27
May

Watchful Wednesday

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Weird Science Watch: Energy Secretary Chu wants to paint your roof white. The idea is to reflect the suns rays better from flat rooftops, resulting in lower energy consumption. I smell a tax credit coming and a run on Sherwin Williams stock (SHW) and more probably Tronox Inc. (TRXAQ.PK), which markets Titanium Dioxide (TiO2), a whitening agent for things like paint, and which used to be a subsidiary of Kerr-McGee but was spun out after KMG was bought by (APC) which is how I have any idea about it, LOL. The company is in bankruptcy but still trades on the pinks. 

Nutbag Watch: North Korea tested another short range missile overnight and said it would attack its neighbor to the south should anyone search ships leavings its ports. North Korea also restarted a plutonium upgrading facility. Way to engender trust nutbag.

In Today's Post:

  1. Holdings Watch
  2. Commodity Watch
  3. Crack Spread Update
  4. Stuff We Care About Today
  5. Conference Calendar
  6. Odds & Ends

Holdings Watch:

  • $10KP: $26,300; 62% Cash; The Wiki tab is updated.
  • Stocks I own now watch. I realized awhile back that I don't have a place on the site for the common stock positions I own. They don't change a lot but I get asked for them quite a bit. I will be adding a tab for them shortly but in the interim here they are in alphabetical order:  CHK, CLR, HK, END, FTO, GMXR, LINE, NBR, NFX, PQ, SWN, WRES. 

 

  • EOG - Added (5) June $70 Calls (EOGFN) for $2.15 with the stock off 3% at 66.80 on a broker downgrade yesterday. The stock has been, in my opinion, overly sold off following earnings season. They speak this morning  at an industry conference (see schedule below) and while I don’t anticipate news of a catalytic variety they may release one or two new tidbits. I continue to hold 5 of the June $80 calls here as well.

Commodity Watch

Crude oil closed up $0.78 to $62.45 even as the chorus of bears calling for its imminent demise reached a deafening level. This morning crude is trading up $0.30 to $0.50 towards the $63 level.

  • Early Read On Oil Inventories: (EIA reports inventories tomorrow due to the Memorial Day holiday)
    • Crude expected to be down 1.1 mm barrels (Reuters estimate)
    • Gasoline expected to be down 1.8 mm barrels
  • OPEC Watch:  Saudi oil minister Naimi says the group sees signs of demand recovery, especially in Asia. This should put the nail in the coffin for the concept of further production cuts at tomorrow's meeting although you never know with these guys. I think they do nothing, other than talk about compliance levels.

Natural gas inched up 2 cents to $3.54 after trading as low as $3.38 early in the session.  I do expect to see a bit of short covering before the EIA releases more production at week's end. This morning gas is trading up slightly.

  • Imports Watch: Imports reach a 2009 low, down 0.6 Bcfgpd from last week  and 1 Bcfgpd from year ago levels. 
    • LNG backed off to 1.5 Bcfgpd from 1.9 Bcfgpd. I continue to await the LNG tsunami.
    • Canada fell to 5.5 Bcfgpd, the lowest level I have on record.

 

Crack Spread Update:

Spreads showed improvement last week only due to the pre holiday run in prices. To be sustained at these levels we will need more support than a holiday related price spike can provide. I continue to sit on my hands on the refining group until we see a pickup in demand.

Gasoline demand picked up with last week's report as gasoline stations stocked up for Memorial Day. I would expect it to show similar strength this week but then to hold this level which is not the typical seasonal pattern. 

 

Stuff We Care About Today

I'll have a piece on (WRES) later today.

EOG Spoke This Morning At Sanford Bernstein. This is a generalist conference but I will put anything interesting I hear in the comments section. 

Conference Calendar Watch: Thanks to Nifkin for posting the rosters for both of these. I have edited them for the stuff I really care about discarding utilities and the like.

Deutsche Bank Energy & Utilities Conference

Today, May 27 - All times EST (red bold means I'll be listening)

10:50 AM: TSO
11:40 AM BHI
2:50 PM BBG, OII
3:40 PM FST, SII (Energy Service/E&P)
4:30 PM SWN

Thursday, May 28
8:00 AM APC
8:50 AM HAL, KWK
9:40 AM CHK, PXD
1:30 PM UPL
2:20 PM FTO, RRC
3:10 PM  SD
4:00 PM XCO

Sanford C. Bernstein & Co. - Twenty-Fifth Annual Strategic Decisions Conference

Topday, May 27 (all times EST)
8:00 AM EOG Resources (EOG) – Mark Papa, Chairman & CEO
9:00 AM Apache Corporation (APA) – Steven Farris, Chairman & CEO
10:00 AM ConocoPhillips (COP) – James Mulva, Chairman & CEO
4:00 PM United States Steel Corporation (X) – John Surma, Chai

Thursday, May 28
2:00 PM Anadarko Petroleum Corp. (APC) – James T. Hackett, Chairman, President & CEO

Friday, May 29
8:00 AM Hess Corporation (HES) – John B. Hess, Chairman & CEO
11:00 AM Sunoco Inc. (SUN) – Lynn Elsenhans, Chairman, President & CEO

Odds & Ends

Analyst Watch: 

  • Barclays ups (SU) price target from $42 to $50; trims targets modestly for (XOM), (COP), (MRO)
  • Barclays ups (PCZ) to Overweight; cuts (MRO) to Equalweight

 

121 Responses to “Watchful Wednesday”

  1. 1
    zman Says:

    EOG comment: they will be 50/50 oil vs gas production within 3 years from 35/65 now. That’s a little faster than I would have thought or recall them saying before. So they are getting oilier faster.

  2. 2
    zman Says:

    B of A initiates GMXR with a Buy rating. Obviously this was leaking out yesterday.

  3. 3
    zman Says:

    EOG call comment:

    Says their peers are chasing horizontal shale gas plays because those are easier. They are chasing oil more than others because it is more difficult technologically. Thinks that EOG is 2 years ahead on technology. That sounds like a bit of self flattery, don’t think they are really that far out there. But he’s right about oil being more difficult (small pore spaces, bigger hydrocarbon molecule etc).

  4. 4
    zman Says:

    EOG Comment on Barnett Shale

    Total Barnet shale gas peaked 2 months ago. They had previously said it would peak in the second quarter so they think it peaked a little early. EOG’s growth in the Barnett has not yet peaked. We will get more supply information on Friday which should show this more pronounced drop in the March Texas data.

  5. 5
    BirdsofpreyRcool Says:

    Energy Sec’y Chu is beginning to remind me a bit of Jimmy Carter and his recommendation that we all wear sweaters. Perfectly logical. But somehow silly advice, coming from the govt. Or, maybe not. Depends on your POW, i suppose.

    Tronox. Funny company. Even funnier that they got spun out of Kerr-McGee and stuffed with a bunch of legacy environmental liabilities. But, the funniest part of Tronox was listening to a quarterly conf call. Like listening to a bunch of kindergartners complain and then and try to answer questions. Amusing, only if you didn’t own the stock.

    A few words on TiO2. It is a somewhat unique animal. Formula-wise, it’s a commodity chemical, but it is treated as a “specialty product” by the market (and analysts). Almost 70% of the global manufacturing of TiO2 is conducted by only 5 chemical companies. In order: Dupont, Cristal, Tronox, Huntsman, and Kronos. Dupont makes a lot of other stuff; Cristal is a private Saudi company; Tronox is BK (and i haven’t checked on whether they have changed out mngmt yet); Huntsman has a lot of debt and a company-changing lawsuit against Apollo Mngmt (private equity group) over a failed merger with Hexion (trial set to start on June 8th); and Kronos is a weird micro-cap, 95%-owned by Harold Simmons (usually trades less than 20k shares per day).

    Just the other day, Huntsman announced an increase in the global price of their TiO2.

  6. 6
    zman Says:

    EOG Comment on the SEC Reserve Calcs.

    – says the definition of the new rules is open to more interpretation.

    – he sees more confusion for shareholders due to the flexibility of interpretation.

    – he says those adopting a more liberal stance towards reserves could result in some companies seeing a big jump in their reserves.

    – he says they are conservative and they were not in favor of the changes. I’d point out that he’s also not a full cost accounting firm (they use successful efforts) and therefore not subject to the big price related writedowns seen at companies like CHK.

  7. 7
    zman Says:

    BOP – thanks for the color. I used to have the TiO2 business in my KMG model and obviously you have superior experience there. I guess Hackett at APC was the one who stuffed them with the liabilities and booted them out the door by the way. Anyway, just thought a whitener company could get a populist play pop, lol.

  8. 8
    BirdsofpreyRcool Says:

    z — every time i think of a Tronox conf call, i just have to smile. So, couldn’t resist commenting. HUN might be the best way to play TiO2, but you also get the lawsuit drama.

  9. 9
    BirdsofpreyRcool Says:

    TechTrader has no comment for today.

    HeadTrader is in head-scratching mode. Says it sure does feel like a “sell” day… esp after yesterday… but will be interesting to see how we open.

    IG 146 1/2 unch’d

    HY 80 1/8 better by about 1/4

  10. 10
    zman Says:

    BOP – I’m not playing, just following the Antics of Chu, the story of an academic unleashed on the real world. Painting flat roofs white is probably a good idea, and I have no doubt it works well in Chu’s lab, but I’d rather it be pointed out as an energy saving option than be promoted via a tax credit.

  11. 11
    zman Says:

    re 9 – I’m watching Nicky’s 915 level on the SP500. Feels to me a re-bullishness is exerting itself. Got an email last night talking about multiple sectors going way short, highest percentages ever seen in so many industries at one time.

  12. 12
    bill Says:

    No comments on GM??

    Bondholders digging in… gives the POTUS a chance to get on TV to bash greedy bond holders

  13. 13
    john11 Says:

    Z.. was wondering about WRES write-up, did i miss it?

  14. 14
    zman Says:

    Refiners catching a bid as the second FCC at SUN’s Pa facility went off line due to mechanical problems.

    GM – who can blame the bondholders for holding out?

    Mortgage aps story:
    http://www.marketwatch.com/story//mortgage-applications-fell-142-last-week-mba

  15. 15
    zman Says:

    John11 – No. It’s sitting on a tab on my browser. I did a quant piece on them and wanted to add a little more play color as well as fill in a couple of thoughts.

  16. 16
    zman Says:

    … and so it will be out after the close.

  17. 17
    BirdsofpreyRcool Says:

    bill — there was an article in first section of WSJ today from an automotive retiree who has most of his retirement saving in GM bonds. He points out that POTUS is treating one set of automotive retirees completely different than another set of automotive retirees.

    GM bonds are different animals (than Chrysler). Huge percentage were bought by Ma’s and Pa’s until just a coupla years ago. If the Administration goes after “greedy bondholders” in this case, it just might backfire… badly.

    But, once again, not hearing much knowledgable comments about the Ch11 process, even from those who the media are interviewing as “experts.”

    Bondholders only want to be treated fairly. They don’t want to stick-it-to anyone. Also, they did not “cause” GM to file BK. GM caused GM to file Ch11 (when it happens). The govt’s role here is terrifying.

  18. 18
    zman Says:

    Crude over $63. No assumption of a production cut factored in and the dollar is flat. I don’t see any chance that the Cartel increases production either, not yet. They may highlight where exactly they are seeing demand pick up at tomorrow’s meeting. The closer we get to $65 the more I think we start to develop a new trading band of $55 to $65 vs the current one which has been $45 to $55 and only recently above the upper end.

  19. 19
    1520sbroad Says:

    #17 – BOP – that op/ed piece in the WSJ will be one i’ll re read after the gov makes their bankruptcy decision on GM. Terrifying.

  20. 20
    zman Says:

    ECA Hayensville call at 11 am

  21. 21
    zman Says:

    PXD – new presentation on their website for presentation tomorrow. Still shows the E.S. well as fracing. Flipping through the presentation now.

  22. 22
    bill Says:

    bop 17 ty

    Dry bulk rates are improving

    dsx and egle are interesting

  23. 23
    BirdsofpreyRcool Says:

    Credit market sector colour — seeing the bonds of MLPs very well bid today. There are “no good deals” left in the better MLPs at the current debt levels. Those bonds have had an incredible recovery from their lows. This is a sector to play the units now.

  24. 24
    bill Says:

    http://www.tradewinds.no/drycargo/article537726.ece

  25. 25
    zman Says:

    Re DSX – thanks Bill, got a quarter of an eye on them. I look at the rates rather infrequently, mostly for the wrap since I’m not in them right now. Big pop last week. I have to wonder if we are starting to see more traffic in Asia now, perhaps the recovery in demand there goes hand in hand with what OPEC is starting to hint at.

  26. 26
    otrader777 Says:

    found a good site for free real time stock charts http://www.freestockcharts.com/

  27. 27
    zman Says:

    Thanks for that link Bill. Have you seen any ships swapping hands in the secondary market? There has been lots of talk that the stocks don’t make their initial move until we see some transactions that give a floor to asset valuations.

  28. 28
    zman Says:

    Otrader – thanks. Please check your email.

  29. 29
    zman Says:

    Re 23 – the units are still in “cheap land” if you look at the hedged ones like LINE, which is now cresting $19, with a secondary under its belt and a yield of 13%.

  30. 30
    1520sbroad Says:

    BOP – my thoughts on URKA after some reading and thinking:

    I should preface this with my overall thought that worldwide fertilizer demand will increase in the near term and that this business will grow for all the major producers in the world.

    Grain supplies are still tight worldwide, planting season in North America has been sloppy thus far and farmers will at some point have to re-nutrify.

    Pros:
    * URKA is in a unique geographical position with access to China and India as prime customers. They control the mining operation, transport and shipping.

    * Debt is not an issue here. another Russian producer Silvinit has a big debt porblem.

    * Profit margins will be compressed this year due to poor pricing (likely just north of breakeven) and slack sales (sales down roughly 40% this year) but should expand in 2010 to north of 35% (potentially well north of there).

    *URKA has some good mines – high quality and developed. Poor pricing, access to financing, recession etc. in 2009 will put any new mine development worldwide firmly on hold – thus rewarding operators that have spare capacity that still has many years of production left – this is URKA. Their deposits are also shallower than other mines worldwide.

    *There are a couple of good maps in analyst reports recently – Daniel Yakub of Citi is one that shows URKA’s mines – key point here is long life mines with good infrastructure, transport etc.

    Cons:
    * They operate in Russia and big Russian businesses have a tendency to operate as pseudo-state run industries. The Russian gov’t has alluded to some sort of major restructure of the potash industry into a broader metals/mining super structure. I don’t have enough info on that.

    *Stock price volatility here is large – roughly double the volatility of POT.

    *The current new set of China negotiations could be sticky and could be a PR issue for URKA.

    *Other Russian producers (Silvinit) could undercut URKA on price just to service their debt. This could be a nightmare for all involved.

  31. 31
    BirdsofpreyRcool Says:

    Comment about the affect of a GM Ch11 filing.

    A GM filing would put the process in the hands of the court of law. Although, GM will likely “shop” for a judge who is sympathetic to the Gov’t’s view here, it will still be a better process than what our Govt has tried to shove thru.

    When this happens, bonds will rally. That will pull stocks up with them. Something to keep in mind, with all the media bull flying around about a GM bankruptcy filing.

  32. 32
    bill Says:

    here is egle q1 earnings

    there is a slide in their on ship prices

    http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzM2NTg5fENoaWxkSUQ9MzIwNzE0fFR5cGU9MQ==&t=1

  33. 33
    BirdsofpreyRcool Says:

    1520 – #30… TYVM. Will read carefully now. Appreciate the assist!

  34. 34
    1520sbroad Says:

    BOP – several decent analysts out there on them – Yakub at citi is pretty good. There is a guy at Goldman that is pretty good too – don’t remember his name but i think he is listed on the URKA website.

  35. 35
    zman Says:

    ZTRADE:

    PXD – Added a July $30 Call position (5) (PXDGF) for $1.05 with stock at about $26.

  36. 36
    zman Says:

    Housekeeping watch: the textblasts to ATT phones seem to be either working or not, I send them to my phone too and today and yesterday I did not get them. I am working on a better email to sms solution.

  37. 37
    zman Says:

    re 32 – slide 9 very helpful, thanks Bill.

  38. 38
    bill Says:

    here is a link with daily charter rates by segment and graphs and future prices

    egle has supramax ships 50,000 dwt, mostly new, and acquired around the current market price

    the current spot rate is 19,139. the futures indicate about 15 k for q3 and q4

    breakeven cash is 11 k per day

    as you can see the current spot rate is higher than the futures, so the market is in backwardation

    http://reports.platou.com/FixtureReport/Pages/BulkFixtures.aspx

    i bought some egle today

  39. 39
    zman Says:

    Market just doesn’t seem to want to sell off. Almost uniform green in energy land.

  40. 40
    BirdsofpreyRcool Says:

    no new comments off the trading desk… but i will say that the High Yield Index is holding nicely above 80. This puts a floor under stocks.

    HY 80 1/2

  41. 41
    zman Says:

    BOP – I’ve asked before and forgotten because at heart, I’m a bond neophyte. What’s the best way to track what the high yield market is doing on my market watch? An index? An ETF? Thanks.

  42. 42
    Garyinhou Says:

    “Weatherford International (WFT Quote) numbers raised at Barclays to $24. Estimates also increased, to reflect growth in the international business. Overweight rating.”

  43. 43
    Garyinhou Says:

    Z Man, can you put this quote into layman terms for me? 42% of total prod for BP? wth…

  44. 44
    Garyinhou Says:

    “Thunder Horse, which started up in 2008, will provide 42% of BP’s incremental upstream production over the next three years, according to analysts at J.P. Morgan Chase.”

  45. 45
    zman Says:

    re 43 – can you put that in context for me Gary, where did you see it?

  46. 46
    reefguy Says:

    pXD- Believes overlying fractured chalk has a portion of the Eagleford gas column. Therefore, where you have have fractured Austin(Austin Production), you will likely have procuction in underlying Eagleford, assuming EF is present. Could it be that the production out of the chalk has been draing the EF rocks?

  47. 47
    zman Says:

    Oh, should have waited. Sounds like what it is. If you take their base production and decline that off at what it falls at, you have replacement production and growth production wedges. They’re saying crazy horse, oops, gotta be pc, thunderhorse is about 40% of their growth wedge.

    Its a 250,000 bopd deepwater gomex platform plus some associated gas. Started up late last year and is a majority of the bump we’ve seen in U.S. oil production in the last few months.

  48. 48
    Garyinhou Says:

    This short article found on rigzone…

    http://www.rigzone.com/news/article.asp?a_id=76483&hmpn=1

    about finding more prod through bit rather than bought

  49. 49
    Garyinhou Says:

    Thanks Z

  50. 50
    BirdsofpreyRcool Says:

    z — #41… JNK etf is probably the best. But, you have to watch where it is trading with respect to it’s NAV. Also, the high yield investors you really want to track (plain vanilla buyers/sellers) do not use JNK (or any etf). So, best to look at JNK from a longer trend perspective.

    Can you put a benchmark bond on your screen? There is a market pricing service called “TRACE” that reports somewhat reliable bond prices. Problem is, none of that is in “real time.” It’s kind of like waiting for your realtor to tell you what the house next door sold for. Bonds are bougght and sold in private market transactions… so, true real-time price discovery continues to be not an easy task.

  51. 51
    zman Says:

    re 46 – I thought they though Eagle Ford was source for Austin Chalk. They have huge well control here. Given how many verticals they have in the area I’d bet they have a pretty good idea where to drill in the really naturally fractured areas … hopefully they don’t muck up this well because if it works we are talking lots of locations for a better gas price environment. Don’t think the well impacts their liking of the play even if they muck it up but we are far east of the other wells and it would be good to highlight the potential to the Street. Looking at the reserve valuations and CF multiples, I’d say the Street is giving them little to no credit for the play now.

  52. 52
    elduque Says:

    BDI +222 3164

  53. 53
    zman Says:

    BOP re 50. Thanks. So you just get it from the trading desk?

  54. 54
    zman Says:

    Think energy group has a little more left in it. If the broads can come even on the day I’d look for E&P to outperform by a good margin.

    Natural gas street estimate for tomorrow: 114 Bcf. That looks high to me, still working through data. If it comes in at something like 120 Bcf look out below, probably a $3 handle test. But the 114 level is high and imports were off week to week so there’s a good chance we’re setting up for a beat.

  55. 55
    BirdsofpreyRcool Says:

    mrkt should be heading up… Moody’s out affirming US AAA rating despite increased debt.

    That helps bonds… a lot.

  56. 56
    zman Says:

    I guess the POTUS made the call on that one.

  57. 57
    BirdsofpreyRcool Says:

    didn’t have to. Got Rahm to make the friendly phone call… 😉

  58. 58
    BirdsofpreyRcool Says:

    TechTrader emerges!! Says the mrkt would make the high before 11am today and that a short there would work 60% of the time.

    HeadTrader’s gut disagrees… so, we shall see.

  59. 59
    zman Says:

    Oil making another run north of $63, a bit strange with a stronger (slightly) dollar and a weakish U.S. market. I say weakish but after yesterday’s run holding this level is in fact pretty stout.

  60. 60
    zman Says:

    BOP – I don’t want to see any complaining about my treatment on production taxes in the WRES model tomorrow, its a hand grenade model as it is, lol.

  61. 61
    zman Says:

    Oily names suddenly perking up with a green S&P. CLR looks like a drawing of a telephone pole on the minute chart.

    SP 912

    EOG said its oily horizontal plays like the Bakken and the Watonga (Canada) were seeing IRR’s over 50% under current oil prices. Sounds like service cost reductions are hitting the numbers now. They also said that the oil well decline curves from shales are similar to but shallower than their gas shale well counterparts.

  62. 62
    BirdsofpreyRcool Says:

    z — hey! i don’t complain… really!

    But, cost items are either fixed or variable (duh). So, if they are variable, just have to link them up to the driver. That said, you are a MUCH better builder of models than i am. So much easier to critique someone else’s hard work… eh?

  63. 63
    kiaora Says:

    Z…re # 35…why the july call? Thought you don’t like to pay for the extra time. Is there something different about PXD?

  64. 64
    zman Says:

    It’s a guestimated and somewhat minor piece of the puzzle in this case. I ran some pricing scenarios with their hedges, keeping production flat and costs in line but varying the oil price (holding the gas price flat too as that’s not something you want to rely on to make numbers). At current oil prices down to $50 they should be cash flow positive.

  65. 65
    bill Says:

    sblk releases q1 earnings today after market closes. Est is .25 cents

    I bot some of this today as well and think it could pop 10 % to 5.75 to 6.00

    I think fair value is 7.50

  66. 66
    zman Says:

    Kiara – I started to think about rolling it when the news comes out. I have a decent position (and good sized loss at present) in the Junes and thought, “what if they say they have mechanical issues on that well or its loaded with science and going to take longer than expected?” Just trying to be a little more prudent, but still levered to a rally in the shares. You are correct that I don’t like to pay up for the time though, in general it works out to be a bad bet as they crush premium out of the smaller stock rally events.

  67. 67
    zman Says:

    OPEC story to be about compliance, not further cuts:

    This sounds about right:
    http://online.wsj.com/article/BT-CO-20090527-710265.html

  68. 68
    BirdsofpreyRcool Says:

    bill – #65… interesting idea. Thx for the heads up there. Another Omar Nokta pick….

  69. 69
    cargocult Says:

    Bill,
    I appreciate the drybulk and tanker updates!

  70. 70
    zman Says:

    Energy stocks near HOD.

  71. 71
    Dman Says:

    Although the dollar index looks technically like it is due for a correction (i.e. a rebound), the actual rebound due to nutjub nukes is pretty subdued. Looks like the initial spike was sold. This suggests to me that the “flight to safety = buy USD” reflex is fading fast. If that idea settles in, what will hold up the dollar?

  72. 72
    zman Says:

    Dman – tis a question the Chinese are asking themselves much these days. Seeing lots of talk about everything shifting to the Euro as the world’s currency, including oil. You see that talk every time the dollar falls but the chorus of voices has added volumes this time as spending in the U.S. continues to pile up.

  73. 73
    zman Says:

    CNBC saying all XOM directors re-elected, all shareholder proposals (which were targeting making the company changes its evil oily ways) failed.

  74. 74
    RMD Says:

    re : 71 and 72: the Euro is easy to measure with the FXE.
    ECA call: didn’t I hear them say the well results were directly proportional to the amount of proppant used?

  75. 75
    Dman Says:

    Even though the dollar index is up slightly, the USD is down today against the CAD & AUD. Dr Kim-Il-Evil’s stunt barely managed a blip in those two charts. So the continued strength in energy & other commodities is confirmed in currency markets.

  76. 76
    cargocult Says:

    Not to ask dumb questions, but if the Chinese don’t like US domestic spending levels and turn to the Euro, then who is going to buy the crap the Chinese are mfg. Seems to me we are in a circle of co-dependancy. No US economy, no Chinese product sales. No Chinese bond purchases, no US economy. And the Chinese certainly have more $$’s than we have so they need to keep the $ valuable.

  77. 77
    zman Says:

    A little bird just sent over a first call note on LINE from RJ, favorable opinion post secondary, target $21. The target is based on the confluence of a multiple of 6x EBITDA which they say is traditional E&P and a 12% yield. I’d say the long reserve life could easily see that valuation swing as high as 8x fwd EBITDA and under a 10% yield. But I guess that’s why that guy gets the big bucks.

  78. 78
    choices Says:

    saw a note where geithner is going to China 5/31-6/6; wonder what they will talk about or more accurately what the Chinese will say to him-heh

  79. 79
    zman Says:

    Market is like a boring yo-yo today. Going to grab some lunch.

  80. 80
    elduque Says:

    Did the board ever reach a consensus on the hydro fracing issue?

  81. 81
    Dman Says:

    cargo – #76 not a dumb question at all. The Chinese are in a bind. They don’t want to see their $$ holdings evaporate. But are they prepared to add to them (getting deeper into the bind) just to prop up the USD? Various reports suggest they are putting new money into hard commodities and other currencies. They may have faced up to the fact that the $ will fall they will take a hit. The only way I can imagine they could get around it is by buying up huge amounts of US assets (eg real estate) from US interests. So that way, the sellers accept USD as payment & there is no huge fire-sale of USD. But I haven’t seen any mention of that idea. Maybe that’s what they want to say to Tim?

  82. 82
    isleworth Says:

    http://www.dailykos.com/storyonly/2009/5/26/735496/-Let-them-drink-Coke-DeGette-leads-charge-to-protect-nations-water

    A strengthened Democratic majority in Congress and the party’s capture of the White House in last year’s election, the fracturing legislation is viewed as having its best chance at passage in years. Its House sponsor, Rep. Diana DeGette (D-CO), aims to attach a bill to a larger piece of legislation with broad support — possibly a bill on climate change or a new energy policy measure – where it would be shielded from industry resistance. On the Senate side, according to congressional staff close to the effort, Sen. Bob Casey (D-PA) has a companion bill ready to follow.

  83. 83
    BirdsofpreyRcool Says:

    POTUS on TV… celebrating the first 100 days of the “Stimulus.” Kinda weird…

  84. 84
    BirdsofpreyRcool Says:

    KOG selling down. For no reason I can see. Guess somebody thinks somebody knows something.

    KOG should be just about finishing the completion on well #3. They will provide an operational update when they complete well #4. Guesstimate that to be about 2 weeks from now.

  85. 85
    BirdsofpreyRcool Says:

    Bond Market sell-off over… bouncing up again.

    HY 80 3/8 +1/2 point

  86. 86
    kyleandy Says:

    BOP– sold a 1/3 of my KOG at 1.25 been looking for a spot to buy it back. think this is it??

  87. 87
    bill Says:

    Re:milk/oil

    Yesterday Z posted an interesting story

    http://news.yahoo.com/s/ap/20090525/ap_on_bi_ge/dairy_squeeze

    and said

    “If you replace the words “milk” with “oil” and “cow” with “drilling rig” this sounds more than a little familiar. ”

    Taking that further, the gov’t all too willing to lend a hand offers this solution to the milk glut

    ..>and a new program will pay farmers to slaughter more than 100,000 dairy cows.

    ..>they also do this do farmers and pay NOT TO grow crops

    so, will they offer oil companies money NOT to drill

    Today, we hear the govt wants us to paint our roofs white

    drive 2 seater golf carts to soccer games

    its out control and we need more than a tea party

    thats my rant for the day..

    thank you that is all

    Ps double hype post– i think sblk will beat as most of their ships are on long charters and cash is expected to grow with net debt below 50 %

    in the dry market early gains today were lost in afternoon profit taking

  88. 88
    BirdsofpreyRcool Says:

    kyleandy… brilliant!! good sale. and you’re asking ME for trading advice? trust your instincts.

    Personally, i think the stock moves to $1.75 after wells 3/4 results are released… assuming 1)they don’t screw up the completion (ha!) and/or 2) oil prices don’t collapse. There’s probably a 3 and a 4 in there somewhere too… but, those two items jump to the top of my list.

  89. 89
    bill Says:

    83

    he must think the daily briefing keeps his numbers up

    the press sure likes him.. gone are the days when sam donaldson and others would scream their questions out

  90. 90
    RMD Says:

    REOS, a $.50 number up from $.17 a few days ago, paid $5.5mm for 13,000 acres in the Eagle Ford ($423/ac.). Fairlly promotional release does not name the seller (TXCO??)but talks of 500bcfe in the 13,000 acres, 6-11 bcfe EURs, and the nearby #1-H Butaud well IPing at 17.5mmcf/d with 2,500 bcd/d.

  91. 91
    zman Says:

    RMD – will check into that well in 90.

    Eld – re fracs. Fact of the matter is you have to have them.

  92. 92
    cargocult Says:

    I remember the last time the Chinese tried to buy a US company(Union Oil). It did not go so well.
    If they buy US assets with those dollars won’t that be inflationary as well? I think they are trading some of those dollars for assets in Africa. If I were the Chinese I would be buying US intellectual capital not real estate. Knowhow is the only thing we export anymore.

  93. 93
    BirdsofpreyRcool Says:

    Stock market doesn’t like the sell-off in longer-dated treasuries. Just saw a headline that said this is the steepest-ever yield curve at 275 bps.

    That is not good for the new mortage market… nor is it good for any entity wanting to issue a lot of US Debt.

  94. 94
    zman Says:

    Eagle Ford Shale wells:

    HK’s – none that big as in 90.
    http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MzMzMzk0fENoaWxkSUQ9MzE1OTY1fFR5cGU9MQ==&t=1
    slide #13

    Given the description of the company seems like it must be an APC.

  95. 95
    kyleandy Says:

    bop -re KOG just checking to make sure there are no probs w/ #3 that u know of. if it wasn’t such a big down day would buy, but think i’ll wait.

  96. 96
    BirdsofpreyRcool Says:

    bill — i’ll watch your back on KOG… you watch mine on SBLK.

    Going into a fugly close. Lots of eco-data tomorrow morning + energy storage. Should be an interesting day.

  97. 97
    BirdsofpreyRcool Says:

    kyleandy — that’s what I am going to do to, wait… may not get my 80¢ tho. But, want to add b/f next well results released.

  98. 98
    zman Says:

    The director of research of B of A ought to flog his GMXR analyst for front running his own initiation report. Pretty obvious pump and dump there.

  99. 99
    zman Says:

    ZTRADE: PXD – Added (10) more of the July $30 Calls for $0.80 with the stock at $25.25.

  100. 100
    zman Says:

    BOP – agreed re interesting day tomorrow, lots of moving pieces. Beerthirty.

  101. 101
    zman Says:

    WRES piece likely out before the open tomorrow.

  102. 102
    zman Says:

    SWN speaking in 15 minutes at Deutsche Bank

  103. 103
    BirdsofpreyRcool Says:

    SBLK earnings a little light in the loafers. However, cash flow is pretty strong and they’ve locked in good margins and utilization for their fleet on a go-forward basis. Any chance this allows them to start paying a dividend again? There’s only 3 things to do with cash flow, pay down debt, buy assets, pay divd/buy stock. Will be interesting to hear which they are inclined to do.

  104. 104
    Dman Says:

    cargo – #92 agree it doesn’t have to be real estate. That was just an example (& within that example, I would suggest agricultural land would be the logical target). Not sure about intellectual capital – the Chinese seem to get by pretty well without paying for it, so I don’t know if they’ll decide they have to pay for it.

  105. 105
    BirdsofpreyRcool Says:

    OVERVIEW

    · Equities go out near session lows, with the SPX dn 1.9% to 893. Stocks’ declines were exacerbated after the yield on 10-year tsy broke above 3.55%. Financials were the big laggard of the day – off 3.8%; while everything sold off in the afternoon, financials saw the steepest decline (the group was slightly higher around noon). Corp Credit outperformed equities all session; even as SPX broke below 900 in the afternoon, HYCDX12 was still up 1/2pt. However, the big story of the day was outside equities as Treasuries extend their recent sell-off. Technically, equity selling ramped up as we broke below the 905 & 900 levels on SP500, though we are still within that larger 875-929 range people are watching.

    · US treasuries in focus: mortgage related selling was cited as the driving force behind the weakness. 10yr yields rise 16bp to 3.73%, 2-10 spread reaches new record wide (previous record was 274.7bps hit Aug. 13, 2003; the spread on Wed hit 275bp)…next important target for 10-year yield is 3.75% on a technical basis. On a pos note, the USD (as seen in the DXY) did not sell off and finished positive on the day.

    Treasuries – Recap on the weakness today…

    · Mortgage rates climb: Yields on Washington-based Fannie Mae’s current-coupon 30- year fixed-rate mortgage bonds climbed to 4.3 percent as of 10:25 a.m. in New York, the highest since March 10 and up from 3.94 percent on May 20; the Fed now “faces a challenge to its ability to sustain low mortgage rates,” As mortgage rates rise, the expected average lives of mortgage bonds and mortgage-servicing contacts extend as potential refinancing drops, leaving holders with portfolios of longer-than-anticipated durations….higher mortgage rates is prompting holders of the securities to sell government debt used as a hedge to protect portfolios against rising interest rates

    · More auctions to come: The Treasury will sell $26 billion in seven-year notes tomorrow, the third auction this week. Next week 3yr, 10yr and 30yr bonds will be auctioned; while the 5yr was OK today, people are more worried about longer durations (tomorrow’s 7yr, next week’s 10/30 yrs).

    · Treasuries weaken despite a decent Fed buy and 5yr auction; the NY Fed bought $6B worth of Treasuries this morning, which is 32% of amount submitted. The amount submitted fell and the “take rate” rose (although the absolute purchase size about inline). The $35B 5yr auction was strong on the surface – the auction priced @ 2.31% (vs expectation 2.33%)…..bid/cover was 2.32 vs 2.22 last time and average 2.17x. Indirect bidders, a group that includes foreign central bank, bought 44.2 percent of the amount sold, compared with 30.8 percent in the prior auction (Bloomberg).

  106. 106
    zman Says:

    SWN call comments:

    Mostly standard stuff, they still don’t know how far they will be able to downspace the play. Thinking maybe 30 acre spacing which will translate into A LOT of drilling locations.

    On sand, they are using 4 mm pounds per well, have bought their own sand mine, converting it from wet to dry status now and will be running by year end 2009. This will provide 2/3 of their sand needs going forward. They see a savings of $100 per ton or $200,000 per well.

    They have taken drilling days from 16 in 2007 (I think) down to 12.8 last year, to 11.6 in the first quarter and just drilled 2 wells in 7 and 8 days.

    They see further cost reductions via pad drilling. Time savings will be more when they drill more wells from a single pad, almost all of their pad wells so far have been 2 well pads, going to four.

  107. 107
    zman Says:

    SWN call comment 2

    If they continue to reinvest cash flow from the Fayetteville they don’t see peak production until 2018.

    They don’t see beginning to down space in a development program in the Fayetteville Shale for another 1.5 to 2 years.

  108. 108
    zman Says:

    SWN comment 3

    Realizations
    down $1.50 to $1.60 to Nymex.

    the gas that is getting to the East is getting 1 or 2 cents positive to NYMEX

    goal is to get more gas to the East (recall they have hedged basis)

    Hedges
    2009 – about 50%
    2010 – about 12%. They will up this to 50 to 70% hedged as they move towards year end.

    Sounds like they came close to locking in some 2010 $7 gas last week but didn’t and then the gas market pulled back. They think they will get another shot or two at locking in 2010 gas at that level.

  109. 109
    gaamblor Says:

    is api data tonight?

  110. 110
    BirdsofpreyRcool Says:

    API

    Crude oil -2821k

    Gasoline -758k

    Distillate +1420k

  111. 111
    zman Says:

    Jat – do you have imports and utilization? Thanks.

    Those numbers are directionally in line with the current estimates for EIA tomorrow.

  112. 112
    BirdsofpreyRcool Says:

    My my… looks like Byron Wein is going to have to find a new work address. Seems the SEC is going to shut down Pequot Capital for insider trading.

  113. 113
    tater Says:

    HK chart note. 60 min view is giving a cautionary signal on the RSI indicator. Not really a big deal, but I think it is worth looking at and storing in the back of your mind if you are trading it.

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

    Idea behind the RSI indicator is that it measures price momentum. It is a counter-intuitive signal in that a “sell” signal comes when there is “too much” momentum in a given time frame.
    I wouldn’t bet my mom’s retirement on the signal, but I would be sure to have one finger ready on the sell button if I were long a short term trade. Signal measures to a price around 22.50 which would be a move back to test the lower green channel line.

  114. 114
    zman Says:

    Thanks much Tater.

  115. 115
    PackMan Says:

    POTUS on TV. His celebrity ego demands that he get on TV and speak sweet nothings to adoring crowds. Beats working for a living.

    Chinese $$ — can’t they hedge their dollar holdings ?… CDS, options, futures, something.

    Zman – PXD … do you still have all those $30 calls for June ? I have had better luck trading the $25’s and also buying the stock on dips into the low $25’s and lower; and selling at 26 +.

    Uses more capital yes; but its worked better than the options play (this time at least).

  116. 116
    PackMan Says:

    Energy Secy Chu — Paint Your Roof White ?

    Seems like a Jimmy Carter type moment.

  117. 117
    zman Says:

    Pack – yep, got all of them still.

  118. 118
    PackMan Says:

    BTW Z – thx for the PXD idea.

  119. 119
    zman Says:

    WRES post up.

  120. 120
    Wyoming Says:

    http://tinyurl.com/ptpal6

    On the litigation theme of frac fluids of the future.

    “Opportunistic Trial Lawyers”

  121. 121
    zman Says:

    Gary – yes they have. They mostly stick to talking about wells in the Parshal field. They consider themselves to be the ones who found the Bakken and think they have a 2 year head start on the competition in terms of getting the science right for optimal completions. I think that’s a stretch but they are routinely drilling the best wells in the middle Bakken, and have in the last 6 months changed their tune on the prospectivity (for the better) of the three forks sanish. They had shut in some production and slowed drilling due to prices. In the meantime, they’ve structured a rail deal to get their transporation expense back under control (trucking that much oil to Cushing is pricey and reached the mid $20 per barrel range late last year). It and the Barnett Combo (the oil part) are what is driving them further away from a gassy big cap e&p to a balanced big cap e&p. They should get to about 50/50 in 3 years which is pretty amazing if you have followed them since they were part of Enron when only gas mattered.

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