Monday Morning And All Is Less Enthusiastic …

Posted on by zman

Sentiment Watch: 

  • Market Seems Due A Pause. Market seems to want to edge higher but is running out of earnings steam necessary for that to happen. After the run the broad markets have had in the last two weeks I would not be surprised to see a 5 to 10% pause/rest/correction. Such a retrenchment would no doubt bring a halt to the recent rally in crude as well unless the dollar just falls out of bed (which looks possible at this point). Click here to see the wrap table which shows just how good last week was.
  • Not A Big Week For Earnings In Names I Care About. Energy earnings are clustered towards the later half of the week with earnings from (XOM) on Thursday and while they're not generally something I play (at least not often), a hit or miss there will likely sway the energy group in the short term (could be hours, could be days and a miss would hurt the independent refiners more than the domestic E&Ps). Otherwise, there are only a few names reporting that I care directly about this week (OII, WLL, FSLR, and SWN) and I have included a section below with the weekly calendar of what I'll be watching and why this week. The week after this one is one things get busy with E&P.
  • Raising More Cash. Since I think we are on borrowed time in the near term I plan on continuing to raise cash levels into strength early this week with the occasional opportunistic trade thrown in before the busier part of earnings season begins. 


 

 

The Week Ahead:

  • Monday 7/27: New Home Sales (358,000 expected)
  • Tuesday 7/28: Home Prices, Consumer Confidence (47.9 to 51 expected)
  • Wednesday 7/29:  EIA Oil Inventory Report, durable goods (-0.5 to 0.5% expected)
  • Thursday 7/30: EIA Natural Storage Report, jobless claims (expected 580,000)
  • Friday 7/31: EIA natural gas supply, 2Q GDP (expected -1.2), Chicago PMI

In Today's Post:

  1. Holdings Watch
  2. Commodity  Watch
  3. Earnings Calendar with a few thoughts on why those names are on the list this week.
  4. Odds & Ends

Holdings Watch: 

 

Commodity  Watch:

Crude oil rose 5% last week to close at $68.05. Most of the cries calling for a return to $50 crude (much less $30 or $20) have gone silent. No doubt, when these guys are yet again emboldened by a chart that looks week they will resurface on the bear side yet again. Kudos to Nicky for her recent calls in the oil price patch. Teh 12 month strip has moved up to $73.75. This morning crude is trading up just slightly after an overnight run to $69.

  • Dollar Watch: The dollar index is below 78.50 this morning and looks likely to test recent lows and potential break below support which could set up a move towards 73.
  • Nigeria Watch: Still in cease fire mode. No word yet on government - rebel talks. Violence in the northern part of the country (different set of militants) appears to be spreading.

Natural gas was essentially unchanged last week closing up 3 cents at $3.70. The 12 month strip is now trading at $5.12. This morning gas is trading down about a dime on profit taking, the mild weather in the nation's mid section, and lack of any signs of tropical action yet.

  • Weather Watch: Cool last week, turning much warmer this week. Cooling Degree Days (CDDs) compared to gas storage injections:

    • Week Before Last (week of 7/18): 70 CDDS which was just below normal and produced an injection of 66 Bcf.
    • Last Week (week of 7/25): 64 CDDs vs a forecast of 73 CDDs and much cooler than normal and last year's reading. The week ended July 4th saw a 64 CDD reading and the accompanying injection to gas storage was 75 Bcf.
    • This Week's Forecast (week ended 8/1): 82 CDDs which would be a season high, above normal and in line with last year's heat. Importantly, the heat is clustered on the East and West coasts with normal (still hot) temps in the nation's mid section. If we come in this warm look an injection below 50 a week from Thursday.
  • Tropics Watch: Zip, nada, nothing brewing
  • Rig Count Watch: (as of Friday)

    • Oil up 13 to 257 vs 393 YoY

    • Gas up 10 to 675 vs 1,555 YoY

    • Horizontal up 9 to 408 vs 587 YoY

    • Canada up 28 (getting back the 20 it shrank last week plus some) to 180 vs 435 YoY

    • In the U.S. 11 of the rig adds came from Louisiana.

Earnings Calendar


Most of the names listed above I am not playing this earnings season but they are of macro picture interest.

  • ANR - more fleshing out of the current state of coal
  • BWP - Boardwalk pipeline completion schedule affecting the price realizations from the Fayetteville Shale - timeline here will be meaningful for the likes of SWN, CHK, HK, PQ
  • STR - Data points from the Bakken, Granite Wash (where NFX had the monster wells last week), and Haynesville Shale.
  • VLO - first of the refiners to report, followed by TSO, important stuff to consider as I continue to shy away from owning or shorting the independent refining group.
  • COP - first U.S. Major to report
  • GNK - drybulk color
  • OII - This one I'm interested in for itself
  • FMC - same and color on the health of deepwater activity
  • WLL - Bakken player, interested for it and more color on activity, pricing in the Williston Basin
  • APA - first of the Big 6 E&P names to report
  • CRR - interesting in the name, leaning towards the put side here but will wait for the numbers and the call before deciding to dip a toe or not here.
  • XOM - probably won't listen to the call but will peruse the press release for tidbits
  • FSLR - interested in it for its own sake and in the health of the solar market with may be just starting to brighten
  • SWN - interested in SWN for SWN's sake alone.

 

Odds & Ends

Analyst Watch:

  • (ESV) and (RDC) upgraded to Outperform and Market Perform respectively at FBR.
  • (COG) cut to Perform at Oppenheimer.
  • (WLT) target raised from $50 to $59 at FBR. 

Interesting Article Watch:

 

82 thoughts on “Monday Morning And All Is Less Enthusiastic …”

  1. Analyst Watch:

    NFX – credit suisse takes target from $30 to $44, maintains neutral … way to be asleep at the wheel but look as if you are working.

  2. Z – do you expect BWP comments on that fayetteville lateral in the conf. call? I read their earnings release and there was nothing in there. Surely someone will ask that question in the Q&A?

  3. PXP DOWN OVER $4 PRE MKT- California State Assembly failed to approve legislation authorizing a path forward for T-Ridge project

  4. pxp- disappointing as enviromental groups backed it, the governator backed it, and the state needs money

    shows moonbats still rule and no federal govt leadership on energy policy

  6. BWP- from the release “The higher revenues for the second quarter and six months ended June 30, 2009, were driven by transportation revenues from the expansion projects and higher storage and parking and lending revenues. However, transportation revenues, excluding fuel, from expansion projects were approximately $58 million lower than anticipated for the quarter and $70 million lower than anticipated for the six months ended June 30, 2009 (based on projected demand charges under firm contracts) due to operating those pipelines at reduced pressures and temporary shut downs relating to the discovery and remediation of anomalies in certain joints of pipe.

  7. 1520 – yes, had a little trouble getting on the call, may have missed it.

    Bill – could be buying op.

  8. Good morning. Credit markets are almost to the point where we don’t have to talk about them anymore… at all. Unless, it’s low nat gas prices and bank redeterminations… even then, it will be easier for the highly-leveraged kids to term out their bank debt in the fixed debt mrkt.

    TechTrader has it a 55/45 long day.

    HeadTrader thinks we are due for a pull-back and says it feels like a short-day to him.

    bill — the federal govt does have an energy policy… it just doesn’t include hydrocarbons.

  9. From the Interesting Article Watch item #1:

    “The Chinese are likely to hear a repeat of the assurances Geithner gave them when he visited China last month.”

    Strangely, the article neglects to mention the audience reaction to Geithner’s “assurances” last month in China: they laughed.

  11. BWP – not speculating on when extension pipelines will be at 80%. They are at 72% as of Aug. 1. Sounds like 80% sometime in 3q or 4Q, little behind plan but its been behind plan for awhile now so that should not be a surprise for SWN and other Fayetteville players.

  14. bill — maybe we should just install an Obama-Cam… all Obama, all the time!

    Oops… back to business…

  15. Everyone holding breath for new home sales on the hour. BWP call probably won’t yield much more data.

    ANR results not wowing the crowd.

  17. For those keeping track…

    IG 116

    HY 88 1/2

    Nothing to see here… train wreck largely cleaned up now. TED spread back to around 30 basis points… can you believe this benchmark almost touched 500 bps less than a year ago (Oct 2008)?? We haven’t seen TED this tight since Spring 2007… just before the world almost blew up.

  18. FSLR – does anyone see a broker comment there or news item this morning. Stock has had a big bounce with earnings late this week I am now less likely to go long or if I do, it will be a very small position going into earnings.

  19. 17 – pretty amazing. Did you catch Ben’s comments over the weekend about holding his nose through the bailouts. Have to wonder what the value of him saying that is at this time.

  20. z — I would have prefered Ben to explain that he did it to keep the generator going… banks are like utilities, if we had let the go “boom,” it would have been “lights out” for all of us. THAT was the reason. You can’t apply that same reasoning to GM and C, tho… that was pure political payback to the Unions. But, i digress.

    I saw part of his testimony. I have very mixed feelings about Ben. He finally “got it.” But, not until we had been thrust to the knife edge of the abyss. If he had “got it” just a couple of months earlier, our country would be on a very different path. So, late is better than never… but… and it’s not like people weren’t telling him… this is not the kind of hindsite that people in Congress employ. But, I digress again…

  21. PVA was on the tape with an ops update this morning, not very interesting, did note they look like they were a minority interest in two NFX’s granite wash wells.

  24. Wondering if the dimmed prospects off California’s coast means better differentials to WTI for onshore production. WRES coming back to life, BRY moving as well.

  26. HT sticking to his call that the “mrkt comes back in.” So, agreeing with your “tired” comment.

  28. #27 seems like there is still money coming off the bench… so, wouldn’t be surprised to see one more leg up. HT’s calls look about 3 to 6 hrs ahead. That’s it. So, he was just saying the the new home sale rally wouldn’t hold.

  29. Couple interesting things in the Obama speech:

    1) Obama urging savings in US
    2) Urging exports of US to China (will require currency re-valuation)

    I think it’s a done deal that Bernanke is toast and Summers is in.

    Wyoming et al – I got asked this weekend if I wanted to purchase an interest in a frac sand mine. It belongs to the father of a friend and he’s been in business for a while but is getting old and wants to get out.

    What should I be asking in terms of specs in order to determine what the sand is good for?

  31. VTZ – kind of a mixed message from U.S. to China.
    1) We want you to buy more of our products,
    2) we like a strong dollar, and
    3) we want to tax your products here for carbon released in their manufacture there.
    Hmmmm.

  32. KOG — no published comments that I can see. There was a pre-mrkt imbalance to buy 52k shares this morning. Other than that, KOG announced their next earnings release after mrkt close on Thurs, Aug 6th. Conf call the next morning.

    Wonder if they will have the IP results from well #5 by Aug 7th… they might.

  33. Bill – saw an analyst comment on PXP saying Tranquillon Ridge was not in their model (and it should not be in anyone’s until passed because counting on legislation is riskier than exploration these days), said the stock might get dropped on a fast money exit which looks like what we have with a 10% down day. They didn’t change their rating and I could see some folks upgrading the name in a few days when the dust settles.

  34. Watching the NFX pretty closely now as it fell below $40 on profit taking. I should probably sell and reposition later.

  37. One more pressuring factor for heating oil this Fall. Saudi is shifting to burning crude for generation from burning imported fuel oil. Normally, fuel oil is cheap enough to make it better for them to import and consume in their power plants but now the spread is relatively tight AND since they don’t want to flood the market with crude, this allows them to produce from their news fields without violating their quota (by consuming the oil internally). Estimates range from 300 to 480,000 bopd that doesn’t hit the market but this also means that that much fuel oil is available to the world markets as we approach winter stocking time.

  39. z — there might be. Just starting to nose around… know some very savvy energy people who have bought some Sept 2.50 calls. So, worth drilling down a bit, I think.

  41. COG: OPCO bearish saying price discounts production growth and rising nat gas prices, while valuation too high for takeover potential. They think earnings and cash flow decline in ’10.

  43. #40 – 200b is the total for us govt debt sales this week. Most are on the short end of the curve. There are some long term tips today i think and the some 7 years later this week. A new record for one week i think.

  44. BOP – got any reasoning on the DPTR, a starting point. I see cali oil and a trucking operation in the Williston. Not a lot of CFPS this year or next.

  45. Thanks 1520. So far those have gone pretty well. China could send Hillary a message with those at their meeting I suppose.

  46. #40-43 – i think the theory on the debt sale this week is that it should go well because the short end of the curve is where the foreign demand is. any hint that this isn’t the case could be problematic. thoughts from the gov’t desk BOP?

  48. 1520 — thx for asking. Will pass along any comments I think are helpful.

    Gots to run out for a hr or two… keep it dull, while i’m gone, k?

  49. If the treasury is going to have an auction week not go well – my money is on this week.

    Late July, equities rallying, current administration flailing on a variety of fronts, China on the front burner, record supply, firm belief by the current administration that they can continue to dump supply on the market forever…

  50. RMD – COG = smart guys but I can’t get excited about that story right now either.

    Dr – I think that one is a potential takeout when the markets settle. Lots of deepwater asset value there.

  51. Santelli says today’s auction saw good demand, and the Treasury added $30 B to tomorrow’s action bringing the week’s total to $230 B.

  52. I went to the local HD yesterday. More workers than shoppers.

    What recovery?

    Anybody have a rebut to above?

  53. So that’s two pieces of data that were good (housing and the auction) and the market can’t get out of its own way.

  55. 1520 – my thoughts exactly. When do you sell shares in your company, lots of them? When they aren’t going any higher anytime soon. Why the rush? How about the window is open now but for how long? Maybe I’m a cynic.

    Have CNBC on in the background. They’re actually joking about how they are all shouting at the same time and you can’t here anything. Um, I guess their amusement is supposed to be useful but it happens everyday with Kudlow and Francis and that crew. Switching back to spongebob.

  57. #56 – exactly. There is a limit out there to how much supply the market will take down. It is theoretical and no one really knows where that limit is but i think we are headed out there to see exactly where it is.

    I don’t watch or listen to CNBC. i listen to bloomberg in the early morning – “bloomberg survelliance” has the best guests, hosts, and general tone i think. No shouting and almost no interviews with guys in the pit that are clearly pumping their own position. No sound effects either. they are on satellite radio and have good podcasts too.

  58. atpg

    vendors are taking payments in royalty payments

    Seems like they have unhedged exposure to oil

    lots of debt, lots of shorts , lots of potential

    —————————————

    As stated in Diamond Offshore’s rig status update:
    Revised Ocean Victory Contract
    On 22 May 2009 the Company entered into a drilling contract amendment with ATP Oil & Gas with
    respect to the Ocean Victory in the Gulf of Mexico. This contract was amended to provide that for a
    minimum of the first 240 days of the initial one‐year period, the dayrate will be $560,000, $75,000 of
    which will be paid in cash. The remaining dayrate of $485,000 will be payable from the proceeds of a
    net profits interest granted pursuant to the operator’s conveyance of an overriding royalty interest in
    certain leases on which six contract development wells are expected to be drilled.
    Payment of the proceeds pursuant to the overriding royalty interest is currently estimated to require
    approximately one year after production on such wells begins. Such production is currently expected
    to begin in late 2009 or early 2010. Payment of the remaining amounts, and the timing of such
    payments, are contingent upon such production and upon commodity sale prices.
    Remaining days under the initial one‐year contract period will be deferred until approximately the
    fourth quarter of 2011, when the contract provides that the rig will be utilized by the operator at a
    dayrate of $540,000 payable in cash.
    The appropriate accounting treatment for the deferrals is currently being determined

  59. ZTRADE:

    NFX – sold the (20) August $40 Calls (NFXHH) for $1.85, up 67% since entry last week. Still holding the $35s. Market is very indecisive and in my book, the near term easy money was made here last week. Name is still cheap and I’m likely to reposition on a pullback.

  60. DPTR: a friend who has folowed co. for a while says a well they are drilling (or will soon) is the all-or-none well for them; if it does not find something (and prove up an area, I suppose), the co. goes under, in his opinion.

  61. Z,

    We don’t give investment advice on this blog…

    But for you, look at the sand as far as the API Spec (10 I think). What is the crush rating, is there data on how it stacks up to other sands re conductivity. There is a proppant consortium which evaluates this, mainly ceramics and such. Next would be operations and the throughput and I believe there will some reserve life.

    My best example would be Brady (Texas Brown) vs. Ottowa (Northern White). Sand is not sand and the white gets a premium price (superior crush resistance), matter of fact some engineers will not pump the brown.

    Just my off the cuff thoughts.

  62. Thanks RMD and Wyo.

    Would like to see the market get hit in the knees soon as I’d like to enter SWN and FSLR lower for Friday.

  63. ZTRADE:

    NFX – sold the remaining NFX $35 August calls (NFXHG), for $5.40, up 148%. I will reposition on a group wide pullback. Cash in the $10KP is now about 70% of total.

  66. re 66 – yep, they preannounced. I don’t think they have had a lot of interest in their Aruba facility at prices they like. Outlook can’t be great but maybe they can spin. I’m listening to that one, not playing.

    I do think the STR call will be interesting tomorrow, not one of my usual haunts but will be watching more closely, not excessively priced, at least 4 noteworthy plays there.

  67. ZTRADE:

    SWN – Added (10) SWN $45 August Calls (TKQHI) for $0.90. I am starting to build a position for earnings Thursday afternoon/Friday CC.

  68. ZTRADE:

    OII – Added (10) OII $50 Calls (OIIHJ) for $1.55 on the mid with the stock at $48.25. Earnings come out Wednesday night for a Thursday morning call and I may add another set or two of these before then. I play these guys this time of year as an earnings and a hurricane play.

  69. ZTRADE:

    FSLR – Added (1) FSLR $180 August Call (HJQIP) for $13.30 on the mid with the stock at $172. I’m looking for continued improvements on the cost per watt metric (already industries lowest in thin film) as well as a more upbeat tone about the U.S. solar market and more details about the French market detail penned last week.

  72. VTZ – yep, going to be some games played there this week with the Chinese. Probably a lot of talk to prop it up, maybe it gets a sentiment based, if hollow, rally.

  74. Thanks for pointing out K, I get in the habit of typing the front month. I took a September there to give me a little bit of a break in case they unexpectedly flub the quarter or guide conservatively as the stock moves in big swings on earnings like GOOG.

  75. NFX back to green which is pretty impressive after the morning of profit taking it has had and amidst a directionless group and broad market. Especially after the run it has had. That speaks volumes about how the Street feels about the name now vs before earnings. I have no problem leaving a little on the table to lock in gains from last week’s run but I will also reposition in the name, higher if necessary and not let it run away. Not going to do it today but probably will later this week or next.

  76. Not sure if this adds anything to the discussion but anyway, FWIW.

    Z has been all over this points in the past so probably nothing new to the board-just another negative take on nat gas because of over-supply.

  79. VTZ:

    I am a member of the proppant consortium and can run all the conductivity models you need. Let me know if you need help.

  80. Thanks TEX. I’ll see what info I can get and get back to you. Much appreciated. It seems like a good opportunity so I’d like to look into it properly.

  81. VTZ,

    My mistake yesterday (got caught skimming), I thought it was Z asking about the proppant. The Advice comment was a joke to Z as it was a common disclaimer from him in the early days. As I assume now that the mine is in Canada it would hopefully be a white and a higher grade than expected. Good luck in your opportunity.

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