Inc. and J.P. Morgan Chase & Co., about $6.9 billion. But President Barack Obama and his auto team had demanded that the banks cut that to $1 billion, while gaining no equity stake in a restructured Chrysler.

    In their five-page counteroffer, the lenders said they are prepared to cut Chrysler’s first-lien debt by $2.4 billion, or down to about $4.5 billion, in exchange for a minority equity stake, likely to be 35% to 40%, according to people familiar with the offer. The lenders also are demanding that Fiat pour some capital into Chrysler in exchange for whatever equity stake it would gain. That could be a source of conflict with the Italian auto maker, which has said it won’t put cash in the deal and instead give Chrysler only technology.

    In making their case for a significantly smaller sacrifice than what the government wants, the lenders have argued that their fiduciary duty to their own shareholders and investors requires them to recoup as much as possible from Chrysler. The lenders have told Treasury officials that, if necessary, they could recover at least 65% of their loans to the company if it is liquidated in bankruptcy.

    Importantly, the steering committee of Chrysler banks that made the counterproposal holds more than 66% of the $6.9 billion owed the car maker’s lenders, said people familiar with the matter. This means the committee has the requisite amount of debt to control the votes of lenders if Chrysler files for bankruptcy, under U.S. bankruptcy code. There also must be approval from a majority of total holders in a group.

    The committee has eight members. The largest Chrysler bank-debt holders are J.P. Morgan, Citigroup, Goldman Sachs Group Inc. and Morgan Stanley. Those four hold about $4.3 billion of the debt, according to people familiar with the matter. Also on the committee are hedge fund Elliott Management, distressed-assets investor Stairway Capital Management, fund manager OppenheimerFunds and advisory and asset-management firm Perella Weinberg Partners.

    There are an estimated 45 lenders and funds that hold the Chrysler bank debt.

    One person involved in the talks said the counteroffer essentially was final. “This is not seen as a horse-trading offer,” this person. “This offer should be embraced by the administration.”

    A Treasury spokesman declined to comment.

    Many of the lenders were angered by the demands made by the head of the administration’s auto team, Steven Rattner, who wanted the banks to forgive $5.8 billion of the $6.9 billion owed them in exchange for nothing.

    “What the government was asking for was completely without precedent in the history of bankruptcy in the United States,” the person involved in the talks said. “Our reaction to their proposal was, ‘Forget it.’ ”

    The dispute with the lenders is heating up as Mr. Rattner and his team haggle in Washington with the heads of Chrysler, Fiat and the UAW over the details of an alliance between the two car companies.

    The counteroffer also comes about one week after the government presented Chrysler lenders with more than 60 pages of business models and financial assumptions for a combined, restructured Chrysler. The government estimates that Chrysler in a few years would be back to the size it is today, once it merges with Fiat.

    That government model projects Fiat-Chrysler wouldn’t be able to start making payments on its debt until 2012, said several people familiar with the government projections.

    The government assumes that the $4 billion the Treasury lent Chrysler largely will be wiped out, as will $2 billion Chrysler owes Cerberus Capital Management LP and Daimler AG, Chrysler’s last two owners. The government would then put in an additional $6 billion to fund the operations of Fiat-Chrysler.

    One assumption that upset some lenders, including some on the bank committee, was that Chrysler would pay about $3 billion to a UAW retiree health-care fund in 2009-10, said these people. The UAW-Chrysler fund would also get an unknown amount of equity in the new Chrysler.

    The fund had been owed about $10 billion from Chrysler, but it is behind the banks, Cerberus, Daimler and the U.S. in the order to be paid.

    Lenders on the Chrysler bank-steering committee had originally hoped to make their counteroffer late last week, but differences of opinion between larger lenders like J.P. Morgan and Citi and the smaller bank-debt holders delayed the offer, said people familiar with the matter.

    The larger lenders were pushing for a counteroffer that was closer to the original government proposal than smaller lenders, such as hedge funds, were willing to agree to, said these people.

    This conflicting view is likely due to several things, such as the fact the larger banks paid full price for billions of Chrysler bank debt, while smaller holders bought theirs at a steep discount and would likely make a tidy profit even in a quick liquidation of Chrysler, said people involved in the talks.

    “Not everyone was on the same page. The big-bank view was ‘Hey guys, the offer back can’t be outrageous. This is the government,'” said one of these people. “There were others, smaller lenders, who wanted to be a lot more aggressive.”

    In the end, the big banks “came closer to the smaller lender view,” said another person familiar with the talks.

    Write to Neil King Jr. at neil.king@wsj.com and Jeffrey McCracken at jeff.mccracken@wsj.com

  138. 138
    BirdsofpreyRcool Says:

    elijahwc — thanks! Bondholders are not a group you can mess with. All these assumptions that had “bondholders just rolling over” were way out of line with reality. Which is why I have a tough time seeing GM avoiding Ch11. People just “assume” bondholders are pussies. Steve Rattner should know better than that.

  139. 139
    sane Says:

    API

    Crude -1MMbls -> 370MMbls
    Gasoline 107Mbls -> 218MMbls
    Distillates Up 485Mbls -> 142MMbls

    Refinery util 82.1%

  140. 140
    zman Says:

    Thanks Sanem, that’s down 1 mm barrels and up on both products? Any sight of import numbers?

  141. 141
    jat Says:

    Imports:

    Crude +1814
    Products – 263

    Utilization:
    +2.8% to 82
    Refinery runs +465

  142. 142
    jat Says:

    Z,

    Would you mind laying out the math in which you compare utilization vs. imports in order to determine whether the draw is somewhat accurate? I know it’s a stupid question but it’s largely Greek to me.

  143. 143
    zman Says:

    Jat – will do later tonight, gotta go play coach.

  144. 144
    zman Says:

    Jat – putting into tomorrow’s post

  145. 145
    coupons for everyone Says:

    coupons for everyone…

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