Wednesday Morning – HGT and A Few Other Things

Posted on by zman

 

In Today's Post

  1. Holdings Watch
  2. Commodity Watch
  3. Oil Inventory Preview
  4. Stuff We Care About Today - HGT thoughts, drybulk multiple update, deal watch, EOG, SWN CEO swapout
  5. Odds & Ends

 

Holdings Watch: No changes yesterday.

 

Commodity Watch

The July contract, which takes over as the front month contract today, rose $0.51 to close at $60.10 yesterday on a weak dollar and a meandering but modestly green equity market. This morning crude is trading up $0.60 + towards $61.

  • Israel Watch: It seems like each time this year we see Israel and Hamas go back at it in Gaza. Israel bombed several sites yesterday and this, despite the fact that the country is not a major oil producer will increase tensions in the area and no doubt bring threats from Iran.
  • Iran Watch: Speaking of Iran they tested a missile that can hit Isreal and Europe today.
  • MEND Watch: It looks like all out war over there, battles reports at a Chevron pumping station and at Warri, an oil port city. (E) was forced to declare force majeure on 52,000 bopd of production.

Natural gas tumbled $0.22 to close at $3.91 yesterday. Lack of good direction from crude and renewed cries of "LNG tsunami" helped the contract below $4. This morning gas is trading off close to $3.80. I think $3.50 is in the near term cards if we get a bigger than expected injection tomorrow, especially if the number is in the triple digits. 

Oil Inventory Preview


API Inventory Watch:

  • Crude: Down 4.5 million barrels
    • Utilization down 1.6 % from 82 to 81
    • Imports up 110k from 8.7 mm bopd to 8.8 mm bopd
  • Gasoline: Down 5.4 mm barrels
  • Distillate: Up 1.4 mm barrels

ZComment: Crude is getting a breather from a second week of lowish imports. The API's utilization numbers appear to be playing catchup to the fall we saw last week from EIA confirming that nearly one-fifth of U.S. capacity is now offline. We are in record low territory for a non-storm impact time frame and it is obvious that U.S. refiners are hoping to avoid bloated gasoline stocks by extending maintenance turns and by curtailing output at some facilities. I do expect to see an uptick in gasoline demand in today's numbers as we get some stocking of gas stations prior to the holiday weekend. Last week traders ignored the unexpected draw down of crude stocks pointing to weak utilization and low imports. They will likely do the same unless we see an uptick in the EIA utilization figures and in gasoline demand.

 

Stuff We Care About Today

Reader EMail Bag Watch:

Z: Just wanted to go on record suggesting I am long NE. Why?

1. Forward multiple 5.09 x ’10 numbers ATW 5.46, RIG 5.47, ESV 6.41, DO 7.57 & PDE 8.63.

2. Not up much from 3/6 low.

3. RIG & WFT up 40 – 100% since their move to Switz. NE up 8%. It took 2 – 4 weeks for selling to discontinue for WFT & RIG. Foreign vs US funds may not have to make switch as quickly as S&P 500 funds.

4. Institutional ownership has gone from 87% to 65%. Will change.

5. 10.6 billion backlog worth $42/sh.

6. Few jack-ups in GOM where utilization is worst.

7. Fear of Mexico. With 47 billion line of credit from IMF not a country likely to go belly up.

8. Bigger backlog in Brazil where the growth is.

9. Upside surprise in earnings last 3 quarters.

10. Only driller buying back shares, paying dividends and building new ships.

11. 46% profit margin.

12. Debt down # shares down.

13 US$ goes lower crude goes higher.

14 Lower tax rate in Switz.

15. Q1 ’09 over ’08 average dayrate up by 18.65%.

Negatives:

1. Rig utilization down from 94 to 86.

2. PBR where the growth is may have capital constraints.

3 Company had to request dividend and will miss May but will pay twice in August.

4. Accident off Qatar has a $25 million insurance deductible.

I know you do not like the total jack-up % of the fleet. I would embrace any holes you want to shoot at my logic. Thoughts?  S 

 ZComments: Its not a bad story, I listened to the last call and re-read the transcript. I think the shallow water market continues to weaken globally and this and the advent of weakness in some new areas like North Sea and West Africa will give them, and others, a  bit of a tough time. The missed dividend is a big "no, no" but once its behind you its generally behind you. Management here is solid. Mostly, they were unexiting the last few calls and while cheap, the name is often cheap. I will start watching them closer but I prefer something smaller for now, like an ATW which I'm not in either, but which has an earnings track that is pushing higher in the near, medium and long term, and which I can get my arms around operationally (even if that means more fleet risk)  but I will start watching it more closely.

 

Dry Bulk Multiple: Just thought I'd throw in the table for reference today. No comments as I'm not ready to play.

Hugoton Royalty Trust Thoughts:

  • I went back and looked at the production, operating costs, capital spending, and distribution pattern from January 2008 to the most recent distribution in April 2009. Basically this one will trade with natural gas as 95% of their production comes from long-lived reserves in Wyoming, Oklahoma and Kansas.
  • Forget the current yield shown on your quote line as that is bases on monthly historic distributions. When natural gas was selling for as much as $14 last summary these guys were seeing realized prices around $10 and $11 and the distribution hit a high in September 2008 of $0.40 per unit when they were realizing gas prices of just over $11. In April, they saw a realized price of $3.28 and their  distribution was just over 3 cents.

  • Production which has held flat for quite some time due to the low maintenance level of spending needed to simply hold it flat appears to be rolling over as they move from a a drilling program that saw near a dozen wells drilling at once to one or two. I see no mention of hedging and looking at their realizations I'd say they either don't hedge or they hedge to an insignificant degree. When prices rise and the operator (XTO) decides to spend more capital they can ratchet production back up, but its good to know that for now at low prices, production from these properties is being forced lower by inadequate capital spending (which itself is a function of price).


If you want to build your own model here to calculate your distribution the math is not difficult

  • Revenues will be gas prices X volumes which you can guesstimate will be in the low 70 to high 60 MMcfgpd range until prices rise and they put more capital towards shoring up volumes. Add to that a little piece for oil production (see example below).
  • From revenues subtract:

    • Operating Costs:
      • Lease operating expense of about $0.79 per Mcfe in the last quarter which isn't bad,
      • Production taxes have been running about $0.55 per Mcfe, and 
      • Overhead (G&A) of $0.37 per Mcfe ... again not bad.
    • Capital Costs:
      • had been running $3.75 mm to $4.0 mm per month, now cut back to $2 mm per month
      • again, this is probably not going to be enough to stave off declines.
  • That math will yield your Net Proceeds.
    • Multiple that by 80% and you have your Net Profits Interest.
    • Divide that by 40 mm units and you have your distribution or something pretty close to it.
    • Or you can just use the model below and tweak it to your liking.

SWN Names New CEO

  • Current CEO Howard Korrel to step down no earlier than 1Q10. They had previously stated he would retire.
  • New Chief is Steven Mueller, 2008 hire with 30 years exp with lots of industry names.
  • Nutshell: probably a positive as it takes some guessing out of who would take over, mostly a non-event.

EOG Marcellus Well

  • Seneca Resources (NFG), partner in a Marcellus well with EOG, puts initial production at "over 3 MMcfepd"
  • Probably modest cause for celebration at EOG, large scale production is a ways off.

Deal Watch: The debt and equity windows are wide open in energy right now. Just in the last 24 hours.

  • FST - 12.5 mm shares, 13% of outstanding
  • PVA - 3.5 mm shares, 8% of outstanding
  • GST - 36.5 mm shares, 17% of outstanding
  • ESLR - $60 mm, so about 18% of outstanding if they price close to $2 per share

Odds & Ends

Analyst Watch:

  • Berstein Raises Targets On Big Oil and E&P Stocks - numerous names, looks like a sector call, here are the ones I care about: (these are pretty aggressive)
    • EOG target lifted from $91 to $108
    • NFX upped from $44 to $52
    • For the Majors, the increases were modest and substantially just took the targets to current levels so you can see at least this analyst thinks the bang for the buck in energy is in E&P and not with the integrated operations.

177 thoughts on “Wednesday Morning – HGT and A Few Other Things”

  2. No comments from Tech Trader yet, but Head Trader’s gut says “buy pullbacks based on the BAC cap raise being done.”

  3. By Nick Heath
    Of DOW JONES NEWSWIRES

    LONDON (Dow Jones)–Nymex crude oil futures hit six-month highs for a second
    day Wednesday on expectations that U.S. Energy Information Administration data
    will show U.S. crude oil inventories fell for a second week last week.
    Strengthening gasoline prices also helped pull crude higher Wednesday, with a
    spate of U.S. refinery fires generating supply concerns a few days ahead of the
    start of the U.S. driving season. Nymex crude futures topped out at $60.75 a
    barrel, while Nymex gasoline futures also hit six-month highs, at 185.30 cents
    a gallon.
    Militant unrest in Nigeria continued to stoke fears over disruption to oil
    supplies. Italian oil company Eni SpA (E) late Tuesday confirmed that force
    majeure on 52,000 barrels a day of crude exports from the Nigerian Brass River
    field had been declared, although details of what prompted the action were
    unclear.
    Meanwhile, stronger equity markets – rallies on which have contributed
    significantly to crude prices reaching their six-month highs – remained a
    strong influence, as oil market participants tracked bourses as potential
    indicators of a recovery in economic activity.
    “Today’s trading session in crude will keep the focus on the weekly EIA data,
    expected to see a slight draw in inventories,” said Marius Paun, energy broker
    at ODL Securities in London. “At the same time, any surprise figure could be
    easily shrugged off by the energy complex in favor of stocks and/or currency.”
    At 1123 GMT, the front-month July Brent contract on London’s ICE futures
    exchange was up 26 cents at $59.18 a barrel.
    The front-month July light, sweet crude contract on the New York Mercantile
    Exchange was trading 36 cents higher at $60.46 a barrel.
    The ICE’s gasoil contract for June delivery was up $6.00 at $475.75 a metric
    ton, while Nymex gasoline for June delivery was up 265 points at 183.90 cents a
    gallon.
    U.S. oil inventories likely fell last week, according to a Dow Jones survey of
    13 analysts. Estimates range from a draw of 2.6 million barrels to a build of
    1.5 million barrels, with the average of the forecasts a drop of 700,000
    barrels. The EIA data are due at 1430 GMT.
    However, separate data from the American Petroleum Institute late Tuesday
    showed crude stocks falling by 4.5 million barrels, prompting some last-minute
    reassessments Wednesday.
    Gasoline inventory data are expected to be closely watched after this week’s
    fires at Flint Hills’ refinery in Corpus Christi, Texas, and Sunoco Inc.’s
    (SUN) Marcus Hook, Pa., refinery. Another small fire was reported at a tank at
    BP’s (BP) Galveston, Texas, refinery Wednesday.
    Gasoline inventories are expected to decline by 1.2 million barrels, according
    to the analysts’ average, with estimates ranging from a draw of 3.5 million
    barrels to a build of 1.5 million barrels. Tuesday, the API reported a 5.4
    million-barrel drop.
    However, some suggested that given the relatively low utilization rates across
    the U.S refinery fleet, in addition to current weaker demand, the lost output
    might not prove that significant ahead of the Memorial Day start to the driving
    season next week.
    “Logic would suggest that the price reaction to the refinery problems is
    overdone given that U.S. refineries are only operating to 80% of capacity,
    leaving plenty of spare to cover unexpected shutdowns,” London-based brokerage
    PVM Oil Associates said in a note. “It is not a logic that is gaining any
    traction at the moment.”
    -By Nick Heath; Dow Jones Newswires
    Dow Jones Newswires
    05-20-09 0746ET

  4. Credit Market — opened a bit better, stopped to think about it, then went screaming higher. Shorts are in tears this morning. Bears had been trying to creep out of the cave and take a few swipes at the market. Well…. Mr. Market just punched them back this morning.

    IG 139 1/2 great to see the 130-handle again

    HY 81 wonderful to be in the 80s… this is the one to watch now; want to see 85 on this index.

  7. PXP has a new presentation filed today see sec filings for the UBS Global Oil and Gas Conference

    does anyone have the list of companies presenting at the UBS Global Oil and Gas Conference

  8. Z- good stuff on hgt this morning. Not sure if you follow sjt at all but their formula looks much the same. Definitely ignore the quoted trailing div – they just announced they are going to pay a whopping 2 cents for June. SJT has said they are going to try some horizontals this year which might be interesting.

  9. 6– Iran is a major problem and I dont think the current administration can deal with it as they are too busy designing cars and spending money

  11. BOP – got your email. I kept the model for HGT pretty simple but you are correct, % of revenues is probably better for them than $/Mcfe for the production taxes. For the next few months, it won’t make a noticeable difference because I don’t expect a big rally in gas prices. Longer term, it probably makes more sense to use a %.

    Re SJT – I used to own that, San Juan basin gas, talk about bad differentials and another name that will move only with higher gas prices. The models is pretty much the same, think the payout is different but don’t remember.

    Tax treatment is a little different for RT’s vs MLP’s but if you are looking for yield I suggest the hedged MLP’s which are basically like E&P REITs. There’s an acronym fest for ya!

  12. Nice moves in the group this morning.

    Good to see the KWK making fresh highs.

    Recent SWN and HK add backs starting to work in here.

    All a moot point pre oil numbers today. See post comments. Wrong numbers and we loose this $1.50 crude rally and natural gas will likely retest the morning lows a dime below here.

    BOP – on that model, the big swing is going to be what XTO decides to spend on those properties. At $2 mm per month there is no way they maintain 70+ MMcfepd ad infinitum. However, had they stayed at $4 mm per month the distribution would be close to $0.00.

  13. The Pretty Big Rally in Credit continues —

    HY 81 1/2 …. that’s + 1 3/8 points. wow

  14. BOP – thanks much for the high yield updates and for “calling me out” on the production taxes, lol.

  16. z — hey! it’s not like i yelled atcha… more of a prod. I LOVE it when you post your entire BOE (back-of-envelope) models, tho. VERY helpful. Pls continue.

  20. Good Morning
    BOP-thank you for the Rosenberg link

    Also my ace T/A lady thinks the dollar is pretty oversold could break at 82 to shake things up but then rally
    -might put the brakes on the oil rally-

    Mr K thinks things are a little panicky this am-has been selling(but not shorting)

  21. z — so YOU’RE the guy with the bank model? I’ve been LOOKING for that model. Turned over every rock in the yard… all I found was a bunch of slimy bugs. Or, was that the model…??

  22. Oil in 15 minutes. Current July contract up $1.50 at $61.65. Gasoline and diesel both up 2%

    NG up a penny.

    Mr K seems to be blowing in the breeze between higher and lower market call here. Thought he just turned back positive after going negative for something like a week.

  23. Good morning to everyone.

    From a fundamental point of view the rally in equities is pure crap and most likely total manipulation by Goldman Sachs. This market is so way ahead of itself its not true.

    From a technical point of view the VIX is now at the 200 dma and we are in v up for the indices. Not sure whether its iii of v (most likely) or v.

    The $ continues to get slammed and there is a rumour going around the London trading floors that several big banks are beings slaughtered by the move in currencies.

    Yet again we are so close to the 200 dma on the spx which is at which is at 940.

    We are on borrowed time, close to completion whatever, but we can still run a bit further.

  24. thx to BOP for that note on the shippers yesterday…didn’t pick PRGN but got a sympathy lift on EGLE…

  25. So, what happens next in California? Any chance they sell offshore drilling permits to try to fill that massive budget deficit?

    The thing about California is that it is a pretty good model for where the rest of the country heads. So, what happens there has a lot of influence over 49 other states. Always important to watch what is going on.

  26. WLL – has put on tremendous run since their secondary. Looks like Bakken will be flavor of the day if people thing oil can hold $60.

    BOP – they’re going to drill for Kern county crude on Ed Begly’s property. Isn’t California the worlds 5th largest economy.

  28. jiveyjr — thanks. Actually, z pointed out the Dahlman Rose upgrade (I hadn’t seen it). But, when Omar Nokta speaks (in the shipping world), I found it pays to listen.

  31. Nicky-I am in your camp
    but feeling pretty “crappy” with too high of a cash posistion-trying to keep sitting on my hands

  32. CARACAS (Dow Jones)–Venezuela on Wednesday formalized its takeover of almost
    three dozen oil service companies now affected by President Hugo Chavez’s
    nationalization campaign.
    A new list of 35 companies appeared in the latest Official Gazette, the second
    such list published this month. State oil company Petroleos de Venezuela SA,
    PdVSA, has now taken over assets from 74 companies, according to the lists.
    The latest batch of companies include water injection technology for oil wells
    in the SIMCO venture, controlled by the Scotland-based Wood Group Plc (WG.LN)
    and its partners. Dozens of other firms mostly engaged in the water
    transportation business in Lake Maracaibo are also mentioned.
    According to the resolution, PdVSA will take control and perform a review of
    these assets and could still find it has no interest in taking them over. In
    such a case, “the takeover of these assets will have no effect.”
    Faced with mounting bills to contractors, PdVSA has seized dozens of firms and
    is expected to begin compensation talks with company owners.

    -By Raul Gallegos; Dow Jones Newswires

    Dow Jones Newswires
    05-20-09 1025ET

  33. Someone sent me this on Cramer’s view of natural gas stocks:

    “There is absolutely zero arbitrage between natural gas and oil. The two have been diverging for months. But the natural gas stocks trade better than the oil stocks, and it’s been a quandary that’s driving the market — and me — crazy.

    We are in a profound period of natural gas oversupply. There’s been a huge decline in natural gas being pumped to bring it in line with demand, yet the amount of liquid natural gas coming into this country in the next two years is off the charts. The government has not supported this cleaner carbon fuel one whit. You never hear about it. Ever. Yet it is in massive abundance. What’s really telling is that anyone who can switch easily from oil to natural gas already has, so there’s not a lot of arbitrage.

    Yet Ultra Petroleum (UPL) , Apache (APA) , XTO Energy (XTO) and Chesapeake (CHK) trade like houses on fire. Yesterday, Rick “Top Gun Trader” Bensignor said Chesapeake may be among the best charts in the books.

    All of this while natural gas takes out $4 and oil takes out $60, yet Chevron (CVX) can’t get out of its way, and BP (BP) is still way below where I think it should be.

    The disparity is beyond comprehension unless there is going to be a wave of consolidation, and I don’t see that coming. Sure, the group got radically oversold as the hedge funds were loaded to the gills, perhaps betting that prices would go ever higher. I think the stocks’ resilience has to do with a belief that natural gas can’t get any lower.”

    He goes on to say he likes DVN because they have new projects coming on line (as if others don’t) and then says he can’t pull the trigger until he sees how the results come to the bottom line.

    Just ridiculous. He freely compares Majors with E&P for his oil vs gas comparison. Lame. What, he can’t model them up to see the bottom line figures or read an analyst report with a model in it? Ugh. I wish Cramer the best and all but wish he’d stay away from my sector. He’s like a monkey with a gun and a thimblefull of tequila.

  34. Denise – this will end badly. Nobody even listening to Geithner really who says the risks remain. Worse the results of all the action they have taken is going to lead to far worse problems down the line. Gold up, equities up – inflation anyone?

  35. Denise – No such thing as “too high of a cash position”, lol. But thanks for that laugh. There’s always a trade to make tomorrow and some of the best trades that I ever make … are the ones I don’t.

  36. CF Industries is still chasing Terra. Terra keeps saying “no” and the price contineus to go up. CF is gunning for a shotgun marriage, trying to put 3 of their own people on the BoD. Fairly amusing, really. TRA can’t seem to shake them, even though their stock price has gone from around 19 to over 30 now.

  38. EIA Inventories

    crude: down 2.1
    gasoline down 4.3
    distillate up 0.6

    bullish on the surface:

    imports: low at just under 8.8 mm bopd, in line with API last night.

    cushing: rose from 28.8 to 29.6 … a bit troubling, points to low utilization.

    gasoline demand: 9.232 mm bpd, nice uptick here, this is the stocking effect at gasoline stations pre holiday I was referring to yesterday and in the post. This number will likely carry the day to be a green one for oil.

  40. Pack – if I did it would be puts, not ready to step into that buzzsaw again just yet. If the market has resistance overhead at 940 using Nicky’s numbers then service is unlikey, in the face of pretty good crude numbers, to miss out on the ride from here to there (about 20 sp points).

    Dollar has broken near term support, 80 does look like next support on a chart although currencies can be quite different on charts than commodities and stocks.

  41. BOP – do you still follow the fertilzer group closely? If so – any thoughts on POT and SQM?

  42. ZTRADE:

    PXD – with the stock at $27.40 added another (10 bringing me to 20) June PXD $30 calls (PXDFF) for $0.90 (bringing my average cost to $1.49). I continue to hold the June $25 calls as well. I continue to expect to hear news in the next few weeks on their Eagle Ford shale test.

  43. Z – #33

    Yeah, Cramer has been putting out similar pieces on NG for the last month or so. I thought about sending them to ya, but they had such huge holes in them that I didn’t bother. All they showed me was he did no homework whatsoever. For example he wondered how CHK could rally as NG fell. Apparently he never heard of hedges. He also never noticed the rig count & somehow forgot the idea that markets are supposed to anticipate.

    Really just embarrassing, especially when you consider that he has previously demonstrated knowledge of all those factors. It just tells me he now has no time for homework or doesn’t bother anymore or delegates it to underlings who probably only want him to stop screaming at them and will say anything to achieve that.

    As for the piece you mentioned today. Funny he doesn’t mention BRY, since he knows it and complained months ago that nobody cared about it. But now he’s forgotten? Makes me wonder about his medical regime.

  44. Dman – it can keep falling – its just that the wave pattern is looking for a low in this area. The move up off the December lows was a 5 wave move, and the subsequent pullback is in 3 waves. The move we are seeing now is likely 2C and this is very typical C wave action. Big picture yes I am bearish but right now we are in a sideways consolidation and the next move of significance is likely to be up.

  45. 1520s — I traditionally have followed only TRA, b/c they use nat gas as their raw material input and they were a high yield issuer. Also, TRA’s fertilizer demand is more driven by corn production, than any other crop. So, when nat gas hit a low and all the ethanol schemes popped up like mushrooms in the midwest, I circled back to TRA as my horse in the race.

    POT and SQM are driven by food production, of course, and many of the same drivers of TRA. But, they are more “mining operations” than chemical producers, IMHO. That said, I haven’t spent enough time with them to have an intellegent opinion. So, I will stop now.

    Well… one more, there is a Russian “POT” that looks interesting to me… Uralkali (URKA on the London Exchange), I’ve been meaning to look at. Perhaps you could take a look and tell me what you think? I know everyone here hates investing in Russia… due to the political risk. But, with the current administration here in the US, that playing field has been somewhat leveled, eh?

  46. Not sure whether anyone on here is interested in currencies but I am thinking it is related as we are watching the $ for oil.

    British Pound – looking very extended now – possible target 1.5702.

    Euro – has a fib level resistance at 1.3877 and then 141.65

  47. Thanks Nicky, I just watch the dollar index, DX/Y on my system. I suppose I should track the Euro as well. What’s the Euro index symbol?

  48. Thanks for the in depth analysis of HGT. I’ll be careful what I ask for. Am I right to conclude that there are better places for my money at this time?

  49. Always interested in currencies, feel like that’s half the explanation for crude today. Z, I hear your point on the sequential uptick in mogas demand but I just can’t get bulled on driving season with crude at $60+, utilization falling, and gasoline YoY demand still stalled.

  50. I think cramer has a point

    i sold most of my gassy names and moved to oily names

    I like chk and hk and sd but dont like ng below 4

    on 25–if calif had any sense they would exploit oil offshore

    vq is asking permision to modify it lease as opposed to getting a new lease

    pxp wants permission to drill new leases (offshore) with the promise of giving lands to enviromental groups and getting out in 15 years

    but you know where the moonbats stand..no drilling anywhere and you may have a battery operated golf cart to haul your kids to the soccer game

  51. BOP – i did a little work on URKA a month or so ago. As i see it they are going to play a key role in worldwide pricing in the next month or two as they are the big supplier to China and a big supplier to India. the Chinese are supposedly going to drive a hard bargain in this round of negotiations which should be announced in June or early July. I’ll take a harder look at them.

    SQM has a couple of sidelines outside of the big fertilizer product line. they are a miner of lithium (think batteries) and some salt products used in a variety of applications including larger scale solar power applications. Interesting stuff. They are also about 30% owned by POT.

  52. Z – sorry I don’t know re Euro index. I just have it as a cross against the $.

  53. Gold and the USD both breaking significant resistance has to be helping the rally in oil.

  54. Goldman Sachs at their lows of the day – more often or not a good heads up for the rest of the market. They have been red most of the day so they aren’t buying this leg up.

  55. Cargo – No, thanks for asking that kind of question. I love tearing the simple ones apart. On the money question, I dunno, I don’t give investment advice any more. But it will trade with natural gas and its reserves aren’t going away any time soon. So if you think that in 2 to 3 years we will be back in double digit land on NG then you have to think it will be turning out $0.30+ per month in distributions. When I look at that I see a stock that will see capital appreciation. On the other hand, you have someone like the MLP LINE, which is hedged for the next three years and will also see minimal slide in production. This means their $2.60 or so dividend will hang out where it is unless they see a return to higher prices, which management has indicated could take longer than my time frame (hence their deep hedge), which would allow them to monetize the hedges and garner higher realizations. But the downside is protected in the interim. So you are talking mid teens distribution and that one will see capital appreciation when prices do decide to rise as well. Also, LINE offers the comfort of size (it would be in the top 20 E&P companies and is balance to oil and gas) so it will be more of a go to name. But, that’s not a knock on HGT, it just depends on whether or not you want to get paid to wait or not.

  57. Jat – Note that I’m not uber bullish on the demand figure by any means there. I simply was looking for an uptick due to seasonality and the holiday and I got it. It’s more like having one less worry than having something to really cheer about.

  60. 1520s — you are clearly the expert here. Thank you.

    Also, saw that SQM produces a bunch of minerals and compounds. Chile is a wonderful place to mine. But did not know they are 30% owned by POT. Makes POT more interesting, i think.

    Anyway, if you have the time, i would love for you to take a closer look at URKA. A very good HF mngr friend owns a lot of it. That is the key motivator for my interest there.

  62. This action is so similar to exactly one year ago it’s scary. Push, push, push. Bad news is good news, nothing can get in the way of this thing. Don’t worry about the lack of volume. THIS IS THE BOTTOM. Get in in now.

  63. Dman – yep, its a Major. Craptastic production profile despite lofty spending levels leading to poor performance when prices are low on the upstream side, then you have anemic cracks on the refining side (bleak demand for gasoline, diesel, kerosene (jet fuel), and finally, the Chemical’s business is in the gutter also due to the economy.

  65. Dman – the analyst crowd is also pretty apathetic on the Majors right now. If you look at Berstein this morning, they upgraded the heck out of the E&Ps but basically marked their Majors’ price targets to market prices.

  67. Tater you sound like Cramer!

    VTZ – its been making lower highs for some time. Chart pattern does not indicate new highs at this time. Eventually – yes.

  69. In my opinion it decidedly breaks out of the wedge by closing where it is today.

    In addition, this flow into equities seems to be on low volume and quite cautious as of late. If the S&P turns down, gold is making new highs in a hurry.

  70. BOP – i’ll do some more work on URKA. I don’t have my notes on them with me today. From memory – the other thing i liked about them is that they own/participate in the entire supply chain. Mine to transport to port to shipping.

    One note – they had a huge flood out of one of their mines in 2006. the details were sketchy as to what actually happened. This was one of the factors that helped pricing in the past 2 years or so. the russians were fairly tight lipped as to what caused the flood. Makes me wonder a bit.

    URKA and their belorussian partner have said repeatedly this spring that they will not sell at a loss to the chinese. Hence the importance of the price that they decide on. I think people will view it as a floor in the worldwide market. $750 a ton is the key number i think.

  71. WRES is a partly a California oil play by the way. The have an interesting drilling pit. Concrete trench really that allows them to drill directionally from a single pad. Very clean.

  72. The downtrend from the peak at 1022 to 965-970 to 920 did not hold. To me, this move today confirms at least trading in a range and stopping the downtrend.

  75. 1520s — very helpful. Very insightful. Let me know what you think, upon further reflection. Thank you.

  76. Combine that with a dollar breakdown and I think I have a case for a rally in gold.

  77. VTZ,
    Please don’t take this the wrong way. Everybody has their own way of doing things. I just wanted to make a friendly point about TA. I usually get into trouble when I take a fundamental thesis into my chart analysis. There is a big difference between figuring something out fundamentally and figuring it out technically. I’m bearish right now on the general market fundamentally. But I don’t have any real positions on because the upside momentum has not been broken yet.

    If you go into a chart looking to prove your point, you will. Sorry if that sounds preachy, just trying to help.

  78. USA doesnt need jobs..it needs great ‘GREEN’ jobs

    I am amazed the general market has held up as much of it has

  79. Tater – any thoughts on the resurgence in HK? It’s moving with the group. I guess everyone else doing deals and the fact that this time around they didn’t has reduced the fear factor. My Layman’s TA says it goes for a retest of $27 and then could do $30 in a snap. At that point, without higher natural gas prices, I think they are going to have to come up with some news or fall into the “too rich for my blood” camp for a number of analysts.

  80. DNR is green as they pump the evil gas co2 in the ground to extract evil oil to be used by the evil humv’s driven by evil rich people

    To incentivize poor people to buy the 2 seater battery operated golf carts the President will tax the hell out of gasoline

    I expect 5 to 6 per gallon for gasoline within 2 years and the evil oil companies will be blamed even though taxes will make up 80 % of the number

  81. PRGN – Short conference call, worth taking the time to listen to.

    Co. is going to survive, but banks have restricted a about 30% of their cash. Explains the cut in the dividend. My read from mgmt’s macro outlook is a demand from Brazilian and Aust. iron ore will continue from China as Chinese iron ore is a lesser quality. However, mgmt’s major concern is the amount of new ships coming on to the market. They would probably like to expand fleet, but are in no hurry to do so.

    I got the distinct impression that they were certainly still very cautious.

  83. It’s fine. I fully understand that TA folk like to trade momentum like computers. All I’m saying the the chart today looks a lot less bearish than it did 2 weeks ago and I think there’s a reason for it.

    I’m not a TA guy, but I do know that a break above 930 means something.

  84. VTZ – the gold/dow correlation no longer seems relevant. They have both been going up together. Therefore they can both go down together. I am not saying you are wrong as maybe my count will turn out to be incorrect.

  85. POT- Have owned it for most of the last 6 months, but sold my position out two weeks ago. Damn this market has gone further than I thought possible. It is certainly a fine co. and is part of one of the better monopolies in the world. As long as URKA plays along the price is going to hold up. Clearly, they see no reason to cut price as they don’t see price being a factor in increasing the amount of demand.

    Any of the numerous co. conference calls will more than amplify their thoughts on the market.

  87. HK – Don’t see anything new. Had a nice bounce off the retracement to the 50 EMA. The May highs are the line in the sand.
    I’m a bit bothered that it seems to be following the broader markets step for step. I was out all day yesterday and when I looked at the last hour sell-off, HK had a big volume move as well. Looks like it is now something that trades with the program traders.

  88. One other thought re gold – I don’t see it carrying on up if $ starts bouncing and european currencies start to fall. British Pound is in a clear wave v up this morning and showing momentum divergence. This market is ripe for at least a correction and possibly something much bigger.

  90. elduque — thanks for weighing in on URKA. Are you talking about POT or URKA conf calls?

  91. Just saw some science news that really scared me. Forget global warming, this is much more important…

    OK, so Todd Harrison (Minyanville) made a reference to a bar scene in “A Beautiful Mind”. But I never saw the movie so I googled the scene & found the clip.

    http://www.youtube.com/watch?v=l0ywiYboCLk

    OK, so now I get the reference. But the trouble is that another link in the google search took me to this terrifying article from 2002:

    http://news.bbc.co.uk/2/hi/health/2284783.stm

    Say it ain’t so!

  92. I should correct my statement above, not because the dollar is falling but because of the trillions of dollars injected into the system. Dollar hasn’t really fallen yet.

  93. V – yep, gotta export our way out of the recession. Strong dollar policy has been torched.

    Dman – re 91. Very sad. Good movie by the way. I do all my calculations on glass like that guy.

  94. Just one last thing. I posted a 60 min chart for the S&P cash at

    http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID2933882

    Don’t want to get all Japanese candlestick on you, but…

    If you look at the shape of the bars after a run up (repeat, after a run up), you can sometimes see a bar that has a shape like a sword sticking up into the air. When you begin to see these kinds of candles it can signal that traders are getting antsy about their positions and are willing to jump out.
    Doesn’t always hold to be true, but it can be something to look for.

  95. Saying goodbye to the last of my long service positions in my PA. I’ve been early before, we’ll see how this one works out.

  96. SPX sitting on a trendline at 912. If we take out 908 we may not be able to recover.

  98. Jat – Good luck with that. How’s mood in fund land? I imagine there are some who are thinking about calling it a year, at least until the end of 3Q rolls around.

  100. One more thought. The market has been rallying on the improving credit market. Well it has improved, where does the momentum come from for higher prices from here?

  104. Bill

    As for me, I’m not going to play TXCO just yet, I might later but I’m not interested right now.

    KOG – I leave to BOP, have been waiting on a pullback.

  105. My mood is great, but I think general mood in fund land is much too mixed to form a real consensus. Some shorts who jumped on early last week now gnashing their teeth and tearing of clothes, some eterna-bulls running 85% net long since forever saying that things like RIG are a $100.00 stock (which is fine depending on your time horizon). Same guys who were down 47% in 2008. A lot of dedicated energy scratching their heads at current valuations at the current time, which is nothing terribly new in my opinion. And a fair amount of people pointing out that it’s two days until the weekend. Lastly, if I hear the “cash on the sidelines” argument one more time I’ll shoot myself. At what point does “cash on the sidelines” become nothing more than a Greater Fools game?

  106. re cash on the sidelines: I suggest you read John Hussman’s latest missive. Have I said this once before?

  107. Joe Terranova buying oil, nat gas and stocks and is super bullish. That’s enough to to make me want to short this market. Funnily enough the other 3 on Fast Money were all going short too!

  110. SAN FRANCISCO (MarketWatch) — The same factors that drove up oil prices past $147 a barrel last year could easily return, posing a new round of challenges to a global economy on the cusp of recovery, said an energy economist from the University of California, San Diego, Wednesday. In remarks prepared for testimony to Congress, Professor James Hamilton said his research showed high oil prices last year contributed to the U.S. economy’s recent troubles. Drivers for oil’s rise — stagnating world output and a surge in demand from China — could return. “If demand from China and elsewhere returns to its previous rate of growth, it will not be too long before the same calculus that produced the oil price spike of 2007-08 will be back to haunt us again,” he said

  111. Tomorrow’s data

    Natural gas expected at 95 Bcf injection.

    Initial jobless claims forecast at 630,000,

    Leading indicators for April forecast at 0.8%,

    Philly Fed

  112. Z – Do you have any idea of the amount of NG that is currently used by utilities and how many are likely to switch from coal to NG in order to improve carbon footprint?

  113. 1 bcf to go offline from a blog..

    In the very near term, gas supplies may take a big hit from maintenance down time at a Sea Robin gas plant. I think the Sea Robin pipeline handles about 1 Bcf/d, and if all that production gets shut in for two weeks, we might see a decent storage report or two—for a change. Not this week, but next, assuming weather and LNG don’t offset it.
    _______________________________________________________________________________

    The Sea Robin Gas Plant (“Plant”), operated by Hess Corporation, has notified Sea Robin Pipeline Company (“Sea Robin”) that the Plant has rescheduled the plant outage for maintenance and repair of valves and fittings in order to coordinate the outage with other maintenance activities planned by producers that will impact Sea Robin’s pipeline system. This outage will commence on Thursday, May 21, 2009, and is expected to continue for fourteen (14) days. During the first 7 to 10 days, no dehydration or other services will be available. Dehydration services will commence after such time and will be available for the remainder of the outage.

    Sea Robin has been notified by some producers that they will begin shutting in production the evening of May 20, 2009. Should the total system flow be reduced to a level that the Plant is no longer able to process or dehydrate, then the Plant will shut in at that time. Once the Plant shuts in, there will be very little, if any, opportunity to make up imbalances for the remainder of the month.

    Sea Robin has contacted downstream delivery point operators to see if they will be accepting the non-dehydrated gas during this outage and investigating gas quality requirements. To date, no downstream delivery point operators have agreed to accept non-dehydrated gas during the outage. If the delivery pipes do not agree to accept this gas, Sea Robin will require producers to shut in their production.

  116. ELd – It’s probably best to put that with graphs in the post for tomorrow. “Switching” in this case will basically mean the utility looking at its generation portfolio and allocating less to coal and more to gas. There’s no right answer as their will be a lot of utility level decisions involved including their contracts for coal, coal inventories, sox and nox credit positions, geographic dispersion of different generation assets by fuel type etc. I can however point you to some what if’s as boundaries. In a nutshell, the amount of gas that could be burned in place of coal is quite large.

  119. No he is all about fundamentals and talking his book depending on the position he has on. He’s long all so it has to go up – right?

  120. sorry that should have said oil not all. That said he did seem to be long everything!

  121. Here is our gov’t at work on energy policy (without editorial comment):

    check out this (long) document
    http://www.treas.gov/offices/tax-policy/library/grnbk09.pdf

    from page 60
    Reasons for Change
    The credit, like other oil and gas preferences the Administration proposes to repeal, distorts markets by encouraging more investment in the oil and gas industry than would occur under a neutral system. To the extent the credit encourages overproduction of oil, it is detrimental to long-term energy security and is also inconsistent with the Administration’s policy of reducing carbon emissions and encouraging the use of renewable energy sources through a cap-and-trade program. Moreover, the credit must ultimately be financed with taxes that result in underinvestment in other, potentially more productive, areas of the economy.

  122. Key market action here. Beige Book was not great news so do they continue to push this up on bad news? $ tanked on it, gold moved up (silver not confirming), this could be the last push I was looking for.

  123. I will add that the move down off this mornings high is five waves, and so far the move back up is corrective. So…if we can take out the earlier lows we may see some action to the downside.

  126. Read PXD presentation; Key takeaway on Eagleford:
    1)Indicated decline less than Haynesville
    2) an 8-9 MMCFD well makes 200-300 BCPD and the BTU is 1200. So, “boe” calculation means gas equivalent is 8-9 times 1.2= 9.6-10.8 MMCFPD with 200-300BCPD. Starting to think the economics here might be better than Haynesville at 12-15 MMCFPD!

  127. Reef – HK said something like that too the other day. These wells are a bit cheaper to get drilled too at $6 mm vs $8 to $9 mm for the H.S. wells.

  128. Yea, and sound like they may be nearly equivalent on a total product value basis, so maybe they are then about a third better on an ROI basis

  129. Last thing on that PXD thing, don’t see any changes in the Eagle section from the last one. They’ve been on that frac awhile now.

  130. bill — re 102… KOG is worth buying, some time before June 15th or so. I’m hoping it legs down below a buck, at some point before then (as I have some cash on the sidelines with KOG’s name on it).

    KOG is now just a bundle of positive event risk, with 2009 funding questions settled. Wells 3 and 4 should be huge… and — at the right price ($2.50? 3.00?), Lynn will put this nano-company into larger hands (XTO?). But, for now, the time value of the embedded call option in the stock has been extended, greatly. This allows a variety of corporate options to play out. With the exception of oil crashing, almost all of those options are positive.

  132. z- the key to these plays is execution, 10 stages along the lateral provides 10 or more opportunities to foul up

  133. I just love it when people stand up for their rights under contract law. Without the law, the rules of investing are many, many times more uncertain. And “needers of capital” will have to pay “lenders of capitl” just that much more, to attempt to compensate for that risk. It’s a very bad slope (and potentially expensive, for all of us), to start heading down.

    So, Hurrah for the Group of Indiana Pension Funds! Just like the voters in California, some common sense is creeping back.

    —————————————–

    Pension Funds Object to Chrysler Sale, Want Trustee (Update1) 2009-05-20 13:35:52.677 GMT

    By Christopher Scinta and Bob Van Voris
    May 20 (Bloomberg) — A group of Indiana pension funds that hold first lien debt of Chrysler LLC objected to a plan to auction the company’s assets and said a U.S. District Court judge should rule on whether the sale is lawful.
    The Indiana State Teachers Retirement Fund, Indiana State Police Pension Trust and Indiana Major Move Construction filed court papers late yesterday and today asking U.S. Bankruptcy Judge Arthur Gonzalez in New York to block the sale, claiming the plan is illegal and tramples their rights.
    The funds are also asking for appointment of a trustee to run Chrysler, saying the company has “ceded control over their business and their restructuring efforts to the United States Treasury Department,” which is using the bankruptcy to reward certain creditors that “the government deems politically important,” according to one of the filings.
    “The Treasury Department has taken constructive possession of Chrysler and is requiring it to adopt a sale plan in bankruptcy that violates the most fundamental principles of creditor rights,” lawyers for the pension plans wrote.
    White & Case LLP, the same law firm that represented a group known as Chrysler’s Non-TARP lenders, is representing the Indiana pension funds.
    President Barack Obama criticized the Non-TARP lenders for refusing to accept an offer that would have paid them about 30 cents on the dollar saying they forced the automaker’s bankruptcy. The Non-TARP group abandoned its fight to block Chrysler’s sale plan earlier this month citing political pressure.
    The case is In re Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan)

  134. Reef – hear ya, could be the reason for the delay. Also, may not be a delay in their eyes, could be loaded down with studies I would guess. Will go back and look and see if they mentioned roughly when they’d have something to say there.

    To me, the key to these plays is already having the acreage help by production from another zone and then having someone else come along and pay a bunch of money to figure out that what you already have works. Their acquisition cost for the acreage will turn out to be negligible.

  135. Oil over $62 due to the dollar thumping and not too shabby inventory report.

    NG got a late lift from oil and actually traded 4.000 before dipping back to the current 3.98.

  136. Well… THAT was short-lived. “Judge” Gonzalez just ruled against Indiana. The Kangaroo Court of Chrysler continues.

  138. UBS is not one of the energy conferences I generally pay much attention to. Don’t know, just never have, maybe it just comes too soon after earnings to offer many gems.

    Deutche and RBC have conferences in the next 2 weeks, should be more interesting stuff as the quarter is 2/3 over by then.

  140. Z; very helpful look at HGT. Kurt Wulff at McDep and Associates has writtene xtensively on this (I love Z man as all the posting has really helped my analysis). BY the way; any thoughts on KEG? That was a great suggestion from the board (Wyoming??).

  141. Happy to do it. I don’t have any thoughts on KEG? Wyoming mentioned it the other night but I don’t recall if he was positive or not.

    OIH shot above its 200 day sma today and is looking like it wants to pull back through it. I am sitting on hands on puts there as all of the charts look pretty much like the index.

  144. Support at 900 and then 893. I am still on the look out for a possible sharp c to the upside – we are not in the clear on the downside yet.

  147. Nicky, on this current swing down, at what number on the downside do you give up the idea that there is an alternate C to the upside? (Just your personal preference is more than enough).

  148. PXD did make the same comment as from the 1Q call. Oil is up from $35 8 weeks ago, its up faster than he would have thought, thinks inflation will pop up and that’s the driver on crude. The important thing is he isn’t jumping to add rigs but is using the lift in prices to add oil hedges.

  149. Stock Market is skittish. Credit Market is holding onto most of it’s gains today. That should continue to put a support under the stock market… all else equal (which means, unless something new comes out of Washington). With credit holding up, don’t think stocks will fall very far. When they don’t, mo-mo and cash will continue to support stocks. This is what “climbing a wall of worry” feels like.

    That said, if credit turns south, all bets are coming off the table, quickly.

    HY 80 1/8

  150. Tater it is starting to look unlikely to me now – I was thinking that if we were going to see it they would do it into the close.

  151. PXD – Regarding their first Eagle Ford Shale horizontal they said it takes 2 weeks to complete an 8 stage frac. He said that they had previously said they were fraccing the well at the time of the conference call. That was May 6. So, I’m pretty confident they something about the well by the time of the next analyst conference on May 28, well before the June options expire. He left it at that. I don’t often play the roll of “well watcher” but in this case I am as the play is significant to them if it works on their acreage and I have little reason to think that it won’t. It adds an interesting, high return, but gassy aspect to the story. This isn’t something you crank up in this environment necessarily but it does change the story. This is a large, diverse company but this play could put a little spring in their step.

  153. BOP – Does it seem that investors who are rejected by the BK judge can appeal to one of the Supreme Court justices to initiate a “stay and review” based on the BK judge trampling on the Constitution?

  154. PXX – last thing on Eagle Ford well. They are mid way through 8 stages, it’s going as expected, they have no results now, they will press release it when they have flow information.

  155. nicky – am a little confused by 150. u think the upside is unlikeky now????

  156. ram — I don’t think so. I don’t think there is a higher “court of appeals” for a BK. If constituents can’t agree, the company stays in BK until they do. If they still can’t agree, the judge can “cram down” a judgement if it looks like a majority agrees, but a minority is holding it back. Once out of BK, the allocation of assets can not be appealed.

    But, that is a traditional BK. With the Fed stepping in here and the Prez twisting arms and threatening reputations behind closed doors, there may be something here that can be pursued. What Obama/Treasury did here was strong-arm assets from a rightful group of senior claimants in order to give value to the UAW (who contributed something like $5mm of the $52mm of Union contributions to his campaign). The fact that Obama used the bully pulpit to twist arms before the BK court got it, makes it unethical, but legal-ish. But, is it legal for the US President to threaten reputations of private companies and citizens? I guess it’s been done before… but it is never the right thing to do.

    I’ll post another article about this following….

  157. Sorry Kyle – yes i had been worried about a sharp c wave bounce into the close. Really need to see a break of 8250 on Dow and 878 on spx for total confirmation. Will give you a couple of possibilities a bit later.

  159. Fund Managers Burned by Obama Now Say They Are Wary (Update1) 2009-05-20 17:52:32.841 GMT

    By Caroline Salas
    May 20 (Bloomberg) — Hedge fund manager George Schultze says he may avoid lending to any more unionized companies after being burned by President Barack Obama in Chrysler LLC’s bankruptcy.
    Obama put Chrysler under court protection on April 30 after lenders balked at a proposal giving them about 29 cents on the dollar for their $6.9 billion in debt. The investors said the president’s plan favored a union retiree medical fund whose claims ranked behind them for repayment. It was offered a 55 percent equity stake in the automaker.
    Pacific Investment Management Co., Barclays Capital and Fridson Investment Advisors have joined Schultze Asset Management LLC in saying lenders may be unwilling to back unionized companies with underfunded pension and medical obligations, such as airlines and auto-industry suppliers, because Chrysler’s creditors failed to block Obama’s move. The reluctance may put additional pressure on borrowers seeking capital in the worst financial crisis since the Great Depression.
    “Lenders will have to figure out how to price this risk,”
    Schultze, 39, said in a telephone interview from his office in Purchase, New York. “The obvious one is: Don’t lend to a company with big legacy liabilities or demand a much higher rate of interest because you may be leapfrogged in a bankruptcy.”

    Dissident Lenders

    Schultze, whose firm had about $247.7 million under management in February, according to a regulatory filing, declined to disclose which company debt he may avoid.
    He was among the last holdouts. The dissident lenders to the Auburn Hills, Michigan-based automaker — including OppenheimerFunds Inc. and Perella Weinberg Capital Management LP, both in New York — caved after Obama blamed hedge fund “speculators” for the bankruptcy of the 83-year-old car company and said he stood with its employees.
    At its peak, the group consisted of 30 funds holding more than $1 billion, according to Tom Lauria of White & Case LLP, the investors’ attorney, who is based in Miami and New York.
    “Anything that involves a large number of jobs or affects a large number of people, you can expect to see a Chrysler redux,” Jerry del Missier, president of Barclays Capital, said in an interview from his New York office. “One of the consequences here is the so-called speculators, people who provide financing, will think twice about getting involved.”
    Barclays Plc, based in London, is the third-biggest U.K.
    bank.

    ‘Rights Were Trashed’

    Jack Welch, former chief executive officer of General Electric Co., criticized how the government handled Chrysler’s bankruptcy, saying unions were favored at the expense of creditors.
    “I didn’t like the terms,” Welch, 73, said in an interview yesterday at the Boston Convention Center. “The creditors’ rights were trashed and the unions got 55 percent of the company.”
    The struggle between creditors and labor has also reached Hartmarx Corp., the 122-year-old clothing maker in Chicago that made the suit Obama wore to his inauguration. Unions are gaining government support in a fight against Wells Fargo & Co., the bankrupt company’s lender.
    More than 30 members of Congress, including House Financial Services Committee Chairman Barney Frank are urging the San Francisco bank not to liquidate the clothier, according to Representative Phil Hare, an Illinois Democrat. The lawmakers are also seeking Treasury Secretary Tim Geithner’s backing.
    Hare said last week that Wells Fargo, the fourth-largest U.S. lender, is responsible for Hartmarx’s collapse because it refused to extend credit. Wells Fargo said in a statement the bank wants the suit maker, which defaulted on more than $114 million in loans, to “stay in business.”

    Preferential Treatment

    General Motors Corp., which accepted $15.4 billion in U.S.
    taxpayer aid, is also giving unions preferential treatment over bondholders in its restructuring, even though their claims rank equally. The biggest owners of GM debt include San Mateo, California-based Franklin Resources Inc. and Capital Research & Management Co. of Los Angeles, regulatory filings show.
    Detroit-based GM on April 27 asked the investors to swap
    $27 billion in debt for a 10 percent stake in the reorganized automaker, while offering a retiree health-care fund $10 billion in cash and as much as a 39 percent stake for $20 billion in unsecured claims.
    “It’s terrible precedent,” said Schultze. “The sad thing is it impacts the manufacturing sector and the companies that have legacy liabilities directly. It will be nearly impossible, or much more expensive, to get secured financing for these type of companies.”

    Offer Rejected

    Unions spent $52 million to help elect Obama, which includes $5 million from the United Auto Workers, according to OpenSecrets.org, a Washington-based organization that tracks campaign spending. Roger Kerson, a spokesman for the UAW in Detroit, declined to comment.
    A committee of GM bondholders rejected the offer and asked Obama’s auto task force on April 30 for 58 percent of the company’s equity. Their proposal hasn’t been adopted and bankruptcy is “probable,” Fritz Henderson, GM’s chief executive officer, said in a Bloomberg Television interview last week.

    ‘Strong-Arm’

    The U.S. bankruptcy code allows for workers to get preference over bondholders, said Richard Hahn, co-chairman of the bankruptcy practice at Debevoise & Plimpton LLP, a New York law firm, who isn’t involved in the GM negotiations. Section
    1114 of the bankruptcy code requires that a debtor “timely pay” all “retiree benefits” unless the bankruptcy court orders otherwise or the authorized representative of the recipients of those benefits agrees to other treatment, he said.
    Chrysler lenders might have recovered nothing if the government hadn’t poured billions of dollars into the carmaker, said Gary Hindes, managing director of distressed investments at Deltec Asset Management LLC in New York. The hedge fund firm didn’t buy the company’s debt or GM’s, in part because of the risk the government’s involvement would damp returns, Hindes said.
    “If you’re being paid more than what you would be paid in a liquidation, then the contractual obligation has been met,”
    said Hindes, whose firm oversees about $526 million, according to a regulatory filing. “It’s still very disturbing to see the government basically strong-arm people into this.”

    $4.2 Billion

    While debt prices haven’t yet reflected the shunning of unionized companies by investors, steel and automakers and airlines will face higher borrowing costs when they attempt to raise funds, Schultze said.
    Fort Worth, Texas-based AMR Corp. employs about 90,000 and
    67 percent are represented by unions. AMR had about $4.2 billion in underfunded pension obligations as of year-end, according to Fitch Ratings.
    AMR, the parent of American Airlines, is rated Caa2 by Moody’s Investors Service and B- by Standard & Poor’s, four and six levels above default.
    Andy Backover, an American spokesman, declined comment.
    Airline bonds haven’t fallen since Chrysler’s April 30 bankruptcy. High-yield air transportation debt is up 5.4 percent in May, outperforming the 3.8 percent climb in the average junk bond, according to Merrill Lynch & Co.’s U.S. High Yield Master II index.
    Speculative-grade bonds for auto and auto-part makers are up 3.9 percent.

    ‘Justifiably Concerned’

    “Creditors are justifiably concerned” about what precedent the auto bailouts are setting, said Mark Kiesel, global head of corporate bond portfolios at Pimco in Newport Beach, California. Pimco managed $747 billion as of Dec. 31.
    “When you get these companies that have legacy costs, that’s something you have to factor in when evaluating credit risk,” Kiesel said. “Any investor is going to price in increasing political risk in considering where to put their money.”
    Pimco, manager of the world’s largest bond fund, didn’t have a stake in Chrysler and owns an “infinitesimally small”
    amount of GM debt, according to a report by co-chief investment officer Bill Gross on the firm’s Web site.
    The government’s “grassroots trend” signals “an increasing uncertainty of cash flows from financial assets” and risk premiums will increase as a result, Gross wrote.

    Small-Car Technology

    GM’s $3 billion of 8.375 percent bonds due in 2033 have plummeted to 5.5 cents on the dollar from 21 cents at the beginning of the year, according to Trace, the price reporting system of the Financial Industry Regulatory Authority. The debt yields 146 percent.
    Chrysler began a bankruptcy process last month designed to revive the business. It will focus on small-car technology through a new partnership with Turin-based Fiat SpA, Italy’s biggest automaker. Obama says the plan will save more than 30,000 jobs.
    A group of senior secured creditors, the Committee of Chrysler Non-Tarp Lenders, opposed Obama’s plan. Putting labor ahead of them in line for repayment violated “long-recognized legal and business principles,” the investors said in a statement the day Chrysler filed for protection.
    The committee gave up fighting on May 8 “after a great deal of soul-searching and, quite frankly, agony” and concluded that “they just don’t have critical mass to withstand the enormous machinery of the U.S. government,” said White & Case’s Lauria in an interview that day.
    “People are starting to think ‘This is a very activist administration, even more than we counted on,’” said Martin Fridson, CEO of money manager Fridson Investment Advisors in New York. “If it comes down to the interest of creditors or labor unions, the administration is going to override what you thought you could do.”

  161. Summary of the Minutes of the April 29th FOMC Meeting, released today, that sent the mrkt lower.

    —————————————–

    All FOMC participants projected that real GDP would contract this year, that the unemployment rate would increase in coming quarters, and that inflation would be slower this year than in recent years. Almost all participants viewed the near-term outlook for economic activity as having weakened relative to the projections they made at the time of the January FOMC meeting, but they continued to expect a recovery in sales and production to begin during the second half of 2009. All anticipated that unemployment, though declining in coming years, would remain well above its longer-run sustainable rate at the end of 2011; most indicated they expected the economy to take five or six years to converge to a longer-run path characterized by a sustainable rate of output growth and by rates of unemployment and inflation consistent with the Federal Reserve’s dual objectives, but several said full convergence would take longer. Participants projected very low inflation this year; most expected inflation to edge up over the next few years toward the rate they consider consistent with the dual objectives. Most participants — though fewer than in January — viewed the risks to the growth outlook as skewed to the downside. Most participants saw the risks to the inflation outlook as balanced; fewer than in January viewed those risks as tilted to the downside. With few exceptions, participants judged that their projections for economic activity and inflation remained subject to a degree of uncertainty exceeding historical norms. Participants’ projections for 2009 real GDP growth had a central tendency of negative 2.0% to negative 1.3%, somewhat below the central tendency of negative 1.3% to negative 0.5% for their January projections. Looking further ahead, participants’ projections for real GDP growth in 2010 had a central tendency of 2.0 to 3.0%, and those for 2011 had a central tendency of 3.5 to 4.8%. Most participants expected that, absent further shocks, real GDP growth eventually would converge to a rate of 2.5% to 2.7% per year, reflecting longer-term trends in the growth of productivity and the labor force… Participants noted that the data received between the January and April FOMC meetings pointed to a larger decline in output and employment during the first quarter than they had anticipated at the time of the January meeting. However, participants also saw recent indications that the economic downturn was slowing in the second quarter, and they continued to expect that sales and production would begin to recover — albeit gradually — during the second half of the year, reflecting the effects of monetary and fiscal stimulus and of measures to support credit markets and stabilize the financial system along with market forces

  162. bill — #160… you are so right about that. But that shouldn’g stop anyone from trying to educate/tell them. People need to know what is going on. Scary thing is, not only do they “not know,” they “don’t care.” Which has signaled the end of every democracy in history. When people stop caring about protecting individual rights from a centralized power, they cede power to govt. Which eventually takes over.

    But, alas, that is a “history lesson”… another thing people don’t seem to care about any more.

    Still, Californians voted “NO” today. That is a start!

  163. Housekeeping Two Items:

    1. HK
    Sanford C. Bernstein & Co. Inc. – Petrohawk Energy initiated with an Outperform at Bernstein
    HK: theflyonthewall.com – 05-20 4:16 PMTarget $35….

    2. Re: POT #41 & 1520
    You migh consider PCH which POT the Holding Company. Trades in tandum but you also get paid to wait via a big 2.40 divi(7.7%. Goes X on 5/27. Just a thought.

  165. Sat through an interesting presentation from EXCO CEO (Doug Miller) today in Dallas. Talked about companies with conventional and unconventional plays will start divesting conventional assets because F&D’s for shales are less than 1$/Mcf, which is much more attractive than conventional plays. But because of this shift to unconventional plays and their associated well decline (HIGH), more drilling and completions work is needed. Pretty simple stuff that we all knew, but it’s good to hear it come from him.

  166. Re 163 #1 – I don’t show it on Thomson or other sources but I’ll take your word for it, thanks. Lots of broker targets in mid $30s there now with Buy ratings, good to see another while I have newly bought calls and the common.

    TEX – thanks, agree good to here. If everyone wants to divest conventional assets in favor of shale, you wonder who is going to do the buying and you have to wonder if less capital will be applied to those assets, which I believe represent about 85% of U.S. natural gas production.

  167. energy stocks up after hours

    In a rare display of unanimity Wednesday, Democrats on the House Energy and Commerce Committee accepted a Republican amendment to the climate change bill (HR 2454) that would promote the use of natural gas

  169. #165 and 166 dicesting conventional production; EVEP said it is cheaper to buy than drill, and LINE just sold stock…I think LINE said they like to buy assets with equity, so here is thier kitty for acq.

  171. Cramer had LINE’s CEO on today and came out with a buy-heh-As Z said, it would be good if he would stay out of the energy patch-Michael Linn did say that he did not plan to cut distributions for forseeable future.

  177. Pingback: Fashion

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